Law: Code Of Civil Procedure, 1908.

Section: 1 & 2, 5,94(e)

Case Summary

Tagline

"After encashment of a bank guarantee, courts ordinarily will not restore the guarantee or order deposit of its proceeds merely because the beneficiary's demand is disputed; however, courts may mould equitable relief to safeguard the effectiveness of the final decree."

Facts of the Case

• Siddiqsons Energy Limited (SEL) was developing a 330 MW coal-fired power project in Sindh.
• SEL furnished a Performance Bank Guarantee (PG) through United Bank Limited (UBL) in favour of Private Power and Infrastructure Board (PPIB).
• PPIB invoked the bank guarantee because SEL failed to achieve Financial Closing within the extended period under the Letter of Support (LOS).
• SEL challenged the invocation of the guarantee, alleging:
  • the demand notice was defective;
  • PPIB acted mala fide;
  • the guarantee amount was wrongly invoked;
  • SEL had legitimate expectations of further extension.
• The trial court refused interim injunction.
• During pendency of the appeal, UBL encashed and paid US$3.5 million to PPIB.

Issues

1. Whether the Court could restore or reinstate an already encashed bank guarantee.
2. Whether PPIB should be directed to deposit the encashed amount in Court pending trial.
3. Whether inherent powers under Section 94 CPC or principles similar to Mareva injunction could be exercised.
4. Whether any equitable interim relief should still be granted after encashment.

Held

The appeal was disposed of.

The Court held that: