G H STANDARD CHARTERED BANK versus HEAVY ENGINEERING CORPORATION LTD. & ANR. on 18 December 2019

SUPREME COURT REPORTS

[2019] 15 S.C.R.

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STANDARD CHARTERED BANK

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HEAVY ENGINEERING CORPORATION LTD. & ANR.

(Civil Appeal No. 9288 of 2019)

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DECEMBER 18, 2019

[L. NAGESWARA RAO AND AJAY RASTOGI, JJ.]

Banks/Banking – Bank guarantees – Law relating toinvocation of – By letter of intent dtd. 19.05.81, 1[st] respondentplaced order on the 2[nd ]respondent for the complete design, supplyCof both indigenous and imported equipments, erection andcommissioning of requisite civil and construction works of theDankuni Coal Complex at Rs.21.10 crores – Two bank guarantees,dtd.16.02.83 and 29.08.84 amounting to Rs.71,35,100/- and Rs.20,32,500/- furnished on behalf of the 2[nd] respondent by theDappellant-Bank in favour of the 1[st] respondent – Memorandum ofAgreement executed – In due course of time, the 2[nd ]respondentfailed to complete the supply of equipment and the other conditionsof the letter of intent – 1[st] respondent demanded encashment ofboth the bank guarantees – Refused by the bank – Eventually, the1[st] respondent filed suit before the High Court of Calcutta forERs.1,10,33,207.07/- with interest being the aggregate sum of boththe bank guarantees – Dismissed – Division Bench passed decreefor Rs.1,10,33,207.00/- with interest @ 8% p.a. – Held: Bankguarantee is an independent contract between bank and thebeneficiary – Bank is always obliged to honour its guarantee asFlong as it is an unconditional and irrevocable one – Disputebetween the beneficiary and the party at whose instance the bankhas given the guarantee is immaterial and is of no consequence –However, exceptions to this Rule are when there is clear case offraud, irretrievable injustice or special equities – Court ordinarilyshould not interfere with the invocation or encashment of the bankGguarantee so long as the invocation is in terms of the bankguarantee – In the instant case, guarantees were unconditional,specific in nature and limited in amount – Guarantee documents,as a whole and clause 2 in particular cover the advance paid bythe 1[st] respondent by reason of any breach or failure by 2[nd]Hrespondent in due performance of the contracts i.e. against the contract for supply of plant and equipment – On reading of lettersexchanged by and between the 1[st ]respondent and the appellantpertaining to invocation of the guarantees, the condition of theguarantees had been duly complied with – Once the demand wasmade in due compliance of bank guarantees, it was not open forthe appellant to determine as to whether the invocation of the bankguarantee was justified – Standard Chartered Bank’s predecessorin interest, ANZ Grindlay’s Bank had opened fixed deposit ofRs.91,67,600/- on 18.05.01, which was lien marked to HeavyEngineering Corporation Ltd. (HEC) and is being held under thecontrol of the Registry of the High Court of Calcutta – Currentfixed deposit is valued at Rs. 2,32,69,129.71/- and the total liabilityunder the impugned order as on date will be Rs.2,78,03,681.64/-– Registry of the High Court of Calcutta may release the moneylying in the account in favour of the 1[st] respondent – It is for theappellant (judgment debtor) to settle and satisfy the decreeimpugned in the instant proceedings – Contract.

Dismissing the appeal, the Court

Conclusion

Dismissing the appeal, the Court

HELD: 1.1 A bank guarantee constitutes an independentcontract. The bank guarantee is an independent contract betweenbank and the beneficiary and the bank is always obliged tohonour its guarantee as long as it is an unconditional andirrevocable one. The dispute between the beneficiary and theparty at whose instance the bank has given the guarantee isimmaterial and is of no consequence. There are, however,exceptions to this Rule when there is a clear case of fraud,irretrievable injustice or special equities. The Court ordinarilyshould not interfere with the invocation or encashment of thebank guarantee so long as the invocation is in terms of the bankguarantee. The guarantees in the instant case wereunconditional, specific in nature and limited in amount. The termsof the guarantee categorically covered money which the 1[st]respondent had advanced against supply of the plant andequipment by SCIL. The said guarantees covered any loss anddamage caused to or suffered by the 1[st] respondent-plaintiff indue performance of the contract for supply of plant andequipment. The guarantee documents dated 16[th] February, 1983and 29[th] August, 1984, as a whole and clause 2 of the guarantee AB

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Adocument in particular cover the advance which had been paidby the 1[st] respondent-plaintiff by reason of any breach or failureby SCIL in due performance of the aforesaid contracts i.e. againstthe contract for supply of plant and equipment. On reading ofletters exchanged by and between 1[st] respondent and theappellant Bank pertaining to invocation of the guarantees, theBcondition of the guarantees had been duly complied with. [Paras20, 23-25] [379-G; 381-G-H; 382-A-C-G]

Ansal Engineering Projects Ltd. v. Tehri HydroDevelopment Corporation Ltd. and Another (1996) 5SCC 450 : [1996] 4 Suppl. SCR 226 ; HindustanCConstruction Co. Ltd. v. State of Bihar & Others(1999) 8 SCC 436 : [1999] 3 Suppl. SCR 554 ; StateBank of India and Another v. Mula Sahakari SakharKarkhana Ltd. (2006) 6 SCC 293 : [2006] 3 Suppl.SCR 320 ; Himadri Chemicals Industries Limited v.DCoal Tar Refining Co. (2007) 8 SCC 110 : [2007] 8SCR 869 ; Gujarat Maritime Board v. Larsen &Toubro Infrastructure Development Projects Limitedand Another (2016) 10 SCC 46 : [2016] 8 SCR 692– relied on.

EGangotri Enterprises Ltd. Vs. Union of India andOthers (2016) 11 SCC 720 : [2016] 2 SCR 1074 –referred to.

1.2 Once the demand was made in due compliance of bankguarantees, it was not open for the appellant Bank to determineFas to whether the invocation of the bank guarantee was justifiedso long as the invocation was in terms of the bank guarantee.The demand once made would oblige the bank to pay under theterms of the bank guarantee and it is not the case of theappellant Bank that its defence falls in any of the exception tothe rule of case of fraud, irretrievable injustice and specialGequities. In absence thereof, it is not even open for the Courtto interfere with the invocation and encashment of the bankguarantee so long as the invocation was in terms of the bankguarantee and this what has been observed by the DivisionBench of the High Court in the impugned judgment and thatHreflected the correct legal position. It is informed that the A

Standard Chartered Bank’s predecessor in interest, ANZGrindlay’s Bank had opened a fixed deposit of Rs. 91,67,600/-on 18[th] May, 2001, which was lien marked to HEC (HeavyEngineering Corporation Ltd.) and is being held under thecontrol of the Registry of the High Court of Calcutta and thecurrent fixed deposit is valued at Rs. 2,32,69,129.71/- and thetotal liability under the impugned order as on date will be Rs.2,78,03,681.64/-. The Registry of the High Court of Calcutta mayrelease the money lying in the account in favour of the 1[st]respondent and it is for the appellant Bank(judgment debtor) tosettle and satisfy the decree which is impugned in the instantproceedings. [Paras 26, 27] [382-G-H; 383-A-D]

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Case Law Reference

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Case Law Reference

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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9288of 2019.

From the Judgment and Order dated 08.05.2019 of the HighCourt of Calcutta in A.P.D. No. 198 of 2016.

Amit Sibal, Sr. Adv., Ajay Monga, Ms. Devmani Bansal,Vikas Kumar, Advs. for the Appellant.

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Ms. Madhavi Diwan, ASG, Amit Meharia, Abinash Agarwal,Ms. Rupali Bansal, M/S. Meharia & Company, Ayush Puri, Sougat Sinha,Dhananjay Garg, Advs. the Respondents.

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The Judgment of the Court was delivered by RASTOGI, J.

1. Leave granted.

2. The instant appeal is being preferred against the judgment andorder dated 8[th] May, 2019 passed by the Division Bench of the High H

ACourt of Calcutta setting aside the judgment dated 16[th] October, 2015of the Single Bench and accepting claim of the 1[st] respondent-plaintiffholding that the bank guarantees were properly invoked in law andaccordingly the decree came to be passed for Rs. 1,10,33,207.00/- asclaimed in paragraph 18 of the plaint with interest at the rate of 8 percent per annum from the date of institution of the suit until payment.

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3. Although both the Judges of the Division Bench has deliveredtheir separate judgment but have expressed a concurring view on thesubject.

4. The dispute primarily arose with regard to two bankCguarantees amounting to Rs. 71,35,100/- and Rs. 20,32,500/- in termsof the letters of intent, HEC-CS-1502-81 dated 19[th] May, 1981 andHEC-CS-1502-81 dated 19[th] May, 1981 furnished on behalf of the 2[nd]defendant by the appellant Bank(1[st] defendant) in favour of the 1[st]respondent-plaintiff “as advance against supply of plant and equipment”Dby the 1[st] respondent-plaintiff to the 2[nd] respondent (defendant no. 2).The two bank guarantees are on identical terms and the only differenceis the date and the amount which are reproduced as under:- Bank Guarantee No. 1001/03/100G dated 16thFebruary, 1983

“We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road,ECalcutta 700001 undertake the Indemnity and keep theCORPORATION indemnified to the extent of Rs. 71,35,100/-(Rupees SEVENTY ONE LAKHS THIRTY FIVETHOUSAND AND ONE HUNDRED ONLY) against any lossor damage caused to or suffered by the CORPORATION byFreason or any breach or failure by the said SUPPLIER, in dueperformance of the aforesaid contract,we shall forthwith ondemand pay to the CORPORATION any sum or sums notexceeding Rs. 71,35,100/-(RUPEES SEVENTY ONE LAKHSTHIRTY FIVE THOUSAND AND ONE HUNDRED ONLY)without making any prior reference to the said SUPPLIER withGand exclusion of any action in Court by SUPPLIER.”

Bank Guarantee No. G/1001/84/608 dated 29thAugust, 1984

“We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road,Calcutta 700001 do hereby undertake the Indemnity and keepHthe CORPORATION indemnified to the extent of Rs.

20,32,500(Rupees TWENTY LAKHS THIRTY TWOTHOUSAND FIVE HUNDRED ONLY) against any loss ordamage caused to or suffered by the CORPORATION by reasonor any breach or failure by the said SUPPLIER, in dueperformance of the aforesaid contract, we shall forthwith ondemand pay to the CORPORATION any sum or sums notexceeding Rs. 20,32,500/-(RUPEES TWENTY LAKHSTHIRTY TWO THOUSAND FIVE HUNDRED ONLY)without making any prior reference to the said SUPPLIER withand exclusion of any action in Court by SUPPLIER.”

5. The said two bank guarantees were furnished for and onbehalf of 2[nd] respondent towards the sum insured “against any loss ordamage caused to or suffered by the Corporation by reason or anybreach or failure by the said supplier, in due performance of theaforesaid contract.”

Brief facts of the case:

6. By a letter of intent dated 19[th] May, 1981, 1[st] respondentplaced an order on 2[nd] respondent(Simon Carves India Ltd. ‘SCIL’)for the complete design, supply of both indigenous and importedequipments, erection and commissioning of requisite civil andconstruction works of the Dankuni Coal Complex at a total price ofRs. 21.10 crores. The letter of intent dated 19[th] May, 1981 afterdescribing 4 sections of the LTC plant at Dankuni stated as under:- “The above price covers the complete design, supply of bothindigenous and imported equipment, erection and commissioningwith requisite civil and structural works complete in all respectsexcept land filling upto 4.00 M level, railways siding, roads &outside drawing and perphorial lighting which will only be outsideyour scope or work.

The break up of the total price of Rs. 21.10 crores for purposeof billing is enclosed.

We have noted the terms of payment proposed by you in yourletter dated 18.05.81. As we have indicated about the terms ofpayment agreed to by us, it will not be possible to consider yourproposal for relaxation of the same. However, attempts will be A

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Amade to consider some softening of payment terms laterdepending our own cash flows on this project.

Kindly let us have your detailed technical specifications etc toenable us to draw up a detailed contract for the work.

Kindly communicate your acceptance of this letter of intent andBfurnish us a bank guarantee on approved proforma to releasethe initial advance of Rs. 15.64 lakhs to you.

In pursuance of the letter of intent two bank guarantees havebeen furnished by the defendant no. 1 on behalf of the defendantCno. 2 “as advance against the supply of plant and equipment.”

7. Pursuant to the letter of intent, a formal Memorandum ofAgreement dated 8[th] August, 1985 was executed by and between SCIL.Thereafter, the 1[st] respondent (plaintiff) from time to time advancedDfor the said work against several bank guarantees furnished by SCIL.It may be noticed that the instant dispute pertains to two bankguarantees dated 16[th] February, 1983 and 29[th] August, 1984, which wereadvanced to SCIL, the details of which have been indicated above. Thesaid guarantees furnished by the appellant bank were extended fromEtime to time and revalidated.

8. In due course of time, in breach of contract with the 1[st]respondent-plaintiff, SCIL failed to duly complete the supply ofequipment and the other conditions of the letter of intent and furtherdefective equipments. It is alleged that the work had to be abandonedFdue to which 1[st] respondent suffered huge losses and damages.Ultimately, a sum of Rs. 139.90 lakhs, was deducted by the 1[st]respondent from final bill which pertained to the apportioned workhanded over to SCIL.

9. In view of the letter dated 6[th] November, 1998, 1[st] respondent-Gplaintiff demanded encashment of both the said guarantees which wererefused by the bank to honour and diverse correspondence wasexchanged by and between the 1[st] respondent -plaintiff and theappellant-defendant bank. 1[st] respondent in continuation madesubsequent demands for encashment of the guarantees by letter datedH19[th] December, 1998 which is reproduced hereunder:-

“No.HDC/Proj/Fin/98-343

Dated the 19[th] December, 1998

To

The Chief ManagerCorporate BankingANZ Grindlays Bank19, Netaji Subhas RoadPost Box No.2645Calcutta – 700001

Dear Sir,

With reference to your St. Relationship Manager’s letter dtd.7.12.98 regarding encashment of B.Gs issued by you on behalfof M/s. SCIL for a total value of Rs.91.68 lakhs you are verymuch aware that M/s. SCIL owes to H.E.C. Rs.139.90 lakhs-due to defective supply of Plant & Equipment as well as nonsupply of Plant & Equipment and also other contractualdeficiencies which has caused loss as reflected in the handingover/taking over report of the DCC Project by CIL. You arealso aware that HEC has gone out of the way in supporting SCILand getting the Plant completed with minimum damage. It iswithin HEC’s full rights to invoke the BG as per Clause No.2 ofthe BG’s which is reproduced below; (BG No.G1001/83/1084 dt.16.8.83 for Rs. 71,35,100.00 and BG No.G1001/84/608 dt.29.8.84 for Rs. 20,32,500.00).

WE GRINDLAYS BANK PLC 19, Netaji Subhas Road,Calcutta – 700001 do hereby undertake the Indemnity ofRs. (Rupees _______________________) against any loss ordamage caused to or suffered by the CORPORATION by reasonor any breach or failure by the said SUPPLIER, in dueperformance of the aforesaid contract, we shall forthwith ondemand pay to the CORPORATION any sum or sums notexceeding Rs. (RUPEES without making any prior referenceto the said SUPPLIER with an exclusion of any action in courtby SUPPLIER.

The failure of M/s. SCIL in fulfilling the contractual obligationwhich includes performance Guarantees of Plant & Equipment A

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Aare very well documented by HEC & CIL. In fact, the unadjustedadvance of SCIL on account of Plant & Equipment is far inexcess of the loss suffered by HEC. The same has been broughtdown to Rs.139.90 lakhs after allowing credit for contractualsettlement.

BAlthough as per terms of BG we are not bound to explain youall these things but the above details are furnished so that goodsense will prevail and we expect you to live up to your reputationand honour the beneficiaries claim for encashment.

Thanking you,

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Yours faithfully,T.L.N. SOURI

GENERAL MANAGER (PROJECTS & MNTG)

(emphasis supplied)”

D10. This was followed by the letter dated 28[th] December, 1998which is also reproduced hereunder:- “No.GGM(CM)/ /98

28[th] December, 1998

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The Chief ManagerANZ Grindlays BankCALCUTTA.

(Atten: Shri Vasudeo Kundu)

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Fax No.033-2211196

Sub: Encashment of two Bank Guarantees Nos.

1) G/1001/83/108G for Rs.71,35,100/-2) G/1001/88/608 for Rs.20,32,500/- G

Ref: Our letter dated 19.11.1998.

Dear Sir,

We have intimated vide our above letter to encash the abovetwo Bank Guarantees issued by you on behalf of SCIL India Ltd.,Hto HEC.

You are requested to encash the above Bank Guarantees andsend the proceeds amounting to Rs.91,67,600/- within 3 daystime. Kindly treat this as most urgent and failing on the part ofthe Bank to honour the beneficiaries demand will be viewedseriously.

Thanking you,

Yours faithfully,

(L.M. Prasad)”

11. A further complaint was made by way of a letter dated 22[nd]February, 1999 to the Banking Ombudsman, Calcutta. Ultimately, 1[st]respondent-plaintiff was constrained to institute a suit before the HighCourt of Calcutta for decree of Rs. 1,10,33,207.07/- along with interestbeing the aggregate sum of both the said guarantees.

12. The appellant Bank filed its written statement and primarilytook objection that the invocation of the bank guarantees was not inaccordance with either of the said guarantees and contrary to the termsthereof and accordingly the appellant Bank was not liable to makepayment to the 1[st] respondent-plaintiff under either of the saidguarantees. In support of its defence, the appellant Bank referred tothe diverse correspondence exchanged between the appellant and 1[st]respondent. In brief, the defence of the appellant Bank was that theinvocation of the said bank guarantees was contrary to the terms ornot in terms thereof.

13. On the pleadings of the parties, the suit in the first instancecame to the dismissed vide judgment & decree dated 16[th] October, 2015which came to be challenged by the 1[st] respondent in appeal beforethe Division Bench of the High Court of Calcutta. In a concurringjudgment while setting aside the judgment of the Single Judge of theHigh Court, it was finally held that the bank guarantees were properlyinvoked in law by the 1[st] respondent-plaintiff and accordingly passed adecree of Rs. 1,10,33,207.00/- together with interest at the rate of 8%per annum on and from the date of institution of the suit until payment.

14. Learned senior counsel for the appellant Bank, Shri AmitSibal submits that the said bank guarantees only covered losses arisingout of supply of plant & equipment and according to the pleadings onrecord, the plant stood installed in October, 1990 and this is the case A

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Awhere the appellant Bank in its independent capacity, refused the claimfor it being clearly false to its knowledge and also not in accordancewith the terms of the guarantee, i.e. beyond the purview of the bankguarantees and failing to apportion those losses suffered on account ofclaims which would be within the terms of the bank guarantees.

B15. Learned counsel further submits that the bank guarantees arein reference to two category of losses (i) non-supply/defective supplyof plant & equipment (ii) “other contractual deficiencies” and by theinvocation vide letter dated 19[th ]December, 1998 claims caused by “non-supply/defective supply of plant & equipment and other contractualdeficiencies” is outside the purview of the bank guarantee. Further,Cassuming the correctness of the claim, the 1[st] respondent if sufferedloss for both (i) non-supply/defective supply of plant and equipment (ii)“other contractual deficiencies”, it is difficult to determine theapportionment between the two categories, because the invocation doesnot state how they are apportioned. The invocation is thus inchoateDand incomplete and this according to the appellant does not constitutea valid invocation at all and it has not been properly appreciated by theDivision Bench of the High Court in the impugned judgment and hasto be interfered by this Court.

16. In support of his submission, learned counsel has placedreliance on the judgment of this Court in Hindustan Construction Co.ELtd.Vs. State of Bihar & Others1 and Gangotri Enterprises Ltd.2Vs. Union of India and Others.

17. Per contra, Ms. Madhavi Diwan, learned ASG appearing onbehalf of the 1[st] respondent, while supporting the finding recorded bythe High Court in the impugned judgment submits that as per precedentsFlaid down by this Court, the question of law is no more res integra andis well settled that the bank guarantee is an independent contractbetween the bank and the beneficiary and the bank is always obligedto honour its guarantee as long as it is an unconditional and irrevocableone. At the same time, the dispute between the beneficiary and theGparty at whose instance the bank has given the guarantee is immaterialand is of no consequence and two exceptions to the rule have beencarved out. The first is when there is a fraud of which the Bank hasnotice and a fraud of the beneficiary from which it seeks to benefit.

1 1999(8) SCC 436H2 2016(11) SCC 720

The second exception to the general rule of non-intervention is suchwhen there is a ‘irretrievable injury’ or ‘irretrievable injustice’ that wouldoccur to the Bank.

18. We have heard learned counsel for the parties and with theirassistance perused the material available on record.

19. The law relating to invocation of bank guarantees with theconsistent line of precedents of this Court is well settled and a three-Judge Bench of this Court in Ansal Engineering Projects Ltd.Vs.Tehri Hydro Development Corporation Ltd. and Another3held thus:- “4. It is settled law that bank guarantee is an independent anddistinct contract between the bank and the beneficiary and is notqualified by the underlying transaction and the validity of theprimary contract between the person at whose instance the bankguarantee was given and the beneficiary. Unless fraud or specialequity exists, is pleaded and prima facie established by strongevidence as a triable issue, the beneficiary cannot be restrainedfrom encashing the bank guarantee even if dispute between thebeneficiary and the person at whose instance the bank guaranteewas given by the bank, had arisen in performance of the contractor execution of the works undertaken in furtherance thereof. Thebank unconditionally and irrevocably promised to pay, on demand,the amount of liability undertaken in the guarantee without anydemur or dispute in terms of the bank guarantee. The objectbehind is to inculcate respect for free flow of commerce andtrade and faith in the commercial banking transactions unhedgedby pending disputes between the beneficiary and the contractor.

5. …..The court exercising its power cannot interfere withenforcement of bank guarantee/letters of credit except only incases where fraud or special equity is prima facie made out inthe case as triable issue by strong evidence so as to preventirretrievable injustice to the parties.”

20. A bank guarantee constitutes an independent contract. InHindustan Construction Co. Ltd.Vs. State of Bihar andOthers(supra), a two Judge Bench of this Court formulated the condition 3 1996(5) SCC 450

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Aupon which the invocation of the bank guarantee depends in thefollowing terms:- “9. What is important, therefore, is that the bank guarantee shouldbe in unequivocal terms, unconditional and recite that the amountwould be paid without demur or objection and irrespective of anyBdispute that might have cropped up or might have been pendingbetween the beneficiary under the bank guarantee or the personon whose behalf the guarantee was furnished. The terms of thebank guarantee are, therefore, extremely material. Since the bankguarantee represents an independent contract between the bankand the beneficiary, both the parties would be bound by the termsCthereof. The invocation, therefore, will have to be in accordancewith the terms of the bank guarantee, or else, the invocation itselfwould be bad.”

21. The same principle was followed in State Bank of Indiaand AnotherVs. Mula Sahakari Sakhar Karkhana Ltd.4wherein aDtwo-Judge Bench held thus:- “33. It is beyond any cavil that a bank guarantee must beconstrued on its own terms. It is considered to be a separatetransaction.

E34. If a construction, as was suggested by Mr Naphade, is tobe accepted, it would also be open to a banker to put forward acase that absolute and unequivocal bank guarantee should be readas a conditional one having regard to circumstances attendingthereto. It is, to our mind, impermissible in law.”

F22. Taking note of the exposition of law on the subject in HimadriChemicals Industries LimitedVs. Coal Tar Refining Co.5, a two-Judge Bench of this Court in Gujarat Maritime BoardVs. Larsen &Toubro Infrastructure Development Projects Limited and Another6has laid down the principles for grant or refusal for invocation of bankguarantee or a letter of credit. The relevant paragraph is as under:-G

“ From the discussions made hereinabove relating to the principlesfor grant or refusal to grant of injunction to restrain enforcement 4 2006(6) SCC 2935 2007(8) SCC 110H6 2016(10) SCC 46

of a bank guarantee or a letter of credit, we find that thefollowing principles should be noted in the matter of injunctionto restrain the encashment of a bank guarantee or a letter ofcredit:

(i) While dealing with an application for injunction in the courseof commercial dealings, and when an unconditional bankguarantee or letter of credit is given or accepted, thebeneficiary is entitled to realise such a bank guarantee ora letter of credit in terms thereof irrespective of anypending disputes relating to the terms of the contract.

(ii) The bank giving such guarantee is bound to honour it asper its terms irrespective of any dispute raised by itscustomer.

(iii) The courts should be slow in granting an order of injunctionto restrain the realisation of a bank guarantee or a letterof credit.

(iv) Since a bank guarantee or a letter of credit is anindependent and a separate contract and is absolute innature, the existence of any dispute between the partiesto the contract is not a ground for issuing an order ofinjunction to restrain enforcement of bank guarantees orletters of credit.

(v) Fraud of an egregious nature which would vitiate the veryfoundation of such a bank guarantee or letter of credit andthe beneficiary seeks to take advantage of the situation.

(vi) Allowing encashment of an unconditional bank guaranteeor a letter of credit would result in irretrievable harm orinjustice to one of the parties concerned.”

23. The settled position in law that emerges from the precedentsof this Court is that the bank guarantee is an independent contractbetween bank and the beneficiary and the bank is always obliged tohonour its guarantee as long as it is an unconditional and irrevocableone. The dispute between the beneficiary and the party at whoseinstance the bank has given the guarantee is immaterial and is of noconsequence. There are, however, exceptions to this Rule when thereis a clear case of fraud, irretrievable injustice or special equities. The A

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ACourt ordinarily should not interfere with the invocation or encashmentof the bank guarantee so long as the invocation is in terms of the bankguarantee.

24. The guarantees in the instant case were unconditional,specific in nature and limited in amount. The terms of the guaranteeBcategorically covered money which the 1[st] respondent had advancedagainst supply of the plant and equipment by SCIL. The said guaranteescovered any loss and damage caused to or suffered by the 1[st]respondent-plaintiff in due performance of the contract for supply ofplant and equipment. The guarantee documents dated 16[th] February,1983 and 29[th] August, 1984, as a whole and clause 2 of the guaranteeCdocument in particular cover the advance which had been paid by the1[st] respondent-plaintiff by reason of any breach or failure by SCIL indue performance of the aforesaid contracts i.e. against the contractfor supply of plant and equipment.

25. From the correspondence that has been exchanged by andDbetween them pertaining to invocation of the said guarantees, it clearlymanifests that the initial letter of invocation written by the 1[st] respondent-plaintiff dated 6[th] November, 1998 indeed was per se inadequate anddid not enumerate any condition for invocation of said guarantees saveand except a reference to “a substantial amount to be recovered fromESCIL”. However, in the later correspondence exchanged between theparties dated 19[th] December, 1998 followed by a letter dated 28[th]December, 1998, 1[st] respondent informed the appellant Bank that dueto defective supply of plant and equipment as well as non-supply ofplant and equipment and also other contractual deficiencies of SCIL,losses had been suffered by the 1[st] respondent and it was duly informedFto the appellant Bank that the losses had been incurred both on accountof supply of plant and equipment and on account of performance ofthe supply of plant and equipment. On reading of letters exchanged byand between 1[st] respondent and the appellant Bank pertaining toinvocation of the guarantees, the condition of the guarantees had beenGduly complied with.

26. In our considered view, once the demand was made in duecompliance of bank guarantees, it was not open for the appellant Bankto determine as to whether the invocation of the bank guarantee wasjustified so long as the invocation was in terms of the bank guarantee.HThe demand once made would oblige the bank to pay under the terms

of the bank guarantee and it is not the case of the appellant Bank thatits defence falls in any of the exception to the rule of case of fraud,irretrievable injustice and special equities. In absence thereof, it is noteven open for the Court to interfere with the invocation and encashmentof the bank guarantee so long as the invocation was in terms of thebank guarantee and this what has been observed by the Division Benchof the High Court in the impugned judgment and that reflected thecorrect legal position.

27. It is informed by the learned counsel for the appellant thatthe Standard Chartered Bank’s predecessor in interest, ANZ Grindlay’sBank had opened a fixed deposit of Rs. 91,67,600/- on 18[th] May, 2001,which was lien marked to HEC(Heavy Engineering Corporation Ltd.)and is being held under the control of the Registry of the High Courtof Calcutta and the current fixed deposit is valued at Rs. 2,32,69,129.71/- and the total liability under the impugned order as on date will be Rs.2,78,03,681.64/-. The Registry of the High Court of Calcutta mayrelease the money lying in the account in favour of the 1[st] respondentand it is for the appellant Bank(judgment debtor) to settle and satisfythe decree which is impugned in the instant proceedings.

28. We do not find any merit in the appeal which is herebydismissed. No costs.

29. Pending application(s), if any, stands disposed of.

Divya Pandey

Appeal dismissed.

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