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TMI Blog1989 (12) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... for the construction of diversion tunnel, i.e. for construction of (i) Tunnel boring allied works and (ii) Down Stream Portal. The tenders submitted by the plaintiff (hereinafter referred to as 'the Contractor') was accepted. The agreement entered into between the Corporation and the Contractor provided for a Bank guarantee to be furnished by the Contractor for due performance of the work allotted. The Contractor furnished a Bank guarantee in the sum of ₹ 5 lacs for the Corporation. The Bank guarantee dt. 12-1-1987 was furnished by the Punjab and Sind Bank. The Corporation invoked the Bank guarantee vide letter dt. 18-6-1988. This led to the filing of a suit for permanent injunction for restraining the Corporation from enforcing the Bank guarantee. Along with the suit, an application under O. 39, Rr. 1 and 2 of the Civil P. C. (was?) filed by the Contractor for an interim injunction restraining the Bank from releasing the amount of the Bank guarantee to the Corporation during the pendency of the suit. The trial Judge allowed the application and granted the injunction. The order was affirmed on appeal. The Corporation has come up on revision petition. 3. Both the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled the said contractor). 2. We, the said bank also do hereby agree to pay unequivocally and unconditionally within 48 hours on demand in writing from the said Corporation for any purpose or cause or on any account whatsoever under the provisions of the said contract in which respect the decision of the said Corporation shall be final and binding on us. 3. Provided that it shall not be necessary for the said Corporation to proceed against the said Contractor before proceeding against us and the guarantee herein contained shall be enforceable against us, notwithstanding any security which the Corporation may have obtained or obtain from the said Contractor shall at, the time when proceedings are taken against us as hereunder, be outstanding or unrealised. 4. We, the said Bank further agree that this guarantee shall be valid and binding on us up to and including 31-12-1987 and shall not be terminable by notice or any change in the constitution of the said Bank or the said Contractor or by any other reasons whatsoever and our liability hereunder shall not be impaired or discharged by any extension of time or variations made, given conceded, or agreed with or without ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. M. Federation Ltd. MANU/DE/0167/1982 : AIR 1982 Delhi 357 had succinctly stated thus:-- The performance guarantees or performance bonds, a comparatively recent specie of Banker's commercial credit has many sir hilarities to a letter of credit and stand on a similar footing to a letter of credit. Such guarantees, even though having their genesis in the primary contract between the parties are nevertheless autonomous and independent contracts and bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer, nor with the question whether the supplier had performed his contracted obligations or not, nor with the question whether the supplier is in default or not and the only exception is when there is a clear fraud, of which the bank has notice. In short these guarantees impose an absolute obligation on the banks to pay on demand in their terms and the courts usually refrain from interfering with the obligation except in rare cases of fraud. The performance guarantee is an autonomous contract and imposes an absolute obligation on the bank in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not concerned with their difficulties to. enforce such claims; these are risks which the merchants take. In this case the plaintiffs look the risk of the uncondi tional wording of the guarantees. The machi nery and commitments of banks are on a different level. They must be allowed to be honoured, free from Interference by the courts. Otherwise trust in international commerce could be irreparably damaged. This principle was followed by their Lordships of the Supreme Court in United Commercial Bank v. Bank of India, MANU/SC/0003/1981 : AIR 1981 SC 1426, where it was stated thus :-- In the light of these principles, the rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of Credit are created by the document self, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit. In the same authority in respect of grant of temporary injunction, the following observations are very relevant:-- The Courts' usually refrain fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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