JUDGMENT :

Soumen Sen, J.

1. The appeal is directed against dismissal of the suit filed by the appellant for encashment of the bank guarantee.

A bank guarantee is a special contract and it has to be enforced according to its terms. If the bank guarantee is unconditional and payment should be made on demand, then the bank is under no obligation to find out whether any default is committed or whether any amount is due by the person at whose instance, the guarantee was issued and once the beneficiary invokes the bank guarantee and makes the demand the bank is obliged to make the payment. The bank guarantee is a standalone agreement between the bank and beneficiary and if the terms of the guarantee are unconditional and payable on demand, the bank cannot deny its obligation on a specious plea that there is a dispute between the constituent and the beneficiary. The bank is not concerned with the underlying contract between the parties to the contract. Bank guarantee is an independent document. Unless the execution of the bank guarantee is vitiated by fraud or there are instances of irretrievable injustice or prejudice likely to result from the invocation of the bank guarantee, the court would not insulate the bank from discharging its liability under a bank guarantee. However, what is of seminal importance is that the invocation of the bank guarantee has to be in accordance with the terms of the bank guarantee. If the invocation is not in accordance with the terms of the guarantee, the bank, on demand, is not required to make payment. When a dispute is raised as to whether the bank is justified in refusing to release the amount covered under the bank guarantee, the court is required to scrutinize if the invocation of the bank guarantee is in terms on the bank guarantee. The terms of the bank guarantees are to be strictly construed. It is the bank guarantee document which alone is important and no amount of oral evidence can be permitted to dilute and/or explain the terms of the guarantee which may be at variance with the agreed terms. The letter of invocation must speak for itself.

This discussion is essential having regard to the nature of the dispute with which the plaintiff and the defendant had approached the trial seeking adjudication with regard to their respective rights in relation to an unconditional bank guarantee payable on demand.

The dispute arose with regard to two bank guarantees furnished on behalf of the defendant no.2 by the defendant no.1 in favour of the plaintiff “as advance against supply of plant and equipment” by the plaintiff to the defendant no.2. In terms of two letters of intent, HEC-CS-1502-81 dated 19th May 1981 and HEC-CS-1502-81 dated 19th May 1981, two bank guarantees for Rs.71,35,100 and for Rs.20,32,500 were issued. The two bank guarantees are on identical terms, the only differences being in the dates and amounts. The said guarantees were furnished for and on behalf of the defendant no.2 towards advance payment of Rs.71,35,100 and Rs.20,32,500 respectively as “advance against supply of plant and equipment by the plaintiff to the defendant no.2” in terms of the two several letters of intent mentioned aforesaid.

Both the letter of intent is divided into 4 sections namely:

1. Gas Cleaning

2. Gas Compression & Dehydration

3. Utilities and services including telecommunication and unit substation.

4. Tar distillation plant including liquor treatment & effluent treatment plants.

The plaintiff intended to place an order for the complete work on a turnkey basis of the aforesaid four sections of the LTC plant at Dankuni at a total price of Rs.21.10 crores. The letter of intent dated 19th May, 1981 after describing the 4 sections of the LTC plant at Dankuni stated:

“The above price covers the complete design, supply of both indigeneous and imported equipment, erection and commissioning with requisite civil and structural works complete in all respects except land filling upto 4.00 M level, railways siding, roads & outs