Principles Governing Injunctions Against Invocation of a Bank Guarantee

Recently, I came across a case wherein the plaintiff was successful in getting an injunction against the invocation of an unconditional bank guarantee from the lower court. I was shocked with the order, as it is completely against the established principles and the view taken by various courts in this regard. On top of it, the original purchase order was issued in Gurugram, Haryana, and the plaintiff had filed the suit in Bengaluru for obtaining an injunction against the bank guarantee. That made me wonder how this can happen, as the view of courts has been clear from the very beginning regarding the subject matter. That’s why I delved into this subject once again to research it. I have prepared a detailed note in the subject matter which can be found here.

Now, the lower court was not just wrong regarding this aspect, it also entertained the suit without the requisite jurisdiction. The said bank guarantee arose from the purchase order issued by the defendant and that purchase order was commercial in nature, even after that, the lower court held that suit maintainable. 

A bank guarantee is used as an assurance and a safety net for the beneficiary to reduce risks and create an obligation towards the beneficiary. This is the reason bank guarantees are used as a financial tool in almost all business transactions and contracts, however if the courts keep making impediments against the beneficiary in invoking that bank guarantee then the concept of the bank guarantee becomes infructuous as safety net or the assurance given to beneficiary is taken out. Lower courts in India, have time and again gone against the established principles and this is a cause of frustration as it leads to more appeals, thereby increasing the work load of the High Courts.

Problem with Reforms in India

To simply put, you cannot push for reforms in India.

"But, India has seen many reforms since independence, how can we say that reforms cannot be pushed in India?" To answer this, we must look at the nature of reforms we have seen in India.

The entire context about this post is about the judicial reforms in India and the protests which happen every time there is a change in the Advocates Act, 1961.

TIMELINE OF THE EVENT

• Government shares the draft of Advocates Amendment Bill, 2025.

• Immediately, protests are announced.

• Reforms are labelled as "unjust, unfair and biased".

• Government backtracks and the protest is called off.

The above timeline reminds me of other protests taken out, opposing various other reforms, like the Farm Bills of 2020 and the Land Bill in 2015. No matter what reform, it is solely opposed on the basis that "key stakeholders were not consulted". Now any Tom, Dick and Harry is a stakeholder so how anyone can take the opinion of all stakeholders is beyond reasoning, but let’s just say that we are no experts in this issue, so now let us get back to the issue in which Advocates are experts at.

The Advocates Amendment Bill was specifically opposed for Section 35A, which essentially bans the protests held by the Advocates.

Section 35A. No association of advocates or any member of the association or any advocate, either individually or collectively, shall give a call for boycott or abstinence from courts' work or boycott or abstain from courts' work or cause obstruction in any form in courts' functioning or in court premises.

Now the question is, are we doing very well in terms of the state of the justice delivery system in India? The answer is no. I would refrain myself from quoting various studies and surveys conducted by Indian as well as the foreign media related to the state of justice administration in India and both the reports don't paint the picture really well on India. It is clear that the reform is needed. Reform is announced. Protests happen to revoke those reforms stating that concerned stakeholders were not considered.

Now, isn't it the responsibility of the Bar Associations to push the reforms themselves? If yes, then how many Bar Associations have ever written for the reforms? Even if the reforms turn out to be great later on, can we risk it solely on the account that Bar Associations were not consulted?

In this regard, the Colonial system was better, Britishers imposed an entire Common Law with hardly any opposition.

Similarly, even the simple task of reforming the entry of foreign law firms in India is controversial. We somehow have a very xenophobic view of things when it comes to pushing for reforms. We always press the doom button as if the world is going to end. The reasoning for the entry of foreign law firms in India is shown as the entry of East India Company in India. If our justice delivery system is so great, then there shouldn't even be a question of the foreign firms misusing the laws in India but yet, here we are, opposing that again.

In Japan, the Meiji Restoration completely transformed the country in just 21 years. Singapore, Malaysia, Vietnam, Taiwan, Korea, all have reformed themselves and are better than India in all terms. Even Sri Lanka, despite being debt-ridden, has better per capita income than India. If we say we lack growth because we are big, then we have China proving us wrong again.

In all circumstances, we can say that Indians hardly apply their minds on anything. We oppose what we need and demand what we don't. But all is not bad, as the saying goes: India is the only country which disappoints both, the optimists and the pessimists. Hope I am wrong.

Snowball Effect on this one is Crazy!!

Yet again, the Supreme Court had to intervene in a matter that shouldn't even had to reach the court in the first place. Before discussing the Supreme Court's order dated 10.06.2025, let us delve into the entire controversy.

The controversy started when Kamal Haasan, an actor known for making political statements, made a comment on the Kannada language. In his exact words, he said, "Your language (Kannada) came from Tamil," and then all hell broke loose over the actor for saying that. Politicians immediately jumped on the bandwagon for clout and started demanding that Kamal Haasan apologise for this statement. The funny thing is that the statement might actually be true.

The statement came during the promotion of his film "Thug Life" in Karnataka. Since the movie was to be released in the state as well, people and politicians demanded that the film be banned entirely, and the Karnataka Film Chamber of Commerce (KFCC) banned the film.

Subsequently, the ban was challenged in the High Court of Karnataka. In this age, the hearings are publicly available on YouTube for everyone to see, and what we saw in that hearing was shocking. Instead of issuing a writ of mandamus allowing the screening of the film, the Hon'ble Justice of the High Court of Karnataka was seen giving an earful to Kamal Haasan's counsel. The Hon'ble Justice kept asking for an apology from Kamal Haasan as if the actor were bound by law to tender one. Further, the Hon'ble Justice stated that the "PUBLIC" was asking for the apology. How the Hon'ble Justice obtained the absolute mandate of the "PUBLIC" in this issue is not known, and even if the mandate exists, there is no law that says a person must apologise for their statement. However, the Hon'ble Justice also clarified that he was just pointing out the conduct of the actor but would consider the law as well.

Let us leave the linguistic debate to researchers, but in my opinion, a court cannot look beyond the law even when personal feelings are hurt. Kamal Haasan apologising is his own choice and cannot be forced, and certainly not in a court of law.

Now this matter reached the Supreme Court in WP (C) 575/2025, M. Mahesh Reddy vs. State of Karnataka.

The Karnataka Government filed an affidavit stating that the State was ready to provide protection for the screening of the film, and the Supreme Court praised the principled stand of the Karnataka Government.

"3. It is respectfully submitted that, in the event the producers of the film decide to release the movie in the State of Karnataka, the State Government is duty-bound and will provide protection and security for such release and for the people connected therewith, including the cast, director, producers, exhibitors, and the audience."

Subsequently, the Supreme Court held that, since the Karnataka Government had already given the affidavit stating the above, it disposed of the writ petition.

PERSONAL OPINION

Wherever there is an issue of sentiment in India, no one can predict what statement can hurt whom. Kamal Haasan, in his statement, was actually trying to connect with the people of Karnataka, but his statement offended them. On top of that, the Hon'ble Justice pointing out Kamal Haasan's statement does him no justice. He may be completely wrong, but these statements should not warrant court intervention at all.

Writ Jurisdiction and the Doctrine of Privity of Contract

The doctrine of privity of contract is a legal principle in common law, which states that only those who are parties to a contract can sue each other. This principle is foundational to contract law and all the primary basis of litigation in contract is directly in line with this principle. Now, this principle definitely holds true for the two independent parties but what if one party is the government? does "government" as per definition given in the Article 12 of the Constitution, has more obligations while executing its right to enforce a contract? The same question were raised in the case Union of India vs. IMECO Ltd. & Anr where Calcutta High Court took the constitutional position instead of the classical implementation of the legal principles of jurisprudence.

Contract of Privity

Under the common law, a third party, despite being affected by a contract cannot sue or be sued. Thus, in a contract between A and B, a third party C, even if indirectly impacted, has no enforceable rights.

Facts of the Case

In the case of Union of India vs. IMECO Ltd. & Anr (2023 SCC OnLine Cal 2126), Union of India awarded a contract to BEML Ltd., a government company, for fitting additional berths in railway coaches. BEML, in turn, subcontracted this work to IMECO Ltd. The government later cancelled the contract with BEML, despite partial completion of the work by IMECO. This left IMECO unpaid and aggrieved. With no direct privity with the Union of India, IMECO sought remedy under Article 226, praying for a writ of mandamus to compel the government to release funds to BEML so that BEML could pay IMECO.

The Legal Dilemma

Could a third party, lacking contractual privity with the government, seek a writ to enforce a payment indirectly owed to them?

The general rule of contract would deny this right. However, the Calcutta High Court saw the issue differently. It recognized that public law obligations, especially those involving fairness and non-arbitrariness by the State under Article 12, could override the strict confines of privity in certain contexts.

Locus Standi

The Court held that even though IMECO lacked direct privity with the Union of India, it had sufficient interest or locus standi to maintain the writ. The Hon'ble Court observed that -

1. When a public body contracts with another (here, BEML), and the work is lawfully subcontracted, there exists a derivative obligation towards the subcontractor, especially where the government acknowledges the subcontracting through conduct.

2. That despite a clause prohibiting subcontracts, the government had accepted IMECO's role by conduct and was estopped from denying the subcontract’s validity later.

3. The government’s delay and internal contradictions in decision making, some officials recommending payment, others denying it were deemed unfair. This justified judicial intervention under Article 226.

4. Court observed that directing IMECO to civil litigation would be futile, especially when BEML admitted its liability but was constrained by non-payment from the Union. Thus, writ jurisdiction provided a speedy and meaningful remedy.

The Judgement

The Calcutta High Court observed that as per the doctrine, there is no doubt that IMECO is barred from raising a dispute with the Union of India but the government undertakings are bound by principles of natural justice such as equality and fairness. Arbitrarily cancelling the contract is not only against the principles of fairness and equality but also causes unnecessary delay and damage to the petitioner.

Justice Biswaroop Chowdhury observed:

“When due to non-release of statutory fund or payment of contractual debt, by Government Authority to any Government undertaking the said undertaking is unable to pay...the parties who do not receive the payment and suffer hardship may...move the High Court under Article 226... Such a direction would be just and reasonable and mitigate hardships...”

Conclusion

The core of the legal system of a state can be described using the legal maxim "interest reipublicae ut sit finis litium" which means that "It is in the interest of the State to end all litigation". All the principles evolved are in the interest of justice and hence the court shall in interest of justice set aside even the core principles of common law to end the litigation. Especially when the party the Government, it has additional responsibility to uphold the principles of natural justice which includes principles of equality and fairness. 

Evil Practices Act in India

India being a diverse country, have numerous tribes and ethnic groups. All of these "groups" have different kinds of practices and customs and no matter how absurd it looks to anyone, they have a right to practice. But where do we draw a line and say till here and no further. I think this line is when neo cults sprout out of nowhere, amass a huge following and make weird occultic practices. These neo cults not only cause a mayhem in society but also pose danger to national security.  

If we look into the history, every decade we have a self style godman who makes a cult out of himself and then they are caught doing weird practises which forces law enforcement to take action and purge these people. Few years down the line we have a repeat of these same events and nothing changes.

The only exception in this case in the State of Maharashtra which has its own law to deal with this problem. Since policing is a state subject, it is better that states make their own laws regarding the same. State of Maharashtra was also the first to bring in The Maharashtra Control of Organised Crime Act, 1999 which was used to bring down mafia and organised crime in Mumbai back in the day.

Look at the example of Prophet Bajinder Singh, a self styled prophet who claimed to cure the diseased, give vision to the blind and make a leper walk. Essentially, Prophet Bajinder Singh had all the powers as biblical Jesus. All these videos of "miracles" are shared widely, some make fun of this while others actually believe it.  A bare look at his videos or "commotion" we may say, makes it clear that it is stupid but even then nothing happens to them. Where does it end? Prophet Bajinder Singh getting convicted for numerous rapes. 

Why do we have to wait for such things to happen when it is clear from the start where this will end. If situation really worsens, then Central government may make a Central Act and then practices of various other "groups" will be suppressed. 

 The Maharashtra Prevention and Eradication of Human Sacrifice other Inhuman and Aghori Practices and Black Magic Act, 2013 is an effective legislation to look for stopping such stupid practices. The Act simultaneously bans superstitious practice and also allows customary practices to continue.

India is a welfare state no doubt about that but the state should also be willing to regulate omens in society. Of course all the practices of these godmen can be covered under Bhartiya Nyaya Sanhita but since the problem is bigger, it requires a separate law to deal with more effectively. 

A separate legislation will not only ensure that these practices of inhumanity are prohibited but also aligns with the Directive Principle of State Policy in the Constitution of India, namely Article 51 A (h). I am quoting the same here:

(h) to develop the scientific temper, humanism and the spirit of inquiry and reform