Encashment of a bank guarantee cannot be stayed without proof of egregious fraud or irretrievable injustice; otherwise, bank guarantees must be honored independently of the underlying contract.

Manmohan, J. (Oral)

CM APPL. 5255-5256/2021

Allowed, subject to just exceptions.

Accordingly, present application stands disposed of.

FAO (OS) (COMM.) 24/2021 & CM APPL. 5254/2021

1. Upon a special mentioning being allowed by Hon'ble the Chief Justice, the present appeal has been received from the Registry at 12:30 p.m. It has been immediately taken up for hearing.

2. The present appeal has been filed challenging the order dated 08th February, 2021 passed by learned Single Judge whereby the appellant/petitioner's application for stay of bank guarantee has been dismissed. The relevant portion of the impugned order reads as under:

"5. Mr. Dogra, learned counsel appearing for the petitioner, submits that the claims made by Indure are unsustainable apart from being barred by limitation. He submits that even without going into the merits of the claims made by Indure, it is apparent that the PBG has been invoked only on the basis that it was not being extended. And, the said premise is wholly erroneous.

6. Mr Dogra referred a letter dated 01.12.2020 addressed by Indure to the Bank stating that the said letter be treated as a notice for invocation of the PBG. However, the said letter also states that in the event, PBG is extended for six months and the Original Bank Guarantee Extension Advice is received by the Bank, the claim may be treated as withdrawn, otherwise its claim stands and the amount I equivalent to 4 crores be remitted in favour of Indure. He states that the petitioner complied with the said demand and by a letter dated 19.12.2020 - which was prior to the expiry of the term of the PBG confirmed the extension as demanded by Indure. He submits that since the petitioner had complied with the demand of extension made by the Indure, it is not open for7 the respondent to insist that PBG be encashed.

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17. In this case, none of the above grounds for interjecting the Bank Guarantee are established. There is no allegation of egregious fraud much less the fraud that vitiates the underlying transaction.

18. This Court is of the view that even if the condition of irretrievable injustice/injury and special equities are considered, disjunct from the condition of egregious fraud, no such conditions are also established in this regard.

19. Reliance placed by the petitioner in the case of Hindustan Construction Co. Ltd. and Ors. v. Satluj Jal Vidyut Nigam Ltd. (supra), is also of little assistance to the petitioner. The said decision has been rendered in the peculiar facts of that case as the court found merit that the respondent was not adhering to the determination arrived at in terms of the agreed adjudicative process.

20. In view of the above, an order restraining the encashment of the PBG cannot be granted."

3. Learned senior counsel for appellant submits that the encashment of bank guarantee is fraudulent as it is for time barred claims. He states that as the project was commissioned in 2014, the bank guarantee has fulfilled its purpose.

4. He further states that the learned Single Judge had disregarded the crucial fact that the respondents had sought for encashment of the bank guarantee only if the same was not extended. He contends that as the appellant had extended the bank guarantee before the expiry of the existing bank guarantee till 30th June, 2021, there was no invocation of the bank guarantee. He also submits that the encashment letter is not in accord with the terms of the bank guarantee.

5. He emphasises that the bank guarantee is alive for the last ten years.

6. It is settled law that encashment of bank guarantee can be stayed on