U.P. STATE SUGAR CORPORATION versus M/S SUMAC INTERNATIONAL LTD.

U.P. STATE SUGAR CORPORATION versus M/S SUMAC INTERNATIONAL LTD.

An injunction restraining invocation of unconditional bank guarantees should not be granted merely on the ground of a contractual dispute or pending legal proceedings. Only in cases of established fraud or irretrievable harm/injustice should such injunction be granted. Pendency of reference under the Sick Industrial Companies (Special Provisions) Act, 1985 does not in itself amount to irretrievable injustice, especially where appellant undertakes to earmark the realised amounts for respondent's claims.

Parties
Appellant: U.P. State Sugar Corporation; Respondent: M/s Sumac International Ltd.
Jurisdiction
India
Judgment Date
04 December 1996
Procedural Posture
Civil Appeal / Appeal From Order of Allahabad High Court Granting Injunction
Outcome
Appeal allowed; injunction set aside.
Legal Topics
Bank Guarantees, Interim Injunction, Contract Termination, Sick Industrial Companies
Civil Procedure Commercial Law Bank Guarantees Interim Injunction Contract Termination Sick Industrial Companies

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Parties

U.P. State Sugar Corporation

Appellant

M/s Sumac International Ltd.

Respondent

Procedural Posture

Civil Appeal / Appeal From Order of Allahabad High Court Granting Injunction

Legal Issues

  1. 1 Whether an injunction should be granted to restrain encashment/invocation of unconditional bank guarantees on grounds of contractual dispute, fraud, or irretrievable harm
  2. 2 Effect of a pending reference before the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 on invocation of bank guarantees

Ratio Decidendi

An injunction restraining invocation of unconditional bank guarantees should not be granted merely on the ground of a contractual dispute or pending legal proceedings. Only in cases of established fraud or irretrievable harm/injustice should such injunction be granted. Pendency of reference under the Sick Industrial Companies (Special Provisions) Act, 1985 does not in itself amount to irretrievable injustice, especially where appellant undertakes to earmark the realised amounts for respondent's claims.

Court Disposition

Appeal allowed; injunction set aside.

Orders

  • Impugned judgment and order of the High Court is set aside.
  • Injunction restraining appellant from enforcing bank guarantees is vacated.