SVENSKA HANDELSBANKEN versus MIS INDIAN CHARGE CHROME AND ORS.

Citation: [1993] SUPP. 3 S.C.R. 323 · Decided: 15-10-1993 · Supreme Court of India · Bench: J.S. VERMA, YOGESHWAR DAYAL, B.P. JEEVAN REDDY · Disposal: Appeal(s) allowed

Judgment (excerpt)

SVENSKA HANDELSBANKEN 
v. 
MIS INDIAN CHARGE CHROME AND ORS. 
OCTOBER 15, 1993 
(J.S. VERMA, YOGESHWAR DAYAL AND 
B.P. JEEVAN REDDY, JJ.) 
Civil Procedure Code, 1908-0rder 39, Rule I-Bank Guarantee-In-
junction against encashment of-Principles of-Proof of prima f acie case of 
fraud and i"etrievable injury. 
Civil Procedure Code, 190~Section 96-Appeal -Duty of Appellate 
Court. 
A 
B 
c 
Sale of Goods Act, 1930-Sections 12(3), 59-Breach of wa"an-
ty-Right to claim for damages. 
D 
Evidence Act, 1872-Section 92-Written contract-Court deba"ed 
from looking into oral evidenc~ceptions. 
In 1982, defendant No. 13, a company, issued a global tender for 
setting up a captive power plant, viz, a coal-fired steam power plant. The E 
tender indicated that credit by the supplier will be preferred. Defendants 
1 to 3, the suppliers submitted their tenders. They approached defendant 
No. 4, one of the lenders to finance the project. Enquires were made to find 
out the possibilities for financial assistance by the Swedish Government 
in the form of interest at subsidised rates. Since 85% of the foreign F 
exchange portion of the total price of the project was to be financed, 
discussions were held between the borrower and defendant No. 4 for 
finalising the terms an conditions of the loans and between the borrower 
and the suppliers regard to the terms and conditions of the loans so as to 
ensure that the credit agreements would be in accordance with the Swedish G 
law and regulations for subsidised export credit facilities. Subsequently · 
contracts were entered into between the borrower, plaintiff and the sup-
pliers for setting up the power plant and for supplying the machinery and 
other equipments for the plant to the borrower. 
Defendant No. 4 formed a consortium of banks i.e. defendants 5 to H 
323 
.. 
324 
SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R. 
A 
11, Swedish Banks for financing the project. These lenders entered into 
credit agreements with the borrower. The credit agreements were entered 
into by defendant No. 4 for itself and on behalf of defendants 5 to 11 under 
which the lenders agreed to lend 85% of the foreign exchange portion of 
the cost of the project to the borrower by way of certain credit facilities. 
B 
c 
All c~edit agreements inter alia purported to provide payments by the 
lenders to the suppliers on various documents, as provided in the credit 
agreements being presented to the lenders and also against a notice of 
drawdown by the borrower. The loans were required to be repaid by equal 
semi-annual consecutive instalments. Repayments were required by the 
borrower to be made without demand or notice. It was specifically provided 
in the credit agreements that the liability of the borrower to effect any 
payment under the Agreement was unconditional and not dependent upon 
the performance of the contracts between the borrower and the supplier. 
The credit agreements also provided that the borrower shall furnish 
guarantees in favour of the lenders as security of the loans covering 100% 
D of each of the loans plus if!-terest, costs and fees payable under the credit 
agreements. The agreements also contained an arbitration clause. The 
lenders were, as a matter of law and express agreement, in no way con-
nected or related to or dependent upon the contracts entered into between 
the borrower and the suppliers. At the instance of defendant No. 4, 
E 
F 
G 
Industrial Development Bank of India, defendant No. 12 provided the bank 
guarantee for the payments to be made by lenders to the suppliers. In 
order to ensure that the guarantor would be liable in all circumstances in 
. the event of the borrower failing to carry out its obligations, .the lenders 
insisted that the guarantees very clearly made express provision to ·be 
unconditional which were insulated from any possible dispute between the 
borrower and the suppliers and even the borrower and the lenders. 
In the year 1989 the plaintiff took over the plant and issued a taking 
over certificate. Defendant No. 4, lender was to disburse the balance 5% of 
the payment to defendants 1 and 2. the plaintiff authorised defendant No. 
4 to disburse the balance 5% of the payment to defendant No.3 as well. 
Amounts ~.ue to the suppliers were paid by the lenders on instruction from 
the borrower, plain~iff and the suppliers had been paid in full by the 
lenders. After the issuance of the take over certificate by the plaintiff, three 
instalments of payments

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