In a recent judgment, the Delhi High Court, held that the invocation of an unconditional bank guarantee cannot be interfered with unless there is fraud and irretrievable injustice. There should be a prima facie case of fraud and special equities in the form of preventing irretrievable justice between the parties.
The said ruling was delivered in the matter of Afcons Infrastructure Ltd. vs. Delhi Metro Rail Corporation., OMP (I) No. 15 of 2018 decided on 05.04.2018.
The question before the Hon’ble Court was whether the invocation of an unconditional bank guarantee can be interdicted on the ground that the said invocation is in contravention to the terms of contract between the parties wherein the said contract is not the deed of guarantee.
The High Court held that in light of the judgment of the Hon’ble Supreme Court in the Svenska Handelsbanken v. M/s. Indian Charge Chrome and Ors., (1994) 1 SCC 502, and Larsen & Toubro Limited v. Maharashtra State Electricity Board & Ors., (1995) 6 SCC 68, that the invocation of an unconditional bank guarantee cannot be interdicted except in exceptional circumstances of an established fraud and special equities so as to prevent irretrievable justice. The invocation of an unconditional bank guarantee cannot be termed as fraudulent on the ground that the same is only to be invoked once the claims between the parties are settled, as per the dispute resolution clause in the agreement between the parties. The Hon’ble Court held that an unconditional bank guarantee is an independent agreement and must be performed on its own terms. The long standing commercial relation between the parties is irrelevant in case of invocation of such a bank guarantee.