In a significant ruling, the Calcutta High Court, presided over by Justice Shampa Sarkar, addressed the contentious issue of injunctions against the invocation of bank guarantees within the framework of arbitration proceedings. The case involved Gallant Equipment Pvt. Ltd. (the petitioner) and Rashmi Metaliks Ltd. (the respondent), who had entered into a contract on July 5, 2023, for the supply of a core curing oven. The agreement stipulated that the petitioner would manufacture and deliver the oven within 60 working days following the respondent's approval of specifications and receipt of an advance payment. The payment terms required the respondent to pay 50% in advance against an equivalent advance bank guarantee (ABG), with the remaining 50% due after inspection and prior to dispatch. Additionally, the petitioner was to provide a 20% bank guarantee valid for 12 months post-installation.
The petitioner contended that the oven was ready for delivery by October 27, 2023, but the respondent failed to take delivery without providing any justification. The petitioner expressed concern that the respondent might invoke the ABG at any time, leading to irreparable harm, as the oven, produced at considerable expense, would remain unused. They argued that such invocation would result in irreversible financial loss for work already completed under the purchase order.
Conversely, the respondent argued that injunctions against the invocation of bank guarantees are generally impermissible, as bank guarantees constitute independent contracts between the bank and the beneficiary. They maintained that their right to invoke the guarantee was unaffected by disputes arising from the underlying contract. Furthermore, the respondent highlighted that multiple business transactions existed between the parties, and the current dispute should be resolved through arbitration, not interim judicial relief.
The court acknowledged the general principle that injunctions against the invocation of bank guarantees are typically not granted, except in cases involving egregious fraud or irretrievable injustice. However, it emphasized that when a petitioner establishes a prima facie case indicating potential irreparable harm, courts have the discretion to grant interim protection under Section 9 of the Arbitration and Conciliation Act, 1996. In this instance, the court found that the petitioner's concerns about the non-utilization of the manufactured oven and the consequent financial loss constituted sufficient grounds for interim relief.
This decision underscores the judiciary's nuanced approach to balancing the sanctity of bank guarantees with the need to prevent undue hardship to parties in arbitration disputes. While upholding the principle that bank guarantees should not be easily restrained, the court recognized that interim protection is warranted when a prima facie case of potential irreparable harm is established. This ruling serves as a precedent for similar cases where parties seek interim relief to safeguard their interests pending arbitration outcomes.
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