Pollen Dealcom Pvt. Ltd. Vs Chamber Fertilizers and Chemicals Ltd.

SCC Online Web Edition, © 2022 EBC Publishing Pvt. Ltd.
Page 1 Thursday, March 03, 2022

Printed For: A B C, CHRIST (Deemed University)
SCC Online Web Edition: http://www.scconline.com
© 2022 EBC Publishing Pvt.Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
A.P.O.T. No. 454 of 2009 G.A. No. 3154 of 2009 C.S. No. 332 of 2009
Pollen Dealcom Private Limited v. Chambal Fertilisers and Chemicals Ltd.
2010 SCC OnLine Cal 503 : (2010) 2 CHN 85 (DB) : (2010) 92 AIC 695 : (2010)
4 ICC 158 (Cal) (DB) : AIR 2010 Cal 112 : (2010) 2 Cal LT 1 : (2010) 3 BC 334
(BEFORE MOHIT S. SHAH, C.J. AND BHASKAR BHATTACHARYA, J.)
M/s. Pollen Dealcom Private Limited & Anr.

Versus
Chambal Fertilisers and Chemicals Ltd. Ors.
For the Appellants/Petitioners: Mr. Abhrojit Mitra, Mr. S. Mukherjee, Mr. R. Upadhya,
Mr. Santanu Chatterjee.
For the Respondent No. 1: Mr. Jayanta Mitra, Mr. Utpal Bose, Mr. D. N. Sharma.
For the Respondent No. 2: Mr. Sankar Singh, Mr. U.K. Singh.
A.P.O.T. No. 454 of 2009 G.A. No. 3154 of 2009 C.S. No. 332 of 2009
Decided on March 1, 2010
Debt, Financial and Monetary Laws — Banks — Banker and Customer — Bank Guarantee
— Invocation of — Injunction against — When permissible — Held, when an unconditional
bank guarantee has been given, the Court is not to stand in the way, except in case of fraud
or in case of apprehension of irretrievable injustice having been made out — In the instant
case, the guarantee given by the bank-respondent No. 2 was unconditional, and no right
was reserved with the bank to dishonour the same if invoked by lessee-respondent No. 1
within the period mentioned — Thus, there was no scope of investigation at the instance of
the bank to verify the veracity of the claim of the lessee in the letter of invocation before
payment of the guaranteed amount to such person — Further, the allegation of the
appellant that Respondent 1 had committed fraud as he never intended to perform his part
of the agreement i.e. to take the premises of appellant on lease at the agreed terms, was
insufficient to resist a valid invocation of bank guarantee — Furthermore, the question of
irretrievable injustice did not arise since the appellant had already made a claim for
damages, and the money sought to be realized by Respondent 1, vide invocation of the
bank guarantee, had been supplied by Respondent 1 itself — Thus, order of Single Judge,
dismissing the application for injunction, upheld — Civil Procedure Code, 1908, Or. 39 R. 1
and 2
(Paras 23, 24 and 29)
U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174;
Reliance Salt Ltd. v. Cosmos Enterprises, (2006) 13 SCC 599, relied on
The Judgment of the Court was delivered by
BHASKAR BHATTACHARYA, J.:— This appeal is at the instance of the plaintiffs in a
suit for declaration that the two bank-guarantees, both dated 29th July, 2009, being
Annexure ‘C’ and ‘D’ to the plaint, are null and void, for mandatory injunction upon the
defendants to forthwith make over the aforesaid bank-guarantees dated 29th July,
2009 to the plaintiffs with further prayer for perpetual injunction restraining the
defendant No. 1 from receiving any payment in respect of those two bank-guarantees,
mentioned above, given by the defendant no. 2, the Bank, and for a decree of Rs. 1
crore as damages from the defendant no. 1. The other consequential reliefs of interest
and injunction were also prayed for.
The case made out by the plaintiffs in the aforesaid suit may be summed up thus:
(a) The plaintiffs are the owners of an area of 30,419 sq. ft. on lower and upper
ground floor, first floor and second floor together with 32 car parking spaces at the
-----------------------------------------------------------------------------------------------------------------------------------------------------------
building popularly known as “Avani Heights” at Premises No. 59A, Chowringhee Road,
Kolkata-20.
(b) On July 29, 2009, an agreement was entered into by and between the plaintiffs
on one hand and the defendant No. 1 on the other, for lease of the demised portion for
a period of 9 years at the rent of Rs. 91/- per sq. ft. plus service tax. The said
agreement was entered into at the office of the plaintiffs at 119, Park Street, Kolkata-
16 within the jurisdiction of this Court.
(c) In terms of the said agreement, the defendant No. 1 deposited a sum of Rs.
83,04,000/- which is equivalent to the amount of rent for three months as interest-
free security-deposit and the plaintiffs furnished two separate bank-guarantees both
issued by the defendant No. 2 for an aggregate sum of Rs. 83,04,000/-. The relevant
terms of the said agreement pertaining to furnishing of those bank-guarantees and the
security deposit are set out below:
“An amount of Rs. 83,04,000/- (Rs. 2370000/- and Rs. 5934000/- to M/s. Pollen
Dealcom Pvt. Ltd. and Standard Vinimay Pvt. Ltd. respectively in terms of clause no. 5
is payable by the Lessee to the Lessor at the time of signing of this term sheet. This
amount will be forfeited totally if India Steamship (A division of Chambal Fertilisers
and Chemicals Ltd.) do not take possession of the aforesaid space and starts paying
monthly rentals within the aforesaid time of ninety days. However, if the Lessor fails to
give possession within October, 09 or fails to make out a good and marketable title of
the aforesaid premises to the Lessee on or before 15th October, 2009, the amount will
be returned immediately to the Lessee. The refund if any shall be secured by
irrevocable bank guarantee.”
(d) The defendant No. 1 by a letter dated August 24, 2009 expressed its willingness
to takeover possession of the demised portion and represented that it had already
made arrangement for meeting its architects with the object of commencing work in
the demised portion for making it usable as its office. The defendant No. 1 also agreed
to take possession either of the entire demised portion or a part thereof.
(e) All of a sudden, on August 31, 2009, the defendant No. 1 made a requisition on
title and also asked for the various documents i.e. KMC tax receipts, copy of
sanctioned plan and occupancy certificate. Even though the defendant No. 1 had
already received the copies of all the documents mentioned in its letter, the plaintiffs
offered immediate inspection of the originals thereof.
(f) Subsequently, the defendant No. 1 caused further inspection of the demised
portion with architects. According to the defendant No. 1, necessary additions and
alterations had to be made to make it suitable for running an office therefrom. Mainly
on this pretext, the possession of the ground floor and the second floor portions were
not taken by the defendant No. 1.
(g) By September 24, 2009, the plaintiffs managed to get the entire demised
portion vacated and for this purpose, the plaintiffs had to incur substantial expenditure
and all was done with the object of fulfilling the terms of the said agreement and by
relying upon the representation of the defendant No. 1 that it would complete the
deal. The plaintiffs had obtained a loan of Rs. 10 crore by securitizing the rentals to be
received from the said demised portion.
(h) On September 24, 2009, the plaintiffs offered possession of the remaining
portion of the first floor which was still in the occupation of one of the erstwhile
tenants. As such, the plaintiffs offered vacant possession of the entirety of the
demised portion to the defendant No. 1 and made repeated requests to the defendant
No. 1 to take possession thereof.
(i) On October 20, 2009, the defendant No. 1, for the first time, contended that the
change of user of the demised portion is a pre-requisite condition for execution of the
lease-deed. With the object of completing the deal with the defendant No. 1 and to
-----------------------------------------------------------------------------------------------------------------------------------------------------------
maintain good relationship with the defendant No. 1, the plaintiffs at one stage had
even offered to indemnify the defendant No. 1 with such fine as might be imposed by
the refusal of the KMC for the change of user of the demised portion. The defendant
No. 1 had accepted such offer of the plaintiffs but thereafter backed out from the
same.
(j) The defendant No. 1 was well aware of the fact that change of user from a
showroom to an office is granted as a matter of course by the KMC but that is not so in
case of a reverse situation. The defendant No. 1 was also well aware of the fact that
the KMC as a matter of practice did not stop user as office room from that of a
showroom pending an application for conversion.
(k) At the meeting held between the parties on November 11, 2009, the defendant
No. 1 wanted to pull out from the deal and, at that stage, the plaintiffs became
entitled to forfeit the said sum of Rs. 83,04,000/. This was clearly made known to the
defendant No. 1 at such meeting and at that stage, the defendant No. 1, for the first
time, threatened to invoke the bank-guarantees in question.
(l) Again the defendant No. 1 by an e-mail sent at 10:51 a.m. on November 12,
2009 forwarded a draft agreement and created an impression in the mind of the
plaintiffs that it was willing to complete the deal.
(m) The two bank-guarantees, mentioned above, are conditional in nature. The
relevant terms of the underlying contract, that is to say, the Term Sheet of July 29,
2009 have been expressly incorporated in the bank-guarantees. The defendant No. 1
was entitled to invoke the bank-guarantees only on the happening of any of the
following two events:
(i) If the plaintiffs failed to give possession of the demised portion by end of
October, 2009;
(ii) If the plaintiffs failed to make out a good and marketable title of the demised
portion on or before October 15, 2009.
(n) On 12th November, 2009, in the evening, the plaintiffs received by electronic
mail a letter of even date from the defendant No. 1 making false allegation as to
shortfall of area on the first floor to the extent of 300 sq. ft. and on that basis, the
defendant No. 1 had alleged breach of the terms of the contract by the plaintiffs and
demanded refund of the security deposit.
(o) The plaintiffs asserted that there was no discrepancy in the total area mentioned
in the agreement or in the floor wise measurement. If at all, there is any shortfall of
area in the first floor, the same is made up in the second floor and even if, there is a
shortfall in the total area, it would also not result in any loss to the defendant No. 1 as
the rent is determined as “per sq. ft. basis”
(p) The defendant No. 1 has invoked the bank-guarantees on 12th November, 2009
and by invoking such bank-guarantees, it at all material times intended to commit
fraud upon the plaintiffs. The defendant No. 1 had perpetrated fraud upon them which
is of egregious nature vitiating the underlying transaction and the invocation is also
per se fraudulent, certain particulars of which are given below:
(i) The Defendant No. 1 never intended to take on lease the demised portion and
had fraudulently induced the Petitioners into entering into the said agreement of July
29, 2009.
(ii) The Defendant No. 1 knowing full well from the very inception that the demised
portion was being used as a showroom and having agreed to take the demised portion
without any change of user was fraudulently raising the plea of permission of KMC to
change the mode of user as a pre-requisite condition for the completion of the deal.
(iii) The Defendant No. 1, knowing full well that the conditions required to be
fulfilled for invocation of the bank-guarantees had not been satisfied in the present
-----------------------------------------------------------------------------------------------------------------------------------------------------------
case, had fraudulently invoked the bank-guarantees.

(iv) The Defendant No. 1, knowing full well that the Plaintiffs have suffered
substantial loss far in excess of the security deposit amount, has invoked the bank-
guarantees with the object of causing financial loss.
(v) The Defendant No. 1 till the end of September, 2009 has fraudulently and
intentionally induced the Plaintiffs to believe that it was ready and willing to complete
the transaction without in fact even intending to do so.
(vi) The Defendant No. 1 has fraudulently raised the plea of shortfall in the first
floor area with the sole object of invoking the bank-guarantees.
(vii) The Defendant No. 1 in spite of being well aware of the fact that there was no
shortfall in the area of the demised portion or even in the internal dimensions and also
knowing full well that the rent was fixed on “per sq. feet” basis has fraudulently raised
the plea of shortfall of area with the object of defrauding the Plaintiffs.
(viii) Despite the fact that the bank-guarantee could only be invoked on existence
of certain conditions, the Defendant No. 1 had invoked the bank-guarantee without
fulfillment those conditions.
(q) Despite the fact that it is mentioned in the bank-guarantees that those could be
invoked only for the reason of breach by the plaintiffs of not giving possession within
October, 2009 or for not making out clear or marketable title before 15th October,
2009, the defendant No. 1 invoked the said bank-guarantees even though those
conditions had not been fulfilled. Hence, the suit.
On the selfsame allegations, as made in the plaint, the plaintiffs came up with an
application for temporary injunction for restraining the defendant No. 1 from receiving
any payment in respect of the two bank-guarantees, mentioned above, and for
appointment of a Receiver to take possession of the bank-guarantees dated 29th July,
2009. There was also an alternative prayer for attachment before judgement.
A learned Single Judge of this Court by an order dated 16th November, 2009 passed
an interim order directing that no step should be taken to invoke the bank-guarantees
by the defendants on the understanding that a sum of Rs. 83,04,000/- would be kept
apart by the plaintiffs in a separate account earmarked to the said proceedings by 18th
November, 2009.
Ultimately, another learned Single Judge of this Court, by order dated November
30, 2009, was pleased to dismiss the application for temporary injunction with costs
on the ground that there was no basis for the plaintiffs to seek any of the orders
prayed for in the petition as the bank was under obligation to release the payments
upon receipt of the letters of invocation and there was no just ground for the bank to
dishonour its unconditional commitment.
Being dissatisfied, the plaintiffs have come up with the present appeal.
Mr. Abhrojit Mitra, the learned counsel appearing for the appellant, has strenuously
contended before us that the learned Single Judge erred in law in dismissing the
application for temporary injunction by totally overlooking the admitted position that
the conditions for invoking the bank-guarantees had not been fulfilled by the
respondent No. 1 as the said respondent in its letter of invocation did not dare to
assert breach of the terms of the agreement at the instance of the appellants which is
sine qua non for honouring the demand of invocation. Secondly, Mr. Mitra contends
that the allegation of fraud pleaded by his client has not at all been taken note of by
the learned Single Judge while rejecting the application notwithstanding the fact that
the defendant No. 1 had not used any affidavit denying the allegations of fraud
pleaded by his client. At any rate, Mr. Mitra continues, the learned Single Judge while
dismissing the application for temporary injunction did not follow the well-accepted
principles which are required to be followed while disposing of an application of this
nature. Mr. Mitra, therefore, prays for setting aside the order impugned and allowing
-----------------------------------------------------------------------------------------------------------------------------------------------------------
the application for temporary injunction. In this connection, Mr. Mitra relied upon the
following decisions:
1) U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (p) Ltd.
reported in (1988) 1 SCC 174;
2) Omega Shelters Pvt. Ltd. v. Unit Construction reported in 2009(4) CHN 22;
Mr. Jayanta Kumar Mitra, the learned senior advocate appearing on behalf of the
respondent No. 1, has, on the other hand, opposed the aforesaid contentions of Mr.
Abhrojit Mitra and has contended that his client has in its letter of invocation clearly
alleged breach of the agreement and has also demanded the amount mentioned in the
terms of the bank-guarantees and thus, the allegation of improper invocation of the
guarantees is not tenable in the eye of law. Mr. Mitra further contends that the learned
Single Judge rightly ignored the alleged fraud because of want of sufficient particulars
of fraud in the plaint and in the application of temporary injunction. According to Mr.
Mitra, in order to obtain an injunction restraining invocation of the unconditional bank-
guarantees, the fraud alleged must be of egregious nature and that such fraud must
be alleged to have been made prior to the agreement for bank-guarantee given by one
of the parties. Mr. Mitra submits that the learned Single Judge in this case has
considered the application in its proper perspective and has applied the correct tests
while dismissing the application and, therefore, we should not interfere with the just
discretion exercised by the learned Trial Judge. Mr. Mitra, consequently, prays for
dismissal of this appeal. In support of his contention, Mr. Mitra relies upon the
following decisions:
1) U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd.
reported in (1988) 1 SCC 174;
2) U.P. State Sugar Corporation v. Sumac International Ltd. reported in (1997) 1
SCC 568;
3) Reliance Salt Ltd. v. Cosmos Enterprises reported in (2006) 13 SCC 599;
4) Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. reported in (2007) 8
SCC 110;
Therefore, the question that arises for consideration in this appeal is whether the
learned Trial Judge was justified in dismissing the application for temporary injunction
even before filing of the written objection by the respondent No. 1.
Before deciding the said question, we should bear in mind the scope of
investigation at the instance of an appellate Court dealing with an appeal against a
discretionary order like temporary injunction, appointment of receiver etc. It is now
settled law that in such an appeal, the appellate Court generally does not interfere
with the discretion exercised by the Trial Court unless it appears that while exercising
such discretion, the learned Trial Judge has wrongly applied the principles for grant of
such discretion or unless it is established that such discretion has been unreasonably
or capriciously exercised. In dealing with such an appeal, the appellate Court would
not be justified in interfering with the discretion under the appeal solely on the ground
that if it considered the matter at the trial stage, it might have come to a contrary
conclusion. (See Uttar Pradesh Co-operative Federation Ltd. v. Sunder Bros. Delhi
reported in AIR 1967 SC 249). In a subsequent case of Manjunath Anandappa Urf
Shivappa Hansi v. Tammanasa reported in AIR 2003 SC 1391, the Apex Court
reiterated the aforesaid principles which are required to be followed while hearing an
appeal against a discretionary order by observing that “an appellate power interferes
not when the order appealed is not right but only when it is clearly wrong. The
difference is real, though fine.”
Keeping in mind the aforesaid principles, we now propose to consider whether the
learned Single Judge was justified in dismissing the application for temporary
injunction even before filing of the written objection by the respondent No. 1.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
The law relating to grant of injunction in respect of unconditional bank-guarantee is

now well settled. A bank-guarantee is a suitable method of securing payment of
money in commercial dealings because the beneficiary, under the guarantee, is
entitled to realize the whole of the amount under that guarantee in terms thereof
irrespective of any pending dispute between the person on whose behalf the guarantee
was given and the beneficiary. It is for this reason that the Courts are reluctant in
granting an injunction against the invocation of bank-guarantee except in the case of
fraud, which should be an “established fraud” and not a mere allegation of fraud, or
where irretrievable injury was likely to be caused to the Guarantor. This was the
principle laid down by the Supreme Court in various decisions. In the case of U.P. Co-
operative Federation Ltd. v. Singh Consultants and Engineers Pvt. Ltd., (1988) 1 SCC
174, the law laid down in Bolivinter Oil SA v. Chase Manhattan Bank, (1984) 1 All ER
351 was approved and it was held that an unconditional bank-guarantee could be
invoked in terms thereof by the person in whose favour the bank-guarantee was given
and the Courts would not grant any injunction restraining the invocation except in the
case of fraud or irretrievable injury. In Svenska Handelsbanken v. Indian Charge
Chrome (1993 AIR SCW 4002 : AIR 1994 SC 626), Larsen and Toubro Ltd. v.
Maharashtra State Electricity Board, (1995 AIR SCW 4134 : AIR 1996 SC 334),
Hindustan Steel Works Construction Ltd. v. G.S. Atwal and Co. (Engineers) (P) Ltd.,
(1995 AIR SCW 3821 : AIR 1996 SC 131), National Thermal Power Corporation Ltd. v.
Flowmore (P) Ltd., (1995 AIR SCW 430 : AIR 1996 SC 445), State of Maharashtra v.
National Construction Co., (1996) 1 SCC 735 : (1996 AIR SCW 895 : AIR 1996 SC
2367), Hindustan Steel Works Construction Ltd. v. Tarapore and Co., (1996 AIR SCW
2861 : AIR 1996 SC 2268) as also in U.P. State Sugar Corporation v. Sumac
International Ltd., (1997 AIR SCW 694 : AIR 1997 SC 1644 : 1997 All LJ 638), the
same principle has been laid down and reiterated. In a recent case of Reliance Salt
Limited v. Cosmos Enterprises reported in (2006) 13 SCC 599, it was further pointed
out that bank-guarantee constitutes an agreement between the Banker and the
principal, albeit, at the instance of the promisor and when a contract of guarantee was
sought to be invoked, it was primarily for the Bank to plead a case of fraud and not for
a promisor to set up a case of breach of contract. It was further held therein that the
fraud, which vitiates the contract, must have a nexus with the acts of the parties prior
to entering into the contract and subsequent breach of contract on the part of a party
would not vitiate the contract itself. (See paragraphs 17 and 19 of the judgement).
Keeping in view the aforesaid principles, we first propose to ascertain whether the
bank-guarantees involved herein were really unconditional in nature and what are the
conditions required for invocation of such guarantee.
The relevant terms of the guarantee given by the Bank (Respondent No. 2) are
quoted below:
“In consideration of The Lessee having made Security Deposit of Rs. 23,70,000/-
(Rupees Twenty Three Lac Seventy Thousand Only) to The Lessor being amount
equivalent to 3 (Three) months rental in term of clause 5 of the Term Sheet dated 29th
July, 09.
1. We, the Axis Bank Limited, Bistupur, Jamshedpur (hereinafter referred to as “the
Bank” do hereby undertake to pay The Lessee an amount not exceeding Rs.
23,70,000/- (Rupees Twenty Three Lac Seventy Thousand Only) against any claims
because of failure on the part of the Lessor to give possession of the 30,419 SF of
chargeable area in the Premises popularly known as Avani Heights at 59A
Chowringhee, - 700020 within 31st October, 2009 or failing to make out a good and
marketable title of the said area of 30419 on or before 15th October 2009.
2. We, the Bank, do hereby undertake to pay the amount due and/or payable under
this guarantee without any demur, merely on demand from The Lessee stating that
-----------------------------------------------------------------------------------------------------------------------------------------------------------
the amounts claimed is due by reason of any breach of the said Term Sheet by The
Lessor which are reproduced as below:
“An amount of Rs. 23,70,000/- (Rupees Twenty Three Lac Seventy Thousand) in
terms of clause no. 5 is payable by the Lessee to the Lessor at the time of signing of
this term sheet. This amount will be forfeited totally if India Steamship (A Division of
Chambal Fertilisers and Chemicals Ltd) do not take possession of the aforesaid space
and starts paying monthly rentals within the aforesaid time of ninety days. However, if
the Lessor fails to give possession within October 2009 or fails to make out a good and
marketable title of the aforesaid premises to the lessee on or before 15th October 2009,
the amount will be returned immediately to the Lessee. The refund, if any, shall be
secured by irrevocable bank guarantee.”
Any such demand made on the Bank shall be conclusive as regard the amount due
and payable by the Bank under the guarantee. However our liability under this
guarantee shall be restricted to an amount not exceeding Rs. 23,70,000/- (Rupees
Twenty Three Lac Seventy Thousand Only).
3. We, the Bank, further agree that the guarantee herein contained shall remain in
full force and effect during the guarantee period. Unless a demand or claim under this
guarantee is made on us in writing on or before the expiry of the guarantee period i.e.
15/11/2009 we shall be discharged from all liability under this guarantee thereafter.
4. We, the Bank, lastly undertake not to revoke this guarantee during its currency
except with the previous written consent of the Lessee.”
A plain reading of the aforesaid terms makes it abundantly clear that the guarantee
by the Bank was unconditional in nature and no right was reserved with the Bank to
dishonour the same if invoked by the respondent No. 1 within the period mentioned,
i.e. November 15, 2009. A simple assertion by the respondent No. 1 that the amount
claimed was due by reason of the breach of the agreement by the appellant was
sufficient and such demand by the respondent No. 1 made it mandatory for the bank
to pay the amount without any demur. The terms of the agreement was also quoted in
bank-guarantee itself to avoid any dispute as regards the terms. There was, thus, no
scope of investigation at the instance of the Bank to verify the veracity of the claim of
the Lessee in the letter of invocation before payment of the guaranteed amount to
such person.
Next we propose to consider whether the invocation of the bank-guarantee by the
Respondent No. 1 was a proper one in accordance with the terms of the guarantee.
The letter of invocation dated November 12, 2009 received by the Bank on
November 13, 2009 is quoted below:
“The Manager
Axis Bank Ltd.
Bistupur
Jamshedpur
Dear Sir,
Sub.: Invocation of Bank Guarantee
No. 0120100000307 Amounting
to Rs 23,70,000/- Valid till
15th November, 2009
You have issued a Bank Guarantee No. 0120100000307 amounting to Rs
23,70,000/- valid till 15th November, 2009 on behalf of M/s Pollen Dealcom Private
Limited, having its office at White House, 119, Park Street, Block D, 4th floor, Kolkata -
700016. The said Bank Guarantee was issued in consideration of we being the Lessee
for the premises situated at 59A, Chowringhee, Kolkata - 700020 given Security
Deposit of Rs 23,70,000/- to the lessor i.e. M/s Pollen Dealcom Private Limited, being
-----------------------------------------------------------------------------------------------------------------------------------------------------------
the amount equivalent to three month's rental in terms of the clause 5 of the Term
Sheet dated 29th July, 2009.
Now there is a breach of the terms and conditions of the said Term Sheet as
mentioned in the Bank Guarantee. You have undertaken to pay the amount due and
payable under the said Guarantee without any demur merely on demand from us.
We therefore demand that the aforesaid sum of Rs 23,70,000/- be paid to us
immediately without any further reference whatsoever in nature to any one as
promised by you by way of Demand Draft payable at Kolkata. A photocopy of the
aforesaid Bank Guarantee is enclosed herewith for your ready reference and record.
However, we are ready and willing to deposit the original Bank Guarantee, if so
required.”
After going through the said letter of invocation, we are convinced that the
Respondent No. 1 has not only mentioned the amount but has also asserted that the
said amount is due and payable in terms of the guarantee for the breach thereof and
payable to the said Respondent No. 1. After such demand, there was no scope of any
argument that the demand was not in accordance with the terms of the guarantee. We
are not at all impressed by the submission of Mr. Abhrojit Mitra, the learned counsel
for the appellant, that in the letter of invocation, the Respondent No. 1 ought to have
further mentioned that the amount was payable for the breach of the agreement “at
the instance of the Appellant” We have already pointed out that the bank-guarantee
was enforceable only at the instance of the lessee and not at the instance of the lessor
at any rate and it necessarily followed that invocation was necessitated for the breach
of the terms “at the instance of the lessor” Once in the letter of invocation, the
agreement sought to be enforced is mentioned in details, the agreed amount is
demanded and the breach of such agreement is also alleged, there is no necessity of
the further elucidation that such breach was “at the instance of the appellant”
We, thus, find no substance in the first contention of the learned advocate for the
appellants that there was no legal invocation of the bank-guarantees.
The next question is whether the plaint and the application for temporary injunction
disclose any prima facie case of avoiding the bank-guarantees on the ground of fraud
so that there was necessity of disposal of the application only after asking the
Respondent No. 1 to file written objection dealing with the allegations of fraud. The
particulars of fraud pleaded in the application have already been quoted by us in sub-
paragraphs (i) to (viii) of paragraph (p) while narrating the plaint case (see page 7-9
of this order). The sum and substance of the allegations is that the Respondent No. 1
had all along no intention to perform its part of the agreement and for that reason has
first taken a false plea of permission by KMC for change of user as a precondition and
thereafter, the allegation of “shortfall of space agreed to be delivered” with the object
of improperly invoking the bank-guarantee and such improper conduct amounts to
fraud on the part of the respondent No. 1.
We are unable to accept such an allegation as a prima facie case of fraud to avoid
invocation of the unconditional bank-guarantee. First of all, if the Respondent No. 1
had no intention to comply with the terms of the agreement from the very beginning,
it would not have deposited the amount of Rs. 83 lakh and odd in advance and would
not engage architect for inspection and remodelling building as admitted by the
plaintiffs. It is very difficult to believe that without any intention to enter into any
contract for lease from the very beginning, a businessman will invest so much amount
of money for no purpose and in the process the Respondent No. 1 will not gain in
anyway. Secondly, the dispute, even if falsely raised by the Respondent No. 1 to avoid
the contract for any subsequent unforeseen reasons, such fact cannot afford a ground
to the appellants to avoid the enforcement of the bank-guarantee on the ground of
fraud. If the allegation of the plaintiffs regarding the mendacity of the plea of shortfall
-----------------------------------------------------------------------------------------------------------------------------------------------------------
of space is found to be correct in the long run, the suit of the plaintiff for damages will
succeed and the plaintiffs will have their remedy by executing the decree that will be
passed in their favour; but such allegation of the appellants, even if found to be true,
is not a ground for restraining the invocation of the unconditional bank-guarantees in
question.
In this connection, we may appropriately refer to the following observations of the
Apex Court in the case of Reliance Salt Ltd. v. Cosmos Enterprises (supra), at
paragraphs 17 to 19 of the judgement:
“17. A claim which is denied or disputed, in the event of necessity for
determination of the lis, may not be found to be correct. If the appellant was to allege
a breach of contract in a properly framed suit, Respondent 1 could also allege the
breach of contract on the part of the appellant herein. Breach of contract by reason of
supply of inferior quality of tea or salt or delay in supply or a short supply may render
a party responsible for damages for commission of breach of contract, but, breach of
contract alone does not lead to the conclusion that a fraud had been
committed thereby. It is contended that commission of fraud would include any act
to deceive but then such act must be confined to acts committed by a party to a
contract with intention to deceive another party or his agent or to induce him to enter
into a contract. Fraud, which vitiates the contract, must have a nexus with the
acts of the parties prior to entering into the contract. Subsequent breach of
contract on the part of a party would not vitiate the contract itself.
18. “Contract of guarantee” is defined under Section 126 of the Contract Act in the
following terms:
“126. ‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’.—A ‘contract
of guarantee’ is a contract to perform the promise, or discharge the liability, of a third
person in case of his default. The person who gives the guarantee is called the
‘surety’; the person in respect of whose default the guarantee is given is called the
‘principal debtor’ and the person to whom the guarantee is given is called the
‘creditor’. A guarantee may be either oral or written.”
19. Bank guarantee constitutes an agreement between the banker and the
principal, albeit, at the instance of the promisor. When a contract of guarantee was
sought to be invoked, it was primarily for the bank to plead a case of fraud
and not for a promisor to set up a case of breach of contract.
(Emphasis supplied by us).
Therefore, the nature of allegation of fraud pleaded in the application is insufficient
to resist a valid invocation of bank-guarantee.
In the case of U.P. Cooperative Federation Ltd.(supra), relied upon by both the
parties, the Supreme Court pointed out that in this type of a dispute, where an
irrevocable commitment either in the form of confirmed bank-guarantee or irrevocable
letter of credit is sought to be enforced, the Court should not stand in the way except
in case of fraud or in case of apprehension of irretrievable injustice have been made
out. By taking aid of such observation, Mr. Abhrojit Mitra tried to convince us that we
should grant injunction on those grounds. We have already discussed that in order to
overcome enforcement of an unconditional bank-guarantee what should be the nature
of fraud and arrived at the conclusion that the fraud pleaded in this case does not
come within its purview. Similarly, the question of irretrievable injustice will not arise
here for the plain reason that, in the suit, the plaintiffs have already claimed damages
to the extent of Rs. 1 crore and the money that has been sought to be realised by
enforcement of the bank-guarantee is admittedly the one supplied by the Respondent
No. 1 itself and not the money of the appellants. If in the suit, their claim is
established, they will get a decree and then a right to the said amount will accrue, but
at this stage before adjudication on merit on the question of entitlement, the plaintiffs
-----------------------------------------------------------------------------------------------------------------------------------------------------------
are not legally entitled to claim that amount of money to be their own simply on the
basis of their allegations.
In the case of Omega Shelters Pvt. Ltd. v. Unit Construction (supra), relied upon by
the learned Advocate for the appellant, in the bank-guarantee, the following
undertaking was given by the Bank:
“We, the Bank, do hereby undertake to pay the amounts due and payable under
this guarantee without any demur, merely on a demand from the employer stating
that the amount clamed is due by way of loss or damage caused to or would be caused
to or suffered by the employer by reason of any breach by the contractor(s) of any of
the terms and conditions contained in the said Agreement or by reasons of the
contractor's failure to perform the said Agreement. Any such demand made on the
Bank shall be conclusive as regards the amount due and payable by the Bank under
this guarantee.”
However, in the letter invoking the bank-guarantee, the following statements were
made:
“Since the applicants M/s. Unit Construction Company Private Limited has not
extended the guarantee as requested by us, we hereby give notice for invocation of
the said bank-guarantee. Therefore, please invoke the bank-guarantee and arrange to
remit the proceeds to us in our bank account No:141150310875059 with Tamilnad
Mercantile Bank Ltd., Secenderabad Branch.”
In such circumstances, a Division Bench of this Court held that the invocation was
not in tune with the condition of invocation as mentioned in the undertaking as mere
non-renewal of the guarantee was not a ground of invocation. We fail to appreciate
how the said decision can be of any help to the appellants, when in this case, the
invocation is in conformity with the terms.
We are also not impressed by the alternative case made out in the application for
attachment before judgement (although not pressed before us) with a prayer to direct
the Respondent No. 1 to give security of the amount. On the basis of a vague
allegation that the Respondent No. 1 was running in loss and was financially not well
off without giving any particulars thereof, the learned Trial Judge rightly did not feel
the necessity of calling for affidavit from the Respondent No. 1 for controverting such
indistinct allegation. The averments so made in application have failed to make out
even the prima facie case of attachment before judgement as pointed out by this
Court in the well-known case of Premraj Mundra v. Md. Manech Gazi reported in AIR
1951 Cal 156 which has been quoted with approval by the Apex Court in various
decisions including the recent one in the case of Raman Tech & Process Eng. Co. v.
Solanki Traders reported in (2008) 2 SCC 302.
On consideration of the entire materials on record, we thus find that the learned
Single Judge rightly dismissed the application for injunction and in the alternative for
attachment before judgment even before filing of affidavit by the respondent No. 1.
We find no reason to interfere with the just discretion exercised by the learned Trial
Judge and consequently, this appeal is dismissed.
In the facts and circumstances, there will be, however, no order as to costs.
Interim order granted earlier in this appeal stands vacated.
(Bhaskar Bhattacharya, J.)
I agree.
(Mohit S. Shah, CJ.)
———
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/
notification is being circulated on the condition and understanding that the publisher would not be liable in any manner by reason of any mistake
or omission or for any action taken or omitted to be taken or advice rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/
rule/ regulation/ circular/ notification. All disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The
authenticity of this text must be verified from the original source.

Pollen Dealcom Pvt. Ltd. Vs Chamber Fertilizers and Chemicals Ltd.

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pollen Dealcom Pvt. Ltd. Vs Chamber Fertilizers and Chemicals Ltd.

Uploaded by

Copyright:

Available Formats

SCC Online Web Edition, © 2022 EBC Publishing Pvt. Ltd.

Page 1 Thursday, March 03, 2022

Pollen Dealcom Private Limited v. Chambal Fertilisers and Chemicals Ltd.

(BEFORE MOHIT S. SHAH, C.J. AND BHASKAR BHATTACHARYA, J.)

M/s. Pollen Dealcom Private Limited & Anr.

case, had fraudulently invoked the bank-guarantees.

The law relating to grant of injunction in respect of unconditional bank-guarantee is

You might also like