The main legal point established in the judgment is the unconditional and absolute nature of bank guarantees, emphasizing the independence of bank guarantees as contracts between the bank and the beneficiary. The judgment also clarified the exceptions of fraud and irretrievable harm or injustice to one of the parties, emphasizing that fraud must be of an egregious nature and must be established with clear evidence.

( 1 ) SOME disputes have arisen between the parties concerning the contract dated 8th August, 2002 entered into between them. Pending resolution of those disputes in terms of clause 10. 48 of the contract which provides resolution of disputes by means of arbitration, present petition is filed under section 9 of the Arbitration and Conciliation Act, 1996 for stay. The petitioner wants restraint order against the respondent from invoking and/or encashing the bank guarantees issued by the Standard Chartered Bank at the request of the petitioner in which the respondent is the beneficiary. Particulars of these bank guarantees are as under:

Bank Guarantee No.

Amount (Rs.)

529020107226-AS

40,590,769

529020107217-AS

77,799,023

529020171352-AP

50,738,482

Total

169,128,274

( 2 ) EX-PARTE order dated 22nd November, 2005 was passed restraining the respondent from invoking/encashing the bank guarantees.

( 3 ) THE respondent has filed a short affidavit opposing the prayer contained in this petition to which the petitioner has filed the rejoinder.

( 4 ) SINCE it is a case of bank guarantee, before taking note of the detailed submissions made by both the parties, it would be apposite to scan through the available case law on the subject. This discussion, hereinafter, is on the basis of arguments addressed by the learned counsel on either side.

( 5 ) THE principles relating to such bank guarantees in such cases have almost been settled through a series of judgments rendered by the Supreme court from time to time. The position was summarized by the Supreme Court in paras 21 and 22 of its earlier judgment in the case of Dwarikesh Sugar industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd. and another reported as (1997) 6 SCC 450, after taking stock of its earlier judgments. These paras are to the following effect: "para 21: Numerous decisions of this Court rendered over a span of nearly two decades have laid down and reiterated the principles which the courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of a bank guarantee. We do not think it necessary to burden this judgment by referring to all of them. Some of the more recent pronouncement on this point where the earlier decisions have been considered and reiterated are Svenska Handelsbanken v. Indian Charge Chrome (1994) 1 SCC 502, Larsen and Toubro Ltd. v. Maharashtra SEB (1995) 6 SCC 68, hindustan Steel Workers Construction Ltd. v. G. S. Atwal and Co. (Engineers) (P) ltd. (1995) 6 SCC 76, and U. P. State Sugar Corpn. v. Sumac International Ltd. (1997) 1 SCC 568. The general principle which has been laid down by this Court has been summarized in the case of U. P. State Sugar Corpn. (1997) 1 SCC 568 as follows:"the law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take the advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance th