Unconditional bank guarantees must be honoured on demand unless clear fraud or special equity justifies restraining enforcement.

An unconditional bank guarantee operates as an independent contract, and the bank's obligation to honour it on demand is not affected by disputes under the underlying contract. Injunction against encashment is justified only where fraud is clearly pleaded and prima facie established by strong evidence, or where special equity exists to prevent irretrievable injustice. A mere dispute over the amount due under the contract is insufficient to restrain invocation of the guarantee. On the facts, no fraud was shown and no special equity was established, so restraint on enforcement was not warranted.

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Issues: Whether an injunction could be granted to restrain encashment of an unconditional bank guarantee in the absence of prima facie fraud, special equity, or irretrievable injustice.

Analysis: A bank guarantee is an independent contract between the bank and the beneficiary and is not controlled by disputes arising out of the underlying contract. The beneficiary is entitled to invoke the guarantee according to its terms, and the bank's obligation to pay on demand is absolute where the guarantee is unconditional and irrevocable. Judicial interference by injunction is justified only where fraud is clearly pleaded and prima facie established by strong evidence, or where special equity exists so as to prevent irretrievable injustice. On the facts, no fraud was made out, and the dispute as to the amount due and payable under the contract could not by itself prevent invocation of the guarantee.

Conclusion: Injunction was not warranted, and the beneficiary was entitled to enforce the bank guarantee.

Final Conclusion: The refusal to restrain invocation of the bank guarantee was sustained, as the contractual dispute did not displace the bank's independent and unconditional obligation to honour the guarantee.

Ratio Decidendi: An unconditional bank guarantee must be honoured according to its terms, and courts will not restrain its enforcement unless fraud or special equity is prima facie established so as to prevent irretrievable injustice.

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