IMPORTANT POINT
Courts should not interfere with the invocation or payment under an unconditional bank guarantee unless there is egregious fraud or special equity.

JUDGMENT

Sanjib Banerjee, CJ. - These three appeals arise out of identical orders passed on three independent petitions under Section 9 of the Arbitration and Conciliation Act, 1996 pertaining to the three packages forming parts of the same work for the construction of a hydro-electric power project in the State.

2. The primary prayer in the three petitions was as follows:

'Restrain the Respondent, its assign(s), its officers, employees or representatives from fraudulently invoking the Bank Guarantees as listed in para 26 of the present application and issued by the Applicant in favour of the Respondent.'

3. To begin on a lighter note, the prayer made may just as well have been allowed for the mere asking. By the use of the word 'fraudulently' therein, the respondent herein only prayed that the invocation should not be fraudulent but did not seek any injunction on the invocation otherwise. So much for careless drafting and the daily rubbish that the Indian Judge is subjected to.

4. There is no dispute that the relevant bank guarantees were unconditional in nature, in the sense that the bank unequivocally agreed to pay the amounts covered by the relevant bank guarantees on the first demand made by the beneficiary without reference to the respondent herein and merely on the basis of the claim of the beneficiary without going into the veracity thereof. It may do well to notice the identical key clause from one of the bank guarantees:

'We, the said Bank, also do hereby agree to pay unequivocally and unconditionally within Two working days on demand in writing from the said Corporation (appellant herein) of any amount upto ... to the said Corporation for any purpose or cause or on any account whatsoever under the provisions of the said contract (matrix contract) in which respect the decision of the said Corporation shall be final and binding on us.'

5. As is elementary, bank guarantees stand on a different footing from the matrix contract and the very purpose of furnishing of a bank guarantee is to insulate the subject-matter thereof from the disputes or differences that may arise between the parties to the principal or matrix contract. Indeed, a bank guarantee is a contract between a bank and the beneficiary and the other party to the matrix contract is not a party to the bank guarantee despite the bank guarantee being furnished at the instance of such other party to the matrix contract. Generally, as here, a bank guarantee is quite independent of the matrix contract and is a stand-alone document under which a bank is obliged to make payment to the beneficiary strictly in accordance therewith.

6. In the present case, the bank agreed to pay 'unequivocally and unconditionally' upon the appellant herein making a demand 'for any purpose or cause or on any account whatsoever' under the provisions of the matrix contract. The last limb of the clause even provides for the decision or opinion of the beneficiary to be binding as to whether the demand is in accordance with the provisions of the matrix contract. The terms of the guarantee do not allow any discretion or latitude to the bank and do not envisage any notice being issued to the respondent herein before the payment in terms thereof is released.

7. Bank guarantees, like letters of credit, form the life-blood of commercial activities and have to be strictly construed on the basis of the letter of the document. Whatever may be the prejudice that is suffered by the person at whose behest the bank guarantee is issued, unless the terms of the bank guarantee permit its interdiction, Courts are not permitted to interfere in the invocation of a bank guarantee or the payment thereunder. High authorities instruct accordingly that unless a case of egregious fraud in the making of the bank guarantee or at the inception of the contract is made out or there is some special equity or irretrievable damage, the Court will be slow in interfering with a bank guarantee or any payment thereunder.

8. The appellant