Bank guarantees must be invoked strictly by their terms; unconditional guarantees stood, but conditional advance guarantees were protected.

Bank guarantees must be enforced strictly according to their own terms. The court treated the six guarantees as unconditional, holding that invocation was valid because the beneficiary's demand matched the contractual wording and the bank could not enter the underlying dispute; allegations of fraud, special equities and irretrievable injustice were insufficient to restrain encashment. By contrast, the two advance payment guarantees were conditional, and their invocation failed because the required preconditions, including a proper demand for repayment and refusal by the contractor, were not shown. Relief was therefore confined to protecting the conditional guarantees, while restraint was declined for the remaining guarantees.

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Issues: (i) Whether the six bank guarantees were unconditional and validly invoked; (ii) Whether the two advance payment bank guarantees were conditional and their invocation was contrary to the guarantee terms; (iii) Whether fraud, special equities or irretrievable injustice justified restraint against encashment.

Issue (i): Whether the six bank guarantees were unconditional and validly invoked;

Analysis: The terms of the six guarantees showed that the beneficiary was entitled to demand payment on the contractor being declared in default or on breach of contractual obligations, without any obligation on the bank to enter into the underlying dispute. The invocation letters stated the relevant breach and loss in the manner required by the guarantees. The Court held that the guarantees were independent contracts and that the invocation was in consonance with their terms.

Conclusion: The six bank guarantees were unconditional and validly invoked, and the petitioner was not entitled to restraint against their encashment.

Issue (ii): Whether the two advance payment bank guarantees were conditional and their invocation was contrary to the guarantee terms;

Analysis: The wording of the two advance payment guarantees made payment contingent upon the contractor's failure to commence or fulfil its obligations and refusal to repay the advance. The invocation letters did not contain the necessary ingredients showing prior demand for repayment and refusal by the contractor. The Court found that the contractual mechanism embedded in those guarantees had not been followed.

Conclusion: The two advance payment bank guarantees were conditional, and their invocation was contrary to the guarantee terms.

Issue (iii): Whether fraud, special equities or irretrievable injustice justified restraint against encashment;

Analysis: The Court held that the allegations of fraud were not established as egregious fraud directed to the guarantee transaction. The disputes regarding delay, right of way, forest clearances, liquidated damages, and notice requirements were treated as disputed matters suitable for arbitral adjudication and did not, by themselves, constitute special equities or irretrievable injustice warranting interference. However, this did not alter the conclusion on the conditional advance payment guarantees.

Conclusion: Fraud, special equities and irretrievable injustice were not made out to restrain the unconditional guarantees, but the conditional advance payment guarantees still required protection because their invocation was not in accordance with their terms.

Final Conclusion: Relief was granted only in respect of the two conditional advance payment guarantees, while the restraint was declined for the remaining six guarantees. The petition was disposed of with a partial modification of the interim order and consequential directions regarding release and restoration of amounts.

Ratio Decidendi: A bank guarantee must be enforced strictly according to its own terms; where the guarantee is conditional, the stipulated preconditions to invocation must be fulfilled, but disputes concerning the underlying contract, without established egregious fraud or exceptional special equities, do not justify restraint of an unconditional guarantee.

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