U.P. CO-OPERATIVE FEDERATION LTD. versus SINGH CONSULTANTS & ENGINEERS (P) LTD.

Citation: [1988] 1 S.C.R. 1124 · Decided: 19-11-1987 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
U.P. CO-OPERATIVE FEDERATION LTD. 
v. 
SINGH CONSULTANTS & ENGINEERS (P) LTD. 
NOVEMBER 19, 1987 
[SABYASACHI MUKHARJI AND K. JAGANNATHA 
SHETTY, JJ.] 
Performance of contract-guaranteed performance in accordance 
._
with time schedule prescribed-Failure to perform obligation within time 
stipulated-Effect of-Bank guarantee-Right to invoke-To injunc-
c 
tion against. 
/~~~ 
The appellant, a State Government enterprise, on or about May 
17, 1983, entered into a contract with the respondent, a pritate limited 
company, for the supply and installation of a vanaspati manufacturing 
plant at a place in the district of Nainital. The contract bond contemp-
D lated guaranteed performance of the work at various stages in accord-
ance with the time schedule prescribed and provided for completion 
and commissionin~ of the plant after trial run by May 15, 1984. Accord-
ing to the appellant, the time was essentially and indisputably the ess-
ence of.the contract. 
E 
As per the terms and conditions of the contract bond, according to 
the appellant, the respondent was to furnish a performance bank 
guarantee for Rs.16.5 lakhs and yet another bank guarantee for Rs.33 
lakhs as security for the monies advanced by the appellant to the 
respondent for undertaking the work. Both these guarantees as also the 
contract bond entitled the appellant to invoke them and call for their 
F realisation and encashment on the failure of the respondent to perform 
the obligations for which the appellant was made the sole judge. 
It was alleged that the respondent defaulted at various stages and 
finally failed to complete the work within the stipulated time. The 
appellant invoked the two guarantees one after the other, and thereaf-
G ter proceeded to have the plant completed, etc. According to the appel-
lant, the plant could actually be commissioned for commercial produc· 
tion inJuly/August, 1985. 
The respondent, on August 4, 1986, filed an application under 
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··--'\ 
section 41 of the Arbitration Act, 1940 (The Act) in the court of the Civil 
' 
H Judge, praying for an injunction restraining the appellant from realis· 
1124 
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U.P. CO-OPT. FEDERATION v. SINGH CONSULTANTS 
1U5 
ing and encashing the bank guarantees. The Civil Judge dismissed the A 
application. The respondent filed a revision petition before the High 
Court, which allowed the same, holding that the invocation of the 
performance guarantees was illegal, and the contentions of the appel-
lant that the performance guarantees constituted independent and sepa-
rate contracts between the guarantor bank and the beneficiary and 
created independent rights, liabilities and obligations under the B 
guarantee bonds themselves, as being "technical pleas". The High 
Court, however, directed the respondent to keep alive the bank 
guarantee during the pendency of the arbitration proceedings. The 
appellant then moved this Court for relief by special leave. 
Allowing the appeal, The Court, 
HELD: Per Sabyasachi Mukharji, J. 
Under the terms agreed to between the parties, there is no scope 
of injunction. The High Court procee(ied on the basis that this was not 
c 
an injunction sought against the bank but against the appellant. But the D 
net effect of the injunction is to restrain the bank from performing the 
bank guarantee. That cannot be done. One cannot do indirectly what 
one is not free to do directly. The respondent was not to suffer any 
injustice which was irretrievable. The reseondent can sue the appellant 
for damages. There cannot be any basis in the case for apprehension 
that .irretrievable damage would be caused, if any. His Lordship was of E · 
the opinion that this was not a case in which injunction should be 
granted. An irrevocable commitment either in the form of confirmed 
bank guarantee or irrevocable letter of credit cannot be interfered with 
except if a case of fraud or a case of a question of apprehension of 
irretrievable injustice has been made out. This is the well-settled princi-
ple of the law in England. This is also the well-settled principle of law in F 
India. No fraud and no question of irretrievable injustice was involved 
in the case. [1138C-F] 
In order to restrain the.operation either of irrevocable letter of 
credit or of confirmed letter of credit or of bank guarantee, there 
should be a serious dispute and a good prima facie case of fraud and G 
special equities in the form of preventing irretrievable injustice between 
the parties; otherwise

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