Delhi High Court Dismisses Appeal in a Case for Encashment of Bank Guarantees

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In the case of United Constructions v UOI through dte. gen md accn project and anr. Justice Manmohan and Justice Sanjeev Narula held that no grounds were proven showing encashment of bank guarantees. Consequently, the present appeal was dismissed.

Brief Facts

An appeal was filed to challenge impugned order passed by the learned single Judge where the appellant’s petition under Section 9 of the Arbitration and Conciliation Act (ACA), 1996, seeking an injunction to restrain the respondent no.1 from encashing bank guarantee of Rs. 4,59,01,450/- issued by HDFC Bank, was dismissed. The Appellant also sought directions for respondent no.1 to deposit the Bank Guarantee amounts received by it with respondent no.2 and or with the Registrar of the Delhi High Court with the liberty to the appellant to withdraw the same against furnishing solvent security.

Submissions Before the Court

Learned counsel for the appellant submitted that the learned single Judge had failed to appreciate that the Bank Guarantees in question as they were conditional guarantees and not unconditional guarantees. He also contended that the bank guarantees were illegally encashed.

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Reliance was placed on Hindustan Construction Company Ltd. Vs. State of Bihar & Ors., (1999) 8 SCC 436 and Indu Projects Ltd. Vs. Union of India, (2013) 204 DLT 600 (DB). It was also contended that the invocation of the Bank Guarantees in the present case had resulted in irreparable injury to the appellant and that the agreement was wrongly terminated.

Court’s Decision 

The Court firstly questioned whether the bank guarantees in question were unconditional or not. It was clear from the clause from the agreement that bank guarantees in question were unconditional because they incorporate a conclusive evidence clause, the bank was liable to pay, without any demur, merely on a demand stating that the amount claimed is due by loss or damage caused by the contractor/appellant.

The cases relied upon by the counsel for the appellant don’t offer any assistance to the appellant. Court referred to Andhra Pradesh Pollution Control Board vs. CCL Products (India) Limited, 2019 SCC OnLine SC 985,  it was held that encashment of bank guarantee can only be stayed by the presence of fraud and irretrievable injustice/injury. The court accordingly dismissed the appeal on the basis of merits as no grounds were made in the present case for encashment of bank guarantees.

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Click here to view the original judgment


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