1

Judgment Resered on : 09.11.2022

Judgment Delivered on: 02.12.2022

A.F.R.

Court No. - 3

Case :- APPEAL UNDER SECTION 37 OF ARBITRATION

AND CONCILIATION ACT 1996 No. - 16 of 2022

Appellant :- U.P. Expressways Industrial Development Authority

Thru Chief Executive Officer
Respondent :- M/S Sahakar Global Ltd. Thru Thru Authorized
Signatory Stephen Lobo
Counsel for Appellant :- Brijesh Kumar,Amal Rastogi,Utkarsh
Srivastava
Counsel for Respondent :- Pritish Kumar

Hon'ble Attau Rahman Masoodi,J.

Hon'ble Om Prakash Shukla,J.

(Per Hon’ble Om Prakash Shukla, J.)

1. Heard Mr Brijesh Kumar Saxena Learned Advocate appearing

for UPEIDA and Mr. Jaideep Narain Mathur, Learned Senior
Advocate along with Mr . Pritish Kumar representing M/s
Sahakar Global Ltd.

2. A short but seminal question arises in the present Appeal filed

under section 37 of the Arbitration & Conciliation Act, 1996 (as
 2

amended) by the Uttar Pradesh Expressways industrial

Development Authority ( for short UPEIDA) against an ad-
interim Injunction order dated 12.09.2022 (Impugned Order)
passed by the Learned Commercial Court, Lucknow under
section 9 of the Arbitration & Conciliation Act, 19969 (as
amended). Apparently, in the said impugned order the Learned
Commercial Court has directed the parties to maintain ‘status
quo” with respect to the performance Bank Guarantee, furnished
by the Respondent Contractor – M/s Sahakar Global Ltd.

3. The Appellants have submitted that the said “Status Quo” order
passed by the Learned Commercial Court, Lucknow as per the
impugned order, not only amounts to restraining the invocation
and/or encashment of Performance Bank Guarantee by them but
also amounts to final adjudication of the pending section 9
petition itself as the nature of relief, which can be
obtained/granted under a proceeding under section 9 of the
Arbitration & Conciliation Act, 1996 can be only interim in
nature as any dispute can be finally decided in an arbitration
proceedings before the Learned Arbitral Tribunal. Thus, it has
been urged by the appellant that since a status quo order has
been passed nothing remains in the pending section 9 petition to
be decided and as such this court has been called upon to set
aside the impugned order as well as dismiss the pending section
9 petition.

4. The genesis of dispute in the present case can be capitulated in

the following manner:
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(i) UPEIDA and M/s Sahakar Global Ltd. entered into a

Contract Agreement dated 13.10.2020, which provided
collection of user fee at such rates from the vehicles in
terms of the U.P. Toll Rules, 2020 at the 17 designated
Toll Plazas, located on the Agra-Lucknow Express way.

(ii) M/s Sahakar Global Ltd. was required to pay one year
contract amount of Rs.402,39,00000/- (Rupees Four
Hundred Two Crores and Thirty Lakhs only) divided by
number of days in a year (365 or 366 as the case may be)
and multiplied by seven on weekly basis every Thursday
to UPEIDA. For the subsequent second year of contract,
the payable amount was to be escalated by 10% till end of
the contract tenure.

(iii) The period of contract commenced on 15.10.2020 (00:00

hours) until 14.10.2022 (23:59:59 hours).

(iv) In terms of the contract, M/s Sahakar Global Ltd

furnished five Bank Guarantees all valid and subsisting
upto January 31, 2023 for a total sum of Rs.33,53,25,000/-
(Rupees Thirty Three Crore Fifty Three lakhs and Twenty
Five Thousand only) in favour of the present Appellant as
performance security.

(v) As per M/s Sahakar global Ltd. a serious dispute arose

between the parties in connection with the contract
Agreement with regard to (a) Stamp Duty and (b) Force
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Majeure reliefs, which required to be adjudicated by a

duly constituted Arbitral Tribunal.

(vi) As far as the dispute relating to Stamp duty is concerned,

UPEIDA has claimed a uniform rate of 4% stamp duty on
the contract value for the contract period as per clause 39
of the contract dated 13.10.2020, which translates into Rs.
33,80,07,600/-, whereas it is the claim of M/s Sahakar
global Ltd, that the contract attracts initial stamp duty @
2% on the contract value for the contract period and an
additional 2% is leviable only on such toll plazas which
falls within the notified/ development area in terms of the
law. Thus, according to Ms Sahakar Global Ltd they have
deposited the initial stamp duty @ 2% of the contract
value amounting to Rs. 16,90,03,800/- and have claimed
that they are required to deposit the propionate additional
2% stamp duty for 3 out of 17 toll plazas only and as such
the demand of UPEIDA for payment of stamp duty @ 4%
of the contract value was not correct. Further, as to
whether they have paid the proportionate additional 2%
stamp duty for 3 out of 17 toll plazas or not is not clear
and whether they are required to pay 4% stamp duty on
the entire contract value or not is also debatable.

(vii) Similarly, as far as the issue relating to force majure relief

is concerned, M/s M/s Sahakar global Ltd has claimed the
total force majeure relief for three different periods being
(i) for duration between 02.05.2021 to 07.06.2021 for an
amount of Rs. 11,36,66,013/-, (ii) for duration between
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29.06.2021 to 01.11.2021 for an amount of Rs.

14,59,09,302, and (iii) for duration between 04.01.2022
to 08.08.2022 for an amount of Rs. 23,26,70,489/-.
However, UPEIDA has notified for force majeure relief
for Rs. 11,38,11,932/- for the duration 02.05.2021 to
07.06.2021 only and that too with certain conditions of
signing a settlement-cum-close out agreement for no
further claims on account of force majure etc.

(viii) Thus, it is the case of M/s Sahakar global Ltd that

UPEIDA is threatening to invoke and encash the Bank
Guarantee contrary to the terms of the Contract as
according to them UPEIDA on the one hand is not
fulfilling its obligation to grant force majeure relief to
them and on the other hand demanding deposit of full
contractual remittance and in that regard is threatening to
forfeit the performance securities by encashing the Bank
Guarantees.

5. Thus, the Respondent filed an application under section 9 of the

Act seeking interim relief vide Arbitration Case No. 57 of 2022
on 27.08.2022. Since the said application was not heard /
decided by the commercial Court, Lucknow on an appeal being
filed by the respondent herein, thus Court in an earlier round of
litigation had directed vide its order dated 30.08.2022 in Appeal
Under Section 37 of Arbitration and Conciliation Act, 1996
bearing no. 12 of 2022 as inter-alia;
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“Exercising our jurisdiction under Section 13 of

Commercial Courts Act read with Section 37 of the
Arbitration and Conciliation Act as well as Article 227
of the Constitution of India, we hereby direct the
Commercial Court, Lucknow to consider and decide
the pending application for interim relief filed by the
appellant alongwith the application under Section 9 of
the Arbitration and Conciliation Act, 1996
expeditiously, preferably, on or before 5.9.2022. The
appellant shall make an application for pre-ponement
of date before the Commercial Court within a period
of two days from today. The bank guarantee extended
by the appellant shall not be invoked till 5.9.2022
subject to the outcome of interim relief application.
The protection granted to the appellant may not be
understood for this Court to have dealt with the matter
on merit which the court below may decide in
accordance with law. This order is passed in the
peculiar facts and circumstances of the case. The
parties are expected to co-operate with the
proceedings. The bank guarantee shall also adhere to
the terms and conditions of the agreement. The appeal
is accordingly disposed of. Copy of the order shall be
made available to the learned Chief Standing
Counsel.”

6. The Appellant on its part filed a detailed objection to the said

petition on 05.09.2022. The Learned Commercial court after
hearing the parties at length and after considering rival
submission of the parties, passed a detailed impugned order
dated 12.09.2022 granting status quo order relating to the
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invocation of the Bank Guarantees. Thus, the appellant chose to

file the present Appeal.

7. There is another aspect of the matter, in as much as during the

pendency of the aforesaid section 9 petition before the Learned
Commercial Court, Lucknow, the contract Agreement dated
13.10.2020 stood expired by efflux of time and the respondent
has already handed over the operations to some new contractor
on 13.10.2022. The respondent has also vide a notice dated
04.11.2022 invoked the arbitration clause by serving a notice
through email to the Appellant.

8. The fulcrum of the argument pressed upon by Learned Advocate

for the appeallant is that the learned Commercial Court below
passed the impugned order (a) without considering the principles
of law relating to and as applicable to the invocation and
encashment of unconditional bank guarantees (b) the
Respondent on the basis of the allegations made in the Petition
under Section 9 of the Act, has failed to show the existence of
egregious fraud, irretrievable injustice or injury or special equity
in their favour (c) In any case, the dispute or the clauses of the
contract dated 13.10.2020 entered between the parties are
wholly immaterial and irrelevant while considering the relief
claimed by the Respondent to restrain the Appellant from
invoking and encashing unconditional bank guarantees.

9. The Learned Counsel appearing for UPEIDA has taken this

court to the averments made by the Respondent in the pending
section 9 petition to buttress his point that a dispute exists
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between the parties. It has been vehemently contended by the

Learned Counsel that the so called special equities pleaded by
the respondent in their petition relates to a single ground that
invocation of Bank Guarantee would drive to financial ruins.
According to him the threat to encash the bank guarantees is
wholly unfounded and the pleadings regarding egregious fraud
or Irretrievable Injustice also relates merely to adversely
affecting the commercial viability of the respondent. In any case,
the Learned Counsel contends that the special equity as claimed
by the respondent towards Covid pandemic for the relief was
also considered & granted by the Appellant, however the
respondent claimed further amounts which has been denied by
the appellant and since this was a dispute on the quantum of
money/relief to be granted to the respondent, which is a disputed
fact, the same cannot be a ground for interdicting the
performance Bank guarantee, which are unconditional and
irrevocable in nature.

10. It is the further case of the Appellant that there was a short
remittance of Rs. 39,21,09,614/- even after giving the force
majeure relief of Rs. 11,38,11,932- to the respondent and as
such the present case was neither a case of irretrievable injustice
or egregious fraud. Further, the Bank Guarantee secured the
amount to the tune of Rs. 33.53 Crores only while the short
remittances were more than Rs. 39 Crores and as such even after
invocation of the Bank Guarantee the entire outstanding would
not be recoverable, inspite of the fact that an undertaking
affidavit had been given by them before the Learned
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Commercial court that the Bank Guarantee would not be

encashed towards the recovery of stamp Duty.

11. It has also been argued that though the Learned Commercial
Court noted the cases cited by the Appellant, but failed to
consider the settled legal principles as laid down in the case of
Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development
Corporation Ltd. (1996) 5 SCC Page 450 and Standard
Chartered Bank Vs. Heavy Engineering Corporation Ltd. and
others, (2020) 13 SCC Page 574. The Learned Counsel has
vehemently explained that the Hon'ble Supreme Court in these
Judgment while considering the unconditional bank guarantee,
held, that the object behind is to inculcate respect for free flow
of commerce, trade and faith in the commercial bank
transactions, unhedged by pending dispute between the
beneficiary and the contractor.

12. The Learned Counsel for the appellant has stressed on the point
that the nature and terms of the Bank guarantees are
unconditional and the amounts are payable merely on demand to
be made by the beneficiary without any demur, reservation,
contest, recourse, cavil, argument or protest and/or without
reference to any inquiry from the Respondent and without
needing to prove or show grounds or reasons for the demand in
respect of the sum specified. It has been urged that any such
demand made by the Appellant on the bank shall be conclusive
and binding notwithstanding any difference between the
Appellant and the Respondent or any dispute pending before any
Court, Tribunal, Arbitrator or any other Authority. The Learned
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Counsel referred to the following Judgments relating to the law

for invocation of unconditional bank guarantees:

(i) Swenska Handeksbanken V/s M/s. Indian Charge

Chrome and others, (1994) 1 SCC Page 502.
(ii) U.P. State Sugar Corporation V/s Sumac
International Ltd, (1997) 1 SCC Page 568.
(iii) Daewoo Motors India Ltd, V/s Union of India and
others, (2003) 4 SCC Page 690,
(iv) BSES Ltd, (now Reliance Energy Ltd. Vs, Fenner
India Ltd. and another, (2006) 2 SCC Page 728;
(v) Vintec Electronics Private Ltd, Vs. HCL
Infosystems Ltd., (2008) 1 SCC Page 544
(vi) Ansal Engineering Projects Ltd. Vs. Tehri Hydro
Development Corporation Ltd, and another, (1996)
5 SCC Page 450;
(vii) General Electric Technical Services Company INC
Vs. Punj Sons (P) Ltd, and another, (1991) 4 SCC
Page 230.

13. Thus, in sum & substance, the appellant attacked the impugned
order by submitting that (i) The unconditional Bank guarantee is
an independent and distinct contract; (ii) The mere fact that the
dispute relating to force majure will be decided by Arbitral
tribunal and the Respondent intends to keep the Bank Guarantee
alive does not create a prima-facie case in favour of the
respondent; (iii) Balance of convenience has been vaguely
considered by the Learned Commercial Court; (iv) the ground of
financial hardships and effect on reputation in the business
world cannot be extended to mean irreparable injury or
irretrievable injustice or even special equity relating to Covid
pandemic and (v) The respondent have failed to pay a sum of
more than Rs.39 Crore towards short remittances and now the
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said amount has surmounted to more than Rs.96 Crore being

inclusive of penalties and taxes.

14. As far as the respondents are concerned, they defended the

impugned order and the defence was led by the Learned Senior
Counsel Mr. Jaideep Narain Mathur, who flawlessly articulated
his argument by raising various issues. The first issue raised by
Mr. Mathur was relating to maintainability of the present Appeal
on the ground of it being premature. Mr. Mathur, stressed on the
point that since the impugned order is interim in nature and the
Learned Commercial court has posted the matter for hearing
next on 08.12.2022, any decision by this court in the present
Appeal would render the pending section 9 petition infructous.
The Learned Senior Counsel relied on the judgment of Essar
House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India reported as
AIR 2022 SC 4294 to drive home his point that the commercial
court has rightly while deciding the application under section 9
petition has taken into account the principles of Injunction
enshrined in order 39 CPC.

15. The Learned Senior Counsel negated the argument of the

Appellant relating to Bank Guarantee being an independent
contract and the same must be honoured by the Bank despite of
any dispute or difference between the parties, by submitting that
the Bank Guarantee being primarily given for performance can
be only invoked if there was any deficiency of performance in
agreement and not for shortfall of weekly remittance. According
to him, the shortfall of remittance was due to force majure
reasons of Covid 2nd & 3rd wave and the same was covered under
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clause 26(b)(ii) of the Main Contract. Thus, it has been

impressed upon by the Learned Counsel that since the plea of
the respondent are yet to be examined by the appellant relating
to their claim under the Force Majure Clause, the BG given for
performance cannot be invoked. Mr. Mathur, took this court to
the next leg of argument by submitting that clause 18(b) and
clause 20 of the Main Contract itself bars the appellant from
adjusting the performance security towards the instalment due to
them and any action contrary to the said clauses amounts to
overriding the terms of the agreement and the demand is as such
wholly illegitimate & wrongful and further any endeavour on the
part of the appellant to invoke the BG in violation of the terms
of the contract would amount to “egregious fraud”.

16. It has been submitted by the Learned Senior Counsel that since
the PBG are alive till 31.01.2023 and further the respondent
have given an undertaking before the Learned Commercial
Court that they would keep the said BG alive till conclusion of
the arbitral proceedings, they have a bonafide prima-facie case
in their favour. The Learned Counsel has stressed that in case
the Bank Guarantee is allowed to be encashed, the respondent
would suffer irretrievable harm and injustice, since it would be
impossible for them to be reimbursed from the Appellant. He
further contends that there does not exist any contractual
relationship with the appellant and as such they would never be
able to recover the money from adjustment of payments due to it
and has contended that any encashment of Bank Guarantee
would lead to irretrievable injustice in term of the respondent’s
commercial viability, good will and future prospect. The
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Learned Senior Counsel tried to explain this court as to how a

Bank guarantee facility is availed by the respondent and has in
this endeavour enumerated several negative implications on the
respondent’s financial stability in case the Bank guarantee is
invoked.

17. The Learned Senior Counsel has strenuously argued that the
conduct of the Appellant in trying to invoke the Bank Guarantee
is vitiated by fraud as it is not the case of the Appellant that
there were any shortcomings or defect in the performance of the
Respondent during the entire tenure of the Contract Agreement.
He has relied on the judgment of the Delhi High Court passed in
Continental Construction Ltd. v. Satluj Jal VidyutNigam Ltd.
reported as 2006 SCC OnLine Del 56 to argue that a beneficiary
is not vested with an unquestionable or unequivocal legal right
to encash the bank guarantee on demand. He has also relied on
Hindustan Construction Co Ltd. & Anr. V. Satluj Jal Vidyut
Nigam Ltd. reported as 2005 SCC OnLine Del 1249 to impress
upon this court that invocation of the Bank guarantee can be
stayed and the same may be kept alive till the award was
published by the Arbitrator. The respondent has also relied on
the case of Union of India v. Millenium Delhi Broadcasts LLP,
reported as AIR 2022 SC (Civil) 1682 to justify that the Bank
Guarantee can be stayed, if the conditions were not fulfilled as
per the tender and the terms of the contract has also to be read
along with the terms of the Bank guarantee.

18. It is the case of the respondent that Clause 18(d) read with
Clause 20 of the Contract Agreement bars the Appellant from
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encashing the Performance Bank Guarantee against the shortfall

in remittance and further taking into account the situation of
Covid-19 pandemic and the consequences of encashment of
performance Bank Guarantee, the Learned Senior Counsel
argues that the Learned Commercial Court was justified in
holding that since the circumstances falls into special equities/
exceptional circumstances and the Respondent would suffer
irretrievable injustice, the parties should maintain 'status-quo'
with respect to the Bank Guarantees.

19. Having given a careful thought to the rival submissions, this

court is of the firm view that the law with respect to grant of an
injunction which has the effect of restraining encashment of a
bank guarantee, is no longer res integra. In the earliest case of
U.P. Cooperative Federation Ltd. v. Singh Consultants and
Engineers (P) Ltd. (1988 (1) SCC 174), which was the case of
works contract where the performance guarantee given under the
contract was sought to be invoked, the Hon’ble Supreme Court,
after referring extensively to English and Indian cases on the
subject, said that the guarantee must be honoured in accordance
with its terms. The Apex court observed that a bank which gives
the guarantee is not concerned in the least with the relations
between the supplier and the customer; nor with the question
whether the supplier has performed his contractual obligation or
not, nor with the question whether the supplier is in default or
not. The bank must pay according to the tenor of its guarantee
on demand without proof or condition. The court went on to
hold that there are only two exceptions to this rule. The first
exception is a case when there is a clear fraud of which the bank
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has notice. The fraud must be of an egregious nature such as to

vitiate the entire underlying transaction. Explaining the kind of
fraud that may absolve a bank from honouring its guarantee, the
Apex Court in the said case quoted with approval the
observations of Sir John Donaldson, M.R. in Bolivinter Oil SA
v. Chase Manhattan Bank NA (1984 [1] AER 351 at 352):
"The wholly exceptional case where an
injunction may be granted is where it
is proved that the bank knows that any
demand for payment already made or
which may thereafter be made will
clearly be fraudulent. But the evidence
must be clear both as to the fact of
fraud and as to the bank's knowledge.
It would certainly not normally be
sufficient that this rests on the
uncorroborated statement of the
customer, for irreparable damage can
be done to a bank's credit in the
relatively brief time which must elapse
between the granting of such an
injunction and an application by the
bank to have it charged".

Thus, the Apex Court in the said case, set aside an injunction
granted by the High Court to restrain the realisation of the bank
guarantee.

20. The next case being referred by this court is the case of
Svenska Handelsbanken Vs Indian Charge Chrome (1994) 1
SCC 502, wherein the Apex court noticed that the confirmed or
irrevocable Bank Guarantee cannot be interfered with unless
there is established fraud or irretrievable Injustice involved in
the case. It was observed in the said judgment that irretrievable
injury had to be of the nature noticed in the case of Itek
 16

Corporation V/s First National Bank of Boston 566 fed Supp.

1210. The Hon’ble Court explained in that case to avail of this
exception, therefore, exceptional circumstances which make it
impossible for the guarantor to reimburse himself if he
ultimately succeeds, will have to be decisively established and a
mere apprehension that the party will not be able to pay, is not
enough.

21. In State Trading Corporation of India Ltd. Vs Jainsons

Clothing corporation (1994) 6 SCC 597, the Hon’ble Court
held that the grant of injunction is a discretionary power in
equity jurisdiction. The contract of guarantee is a trilateral
contract which the bank has undertaken to unconditionally and
unequivocally abide by the terms of the contract. It is an act of
trust with full faith to facilitate free flow of trade and commerce
in internal or international trade or business. It creates an
irrevocable obligation to perform the contract in terms thereof.
On the occurrence of the events mentioned therein the bank
guarantee becomes enforceable. The subsequent disputes in the
performance of the contract does not give rise to a cause nor is
the court justified on that basis, to issue an injunction from
enforcing the contract, i.e., bank guarantee. The parties are not
left with no remedy. In the event of the dispute in the main
contract ends in the party's favour, he/it is entitled to damages or
other consequential reliefs.

22. The Hon’ble Supreme court in U.P State Sugar Corporation

Vs Sumac International Limited (1997) 1 SCC 568 held that
the existence of any dispute between the parties to the contract is
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not a ground for issuing an injunction to restrain the

enforcement of Bank Guarantees. In Hindustan Steel Workers
Construction Ltd. Vs. G.S. Atwal & Co (Engineers) Pvt. Ltd.
1995 (6) SCC 76, wherein bank guarantees were given towards
due performance of the contract, the Hon’ble Apex Court held
that the bank guarantees being irrevocable and unconditional
and as the beneficiary was made the sole judge on the question
of breach of performance of the contract and the extent of loss or
damages an injunction restraining the beneficiary from invoking
the bank guarantees could not have been granted.

23. In Hindustan Steel Workers Construction Ltd. Vs. Tarapore

& Co, 1996 (5) SCC 34, the Hon’ble Apex court was examining
the relief for injunction, which was sought by the contractor on
the ground that special equities or the special circumstances of
the case required it. The special circumstances and/or special
equities which had been pleaded in that case, was that a serious
dispute on the question as to who has committed breach of the
contract. It was contended by the contractor that he has a counter
claim against the appellant and that the disputes between the
parties have been referred to the arbitrators and that no amount
can be said to be due and payable by the contractor to the
appellant till the arbitrators declare their award. The Hon’ble
Apex Court, held that, these factors are not sufficient to make
this case an exceptional case justifying interference by
restraining the appellant from enforcing the bank guarantees.

24. The Hon’ble Supreme Court, clarifying the law on the grant of
stay or otherwise in Bank Guarantee matters gave exhaustive
 18

direction in that regard in Himadri Chemicals Industries Ltd. v.

Coal Tar Refining Co.: (2007) 8 SCC 110 in para 14 of the said
judgment, which inter-alia stated:

“14. From the discussion 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:
"(i) While dealing with an application for injunction in
the course of commercial dealings, and when an
unconditional Bank Guarantee or Letter of Credit
is given or accepted, the Beneficiary is entitled to
realize such a Bank Guarantee or Letter of Credit
in terms thereof irrespective of any pending
disputes relating to the terms of the contract.
(ii) The Bank giving such guarantee is bound to
honour it as per its terms irrespective of any
dispute raised by its customer.
(iii) The Courts should be slow in granting an order of
injunction to restrain the realization of a Bank
Guarantee or Letter of Credit.
(iv) Since a Bank Guarantee or Letter of Credit is an
independent and a separate contract and is
absolute in nature, the existence of any dispute
between the parties to the contract is not a
ground for issuing an order of injunction to
restrain enforcement of Bank Guarantee or
Letter of Credit.
(v) Fraud of an egregious nature which would
vitiate the very foundation of such a Bank
Guarantee or Letter of Credit and the beneficiary
seeks to take advantage of the situation.
(vi) Allowing encashment of an unconditional Bank
Guarantee or Letter of Credit would result in
irretrievable harm or injustice to one of the
parties concerned."
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25. The Learned Counsel for the appellant has heavily relied on the
judgment passed in the case of Vintec Electronics Private Ltd,
Vs. HCL Infosystems Ltd., (2008) 1 SCC 544, which, in turn,
took note of the earlier decisions in U.P. State Sugar
Corporation (1997) 1 SCC 568, B.S.E.S. Ltd v. Fenner India
Ltd, (2006) 2 SCC 728, Himadri Chemicals (2007) 8 SCC 110
and Mahatma Gandhi Sahakara Sakkare Karkhane v. National
Heavy Engineering Coop. Ltd(2007) 6 SCC 470. The Hon’ble
Supreme Court proceeded to hold thus in paras 11, 12 and 14 of
the said judgment.

"11. The law relating to invocation of bank guarantees is by now

well settled by a catena of decisions of this Court. The bank
guarantees which provided that they are payable by the
guarantor on demand is considered to be an unconditional
bank guarantee. When in the course of commercial dealings,
unconditional guarantees have been given or accepted the
beneficiary is entitled to realise such a bank guarantee in
terms thereof irrespective of any pending disputes. In U.P.
State Sugar Corpn. v. Sumac International Ltd., (1997) 1
SCC 568 this Court observed that: (SCC p. 574, para 12)

"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 realise
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 realisation of such
a bank guarantee. The courts have carved
out only two exceptions. A fraud in
 20

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
advantage, he can 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. The
two grounds are not necessarily connected,
though both may coexist in some cases."

12. It is equally well settled in law that bank guarantee is

an independent contract between bank and the beneficiary
thereof. The bank is always obliged to honour its guarantee
as long as it is an unconditional and irrevocable one. The
dispute between the beneficiary and the party at whose
instance the bank has given the guarantee is immaterial and
of no consequence. In BSES Ltd. v. Fenner India Ltd. [(2006)
2 SCC 728] this Court held: (SCC pp. 733-34, para 10)

"10. There are, however, two exceptions to

this rule. The first is when there is a clear
fraud of which the bank has notice and a
fraud of the beneficiary from which it seeks
to benefit. The fraud must be of an egregious
nature as to vitiate the entire underlying
transaction. The second exception to the
general rule of non-intervention is when
there are 'special equities' in favour of
injunction, such as when 'irretrievable injury'
or 'irretrievable injustice' would occur if such
an injunction were not granted. The general
rule and its exceptions has been reiterated in
 21

so many judgments of this Court, that in U.P.

State Sugar Corpn. v. Sumac International
Ltd., (1997) 1 SCC 568 this Court, correctly
declared that the law was 'settled'."

*****

14. In Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy

Engg. Coop. Ltd., (2007) 6 SCC 470 this Court observed: (SCC p.
471b-d)

"If the bank guarantee furnished is an

unconditional and irrevocable one, it is not
open to the bank to raise any objection
whatsoever to pay the amounts under the
guarantee. The person in whose favour the
guarantee is furnished by the bank cannot be
prevented by way of an injunction from
enforcing the guarantee on the pretext that
the condition for enforcing the bank
guarantee in terms of the agreement entered
into between the parties has not been
fulfilled. Such a course is impermissible. The
seller cannot raise the dispute of whatsoever
nature and prevent the purchaser from
enforcing the bank guarantee by way of
injunction except on the ground of fraud and
irretrievable injury.

What is relevant are the terms incorporated

in the guarantee executed by the bank. On
careful analysis of the terms and conditions
of the guarantee in the present case, it is
found that the guarantee is an unconditional
one. The respondent, therefore, cannot be
allowed to raise any dispute and prevent the
appellant from encashing the bank
guarantee. The mere fact that the bank
guarantee refers to the principal agreement
without referring to any specific clause in the
preamble of the deed of guarantee does not
make the guarantee furnished by the bank to
be a conditional one."
 22

26. The legal position was further explained more recently,

in Gujarat Maritime Board v. Larsen and Toubro
Infrastructure Development Projects Limited (2016) 10 SCC
46 and in Standard Chartered Bank V/s Heavy Engineering
Corporation Ltd.,(2020)13SCC 574, which has consistently
followed the earlier case law passed by the Supreme Court.

27. Having traced the law on the subject, this court finds it
profitable to quote the terms of the Bank Guarantee, which is an
issue in the present case. It is seen that there are altogether five
performance Bank Guarantees total amounting to Rs.
33,53,25,000/-, which has been furnished by the Respondent.
These BG’s being:

Sl. Bank Guarantee’s Particular Amount (Rs.) Validity

No.
1. BG No. 495701GL0010720 9,00,00,000 31.01.2023
dated 06.10.2020 issued by
Union Bank of India, Mid
Corporate Branch, Nariman
Point, Mumbai.

2. BG No. 26111GP00861220 10,00,00,000 31.01.2023

dated 08.10.2020 issued by Bank
of Baroda, International
Business Branch, Kandivali (W),
Mumbai.

3. BG No. 495701GL0011220 6,10,59,000 31.01.2023

dated 08.10.2020 issued by
Union Bank of India, Mid
Corporate Branch, Nariman
Point, Mumbai.
 23

4. BG No. 00611LG006020 dated 5,00,00,000 31.01.2023

09.10.2020 issued by Punjab
National Bank, IIaco House,
Fort, Mumbai.

5. BG No. 00611LG006120 dated 3,42,66,000 31.01.2023

09.10.2020 issued by Punjab
National Bank, IIaco House,
Fort, Mumbai.

Total 33,53,25,000

The recital of all the Bank Guarantee are identical and as such the
terms of one of the BG is being taken into consideration.
Apparently, the terms inter-alia states:

“..We, Union Bank of India MID Corporate Branch Mumbai South

having registered office at Ground Floor, Union Bank Bhavan, 239,
Vidhan Bhavan, Marg Nariman Point, Mumbai – 100021,India, a
body registered/constituted under the 1956 (herein after referred to
as the Bank), which expression shall, unless repugnant to the
context of meaning thereof, include its successors, administrators,
executors and assigns do hereby guarantee and undertake to pay
the Client immediately on demand, without any deductions, set-off
or counterclaim whatsoever, any or, all money payable by the
contractor to the extent Rs. 9,00,00,000/- (Rupee Nine Crore only)
as aforesaid at any time up to 31.01.2024 without any demur,
reservation, contest, recourse, cavil, arguments, or protest and/or
without any reference to or enquiry from the Contractor and
without your needing to prove or show grounds or reasons for your
demand for the sum specified therein. Any such demand made by
the client on the Bank shall be conclusive and binding
notwithstanding any difference between the client and the
Contractor or any dispute pending before any Court, Tribunal,
Arbitrator or any other authority. We agree that the Guarantee
herein contained shall be irrevocable and shall continue to be
enforceable till the Client discharges this guarantee.
The Client shall have the fullest liberty without affecting in any way
the liability of the Bank under this Guarantee, from time to time to
vary or to extend the time for performance of the contract by the
 24

Contractor. The Client shall have the fullest liberty without

affecting this guarantee, to postpone from time to time the exercise
of any powers vested in them or of any right which they might have
against the Contractor of they might have against the Contractor
and to exercise the same at any time in any manner, and either to
enforce or to forbear to enforce any covenants, contained or
implied, in the Contract between the Client and the Contractor any
other course or remedy or security available to the Client. The
Bank shall not be relieved of its obligations under these present by
any exercise by the Client of its liberty with reference to the matters
aforesaid or any of them or by reasons of any other act or
forbearance or other acts of omission or commission on the part of
the Client or any other indulgence shown by the Client or by any
other matter or thing whatsoever which under law would but for
this provision have the effect of relieving the Bank.
The Bank also agrees that the Client at its option shall be entitled to
enforce this guarantee against the Bank as a principal debtor, in
the first instance without proceeding against the Contractor and
notwithstanding any security or other guarantee that the Client may
have in relation to the Contractor’s liabilities.
Any demand shall be deemed to be served, if delivered by hand,
when left at the property address for service: and if given or made
by pre-paid registered post or facsimile transmission, on receipt.
Any waivers, extensions of time or other forbearance given or
variations required under the Contract or any invalidity,
unenforceability or illegality of the whole or any part of the
contactor or rights or any Party thereto or amendment or other
modifications of the Contract, or any other, circumstances,
provision of other modifications of the contract or any other fact,
circumstances, provisions of statute of law which might entitle the
Bank to be released in whole or in part from its undertaking,
whether in the knowledge of the Bank or not or whether notified to
the Bank or not shall not in any way release the Bank from its
obligations under this Bank guarantee.
“The guarantee shall also be operatable at our Union Bank of India
branch at Lucknow, from whom, confirmation, regarding the issue
of this guarantee or extension/renewal thereof shall be made
available on demand. In the contingency of this guarantee being
invoked and payment there under claimed, the said branch shall
accept such invocation letter and make payment of amounts so
demanded under the said invocation”.
 25

Notwithstanding anything contained herein,

1. Our liability under this Bank Guarantee shall not
exceed Rs. 9, 00, 00,000/- (Rupees Nine Crore only).
2. This shall be Valid up to 31.01.2023.
3. We are liable to pay the guarantee amount or any
part thereof under this Bank Guarantee only and only
if you serve upon us a written claim or demand on or
before 31.01.2024.
4. At the end of claim period that is on or after
31.01.2024 all your rights under this guarantee shall
stand-extinguished and we shall be discharged from
all our liabilities under this guarantee irrespective of
receipt of original Bank Guarantee duly discharged
by Bank.”

28. The judgement in Vintec Electronics Private Ltd, Vs. HCL

Infosystems Ltd., (2008) 1 SCC 544 makes it abundantly clear
that the first aspect, to be taken into consideration, is the bank
guarantee itself, and the terms thereof. If the bank guarantee is
conditional, then, if the conditions have not been fulfilled,
injunction, against encashment and invocation, may
unquestionably follow. If, however, the bank guarantee is
unconditional, then injunction can be granted only if egregious
fraud, irretrievable injustice, or special equities, exist, and not
otherwise.

29. Clearly, the Bank Guarantees are unconditional and irrevocable.

Under the Bank Guarantee, the bank undertakes to pay the
appellant immediately on demand, without any deductions, set-
off or counterclaim whatsoever, any or, all money payable by
the Respondent without any demur, reservation, contest,
recourse, cavil, arguments, or protest and/or without any
reference to or enquiry from the Respondent and without the
 26

appellant needing to prove or show grounds or reasons for their

demand for the sum specified therein.

30. The Bank Guarantee in unequivocal terms says that any demand
made by the Appellant on the Bank shall be conclusive and
binding notwithstanding any difference between the Appellant
and the respondent or any dispute pending before any Court,
Tribunal, Arbitrator or any other authority. It is very much
contained in the BG that the Bank has agreed that the Guarantee
contained shall be irrevocable and shall continue to be
enforceable till the Appellant discharges this guarantee.

31. Having said so, it has to be understood that the jurisdiction of

the Court to interfere, in such cases, is, however, not irrevocably
foreclosed and as such the exceptions of egregious fraud,
irretrievable injustice, or special equities have been devised by
the court to injunct the invocation of the bank guarantee(s). As
to what follows from egregious fraud, the meaning and
implications thereof are settled. The Hon’ble Supreme court as
far back as some 50 years ago in the case of Union of India Vs.
Chaturbhai M. Patel & Co (1976) 1 SCC 747 relying on the
judgement of Lord Atkin in A.L.N. Narayanan Chettyar v.
Official Assignee, High Court, Rangoon, AIR 1941 PC 93 held
that “fraud like any other charge of a criminal offence whether
made in civil or criminal proceedings, must be established
beyond reasonable doubt.” The aspect was further clarified by
holding that “however suspicious may be the circumstances,
however strange the coincidences, and however grave the doubt,
suspicion alone can never take the place of proof.” The Supreme
 27

court in Svenska Handelsbanken v. Indian Charge Chrome

( 1994) 1 SCC 502 , went on to say that mere pleadings do not
make a strong case of prima facie fraud, which had to be shown
by “material and evidence”. Thus, fraud must be pleaded and
proved and it cannot be presumed.

32. Coming back to the facts of the present case, the reason, which
has been accorded for fraud by Learned Senior counsel for the
respondent is twofold; (i) it is not the case of the Appellants that
there had been any shortcomings or defect in the performance of
the respondent during the entire tenure of the Contract
Agreement and (ii) that Clause 18(d) read with Clause 20 of the
Contract Agreement bars the Appellant from encashing the
Performance Bank Guarantee against the shortfall in remittance.

33. First & foremost, the terms of the Bank Guarantee, clearly says
that for invocation no such statement of shortcoming or defect in
performance is required to be made by the appellant to the Bank.
The Learned Senior Counsel may be right that there is no
pleading of shortcomings or defect in performance by the
appellant, but at the same time the appellant have controverted
the said contention by claiming that over Rs. 39 Crores is due
and outstanding against the respondent towards remittance.
Now, whether the contention of the appellant towards shortfall
of remittance can be extended to mean a shortcoming or defect
in performance is in the realms of interpretation, which
obviously is still to be adjudicated between the parties.
However, at this juncture, this court is not concerned with the
said interpretation and is merely concerned with the wording of
 28

the Bank guarantee, which clearly uses the wording “without

any demur, reservation, contest, recourse, cavil, arguments, or
protest and/or without any reference to or enquiry from the
Contractor and without your needing to prove or show grounds
or reasons for your demand for the sum specified therein”. The
said Bank Guarantee specifically specifies that any such demand
made by the Appellant on the Bank shall be conclusive and
binding notwithstanding any difference between the client and
the Contractor or any dispute pending before any Court,
Tribunal, Arbitrator or any other authority.

34. Further, we are unable to agree with the contention of the

Learned Senior counsel for the Respondent that this Court, when
approached for the interim measure of interference with
unequivocal, absolute and unconditional BGs, is required to
interpret the contract and/or form a prima facie opinion whether
the beneficiary of the BGs has wrongfully invoked the BGs.
Such exercise, in the view of this court is to be done in a
substantive proceeding of Arbitration, for recovery of the
monies of the BGs, if contended to have been wrongly taken by
the Appellant by encashment of BGs. Naturally, if any interim
relief is also claimed in the said substantive proceedings, the
need for taking a prima facie view, will arise therein; however
not while dealing with an application for the interim measure of
restraining invocation/encashment of BGs, which has to be
obviously on the basis of the terms of the Bank Guarantee
Agreement.
 29

35. In view of the well crystallized law on the subject, any

reference to the original dispute between the parties, relating to
the performance of the contract, is completely irrelevant, insofar
as the issue of stay of invocation of the bank guarantees is
concerned. That dispute has necessarily to form substratum of an
entirely different proceeding, to be resolved either by arbitration
or by adjudication by a Court. Thus, in the present interim
proceedings, the enquiry is confined to, whether on the basis of
the documents, a case of fraud of egregious nature in the matter
of obtaining/furnishing BGs, is made out.

36. This court has burdened itself to go through the clauses

mentioned by the Respondent’s in the argument and is not able
to appreciate to the contention of the Learned Senior Counsel.
Clause 18(d) has to be read in conjunction to clause 18(c) (ii),
which speaks of default to perform or observe any of the
covenants, conditions or provisions contained in the contract, so
that both can coexist. The other clause relied upon by the
Learned Counsel is relating to penalty for failure to pay
instalment. Without entering into the arena of interpretation, this
court finds it apt to quote para 9 of the judgement passed by the
Hon’ble Apex court in State Trading Corporation of India
Ltd. Vs Jainsons Clothing corporation (1994) 6 SCC 597,
wherein it was inter-alia held:

“9. It is settled law that the court, before issuing the

injunction under Order 39, Rules 1 and 2, CPC should
prima facie be satisfied that there is triable issue strong
prima facie case of fraud or irretrievable injury and
balance of convenience is in favour of issuing injunction
to prevent irremediable injury. The court should normally
 30

insist upon enforcement of the bank guarantee and the

court should not interfere with the enforcement of
the contract of guarantee unless there is a specific plea of
fraud or special equities in favour of the plaintiff. He must
necessarily plead and produce all the necessary evidence
in proof of the fraud in execution-of the contract of the
guarantee, but not the contract either of the original
contract or any of the subsequent events that may
happen as a ground for fraud.”

37. Moreover, at this juncture, it would be profitable to quote

Mahatma Gandhi Sahakra Sakkare Karkhane case, wherein at
paragraph 24 of the judgment, it was held;

24: “If the bank guarantee furnished is an unconditional

and irrevocable one, it is not open to the bank to raise any
objection whatsoever to pay the amounts under the
guarantee. The person in whose favour the guarantee is
furnished by the bank cannot be prevented by way of an
injunction in enforcing the guarantee on the pretext that the
condition for enforcing the bank guarantee in terms of the
agreement entered between the parties has not been
fulfilled. Such a course is impermissible. The seller cannot
raise the dispute of whatsoever nature and prevent the
purchaser from enforcing the bank guarantee by way of
injunction except on the ground of fraud and irretrievable
injury.”

Thus, this court holds that, in view of the afore-extracted

categorical exposition of the law, it is clear that the condition, in
the agreement between the parties, under which the bank
guarantees could be enforced, cannot be cited as a ground to stay
the invocation and encashment thereof. Further, this principle of
the law, as enunciated in Mahatma Gandhi Sahakra Sakkare
Karkhane, was quoted, with approval, by the Supreme Court, in
Vinitec Electronics, which went on, on the basis thereof, to hold
 31

that “what is relevant are the terms incorporated in the guarantee

executed by the bank”.

38. Thus, the law on the subject is clear, a fraud in the execution of
the Bank Guarantee has to be pleaded and not the Main contract
or the subsequent events as has been argued by the Learned
Senior Counsel. Fraud, as an exception to the rule of non-
interference with encashment of BGs, is not any fraud but a
fraud of an egregious nature, going to the root i.e. to the
foundation of the bank guarantee and an established fraud. The
entire case of the Respondent, we are afraid, fails to qualify so
and we are not able to subscribe to the views contended by the
Learned Senior Counsel for the respondent.

39. As far as the argument of the senior counsel for the Respondent,
relating to special equities is concerned, the same is but a facet
of the second exception aforesaid of irretrievable injury or
injustice. Needless to state that from the entire arguments of the
senior counsel for the respondent, no case of fraud of egregious
nature in the matter of making/obtaining of the BGs is made out.
All that emerges is that there are some disputes between the
appellant and the respondent, relating to the grant of relief under
the force majure clause and it is not even whispered that the
Appellant built the entire façade of entering into the contract,
only to obtain BGs and to profiteer from the Respondent.

40. The Respondent has stated that the issue relating to Force
Majure has not been decided and in case the same is decided in
 32

their favour, the amount sought to be appropriated by invoking

the present Bank guarantees would not be recoverable from the
appellant. However, this court finds that the Appellant is a
Public Sector Undertaking and the monies, if ultimately found
due to the Respondent from the appellant, can always be
recovered by the Respondent from the Appellant. There is no
pleadings on record that the Appellant are running away from
the Jurisdiction of this court or are closing their operations, so as
to adversely affect the recovery of the Respondent. In fact the
Appellant have filed a document on record, showing a total short
remittance till 10.10.2022 to the tune of Rs. 49,97,14,399/- after
giving relief of force majeure for Rs. 11,38,11,932/- and as such
it is the case of the appellant that even after invocation of the
Bank guarantee in question, there would be substantial amount
left to be recovered from the respondent. However, this court
does not wish to enter into the arena of any figure at this nascent
stage as the rights and contention of the parties are still to be
decided in a Arbitral Proceedings and any findings returned,
may adversely impact the case of the concerned party.

41. Further, this court cannot lose sight of the fact that Irretrievable
injustice, as an exception to the rule of non-interference with
encashment of BGs, is again not a mere loss, which any person
at whose instance bank guarantee is furnished, suffers on
encashment thereof, because it is always open to such person to
sue for recovery of the amount wrongfully recovered. Thus,
what has to be proved and made out to obtain an injunction
against encashment, is that it will be impossible to recover the
monies so wrongfully received by encashment. On the facts of
 33

the present case, this court holds that the said contention is a
mere apprehension only and not on the basis of any material on
record. In any case, the appellant is a public sector undertaking
and a ground of not able to recover from a PSU has to be
grounded on strong footings and not merely on apprehension or
pleadings.

42. The next ground taken by the respondent is relating to “special

equity”. Without extracting the specific references, to the
existence of “special equities”, as made in the petition, suffice it
to state that the only ground, on which the petitioner has urged
the existence of such “special equities”, is its averment that its
claim under the force majure clause, if accepted, there would not
be any amount payable to the appellant and as such the money
being appropriated by the appellant due to Invocation of bank
guarantees is not legally valid. There is no other ground, on
which the existence of “special equities” has been pleaded.

43. Special equities, as held by the Supreme Court in UP State

Sugar Corporation1 and in Svenska Handelsbanken case
(Supra), have to partake the character of irretrievable injustice.
Even otherwise, it cannot be said that any such case of special
equities has been made out by the respondent, as would justify
interdicting invocation of the subject bank guarantees. Indeed,
the contentions of learned Senior Counsel for the respondent
essentially revolved around compliance with the conditions
stipulated in the Main Contract for concession under the Force
majoure Clause. It is rather preposterous to estimate that can a
mere claim, of the respondent against the appellant– the
 34

sustainability of which is yet to be adjudicated – constitute

“special equities”, so as to justify injuncting the invocation of
unconditional bank guarantees, issued by the bank, at the
respondent’s instance, in favour of Appellant, even if such a
claim is in excess of the amount covered by the bank guarantees.
In the considered opinion of this court, the answer has to be in
negative. In view thereof, it cannot be said that, within the
boundaries of the law relating to interdiction of invocation of the
irrevocable bank guarantees, a case for such interdiction has
been made out by the petitioner in the present case, insofar as
the subject bank guarantees are concerned.

44. Thus, it would be right in holding that none of the three

circumstances, in which stay of invocation of unconditional
bank guarantees, can be granted by the Court, exists in favour of
the respondent in the present case and as such it was not well
within the Jurisdiction of the Learned Commercial Court to pass
a status quo order, which in effect has interdicted the invocation
of the performance Bank Guarantee.

45. Another issue, which has been agitated by the Counsel for the
Respondent is that a mere interim order of status quo has been
passed by the Learned Commercial court and since the matter is
engaging the attention of the said commercial court, this court
should lay its hands of the present matter as the said petition
filed under section 9 of the Arbitration & Conciliation Act
would be rendered infructuous. Unfortunately, we are not able to
subscribe to the view of the Learned Senior Counsel for the
Respondent. It may be mentioned herein that section 9 of the
 35

Act, itself bears the heading “Interim measure etc. by court”,

which sufficiently means that the power of the court has been
given for interim measure only as the substantial dispute has to
be decided in an Arbitration proceeding. The said interim
measure is of special importance as it intends to give immediate
succour to a party as the very first line of the section mentions
that the party may approach the court, before or during arbitral
proceedings or at any time after the making of the arbitral
award. Thus, the proceedings by its very nature is interim in
nature under section 9 of the Arbitration & Conciliation Act and
thus by that analogy as is being proposed by the Respondent, the
impugned order seems to be an interim order of an interim relief.
However, we find that the Learned Commercial court, lucknow
has extensively dealt with all the allegations and counter-
allegation of the parties to arrive at a lengthy order of fourteen
pages to arrive at a conclusion that if the benefit of the force
majoure clause is given to the respondent during the Covid-19
period, there would not be any amount payable to the Appellant.
The Learned Commercial court in its pursuit to grant a status
quo order has recorded that the respondent was ready to keep the
BG live during the arbitration proceedings to hold that there was
a prima-facie case in favour of the respondent and that in case
the BG is invoked the respondent would suffer irreparable loss.
Thus, the commercial court on the triple test of prima-facie case,
irreparable loss and balance of convenience granted status quo
order, thereby interdicting the invocation of BG. Having
recorded so, this court cannot agree to the contention of the
Learned Senior Counsel that an interim order has been only
passed by the commercial court. Infact, there was nothing left in
 36

the petition under section 9 of the Arbitration & conciliation Act

to be adjudicated any further. Thus, the commercial court has
passed the interim order in the nature of final order as far as
section 9 of the Arbitration & Conciliation Act is concerned and
as such there was no occasion for the commercial court to keep
the matter pending.

46. Mr. Mathur has also placed reliance on the judgment of

Continental Construction Ltd. v/s Sutluj Jal Vidyut Nigam Ltd.
2006 SCC Online Del 56, passed by the Hon’ble Delhi High
Court to buttress his submission that a beneficiary is not vested
with an unquestionable or unequivocal legal right to encash the
bank guarantee of demand. This court finds that the said
judgment was passed in the peculiar facts of that case, wherein
the Delhi high Court returned a categorical finding that the BG
was not invoked as per the terms of the Bank guarantee itself.
The Learned Counsel has also relied on the Single Bench
judgment passed by the Delhi high court in Hindustan
Construction Co. Ltd & Anr. Vs. Sutlej Jal vidyut Nigam Ltd.
2005 SCC Online Del 1249 and order of the Division Bench of
the Delhi high Court in FAO(OS) 77/2006 (Satluj Jal Vidyut
Vikas Nigam Ltd v. Hindustan Construction Co Ltd), which was
passed noticing the order, dated 3rd April, 2006, of the Supreme
Court in SLP (C) 5456/2006 (Satluj Jal Vidyut Nigam Ltd v. Jai
Prakash Hyundai Consortium. Pertinently, the Supreme Court
order, dated 3rd April, 2006, merely dismissed the SLP,
preferred by Satluj Jal Vidyut Vikas Nigam Ltd. against the
judgement of the Division Bench and did not, therefore, declare
 37

any law within the meaning of Article 141 of the Constitution of

India

47. The judgement of the Division Bench of the Delhi High Court
in Satluj Jal Vidyut Vikas Nigam Ltd is prior, in point of time,
to the decision of the Supreme Court in Mahatma Gandhi
Sahakra Sakkare Karkhane case, as well as the latter decision in
Vinitec Electronics case , which clearly held that an injunction,
from enforcement of a bank guarantee, cannot be granted on the
ground that the condition for enforcement of the bank guarantee
in terms of the agreement between the parties has not been
fulfilled. This court therefore differs with the view taken by the
Division Bench of the Delhi High Court in Satluj Jal Vidyut
Vikas Nigam Ltd.

48. A Division Bench of the Delhi High Court while giving a very
exhaustive Judgment on the aspect of invocation of Ban
guarantee held in the case of Consortium of Deepak Cable
India Limited & Abir Infrastructure Private Limited (DCIL-
AIPL) v. Teestavalley Power Transmission Limited 2014 SCC
Online Del 4741 that a plea of lack of good faith and/or
enforcing the guarantee with an oblique purpose or that the bank
guarantee is being invoked as a bargaining chip, a deterrent or in
an abusive manner are all irrelevant and hence have to be
ignored. There are only two well recognized exceptions to the
rule against permitting payment under a bank guarantee.

49. In view of the facts & the authoritative law on the subject, this
court finds that the law on interdicting an unconditional Bank
 38

Guarantee is settled, however the impugned order has been

passed dehors these authoritative judgment and as such the same
is unsustainable in the eyes of law. This court finds its bounden
duty to quote an observation made by a three Judge Bench of the
Supreme Court in Dwarikesh Sugar Industries Ltd. Vs. Prem
Heavy Engineering Works (P) Ltd. (1997) 6 SCC 450, relevant
to the context, wherein their lordship inter-alia observed;

“It is unfortunate, that notwithstanding the

authoritative pronouncements of this Court, the High
Courts and the courts subordinate thereto, still seem
intent on affording to this Court innumerable
opportunities for dealing with this area of law,
thought by this Court to be well settled.”

Similarly, in the present case, when the law on interdicting an

unconditional Bank guarantee, although stands settled by a
series of consistent judgments by the Hon’ble Supreme Court
since the last more than four decade, the courts are still flooded
with Bank guarantee matters, which take substantial time in
adjudicating the issue, which this court thought to be well-
settled.

50. Thus, for all the aforesaid reasons, this court is inclined to allow
the present Appeal. Accordingly, the impugned order dated
12.09.2022 passed by the Commercial court, Lucknow in
Arbitration Case No. 57/2022 (M/s Sahakar Global Company
Ltd. Vs U.P Expressway Industrial development Authority) is
set-aside. There shall be no order as to cost.

Order Date:- 02.12.2022

Lokesh Kumar

Digitally signed by LOKESH KUMAR

Date: 2022.12.02 17:37:14 IST
Reason:
Location: High Court of Judicature at
Allahabad, Lucknow Bench