Territorial jurisdiction and special equities justified restraint of bank guarantee invocation in international commercial arbitration.

In a Section 9 petition arising from an international commercial arbitration, the High Court held that territorial jurisdiction existed where part of the cause of action arose within its limits, and the governing-law clause did not oust interim relief jurisdiction. It also declined to treat the bank and its overseas branch as separate entities for defeating relief over a unified guarantee arrangement. Applying the principles governing bank guarantees, the Court found special equities and that invocation was not based on any subsisting performance breach, as supplies were complete, the warranty period had expired, and the demand related to retention money and settled claims. The interim injunction restraining encashment was confirmed.

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Issues: (i) whether the High Court had territorial jurisdiction to entertain the petition under Section 9 of the Arbitration and Conciliation Act, 1996 in an international commercial arbitration; (ii) whether a bank and its overseas branch could be treated as separate entities so as to defeat the petition against the bank guarantee; (iii) whether the invocation of the performance bank guarantee was liable to be restrained on the grounds of special equities and invocation not being in terms of the guarantee.

Issue (i): whether the High Court had territorial jurisdiction to entertain the petition under Section 9 of the Arbitration and Conciliation Act, 1996 in an international commercial arbitration.

Analysis: The governing-law clause only selected the substantive law of the purchaser's country and did not exclude the jurisdiction of the forum approached for interim relief. The contract did not fix a seat outside India. The proceeding was treated as an international commercial arbitration, and the definition of "Court" under Section 2(1)(e)(ii), read with the applicability of Part I under Sections 2(2) and 2(4), supported the High Court's jurisdiction where part of the cause of action arose within its territorial limits.

Conclusion: The objection to territorial jurisdiction was rejected and the petition was maintainable before the High Court.

Issue (ii): whether a bank and its overseas branch could be treated as separate entities so as to defeat the petition against the bank guarantee.

Analysis: The transaction was structured through the Kolkata office and the Dhaka office of the same bank, with the Kolkata office issuing the stand-by letter of credit and the Dhaka office issuing the performance security. The materials showed a unified banking arrangement for the guarantee and no factual basis to treat the two offices as wholly disparate entities for the purpose of the interim relief sought.

Conclusion: The bank's plea of separate identity was not accepted against the petitioner's application.

Issue (iii): whether the invocation of the performance bank guarantee was liable to be restrained on the grounds of special equities and invocation not being in terms of the guarantee.

Analysis: A bank guarantee is ordinarily independent of the underlying contract, but restraint is justified where fraud, special equities, irretrievable injustice, or invocation contrary to the terms of the guarantee is shown. The guarantee here was a performance security. The supplies had already been completed, the warranty period had expired, 90% of the contract price had been paid, and the invocation letter did not allege any subsisting performance breach but was linked to retention money and settled claims. On these facts, the petitioner established special equities and showed that the invocation was not founded on any live performance default.

Conclusion: The invocation of the bank guarantee was rightly restrained in favour of the petitioner.

Final Conclusion: The interim injunction was confirmed and made absolute, and the proceeding stood disposed of in favour of the petitioner by restraining encashment of the bank guarantee.

Ratio Decidendi: In a Section 9 proceeding arising from an international commercial arbitration, the Court may restrain invocation of a bank guarantee where territorial jurisdiction exists, the guarantee is invoked without any subsisting performance breach, and the facts establish special equities or invocation not in terms of the guarantee.

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