Sunanda Bhandare ( 1 ) THIS order will dispose of the application under Section 41 of the Arbitration Act read with Order 39 Rules 1 and 2 of the Code of Civil Procedure filed by the petitioner and the application under Order 39 Rule 4 of the Code of Civil Procedure filed by respondent No. 1. ( 2 ) THE brief facts of the case are as follows : Respondent No. 1, a public limited company, invited tenders for supply, erection and commission of electric equipments at its Cement Project, Malkhed, Gulbarg District in the State of Karnataka. Respondent No. 2 i. e. . Engineers India Limited was named as its consultants in the said tender. In response to the invitation to tender issued by respondent No. 1, the petitioner which is also a public limited company submitted its offer vide their letter dated 29. 12. 1984. A letter of intent was issued on 1. 5. 1985 by respondent No. 1 which contained the terms and conditions of the contract between the parties. Apart from the general terms and conditions of the contract a letter dated 1. 5. 1985 was issued by respondent No. 1 which embodied certain specific conditions which also formed a part of the contract. As per this letter dated 1. 5. 1985 in addition to mobilation advance, the petitioner was required to furnish the following bank guarantees : (I) As Retention Money, 15% of the Contract Value of the total equipment with validity till commissioning, to be furnished before supplies begin. (ii) As Warranty, 10% of the Contract Value with validity till 18 months after commissioning or 24 months after the delivery of the last consignment whichever is earlier. (iii) 10% of Contract Value towards faithful performance of Contract from date of payment of advance to date of commissioning. Accordingly the petitioners instructed its bankers to furnish the bank guarantees at S. Nos. 1 and 3. A bank guarantee for 15% of the contract value towards retention money for a sum of Rs. 18 lacs was issued by Grindlays Bank, Bombay and the other guarantee for 10% of the contract value for a sum of Rs. 12 lacs was issued by American Express Bank Limited, Bombay. The bank guarantees were renewed from time to time. Last such renewal of the first guarantee was on 8. 6. 1988 valid upto 30. 9. 18 lacs was issued by Grindlays Bank, Bombay and the other guarantee for 10% of the contract value for a sum of Rs. 12 lacs was issued by American Express Bank Limited, Bombay. The bank guarantees were renewed from time to time. Last such renewal of the first guarantee was on 8. 6. 1988 valid upto 30. 9. 1988 and the second guarantee on 20. 6. 1988 valid upto 30. 9. 1988. ( 3 ) CERTAIN disputes arose between the petitioner and respondent No. 1 in respect of supply, commissioning and erection of the plant and payment. Consequently, respondent No. 1 vide their two telex messages dated 26. 6. 1989 issued to the two banks invoked the bank guarantees. The petitioner filed the present petition under Section 20 of (he Arbitration Act in this Court on 3rd July, 1989 accompanied by the application for interim relief. On 4th July 1989 this Court restrained respondent No. 2 from encashing the two bank guarantees given by the petitioner till further orders and also directed the petitioner to keep the bank guarantees alive till the disposal of the application. It appears that by letter dated 4. 7. 1989 respondent No. 1 called upon the petitioner to agree to refer the dispute to arbitration as provided under Clause 7 7 of the general conditions of the contract. In the said letter respondent No. 1 alleged that because of the breach of the terms and conditions of the agreement respondent No. 1 had suffered huge damages and losses. Following were the specific grievances set out in the said letter : 1. Abandoning the site around 10-3-89 without completing the electrical installation work of the South India Cements Limited, Cement plant at Malkhed, Gulbarga District of Karnataka State let out to you, Siemens India Limited, on turn key basis under the above said Articles of Agreement. 2. Failure to rectify various defects pointed out by Engineer-incharge (project), Mr. Vajhala of Engineers India Limited, consultants of South India Cements Limited and communicated to you, Siemens India Limited, vide his message conveyed from site under SICL/mal/ee/89/81 dated 3-2-89 and South India Cements Limited letter No. SICL/s. 3/89/1163, dated 10-2-89. 3. Failure to carry out modification of inter-locking system as per revised drawings No. BID-6 furnished by the Engineers India Ltd. , consultants and Engineer-incharge (project) of South India Cement Limited. 4. 3. Failure to carry out modification of inter-locking system as per revised drawings No. BID-6 furnished by the Engineers India Ltd. , consultants and Engineer-incharge (project) of South India Cement Limited. 4. Failure to rectify malfunctioning of 110 KV transformer installed as per Siemens India Limited design parameters resulting in over voltage and tripping of transformer feeder on earth during energization. 5. Failure to supply. essential spares as per the said Articles Agreement. 6. Failure to furnish bank guarantee for 10% of the contract value towards warranty of the electrical installations as per the said Articles of Agreement. ( 4 ) ON the services of the order passed by this Court on 4th July, 1989 respondent No. 1 filed the application under Order 39 Rule 4 of the Code of Civil Procedure for vacation of the order. ( 5 ) IT was submitted by the learned counsel for the petitioner that the petitioner commissioned the equipment supplied by it on or around 15. 9. 1988 and thus it is not open to respondent No. 1 to invoke the bank guarantees because of the commissioning of the equipment, the bank guarantees stood discharged. Learned counsel submitted that the petitioner is ready and willing to give the warranty for 10% of the contract value which will cover post commissioning defects if any provided, of course respondent No. 1 returns the two bank guarantees for Rs. 18 lacs and Rs. 12 lacs respectively. Learned counsel submitted that the Chief Electrical Inspector of the Government of Karnataka granted an approval for drawing of electricity from high tension lines on 3. 5. 1988. The electric, connection and drawal of power could only be given upon successful commissioning of the equipment. Learned counse submitted that respondent No. 1 has already started manufacturing cement in the said plant which shows that the electrical installations were complete. Learned counsel further submitted that the letters of respondent No. 1 invoking the bank guarantees are not as per the terms in the bank guarantees. Learned counsel further submitted that respondent No. 1 has raised false and frivolous claims and disputes. Learned counsel further submitted that the letters of respondent No. 1 invoking the bank guarantees are not as per the terms in the bank guarantees. Learned counsel further submitted that respondent No. 1 has raised false and frivolous claims and disputes. Furthermore, though respondent No. 2 was bound to inspect the electrical equipment commissioned by the petitioner for the purpose of issuing completion certificate within a month of the date of commissioning of the electrical equipment, respondent No. 2 failed to carry out the necessary inspection at site for a considerable time. After about four months the Engineer Incharge of respondent No. 2 carried out the inspection and gave on 10. 2. 1989 a check list of various items of work which according to respondent No. 2 require to be rectified. Learned counsel submitted that none of the items in this check list were pointed out during the course of erection and commissioning and this fact was brought to the notice of respondent No. 2 by the petitioner vide their letter dated 22. 2. 1989. Some of the items mentioned in the check list are not even contract items. Learned counsel submitted that in any event the non-issuance of a completion certificate by respondent No. 2 is not relevant so far ascommissioning of the equipment is concerned. Learned counsel submitted that one of the disputes raised by the petitioner is whether the plant can be said to have been commissioned without the completion certificate or not and if the bank guarantees are allowed to be encashed before this dispute is resolved the petitioner will suffer irreparable loss. Learned counsel submitted that Section 2 of the IInd Schedule of the Arbitration Act empowers the court to grant relief for securing the amount in difference in the reference. If respondent No. 1 is allowed to encash the bank guarantee before this disputed question in respect of which the petitioner is seeking reference is decided then the reference on this point will become infructuous. ( 6 ) ON the other hand learned counsel for respondent No. 1 denied that the electrical equipment is fully commissioned. Learned counsel submitted that as per the contract respondent No. 2 which is an independent body was authorised to give the certificate of completion. By their telex message dated 4. 2. 1989 respondent No. 2 pointed out to the petitioner the various defects in the plant. Learned counsel submitted that as per the contract respondent No. 2 which is an independent body was authorised to give the certificate of completion. By their telex message dated 4. 2. 1989 respondent No. 2 pointed out to the petitioner the various defects in the plant. Similarly, vide a telex message dated 24. 6. 1989 respondent No. 2 informed the petitioner that when the check list points are taken care of, the job can be considered to be complete. Respondent No. 2 sought confirmation from the petitioner whether all the defects had been cured. Since the petitioner had not carried out the corrections as per the check list, respondent No. 2 did not give the completion certificate. Without the completion certificate it cannot be said that the plant has been commissioned. Learned counsel submitted that the petitioner all throughout was aware that the equipment has not been fully commissioned because otherwise the petitioner would not have extended the bank guarantees three times after 30. 9. 1988. In fact the petitioner applied for completion certificate on 14. 7. 1989 after filing of the present petition. Learned counsel submitted that under the bank guarantee given by the Grindlays Bank, loss or damage that may be caused to or suffered by respondent No. 1 on account of unsatisfactory performance of the equipment on commission has been protected and once respondent No. 1 makes the demand and invokes the guarantee, the bank is bound to make the payment. This bank guarantee further provides that the right of respondent No. 1 to recover the sum from the guarantor will not be affected or suspended by the reasons of the fact that any dispute or disputes are pending before officer, tribunal or court. Thus, the moment respondent No. 1 made a demand the bank cannot withhold payment on any ground. By their telex message dated 26. 6. 1989 respondent No. 1 had made the demand as provided in the guarantee and, therefore, the bank was bound to pay the money to respondent No. 1. Similarly the second bank guarantee issued by the American Express Bank Ltd. also provides that once respondent No. 1 advises the bank that Siemens India Limited have failed to fulfil the terms and conditions of the contract including supply, erection and commissioning obligations stipulated therein and makes a demand for the guaranteed sum the bank was bound to make the payment forthwith. Learned counsel submitted that the terms of the bank guarantees were very clear and the bank guarantees having been issued by the banks at the instance of the petitioner in pursuance of the contract the petitioner cannot seek injunction restraining respondent No. 1 from encashing the said bank guarantees. ( 7 ) IT is well settled that if under the terms of the guarantee the bank undertakes unconditional payment on demand without reference to the party at whose instance the bank guarantee has been furnished, then the autonomy of the bank guarantee shall be entitled to protection and except in very exceptional circumstances the court should not interfere with that autonomy. The Supreme Court in U. P. Cooperative Federation Limited v. Singh Consultants and Engineers (P) Limited,1 has analysed the legal position both in England as well as in our country and observed that: "in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or a bank guarantee, there should be serious dispute and there should be good prima facie case of fraud and special, equities in the form of preventing irretrievable injustice between the parties. Otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get jeopardised". The Supreme Court in the case has further observed that this rule applies not only when injunction is sought restraining the bank from performing the bank guarantee but also when injunction is sought against the person at whose instance the bank had issued the guarantee because one cannot do indirectly what one is not free to do directly. ( 8 ) THIS being the legal position it will be useful to first look at the terms of the bank guarantee. The relevant portion of the guarantee given by the Grindlays Bank reads as follows : "whereas the Suppliers have agreed to procure a Bank guarantee towards Retention Money for a sum of Rs. 18,00,000 equivalent to 15% of the Contract value of the total equipment with validity till commissioning to be furnished before supplies begin for the fault free satisfactory performance of all the equipment supplied against the said purchase order on commissioning the same. Whereas the Guarantor has agreed to furnish such a guarantee in favour of the supplier as under : 1. (1988) 1 SCC 174 . Now these present witnesseth as under : 1. Whereas the Guarantor has agreed to furnish such a guarantee in favour of the supplier as under : 1. (1988) 1 SCC 174 . Now these present witnesseth as under : 1. The Guarantor hereby agrees to pay to the Purchaser on demand in such a manner as the Purchaser may direct the said sum of Rs. 18,00,000 (Rupees eighteen lakhs only) payable by the supplier against any loss or damage that may be caused to or suffered by the purchaser on account of unsatisfactory performance of the equipment on commissioning. 2. The liability of the Guarantor under the Guarantee shall in no case exceed the sum of Rs. 18,00,000 (Rupees Eighteen lacs only ). 3. The Purchaser s right to recover the said sum of Rs. 18,00,000 (Rupees Eighteen lakhs only) from the Guarantor in the manner aforesaid will not be affected or suspended by the reasons of the fact that any dispute or disputes are pending before any officer, tribunal or court. " Under the special terms of the contract the plaintiff had agreed to furnish a bank guarantee as Retention money for 15% of the contract value of the total equipment with validity till commissioning to be furnished before supplies begin. The above bank guarantee was given by the bank pursuant in this agreement. The bank has guaranteed payment to respondent No. 1 on demand against any loss or damage that may be caused to or suffered by respondent No. 1 on account of unsatisfactory performance of the equipment on commissioning. The wording in the contract is slightly different than the wording in the bank guarantee. Whereas the contract stipulated that the Retention money of 15% of the contract value would be kept valid till commissioning, the bank guarantee provides for fault free satisfactory performance of all the equipments supplied against the purchase order on commissioning the same. The parties however proceeded on the basis that this bank guarantee was as per the requirement in the contract. Thus, there is no dispute that though the term in the bank guarantee talks about fault free satisfactory performance of the equipments supplied on commission, this bank guarantee was to be kept alive till the plant had been commissioned. It is not the case of respondent No. 1 that this bank guarantee will continue to operate even after the equipment is commissioned. It is not the case of respondent No. 1 that this bank guarantee will continue to operate even after the equipment is commissioned. Respondent No. 1 disputes that the equipment can be said to be commissioned even before respondent No. 2 issues the completion certificate. Be that as it may, under this bank guarantee the bank has agreed to make the payment of the 15% of the contract value amounting to Rs. 18 lacs on demand by respondent No. 1. Clause 3 of the bank guarantee further provides that the purchaser s right to recover the sum of Rs. 18 lacs will not be affected or suspended by the reasons of the facts that any dispute or disputes are pending before any officer, tribunal of court. Thus, even if the petitioner challenges the right ofrespondent No. 1 to demand the payment the bank cannot refuse payment. Respondent No. 1 by their letter dated 26-6-1989 made the demand and informed the bank that the plaintiff had failed to complete the work and to give fault free satisfactory performance of the electricals under the said contract and demanded the payment as promised in the guarantee. The bank guarantee is not conditional. In fact the bank guarantee clearly states that the right to recover the sum guaranteed will not be affected or suspended by the reasons of the fact that any dispute or disputes are pending before any officer, tribunal or court. Thus, even if the petitioner disputes the demand for any reason whatsoever the bank cannot withhold payment. Thus, in my opinion, once respondent No. 1 made the demand, the bank was bound to make the payment as promised. Similarly, the American Express Bank Limited gave the guarantee for 10% of the contract value towards faithful performance of the contract from the date of payment of advance to the date of commissioning. The relevant portion of the bank guarantee reads as follows : "we the underground American Express international Banking Corporation 364, D. N. Road, Bombay 400 001 hereby assume the guarantee for the fulfilment of the contractual obligations, in accordance with the stipulations of the above mentioned contract entered into by and between you as buyer and M/s. Siemens India Ltd. , as seller, to the amount of Rs. 12,00,00000 (Rupees Twelve lakhs only), viz. 12,00,00000 (Rupees Twelve lakhs only), viz. , 10% of the contract value, to the effect that we irrevocably undertake to pay you upon your first demand the above sum or part thereof provided you advise us that M/s. Siemens India Limited havefailed to fulfil the terms and conditions of the contract including supply, erection and commissioning obligations stipulated therein. "it is clear that once respondent No. 1 advised that the terms and conditions of the contract of supply, erection and commissioning, obligations stipulated in the contract are violated and respondent No. 1 demands payment as provided, the bank is bound to make the payment. This bank guarantee does not stipulate any reference to the petitioner before payment. The terms of the guarantee are very clear. The discretion is left entirely to respondent No. 1 to make the advice and demand. Thus, the only ground on which encashment can be stopped is if petitioner shows that it is a case of fraud and special equities and encashment of the guarantee will result in irretrievable injustice. I find that in the petition there is no whisper of fraud. Learned counsel for the petitioner however during arguments submitted that respondent No. 1 has already started manufacturing cement and is taking advantage of the non-issuance of the completion certificate for encashing the bank guarantees by alleging that there are certain defects in the equipment shows that it was a clear case of fraud. ( 9 ) IT will be useful to refer to some of the clauses of the contract between the parlies. Clause 4. 29 of the general terms of the contract provides that if at any time before the work is taken over, the Engineer-in-Charge decides that any work done or materials used by the contractor or any subcontractor is defective or not in accordance with the contract, or that the works or any portion thereof are defective, or do not fulfil the requirements of contract he shall give the contractor a notice in writing of the said decision and specify the particulars of the defects that exist. Thereafter the contractor is required to cure the defects specified by the Engineer-in-Charge. If the contractor fails to cure the defect, respondent No. 2 is authorised to take steps at the cost of the contractor to make good such defects. Under this clause the decision of the Engineer Incharge is final. Thereafter the contractor is required to cure the defects specified by the Engineer-in-Charge. If the contractor fails to cure the defect, respondent No. 2 is authorised to take steps at the cost of the contractor to make good such defects. Under this clause the decision of the Engineer Incharge is final. It is only after the work is completed to the satisfaction of the Engineer Incharged that a completion certificate is issued by the Engineer Incharge and thereafter Engineers India Limited-respondent No. 2 or the owner is deemed to have taken the work on the date so certified by the Engineers Incharge. Clause 581 and 582 of the general terms of the contract provides for application for completion certificate and reads thus : 5. 8. 1. Application for Completion Certificates : When the Contractor fulfils his obligation under Clause 4. 29 he shall be eligible to supply for completion certificate in respect of work by submitting the completion documents alongwith such application for completion certificate. The Engineer-in-Charge shall normally issue to the Contractor the completion certificate within one month after receiving an application therefor from the contractor after verifying from the completion documents and satisfying himself that the work has been completed in accordance with and as set out in the construction erection drawings, and the Contract documents. The Contractor, after obtaining the completion certificate, is eligible to present the final bill for the work executed by him under the terms of the Contract. 5. 8. 2. Completion Certificate : Within one month of the completion of the work in all respects, the Contractor, shall be furnished with a certificate by the Engineer-in- Charge of such completion, but no completion certificate shall be given or shall the work be deemed to have been executed until all scaffolding, surplus materials and rubbish is cleaned off the site completely nor until the work shall have been measured by the Engineer-in- Charge, whose measurement shall be binding and conclusive. The work will not be considered as complete and taken over the Engineer- in-Charge, until all the temporary work, labour and staff colonies, etc. , constructed are removed and worksite cleaned to. the satisfaction of the Engineer-in-Charge. The work will not be considered as complete and taken over the Engineer- in-Charge, until all the temporary work, labour and staff colonies, etc. , constructed are removed and worksite cleaned to. the satisfaction of the Engineer-in-Charge. If the Contractor shall fail to comply with the requirement of the clause on or before the date fixed for the completion of the work, the Engineer-in-Charge may at the expenses of the Contractor remove such scaffolding, surplus materials and rubbish and dispose off the same as the thinks fit and clean off such dirt as aforesaid, and the Contractor shall, forthwith pay the amount of all expenses so incurred and shall have no claim in respect of any such scaffolding or surplus materials as aforesaid except for any such actually realised by the sale thereof. None of the general terms and conditions of the contract refers to commissioning of equipment, however by letter dated 1-5-1985 while placing the firm order on the petitioner, respondent No. 1 made a condition that the petitioner will furnish the three bank guarantees mentioned hereinobove. As discussed hereinabove, excepting the warranty of S. No. 2, the other two guarantees were to be furnished by the petitioner before the supplies began. The warranty for 10% of the contract value is to be furnished after commissioning of 24 months after the delivery of the last consignment which ever is earlier but the Retention money of 15% of the contract value and bank guarantees for 10% of the contract value towards faithful performance of the contract was to be valid only upto the date of commissioning, From the correspondence placed on record by the parties it appears that respondent No. 2 had sent a check list and given to the petitioner and the petitioner was required to cure the defects pointed out in the said check list. In fact the petitioner approached respondent No. 2 to grant the completion certificate after they filed the present petition. Now, according to the petitioner the equipment was commissioned on 30-9-1988. If that was so there was no reason why they renewed the bank guarantees three times after 30-9-1988. In fact, this shows that it was always understood between the parties that these two bank guarantees could be kept alive till respondent No. 2 had given the completion certificate. Now, according to the petitioner the equipment was commissioned on 30-9-1988. If that was so there was no reason why they renewed the bank guarantees three times after 30-9-1988. In fact, this shows that it was always understood between the parties that these two bank guarantees could be kept alive till respondent No. 2 had given the completion certificate. To my mind, the certificate issued by the Chief Electrical Inspector of the Government of Karnataka has no bearing on the commissioning of the equipment. ( 10 ) THIS is also not an exceptional case of irretrievable injustice. It is true that the petitioner seeks reference of the dispute on the question whether the bank guarantees stand discharged because the equipment is commissioned. However, that is no ground for granting injunction from encashment of bank guarantees. In Union of India and others v. Meena Steel Limited and another,2 the High Court of Allahabad in similar circumstances granted injunction because it felt that if the bank guarantees were permitted to be encashed while the arbitration is pending it would not be proper. However, the Supreme Court in U. P. Co-operative Federation Limited (supra) disapproved the view taken by the Allahabad High Court and observed that in view of the settled principles on which bank guarantee operates the view taken by the Allahabad High Court in Union of India and others (supra) is unsustainable. The Supreme Court observed as follows : "on the basis of these principles I reiterate that commitments of banks must be honoured free from interference by courts. Otherwise, trust in commerce, internal and international would be irreparably damaged. It is only in exceptional cases that is to say in case of fraud or in case of irretrievable injustice be done, the court should interfere. "thus, though in a case where the party seeks reference to arbitration. Section 41 read with Rule 2 of the Second Schedule of the Arbitration Act gives a power to the court to give protection to secure the amount in difference in the reference, ordinarily the court will refrain from granting injunction to restrain the performance of the contractual obligation arising out of a bank guarantee otherwise in every such case where a reference is sought, parties will seek injunction against encashment of bank guarantees. This will frustrate the very purpose of commercial transaction like a bank guarantee. This will frustrate the very purpose of commercial transaction like a bank guarantee. ( 11 ) IN my view, for the above-mentioned reasons the injunction as prayed for by the petitioner cannot be granted. The application (I. A. 4538/89) is, therefore, dismissed and consequently the application of respondent No. 1 (I. A. 5336/89) is allowed. The interim order granted on 4th July, 1989 stands vacated.