A bank guarantee is an unconditional contract that must be honored by the bank upon valid demand, independent of any contractual disputes.

JUDGMENT

Kurian Joseph, J.

Leave granted.

2. Whether the High Court is justified in exercising its discretionary jurisdiction under Article 226 of the Constitution of India for restraining the appellant from invoking an unconditional bank guarantee executed by the first respondent, is the main issue arising for consideration in this case.

3. The appellant invited bids for development of Sutrapada Port. In the process, a Letter of Intent (hereinafter referred to as ‘LoI’) was issued to the first respondent on 06.02.2008. The relevant conditions of LoI are extracted below: 1.7 The Lead Promoter shall submit a detailed project report within 12 months of issue of this Letter of Intent (LOI) and present it to Gujarat Maritime Board for their approval.

1.8 The Lead Promoter shall obtain all environment clearances and coastal regulation zone (CRZ) clearances and effective financial closure and all such other clearances and permissions within 18 months or issue of this Letter of Intent.

1.9 A Performance Guarantee/Bank Guarantee of Rs 5 Crores (Rupees Five crores only) shall be submitted to Gujarat Maritime Board within 4 weeks of issue of this Letter of Intent in the Performa annexed herewith. (Annexure1). This performance/bank guarantee is against the submission of Detailed Project Report within 12 months and obtaining environment clearance, coastal regulation zone clearance and effecting financial closure within 18 months as mentioned in para 1.7 and 1.8 above, failing which Gujarat Maritime Board/Government shall cancel this Letter of Intent and bank guarantee shall be forfeited.”

4. On 07.05.2010, the first respondent requested for change of location from Sutrapada to Kachchigarh and the bank guarantee was extended. At the instance of the first respondent, the Yes Bank Limited furnished a bank guarantee to the appellant on 26.11.2011 for an amount of Rs.5 crores. The relevant conditions read as follows:

“

(a) We, YES BANK Ltd. do hereby guarantee and undertake to pay to GMB an amount not exceeding `5,00,00,000/- (Rupees Five Crores only) as against breach by the Lead Promoter for the development of Kachchigarh Port. The decision of GMB as to any breach having been committed and loss/damages caused or suffered shall be absolute and binding on us.

(b) We, YES BANK Ltd, do hereby undertake to without any reference to the Lead Promoter or any other person and irrespective of the fact whether any dispute is pending between GMB and the Lead Promoter or any court of Tribunal or arbitrator relating thereto, pay the amount due and payable under this guarantee without any demur, merely on demand from GMB stating that the said Lead Promoter’s failure to perform the covenants of the same. Any such written demand made by GMB on the Bank shall be conclusive, absolute and unequivocal as regards the amount due and payable by the Bank under this guarantee. However, Bank’s liability under this guarantee shall be restricted to an amount not exceeding `5,00,00,000/- (Rupees Five Crores only).”

5. It appears, the first respondent could not proceed with the work even at Kachchigarh, and on such intimation, the appellant by letter dated 10.03.2015, cancelled the LoI issued to the first respondent. The communication dated 10.03.2015 cancelling the LoI to the extent relevant, reads as follows:

“This is with reference to your above mentioned letter informing GMB about your inability to develop a port at Kachchigarh due to presence of corals not seeking any further extension of the LOI.

In this regard, it is hereby informed that your admission on failure in taking up the Project is in breach of the conditions set out in the Letter of Intent dated 6.2.2008. At your