Case Note & Summary
The case arises from a dispute between Coal India Ltd. and Western Coalfields Ltd. (appellants) and Chintamani Agrotech (India) Ltd. (respondent/plaintiff) concerning a Letter of Assurance (LOA) issued under the New Coal Distribution Policy of 2007. The plaintiff, a company seeking coal supply for a captive power plant, was issued an LOA by the appellants on 10.03.2010, valid for 24 months, requiring the plaintiff to meet certain milestones and furnish an earnest money deposit (EMD) in the form of a bank guarantee. The plaintiff furnished the bank guarantee and commenced steps to fulfil the milestones. However, the appellants issued letters dated 10.03.2010 and 9/13 September 2010 threatening to cancel the LOA and encash the bank guarantee, alleging that the plaintiff had failed to meet the milestones within the stipulated period. The plaintiff filed Special Civil Suit No. 824/2010 seeking a permanent injunction restraining the appellants from cancelling the LOA and encashing the bank guarantee, and also filed an application for temporary injunction under Order 39 Rules 1 and 2 read with Section 151 CPC. The trial court allowed the application and granted an interim injunction restraining the appellants from acting upon the said letters and from cancelling the LOA or encashing the bank guarantee until the decision of the suit. Aggrieved, the appellants filed the present appeal. The legal issues were whether the trial court correctly applied the principles for grant of temporary injunction, namely, prima facie case, balance of convenience, and irreparable loss. The appellants argued that the plaintiff had failed to meet the milestones and that the LOA was liable to be cancelled as per the policy. The respondent contended that the appellants had not adhered to the terms of the LOA and the policy, and that the cancellation was premature. The court analyzed the terms of the LOA and the New Coal Distribution Policy, noting that the LOA had a validity of 24 months and the plaintiff was required to approach for a Fuel Supply Agreement upon meeting the milestones. The court found that the appellants had not given the plaintiff a reasonable opportunity to complete the milestones and that the cancellation was not in accordance with the policy. The court held that the plaintiff had a strong prima facie case, the balance of convenience was in its favour, and it would suffer irreparable loss if the injunction was not granted. The court dismissed the appeal, confirming the trial court's order of temporary injunction.
Headnote
A) Civil Procedure - Temporary Injunction - Order 39 Rules 1 and 2 read with Section 151 CPC - Grant of Injunction - The court examined whether the plaintiff had a prima facie case, balance of convenience in its favour, and would suffer irreparable loss if injunction was not granted - Held that the plaintiff had made out a strong prima facie case for grant of injunction as the appellants had not adhered to the terms of the Letter of Assurance and the New Coal Distribution Policy, and the balance of convenience was in favour of the plaintiff (Paras 1-10). B) Contract Law - Letter of Assurance - New Coal Distribution Policy 2007 - Breach of Contract - The court considered the terms of the Letter of Assurance and the Policy requiring the appellants to issue a Fuel Supply Agreement upon fulfilment of milestones - Held that the appellants' action of cancelling the LOA and threatening to encash the bank guarantee without giving the plaintiff an opportunity to complete the milestones was a breach of the terms (Paras 2-8). C) Injunction - Irreparable Loss - Bank Guarantee - The court assessed whether the plaintiff would suffer irreparable loss if the bank guarantee was encashed - Held that encashment of the bank guarantee would cause irreparable loss to the plaintiff as it would lose the security and the benefit of the LOA, and monetary compensation would not be adequate (Paras 9-10).
Issue of Consideration
Whether the trial court was justified in granting temporary injunction restraining the appellants from cancelling the Letter of Assurance and encashing the bank guarantee pending disposal of the suit.
Final Decision
The appeal is dismissed. The order passed below Exh. 5 by the learned 3rd Joint Civil Judge, Senior Division, Nagpur, on 22nd November, 2010, granting temporary injunction is confirmed. No order as to costs.
Law Points
- Temporary injunction
- prima facie case
- balance of convenience
- irreparable loss
- Order 39 Rules 1 and 2 CPC
- Letter of Assurance
- Fuel Supply Agreement
- earnest money deposit
- bank guarantee
- cancellation of contract
