1992 Supreme(Del) 326

High Court Of Delhi
V.K.CONSTRUCTIONS WORKS LIMITED - Appellant
Versus
BANK OF RAJASTHEN LIMITED - Respondent
Interim Application 12069 of 1991
Decided On : 05/29/1992

Headnote:BANK GUARANTEE - Bank Guarantee — invocation thereof — Mobilization advance and performance Guarantees — six independent contracts for construction of dwelling units — Applications for grant of injunction under Order 39 Rules 1 and 2 CPC Demand letters for encashment of Bank Guarantees — Party at whose instance Bank Guarantee is furnished can challenge notice of demand — Bank Guarantees cannot be encased on the basis of mere averment of default — right of parties at whose instance Bank Guarantee furnished to file suit has been recognised — Bank Guarantee an independent contract — encashment thereof depends upon its language — Encashment of moblization guarantee — not in terms of Bank Guarantee — Defendant restrained from encashing it contention of plaintiff that special equities exist requiring injunction against performance guarantee cannot be sustained — Language of performance guarantee makes defendant sole judge of breach of contract — plaintiff not entitled to relief — interim applications rejected.

       Held:

       The law is sealed that terms of a bank guarantee enjoy a position of primacy in deciding any question relating to encashment of the bank guarantee. The language of the bank guarantee is the sole guiding factor and the manner and validity of invocation of a bank guarantee will have to be only with reference to the language of the bank guarantee. The observation of the Courts in various judgments that the bank guarantee is an independent contract and is enforceable without reference to the under — lying contract as well as to the person at whose instance the bank guarantee is given, is also largely based on the language of the bank guarantees which are normally furnished. It is no doubt true that a bank guarantee is an independent contract and its encashment depends on the language of the bank guarantee, thereforee, the person at whose instance the bank guarantee is furnished may be relegated to the position of non-entity.

       The settled law that the bank guarantee has to be dealt with strictly according to its language and the terms contained therein strengthens this view. The party at whose instance the bank guarantee is furnished cannot be denied even this much right that it may point out to the court that the notice of demand is not in accordance with the language and terms of the bank guarantee. In a given case the bank may collude with the beneficiary in allowing the bank guarantee to be encashed. In another case a bank may overlook the defect in the notice of demand. Unless this right is allowed to the party at whose instance the bank guarantee is being furnished it may lead to injustice. Ultimatcely it is that party which has to bear the consequences of encashment of the bank guarantee. thereforee, I am not inclined to take a view that the doors should be completely closed to a party at whose instance the bank guarantee is furnished to approach the court.

       The right of the party-at whose instance the bank guarantee is furnished to file a suit in relation to the bank guarantee has been recognised.

       The purpose of the bank guarantee in the present case is to secure the beneficiary against any default in refund of the advance. thereforee, its encashment has understandably been permitted to the extent of default inrefund of the advance. Thus, the beneficiary cannot merely say default has been committed. He has to say what default and to what extent and to that extent encashment of the bank guarantee is permissible.

       thereforee, a bank guarantee can only be encased as per its terms. The bank guarantee in question does not admit of encashment on the basis of a mere averment of default. The extent of default has to be averred and to that extent it is encashable-nothing more, nothing less. The Court will intervene to prevent any action on the part of the beneficiary which may be contrary to the terms of the bank guarantee. Strict adherence to the terms of the bank guarantee has to be ensured. The notices of demand for encashment of the bank guarantees relating to the mobilisation advances not being in accordance with terms of the bank guarantees in the present cases, these bank guarantees cannot be permitted to be encashed. The interim applications in all these cases are allowed to this extent and the defendant is restrained from encashing the bank guarantees regarding mobilisation advance in pursuance of the said notices.

       The language of the bank guarantee in question makes the defendant as the sole judge of breach of contract and the amount to be claimed for this. thereforee, there is no scope for any one else to consider any mitigating circumstances. The contract provision supercedes everything. The contention of the counsel for the plaintiff that there are special equities requiring an injunction to the bank or the defendant restraining encashment of the bank guarantees cannot be sustained.

       It follows from the above discussion that so far as the performance guarantees are concerned, the plaintiff is not entitled to any relief and to this extent the prayer of the plaintiff in the interim applications stands rejected.