Court exercising powers under Section 9 of the A&C Act cannot add conditions to an unconditional bank guarantee: Meghalaya High Court

The Meghalaya High Court in the case North Eastern Electric Power Corporation Ltd. (NEEPCO) v. Patel-Unity JV observed and has held that a court exercising powers under Section 9 of the A&C Act cannot add conditions to an unconditional bank guarantee. The Division Bench comprising of Chief Justice Sanjib Banerjee and Justice W.Diengdoh observed and held that mere plea of fraud would not be a ground for the court to stay invocation of an unconditional bank guarantee unless on such ground, a strong prima facie case is made out.

The court further observed and held that merely because no attempt has been made at the invocation of the bank guarantee since the date of injunction and that would not mean that the matter has attained finality and the aggrieved party has accepted the impugned order. Facts of the Case: It was observed that the parties entered into a contract and the respondent furnished an unconditional bank guarantee in favour of the appellant.

Consequently, a dispute arose between the parties and the respondent filed an application under Section 9 of the A&C Act for restraining the appellant from invoking the bank guarantees. It was directed by the trial court to the appellant to serve a notice to the respondents before the invocation of bank guarantee. Contentions Made by the Parties: On the following grounds, the appellant challenged the impugned order: It was observed that the Court erred in directing the appellant to serve a notice of intention on the respondent before the invocation of bank guarantee and the same amounts to add conditions to an unconditional bank guarantee.

On the following ground, the respondent objected to the maintainability of the appeal: It was merely directed by the court that the respondent to serve a notice before invocation and the same is not an injunction within the meaning of Section 9 of the Act. Further, the appeal is not maintainable. It was observed that the appellant has neither made any claim nor made any attempt to invoke the bank guarantees, However, the matter is fait accompli. The appeal are no further relevance and the work under the contracts in question is complete. Court Analysis: The court stated that a court exercising powers under Section 9 of the A&C Act cannot add conditions to an unconditional bank guarantee.

Further, the court held that that the impugned order resulted in rewriting the terms and conditions of the bank guarantee and the same is impermissible under Section 9 of the A&C Act. It was observed by the court that mere plea of fraud would not be a ground for the court to stay invocation of an unconditional bank guarantee on such a ground, unless a strong prima facie case is made out. The Court stated that merely because an issue is pending consideration before the Higher Court, the same would not operate as injunction on the power of the lower court for deciding an ancillary issue unless an injunction is granted on that issue. The argument of the respondent was rejected by the court that the matter is fait accompli and held that merely because no attempt has been made since the date of the injunction, at the invocation of the bank guarantee that would not mean that the matter has attained finality and the impugned order is accepted by the aggrieved party. The court stated that the invocation might result in prejudice to the respondent but it is not a ground for an unconditional bank guarantee to be interdicted or interfered with.