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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)

                 J U D G M E N T

Abhay Manohar Sapre, J.

1) Leave granted.

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

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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

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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,

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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

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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.   

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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.

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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

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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

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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

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(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.   

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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.

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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

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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

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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

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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

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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.

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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

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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.”

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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.  

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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

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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

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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

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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.

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“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.

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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

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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

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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

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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

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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

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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.

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