TaxTMI 
TaxTMI 
2019 (12) TMI 843
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....es of the Division Bench has delivered their separate judgment but have expressed a concurring view on the subject. 4. The dispute primarily arose with regard to two bank guarantees amounting to Rs. 71,35,100/and Rs. 20,32,500/in terms of the letters of intent, HECCS150281 dated 19th May, 1981 and HECCS150281 dated 19th May, 1981 furnished on behalf of the 2nd defendant by the appellant Bank(1st defendant) in favour of the 1st respondent-plaintiff "as advance against supply of plant and equipment" by the 1st respondent-plaintiff to the 2nd respondent (defendant no. 2). The two bank guarantees are on identical terms and the only difference is the date and the amount which are reproduced as under: Bank Guarantee No. 1001/03/100G dated 16^th February, 1983 "We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 71,35,100/( Rupees SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on....
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....e possible to consider your proposal for relaxation of the same. However, attempts will be made to consider some softening of payment terms later depending our own cash flows on this project. Kindly let us have your detailed technical specifications etc to enable us to draw up a detailed contract for the work. Kindly communicate your acceptance of this letter of intent and furnish us a bank guarantee on approved proforma to release the initial advance of Rs. 15.64 lakhs to you. In pursuance of the letter of intent two bank guarantees have been furnished by the defendant no. 1 on behalf of the defendant no. 2 "as advance against the supply of plant and equipment." (emphasis supplied) 7. Pursuant to the letter of intent, a formal Memorandum of Agreement dated 8th August, 1985 was executed by and between SCIL. Thereafter, the 1st respondent (plaintiff) from time to time advanced for the said work against several bank guarantees furnished by SCIL. It may be noticed that the instant dispute pertains to two bank guarantees dated 16th February, 1983 and 29th August, 1984, which were advanced to SCIL, the details of which have been indicated above. Th....
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....he aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. (RUPEES without making any prior reference to the said SUPPLIER with an exclusion of any action in court by SUPPLIER. The failure of M/s. SCIL in fulfilling the contractual obligation which includes performance Guarantees of Plant & Equipment are very well documented by HEC & CIL. In fact, the unadjusted advance of SCIL on account of Plant & Equipment is far in excess of the loss suffered by HEC. The same has been brought down to Rs. 139.90 lakhs after allowing credit for contractual settlement. Although as per terms of BG we are not bound to explain you all these things but the above details are furnished so that good sense will prevail and we expect you to live up to your reputation and honour the beneficiaries claim for encashment. Thanking you, Yours faithfully, T.L.N. SOURI GENERAL MANAGER (PROJECTS & MNTG) (emphasis supplied)" 10. This was followed by the letter dated 28th December, 1998 which is also reproduced hereunder: " No.GGM(CM)/ /98 28th December, 1998 To The Chief Mana....
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....for the appellant Bank, Shri Amit Sibal submits that the said bank guarantees only covered losses arising out of supply of plant & equipment and according to the pleadings on record, the plant stood installed in October, 1990 and this is the case where the appellant Bank in its independent capacity, refused the claim for it being clearly false to its knowledge and also not in accordance with the terms of the guarantee, i.e. beyond the purview of the bank guarantees and failing to apportion those losses suffered on account of claims which would be within the terms of the bank guarantees. 15. Learned counsel further submits that the bank guarantees are in reference to two category of losses (i) non-supply/ defective supply of plant & equipment (ii) "other contractual deficiencies" and by the invocation vide letter dated 19th December, 1998 claims caused by "non-supply/ defective supply of plant & equipment and other contractual deficiencies" is outside the purview of the bank guarantee. Further, assuming the correctness of the claim, the 1st respondent if suffered loss for both (i) nonsupply/ defective supply of plant and equipment (ii) "other contractual deficiencies", it is diff....
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....ty exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions un-hedged by pending disputes between the beneficiary and the contractor. 5. .....The court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties." (emphasis supplied) 20. A bank guarantee constitutes an independent contract. In Hindustan Construction Co. Ltd. Vs. State of Bi....
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....en an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. (ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The courts should be slow in granting an order of injunction to restrain the realisation 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 conce....