Injunction On Invocation Of Bank Guarantee : Case Laws & Principles

[1] The author is a Counsel, based in Mumbai, who practices before the High Court and tribunals in India and occasionally in the Hon'ble Supreme Court of India, with a particular interest in commercial and corporate litigation. He also regularly appears in Arbitrations. He has completed his B.L.S. L.L.B. and completed L.L.M. in Corporate and Commercial Law from Queen Mary University of London with Merit. The author can be contacted on darshitkjain@gmail.com.

[2] Order dated 20.04.2020 passed by Hon'ble Delhi High Court in O.M.P. (I) (Comm) & I.A. 3697 of 2020.

[3] Order dated 08.04.2020 passed by the Bombay High Court in Commercial Arbitration Petition (L) No. 404 of 2020.

[4] Section 126 of the Indian Contract Act, 1872.

[5] The question arose before the Court of Appeal in England in Hamzeh Melas & Sons v. British Imex Industries Ltd. [(1958) 2 QB 127] The Court of Appeal held that although the court had wide jurisdiction to grant an injunction, this was not a case in which, in the exercise of its discretion, it ought to do so. An elaborate commercial system had been built upon the footing that a confirmed Letter of Credit constituted a bargain between the banker and the vendor of the goods, which imposed upon the banker an absolute obligation to pay, irrespective of any dispute there might be between the parties whether or not the goods were up to contract. The principle was that commercial trading must go on the solemn guarantee either by the Letter of Credit or by Bank Guarantee or irrespective of any dispute between contracting parties whether or not the goods were up to contract. The banks cannot be absolved of their responsibility to meet the obligations. A vendor of goods selling against a confirmed Letter of Credit was selling under the assurance that nothing would prevent it from receiving the price. That was of no mean advantage when goods manufactured in one country were sold in another. Though, in this case, no international trade was involved, Bank Guarantee was un-invocable and on that assurance, parties have bargained. This principle enunciated by Lord Justice Jenkins has been invoked by this Court in some decisions in case of confirmed Bank Guarantee.

[6] Paul R. Verkuil in an article "Bank Solvency and Guaranty Letters of Credit", Stanford Law Review, [V. 25 1972-73 at p. 719] [Referred in U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174 at pg. 193 pr. 44.]

[7] General Electric Technical Services Company Inc. v. Punj Sons (P) Ltd. [(1991) 4 SCC 230 : (1991) 3 SCR 412, 3 judge] = In a case where Indian Airlines contracted with the GETS for construction and fabrication of aircraft testing centre/engine repair centre in Delhi, which was sub-contracted to Punj Sons, who submitted Bank Guarantee but filed suit for injunction against invocation; where HC granted an ex-parte injunction, vacated by DB; SC while vacating injunction HELD THAT "the Bank is not concerned with the outstanding amount payable by the appellant under the running bills. The right to recover the amount under the running bills has no relevance to the liability of the Bank under the guarantee. The liability of the Bank remained intact irrespective of the recovery of mobilisation advance or the non-payment under the running bills. The failure on the part of the appellant to specify the remaining mobilisation advance in the letter for encashment of Bank Guarantee is of little consequence to the liability of the Bank under the guarantee. The demand by the appellant is under the Bank Guarantee and as per the terms thereof. The Bank has to pay and the Bank was willing to pay as per the undertaking. The Bank cannot be interdicted by the court at the instance of Respondent 1 in the absence of fraud or special equities in the form of preventing irretrievable injustice between the parties.".

[8] The Queen's Bench Division in R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [(1977) 2 All ER 862] (by Mr. Justice Kerr) In a case injunction was sought on a question in respect of performance bond, HELD that "(i) Only in exceptional cases would the courts interfere with the machinery of irrevocable obligations assumed by banks. In the case of a confirmed performance guarantee, just as in the case of a confirmed Letter of Credit, the bank was only concerned to ensure that the terms of its mandate and confirmation had been complied with and was in no way concerned with any contractual disputes which might have arisen between the buyers and sellers. Accordingly, since demands for payment had been made by the buyers under the guarantees and the plaintiffs had not established that the demands were fraudulent or other special circumstances, there were no grounds for continuing the injunctions...."

[9] Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. [(1978) 1 All ER 976] A performance guarantee was similar to a confirmed Letter of Credit. Where, therefore, a bank had given a performance guarantee it was required to honour the guarantee according to its terms and was not concerned whether either party to the contract which underlay the guarantee was in default. The only exception to that rule was where fraud by one of the parties to the underlying contract had been established and the bank had notice of the fraud. Accordingly, as the defendants' guarantee provided for payment on demand without proof or conditions, and was in the nature of a promissory note payable on demand, and the plaintiffs had not established fraud on the part of the buyers, the defendants were required to honour their guarantee on the demand made by the Libyan bank. It followed that the judge had been right to discharge the injunction and that the appeal would be dismissed.

[10] Larsen & Toubro Ltd. v. Maharashtra SEB [(1995) 6 SCC 68]; Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd. [(1995) 6 SCC 76]; National Thermal Power Corpn. Ltd. v. Flowmore (P) Ltd. [(1995) 4 SCC 515];

State of Maharashtra v. National Construction Co. [(1996) 1 SCC 735 : JT (1996) 1 SC 156, (SCC p. 741, pr. 13) "The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless there is an allegation of fraud or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guarantee."

Hindustan Steelworks Construction Ltd. v. Tarapore & Co. [(1996) 5 SCC 34 : JT (1996) 6 SC 295] In this case the appellant awarded a contract for construction of several books in steel plant within a specific period of time and time was of essence and the contractor had furnished bank guarantee to indemnify the appellant against loss or damage which provided that the appellant was the sole judge to ascertain whether the contractor has committed any breach and what extent of loss or damages is caused. The contractor failed to complete work even during the extended period. The contractor sought an injunction on the ground of disputes between the parties which were to be referred to arbitration. The Hon'ble Supreme Court refused to grant an injunction and held that "We are, therefore, of the opinion that the correct position of law is that commitments of bank must be honoured free from interference by the Courts and it is only in exceptional cases where irretrievable injustice would be done if bank guarantee were allowed to be encashed, the Court should interfere. In this case fraud has not been pleaded and the relief for injunction was sought by the contractor/ Respondent no1, on the ground that special equities or the special circumstances of the case required it. The special circumstances and special equities, which have been pleaded in this case, are that there is a serious dispute on the question as to who has committed breach of the contract, that the contractor has a counter- claim against the appellant. 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. In our opinion, these factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees."

[11] U.P.State Sugar Corporation vs. Sumac International [(1997) 1 SCC 568]. [Referred in Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 at pg. 115 pr. 10]

[12] Tarapore & Co. v. M/s V/O Tractors Export [(1969) 1 SCC 233 : AIR 1970 SC 891 : (1969) 2 SCR 920] Irrevocable Letter of Credit had a definite implication. It was independent of and unqualified by the contract of sale or other underlying transactions. It was a mechanism of great importance in international trade and any interference with that mechanism was bound to have serious repercussions on the international trade of this country. The court reiterated that the autonomy of an irrevocable Letter of Credit was entitled to protection and except in very exceptional circumstances courts should not interfere with that autonomy.

[13] United Commercial Bank v. Bank of India [(1981) 2 SCC 766 : AIR 1981 SC 1426 : (1981) 3 SCR 300] "[T]he High Court was wrong in granting the temporary injunction restraining the appellant bank from recalling the amount paid to the respondent bank. Courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of a Letter of Credit or a Bank Guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail." [Followed in Centax (India) Ltd. v. Vinmar Impex Inc. [(1986) 4 SCC 136]]

[14] United City Merchants (Investments) Ltd. v. Royal Bank of Canada [(1982) 2 All ER 720].

[15] Texmaco Ltd. v. State Bank of India [AIR 1979 Cal 44]

[16] U.P.State Sugar Corporation vs. Sumac International [(1997) 1 SCC 568]. "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. …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. …"

[17] Standard Chartered Bank Limited vs. Heavy Engineering Corporation Limited [(2019) SCC Online 1638 para 23]

[18] Hindustan Construction Co. Ltd. v. State of Bihar [(1999) 8 SCC 436] where having referred to the terms of Clause (9) of principal contract between the parties therein came to the conclusion that the Bank Guarantee specifically refers to the original contract and postulates that if the obligations expressed in the contract, are not fulfilled by HCCL, the right to claim recovery of the whole or part of the "advance mobilisation" then alone the bank was liable to pay the amount due under the guarantee to the Executive Engineer. The Hon'ble Supreme Court found that the Bank Guarantee specifically refers to Clause (9) of the principal agreement and it is under those circumstances it came to the conclusion that the amount covered by the Bank Guarantee becomes payable and the same could be invoked only in the circumstances referred to in Clause (9) of the principal agreement. "9. What is important, therefore, is that the Bank Guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the Bank Guarantee or the person on whose behalf the guarantee was furnished. The terms of the Bank Guarantee are, therefore, extremely material. Since the Bank Guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the Bank Guarantee, or else, the invocation itself would be bad."

[19] Mahatma Gandhi Sahakra Sakkare Karkhane vs. National Heavy Engineering Cooperation Ltd. [(2007) 6 SCC 470] = In a case where the Appellant society appointed the Respondent to establish a factory, where Respondent, inter alia, provided a Bank Guarantee to commissioning of the plant by 28.02.04; where the consultant to the project submitted a report that the trial run was unsuccessful and incomplete; where there were counter-allegations by both the parties; where the respondent sought an injunction on the grounds that (i) the appellant had not complied, (ii) Bank Guarantee was conditional, which has not been complied; where TC refused injunction since there was no fraud, HC granted injunction since the Bank Guarantee is conditional and that appellant had committed fraud by not informing the bank about breach, and SC while refusing injunction observed that since the Bank Guarantee was not conditional held that mere reference to the principal contract does not make the Bank Guarantee a conditional one.

[20] Gangotri Enterprises Ltd vs. Union of India [(2016) 11 SCC 720 : (2016) 4 SCC (Civ) 480] In a case where Respondent Railway had entered into a contract with the Appellant company for doing work in embankment and cutting including provision of machine, where the appellant was granted two contracts dt 22.08.05 and 14.07.06, where Bank Guarantee was furnished for contract dt 14.07.06 and completion certificate was granted whereafter the appellant was entitled to release of Bank Guarantee but the same was not released due to disputes in contract dt 22.08.05, SC while granting injunction HELD THAT "In other words, the sum claimed by the respondents is neither an admitted sum and nor a sum which stood adjudicated by any court of law in any judicial proceedings but it is a disputed sum, and lastly, the Bank Guarantee in question being in the nature of a performance guarantee furnished for execution work of contract dt 14-7-2006 (Anand Vihar works) and the work having been completed to the satisfaction of the respondents, they had no right to encash the Bank Guarantee."

[21] U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174 at pg. 193 pr. 45.

[22] Bolivinter Oil SA vs. Chase Manhattan Bank [(1984) 1 All ER 351, 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 discharged."

[23] U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd (1988) 1 SCC 174 = "21. .. An irrevocable commitment either in the form of confirmed Bank Guarantee or irrevocable Letter of Credit cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out. This is the well settled principle of the law in England. This is also a well settled principle of law in India, as I shall presently notice from some of the decisions of the High Court and decisions of this Court." [Landmark, history discussed and principles laid down.]

[24] U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174 at pg. 189 pr. 28.

[25] Sztejn v. J. HenrySchroder Banking Corporation [31 NYS 2d 631] Mr. Sztejn wanted to buy some bristles from India and so he entered into a deal with an Indian seller to sell him a quantity. The issuing bank issued a Letter of Credit to the Indian seller that provided that, upon receipt of appropriate documents, the bank would pay for the shipment. Somehow Mr. Sztejn discovered that the shipment made was not crates of bristles, but crates of worthless material and rubbish. He went to his bank which probably informed him that the Letter of Credit was an independent undertaking of the bank and it must pay. Mr. Sztein did not take that sitting down. He went to court and he sought an injunction. Now in 1941 people just did not get injunctions against payment under letters of credit. The defendant bank against its customer, filed the equivalent of a motion to dismiss for failure to state a claim. In that posture all the allegations of the complaint were taken as true, and those allegations were gross fraud that the holders in due course were involved. On those facts, the court issued an injunction against payment.

[26] Edward Owen Engineering Ltd. v. Barclays Bank International Ltd [(1978) 1 All ER 976]

[27] Handerson v. Canadian Imperial Bank of Commerce and Peat Marwick Ltd. [40 British Columbia LR 318] In a case where the plaintiff arranged an irrevocable Letter of Credit to fulfil its obligation to purchase 20 episodes of two television shows from a production company, which were never produced and the production company went into bankruptcy, but the beneficiary invoked the Bank Guarantee and the plaintiff applied for injunction. The court granted the interim injunction and HELD THAT there is an exception to the general rule; the bank should not pay under the credit where it knows that the request for payment is made fraudulently in circumstances when there is no right to payment. The bank had been put in knowledge of the fact that the shows had not been produced and, therefore, the receiver was not entitled to the proceeds.

[28] U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174 at pg. 197 pr. 53. [Referred in Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 at pg. 116 pr. 11]

[29] Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 at pg. 116 pr. 11 = "11. … So far as the first exception is concerned i.e. of fraud, one has to satisfy the court that the fraud in connection with the Bank Guarantee or Letter of Credit would vitiate the very foundation of such a Bank Guarantee or Letter of Credit. …" [Followed in Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects Ltd., (2016) 10 SCC 46 : (2017) 1 SCC (Civ) 458 : 2016 SCC OnLine SC 1005 at pg. 54 pr. 12 & Standard Chartered Bank vs. Heavy Engineering Corporation 2019 SCC Online SC 1638 pr. 22]

[30] Bolivinter Oil SA v. Chase Manhattan Bank [(1984) 1 All ER 351, 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 discharged." [Referred in Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 at pg. 116 pr. 11]

[31] U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568 at pg. 574 pr. 12 "12. … 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. ..."

[32] Bolivinter Oil SA vs. Chase Manhattan Bank [(1984) 1 All ER 351, 352]

[33] Svenska Handelsbanken vs. M/s. Indian Charge Chrome [(1994) 1 SCC 502] This was a case where the plaintiff invited various tenders from suppliers and where a consortium of lenders entered into credit agreements with the plaintiff (purchaser) for obtaining supply of various products for establishment of captive power plant. The plaintiff furnished unconditional Bank Guarantees to the lenders as a security for 100% of the loans plus interest, costs and fees under the credit agreements. Hence, the agreements of the plaintiff with the suppliers and with the consortium of lenders were separate and distinct. Plaintiff filed suit for declaration and injunction, inter alia, on the ground that the captive power plant was of lesser capacity than agreed with the suppliers and the agreement between the plaintiff, suppliers and the lenders were interconnected and constituted one transaction, Where the plaintiff was fraudulently induced into entering into contracts with suppliers by fraud of suppliers, lenders. The lenders pleaded that the credit agreements were a set composite transaction. TC refused to grant an injunction (Pr. 31), HC granted injunction (Pr. 34-36) and Hon'ble Supreme Court while refusing injunction held that fraud must be established beyond reasonable doubt is and mere allegations and pleadings will not make case for a fraud. (Paragraph 41 – 42).

[34] Elian and Rabbath v. Matsas and Matsas [[1966] 2 Lloyd's Rep. 495 (CA)] In this case, Plaintiffs had appointed Lebanese charterers for carriage of its cargo on first Defendant's Greek MV. Discharge was delayed and Defendant exercised lien on cargo for demurrage. Bank gave guarantee for first Defendant's agent to secure release of cargo. Yugoslavians claimed to distrain on goods, resulting in further delay and master of MV immediately exercised another lien. Ship owners claimed arbitration to assess demurrage and first lien. Plaintiff cargo owner claimed declaration that guarantee was not valid and injunction to restrain ship-owners or the regions from enforcing guarantee. Court of Appeal held that this was a special case where courts should grant an injunction to prevent what might be irretrievable injustice. Although the shippers were not parties to the guaranty, nevertheless they had a most important interest in it. If the bank paid under this guarantee, they would claim against the Lebanese bank, who in turn would claim against the shippers. Shippers would certainly be debited with the account and they would have two so the ship-owners for breach of promise express or implied to release the goods.

[35] Itek Corpn. v. The First National Bank of Boston etc. [566 Fed Supp 1210, 1217] = In a case where the exporter in USA entered into an agreement with Imperial Government of Iran and brought action seeking order terminating its liability on stand-by letters of credit issued by American Bank in favour of Iranian Bank as part of the contract in view of the situation created after the Iranian Revolution when the American Government cancelled the export license; where the plaintiff informed the importer in Iran invoking force majeure but the Iranian importer in spite of it resorted to encashment of the Bank Guarantee; where the Trial Court granted injunction on the ground of irretrievable injustice since even if claim for damages is decreed by the American courts situation in Iran was such that the decree will not be executable in Iran, hence, the applicant had "no adequate remedy at law and the allegations of irreparable harm are not speculative but genuine and immediate and the plaintiff would suffer irreparable harm if the requested relief is not granted." The court also found as a fact on pg. 1217 itself that "the uncontested facts in the record, if proved at trial, appear to make out a prima facie case of fraud within the meaning of Section 5-114(2)(b) and held that under these circumstances, any demand on the guarantees or letters of credit by Iranian importer in March 1980 would necessarily have been fraudulent". [Landmark judgment on irreparable harm.]

[36] U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568 at pg. 574 pr. 12. In this case, only during arguments in SC, the Respondent contended that irretrievable injustice would be caused since the appellant is a sick industrial company in respect of which a BIFR reference is pending, due to which even if it succeeds before the Arbitrator it will not be able to realise its claim from the appellant. The SC observed the provisions of SICA, 1985 to conclude that the same does not amount to irretrievable injustice and that there is no material to show that the company cannot make its net worth positive.

[37] Standard Chartered Bank ltd. vs. Heavy Engineering Corporation Ltd. [2019 SCC Online 1638] = "The settled position in law that emerges from the precedents of this Court is that the bank guarantee is an independent contract between bank and the beneficiary and 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 is of no consequence. There are, however, exceptions to this Rule when there is a clear case of fraud, irretrievable injustice or special equities. The Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee."

[38] M/s. Halliburton Offshore Services vs. Vedanta Limited [Order dated 20.04.20 passed by Del HC in O.M.P. (I) (COmm) & I.A. 3697 of 2020.] In a case where the Petitioner applied for injunction on invocation of Bank Guarantee, inter alia, in view of the extension in view of lockdown due to Covid outbreak, the Del HC reverted to the exception of 'special equities' in view of force majeure, as propounded by SC in Standard Chartered Bank vs. Heavy Engineering Corporation, in order to injunct the bank from invoking the Bank Guarantee and HELD THAT "20. The countrywide lockdown, which came into place on 24th March, 2020 was, in my opinion, prima facie in the nature of force majeure. Such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner. Mr. Sethi has submitted, categorically, that, till the date of clamping of the lockdown, on 22nd March, 2020, his client was in the process of proceeding with the project, and that, had the lockdown not be imposed, the project might have been completed by 31st March, 2020. Prima facie, in my view, special equities do exist, as would justify grant of the prayer, of the petitioner, to injunct the respondent from invoking the bank guarantees of the petitioner, forming subject matter of these proceedings, till the expiry of a period of one week from 3rd May, 2020, till which date the lockdown has been imposed. 21. … It would be necessary for these documents to be brought on record, before this matter was finally decided. At the same time, if no interim protection is granted at this juncture, and the bank guarantees are allowed to be encashed, even while the lockdown is in place, in my view, the injury and prejudice that would result to the petitioner merits being categorised as irretrievable, … 22. We are placed, today, in uncomfortably peculiar circumstances. A pandemic, of the nature which affects the world today, has not visited us during the lifetime of any of us and, hopefully, would not visit us hereinafter either. The devastation, human, economic, social and political, that has resulted as a consequence thereof, is unprecedented. The measures, to which the executive administration has had to resort, to somehow contain the fury of the pandemic, are equally unprecedented. The situation of nationwide lockdown, in which we find ourselves today, has never, earlier, been imposed on the country. The imposition of the lockdown was by way of a sudden and emergent measure, of which no advance knowledge could be credited to the petitioner – or, indeed, to anyone else.".

[39] Hamzeh Melas & Sons vs. British Impex Industries. [(1958) 2 QB 127] In this case, a Jordanian firm, contracted to purchase from the defendants, a British firm, a large quantity of reinforced steel rods, to be delivered in two instalments. Payment was to be made through two confirmed Letter of Credit. Letter of Credit were duly opened and the first was realized by the defendants on the delivery of the first instalment. The plaintiffs complained that that instalment was defective and sought an injunction to bar the defendants from realizing the second Letter of Credit, which was refused.

[40] Edward Owen Engineerig Ltd. vs. Barclays Bank International Ltd. [(1978) 1 All ER 976] English suppliers, entered into a contract with Libyan buyers to supply goods to them in Libya, subject to a condition precedent that the plaintiffs would arrange for a performance bond or guarantee to be given, which was given by defendant bank stating that they would pay the amount of the guarantee on first demand, without any conditions or proof. In turn, the contract between the plaintiffs and the buyers provided for payment of the price of the goods supplied by a confirmed Letter of Credit, which was not complied by the buyers and the plaintiffs repudiated the contract. Despite their default, the buyers claimed on the guarantee by the plaintiffs to the English supplier. The plaintiff applied for an injunction to restrain the buyer from paying any sum under the performance guarantee, which was initially granted by the court Appeal discharged the injunction.

[41] United Commercial Bank vs. Bank of India [(1981) 2 SCC 766 : AIR 81 SC 1426] In a contract to sell goods where the plaintiff seller agreed to sell refined mustard oil to the buyer and buyer opened Letter of Credit through appellant bank, who refused to pay 'except under reserve' pointing to a discrepancy in the railway receipts as regards description of goods being unrefined mustard oil, where first lot payment was received 'under reserve' and appellant bank refused to pay second lot on the ground of discrepancy in railway receipts being stale and demanded refund of the first lot payment because the bills were not acceptable to the buyer; where the appellant paid the second lot 'under reserve'; where seller filed Suit and thereafter appellant serve demand letter on the ground that goods were defective; where HC granted temporary injunction that appellant was not entitled to impose condition 'under reserve', upheld by DB, SC refused injunction.

[42] U. P. Cooperative Federation Ltd vs. Singh Consultants an Engineers. [(1988) 1 SCC 174] In a case where unconditional Bank Guarantees were executed in favor of contractor for constructing a vanaspati manufacturing plant; where dispute arose between the parties as to erection and performance of the plant; contractee sought an injunction from invocation of Bank Guarantee; where TC rejected injunction; HC in revision granted injunction; SC (Sabjasachi Mukherji J.) while refusing to grant an injunction laid down principles, inter alia, to the effect that the contract of guarantee is separate from the underlying contract between the parties.

[43] Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., [(2007) 8 SCC 110 at page 115 para 10 to 14] In a case where the appellant purchaser had entered into a contract with the respondent seller agreed to supply extra hard pitch, one of the terms of payment being by is a is a irrevocable Letter of Credit, which was opened. When presented, appellant's banker held that description of goods was not as per terms of Letter of Credit, informed the appellant, wherein appellant waived the discrepancies and accepted the documents. Quality issue remained. Appellant filed section 9 seeking injunction from invocation of Letter of Credit on the ground that (i) respondent's act in not resolving quality issues amounted to fraud and (ii) since respondent was a foreign company from either on and had no sets in India it for the lead to in the treble in justice since it would not be possible to recover money. HC granted ad interim injunction in the form of status quo but rejected interim injunction, which was upheld by DB. SC while refusing injunction discussed the prior law and enlisted broad principles.

[44] Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co., (2007) 8 SCC 110 at pg. 117 pr. 14. [Followed in Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects Ltd., (2016) 10 SCC 46 : (2017) 1 SCC (Civ) 458 : 2016 SCC OnLine SC 1005 at pg. 54 pr. 12 & Standard Chartered Bank vs. Heavy Engineering Corporation 2019 SCC Online SC 1638 pr. 22]