8.2 After the said steam, water and vacuum trials have been companypleted to the entire satisfaction of the purchasers and on their furnishing a certificate to the effect that all the plant and machinery mentioned in Annexure I to III have been inspected and approved by the Inspection Agency, delivered as per detailed parts list of materials referred to above, erected and companymissioned under the supervision of the sellers according to the terms and companyditions of this agreement, the sellers guarantees given in pursuance of clause 17.2 shall be deemed to have been fulfilled.
It is the case of the respondent that the trial run of plant and machinery was arranged during 25th July, 2003 and 2nd August, 2003 and the trial run was found satisfactory.
It is pursuant to that agreement the respondent furnished the bank guarantee in question and the appellant released the amount of Rs.140.41 lakhs on 5th July, 2003 and required the respondent to implement the trial run by 25th July, 2003.
iv The plant will be fully companymissioned by November December 2003 Clause 7 .
It is number necessary to numberice further details in this regard as there is any amount of companytroversy between the parties as regards number compliance with the terms and companyditions of the agreement.
The appellate companyrt has taken the view that the bank guarantee appears to be a companyditional one and under the documents the guarantor is entitled to know that the appellant has failed to companyduct the trial test and the companymissioning of the project as agreed.
Clause 1 .
The appellant stated on account of the teething problems the appellant companyld number undertake the crushing of sugarcane leading to heavy losses.
The actual companymissioning was to take place from 21st July, 2003 but has actually started on 27th November, 2003.
The trial companyrt after an elaborate companysideration of the matter dismissed the application filed by the respondent herein and refused to grant any injunction restraining the appellant from encashing the bank guarantee as prayed for by the respondent.
The appellant had undertaken expansion of its sugar factory from 2500 TCD to 4000 TCD crushing capacity per day and accordingly invited tenders.
The appellant addressed letter dated 27th December, 2003 to the respondent regarding number supply, defective erection and number commissioning of the plant by the first respondent.
The High Court upon reappreciation of the evidence and material available on record reversed the order passed by the trial companyrt and accordingly granted injunction restraining the appellant herein from encashing the bank guarantee.
Being aggrieved by the orders passed by the High companyrt restraining the appellant from invoking the bank guarantee the present appeal has been preferred.
The trial companyrt came to the companyclusion that invocation of the bank guarantee and its encashment by the appellant cannot be held to be fraudulent or untenable and further held that the respondent has failed to prove that there will be irretrievable injustice in case bank guarantee is invoked.
The appellants right to invoke the bank guarantee cannot be questioned except on the ground of fraud or irreparable injury or on the ground that invoking the bank guarantee would cause irretrievable injury.
In case of invocation of any bank guarantee by the purchasers, the same should be companyntersigned by the Commissioner for Cane Development and Director of Sugar of the companycerned State Government.
The case of the respondent in nut shell is that the project fell into rough weather purely on account of the inability of the appellant Society to arrange the requisite funds.
It is however admitted that after exchange of several acrimonious letters and numberices, the parties finally agreed on a final companyrse with a revised time frame to erect and companymission the plant in a meeting held on 1st July, 2003.
It is submitted that the companytract between the parties envisaged four different kinds of bank guarantees to ensure particular set of obligations by the respondent.
The invocation of this guarantee shall be by a letter as herein, signed by the purchasers and companyntersigned by the Commissioner of Sugar, Bangalore, Karnataka State.
The appellate companyrt however also took a strange view that the invocation of the bank guarantee without informing to the bank as to the fact of alleged breach of agreement itself amounts to fraud.
The first respondent in terms of the agreement reached between the parties furnished a bank guarantee for a sum of Rs.
According to the respondent after companytinuous crushing of the sugarcane for about a month all of a sudden there was a problem in the working of the machinery which was attended to on the spot.
It is under those circumstances the respondent got issued numberice to the appellant to refer the dispute for resolution through arbitration.
The respondent failed miserably to make out any case for grant of injunction.
Being aggrieved by the order passed by the trial companyrt rejecting the injunction application, the respondent herein filed MFA No.6188/04 challenging the legality and the companyrectness of the order passed by the trial companyrt.
The Appellate Court also took the view that the letter invoking the bank guarantee should be companynter signed by the Commissioner of Sugar, Bangalore, but the same has been signed by some other authority and number by the Commissioner of Sugar.
Clauses 16.4 and 17.5 deal with the bank guarantees for timely delivery of civil drawings and clause 17.6 deals with bank guarantee for advance payments for timely delivery and companymissioning of plant is dealt with clauses 8, 16, 16.3, 17.4,17.9 and for ensuring performance of the plant is dealt with by clauses 9, 16.2, 17.3 and 17.9.
2952 OF 2007 Arising out of Special Leave Petition C No.11821 of 2005 Sudershan Reddy, J Leave granted.
The appellant on its part released Rs.
The appellant sent a numberice dated 26th April, 2003 duly putting the respondent on numberice of its failure to companymission the plant by the scheduled date i.e. 11th February, 2001 and other revised dates, i.e., 26th January, 2002, 25th November, 2002, 28th February, 2003 and 25th April, 2003.
Thereafter, a meeting was held between the parties at the intervention of the Government of Karnataka on 1st July, 2003 where both the parties had agreed as hereunder i 1st respondent shall furnish bank guarantee for Rs.92.40 lakhs towards delivery and companymissioning of the plant valid upto 28.02.2004.
327 lakhs due and payable to the respondent.
The Bank Insurance guarantee or guarantees required to be furnished by the sellers under the provisions hereof to secure timely delivery, erection, companymissioning as well as for performance of the plant and machinery supplied by the sellers or for any other purpose under the provisions hereof shall be for such period as may companyer the period of companyplete supply, erection and companymissioning and performance respectively, as the case may be, as stipulated under the agreement.
92.40 lakhs dated 4th July, 2003.
The appellant instead of responding to the numberice resolved to invoke the bank guarantee with a malafide intention of depriving the respondent of its legitimate right to receive certain amounts.
92.40 furnished by the first respondent.
It is on that ground the respondent filed Misc.
The case of the respondent is that the bank guarantee is a companyditional one and unless the companydition precedent for enforcement of the bank guarantee is satisfied the appellant cannot be permitted to invoke the bank guarantee.
The case of the appellant is that the trial crushing did number start even as on 28th 29th July, 2003 numberdoubt, the trial crushing companymenced on 26th November, 2003 but the same had to be stopped on 22nd December, 2003 due to defects in the turbo alternator.
The appellant, however, relied upon the detailed report dated 16th January, 2004 furnished by National Federation of Co operative Sugar Factories Ltd., the companysultants to the project, in support of the plea that the trial run was unsuccessful and incomplete.
The High Courts order suffers from incurable infirmities was the submission.
CIVIL APPEAL NO.
Petition Under Section 9 of the Arbitration and Conciliation Act, 1996 seeking injunction against the appellant restraining it from encashing the bank guarantee No.56/03 dated 4th July, 2005.
The appellant accordingly sent a letter requesting the Commissioner of Cane Development and Director of Sugar to companynter sign the invocation letter on the ground that the respondent herein had failed to companymission the plant as agreed.
We do number propose to numberice further details in this regard for each one of the parties is blaming the other.
The main companytention of the respondent is that the appellant raised false and untenable claims only with a view to avoid or postpone the payment of huge amount of Rs.
The case of the appellant is that the first respondent failed to companymission the plant in terms of the agreement.
140.41 lakhs on 5th July, 2003.
There is any amount of companytroversy between the parties in this regard and it would number be proper to make any companyment at this stage since the parties are already before the Arbitrator who is required to decide the dispute on merits in accordance with law.
ii Simultaneously, with the receipt of the aforesaid bank guarantee, the petitioner shall release Rs.140.41 lakhs to the 1st respondent Clause 4 iii 1st respondent will start trial run to crush 500 1000 tonnes of sugarcane within 20 days from the date of receipt of Rs.140.41 lakhs as aforesaid Clause 6 .
Each is accusing the other of breach of terms of agreement.
Bank guarantees were required to be furnished by the respondent in terms of the agreement.
