AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2007 (11) TMI 588
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent by 2nd August, 2000 but the respondent committed default in making the stipulated payment amounting to Rs. 49,99,338/-. The said sum according to the appellant remained unpaid. The respondent agreed to pay the sum provided the performance bank guarantee of 10% value was furnished. That is how bank guarantee as required by the respondent was furnished which was amended on 20th August, 2001. The case of the appellant was that even after furnishing the bank guarantee the respondent made a payment of only Rs. 30 lakhs on 22nd August, 2001 and false assertion of payment of Rs. 11,99,335/- was made. It was also alleged that a sum of Rs. 8 lakhs still remained unpaid. 5. The appellant\022s case before the trial court was that the respondent under no circumstances is entitled to invoke the bank guarantee without paying the balance amount of Rs. 11,99,335/- or at least 8 lakhs which is admittedly liable to be paid. The bank guarantee had become inoperative as the condition precedent for its invocation was not complied with. 6. The case of the respondent was that the original contract value was Rs. 1,68,12,400/- out of which Rs. 1,60,12,400/- , i.e., 95% of the contract value stood ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is give....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of a bank guarantee or a Letter of Credit. (iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned. 14. In Mahatama Gandhi Sahakra Sakkare Karkhane vs. National Heavy Engg. Coop. Ltd and anr. , this court observed : Para 22. If the bank guarantee furnished is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under the guarantee. The person in whose favour the guarantee is furnished by the bank cannot be prevented by way of an injunction from enforcing the guarantee on the pretext that the condition for enforcing the bank guarantee in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng which times the Supplier is required to perform their warranty obligations to the Purchaser; and Whereas pursuant to the application made by the supplier, we Oriental Bank of Commerce, Kirti Nagar, New Delhi (hereinafter called the Bank have accordingly agreed to give the supplier a bank guarantee for the aforesaid purpose. Therefore, we, the bank, hereby affirm that we are guarantors and responsible on behalf of the supplier upto a total of Rs. 16,81,238.50(Rupees sixteen lacs eighty one thousand two hundred thirty eight and paise fifty only) and we undertake to pay any sum or sums within the limit of Rs. 16,81,238.50(Rupees sixteen lacs eighty one thousand two hundred thirty eight and paise fifty only) as aforesaid upon receipt of written demand from the purchaser and Company within the validity of this Bank Guarantee establishing the supplier to be in default for the performance of their warranty obligations under the contract. We, the bank, affirm that our liability under this guarantee is limited to the total amount of Rs. 16,81,238.50(Rupees sixteen lacs eighty one thousand two hundred thirty eight and paise fifty only) and it shall remain in full force upto and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der the contract has been specifically deleted. In our considered opinion, the bank guarantee as amended replacing Paragrah 4 of the original bank guarantee makes the bank guarantee furnished as unconditional one. The bankers are bound to honour and pay the amounts at once upon receipt of written demand from the respondent. 20. The learned senior counsel however relying upon the decision of this court in Hindustan Construction Co. Ltd.and ors. vs. State of Bihar and ors contended that the bank guarantee could not said to be unconditional or unequivocal in terms so that the respondent could claim any unfettered right to invoke the bank guarantee and demand immediate payment thereof from the bank. We find no substance in the submission so made by the learned senior counsel on behalf of the appellant. In Hindustan Construction (supra), the appellant Company was awarded a contract by the State of Bihar for construction of a dam. Clause 9 of the contract between the parties provided that the State would make an advance loan to the Company for the costs of mobilisation in respect of the works on furnishing of a bank guarantee by the appellant for an amount equal to the advan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the present case falls under any of or both the exceptions namely whether there is a clear fraud of which the bank has notice and a fraud of the beneficiary from which it seeks to benefit and another exception whether there are any special equities in favour of granting injunction. 24. This Court in more than one decisions took the view that fraud, if any, must be of an egregious nature as to vitiate the underlying transaction. We have meticulously examined the pleadings in the present case in which no factual foundation is laid in support of the allegation of fraud. There is not even a proper allegation of any fraud as such and in fact the whole case of the appellant centers around the allegation with regard to the alleged breach of contract by the respondent. The plea of fraud in appellant s own words is to the following effect: That despite the respondent, HCL being in default of not making payment as stipulated in the Bank Guarantee, in perpetration of abject dishonesty and fraud, the respondent, HCL fraudulently invoked the Bank Guarantee furnished by the applicant and sought remittance of the sums under the conditional Bank Guarantee from the Oriental Bank of Commerce vid....