Hindustan Steel Workers Construction (HS) Ltd. v. G.S. Atwal & Co. (Engineers) Pvt. Ltd. (GS)
1995 SCC (6) 76
(Unconditional Bank Guarantee, Performance Guarantee)
HS and GS entered into contracts whereby GS was to construct 11 schools. The United Commercial Bank, Calcutta (Bank) gave two Bank Guarantees (BG1 &2) to HS on behalf of GS. Disputes arose between them regarding the performance, resulting in arbitration. While the dispute was pending for arbitration, GS claimed injunction to restrain HS from encashing the Bank Guarantees before the High Court of Calcutta.
ISSUE: Whether HS can invoke the Bank guarantee in the present situation?
High Court (Calcutta, single Judge)
1. The amounts claimed were not or cannot be said to be due and the Bank has violated the understanding between the respondent (GS) and the Bank in giving unconditional guarantees to the appellant which is unjustified. This way Bank had issued a Guarantee in a standard form, covering a wider spectrum than agreed.
2. Before invoking the Performance Guarantee HS should have assessed the quantum of loss and damages and mentioned the ascertained figure, which he did not. Restrained HS from invoking the guarantee
SUPREME COURT (Appeal Allowed)
- Guarantees furnished by the Bank to HS were unconditional and as per the terms of the agreement, HS was the sole judge regarding the question as to whether any breach of contract has occurred.
- (w.r.t 1st observation of HC) It cannot be a reason to hold that HS is in any way fettered in invoking the unconditional Bank guarantee.
- (w.r.t 2nd observation of HC) It cannot restrain HS from invoking the unconditional Guarantee.
- The principle, in the matter of grant of injunction against enforcement of a Bank Guarantee/Irrevocable Letter of Credit, is that the Court cannot interfere unless there is fraud and irretrievable damages are involved.