M/S New Era Industries Vs. M/S Star Alubuild Pvt Ltd and anr. - Court Judgment

* IN THE HIGH COURT OF DELHI AT NEW DELHI + CS(OS) 1906/2013 & I.A. 15869/2013 (u/O.39 Rs-1 & 2 CPC) & I.A. 20141/2013 (u/O.39 R=4 CPC) Judgment Reserved on :

6. h May, 2014 Judgment Pronounced on :

26. h May, 2014 % M/S NEW ERA INDUSTRIES ..... Plaintiff Through: Mr.Manish Kaushik, Advocate versus M/S STAR ALUBUILD PVT LTD & ANR..... Defendant Through: Mr.Tanuj Khurana, Mr.Gaurav Malik, Advocates for the defendants along with Mr.Kapil Dahra, AGM (Finance) of defendant CORAM: HON'BLE MR. JUSTICE G.S.SISTANI G.S.SISTANI, J.

I.A. 15869/2013 (under Order XXXIX Rules 1 & 2 CPC) & I.A. 20141/2013 (under Order XXXIX Rule 4 CPC) 1. Plaintiff has filed the present suit for permanent injunction restraining the defendant no.1 from encashing / invoking bank guarantee dated 24.8.2012 for a sum of Rs.32,79,375/-. Along with the plaint, plaintiff has filed an application [I.A. 15869/2013 (under Order XXXIX Rules 1 & 2 of the Code of Civil Procedure]. for grant of stay. While issuing summons in the suit, the encashment of the bank guarantee was stayed. Subsequently, defendant has also filed an application [I.A. 20141/2013 (under Order XXXIX Rules 4 of the Code of Civil Procedure)]..

2. Arguments have been addressed in both applications, the same are being disposed of by a common order.

3. The plaintiff is stated to be a partnership firm and is carrying on the business of providing highest standards of quality, reliability and service in contract interiors, furnishing and imports and distribution of new and unique interior and exterior product concepts from Europe. In the year 2012 the defendant no.1 approached the plaintiff for supply of FAVETON AQUA Terracotta tiles (hereinafter referred to as „the tiles‟) for execution of a contract given by Delhi International Airport Authority Ltd. to Larsen & Toubro Ltd. Larsen & Toubro engaged the defendant no.1, as its subcontractor. The tiles were to be imported from Spain and in furtherance thereof several meetings took place between the representatives of the plaintiff and defendant no.1 and after negotiations the defendant no.1 placed a purchase order bearing P.O. No.PUR/001/ATC/2012-13 dated 18.8.2012 on the plaintiff with respect to FAVETON AQUA Terracotta tiles. As per the purchase order, the sale consideration of the tiles of AGrade quality to be supplied by the plaintiff to the defendant no.1 were valued for Rs1,63,96,875/-. This amount was subsequently revised to Rs.1,72,10,793/- and a revised pro forma invoice dated 12.11.2012 was issued by the plaintiff in favour of the defendant. In terms of the purchase order dated 18.8.2012, the plaintiff furnished a bank guarantee bearing No.00361IG20000022 dated 24.8.2012 for an amount of Rs.32,79,375/in favour of the defendant no.1 from the defendant no.2 i.e. Indian Bank, A-7, Ring Road, South Extension, Part-I, New Delhi. The bank guarantee was given pursuant to the original purchase order dated 18.8.2012. Although the contract value was subsequently reduced, but there was no change in the bank guarantee. The bank guarantee was extended from time to time and lastly extended from 13.4.2013 to 10.10.2013 and the same was valid uptill 7.4.2014 and has not been renewed further.

4. Based on the invoice, the contract material i.e. the tiles were imported by the plaintiff from Spain and supplied to the defendant. As per the plaint, although the tiles were of the highest quality and plaintiff fulfilled the vital parameters regarding strength, dimensions and other parameters as per the purchase order dated 18.8.2012, but on account of minor and negligible variation in the colour and shade of the tiles supplied to the defendant no.1 and in order to make up for the negligible and slight variation in the colour and shade, the plaintiff initially offered the discounted value of the entire stock of tiles supplied to the defendant No.1 @ 10%, but the same was subsequently increased to 35% and finally maximum special discount was offered by the plaintiff to the defendant no.1 @ 45%, while keeping all other initial terms and conditions unchanged. E-mails dated 15.12.2012, 4.1.2013 and 9.1.2013 were sent by the plaintiff to the defendant no.1.

5. In response to the e-mail dated 9.1.2013 maximum special discount of 45% was offered by the plaintiff to the defendant no.1. This discount was accepted by the defendant no.1 by e-mail dated 9.1.2013. In terms of the e-mail dated 23.1.2013 the revised value of the stock of tiles was agreed to Rs.94,65,936/- including 12.5% VAT. In pursuance thereof purchase order No.ATD/POD/00001/1213 dated 18.8.2012 with the revised sale consideration value @ Rs.94,65,936.00 duly stamped and signed on 7.3.2013 was issued in favour of the plaintiff by the defendant no.1 by email dated 7.3.2013.

6. It was agreed between the parties that the quality of tiles would be checked by a third party i.e. Bureau Veritas (India) Pvt. Ltd. Delhi (hereinafter referred to as, „the Bureau‟). As agreed, the testing of the quality of tiles, Dimension Inspection and Visual Inspection was carried out by the Bureau. The inspection report dated 25.3.2013 shows that in the first lot out of 17599 tiles supplied, 2400 tiles were rejected on account of not being as per acceptable dimension. Another inspection was carried out on 29.5.2013 in which out of a lot of 20456 tiles offered by the plaintiff to the defendant, 20335 tiles were accepted. Out of the first lot, the Bureau found that out of the total number of tiles, 2400 tiles were shorter by approximately 2 mm in height than the acceptable dimension mentioned in the contract. According to the plaintiff the difference in dimension is negligible and very minor and it does not pose any real problem as far as installation of the tiles is concerned, except the horizontal groove between the tiles would be larger by 2 mm than originally conceived and would be hardly noticeable after matching colour silicone is filled into the grooves.

7. It is also the case of the plaintiff that other quality tests were also carried out on the tiles and the same were found to be in compliance with the acceptable standards and within tolerance limit. It is strongly urged by counsel for the plaintiff that the plaintiff has already performed his part of the agreement and the only issue which remains is with respect to the 2400 tiles out of 38055 tiles supplied to the defendant. Counsel submits that repeatedly plaintiff was assured by the defendants and the officials of the Larsen & Toubro that they appreciated the problem being faced by the plaintiff and every effort would be made to sort out the same. The officials of the Larsen & Toubro were and are also agreeable for preparation of fresh working drawings for their approval and the defendant company has unnecessary raised the issue of difference in colour of the tiles. The plaintiff had relied on an e-mail dated 23.8.2013 addressed by the plaintiff to Sh.Asim of Larsen & Toubro wherein it was explained by the plaintiff that in terms of the test carried out by the plaintiff on the tiles regarding the colour difference, the same have been found within the universal acceptable norms. It is also the contention of the plaintiff that despite repeated requests and reminders by the plaintiff, the defendant no.1 company did not prepare the working drawings for reasons best known to them, so that 2400 tiles found with minor and negligible dimension difference could be adjusted at the site as per the willingness of the Larsen & Toubro Ltd.

8. The plaintiff alleges internal dispute between the defendant no.1 and the Larsen & Toubro and Delhi International Airport Authority Ltd. regarding sharing of discount of 45% given by the plaintiff on the contract value. It is thus contended that on account of an internal dispute between the Larsen & Toubro and Delhi International Airport Authority Ltd. and the defendant no.1, the defendant no.1 is threatening to encash the bank guarantee whereas the dispute, if any, only pertains to 2400 tiles, which are of the value Rs.6,49,316/- for which the defendant no.1 cannot be permitted to encash the bank guarantee worth Rs.32,79,375/-, which amounts to a fraud.

9. It is also contended that the bank guarantee was initially given on contract value of Rs.1,72,10,793/-, however, subsequently the value of the contract was changed, therefore the threat of encashment of bank guarantee despite the contract value being changed would cause irretrievable injustice to the plaintiff and the act of the defendant can be termed as fraudulent. Reliance is placed on various e-mails by counsel for the plaintiff to show that the question of dimensional difference of tiles was of acceptable nature as the Larsen & Toubro had agreed to accept the same by filling silicone in the extra gap which would come up.

10. Counsel for the plaintiff has placed reliance on a Division Bench judgment of this court in State Trading Corporation of India Ltd. Vs. State Bank of India & Ors. reported at 2013 (5) R.A.J.

158 (Del) in support of his argument that while considering the grant of stay and staying the encashment of the bank guarantee, the court has to recognize the wider dimensions which have been attained over the passage of time and the Court must consider irretrievable injury, fraud, extra ordinary special equities and the fact that the bank guarantee is not being invoked in terms of the bank guarantee itself. Reliance is placed on paragraph 19 of the judgment which is reproduced below:

“19 The law in relation to bank guarantees has also now attained a wider dimension with the passage of time. Originally the only exception carved out to prevent the encashment of a bank guarantee was fraud. However, subsequent judicial pronouncements have extended this scope by adding other class of cases which would fall in this exception. Cases of irretrievable injury, fraud, extraordinary special equities and invocation of bank guarantee being not in terms of the bank guarantee itself. It is very difficult to draw any straitjacket formula which would universally apply to all the cases. Suppression of facts made by the party against the beneficiary and prima facie there being evidence to show that there is truth in these allegations, would not entitle the party to straightway invoke the bank guarantee. (See Synthetic Foams Ltd. Vs. Simplex Concrete Piles (India) Pvt. Ltd. AIR1988 Delhi 2007 and Hindustan Construction Co. Ltd. & Anr. Vs. Satluj Jal Nigam Ltd. AIR2006Delhi 169. The judgment of Dwarikesh Sugar Industries Ltd.(supra) would have no application; facts of the said case being distinct as admittedly in that case there was no breach of contractual obligation. The ultimate decision of the Swiss Court and the GAFTA having been upheld, it was patently clear that the petitioner had abused his power by invoking the bank guarantee.”

11. Reliance is also placed by counsel for the plaintiff on Gayatri Projects Ltd. Vs. Enseft Bituminous Products Pvt. Ltd. & Anr. reported at 197 (2013) DLT399and more particularly paragraph 26, which is reproduced below:

“This court is conscious about the fact at this stage, in case any issue is decided on merit, it would prejudice the case of either party. At present only a prima facie view is to be gathered from the facts of the case as to whether the plaintiff has made out any case for grant of injunction within four corners of Order 39 Rules 1 and 2 CPC and whether the defendant no.1 in view of settled law has rightly invoked the Bank Guarantee or the plaintiff‟s case is covered in any exceptions i.e. case of fraud or special equity in law. While deciding the present application, only prima facie findings are to be arrived at.”

12. It is also submitted by Mr.Kaushik, counsel for the plaintiff that the Appendix-A is the basis on which the bank guarantee was furnished by the plaintiff to defendant no.1. Relying on clauses 3(a) and 3 (c) of Appendix-A, which is reproduced below, counsel for the plaintiff submits that the bank guarantee was to expire on the delivery of the material at site and was to be returned immediately:

“APPENDIX –A3 Payment Terms: a) 20% value of the order as advance alongwith the PO within 7 days of submission of an advance money bank guarantee by you to us. This bank guarantee shall expire on the delivery of material at site and shall be returned to you immediately. c) In case, the tile breakage quantity would be more than the excess tiles supplied, the shortfall in quantity shall be supplied by New Era at its cost. If this is not done, then Star Alubuild shall be entitled to invoke the bank guarantee to the extent of the value of the material shortfall.”

13. Mr.Kaushik, further submits that reading of clauses 3(a) and 3(c) of Appendix-A would show that in case the tile breakage quantity would be more than the excess tiles supplied, the shortfall in quantity was to be supplied by the plaintiff and in case it was not done then the defendant no.1 would be entitled to invoke the bank guarantee to the extent of the value of the material shortfall. Counsel thus contends that assuming without admitting, it is only 2400 tiles which have been accepted by the defendant no.1 being not as per specifications, then invoking the bank guarantee in the sum of Rs.32,79,375/- would amount to fraud, besides extra ordinary equity flows in favour of the plaintiff.

14. Thus it is submitted that as per clauses 3(a) and 3(c) of Appendix-A, defendant no.1 would be entitled to invoke the bank guarantee only to the extent of cost of the 2400 tiles, which according to the defendant no.1 are not as per the specification.

15. Counsel further submits that the present case is fully covered by the decision of the Division Bench Judgment in the case of State Trading Corporation of India Ltd (Supra) and Gayatri Projects Ltd. Vs. Enseft Bituminous Products Pvt. Ltd (Supra), and any attempt to encash the bank guarantee would amount to a fraud and since there are special equities in favour of the plaintiff, the interim order should be confirmed.

16. Another submission made by Mr.Manish Kaushik counsel for the plaintiff is that once the defendant had agreed to accept 45% discount, any objection with regard to the specification of the tiles would stand condoned. Reliance is also placed on an e-mail dated 9.1.2013 by counsel for the plaintiff in support of his argument that while offering a discount of 45% the plaintiff had made it clear that tiles, size of which are found to be beyond tolerances may be returned, but it would not be possible for the plaintiff to replace any tiles or supply any additional quantity of tiles, besides tiles already loaded in the container. It is thus contended that defendant no.1 was well aware about the factual position with regard to the availability of tiles with the plaintiffs. Counsel has also placed reliance on P.D. Alkarma Pvt. Ltd. Vs. Canara Bank reported at 73 (1998) 147, wherein a Single Judge of this Court considered the special equity in favour of the plaintiff and restrained the encashment of the bank guarantee.

17. Counsel for the defendant and the applicant in I.A. 20141/2013 filed under Order 39 Rule 4 CPC submits that the plaintiff has not approached this court with clean hands, the plaintiff has suppressed and withheld material facts, besides that the plaintiff cannot seek stay of encashment of the bank guarantee, as the bank guarantee itself is an independent document.

18. It is further contended that a careful reading of the bank guarantee would show that the same was to be encashed by the bank without any protest or demur. It is submitted that no doubt that initially, as per purchase order dated 18.8.2012 the bank guarantee in question was furnished with respect to the total sale consideration of Rs.1,72,10,793/-, however, although the purchase order was amended with the mutual consent of the parties, the bank guarantee was not amended for the reasons that the defendant paid the complete advance to the plaintiff, as per the first purchase order. Thus there was no occasion for any amendment in terms of the bank guarantee, moreover, the plaintiff did not raise any protest or seek any clarification nor any request was made for change in the terms and conditions of the bank guarantee.

19. Counsel for the defendant further submits that the defendant no.1 was appointed as a sub-contractor by Larsen & Toubro Ltd., for design, supply and installation of Facade System including Terracotta Tiles for DIAL Airport Project (Delhi International Airport which includes Area Control Centre (ACC) Building, Tower Base Building (TBB) and Air Traffic Control (ATC) Tower). The defendant in turn appointed the plaintiff herein as a supplier of terracotta tiles.

20. Without prejudice to the above submission so made, counsel for the defendant submits that out of the total number of tiles supplied, 2400 tiles were found to be short dimensionally. Counsel for the defendant also submits that even for the balance tiles there was difference in colour shade and it is in recognition of this and admitting the fact that the tiles were not as per the specification, the plaintiff initially offered discount of 10%, which was later increased to 35% and finally the plaintiff agreed to a 45% discount. The effect of this discount was that in case the plaintiff supplied the balance 2400 tiles, the defendant would accept the same. But the effect of this discount was not to the effect of exempting the plaintiff from supplying the balance tiles at all.

21. It is contended by counsel for the defendant that since the plaintiff has not made any effort to supply these tiles and the fact that the tiles are not available, which is evident from the letter received by the plaintiff from his supplier, the defendant no.1 is being put to great hardship and the principal of defendant being Larsen & Toubro Ltd., have threatened the defendant no.1 with dire consequences, including invocation of their bank guarantees, which are over Rs.8.0 crores for not completing the work.

22. It is submitted that a false impression is being created before this Court that the only dispute between the parties is with regard to 2400 tiles whereas the plaintiff is liable to be penalized by the defendant for the delay in completion of project besides the fact that tiles will have to be procured by the defendant no.1 from a new vendor which will have to be associated; and since the tiles are required at short notice, defendant no.1 would not only have to pay a higher rate, but also bear the cost of air lifting the tiles to complete the work, besides the defendant no.1 is being penalized by Larsen & Tubro Ltd. for the delay in completion of the work for which the plaintiff is solely responsible.

23. Mr.Khurana, counsel for the defendant also submits that plaintiff has failed to disclose that two bank guarantees were furnished by the plaintiff, the first bank guarantee after the supply of material was returned to the plaintiff and the second bank guarantee which is subject matter of the present suit is a performance bank guarantee and thus reliance by the plaintiff on Annexure-A is misplaced and misleading. Attention of this Court is drawn to the bank guarantee itself, which reads as under:

“We hereby undertake to indemnify you and keep you indemnified to the extent of the sum of Rs.32,79,375/- (Rupees Thirty Two Lacs Seventy Nine Thousand Three Hundred Seventy Five only) from and against all losses and damages that may be caused to you or suffered by you in relation to the advance payment made by you to the Vendor as aforesaid by reason of any default or defaults on the part of the Vendor in due performance of the said Purchase Order, we shall unconditionally and without demur forthwith on demand pay to you a sum or sums not exceeding in the total the said sum of Rs.32,79,375/- (Rupees Thirty Two Lacs Seventy Nine Thousand Three Hundred Seventy Five only) as may be claimed by you to be due from the Vendor as your losses and / damages, costs, charges or expenses. Notwithstanding anything to the contrary, your decision as to whether the Vendor has made any such default or defaults and the amount or amounts to which you are entitled by reason thereof will be binding on us and we shall not be entitled to ask you to establish your claims under this guarantee but will pay the same on demand without any objection. [Emphasis supplied]. This guarantee shall continue and hold good until it is released by you in writing after the Vendor has discharged all its objections under the said Purchase Order.”

24. Mr.Tanuj Khurana, counsel for the defendant also submits that the submission of counsel for the plaintiff that the bank guarantee and the dispute between the parties is only restricted to 2400 tiles is highly misleading for the reason that the quantity of 2400 tiles have been rejected by the third party, an independent agency, who was employed to give its report and in the absence of 2400 tiles as per specification, the project cannot be completed and for which the defendant no.1 is likely to be penalized by the principal contractor. A copy of the letter dated 15.3.2014 has been handed over in Court to show the serious concern expressed by Larsen & Toubro Ltd. with regard to delay in the project and further Larsen & Toubro Ltd. has made it clear that they would reserve the right to recover liquidated damages from the bank guarantees available with them furnished by the defendant no.1.

25. Counsel for the defendant submits that the application [I.A. 15869/2013 (under Order 39 Rules 1 & 2 CPC)]. filed by the plaintiff is liable to be dismissed, stay vacated and the application [I.A. 20141/2013 (under Order 39 Rule 4 CPC)]. filed by the defendant is liable to be allowed.

26. In view of the settled law, Mr.Khurana, submits that any dispute between the parties cannot be termed as an act of fraud, neither the plaintiff can raise the plea of irreparable loss and injury or lack of equity and fair-play on the part of the defendant no.1.

27. I have heard counsel for the parties and considered their rival submissions. The law relating to invocation of bank guarantees is well settled. By a catena of decisions the Supreme Court of India has repeatedly held that Courts should be slow in granting injunctions to restrain the invocation of a bank guarantee, except in cases of fraud of an egregious nature which would vitiate the entire transaction and in those cases where special equity is in favour of grant of injunction or cases of irretrievable injury or irretrievable injustice would occur if such an injunction was not granted. CS(OS) No.1906-2013 It is equally well settled that a dispute Page 12 of 22 between the beneficiary and the party at whose instance the bank guarantee has been given is immaterial and of no consequences. In the case of BSES Limited (Now Reliance Energy Ltd.) Vs. Fenner India Ltd. and Anr. reported at (2006) 2 SCC728 it was held as under:

“10. There are, however, two exceptions to this Rule. The first is when there is a clear fraud of which the Bank has notice and a fraud of the beneficiary from which it seeks to benefit. The fraud must be of an egregious nature as to vitiate the entire underlying transaction. The second exception to the general rule of non- intervention is when there are “special equities” in favour of injunction, such as when “irretrievable injury” or “irretrievable injustice” would occur if such an injunction were not granted. The general rule and its exceptions has been reiterated in so many judgments of this court, that in U.P. State Sugar Corpn. V. Sumac International Ltd. (1997) 1 SCC568(hereinafter U.P. State Sugar Corpn ) this Court, correctly declared that the law was “settled”.

28. In the case of Himadri Chemicals Industries Ltd. Vs. Coal Tar Refining Company reported at (2007) 9 SCALE631 the Apex Court has summarized the principles for grant of injunction of a bank guarantee or a letter of credit. Paragraph 14 of the judgment reads as under:

“14…….. (i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. (ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.

29. (iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.”

In the case of Mahatama Gandhi Sahakra Sakkare Karkhane Vs. National Heavy Engg. Coop. Ltd and Anr. reported at 2007 (9), 177, it was held by the Supreme Court that in the case of an unconditional bank guarantee, it is not open for the bank to raise any objection. Paragraph 22 of the judgment reads as under:

“Para 22. If the bank guarantee furnished is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under the guarantee. The person in whose favour the guarantee is furnished by the bank cannot be prevented by way of an injunction in enforcing the guarantee on the pretext that the condition for enforcing the bank guarantee in terms of the agreement entered between the parties has not been fulfilled. Such a course is impermissible. The seller cannot raise the dispute of whatsoever nature and prevent the purchaser from enforcing the bank guarantee by way of injunction except on the ground of fraud and irretrievable injury. Para 29. What is relevant, therefore, is the terms incorporated in the guarantee executed by the bank. On careful analysis of the terms and conditions of the guarantee, we find the guarantee to be an unconditional one. The respondent, therefore, cannot be allowed to raise any dispute and prevent the appellant from encashing the bank guarantee. Mere fact that the bank guarantee refers to the principal agreement without referring to any specific clause in the preamble of the deed of guarantee does not make the guarantee furnished by the bank to be a conditional one.”

30. It would also be useful to refer to the observations made by the Supreme Court in the case of U.P. State Sugar Corporation Vs. Sumac International Ltd. reported at (1997) 1 SCC568 at paragraph 12, which read as under:

“12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. 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. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may co-exist in some cases.”

31. The present applications are to be decided on the touchstone of the law laid down by the Hon‟ble Supreme Court of India. The first submission of counsel for the plaintiff is that the bank guarantee was furnished by the plaintiff arising out of clauses 3(a) and 3 (c) of Appendix-A, to the purchase order. According to the counsel for the plaintiff the bank guarantee was to expire on the delivery of the material at site when the bank guarantee was to be returned. Secondly in case the tiles breakage quantity would be more than the excess tiles supplied, the shortfall in quantity was to be supplied by the plaintiff at its cost, and in the absence thereof the defendant was entitled to invoke the bank guarantee to the extent of the value of the material shortfall.

32. The second submission of counsel for the plaintiff is that once the defendant had accepted a 45% discount on the tiles supplied shortfall, the absence of specification in the form of colour or size, stood condoned.

33. The third submission of counsel for the plaintiff is that the invocation of the bank guarantee by the defendant would amount to fraud; and in case the bank guarantee is invoked, the plaintiff would suffer irreparable loss and injury when the special equities for grant of injunction are in favour of the plaintiff, as the defendant at best has a claim with respect to 2400 tiles, whereas the bank guarantee is of Rs.32,79,375/-.

34. Per contra, counsel for the defendant has argued that the plaintiff has failed to disclose that initially two bank guarantees were furnished by the plaintiff and once the material was supplied, the first bank guarantee was returned, thus, clauses 3(a) and 3 (c) of Appendix-A are not applicable to the present bank guarantee. It is also submitted that the present bank guarantee is not restricted to the supply of material, but it is a performance bank guarantee, reading of which would show that it would cover all the losses arising out of the purchase order. It is also submitted that the offer made by the plaintiff for a 45% discount was not accepted unconditionally and in the absence of plaintiff having fulfilled the conditions, no benefit can accrue to the plaintiff.

35. It is also the case of the defendant that the plaintiff has not been able to show any fraud of egregious nature or irretrievable injury or special equity, if any, is not in favour of the plaintiff, who has failed to supply the material, but is in favour of the defendants, who are facing the risk of invocation of bank guarantees furnished by them to the principal contractor (Larsen & Toubro Ltd.).

36. The short question which thus comes up for consideration before this Court is whether the present case falls under any of the two exceptions i.e. case of fraud or special equity in law for grant of injunction. In the case of State of Orissa & Ors. Vs. Harapriya Bisoi AIR2009SC2991 fraud was defined as under:

“33. By "fraud" is meant an intention to deceive; whether it is from any expectation of advantage to the party himself or from the ill will towards the other is immaterial. The expression "fraud" involves two elements, deceit and injury to the person deceived. Injury is something other than economic loss, that is, deprivation of property, whether movable or immovable or of money and it will include and any harm whatever caused to any person in body, mind, reputation or such others. In short, it is a non-economic or non-pecuniary loss. A benefit or advantage to the deceiver, will almost always cause loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage to the deceiver, but no corresponding loss to the deceived, the second condition is satisfied. (See Dr. Vimla v. Delhi Administration (1963 Supp. 2 SCR585 and Indian Bank v. Satyam Febres (India) Pvt. Ltd. (1996 (5) SCC550.

34. A "fraud" is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage. (See S.P. Changalvaraya Naidu v. Jagannath (1994 (1) SCC1.”

37. As per counsel for the plaintiff, the fraud has been alleged by the plaintiff in paragraphs 12 and 14 of the plaint. I deem it appropriate to reproduce the same:

“12. ...... Admittedly, the plaintiff has performed the contract and has supplied the tiles and the only issue is with respect to 2400 tiles out of 38055 tiles. The contract value of 2400 tiles is Rs.6,49,316/- and the Defendant no.1 wants to encash the Bank Guarantee of Rs.32,79,375/- was given for the initial contract of Rs.1,72,10,793/-. The action of the Defendant no.1 is therefore fraudulent and will cause irretrievable injustice to the plaintiff.

14. That in subsequence thereof an email dated 20.9.2013 has been addressed by the official of the defendant company one Shri Pradeep Baatish to above said Shri Mithilesh Kumar, wherein it has been stated by the defendant company that in case the plaintiff (vendor) does not provide the demanded material i.e. 2500 tiles (actual No.of tiles with dimensional difference is 2400 only and not 2500 as wrongly asserted by the defendant company) the cost alleged to be incurred by the defendant company towards material procurement, LD cost and extra cost incurred by the defendant shall be deducted from the Bank Guarantee dated 24.8.2012 furnished by the plaintiff to the defendant. It is stated that the defendant company has become dishonest and is resorting to fraudulent means to encash the Bank Guarantee dated 24.8.2012 by raising unnecessary issues, claims and demands. The stand taken by the defendant company in its email dated 20.9.2013 is highly objectionable, arbitrary and is based on the whims and caprice of the defendant company. The defendant is making every effort in a most illegal manner to somehow encash the bank guarantee which is for a huge amount of Rs.32,79,375/- or one or the other pretext without any justification.”

38. Even during the course of hearing, counsel for the plaintiff has strongly urged before this Court that the claim of the defendant if any can only be restricted to the cost of 2400 tiles. It is also urged that having agreed to accept the tiles at a discounted value of 45%, the invocation of the bank guarantee amounts to fraud.

39. It has been held that where fraud has been alleged, the plaintiff must prima facie make out a case of clear fraud and the fraud alleged must be of an egregious nature which would vitiate the very foundation of the bank guarantee. Upon careful reading of the plaint, the plaintiff is unable to establish fraud much less a fraud of egregious nature which would vitiate the entire transaction. A dispute between the plaintiff and the defendant by itself cannot be termed as a fraud. More so, when the mere fact that the plaintiff had agreed to first give discount of 10%, thereafter increased the same to 25% and finally agreed to give a discount of 45%, amounts to a clear cut admission that the goods supplied were not as per the specification. Moreover, the argument of learned counsel for the plaintiff that once the discount of 45% was accepted, the defendant is estopped from raising any objection, is without any force, as the offer of acceptance of 45% discount was not an unconditional acceptance. E-mail dated 23.1.2013 reads as under:

“Dear Mr.Aman, This is to inform you that we accept your revised offer with 45% discount (including, LD) based on following conditions:

1. Revised order value is 94,65,936 including 12.5% VAT (i.e. 0.55*1,72,10,793) 2. Revised size tolerances:

292. mm height tiles: a) height : + 4 mm and -2 mm b) length : + 2 mm and -1 mm 242 mm height tiles: c) height : + 2 mm and -4 mm d) length : + 2 mm and -1 mm The enquiry of tiles of the order which do not meet the above criteria shall be replaced free of costs by New Era.

3. Tiles will be checked by third party, known as Bureau Veritas as per attached file. All expenditures pertaining to this report will be borne by New Era. The report of Bureay Veritas would be binding on all parties. The quantity of tiles of the order which do not meet the report criteria shall be replaced free of cost by New Era.

4. Flexure strength should not be less than the strength mentioned by you in your test reports. (Test Report attached).

5. Any shortfall in the ordered quantity (5145.08 Sqm) will be also supplied by New Era.

6. Any short of demurrage will be borne by New Era. Regards Asim Gupta” [Emphasis supplied].

40. In accordance with this communication tiles were sent to Bureay Veritas and as per their report 2400 tiles were rejected due to dimensional variation. Thus the submission of counsel for the plaintiff that the difference in dimension is negligible and very minor and it does not pose any real problem as far as installation of the tiles is concerned, except the horizontal groove between the tiles would be larger by 2 mm than originally conceived and would be hardly noticeable after matching colour silicone is filled into the grooves, is without any force and cannot be accepted.

41. Another argument which has been made is that the claim of the defendant is at best restricted to value of 2400 tiles and for this bank guarantee of Rs.32,79,375/- cannot be invoked which would lead to irretrievable harm or injustice to the plaintiff and encashment of the bank guarantee would thus amount to playing a fraud upon the plaintiff.

42. Reading the terms of the bank guarantee makes it abundantly clear that the bank guarantee was an unconditional bank guarantee and the bank is to indemnify the defendant against all losses and damages that may be caused in relation to advance payment or by reason of default on the part of the plaintiff for losses, damages, costs, charges and expenses. Thus the argument of the counsel for the plaintiff that dispute is only with regard to 2400 tiles is also without any force.

43. Although the dispute between the parties cannot be considered by the Court, at this stage, but to satisfy the judicial conscience of this Court and to test the argument of the plaintiff with regard to fraud and irretrievable harm or injustice, the arguments of the counsel for the plaintiff were duly considered. The plaintiff has not been able to show exceptional circumstances for stay of the bank guarantee, or any fraud much less of an egregious nature, which would vitiate the very foundation of the bank guarantee and in fact the stay of the bank guarantee would result in irretrievable harm to the defendant. Prima facie it appears that the plaintiff has not been able to supply tiles as per the specifications. Although the offer of 45% discount was accepted by the defendant, but the acceptance was conditional which is evident from the e-mail dated 23.1.2013, which is reproduced above. As per the report of the independent agency, Bureay Veritas, 2400 tiles were rejected, which have neither been replaced nor any offer has been made to replace the same. The bank guarantee is an independent and separate contract and the existence of any dispute between the parties to the contract cannot be a ground for issuance of order of injunction to restrain enforcement of the same. Accordingly, the application of the plaintiff [I.A.15869/2013]. filed under Order 39 Rules 1 and 2 CPC is dismissed and the application filed by the defendants [I.A.20141/2013]. under Order 39 Rule 4 CPC is allowed. Interim order dated 01.10.2013 is vacated. G.S.SISTANI, J MAY26 2014 ssn