Case Note & Summary
The appeal arose from a commercial suit where the appellant, Kryshnajay Developers Pvt. Ltd., sought a temporary injunction to restrain the respondents (Kapil Mahtani and others) from invoking a bank guarantee of Rs. 10 crores furnished by the appellant in favour of the respondents. The appellant had entered into a development agreement with the society and the Mahtanis for redevelopment of a property. The bank guarantee was to secure the appellant's performance. The appellant alleged that the Mahtanis had breached the underlying agreement by failing to cooperate and that the timeline for completion had been extended by the society, thus the guarantee could not be invoked. The learned Single Judge dismissed the notice of motion for injunction. In appeal, the Division Bench upheld the dismissal. The court reiterated the settled principle that a bank guarantee is an independent contract between the bank and the beneficiary, and an injunction against invocation can only be granted on grounds of fraud or irretrievable injustice. The court found no fraud or irretrievable injustice; the dispute was about breach of the underlying contract, which does not justify injuncting the guarantee. The court also rejected the argument of 'special equities' as not applicable. The appeal was dismissed with no order as to costs.
Headnote
A) Bank Guarantee - Injunction Against Invocation - Independence Principle - Bank guarantee is an independent contract between the bank and the beneficiary; injunction against invocation can only be granted on grounds of fraud or irretrievable injustice, not on mere breach of underlying contract or dispute about loss (Paras 4-6). B) Bank Guarantee - Special Equities - The concept of 'special equities' does not extend to cases where the beneficiary is alleged to have breached the underlying contract; it is confined to cases of fraud or irretrievable injustice (Para 6). C) Bank Guarantee - Irretrievable Injustice - Mere financial hardship or inability to recover money does not constitute irretrievable injustice; the test is whether the injury would be irreparable and cannot be compensated in damages (Para 7).
Issue of Consideration
Whether a temporary injunction can be granted restraining the invocation of a bank guarantee on the ground that the underlying contract has been breached or that the beneficiary has suffered no loss.
Final Decision
Appeal dismissed. Impugned order of the learned Single Judge upheld. No order as to costs.
Law Points
- Bank guarantee is an independent contract
- injunction against invocation only on fraud or irretrievable injustice
- no injunction for mere breach of underlying contract
- special equities not established
