Unconditional bank guarantees must be honoured on demand; restraint is allowed only for proven fraud, irretrievable injustice, or special equities.

An unconditional bank guarantee is an independent contract and must ordinarily be honoured on demand; pending disputes under the underlying contract do not by themselves justify restraint in Section 9 proceedings. Injunction is available only on strict proof of egregious fraud, irretrievable injustice, or exceptional special equities, and the materials here did not establish any of those exceptions. Full and frank disclosure is required for equitable interim relief, and suppression of material facts weighed against the applicant. The restraint on encashment was therefore refused, leaving the contractual disputes to arbitration.

---

---

Issues: (i) Whether invocation of the unconditional bank guarantees could be restrained in a petition under Section 9 of the Arbitration and Conciliation Act, 1996; (ii) Whether fraud, irretrievable injustice or special equities were made out to justify injunction; (iii) Whether the appellant's suppression of material facts disentitled it to interim relief.

Issue (i): Whether invocation of the unconditional bank guarantees could be restrained in a petition under Section 9 of the Arbitration and Conciliation Act, 1996.

Analysis: The bank guarantee was treated as an independent and distinct contract between the bank and the beneficiary. The terms of the guarantees required payment on demand without demur and without reference to disputes under the underlying contracts. In such cases, the beneficiary's right to invoke the guarantee is not controlled by unresolved disputes under the principal contract, and courts are slow to interfere.

Conclusion: Invocation of the bank guarantees could not be restrained merely because disputes under the underlying contracts were pending arbitration.

Issue (ii): Whether fraud, irretrievable injustice or special equities were made out to justify injunction.

Analysis: The exceptions to the rule against interference are confined to clear fraud of an egregious nature vitiating the very foundation of the guarantee, irretrievable injustice of the kind recognised in exceptional cases, or special equities supported by strong evidence. The allegations here were rooted in disputed questions about delay, liability and contractual performance, all of which were held to be matters for arbitration. The materials did not establish fraud in obtaining or invoking the guarantees, nor a situation showing that restitution from the beneficiary would be impossible or that any exceptional equity justified interference.

Conclusion: No case of fraud, irretrievable injustice or special equities was established.

Issue (iii): Whether the appellant's suppression of material facts disentitled it to interim relief.

Analysis: The petition asserted that provisional acceptance had already been achieved, but the contemporaneous correspondence showed that provisional acceptance had not been completed when the Section 9 proceedings were filed. A party seeking equitable relief must make full and frank disclosure of material facts, and suppression of such facts undermines entitlement to injunction.

Conclusion: The appellant's false plea and non-disclosure weighed against grant of interim relief.

Final Conclusion: The disputes regarding delay, contractual liability and alleged set-off were left to arbitration, and the interim restraint sought against encashment of the bank guarantees was refused.

Ratio Decidendi: An unconditional bank guarantee must ordinarily be honoured on demand, and injunction against its invocation can be granted only on strict proof of fraud vitiating the guarantee, irretrievable injustice, or similarly exceptional special equities; disputed questions arising from the underlying contract are ordinarily for arbitration and do not by themselves justify restraint.

---