In FAO (COMM) 90/2022-DEL HC- If there is no allegation that contract is vitiated by fraud of egregious nature, then question of interdicting unconditional bank guarantee does not arise: Delhi HC Justices Vibhu Bakhru & Amit Mahajan [03-06-2022]

Read Order: CONTAINER CORPORATION OF INDIA LTD v. M/S SHIVAKRITI INTERNATIONAL LTD & ANR 

Mansimran Kaur

New Delhi, June 11, 2022: The Delhi High Court has recently observed that in the absence of any proof that the commercial contract between the parties was vitiated by  fraud of an egregious nature, the question of interdicting an unconditional bank guarantee does not arise.

The Division Bench of Justice Vibhu Bakhru and Justice Amit Mahajan disposed of the appeal instituted by the appellant against an ex- parte order dated March 12, 2021 passed by the District Judge, whereby directions were issued to maintain the status quo in respect of the Performance Bank Guarantee and the Security Deposit Bank Guarantee. The Bench was of the opinion that financial difficulties due to the outbreak of Covid-19 do not give rise to any special equities to interdict an unconditional bank guarantee. More importantly, special equities are not an independent ground for seeking interdiction of the bank guarantee. 

The first respondent had filed a suit, praying for a decree of permanent injunction in order to restrain the appellant(Concor) from invoking and encashing the PBG and SDBG and restrain the second respondent from acting upon any letter received from Conocor demanding the invocation of the two bank guarantees in question. Averments made in the plaint filed by the SIL indicated that there were certain points of dispute between Concor and SIL with respect to execution of the balance work in pursuance to the contract that was entered between the two parties. 

SIL had sent a letter stating that it would not be possible for SIL to complete the balance work at the rates agreed between the parties. It was the case of the SIL that there was reasonable delay in execution of the contract for reasons attributable to Concor and in view of rise in the prices of material and resources it was not possible to complete the work at the rated initially decided upon.

The Court, while pursuing the plaint, was of the opinion that there was no allegation that contract between the parties was vitiated by fraud. The only allegation was that invocation of the bank guarantee would result in fraud. The Court noted that the same was not a ground for interdicting an unconditional bank guarantee. In absence of SIL establishing any fraud of an egregious nature, the question of interdicting an unconditional bank guarantee does not arise, the Court remarked. It was further stated that financial difficulties due to the outbreak of Covid-19 do not give rise to any special equities to interdict an unconditional bank guarantee. More importantly, special equities are not an independent ground for seeking interdiction of the bank guarantee, added the Bench.

The Court further stated that the District Judge passed the impugned order in a mechanical manner. However, the Bench noted that the averments made in the plaint only reflected certain contractual disputes and the same couldnot be the ground to interdict the unconditional bank guarantees. In light of the aforesaid observations, the Court stated that the impugned order was unsustainable and was liable to be set aside. 

On the contention of the respondent that the letter of invocation submitted by the Concor was not in terms of bank guarantees in question, the Court observed that the PBG could be invoked only by a letter in terms of paragraph 2 of the PBG. Since the letter was not in terms of the PBG, so SBI couldnot encash the PBG pursuant thereto. Lastly , the Bench directed that the Bank Guarantees will not be invoked if SIL deposits the entire amount with the Registry within one week. Also liberty was given to Concor to approach the Trial Court for appropriate orders for release of the amounts as may be deposited by SIL. Accordingly, the appeal was disposed of.