NATIONAL UNIVERSITY OF STUDY AND

RESEARCH IN LAW
RANCHI

ADANI AGRI FRESH LTD. V. MAHABOOB SHARIF AND ORS- CASE ANALYSIS
SUBMITTED BY:

AMAN YUVRAJ CHOUDHARY

SEMESTER 2, B.A.LL.B. (HONS.) ROLL.NO.:1153

UNDER THE GUIDANCE OF AND TO

ASST. PROF. SONI BHOLA

 DECLARATION

I do hereby acknowledge that the academic efforts done for the research work
titled “ADANI AGRI FRESH LTD. V. MAHABOOB SHARIF AND OTHERS- CASE ANALYSIS”
for the course of Law Of Contracts, Semester 2, National University of Study And
Research In Law, Ranchi is the sole product of my effort which has been done under
the valuable supervision of Asst. Prof. Soni Bhola.

I have truthfully appreciated and acknowledged the sources used for the purpose
of this research activity. As per my mind, this work is free from any sort of plagiarism.

AMAN YUVRAJ CHOUDHARY

Semester: 2

Roll. No.: 1153

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW, RANCHI.

 ACKNOWLEDGMENTS

I, Aman Yuvraj Choudhary, express my gratitude to our professor Prof. Soni

Bhola for she allotted me an intriguing topic to research upon and valuable guidance
and remarkable insight to follow it up.

This has been an opportunity to learn rather than just being a task and one that
has benefitted me.

The research tools and infrastructure provided by our university have been of
immense help.

Further, I thank my Mom and my Grand-Mom for providing me with a learning

conducive environment. Even further, my seniors and my colleagues have been there
and deserve thanks.

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 TABLE OF CONTENTS

Declaration ......................................................................................................................i

Acknowledgments ......................................................................................................... ii

Specifics ......................................................................................................................... 2

Run-through of the case in 400 words. .......................................................................... 4

Facts ............................................................................................................................... 5

Decision Of The Lower Courts ...................................................................................... 6

Issues .............................................................................................................................. 7

Rules............................................................................................................................... 8

The Indian Contract Act, 1872 ................................................................................... 8

Guarantee Deed .......................................................................................................... 8

Injunction.................................................................................................................... 8

Analysis.......................................................................................................................... 9

Observations Of The Supreme Court ........................................................................... 11

Conclusion ................................................................................................................... 12

My Learnings ............................................................................................................... 13
 SPECIFICS

1. NAME OF THE COURT: The Hon’ble Supreme Court of India

2. NAME OF THE PARTIES

Appellant: Adani Agri Fresh Limited (hereinafter ‘AAFL’)1

Respondents: Mahaboob Sharif and Others (hereinafter ‘Mahaboob’)2

3. BENCH STRENGTH: 2

Composition: Jistice Jagdish Singh Khehar and R. Bhanumati, JJ.

4. COURT OF FIRST INSTANCE: Civil Judge (Junior Division)

Plaintiff seeking a temporary injunction upon invocation of guarantee restraining the

surety from making payment to the creditor. (under Order 39 Rule 1 and 2 read with
Section 151 of the CPC)

5. IT’S DECISION: Granted.

6. HOW DID IT REACH THE SUPREME COURT?

The Civil Judge granted the injunction. Upon appeal by the defendant, the Additional
Senior Civil Judge, Mysore upheld the order. The defendant filed a writ petition to the
High Court of Karnataka which refused to interfere with the order. The petitioner
appealed to the Supreme Court.

7. WHICH CASES WERE RELIED UPON TO COME TO THE JUDGEMENT?

Two cases were relied upon from the various cited by the appellant.

Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd. (hereinafter ‘Vinitec’)

U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers Ltd. (‘UPCOF’)

8. ARGUMENTS OF THE PARTIES

Appellant: Sought overturning of the order of the lower court citing a plethora of case
by the Supreme Court itself.

1
(2008) 1 SCC 544
2
(1988) 1 SCC 174

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Respondent: Made no argument so as to satisfy any of the requirements of an injunction
on invocation of bank guarantee except one contention citing communication that it
informed the appellant of the rotten goods received, which the appellant has denied.
There was no submission to establish a prima facie fraud or to establish that letting the
bank(surety) make payment would result into irretrievable harm.

9. FINDING THAT FORMS THE RATIO OF THE COURT.

The court noted that it is a “settled” law around grant of injunction on invocation of
bank guarantee. None of the parameter for grant of injunction were met and hence the
grant of injunction was not justified.

10. WHAT WAS THE FINAL DECISION?

The injunction was lifted and the appellant was allowed to be compensated by the
respondent.

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 RUN-THROUGH OF THE CASE IN 400 WORDS.

The appellant company entered into a contractual agreement with respondent company
for the supply of fruits. For securing payment in lieu of products supplied the
respondent was required to furnish bank guarantees. Three such registered bank
guarantees were issued which also constitute the basis of the controversy in hand. The
appellant issued an Outstanding Certificate seeking payment, on account of delivery of
goods to the respondent. The demand being not honoured by the respondent, the bank
guarantee

was sought to be invoked through the outstanding certificate. The respondent filed a
suit seeking an injunction of invocation of the guarantee. The Trial Court passed an
interim order in favour of respondent restraining the defendant 1 and 2 from releasing
payment to the defendant 3(the appellant) under the guarantee. The same was upheld
by Appellate Court, the Additional Senior Civil Judge, Mysore. The appellant filed a
writ petition to the High Court of Karnataka which did not interfere with the interim
order of the lower court. An appeal was filed against the order passed by High Court
and that bring the case under the adjudication of the Supreme Court. The issue is
whether the Courts below are justified in injuncting invocation of bank guarantees, at
instance of the respondent.

Held, Courts below were not justified in injuncting the invocation of bank guarantees,
executed by Bank, at instance of Respondent-Company.

The reasons are listed as follows. First, it is apparent from extracts that concerned bank
guarantees, are clearly unconditional Second, the veracity and truthfulness of the
defence of the respondent based on the communication dated 14-1-2011, could not be
opined upon basis the fact that the scrutiny is subject to a dispute filed by the respondent
in the civil court. Third, the respondent has not levelled any allegations of commission
of flagrant fraud by appellant, for engineering the invocation of bank. Further, no
submissions have been advanced on behalf of respondent to establish, that invocation
of bank guarantees would lead to irreparable injury or some irretrievable injustice. On
not satisfying any of the requisites required to get a temporary injunction issued, the
appellant was allowed to recover as per the order of the Civil Judge. And the Appeal
was hence disposed of.

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 FACTS

The appellant - M/s Adani Agri Fresh Ltd. is a supplier of fruit and vegetables. It entered
into a contractual agreement with M/s RMS Fruits and Company, a wholesale dealer in
fruits, whose proprietor is one Mahaboob Sharif (respondent No.1). For securing
payment in lieu of the products supplied by the appellant to respondent No.1, the
appellant required respondent No.1 to furnish bank guarantees, whereby the appellant
would be entitled to recover the proceeds of the products, transported by it to M/s
RMSFC. Three such registered bank guarantees were issued which also constitute the
basis of the controversy in hand. The terms of the bank guarantees are same for all three.
A perusal of the terms of the bank guarantee reveals that the same was an unconditional
guarantee, irrespective of their disputed positions. Under the bank guarantees, the
appellant - M/s AAFL would first make a demand/claim for the payment in lieu of fruits
transported to respondent No.1, and in case respondent No.1 failed to reimburse the
consideration, the appellant had the right to make a demand from the guarantor, for the
payment. The appellant issued an "Outstanding Certificate" seeking payment, on
account of dispatch of fruit to M/s RMSFC. The outstanding debt indicated therein was,
for a sum of Rs.62,32,328/-. Consequent upon the aforesaid demand being not honored
by respondent No.1, the bank guarantee was sought to be invoked. And in order to
wriggle out the aforesaid bank guarantee(s), respondent No.1 - M/s RMSFC, filed
O.S.No.991 of 2011 before the Civil Judge (Junior Division), Mysore.

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 DECISION OF THE LOWER COURTS

The trial court passed the following interim order after entertaining the above-said suit,
on 10.08.2011: “The defendants 1 and 2 banks are hereby restrained from making
payment of schedule amount to the 3rd defendant till the disposal of the suit either
amicably or judiciously between the plaintiff and the 3rd defendant……..In case, the
plaintiff fails in this suit, the plaintiff shall compensate the defendant No.3 by paying
interest at the rate of 18% p.a. on the total value of goods to the 3rd defendant from the
date of suit till the disposal of the suit.”. The aforesaid order was affirmed, by the
Additional Senior Civil Judge, Mysore, on a challenge raised thereto, on 13.09.2011.
Even the High Court of Karnataka, where the appellant preferred W.P.No.4654 of 2012,
did not interfere with the interim order. The order passed by the High Court on
16.12.2013, dismissing the above-mentioned writ petition, is subject matter of
challenge at the hands of the appellant before this Court.

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 ISSUES

Whether the order injuncting the invocation of the bank guarantee by the appellant,
AAFL, valid in light of the law settled through previous judgements of the Supreme
Court?

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 RULES

THE INDIAN CONTRACT ACT, 1872

Section 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.

GUARANTEE DEED
The Guarantee deed provides for ‘unconditional’ invocation of the guarantee as is
evident from the perusal of the deed.

INJUNCTION
ESTABLISHMENT OF PRIMA FACIE CASE3 - the plaintiff must establish a prima facie case
of fraud, meaning thereby that there is a bona fide contention between the parties or
serious question to be tried.

IRRETRIEVABLE HARM4 - The second exception relates to cases where allowing the
encashment of an unconditional bank guarantee would result in “irretrievable harm” or
“injustice” to one of the parties concerned.

BALANCE OF CONVENIENCE5 : In considering granting an injunction, the plaintiff has to

show that the comparative mischief from the inconvenience which will arise from
withholding the injunction will be greater than the inconvenience which is likely to
arise from granting it.

3
UPCOF (Para 27-28, 43, 54-55)
4
Vinitec (Para 12)
5
Dalpat Kumar Versus v. Prahlad Singh AIR 1993 SC 276

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 ANALYSIS

In light of section 126 of the ICA, 1872, the contract of guarantee can be a contract
between the surety and the creditor and so is the case here. It is not for the principle
debtor to demand an injunction as he is the “third party” under this section. This in
addition to the fact that the invocation was unconditional at the option of the appellant,
as explicitly mentioned in the Guarantee Deed, makes the respondent a ‘nobody’ in the
transaction of invocation.

The court also noted that the respondent has made no submissions so as to construct a
prima facie case of fraud against the appellant which makes it ineligible to get an
injunction on the first ground.

Further there is no submission so as to establish that the abstinence to grant an

injunction would cause “irretrievable harm” or “injustice” or “irreparable loss’ to one
of the parties concerned. This was also noted by the court.

In addition to all above, the respondent has not made any submission as to suggest that
not granting an injunction would put him at greater inconvenience as compared to
where there is a grant.

The court has noted from the cases cited in the submission of the appellant that the law
around the injunction on invocation of bank guarantee is “settled”. 6 The bank has to
honour the guarantee irrespective of any dispute raised by its customer. 7 The court
should be “slow” in granting injunctions in such cases.8 The prima facie case of fraud
must suggest that the same is of “egregious nature” or that allowing encashment would
result irretrievable harm.

The only defence of the respondent was the communication dated 14-1-12 in which the
respondent claims to have received a communication that in light of the destroyed and
damaged the appellant demanded one/fourth of the payment. The veracity of that
statement made was not the subject to be adjudicated as it was already an issue before
a civil court.

6
Vinitec (Para 11)
7
U.P. State corpn. v. Sumac International Ltd. (1997) 1 SCC 568
8
Himadari Chemical Industries Ltd. v. Coal Tar Refining Co. (2007) 8 SCC 110 (hereinafter ‘Himadari’)

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10
 OBSERVATIONS OF THE SUPREME COURT

The Court noted that as a proposition of law, learned counsel for the appellant has
placed vehement reliance on a number of judgments of this Court. First, made to
UPCOF and second, Vinitec. Based on the judgments referred to above, appellant’s
contention was that the terms and conditions of a "Deed of Guarantee" could not be
injuncted from being given effect to. The parameters, based upon which injunctions are
granted are, "prima facie case", "balance of convenience" and "irretrievable harm". And
as for the injunction of unconditional bank guarantee is concerned, the same could be
granted if the court is satisfied that the commission of a flagrant fraud, or irretrievable
injustice would be caused to the concerned party.

JUDGMENT: Considering the law laid down by this Court, in respect of grant/refusal
of an injunction of an unconditional bank guarantee, and keeping in mind the terms and
conditions, more particularly of the contractual conditions extracted and narrated
above, the court found itself satisfied that the courts below were not justified in
injuncting the invocation of the three bank guarantees, executed by the State Bank of
Mysore, at the instance of M/s RMSFC. The court accordingly thereby direct
respondent Nos.2 and 3 - the State Bank of Mysore to honor the same forthwith. The
appeal was disposed and the leave was granted.

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 CONCLUSION

The law around grant of injunction is well “settled” a by the apex court as duly noted
in this case. In para 14 of Himadari9 the court laid down a five-point rule for granting
an injunction on invocation of bank guarantee. Further it is rightly noted in Para 55 of
the UPCOF judgment, a quotation from Bolivinter Oils S.A v. Chase Manhatten Bank
N.A.10 that it is for the banks to safeguard themselves and not for the courts to come to
their rescue unless the element of fraud is established. For if it were to be in the realm
of the courts to safeguard the banks, then there would be innumerable applications for
injunctions upon invocation of bank guarantee at the convenience of the principle
debtor in the contract. By mere definition in section 126 of the ICA, the principal debtor
is a “third party” and need not even know about the contract of guarantee between the
surety and the creditor (as per a commentary on the law of contracts by Avtar Singh 11).

Considering the above we have to keep in mind that it was an unconditional guarantee
in the invocation of which the respondent had no say, the lower court granted the
injunction on shaky grounds since the plaintiff did not establish a prima facie case of
fraud, justify the balance of convenience or establish that not granting an injunction
would lead to “irreparable loss”. Hence the injunction was not justified as also opined
by the court and hence the order of the lower courts was overturned.

9
(2007) 8 SCC 110
10
(1984) 1 WLR 392
11
AVTAR SINGH, CONTRACT & SPECIFIC RELIEF 596 (EBC 10th ed. 2010)

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 MY LEARNINGS

I learned a lot from this case analysis. Before setting out to complete this project,
reading a judgement looked like a herculean task but in the process I, while googling
“how to read a judgement fast”, I got a rudimentary, but fair, idea about how to skim
through a judgement, what to look for and how to look for it.

Further, I learned that a temporary injunction can be applied for under Order 39 Rule
1&2 read with Section 151 of the CPC.

This case was, all in all, much more focused on the conditions of grant of injunction on
invocation of a bank guarantee the law upon which is settled.

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