A Bank guarantee constitutes an independent contract between the Bank and the Corporation, and the Bank is obligated to pay on demand without demur, irrespective of disputes between the parties under the primary contract or the possibility of arbitration.

1. This petition is directed against the order of the appellate Judge who on appeal affirmed that of the trial Judge whereby respondent No. 3 has (been?) restrained from releasing the amount of the Bank guarantee to the petitioner during the pendency of the, suit.

2. The National Hydro Electric Power Corporation Limited (for short N.H.P.C. invited tenders in respect of the construction of Chamoa Tunnel, which is a part of Chamera Project. N.H.P.C. allotted the work to National project Construction Corporation Limited, Chamera (for short the Corporation ). It was authorised to invite tenders for completion of the project through private agencies. The Corporation invited tenders for the construction of diversion tunnel, i.e. for construction of (i) Tunnel boring allied works and (ii) Down Stream Portal. The tenders submitted by the plaintiff (hereinafter referred to as the Contractor ) was accepted. The agreement entered into between the Corporation and the Contractor provided for a Bank guarantee to be furnished by the Contractor for due performance of the work allotted. The Contractor furnished a Bank guarantee in the sum of Rs. 5 lacs for the Corporation. The Bank guarantee dt. 12-1-1987 was furnished by the Punjab and Sind Bank. The Corporation invoked the Bank guarantee vide letter dt. 18-6-1988. This led to the filing of a suit for permanent injunction for restraining the Corporation from enforcing the Bank guarantee. Along with the suit, an application under O.39, Rr.1 and 2 of the Civil P.C. (was?) filed by the Contractor for an interim injunction restraining the Bank from releasing the amount of the Bank guarantee to the Corporation during the pendency of the suit. The trial Judge allowed the application and granted the injunction. The order was affirmed on appeal. The Corporation has come up on revision petition.

3. Both the Courts below did not understand the controversy between the parties and on erroneous premises proceeded to invoke the provisions of the agreement arrived at between the Corporation and the Contractor to come to the conclusion that the Bank should be restrained from releasing the amount covered under the Bank guarantee to the Corporation. The Bank guarantee constitutes an agreement between the Bank and the Contractor under which there is an absolute obligation of the Bank to make the payment of the Contractor merely on demand from the latter. The Bank is prohibited under the guarantee from raising any objection. Demand made on the Bank in accordance with the eventualities mentioned in the deed of the guarantee is conclusive as regards the amount due and payable by the Bank. There may be disputes between the Contractor and the Corporation about the amount claimed by way of loss or damages caused to or would be caused to or suffered by the Contractor by reason of any breach of the terms of the contract agreement by the Corporation. The Bank guarantee is a definite undertaking on the part of the Bank and constitutes an engagement of the Bank to pay the amount covered under the guarantee to the Corporation, merely on demand. The guarantee executed by the Bank reads thus:-

"1. We, the Punjab and Sind Bank (hereinafter referred to as the said Bank ) and having our registered office at 21, Rajendra Place, New Delhi do hereby undertake and agree to indemnify and keep indemnified the NPCC Ltd., represented by N.P.C.C. (hereinafter referred to as the said Corporation ) which expression shall, unless repugnant to the subject or context, include its administrators, successors and assigns), to the extent of Rs. 5,00,000/- (Rupees Five Lacs only) on behalf of M/s. Sadhu Singh and Co. in lieu of an equal cash amount of security deposit deposited by the said contractor and/or deducted by the said Corporation from the bills of the said contractor and which the said Corporation has agree to convert against a bank guarantee as hereunder, under the provisions of contract No. 700563/- Project dt. 22-12-84 which