Read Judgment: TRF Ltd vs. Indure Pvt. Ltd. 

Pankaj Bajpai

New Delhi, November 25, 2021: The Delhi High Court has stated that in case bank guarantee is unconditional, payment thereunder must be paid without any demur or objection, irrespective of any dispute, which may have cropped up between beneficiary and party on whose behalf such bank guarantee had been established. 

The Bench of Justice Sanjeev Narula therefore observed that unless there was egregious fraud established before Court or there existed special equities, courts ordinarily did not grant stay for restraining encashment of bank guarantees. 

The background of the case was that, Indure Pvt. Ltd. (first Respondent) had issued certain Work Orders and Purchase Orders (POs) on TRF (Petitioner) for supply of equipment. Accordingly, TRF issued Advance Bank Guarantees and Performance Bank Guarantees. Later, TRF claimed that equipment under POs had been supplied entirely. Advance amounts for which ABGs were issued stood adjusted by Indure. 

After supply of equipment, their erection, commissioning and testing had been done. Performance Guarantee Test stood conducted. TRF claimed though it had fulfilled all contractual obligations to Indure’s satisfaction, it was constrained to renew bank guarantees, under threat of invocation relating to other ongoing contracts between parties. TRF therefore filed present petitions u/s 9 of the Arbitration and Conciliation Act, 1996, seeking stay order against invocation and encashment of bank guarantees furnished in favour of Indure. 

After considering the arguments and evidences, the Delhi HC found that the extracted terms in instant bank guarantees clearly demonstrated that they were unconditional and unequivocally provided that on demand being made, bank must honour the same, without any demur, contest or protest, in deference to terms of the bank guarantee. 

Justice Narula stated that Bank guarantee constituted a separate and distinct contract, independent from main contract. 

In case bank guarantee was unconditional, payment thereunder must be paid without any demur or objection, irrespective of any dispute, which may have cropped up between beneficiary and party on whose behalf such bank guarantee had been established, added Justice Narula. 

The Single Bench therefore stated that bank was thus obligated to make payment, without protest and contest, the moment demand was made. 

In light of existence of contractual disputes, right had accrued in favour of first Respondent to claim recovery of the whole or part of guarantee amount, added the Bench. 

The High Court therefore concluded that even assuming that invocation of bank guarantees was not contractually justified that could not be sole ground to restrain Indure or Banks from encashing the same. 

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