1

IN THE HONOURABLE SUPREME COURT OF INDIA

NEW DELHI

CIVIL APPEAL NO. ......../2010

IN THE MATTER OF

M/S BRIGHT ENERGY LTD........................................................................................ (APPELLANT)

V.

M/S SHANTI VIGYAN LTD........................................................................................ (RESPONDENT)

WRITTEN SUBMISSION ON BEHALF OF THE APPELLANT

COUNSEL FOR THE APPELLANT

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TABLE OF CONTENTS

LIST OF ABBREVIATIONS………………….……………………..3

INDEX OF AUTHORITIES………………………………………….4

STATEMENT OF JURISDICTION..............................................8

STATEMENT OF FACTS……………………………………………9

ISSUES RAISED...................................................................................10

SUMMARY OF ARGUMENTS..............................................................11

ARGUMENTS ADVANCED..................................................................13

PRAYER.............................................................................................23

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LIST OF ABBREVIATIONS
1. & - And
2. § - Section
3. AIR - All India Reporter
4. Anr.- Another
5. Arb. LR- Arbitration Law Reporter
6. Art. - Article
7. Co.- Company
8. Edn. - Edition
9. GOI - Government of India
10. Govt.- Government
11. Hon’ble - Honourable
12. Ltd. - Limited
13. Ors. – Others
14. p .- Page
15. Para - Paragraph
16. SC - Supreme Court
17. SCC - Supreme Court Cases
18. SCR - Supreme Court Reporter
19. Supp - Supplement
20. UOI - Union of India
21. v. - Versus
22. Vol. – Volume

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INDEX OF AUTHORITIES

LIST OF CASES

1. ACC Babcock v Straw Productiond Ltd., AIR Del 237, (1985)

2. Ambala Bus Syndicate (P) Ltd. v. Bala Financiers Ltd., 2 SCC 322, (1983)
3. Banwari Lal Radhe Mohan v. Punjab State Co-op Supply and Marketing Federation
AIR (Delhi) 357 (1982)
4. Baraji Trading Co v. Veeraswami,1 AN. WR 28, (1980)
5. Basic Tele Services Ltd v. Union of India, AIR (Delhi) 1, (2000)
6. Board of Secondary Education, Manipur v. C.W. Leiyachan, 10 SCC 42, ( 2001)
7. BSES Ltd v. Fenner India Ltd (2006) 1 Arb. LR 388 (SC)
8. Centax (India) Ltd v. Vinmar Impex Inc., AIR SC 1924, (1986)
9. Centax India Ltd v Vinmar impex Inc, AIR SC 1924, (1986)
10. Chola Turbo Machinary International Pvt. Ltd. v. Development credit Bank and
Another, 1 Arb. LR (Delhi) 540, (2008 )
11. Collector of Customs v. Madras Rubber Factory, 5 SCC 439, (1995)
12. Commercial Bank v. Bank of India 2 SCC 766, (1981): AIR SC 1426, (1981)
13. Damodar Paints Pvt Ltd v Indian oil Corporation Ltd, AIR (Delhi) 57, (1982)
14. Deytsche Ruckversicherung AG v. Walbrook Insurance Co Ltd., 4 All ER 181, (1994)
15. DTH Constn Pvt Ltd v Steel Authority of India Ltd., AIR Cal 31, (1986 )
16. Dwarikesh Sugar Inds Ltd v Prem Heavy Engg Works, AIR SC 2477, (1997)
17. Edward Owen Engg Ltd v. Barclayes Bank Ltd, 3 WLR 764, (1973);
18. Edward Owen Engg Ltd v. Barclays Bank Intl Ltd., 1 ALL ER 976, 986 (1978)
19. Engineering Mazdoor Sabha v.Hind Cycles Ltd., AIR SC 874, (1963)
20. Essar Oil Ltd v Oil India Ltd and Another, 1 Arb LR (Del) 2000, (1998)
21. General Electric Technical Services Company Inc. v Punj Sons (P) Ltd and another, 2
Arb. LR SC 173, (1991)
22. Harburg India Rubber Comb Co v. Martin, 1 K.B. 778, 784 (1902)
23. Himadri Chemicals Industries Ltd v. Coal Tar Refining Corporation, 3 Arb. LR (SC)
139, (2007)
24. Hindustan copper Ltd v Rana Builders Ltd, AIR Cal 229, (1999)
25. Hindustan Steel Works Const Ltd v. Tarapore & Co., AIR SC 2268, (1996)
26. Hindustan steelworks corpn Ltd v. Tarapore and Co 5 SCC 341, (1966)
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27. Hindustan steelworks corpn Ltd v. Tarapore and Co., 5 SCC 341, (1966)
28. Jaswant Sugar Mills Ltd. v. Lakshmi Chand, AIR SC 677, (1963)
29. Joginder Nath Gupta v. Satish Chander Gupta, 2 SCC 325, (1983)
30. Kalyanpur Limeworks v. State of Bihar, AIR Pat 226, (1951)
31. Kirloskar Pneumonic Co Ltd v. National Thermal Power Corp. Ltd., AIR Bom. 308,
(1987)
32. Kisan Sahakari Chini Mills Ltd v. Richardson and Cruddas, AIR Bom 35, (1997)
33. Lakeman v. Mountstephen , 7 L.R H.L 17, 24 (1874)
34. Larsen & Toubro Ltd v Maharashtra State Electricity Board, 6 SCC 68, (1995)
35. Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop Ltd. And
Anr., 3 Arb. LR SC 78 (2007) ;
36. Mukharia Bros v State of Nagaland, 10 SCC 503, (2000)
37. National Thermal Power corporation Ltd v. Hind Galvanizing and Engg Co Ltd, AIR
Cal 421, (1990)
38. NHAI v. ELSAMEX-TWS-SNC Joint Venture, 1 Arb. LR (Delhi) 559, (2008)
39. Pandnav v. Dhableshwar, 40 CLT 1337, (1974)
40. Pishora Singh v. Smt Lajobai, Rev LR 644, (1974)
41. Ram Chandra Panda v. Lok Nath Panda, 1 CWR 138, (1978)
42. Satwan Singh v. State Of Rajasthan, AIR SC 715, (1961)
43. Shankar Motiram Nale v. Shiolasing Gannusing Rajput, 2 SCC 753, (1994)
44. Shankarlal Devi Prasad v. State of M.P, MPLJ 419, (1978)
45. State of Maharashtra v. National Const. Co., AIR SC 2367, (1996)
46. State Trading Corpn of India ltd v. Golodetz Ltd, 2 Loyd’s Rep 277, (1989)
47. Sundaram Finance Ltd v NEPC India LTD (1999) 2 SCC 479,487
48. Syndicate Bank v. Vijay Kumar, AIR SC 1066, (1992)
49. Tarapore and Co. v. V.O. Export AIR SC 1168, (1970) ; Union of India v. Swadeshi
Cotton Mills Co. Ltd., 4 SCC 295, (1978)
50. Trinath Harichandan v. Chairman, Paradeep Port Trust, 3 SCC 113, 7(1998)
51. U.P Cooperative federation Ltd. v Singh Consultants and Engineers (P) Ltd., 1 SCC
174, (1988)
52. U.P. Co-operative Federation Ltd v. Singh Consultants and Engineers (P) Ltd., 2 Arb.
LR SC 279, (1987)
53. U.P. State Sugar Corporation v. M/s. Sumac International Ltd., AIR SC 1644, (1997)
54. Union of India v. Era Educational Trust 5 SCC 57, (2000)

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55. Union of India v. M.C. Desai, (1996) 11 SCC 400

56. Unique Allaince Industries, Goa v. Anupama Agencies, Trichur, AIR Ker 52, 54
(1995)
57. United City Merchants (Investments) Ltd v. Royal Bank of Canada, 2 ALL ER 720,
728 (1982) Federal Bank Ltd v. VM Jon Engg Ltd, AIR SC 3166, ( 2000)
58. Upadhyay & Co. v. State of U.P.,1 SCC 81,11, (1999)
59. Uttar Pradesh Co-op Federation Ltd v. Singh Consultants and Engrs Pvt Ltd, 1 SCC
174, (1988)
60. Videocon Properties Ltd. v. Dr. Bhalchandra Laboratories, 3 SCC 711, (2004)
61. Vinay Engineering v. Neyveli Lignite Corporation Ltd., AIR Mad 213, 219 (1985)

LIST OF BOOKS
1. AVTAR SINGH, LAW OF ARBITRATION AND CONCILIATION (EASTERN BOOK
COMPANY LUCKNOW 2005).
2. AVTAR SINGH, CODE OF CIVIL PROCEDURE (CENTRAL LAW AGENCY ALLAHABAD
2009).
3. DURGADAS BASU, CONSTITUTIONAL LAW OF INDIA (WADHWA AND COMPANY NEW
DELHI, 2004).
4. G.S GUPTA, LAW OF INJUNCTIONS (ORIENT PUBLISHER NEW DELHI, 2005).
5. H.C JOHARI, COMMENTARY ON ARBITRATION AND CONCILIATION ACT, 1996
(KAMAL BOOK HOUSE KOLKATA 2002).
6. H.K SAHARAY, LAW OF ARBITRATION AND CONCILIATION (EASTERN LAW HOUE
KOLKATA 2001).
7. JUSTICE R.S BACHAWAT, LAW OF ARBITRATION AND CONCILIATION (WADHWA AND

COMPANY NAGPUR 2005).

8. M.P JAIN, INDIAN CONSTITUTIONAL LAW (WADHWA AND COMPANY NAGPUR 2003).
9. N.D BASU, LAW OF ARBITRATION AND CONCILIATION (ORIENT PUBLICATIONS NEW
DELHI 2006).
10. N.K ACHARYA, LAW RELATING TO ARBITRATION & A.D.R (ASIA LAW HOUSE
HYDERABAD 2006)
11. O.P MALHOTRA, LAW AND PRACTICE OF ARBITRATION AND CONCILIATION (LEXIS
NEXIS BUTTERWORTHS NEW DELHI 2006).
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12. REGA SURYA RAO, LECTURES ON ARBITRATION CONCILIATION AND ALTERNATIVE

DISPUTE RESOLUTION SYSTEMS (ASIA LAW HOUSE HYDERABAD 2006).
13. SURENDRA MALIK, SUPPLEMENT TO SUPREME COURT ON ARBITRATION ( EASTERN
BOOK COMPANY LUCKNOW 2001).
14. V.N SHUKLA, CONSTITUTION OF INDIA (EASTERN BOOK COMPANY NEW DELHI
2008).

LIST OF ONLINE SOURCES

 www.manupatra.com
 www.kanoon.com
 www.scconline.com

LIST OF STATUTES REFERRED

 The Code of Civil Procedure, 1908

 The Indian Contract Act, 1872
 The Arbitration and Conciliation Act, 1996
 The Constitution of India

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STATEMENT OF JURISDICTION

With reference to the circumstances that have been presented in the instant case,

Appellant has approached this Hon’ble Court under Article 136 of the Constitution of

India.

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STATEMENT OF FACTS

1. A contract was entered into by M/s. Mohanwires Ltd. with M/s. Bright Energy Ltd for the
construction of a captive power plant. M/s. Bright Energy Ltd. in their part awarded a part
of the contract to M/s. Shanti Vigyan Ltd. and issued four work/purchase orders in this
connection

2. M/s. Shanti Vigyan issued four unconditional irrevocable bank guarantees from the State
Bank of Baroda dated 20.08.1998. The bank guarantees were of such nature that the bank
was under the liability to pay M/s. Bright Energy Ltd without protest or demur or proof of
satisfaction and without reference to M/s. Shanti Vigyan Ltd.

3. M/s. Bright Energy and M/s. Shanti Vigyan enetered into a wrap around agreement in
which it was stated under a that in case of any material breach of the contract, Bright
Energy shall have the right to encash the bank guarantee of all the contracts. At the time
of entering into the contract it was agreed by both the parties and an arbitration clause was
added whereby they agreed that all the disputes arising out of the contract and its
performance shall be refered to an arbitrator, the decision of whom shall be binding upon
both the parties.

4. On 23.04.2000 Bright Energy invoked the four bank guarantees as a result of which Shanti
Vigyan invoked the Arbitration clause on 26.04.2000. The following day, i.e on 27.04.2000,
Shanti Vigyan moved a petition under Section 9 of the Arbitration and Conciliation Act
claiming that Bright Energy are not entitled to the encashment of the Bank Guarantee before
the district court of Nagpur. On 12.06.2001 the learned District Judge dismissed the petition
of Shanti Vigyan.

5. An appeal was made under Section 17 of the Arbitration Act, however Shanti Vigyan
preferred an appeal before the High Court. On 10.10.2001, even while the arbitration
proceedings were pending the Hon’ble High Court made an interim order and on
24.10.2001 allowed the appeal and set aside the judgment of the District Court.

6. In 2002, the appellant, Bright Energy filed a petition against the order of the Hon’ble High
Court.                       
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ISSUES RAISED

1. WHETHER THE APPEAL IN MAINTAINABLE UNDER ARTICLE 136 OF CONSTITUTION

OF INDIA ?
1.1. Intervention of Hon’ble Supreme Court in Interim orders.
1.2. The case does not come under the exceptions of appeals to be filed under
Article 136 of Constitution of India.

2. WHETHER THE INTERIM INJUNCTION BY HIGH COURT OVER THE ENCASHMENT

OF BANK GUARANTEE HAS SUBSTANTIAL VALIDITY ?

2.2. The essentials of invoking bank guarantee are fulfilled.
2.2.1. Bank is obliged to make payment of all guarantees on demand, without
proof or condition.

2.2.2. A bank guarantee is an independent and distinct contract between

thebeneficiary and the bank and the rights and obligations therein are to
be determined on its own terms.

2.3. The case does not cover the essentials of interim injunction on invocation
of Bank Guarantee.

2.3.1. Where the bank knows that the documents presented by the beneficiary for
seeking enforcement are forged or fraudulent

2.3.2. Where the case of prima facie fraud is established.

2.3.3. Where invocation of bank guarantee would lead to irreparable injury.

2.3.4. Where the guarantee is conditional and the condition has not been complied
with or period stipulation for invocation for guarantee has expired.

3. WHETHER THE CASE HIGHLIGHTS THE APPARENT LACUNA IN ARBITRATION AND

CONCILIATION ACT, 1996

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SUMMARY OF ARGUMENTS

1. WHETHER THE APPEAL IN MAINTAINABLE UNDER ARTICLE 136 OF CONSTITUTION

OF INDIA ?

It is humbly submitted before the Hon,ble Court that appeal is maintainable under Article 136
of Constitution of India. The Supreme Court can intervene in matters concerning Interim
orders. The rights of appellant have been infringed. The case involves grave and substantial
injustice done to the appellant. The case does not fall within any of the exception of cases
where Special Leave Petition under Article 136 is not allowed. Hence the appellant appealed
before Hon,ble Supreme Court.

2. WHETHER THE INTERIM INJUNCTION BY HIGH COURT OVER THE ENCASHMENT

OF BANK GUARANTEE HAS SUBSTANTIAL VALIDITY ?

It is humbly submitted before the Hon’ble Court that interim Injunction against encashment
of Bank Guarantee is not justified. Firstly the bank guarantee is present case the bank
guarantee furnished is an unconditional and irrevocable one, the person in whose favour
guarantee is furnished by the bank cannot be prevented by way of injunction in enforcing the
guarantee. Bank. Secondly it is humbly submitted before the Hon’ble court that it is well
settled that a bank guarantee is an autonomous contract and imposes an absolute obligation
on the bank to fulfil the terms and the payment in the Bank guarantee becomes due on the
happaning of the contingency on the occurance of which the guarantee becomes enforceable.
Thirdly the present case is not a prima facie case of fraud as per the facts and also there is no
scope of "irretrievable injustice" being done, for justice can always be rendered to the
respondents, if they are to succeed in the tribunal where case is already pending. Moreover
the facts remain silent vis a vis the performace of the conractual responsibilities on the part of
the respondents, upon which the situation of encashment of bank guarantees have been
arrived at, thereby eradicating all chances of "special equity" being done in favour of the
appellants upon the encashment of the bank guarantees.

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3. WHETHER THE CASE HIGHLIGHTS THE APPARENT LACUNA IN ARBITRATION AND

CONCILIATION ACT, 1996

It is humbly submitted before the Hon’ble Court that the present case highlights the apparent
lacuna in arbitration and conciliation act, 1996. Since parties have equal right to appeal in
either section 9 to court or section 17 to tribunal the scope of section 17 appears to be less.
The abolition of the dual mechanism of interim relief also needs to be given a serious
thought, if reduction of Court Intervention, which is one of the primary objectives of the
Arbitration and Conciliation Act, 1996 is to be attained .

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ARGUMENTS ADVANCED

1. WHETHER THE APPEAL IS MAINTAINABLE UNDER ARTICLE 136 OF THE

CONSTITUTION OF INDIA?
It is humbly submitted to the Hon’ble Court that an appeal is being made under Article 136 1
of the Constitution of India. The appeal under Article 136 must satisfy certain conditions.
Firstly the determination or order sought to be appealed from must have character of judicial
adjudication.2 Secondly, the authority whose act is complained must be a court or a tribunal.
Unless both the conditions are satisfied, Article 136, clause 1 cannot be invoked. 3 The
Supreme Court will grant special leave to appeal in exceptional - cases where grave and
substantial injustice has been done by disregard to the forms of legal process or violation of
the principles of natural justice or otherwise.4 In the present case the right of the appellant has
been infringed of invoking a unconditional bank guarantee5 hence appellant has approached
to the Hon’ble Supreme Court for justice.

1.1. Intervention of Hon’ble Supreme Court in Interim orders.

It is humbly submitted to the Hon’ble court that it is necessary for the Supreme Court to deal
with legal issues at interim stage itself, leaving the parties to work out their ultimate rights
respectively finally in the pending suite.6 In Tarapore and Co. v. V.O. Export,7 the interim
order of the trial judge was not held justified on account of the important legal principles of
international trade being involved in that case. In United Commercial Bank v. Bank of India8
it was found that there is no justification for the High Court to grant a temporary injunction
restraining a bank from claiming refund of its due amount from another bank, and Supreme
Court intervention was called for. If the interim order of High Court was on facts being
perverse in nature, interference was called for.9 In several other cases also the Hon’ble
Supreme Court had to interfere with the interim orders in the interest of justice. 10 In the
present case appellant has filed a case against the decision of High Court granting a Interim
1
Article 136: Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special
leave to appeal from any judgement, decree, determination, sentence or order in any cause or matter passed or
made by any court or tribunal in the territory of India.
2
Jaswant Sugar Mills Ltd. v. Lakshmi Chand, AIR SC 677, (1963)
3
Engineering Mazdoor Sabha v.Hind Cycles Ltd., AIR SC 874, (1963)
4
Satwan Singh v. State Of Rajasthan, AIR SC 715, (1961)
5
Refer to facts of the cases point no. 4
6
Videocon Properties Ltd. v. Dr. Bhalchandra Laboratories, 3 SCC 711, (2004)
7
1 SCC 223, (1969) :AIR SC 1168, (1970) ; Union of India v. Swadeshi Cotton Mills Co. Ltd., 4 SCC 295,
(1978)
8
2 SCC 766, (1981): AIR SC 1426, (1981)
9
Board of Secondary Education, Manipur v. C.W. Leiyachan, 10 SCC 42, ( 2001)
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Injunction over encashment of bank guarantee. Since the decision violates the terms and
condition of invoking bank guarantee hence intervention of the Hon’ble Supreme Court is
necessary.

1.2. The case does not come under the exceptions of appeals to be filed under
Article 136 of Constitution of India

The in the following cases Special Leave Petition is not maintainable:

1. Against a deceased person.11

2. Meager amount involved in the matter.12

3. Where the intervention application of the applicants filed in a writ petition before the High
Court was dismissed and an SLP was also dismissed, an intervention application by such
applicants in another SLP involving similar questions.13

4. The SLP withdrawn without obtaining from the court liberty to file the same again, fresh
SLP against the same impugned order.14

5. Against the High Court’s rejecting review petition.15

The present case does not come under any of these exceptions hence intervention of Hon’ble
Supreme Court in necessary to get justice.

2. WHETHER THE INTERIM INJUNCTION BY HIGH COURT OVER THE ENCASHMENT OF

BANK GUARANTEE HAS SUBSTANTIAL VALIDITY ?

2.1. The essentials of invoking bank guarantee are fulfilled.

It is most humbly submitted to the Hon’ble court that a contract of guarantee is a contract to
perform the promise, or discharge the liability, of a third person in case of his default 16. A

10
Joginder Nath Gupta v. Satish Chander Gupta, 2 SCC 325, (1983) ; Ambala Bus Syndicate (P) Ltd. v. Bala
Financiers Ltd., 2 SCC 322, (1983) ; Union of India v. Era Educational Trust 5 SCC 57, (2000)
11
Union of India v. M.C. Desai, (1996) 11 SCC 400 (para I).
12
Collector of Customs v. Madras Rubber Factory, 5 SCC 439, (1995)
13
Trinath Harichandan v. Chairman, Paradeep Port Trust, 3 SCC 113, 7(1998)
14
Upadhyay & Co. v. State of U.P.,1 SCC 81,11, (1999)
15
Shankar Motiram Nale v. Shiolasing Gannusing Rajput, 2 SCC 753, (1994)
16
Indian Contract Act §126 – A “contract of guarantee” is a contract to perform the promise, or discharge the
liability, of a third person in case of his default. The person who gives the guarantee is called the “surety” ; the
person in respect of whose default the guarantee is given is called the “principal debtor” and the person to whom
the guarantee is given is called the “creditor”. A guarantee may be oral or written.
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contract of guarantee is predicated upon the existence of a valid principal debtor. 17 If there is
no such principal obligation, generally the guarantee fails. Consequently, a valid guarantee
depends upon the existence of a promise made to a person to whom a debtor is already
answerable or is to become answerable.18 A bank guarantee is a sort of an absolute
undertaking to pay the amount whenever demanded by guarantee holder. 19 Further Bank
Guarantee is a well known business transaction in the world of commerce and it has become
the backbone of banking system.20 The essentials of invoking bank guarantee were laid down
in Hindustan steelworks corpn Ltd v. Tarapore and Co.21

2.1.1. Bank is obliged to make payment of all guarantees on demand, without proof or
condition.

It is most humbly submitted to the Hon’ble court that in the present case the bank guarantees
are unconditional irrevocable bank guarantees in which the bank agreed to pay to Bright
Energy the amount demanded or claimed by them. If the bank guarantee furnished is an
unconditional and irrevocable one, the person in whose favour guarantee is furnished by the
bank cannot be prevented by way of injunction in enforcing the guarantee. 22 Further each
every bank guarantee is an unconditional bank guarantee.23 The fundamental principle to be
kept in mind that bank cannot rely on the term underlying contract between the parties. The
bank furnishing such a guarantee is bound to honour it irrespective of any disputes raised by
its customer, since it’s an independent contract, absolute in nature. 24 Secondly the amount
guaranteed in present case is payable with or without reason in writing from Respondent
without protest or demour or proof of satisfaction and without reference to the Respondent,
17
Lakeman v. Mountstephen , 7 L.R H.L 17, 24 (1874)
18
Harburg India Rubber Comb Co v. Martin, 1 K.B. 778, 784 (1902)
19
State Trading Corpn of India ltd v. Golodetz Ltd, 2 Loyd’s Rep 277, (1989) large transactions involve both
documentary credit ( bank Guarantee and Letters of Credit ) and guarantees.
20
Unique Allaince Industries, Goa v. Anupama Agencies, Trichur, AIR Ker 52, 54 (1995)
21
Hindustan steelworks corpn Ltd v. Tarapore and Co., 5 SCC 341, (1966) Firstly a bank guarantee is an
independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying
transaction and the primary contract between the person at whose instance the bank guarantee is given and the
beneficiary,
Secondly in case of an unconditional bank guarantee the nature of the obligation is absolute and not dependent
upon any dispute or proceeding between the party at whose instance the bank guarantee is given and the
beneficiary,
Thirdly the commitment by the banks must be honoured free from interference by the court and it is only in
exceptional cases, that is to say, in case of fraud, or in a case where irretrievable injustice would be done if bank
guarantee is allowed to be encashed, the court would interfere.
22
Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop Ltd. And Anr., 3 Arb. LR SC
78 (2007) ; State of Maharashtra v. National Const. Co., AIR SC 2367, (1996)
23
NHAI v. ELSAMEX-TWS-SNC Joint Venture, 1 Arb. LR (Delhi) 559, (2008)
24
Himadri Chemicals Industries Ltd v. Coal Tar Refining Corporation, 3 Arb. LR (SC) 139, (2007)
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upon being called by the appellant, irrespective of any dispute between the parties with regard
or any contractual terms between them.25 The authorities have completely ruled that
beneficiary is entitled to realize a bank guarantee in its irrespective of any pending disputes
upon the construction or performance of contract. 26 It is not concerned in the least with the
relations between the supplier and the customer27; nor with the question whether the supplier
has performed his contracted obligation or not; nor with the question whether the supplier is
in default or not.28 The bank must pay irrespective of any dispute raised by the person at
whose instance has been given29 therefore with reference to above cases the bank is obliged to
make payment of all guarantees on demand, without proof or condition.

2.1.2. A bank guarantee is an independent and distinct contract between the beneficiary
and the bank and the rights and obligations therein are to be determined on its own
terms.

It is humbly submitted to the Hon’ble court that it is well settled that a bank guarantee is an
autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and
the payment in the bank guarantee becomes due on the happening of the contingency on the
occurrence of which the guarantee becomes enforceable. 30 In the present case appellant and
respondent entered into a “wrap around” agreement under which the respondent would
perform its duty on a turnkey basis. The contract for the sake of convenience, was split up
into four sub-contracts (viz the four work purchase orders), was a composite contract
executable on turnkey basis. In case of any material breach appellant shall have right to
embark upon the retentions and encashment of all bank guarantees 31. In case of with similar
factual situations BSES Ltd v. Fenner India Ltd32 court held that under the “wrap-around
agreement”, the appellant had right to encash all or any of the bank guarantees for the breach
of first respondent’s obligation under anyone of the contracts. 33 Further, it is no function of

25
Refer to facts the cases point no 3
26
Chola Turbo Machinary International Pvt. Ltd. v. Development credit Bank and Another, 1 Arb. LR (Delhi)
540, (2008 )
27
U.P. Co-operative Federation Ltd v. Singh Consultants and Engineers (P) Ltd., 2 Arb. LR SC 279, (1987)
28
Edward Owen Engg Ltd v. Barclayes Bank Ltd, 3 WLR 764, (1973); National Thermal Power corporation
Ltd v. Hind Galvanizing and Engg Co Ltd, AIR Cal 421, (1990); Kisan Sahakari Chini Mills Ltd v. Richardson
and Cruddas, AIR Bom 35, (1997)
29
Dwarikesh Sugar Inds Ltd v Prem Heavy Engg Works, AIR SC 2477, (1997)
30
Syndicate Bank v. Vijay Kumar, AIR SC 1066, (1992)
31
Refer to facts of the cases point no. 3
32
(2006) 1 Arb. LR 388 (SC)
33
id
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the bank, nor the court to enquire as to whether due performance had actually happened. 34
The beneficiary could invoke the bank guarantees without giving the details of the loss
caused.35 Further an irrevocable performance bank guarantee being a distinct separate
transaction, the payment under it being invoked, it cannot be stayed or stopped, pending any
settlement of disputes between the beneficiary and the person at whose instance the guarantee
has been given.36 A bank guarantee is a commercial document and is neither a statutory notice
nor a pleading in a legal proceeding, and it may be invoked in a commercial manner. 37A Bank
Guarantee is an independent contract whereby the bank undertakes to unconditionally and
unequivocally abide by its terms.38 Further if bank undertakes a guarantee to make
unconditional payments on demand without reference the respondent. Then the guarantee also
provides that appellant would be the sole judge for deciding whether the respondent had
fulfilled the terms of contract or not.39If documentary credits are irrevocable and independent,
the bank must pay when demand is made.40

2.2. The case does not cover the essentials of interim injunction on invocation of Bank
Guarantee.

It is humbly submitted to the Hon’ble Court that the injunction order of the High Court to the
appellant against the encashment of the Bank Guarantee is unjustified. As far as interim
injunctions are concerned they lay stress of the prima facie case, balance of convenience and
irreparable injury.41 Usually courts should refrain from granting temporary injunction to
restrain the performance of the contractual obligations arising out of a letter of credit or a
bank guarantee.42 Commitments of the bank must be allowed to be honoured free from
interference by courts; otherwise trust in international commerce would be irreparably
damaged.43 In other words there is no absolute fetter on Court to grant Injunction. 44 A party
34
id
35
Hindustan copper Ltd v Rana Builders Ltd, AIR Cal 229, (1999)
36
Damodar Paints Pvt Ltd v Indian oil Corporation Ltd, AIR (Delhi) 57, (1982) ; Centax India Ltd v Vinmar
impex Inc, AIR SC 1924, (1986)
37
DTH Constn Pvt Ltd v Steel Authority of India Ltd., AIR Cal 31, (1986 ) ( no statement in demand notice that
the beneficiary had suffered a loss and /or damages on account of default by the person on whose behalf bank
guarantee was given).
38
Essar Oil Ltd v Oil India Ltd and Another, 1 Arb LR (Del) 2000, (1998)
39
U.P Cooperative federation Ltd. v Singh Consultants and Engineers (P) Ltd., 1 SCC 174, (1988)
40
General Electric Technical Services Company Inc. v Punj Sons (P) Ltd and another, 2 Arb. LR SC 173,
(1991)
41
Baraji Trading Co v. Veeraswami,1 AN. WR 28, (1980)
42
ACC Babcock v Straw Productiond Ltd., AIR Del 237, (1985)
43
Centax (India) Ltd v. Vinmar Impex Inc., AIR SC 1924, (1986)
44
Vinay Engineering v. Neyveli Lignite Corporation Ltd., AIR Mad 213, 219 (1985)
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applying temporary injunction has to establish a prima facie case to get a temporary
injunction but to establish such a case it is not necessary to establish his title. 45 Prima facie
case really means that there is a serious question to be tried and that the claim of the plaintiff
is not frivolous or vexatious.46 Even establishment of prima facie case may not be sufficient
to grant a temporary injunction. Even irreparable injury and balance of convenience must be
taken into consideration.47 The word injury in Order XXXIX, Rule 2 means an invasion or
infraction of legal right giving rise to a right of action to the party claiming a right. 48
Irreparable injury is one that cannot be compensated by money. While considering to grant
temporary injunction it is necessary to see whether interference is necessary to protect the
party applying for it.49

Further to refuse the payment of a bank guarantee, fulfilment of the following conditions is
essential:

2.2.1. Where the bank knows that the documents presented by the beneficiary for seeking
enforcement are forged or fraudulent

Where the bank knows that the documents presented by the beneficiary for seeking
enforcement are forged or fraudulent.50 In the present case it is not mentioned in the facts of
the cases that forged or fraudulent documents were submitted hence this condition should be
ruled out.

2.2.2 Where the case of prima facie fraud is established.

It is most humbly submitted to the Hon’ble court that the respondent cannot claim the
injunction on the bank guarantees on the grounds of fraud. The nature of the fraud that the
courts talk about is fraud of an “egregious nature as to vitiate the entire underlying
transaction.” It is the fraud of the beneficiary and the fraud of somebody else.51 A fraud is that
in which the beneficiary would be claiming payment to which he knew he had no
entitlement.52 In the present case the contract of bank guarantee was entered upon by the
petitioner knowing fully that he will be entitled to payment determined by the terms and

45
Ram Chandra Panda v. Lok Nath Panda, 1 CWR 138, (1978)
46
Shankarlal Devi Prasad v. State of M.P, MPLJ 419, (1978)
47
Kalyanpur Limeworks v. State of Bihar, AIR Pat 226, (1951)
48
Pandnav v. Dhableshwar, 40 CLT 1337, (1974)
49
Pishora Singh v. Smt Lajobai, Rev LR 644, (1974)
50
United City Merchants (Investments) Ltd v. Royal Bank of Canada, 2 ALL ER 720, 728 (1982) ; Federal
Bank Ltd v. VM Jon Engg Ltd, AIR SC 3166, ( 2000)
51
Uttar Pradesh Co-op Federation Ltd v. Singh Consultants and Engrs Pvt Ltd, 1 SCC 174, (1988)
52
Deytsche Ruckversicherung AG v. Walbrook Insurance Co Ltd., 4 All ER 181, (1994)
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conditions of the bank guarantee itself. Mere suspicion or possibility of fraud is not enough. 53
Where a fraud by one of the parties to the underlying contract has been established and the
bank has notice of the fraud.54Another view is that a demand under the guarantee may
become fraudulent not because of a fraud committed by the beneficiary while executing the
underlying transaction, but it may become so because of subsequent events and
circumstances.55 In the present case the facts remain silent about the existence of any such
misdeeds on the part of the petitioner and a mere assumption of the happenings of any such
event would be beyond the scope of prudence.56

2.2.3. Where invocation of bank guarantee would lead to irreparable injury.

It is most humbly submitted to the Hon’ble Court that the encashment of the bank guarantees
by the appellant won’t lead to any special equity towards them or would result in an
irretrievable injury being done towards the Respondents. The harm or injustice contemplated
for refusing enforcement of a bank guarantee must be of such an exceptional and irretrievable
nature as would override the terms of the guarantee and the adverse effect of such an
injunction on commercial dealings in the country.57 Assuming the happenings of events of
such extraordinary nature would be incongruous as the facts of the case remain silent on the
issue. There is no scope of "irretrievable injustice" being done, for justice can always be
rendered to the respondents, if they are to succeed in the tribunal where case is already
pending. Moreover the facts remain silent vis a vis the performance of the contractual
responsibilities on the part of the respondents, upon which the situation of encashment of
bank guarantees have been arrived at, thereby eradicating all chances of "special equity"
being done in favour of the appellants upon the encashment of the bank guarantees.

2.2.4. Where the guarantee is conditional and the condition has not been complied with
or period stipulation for invocation for guarantee has expired.

It is humbly submitted to Hon’ble Court that where the guarantee is conditional and the
condition has not been complied with then an interim injunction could be granted. 58 Secondly

53
Edward Owen Engg Ltd v. Barclays Bank Intl Ltd., 1 ALL ER 976, 986 (1978)
54

55
Hindustan Steel Works Const Ltd v. Tarapore & Co., AIR SC 2268, (1996)
56
Refer to the facts of the cases
57
U.P. State Sugar Corporation v. M/s. Sumac International Ltd., AIR SC 1644, (1997)
58
Banwari Lal Radhe Mohan v. Punjab State Co-op Supply and Marketing Federation Ltd., AIR (Delhi) 357
(1982)
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where the conditions necessary for invoking a conditional bank guarantee have not arisen. 59
Thirdly where the purpose for which a conditional guarantee was given has been
accomplished injunction could be granted.60 Further where the period stipulated for
invocation for guarantee has expired.61 The present case does not satisfy any of the above
conditions so interim injunction cannot be put on the invocation of bank guarantee.

3. WHETHER THE CASE HIGHLIGHTS THE APPARENT LACUNA IN ARBITRATION AND

CONCILIATION ACT, 1996

It is humbly submitted to Hon’ble Court that the scope of § 9 is wider than that of § 17. § 9
and 17 both deal with the interim measures of protection. The court and arbitral tribunal
appear to have concurrent jurisdiction which, though not identical, is somewhere overlapping.
The salient points of difference between these two are many. First of all the party autonomy
is different. One such situation is to grant interim measures of protection as contemplated by
§ 9. This is similar to the power available to the court under the Arbitration Act of 1940. But
what is clearly revolutionary is § 17 of the Act, which also uses the phrase ‘Interim measures
of protection’ and thus gives co-terminus power to the Arbitral Tribunal as well. The phrase’
unless otherwise agreed by the parties’ ushers in party autonomy and indicates that this
provision is of non-mandatory nature. The non-mandatory provisions are primarily of
importance where a set of arbitral rules is agreed on as are used in institutional arbitration. 62

In some jurisdictions, the relevant law specifically provides that in the first instance, an
application should be made to the tribunal and then only to the court. For instance, § 38(3) to
(6) of English Arbitration Act 1996, in the absence of an agreement by the parties to the
contrary, the delineate the default parameters of tribunal jurisdiction to make interim orders
of protection. § 44(3) vests the court with powers in support of arbitral proceedings and
prescribes the procedure for exercise of power. But there is no similar provision in model law
or is § 9 of this Act. This section is not identical to Article 9 of the Modal Law, though
codifies its spirit, It appears rather to have been influenced by the language of § 41(b) and
Second Schedule of the Act of 1940, albeit both the provisions, as observed by the Supreme

59
Basic Tele Services Ltd v. Union of India, AIR (Delhi) 1, (2000) (bank guarantee given to cover withdrawal
of bid by a bidder during the validity of bid could not be invoked where the bidder never withdrew the bid) ;
Kirloskar Pneumonic Co Ltd v. National Thermal Power Corp. Ltd., AIR Bom. 308, (1987)
60
Larsen & Toubro Ltd v Maharashtra State Electricity Board, 6 SCC 68, (1995)
61
Mukharia Bros v State of Nagaland, 10 SCC 503, (2000)
62
In this connection such institutional rules on this question are the LVIA Rules particularly Rule-25’Interim
and Conservatory Measure’ is remarkably explicit
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63
Court in Sundaram Finance Ltd v NEPC India LTD are very different from the provisions
of § 9 and 17 of this Act. The parties therefore, have the choice whether to approach the
arbitral tribunal under § 17 or court under § 9, for seeking an interim measure of protection.
As the modern trend of arbitration law is to marginalize court intervention, the balance
normally should tilt in favour of the tribunal because it will be more expeditious and less
expensive. Legendary legal personality Nani Palkiwala mentioned that arbitration has to be
made compulsory in commercial matters. It has benefits like speedy justice, its economical,
finality as arbitrators award is unchallengeable except on narrow grounds and finally justice
as the final outcome of arbitration is as likely -to be marked by justice as is a case in a court
of law. The law should provide for compulsory adjudication or arbitration to settle all
industrial disputes64. The court has the coercive power to enforce its orders. But the arbitral
tribunal is not competent to exercise any such power. The lack of power to enforce an interim
measure for protection, leaves the tribunal with no effective way of forcing the party to obey
the order, that is to say, it has no teeth.

65
§ 38 of the English Arbitration Act 1996, unless otherwise agreed by the parties, confer the
powers to order interim measure of protection on the arbitral tribunal. This power particularly
63
2 SCC 479, 487 (1999)
64
M.V Kamath, Convocation Address , Xavier labour relations instituts at Jamshedpur, 29 feb 1980, Obedience
to Unenforceable,nani Palkiwala A life.
65
The English Arbitration Act, 1996: section 38 General Powers exercisable by the Tribunal.
(1) The parties are free to agree on the powers exercisable by the Tribunal for the purposes of and in
relation to the proceedings.
(2) Unless otherwise agreed by the parties the tribunal has the following powers.
This power shall not be exercised on the ground that the claimant is-
(a) An individual ordinarily resident outside the United Kingdom, or
(b) A corporate of association incorporated or formed under the law of the country outside the United
Kingdom, or whose central management and control is exercised outside the United Kingdom
(c) The tribunal may order a claimant to provide security for the costs of the arbitration.
This power shall not be exercised on the ground that the claimant is-
(i) An individual ordinarily resident outside the United Kingdom, or
(ii) A corporation or association incorporated or formed under the law of a country outside the
United Kingdom, or whose central management and control is exercised outside the United
Kingdom.
(d) The tribunal may give directions in relation to any property which is the subject of the proceedings
or as to which any question arises in the proceedings, and which is owned by or is in the
possession of a party to the proceedings-
(i) For the inspection, photographing, preservation, custody or detention of the property by the
tribunal, an expert or a party, or
(ii) Ordering the examples be taken from, pr any observation be made of or experiment conducted
upon the property.
(e) The tribunal may direct that a party or witness shall be examined on oath or affirmation, amd may
for that purpose administer any necessary oath or taken any necessary affirmation.
(f) The tribunal may give directions to a party for the preservation for the purposes of any evidence in
his custody or control.

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includes express power to order a party to furnish security for the costs of arbitration, a power
previously preserve of the court only. The 1996 act does not otherwise specify the basis on
which security for costs should or should not be granted and the tribunal therefore has a broad
discretion. It seems likely though that in practice the tribunal will have regard to similar
consideration as those applied by court in dealing with applications under RSC O 23.66

 The abolition of the dual mechanism of interim relief also needs to be given a serious
thought, if reduction of Court Intervention, which is one of the primary objectives of the
Arbitration and Conciliation Act, 1996 is to be attained. In the present case, justice could
have been delivered to Bright Energy with minimised hazards had such overlapping arbitral
framework not been present within the Arbitration and Conciliation Act, 1996 in the form of
Sections 9 & 17. Despite the fact that the Arbitral Proceedings were pending before the
Arbitration Tribunal, the respondents could file a suit before the Hon’ble High Court, only by
exploiting this apparent lacuna and could successfully delay the justified encashment of the
bank guarantees.

PRAYER

Wherefore in the light of the abovementioned Authorities Cited, Issues Raised and
Arguments advanced, it is humbly requested before this Hon’ble Court to adjudge the matter
and declare that:

66
Russell on Arbitration, twenty-first edition, 1997, p 206 para 5-098
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 The Injunction order passed by the Hon’ble High Court be set aside.
 The Appellant be allowed to encash the Bank Guarantees.

And to pass any such order as deemed fit in the light of justice, equity and good
concise. The counsel shall forever beseech this Hon’ble Court for its humble
consideration.

Counsel For Appellant

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