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6. At that stage, the appellant filed an application under Section 9 of the Act in the court below for an interim measure of protection thereby restraining the second respondent from making any payment in respect of the bank guarantee Nos. 97/444 and 97/445 and also restraining the first respondent from receiving payments. The court below issued ex parte order of injunction. Subsequently, the arbitration proceedings has been set in motion and the application of the appellant was contested by the first respondent and that application was finally disposed of on November 22, 2002, whereby the court below rejected the said application for injunction on the ground that : (i) The clauses relating to the opening of the letter of credit and the furnishing of bank guarantee are independent clauses as per the memorandum of understanding, (ii) the furnishing of bank guarantee is not conditional on the opening of the letter of credit, (iii) The bank guarantee furnished is an unconditional bank guarantee, (iv) The appellant had not pleaded fraud or misrepresentation on the part of respondent No. 1 in seeking to invoke the bank guarantee.

13. The judgment of the Supreme Court in the case of Hindustan Steelworks Construction Ltd. v. Tarapore and Co. , is a binding authority to state that the bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the primary contract between the person at whose instance the bank guarantee is given and the beneficiary. In other words, in the case of unconditional bank guarantee, the nature of obligation of the bank is absolute and not dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary. The Supreme Court in the above case, in paras. 14 and 23 held as follows (pages 354 and 360) :

"14. The High Court also committed a grave error in restraining the appellant from invoking the bank guarantees on the ground that in India only a reasonable amount can be awarded by way of damages even when the parties to the contract have provided for liquidated damages and that a term in a bank guarantee making the beneficiary the sole judge on the question of breach of contract and the extent of loss or damages would be invalid and that no amount can be said to be due till an adjudication in that behalf is made either by a court or an arbitrator, as the case may be. In taking that view the High Court has overlooked the correct position that a bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the primary contract between the person at whose instance the bank guarantee is given and the beneficiary. What the High Court has observed would be applicable only to the parties to the underlying transaction or the primary contract but can have no relevance to the bank guarantee given by the bank, as the transaction between the bank and the beneficiary is independent and of a different nature. In the case of an unconditional bank guarantee the nature of obligation of the bank is absolute and not dependent upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the beneficiary. The High Court thus failed to appreciate the real object and nature of a bank guarantee. The distinction which the High Court has drawn between a guarantee for due performance of a works contract and a guarantee given towards security deposit for that contract is also unwarranted. The said distinction appears to be the result of the same fallacy, committed by the High Court of not appreciating the distinction between the primary contract between the parties and a bank guarantee and also the real object of a bank guarantee and the nature of bank's obligation thereunder. Whether the bank guarantee is towards security deposit or mobilisation advance or working funds or for due performance of the contract if the same is unconditional and if there is a stipulation in the bank guarantee that the bank should pay on demand without a demur and that the beneficiary shall be the sole judge not only on the question of breach of contract but also with respect to the amount of loss or damages, the obligation of the bank would remain the same and that obligation has to be discharged in the manner provided in the bank guarantee.

18. It is the case of the first respondent that after the conversion of the bank guarantees into unconditional ones, copies of the amended bank guarantees were sent to the first respondent. Therefore, the court below has rightly held that merely because the unconditional bank guarantees are kept with the appellant, that fact itself would not come in the way of the first respondent invoking and encashing the bank guarantees. As could be seen from the above extracted clauses of the bank guarantee, the bank guarantee is given as unconditional bank guarantee. Therefore, the bank is under an obligation to pay the amount on demand from the purchaser. The decision of the purchaser is final and binding on the bank. It needs to be emphasised that clause IV of the guarantee specifically states that the bank undertakes to pay the purchaser any money so demanded "notwithstanding any dispute or disputes raised by the contractor(s)/supplier(s) in any suit or proceeding pending before any court or tribunal relating thereto". The underlined phrase occurring in clause IV in unequivocal terms shows that the liability of the bank to honour and pay is absolute and unequivocal.