Larsen & Toubro Limited vs Maharashtra Stateelectricity Board & ... on 13 September, 1995
15. Our attention was invited to a number of decisions on this issue - among them, to Larsen and Toubro Ltd. v. Maharashtra State Electricity Board, and Hindustan Steel Workers Construction Ltd. v. C.S. Atwal & Co. (Engineers) (P) Ltd., the latest decision is in the case of State of Maharashtra v. National Construction Co. where this Court has summed up the position by stating : (S.C.C. p.741, para 13)
The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and made payment ordinarily unless there is an allegation of fraued or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damage. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in he contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guarantee.