Validity of Invocation of Bank Guarantee to be Judged on Facts Of Each Case: Supreme Court

Validity of Invocation of Bank Guarantee to be Judged on Facts Of Each Case: Supreme Court

Legitimacy of invocation of bank guarantees has always been a bone of contention between the parties who have entered into commercial arrangements. While the general view of the courts in India has been that invocation of bank guarantee should generally be not interfered by the courts when challenged, as it will defeat the purpose of such guarantees in commercial contracts. However, there is no dearth of judicial pronouncements against invocation of bank guarantees albeit in exceptional circumstances.

A bank guarantee is a written contract given by a bank on behalf of its customer. By issuing this guarantee, a bank takes responsibility for payment of a sum of money in case, if it is not paid by the customer in performance of its contractual obligations.

There are two types of bank guarantees:

  • Unconditional bank guarantee- In anunconditional bank guarantee, the bank/guarantor has to pay the guarantee amount to the beneficiary in whose favour the bank guarantee has been issued on demand, irrespective of any pending disputes;
  • Conditional bank guarantee- In a conditional bank guarantee, the bank/guarantor has to pay the guarantee amount to the beneficiary in whose favour bank guarantee has been issued on demand, only after the specific conditions for invocation in the contract are fulfilled.

The law with respect to the grant of injunction against invocation of bank guarantee has been settled by catena of judicial pronouncements. Courts have consistently held that an unconditional bank guarantee, which is an independent agreement between beneficiary and the Bank, can be invoked by the beneficiary, regardless of the disputes between the beneficiary and principal obligation (i.e. the party on whose behalf the bank guarantee has been given).

It is a settled position that invocation of unconditional bank guarantee cannot be stayed by the courts except

  • In case of fraud which would destroy the very purpose for which such bank guarantee was issued
  • In a case where encashment of the bank guarantee would result in irreparable harm or injustice to one of the parties concerned. In view of the aforesaid settled position, a party seeking stay against invocation of the bank guarantee used to find it very difficult, nay impossible, to obtain favourable order.

However, in its recent pronouncement, the Hon’ble Supreme Court of India seems to have made a paradigm shift by holding that each case of injunction against invocation of the bank guarantee has to be decided with reference to the facts involved therein. The Apex Court in Gangotri Enterprises v. Union of India held that while there can be no quarrel to the proposition laid down in the cases pertaining to encashment of bank guarantees, the same would not be applied in every case. Holding that the in the case in hand, law laid down in the case of Union of India Vs. Raman Iron Foundry was applicable, the apex court reversed the judgment of Allahabad High Court which declined to grant injunction against invocation of bank guarantee by beneficiary party.

The present ruling of the Supreme Court has widened the so far restrictive parameters with which a case of grant of injunction against bank guarantees were being consider by the courts. The Apex Court has held that facts and circumstances of the case have to be considered and the court has not to apply or follow the general propositions relating to bank guarantee cases, regardless of the facts peculiar to each case. The judgement suggests that invocation of bank guarantee is not justified merely because the party invoking the bank guarantee has some claim of damages against the party who furnished the bank guarantee. It has been held that a claim for damages is not a crystallised or ascertained amount or a sum due and payable in praesenti( meaning ‘at present’), therefore invocation of bank guarantee would not be justified on the basis of such claim which are yet to the decided by the competent forum. The court further held that bank guarantee given for searching the performance of one contract cannot be invoked for claims or disputes in another contract between the same parties. This judgment has to some extent diluted the position that an unconditional bank guarantee can be invoked regardless of the dispute between the beneficiary and the principal obligation. The Supreme Court in some ways has supplemented to the line of authority of judgments against invocation of bank guarantee by beneficiary like the Hindustan Construction Co. Ltd. v. State of Bihar, which held that the invocation of bank guarantee will have to be strictly in accordance with the terms of the contract/Bank guarantee deed.

This judgement of Gangotri Enterprises will certainly come to the rescue of litigants, primarily contractors executing work under contracts awarded by government agencies and the said agencies were exercising unbridled discretion in the matter of encashment of bank guarantees furnished by the contractor. A general belief that bank guarantees can beencashed irrespective of the main dispute between the contractor and the department, or for covering the claims for damage, which are yet to be crystallized, has been set right but this judgement. Therefore, whenever any party would seek to encash the bank guarantees provided by other party to the contract on the basis of their claims of damages, such an attempt would not be successful as a claim of damages is not a sum due and payable in present. Similarly, bank guarantee given for one contract cannot be encashed for breaches/disputes concerning to another contract.

Comments (120)

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  33. Josef Kupka says on 16 Jul 2022

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  34. Josef Kupka says on 17 Jul 2022

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  36. Josef Kupka says on 17 Jul 2022

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  38. Chris Gardner says on 23 Jul 2022

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  39. Chris Gardner says on 23 Jul 2022

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  40. Chris Gardner says on 23 Jul 2022

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  41. Anneke van der Meij says on 23 Jul 2022

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  42. asialoancompany says on 24 Jul 2022

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  57. Richard Chadwick says on 11 Aug 2022

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  58. Ian Barridge says on 11 Aug 2022

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  59. Ian Barridge says on 14 Aug 2022

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  60. Ian Barridge says on 14 Aug 2022

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  61. Ian Barridge says on 05 Sep 2022

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  62. Ian Barridge says on 05 Sep 2022

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  63. Micheal says on 08 Sep 2022

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  64. dr james eric says on 09 Sep 2022

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  65. Ian Berridge says on 14 Sep 2022

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  66. Ian Berridge says on 14 Sep 2022

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  67. Ian Berridge says on 14 Sep 2022

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  68. Finance says on 16 Sep 2022

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  69. horky says on 29 Sep 2022

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  70. martins jefferson says on 08 Oct 2022

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  71. martins jefferson says on 14 Oct 2022

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  72. Jason Edward says on 18 Oct 2022

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  73. Jason Edward says on 18 Oct 2022

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  74. Jason Edward says on 18 Oct 2022

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  76. Jason Edward says on 18 Oct 2022

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  77. Jennifer Aniston says on 07 Nov 2022

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  78. Ian Berridge says on 11 Nov 2022

    We are genuine certified Financial Instrument providers. Presently, we only focus on BG/SBLC for Lease and purchase purposes. Our Lease BG/SBLC is 4 2% and purchase at 32 2%. Kindly contact us for our procedures and be sure that we would respond within 48hrs maximum. For further inquiry contact: BERRIDGE, IanEmail: bizfinleasingltd@gmail.com

  79. BOUZEK MILAN says on 14 Nov 2022

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  80. Sarah says on 16 Nov 2022

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  82. Linda Lee says on 17 Dec 2022

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  83. Mme Wiegand Susanne says on 26 Jan 2023

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  84. Kathy Szeliga says on 26 Jan 2023

    TAPK INVESTUOTOJU Sveiki ponai ir ponia Kristuje!!! Telaimina tave DievasEsame krikščioniška organizacija, bendradarbiaujanti su kitomis Europos šalimis, siekiant gerinti ir stiprinti paslaugas bendruomenėms; skirti finansavimą naudingiems solidarumo tikslams 112 šalių, įskaitant jūsų šalį, kuri yra šio projekto dalis. Programa skirta visų kategorijų pažeidžiamiems žmonėms, projektų vadovams: maisto inžinieriams, prekybininkams amatininkams, mokymo vadovams, grožio ir gatavų drabužių - restoranams - sodo centrams - naminių gyvūnėlių parduotuvėms - sveikatos specialistams, verslininkams, parlamentarams, veisėjams, ministrams , vaikų priežiūra, savivaldybių tarybos nariai ir tt... Šiais metais bus apdovanota ribotam skaičiui. Pagal šios organizacijos, bendradarbiaujant su Société Nord-Française, nurodymus.Prašome užpildyti projekto informaciją: Daiktavardžiai: ………………… Pirmi vardai: …………… Asmeninės gyvenamosios vietos adresas:……… Gimimo data ir vieta:…………… Miestas: …………… Šalis : …………… Pašto kodas :………… Fiksuotas / mobilusis telefonas: ………… /……… Profesija: ………… Solidarumo fondo suma:…………… € Investicinis projektas…………Norėdami sudaryti jūsų failą, mums reikės:- Jūsų asmens tapatybės kortelę arba pasą arba galiojantį gimimo liudijimą- Nedidelė asmens tapatybės nuotrauka.Ponia Kathy Szeligapaštas:comiteaidesociale@gmail.com Nuoširdžiai

  85. Kathy Szeliga says on 26 Jan 2023

    TAPK INVESTUOTOJU Sveiki ponai ir ponia Kristuje!!! Telaimina tave DievasEsame krikščioniška organizacija, bendradarbiaujanti su kitomis Europos šalimis, siekiant gerinti ir stiprinti paslaugas bendruomenėms; skirti finansavimą naudingiems solidarumo tikslams 112 šalių, įskaitant jūsų šalį, kuri yra šio projekto dalis. Programa skirta visų kategorijų pažeidžiamiems žmonėms, projektų vadovams: maisto inžinieriams, prekybininkams amatininkams, mokymo vadovams, grožio ir gatavų drabužių - restoranams - sodo centrams - naminių gyvūnėlių parduotuvėms - sveikatos specialistams, verslininkams, parlamentarams, veisėjams, ministrams , vaikų priežiūra, savivaldybių tarybos nariai ir tt... Šiais metais bus apdovanota ribotam skaičiui. Pagal šios organizacijos, bendradarbiaujant su Société Nord-Française, nurodymus.Prašome užpildyti projekto informaciją: Daiktavardžiai: ………………… Pirmi vardai: …………… Asmeninės gyvenamosios vietos adresas:……… Gimimo data ir vieta:…………… Miestas: …………… Šalis : …………… Pašto kodas :………… Fiksuotas / mobilusis telefonas: ………… /……… Profesija: ………… Solidarumo fondo suma:…………… € Investicinis projektas…………Norėdami sudaryti jūsų failą, mums reikės:- Jūsų asmens tapatybės kortelę arba pasą arba galiojantį gimimo liudijimą- Nedidelė asmens tapatybės nuotrauka.Ponia Kathy Szeligapaštas:comiteaidesociale@gmail.com Nuoširdžiai

  86. CAROLINE says on 26 Jan 2023

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  87. CAROLINE says on 26 Jan 2023

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  88. IVA says on 26 Jan 2023

    Teisinis administratoriusSveiki pone/ponia,Aš esu Iva Birgitte, gyvenanti Europoje, jau seniai gyvenu audringoje situacijoje, noriu, kad mano turtas elgtųsi. Prancūzijos Respublikoje turiu daug turtų, kuriuos noriu atiduoti jūsų žinioms, kad galėtumėte atlikti geros valios darbus. Jei pasirinkau save įtraukti į šį skelbimų puslapį, tai todėl, kad noriu, kad tai būtų daroma be baimės dėl mano ankstesnės veiklos. Kreipiuosi į jus šiandien, kad sutiktumėte dirbti teisiniu administratoriumi (naudos gavėju) ir vykdyti fondo arba NVO veiksmų programą, skirtą padėti pagyvenusiems žmonėms ir vaikams, patekusiems į sunkias situacijas.Turiu oficialius ir teisinius dokumentus. Jei atvirai, tai per trumpą pasivaikščiojimą internete, kai aš aptikau jūsų adresą. Čia nusprendžiau su jumis susisiekti ir papasakoti apie savo projektą. Atsiprašau, kad per mažai tavęs pažinau prieš kalbėdamas su tavimi; svarbu, kad tarp jūsų ir manęs sukurtume pasitikėjimo pagrindą, kad galėtume įgyvendinti šį pasiūlymą. Jei norite man padėti šiuo klausimu, atsakykite man el. paštu: birgitteiva@gmail.comPriimk mano nuoširdžius linkėjimus.

  89. richardhugo1973@gmail.com says on 03 Feb 2023

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  90. richardhugo1973@gmail.com says on 03 Feb 2023

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  91. BOUZEK MILAN says on 01 Mar 2023

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  92. BOUZEK MILAN says on 01 Mar 2023

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  93. BOUZEK MILAN says on 01 Mar 2023

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  94. BOUZEK MILAN says on 01 Mar 2023

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  95. strnadova hana says on 07 Mar 2023

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  96. strnadova hana says on 07 Mar 2023

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  97. strnadova hana says on 07 Mar 2023

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  98. strnadova hana says on 07 Mar 2023

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  99. strnadova hana says on 07 Mar 2023

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  100. strnadova hana says on 07 Mar 2023

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  101. Richard Hugo says on 09 Mar 2023

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  105. mathew says on 13 Mar 2023

    I want to share my testimony on how i got the blank ATM card. I was so wrecked that my company fired me simply because i did not obliged to their terms, so they hacked into my system and phone and makes it so difficult to get any other job, i did all i could but things kept getting worse by the day that i couldn’t afford my 3 kids fees and pay my bills. I owe so many people trying to borrow money to survive because my old company couldn’t allow me get another job and they did all they could to destroy my life just for declining to be among their evil deeds. haven’t given up i kept searching for job online when i came across the testimony of a lady called Judith regarding how she got the blank ATM card. Due to my present state, i had to get in touch with Hacker called OSCAR WHITE of oscarwhitehackersworld@gmail.com and he told me the procedures and along with the terms which i agreed to abide and i was told that the Blank card will be deliver to me without any further delay and i hold on to his words and to my greatest surprise, i received an ATM card worth $4.5 million USD , All Thanks to OSCAR WHITE , if you are facing any financial problem contact him asap email address is oscarwhitehackersworld@gmail.comYou can also contact them for the service below* Western Union/MoneyGram Transfer* Bank Transfer* PayPal / Skrill Transfer* Crypto Mining* CashApp Transfer* Bitcoin Loans* Recover Stolen/Missing Crypto/Funds/AssetsEmail:oscarwhitehackersworld@gmail.com

  106. Rachael Mildred says on 14 Mar 2023

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  107. GRICELDA FLORENTINO says on 15 Mar 2023

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  108. IRANNA says on 30 Mar 2023

    Mes remerciements à Mme IRANNA BRUN qui a bien accepté finaliser ma demande de prêt d’un montant de 2.000euros j’apprécie surtout les détails du début jusqu’à réception du crédit. Je publie ce témoignage, car il existe bel et bien des prêteurs particulier, alors je le recommande aussi voici son mail: irannabrun@gmail.com

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