LexHINDUSTAN CONSTRUCTION CO. LTD. versus STATE OF BIHAR AND ORS.
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A HINDUSTAN CONSTRUCTION CO. LTD. v. STATE OF BIHAR AND ORS. OCTOBER 8, 1999 B (S. SAGHIR AHMAD AND D.P. WADHWA, JJ.] Code of Civil Procedure, I908 : Order 39. Bank Guarantee-Nature of-Invocation there of-Grant of injunction C against-Bank guarantee was not unequivocal and unconditional-Held : Tenns of the bank guarantee are extremely material-If the bank guarantee is unequivocal and unconditional and recites that the amount is payable without demur or objections and imspective of any dispute, court should not grant injunctiol't"'-But if the bank guarantee is conditional, the beneficiary cannot have an unfettered right to invoke the guarantee-In the circumstances of the D case, trial court justified in granting the injunction---<:ontract Act, 1872, S.126. Bank Guarantee-Nature of-Held: constitutes a separate, distinct and independent contract-It is independent of the main contract and, there[ ore, definition of any term in the main contract cannot be read into the bank E guarantee. Bank Guarantee-Furnished to Chief Enginee,..-./nvocation of-Com- petent authority fo~o definition of "Chief Engineer" in the bank guarantee nor was it provided that "Chief Engineer" would include "Executive En- gineer"-Held: the bank guarantee can be invoked only by the Chief Engineer F and not by the Executive Engineer. The appellant-Company was awarded a contract by the respondent- State for construction of a dam. The appellant furnished a bank guarantee called "Performance Guarantee" and also a guarantee relating to G "Mobilisation Advance" which was to be provided by the respondent from time to time to the appellant during the course of the contract. The "Performance Guarantee" was furnished to the Chief Engineer whereas the guarantee relating to "Mobilisation Advance" was furnished to the Executive Engineer. The bank guarantee relating to "Mobilisation Ad· vance" was payable only if the obligations under the contract were not H fulfilled by the appellant or the appellant had misappropriated any of the 554 HINDUSTAN CONST. CO. LTD. v. STATE 555 "advance mobilisation loan". The Executive Engineer invoked both the bank guarantees. There- upon, the appellant filed a suit for injunction before the High Court. A Single Judge of the High Court restrained the respondent from invoking A the bank guarantees. The Division Bench of the High Court vacated the injunction order relating to the "Mobilisation Advance" but maintained B the injunction order relating to the "Performance Guarantee". Hence this appeal. Allowing the appeal, this Court HELD : I.I. A bank guarantee is the common mode of securing payment of money in commercial dealings as the beneficiary, under the guarantee, is entitled to realise the whole of the amount under that guarantee in terms thereof irrespective of any pending dispute between the person on whose behalf the guarantee was given and the beneficiary. c In contracts awarded to private individuals by the Government, which D involve huge expenditure, as, for example, construction contracts, bank guarantees are usually required to be furnished in favour of the Govern- ment to secure payments made to the contractor as "Advance" from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such guarantees are encashable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back the "Government Advance" in which case the guarantee is invoked and the amount is recovered from the bank. It is for this reason tbat the courts are reluctant in granting an injunction against the invocation of bank guarnatee, except in the case of fraud, which should be an established fraud, or where irretrievable injury was likely to be ct>.used to 'the guarantor. [559-C; D; E; F] UP. Cooperative Federation Ltd. v. Singh Consultants & Engineers E F Pvt. Ltd., [1988] 1 SCC 174; Svenska Handlelsbanken v. Indian Charge Chrome, [1994] 1 SCC 502, Larsen & Toubro Ltd. v. Maharashtra State Electricity Board, [1995] 6 SCC 68; Hindustan Steel Works Construction G Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd., [1995] 6 SCC 76; National Thennal Power Corporation Ltd. v. Flowmore (P) Ltd., [1995] 4 SCC 515; State of Maharashtra v. National Construction Co., [1996] 1 SCC 735; Hindustan Steel Works Construction Ltd. v. Tarapore & Co., [1996] 5 SCC 34 and U.P. State Sugar Corporation v. Sum
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