Bank is bound to honour bank guarantee irrespective of any dispute raised by its customer

These bank guarantees which are irrevocable in nature, in terms, provide that they are payable by the guarantor to the appellant on demand without demur. They further provide that the appellant shall be the sole judge of whether and to what extent the amount has become recoverable from the respondent or whether the respondent has committed any breach of the terms and conditions of the agreement. The bank guarantees further provide that the right of the purchaser to recover from the guarantor any amount shall not be affected or suspended by reason of any disputes that may have been raised by the respondent with regard to its liability or on the ground that proceedings are pending before any Tribunal, Arbitrator or Court with regard to such dispute. The guarantor shall immediately pay the guaranteed amount to the appellant-purchasers on demand.[Para No.11]

   The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may co-exist in some cases. In the case of U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (988 [1] SCC 174), which was the case of works contract where the performance guarantee given under the contract was sought to be invoked, this Court, after referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the suppler has performed his contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an agregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may absolve a bank from honouring its guarantee, this Court in the above case quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank NA (1984 [1] AER 351 at 352): "The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged". This Court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee.[Para No.12]

A stranger to the suit cannot be impleaded under Order 1 Rule 10 of C.P.C. in a suit for specific performance merely to avoid multiplicity of the suits

Doctrine of lis pendency does not annul the conveyance or the transfer made during the pendency of suit.

    Liquidation proceedings are also fixed before the Company Law Board. For impleading a party in a suit for specific performance, two tests are to be satisfied. Firstly, there must be a right to some relief against the plaintiff in respect of suit property. Secondly, that in the absence of the petitioner/proposed defendant, no effective adjudication can be done by the trial Court.In a suit for specific performance, necessary party is that person in whose absence no decree can be passed. Proper party is that person whose presence before the Court would be necessary in order to enable the Court to decide and adjudicate the lis in an effective manner. A person stranger to the agreement to sell cannot be termed as necessary and appropriate party as collateral matters cannot be adjudicated in a suit for specific performance. By allowing such a course, the suit itself will be converted into a complicated suit for title.[Para No.18]

    The scope of a suit for specific performance cannot permit third party claiming to be joint owner in the property in question. A stranger to the agreement/contract making a claim adverse to the title of the defendant by claiming right of co- sharership in the suit property cannot be termed to be necessary party, nor proper party for adjudication of the case on merits. In this context reference can be made to Kasturi vs. Iyyamperumal & Ors., 2005(2) R.C.R. (Civil) 691; Anil Kumar Singh vs. Shivnath Mishra @ Gadasa Guru, 1995(1) R.R.R. 660; Krishan Lal vs. Tek Chand, 1986(2) PLR 616 and Om Parkash and another vs. Rajni Gupta and another, 2008(1) R.C.R. (Civil) 400.[Para No.19]

     The ratio of Kasturi's case (supra) has been reiterated by the Hon'ble Apex Court in Civil Appeal Nos.5522-5523 of 2019 titled Gurmit Singh Bhatia vs. Kiran Kant Robinson and others decided on 17.07.2019. The plaintiff is a dominus litis and he cannot be compelled to contest the suit against a person with whom, he does not wish to contest. In Kasturi's case (supra), the Court held that the question of jurisdiction of Court to invoke Order 1 Rule 10 CPC to add a party, who is not made a party in the suit by the plaintiff, shall not arise unless a party proposed to be added has direct and legal interest in the controversy involved in the suit. Both the tests which have been discussed in the preceding paras are to be satisfied.[Para No.20]

    The party claiming independent title and possession adverse to the title of the vendor and not on the basis of agreement/contract, is not proper party and if said party is impleaded the scope of the suit for specific performance shall be enlarged and it will become a suit for title and it will involve intricated question of title which is not permissible in law. A stranger to the suit cannot be added/impleaded in a suit for specific performance merely in order to find out, who is in possession of the agreed property or to avoid multiplicity of the suits. A stranger to agreement cannot be impleaded as a party so as to convert a suit of one character into a suit of different character. It is only an assignee by sale in a case of specific performance who can be impleaded as party defendant. Section 19(b) of the Specific Relief Act enables the assignee by sale in a suit for specific performance to be impleaded as party. The aforesaid exception has been carved out in view of nature of suit being a specific performance, wherein the assignee by sale can protect his title and join the proceedings in view of law laid down in Thomson Press (India) Ltd.'s case (supra). It is a settled principle of law that doctrine of lis pendens is a doctrine based on the ground that it is necessary for the administration of justice that the decision of a Court in a suit should be binding not only on the litigating parties, but on those who derive title pendente lite. This provision does not intend to annul the conveyance or the transfer otherwise to render it subservient to the right of a party to a litigation.[Para No.21]