Delhi High Court opined on furnishing encashment of Bank Guarantees

Delhi HC - law insider

Aishwarya Rathore –

Published on: September 1, 2021, at 22:14 IST

The Delhi High Court ruled that, except in cases of fraud, irretrievable injustice, or special equities, the Court should not intervene in the invocation or encashment of a “Bank guarantee,” as long as the invocation is done in accordance with the conditions of the guarantee.

A Division Bench of Justices Manmohan and Navin Chawla said that Bank guarantees must be free from judicial intrusion, otherwise trust in Internal and International Commerce would be irreversibly damaged.

The Court stated, “Prima facie, this Court is of the opinion that Bank Guarantees are not furnished for being photo framed and kept in a drawing room.”

The Supreme Court’s ruling in U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd., as well as in the Andhra Pradesh Pollution Control Board vs. CCL Products (India) Limited, enunciated the legal sanctity and meaning of the term “Bank Guarantee.”

The Court observed, “In our view, the Court can not injunct the encashment of a Bank guarantee during its validity if a cause of action arises in the future. Bank guarantee has a meaning and legal sanctity attached to it. “

The observations were made in an appeal filed by SPML Infra Ltd, which challenged an Order dated July 23, 2021 by Saket District Judge, in which an ex-parte ad-interim status quo was granted with regard to the encashment of the Bank guarantees, in an application filed by Hitachi (respondent no.1) under Section 9 of the Arbitration and Conciliation Act,1996.

Click here to read/download the Order

Also Read: Rajya Sabha passes Deposit Insurance and Credit Guarantee Corporation(Amendment) Bill, 2021



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