M/S. RELIANCE SALT LTD. versus M/S. COSMOS ENTERPRISES AND ANR.

M/S. RELIANCE SALT LTD. versus M/S. COSMOS ENTERPRISES AND ANR.

Invocation of the unconditional bank guarantee by the principal company, due to non-settlement of bills, could not be restrained merely on the ground of alleged breach of contract; courts below erred in holding invocation vitiated by fraud in absence of clear evidence of fraudulent intent prior to contract. The bank was bound to pay on invocation, and it was for the bank, not the promisor, to plead fraud. Subsequent disputes on accounts or quality of supply did not justify injuncting the bank guarantee.

Parties
Appellant: MIS. Reliance Salt Ltd.; Respondent No. 1: MIS. Cosmos Enterprises; Respondent No. 2: Bank of India
Jurisdiction
India
Judgment Date
22 November 2006
Procedural Posture
Civil Appeal / Appeal Against Judgments of the Trial Court and High Court
Outcome
Appeal allowed; judgments of courts below set aside.
Legal Topics
Bank Guarantee, Fraud in Contract, Injunction, Consignment Agreement
Contract Law Banking Law Bank Guarantee Fraud in Contract Injunction Consignment Agreement

Case Brief

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Parties

MIS. Reliance Salt Ltd.

Appellant

MIS. Cosmos Enterprises

Respondent No. 1

Bank of India

Respondent No. 2

Procedural Posture

Civil Appeal / Appeal Against Judgments of the Trial Court and High Court

Legal Issues

  1. 1 Whether the invocation of the Bank Guarantee by the principal company was vitiated by fraud
  2. 2 Whether injunction could be granted against the principal company from invoking the bank guarantee under the facts pleaded

Ratio Decidendi

Invocation of the unconditional bank guarantee by the principal company, due to non-settlement of bills, could not be restrained merely on the ground of alleged breach of contract; courts below erred in holding invocation vitiated by fraud in absence of clear evidence of fraudulent intent prior to contract. The bank was bound to pay on invocation, and it was for the bank, not the promisor, to plead fraud. Subsequent disputes on accounts or quality of supply did not justify injuncting the bank guarantee.

Court Disposition

Appeal allowed; judgments of courts below set aside.

Orders

  • Impugned judgments set aside; appeal allowed.
  • Order will not prevent respondents from filing a suit for accounts or other measures available in law.