An on-demand bank guarantee cannot be stayed unless there is egregious fraud or special equities.

Valmiki J. Mehta, J.

Caveat Nos.670-71/2015 in Arb. A. No.32/2015

1. Counsel appears for the caveator and thus the caveat stands discharged.

Arb. A. No.32/2015, I.A. No.13395/2015 (stay) and I.A. Nos.13396-97/2015 (exemption)

2. This is an appeal under Section 37(2)(b) of the Arbitration & Conciliation Act, 1996 impugning the order of the Arbitrator dated 6.7.2015. Arbitrator by the impugned order has vacated the interim order granted in favour of the appellant herein and by which interim order respondent herein was restrained from encashing the subject bank guarantee dated 23.2.2011 (extended from time to time thereafter) for a total sum of Rs.11,46,36,536/-.

3. Since the impugned order of the Arbitrator in the opinion of this Court is a crisp order containing exhaustively the relevant facts, issues and reasoning, it would be apposite if I reproduce the short impugned order, and the same reads as under:-

“ORDER

DATED 6.7.2015

The claimant has filed an application before the Tribunal on 20.6.2015 for seeking restrain against the Respondent from encashing/invoking the Bank Guarantee No.550LG0816/10 issued by ING Vyas Bank Mumbai dated 23.2.2011. They also stated that the Claimant is ready and willing to keep the Bank Guarantee (BG) alive during the course of present arbitration proceedings.

Earlier on a petition filed by the Claimant for the purpose of relief on BG encashment in the Hon’ble High Court, the court had passed an order that in case the Respondent desires to invoke the BG, the Respondent shall give 4 days clear notice to the Claimant. Accordingly, the Respondent issued a notice on 14.6.2015. Thereafter the Claimant filed the present application and the hearing was held on 22.6.2015.

Both the parties presented their arguments and submitted written submissions on the same along with various judicial pronouncements of High Court and Supreme Court on similar cases. Respondent’s counsel also submitted the copy of BG and related clauses of the contract.

Based on the statements/arguments of the counsels of the 2 parties and the judgment submitted to this tribunal, the following emerges:

1. When in the commercial dealings an unconditional BG is given in favour of the beneficiary, the beneficiary is entitled to invoke such a bank guarantee irrespective of any pending dispute.

2. Only in exceptional cases the BG can be restricted to be invoked and these are, a) Fraud b) Irreparable damage would be caused if BG is invoked.

3. The Claimant claims are pending to be settled. Also, the counter claim of the Respondent are yet to be filed while the defense of the Respondent has already been filed to this tribunal.

4. The Claimant has stated that in case the BG is invoked, an irreparable injury and injustice would be caused to it.

5. As an argument, the Claimant, has again stated about the pending claims as the basis for their irreparable loss.

6. In one of the judgments of Hon’ble Supreme Court Hindustan Steel Works Construction Limited v Tarapore & Company & another (1996) 5 SCC 34 stated,

“…. There is serious dispute on the question as to who has committed Breach of the contract, that the contractor has a counter claim against the appellant that the disputes between the parties have been referred to the Arbitrators and that no amount can be said to be due and payable by the contractor to the applicant till the arbitrators declare their award. In our opinion, these factors are not sufficient to make this case an exceptional case, justifying interference by restraining the appellant from enforcing the Bank Guarantees.”

7. In another judgment pronounce by the Hon’ble Supreme Court in the matter ONGC v Jagson Int. Ltd (2005) 5 Bom Cr 58 stated, “The party which has given the Bank Guarantee suffers loss of money. Loss of money never causes any irreparable injury.

In the light of the foregoing, the application of the Claimant hereby stands rejected and the earlier order dated 22.6.2015 stands vacated.” (underlining added)

4. A reference to the above