Unconditional bank guarantees must be honoured on demand; courts intervene only for fraud or irretrievable injustice.

An unconditional performance bank guarantee payable on demand must be honoured according to its terms, because it is an independent and autonomous commitment distinct from the underlying contract. Courts will ordinarily not restrain invocation or encashment merely because performance disputes, delay, or defective work are alleged. Interference is justified only in exceptional cases of established fraud of an egregious nature known to the bank, or where irretrievable injustice creates special equities. A restraint order that would prevent honouring the guarantee cannot be sustained simply because proceedings are framed against the beneficiary rather than the bank; the injunction was therefore set aside and refusal of injunction restored.

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Issues: Whether a court can grant an injunction restraining invocation or encashment of an unconditional performance bank guarantee in the absence of fraud or irretrievable injustice.

Analysis: The guarantees were unconditional and payable on demand, with the beneficiary made the sole judge of default. The governing principle applied was that a bank guarantee is an independent and autonomous commitment, and courts ordinarily do not interfere with its invocation. Interference is justified only in exceptional cases, such as established fraud of an egregious nature known to the bank, or where special equities exist in the form of irretrievable injustice. Mere disputes about performance under the underlying contract, delay, or defective work do not justify injunction. The fact that the suit was framed against the beneficiary rather than the bank did not alter the legal position, because the effect of the restraint would still be to prevent honouring the guarantee.

Conclusion: The injunction against invocation of the bank guarantees was not sustainable and the restraint order could not be maintained.

Final Conclusion: The appeal succeeded, the High Court's order was set aside, and the trial court's refusal to grant injunction was restored.

Ratio Decidendi: An unconditional bank guarantee must be honoured according to its terms and cannot be restrained merely because disputes arise under the underlying contract; judicial interference is confined to cases of established fraud or irretrievable injustice.

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