Law: Negotiable Instruments Act, 1881

Section: 13,5

(a) Negotiable Instruments Act (XXVI of 1881)--- ----Ss. 13 & 5---Unconditional bank guarantee or a letter of credit---Autonomy principle---Scope---Fate of an unconditional bank guarantee or a letter of credit being independent contracts is not dependent upon any dispute between the contracting parties and payment thereunder has to be made if an unconditional undertaking has been made by the issuer---Payment obligation under both the instruments is dependent on documentary demands and the issuer is barred from making any determination of objective facts---This is called the autonomy principle--- Premise on which this principle rests is that as between parties to documentary credit transactions a dispute related to the underlying transaction has to be pursued through a separate action for breach of the underlying contract and not by withholding payment under the letter of credit---"Pay first, sue later" is the core objective underlying the autonomy principle. Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Limited PLD 2003 SC 191 ref. (b) Negotiable Instruments Act (XXVI of 1881)--- ----Ss. 13 & 5---Bank guarantee, encashment of---Principles and exception---Fundamental rule of payment under the bank guarantee independent of any dispute between the contracting parties is excepted only where fraud is alleged as against the beneficiary of the bond/guarantee and the bank has notice of such fraud. Bolivinter Oil SA v. Chase Manhattan [1984] 1 All ER 351 ref. (c) Arbitration Act (X of 1940)--- ----S. 41 & Second Sched., Clause 4---Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2---Arbitration proceedings before the Court---Power of the Court to grant interim injunction---Principles and prerequisites stated. Clause 4 of the Second Schedule of the Arbitration Act, 1940 ('the Act') grants the power to the Court to issue interim injunctions. It is evident from the reading of the text of section 41 of the Act that the grant of injunction by the court in proceedings pending before it shall be governed by the provisions of the Code of Civil Procedure, 1908 (the Code) whereas the court retains the power to issue interim…

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