The main legal point established is the requirement for strict compliance with the terms of bank guarantees and the need for clear evidence of fraud or irretrievable harm to justify an injunction against encashment.

YOGESH KHANNA, J.

1. This petition is under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as ‘the Act’) restraining the respondent Tata Power Company Ltd. for invoking the bank guarantees being No.49951PEBG130007 for an amount of Rs.4,29,00,000/- and No.49951PEBG130006 for an amount of Rs.4,00,00,000/-, submitted through Bank of India, Branch Sahjanad Chowk, Birsa Raj Marg, Harmu, Ranchi, 834012, Jharkhand, India, as also from taking any other coercive action.

2. On 19.5.2017 the Court passed the following order :

3. Mr. Sethi, learned senior counsel for the petitioner has referred to the bank guarantees in question (BG No. No.49951PEBG130007 for an amount of Rs.4,29,00,000/- and BG No.49951PEBG130006 for an amount of Rs.4,00,00,000/-) and has drawn the attention of this Court to para 3 of the said bank guarantees (identically worded in both the bank guarantees) which reads as under:-

“3.0 In consideration thereof, we, Bank of India, Ranchi Mid Corporate Branch, Sahjanand Chowk, Harmu, Ranchi having our registered office at “Star House” C-5, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051 hereby irrevocably and unconditionally guarantee to pay to you on demand and without demur and without reference to “the Vendor” such amount or amounts not exceeding the sum of Rs. 4,29,00,000/- (Rupees four crore twenty nine lakhs only) on receipt of your intimating that “the Vendor has not fulfilled his contractual obligations. You shall be the sole judge for such non-fulfilment and “the Vendor” shall have no right to question such judgment.” xxx

6. Be that as it may, it is ex facie, apparent that the letter of invocation is not in terms of the bank guarantee inasmuch as there is no assertion by the respondent “that the vendor has not fulfilled his contractual obligations”.

7. It is well settled that a bank guarantee cannot be invoked except in terms thereof (see Hindustan Construction v. State of Bihar: (1999) 8 SCC 436 and Jyoti Structure Ltd. V. Dakshinanchal Vidyut Vitran Nigam Ltd. And Ors.: 2016 SCC OnLine Del 5035.)

3. Notice of this petition was issued and the respondent was restrained from invoking the bank guarantees. The learned senior counsel for the petitioner herein has raised the following issues:-

(a) the invocation of the bank guarantees was not in terms of the contract with the bank as earlier an MOU was entered into between the parties on 3.3.2010 and guarantees were given under MOU but later the MOU was brought to an end and guarantees were returned and instead the Service agreement dated 10.3.2013 was entered into between the parties and fresh bank guarantees were executed under the service agreement dated 10.7.2013. However, the respondent now intends to encash the bank guarantees given under the Service Contracts against its claims based on the MOU dated 3.2.2010;

(b) the service agreement was terminated not on the ground of any default of the petitioner but due to coal blocks being cancelled by the Supreme Court. The agreement between the parties was the petitioner was to arrange 1200 acres of land near the coalmines to set up a power plant for the respondent but since the coal block was cancelled, the agreement was frustrated; and

(c) the respondent repeatedly asked the petitioner to extend the bank guarantees saying only in the event of not keeping it alive they would invoke it but instead invoked it without the consent of the petitioner.

4. Learned counsel for the petitioner referred to various documents to bring home his point viz. the bank guarantees were not invoked in terms of the contract. He referred to two bank guarantees for Rs.4.29 crores and Rs.4 crore respectively in respect of service agreement dated 10.7.2013 were to be valid till the date of achieving minimum contiguity of 50 acres within overall land of 500 acres under the service agreement or till validity of the guarantee whichever is earlier and secondly to be valid till the date of possession of the ent