“Courts Cannot Injunct Encashment Of Bank Guarantee During Period of Validity”: Delhi High Court cites SC’s ruling on Bank Guarantees

 FAO129 2021 IN THE HIGH COURT OF DELHI AT NEW DELHI SPML INFRA LTD Appellant Through: Mr. Sayan Ray & Mr. Parag Chaturvedi Advocates. HITACHI INDIALTD. AND ANR Respondents Through: Mr. Prasouk Jain with Ms. Rabiya Thakur Advocates. Mr. Ateev Mathur Advocate for Respondent No.2Date of Decision: 27th August 2021 HON BLE MR. JUSTICE MANMOHAN HON BLE MR. JUSTICE NAVIN CHAWLA JUDGMENT MANMOHAN J:The hearing has been done by way of video conferencing. CM APPL.28298 2021 Exemption allowed subject to all just exceptions. Accordingly application stands disposed of. FAO129 2021 & CM APPL. 28297 2021 Present appeal has been filed challenging the order dat ed 23 r d Ju ly 2021 passed by Learned District Judge Commercial Court 02 South East District Saket District Courts in OMP(I) No. 192 2021 whereby the Trial Court has passed an ex parte ad in terim st atus FAO129 2021 quo order as regards the encashment of Respondent’s No. 2 Bank Guarantees for Rs.16 20 000 in an application filed by Respon dent No. 1 under Section 9 of the Arbitration and Conciliation Act 1996. Learned counsel for the appellant states that the Bank Guarantee was invoked as the Respondent no.1 had not extended the said Ban k Guarantee up to 31st March 2022. of Respondent no.2. Issue notice. Mr. Prasouk Jain Advocate accepts notice on behalf of Respondent no.1 and Mr. Ateev Mathur Advocate accepts notice on beh alf Learned 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 wit hin a week. In view of the aforesaid statement this Court was inclined to dispose of not only the appeal but also the Section 9 petition filed by the respon dent no.1. However Mr. Jain learned counsel for respondent no.1 states t hat h e would like to press for an injunction order before the trial court restraining the appellant from encashing the Ban k Guarantee in qu estion du ring it s 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 sim ilar matter between the same parties. Prima facie this Court is of the opinion that Bank Guarantees are n ot furnished for being photo framed and kept in a drawing room . Th e 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 Ban k Gu arantee FAO129 2021 cannot be encashed during its validity. In our view the Court cannot injunct encashment of a bank guarantee during its validity if a cause of action arises in future. Bank guarantee h as a meaning and legal sanctity attached to it. The Supreme Court in U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers Ltd. 1 SCC 174 has held that bank guarantees m ust be h onoured free form interference by Courts otherwise trust in commerce internal an d international would be irreparably damaged. Recently in Andhra Pradesh Pollution Control Board vs. CCL Products Limited 2019 SCC OnLine SC 985 the Supreme Court has held as under: “23. The settled legal position which has emerged from the precedents of this Court is that absent a case of fraud irretrievable injustice and special equities the Court should not interfere iwth the invocation or encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee.” However learned counsel for the respondent no.1 insists on arguing the matter and showing some documents. Respondent no.1 is given an opportunity to file whatever documents he wishes to rely upon within a List on 13th September 2021. 10. The order be uploaded on the website forthwith. Copy of the order be also forwarded to the learned counsel through e mail. MANMOHAN J week. NAVIN CHAWLA J AUGUST 27 2021 AS FAO129 2021 

Summary: The Delhi High Court has stated that a judicial order cannot be issued prohibiting the encashment of a Bank Guarantee while it is still valid. The Delhi High Court cited Supreme Court’s Ruling in the matter of SPML INFRA LTD v Hitachi India PVT LTD.  Justice Manmohan and Justice Navin Chawla of a two-judge bench added, “In our view, 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 honoured free form interference by Courts, otherwise, trust in commerce internal and international would be irreparably damaged.” The Supreme Court’s ruling in U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd. was cited, which stated that bank guarantees must be respected without interference from courts, or else trust in domestic and international business would be irrevocably destroyed. In light of this, the Court was disposed of not only the appeal but also the respondent no.1’s Section 9 petition. However, the respondent’s counsel stated that he would like to seek an injunction order from the trial court prohibiting the appellant from cashing the Bank Guarantee in question during its validity period. He called the Court’s attention to an order issued by a single judge on July 22, 2021, in a case involving 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 FAO (COMM) 129/2021 Page 3 of 3 cannot be encashed during its validity.”