Uttara Bank Vs. Macneill and Kilburn Ltd. and others, 33 DLR 1981 (AD) 298

Case No: Civil Appeal No. 71 of 1980

Judge: Badrul Haider Chowdhury,

Court: Appellate Division ,,

Advocate: Mr. Rafique-ul-Huq,Mr. Abdul Baset Majumdar,,

Citation: 33 DLR 1981 (AD) 298

Case Year: 1981

Appellant: Uttara Bank

Respondent: Macneill and Kilburn Ltd. and others

Subject: Injunction,

Delivery Date: 1981-08-08

Supreme Court of Bangladesh
Appellate Division
(Civil)
 
Present:
Kemaluddin Hossain, CJ.
Fazle Munim J
Ruhul Islam J
Badrul Haider Chowdhury J
Shahabuddin Ahmed J
 
Uttara Bank
………Appellant
Vs.
Macneill and Kilburn Ltd. and others
………Respondents
 
Judgment
Aug. 8, 1981
 
Civil Procedure Code (V of 1908)
Or. 39, R. 1 (a) & (b)
Circumstances when temporary injunction can be granted—Injunctions are granted when the Court is satisfied (1) that the applicant has a prima facie case to go to trial ; (2) that protection is necessary from irreparable injury before his legal right can be exhausted; (3) the mischief or inconvenience likely to arise from withholding injunction will be greater than which is likely to arise from granting it. It is well settled that there can be no injunction for actionable wrongs for which damages are proper remedy. …… (6)
 
Lawyers Involved:
Rafiqul Huq, Senior Advocate, with T. Islam, Advocate instructed by B. Bossain, Advocate-on- Record.—For the Appellant.
M. Mafizullah, Advocate with Mahbubey Alam, Advocate, instructed by S.M. Huq, Advocate-on- Record.—For the Respondent No. 1.
A. Baset Mujumder, Advocate-on-Record.— For the Respondent No. 1.
Ex-parte.—Respondent No. 3.
 
Civil Appeal No. 71 of 1980
From the Judgment and order dated the 24th August, 1978 passed by the High Court Division in Civil Rule No. 652(s) of 1978.
 
JUDGMENT
Badrul Haider Chowdhury J:
 
1.         This appeal by special leave is directed against the judg­ment and order passed by the High Court Division in the Civil Rule No. 652(s) of 1978.
 
2.         The appellant is a Commercial Bank. The respondent 1 has filed a suit as plaintiff being Title suit No. 42 of 1977 for a declara­tion that the final notice of claim dated 5.1.77 made by the appellant against respondent 2 for encashment of letter of guarantee is illegal and void for restraining the appellant from encasing the letter of guarantee and further, restraining the respondent 2 from honoring the said letter of guarantee. The trial Court rejected the plaint under Order 7 rule 11 of the Code of Civil Procedure holding that the plaintiff has no cause of action and the Court had no pecuniary jurisdiction to try the suit. On appeal the appellate Court below dismissed the appeal and affirmed the judgment of the trial Court and it was further held that the suit was barred under section 42 of the Specific Relief Act. Thereafter the respondent filed a second appeal in the High Court Division which was admitted under Order 41, rule 11 of the Code of Civil Procedure. At this stage the plaintiff respondent filed an app­lication for restraining the appellant from making demand on respondent 2 to encash the letter of guarantee and restraining respon­dent 2 also from honoring the said letter of guarantee. This prayer was granted by the High Court Division while the second appeal is still pending for disposal.
 
Leave was granted to consider whether the High Court Division acted correctly and in accordance with law in passing the order of injunction.
 
3.         Plaintiff's case was that it made an offer to defendant 3, Crete Construction Company Limited, for the supply of 3, 50,000 cft. of boulders @ Tk. 215/- per 100 cft., FOB Chhatak. As per terms of the offer defendant 3 was to lift at its own risk and responsibility the entire stock of boulders from the site of the plaintiff. This was accepted by the defen­dant 3 who made advance payment of Tk. 7, 52,500/- for the boulders. In the form of performance bond, the plaintiff furnished a letter of guarantee dated 4.5.74, through its banker, the Chartered Bank, defendant 2 in favour of Crete Construction Company Banker, Uttara Bank, defendant 1, for an equivalent sum on the same date. According to the contract Uttara Bank, would encase the letter of guarantee in case the plaintiff failed to supply the boulders to the defen­dant 3. It appears the terms of the contract was varied by the parties and difference of opinion emerged from the correspondence of parties. The plaintiff alleged that the defendant 3 had not settled the outstanding bills and without doing so the defendant 3 advised its banker, the defendant 1 (Uttara Bank) to issue claim notice on defendant 2 (Chartered Bank) for encashment of the letter of guarantee on the ground that the plaintiff failed to complete the supply of boulders. To thwart this move of defendant 3 the plaintiff brought the suit against defendant 1 (Uttara Bank) restraining it from encashing the letter guarantee and defendant 2 from honouring the same. As has been noticed the appeal is still pending but the learned Single Judge made the rule absolute by issuing order of injunction.
 
4.         Mr. Rafiqul Huq, learned Counsel appearing for the appellant Uttara Bank, sub­mitted that the High Court Division erroneously granted the injection when the two courts below held that the suit itself was not maintainable. Further, the transaction being essentially a commercial transaction, Court should not have interfered by passing an order of injunction without considering the principle of balance of convenience and inconvenience. Mr. Huq submitted the dispute is between two parties over a normal business transaction and the respective bankers had guaranteed the performance of their client. As per terms of the contract the Uttara Bank was under an obligation to encash the letter of guarantee. If the plaintiff has any grie­vance in law the same can be remedied by compensation or damage. It was essentially a money claim and the Court should not have granted injunction.
 
5.         The trial Court took the view that the plaintiff had no cause of action and it had no pecuniary jurisdiction to try the suit. The appellate Court below upheld this view and further found that the suit was barred under Section 42 of the Specific Relief Act. It also rejected the petition for amendment of the plaint. The plaintiff’ filed his second appeal which was admitted for hearing and then he filed an application for injunction for restrain­ing the respondent 1 for making demand and restraining respondent 2 from honoring the demand for encashment to the letter of guar­antee. The learned Single Judge took the view that whether the suit is maintainable or not will be gone into at time of the hearing of the appeal but it is necessary to grant temporary injunction on the ground "the object of the suit will be frustrated and the second appeal filed in this Court will be infructuous" and accordingly passed the order of temporary injunction taking the view that it would not affect prejudicially or interfere in any way, any public interest.
 
6.         The learned Single Judge has taken an erroneous view of the law. Injunctions are granted when the Court is satisfied (1) that the applicant has a prima facie case to go to trial; (2) that the protection is necessary from irreparable injury before his legal right can be established; (3) the mischief or incon­venience likely to arise from withholding injunction will be greater than which is likely to arise from granting it. It is well settled that there can be no injunction for actionable wrongs for which damages are proper remedy. Temporary injunctions are regulated by the Code of Civil Procedure under Order 39; rule 1 (a) and (b). In the given facts and circumstances of the case two courts below have held that the plaintiff has no cause of action and suit is not maintainable. The lear­ned Single Judge took the view that the object of the suit will be frustrated while granting injunctions. This is begging the question that is the object of the suit. The learned Single Judge took the view that injunc­tion will not affect prejudicially or any public interest. By granting injunctions the court had restrained the respondent bank from honoring the letter of guarantee.
 
7.         In the case of Howe Richardson Scale Co. Ltd.Vs. Polimex Cekop and Natio­nal   Westminster Bank Ltd. 1978 (Lloyd's Law Reports) 166 the sellers entered into a contract with the buyers (Polimex) for the sale and delivery of some valuable equipment. The contract price was £ 500,000 of which £25,000 was payable in advance within 45 days of the signing of the contract "on presentation by the seller Bank guarantee. £50,000 was to be paid by irrevo­cable, unconfirmed letter of credit" opened upon notification that the goods were ready for shipment and the balance of £425,000 was payable "within West minister Bank/Bank Wandlowy Financial Agreement of 20th March 1975." The sellers received the advance pay­ment of £25,000. For some reason Polimex did not open the letter of credit in con­nection with the second instalment, but the sellers completed the manufacture of goods and in due course received through the finan­cial agreement a substantial sum of money somewhere between £300,000 and £400,000 on account of the final installment. Polimex claimed repayment of £25,000 under the guarantee, on the ground that the delivery had not been made by March 31, 1977. The bank took the view that it was bound to hon­our its obligations under the guarantee and advised the seller of its view. The sellers applied for an injunction to restrain the buyer (Polimex) from claiming under the guarantee.
 
8.         Danaldson, J. rejected the prayer for injunction. On appeal   by the sellers, the Court of Appeal held:
 
 (1) "the bank was, in principle, in a position not identical with but very similar to position of a bank which had opened a confirmed irrevocable letter of credit. The obligation of the bank was to perform that which it was required to perform by the particular contract and that obligation did not depend on the correct resolution of a dispute as to the sufficiency of perform­ance by the seller to the buyer or the buyer to the seller as the case might be under the contract (see p. 165, col. 2).
 
 (2) it would be quite wrong for the Court to interfere with Polimex’s apparent right under the guarantee to seek payment from the bank because to do so would involve putting upon the bank an obli­gation to inquire whether or not there had been timeous performance of the sellers' obligation under the sale contract (see 165, col. 2) and in accordance with the principles laid down in American Cyanamid V. Ethicon. (1975) A.C 396) the balance of convenience was against the grant of an injunction (see p. 165, col 2)."
 
Lord Justice Roskill observed:
 
"whether the obligation arises under a letter of credit or under a guarantee, the obligation of the bank is to perform that which it is required to perform by the particular contract, and that obliga­tion does not in the ordinary way de­pend on the correct resolution of a dispute as to the sufficiency of perfor­mance by the seller to the buyer or by the buyer to the seller as the case may be under the sale and purchase contract: the bank here simply is concerned to see whether the event has happened upon which its obligation to pay has arisen."
 
9.         The Court of Appeal in the case of Edward Owen Engineering Ltd. vs. Barclays Bank International Ltd. and Umma Bank Lloyds Law Reports (1978) Vol. 1. Page 166, Lord Denning M.R. observed:
 
"It is not concerned in the least with the relations between the supplier and customer; nor with the question whe­ther the supplier has performed bit contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay acc­ording to its guarantee, on demand, if so stipulated, without proof or condi­tions. The only exception is when there is a clear fraud of which the bank has notice.”
 
10.       In the case of Tarapore and Co, Madras vs.Tractorexport, Moscow, AIR 1970 S.C. 891, the Supreme Court of India consi­dered the question and observed that an irrevocable letter of credit has a definite in­ternational implication. In that case in pur­suance of a contract with a Russian firm for supply of machinery, an Indian firm opened a confirmed irrevocable letter of credit with a bank in favour of the Russian firm. The In­dian firm brought a suit alleging that machi­nery supplied was not upto the contract. In that suit the only substantive relief asked for was that the Bank of India and as well the Russian firm should be restrained from taking any further steps in pursuance of the letter of credit opened by the Indian firm in favour of the Russian firm. A further prayer was made for restraining the Russian firm from enfor­cing it. The Russian firm opposed those appli­cations but the trial Court granted the tem­porary injunction asked for. The High Court reversed the decision and the matter was ultimately taken to the Supreme Court. The Supreme Court quoted from Halsbury's Laws of England as under:
 
"It is often made a condition of a mercantile contract that the buyer shall pay for the goods by means of a confir­med credit, and it is then the duty of the buyer to procure his bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to the seller, either directly or through another bank in the seller's country known as the correspondent or negotia­ting bank, to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents. The contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued, and as between the seller and the bank, the issue of the credit duly notified to the seller creates a new contractual nexus and readers the bank directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents. The contract thus created between the seller and the bank is separate from, although ancill­ary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller, which is absolute. Thus, the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might permit the buyer to reject the goods and to refuse payment thereof and, conversely, the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective.”
 
It was further observed:
 
"An irrevocable letter of credit has a definite implication. It is a mechanism of great importance in international trade. Any interference with that mech­anism is bound to have serious reper­cussions on the international trade of this country. Except under very excep­tional circumstances, the Courts should not interfere with that mechanism."
 
11.       Applying these principles the least that can be said is that the decisions show that the courts are very reluctant to interfere with commercial transactions which have been entered into by the parties in business tran­sactions through performance of guarantee or letter of guarantee which are invoked in the commercial dealings. The decisions show that court will not interfere by granting an injunction from performing or discharging the contractual obligations. Such is the case here. The letter of guarantee was given in this case by the plaintiff and the defendant placed it for the encashment of the letter of guarantee. The bank (Chartered Bank) is only obliged to comply with the demand made by the appellant Uttara   Bank. It is nobody’s case that there is any fraud of which the bank got notice. The only dispute is as to the performance of contract and this dispute  can be resolved by taking  resort to appropriate actions and the plaintiff if successful would be entitled to damages but certainly not  thro­ugh an order of injunction which would  in­terfere with the normal banking  transaction and also the contractual obligation of the bank. The balance of convenience is also against the grant of injunction. American Cyanamid Co. Vs. Ethicon Ltd. H.L. (E) 1975 A.C. 396, Lord Diplock reiterated the well-established princi­ples governing the issuance of temporary in­junction and the determining principles of balance of convenience.
 
It was observed:
 
"The object of the interlocutory injunc­tion is to protect the plaintiff against injury by the violation of his right for which he could not be adequately compensated in dama­ges recoverable in the action if the uncertainty were resolved in his favour at the trial  but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal right for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial. The Court must weigh one need against another and determine where "the balance of convenience" lies."
 
12.       Similar view was taken by Roskill, L.J quoting from the aforesaid House of Lord's decision and observed:
 
"Further, in accordance with the prin­ciples laid down by the House of Lord in the American Cyanamid case the balance of convenience, it seems to me, is against the grant of an injunction."
 
We respectfully agree with the above view. In our opinion injunction has been granted by the High Court Division incorrectly and also on an erroneous ground, and, therefore, the order is liable to be set aside.
 
In the result, therefore, this appeal is allowed with costs. The order of the High Court   Division is set aside, and the applica­tion for temporary injunction rejected.
 
Ed.