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ALTAMAS KABIR, B.SUDERSHAN REDDY
Vinitec Electronics Private limited – Appellant
Versus
HCL Infosystems Limited – Respondent
What is... What is the status of a bank guarantee: is it unconditional or conditional as amended in this case? What are the exceptions allowing injunction against encashment of an unconditional bank guarantee?
Key Points: - The judgment analyzes whether the bank guarantee furnished was unconditional after amendment and whether it could be invoked despite outstanding payments (!) (!) (!) . - It states the general rule: an unconditional bank guarantee is independent of underlying disputes and must be honored by the bank (!) (!) (!) . - It identifies two exceptions to the general rule: (i) clear fraud known to the bank, and (ii) special equities such as irretrievable injury or injustice, justifying injunction against encashment (!) (!) (!) . - It discusses precedent on invocation of bank guarantees and the standards for when injunctions may be granted or refused (U.P. State Sugar Corpn v. Sumac, etc.) (!) (!) (!) . - The Court held that the amended guarantee in this case made the bank guarantee unconditional, binding the bank to pay on demand (!) (!) (!) . - The appellant could not raise disputes to prevent encashment since the guarantee was unconditional (!) (!) . - The court found no fraud or irretrievable injustice established to invoke the exceptions, so the appeal was dismissed (!) (!) (!) . - It reiterates that the existence of disputes under the underlying contract does not prevent enforcement of an unconditional bank guarantee (!) (!) . - The decision references prior Supreme Court principles summarized in Himadri Chemicals and Mahatama Gandhi Sahakra Sakkare for injunction standards (!) (!) (!) .
JUDGMENT
B.Sudershan Reddy, J. —
1.Leave granted.
2.The dispute between the parties relates to invocation of the bank guarantee furnished by the appellant to the respondent.
3.The appellant M/s. Vinitec Electronics Private Limited entered into agreement dated 10th May, 2000 with the respondent HCL Infosystem Limited under which the respondent agreed to buy UPS systems from the appellant for a consideration value of Rs.1,68,12,400/-. The method of payment and terms thereof are provided for in clause 15(a) and (d) in the said agreement.
“Clause 15 :
The payment terms will be :
(a)30% Advance against a Bank guarantee from a Scheduled Bank of equivalent value. The BG shall be valid till the date of final delivery at the Company location(s).
(b). . . . .
(c). . . . .
(d)10% after one year from the date of receipt of material at the customer site(s).”
4.The case of the appellant was that it had supplied all the equipments to the respondent by 2nd August, 2000 but the respondent committed default in making the stipulated payment amounting to Rs.49,99,338/-. The said sum according to the appellant remained unpaid. The respondent agreed to pay the sum provided the performance bank guarantee of 10% va
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