Holding

The amended bank guarantee is unconditional and irrevocable, so the beneficiary may invoke it and no injunction lies.

Summary

Vinitec Electronics supplied UPS systems to HCL but HCL defaulted on a portion of the payment. The contract required a performance bank guarantee of 10% of the contract value, which was initially conditional, payable only upon proof of default. The guarantee was later amended to delete the default condition, making it payable on demand. Vinitec sought an injunction to prevent HCL from invoking the guarantee, alleging the condition precedent was unmet, and raised fraud and irretrievable injury defenses. The Supreme Court held that the amended guarantee was unconditional and irrevocable, thus enforceable irrespective of any pending dispute, and found no basis for the fraud or special equities exceptions. Consequently, the appeal was dismissed.

Issues considered

The nature of the bank guarantee after amendment – whether it became unconditional and enforceable on demand.
Whether an injunction could be granted to restrain the beneficiary from invoking an unconditional bank guarantee.
Whether the exceptions to non‑interference – fraud of an egregious nature or irretrievable injury – were applicable.

Subjects

bank guaranteeunconditional guaranteeinjunctionfraud exceptionirretrievable injurycontract performance guaranteeamendment of guaranteeindependent contract

Judgment

VINITEC ELECTRONICS PRIVATE LTD. A
v.
HCL INFOSYSTEMS LTD.

NOVEMBER 2, 2007
B
-f [ALTAMAS KABIR AND B. SUDERSHAN REDDY, JJ.]
,>

Bank Guarantee-Invocation of-Contract between parties-
One of the parties f~rnishing Bank Guarantee in favour of the other
Guarantor seeking injunction ofinvocation ofthe Guarantee as there c
existed a dispute between the contracting parties-Permissibility of-
Held: In the facts of the case, the Guarantee was an unconditional
one-Hence the same could be invoked by the beneficiary despite
pendency ofthe dispute-Bank Guarantee is an independent contract
between the Bank and the beneficiary-bank is obliged to honour its D
)..

\
guarantee so long as it is unconditional and irrevocable-The case also
does not fall under exceptions-Allegations offraud and plea of
'special equities' are vague and not supported by any evidence.
Appellant entered into agreement with the respondent whereby E
respondent agreed to buy UPS systems from the appellant. Despite
supply of all the equipments, respondent defaulted in making the full
payment. Respondent agreed to pay the balance sum provided the
performance Bank Guarantee of10% value was furnished. The same
was furnished. It was later amended makingthe same unconditional.
F
Even after furnishing the Bank Guarantee, respondent did not make
full payment. Appellant filed injunction application on the ground that
respondent was not entitled to invoke the Bank Guarantee without
paying the balance amount as the same had become inoperative as
the condition precedent for is invocation was not complied with. Trial
G
Court in view of the fact that the Bank Guarantee was made
unconditional by its amendment, dismissed the application. Division
-<'
Bench of High Court confirmed the order. Hence the present appeal.

Dismissing the appeal, the Court
897 H
__,,,,
I

898 SUPREME COURT REPORTS [2007] 11 S.C.R.

A HELD: 1.1. The bank guarantees which provided that they are --t
payable by the guarantor on demand is considered to be an un-
conditional bank guarantee. When in the course of commercial
dealings, unconditional guarantees have been given or accepted the
beneficiary is entitled to realize such a bank guarantee in terms
B thereof irrespective of any pending disputes. Bank guarantee is an
independent contract between bank and the beneficiary thereof. The
bank is always obliged to honour its guarantee as long as it is an
t-
_.._
unconditional and irrevocable one.
[Paras 11 and 12) [902-A-B; 903-A)
c UP. State Sugar Corporationv. Sumac International Ltd, [1997)
1SCC568; BSESLimited (Now Reliance Energy Ltd.) v. Fenner India
Ltd. and Anr., [2006) 2 SCC 728; Himadri Chemicals Industries Ltd.
v. Coal Tar Refining Company, (2007) 9 Scale 631 and Mahatama
Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop.
D Ltd and Anr., [2007) 6 SCC 417, relied on.
Hindustan Construction Co. Ltd. and Ors. v. State of Bihar and ,--4
Ors., [1999) 8 SCC 436, distinguished. 1
1.2. In the present case a conditional bank guarantee initially
was furnished and the bankers were liable to pay the amounts only
E upon establishing the fact that the supplier was in default for the
performance of their warranty obligations under the contract. But
subsequent the relevant clause in bank guarantee was amended. The
condition that the amounts shall be paid only upon establishing the
supplier to be indefault for the performance of their warranty
F obligation under the contract has been specifically deleted. The bank
guarantee as amended replacing relevant para of the original bank
guarantee makes the bank guarantee furnished as unconditional
one. The bankers are bound to honour and pay the amounts at once
upon receipt of written demand from the respondent.
G [Para 19) [907-C, D, E, F]
1.3. The recitals in the preamble in the deed of guarantee do
not control the operative part of the deed. After careful analysis of
~
the terms of the guarantee the guarantee is found to be an
unconditional one. The appellant, therefore, cannot be allowed to
H raise any dispute and prevent the respondent from encashing the
VINITEC ELECTRONICS PRIVATE LTD. v. HCL 899
INFOSYSTEMS LTD.
bank guarantee. [Para 22) (909-A] A

2.1. The case, therefore does not fall within the first exception
I

i.e. there was a clear fraud of which Bank had the notice and a fraud
of the beneficiary from which it seeks to benefit. Fraud, if any, must
be of an egregious nature as to vitiate the underlying transaction. B
In the pleadings in the present case no factual foundation is laid in
support of the allegation of fraud. There is not even a proper
allegation of any fraud as such and in fact the whole case of the
appellant centers around the allegation with regard to the alleged
breach of contract by the respondent. The plea of fraud is vague and
indefinite and such allegations do not satisfy the requirement in ,aw C
constituting any fraud much less the fraud of an egregious nature
as to vitiate the entire transaction.
[Paras 23, 24 and 25) (909-B-C, D, E, F]
2.2 The plea that Whether encashment of the bank guarantee D
would cause "irretrievable injury" or "irretrievable injustice". There
is no plea of any "special equities" by the appellant in its favour.
There is no dispute that arbitral proceedings are pending. The
appellant can always get the relief provided he makes his case before
the Arbitral Tribunal. There is no allegation that it would be difficult E
to realize the amounts from the respondent in case the appellant
succeeds before the Arbitral Tribunal.
[Paras 26 and 28) (909-G; 910-B, C)
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5121 of
2007. F
From the final Judgment and Order dated 11.09.2006 of the High
Court of Delhi at New Delhi in FAO (OS) No. 239 of2004.
Kailash Vasdev, Arnita Rajora, Debarshi Bhadra and Shailendta
Swamp for the Appellant. G
V.N. Koura, A Mariarputham, Aruna Mathur and Paramjit Benipal
(for Arputham, Aruna & Co.) for the Respondent.
The Judgment of the Court was delivered by
H
~
\
I

900 SUPREME COURT REPORTS (2007] 11 S.C.R.

A B. SUDERSHAN REDDY, J. Leave granted.
2. The dispute between the parties relates to invocation of the bank
guarantee furnished by the appellant to the respondent.
3. The appellant Mis. Vinitec Electronics Private Limited entered into
B agreement dated 10th May, 2000 with the respondent HCL lnfosystem
Limited under which the respondent agreed to buy UPS systems from
the appellant for a consideration value of Rs.1,68, 12,400/-. The method
of payment and terms thereof are provided for in clause 15(a) and (d) in
the said agreement.
c "Clause 15:
The payment terms will be :
(a) 30% Advance against a Bank guarantee from a Scheduled
Bank of equivalent value. The BG shall be valid till the da~e
D of final delivery at the Company location(s).
(b)
(c)
(d) 10% after one year from the date of receipt of material at the
E
customer site(s)."
4. The case of the appellant was that it had supplied all the
equipments to the respondent by 2nd August, 2000 but the respondent
committed default in making the stipulated payment amounting to
F Rs.49,99,338/-. The said sum according to the appellant remained unpaid. 1
The respondent agreed to pay the sum provided the performance bank
guarantee of 10% value was furnished. That is how bank guarantee as
required by the respondent was furnished which was amended on 20th
August, 2001. The case of the appellant was that even after furnishing
G the bank guarantee the respondent made a payment of only Rs. 30 lakhs
on 22nd August, 2001 and false assertion of payment ofRs.11,99,335/ ~'t'- .
- was made. It was also alleged that a sum of Rs. 8 lakhs still remained
unpaid.
5. The appellant's case before the trial court was that the respondent
H
VINITEC ELECTRONICS PRIVATE LTD. v. HCL 901
INFOSYSTEMSLTD.[B.SUDERSHANREDDY,J.]
-,..-.
under no circumstances is entitled to invoke the bank guarantee without A
paying the balance amount ofRs.11,99,335/- or at least 8 lakhs which is
admittedly liable to be paid. The bank guarantee had become inoperative
as the condition precedent for its invocation was not complied with.
6. The case of the respondent was that the original contract value B
-t.> was Rs.1,68,12,400/- out of which Rs.1,60,12,400/-, i.e., 95% of the·
contract value stood paid and all the obligations pursuant to clause 15(a) ·
to (c) of the contract have been fulfilled and it is only then the bank '
guarantee in question was furnished to the respondent upon payment of
30% of the contract value to the appellant. It was asserted that the bank
guarantee furnished as it stands is an unconditional one.
c
7. The learned Single Judge after elaborate consideration of the
matter found no merit in the injunction application filed by the appellant
and accordingly dismissed the same. The Division Bench ofthe Delhi High
Court affirmed the order of the learned Single Judge. D
"'
8. The learned senior counsel Sh.Kailash Vasdev mainly submitted
that the High Court committed an error in interpreting Paragraph 4 of the
amended bank guarantee in isolation and divorced from the terms and
conditions of the contract dated May 10, 2000 entered between the
parties. It was submitted that the High Court instead of relying upon the E
operative portion of the bank guarantee ought to have taken all the clauses
which are mate1ial to arrive at a real intention of the parties. The submission
was that the respondent did not make full payment ofRs.49,99,335/- to
the appellant and therefore the pre-condition embodied in the perfmrnance
bank guarantee dated 10th August, 2001 as amended on 20th August, F
~
2001 was never satisfied and as such the performance guarantee did not
come into being at all, remained ineffective and unenforceable and therefore
could not be invoked.
9. The learned counsel for the respondent submitted that after the G
amendment of the bank guarantee substituting clause 4 on 20th August,
---(!" 2001, the conditional bank guarantee furnished by the appellant became
an unconditional one.
10. We have carefully considered the rival submissions made during
H
~ j

~
902 SUPREME COURT REPORTS [2007] 11 S.C.R.
-~

A the course of hearing of the appeal.
11. The law relating to invocation of bank guarantees is by now well
settled by a catena of decisions of this court. The bank guarantl!es which
provided that they are payable by the guarantor on demand is considered I
,'
to be an un-conditional bank guarantee. When in the course of commercial
B dealings, unconditional guarantees have been given or accepted the
beneficiary is entitled to realize such a bank guarantee in terms thereof
irrespective of any pending disputes. In UP. State Sugar Corporation
t
v. Sumac International Ltd, 1 this court observed that :

c "The law relating to invocation of such bank guarantees is by now
well settled. When in the course of commercial dealings an
unconditional bank guarantee is given or accepted, the beneficiary
is entitled to realize such a bank guarantee in terms thereof
irrespective of any pending disputes. The bank giving such a
D guarantee is bound to honour it as per its terms irrespective of any
dispute raised by its customer. The very purpose of giving such a
·bank guarantee would otherwise be defeated. The courts should, 1"'·
therefore, be slow in granting an injunction to restrain the realization
of such a bank guarantee. The courts have carved out only two
exceptions. A fraud in connection with such a bank guarantee
E
would vitiate the very foundation of such a bank guarantee. Hence
if there is such a fraud of which the beneficiary seeks to take
advantage, he can be restrained from doing so. The second
exception relates to cases where allowing the encashment of an ~
unconditional bank guarantee would result in irretrievable harm or r
F injustice to one of the parties concerned. Since in most cases {
payment of money under such a bank guarantee would adversely
affect the bank and its customer at whose instance the guarantee
,•
is given, the harm or injustice contemplated under this head must
be of such an exceptional and irretrievable nature as would over
G ride the terms of the guarantee and the adverse effect of such an
injunction on commercial dealings in the country. The two grounds _...,___
are not necessarily connected, though both may coexist in some
cases."
I. p997J 1 sec 568.
H
VINITEC ELECTRONICS PRIVATE LTD. v. HCL 903
INFOSYSTEMSLTD. [B. SUDERSHANREDDY,J.]
. )'-

12. It is equally well settled in law that bank guarantee is an A
independent contract between bank and the beneficiary thereof. The bank
is always obliged to honour its guarantee as long as it is an unconditional
and irrevocable one. The dispute between the beneficiary and the party
at whose instance the bank has given the guarantee is immaterial and of
no consequence. In BSES Limited (Now Reliance Energy Ltd.) v. :B
• Fenner India Ltd. and Anr., 2 this court held:
'

>
"10. There are, however, two exceptions to this Rule. The first is
when there is a clear fraud of which the Bank has notice and a
fraud of the beneficiary from which it seeks to benefit. The fraud
must be of an egregious nature as to vitiate the entire underlying c
transaction. The second exception to the general rule of non-
intervention is when there are "special equities" in favour of
injunction, such as when "irretrievable injury" or "irretrievable
injustice" would occur if such an injunction were not granted. The
D'
)t... general rule and its exceptions has been reiterated in so many
\ judgments of this court, that in UP. State Sugar Corpn. v. Sumac
International Ltd., (1997) 1 SCC 568 (hereinafter "U.P. State
Sugar Corpn") this Court, correctly declare that the law was
"settled".
E
13. In Himadri Chemicals Industries Ltd. v. Coal Tar Refining
Company, 3 this court summarized the principles for grant of refusal to
grant of injunction to restrain the enforcement of a bank guarantee or a
letter of credit in the following manner :
" 14 ...... F

(i) While dealing with an application for injunction in the course
of commercial dealings, and when an unconditional bank
guarantee or letter of credit is given or accepted, the
Beneficiary is entitled to realize such a Bank Guarantee or a G
Letter of Credit in tem1s thereof irrespective of any pending
disputes relating to the tem1s of the contract.

2. [2006] 2 sec ns.

3. (2007) 9 Scale 631. H
~
904 SUPREME COURT REPORTS [2007] 11 S.C.R.
->(
~-
A (ii) The Bank giving such guarantee is bound to honour it as per
its tenns irrespective of any dispute raised by its customer.
(iii) The courts should be slow in granting an order of injunction
to restrain the realization of a bank guarantee or a Letter of
Credit.
B
(iv) Since a Bank Guarantee or a Letter of Credit is an )
~
independent and a separate contract and is absolute in nature,
the existence of any dispute between the parties to the contract
is not a ground for issuing an order of injunction to restrain
c enforcement of Bank Guarantees or Letters of Credit.
(v) Fraud of an egregious nature which would vitiate the very
foundation of such a Bank Guarantee or Letter of Credit and
the beneficiary seeks to take advantage of the situation.
(vi) Allowing encashment of an unconditional Bank Gwrantee or
D a Letter of Credit would result in irretrievable hann or injustice ~
to one of the parties concerned." {

14. In Mahatama Gandhi Sahakra Sakkare Karkhane v.
National Heavy Engg. Coop. Ltd and Anr., 4 this court observed :
E " Para 22. Ifthe bank guarantee furnished is an unconditional and
irrevocable one, it is not open to the bank to raise any objection ,_
'
whatsoever to pay the amounts under the guarantee. The person
in whose favour the guarantee is furnished by the bank cannot be
prevented by way of an injunction from enforcing the guarantee
F on the pretext that the condition for enforcing the bank guarantee ~)
in tenns of the agreement entered between the parties has not been
fulfilled. Such a course is impermissible. The seller cannot raise
the dispute of whatsoever nature and prevent the purchaser from
enforcing the bank guarantee by way of injunction except on the
G ground of fraud and irretrievable injury.
Para 28. What is relevant are the terms incorporated in the ·~ ·,
guarantee executed by the bank. On careful analysis of the terms

H 4. [2007]6SCC417.
.
":> -

VINITECELECTRONICS PRIVATELTD. v. HCL 905
INFOSYSTEMS LTD. [B. SUDERSHAN REDDY, J.]
)'-_·
and conditions of the guarantee in the present case, it is found that A
the guarantee is an unconditional one. The respondent, therefore,
cannot be allowed to raise any dispute and prevent the appellant
from encashing the bank guarantee. The mere fact that the bank
guarantee refers to the principle agreement without referring
to any specific clause in the preamble ofthe deed ofguarantee B
.. does not make the guarantee furnished by the bank to be a
)
conditional one. "
[Emphasis supplied]
15. Keeping these principles in mind we shall now proceed to apply c
the same to the facts of this case.
16. Shorn of all the embellishments the question that really arises
for our consideration is as to whether bank guarantee furnished is an
unconditional and in-evocable one or a conditional one? It may not be
~ necessary to refer in detail the terms and conditions of the contract except D
\ to analyse the original clause of the bank guarantee dated August 10, 2001
and as well as the subsequent amendment of the relevant clause in the
said bank guarantee on 20th August, 2001.
17. The relevant clause in the bank guarantee dated 10th August, E
2001 furnished by the appellant is to the follov..~ng effect:
"Whereas Mis Vinitec Electronics Pvt. Ltd. H-33, Bali Nagar,
New Delhi (hereinafter called the 'Supplier') supplied their Vinitec
on-line UPS systems of various capacities pursuant to their
Agreement dated 10th May, 2000 & P.0.No.45000i 1730 dated F
,C
30.05.00 (hereinafter called the 'Company') for the final Purchaser
President oflndia through the Director, National Crime Records
Bureau, Ministry of Home Affairs, Government of India, New
Delhi(hereinafter called the 'Purchaser').
G
Whereas in tem1s of Clause No.15 of the Agreement for receiving
~· the entire balance payments ofRs.49,99,335/- from the company,
the supplier have agreed to provide a Performance Bank
Guarantee equivalent to Rs.16,81,238.50 as 10% of the value of
the contract to be kept valid till the wan-anty period during which H
I
--~

906 SUPREME COURT REPORTS [2007] 11 S.C.R.

A times the Supplier is required to perfonn their warranty obligations
to the Purchaser; and
Whereas pursuant to the application made by the supplier, we
Oriental Bank of Commerce, Kirti Nagar, New Delhi (hereinafter
called the "Bank") have accordingly agreed to give the supplier a
B
bank guarantee for the aforesaid purpose.
Therefore, we, the bank, hereby affirm that we are guarantors and
responsible on behalf of the supplier upto a total of
Rs.16,81,238.50 (Rupees sixteen lacs eighty one thousand two
c hundred thirty eight and paise fifty only) and we undertake to pay
any sum or sums within the limit of Rs.16,81,238.50(Rupees
sixteen lacs eighty one thousand two hundred thirty eight and paise
fifty only) as aforesaid upon receipt ofwritten demand from the
purchaser and Company within the validity of this Bank
D Guarantee establishing the supplier to be in default for the
performance of their warranty obligations under the contract.
We, the bank, affirm that our liability under this guarantee is limited
to the total amount ofRs.16,81,238.50(Rupees sixteen lacs eighty
one thousand two hundred thirty eight and paise fifty only) and it
E shall remain in full force upto and including 31st August, 2003 and
shall be extended from time to time for such further period(s) as
desired by the purchaser, Company and supplier on whose behalf
this Guarantee has been given."

F 18. Thereafter by a letter dated 20th August, 2001, the bank
guarantee was amended and Paragraph 4 of the bank guarantee dated
I 0th August, 2001 was substituted and the same reads as under :
''.Therefore, we, the Bank, hereby affirm that we are Guarantors
and responsible on behalf of the supplier upto a total of
G Rs.16,81,238.50 (Rupees sixteen lacs eighty one thousand two
hundred thirty eight and paise fifty only) and we undertake to pay
any sum or sums within the limit ofRs.16,81,238.50 (Rupees ·~
)

sixteen lacs eighty one thousand two hundred thirty eight and paise
fifty only) as aforesaid upon receipt ofwritten demand.from the
H
~
I

VINITECELECTRONICSPRIVATELTD. v. HCL 907
r-- INFOSYSTEMSLTD. [B. SUDERSHANREDDY,J.]

Company within the validity of this Bank Guarantee. " A

19. In the unamended bank guarantee the bank affinned that they
are guarantors and responsible on behalf of the supplier upto a total of
Rs. 16,81,238.50 (Rupees sixteen lakhs eighty one thousand two hundred
thirty eight and fifty paise only) and had undertaken to pay any sum or B
,.
),

sums within that limit upon receipt of written demand from the purchaser
within the validity of bank guarantee provided it js established the supplier
to be indefault for the performance of their warranty obligations
under the contract. This makes it abundantly clear that what was
furnished was a conditional bank guarantee and the bankers were liable c.
to pay the amounts only upon establishing the fact that the supplier was
in default for the perfonnance of their warranty obligations under the
contract. But by the subsequent letter dated 20th August, 2001, the
relevant clause in bank guarantee was amended whereunder the banks
stood as guarantor and responsible on behalf of the supplier upto a total
k D
~
of Rs.16,81,23 8.50 (Rupees sixteen lakhs eighty one thousand two
hundred thirty eight and fifty paise only) and had undertaken to pay any
sum or sums within that limit "upon receipt of written demand from the
Company within the validity of this bank guarantee". This amended clause
makes it abundantly clear that the bank had undertaken to pay amounts
upto a total of Rs.16,81,238.50. The condition that the amounts shall be
E
paid only upon establishing the supplier to be indefault for the performance
of their warranty obligation under the contract has been specifically deleted.
In our considered opinion, the bank guarantee as amended replacing
,. Paragraph 4 of the original bank guarantee makes the bank guarantee
)-
furnished as unconditional one. The bankers are bound to honour and pay F
the amounts at once upon receipt of written demand from the respondent.
20. The learned senior counsel however relying upon the decision
of this court in Hindustan Construction Co. Ltd. and Ors. v. State of
Bihar and Ors. 5 contended that the bank guarantee could not said to be G
---~-
unconditional or unequivocal in terms so that the respondent could claim
any wlfettered right to invoke the bank guarantee and demand immediate
payment tJ1ereof from the bank. We find no substance in the submission

5. [1999] s sec 436. H
__ _.;
I

908 SUPREME COURT REPORTS [2007] 11 S.C.R.

A so made by the learned senior counsel on behalf of the appellant. In
Hindustan Construction (supra), the appellant Company was awarded
a contract by the State of Bihar for construction of a dam. Clause 9 of
the contract between the parties provided that the State would make an
advance loan to the Company for the costs of mobilisation in respect of
B the works on furnishing of a bank guarantee by the appellant for an amount
equal to the advance loan. The advance loan was required to be used
exclusively for mobilisation expenditure. In case of misappropriation of
the advance loan the loan at once shall become due and payable
immediately. In terms of this clause bank guarantee was furnished by the
C bank agreeing unconditionally and irrevocably to guarantee payment on
demand without any objection but with the qualification that such payment
shall be only in the event the obligations expressed in Clause 9 of the
original contract have not been fulfilled by the contractor giving the right
of claim to the employer for recovery of the whole or part of the advance
D mobilisation loan. Clause 9 of the main contract was thus incorporated
and made part of the bank guarantee furnished by the banker. It is under
those circumstances this court took the view that the bank guarantee
furnished was not an unconditional one. Clause 9 in the bank guarantee
refers to the terms and conditions of the contract between the parties.
E The bank guarantee thus could be invoked only in the circumstances
referred to in Clause 9 wherein the amount would become payable only
if the obligations are not fulfilled or there is misappropriation.
21. In the present case the amended clause does not refer to any
of the clauses specifically as such but on the other hand the bank had
F undertaken responsibility to pay any sum or sums within the guaranteed
limit upon receipt of written demand from the Company. The operative
portion of the bank guarantee furnished by the bank does not refer to
any of the conditions for payment under the bank guarantee. It is true
that the bank guarantee furnished makes a reference to the principal
G agreement between the parties in its preamble. Mere fact that the bank
guarantee refers to the principal agreement in the preamble of the deed
of guarantee does not make the guarantee furnished by the bank to be a
conditional one unless any particular clause of the agreement has been
made part of the Deed of Guarantee.
H
~-
/

VINITEC ELECTRONICS PRIVATE LTD. v. HCL 909
INFOSYSTEMS LTD. [B. SUDERSHANREDDY,J.]
22. The recitals in the preamble in the deed of guarantee do not A
control the operative part of the deed. After careful analysis of the terms
of the guarantee we find the guarantee to be an unconditional one. The
appellant, therefore, cannot be allowed to raise any dispute and prevent
the respondent from encashing the bank guarantee.
B
23. The next question that falls for our consideration is as to whether
the present case falls under any of or both the exceptions namely whether
there is a clear fraud of which the bank has notice and a fraud of th~
beneficiary from which it seeks to benefit and another exception whether
there are any "special equities" in favour of granting injunction.
c
24. This Court in more than one dt:cisions took the view that fraud,,
if any, must be of an egregious nature as to vitiate the underlying
transaction. We have meticulously examined the pleadings in the present
case in which no factual foundation is laid in support of the allegation of
fraud. There is not even a proper allegation of any fraud as such and in D
\ fact the whole case of the appellant centers around the allegation with
regard to the alleged breach of contract by the respondent. The plea of
fraud in appellant's own words is to the following effect:
'That despite the respondent, HCL being in default of not making
payment as stipulated in the Bank Guarantee, in perpetration of E
abject dishonesty and fraud, the respondent, HCL fraudulently
invoked the Bank Guarantee furnished by the applicant and sought
remittance of the sums under the conditional Bank Guarantee from
the Oriental Bank of Commerce vide letter of invocation dated
16.12.2003." F

25. In our considered opinion such vague and indefinite allegations
made do not satisfy the requirement in law constituting any fraud much
less the fraud of an egregious nature as to vitiate the entire transaction.
The case, therefore does not fall within the first exception. G
_,____ 26. Whether encashment of the bank guarantee would cause any
"iITetrievable injury" or "irretrievable injustice". There is no plea of any
"special equities" by the appellant in its favour. So far as the plea of
"iITetrievable injustice" is concerned the appellant in its petition merely
~d: H
}
-;:
910 SUPREME COURT REPORTS [2007] 11 S.C.R.
-~

A "That should the respondent be successful in implementing its evil
design, the same would not only amount to fraud, cause irretrievable
injustice to the applicant, and render the arbitration nugatory and
infructuous but would permit the respondent to take an unfair
advantage of their own wrong at the cost and extreme prejudice
B of the applicant."
27. The plea taken as regards "irretrievable injustice" is again vague
and not supported by any evidence.
28. There is no dispute that arbitral proceedings are pending. The
c appellant can always get the relief provided he makes his case before the
Arbitral Tribunal. There is no allegation that it would be difficult to realize
the amounts from the respondent in case the appellant succeeds before
the Arbitral Tribunal.
29. In this view of the matter, we see no merit in this appeal.
D
30. We make it clear that this order and as well as the order passed 1
by the Delhi High Court shall have no bearing on the merits of the case
pending before the Arbitral Tribunal.
31. The appeal is accordingly dismissed. We make no order as to
E t-
costs.
K.K.T. Appeal dismissed.