Section 9 Of Arbitration Act – Courts Cannot Add Conditions To Unconditional Bank Guarantee – Meghalaya High Court

Mr R Shankar and Mr S Jindal appeared for the Appellant. Senior Advocate A Dholakya, Mr R Dangwal and Mr K Gaur appeared for the Respondent.

In this case, the parties were bound by a contract, and consequently, the Respondent furnished an unconditional bank guarantee in favour of the Appellant. A dispute arose between the Parties and subsequently, the Respondent filed an application under Section 9 of the A&C Act, to restrain the Appellant from invoking the bank guarantees.

When the matter was presented before the Commercial Court, the Appellant was directed to serve a notice to the Respondents, before the invocation of the bank guarantee.

The High Court opined that the best arguable case of the Respondent did not entitle the Respondent to an injunction or any form of interdiction in respect of the subject unconditional bank guarantees.

Further, the Court held that "If an unconditional bank guarantee permits the beneficiary to receive the payment thereunder on its first demand and without any reference to or concurrence of the person at whose behest the guarantee had been furnished, the Court cannot introduce clauses to make the invocation conditional. Indeed, the directions issued amount to the conversion of an unconditional bank guarantee into a conditional one, which the Court plainly lacks the authority to do."

Furthermore, the Court opined that there was there was an element of prejudice that the Respondent has suffered or was likely to suffer; but that was not a ground for an unconditional bank guarantee to be interdicted or interfered with, especially since there was no case of fraud at the inception.

To that end, the Court opined that "The only case run by the respondent is that large sums of money due to it from the appellant remain unpaid and, as such, it would be inequitable for the appellant to be left free to invoke the bank guarantees. Even if it is so, it is a completely irrelevant consideration in the matter of assessing whether the nature of order sought in respect of the bank guarantees ought to be passed."

Therefore, the High Court found the directions passed by the Trial Court to be without basis and completely flawed.

To that end, the High Court held that "Considering the facts that the respondent came to Court with, it may not have been unfair to expect the respondent not to urge its claim beyond a point at this appellate stage or merely seek some other concession that the appellant may have acceded to. But the vigour and gusto with which the respondent sought to justify the completely baseless orders was an affront to the institution."

The High Court set aside the order passed by the Commercial Court and directed the Respondent to pay Rs. 3 Lakh as costs for the proceedings in the Commercial Court and the Appeals.

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