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Encashment of the unconditional Bank guarantees will not result in irretrievable injury – DELHI HC

Hindustan Construction Co. ltd v. National Hydro electric Power Corporation

CITATION : FAO (OS) (COMM) 106/2020

DECIDED ON: 22.8.2020


An was appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 read with Section 13 of the Commercial Courts Act, 2015 against the judgment of the learned Single Judge dated 27th August, 2020 dismissing the petition filed by the appellant the Hindustan Construction Co. Ltd. Section 9 of the Act was also invoked for seeking an injunction restraining the respondent the National Hydro-Electric Power Corporation Ltd. from invoking/encashing any or all of its Bank Guarantees (BGs) cumulatively worth ₹214.36 crores. Whether encashments of Bank Guarantee will result in irretrievable injury?

On behalf of the appellants, the learned council argued that the impugned judgment wrongly rejected the principle of proportionality; He stated that even if fraud was not disclosed in the making of the BGs, the conduct of the respondent/HCC disclosed fraudulent intent; and, he also argued that the case of the appellant/HCC was covered under the two exceptions recognized by the courts and that the cumulative impact of all circumstances put together, was to shock the conscience of the court and thus, special equities existed in favour of the appellant/HCC. The learned council placed reliance on Bhushan Power & Steel Ltd. &Anr. V Union of India and M/S D B Power Ltd v Union of India.

The learned council for respondent argued that the learned Single Judge had rightly concluded that neither was there fraud, which in any case had to be of an egregious kind, nor were there any special equities made out in favour of the appellant. He also argued that fraud, calling for the intervention of the court, has to be of an egregious nature. There must be fraud established and mere allegations will not suffice. Fraud in connection with a bank guarantee should vitiate its very foundation. The learned council placed reliance on the case of U.P. Coop. Federation Ltd v Singh Consultants And Engineersand Svenska Handelsbanken v Indian Charge Chrome

It was stated in the UP Sugar Corp Case that,

“The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit.”

The Court reasoned that it is apparent that one of the most important aspects of irretrievable injury would be that it would be impossible for the guarantor to get back the money if it succeeds in any claim against the beneficiary. Such a situation is not even conceivable in the present case as the respondent/NHPC is a Public Sector Undertaking.

It stated that encashment of the unconditional BGs will not result in irretrievable injury to the appellant requiring this Court to take a view different from the very well considered view taken by the learned Single Judge.( Para no 33)

The appeal was dismissed.

- Kamalini

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