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.