Irrevocable bank guarantees remain enforceable absent established fraud or irretrievable injustice, even where related contracts are disputed.

An irrevocable bank guarantee is ordinarily enforceable according to its terms, and injunctive relief is justified only on clear proof of established fraud of an egregious kind or irretrievable injustice; mere allegations, suspicion, or a commercial dispute are insufficient. Separate written commercial contracts must be enforced as written, and oral or extrinsic assertions cannot vary their terms. The alleged linkage between supply contracts and financing arrangements did not defeat the lender's right to repayment, so the guarantor could not be restrained from enforcing the guarantee. The injunction was therefore set aside and interim relief refused.

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Issues: (i) Whether an injunction can be granted to restrain encashment of an irrevocable bank guarantee in the absence of established fraud and irretrievable injustice; (ii) whether the alleged linkage between the supply contracts and the financing arrangements justified treating the lender and guarantor as disentitled to enforce the bank guarantee.

Issue (i): Whether an injunction can be granted to restrain encashment of an irrevocable bank guarantee in the absence of established fraud and irretrievable injustice.

Analysis: An irrevocable bank guarantee is ordinarily to be honoured according to its terms, and courts interfere only in exceptional cases. Mere allegations in pleadings, suspicion, or a disputed commercial grievance are insufficient. The party seeking restraint must show a strong prima facie case of established fraud, and the fraud must be of an egregious nature going to the root of the transaction. Special equities in the form of irretrievable injustice may also justify interference, but not by themselves in the absence of established fraud. The material on record did not establish fraud on the part of the lenders or guarantor, and no irretrievable injury of the exceptional kind recognised in law was shown.

Conclusion: The injunction against enforcement of the bank guarantee was not justified.

Issue (ii): Whether the alleged linkage between the supply contracts and the financing arrangements justified treating the lender and guarantor as disentitled to enforce the bank guarantee.

Analysis: The supply contracts and the credit agreements were separate written transactions. The lenders' right to repayment flowed from the loan agreements, which made the borrower's liability unconditional and independent of disputes under the supply contracts. Section 92 of the Indian Evidence Act, 1872 barred reliance on oral or extrinsic material to vary the written terms, except to the limited extent permitted by its provisos. The alleged breach of contract by the suppliers, even if assumed, did not alter the lender's contractual rights or convert the guarantee into a contingent obligation. The plaintiff's grievance, at most, gave rise to a claim for damages or diminution in price against the suppliers, not a basis to restrain payment under the guarantee.

Conclusion: The lender and guarantor could not be restrained on the footing that the underlying commercial transactions formed one inseparable arrangement.

Final Conclusion: The appeal succeeded, the High Court's injunction was set aside, and the trial court's refusal of interim relief was restored.

Ratio Decidendi: An irrevocable bank guarantee cannot be restrained except on clear proof of established fraud or irretrievable injustice, and separate written commercial contracts must be enforced according to their terms without being varied by extrinsic allegations of linkage or suspicion.

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