Leading Supreme court 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

M/s Gangotri Enterprises Ltd.  V Union of India & Ors. 
Dated:May 05, 2016.

Citation:(2016) 11 SCC 720

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When encashment of bank guarantee is not permissible?

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.
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

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Whether court can grant injunction against invocation of bank guarantee?

 It is contended on behalf of the first respondent that the
invocation of Bank Guarantee depends on the cancellation of
the contract and once the cancellation of the contract is not
justified, the invocation of Bank Guarantee also is not justified.
We are afraid that the contention cannot be appreciated. The
bank guarantee is a separate contact and is not qualified by the
contract on performance of the obligations. No doubt, in terms
of the bank guarantee also, the invocation is only against a
breach of the conditions in the LoI. But between the appellant
and the bank, it has been stipulated that the decision of the
appellant as to the breach shall be absolute and binding on the
bank.
12. An injunction against the invocation of an absolute and
an unconditional bank guarantee cannot be granted except in
situations of egregious fraud or irretrievable injury to one of the
parties concerned. This position also is no more res integra. In
Himadri Chemicals Industries Limited v. Coal Tar
Refining Company (2007) 8 SCC 110
, at paragraph -14:
“14. From the discussions made hereinabove
relating to the principles for grant or refusal to
grant of injunction to restrain enforcement of a
bank guarantee or a letter of credit, we find that
the following principles should be noted in the
matter of injunction to restrain the encashment of
a bank guarantee or a letter of credit:
(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 realise 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 realisation of a
bank guarantee or a letter of credit.
(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 SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 9821 OF 2016
(Arising out of S.L.P.(C) No. 7874 of 2016)
GUJARAT MARITIME BOARD
V
L&T INFRASTRUCTURE DEVELOPMENT
PROJECTS LTD. AND ANOTHER 
Citation:(2016) 10 SCC 46
Dated:September 28, 2016. 

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When court can grant injunction against encashment of bank guarantee?

 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.
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. Appellant(s)
VERSUS
Union of India & Ors. Respondent(s)
Dated:May 05, 2016.
Citation:2016(3)ALLMR967 SC

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