Bank guarantees: injunctions are limited to egregious fraud or irretrievable injustice, with contract terms governing invocation.

Unconditional irrevocable bank guarantees operate as independent contracts and are ordinarily to be honoured according to their terms. Court interference is confined to exceptional cases of clear, egregious fraud or special equities leading to irretrievable injustice; allegations of lack of good faith or oblique purpose are not a separate ground. Applying that principle, the text states that no such fraud was established and that arbitration remained the proper forum for the underlying dispute, so injunction against encashment was unsustainable. It also explains that, in a composite turnkey arrangement governed by a wrap-around agreement, the beneficiary could invoke all guarantees where the contract expressly permitted recovery for breach and the record did not show completed performance barring invocation.

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Issues: (i) whether an injunction could be granted to restrain encashment of unconditional irrevocable bank guarantees on the grounds of alleged fraud or special equities including irretrievable injustice; (ii) whether, on the terms of the wrap-around agreement and the conduct of the parties, the beneficiary was entitled to invoke all the bank guarantees.

Issue (i): whether an injunction could be granted to restrain encashment of unconditional irrevocable bank guarantees on the grounds of alleged fraud or special equities including irretrievable injustice.

Analysis: The settled rule is that a bank guarantee is an independent contract and must be honoured according to its terms. Interference by court is confined to exceptional cases of clear fraud of an egregious nature, or special equities where irretrievable injustice would result. The alleged absence of good faith or an oblique purpose was not accepted as a separate exception. On the facts, no such fraud was made out, and pending arbitration provided an effective forum for adjudicating the underlying dispute.

Conclusion: The injunction could not be sustained, and the beneficiary was entitled to encash the guarantees.

Issue (ii): whether, on the terms of the wrap-around agreement and the conduct of the parties, the beneficiary was entitled to invoke all the bank guarantees.

Analysis: The contract, though split into four work orders, was treated by the parties as a composite turnkey arrangement under the wrap-around agreement. The agreement expressly enabled recovery and encashment of guarantees for breach of any of the contracts. The continuation of the first three guarantees even after recovery of advances did not establish fraud or any special equity. The record also did not show satisfactory completion of performance so as to bar invocation of the fourth guarantee.

Conclusion: The beneficiary was entitled to invoke all the bank guarantees in terms of the composite contractual arrangement.

Final Conclusion: The interference ordered by the High Court was unsustainable, and the order of the District Judge was restored, leaving the beneficiary free to realise the guarantees and leaving questions of adjustment to be worked out in arbitration.

Ratio Decidendi: Courts will not restrain invocation of an unconditional irrevocable bank guarantee except in cases of clear egregious fraud or irretrievable injustice, and contractual terms permitting encashment in a composite turnkey arrangement will govern the beneficiary's right to call the guarantees.

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