LexVINITEC ELECTRONICS PRIVATE LTD. versus HCL INFOSYSTEMS LTD.
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VINITEC ELECTRONICS PRIVATE LTD. A v. HCL INFOSYSTEMS LTD. NOVEMBER 2, 2007 B -f [ALTAMAS KABIR AND B. SUDERSHAN REDDY, JJ.] ,> Bank Guarantee-Invocation of-Contract between parties- One of the parties f~rnishing Bank Guarantee in favour of the other c Guarantor seeking injunction of invocation of the Guarantee as there existed a dispute between the contracting parties-Permissibility of- Held: In the facts of the case, the Guarantee was an unconditional one-Hence the same could be invoked by the beneficiary despite pend ency of the dispute-Bank Guarantee is an independent contract D between the Bank and the beneficiary-bank is obliged to honour its ).. guarantee so long as it is unconditional and irrevocable-The case also \ does not fall under exceptions-Allegations of fraud and plea of 'special equities' are vague and not supported by any evidence. Appellant entered into agreement with the respondent whereby E respondent agreed to buy UPS systems from the appellant. Despite supply of all the equipments, respondent defaulted in making the full payment. Respondent agreed to pay the balance sum provided the performance Bank Guarantee of10% value was furnished. The same was furnished. It was later amended makingthe same unconditional. F Even after furnishing the Bank Guarantee, respondent did not make full payment. Appellant filed injunction application on the ground that respondent was not entitled to invoke the Bank Guarantee without paying the balance amount as the same had become inoperative as the condition precedent for is invocation was not complied with. Trial G Court in view of the fact that the Bank Guarantee was made -<' unconditional by its amendment, dismissed the application. Division Bench of High Court confirmed the order. Hence the present appeal. Dismissing the appeal, the Court 897 H I __,,,, 898 SUPREME COURT REPORTS [2007] 11 S.C.R. A HELD: 1.1. The bank guarantees which provided that they are --t payable by the guarantor on demand is considered to be an un- conditional bank guarantee. When in the course of commercial dealings, unconditional guarantees have been given or accepted the beneficiary is entitled to realize such a bank guarantee in terms B thereof irrespective of any pending disputes. Bank guarantee is an independent contract between bank and the beneficiary thereof. The t- bank is always obliged to honour its guarantee as long as it is an _.._ unconditional and irrevocable one. [Paras 11 and 12) [902-A-B; 903-A) c UP. State Sugar Corporationv. Sumac International Ltd, [1997) 1SCC568; BSESLimited (Now Reliance Energy Ltd.) v. Fenner India Ltd. and Anr., [2006) 2 SCC 728; Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company, (2007) 9 Scale 631 and Mahatama Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. D Ltd and Anr., [2007) 6 SCC 417, relied on. Hindustan Construction Co. Ltd. and Ors. v. State of Bihar and ,--4 Ors., [1999) 8 SCC 436, distinguished. 1 1.2. In the present case a conditional bank guarantee initially was furnished and the bankers were liable to pay the amounts only E upon establishing the fact that the supplier was in default for the performance of their warranty obligations under the contract. But subsequent the relevant clause in bank guarantee was amended. The condition that the amounts shall be paid only upon establishing the supplier to be indefault for the performance of their warranty F obligation under the contract has been specifically deleted. The bank guarantee as amended replacing relevant para of the original bank guarantee makes the bank guarantee furnished as unconditional one. The bankers are bound to honour and pay the amounts at once upon receipt of written demand from the respondent. G [Para 19) [907-C, D, E, F] 1.3. The recitals in the preamble in the deed of guarantee do not control the operative part of the deed. After careful analysis of ~ the terms of the guarantee the guarantee is found to be an unconditional one. The appellant, therefore, cannot be allowed to H raise any dispute and prevent the respondent from encashing the VINITEC ELECTRONICS PRIVATE LTD. v. HCL INFOSYSTEMS LTD. bank guarantee. [Para 22) (909-A] 899 2.1. The case, therefore does not fall within the first exception I i.e. there was a clear fraud of which Bank had the notice and a fraud of the beneficiary from which it seeks to benefit. Fraud, if any, must A be of
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