Ansal Engg. Proj. Ltd. v. Tehri Hydro Development Corp. Ltd. and Anr.

Ansal Engg. Proj. Ltd. v. Tehri Hydro Development Corp. Ltd. & Anr.

1997 88 CompCas 149 SC

(if no fraud involved, court has no role)

FACTS:

The petitioner/appellant (A) had undertaken to do some construction for the defendant/respondent(R) and as per the terms of the contract had furnished a bank guarantee (BG) for faithful performance and for getting mobilisation advance against the construction contract. The constructions were to be done within a given time but A failed to do so. R sought to encash the Bank Guarantee. A resorted to arbitration[1] and while it was pending prayed in High Court that BG should not be invoked.

CONTENTIONS (Appellant):

1. Since the amount due and payable by A was not determined in the suit, BG could not be invoked.
2. R had played fraud on A in entering into the contract and seeking extension of the time. After the promise, to extend time for construction and extension of BG, the contract was terminated.

ISSUE:

Whether A had made out any case of irreparable injury by proof of special equity or fraud so as to invoke the jurisdiction of the Court by way of injunction to restrain  R from encashing the bank guarantee?

HELD:

High Court (rejected the contentions, dismissed the petition, answered the issue in negative)

SUPREME COURT:

K. RAMASWAMY, S.SAGHIR & G.B.PATTANAIK, JJ.)

1. (w.r.t 2^nd contention of A) It is not a case of fraud but one of acting in terms of contract.
2. (w.r.t 1^st contention of A) All the clauses of, the contract of the bank guarantee are to be read together. 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. Final adjudication is not a pre-condition to invoke the bank guarantee and that is not a ground to issue injunction restraining the beneficiary to enforce the bank guarantee. The liability of, the bank is absolute and unequivocal and bank should not be concerned with the ultimate decision of a court in such cases.

 

LAW POINT

Bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity present, the beneficiary cannot be restrained from encasing the bank guarantee even if dispute arises in performance of the contract.