IMPORTANT POINT
Commitment of banks must be honoured free from interference by the courts and it is only in exceptional cases, that is to say, in case of fraud or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the court should interfere.

JUDGMENT

Nanavati, J.-These two appeals, by special leave, are directed against the Judgment and Order passed by the Andhra Pradesh High Court in Civil Revision Petition No. 3865 and 3866 of 1989. The High Court allowed the revision petitions, set aside the common order passed by the Subordinate Judge, Visakhapatnam in O.P. No. 456 and 457 of 1988 and passed an order of injunction restraining Hindustan Steelwork Construction Ltd. (the appellant and for short referred to as HSCL) from encashing the bank guarantees given by Bank of India in its favour at the instance of M/s. Tarapore & Co. (Respondent No. 1 and hereinafter referred to as the contractor).

2. The HSCL awarded a contract to the contractor for construction of civil works in its Visakhapatnam Steel Plant. On. 16 .3.84 a letter of intent was issued and the formal contract was signed on 25.10.84. It was a lumpsum contract for Rs. 19,21,36,804 and was to be completed on or before 15.11.1985. The contractor was not able to complete the work within the stipulated time and at its request the time for completion of the work was extended till 31.3.87. Even during this extended period the contractor could not complete the work. It appears that some disputes arose between the appellant and the contractor and on 28.8.1986 the contractor appointed an arbitrator and called upon the appellant to appoint its arbitrator for deciding those disputes. Now those disputes are pending before the two arbitrators appointed by the parties. In August, 1988 by mutual agreement the contract work was reduced and the contract price was fixed at Rs. 4.5 crores. This reduced work also was not completed within the extended time and at the request of the contractor the time for completing the work was extended till 30.9.1988. As the contractor did not complete the work by that time the HSCL rescinded the contract on 17.10.1988.

3. In between 30.1.84 and 8.12.87, Bank of India gave 14 guarantees in favour of HSCL at the instance of the contractor. Bank guarantee No. 3/21 was furnished on 28.1.84 and 3/39 on 21.2.84 for Rs. 10 lacs and 40 lacs respectively towards mobilisation advances. Bank guarantee No. 3/58 dated 28.3.84 for Rs. 17,04,580 was towards security deposit. Bank guarantee No. 6/175 given on 31.7.87, initially for Rs. 45 lacs and subsequently reduced to 36,25,000 was to secure the working funds provided by HSCL to the contractor and also for due performance of the contract. Rest of the Bank guarantees were furnished on different dates as and when security deposits were released by HSCL. By these bank guarantees, except bank guarantee No. 6/175, bank has undertaken to indemnify HSCL against any loss or damage caused to or suffered by it by reason of any breach by the contractor of any term and condition of the contract. It is also stipulated in the bank guarantees that HSCL shall be the sole Judge on the question as to whether the contractor has committed any breach of the contract and what is the extent of loss or damage. It is further stipulated therein that the decision of HSCL in this behalf shall be treated as final and binding on the bank. By furnishing bank guarantee 6/175 the bank has undertaken to pay HSCL on demand any amount payable by the contractor without any demur and protest, without any reference to the contractor and such demand by HSCL has to be regarded as conclusive and binding on the bank notwithstanding any difference between the HSCL and the contractor.

4. On the very day on which the appellant rescinded the contract, that is on 17.10.88, HSCL by three separate demand letters informed the bank that the contractor has failed to fulfil its obligations under the contract and has committed breach of its terms and conditions and by reasons thereof it has suffered loss/damage far exceeding the amount guaranted by the bank, but for the purpose of invoking the bank guarantees it has assessed such loss/damage at Rs. 1,49,76,580. By those letters it also called upon the b