MAHALINGAM SHETTY CO Vs. NPC CORPORATION

JUDGEMENT

(1.) I have given my earnest thought to the matter in the light of the respective contentions canvassed by learned counsel for parties. I find that the basic principle that emerges on reading of all the decisions as cited on both sides, is that the terms of the bank guarantee are the most relevant, and in fact, the sole guiding factor, and further determining point in such a case would be the manner in which the bank guarantee has been invoked by the beneficiary, and in that context the terms of the demand letter assume great relevance as well as significance.

(2.) I must record at the outset that in view of the conspectus of the judicial authorities, the question as to the nature and import of a bank guarantee is settled, to the effect that it constitutes an independent contract between the bank and the beneficiary, and the existence of any dispute between the principal contractor and the said beneficiary or even pendency of litigation by way of civil suit or arbitration proceedings in respect thereto, would also not be a deterring factor in the way of the beneficiary to invoke the bank guarantee. Nevertheless, with due deference to the principles laid down in the cases, particularly on which Mr. Pareekh placed reliance, it cannot be said that mere existence of a bank guarantee works out a mechanical formula, and that the courts can in no circumstances entertain the prayer of the contractor or the party on whom ultimately the liability for the obligation under the bank guarantee would devolve; for there is a clear and unmistakable emphasis in all the decisions to the effect that the terms of the bank guarantee are a very relevant factor and that bank's unconditional obligation under the bank guarantee is relatable to the terms of the guarantee, and also dependent on the fact that the conditions of the said bank guarantee have been fulfilled and the same have been invoked in terms stipulated therein. It is further clear from the authorities relied upon by respondents that in these cases the terms of the guarantee were very wide, the obligation undertaken absolute and unconditional, payment was to be on demand without any demur or without any reference to principal contractor and (he decision of beneficiary was agreed to be final. [In paras 21 to 35, the authorities are briefly discussed].

(3.) THE case before the Supreme Court in au the matter of United Commercial Bank (Supra) the was entirely on different facts, as the main we principle decided there was that oftheobli- an gation of the banks inter se, holding that the de Courts usually refrain from granting injunction ref arising out of letter of credit or bank guarantee dec between one bank and another ; the considera tion being that if such temporary injunction were granted---, the whole banking system in the country would fail and it should be in exceptional cases that the court should interfere with irrevocable obligations of Banks as commitments of Banks are on a different level and they must be allowed to be honoured free from Courts interference.