Unconditional bank guarantees can only be interdicted in cases of established fraud or irretrievable harm or injustice.

JUDGMENT

Vibhu Bakhru, J.

1. The appellant (hereafter `Gannon') has filed the present intra-court appeal impugning an order dated 05.06.2023 passed by the learned Single Judge, whereby the petition filed by Gannon under Section 9 of the Arbitration and Conciliation Act, 1996 (hereafter `the A&C Act') being OMP (I) COMM. No.193/2023 was rejected.

2. Gannon had filed the aforesaid petition, inter alia, praying for directions restraining the respondent No. 1 (hereafter `Doosan Power') from invoking, encashing or taking any coercive steps in respect of the Performance Bank Guarantee being Bank Guarantee No.003GM07180750006 dated 16.03.2018 for an amount of Rs.5,55,15,625/- (hereafter referred as `the PBG') issued by respondent no.2 (hereafter `Yes Bank').

3. Gannon had furnished the PBG in connection with a sub-contract agreement for civil, structural and architectural works including Power Block Building, GIS Building and BOP Building which is a part of the 2x660MW Super Critical Thermal Power Station being developed by Doosan Power at Jawaharpur on Engineering, Procurement, Construction (EPC) basis. The contract between Gannon and Doosan Power is hereafter referred to as the Contract.

4. It is Gannon's case that it had fulfilled its obligations and mobilized the manpower and resources as required for performing the Contract but Doosan Power had failed to fulfil its reciprocal obligations in handing over the encumbrance-free site within time. Admittedly, there were delays in execution of the contract. It is the Gannon's case that that same was for reasons attributable to Doosan Power including delay in handing over site; delay in release of drawings and the approval of designs; and frequent changes of drawings. Doosan Power disputes the same.

5. It is material to note that it is not Gannon's case that there has been any egregious fraud which vitiates the Contract entered with Doosan Power. It is also apparent that the disputes between the parties essentially relate to execution of the performance of obligations under the Contract.

6. The PBG submitted by Gannon is an unconditional one. The law relating to interdicting unconditional bank guarantees is now well settled.

7. In Svenska Handelsbanken v. M/s Indian Charge Chrome & Ors. (1994) 1 SCC 502, the Supreme Court held as under:

"...in case of confirmed bank guarantees/ irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud...

...irretrievable injustice which was made the basis for grant of injunction really was on the ground that the guarantee was not encashable on its terms...

...there should be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Mere irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee.""

8. In Larsen & Tourbo Limited v. Maharashtra State Electricity Board & Others, (1995) 6 SCC 68, the Supreme Court observed as under:

"5. Before we adjudicate the rival pleas urged before us by counsel for the parties, it will be useful to bear in mind the salient principles to be borne in mind by the court in the matter of grant of injunction against the enforcement of a bank guarantee / irrevocable letter of credit. After survey of the earlier decisions of this Court in United Commercial Bank v Bank of India, U.P. Coop. Federation Ltd. v Singh Consultants & Engineers (P) Ltd., General Electric Technical Services Co. Inc v Punj Sons (P) Ltd. and the decision of the Court of Appeal in England in Elian and Rabbath v Matsas and Matsas and a few American decisions, this Court in Svenska Handelsbanken v. Indian Charge Chrome [AIR 1994 SC 626], laid down the law thus:

"...in case of confirmed bank guarantees/ irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable inj