Summary
The Bank’s appeal against a decree enforcing two guarantees failed. Although the initial demand was inadequate, later correspondence sufficiently invoked the guarantees for losses from defective or omitted supply and contractual performance. The guarantees were unconditional and no recognised exception was asserted; the Bank could not adjudicate the underlying merits once a compliant demand was made.
Issues
- Whether the guarantees were invoked in accordance with their terms.
- Whether the Bank could resist payment by disputing the underlying loss or its apportionment.
Held
- A bank guarantee is an independent contract, construed and invoked according to its own terms. Underlying contractual disputes do not excuse payment of an unconditional guarantee; intervention requires the recognised fraud, irretrievable injustice or special-equity exception. (¶¶ 19, 20, 21, 22, 23)
- These guarantees covered the advances and loss from failure in supplying plant and equipment. While the initial invocation letter was inadequate, the subsequent letters described the relevant loss and, read together, complied with the guarantees. (¶¶ 24, 25)
- Once the beneficiary made a compliant demand, the Bank was obliged to pay rather than determine whether invocation was justified on the underlying facts. Its defence did not fall within any recognised exception. (¶ 26)
- The High Court Registry could release the lien-marked deposit to the beneficiary, with the Bank responsible for satisfying the decree’s full liability. (¶ 27)
Result
Appeal dismissed without costs. The decree for Rs.1,10,33,207 with 8% annual interest from institution of the suit until payment remained in force. Release of the deposited funds to the beneficiary was permitted, and the Bank must satisfy the decree. Pending applications disposed of.