MAHATMA GANDHI SAHAKRA SAKKARE KARKHANE versus NATIONAL HEAVY ENGG. COOP. LTD. AND ANR.

Citation: [2007] 8 S.C.R. 274 · Decided: 11-07-2007 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
MAHATMA GANDHI SAHAKRA SAKKARE KARKHANE 
B 
v 
NATIONAL HEAVY ENGG. COOP. LID. AND ANR. 
JULY 11. 2007 
[TRAUN CHATTERJEE AND B. SUDERSHAN REDDY, JJ.] 
Bank guarantee-Stipulating that (i) guarantor undertook to pay the 
specified amount without demur: (ii) it was not open to guarantor to know 
C reasons or investigate or to go into merits of demands or question or challenge 
demand or to know any facts affecting demand: (iii) purchasers had sole 
discretion as to whether amount of bank guarantee had become recoverable 
or sellers breached terms and conditions of agreement: (iv) right to recover 
from guarantor was not to be suspended due to any dispute between seller 
and purchaser-Deed of guarantee also making a reference to principal 
D agreement between the parties-Injunction to prevent invocation of the 
guarantee-Held, the sellers were entitled to the injunctiolr-Graund that 
there was a dispute with the purchaser could not be allowed as that would 
make clause to that effect in bank guarantee meaningless-Mere fact that the 
guarantee referred to principal agreement without referring to any sp(!cijic 
E clause in preamble of deed of guarantee did not make the guarantee a 
conditional one-As the guarantee was unconditional and irrevocable. it 
was not open to bank to raise any objection whatsoever to pay amounts 
thereunder-It was more so as no factual foundation had been laid in 
pleadings regarding allegatirn of fraud and how irreparable loss would be 
caused in case the guarantee was cncashed. 
F 
Appellant invited tenders for expanding capacity of their sugar factory. 
They accepted offer of the respondent undertaking to design. procure 
manufacture, supply transport and deliver at the site and to do the supervision 
of erection and commissioning of the Sugar Plant and Machinery in 
G conformity with the agreed specifications. In terms of the agreement between 
them, the respondent furnished a bank guarantee and appellant on its part 
released an amount of money to them. Clause I of the bank guarantee stated 
that the Guarantor undertook to pay to the appellant within 30 days of demand, 
without demur a sum not exceeding 3% of the contract price as the Appellant 
may demand upon the failure of the supplier to conduct the trial test of the 
H 
274 
M"8ATM" GA."-DHI SAHAKA...\ S~ARE KARAH"~E 1· ~ATIO'Al HE"\'Y ~GG CO-OP.LID 
275 
.,.._ 
sugar plant by the specified date and also upon the failure of the responde'1t A 
to commission the Plant and Machinery before the specified date. Clause 2 
thereof stated that the (i) Guarantor would pay to the appellant on demand the 
sum without demur and without requiring the appellant to invoke any legal 
remedy that may be available to them, it being understood (ii) the appellant 
shall be the sole judge of and as to whether the amount of bank guarantee B 
has become reconrable from the respondent or whether the respondent have 
.., 
committed any breach(es) of the terms and conditions of the agreement between 
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them and the extent of losses, damages, costs, charges and expenses caused 
to or suffered by or that may be caused to or suffered by purchasers from 
titne to time shall be final and binding to the Guarantor (iii) the right of the 
appellant to recover from the guarantor any amount due to the appellant under c 
this guarantee shall not be affected or suspended by reasons of the fact that 
any dispute or disputes have been raised by the respondent with regard to 
their liability or that proceedings are pending before any tribunal 
Arbitrator(s) or court with regard thereto or in connection therewith (iv) the 
guarantor shall immediately pay the aforesaid guaranteed amount to the D 
·• 
appellant on demand and it shall not be open to the Guarantor to know the 
~ 
reasons of or to investigate or to go into the merits of the demands or to 
question or challenge the demand or to know any facts affecting the demand, 
(v) it was not open to the guarantor to require the proof of the liability of the 
respondent to pay the amount, before paying the sum demanded under clause 
1 above (vi) the invocation of the guarantee shall be by a letter signed by the E 
appellant and countersigned by the Commissioner of Sugar. 
It is the case of the appellant that the trial crushing did not start on the 
stipulated date and when commenced subsequently, had to be stopped due to 
defects in the turbo alternator. Therefore, they wrote to the respondent 
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regarding non-supply, def

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