Tag Archives: Beneficiary

Injunction To Restrain Encashment of a Bank Guarantee – Principles of

In Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company, (2007) 8 SCC 110, the Hon’ble Apex Court has crystallized the principles which should be followed in the matter of injunction to restrain encashment of a Bank Guarantee or a letter of credit and it was held as under:

       “(1) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realize such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

       (2) the bank giving such guarantee is bound to honour it as per the terms irrespective of any dispute raised by its customer.

       (3) The courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.

       (4) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.

       (5) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation.

       (6) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.”

       In Adani Agri Fresh Ltd. v. Mahaboob Sharif and Others, (2016) 14 SCC 517, it was held that bank guarantee is an independent contract between bank and the beneficiary thereof. Bank is always obliged to honour its guarantees as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance bank has given guarantee is immaterial and of no consequence.

       In Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engineering Corporation Ltd., (2007) 6 SCC 470, it was held that if bank guarantee is an unconditional and irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the amounts under the guarantee. The person in whose favour guarantee is furnished by the bank cannot be prevented by way of an injunction in enforcing the guarantee in terms of the agreement entered between the parties has not been fulfilled. M/s Drake & Skull Water Energy India Pvt. Ltd. v. Paschimanchal Vidyut Vitran Nigam Ltd., 2008 (128) ALR 843.

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Bank Guarantee – Invocation of

In U.P. State Sugar Corporation v. Sumac International Ltd., (1997) 1 SCC 568 it was stated that the law relating to bank guarantees is well settled. When on the course of commercial dealings an unconditional bank guarantee is given or accepted, beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. Bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. Any other view would frustrate and defeat the very purpose of such unconditional bank guarantee furnished by the party concerned. It was also observed that when an injunction is sought, Court should be slow in granting an injunction to restrain the realization of such a bank guarantee. There are two exceptions recognized, (1) a fraud in connection with such a bank guarantee and (2) where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned.
In Dwarikesh Sugar Industries v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450, it was held as under:
“If the bank could not in law avoid the payment, as the demand had been made in terms of the bank guarantee, then the Court ought not to have refused an injunction which had the effect of restraining the bank from fulfilling its contractual obligation in terms of the bank guarantee. An injunction of the court ought not to be an instrument which is used in nullifying the terms of a contract, agreement or undertaking which is lawfully enforceable.”
In Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company¸ (2007) 8 SCC 110, the principles to be followed in the matter of injunction to restrain encashment of a Bank Guarantee or a Letter of Credit were laid down as under:
“(1) While dealing with an application for injunction in the course of commercial dealings and when an unconditional bank guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms thereof irrespective of any pending disputes relating to the terms of the Contract.
(2) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.
(3) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.
(4) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the partries to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.
(5) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation.
(6) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.”
In Adani Agri Fresh Ltd. v. Mahaboob Sharif and Others, 2016 (114) ALR 871, it was held that bank guarantee is an independent contract between the bank and the beneficiary thereof. Bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance bank has given guarantee is immaterial and of no consequence. Drake and Scull Water and Energy India Pvt. Ltd. v. Paschimanchal Vidyut Vitran Nigam Ltd., 2018 (128) ALR 843.

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Appointment—Regularisation of

The Constitution Bench in Secretary, State of Karnataka v.Uma Devi, (2006) 4 SCC 1, has held that illegal appointments cannot be asked to be regularized as that would amount to violating the fundamental right of equal opportunity of employment to those who have been denied such opportunity. The Constitution Bench decision has overruled dozens of earlier decisions taking a view otherwise so as to show sympathy in favour of those who got or managed their appointments illegally, i.e., without complying the requirement of equal opportunity of employment to all others, came to the office on account of their individual resources and managing continuance for quite some time or long time, then claim a substantive right on the basis of long tenure, they have managed to continue. In other words, the incumbent comes to the office by virtue of a pick and choose method, usurps office by back door or whatever other term one may use, despite obviously it being short of compliance of requirement of Article 16(1) of the Constitution of India, but having maintained such benefit to continue for quite some time which normally has the support of appointing authorities also, the beneficiary comes to claim a sense of sympathy on the basis of such long continued usurpation of office. In other words, a violator of law claims a substantive right for having violated law continuously for quite a long time with regard to a public office.
In the matter of appointment there is no principle of adverse possession but a plea somewhat similar thereto many a times is raised that since one has continued to work for quite long time, now he should be allowed to stay in the office for rest of tenure otherwise his family would suffer. A situation is created where sympathy is sought not in favour of victims, i.e., those who were denied right of equal opportunity of employment but in favour od those who have violated law, contravened it, breached it with impunity and have continued to do so for quite some time, and now, boldly and blatantly claim a kind of right to retain such benefit of breach of law, for all times to come, and for that purpose, various pleas in the name of equity, sympathy, compassion etc., are raised and pleaded. Many a times, such claim has found favour in the Courts of Law. Fortunately, the Constitution Bench, after having a retrospect of all earlier authorities, has taken a clear stand against such kind of favour shown to those who have come in public office, by denying right of equal opportunity to others. The Court in unequivocal terms has observed that any favour shown to such violators would be a misplaced sympathy.
Regularisation Rules, if any, is an attempt to give a cover to such illegal appointments and therefore, may have to be tested on the anvil of Constitutional validity under Article 14 and 16(1) of the Constitution. Devi Prasad Misra v. State of U.P., (2014) 3 UPLBEC 2436.

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