2020 Supreme(Del) 668

IN THE HIGH COURT OF DELHI AT NEW DELHI
Jyoti Singh, J.
Suzlon Energy Ltd - Appellant
Versus
Zemira Renewable Energy Ltd - Respondent
Original Miscellaneous Petition Interim Section No. 340 of 2019, 341 of 2019, 342 of 2019, 346 of 2019, 347 of 2019, 348 of 2019, 349 of 2019
Decided On : 04-06-2020

The court reiterated the settled law that unconditional and irrevocable bank guarantees are independent contracts between the bank and the beneficiary, and the bank is bound to honor the guarantee without any reference to the underlying contract or disputes between the beneficiary and the guarantor. The court also emphasized that the exceptions to this rule are limited to cases of egregious fraud or irretrievable injury.

Headnote:

ARBITRATION - BANK GUARANTEE - INJUNCTION - UNCONDITIONAL AND IRREVOCABLE BANK GUARANTEE - INVOCATION - EXCEPTIONS - FRAUD - IRRETRIEVABLE INJURY - SPECIAL EQUITIES - COURT'S JURISDICTION - ARBITRATION AGREEMENT - CORPORATE DEBT RESTRUCTURING PROCESS.

Fact of the Case:

Petitioner, a renewable energy solutions provider, supplied wind turbine generators to Respondent under purchase orders and executed ancillary agreements. Petitioner claimed to have completed all obligations and commissioned the wind power projects. Respondent issued letters seeking invocation of bank guarantees (BGs) issued on behalf of Petitioner, alleging pending issues and claims. Petitioner filed petitions under Section 9 of the Arbitration and Conciliation Act, 1996, seeking restraint on invocation of BGs.

Finding of the Court:

The court held that the BGs were unconditional and irrevocable, and the banks were obliged to honor the claims of the beneficiary without demur or protest, irrespective of any disputes between the beneficiary and the guarantor. The court found no evidence of egregious fraud or irretrievable injury to justify an injunction against the invocation of the BGs. The court also noted the existence of an arbitration agreement between the parties and declined to adjudicate on the merits of the disputes.

Issues: 1. Whether the bank guarantees were unconditional and irrevocable, and whether the banks were obliged to honor the claims of the beneficiary without demur or protest, irrespective of any disputes between the beneficiary and the guarantor? 2. Whether the petitioner had established a case of egregious fraud or irretrievable injury to justify an injunction against the invocation of the bank guarantees? 3. Whether the existence of an arbitration agreement between the parties barred the court from adjudicating on the merits of the disputes?

Ratio Decidendi: 1. The court relied on several Supreme Court and Delhi High Court judgments to establish the law relating to unconditional and irrevocable bank guarantees. The court held that such guarantees are independent contracts between the bank and the beneficiary, and the bank is bound to honor the guarantee without any reference to the underlying contract or disputes between the beneficiary and the guarantor. The court also noted that the exceptions to this rule are limited to cases of egregious fraud or irretrievable injury. 2. The court found that the petitioner had failed to establish a case of egregious fraud or irretrievable injury. The court noted that the petitioner's allegations of fraud were vague and unsubstantiated, and that the petitioner had not provided any evidence to support its claim of irretrievable injury. 3. The court held that the existence of an arbitration agreement between the parties barred the court from adjudicating on the merits of the disputes. The court noted that the arbitration agreement was valid and enforceable, and that the parties had agreed to submit all disputes arising out of the contract to arbitration.

Final Decision: The court dismissed the petitions and vacated the interim orders restraining the invocation of the bank guarantees.