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2016 (9) TMI 1619 - SUPREME COURTRestraint from invoking unconditional bank guarantee - breach of the covenants between the Appellant and the first Respondent - Whether the High Court is justified in exercising its discretionary jurisdiction Under Article 226 of the Constitution of India for restraining the Appellant from invoking an unconditional bank guarantee executed by the first Respondent? - HELD THAT:- It is contended on behalf of the first Respondent that the invocation of Bank Guarantee depends on the cancellation of the contract and once the cancellation of the contract is not justified, the invocation of Bank Guarantee also is not justified - We are afraid that the contention cannot be appreciated. The bank guarantee is a separate contact and is not qualified by the contract on performance of the obligations. No doubt, in terms of the bank guarantee also, the invocation is only against a breach of the conditions. But between the Appellant and the bank, it has been stipulated that the decision of the Appellant as to the breach shall be absolute and binding on the bank. An injunction against the invocation of an absolute and an unconditional bank guarantee cannot be granted except in situations of egregious fraud or irretrievable injury to one of the parties concerned - Between the Appellant and the first Respondent, in the event of failure to perform the obligations under the LoI dated 06.02.2008, the Appellant was entitled to cancel the LoI and invoke the bank guarantee. On being satisfied that the first Respondent has failed to perform its obligations as covenanted, the Appellant cancelled the LoI and resultantly invoked the bank guarantee. Whether the cancellation is legal and proper, and whether on such cancellation, the bank guarantee could have been invoked on the extreme situation of the first Respondent justifying its inability to perform its obligations under the LoI, etc., are not within the purview of an inquiry Under Article 226 of the Constitution of India. Between the bank and the Appellant, the moment there is a written demand for invoking the bank guarantee pursuant to breach of the covenants between the Appellant and the first Respondent, as satisfied by the Appellant, the bank is bound to honour the payment under the guarantee. Appeal allowed - decided in favor of appellant.
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