#1 Radhe Shyam Bansal v.

IFFCO, 2000 (2) Arb LR 22- A bank guarantee cannot be

invoked where the contractor has completed all the works under the contract and even the
maintenance period has expired.

As there was no outstanding liability against the bank guarantee, it would follow that the bank
guarantee is not being invoked for the violation of this bank guarantee and the invocation of the
bank guarantee thus is not lawful. No doubt the law relating to invocation of bank guarantees is
well settled. The beneficiary is entitled to realise such a bank guarantee in terms thereof
irrespective of any pending dispute and the bank giving such a bank guarantee is bound to
honour it as per its terms except in case of fraud and irretrievable harm or injustice to the other
party. It is equally settled that the beneficiary is entitled to invoke the bank guarantee and seek
its encashment in accordance with the terms and tenor of the bank guarantee. And obviously the
bank guarantee could be invoked if any liability contemplated covered by the bank guarantee is
payable by the contractor under the terms of the bank guarantee.

The bank guarantee thus has to be construed and invoked strictly in accordance with the terms
and tenor of the bank guarantee and the bank would not be liable to honour its invocation if it is
not in terms of the guarantee. The bank guarantee in the present case obviously stood discharged
on the satisfactorily completion of the work and maintenance period of 12 months thereafter
being over without any liability remaining outstanding thereunder. Perhaps that is why the
respondent has not placed on record copy of their invocation letter. Obviously, the respondent
has been getting the bank guarantee extended unreasonably in violation of the terms and
conditions of the bank guarantee by exercising undue influence and thereby the petitioner had to
incur expenditure to keep the bank guarantee alive for over 10 years by now. The respondent in
the circumstances was not justified in inducing the petitioner to keep it alive on such failure to
invoke it.

#2 U.P Cooperation Federation Limited v Singh Consultants and Engineers (P) Ltd. (1988) 1
SCC 174

Where the performance guarantee given under the contract was sought to be invoked, this Court,
after referring extensively to English and Indian cases on the subject, said that the guarantee
must be honored in accordance with its terms. The 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, 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. There are only two exceptions to this rule,
which is clear fraud and irreparable damage being caused.

#3 G.S. Atwal & Co. (Engineers) Private Limited v. National Projects Construction Ltd, 1988
(2) Arb LR 145 (Del)

A contract of the bank guarantee is an independent contract between the banker and the
respondents and has to be worked independently of the disputes arising out of the works
agreement between the parties to the petition. A bank guarantee is an independent and distinct
contract between the beneficiary and the bank and the rights and obligations herein are to be
determined in its own terms.

#4 MMAR MGF Constructions Private Limited v DDA, 2011 (2) RAJ 216: 2011 (1) Arb LR
440 (Del)

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 realize such a bank guarantee in terms thereof irrespective of any
pending disputes. The bank giving such a guarantee is bound to honor 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 realization 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