Although Injunction Against Invocation Of Guarantee Cannot Be Granted, Court Can Grant Interim Protection If Prima Facie Case Is Established: Calcutta HC
The Calcutta High Court bench of Justice Shampa Sarkar has held that although an injunction against the invocation of a bank guarantee cannot normally be granted, if the petitioner establishes a prima facie case, the court should not hesitate to grant interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Brief Facts: Gallant Equipment...
The Calcutta High Court bench of Justice Shampa Sarkar has held that although an injunction against the invocation of a bank guarantee cannot normally be granted, if the petitioner establishes a prima facie case, the court should not hesitate to grant interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).
Brief Facts:
Gallant Equipment Pvt Ltd (Petitioner) and Rashmi Metaliks Ltd (Respondent) entered into a “Goods & Service Order” dated July 5, 2023, for the supply of a core curing oven. The oven was to be manufactured upon the respondent's approval of specifications and drawings and delivered within 60 working days from receipt of the confirmed order and advance payment.
As per the order, the respondent was to pay 50% advance against an equivalent advance bank guarantee, valid until delivery at the respondent's site. The balance 50% was payable after inspection by the respondent's engineers and prior to dispatch. The petitioner was also required to submit a 20% bank guarantee, valid for 12 months after final installation.
Contentions:
The Petitioner submitted that although the oven was lying ready for delivery on October 27, 2023, the respondent failed to take delivery of the same. The respondent did not inform the petitioner the reason for not taking the oven.
It was further submitted that the respondent may invoke the Advance Bank Guarantee (ABG) at any time, putting the petitioner in an irreversible situation, as the oven, manufactured at significant cost, will remain unutilized, causing the petitioner irreparable loss for work done under the purchase order.
Per contra, the Respondent submitted that there cannot be an injunction against invocation of a bank guarantee. A bank guarantee is a separate agreement between the bank and the beneficiary. The respondent has a right to invoke the bank guarantee, irrespective of the contract between the parties.
It was further submitted that there are several business transactions between the parties, and this purchase order is one among many that has led to a dispute. The reliefs sought in the application are of a final nature and cannot be granted. The issues should be adjudicated by the learned Arbitrator, based on evidence.
Observations:
The court at the outset noted that the Court cannot overlook the need to grant interim protection to the petitioner, as the reliefs sought are akin to final relief. The petitioner should not bear losses due to the respondent's conduct.
It further added that despite placing a purchase order and approving specifications and drawings, the respondent failed to take delivery of the oven without providing any justification. Although the respondent paid 50% in advance against an equivalent bank guarantee (ABG) valid until delivery, the delay in taking delivery keeps the ABG active, exposing the petitioner to the risk of invocation at the respondent's discretion.
The court also opined that the principles under Order 39 Rules 1 and 2 and Order 38 Rule 5 of the Civil Procedure Code, 1908 (CPC) are not strictly applicable to Section 9 applications under the Arbitration Act. If the petitioner establishes a case for interim protection, the Court should not hesitate to grant such relief until the arbitral proceedings are concluded.
It further noted that the numerous emails annexed to the application show that the petitioner repeatedly requested the respondent to inspect and take delivery of the product. However, there is not a single email from the respondent refusing delivery on any ground.
It further observed that the respondent remained silent and even requested the bank to invoke the guarantee in 2023, though it was not acted upon due to its extension by the petitioner. The respondent's conduct raises a genuine apprehension that the bank guarantee, expiring on May 15, 2025, may be invoked at any time.
Based on the above, the court held that under these circumstances, a strong prima facie case has been made out. Furthermore, the Court directed that if the respondent invokes the bank guarantee of Rs. 50 lakhs, the amount shall be deposited with the Registrar, Original Side, High Court, Calcutta, for a period of three months.
It concluded that meanwhile, the petitioner shall invoke the arbitration clause, and the parties may approach the Arbitrator for further interim reliefs. The fate of the deposited amount, if any, shall be decided by the Arbitrator.
Accordingly, the present petition was disposed of.
Case Title: Gallant Equipment Pvt Ltd Vs Rashmi Metaliks Ltd
Case Number: AP-COM/277/2025
Judgment Date: 16/04/2025
Mr. Suvasish Sengupta, Adv. Mr. Sanjib Bandyopadhyay, Adv. Mr. Sounak Banerjee, Adv. Mr. Rohit Das, Adv. ... for the petitioner.
Mr. Debrup Bhattacharjee, Adv. ... for the respondent.