Unconditional bank guarantees are rarely restrained; injunctions lie only for fraud or special equities, while contractual substitution must be clearly established.

Courts ordinarily will not restrain invocation or encashment of an unconditional, irrevocable bank guarantee unless fraud or special equities creating irretrievable injustice are shown; ordinary tests of prima facie case, balance of convenience and irreparable injury do not justify interference. On the second guarantee, the correspondence showed only a possible substitution of a bank guarantee for a demand draft, not a final contractual amendment or waiver, so the restraint against its enforcement was maintained. The appeal therefore succeeded only in relation to the first guarantee, while the injunction concerning the second guarantee remained in force.

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Issues: (i) Whether an ex parte temporary injunction could be granted to restrain invocation and encashment of unconditional bank guarantees in the absence of fraud or special equities. (ii) Whether the second bank guarantee was enforceable in view of the correspondence between the parties and the terms of the agreement.

Issue (i): Whether an ex parte temporary injunction could be granted to restrain invocation and encashment of unconditional bank guarantees in the absence of fraud or special equities.

Analysis: The governing principle applied was that courts ordinarily do not interfere with bank guarantees or letters of credit, particularly where the guarantee is unconditional and irrevocable. Interference is justified only where a strong prima facie case of fraud is shown or where special equities exist in the form of apprehension of irretrievable injustice. In such a situation, ordinary considerations of prima facie case, balance of convenience, and irreparable injury do not justify restraint of the bank's contractual commitment. The ex parte injunction below had been granted without applying these settled principles.

Conclusion: The injunction could not be sustained against the unconditional bank guarantee No. 4 of 1989.

Issue (ii): Whether the second bank guarantee was enforceable in view of the correspondence between the parties and the terms of the agreement.

Analysis: The record showed that the parties only discussed a possible substitution of a bank guarantee in place of a demand draft, but no final amendment to the agreement was issued accepting such substitution. The correspondence did not establish that the employer had finally waived the demand draft requirement or accepted the second guarantee as contractual compliance in the manner claimed. On that footing, the contractual breach alleged by the employer in relation to the second guarantee was not made out for the purpose of upsetting the injunction.

Conclusion: The injunction in respect of bank guarantee No. 10 of 1989 was justified and remained in force.

Final Conclusion: The appeal succeeded only to the extent of setting aside the restraint against enforcement of bank guarantee No. 4 of 1989, while the restraint concerning bank guarantee No. 10 of 1989 was maintained.

Ratio Decidendi: An unconditional bank guarantee cannot ordinarily be restrained by injunction unless fraud or special equities causing irretrievable injustice are established; in the absence of such circumstances, the court will not interfere with its enforcement.

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