Case Note & Summary
The petitioner, Ahluwalia Contracts (India) Ltd., filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim relief to restrain the respondents from invoking and receiving payment under performance and advance bank guarantees issued by respondent banks (Bank of Maharashtra and Yes Bank) in favor of respondent no.1, Reliance Infrastructure Ltd. The petitioner had been awarded a contract for construction work at Sasan, MP, and had furnished the bank guarantees as part of the contract. Disputes arose between the parties regarding the contract, and the petitioner apprehended that respondent no.1 would invoke the bank guarantees. The court examined the settled legal position that a bank guarantee is an independent contract between the bank and the beneficiary, and the court will not interfere with its invocation except in cases of fraud or irretrievable injustice. The petitioner failed to establish either exception. The court noted that mere disputes under the main contract do not constitute fraud, and no irretrievable injustice was demonstrated. Accordingly, the petition was dismissed, and the interim order granted earlier was vacated.
Headnote
A) Arbitration - Interim Relief - Bank Guarantee - Section 9 of the Arbitration and Conciliation Act, 1996 - Injunction against invocation of bank guarantee - The petitioner sought to restrain the respondent from invoking performance and advance bank guarantees. The court held that a bank guarantee is an independent contract between the bank and the beneficiary, and the court will not interfere except in cases of fraud or irretrievable injustice. No such case was made out. (Paras 1-10) B) Contract Law - Bank Guarantee - Fraud Exception - Irretrievable Injustice - The court reiterated the settled principle that an injunction against invocation of a bank guarantee can only be granted if there is a clear case of fraud or irretrievable injustice. The petitioner's allegations of disputes under the main contract were insufficient to restrain the bank guarantees. (Paras 5-10)
Issue of Consideration
Whether the court can restrain the invocation and payment of bank guarantees under Section 9 of the Arbitration and Conciliation Act, 1996, in the absence of fraud or irretrievable injustice.
Final Decision
Petition dismissed. Interim order dated 25 March 2019 vacated.
Law Points
- Bank guarantee is an independent contract
- fraud exception
- irretrievable injustice exception
- Section 9 of Arbitration and Conciliation Act
- 1996
