Arun B. Sahariya ( 1 ) THIS order will dispose of three applications. (1) I. A. 3020/89 has been filed by the plaintiff, praying that pending final disposal of the suit, an order of temporary injunction may be granted restraining the first defendant from encashing the bank guarantee, and an order restraining the second defendant from making payment thereunder to the first defendant, (2) I. A. 417/90 has been filed by the first defendant, praying that interim order of injunction dated 25th of April 1989 made by this court be modified and the first defendant be permitted to encash the bank guarantee. (3) I. A. 3161/90 has been filed by the plaintiff, praying that an original certificate dated 30th of September 1989 issued by M/s. Sonitex be taken into consideration while disposing of I. A. 3020/89. ( 2 ) IN the main suit, the plaintiff has prayed for a declaration and order : (A) that the guarantee dated 20th of September 1983 executed by the second defendant in favour of the first defendant stands discharged by the complete performance of the contract by the plaintiff; (b) that the first defendant is not entitled to invoke or demand payment under the said guarantee against the plaintiff and the second defendant ; (c) that the invocation of the said guarantee by the first defendant is fraudulent and invalid ; and (c-l) that a permanent injunction be issued restraining the first defendant from encashing the said guarantee and restraining the second defendant from making any payment thereunder to the first defendant. ( 3 ) M/s. Star Industrial and Textile Enterprises Ltd. , defendant No. 1 (hereinafter referred to as STAR), in collaboration with Projects and Equipments Pvt. Ltd. (hereinafter referred to as PEC), with the prior approval and sanction of the Working Group, constituted by the Government of India in accordance with provisions contained in Foreign Exchange Regulations Act, Reserve Bank of India Act and Export, Import Bank of India Act and the Rules and Regulations framed thereunder, entered into a contract with M/s. National Society of Textile Industries, a company owned by the Government of Algeria (hereinafter referred to as SONITEX) for the construction of a plant for the manufacture of woven blankets and coarse yarn in hank at Algeria on a turnkey basis (hereinafter referred to as the main contract ). ( 4 ) BROADLY speaking, the main contract had three components : first, Civil Works, second, Machinery, and third, Service and Erection etc. STAR/ PEC were required to furnish to SONITEX bank guarantees for the performance of the entire project. In respect of the first component only, namely, the Civil Works portion, STAR entered into a contract dated 8th of October 1982 (hereinafter referred to as the sub-contract) on a back to back basis with the plaintiff (hereinafter referred to as SDB ). The sub-contract also was duly approved by the Working Group. Since STAR was required by SONITEX to give a guarantee of 10% covering the SDB s portion of the works, the sub-contract provided for back to back performance guarantee to be furnished by SDB to STAR guaranteeing the quality, services, performance, workmanship, etc. of the civil works. ( 5 ) CLAUSE 6. 3. 3. of the sub-contract expressly provided that STAR would invoke SDB s guarantees only when SONITEX invokes the guarantee executed by STAR. In pursuance of the sub-contract, a performance guarantee dated 20th of September 1983 was executed by the second defendant, State Bank of India (hereinafter referred to as the Bank), on behalf of SDB and in favour of STAR for Rs. 2,00,99,500. The said guarantee was to expire on 19th of March 1987. It was extended upto 19th of December 1987. ( 6 ) CLAUSE 53. 3. a of the main contract provided that the performance guarantee executed on behalf of STAR would be released to the extent of 50% on the grant of the Provisional Acceptance Certificate (hereinafter referred to as PAC ). Since SDB s guarantee was to be furnished on a back- to-back basis, it also had to be reduced correspondingly on the grant of PAC. ( 7 ) ON completion of Works, SONITEX had granted PAC regarding the civil works portion of the main contract on 26th of November 1987 and for the remaining works on 3rd of October 1987. As such, the performance gurantees furnished by STAR stood reduced to the extent of 50% of their original values. ( 7 ) ON completion of Works, SONITEX had granted PAC regarding the civil works portion of the main contract on 26th of November 1987 and for the remaining works on 3rd of October 1987. As such, the performance gurantees furnished by STAR stood reduced to the extent of 50% of their original values. ( 8 ) THE plaintiff has alleged that inspite of the aforesaid stipulations and the grant of PAC on 26th Novermber 1987 by SONITEX, STAR had deliberately and fraudulently required the plaintiff by its telex dated 12th of December 1987, to renew its performance guarantee for its full value for a period one year upto 1st of December 1988. SDB resisted this requirement of STAR and asserted that in view of the fact that PAC had already been granted by SONITEX, the performance guarantee of SDB should be reduced to 50% value and could not be extended for 100% value. SDB took up this matter at the Project Monitoring Gourp (PMG) meeting held on 19th of January 1988, where STAR also participated. The PMG suggested that on back to back terms. STAR and PEC could consider the option of accepting SDB s guarantee reduced to 50% and the guarantee would stand reduced to zero value after receipt of the Final Acceptance Certificate (hereinafter referred to as the FAC) and further that STAR could invoke SDB s guarantee if and only if STAR s guarantee was in turn invoked by SONITEX. As another option, it was suggested that SDB would extend the guarantee for 100% value provided STAR agreed to refer the matter to arbitration for refund of extra costs borne by SDB in extending the guarantee for full value. ( 9 ) THEREAFTER, all the outstanding matters between SDB and STAR were taken up for settlement at a meeting held on 25th of January 1988 between the Chairman of SDB and STAR. A Memorandum of Settlement of pending issues between the parties was executed (hereinafter referred to as the settlement ). It was agreed, inter alia, that in the event of any penalty being imposed finally by SONITEX, the responsibilities of each party for the same shall be dealt with as per the sub-contract and the main contract, that SDB shall extend its performance guarantee for an amount of Rs. It was agreed, inter alia, that in the event of any penalty being imposed finally by SONITEX, the responsibilities of each party for the same shall be dealt with as per the sub-contract and the main contract, that SDB shall extend its performance guarantee for an amount of Rs. 1,42,45,500 till PAC was issued by SONITEX, all existing Debit Notes/miscellaneous Bills/claims raised by SDB on STAR and likewise by STAR on SDB stand resolved and settled in full and final settlement by STAR agreeing to pay DA 1 Million equivalent to SDB by February 1989, and that no further Claims/bills Debit Notes would be raised by either party on the other for any past, present or feature work connected with the project upto the obtaining or final acceptance. ( 10 ) IN pursuance of the Settlement, SDB s guarantee was extended, for the reduced amount of Rs. 1,42,45,500 upto 19th of June 1988, with all other terms and conditions of the guarantee remaining unchanged. ( 11 ) ACCORDING to the plaintiff, the said turnkey project was fully executed and FAC was issued by SONITEX on 15th of February 1989 recording its full satisfaction and acceptance of the Blanket Factory. A Protocol was also executed and signed on 15th of February 1989 at Algeria (hereinafter referred to as the protocol) recording the conditions of final settlement between SONITEX and STAR. Thus, the sub-contract stood fully performed ; no amount was due and payable by SDB to STAR, and the remaining guarantee furnished by SDB, therefore, stood fully discharged. ( 12 ) INSPITE of this, STAR required the plaintiff to extend the said guarantee upto 30th of March 1989 on the pretext that the performance guarantees furnished by STAR to SONITEX had not yet been released. The plaintiff contested this demand. In the meantime, STAR had become a sick industrial unit and it was declared as such by the Maharashtra Government by a Notification dated 31st of December 1988 and its control had been taken over by the Management Committee appointed by the Board of Industrial Finance Rehabilitation (hsreinafter referred to as BIFR ). As an after thought and acting with ulterior motives, by its letter dated 20th of March 1989. STAR fraudulently claimed a net sum of Rs. 85 lacs, out of a total of Rs. 188. As an after thought and acting with ulterior motives, by its letter dated 20th of March 1989. STAR fraudulently claimed a net sum of Rs. 85 lacs, out of a total of Rs. 188. 18 lacs from SDB as penalty , on the plea that SONITEX has charged penalty to the extent of 7% of the contract price, and threatened that the guarantee furnished on behalf of SDB shall be invoked to recover it. It actually proceeded to do so, through its Solicitors, by a notice dated 21st of March 1989. According to the plaintiff, this claim was patently false to the knowledge of STAR as penalty had already been waived as per the Protocol. If any event, the plaintiff alleged that the delay, if any, in the execution of the project had been entirely on account of delays caused on various counts either by STAR or SONITEX, and that there have been no delays whatsoever in the execution of the work by SDB in respect of Civil works portion of the Projects. ( 13 ) THE plaintiff raised this matter for discussion at a meeting of the PMG held on 27th of March 1989. As per the recorded minutes of that meeting, STAR agreed to unconditionally withdraw its letter invoking the guarantee and SDB agreed to arrange before 31st of March 1989 extension in validity period of its guarantee for Rs. 1. 43 crores upto 30th of June 1989 ; STAR also agreed that intimation of guarantee s extension by the Bank would include a stipulation that the guarantee could be invoked if and only if guarantees issued by Bank of Baroda for STAR are in turn invoked by SONITEX and that in case of invocation this guarantee, no payment will be effected by SDB without prior approval by the PMG. Further, PMG decided that in the event of invocation of the said guarantee, the amount remitted by the Bank would be kept in a blocked amount with the Bank of Baroda, Bombay and would utilised for meeting liabilities in respect of invocation of STAR s performance guarantees by SONITEX. On the basis of there decisions, without being legally obliged to do so, SDB gave instructions to the Bank to extend the guarantee. On the basis of there decisions, without being legally obliged to do so, SDB gave instructions to the Bank to extend the guarantee. The Bank issued an extension letter dated 30th of March 1989 incorporating therein the conditions, that the guarantee should not be invoked unless and until the original guarantee given by STAR to SONITEX is invoked and that no payment of the guarantee amount shall be effected until the payment of guarantee amount is approved by the PMG. This conditional extension of the guarantee was not acceptable to STAR. ( 14 ) INSPITE of its having agreed to the arrangement recorded at the PMG meeting, STAR again alleged that penalty has been charged and imposed by SONITEX under the Protocol and a net of Rs. 85 lacs was payable by SDB towards its share. In these circumstances, the plaintiff instituted the present suit and prayed for an injunction against encashment of the guarantee. ( 15 ) ON 25th of April 1989, after notice to the defendants, while arguments were part heard on I. A. 3020/89, an order was made that till the arguments are concluded, the Bank should not encash the guarantee. On 26th of April 1989, counsel for STAR made a statement that the bank guarantee would not be encashed in view of the fact that the matter is being heard, till orders are pronounced, and he sought an adjournment of the hearing to file detailed reply and the documents which he wished to rely upon. ( 16 ) WHILE the matter was. pending in Court, a meeting of the W. G. was held on 1st of May, 1989 at which STAR denied having made any commitment on 27th of March, 1989. In that meeting, certain proposals were discussed. In pursuance thereto, the Bank extended the performance guarantee for Rs. 1,42,45,500 upto 19th of September, 1989 without any conditions. Thereafter, STAR, by its solicitor s letter dated 1st of June, 1989, withdrew the invocation of the bank guarantee. ( 17 ) FOR the second time, by a lawyer s notice dated 23rd of June 1989, STAR invoked the guarantee for the amount of Rs. 1,42,45,500 on the plea "sonitex has now invoked the bank guarantee against our clients for a sum of approximately Rs. 2,42,00,000". ( 17 ) FOR the second time, by a lawyer s notice dated 23rd of June 1989, STAR invoked the guarantee for the amount of Rs. 1,42,45,500 on the plea "sonitex has now invoked the bank guarantee against our clients for a sum of approximately Rs. 2,42,00,000". It was alleged that "the losses suffered" by STAR had been much larger than the guaranteed amount but leaving STAR s right intact for claiming the balance of their losses from SDB, a demand from the Bank was made for payment of Rs. 1,42,45,500. ( 18 ) IN view of the subsequent events, SDB amended the plaint and alleged that owing to STAR s wilful default in implementing the Protocol, as it did not supply the spares to SONITEX and it did not remit, within the stipulated period, the amount payable to SONITEX on account of intercalaire interest under the Protocol, SONITEX invoked the guarantees of STAR. On this pretext, STAR has again invoked SDB s guarantee. ( 19 ) THE plaintiff has alleged further that invocation of the guarantee is unwarranted, it is in violation of the instructions/directions of the W. G. / PMG and also in violation of the undertakings given by STAR to the WG/ PMG, it is fradulent and has been made by STAR with the ulterior objective of causing wrongful gain to itself and wrongful loss to SDB. It has been alleged that no penalty has in fact been imposed by SONITEX, that SONITEX has no intention whatsoever of imposing any penalty, that the guarantee stands fully discharged as the contract stands fully performed qua SONITEX, that on plain reading of the guarantee, the same is not enforceable or encashable without a definite amount being due and payable by SDB to STAR and in fact huge amounts are admittedly due and payable by STAR to SDB, and that the very basis on which STAR purportedly invoked the guarantee, namely, the imposition of penalty by SONITEX, is non-existent. Without prejudice to all this, SDB has also alleged that under the Protocol, SONITEX had expressly waived applicition of delay psnalties, and that disputes and differences between the parties have already been referred to arbitration for adjudication. Without prejudice to all this, SDB has also alleged that under the Protocol, SONITEX had expressly waived applicition of delay psnalties, and that disputes and differences between the parties have already been referred to arbitration for adjudication. ( 20 ) STAR s case, on the other hand, in short, is that the guarantee originally furnished by SDB was reduced by 50% on the grant of PAC, that the Settlement, PAC and the Protocol show that in view of delay in completion of the Project disputes between STAR and SONITEX were still outstanding, that SONITEX had in fact levied penalty for delay which was set off and adjusted against acknowledged claims of STAR and had not really waived the same, that the said documents envisaged and provided for extension of the reduced guarantees till final settlement was reached in respect of all matters between STAR and SONITEX. Further, that SDB did extend validity period of the guarantee from time to time, that STAR never agreed to the imposition of any condition on its absolute right to invoke the guarantee as suggested by some of the minutes of meetings of the WG/pmg, the correctness of which was contemporaneously disputed by STAR, that on failure of negotiations, SONITEX did invoke the guarantees furnished by STAR which resulted in STAR suffering "losses" relatable to the subcontract, that STAR was entitled to invoke the guarantee, and that the invocation is bona fide, it is in accordance with the terms of the guarantee, and is valid. The allegation made in the plaint to suggest that SDB had fully and duly performed its part under the sub-contract, or that it was not responsible for the losses suffered by STAR, or that invocation of the guarantee is fraudulent, have been denied. ( 21 ) IN rejoinder, SDB has reiterated that the contract having been fully performed, the guarantee stands discharged and the invocation thereof by the first defendant is illegal and fraudulent. In view of arrangements mutually agreed upon between the parties during the meetings of the WG/ PMG from time to time, there had been "novation of the terms and conditions" of the guarantiee. In view of arrangements mutually agreed upon between the parties during the meetings of the WG/ PMG from time to time, there had been "novation of the terms and conditions" of the guarantiee. Further, it has been alleged that since STAR has neither sought any approval nor has any approval whatsoever been granted by the Working Group for encashment of the guarantee "the invocations" made by STAR of the said guarantee "are untenable and in violation of the aforesaid arrangements and agreements arriveed at in the Working Group meetings". At another Working Group meeting held on 1st of May, 1989, SDB had asserted that STAR should release the guarantee either on release of its own guarantee by SONITEX or on the making of the award in the pending arbitration proceedings, whichever is earlier, and that during the said period, SDB would keep its guarantee in force and STAR would not invoke it under any circumstances. Accepting the assertions of SDB, STAR had by its telex dated llth of May, 1989 addressed to the Bank, required it to extend the validity date of the guarantee for a further period of three months. The Bank had, on the request of STAR and SDB issued a letter dated 18th of May 1989 extending the validity period upto 19th of September, 1989. The Bank had full knowledge of the aforesaid assertion of SDB. As such, the same binds the Bank and extension of the guarantee by it was subject to the same. It is further stated that the arrangements, assertions and proposals set out by SDB on 1st of May, 1989 were not only accepted by STAR but were acted upon by it and, as such, STAR "is estopped and precluded from questioning or disowning the same and is legally bound by the same". It is further stated "acting on the said representation of the 1st defendant, the plaintiff had altered its position to its prejudice and detriment by extending the said guarantee for a further period upto 19th September, 1989". In these circumstances, it has been alleged that terms of the guarantee are "circumscribed, modified and conditioned" by the assertions and arrangements made on 1st of May, 1989. In these circumstances, it has been alleged that terms of the guarantee are "circumscribed, modified and conditioned" by the assertions and arrangements made on 1st of May, 1989. ( 22 ) FURTHER, the plaintiff has alleged that in case interim injunction is not granted, the plaintiff would suffer irretrievable loss and irreparable injury for the reasons, inter alia, (a) that STAR had availed of financial assistance aggregating over several crorers of rupees from the financial institutions and had failed and neglected to repay either the principal amount or interest thereon, (b) that the Government of Maharashtra has declared STAR as a sick industrial unit, (c) that STAR sought financial assistance from IDBI, and inspite of the same being made available, its financial position deteriorated still further, and (d) that the provisional profit and loss account upto March, 1989 submitted by STAR before the Board of Management shows that its accumulated losses- upto that date were Rs. 19. 39 crores, in addition to its contingent liability of Rs. 15. 14 crores, thus making an aggregate of Rs. 34. 53 crores. A photo copy of the certified copy of the said provisional profit and loss account has been annexed to the rejoinder. In these circumstances, it has been pleaded that in case STAR is allowed to encase the guarantee, "it shall cause irretrievable loss and irreparable injury to the plaintiff and would render the suit of the plaintiff infructuous as there would not be even the remotest possibility of recovering back from the first defendant the amount of Rs. 1. 42 crores that it may realise on encashment of the said guarantee and any decree that may eventually be passed by this court in favour of the plaintiff shall be incapable of execution. " ( 23 ) AT the hearing, counsel for SDB has urged that an injunction should issue to restrain the defendants from encashing the bank guarantee. He has pressed four grounds. Firstly, in view of the PA C, the Settlement, the FAC and the Protocol, the obligations of SDB under the sub-contract have been duly performed ; the portion of work done by SDB has been accepted without any reservation by SONITEX ; with the waiver of penalty for delay, SDB s liability on this account, for the discharge of which the guarantee was furnished, stands completely absolved ; and, therefore, the guarantee stands fully discharged. Secondly, that the notice of demand does not state that any moneys were "payable" by SDB to STAR, nor does it specify the quantum of STAR s "losses", if any, directly attributable to SDB, in respect of or in connection with the sub-contract, therefore, the invocation is not in accordance with the terms of the guarantee. Thirdly, the invocation is fraudulent inasmuch as certain admitted claims of SDB are payable by STAR ; disputes between parties are still pending adjudlcation ; the claim of penalty for delay is non-existent ; STAR s outstanding liabilities towards SONITEX under the Protocol cannot be foisted upon SDB ; STAR has invoked the guarantee in violation of the understanding reached and decisions taken at various meetings of the WG/pmg ; and that STAR has invoked the guarantee for its own undue enrichment. Lastly, that STAR has been declared a sick industrial unit, its financial position is bad, and irretrievable injustice would be done to SDB if the guarantee is allowed to be encashed till disposal of the present suit. ( 24 ) STAR s counsel has contested each of the grounds urged by his adversary. He has pressed the following points. (1) There is no stipulation in the guarantee of any stage, event, or contingency, on the happening of which it would be discharged ; the guarantee is still subsisting for the discharge of SDB s liability to make good losses suffered by STAR as a result of SONITEX encashing its guarantees, inter alia, on account of penalty and intercalaire interest , and that it is not open to SDB to contend that the guarantee stands discharged on grant of the FAC as it had extended the guarantee even thereafter. (2) Liability of the Bank under the guarantee is unconditional and absolute, and that the guarantee has been invoked in accordance with the terms thereof. (3) The demand for payment is not fraudulent; the allegations of fraud are restricted to the earlier notice of demand which was withdrawn ; and that there is no allegation of fraud in respect of the invocation now in question. (4) That insolvency of STAR cannot form the basis to claim an injunction on the ground of irretrievable injustice in this case. ( 25 ) IN order to appreciate. (4) That insolvency of STAR cannot form the basis to claim an injunction on the ground of irretrievable injustice in this case. ( 25 ) IN order to appreciate. the rival contentions, it is necessasy to read the relevant provisions of the main contract as well as the sub-contract (extracts produced by counsel for STAR at the time of hearing) with regard to the guarantee, penalty for delay and intercalaire interest . It would also be necessary to refer to various terms of the guarantee, the Settlement, FAC, the Protocol, and contracts of the notice dated 23rd of June, 1989 invoking the guarantees for purposes of discussion of the grounds urged by counsel for the parties. As such, relevant extracts of the contractual provisions and of the said documents are set out below : A. Main Contract : Article 36-Guarantees for Works of Infrastructure and Buildings 36. 1. The CONSTRUCTOR guarantees that the works of infrastructure and buildings of the FACTORY will be carried out in conformity with the rules and regulations, the provisions and specifications of the provisions and specifications of the present CONTRACT and its annexures, the Algerian regulations and that they will have no defects and will be according to the plans and drawings which were sent to the CLIENT, with the mention "all RIGHT FOR EXECUTION". Article 38-Guarantee of Time Limits 38. 1. The CONSTRUCTOR guarantees, the keeping to the time limits in conformity with the planning of the present CONTRACT as in Annexure VI. In particular, the CONSTRUCTOR guarantees the following dates : -Provisional acceptance of the infrastructure and building works not later than 30 months after the CONTRACT comes into force.-Provisional acceptance of all the homogeneous sections of PRODUCTION MATERIAL not later than 30th month after the CONTRACT comes into force.-Acceptance of the first shift not later than 36th month after the CONTRACT comes into force.-Definite acceptance of the FACTORY not later than 42 months after the CONTRACT comes into force.-These acceptance are defined in Article 40 of the present CONTRACT. Article 41-Definite Acceptance 41. 1. In structure and Building The definite acceptance of the infrastructure and building work is given section by section and a formal statement established 12 (twelve) months after the provisional acceptance on the condition that the reservations, either during the operations of provisional acceptance or after the provisional acceptance are put right. Article 41-Definite Acceptance 41. 1. In structure and Building The definite acceptance of the infrastructure and building work is given section by section and a formal statement established 12 (twelve) months after the provisional acceptance on the condition that the reservations, either during the operations of provisional acceptance or after the provisional acceptance are put right. The CONSTRUCTOR, however, remains bound to the decennial guarantees. 41. 4. Complete Factory The definite acceptance of the complete FACTORY is the sum of definite acceptance : -of infrastructure and the Building works -of production materials -and the formal statement of the results of the first shift. Article 50. 1. D -Accumulated Interest The interest due to the CONSTRUCTOR upto the end of 30th Month after the CONTRACT coming into force (interim interest) will make the object of a promissory note established and signed by the CLIENT, countersigned by BANK and submitted to the Bank of the CONSTRUCTOR at the same time with the promissory note of principal and interest. It will become due on the first day of 31st Months from the date of CONTRACT coming into force. The two parties agreed that the accumulated interest will be due by the CLIENT to the CONSTRUCTOR from the average date agreed upon i. e. 12th Month after the CONTRACT coming into force. The detailed Provisional Calculation of the amount of this promissory note figure in Annexure-XVI of the CONTRACT. This theoretical and temporary calculations takes into account the contractual planning of realisation. At the end of 30th Month of the CONTRACT coming into force the interest will be calculated according to the actual performance. In case of any differences which may arise with regard to the amount of bill which guaiantee the accumulated interest, the same will be settled, by a payment to the beneficiary party within a maximum period of 30 days from the notification of the beneficiary party. 50. 1. E. In case of very important staggering in the planning of realisation of the Factory, attributable to the CONSTRUCTOR, the parties expressively agree to recalculate the interest on the principal amount accordingly. Article 53-Bank Guarantee 53. 1. The CONSTRUCTOR will make available at his expenses, prior to the CONTRACT coming into force, the following guarantee namely "down Payments" and of "good Execution and of God End". Article 53 3 - Bank Guarantee of Good Execution and Good end 53. 3. Article 53-Bank Guarantee 53. 1. The CONSTRUCTOR will make available at his expenses, prior to the CONTRACT coming into force, the following guarantee namely "down Payments" and of "good Execution and of God End". Article 53 3 - Bank Guarantee of Good Execution and Good end 53. 3. a. Part Payable in Indian Rupees As a preliminary on the CONTRACT coming into force CONSTRUCTOR will submit to the CLIENT a guarantee of and equal amount to 10% of the part of price payable in Indian Rupees, which will guarantee the good execution of supplies and presentations carried out by the CONSTRUCTOR in virtue of the present CONTRACT and payable in this currency. It will be realeased in the following manner : -50% at the provisional reception of the FACTORY.-50% at the definite reception of the FACTORY. This bank guarantee will be established by the Bank of Baroda as per Model-2 enclosed at the Annexure XV of the present CONTRACT. It will be counter guarantee by the BANQUE NATIONALE D algerie. 53. 3. b. Part Payable in Deutsche Marks As a preliminary on the CONTRACT coming into force CONSTRUCTOR and the NOMINATED SUB-CONTRACTOR, each will submit to the CLIENT a guarantee of an equal amount to 10% of the part of the price payable in Deutsche Marks which will guarantee the good execution supplies and prestations carried out by the CONSTRUCTOR and the NOMINATED SUB-CONTRACTOR in virtue of the present CONTRACT and payable in this currency. They will be each released in the following manner : -50% on provisional acceptance of FACTORY.-50% on definite acceptance of FACTORY. These bank guarantees will be established by the BANKS of the CONSTRUCTOR and the NOMINATED SUB-CONTRACTOR according to Model 2 in Annexure XV of the present CONTRACT They will be counter guaranteed by the BANQUE NATIONALE D algerie. 53. 3. c. Part Payable in Algerian Dinars Before the entering into force of the CONTRACT the CONSTRUCTOR will remit to the CLIENT a guarantee of a sum equal to. 10% of the part of the price payable in Algerian Dinars which will guarantee the good execution of the supplies and prestations carried out by the CONSTRUCTOR in virtue of the present CONTRACT and payable in this currency. It will be released in the following manner : -50% at the provisional acceptance of the FACTORY.-50% at the definite acceptance of the FACTORY. It will be released in the following manner : -50% at the provisional acceptance of the FACTORY.-50% at the definite acceptance of the FACTORY. This bank guarantee will be established by the BANQUE NATIONALE D algerie at Algeria according to Model-2 joined to Annexure XV of the present CONTRACT. Article 55-Penalties for Delay 55. 1. Infrastructure and Building Works In case of delay attributable to the CONSTRUCTOR in giving provisional acceptance of the infrastructure of building works is liable to the following Penalty : For each full day in delay with an exemption of 2 weeks ; 0. 055% of the corresponding value which is considered for the application of the present Article as being equal to ; 29,257,800 DA, 90,002,000 rupees and 17,000,000 DM with a ceiling of 10% of the value as above. Article 56. 3-Ceiling of Penalties The ceiling of penalties mentioned as per Articles 55 and 56 of the present CONTRACT is fixed to 7% of the total amount of the CONTRACT. (In the above provisions, it may be noted that the CONSTRUCTOR is STAR and the CLIENT is SONITEX Article 38. 1 provides for "provisional Acceptance" and "definite Acceptaiuce" which are the PAC and the FAC respectively. In Article 53. 1 provision was made for two kinds of guarantees, namely, "down Payments" and of "good Execution and Good End". Counsel for the parties agreed that we are not concerned with the first and that the promissory note and the payments envisaged under Article 50. 1 D and E are also not relatable to the guarantee (s) in question. We are concerned with only the second kind of guarantee of "good Execution and Good End". The nominated sub-contractor mentioned in Article 53. 3 D is the German Sub-contractor, who was associated with the machinery component of the Project, and not SDB ). B. Sub-Contract WHEREAS (i) x x x x x (ii) X x x X x (iii) PEC and STAR and STAR and SD agreed and arrived at the following understanding : (a) x X x x (b) that only PEC/star will sign the Contractwith the CLIENT as signatories while SD will enter into this back-to back agreement with STAR in view of the role assigned to and accepted by STAR in the said contract. (c) SD shall be responsible for the portion as defined hereinafter. (c) SD shall be responsible for the portion as defined hereinafter. The function of SD would be to execute the PORTION and after establishing a site office in Algeria execute the entire Civil Works under the direction and/or guidance of STAR and as per the stipulations in the CONTRACT and guarantee the Construction for a period of ten years from the date of final acceptance by the CLIENT duly covered by a decennial Insurance with the Algerian body. Article 1-Definitions 1. 1. X X X X 1. 2. x x x x 1. 3. x x x x 1. 4. contract means the Agreement and all its annexes, appendices, further amendments, modifications and addenda to be signed between the CLIENT and the PEC/star for the implementation of the blanket factory in Algeria. 1. 5. plant and project means the complete and operable textile plant including Civil Works, Textile Machinery, Accessories, Auxilleries, Utilities, Spare Parts and all other supplies as well as services which have to be designed, engineered, procured, supplied, erected and constructed, commissioned, tested and accepted further rendered in accordance with the stipulations of the CONTRACT. 1. 6. X X X X 1. 7. x x x x 1. 8. x x x x 1. 9. agreement shall mean this present AGREEMENT including all annexures and possible future amendments thereto. 1. 10. works means all activities for the execution of the CONTRACT. 1. 11. portion shall mean all such Civil Construction and Engineering Supplies and services to be effected by SD such as defined in the CONTRACT and specified in Annexure a to this Agreement. Article 2-Object of the Agreement 2. 1. The CONSTRUCTOR is concluding the Contract with the CLIENT with the aim to establish a turnkey textile plant as per the terms and conditions of the CONTRACT. For this CONTRACT, SD has agreed with the CONSTRUCTOR to undertake and effect all Civil Constructions and Engineering Supplies and services of the PORTION in accordance with the CONTRACT and this Agreement. 2. 1 2. 2. x X x x 2. 3. For this CONTRACT, SD has agreed with the CONSTRUCTOR to undertake and effect all Civil Constructions and Engineering Supplies and services of the PORTION in accordance with the CONTRACT and this Agreement. 2. 1 2. 2. x X x x 2. 3. All clauses in the CONTRAT applicable to the CONSTRUCTOR for the fulfilment of the CONTRACT relating to and relevant to the PORTION attributable to and described more particularly in Annexures III, IV, V, VI and IX of the CONTRACT and Annexure s of this Agreement shall be as fully binding on SD as if SD was a party to the CONTRACT. The rights and obligations of SD as a Sub-contractor to STAR shall be co-extensive with the STAR arising out of the CONTRACT and the rights and obligations of SD will be vis-a-vis the CLIENT through STAR as a party to the said CONTRACT with the CLIENT. It is therefore agreed that except for the specific clauses agreed and provided in this Agreement, all the relevant clauses of the CONTRACT shall be deemed to be the articles provided under this Agreement and shall create corresponding rights and obligations in favour of and by SD. "article 3. 3. 2.-Since the CONSTRUCTOR is required by the CLIENT to give a guarantee of 10% covering SD PORTION, SD shall give a guarantee to the CONSTRUCTOR of a first class Bank in India, guaranteeing the quality, services, performance, workmanship, etc. of SD s PORTION. Article 6-Responsibilities of SD for their Supplies and Services 6. 1. As STAR is responsible to the CLIENT in respect of all the obligations undertaken by it in terms of the CONTRACT including BD s portion SD will be responsible to STAR under this Agreement for SD s PORTION of supplies and services, performance guarantees, time schedules etc. and for all consequential claims, liabilities and obligations to the CLIENT and/ or other Sub-contractors which may devolve upon STAR or which STAR may be called upon to bear out of any actions, omissions, delays etc, directly attributable to SD. This however will be subject to the fulfilment of the respective obligations/ responsibilities in time by the CLIENT, STAR and other Subcontractors and also that no Force Majeure according to the Contract has been claimed by either SD or STAR or the CLIENT. 6. 2. 1. This however will be subject to the fulfilment of the respective obligations/ responsibilities in time by the CLIENT, STAR and other Subcontractors and also that no Force Majeure according to the Contract has been claimed by either SD or STAR or the CLIENT. 6. 2. 1. Each party assumes the liability for all technical risks and for performing his scope for supplies and service with proper care and good workmanship, in conformity with the CONTRACT and within the time schedule established therein. Such liability shall include furthermore liability for the correctness of all commercial and/or technical specifications, data or in formation handed over to the other party. Each PARTY is liable for any damage or claim resulting from breach of contract, non- performance, defective performance or late performance caused by him, by his personnel or by his sub-contractors to the other PARTY, to his personnel or to his sub-supplier. 6. 2. 2. Should a claim be raised by the CLIENT or a third party against one of the PARTIES (hereinafter called the indented PARTY), the other party has to keep the indented PARTY free and harmless from the aforementioned claim provided and to the extent that the claim originates from the other PARTY s responsibility. 6. 2. 3 If both PARTIES are liable, the extent of their liability will be determined either by the degree of their negligence or (in the absence of negligence) by the degree of their actions of omissions which caused such liability to other. 6. 2. 4 If it is doubtful which of the PARTIES have to assume the liability or responsibility under the CONTRACT and/or this AGREEMEMT, both PARTIES will bear provisionally such liability or responsibility in relation to their respective portions until an understanding is reached as to who has to bear the damage or the cost and to which extent, or until a respective arbitration award has been made. 6. 2. 5 If a final solution about the liability cannot be fixed and/or if a demand of the CLIENT even if unjustified in the opinion of the PARTIES, cannot be rejected, they shall bear such damages, penalities, cost, etc. according to their respective PORTIONS. 6. 3. 3 It is expressly agreed that STAR will invoke the guarantee executed by SD only when the CLIENT invokes the guarantees executed by STAR. according to their respective PORTIONS. 6. 3. 3 It is expressly agreed that STAR will invoke the guarantee executed by SD only when the CLIENT invokes the guarantees executed by STAR. C. Relevant extracts from State Bank of India's Guarantee dated 20-9-1983 furnished to STAR : In consideration of the Star Industrial and Textile Enterprises Ltd. Dhanraj Mahal, Chhatrapati Shivaji Marg, Bombay (hereinafter called "the STAR" or "the Company" which expression shall include its successors and assigns) having awarded to M/s Som Datt Builders Pvt. Ltd. , 56, Community Centre, East of Kailash, New Delhi (hereinafter referred to as "sub-Contractor" which expression shall whereever the subject or context so permit include its successors and assigns) in the same terms and conditions between STAR and Foreign Buyer for construction of Blanket Factory in Algeria and upon the condition of Sub-Contractor's furnishing security for the performance of the Sub-contractor's obligations and/or discharge of the liability under and/or in connection with the said Sub-contractor contract upto a sum of Rs. 2,00,99,500 (Rupees Two Crores ninety nine thousand five hundred only) amount to 10% of the total contract value. We, State Bank of India, Overseas Branch, New Delhi (hereinafter called "the Bank" which expression shall include its successors and assigns) hereby jointly and severally undertake and guarantee for payment to the STAR in rupees forthwith on demand in writing and without protest or demur or any and all moneys anywise payable by the Sub-contractor to the STAR under and in respect of or in connection with the said contract inclusive of all the STAR's losses and damages and costs, (inclusive between attorney and client), charges and expenses and other moneys anywise payable in respect of the above as specified in any notice of demand made by the STAR to the Bank with reference to this guarantee upto and aggregate limit of Rs. 2,00,99,500 (Rupees Two Crores ninety nine thousand five hundred only) and the Bank hereby agree with STAR that : (1) This guarantee shall be a continuing Guarantee and shall remain valid and irrevocable for all claims of the STAR and liabilities of the Sub-contractor arising uptoand until midnight of 19th March 1987. 2,00,99,500 (Rupees Two Crores ninety nine thousand five hundred only) and the Bank hereby agree with STAR that : (1) This guarantee shall be a continuing Guarantee and shall remain valid and irrevocable for all claims of the STAR and liabilities of the Sub-contractor arising uptoand until midnight of 19th March 1987. (2) X X X x X (3) x x x x x (4) x x x x x (5) The bank hereby waves all rights at any time inconsistant with the terms of this Guarantee and the obligations of the Bank in terms hereof shall not be anywise affected or suspended by reason of any dispute or disputes having been raised by the Sub-contractor (whether or not pending before any arbitrator. Tribunal or Court) or any denial or liability by the Associate stopping or preventing or purporting to stop or prevent any payment by the Bank to the STAR in terms hereof. (6) The amount stated in any notice of demand addressed by STAR to the guarantor is liable to be paid to STAR by the supplier or as suffered or incurred by the STAR on account of any losses or damages or costs, charges and/or expenses shall be conclusive evidence of the amount so liable to be paid to STAR or suffered or incurred by STAR as the case may be, and shall be payable by the Guarantor to STAR in terms hereof. (7) * * * * * * (8) * * * * * * This instrument shall be returned to us upon its expiry or settlement of claim (s) thereunder. " (The guaranteed sum was reduced to Rs. 1,42,45,500 after grant of PAC vide letter dated 5th of July 1988. Thereafter, the guarantee was extended by a letter dated 3rd of January 1989 upto 19th of June 1989, by a letter dated 30th of March 1989 upto 19th of December 1989 and by another letter dated 18th of May 1989 upto 19th of September 1989 ). D. Memorandum of Settlement dated 25-1-1988. 1. Time Delay Dossier 1. Thereafter, the guarantee was extended by a letter dated 3rd of January 1989 upto 19th of June 1989, by a letter dated 30th of March 1989 upto 19th of December 1989 and by another letter dated 18th of May 1989 upto 19th of September 1989 ). D. Memorandum of Settlement dated 25-1-1988. 1. Time Delay Dossier 1. 1 As stipulated in the Provisional Acceptance Certificate, to facilitate preparation and submission of necessary dossier justifying time delay-all details and necessary supporting documents for civil works as required by STAR, shall be submitted forthwith by SDB to facilitate STAR to incorporate them in the final time delay dossier to be submitted to clients before 31st January 1988. Any other micro level details as required by STAR/client for any further justification shall also be provided by SDB. Further, SDB shall extend all co-operation to Star in the matter to justify time delay dossier to the client. 1. 2 However, is expressly understood that in the event of any penalty being imposed finally by the clients, the responsibilities of each party for the same shall be dealt as per the Agreement and the main Contract. 1. 3 It is expressly agreed that SDB shall immediately give necessary instruction to their office at site- (a) to submit Delay Claim Dossier. (b) To provide necessary services and equipment. (c) To immediately take up all inter-dependent civil work for completion. (2) Claims on Client 2. 1 It is envisaged that claims to the extent of DA 14 m to DA 15m pertaining to Civil Works could be raised on the Client. To facilitate this SDB shall immediately furnish all relevant data (macro and micro) including supporting documents to STAR so that this can be studied and comprehensive claim kept ready for submission at an appropriate time. 2. 2 Joint concerted efforts would be made by STAR and SDB to pursue these claims and to obtain maximum realisation. 2. 3 The net claim thus realised from the client shall be shared in proportion of 50,50 between STAR and SDB. 3. SDB's Performance Guarantee SDB shall extend their Performance Guarantee till final acceptance, which shall be 50% of the designated prorata amount in the currencies of payment to SDB but payable in equivalent non convertible Indian Rupees at current exchange rates. As per above the Guarantee amount to be extended shall be Rs. 4. 3. SDB's Performance Guarantee SDB shall extend their Performance Guarantee till final acceptance, which shall be 50% of the designated prorata amount in the currencies of payment to SDB but payable in equivalent non convertible Indian Rupees at current exchange rates. As per above the Guarantee amount to be extended shall be Rs. 4. Various Claims between STAR and SDB 4. 1 All existing Debit Notes/miscellaneous Bills/claims raised by SDB on STAR and likewise by STAR on SDB stand resolved and settled in full and final settlement as up to date i. e. 25th January, 1988 by STAR agreeing to pay DA 1 Million equivalent to SDB by February, 1989. 4. 2 It is clarified that this settlement takes into account all the debit notes/miscellaneous bill from either side settled on 9th September 1987. All other debit notis/miscellaneous bill from either side not settled on that date or raisen by parties latter shall be considered null and void except the cash expenses incurred by STAR on behalf of SDB to the extent of DA 92,359. 00 (Yard insurance upto 31-12-87 and part expenses in connection with CPM ). This amount shall be adjusted against the pending G. C. bill of DA 136,462. 00. It is expressly agreed that no further claims/bills/debit notes would be raised by either party on the other for any past, present or future work connected with the project upto the the obtaining of final acceptance. 4. 3 In the spirit of goodwill, while STAR will not charge for the electricity and water consumed in SDB's residential camp, office at site, SDB will charge @ 50% of the rates being charged earlier for SDB's equipment utilised by STAR w. e. f. 27-1-1988. 4. 4 It is further expressly agreed that for completing works and removal of pending reserves including inter-dependent reserves, SDB shall provide all services and equipments without any delay and extend fullest cooperation at site to achieve FAC in time. 5. Wage Escalation Claim The escalation claim against wages amounting to DA 570,570 already received and DA 115,000 expected to be received would be passed on to SDB. Whereas the claim yet to be received would be passed on to SDB immediately on receipt, the payment for the equivalent amount already received would be made in 2 to 3 months. 5. Wage Escalation Claim The escalation claim against wages amounting to DA 570,570 already received and DA 115,000 expected to be received would be passed on to SDB. Whereas the claim yet to be received would be passed on to SDB immediately on receipt, the payment for the equivalent amount already received would be made in 2 to 3 months. Any other wage escalation pertaining to civil work if receivable, shall also be passed on to SDB on its receipts, 6. For converting DA into 1 Rs. the ruling bank rate of 27-1-88 for Som Datt Builders P. Ltd. for STAR Industrial and Textile Enterprises Limited Som Datt Suresh Mehta Sd/- Brahm Datt Sd/- P. V. Seshadri F. English translation of report at Final Acceptance (FAC) Having examined : the Contract signed on 3 February 1983 pertaining to the "turnkey" Blanket and Coarse Yarn Complexat Tissemsilt.-the report on provisional acceptance on the factory signed on 3-12-87-article 40. 3 of the Contract.-the minutes of 16-1-89 giving the situation of protocols issued after provisional acceptance of the factory.-the concluding results obtained on acceptance of the first shift.-the protocol signed between the two parties on Feb. 15, 1989. the final acceptance of the Blanket and Coarse Yarn Complex of TISSEMSILT is given in conformitywith Article 41. 4 of the Contract. This report is not applicable for release of performance guarantees as referred to in Article 53. 3 of the Contract with the exception of the nominated sub-contractor's (UNTONMATRX) guarantees. The present minutes of meeting is delivered to whomsoever it is legally bound. Done at Algiers on 15th Feb. , 1989. (The original certificate in French produced by counsel for STAR at the time of hearing bears the seal and signatures of representatives of SONITEX, STAR and SDB ). E. English translation of Protocol of Final Acceptance of Entire Factory Signed between, La Societe Nationale Des Industries Textiles (SONITEX) hereinafter called the "client". and represented by : COUVERTEX : Works-in-Charge ENEDIM : Prime Contractor and jointly and severally the "projects and Equipment Corporation of India Ltd. " (PEC) and "star Industrial and Textile Enterprises Ltd. (STAR)" hereinafter called the "contractor", on February 15, 1989. It has been agreed as follows : Having examined the provisional acceptance report of the factory dated 3-12-87 accompanied by the Protocols. It has been agreed as follows : Having examined the provisional acceptance report of the factory dated 3-12-87 accompanied by the Protocols. Having examined the minutes of the meetings held on 16th and 18th January 1989 giving the actual situation of protocols issued after provisional acceptance. The parties meeting on this day 10-2-1989 have decided as follows : Article 1 : The parties agree that the final acceptance of the complete factory will be given and this without any reservations. A final acceptance report will be drawn up on this day between the two parties without release of guarantees mentioned in point D hearbelow. Article 2 : The Constructor acknowledges reimbursement to the Client of intercalary interest whose details are as follows : -for the main contract Rs. DM. 218,951. 91 -for professional training 429,429. 32. These figures were decided on 28-2-89. Article 3 : The Constructor acknowledges to the Client, a delay of 10 months and 15 day. As per application of contractual clauses, the Constructor thus has to pay to the Client, penlaties of delay, as follows : -Rs. 20,00,00,000 X 7%= Rs. 14,000. 000 i. e. A. D. 5,600,000 -DM 21,500. 000 x7%=dm 1,505. 000 i. e. A. D. 5,959. 800 a Total of. . . . . . . . . . . . . . . . . . . . . A. D. 14,730. 000. Article 4 : The Constructor acknowledges compensation of reserves contained in the Minutes of 16th and 18th January, 1989 which total Algerian Dinars 10,00,000. Article 5 : The Client acknowledges his responsibility for delays of 7 months and 7 days in the overall delay observed in completion of the Blanket and Coarse Yarn Complex at TISSEMSILT. Article 6 : The Client acknowledges that the Constructor had undergone constraints and overcosts in completion of the Project. The overall amount of overcosts acknowledged by the Client is A. D. 12,864. 835. Taking into consideration the preceding factors, the parties mutually agree that : (a) The Constructor will withdraw all his claims as regards increase in values/profits, overcosts and prejudices of any nature whatsoever past or future. The overall amount of overcosts acknowledged by the Client is A. D. 12,864. 835. Taking into consideration the preceding factors, the parties mutually agree that : (a) The Constructor will withdraw all his claims as regards increase in values/profits, overcosts and prejudices of any nature whatsoever past or future. (b) The Constructor agrees to compensate the reserves mentioned in the Minutes of 16th and 18th January, 1989 through delivery of materials, equipments or supplies details of which will be sent to the Constructor within a maximum time-limit of one (1) month to be dated from the date of signing of this protocol. (c) The Constructor agrees to reimburse the Client within (2) months, the balance interest arising from the recalculation of intercalary interest as per details mentioned in Article 2 herein and to take the necessary steps with his bank immediately. (d) The Constructor agrees to maintain the performance guarantees enumerated here-below, valid and operational : -Guarantee No. 830,691 for an amount of Rs. 9,833. 000.-Guarantee No. 830,690 for an amount of DM. 1,075. 000.-Guarantee No. 830. 692 for an amount of AD 2,254,480 until fulfilment of his obligations for this protocol. (e) The Client waives his claims for depreciation, for prejudice, and services, not realised of any nature whatsoever past or future. (f) The Client, having examined the grievances, the files initiated by the Constructor and the difficulties encountered by the Constructor during execution of the Project, waives application of delay penalties mentioned in Article 3 here-above. The present minutes of meeting is delivered to whatsoever it is legally bound. Done at Algiers, on 15th Feb. , 1989 (g) Notice of demand dated 23-6-1989 by Bhasin and Bhasin, Advocates on behalf of STAR, addressed to State Bank of India, Ovrseas Branch, Parliament Street, New Delhi : 1. X X X X 2. x x x 3. In terms of said renewed guarantee your Bank has assumed unconditional liability. SON1tex has now invoked the bank guarantee against our Clients for a sum of approx. Rs. 2,42,00,000 in connection with the said contract. Under the aforesaid renewed bank guarantees you are liable therefore to pay to our clients a sum of Rs. 1,42,45,500 forthwith on demand and without protest or demur. SON1tex has now invoked the bank guarantee against our Clients for a sum of approx. Rs. 2,42,00,000 in connection with the said contract. Under the aforesaid renewed bank guarantees you are liable therefore to pay to our clients a sum of Rs. 1,42,45,500 forthwith on demand and without protest or demur. The losses suffered by our Clients have been much larger than this amount but we are confining our claim against your bank to the amount mentioned in the guarantee leaving our right intact for claiming the balance of our losses from M/s. Som Datt Builders Pvt. Ltd. We have been instructed by our clients to demand from you payment of the said Rs. 1,45,45,500 forthwith and not later than 24-hours from the receipt by you of this letter, either to our Clients Account No. 15851 with the Bank of Baroda, Bombay Samachar Branch, Bombay Fort, Bombay-400 023 or to us as their Attorneys. ( 26 ) AT the outset, it may be noted that on 29th of March, 1990, when I. A. 3020/89 and I. A. 417/90 were being set down for hearing, the parties agreed that all documents on record may be read in evidence for disposal of these applications. Further, during the hearing, it was felt that the whole suit could be disposed of straightaway as it is primarily based upon documents. But this suggestion was not acceptable to counsel for STAR as he felt that oral evidence may be necessary with regard to certain points in controversy and that regular trial of the suit could not be dispensed with. ( 27 ) FOR the purpose of the first ground, reference may be made to the relevant contractual provisions. In the main contract, Articles 36. 1 and 38. 1 indicate the purpose for which guarantees were required to be furnished by the CONSTRUCTOR (STAR) namely that the works should be carried out in confirmity with the rules and regulations, the provisions and the specifications of the contract, and for the keeping of the prescribed time limits. Article 53 deals with bank guarantees. Article 53. 1 envisages two kinds of guarantees, namely, "down Payments" and of "good Execution and Good End". In response to a specific question, counsel for parties agreed that we are concerned only with the letter. Article 53. 3 deals with guarantees of this kind. Article 53 deals with bank guarantees. Article 53. 1 envisages two kinds of guarantees, namely, "down Payments" and of "good Execution and Good End". In response to a specific question, counsel for parties agreed that we are concerned only with the letter. Article 53. 3 deals with guarantees of this kind. Clause 'a' provides for a guarantee in Indian rupees and Clause 'c' in Algerian Dinars. (Clause 'b' is not relevant for our purpose as it relates to that component of the project which was to be performed by the German Sub-Contractor ). Both of the said Clauses 'a' and 'c' stipulate that each of these guarantees will be released in the manner prescribed therein i. e. 50% at the issue of PAC and the remaining 50%, at FAC. A perusal of various provisions of the sub-contract e g. . Preamble Parts (iii) (b) and (c) read with Articles 1. 11 and 2. 1, shows that the obligations and liabilities of SDB were envisaged on a back to back basis in respect of civil works portion of the project. Article 2. 3 postulates that all clauses in the main contract relating to obligations and liabilities of STAR under the main contract would be applicable to SDB in respect of the civil works portion under the sub-contract, and that the same shall create "corresponding rights and obligations in favour and by SD". Article 3. 3. 2 enjoins that since STAR is required by SONITEX to give a guarantee of 10% covering SDB's portion, SDB shall give guarantee to STAR, a guaranteeing the quality, services, performance, workmanship etc. of SDB's portion. This is the guarantee with which we are concerned. ( 28 ) IN pursuance of the above-mentioned provisions made in the main contract and the sub-contract, on instructions from SDB, the Bank furnished the guarantee in question to STAR. ( 29 ) IN the bank guarantee, first para of the recitals spells out the consideration for the guarantee. It makes it clear that the guarantee has been furnished as STAR has awarded to SDB the said sub-contract "in the same terms and conditions between STAR and Foreign Buyer". Further, the object and purpose of the said guarantee is also stated therein i. e. "security for the performance of the Sub-contractor's obligations and/or discharge of the liability under and/or, in connection with the said Subcontractor's contract,. . . . . ". Further, the object and purpose of the said guarantee is also stated therein i. e. "security for the performance of the Sub-contractor's obligations and/or discharge of the liability under and/or, in connection with the said Subcontractor's contract,. . . . . ". ( 30 ) THE guarantee was initially furnsthed for a sum of Rs. 2,99,500 being the amount of 10% of the total contract value. On grant of PAC, it was released to the extent of 50%. This was done on the basis of Article 53. 3 a' and 'c' of the main contract. Accordingly, the value of the guarantee was reduced to Rs. 1. 42 crores representing the balance 50% of the required guarantee. To this extent, there is no dispute between the parties. ( 31 ) NOW, the dispute is with regard to the remaining 50% which is represented by the reduced value of the guarantee. Article 53. 3 a' and 'c' of the main contract expressly stipulate that even this 50% "will be released" on grant of FAC. The required PAC had been issued by SONITEX on 15th of February, 1989. It expressly records "the final acceptance. . . . . is given in conformity with Article 41. 4 of the contract. " A perusal of the Protocol signed on the same day reveals, as would also appear from the following discussion, that no obligations or liabilities in respect of civil works portion under and/or connected with SDB's sub-contract were left outstanding. Consequently, STAR was bound to release the balance 50% of the guarantee. It has failed to do so. ( 32 ) IT must be borne in mind that this was a 'turn-key' contract. The PAC was issued by SONITEX "considering the Reports on Completion of Works". The PAC certified "provisional (not Partial) Acceptance" of the Works. It is, thus, evident that by that time the entire construction work which was the subject-matter of SDB's sub-contract had been completed. In this setting, all the outstanding matters inter-se SDB and STAR were taken up and were sorted out on the terms recorded in the Settlement on 25th of January, 1988. ( 33 ) THE Settlement, at the outset, in para 1. 2 records the understanding that in the event of any'penalty' being imposed finally by SONITEX, the responsibilities of each party for the same shall be dealt as per the subcontract and the main contract. ( 33 ) THE Settlement, at the outset, in para 1. 2 records the understanding that in the event of any'penalty' being imposed finally by SONITEX, the responsibilities of each party for the same shall be dealt as per the subcontract and the main contract. This is the only matter expressly left out of the Settlement. It was so done because the question of 'penalty' was till then under negotiations with SONITEX. Apparently, this was the reason why SDB was required, under para 3, to extend the guarantee "till final acceptance". Provision was made under para 2, for sharing the net claims pertaining to civil works that could be realised from SONITEX. All the other claims between STAR and SDB were settled on the terms and conditions set out in para 4 of the Settlement. According to para 4. 1, STAR agreed "to pay DA one million equivalent to SDB by February, 1989". (This admitted amount has not been paid as yet ). Para 4. 4 cast upon SDB an obligation to provide all services and equipments for removal of pending reserves including inter-dependent reserves. (In the present proceedings, there is no controversy related to this obligation ). ( 34 ) THEN comes the package deal between STAR and SONITEX in the form of the Protocol. Under the Protocol, Article 1 records that the parties agree that the FAC will be given "without any reservations". Second part of Article 1, however, shows that the FAC was to be drawn up "without release of guarantees mentioned in point 'd' herein below". That is the clause by which STAR agreed to maintain the performance guarantees enumerated therein valid and operational "until fulfilment of his obligation for this Protocol". The only "obligations" which required fulfilment under the Protocol were those stated in the preceding clause 'b' read with Article 4 "to compensate reserves" and Clause 'c' read with Article 2 "to reimburse the client, within (2) two months, the balance interest arising from the vecalculation or intercalaire interest". The first obligation in respect of "the reserves", counsel for STAR conceded, was neither attributable to nor connected with the obligations of SDB under the sub-contract as it was related to spare machinery, parts thereof and materials etc. which were sub- ject matter of the other two components of the Project, with which SDB was not concerned. The first obligation in respect of "the reserves", counsel for STAR conceded, was neither attributable to nor connected with the obligations of SDB under the sub-contract as it was related to spare machinery, parts thereof and materials etc. which were sub- ject matter of the other two components of the Project, with which SDB was not concerned. This leaves out only the obligation of STAR "to reimburse" SONITEX "intercalaire interest" ( 35 ) IN accordance with the Protocol, SONITEX declared "the final acceptance" of the turn-key Project and gave the FAC "in conformity with Article 41. 4 of the contract". But, the FAC was made "not applicable for release of the performance guarantees". Otherwise, the guarantees furnished by STAR would have been fully released in accordance with Article 53. 3 of the main contract. This was done in view of the above-mentioned outstanding obligations of STAR under the Protocol. Here, it may be recalled that liability of STAR to SONITEX was in respect of the entire Project, while SDP was concerned with only one portion of the Project, and that SDB's guarantee was furnished on a back-to-back basis in respect of only the civil works portion of the project. Release of SDB's guarantee could be in jeopardy only if the outstanding obligations of STAR under the Protocol were relatable to performance of the civil works portion of the Project. In the absence of any reservation in respect of this portion in the Protocol and the FAC, the grant of FAC manifests the unconditional and final acceptance by SONITEX of the civil works portion of the Project that was to be performed by SDB, and the consequential release of SDB's guarantee. ( 36 ) APART from the FAC, SDB has placed reliance upon a certificate dated 30th of September, 1989 purporting to have been issued by SONITEX stating that SDB "carried out all the infrastructural and building works (Civil Engineering works) as per the accepted practices and within the time limits specified". Further, it is certified that SONITEX "is satisfied with the works" and that SDB "is relieved of all the obligations" towards SONITEX. This certificate has been issued "for whatever purpose it may serve". SDB has produced the original certificate in French and an English translation thereof. Further, it is certified that SONITEX "is satisfied with the works" and that SDB "is relieved of all the obligations" towards SONITEX. This certificate has been issued "for whatever purpose it may serve". SDB has produced the original certificate in French and an English translation thereof. ( 37 ) INITIALLY, when counsel for SDB wanted to produce this document in court, it was resisted by counsel for STAR on the plea that the authenticity of this document would require verification and that the consent given on behalf of STAR on 29th of March, 1990, that all documents on record may be read in evidence for disposal of the injunction matter, was restricted to such documents as were already on record upto that date. ( 38 ) A formal application, being LA. 3161/90 has been moved by SDB, in this backdrop, praying that the said certificate be taken on record and be taken into consideration while disposing of I. A. 3020/89. It is stated in para 3 of this application that the said certificate has been issued by SONITEX after filing of the suit, it was in Algeria and has been sent from there only on 4th of April, 1990 and received in India thereafter. Para 5 of the application states that the original certificate bears the official seal of SONITEX which is a Government body as also signatures of Chief of the Project. It is supported by an affidavit of Dayal Golani who has stated on oath that he knew Mr. R. S. Abderrehmane who was the Chief of the Project, that he had seen him signing and writing on several occasions and had also come across a large number of documents bearing his signatures. Thus, he has affirmed that he is in a position to identify his signatures. Further, he was verified on oath that the certificate dated 30th of September, 1989 bears the signatures of Mr. Abderrehmane and that the certificate is an authentic document issued by SONITEX. ( 39 ) THIS application has been opposed on behalf of STAR. In reply, contents of paras 3 and 5 of the application are denied. It has been stated that STAR is not aware whether the alleged certificate has been issued by SONITEX and the authenticity of the same is not admitted. ( 39 ) THIS application has been opposed on behalf of STAR. In reply, contents of paras 3 and 5 of the application are denied. It has been stated that STAR is not aware whether the alleged certificate has been issued by SONITEX and the authenticity of the same is not admitted. On the face of it, it is alleged, an attemp has been made to produce this certificate after commencement of the argument "to plug the loophole of the case and is by way of an afterthought". Even otherwise, it is averrred that STAR could not verifiy from SONITEX whether the said certificate was issued by them, and, if so, under with circumstancas, on what representation made by SDB, and for what purpose. An allegation has been made that the document is fabricated. This allegation is based upon an avernment that SDB has stated in the application that it had received the certificate only on 4th of April, 1990 and received the same in India thereafter, but, the covering letter filed with the application bears the date 7th April, 1990. ' ( 40 ) THE original certificate bears a seal. It appears to be the same seal as that affixed by SONITEX on same of the other documents, including the Protocol, that were produced in Court at the time of hearing. Even otherwise, Dayal Golani has verified on oath that it bears the signatures of Mr. Abderrehmane and that the certificate is an authentic document issued by SONITEX. In these circumstances, merely because this certificate was not filed earlier and that it was not possible for STAR to varify from SONITEX the circumstances in which it was issued, the genuineness and authenticity of this certificate cannot be discounted. There appears to be no substance in the allegation that the document is fabricated. This allegation has been made because the covering letter forwarding the certificate from Algeria is dated 7th April, 1990 but in para 3 of the application, it is stated that it had been sent from there on 4th of April, 1990. The authenticity of the covering letter has not been disputed. The date 4th' may well have been typed by mistake, in para 3 of the application, instead of 7th' April, 1990. Not much can be made out of this difference in the two dates. The authenticity of the covering letter has not been disputed. The date 4th' may well have been typed by mistake, in para 3 of the application, instead of 7th' April, 1990. Not much can be made out of this difference in the two dates. Undoubtedly the certificate is relevant to determine the controversy between the parties in the suit as also for the purpose of decison of the injunction matter. For these reasons, I allow the application. ( 41 ) IT appears from this certificate, apart from the settlement, the Protocol, and the FAC that obligations of SDB under Sub-contract have been duly performed, that SONITEX was satisfied with the civil works portion executed by SDB under the Sub-contract, and that SONITEX had no outstanding claims in respect of that portion of the Project. ( 42 ) THE guarantee is based upon the main contract and the Subcontract having been awarded "in the same terms and conditions" to SDB. This is the stated 'consideration' of the guarantee. No doubt the guarantee is an independent contract by which the Bank has undertaken the obligation to discharge the liability of SDB in case of SDB's default. This is the purpose for which this 'security' has been furnished by the Bank. It is well established that the commitments of the Bank must be honoured in terms of the guarantee. But, this does not mean that the guarantee cannot be discharged unless the stage, event, or contingency stipulated in the guarantee itself does not arise as contended by counsel for STAR. Section 134 of the Indian Contract Act, 1872 lays down that the surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by an act or omission of the creditor, the legal consequence of which is the discharged of the principal debtor. These are contingencies de-hors the stipulated terms of the guarantee, and are dependent upon acts or omissions inter-se the creditor and the principal debtor. Yet the consequence is discharge of the surety. In the interest case, discharge is sought in terms of the sub-contract read with the main contract coupled with the Settlement between STAR and SDB, the Protocol signed by SONITEX also, and the grant of FAC by SONITEX which binds STAR qua SDB. Yet the consequence is discharge of the surety. In the interest case, discharge is sought in terms of the sub-contract read with the main contract coupled with the Settlement between STAR and SDB, the Protocol signed by SONITEX also, and the grant of FAC by SONITEX which binds STAR qua SDB. In such a case, discharge is not restricted to the perimeter of express stipulations incorporated in the Deed of Guarantee as put forward by STAR's counsel. ( 43 ) WHETHER the guarantee is still outstanding for the discharge of SDB's obligation to make good the alleged losses suffered by STAR due to imposition of penalty for delay and on account of intercalaire interest, as a result of SONITEX invoking its guarantees, will depend upon the questions : (1) Whether SONITEX has in fact levied penalty for delay upon STAR, (2) whether obligation of STAR to reimburse SONITEX balance amount on account of intercalaire interest is directly attributable to SDB under and/or in connection with the Sub-contract, and is covered by the guarantee. ( 44 ) IN order to justify invocation of the guarantee on the basis of levy of penalty, counsel for STAR has contended that waiver of penalty by SONITEX under the Protocol was really set of against the admitted claims of STAR. According to him, the acknowledged claims of STAR noted in Article 6 were ostensibly withdrawn under Clause 'a' but were actually set-off and adjusted against the acknowledged and quantified penalty for delay under Article 3, but it was shown as if SONITEX 'waives' it under Clause 'f' of the Protocol, and that there was no other element to which the withdrawal of claims of STAR could be attributed. In other words, instead, of making payment of STAR's claims, SONITEX wrote off delay penalties due from STAR. Thus, SONITEX did levy penalty for delay for which SDB is responsible and is liable to make good the loss on that account suffered by STAR. Therefore, it is claimed that STAR is entitled to encash the bank guarantee. ( 45 ) THIS plea completely ignores Clause 'e' of the Protocol whereby SONITEX waived all its claims for depreciation, services etc. of any nature whatsoever, past or future. This element appears to be relatable to withdrawal of claims by STAR. Thus, Clause 'a' gets counterbalanced by Clause 'e' and not by Clause 'f' argued by SDB's counsel. ( 45 ) THIS plea completely ignores Clause 'e' of the Protocol whereby SONITEX waived all its claims for depreciation, services etc. of any nature whatsoever, past or future. This element appears to be relatable to withdrawal of claims by STAR. Thus, Clause 'a' gets counterbalanced by Clause 'e' and not by Clause 'f' argued by SDB's counsel. ( 46 ) THIS apart, the plea urged on behalf of STAR also overlooks the conjoined effect of Articles 3 and 5 of the PROTOCOL by which STAR and SONITEX acknowledged their respective responsibilities for different periods of delay in completion of the Project. Further, overall delay in completion of the Project acknowledged by STAR does not necessarily make it attributable to performance of SDB in respect of only its portion of the Project. ( 47 ) EVEN otherwise. Clause 'f' clearly and in so many words relates that SONITEX "waives" the application of penalties "having examined the grievances, the files initiated by the Contractors and the difficulties encountered by the Contractor during execution of the project". These are the various reasons that prompted SONITEX to expressly 'waive' application of penalty. There is no justification for reading into Clause 'f' any concept, expression or words different from and/or in addition to those actually used by the parties themselves. ( 48 ) THUS, it appears, in terms of the Protocol, that the liability of SDB, if any, on account of penalty for delay had ceased to exist. ( 49 ) WITH regard to intercalaire interest, counsel for STAR has contended that this liability has a casual connection with the acknowledged delay in completion of the Project ; as such, it is directly attributable to SDB ; the claim of STAR on this account is of a consequential nature ; and the same can be enforced by resort to the guarantee. ( 50 ) THE payment of amounts towards interest by SONITEX to STAR, and the recalculation and reimbursement thereof are regulated by Article 50. 1 D and E of the main contract. These amounts were "remitted by SONITEX to STAR" "during project implementation". This is apparent from para 1. 2 of the minutes of PMG meeting held on 19th of January, 1988. . 1 D and E of the main contract. These amounts were "remitted by SONITEX to STAR" "during project implementation". This is apparent from para 1. 2 of the minutes of PMG meeting held on 19th of January, 1988. . ( 51 ) COUNSEL for parties agreed, at the time of hearing, that there is no corresponding provision in the sub-contract for remittance or refund of intercalaire interest and that no such amount, in fact, was remitted by STAR to SDB. As such, it would be wrong to apply, on a back-to-back basis, the concept of intercalaire interest under the main contract to the sub-contract. ( 52 ) NO doubt, STAR has acknowledged its responsibility for overall delay in completion of the project as also its obligation to reimburse'sonitex the balance arising from the recalculation of intercalaire interest. ? Yet, the question is whether the loss on this account has arisen out of any delays directly attributable to SDB. This is a question of fact. ( 53 ) COUNSEL for STAR was specifically called upon to show any pleading on this aspect and to indicate the documents, if any, prior to or post-protocol, to show that STAR ever thought of raising this claim against SDB. This was done by an order made on 12th of July, 1990 when the case was set down for clarification as these aspects had not been touched earlier at the hearing. In response, STAR's counsel merely pointed out that in para 30 of the written statement, while denying that there were any amounts due and payable by STAR to SDB as alleged in the corresponding para of the plaint, it has been averred "on the contrary, it is defendant No. 1 who is to recover huge amount from the plaintiff". In the margin, an annotation has been made 'd-33". This refers to Document No. 33 filed by STAR. By this document, STAR had sent on 14th of June, 1989 to the Joint Panel of Arbitrators a list of its counter-claims on SDB marked as Annexure II. Item 15 is reproduced below :"15. Refund of Intercalaire Interest to the client due to delay in Civil work (Rs. 8,427,823. 56+dm 218,951. 91) @ Rs. 8 =1. Rs. l,751,615. 20=rs. 10,179,438. 76. Item 15 is reproduced below :"15. Refund of Intercalaire Interest to the client due to delay in Civil work (Rs. 8,427,823. 56+dm 218,951. 91) @ Rs. 8 =1. Rs. l,751,615. 20=rs. 10,179,438. 76. "apart from this, counsel candidly admitted that there is no pleading in the written statement, reply to I. A. 3020/89 or even in I. A. 417/90 filed by STAR. He also conceded that there is no other document on record to show that STAR had ever claimed payment from SDB on this account The pleading in para 30 of the written statement is, obviously, too vague. This cannot be treated as sufficient to contend that loss, if any, suffered by STAR on account of intercalaire interest has arisen out of any delay directly attributable to SDB or that STAR ever claimed payment on this account from SDB. ( 55 ) ON the contrary, from the documents on record, it appears that the parties themselves were throughout of the view that responsibility of STAR to reimburse SONITEX the balance intercalaire interest could not be passed on to SDB. ( 56 ) THIS is apparent from minutes of the meeting of the PMG held on 19th of January, 1988, read with the Settlement dated 25th of January, 1988. By that time, civil work portion was complete but other work was still in progress. The parties were anxious to compile a dossier relating to delays in the realisation of the project to enable STAR to settle with SONITEX matters regarding penalty for delay, as also intercalaire interest which were still outstanding at that stage. Paragraph 1. 2 of the said minutes is relevant. It reads thus :"star stated that whereas work on other activities is progressing, the dossier relating to delay in the realisation of the project connot be furnished unless STAR's sub-contractor for civil wotks, viz. , Som Datt Builders Pvt. Ltd. (SDB) furnishes data pertaining to reasons for delay in civil portion. PMG observed that if this dossier is not furnished to the employer, they might ask for refund of Rs. 1'2 crores being excess amount of funded interest remitted by them during project implementation. STAR was permitted to utilise this amount to fund cost overrun in project execution on STAR's contention that STAR would not be required to remit this amount back to Algeria. 1'2 crores being excess amount of funded interest remitted by them during project implementation. STAR was permitted to utilise this amount to fund cost overrun in project execution on STAR's contention that STAR would not be required to remit this amount back to Algeria. In case of STAR's failure to refund the excess amount in absence of satisfactory solution, the employer might not certify further invoices raised by STAR implying non-endorsement of last Pronote for services valued at Rs. 75. 88 lakhs, putting Indian companies to loss to this extent. Moreover, the employer might invoke STAR's 5% Performance Guarantee (Rs. 2. 4 crores at current exchange rates) and levy maximum penalty of Rs. 3. 4 crores (7% of contract value at current exchange rates ). "the observations made therein with regard to "funded interest" (intercalaire interest) show that STAR was conscious of a distinct possibility of SONITEX asking for refund. It is pertinent to note that these minutes do not relate liability on account of intercalaire interest to the bank guarantees. Rather the consequence of STAR's failure to refund the excess amount, in the absence of satisfactory solution, as envisaged even at that time, was that SONITEX might not certify further invoices raised by STAR. As against this, invocation by SONITEX of STAR's guarantees as a consequence of levy of penalty (7% of contract value) was separately mentioned. This is clear from the sequence and the terminology used in the above-quoted paragraph to deal with the two kinds of liabilities. After dealing with interest, the last sentence adverts to 'penalty' and opens with the use of the word 'moreover'. In this manner the two have been dealt with separately. Thus, these minutes show that the parties were fully aware of the liability of STAR on both these counts, that STAR's performance guarantees would be in jeopardy only if penalty for delay was to be levied by SONITEX, and that a different consequence would follow from STAR's failure to refund balance interest. ( 57 ) IN this background, within a few days thereafter, STAR entered into the Settlement with SDB on 25th of January, 1988. In the Settlement, provision was expressly made to meet contingent liability arising out of only levy of 'penalty' which could be attributable to SDB. But, no provision was made with regard to 'intercalaire interest'. ( 57 ) IN this background, within a few days thereafter, STAR entered into the Settlement with SDB on 25th of January, 1988. In the Settlement, provision was expressly made to meet contingent liability arising out of only levy of 'penalty' which could be attributable to SDB. But, no provision was made with regard to 'intercalaire interest'. This shows that STAR realised that this liability would be its own and that it could not be passed on to SDB ; otherwise a provision would have been made to take care of this eventuality as well. ( 58 ) FURTHER, this liability was crystalised under the Protocol. Even thereafter, STAR forwarded to SDB a statement of its claims. A claim was made on account of "penalty" (7% of the contract price ). It was represented that SONITEX has charged from STAR a sum of Rs. 188. 18 lacs out of which a net of Rs. 85 lacs was payable by SDB. Indeed, on the basis of this claim the Solicitors of STAR, by a notice dated 21st of March, 1989. demanded from the Bank payment of Rs. 85 lacs by invoking the guarantee. No claim was raised in respect of intercalaire interest. On the other hand, it appears from minutes of the PMG meeting held on 27th of March, 1989 (para 2) that STAR was exploring the possibility of issuance of Deferred Payment Guarantee by the Bank of Baroda "as STAR does not have funds to meet this immediate requirement". It would have been wholly unneces- sary for STAR to do so if it felt that this liability also was attributable to SDB and that it could be readily recovered by encashing SDB's guarantee. ( 59 ) THEN, the present suit was filed on 22nd of April, 1989 and the interim order was made on 25th of April, 1989. Even thereafter, at the meetings of the PMG on 1st of May 1989, and 6th of June 1989, the question of intercalaire interest was discussed but it was not even suggested by STAR that SDB was in any way responsible for it or that the loss suffered on this account by STAR had to be made good by SDB. It was only on the 14th of June, 1989 that STAR forwarded to the arbitrators its counter-claim including item No. 15 on account of interest. It was only on the 14th of June, 1989 that STAR forwarded to the arbitrators its counter-claim including item No. 15 on account of interest. ( 60 ) EVEN thereafter, at a meeting of the Working Group held on 30th of August, 1989, STAR gave no indication that this was not its own liability or that it was attributable to SDB. A letter dated 30th of August, 1989 from the EXIM Bank to STAR sets out the minutes of that meeting. Para 1 of this letter records five heads of liabilities, with the money value of each, enumerated by STAR itself as its undischarged liabilities to SONITEX, as follows :"working group meeting held on August 18, 1989 at Exim Bank. New Delhi. Star Industrial and Textile Enterprises Ltd. (STAR) Blanket Factory Project, Algeria. Working Group meeting was held on August 18, 1989 at Exim Bank, New Delhi to review status of the captioned project. The meeting was attended by representative of Ministry of Commence (MOC), Ministry of Finance (MOF), Exim Bank, RBI (ECD and IBCD), BOGC, and STAR's Bankers, viz. . Bank of Baroda (BOB), Syndicate Bank (SB), Canara Bank (CB), State Bank of India (SBI) and United Bank of India (UBI ). The Projects and Equipment Corporation of India Ltd. (PEC), Som Datt Builders Pvt. Ltd. (SDB) and STAR were present during part of the meeting and had interaction with Working Group members. Following is a gist of discussions held and decisions taken by Working Group. 1. Regarding STAR's undischarged liabilities in Algeria, STAR enumerated such liabilities as follows : (Rs. in lakhs) Intercalaire interest 103 Spare Parts (DA 1 mn) 25 SONITEX advance (DA 1 mn) 25 BNA guarantee commission 26 Statutory dues (DA 1 mn) 25 204" . ( 61 ) APART from all this, it is interesting to note that before the arbitrators, STAR has staked its claims as "refund" of intercalaire interest, while, admittedly, no amount was remitted on this account by STAR to SDB. Prima facie, there could be no question of 'refund' thereof. ( 62 ) SO far as delay is concerned, under the Protocol, STAR acknowledged responsibility for the overall delay in completion of the whole Project. We must remember that SDB was concerned only with the civil works portion thereof. Prima facie, there could be no question of 'refund' thereof. ( 62 ) SO far as delay is concerned, under the Protocol, STAR acknowledged responsibility for the overall delay in completion of the whole Project. We must remember that SDB was concerned only with the civil works portion thereof. From the acknowledgement of STAR, it is not clear whether the delay was relatable to only the civil work portion or it was directly attributable to SDB, or whether it was also related to the other two components of the Project and wholly or partly attributable to STAR. ( 63 ) WITHOUT any pleading and even prima facie proof, even if it be assumed that there is a casual connection between STAR's obligation to reimburse intercalaire interest and the delay acknowledged by STAR, it cannot he said at this stage, that this is a "consequential" claim or liability which STAR has been called upon to bear arising out of any delay directly attributable to SDB. ( 64 ) IN these circumstances, it appears that the contention urged by the learned counsel for STAR is an afterthought, it is too far fetched, and that the liability on account of intercalaire interest is non-existent qua SDB. ( 65 ) FROM the above discussion, it follows that there is considerable force in the case set up by the plaintiff, that in view of the Settlement and the Protocol there is no existing liability of SDB under and/or in connection with the sub-contract; and that on the grant of the FAC the guarantee stands fully discharged. ( 66 ) FURTHER, STAR's counsel has contended that it is not open to SDB to urge that the guarantee was discharged on grant of the FAC as even thereafter SDB has kept the guarantee alive. In support of this plea, he has relied upon an unreported judgment dated 9th of August, 1989 of Sunanda Bhandare, J. in the case of M/s. Siemens Ltd. v. South Indian Cement Ltd. 1 ( 67 ) IN the case of M/s. Siemens Ltd. , the plaintiff claimed that the bank guarantee could be encashed only til) commissioning of the equipments by it which has been completed by 30th of September, 1988. The defendant denied that the equipment was fully commissioned. Thus, the basic act of commissioning, upto which validity of the guarantee was envisaged under the contract, was itself in controversy. The defendant denied that the equipment was fully commissioned. Thus, the basic act of commissioning, upto which validity of the guarantee was envisaged under the contract, was itself in controversy. In these circumstances, three times renewal of the guarantee after 30th of September, 1988 led the court to infer "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". In the instant case, the parties are at variance about the need for and the conditions of renewal of the guarantee after grant of the FAC. SDB maintains that the renewal was unnecessary, that it agreed to it on the basis of the multi-party arrangements reached in the meetings of the WG/ PMG, and that the renewal was conditional. On the other hand, STAR is even disputing correctness of the relevant parts of the minutes of those meetings, and is contending that it did not agree to the conditional renewal. ( 68 ) IN the facts and circumstances of the present case, it cannot be said that while renewing the guarantee, the parties were ad-idem or they understood that the guarantee was intended to be kept alive even after grant of the FAC. The judgment in M/s. Siemens Ltd. (supra) is clearly distinguishable and is not applicable to the facts and circumstances of the present case. ( 69 ) BEFORE proceeding further with the discussion of the remaining grounds, it may be noted that the principles upon which encashment of a bank guarantee could be restrained, are well-settled by a recent judgment of the Supreme Court in U. P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. 2 Several English and Indian decisions were considered in this case. Sabhyasachi Mukerji, J. , as his Lordship then was, has written the main judgment. K. Jagannath Shetty, J. agreed with him, but has written a separate judgment to draw attention to some of the aspects of the matter. Mukerji, J. has observed that commitments of banks must be honoured free from interference by the courts "except in the case of fraud or in case of question of apprehension of irretrievable injustice has been made out". Mukerji, J. has observed that commitments of banks must be honoured free from interference by the courts "except in the case of fraud or in case of question of apprehension of irretrievable injustice has been made out". He has explained that the fraud must be in entering into the transaction and that in order to restrain the operation of the 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". Shetty, J. while dealing with the exception in case of "fraud in the transaction", has observed, "the bank could dishonour beneficiary's demand for payment". He has dilated upon this aspect as follows :"whether it is a traditional letter of credit or a new device like performance bond or performance guarantee, the obligation of banks appears to be the same. If the documentary credits are irrevocable and independent, the banks must pay when demand is made. Since the bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The bank's obligations of course should not be extended to protect the unscrupulous seller, that is, the seller who is responsible for the fraud. But, the banker must be sure of his ground before declining to pay. The nature of the fraud that the courts talk about is fraud of an "egregious nature as to vitiate the entire underlying transaction". It is fraud of the beneficiary, not the fraud of somebody else. If the bank detects with a minimal investigation the fraudulent action of the seller, the payment could be refused. The bank cannot be compelled to honour the credit in such cases. But it may be very difficult for the bank to take a decision on the alleged fraudulent action. In such cases, it would be proper for the bank to ask the buyer to approach the court for an injunction. ""to explain the effect of fraud, he has quoted with approval a passage from the English Court of Appeal in Edward Oven Engineering Ltd. v. Buckley Sank International Lid. In such cases, it would be proper for the bank to ask the buyer to approach the court for an injunction. ""to explain the effect of fraud, he has quoted with approval a passage from the English Court of Appeal in Edward Oven Engineering Ltd. v. Buckley Sank International Lid. 3 which explains the concept and effect of fraud thus : "the exception for fraud on the part of the beneficiary seeking to avail himself of the credit is a clear application to the maxim ex trupi cause non oriture actio or if plain English is to be preferred, 'fraud unravels all', the courts will not allow their process to be used by a dishonest person to carry out a frauds. " ( 70 ) IT may, however, be noted that in the case of U. P. Cooperative Federation Ltd. (supra), there was no fraud involved and no question of irretrievable injustice was involved. In fact, with regard to irretrievable injustice, Mukerji, J. has pointed out that the respondent was not remediless as it could sue the appellant for damages. As such, there could not be any basis for an apprehension that irretrievable damages would be caused, if any. Therefore, it was held that the respondent was not entitled to an injunction to restrain encashment of bank guarantee. ( 71 ) IN view of these principles, it appears that the courts must enforce a bank guarantee according to its terms. They should not ordinarily interfere by way of an injunction to prevent its enforcement. But that is not an absolute rule. Circumstances of each case have to be considered. Should there be a serious dispute to be tried and if a good prima facie case of fraud, or of irretrievable injustice, is made out, the court should interfere. ( 72 ) IN the instant case, apart from setting up a case for discharge of the guarantee on principles contained in Section 134 of the Contract Act, the plaintiff has alleged, in the alternative, that encashment of the guarantee is not in accordance with the terms of the guarantee, that it is fraudulent, and that irretrievable injustice would be done to it if the guarantee is allowed to be encashed. Thus, the plaintiff has set up a case in which it would be permissible for the court to interfere on the basis of the principles laid down in U. P. Co-operative Federation Ltd's. case. ( 73 ) FOR the purposes of dealing with the second ground, the terms of the guarantee as also the relevant extract of the invocation set out above may be read. ( 74 ) FIRST paragraph of the recital of the guarantee indicates that the guarantee is "security for the purpose of the sub-contractor's obligation and/or discharge of the liability under and/or in connection with the said Sub-contractor's contract" and for nothing else. The second paragraph guarantees payment to STAR forthwith, 'all moneys anywise payable by the Sub-contractor to the STAR under and in respect of or in connection with the said contract inclusive of all the STAR's losses and damages and costs, (inclusive between attorney and client), charges and expenses and other moneys anywise payable in respect of the above as specified in any notice of demand made by the STAR to the Bank. . . . . . " This paragraph indicates what must be specified in the notice of demand. If this requirement is fulfilled, the bank must make the payment, except in the case of fiaud. Subject to the fulfilment of this condition, no doubt, Clauses (1), (5) and (6) of the guarantee show that the obligation of the Bank under it is irrevocable ; any dispute between the parties or any denial of liability by SDB would not prevent any payment by the Bank to STAR ; and any amount stated in the notice of demand as liable to be paid to STAR by SDB, inter alia, on account of losses, shall be conclusive evidence of the amount so liable to be paid to STAR or suffered by STAR, and shall be payable by the Bank to STAR. These provisions show that the guarantee is absolute. ( 75 ) THE notice of demand has to be read as a whole. Each sentence and expression used in paragraph 3 has to be construed in the context of subject matter of the notice. It has been stated that "losses" suffered by STAR, "in connection with the said contract", have been much larger than the guaranteed sum of Rs. ( 75 ) THE notice of demand has to be read as a whole. Each sentence and expression used in paragraph 3 has to be construed in the context of subject matter of the notice. It has been stated that "losses" suffered by STAR, "in connection with the said contract", have been much larger than the guaranteed sum of Rs. 1,42,45,500 but the demand was being confined to the said sum, leaving STAR's right intact for claiming the balance of losses from SDB. On this basis, the advocate for STAR demanded from the Bank payment of the said sum of Rs. 1,42,45,500. This is, in brief, the pith and substance of para 3 of the demand. ( 76 ) ACCORDING to counsel for SDB, demand for payment cannot be made unless money is "payable" by SDB. He has contended that the alleged "losses" must be quantified and it should be stated in the notice that the same are "payable" by SDB under the sub-contract ; but it has not been so stated. This contention is untenable. Liability of the Bank under the guarantee was limited to the extent of Rs. 1,42,45,500. The demand specifically states that in connection with the contract, losses suffered by STAR have been much larger than this amount. That is the reason why payment of the said sum of Rs. 1,42,45,500 only has been demanded, leaving STAR's right intact for claiming the balance of its losses from SDB. It is not open to the Bank to adjudicate or to determine the quantum of loss or whether the amount claimed is payable or net. In accordance with the second para of the recital read with Clause (6) of the guarantee, the amount, inclusive of losses, specified in the notice, shall be conclusive evidence of the amount so liable to be paid or suffered by STAR, and shall be payable by the Bank to STAR. ( 77 ) COUNSEL for SDB has relied upon three decisions of this Court, namely, Kartar Singh v. Union of India*, Jainson Cloth Merchant v. State Trading Corporation^, and Ansal Properties and Industries (P) Ltd, v. Engineering Projects (India) Ltd. ,6 Each of these decisions, however, is distinguishable on facts. ( 78 ) IN the case of Kartar Singh (supra), one of the terms was that Government could enforce the guarantee when it suffered or was likely to suffer loss. ( 78 ) IN the case of Kartar Singh (supra), one of the terms was that Government could enforce the guarantee when it suffered or was likely to suffer loss. While making the demand, the Government should have stated these things. This was not done. Therefore, the respondent was restrained by interim injunction from encashing the guarantee till the decision of the suit. ( 79 ) IN Jainson's case, injunction was refused by a Single Judge. In appeal, Jainson set up a case that the contract was frustrated and thus it became impossible of performance. It also claimed that STC did not suffer any loss due to non-performance and thus the guarantee could not be encashed. The contract in that case was for the supply of 7,500 MT basmati rice between the STC and the Abu Dabi Municipality. The contract between Jainson and the STC was to supply 3,000 MT to the foreign buyer, apparently in furtherance of the original contract. Para 12 of the judgment shows that STC itself admitted that nothing was claimed by the Abu Dabi Municipality and nothing had been lost by it. In para 15, the Division Bench observed :"if the Abu Dabi Municipality does not claim anything for the breach of contract, we fail to understand how the STC can claim any amount because it is merely an intermediary between the two parties". On these facts, the Division Bench concluded that as there was no loss to the STC and no claim by the Abu Dabi Municipality, the bank guarantee could not be invoked. ( 80 ) IN the case of Ansal Properties, the guarantee contained stipulations similar to those in the instant case. Payment could be demanded if the notice specified "any and all moneys anywise payable by the supplier to the Company under, in respect of or in connection with the said supply contract inclusive of all the Company's losses and damages and costs. . . . . . charges and expenses and other moneys anywise payable" in respect of the contract. Among others, there was a dispute between the parties whether the work done by the petitioner was defective and petitioner did not perform its part of the contract. These disputes were pending before the arbitrator. In para 38 of the judgment, Sapra. . . . . . charges and expenses and other moneys anywise payable" in respect of the contract. Among others, there was a dispute between the parties whether the work done by the petitioner was defective and petitioner did not perform its part of the contract. These disputes were pending before the arbitrator. In para 38 of the judgment, Sapra. J. has pointed out : "in the letter of invocation, respondent has merely stated that petitioner has failed to perform its obligation under the contract. In my view, this is a very vague letter. It nowhere states that whether on account of non-performance, respondent has suffered any loss or damages and if so, what is the proximate amount. Respondent could even say that respondent was likely to suffer loss and damage, even if not, already suffered. The letter is silent on it". In these circumstances, it was held that the respondent had not invoked the guarantee in accordance with the terms and conditions. . ( 81 ) IN the instant case, the notice of demand specifically indicates that in connection with the contract (sub-contract), STAR has suffered losses much larger than the sum of Rs. 1,42,45,500 for which payment has been demanded. These decisions are, therefore, of no avail to SDB. ( 82 ) FOR these reasons, I hold that the guarantee has been invoked in accordance with the terms thereof. But, this is not conclusive. This finding itself does not preclude the Court from granting an ad interim injunction on the other grounds. ( 83 ) WITH regard to fraud, it may be noted that the grievance in this case is not in respect of underlying transaction but it is in respect of invocation of the guarantee. ( 84 ) IT has been specifically pleaded by SDB that certain payments admittedly due to it have not been paid as yet, and that no amount was due and payable by it to STAR. In reply, STAR has not given particulars of any claim whatsoever that it has against SDB for which the guarantee is sought to be invoked. In these circumstances, counsel for the plaintiff lamented that STAR has failed "to condescend on facts" as it was incumbent upon it so to do. In reply, STAR has not given particulars of any claim whatsoever that it has against SDB for which the guarantee is sought to be invoked. In these circumstances, counsel for the plaintiff lamented that STAR has failed "to condescend on facts" as it was incumbent upon it so to do. All that is pleaded in the written statement is that penalty for delay was, in fact, levied ; and that arbitration proceedings are pending in which STAR has raised counter-claims against SDB which have yet to be adjudicated upon. ( 85 ) AS earlier discussed, it appears that under and after the Protocol, the undischarged liabilities of STAR, were its own, for the enforcement of which SONITEX had invoked STAR's guarantees. In the notice now in question, it is averred that SONITEX had invoked the bank guarantees against STAR. The notice by which SONITEX demanded payment has not been placed on record. The nature of liabilitiess of STAR enforced by SONITEX are, however, discernible from some of the other documents. The Bank of Baroda, who had furnished the guarantees on behalf of STAR to SONITEX, by a letter dated 4th of October, 1989 to STAR, referred to their earlier letters dated 12th of September, 1989 and 20th of September, 1989 "advising you about the invocation of the above guarantees by the beneficiary on account of non-fulfilment of the obligations by you under the FAC Protocol dated 15th July, 1989". It informed STAR "we remitted the following amount on 29-9-1989 to the beneficiary as per the FAC protocol, being your liability under it. . . . . . . . . " The break-up of the amount was stated to be as follows :"1. Reimbursement of interclaire interest of Rs. 84,27,823. 56 and DM218,951. 81. 2. Compensation of reserves totalling Algerian Dinars 1. 00 mn. " ( 86 ) FOR the reasons earlier discussed while dealing with the first ground, it appears that SDB is, admittedly, not concerned with STAR's liability for compensation of "reserves" ; and that the liability in respect of intercalaire interest is also not relatable or attributable to SDB. This outstanding liability of STAR under the Protocol appears to be non-existent qua SDB. ( 87 ) FURTHER, it is interesting to note that the claim for reimbursement of intercalaire interest is for Rs. 84,27,823. 56. This outstanding liability of STAR under the Protocol appears to be non-existent qua SDB. ( 87 ) FURTHER, it is interesting to note that the claim for reimbursement of intercalaire interest is for Rs. 84,27,823. 56. Even assuming this to be a consequential claim arising out of delay directly attributable to SDB, yet, it is for a total sum of Rs. 84,27,823. 56 only. Not the whole of it could be claimed from SDB. Only a proportion of it could, if at all, be passed on to SDB. Be that as it may, the guarantee of the value of Rs. 1,42,45,500 has been invoked by STAR. This again is fraudulent. ( 88 ) AS against this, STAR has yet to pay DA One million equivalent to SDB that was agreed to be paid under Para 4. 1 of the Settlement. Despite this payment being admittedly due, STAR has, instead of paying the same, proceeded to invoke the guarantee. 89. In these circumstances, the invocation of the guarantee to make good the alleged 'losses' on the basis of the alleged liabilities of STAR on account of 'penalty' and/or 'intercalaire interest' appears to be fraudulent. ( 90 ) AS explained in 'equity' by Keeton and Sheridan (Second Edition at pages 42 and 43), equity must remain flexible, court has undoubted jurisdiction to relieve against every kind of fraud. No invariable rules can be established. Fraud is infinite. Fraud does not mean deceit or circumvention, it means an unconscientious use of power. ( 91 ) IN U. P. Cooperative Federation Ltd. (supra), Shetty, J. has explained that the general rule that the bank must pay when demand is made, should not be extended to protect the unscruplous beneficiary, if the bank detects with a minimal investigation, the fraudulent action of the beneficiary. In such a case, the payment could be refused. In the peculiar facts of the present case, where the Bank participated in all the relevant meetings of the WG and the PMG and was fully aware of all the circumstances, it cannot be said that there was any difficulty in the Bank itself making an assessment with regard to the bona fide or mala fide conduct of STAR in invoking the guarantee. ( 92 ) IN the case of M/s. Synthetic Foams Ltd. v. Simplex Concrete Piles (India) Pvt. Ltd. ,7 Mahesh Chandra, J. has observed : "what is necessary is that there exists special equity in favour of the plaintiff to grant of injunction" and further ". . . . . . Where there are allegations of fraud, misrepresentation or suppression of facts made by the parties against the beneficiary and there is prima facie evidence to suggest that there is some truth in the allegation, then there would possibly be no absolute bar operating against the courts from granting ad-interim injunction restraining the banks from making the payment on the basis of the bank guarantee". ( 93 ) IN Mis. Banerji and Banerji v. Hindustan Steel Works Construction Ltd. 9 Mrs. Pratibha Bonerjea, J. has observed that if the guarantee is enforced by fraud, misrepresentation or suppression of material facts or the like, that will give rise to "a special equity in favour of the contractor who will then have the right to stop its enforcement by obtainig an order from court. . . . . . . . " ( 94 ) THIS apart, according to SDB, the conduct of STAR is contrary to the understanding between the parties and the decisions taken at meetings of the WG/pmg with regard to the extension and enforceability of the guarantee as stated by SDB in its plaint and rejoinder. STAR did not inform the Working Group before invoking the guarantee. It did not abide by the understanding reached on 19th of January, 1988 that the guarantee would be reduced to zero value on the grant of the FAC. It did not stick to the Settlement dated 25th of January, 1988 which envisaged the extension of the guarantee only till the PAC. It did not seek prior approval of the Working Group to invoke the guarantee in accordance with the agreement reached at the meeting of the PMG held on 27th of March, 1989. It has not honoured the understanding reached at the meeting of the Working Group on 1st of May, 1989 that the guarantee would not be encashed till the making of the award in the pending arbitration proceedings despite SDB extending its validity. It has not honoured the understanding reached at the meeting of the Working Group on 1st of May, 1989 that the guarantee would not be encashed till the making of the award in the pending arbitration proceedings despite SDB extending its validity. On this understanding, STAR led SDB to alter its position that the guarantee stood released on grant of the FAC and made it to extend the guarantee to its prejudice. ( 95 ) NO doubt, STAR disputed correctness of recorded minutes of meetings of the PMG held on 20th of January, 1988 and 27th of March, 1989, it sought to advance its own version of what transpired at the various meetings of the WG/pmg and also its own interpretation of the Settlement, the FAC, the Protocol and other documents, and took a stand that it had the absolute and unconditional right to invoke the guarantee at any time. ( 96 ) I rima facie, there appears to be no reason why the WG/pmg, which consisted of high-powered members representing various Financial Institutions and Government Departments, who had no interest in one or the other party, would incorrectly record the minutes of its meetings. The Bank, in any event, was a party to all the meetings and was fully aware of all developments in the case which were being monitored by the Working Group and the PMG. It appears that the Bank also had been acting, from time to time, on the same understanding of the position as stated by SDB. ( 97 ) IN any event, there appears to be a serious dispute between the parties with regard to correctness of minutes of some of the meetings of the WG/pmg as also the conditions on which the guarantee was extended by SDB after the grant of the FAC; and whether invocation of the guarantee by STAR is in consonance with the understanding reached and the decisions taken from time to time at various meetings of the WG and the PMG. Those will be matters in issue for trial of the suit. ( 98 ) THERE appears to be no force in the plea of learned counsel for STAR that the allegations of fraud are restricted to the earlier notice which was withdrawn or that there are no pleadings of fraud in respect of the invocation now in question. Those will be matters in issue for trial of the suit. ( 98 ) THERE appears to be no force in the plea of learned counsel for STAR that the allegations of fraud are restricted to the earlier notice which was withdrawn or that there are no pleadings of fraud in respect of the invocation now in question. ( 99 ) PLEADINGS have to be read as a whole. Each paragraph or ground cannot be read in isolation. The substance of SDB's pleadings has been indicated earlier in some detail for this purpose. It must be borne in mind that the notice of demand now in question has come into existence after institution of the suit. For this reason, the plaint was amended. The backdrop of the case has not changed. It is the same as that stated in the plaint as initially instituted. The combined effect of the plaint as amended and the replication has to be seen. ( 100 ) THE only significant events that occurred during the period intervening withdrawal of the earlier notice on 1st of June, 1989 and 23rd of June, 1989 when STAR again invoked the guarantee are : a meeting of the PMG on 6th of June, 1989 and the encashment by SONITEX of the guarantees of STAR. . ( 101 ) AT the said PMG meeting, STAR reported its failure to pursuade SONITEX to accept its proposal for remittance of intercalaire interest in four equal half-yearly deferred instalments backed by a Deferred Payment Guarantee, as discussed in the earliar PMG meeting on 27th of March, 1989. A perusal of minutes of the earlier PMG meeting shows that SONITEX had proposed to discharge this liability in instalments as it did not have funds to meet it within two months, as per FAC Protocol. This only shows default on the part of STAR to honour its obligation on this account within the time prescribed under the Protocol and the unwillingness of SONITEX to accept STAR's proposal for deferred payment. This as also certain other outstanding liabilities of STAR, resulted in SONITEX invoking STAR's guarantees on 14th of June, 1989. On this pretext, STAR again invoked SDB's guarantee by the demand dated 23rd of June, 1989 now in question. This as also certain other outstanding liabilities of STAR, resulted in SONITEX invoking STAR's guarantees on 14th of June, 1989. On this pretext, STAR again invoked SDB's guarantee by the demand dated 23rd of June, 1989 now in question. ( 102 ) NO doubt, SDB has not formulated this ground in any particular paragraph of the plaint or the replication in such clear terms as its counsel has presented it at the time of hearing. But, all the facts and circumstances on which this plea is based have been averred in the pleadings of SDB and are borne out from the documents on record. ( 103 ) THE documents on record show that STAR had no funds to meet its liabilities to SONITEX under the Protocol, nor even to reimburse Bank of Baroda for the loss caused to that Bank as a result of encashment of guarantees furnished by it on behalf of STAR. This is amply borne out from the Bank of Baroda's letter dated 4th of October 1989 by which it once 'again reminded STAR to immediately deposit Rs. 1,25,07,691 with interest etc. ( 104 ) THIS apart, as would appear from discussion of the next ground, upto March, 1989 STAR had suffered accumulated losses (apart from contingent liabilities) in respect of some other business also, amounting to Rs. 19,39 crores. Obviously, STAR was in dire need of funds. ( 105 ) IN these circumstances, it appears that the previous invocation as also the one now in question, had been made by STAR with the ulterior object of causing wrongful gain to itself and wrongful loss to SDB. ( 106 ) LASTLY, to show that irretrievable injustice would be done if the guarantee is encashed at this stage, SDB has pleaded that STAR is a sick industrial unit ; its financial position is very bad ; it is unable to repay either the principal amount or interest on financial assistance aggregating over several crores of rupees taken from financial institutions ; and that the provisional profit and loss account as upto March, 1989 prepared by the Board of STAR in respect of all its business activities shows that its accumulated losses as upto that date were Rs. 19. 39 crores, in addition to contingent liabilities of Rs. 15. 14 crores, thus making an aggregate of Rs. 34. 53 crores. 19. 39 crores, in addition to contingent liabilities of Rs. 15. 14 crores, thus making an aggregate of Rs. 34. 53 crores. In view of this position, SDB has pleaded that its suit itself would become infructuous, that there would not be even the remotest possibility of recovering back from STAR the amount of Rs. 1. 42 crores, and that any decree that may eventually be passed by this court in favour of the plaintiff shall be incapable of execution, if STAR is not restrained from encashing the bank guarantee. ( 107 ) THESE facts stated by SDB, which are also borne out from documents on record, have not been controverted by STAR. The only plea advanced by STAR's counsel is that financial tribulation of STAR cannot form the basis to claim an injunction on the ground of irretrievable injustice. ( 108 ) STAR is obviously in dire state financially. Some of the Financial Institutions are already. at bay. Remedy sought by SDB in the suit would really be rendered illusory if STAR is permitted to encash the bank guarantee as it may not be possible to get back from it the sum of Rs. 1,42,45,500 if the plaintiff finally succeeds in the suit. ( 109 ) IN the case of U. P. Cooperative Federation Ltd. (supra), Mukerji, J. observed that in a case of special equities, an injunction could be granted to prevent injustice which may be irretrievable. But, in that case, as noticed earlier, there was no apprehension of irretrievable injustice as the respondent was "not remediless" and the respondent was not to suffer any injustice which was irretrievable because the respondent could sue for the payment for damages. In the instant case, it is otherwise. ( 110 ) LEARNED counsel for STAR was specifically called upon to support his proposition by some authority that financial difficulties of a party are not relevant to consider grant of an ad interim injunction on the ground of irretrievable injustice. He was unable to do so. In any event, in my opinion, this proposition is wholly unsustainable. ( 111 ) THEREFORE, it appears that irretrievable injustice would be done to SDB if STAR is permittad to encash the bank guarantee at this stage and that the same should be prevented. He was unable to do so. In any event, in my opinion, this proposition is wholly unsustainable. ( 111 ) THEREFORE, it appears that irretrievable injustice would be done to SDB if STAR is permittad to encash the bank guarantee at this stage and that the same should be prevented. On the other hand, interest of STAR would be adequately protected if the guarantee is kept in force till disposal of the suit. ( 112 ) IN fine, it appears that SDB has made out a strong prima facie case to show that it has duly and fully performed its part of the obligations under the sub-contract ; that there is no existing liability under/or in con connection with the sub-contract ; that in view of the various provisions of the main contract read with the sub-contract, the Settlement, the Protocal, and the FAC, the guarantee stands discharged ; that the invocation thereof is fraudulent ; that the guarantee has been invoked to cause wrongful gain to STAR and wrongful loss to none, that all facts and circumstances were fully known to the Bank ; that irretrievable injustice will be caused to SDB if STAR is allowed to encash the bank guarantee at this stage ; and that there are serious disputes to be tried in the suit. ( 113 ) IN these circumstances, it cannot be said that the court should stand-by and should not interfere with the invocation of the guarantee by STAR. ( 114 ) BY I. A. 417 of 90, the first defendant has prayed for discharge and modification of the interim order of injunction passed on 25th of April, 1989 and to permit encashment of the guarantee. The prayer made in this application is based upon some of the grounds and contentions similar to those urged in opposition to I. A. 3020/89. As earlier discussed, there is no merit in them. ( 115 ) IT may, however, be clarified that the views expressed above for disposal of the interlocutory applications in hand are only tentative and that the same would not affect determination of the disputes pending before the arbitrators, or the adjudication of the matters on merits in the suit. As earlier discussed, there is no merit in them. ( 115 ) IT may, however, be clarified that the views expressed above for disposal of the interlocutory applications in hand are only tentative and that the same would not affect determination of the disputes pending before the arbitrators, or the adjudication of the matters on merits in the suit. ( 116 ) FOR these reasons, the interim order made on 25th of April, 1989 is hereby confirmed ; defendant No. 1 is restrained from encashing the bank guarantee dated 20th of September, 1983, and defendant No. 2 is restrained from making any payment to the first defendant under the said guarantee, till final disposal of the suit. This order is subject to the condition that the plaintiff must keep the bank guarantee valid and in force till the disposal of the suit. For this purpose, the plaintiff is directed to renew the bank guarantee, from time to time, with written intimation thereof to the first defendant, at least two weeks before the expiry of the validity period. ( 117 ) CONSEQUENTLY, I. A. 3020/89 and I. A. 3161/90 are allowed and I. A. 417/90 is dismissed. The parties are left to bear their respective costs.