The Court should not interfere with the invocation or encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee : Delhi High Court

Encashment of bank guarantee of a party cannot be interfered by the Court unless and until there is a discrepancy in the terms of invocation of the bank guarantee This was held in the judgment passed by a two-bench judge comprising Hon’ble JUSTICES Mr VIPIN SANGHI and MR. JUSTICE JASMEET SINGH, in the matter SPML INFRA LTD V. HITACHI INDIA (P) LTD. AND ANR, dealt with an issue where the petitioner filed an appeal challenging the order dated 23rd July, 2021 passed by Learned District Judge, Commercial Court.

The Trial Court has passed an ex parte ad-interim status quo order as regards the encashment of Respondent’s No. 2 Bank Guarantees for Rs.16,20,000/-in an application filed by Respondent No. 1 under Section 9 of the Arbitration and Conciliation Act, 1996.

Counsel for the appellant states that the Bank Guarantee was invoked as the Respondent no.1 had not extended the said Bank Guarantee up to 31st March, 2022. Counsel for the respondents state that the Bank Guarantee in question has been extended till 31st March, 2022. Let the original extended Bank Guarantee be furnished to the learned counsel for the appellant within a week.

Counsel for respondent, states that he would like to press for an injunction order before the trial court restraining the appellant from encashing the Bank Guarantee in question during its validity period. In support of his contention, he draws this Court’s attention to learned Single Judge’s order dated 22nd July, 2021, passed in a similar matter between the same parties.

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 learned Single Judge in the order dated 22nd July, 2021, has advisedly used the expression that ‘the order has been passed in view of the consensus arrived at between the parties’. There is no judicial finding that a Bank Guarantee cannot be encashed during its validity.

After hearing both the parties The hon’ble Delhi High court held that the Court cannot injunct encashment of a bank guarantee during its validity if a cause of action arises in future. Bank guarantee has a meaning and legal sanctity attached to it. The Supreme Court in U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174, has held that bank guarantees must be honored free form interference by Courts, otherwise, trust in commerce internal and international would be irreparably damaged.

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