1990 Supreme(Bom) 338

IN THE HIGH COURT OF BOMBAY
D.R. Dhanuka, J.
Suresh Arjundas Bakhtiani .... Petitioner.
Versus
Union of India and another ..... Respondents.
Arbitration Petition No. 155 of 1990 in Arbitration Suit No. 2644 of 1990, decided on 29-8-1990.
Advocates appeared :
Nitin Thakkar i/b V.L. Panjuani, for the petitioners.
V.N. Lokur with T. Satyavathi, for the respondents.

Headnote:Section 41 (b)-Petition by petitioner-Seeking interim injunction-restraining respondent No. 1 from encasing bank guarantee submitted for execution of contract pending disposal of application under Section 2u of Act-Petitioner invoked Section 41 of the Act in support of petition-Maintainability of-Held Bank guarantee is a contract separate and independent of original contract pursuant to which bank guarantee is furnished-Bank not a party to original contract. No ground for bolding that arbitration c1anse of main contract becomes part and parcel of bank guarantee-Section 41 of the Act not applicable so far as Bank guarantee is concerned.

       The bank guarantee is a separate and independent contract between the bank and the beneficiary enforceable on its own terms independently of dispute between the parties to the main contract in pursuance whereof the bank guarantee is furnished. The only parties to the contract of bank guarantee are the bank and the beneficiary. The party at whose instance the bank guarantee is furnished is not a party to the contract of bank guarantee. Similarly, the bank is not a party to the main contract is unconcerned with it the arbitration clause contained in the main contract cannot bind the bank as the bank is not a party to the main contract. It is futile to contend that the arbitration clause contained in the main contract must be treated as incorporated in the contract of bank guarantee. No such incorporation is possible. In a given case, the bank may be ready and willing to honour its commitment arising out of bank guarantee as soon as the beneficiary of the guarantee invokes the guarantee irrespective of disputes and contentions raised by the party at whose instance the guarantee is furnished. It is not possible to accept the submission that the dispute raised by the petitioner in respect of enforcement or non-enforcement of bank guarantee is liable to be referred to arbitration without even impleading of the bank as a party thereto or that the arbitration clause contained in the main contract would cover the dispute as to enforcement of the bank guarantee, by the beneficiary.

       Section 41 (b).

       See Bank Guarantee.

       BANK GUARANTEE

       Section 41 (b)-Arbitration Act, 1940, Bank guarantee a seperate and independent contract between bank and beneficiary and also independent of disputes between parties to main contract - Claim for enforcement of bank guarantee not covered by arbitration clause-Held, such claim thus not referable to arbitration.

       It is well settled by the decisions of the Apex Court and the High Courts that a Bank guarantee is a separate and independent contract between the Bank and the beneficiary enforceable on its own terms independently of disputes between the parties to the main contract in pursuance whereof the Bank guarantee is furnished. The only parties to the can tract of Bank guarantee are the Bank and the beneficiary. The party at whose instance the Bank guarantee is furnished is not a party to the contract of Bank guarantee, Similarly, the Bank is not a party to the main contract, is unconcerned with it. The arbitration clause contained in the main contract cannot bind the bank as the bank is not a party to the main contract. It is futile to contend that the arbitration clause contained in the main contract must be treated as incorporated in the contract of Bank Guarantee. No such incorporation is possible.

       Petitioner argued that the petitioner had furnished the security deposit to the respondents in the form of the above referred Bank Guarantee and the claim and disputes pertaining to the refund or otherwise of the said security deposit was clearly referable to arbitration. The above submission does not take note of the well settled proposition of law that the Bank Guarantee is a separate and independent contract between the Bank and the beneficiary enforceable on the terms contained therein, and that the Bank Guarantee is enforceable independently of disputes and claims arising out of the main contract. If the respondents encash the Bank guarantee, the contract of Bank Guarantee is worked out. If it is ultimately held in arbitration proceedings between the parties to the main contract that the respondents are liable to refund the amount of security deposit to the petitioners, the respondents would have to do so. Encashment of Bank Guarantee is always subject to the result of litigation or arbitration between the parties to the main contract. That is no ground for holding that the arbitration clause contained in the main contract becomes part and parcel of contract of Bank Guarantee which is undobtedly a separate and independent contract between different parties. It is quite clear that the claim relating to enforcement of Bank Guarantee is not covered by the arbitration clause and is not referable to arbitration. Accordingly, Section 41 of the Act is not at all applicable.