CASE FACTS

Ans: Madhya Pradesh High Court Kec International Limited vs M.P. Madhya Kshetra Vidyut ... on 25 January, 2016 As far as the ground to say that if adjudications are contrary to law laid down in the case of Larsen and Toubro Ltd. (supra) the bank guarantee could not be revoked. We find that the law with regard to revocation of bank guarantee has been settled and it is an admitted position that in the matter of revocation of bank guarantee the law laid down is that an injunction against enforcement of bank guarantee can be granted by the court only in the event of fraud or irretrievable injustice. In the case of Larsen & Toubro Ltd. Vs. Maharashtra State Electricity Board and Others far back in the year 1995 (6) SCC 68 in para 5, after taking note of the judgments pertaining to injunction against encashment of bank guarantee the principle has been crystalized and it is a settled principle of law that in the event of fraud or irretrievable injustice an injunction can be granted in the...

Ans: Grounds for grant of Injunction against the Invocation of Bank Guarantee  A. Fraud  i. Nature of the fraud  ii. Knowledge of Fraud  iii. Duty of care on the part of the negotiating bank  iv. Specific averments as to the allegation of fraud  v. Arbitrability of fraudulent invocation of a bank guarantee  B. Special Equities  i. Balance of Convenience and Prima Facie Case  ii. Genuine Apprehension of Irretrievable Injury  iii. Outstanding liability of the beneficiary in the underlying contract  iv. Threshold of Irretrievable Injury as set out in the Itek Corporation case  v. Existence of disputes in and/ or breach of the underlying contract  vi. Invocation of the bank guarantee by a third party  vii. Recovery of the amount in the underlying contract viii. Absence of assets of the beneficiary in India  ix. Violation of principles of natural justice 32 x. Invocation of bank guarantee should be in accordance with ...

Ans: The main difference between fraud and misrepresentation is that fraud happens when a person or a party intentionally and willfully represents false information to deceive another party. In contrast, misrepresentation happens when a person or a party unintentionally represents false information to another party. Fraud is an intentional misrepresentation or concealment of fact with an aim to deceive the other party. Misrepresentation is an innocent misstatement made without any intention to deceive the party.  Fraud is defined under section 17 of Indian Contract Act 1872 whereas misrepresentation is defined under section 18 of Indian Contract Act, 1872.  In fraud, there is an intention to deceive the another party whereas in misrepresentation there is no intention to deceive the another party.  Section 19 of Indian Contract Act makes the Contract voidable in case of  misrepresentation.

Ans: A misrepresentation is a false statement of a material fact made by one party which affects the other party's decision in agreeing to a contract. If the misrepresentation is discovered, the contract can be declared void. Depending on the situation, the adversely impacted party may seek damages. According to Section 18 of indian contract act, in simple words, an innocent or any false statement made by one party to another party to make a contract is known as misrepresentation. In case of misrepresentation, the person making the statement is innocent, and he makes the statement without any intention to deceive the other party.

Ans: Section 143 of Indian Contract Act mentions about  Guarantee obtained by misrepresentation. Any guarantee obtained by misrepresentation made by the creditor is invalid.

Ans: A,B and C have agreed to become liable for Rs. 10,000/-. Rs. 20,000 and Rs. 40,000/- respectively as sureties for D. D's indebtedness was Rs. 40,000/ -. What is the sum for which each of the three sureties The f are liable to pay. Sec. 147 of the Indian Contract Act, 1872 deals with the Liability of co-sureties who are bound in different sums. Sec. 147 reads co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.

Ans: No. Sec. 143 of the Indian Contract Act, 1872 talks about Guarantee obtained by concealment. This section states that any guarantee which the creditor has obtained by means of keeping silence (concealment) as to material circumstances is invalid and so the surety is discharged. The instant case is a classic example of the provision u/s 143. B is engaged by A for collection of rent from his tenants and B fails to account for the sums collected. As B proved to be unreliable, A sought for a guarantee to be furnished. When C stood as a surety for B, he is not informed of the defaults committed by him on previous occasion. Thus it is concealment of a material fact which could affect the decision of C as to whether he would stand as a surety to B or not. In case B defaults in future again, C is not bound by the guarantee as he was innocent of the previous record of B.

Ans: According to Sec. 139 of the Indian Contract Act, if the creditor does any act inconsistent with the right of the surety or omits to do some act which is his duty to do, thereby affecting the remedy of the Surety against the principal debtor, then the Surety is discharged. In the instant case, the act of the bank in excusing 'B' without informing 'A' of 'B's misconduct, is omission affecting the remedy of the Surety against the principal debtor ie., an opportunity to the Surety to revoke his guarantee for 'B's good conduct. Therefore 'A' is not liable for 'B's misappropriation of Rs.50,000 again.

Ans: There is no liability to C. Sec. 139 of the Indian Contract Act, 1872 specifies that if the Creditor does any act inconsistent with the right of the Surety or omits to do some act which is his duty to do, thereby affecting the remedy of the Surety against the Principal Debtor, then the Surety is discharged. In the instant case, A is the principal debtor; B is the Creditor and C, the guarantor or Surety. A's contract with B is for building a house for a specific price within a stipulated time. However, C's guarantee in respect of A's completion of work within the stipulated time period is based on the supply of timber by B. In the above case, B omits to do his required act of supply of timber to A which in turn led to the non-performance of the contract by A. Therefore, C is not liable for the non-performance of C.

Ans: Sec. 133 of the Indian Contract Act, 1872 is regarding variance in terms of contract'. It states that if any variance is made in the terms of the contract without the consent of the Surety, then the Surety is discharged for the future transactions (which is the reason for the Surety being termed as a favoured debtor. Sec. 135 states further that if the creditor and the principal debtor make a collusive agreement, then the Surety is discharged. A contract between the creditor and the principal debtor, by which the creditor makes a composition with or promises to give time to, or not to sue the principal debtor, discharges the Surety, unless the Surety assents to such contract. Keeping the above legal provision in view, 'A', the Surety of 'C' for payment to 'B'for building the ship, is discharged of his surety-ship as regards the last two instalments since the prepayment of the instalments was not within his knowledge. The payments were agreed to be made ...

Ans: As per Sec. 128 of the Indian Contract Act, 1872, the liability of the Surety is co-extensive with that of the Principal Debtor unless it is otherwise provided for in the contract. Under the rules regarding the Surety's liability, Sec. 128 states that it is not necessary that the · Creditor must exhaust his remedies against the Principal debtor before proceeding against the Surety. He can straight away sue the Surety without proceeding against the Principal Debtor. The above point was established under the case law 'Syndicate Bank Vs. A.P. Majunath & another, 1999, CCC, Kar. In the instant case, C, who is the creditor files a suit only against A, though he is fully aware that the pro-note is a joint one and that A is only acting as a Surety. Going by the above provisions of law, the action of C is quite in order and 'A's liability is co- extensive with that of B.

Ans: As per Sec. 128 of the Indian Contract Act, 1872, the liability of the Surety is co-extensive with that of the Principal debtor unless otherwise provided for in the contract. In this context, reference is made to the case law, Subramania Vs. Narayanaswami, AIR 1951 Mad.48 (FB) wherein the Court held that if the principal Debtor's liability is extinguished, then the Surety's liability also gets extinguished because the liability of the Surety is co-extensive with that of the Principal Debtor as stated u/s 128 mentioned above. Therefore, in the above case, 'N', the Surety, is absolved of his liability to the extent of Rs. 10,000/- as 'A' who is a farmer and the Principal Debtor in this case gets a debt relief to that extent. However, as 'A' is not in a position to pay even the reduced amount the Surety has to answer the liability to the Bank The Bank may invoke recovery proceedings from N to the extent of Rs. 10,000/-.

Ans: No, A can not plead C's performance to sue B for a year as a defence to exonerate his liability.  As per Sec. 128 of the Indian Contract Act, 1872, the liability of the Surety is co-extensive with that of the Principal Debtor unless it is otherwise provided for in the Contract. As decided under Bank of Bihar Vs. Damodar Prasad, AIR 1969 SC 297, the Surety has no right to dictate terms to the Creditor and ask him to pursue remedies first against the Principal Debtor. A discharge of the Principal Debtor by the operation of law does not discharge the Surety. Further, the law states that even if the Creditor does not sue the Principal Debtor within the period of limitation, if the limitation period is available against the Surety, then he can independently proceed against the Surety. Thus, in the above case, even though C does not sue B for recovery of the debt for a period of one year after its becoming due, he could very well proceed against the Surety, A, which he has done. B h...

Ans: As per Sec. 128 of the Indian Contract Act, 1872, the liability of the Surety is co-extensive with that of the Principal debtor unless it is otherwise provided for in the contract. It means that the Creditor can recover the loan amount from the Surety directly without taking steps to recover from the Principal debtor; It also means that the liability of the Surety is the same as that of the Principal debtor.  Thus, in the above case, the action of the nationalized bank in filing a suit for recovery against A, the Surety, for the repayment of the loan taken by his friend, is very well within their right to do so. A's objection on the basis that the Bank has not exhausted its remedies against his friend before filing a suit for recovery from him is not tenable as the Bank has no compulsion as per law to do so. Both the Principal debtor and the Surety are jointly and severally liable.

Ans: According to Sec. 126 of the Indian Contrac Act, 1872, a contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. Guarantee is classified into two types viz. specific guarantee and continuing guarantee. Specific guarantee deals with a single transaction. It is also known as simple guarantee. A specific guarantee cannot be revoked, when the liability is incurred. It comes to an end when the guaranteed debt is duly discharged or promised, is performed. The instant case is a classic example of a specific guarantee. In this case, A guarantees to B only in respect of five sacks of flour to be delivered to C, the payment of which shall be made in a month's time. C makes the payment within the time frame allotted and thus the guarantee of A is discharged. Further to this, B again delivers four sacks of flour to C which the latter defaults in payment. The guarantee furnished by A was only a specific guarantee for t...

Ans: Sec. 124 of the Indian Contract Act, 1872 defines Indemnity as a direct contract between two persons. Here one person promises to save another from loss. The loss is assured to be compensated by the promisor himself or by any other person. The person who promises to make good the loss is called the Indemnifier (promisor) and the person whose loss is to be made good is called the Indemnified or Indemnity-holder (promisee) Thus, the promisee must incur a loss, if he has to be indemnified by the promisor.

Ans: Section 36 of Indian Contract Act:  Agreements contingent on impossible event void. Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made." Illustrations:  a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void. b)  A agrees to pay B 1,000 rupees if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.

Ans: Section 35.   When contracts become void which are contingent on happening of specified event within fixed time . Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible. When contracts may be enforced, which are contingent on specified event not happening within fixed time.—Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed has expired and such event has not happened or, before the time fixed has expired, if it becomes certain that such event will not happen. Illustrations (a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year. (b)...

Ans: Section 34 of Indian Contract Act:   When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.  If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies." Illustration A agrees to pay B a sum of money if B marries C, C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B. A agrees to pay B a sum of money if B marries C, C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B."

Ans:  Section 32 of contract act mentions about the rules relating to enforcement of contingent contract in happening of certain event whereas section 33 of contract act mentions about the rules relating to enforcement of contingent contract in not happening of certain event. Section 32: For instance: A makes a contract with B that B would go and complete the work of C . If B completes the work of C , A would give some money to B i.e., Rs 10000. It is a future contract and B completes the work of C . Now the contract would become valid which means valid by law. Section 33: For instance: A and B are two parties and A has promised to give sum of money to B. If a certain cargo ship returns,  then A would give money to B. If the cargo ship gets sunk, the ship would not get returned and thus the contract would become void.

Ans: Contingent contract is defined under section 31 of contract act, 1872.  Contingent contract means to do or not to do something. If there is a condition in any contract and the contract depends on happening or not happening of certain event,  it is contingent contract.

Ans: The doctrine of frustration is mentioned under section 56 of Indian Contract Act which means impossible to perform an agreement. The doctrine of frustration means that it is impossible to perform the contract, and thus the contract must be frustrated. The general rule is that the obligation of the contract must be fulfilled. If any party breaches the contract, the party will compensate for the breach of contract. The frustration of contract can be proved upon the fulfillment of following conditions:  1. The existence of valid contract.  2. The contract is not performed yet.  3. The performance of contract has become impossible.  4. The impossibility has occurred due to event uncontrollable by both the parties. Grounds for the Doctrine of frustration: 1. Impossibility of performance. 2. Destruction of Subject Matter. 3. Death or incapacity of the party. 4. Frustration by legal or government intervention. 5. The frustration of contract due to change of circum...

Ans :  Coastal Gujarat Power Limited vs Central Electricity Regulatory  on 27 April, 2021. In this citation there was a project I.e ., Mundra mega ultra power project and the electricity was to be supplied to three states i.e Gujarat, Rajasthan and Haryana and both Tata and Adani chose non escalable tariff in the competitive bidding process. They had the long term fuel agreement with Indonesia Government in coal mines. But there was a sudden jolt when the prices of coal was risen by Indonesia Government as per their electricity  regulatory laws to be benchmarked with the Internnational prices of coal but in power purchase agreement both Adani and Tata chose non escalable tariff.  The Supreme Court of India told that force majeure will not be imposed here because it is possible to complete the project here and the the laws of Indonesia will not be applicable here.  It is viable to complete the project.  The honourable Supreme Court also told in  Satyabr...

Ans: Force majeure means an event or effect that can neither anticipated nor it can be controlled. Force majeure is used with reference to all the events and effects that are out of power to control and are sufficient to justify the non execution of the event.  Force majeure is to defend itself from the natural catastrophes while performing contracts. 

6.7.That Respondent Nos. 2 and 3 by misusing their dominant position are trying to get unjustly enriched. The attempt to invoke the Bank Guarantee without quantifying the alleged loss if any, is against the terms of the Bank Guarantees and clearly displays mala fide intention on the part of the Respondent Nos. 1, 2 and 3.  6.8.That, no actual loss has been caused to the Respondent Nos.1, 2 and 3 because of any action or inaction on part of the Petitioner and in absence of any quantified loss, the Bank Guarantees cannot be invoked. 6.9.That the balance of convenience has come into existence which entitles the Petitioner for an injunction restraining the Respondents from invoking and en-cashing the Bank Guarantees as inter alia the Petitioner has performed all its obligations under the contract. Despite this, if Respondent Nos. 2 and 3 invoke and en-cash the Bank Guarantees, such invocation shall be illegal and cause unwarranted and irretrievable loss and injury to the Petitioner. Th...

6.5. It is amply clear from the preceding paragraphs that, there has been no failure on part of the Petitioner in performing the obligations under the tender agreement. According to clause 27.2 of the contract, the  Respondent No. 3 has attempted to encash the said Bank Guarantees without any valid reason and therefore, such an encashment is illegal  and wrongful. In the factual scenario of the present case, the balance of convenience exists in favour of the Petitioner and hence, the  liquidation of the said Bank guarantees ought to be stayed. 6.6. That Respondent No. 3 is not entitled to encash the Bank guarantees. The invocation of clause 27 is unwarranted, illegal and fraudulent and if the Respondent No. 2 is allowed to liquidate the Bank guarantees then the Petitioner will certainly suffer huge and unbearable monetary and reputation loss.

   6.3. That Respondent Nos. 2 and 3 have willingly disregarded the sanctity of the terms of the Agreement dated. 10.12.2020 by not taking permission of a disputed land from the concerned authority which ultimately fell under the forest land. Even the permission for the said disputed land was not taken for 1 year, Petitioner even completed the boring and base work, subsequently on 13.12.2021, permission was granted after the lapse of 1 year. Contract term was of 8 months (excluding the rainy season), the work to be completed by October, 2021, but because of the deficiency on the part of the Respondent No.1, 2&3 , the work never was started. In 2022 prices of all material like sand, cement & steel were escalated, petitioner requested respondent No.2 to change the price of the contract but respondent No.2 only made a false assurance. On 18.01.2023, Petitioner received letter of termination reasoning that the work was not completed on time, which can clearly be interprete...

6.1.That, the letter of termination dated 18.01.2023 sent by the  Respondent No. 2 and the subsequent letter dated 22.09.2023 for encashment of Bank guarantees sent by Respondent No 2 to Respondent No. 4 is arbitrary, illegal, unjustified and uncalled for and hence, deserves to be interfered by this Hon’ble Court. 6.2.That Bank Guarantees are being invoked wrongfully and fraudulently by Respondent Nos. 2 and 3, contrary to the conditions and terms set out in the contract and without any breach of performance or default on part of the Petitioner in performing its obligations. As evident from the facts stated above, the Respondent No 1, 2 and 3 have neither any subsisting valid and/or legal money claim against the Petitioner nor is the Petitioner in default of performance of any kind or any of its obligations under the Agreement.

Fact 5.20 : It is submitted that a mechanism for dispute redressal is provided in the contract and any dispute ought to be resolved in accordance with  the prescribed procedure. That before even following the duly laid procedure, the Respondent Nos. 1 and 2 are attempting to liquidate the  the Bank Guarantee, which will cause substantial business, financial as well as reputational loss to the Petitioner, therefore, the Petitioner has no other remedy but to approach this Hon’ble Court through this present Petition. Hence, this Petition on following grounds:

Ans: Fact 5.19 :  That on 19.06.2023, the petitioner went to the Respondent No. 2 and submitted a letter, after mutual discussion a request to foreclosure the agreement and raised the issue that grant of permission to start work was received on 14.12.2021 but due to lapse of more than a year, it  was not possible to do the work at work and do the process of refund.  Since this work was completely stopped due to the Forest Department and more than a year had passed, the respondent discussed the possibility of getting permission to work at the new rate and gave verbal order to continue the work. Further the Respondent no 2 stated that the work should be started and sent for approval, meanwhile the request will be considered, and hence the petitioner did the boring work and submitted the sample. Many times, the Petitioner met the Respondent No. 2 personally and sought and clarified that it was not possible to do the work. The copy of the letter dated 19.06.2023 is  anne...

Ans: That on 19.06.2023, the petitioner went to the Respondent No. 2 and submitted a letter, after mutual discussion a request to foreclosure the agreement and raised the issue that grant of permission to start work was received on 14.12.2021 but due to lapse of more than a year, it  was not possible to do the work at work and do the process of refund.  Since this work was completely stopped due to the Forest Department and more than a year had passed, the respondent discussed the possibility of getting permission to work at the new rate and gave verbal order to continue the work. Further the Respondent no 2 stated that the work should be started and sent for approval, meanwhile the request will be considered, and hence the petitioner did the boring work and submitted the sample. Many times, the Petitioner met the Respondent No. 2 personally and sought and clarified that it was not possible to do the work. The copy of the letter dated 19.06.2023 is  annexed herewith as AN...

Ans: That on 14.06.2023 the Respondent No. 2 issued a letter scheduling a meeting for June 19, 2023, at 11:30 am to discuss and resolve the issue related to the construction work in issue. That the abovementioned letter dated 14.06.2023 is annexed herewith as ANNEXURE P-14.

Ans: That in response to the previous letters, on May 22, 2023, the Petitioner sent a letter to the Respondent No.2 reiterating that they had  previously communicated verbally that, based on the initial terms and prices, it was not feasible to resume and finish the work. The  Petitioner requested for foreclosure of the agreement via letter dated 22.05.2023 due to the delay and change in condition wholly attributable to Respondent' 2 and 3 is annexed herewith as ANNEXURE P-13.

Ans: That on 08.05.2023, the Petitioner received another letter bearing Letter No. 1315/S/ANo.BHO/Indore/356/2023 stating that the Petitioner failed to make any application for foreclosing the agreement in accordance with clause 27.4 thereof the Petitioner contends that the Respondent has not recognized or comprehended the underlying causes of the delay and has erroneously presumed that the Petitioner lacks the willingness and commitment to fulfill the contractual obligations. The abovementioned letter dated 08.05.2023 is annexed herewith as ANNEXURE-P 12. The respondent is fabricating false evidence about petitioner unwillingness with an intention to rescind the contract and to create false evidences is an offence under section 192 of IPC. 

Fact: That on 10.03.2023, the Petitioner received a Show Cause (Letter No.1441/G/CON/531/J./2021) from Respondent No.3, alleging that  the assigned work was not completed within the stipulated time frame  and threatening to blacklist the Petitioner. The Respondent No. 3  disregarded the Petitioner's explanations for the delay, falsely claiming that the Petitioner was disinterested in completing the work.  Furthermore, the Respondent failed to acknowledge or address the issues verbally and in writing that the Petitioner had raised, which  rendered the work unviable. Moreover, the Petitioner was perplexed.