Case Note & Summary
The appellant, M/s S. Satyanarayana & Co., a partnership firm, was awarded a contract by respondent no.1, M/s West Quay Multiport (Private Limited), for supply of materials and labour charges for construction of a compound wall at Vishakhapatnam Port Trust. Two letters of acceptance were issued on 27 November 2012, and an agreement-cum-work order was executed on 5 December 2012. As per the contract, the appellant furnished two performance bank guarantees from respondent no.2, State Bank of Hyderabad, for Rs.34,00,000 and Rs.18,50,000, both dated 27 February 2013. Disputes arose between the parties regarding the performance of the contract, and the appellant filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction restraining respondent no.1 from invoking the bank guarantees. The learned Single Judge dismissed the application on 21 April 2015, holding that no case of fraud or irretrievable injustice was made out. The appellant appealed under Section 37 of the Act. The Division Bench of the Bombay High Court, comprising Chief Justice Mohit S. Shah and Justice G.S. Kulkarni, heard the appeal. The appellant argued that there were serious disputes regarding the contract and that the bank guarantees were not unconditional, but the court found that the guarantees were unconditional and independent. The court relied on settled law that bank guarantees are autonomous contracts and can be restrained only in cases of established fraud or irretrievable injustice, neither of which was proved. The court also noted that the appellant had not demonstrated any special equities. Consequently, the appeal was dismissed, and the order of the Single Judge was upheld.
Headnote
A) Arbitration - Interim Relief - Injunction against Bank Guarantee - Section 9 of Arbitration and Conciliation Act, 1996 - The appellant sought to restrain enforcement of two performance bank guarantees furnished under a works contract. The court held that bank guarantees are independent contracts and can be restrained only on grounds of established fraud or irretrievable injustice, which were not made out. The appeal was dismissed. (Paras 1-20) B) Contract Law - Performance Guarantee - Independence Principle - Bank guarantees are autonomous contracts and the beneficiary's invocation must be honoured unless fraud or special equities exist. The court reiterated that mere disputes under the main contract do not justify injunction. (Paras 10-15) C) Arbitration - Interim Relief - Special Equities - Section 9 of Arbitration and Conciliation Act, 1996 - The appellant failed to demonstrate any special equities or irretrievable injustice that would warrant restraint on invocation of bank guarantees. The balance of convenience was in favour of the respondent. (Paras 16-20)
Issue of Consideration
Whether the appellant is entitled to an injunction restraining the respondent from enforcing two bank guarantees pending arbitration, in the absence of established fraud or irretrievable injustice.
Final Decision
Appeal dismissed. Order of the learned Single Judge dated 21 April 2015 upheld.
Law Points
- Bank guarantees are independent contracts
- fraud exception to injunction against bank guarantees
- irretrievable injustice exception
- special equities for injunction
- Section 9 of Arbitration and Conciliation Act
- 1996
