Bank guarantee – Injunction against its invocation – Settled legal principle:
Held: The terms of the bank guarantee are, therefore, extremely material – The bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished – In Hindustan Construction Co. Ltd v. State of Bihar and others,(1999) 8 SCC 436 the Supreme Court after placing reliance on various judgments held that courts are reluctant in granting an injunction against the invocation of bank guarantee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be caused to the guarantor – Bank guarantees serve as the backbone of commercial transactions and must be honored in accordance with their terms.[Para 11] Impugned order – Whether legally sustainable in facts of the case:
Held: If the appellants were permitted to invoke the bank guarantee, the prayer made in the Section 9 arbitration petition would become infructuous – The order was subject to Respondent No. 1 extending the validity of the bank guarantee – Therefore, the order of the High Court was merely an interim measure intended to protect the interests of both parties and correct – The arguments of both sides have already concluded in the arbitration petition – An Arbitral Tribunal was constituted to adjudicate the disputes between the parties; a hearing was held; and the parties have appeared – Thus, in view of the ongoing arbitration proceedings concerning the bank guarantee, it is imperative to maintain the existing position regarding the same until the final outcome of the Section 9 arbitration petition – Respondent No. 1 has given an undertaking to extend the validity of the bank guarantee till the disposal of the Section 9 arbitration petition – As of now, no prejudice to appellants – The Commercial Court shall pass appropriate orders within a period of eight weeks and until such time, the bank guarantee shall be kept alive subject to the outcome of the Section 9 arbitration petition. [Paras 12-15]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Swathi H. Prasad, Hony. Associate Editor (Verified by: Kanu Agrawal, Adv.). Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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