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Vijay Nirman Company Pvt. Ltd. vs Delhi Metro Rail Corporation Ltd. & Anr. on 10 January, 2019
cites
Section 9 in The Arbitration And Conciliation Act, 1996 [Entire Act]
Hindustan Steel Workersconstruction ... vs G.S. Atwal & Co. (Engineers)Pvt. Ltd on 13 September, 1995
"21. Numerous decisions of this Court rendered
over a span of nearly two decades have laid down
and reiterated the principles which the courts
must apply while considering the question whether
OMP (I) (Comm.) No.3/2019 Page 6
to grant an injunction which has the effect of
restraining the encashment of a bank guarantee.
We do not think it necessary to burden this
judgment by referring to all of them. Some of the
more recent pronouncements on this point where
the earlier decisions have been considered and
reiterated are Svenska Handelsbanken v. Indian
Charge Chrome , Larsen & Toubro
Ltd. v. Maharashtra SEB , Hindustan Steel
Workers Construction Ltd. v. G.S. Atwal & Co.
(Engineers) (P) Ltd. and U.P. State Sugar
Corpn. v. Sumac International Ltd. The general
principle which has been laid down by this Court
has been summarised in the case of U.P. State
Sugar Corpn. as follows: (SCC p. 574, para 12)
"The law relating to invocation of such bank
guarantees is by now well settled. When in the
course of commercial dealings an unconditional
bank guarantee is given or accepted, the
beneficiary is entitled to realize such a bank
guarantee in terms thereof irrespective of any
pending disputes. The bank giving such a
guarantee is bound to honour it as per its terms
irrespective of any dispute raised by its customer.
The very purpose of giving such a bank guarantee
would otherwise be defeated. The courts should,
therefore, be slow in granting an injunction to
restrain the realization of such a bank guarantee.
The courts have carved out only two exceptions. A
fraud in connection with such a bank guarantee
would vitiate the very foundation of such a bank
guarantee. Hence if there is such a fraud of which
the beneficiary seeks to take the advantage, he can
OMP (I) (Comm.) No.3/2019 Page 7
be restrained from doing so. The second exception
relates to cases where allowing the encashment of
an unconditional bank guarantee would result in
irretrievable harm or injustice to one of the
parties concerned. Since in most cases payment of
money under such a bank guarantee would
adversely affect the bank and its customer at
whose instance the guarantee is given, the harm
or injustice contemplated under this head must be
of such an exceptional and irretrievable nature as
would override the terms of the guarantee and the
adverse effect of such an injunction on
commercial dealings in the country."
U.P. State Sugar Corporation vs M/S. Sumac International Ltd on 4 December, 1996
"21. Numerous decisions of this Court rendered
over a span of nearly two decades have laid down
and reiterated the principles which the courts
must apply while considering the question whether
OMP (I) (Comm.) No.3/2019 Page 6
to grant an injunction which has the effect of
restraining the encashment of a bank guarantee.
We do not think it necessary to burden this
judgment by referring to all of them. Some of the
more recent pronouncements on this point where
the earlier decisions have been considered and
reiterated are Svenska Handelsbanken v. Indian
Charge Chrome , Larsen & Toubro
Ltd. v. Maharashtra SEB , Hindustan Steel
Workers Construction Ltd. v. G.S. Atwal & Co.
(Engineers) (P) Ltd. and U.P. State Sugar
Corpn. v. Sumac International Ltd. The general
principle which has been laid down by this Court
has been summarised in the case of U.P. State
Sugar Corpn. as follows: (SCC p. 574, para 12)
"The law relating to invocation of such bank
guarantees is by now well settled. When in the
course of commercial dealings an unconditional
bank guarantee is given or accepted, the
beneficiary is entitled to realize such a bank
guarantee in terms thereof irrespective of any
pending disputes. The bank giving such a
guarantee is bound to honour it as per its terms
irrespective of any dispute raised by its customer.
The very purpose of giving such a bank guarantee
would otherwise be defeated. The courts should,
therefore, be slow in granting an injunction to
restrain the realization of such a bank guarantee.
The courts have carved out only two exceptions. A
fraud in connection with such a bank guarantee
would vitiate the very foundation of such a bank
guarantee. Hence if there is such a fraud of which
the beneficiary seeks to take the advantage, he can
OMP (I) (Comm.) No.3/2019 Page 7
be restrained from doing so. The second exception
relates to cases where allowing the encashment of
an unconditional bank guarantee would result in
irretrievable harm or injustice to one of the
parties concerned. Since in most cases payment of
money under such a bank guarantee would
adversely affect the bank and its customer at
whose instance the guarantee is given, the harm
or injustice contemplated under this head must be
of such an exceptional and irretrievable nature as
would override the terms of the guarantee and the
adverse effect of such an injunction on
commercial dealings in the country."
Dwarikesh Sugar Industries Ltd vs Prem Heavy Engineeing Work on 7 May, 1997
In Dwarikesh Sugar Industries Ltd. v. Prem
Heavy Engineering Works (P) Ltd. and Anr, (1997) 6 SCC 450,
Supreme Court reiterated this law as under:
Gujarat Maritime Board vs L&T; Infrastructure Development ... on 28 September, 2016
In Gujarat Maritime Board v. Larsen and Toubro
Infrastructure Development Projects Limited and Anr., (2016) 10
SCC 46, the Supreme Court once again cautioned that Bank Guarantee
is a separate contract and is not qualified by the contract under which
it is given. Whether the cancellation was just and proper is a question
to be decided by the Arbitrator and not by this Court under Section 9
of the Act. I would only quote the relevant paragraphs of the said
Judgment:
Himadri Chemicals Industries Ltd vs Coal Tar Refining Company on 7 August, 2007
In Himadri Chemicals
Industries Ltd. v. Coal Tar Refining Co. , (2007) 8
SCC 110] , at para 14: (SCC pp. 117-18)
"14. From the discussions made
hereinabove relating to the principles for
grant or refusal to grant of injunction to
restrain enforcement of a bank guarantee or
a letter of credit, we find that the following
principles should be noted in the matter of
injunction to restrain the encashment of a
bank guarantee or a letter of credit:
U.P. Co-Operative Federation Ltd vs Singh Consultants & Engineers (P) Ltd on 19 November, 1987
(emphasis supplied)
The aforesaid passage was approved and followed
by this Court in U.P. Coop. Federation
Ltd. v. Singh Consultants and Engineers (P) Ltd.
Svenska Handelsbanken vs Indian Charge Chrome (Dayal, J.) on 15 October, 1993
"21. Numerous decisions of this Court rendered
over a span of nearly two decades have laid down
and reiterated the principles which the courts
must apply while considering the question whether
OMP (I) (Comm.) No.3/2019 Page 6
to grant an injunction which has the effect of
restraining the encashment of a bank guarantee.
We do not think it necessary to burden this
judgment by referring to all of them. Some of the
more recent pronouncements on this point where
the earlier decisions have been considered and
reiterated are Svenska Handelsbanken v. Indian
Charge Chrome , Larsen & Toubro
Ltd. v. Maharashtra SEB , Hindustan Steel
Workers Construction Ltd. v. G.S. Atwal & Co.
(Engineers) (P) Ltd. and U.P. State Sugar
Corpn. v. Sumac International Ltd. The general
principle which has been laid down by this Court
has been summarised in the case of U.P. State
Sugar Corpn. as follows: (SCC p. 574, para 12)
"The law relating to invocation of such bank
guarantees is by now well settled. When in the
course of commercial dealings an unconditional
bank guarantee is given or accepted, the
beneficiary is entitled to realize such a bank
guarantee in terms thereof irrespective of any
pending disputes. The bank giving such a
guarantee is bound to honour it as per its terms
irrespective of any dispute raised by its customer.
The very purpose of giving such a bank guarantee
would otherwise be defeated. The courts should,
therefore, be slow in granting an injunction to
restrain the realization of such a bank guarantee.
The courts have carved out only two exceptions. A
fraud in connection with such a bank guarantee
would vitiate the very foundation of such a bank
guarantee. Hence if there is such a fraud of which
the beneficiary seeks to take the advantage, he can
OMP (I) (Comm.) No.3/2019 Page 7
be restrained from doing so. The second exception
relates to cases where allowing the encashment of
an unconditional bank guarantee would result in
irretrievable harm or injustice to one of the
parties concerned. Since in most cases payment of
money under such a bank guarantee would
adversely affect the bank and its customer at
whose instance the guarantee is given, the harm
or injustice contemplated under this head must be
of such an exceptional and irretrievable nature as
would override the terms of the guarantee and the
adverse effect of such an injunction on
commercial dealings in the country."
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