Bank guarantee can be stopped only on fraud, says High Court

: In a significant ruling, the Delhi High Court has held that the invocation of a bank guarantee can be stopped only if it is proved that there was fraud or irretrievable injury or injustice in the course of a commercial dealing.

Allowing an appeal against a Single Judge's order, a Division Bench said in a recent judgment that a bank guarantee has to be respected irrespective of the disputes pending between the parties. The existence of a dispute between the parties with regard to an underlying contract cannot be a ground for issuing an injunction to restrain the enforcement of the bank guarantee.

The Bench of Justice B.D. Ahmed and Justice Sanjeev Sachdeva said the purpose of giving bank guarantee would be defeated if an injunction was granted.

In the case, Zillion Infra Projects Limited had issued a letter of intent to Fab-Tech Works & Constructions Private Limited for construction of an NTPC power project near Nagpur. While Fab-Tech gave a bank guarantee, differences cropped up between the two parties later and the disputes were referred to arbitration.

The invocation of guarantee by Zillion was opposed by the other party. As the matter went to the HC, the Single Judge restrained Zillion from encashing the guarantee.

Allowing the appeal against the Single Judge's order, the Division Bench made it clear that it had examined the matter only from the standpoint of the law governing the invocation of bank guarantees and had not considered the merits of the respondent's claim.

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Printable version | Oct 22, 2020 3:30:28 PM |

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