In a recent judgment delivered by the Supreme Court of India [ Gujrat Maritime Board vs. L & T Infrastructure Development Projects Ltd. and Others], it has been reiterated that an injunction against the invocation of an absolute and unconditional bank guarantee cannot be granted except in situations of egregious fraud or irretrievable injury to one of the parties concerned.
The following principles should be noted in the matter of injunction to restrain the encashment of a bank guarantee or a letter of credit:
- 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 isentitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.
- The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.
- The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit.
- 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 enforcement of bank guarantees or letters of credit.