Law: Contract, Act, 1872

Section: 126

Law: Civil Procedure Code (V of 1908)

Section: 2,4

(a) Contract Act (IX of 1872)--- ----S.126---Civil Procedure Code (V of 1908), O.XXXIX, R.2---Bank guarantee---Irrevocable and unconditional nature---Interim injunction---Scope---Interim injunction could not be granted to interfere with the Banks obligation to make payment to a beneficiary who made a demand for the encashment of an irrevocable and unconditional Bank guarantee. (b) Contract Act (IX of 1872)--- ----S.126---Civil Procedure Code (V of 1908), O.XXXIX, R.2---Bank guarantee---Irrevocable and unconditional nature of------Injunction, grant of---Exceptions to general rule of grant of injunction---Fraud and irretrievable injustice---Scope---Only two exceptions were available to the Court where it may consider granting an injunction to restrain the encashment of a Bank guarantee: (i) where fraud by the beneficiary is proved to the satisfaction of the Court and (ii) where a case of irretrievable injustice is made out by the party which furnished the Bank guarantee---Irretrievable injustice meant a situation where, after the Bank guarantee was allowed to be encashed, it would be impossible for the principal debtor to recover from the beneficiary the amount under the guarantee if it was finally held that the beneficiary was not entitled to the amount---Court could restrain the encashment of irrevocable/unconditional Bank guarantee in cases where fraud of an egregious nature had been played on the principal debtor of which the guarantor Bank had prior notice---Fraud was required to be pleaded and established when it was put forth as a ground for seeking a restraint order against the encashment of a Bank guarantee. (c) Contract Act (IX of 1872)--- ----S.126---Contract of guarantee/surety---Unconditional nature---Bank guarantees which provided that they were payable by the guarantor on demand were considered to be unconditional---In such cases, dispute between the beneficiary and the party at whose instance the guarantee was given was immaterial and of no consequence---If a Bank furnished an irrevocable and unconditional Bank guarantee, it was not open to the Bank to raise objections to pay the amount under the guarantee---Irrevocable/unconditional Bank…

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