Bank guarantee autonomy yields to prima facie fraud and equitable protection, with interim security adjusted to preserve balance.

An on-demand bank guarantee is ordinarily autonomous and enforceable according to its terms, but interference is justified only in cases of established egregious fraud or irretrievable injustice. The note states that a beneficiary's demand may be treated as prima facie fraudulent where it asserts total default despite cancelling or suspending part of the underlying contract, supporting interim protection against invocation. It also explains that earlier protective arrangements concerning security may be varied on equitable grounds, and that courts may preserve substitute security to balance restitution, contractual autonomy, and the parties' interim positions pending arbitral directions.

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Issues: (i) Whether injunction against invocation of the bank guarantee was justified on the ground of fraud and exceptional circumstances under the law governing bank guarantees; (ii) whether the earlier protective order concerning the bank guarantee could be varied while balancing equities between the parties.

Issue (i): Whether injunction against invocation of the bank guarantee was justified on the ground of fraud and exceptional circumstances under the law governing bank guarantees.

Analysis: An on-demand bank guarantee is ordinarily independent of the underlying contract and courts do not interfere with its invocation except in exceptional cases. The recognised exceptions are established fraud of an egregious nature and irretrievable injustice. The fraud must be relevant to the beneficiary's demand and sufficient to vitiate the transaction. On the facts, the demand made by the beneficiary treating the supplier as wholly in default, despite its own cancellation and suspension of part of the contract, was prima facie treated as fraudulent for the limited purpose of interim protection.

Conclusion: The exception of fraud was held to be attracted, and complete interference with the bank guarantee invocation was not warranted only in favour of the beneficiary.

Issue (ii): Whether the earlier protective order concerning the bank guarantee could be varied while balancing equities between the parties.

Analysis: The earlier order substituting the original guarantees with a reduced guarantee was not treated as immutable. Since a substantial amount had already been adjusted through invocation of the earlier guarantee, the court considered it inequitable to restore the entire amount to the supplier without safeguarding the respondent's position. The balance of convenience and restitutionary equities justified continuation of security for the remaining amount, subject to the arbitral tribunal's further directions.

Conclusion: The earlier arrangement was varied, and the appellant was required to furnish and keep alive the additional bank guarantee.

Final Conclusion: The appeal resulted in a modification of the impugned order by preserving security for the balance amount while recognising the fraud exception in relation to invocation, thereby partly protecting the appellant and maintaining interim balance between the parties.

Ratio Decidendi: A bank guarantee is ordinarily enforceable according to its terms, but a court may interfere where the beneficiary's demand is prima facie fraudulent or where exceptional equitable considerations justify protection from irretrievable injustice; in moulding interim relief, the court may vary security arrangements to balance restitution and contractual autonomy.

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