Sunday, 16 April 2017

Leading judgment on Damages

Justice Bhagwati (as His Lordship then was)
speaking for the Bench examined the issue in great
detail in the light of law laid down by English and
Indian Courts. The learned Judge in his distinctive
style of writing after examining the entire case law on
the subject held that an expression "sum due"
occurring in Clause 18 would mean a sum for which
there is an existing obligation to pay in praesenti or in

other words which is presently payable and due and,
therefore, recovery of only such sums can be made
subject matter of Clause 18 which is presently payable
and due. It was held that a claim, which is neither
due and nor payable, cannot be made subject matter
of Clause 18. It was further held that Clause 18 does
not create a lien on other sums due to the contractor
or give to the purchaser a right to retain such sums
until his claim against the contractor is satisfied. It
was also held that a claim for damages for breach of
contract is not a claim for a sum presently due and
payable and the purchaser is not entitled in exercise of
the right conferred upon it under Clause 18 to recover
the amount of such claim by appropriating other sums
due to contractor.
39) Their Lordships approved the view taken by
Chagla C.J. in the case of Iron and Hardware (India)
Co. vs. Firm Shamlal and Bros., AIR 1954 Bom.423
by observing in para 11 as under.

“11. ………………………………………………….The same
view has also been taken consistently by different
High Courts in India. We may mention only a few
of the decisions, namely, Jabed Sheikh v. Taher
Mallik,AIR 1941 Cal 639 S. Milkha Singh v. N.K.
Gopala Krishna Mudaliar, AIR 1956 Punj 174 and
Iron and Hardware (India) Co. v. Firm Shamlal
and Bros., AIR 1954 Bom 423. Chagla, C.J. in the
last mentioned case, stated the law in these terms:
(at pp. 425-26)
In my opinion it would not be true to
say that a person who commits a breach of
the contract incurs any pecuniary liability,
nor would it be true to say that the other
party to the contract who complains of the
breach has any amount due to him from the
other party.
As already stated, the only right which
he has is the right to go to a Court of law and
recover damages. Now, damages are the
compensation which a Court of law gives to a
party for the injury which he has sustained.
But, and this is most important to note, he
does not get damages or compensation by
reason of any existing obligation on the part
of the person who has committed the breach.
He gets compensation as a result of the fiat
of the Court. Therefore, no pecuniary liability
arises till the Court has determined that the
party complaining of the breach is entitled to
damages. Therefore, when damages are
assessed, it would not be true to say that
what the Court is doing is ascertaining a
pecuniary liability which already existed. The
Court in the first place must decide that the
defendant is liable and then it proceeds to
assess what that liability is. But till that
determination there is no liability at all upon
the defendant.

This statement in our view represents the correct
legal position and has our full concurrence. A claim
for damages for breach of contract is, therefore,
not a claim for a sum presently due and payable
and the purchaser is not entitled, in exercise of the
right conferred upon it under clause 18, to recover
the amount of such claim by appropriating other
sums due to the contractor. On this view, it is not
necessary for us to consider the other contention
raised on behalf of the respondent, namely, that on
a proper construction of clause 18, the purchaser
is entitled to exercise the right conferred under
that clause only where the claim for payment of a
sum of money is either admitted by the contractor,
or in case of dispute, adjudicated upon by a court
or other adjudicatory authority. We must,
therefore, hold that the appellant had no right or
authority under clause 18 to appropriate the
amounts of other pending bills of the respondent in
or towards satisfaction of its claim for damages
against the respondent and the learned Judge was
justified in issuing an interim injunction
restraining the appellant from doing so.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4814 OF 2016
(ARISING OUT OF SLP(C) No. 27052 of 2012)
M/s Gangotri Enterprises Ltd. 
V
Union of India & Ors. 
Dated:May 05, 2016.
Citation:(2016) 11 SCC 720
2) This appeal is filed against the final judgment
and order dated 23.07.2012 of the High Court of Uttar
Pradesh Judicature at Allahabad in F.A.F.O. No. 2930

of 2012 whereby the High Court dismissed the appeal
filed by the appellant herein and upheld the order of
District Judge which had refused to grant an interim
injunction restraining encashing of the Bank
Guarantee by the respondents herein.
3) In order to appreciate the issue involved in this
appeal, which lies in a narrow compass, it is necessary
to set out the relevant facts in brief infra.
4) The respondents, i.e., North Central Railway
invited tender for doing “earth work in embankment
and cutting including provision of machine
crushed/blended material blanketing layer and
construction of RCC Box type minor bridges at
CH-84700M to 114100M”, in connection with laying
down of Agra-Etawah new BG Rail Line. The
appellant-a Limited Company applied for the said
tender and its tender being the lowest one was
accepted by the respondents on 14.03.2005 and
accordingly the letter of acceptance was issued in

appellant’s favour. The contract agreement No. CE(C)
‘North’ ALD/A-E/Contract/EW-III dated 22.08.2005
was then signed between the parties. The total value of
the contract was Rs.14,62,46,742/-, the date of
commencement of work was 14.03.2005 and the date
of completion of work was 13.03.2007. As the work
could not be completed within the prescribed time, on
the request of the appellant-Company, the period of
completion of work was extended twice by the
respondents, firstly, from 14.03.2007 to 31.12.2007
and again upto 30.09.2008 without levy of penalty and
with price variation clause benefit.
5) On 14.07.2006, the appellant-Company was
granted another work by the respondents-North
Central Railway vide letter No.
74-W/4/1/347/WA/ANVR/SERd./TCR for
construction of New Station Building (G+2) circulating
area, various service buildings, construction of
platform shelters with RCC Column and beam,

Underground and Overhead water storage tanks,
water supply pipeline network and other misc. works
in connection with the Development of New Passenger
Terminal at Anand Vihar (East Delhi) [hereinafter
referred to as “Anand Vihar works”]. In connection
with the grant of the Anand Vihar works, the
appellant-Company submitted a Bank/Performance
Guarantee bearing No. 12/2006 dated 04.08.2006
from its banker Indian Mercantile Co-operative Bank
Ltd., Cantt. Road, Lucknow (hereinafter referred to as
‘Bank’) for a sum of Rs.1,32,78,820/-.
6) Since the work relating to contract dated
22.08.2005 could not be completed within the
prescribed time/extended time by the appellant due to
non-availability of site because of the agitation of the
farmers and non-supply of the specification or drawing
of most of the small bridges by the respondents, as
complained by the appellant, the Agra-Etawah
contract dated 22.08.2005 was terminated by the

respondents vide its letter dated 30.04.2009. After
inviting fresh tenders, the rest of the work was
allocated by the respondents to another Company,
namely, M/s Hanu Infrastructure Pvt. Ltd. Kasganj,
Kashiram Nagar for approximately Rs. 11 Crores on
10.06.2011 without giving any information to the
appellant-Company.
7) On 30.09.2010, the appellant got the completion
certification from the respondents for the Anand Vihar
works with a defect liability period of six months,
which also came to an end on 30.03.2011. Thus the
appellant became entitled to seek the release of the
Bank/Performance Guarantee No. 12/2006 submitted
by it for the said work from the respondents.
8) On 27.06.2011, the appellant, therefore, wrote a
letter to the respondents-North Central Railway for
return of the Bank/Performance Guarantee No.
12/2006.

9) On 10.06.2011, the North Central Railway issued
an internal circular to all concerned departments of
the Railways for withholding of dues of the
appellant-Company stating therein that the contract of
the appellant-Company dated 22.08.2005 or the New
Agra-Etawah BG Line was cancelled and the same had
caused the respondents a loss of Rs.5,58,16,036.33.
The said circular came to the knowledge of the
appellant on 18.07.2011.
10) On 30.11.2011, the respondents through their
accounts department wrote a letter to the Bank which
had furnished Bank Guarantee No.12/2006 for and on
behalf of the appellant for the encashment of the said
Bank Guarantee.
11) On 02.12.2011, the final bill for the Anand Vihar
works were cleared by the respondents and the
payment for the same was released by the
respondents.
6Page 7
12) Since the disputes had arisen between the
parties in relation to and arising out of the contract
dated 22.08.2005, the appellant invoked Clause 36
read with Clause 64 of the General Conditions of
Contract (in short “GCC”) which provided for the
settlement of dispute by arbitration.
13) After initiation of the arbitration, the appellant,
on 04.01.2012, moved an application under Section 9
of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”) before the District
Judge, Allahabad bearing Arbitration Suit No. 411 of
2011 seeking injunction on encashment of the Bank
Guarantee deposited by it in the Anand Vihar works,
against the respondents. It was inter alia alleged in
the application that the respondents-North Central
Railway have no right to encash the Bank Guarantee
No.12/2006 furnished by the appellant in relation to
dispute arising out of another contract dated
22.08.2005. It was alleged that firstly, Bank

Guarantee was not furnished by the appellant in
relation to contract dated 22.08.2005 but was
furnished in performance of another contract dated
14.07.2006 (Anand Vihar works) which is a separate
contract and has nothing to do with the contract dated
22.08.2005. Secondly, it was alleged that so far as the
contract dated 14.07.2006 (Anand Vihar works) is
concerned, the work was completed well within time
and also to the satisfaction of the respondents and for
which Completion Certificate was also given to the
appellant by the respondents on 30.09.2010. Thirdly,
it was alleged that since the Bank Guarantee in
question was in the nature of performance Guarantee
for due execution of contract dated 14.07.2006 (Anand
Vihar works) and the same having been performed by
the appellant to the satisfaction of the respondents,
the appellant-Company was entitled to get its Bank
Guarantee No.12/2006 released from the respondents.
It was further alleged that in these circumstances, the

respondents have no right to encash the Bank
Guarantee in relation to any dues arising out of other
contract with the appellant. It was also alleged that in
any event, so long as the disputes arising out of the
contract dated 22.08.2005 are not finally decided by
the arbitrator and liabilities of the parties are not
ascertained as to, who has to pay how much sum by
way of damages and whether any one is at all liable to
pay, there is no sum “due” or “payable” either by the
appellant to the respondents or/and vice versa and
hence the respondents cannot invoke Clause 62(1) of
GCC for realization of any money/sum by encashing
the Bank Guarantee from the appellant.
14) The respondents resisted the petition and inter
alia contended that Clause 62(1) of GCC empowers the
respondents to make recovery of any dues from the
appellant. It was contended that since the
respondents have a claim/dues for payment of a sum
of money against the appellant (contractor), they

(respondents) would be entitled to exercise their right
of recovery given to them under Clause 62(1) even if
such claim is not for a “sum due” and “sum payable”
and is a claim for “damages” though disputed by the
appellant and remains to be adjudicated upon in a
court of law or by the arbitrator. It was contended
that the respondents were, therefore, entitled to
encash the Bank Guarantee in question in relation to
dues/claim made by the respondents against the
appellant.
15) By order dated 04.01.2012, the District Judge
allowed the application made by the appellant and
restrained the respondents from encashing Bank
Guarantee till appointment of arbitrator or
constitution of Arbitral Tribunal. It may be mentioned
here that the respondents did not file any appeal
against this order, which attained finality.

16) By letters dated 20.01.2012 and 29.01.2012, the
appellant then requested the respondents for return of
its Bank Guarantee.
17) On 13.03.2012, an arbitration Tribunal was
constituted as per Clause 32 read with Clause 64 of
the contract between the parties which comprised of
Shri Arun Kumar, CCE/NCR/ALD, Shri A.K. Bijalwan
FA&CAO/F&B/NCR/ALD and Shri R. Rajamani
Former CCRS & Member/Arbitrator to look into the
claims and the counter claims of the parties. The
arbitration proceedings are pending.
18) On 21.03.2012, the Deputy Chief General
Manager/Const./SE Rd/NDLS wrote to the Branch
Manager of the Indian Mercantile Cooperative Bank for
extension of Bank Guarantee, which was valid upto
13.01.2012. On the request of the respondents, the
Bank extended the period of Bank Guarantee for
another six months, i.e., upto 13.07.2012.

19) On 04.04.2012, the respondents through their
accounts office wrote a letter to the Branch Manager of
the Bank to encash the said Bank Guarantee in their
favour.
20) Since the respondents went on insisting for
encashment of the Bank Guarantee again and again
saying that order dated 04.01.2012 passed by District
Judge no longer survives as its life was only upto the
date of constitution of arbitral Tribunal and hence the
respondents became entitled to encash the Bank
Guarantee, the appellant again filed a petition under
Section 9 of the Act bearing Arbitration Suit No. 216 of
2012 before the District Judge, Allahabad seeking
injunction against the respondents from encashing the
Bank Guarantee.
21) By order dated 12.07.2012, the District Judge
dismissed the petition and declined to grant injunction
to the appellant. This time, the District Judge
accepted the stand taken by the respondents and held
12Page 13
that Clause 62(1) empowers the respondents to
recover any dues/claim from the appellant and hence
the respondents were within their rights to invoke the
bank Guarantee and recover the dues relating to other
contract.
22) Aggrieved by the said order, the appellant
preferred an appeal bearing F.A.F.O. No. 2930 of
2012 before the High Court.
23) By impugned judgment dated 23.07.2012, the
High Court concurred with the view taken by the
District Judge and dismissed the appellant’s appeal.
24) Challenging the said judgment, the appellant has
filed this appeal by way of special leave.
25) Heard Mr. B. Adinarayan Rao, learned senior
counsel for the appellant and Mr. Atul Chitaley,
learned senior counsel for the respondents.
26) Mr. B. Adinarayan Rao, learned senior counsel
appearing for the appellant (Contractor) while
assailing the legality and correctness of the impugned
13Page 14
order reiterated the same submissions, which were
urged by the appellant before the two Courts below in
support of the application filed by the appellant under
Section 9 of the Act. His submission was that since
the Bank Guarantee in question was in the nature of
performance guarantee furnished by the appellant for
due performance of one contract (Anand Vihar works)
dated 14.07.2006 and the same having been
admittedly performed by the appellant to the
satisfaction of the respondents (North Central
Railway), as is clear from the completion certificate
dated 30.09.2010 issued by the respondents in
appellant's favour, the purpose for which the Bank
Guarantee had been furnished was over as soon as the
Satisfaction Certification was issued by the
respondents in appellant’s favour. Learned counsel,
therefore, contended that the appellant became
entitled to claim release of the Bank Guarantee in
14Page 15
their favour on and after 30.09.2010 without any
fetters on their rights.
27) In the second place, learned counsel urged that
the respondents (North Central Railway) had no right
to take recourse to Clause 62 of GCC for encashing
the Bank Guarantee in question because firstly, the
arbitration proceedings which arose out of another
contract dated 22.08.2005 were still pending for final
adjudication of the liability, if any, and secondly, so
long as the liability as to how much sum was payable
and if so by whom it was payable was not finally
determined in accordance with law in the arbitration
proceedings by the arbitrators, there was no "sum
due" and nor any "sum payable" in praesanti by the
appellant to the respondents and vice versa in
connection with another contract.
28) In the third place, learned counsel contended
that the District Judge, in the first instance, having
rightly granted the injunction to the appellant vide
15Page 16
order dated 4.01.2012 and no appeal having been filed
against this order by the respondents, the said order
had become final and was binding on the parties. It
was, therefore, urged that when the appellant moved
the second application for grant of injunction after the
matter was referred to arbitration because of
insistence on the part of the respondents to encash
the bank guarantee, the District Judge should have
extended the life of first order dated 04.01.2012
instead of again going into the merits of the case.
29) Lastly, learned counsel urged that in the light of
this legal position arising in the case, the appellant
had made out a prima facie case for grant of injunction
against the respondents (North Central Railway) from
encashing the bank guarantee in question.
30) In reply, learned counsel for the respondents
(North Central railway) supported the impugned order
and contended that no case is made out to interfere in
the impugned order and hence it be upheld.
16Page 17
31) Having heard the learned counsel for the parties
and on perusal of the record of the case, we find force
in the submissions of the learned senior counsel for
the appellant.
32) In our considered opinion, it may not be
necessary for us to go into more details of the issue
because, in our view, the controversy involved in this
case remains no more res integra and stands decided
by this Court in the case of Union of India vs. Raman
Iron Foundry, (1974) 2 SCC 231. Since the issue
stands already decided by this Court and hence it is
necessary to examine the facts of the case and law laid
down therein in detail and then apply the same to the
facts of the case at hand.
33) The facts of the case of Union of India (DGS&D)
(supra) were that the respondent (Raman Iron
Foundry) entered into a contract with the Union of
India (DGS&D)-the appellant for supply of certain
quantity of "Foam compound". The contract, apart
17Page 18
from several other conditions, contained two clauses,
namely, Clauses 18 and 24. Clause 24 provided that
in the event of any dispute arising between the parties
in connection with the contract, the same shall be
decided by means of Arbitration. Clause 18 with which
we are concerned provided for "recovery of sums due”
which reads as under :
 “18. Recovery of sums due — whenever any
claim for the payment of a sum of money
arises out of or under the contract against
the contractor, the purchaser shall be
entitled to recover such sum by appropriating
in whole or in part, the security, if any,
deposited by the contractor, and for the
purpose aforesaid, shall be entitled to sell
and/or realise securities forming the whole
or part of any such security deposit. In the
event of the security being insufficient, the
balance and if no security has been taken
from the contractor, the entire sum
recoverable shall be recovered by
appropriating any sum then due or which at
any time thereafter may become due to the
contractor under the contract or any other
contract with the purchaser or the
Government or any person contracting
through the Secretary, if such sum even be
not sufficient to cover the full amount
recoverable, the contractor shall on demand
pay to the purchaser the balance remaining
due.”

34) The performance of the contract ran into
difficulties and dispute arose between the parties
giving rise to claims by either parties against the
other. The respondent contended that the appellant
committed a breach of the contract and was, therefore,
liable to pay to the respondent a sum of Rs.
2,35,800/- by way of damages suffered by the
respondent by reason of the breach of the contract
whereas the appellant, on the other hand, said that it
was the respondent who committed the breach of the
contract and was, therefore, liable to pay to the
appellant by way of damages a sum of Rs. 2,28,900/-.
In the meantime, the appellant through Assistant
Director of Supplies sent a letter to the respondent
calling upon the respondent to make payment to them
a sum of Rs. 2,28,900/- and threatened that if the
said amount is not paid, it will be recovered from
several respondents’ pending bills in respect of other
contracts.

35) The respondent, therefore, filed an application
under Section 20 of the Indian Arbitration Act 1940 in
Delhi High Court against the appellant for filing the
arbitration agreement. The respondent also made an
application for an interim injunction restraining the
appellant from recovering the amount of damages
claimed by it from several pending bills of the
respondent. The learned Single Judge dismissed the
injunction application on the ground that it could not
be proved that there were any pending bills but at the
same time allowed the application made under Section
20 of the Indian Arbitration Act and referred the
matter to arbitration as per Clause 24 of
GCC. This is how the claim/counter claim of the
parties became the subject matter of the arbitration
proceedings.
36) Pending arbitration proceedings, the appellant
made attempt to recover the said amount from the
respondent and hence the respondent again made

another interlocutory application under Section 41
read with second schedule to the Indian Arbitration
Act, 1940 and prayed for status quo in the case. The
appellant resisted the application. It was contended
that Clause 18 empowers the appellant to make
recovery of any amount from the respondent. The
learned Single Judge allowed the respondent's
application. He took the view that Clause 18 did not
authorize the appellant to appropriate the amounts of
any pending bills of the respondent towards
satisfaction of its claim for damages against the
respondent unless such claim for damages was either
admitted by the respondent or adjudicated upon by
the arbitrator or suit in civil court. Accordingly, the
injunction, as prayed for, was granted to the
respondent against the appellant. It is this issue,
which was carried by the Union of India to this Court.
37) The questions, which fell for consideration before
this Court, were - first, what is the true interpretation

of Clause 18; second what is the meaning of the
words "sum due" and “may become due” under the
contract or any other contract with the purchaser
occurring in Clause 18; third, whether Clause 18
empowered the Union of India to make recovery of
amount claimed by it by way of damages (liquidated or
unliquidated) for breach of contract pending
arbitration proceedings from the contractor and lastly,
whether in such case, contractor is entitled to claim
injunction against the Union of India from making
recovery of such sum.
38) Justice Bhagwati (as His Lordship then was)
speaking for the Bench examined the issue in great
detail in the light of law laid down by English and
Indian Courts. The learned Judge in his distinctive
style of writing after examining the entire case law on
the subject held that an expression "sum due"
occurring in Clause 18 would mean a sum for which
there is an existing obligation to pay in praesenti or in

other words which is presently payable and due and,
therefore, recovery of only such sums can be made
subject matter of Clause 18 which is presently payable
and due. It was held that a claim, which is neither
due and nor payable, cannot be made subject matter
of Clause 18. It was further held that Clause 18 does
not create a lien on other sums due to the contractor
or give to the purchaser a right to retain such sums
until his claim against the contractor is satisfied. It
was also held that a claim for damages for breach of
contract is not a claim for a sum presently due and
payable and the purchaser is not entitled in exercise of
the right conferred upon it under Clause 18 to recover
the amount of such claim by appropriating other sums
due to contractor.
39) Their Lordships approved the view taken by
Chagla C.J. in the case of Iron and Hardware (India)
Co. vs. Firm Shamlal and Bros., AIR 1954 Bom.423
by observing in para 11 as under.

“11. ………………………………………………….The same
view has also been taken consistently by different
High Courts in India. We may mention only a few
of the decisions, namely, Jabed Sheikh v. Taher
Mallik,AIR 1941 Cal 639 S. Milkha Singh v. N.K.
Gopala Krishna Mudaliar, AIR 1956 Punj 174 and
Iron and Hardware (India) Co. v. Firm Shamlal
and Bros., AIR 1954 Bom 423. Chagla, C.J. in the
last mentioned case, stated the law in these terms:
(at pp. 425-26)
In my opinion it would not be true to
say that a person who commits a breach of
the contract incurs any pecuniary liability,
nor would it be true to say that the other
party to the contract who complains of the
breach has any amount due to him from the
other party.
As already stated, the only right which
he has is the right to go to a Court of law and
recover damages. Now, damages are the
compensation which a Court of law gives to a
party for the injury which he has sustained.
But, and this is most important to note, he
does not get damages or compensation by
reason of any existing obligation on the part
of the person who has committed the breach.
He gets compensation as a result of the fiat
of the Court. Therefore, no pecuniary liability
arises till the Court has determined that the
party complaining of the breach is entitled to
damages. Therefore, when damages are
assessed, it would not be true to say that
what the Court is doing is ascertaining a
pecuniary liability which already existed. The
Court in the first place must decide that the
defendant is liable and then it proceeds to
assess what that liability is. But till that
determination there is no liability at all upon
the defendant.

This statement in our view represents the correct
legal position and has our full concurrence. A claim
for damages for breach of contract is, therefore,
not a claim for a sum presently due and payable
and the purchaser is not entitled, in exercise of the
right conferred upon it under clause 18, to recover
the amount of such claim by appropriating other
sums due to the contractor. On this view, it is not
necessary for us to consider the other contention
raised on behalf of the respondent, namely, that on
a proper construction of clause 18, the purchaser
is entitled to exercise the right conferred under
that clause only where the claim for payment of a
sum of money is either admitted by the contractor,
or in case of dispute, adjudicated upon by a court
or other adjudicatory authority. We must,
therefore, hold that the appellant had no right or
authority under clause 18 to appropriate the
amounts of other pending bills of the respondent in
or towards satisfaction of its claim for damages
against the respondent and the learned Judge was
justified in issuing an interim injunction
restraining the appellant from doing so.
12. We accordingly dismiss the appeals. The
appellant in each appeal will pay the costs of the
respondent all throughout.”
40) In our considered opinion, the case at hand being
somewhat identical to this case has to be decided
keeping in view the law laid down by this Court in the
case of Union of India (DGS&D) (supra).
41) Coming now to the facts of the case at hand, we
find that wordings of Clause 62 of the contract in
question with which we are concerned is identical to

that of Clause 18 of Union of India (DGS&D) (supra).
Clause 62 of GCC provides for determination of
contract owing to default of contractor. The relevant
portion of Clause 62 reads as under:
“The amounts thus to be forfeited or
recovered may be deducted from any
moneys then due or which at any time
thereafter may become due to the Contractor
by the Railway under this or any other
contract or otherwise.”
42) On perusal of the record of the case, we find that
firstly, arbitration proceedings in relation to the
contract dated 22.08.2005 are still pending. Secondly,
the sum claimed by the respondents from the
appellant does not relate to the contract for which the
Bank Guarantee had been furnished but it relates to
another contract dated 22.08.2005 for which no bank
guarantee had been furnished. Thirdly, the sum
claimed by the respondents from the appellant is in
the nature of damages, which is not yet adjudicated
upon in arbitration proceedings. Fourthly, the sum
claimed is neither a sum due in praesenti nor a sum

payable. In other words, the sum claimed by the
respondents is neither an admitted sum and nor a
sum which stood adjudicated by any Court of law in
any judicial proceedings but it is a disputed sum and
lastly, the Bank Guarantee in question being in the
nature of a performance guarantee furnished for
execution work of contract dated 14.07.2006 (Anand
Vihar works) and the work having been completed to
the satisfaction of the respondents, they had no right
to encash the Bank Guarantee.
43) We have, therefore, no hesitation in holding that
both the courts below erred in dismissing the
appellant's application for grant of injunction. We are
indeed constrained to observe that both the courts
committed jurisdictional error when they failed to take
note of the law laid down by this Court in Union of
India (DGS&D) (supra) which governed the
controversy and instead placed reliance on Himadri
Chemicals Industries Ltd. vs. Coal Tar Refining

Company, AIR 2007 SC 2798 and U.P. State Sugar
Corporation vs. Sumac International Ltd., (1997) 1
SCC 568, which laid down general principle relating to
Bank Guarantee. There can be no quarrel to the
proposition laid down in those cases. However, every
case has to be decided with reference to the facts of
the case involved therein. The case at hand was
similar on facts with that of the case of Union of India
(DGS&D) (supra) and hence the law laid down in that
case was applicable to this case. Even in this Court,
both the learned counsel did not bring to our notice
the law laid down in Union of India (DGS&D) case
(supra).
44) We are also of the view that the District Judge
having decided the injunction application in the first
instance in appellant's favour vide order dated
04.01.2012 erred in rejecting the application made by
the appellant second time vide order dated
12.07.2012. It is not in dispute that the respondents

despite having suffered the injunction order dated
04.01.2012 did not file any appeal against this order.
Such order thus attained finality and was, therefore,
binding on the parties.
45) In the light of foregoing discussion, we hold that
the appellants have made out a prima facie case in
their favour for grant of injunction against the
respondents so also they have made out a case of
balance of convenience and irreparable loss in their
favour as was held by this Court in the case of Union
of India (DGS&D) (supra). They are, therefore,
entitled to claim injunction against the respondent in
relation to encashment of Bank Guarantee no.
12/2006 dated 04.08.2006.
46) We, accordingly, allow the appeal, set aside the
impugned order and in consequence allow the
injunction application made by the appellant under
Section 9 of the Act in Arbitration Suit no. 411/2011
in District Court, Allahabad and grant injunction in

appellant's favour by restraining the respondents
jointly and severally from encashing Bank Guarantee
no. 12/2006 dated 04.08.2006 furnished by the
appellant in connection with Anand Vihar Works. No
costs.
 .……...................................J.
 [J. CHELAMESWAR]

 ………..................................J.
 [ABHAY MANOHAR SAPRE]
New Delhi,
May 05, 2016.
Print Page

No comments:

Post a Comment