U.P. Co-Operative Federation Ltd vs Singh Consultants & Engineers (P) Ltd on 19 November, 1987
(10) In order to invoke this bank guarantee called the performance guarantee it was for the respondent/EPI to prima facie prove that the petitioner had committed a breach of the contract and consequent thereto it has suffered losses and damages. The Supreme Court in General Electric Technical Services CompanyInc. (supra) has considered the law on the invocation of the performance guarantee.Apex Court laid down the guidelines on the basis of which the Court would be justified in restraining the bank from paying under the bank guarantee. These guidelines have been laid in the case of U.P. Cooperative Federation Ltd. v. Singh Consultants And Engineers (P)Ltd., wherein Sabyasachi Mukherji,(as his lordship then was) observed that in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee,there should be serious dispute and there should be good prima fade case of fraud and special equities in the form of preventing irretrievable injustice between theparties. Otherwise, the very purpose of bank guarantees would be negatived and the fabric of trading operations will get jeopardised". It is only in exceptional case that is to say in case of fraud or in case of irretrievable injustice, the Court shouldinterfere. The demand by the party is under the bank guarantee and as per the terms thereof. The bank has to pay and the bank cannot be restrained by the Court at the instance of a party in the absence of fraud or special equities in the form of irretrievable injustice between tile parties.