Bank guarantees payable on demand: Delhi jurisdiction, limitation with stayed period excluded, and valid invocation enforced.

Delhi High Court held that territorial jurisdiction existed where bank guarantees and extensions were addressed to Delhi, payment was not confined to an exclusive place, and part of the cause of action arose in Delhi through invocation and refusal. It further held that the recovery suit under the guarantees was within limitation because the period during which enforcement was stayed by injunction had to be excluded; alleged balance-sheet acknowledgments were not proved as the sole basis for limitation. The guarantees were found to have been validly invoked in accordance with their terms, no established fraud was shown, and the plaintiff was entitled to recover the guaranteed amounts with interest and costs.

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Issues: (i) whether the Delhi High Court had territorial jurisdiction to entertain the suit on the basis of the bank guarantees, the correspondence addressed to Delhi, and the place of payment; (ii) whether the suit for recovery under the bank guarantees was within limitation, including the effect of the injunction operating in the Saharanpur proceedings and the alleged acknowledgment in balance sheets; (iii) whether the bank guarantees were validly invoked in accordance with their terms so as to entitle the plaintiff to recover the guaranteed amounts and interest.

Issue (i): whether the Delhi High Court had territorial jurisdiction to entertain the suit on the basis of the bank guarantees, the correspondence addressed to Delhi, and the place of payment.

Analysis: The bank guarantees were issued through the Saharanpur branch, but the guarantees and extensions were addressed to the plaintiff at Delhi. The guarantees did not specify an exclusive place of payment, and the evidence showed that payment could be made at any place, including Delhi. The plaintiff invoked the guarantees from Delhi, the defendant had a zonal office in Delhi, and part of the cause of action arose where payment was payable and refused. The court also held that the plaintiff's choice of forum could not be displaced on forum convenience grounds because Delhi was a real connecting forum for both parties.

Conclusion: Territorial jurisdiction was upheld in favour of the plaintiff.

Issue (ii): whether the suit for recovery under the bank guarantees was within limitation, including the effect of the injunction operating in the Saharanpur proceedings and the alleged acknowledgment in balance sheets.

Analysis: The guarantees were invoked within their validity period and the bank did not dispute liability until proceedings in Saharanpur. The period during which the injunction against encashment operated had to be excluded in computing limitation. Although the plaintiff relied on alleged acknowledgments in balance sheets, no reliable material was produced to found limitation solely on that basis. Even so, once the exclusion period was applied, the suit filed in 1993 was within time.

Conclusion: The suit was held to be within limitation in favour of the plaintiff.

Issue (iii): whether the bank guarantees were validly invoked in accordance with their terms so as to entitle the plaintiff to recover the guaranteed amounts and interest.

Analysis: The guarantees required only a demand stating that loss or damage had been caused or that the supplier had failed to perform the purchase order. The plaintiff's invocation letters satisfied that requirement, and no further proof of actual loss or breach was a condition precedent for payment by the bank. Mere allegations of fraud were insufficient, and no established fraud was shown. The court therefore accepted the invocation and held that the defendant's liability under the guarantees was triggered. The rate of interest was fixed on a reasonable basis having regard to the prevailing rates and the delay in payment.

Conclusion: The bank guarantees were validly invoked, and the plaintiff was entitled to recover the guaranteed sums with interest in favour of the plaintiff.

Final Conclusion: The suit succeeded on the core issues of jurisdiction, limitation, and enforcement of the bank guarantees, resulting in a decree for recovery of the guaranteed amounts with interest and costs.

Ratio Decidendi: Where a bank guarantee is payable on demand without specifying an exclusive place of payment, jurisdiction may lie where the guarantee is payable and invoked; limitation is computed with statutory exclusion of periods during which enforcement is stayed; and a bank guarantee must be honoured according to its terms unless a legally established fraud or other recognized exception is proved.

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