# U.P.E.I.D.A v. M/S Sahakar Global Ltd

- **Citation:** (2022) 12 ILRA 702
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2022-12-02
- **Bench:** Attau Rahman Masoodi, Om Prakash Shukla
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/u-p-e-i-d-a-v-m-s-sahakar-global-ltd-47976
- **Pages:** 21

## Headnote

Arbitration and Conciliation Act, 1996 -
Section 9 - Interim measures - Civil
Procedure Code, 1908 - Order 39 - R. 1 -
Grant of Injunction - Bank Guarantee -
principles for grant or refusal to grant of
Injunction to restrain enforcement of a
bank guarantee - If the bank guarantee is
conditional, then, if the conditions have
not been fulfilled, injunction, against
encashment
and
invocation,
may
unquestionably follow - If, however, the
bank guarantee is unconditional, then
injunction
can
be
granted
only
if
egregious fraud, irretrievable injustice, or
special
equities/
exceptional
circumstances, exist, and not otherwise -
Fraud - mere pleadings do not make a
strong case of prima facie fraud, which
had to be shown by "material and
evidence" - fraud must be pleaded and
proved and it cannot be presumed - a
fraud in the execution of the Bank
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
703
Guarantee has to be pleaded and not the
Main contract or the subsequent events -
enquiry is confined to, whether on the
basis of the documents, a case of fraud of
egregious
nature
in
the
matter
of
obtaining/furnishing BGs, is made out -
Irretrievable
injustice
-
Irretrievable
injustice, as an exception to the rule of
non-interference with encashment of BGs,
is not a mere loss - what has to be proved
and made out to obtain an injunction
against encashment, is that it will be
impossible to recover the monies so
wrongfully received by encashment -
Special equities have to partake the
character of irretrievable injustice - any
reference to the original dispute between
the parties, relating to the performance of
the contract, is completely irrelevant,
insofar as the issue of stay of invocation of
the bank guarantees is concerned - person
in
whose
favour
the
guarantee
is
furnished
by
the
bank
cannot
be
prevented by way of an injunction in
enforcing the guarantee on the pretext
that the condition for enforcing the bank
guarantee in terms of the agreement
entered between the parties has not been
fulfilled. Such a course is impermissible
(Para 28, 35)

In the instant case the Bank Guarantee in
unequivocal terms says that any demand made
by the Appellant on the Bank shall be conclusive
and binding notwithstanding any difference
between the Appellant and the respondent or
any dispute pending before any Court, Tribunal,
Arbitrator or any other authority - It is very
much contained in the BG that the Bank has
agreed that the Guarantee contained shall be
irrevocable and shall continue to be enforceable
till the Appellant discharges this guarantee -
 appellant is a public sector undertaking and a
ground of not able to recover from a PSU has to
be grounded on strong footings and not merely
on apprehension or pleadings - it cannot be said
that any case of special equities has been made
out by the respondent, as would justify
interdicting invocation of the subject bank
guarantees - none of the three circumstances,
in which stay of invocation of unconditional
bank guarantees, can be granted by the Court,
exists in favour of the respondent in the present
case and as such it was not well within the
Jurisdiction of the Commercial Court to pass a
status quo order, which in effect has interdicted
the invocation of the performance Bank
Guarantee. (Para 30, 41)

Allowed. (E-5)

List of Cases cited :

## Text

_Characters 0–39,981 of 72,569. This is a partial read: ask again with offset=39981 for what follows._

702 INDIAN LAW REPORTS ALLAHABAD SERIES

4. The Presiding Officer of the
LARRA is an appointee of the State
Government. In the event he is a serving
District Judge, the appointment would be
on deputation, of course, with this Court's
permission on the administrative side. In all
other
contingencies
contemplated
by
Clauses (a) and (b) of sub-Section (1) of
Section 53, the appointment of the
Presiding Officer of the LARRA is to be
made by the State on such terms and
conditions as the law prescribes. Section 54
of the Act of 2013 spells out some of these
conditions.

5. The trappings and the essential
character of the LARRA show it to be not an
established Civil Court, but an adjudicating
authority established by a notification by the
State Government for the purpose indicated in
Section 51 of the Act of 2013. The Presiding
Officer of the said Authority is also to be
appointed by the State Government. The
Presiding Officer in one contingency may be a
serving District Judge, who could be appointed
on deputation with this Court's permission.
Else, the Presiding Officer recruited from any
other source would be appointed by the State
Government, of course, in consultation with the
Chief Justice of the High Court, in whose
jurisdiction, the Authority is proposed to be
established. By no means, therefore, the
LARRA is a Court subordinate to this Court
within the meaning of Section 24(1)(a) of the
Code of Civil Procedure, 19083. The LARRA,
described under the Act of 2013 as an
"Authority", may be regarded as a Tribunal
subordinate to this Court for the purpose of
superintendence under Article 227 of the
Constitution, but not a Court subordinate to this
Court under the Code.

6. In this view of the matter, this
transfer application is not maintainable. It
is, accordingly, rejected.

7. This order will, however, not
prevent the applicant from seeking such
remedies as may be advised
----------
(2022) 12 ILRA 702
APPELLATE JURISDICTION
CIVIL SIDE
DATED: LUCKNOW 02.12.2022

BEFORE

THE HON'BLE ATTAU RAHMAN MASOODI, J.
THE HON'BLE OM PRAKASH SHUKLA, J.

Appeal U/s 37 of Arbitration and Conciliation Act
1996 No. 16 of 2022

U.P.E.I.D.A. ...Appellant
Versus
M/S Sahakar Global Ltd. ...Respondent

Counsel for the Appellant:
Brijesh Kumar, Amal Rastogi, Utkarsh
Srivastava

Counsel for the Respondent:
Pritish Kumar

Arbitration and Conciliation Act, 1996 -
Section 9 - Interim measures - Civil
Procedure Code, 1908 - Order 39 - R. 1 -
Grant of Injunction - Bank Guarantee -
principles for grant or refusal to grant of
Injunction to restrain enforcement of a
bank guarantee - If the bank guarantee is
conditional, then, if the conditions have
not been fulfilled, injunction, against
encashment
and
invocation,
may
unquestionably follow - If, however, the
bank guarantee is unconditional, then
injunction
can
be
granted
only
if
egregious fraud, irretrievable injustice, or
special
equities/
exceptional
circumstances, exist, and not otherwise -
Fraud - mere pleadings do not make a
strong case of prima facie fraud, which
had to be shown by "material and
evidence" - fraud must be pleaded and
proved and it cannot be presumed - a
fraud in the execution of the Bank
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
703
Guarantee has to be pleaded and not the
Main contract or the subsequent events -
enquiry is confined to, whether on the
basis of the documents, a case of fraud of
egregious
nature
in
the
matter
of
obtaining/furnishing BGs, is made out -
Irretrievable
injustice
-
Irretrievable
injustice, as an exception to the rule of
non-interference with encashment of BGs,
is not a mere loss - what has to be proved
and made out to obtain an injunction
against encashment, is that it will be
impossible to recover the monies so
wrongfully received by encashment -
Special equities have to partake the
character of irretrievable injustice - any
reference to the original dispute between
the parties, relating to the performance of
the contract, is completely irrelevant,
insofar as the issue of stay of invocation of
the bank guarantees is concerned - person
in
whose
favour
the
guarantee
is
furnished
by
the
bank
cannot
be
prevented by way of an injunction in
enforcing the guarantee on the pretext
that the condition for enforcing the bank
guarantee in terms of the agreement
entered between the parties has not been
fulfilled. Such a course is impermissible
(Para 28, 35)

In the instant case the Bank Guarantee in
unequivocal terms says that any demand made
by the Appellant on the Bank shall be conclusive
and binding notwithstanding any difference
between the Appellant and the respondent or
any dispute pending before any Court, Tribunal,
Arbitrator or any other authority - It is very
much contained in the BG that the Bank has
agreed that the Guarantee contained shall be
irrevocable and shall continue to be enforceable
till the Appellant discharges this guarantee -
 appellant is a public sector undertaking and a
ground of not able to recover from a PSU has to
be grounded on strong footings and not merely
on apprehension or pleadings - it cannot be said
that any case of special equities has been made
out by the respondent, as would justify
interdicting invocation of the subject bank
guarantees - none of the three circumstances,
in which stay of invocation of unconditional
bank guarantees, can be granted by the Court,
exists in favour of the respondent in the present
case and as such it was not well within the
Jurisdiction of the Commercial Court to pass a
status quo order, which in effect has interdicted
the invocation of the performance Bank
Guarantee. (Para 30, 41)

Allowed. (E-5)

List of Cases cited :

1. U.P. Cooperative Federation Ltd. Vs Singh
Consultants and Engineers (P) Ltd. (1988 (1)
SCC 174)

2. Swenska Handeksbanken Vs M/s. Indian
Charge Chrome & ors., (1994) 1 SCC

3. State Trading Corporation of India Ltd. Vs
Jainsons Clothing corporation (1994) 6 SCC 597

4.
U.P.
State
Sugar
Corp.
Vs
Sumac
International Ltd, (1997) 1 SCC 568

5. Himadri Chemicals Industries Ltd. Vs Coal Tar
Refining Co.: (2007) 8 SCC 110

6. Daewoo Motors India Ltd, Vs U.O.I. & ors.,
(2003) 4 SCC 690

7. BSES Ltd, (now Reliance Energy Ltd. Vs,
Fenner India Ltd.& anr., (2006) 2 SCC 728

8.
Vintec
Electronics
Pvt.
Ltd,
Vs
HCL
Infosystems Ltd., (2008) 1 SCC 544

9. Ansal Engineering Projects Ltd. Vs Tehri
Hydro Development Corp. Ltd,& anr., (1996) 5
SCC 450

10. General Electric Technical Services Comp. INC
Vs Punj Sons (P) Ltd,& anr., (1991) 4 SCC 230

11. Consortium of Deepak Cable India Ltd. &
Abir Infrastructure Pvt. Ltd. (DCIL-AIPL) v.
Teestavalley Power Transmission Limited 2014
SCC Online Del 4741

12. Gujarat Maritime Board Vs Larsen & Toubro
Infrastructure Development Projects Limited
(2016) 10 SCC 46

13.
Standard
Chartered
Bank
Vs
Heavy
Engineering Corporation Ltd.,(2020)13SCC 574
704 INDIAN LAW REPORTS ALLAHABAD SERIES
14. Hindustan Construction Co. Ltd.& anr. Vs
Satluj Jal Vidyut Nigam Ltd. 2005 SCC OnLine
Del 1249

15. Hindustan Steel Workers Construction Ltd.
Vs G.S. Atwal & Co (Engineers) Pvt. Ltd. 1995
(6) SCC 76

16. Hindustan Steel Workers Construction Ltd.
Vs Tarapore & Co, 1996 (5) SCC 34

(Delivered by Hon'ble Om Prakash Shukla, J.)

1. Heard Mr Brijesh Kumar Saxena
Learned Advocate appearing for UPEIDA
and Mr. Jaideep Narain Mathur, Learned
Senior Advocate along with Mr . Pritish
Kumar representing M/s Sahakar Global
Ltd.

2. A short but seminal question arises
in the present Appeal filed under section 37
of the Arbitration & Conciliation Act, 1996
(as amended) by the Uttar Pradesh
Expressways
industrial
Development
Authority ( for short UPEIDA) against an
ad-interim
Injunction
order
dated
12.09.2022 (Impugned Order) passed by
the Learned Commercial Court, Lucknow
under section 9 of the Arbitration &
Conciliation Act, 19969 (as amended).
Apparently, in the said impugned order the
Learned Commercial Court has directed the
parties to maintain ''status quo" with respect
to the performance Bank Guarantee,
furnished by the Respondent Contractor -
M/s Sahakar Global Ltd.

3. The Appellants have submitted that
the said "Status Quo" order passed by the
Learned Commercial Court, Lucknow as
per the impugned order, not only amounts
to
restraining
the
invocation
and/or
encashment
of
Performance
Bank
Guarantee by them but also amounts to
final adjudication of the pending section 9
petition itself as the nature of relief, which
can be obtained/granted under a proceeding
under section 9 of the Arbitration &
Conciliation Act, 1996 can be only interim
in nature as any dispute can be finally
decided in an arbitration proceedings
before the Learned Arbitral Tribunal. Thus,
it has been urged by the appellant that since
a status quo order has been passed nothing
remains in the pending section 9 petition to
be decided and as such this court has been
called upon to set aside the impugned order
as well as dismiss the pending section 9
petition.

4. The genesis of dispute in the
present case can be capitulated in the
following manner:

(i) UPEIDA and M/s Sahakar
Global Ltd. entered into a Contract
Agreement
dated
13.10.2020,
which
provided collection of user fee at such rates
from the vehicles in terms of the U.P. Toll
Rules, 2020 at the 17 designated Toll
Plazas, located on the Agra-Lucknow
Express way.

(ii) M/s Sahakar Global Ltd. was
required to pay one year contract amount of
Rs.402,39,00000/- (Rupees Four Hundred
Two Crores and Thirty Lakhs only) divided
by number of days in a year (365 or 366 as
the case may be) and multiplied by seven
on weekly basis every Thursday to
UPEIDA. For the subsequent second year
of contract, the

(iii) The period of contract
commenced on 15.10.2020 (00:00 hours)
until 14.10.2022 (23:59:59 hours).

(iv) In terms of the contract, M/s
Sahakar Global Ltd furnished five Bank
Guarantees all valid and subsisting upto
January 31, 2023 for a total sum of
Rs.33,53,25,000/- (Rupees Thirty Three
Crore Fifty Three lakhs and Twenty Five
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
705
Thousand only) in favour of the present
Appellant as performance security.

(v) As per M/s Sahakar global
Ltd. a serious dispute arose between the
parties in connection with the contract
Agreement with regard to (a) Stamp Duty
and (b) Force Majeure reliefs, which
required to be adjudicated by a duly
constituted Arbitral Tribunal.

(vi) As far as the dispute relating
to Stamp duty is concerned, UPEIDA has
claimed a uniform rate of 4% stamp duty
on the contract value for the contract period
as per clause 39 of the contract dated
13.10.2020, which translates into Rs.
33,80,07,600/-, whereas it is the claim of
M/s Sahakar global Ltd, that the contract
attracts initial stamp duty @ 2% on the
contract value for the contract period and
an additional 2% is leviable only on such
toll plazas which falls within the notified/
development area in terms of the law. Thus,
according to Ms Sahakar Global Ltd they
have deposited the initial stamp duty @ 2%
of the contract value amounting to Rs.
16,90,03,800/- and have claimed that they
are required to deposit the propionate
additional 2% stamp duty for 3 out of 17
toll plazas only and as such the demand of
UPEIDA for payment of stamp duty @ 4%
of the contract value was not correct.
Further, as to whether they have paid the
proportionate additional 2% stamp duty for
3 out of 17 toll plazas or not is not clear
and whether they are required to pay 4%
stamp duty on the entire contract value or
not is also debatable.

(vii) Similarly, as far as the issue
relating to force majure relief is concerned,
M/s M/s Sahakar global Ltd has claimed
the total force majeure relief for three
different periods being (i) for duration
between 02.05.2021 to 07.06.2021 for an
amount of Rs. 11,36,66,013/-, (ii) for
duration between 29.06.2021 to 01.11.2021
for an amount of Rs. 14,59,09,302, and (iii)
for
duration
between
04.01.2022
to
08.08.2022
for
an
amount
of
Rs.
23,26,70,489/-. However, UPEIDA has
notified for force majeure relief for Rs.
11,38,11,932/- for the duration 02.05.2021
to 07.06.2021 only and that too with certain
conditions of signing a settlement-cumclose out agreement for no further claims
on account of force majure etc.

(viii) Thus, it is the case of M/s
Sahakar global Ltd that UPEIDA is
threatening to invoke and encash the Bank
Guarantee contrary to the terms of the
Contract as according to them UPEIDA on
the one hand is not fulfilling its obligation
to grant force majeure relief to them and on
the other hand demanding deposit of full
contractual remittance and in that regard is
threatening to forfeit the performance
securities
by
encashing
the
Bank
Guarantees.

5. Thus, the Respondent filed an
application under section 9 of the Act
seeking interim relief vide Arbitration Case
No. 57 of 2022 on 27.08.2022. Since the
said application was not heard / decided by
the commercial Court, Lucknow on an
appeal being filed by the respondent herein,
thus Court in an earlier round of litigation
had
directed
vide
its
order
dated
30.08.2022 in Appeal Under Section 37 of
Arbitration and Conciliation Act, 1996
bearing no. 12 of 2022 as inter-alia;

"Exercising
our
jurisdiction
under Section 13 of Commercial Courts Act
read with Section 37 of the Arbitration and
Conciliation Act as well as Article 227 of
the Constitution of India, we hereby direct
the
Commercial
Court,
Lucknow
to
consider
and
decide
the
pending
application for interim relief filed by the
appellant alongwith the application under
706 INDIAN LAW REPORTS ALLAHABAD SERIES
Section
9
of
the
Arbitration
and
Conciliation
Act,
1996
expeditiously,
preferably, on or before 5.9.2022. The
appellant shall make an application for
pre-ponement
of
date
before
the
Commercial Court within a period of two
days from today. The bank guarantee
extended by the appellant shall not be
invoked till 5.9.2022 subject to the outcome
of interim relief application. The protection
granted to the appellant may not be
understood for this Court to have dealt with
the matter on merit which the court below
may decide in accordance with law. This
order is passed in the peculiar facts and
circumstances of the case. The parties are
expected
to
co-operate
with
the
proceedings. The bank guarantee shall also
adhere to the terms and conditions of the
agreement. The appeal is accordingly
disposed of. Copy of the order shall be
made available to the learned Chief
Standing Counsel."

6. The Appellant on its part filed a
detailed objection to the said petition on
05.09.2022. The Learned Commercial court
after hearing the parties at length and after
considering rival submission of the parties,
passed a detailed impugned order dated
12.09.2022 granting status quo order
relating to the invocation of the Bank
Guarantees. Thus, the appellant chose to
file the present Appeal.

7. There is another aspect of the
matter, in as much as during the pendency
of the aforesaid section 9 petition before
the Learned Commercial Court, Lucknow,
the contract Agreement dated 13.10.2020
stood expired by efflux of time and the
respondent has already handed over the
operations to some new contractor on
13.10.2022. The respondent has also vide a
notice dated 04.11.2022 invoked the
arbitration clause by serving a notice
through email to the Appellant.

8. The fulcrum of the argument
pressed upon by Learned Advocate for the
appeallant is that the learned Commercial
Court below passed the impugned order (a)
without considering the principles of law
relating to and as applicable to the
invocation
and
encashment
of
unconditional bank guarantees (b) the
Respondent on the basis of the allegations
made in the Petition under Section 9 of the
Act, has failed to show the existence of
egregious fraud, irretrievable injustice or
injury or special equity in their favour (c)
In any case, the dispute or the clauses of
the contract dated 13.10.2020 entered
between the parties are wholly immaterial
and irrelevant while considering the relief
claimed by the Respondent to restrain the
Appellant from invoking and encashing
unconditional bank guarantees.

9. The Learned Counsel appearing for
UPEIDA has taken this court to the
averments made by the Respondent in the
pending section 9 petition to buttress his
point that a dispute exists between the
parties. It has been vehemently contended
by the Learned Counsel that the so called
special equities pleaded by the respondent
in their petition relates to a single ground
that invocation of Bank Guarantee would
drive to financial ruins. According to him
the threat to encash the bank guarantees is
wholly unfounded and the pleadings
regarding egregious fraud or Irretrievable
Injustice also relates merely to adversely
affecting the commercial viability of the
respondent. In any case, the Learned
Counsel contends that the special equity as
claimed by the respondent towards Covid
pandemic for the relief was also considered
& granted by the Appellant, however the
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
707
respondent claimed further amounts which
has been denied by the appellant and since
this was a dispute on the quantum of
money/relief
to
be
granted
to
the
respondent, which is a disputed fact, the
same cannot be a ground for interdicting
the performance Bank guarantee, which are
unconditional and irrevocable in nature.

10. It is the further case of the Appellant
that there was a short remittance of Rs.
39,21,09,614/- even after giving the force
majeure relief of Rs. 11,38,11,932- to the
respondent and as such the present case was
neither a case of irretrievable injustice or
egregious fraud. Further, the Bank Guarantee
secured the amount to the tune of Rs. 33.53
Crores only while the short remittances were
more than Rs. 39 Crores and as such even
after invocation of the Bank Guarantee the
entire outstanding would not be recoverable,
inspite of the fact that an undertaking
affidavit had been given by them before the
Learned Commercial court that the Bank
Guarantee would not be encashed towards
the recovery of stamp Duty.

11. It has also been argued that though
the Learned Commercial Court noted the
cases cited by the Appellant, but failed to
consider the settled legal principles as laid
down in the case of Ansal Engineering
Projects Ltd. Vs. Tehri Hydro Development
Corporation Ltd. (1996) 5 SCC Page 450 and
Standard
Chartered
Bank
Vs.
Heavy
Engineering Corporation Ltd. and others,
(2020) 13 SCC Page 574. The Learned
Counsel has vehemently explained that the
Hon'ble Supreme Court in these Judgment
while considering the unconditional bank
guarantee, held, that the object behind is to
inculcate respect for free flow of commerce,
trade and faith in the commercial bank
transactions, unhedged by pending dispute
between the beneficiary and the contractor.

12. The Learned Counsel for the appellant
has stressed on the point that the nature and
terms of the Bank guarantees are unconditional
and the amounts are payable merely on demand
to be made by the beneficiary without any
demur, reservation, contest, recourse, cavil,
argument or protest and/or without reference to
any inquiry from the Respondent and without
needing to prove or show grounds or reasons
for the demand in respect of the sum specified.
It has been urged that any such demand made
by the Appellant on the bank shall be
conclusive and binding notwithstanding any
difference between the Appellant and the
Respondent or any dispute pending before any
Court, Tribunal, Arbitrator or any other
Authority. The Learned Counsel referred to the
following Judgments relating to the law for
invocation of unconditional bank guarantees:

(i) Swenska Handeksbanken V/s
M/s. Indian Charge Chrome and others,
(1994) 1 SCC Page 502.

(ii) U.P. State Sugar Corporation
V/s Sumac International Ltd, (1997) 1 SCC
Page 568.

(iii) Daewoo Motors India Ltd,
V/s Union of India and others, (2003) 4
SCC Page 690,

(iv) BSES Ltd, (now Reliance
Energy Ltd. Vs, Fenner India Ltd. and
another, (2006) 2 SCC Page 728;

(v) Vintec Electronics Private
Ltd, Vs. HCL Infosystems Ltd., (2008) 1
SCC Page 544

(vi) Ansal Engineering Projects
Ltd.
Vs.
Tehri
Hydro
Development
Corporation Ltd, and another, (1996) 5
SCC Page 450;

(vii) General Electric Technical
Services Company INC Vs. Punj Sons (P)
Ltd, and another, (1991) 4 SCC Page 230.

13. Thus, in sum & substance, the
appellant attacked the impugned order by
708 INDIAN LAW REPORTS ALLAHABAD SERIES
submitting that (i) The unconditional Bank
guarantee is an independent and distinct
contract; (ii) The mere fact that the dispute
relating to force majure will be decided by
Arbitral tribunal and the Respondent
intends to keep the Bank Guarantee alive
does not create a prima-facie case in favour
of
the
respondent;
(iii)
Balance
of
convenience has been vaguely considered
by the Learned Commercial Court; (iv) the
ground of financial hardships and effect on
reputation in the business world cannot be
extended to mean irreparable injury or
irretrievable injustice or even special equity
relating to Covid pandemic and (v) The
respondent have failed to pay a sum of
more than Rs.39 Crore towards short
remittances and now the said amount has
surmounted to more than Rs.96 Crore being
inclusive of penalties and taxes.

14. As far as the respondents are
concerned, they defended the impugned
order and the defence was led by the
Learned Senior Counsel Mr. Jaideep Narain
Mathur, who flawlessly articulated his
argument by raising various issues. The first
issue raised by Mr. Mathur was relating to
maintainability of the present Appeal on the
ground of it being premature. Mr. Mathur,
stressed on the point that since the impugned
order is interim in nature and the Learned
Commercial court has posted the matter for
hearing next on 08.12.2022, any decision by
this court in the present Appeal would
render the pending section 9 petition
infructous. The Learned Senior Counsel
relied on the judgment of Essar House Pvt.
Ltd. v. Arcellor Mittal Nippon Steel India
reported as AIR 2022 SC 4294 to drive
home his point that the commercial court
has rightly while deciding the application
under section 9 petition has taken into
account
the
principles
of
Injunction
enshrined in order 39 CPC.

15. The Learned Senior Counsel
negated the argument of the Appellant
relating to Bank Guarantee being an
independent contract and the same must be
honoured by the Bank despite of any dispute
or difference between the parties, by
submitting that the Bank Guarantee being
primarily given for performance can be only
invoked if there was any deficiency of
performance in agreement and not for
shortfall of weekly remittance. According to
him, the shortfall of remittance was due to
force majure reasons of Covid 2nd & 3rd
wave and the same was covered under clause
26(b)(ii) of the Main Contract. Thus, it has
been impressed upon by the Learned Counsel
that since the plea of the respondent are yet to
be examined by the appellant relating to their
claim under the Force Majure Clause, the BG
given for performance cannot be invoked.
Mr. Mathur, took this court to the next leg of
argument by submitting that clause 18(b) and
clause 20 of the Main Contract itself bars the
appellant from adjusting the performance
security towards the instalment due to them
and any action contrary to the said clauses
amounts to overriding the terms of the
agreement and the demand is as such wholly
illegitimate & wrongful and further any
endeavour on the part of the appellant to
invoke the BG in violation of the terms of the
contract would amount to "egregious fraud".

16. It has been submitted by the
Learned Senior Counsel that since the PBG
are alive till 31.01.2023 and further the
respondent have given an undertaking
before the Learned Commercial Court that
they would keep the said BG alive till
conclusion of the arbitral proceedings, they
have a bonafide prima-facie case in their
favour. The Learned Counsel has stressed
that in case the Bank Guarantee is allowed
to be encashed, the respondent would suffer
irretrievable harm and injustice, since it
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
709
would be impossible for them to be
reimbursed from the Appellant. He further
contends that there does not exist any
contractual relationship with the appellant
and as such they would never be able to
recover the money from adjustment of
payments due to it and has contended that
any encashment of Bank Guarantee would
lead to irretrievable injustice in term of the
respondent's commercial viability, good
will and future prospect. The Learned
Senior Counsel tried to explain this court as
to how a Bank guarantee facility is availed
by the respondent and has in this endeavour
enumerated several negative implications
on the respondent's financial stability in
case the Bank guarantee is invoked.

17. The Learned Senior Counsel has
strenuously argued that the conduct of the
Appellant in trying to invoke the Bank
Guarantee is vitiated by fraud as it is not
the case of the Appellant that there were
any
shortcomings
or
defect
in
the
performance of the Respondent during the
entire tenure of the Contract Agreement. He
has relied on the judgment of the Delhi
High
Court
passed
in
Continental
Construction
Ltd.
v.
Satluj
Jal
VidyutNigam Ltd. reported as 2006 SCC
OnLine Del 56 to argue that a beneficiary is
not vested with an unquestionable or
unequivocal legal right to encash the bank
guarantee on demand. He has also relied on
Hindustan Construction Co Ltd. & Anr. V.
Satluj Jal Vidyut Nigam Ltd. reported as
2005 SCC OnLine Del 1249 to impress
upon this court that invocation of the Bank
guarantee can be stayed and the same may
be kept alive till the award was published
by the Arbitrator. The respondent has also
relied on the case of Union of India v.
Millenium Delhi Broadcasts LLP, reported
as AIR 2022 SC (Civil) 1682 to justify that
the Bank Guarantee can be stayed, if the
conditions were not fulfilled as per the
tender and the terms of the contract has
also to be read along with the terms of the
Bank guarantee.

18. It is the case of the respondent
that Clause 18(d) read with Clause 20 of
the Contract Agreement bars the Appellant
from encashing the Performance Bank
Guarantee
against
the
shortfall
in
remittance and further taking into account
the situation of Covid-19 pandemic and the
consequences
of
encashment
of
performance Bank Guarantee, the Learned
Senior Counsel argues that the Learned
Commercial Court was justified in holding
that since the circumstances falls into
special equities/ exceptional circumstances
and
the
Respondent
would
suffer
irretrievable injustice, the parties should
maintain 'status-quo' with respect to the
Bank Guarantees.

19. Having given a careful thought to
the rival submissions, this court is of the
firm view that the law with respect to grant
of an injunction which has the effect of
restraining
encashment
of
a
bank
guarantee, is no longer res integra. In the
earliest
case
of
U.P.
Cooperative
Federation Ltd. v. Singh Consultants and
Engineers (P) Ltd. (1988 (1) SCC 174),
which was the case of works contract
where the performance guarantee given
under the contract was sought to be
invoked, the Hon'ble Supreme Court, after
referring extensively to English and Indian
cases on the subject, said that the guarantee
must be honoured in accordance with its
terms. The Apex court observed that a bank
which gives the guarantee is not concerned
in the least with the relations between the
supplier and the customer; nor with the
question
whether
the
supplier
has
performed his contractual obligation or not,
710 INDIAN LAW REPORTS ALLAHABAD SERIES
nor with the question whether the supplier
is in default or not. The bank must pay
according to the tenor of its guarantee on
demand without proof or condition. The
court went on to hold that there are only
two exceptions to this rule. The first
exception is a case when there is a clear
fraud of which the bank has notice. The
fraud must be of an egregious nature such
as
to
vitiate
the
entire
underlying
transaction. Explaining the kind of fraud
that may absolve a bank from honouring its
guarantee, the Apex Court in the said case
quoted with approval the observations of
Sir John Donaldson, M.R. in Bolivinter Oil
SA v. Chase Manhattan Bank NA (1984 [1]
AER 351 at 352):

"The wholly exceptional case
where an injunction may be granted is
where it is proved that the bank knows that
any demand for payment already made or
which may thereafter be made will clearly
be fraudulent. But the evidence must be
clear both as to the fact of fraud and as to
the bank's knowledge. It would certainly
not normally be sufficient that this rests on
the
uncorroborated
statement
of
the
customer, for irreparable damage can be
done to a bank's credit in the relatively
brief time which must elapse between the
granting of such an injunction and an
application by the bank to have it charged".

Thus, the Apex Court in the said
case, set aside an injunction granted by the
High Court to restrain the realisation of the
bank guarantee.

20. The next case being referred by
this
court
is
the
case
of
Svenska
Handelsbanken
Vs
Indian
Charge
Chrome (1994) 1 SCC 502, wherein the
Apex court noticed that the confirmed or
irrevocable Bank Guarantee cannot be
interfered with unless there is established
fraud or irretrievable Injustice involved in
the case. It was observed in the said
judgment that irretrievable injury had to be
of the nature noticed in the case of Itek
Corporation V/s First National Bank of
Boston 566 fed Supp. 1210. The Hon'ble
Court explained in that case to avail of this
exception,
therefore,
exceptional
circumstances which make it impossible for
the guarantor to reimburse himself if he
ultimately succeeds, will have to be
decisively
established
and
a
mere
apprehension that the party will not be able
to pay, is not enough.

21. In State Trading Corporation of
India
Ltd.
Vs
Jainsons
Clothing
corporation (1994) 6 SCC 597, the
Hon'ble Court held that the grant of
injunction is a discretionary power in
equity
jurisdiction.
The
contract
of
guarantee is a trilateral contract which the
bank has undertaken to unconditionally and
unequivocally abide by the terms of the
contract. It is an act of trust with full faith
to facilitate free flow of trade and
commerce in internal or international trade
or business. It creates an irrevocable
obligation to perform the contract in terms
thereof. On the occurrence of the events
mentioned therein the bank guarantee
becomes
enforceable.
The
subsequent
disputes in the performance of the contract
does not give rise to a cause nor is the court
justified on that basis, to issue an injunction
from enforcing the contract, i.e., bank
guarantee. The parties are not left with no
remedy. In the event of the dispute in the
main contract ends in the party's favour,
he/it is entitled to damages or other
consequential reliefs.

22. The Hon'ble Supreme court in U.P
State Sugar Corporation Vs Sumac
International Limited (1997) 1 SCC 568
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
711
held that the existence of any dispute
between the parties to the contract is not a
ground for issuing an injunction to restrain
the enforcement of Bank Guarantees. In
Hindustan Steel Workers Construction Ltd.
Vs. G.S. Atwal & Co (Engineers) Pvt. Ltd.
1995 (6) SCC 76, wherein bank guarantees
were given towards due performance of the
contract, the Hon'ble Apex Court held that
the bank guarantees being irrevocable and
unconditional and as the beneficiary was
made the sole judge on the question of
breach of performance of the contract and
the extent of loss or damages an injunction
restraining the beneficiary from invoking
the bank guarantees could not have been
granted.

23. In Hindustan Steel Workers
Construction Ltd. Vs. Tarapore & Co,
1996 (5) SCC 34, the Hon'ble Apex court
was examining the relief for injunction,
which was sought by the contractor on the
ground that special equities or the special
circumstances of the case required it. The
special
circumstances
and/or
special
equities which had been pleaded in that
case, was that a serious dispute on the
question as to who has committed breach of
the contract. It was contended by the
contractor that he has a counter claim
against the appellant and that the disputes
between the parties have been referred to
the arbitrators and that no amount can be
said to be due and payable by the
contractor
to
the
appellant
till
the
arbitrators declare their award. The Hon'ble
Apex Court, held that, these factors are not
sufficient to make this case an exceptional
case justifying interference by restraining
the appellant from enforcing the bank
guarantees.

24. The Hon'ble Supreme Court,
clarifying the law on the grant of stay or
otherwise in Bank Guarantee matters gave
exhaustive direction in that regard in
Himadri Chemicals Industries Ltd. v. Coal
Tar Refining Co.: (2007) 8 SCC 110 in para
14 of the said judgment, which inter-alia
stated:

"14. From the discussion made
hereinabove relating to the principles for
grant or refusal to grant of Injunction to
restrain enforcement of a bank guarantee or
a letter of credit, we find that the following
principles should be noted in the matter of
Injunction to restrain the encashment of a
bank guarantee or a letter of credit:

"(i)
While
dealing
with
an
application for injunction in the course of
commercial
dealings,
and
when
an
unconditional Bank Guarantee or Letter of
Credit is given or accepted, the Beneficiary is
entitled to realize such a Bank Guarantee or
Letter of Credit in terms thereof irrespective
of any pending disputes relating to the terms
of the contract.

(ii)
The
Bank
giving
such
guarantee is bound to honour it as per its
terms irrespective of any dispute raised by its
customer.

(iii) The Courts should be slow in
granting an order of injunction to restrain the
realization of a Bank Guarantee or Letter of
Credit.

(iv) Since a Bank Guarantee or
Letter of Credit is an independent and a
separate contract and is absolute in nature,
the existence of any dispute between the
parties to the contract is not a ground for
issuing an order of injunction to restrain
enforcement of Bank Guarantee or Letter of
Credit.

(v) Fraud of an egregious nature
which would vitiate the very foundation of
such a Bank Guarantee or Letter of Credit
and the beneficiary seeks to take advantage
of the situation.
712 INDIAN LAW REPORTS ALLAHABAD SERIES

(vi) Allowing encashment of an
unconditional Bank Guarantee or Letter of
Credit would result in irretrievable harm or
injustice to one of the parties concerned."

25. The Learned Counsel for the
appellant has heavily relied on the
judgment passed in the case of Vintec
Electronics
Private
Ltd,
Vs.
HCL
Infosystems Ltd., (2008) 1 SCC 544,
which, in turn, took note of the earlier
decisions in U.P. State Sugar Corporation
(1997) 1 SCC 568, B.S.E.S. Ltd v. Fenner
India Ltd, (2006) 2 SCC 728, Himadri
Chemicals (2007) 8 SCC 110 and Mahatma
Gandhi Sahakara Sakkare Karkhane v.
National
Heavy
Engineering
Coop.
Ltd(2007) 6 SCC 470. The Hon'ble
Supreme Court proceeded to hold thus in
paras 11, 12 and 14 of the said judgment.

"11.
The
law
relating
to
invocation of bank guarantees is by now
well settled by a catena of decisions of this
Court.
The
bank
guarantees
which
provided that they are payable by the
guarantor on demand is considered to be
an unconditional bank guarantee. When in
the
course
of
commercial
dealings,
unconditional guarantees have been given
or accepted the beneficiary is entitled to
realise such a bank guarantee in terms
thereof
irrespective
of
any
pending
disputes. In U.P. State Sugar Corpn. v.
Sumac International Ltd., (1997) 1 SCC
568 this Court observed that: (SCC p. 574,
para 12)

"12.
The
law
relating
to
invocation of such bank guarantees is by
now well settled. When in the course of
commercial dealings an unconditional bank
guarantee is given or accepted, the
beneficiary is entitled to realise such a
bank
guarantee
in
terms
thereof
irrespective of any pending disputes. The
bank giving such a guarantee is bound to
honour it as per its terms irrespective of
any dispute raised by its customer. The very
purpose of giving such a bank guarantee
would otherwise be defeated. The courts
should, therefore, be slow in granting an
injunction to restrain the realisation of such
a bank guarantee. The courts have carved
out only two exceptions. A fraud in
connection with such a bank guarantee
would vitiate the very foundation of such a
bank guarantee. Hence if there is such a
fraud of which the beneficiary seeks to take
advantage, he can be restrained from doing
so. The second exception relates to cases
where allowing the encashment of an
unconditional bank guarantee would result
in irretrievable harm or injustice to one of
the parties concerned. Since in most cases
payment of money under such a bank
guarantee would adversely affect the bank
and its customer at whose instance the
guarantee is given, the harm or injustice
contemplated under this head must be of
such an exceptional and irretrievable
nature as would override the terms of the
guarantee and the adverse effect of such an
injunction on commercial dealings in the
country.
The
two
grounds
are
not
necessarily connected, though both may
coexist in some cases."

12. It is equally well settled in
law that bank guarantee is an independent
contract between bank and the beneficiary
thereof. The bank is always obliged to
honour its guarantee as long as it is an
unconditional and irrevocable one. The
dispute between the beneficiary and the
party at whose instance the bank has given
the guarantee is immaterial and of no
consequence. In BSES Ltd. v. Fenner India
Ltd. [(2006) 2 SCC 728] this Court held:
(SCC pp. 733-34, para 10)

"10. There are, however, two
exceptions to this rule. The first is when
12 All. U.P.E.I.D.A. Vs. M/S Sahakar Global Ltd.
713
there is a clear fraud of which the bank has
notice and a fraud of the beneficiary from
which it seeks to benefit. The fraud must be
of an egregious nature as to vitiate the
entire underlying transaction. The second
exception to the general rule of nonintervention is when there are 'special
equities' in favour of injunction, such as
when 'irretrievable injury' or 'irretrievable
injustice' would occur if such an injunction
were not granted. The general rule and its
exceptions has been reiterated in so many
judgments of this Court, that in U.P. State
Sugar Corpn. v. Sumac International Ltd.,
(1997) 1 SCC 568 this Court, correctly
declared that the law was 'settled'."

*****

14. In Mahatma Gandhi Sahakra
Sakkare Karkhane v. National Heavy Engg.
Coop. Ltd., (2007) 6 SCC 470 this Court
observed: (SCC p. 471b-d)

"If the bank guarantee furnished
is an unconditional and irrevocable one, it
is not open to the bank to raise any
objection whatsoever to pay the amounts
under the guarantee. The person in whose
favour the guarantee is furnished by the
bank cannot be prevented by way of an
injunction from enforcing the guarantee on
the pretext that the condition for enforcing
the bank guarantee in terms of the
agreement entered into between the parties
has not been fulfilled. Such a course is
impermissible. The seller cannot raise the
dispute of whatsoever nature and prevent
the purchaser from enforcing the bank
guarantee by way of injunction except on
the ground of fraud and irretrievable
injury.

What is relevant are the terms
incorporated in the guarantee executed by
the bank.