HC: The law regarding interference by Courts, with the invocation of unconditional bank guarantees, may be regarded as jurisprudentially fossilized

  

On 26^th July, a bench of Delhi High Court consisting of Justice C. Hari Shankar while hearing a writ petition regarding pre-arbitral interim reliefs since a Performance Bank Guarantee was attempted to invoked, held that in cases where the bank guarantee is unconditional, the law recognizes only three circumstances in which Courts could injunct invocation or encashment of the bank guarantee. The three circumstances, in which the Courts may interfere, and may injunct the invocation of unconditional bank guarantees, is where there is egregious fraud, special equity exists, or where irretrievable injustice or prejudice is likely to result, if the bank guarantee is invoked or encashed.

Facts of the case:

In the present case the petitioner was aggrieved from the attempted invocation, by the respondents, of a Performance Bank Guarantee furnished by the petitioner to the respondents, in terms of the of the principal agreement out of the three agreements signed between the two parties. The Principal Agreement was for providing localized separation facility at the Mangala Well Pads of the respondents (used for offshore oil drilling), on Rental and Operation and Maintenance (O&M) Basis, the Domestic Sale Agreement was for supply of two packages for the localized separation facility and the Offshore Sale Agreement was supply of a third package

Contention of the petitioner:

Mr. Sethi, learned Senior Counsel for the petitioner, submitted the following contentions:

1. It was contended that the act of the respondents in seeking to invoke the Bank Guarantee suffered from “egregious fraud”.
2. It was also submitted that the invocation of the Bank Guarantee came as a bolt from the blue, as there was no correspondence from the respondent to the petitioner, apropos the facilities provided by the petitioner under the Principal Agreement, does not appear to be correct.
3. It was also submitted that the principal contract was entirely distinct and different from the original three agreements executed between the petitioner and the respondents and the respondents are confusing matters by seeking to conflate the performance under the ad hoc contract for the month of April, 2021, with the three agreements originally executed between the petitioner and the respondents.

   Mr. Gopal Jain and Mr Akhil Sibal, learned senior advocates for the respondent contended the following:

4. It was submitted that the defaults, to which the aforesaid emails allude, are directly relatable to the equipment and facilities provided by the petitioner under the three agreements forming subject matter of these proceedings.
5. It was further submitted that the assertions of the petitioner are on their face, incorrect. He also submitted that Mr. Sethi, between the three original agreements between the petitioner and the respondents and the monthly ad hoc agreements executed between them, starting January, 2021, is misguided.

Observation and judgment of the court:

 The following observation has been made by the hon’ble bench of the high court:

 

1. In the opinion of the court, the attempt, of Mr Sethi, to extricate the facts of the present case comes from the narrow confines of the law relating to interlocutory interdictions against invocation of unconditional bank guarantees, cannot succeed.
2. The bench was in agreement with Mr. Sibal that the peripheries of the jurisdiction of the Court, seized with a prayer for interlocutory injunction against the invocation of a bank guarantee, do not extend so far as to justify a penetrative exercise aimed at ascertaining as to whether the invocation was in accordance with the agreement between the parties, or not.
3. “Egregious fraud”, as a ground to invoke and to justify the interdicting of the invocation of the Bank Guarantee, at the cost of the repetition, has to be fraud which erodes the very foundation of the bank guarantee, and cannot be related to the manner or method of its invocation, vis-à-vis the contract between the parties.

In the view of the above, the court held that no case, for grant of the reliefs sought in this petition, can be said to exist.

Thus, the petition was dismissed.;

 

 

 

SOURCE ;//www.latestlaws.com/

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