Court Exercising Powers Under Section 9 Of The A&C Act Cannot Add Conditions To An Unconditional Bank Guarantee: Meghalaya High Court

The Division Bench of Chief Justice Sanjib Banerjee and Justice W.Diengdoh held that mere plea of fraud would not be a ground for the court to stay invocation of an unconditional bank guarantee unless a strong prima facie case is made out on such a ground.

The Court further held that merely because no attempt has been made at the invocation of the bank guarantee since the date of injunction, that would not mean that the matter has attained finality and the aggrieved party has accepted the impugned order.

Facts

The parties entered into a contract. Consequently, the respondent furnished an unconditional bank guarantee in favour of the appellant. A dispute arose between the parties and the respondent filed an application under Section 9 of the A&C Act for restraining the appellant from invoking the bank guarantees.

The trial court directed the appellant to serve a notice to the respondents before the invocation of bank guarantee.

The Contention Of The Parties

The appellant challenged the impugned order on the following grounds:

• The Court erred in directing the appellant to serve a notice of intention on the respondent before the invocation of bank guarantee and the same amounts to adding conditions to an unconditional bank guarantee.

The respondent objected to the maintainability of the appeal on the following grounds:

• The court has merely directed the respondent to serve a notice before invocation and the same is not an injunction within the meaning of Section 9 of the Act, therefore, the appeal is not maintainable.
• The appellant has neither made any claim nor made any attempt to invoke the bank guarantees, therefore, the matter is fait accompli.
• The work under the contracts in question is complete and the appeal are of no further relevance.

Analysis By The Court

The Court held that a court exercising powers under Section 9 of the A&C Act cannot add conditions to an unconditional bank guarantee.

The Court held that the impugned order resulted in rewriting the terms and conditions of the bank guarantee and the same is impermissible under Section 9 of the A&C Act.

The Court held that mere plea of fraud would not be a ground for the court to stay invocation of an unconditional bank guarantee unless a strong prima facie case is made out on such a ground. Moreover, merely because an issue is pending consideration before the Higher Court, the same would not operate as injunction on the power of the lower court to decide an ancillary issue unless an injunction is granted on that issue.

The Court rejected the argument of the respondent that the matter is fait accompli and held that merely because no attempt has been made at the invocation of the bank guarantee since the date of injunction, that would not mean that the matter has attained finality and the aggrieved party has accepted the impugned order.

The Court held that the invocation might result in prejudice to the respondent but it is not a ground for an unconditional bank guarantee to be interdicted or interfered with.

Case Title: North Eastern Electric Power Corporation Ltd. (NEEPCO) v. Patel-Unity JV, Arb. A. No. 1/2019

Date: 22.03.2022

Citation: 2022 LiveLaw (Meg) 23

Counsel for the Appellant: Mr. R Shankar, Adv with Mr. S Jindal, Adv

Counsel for the Respondent: Mr. A Dholakya, Sr. Adv with Mr. R Dangwal, Adv Mr. K. Gaur, Adv

Click Here To Read/Download Order