Law:

Section:

(a) Contract Act (IX of 1872)--- ---Ss. 126, 127, 10, 17 & 18---Civil Procedure Code (V of 1908), O.XXXIX, Rr. 1 & 2---Bank guarantee and letter of credit-- -Nature and effect---Rights and liabilities of surety/Bank, principal debtor and creditor tinder Bank guarantee and principal contract, determination and enforcement of---Temporary injunction, grounds for grant of---Action by creditor against guarantor---Burden of proof---Liability of guarantor, when contract becomes unenforceable against principal debtor---Bank guarantee is similar to an irrevocable letter of credit---Bank guarantee is an independent contract between Bank and customer imposing absolute obligation on Bank to comply with its terms, irrespective of any dispute between parties to principal contract---Bank guarantee becomes due on happening of a contingency on which same becomes enforceable---Bank must pay on demand, if so stipulated, without proof or conditions, in absence of any special equities or ear/established fraud---Bank's obligation ends, once Bank guarantee is discharged---Court should refrain from probing into nature of transactions between Bank and customer, which led to furnishing of Bank guarantee--­It disqualified terms of guarantee cannot be interfered with by Court irrespective of existence of dispute nor interim injunction restraining payment thereunder can be granted---Remedy arising out of ex-contract is not barred as cause of action for same was independent of enforcement of contract of guarantee---Commitments of Banks must be honoured free from interference by Courts---Theory of non-interference by Courts in respect of Bank guarantee and letter of credit---Purpose, exceptions and considerations. Performance of guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which must be honoured according to its term irrespective of the fact whether the supplier is in default or not---Bank must pay according to its guarantee all demand if so stipulated without proof or conditions. Only exception is when there is a clear fraud of which Bank has notice. There is an absolute obligation upon the banker to comply with the terms and conditions as…

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