Law related to Bank Guarantee

Ans:  Supreme Court of India M.S. Narayana Menon @ Mani vs State Of Kerala & Anr on 4 July, 2006 Bench: S.B. Sinha, P.P. Naolekar The honourable Supreme Court held that we in the facts and circumstances of this case need not go into the question as to whether even if the prosecution fails to prove that a large portion of the amount claimed to be a part of debt was not owing and due to the complainant by the accused and only because he has issued a cheque for a higher amount, he would be convicted if it is held that existence of debt in respect of large part of the said amount has not been proved. The Appellant clearly said that nothing is due and the cheque was issued by way of security. The said defence has been accepted as probable. If the defence is acceptable as probable the cheque therefore cannot be held to have been issued in discharge of the debt as, for instance, if a cheque is issued for security or for any other purpose the same would not come within the purview of S...

Ans:  Vijay vs Laxman & Anr on 7 February, 2013 Bench: T.S. Thakur, Gyan Sudha Misra The honourable Supreme Court held that we are of the view that although the cheque might have been duly obtained from its lawful owner i.e. the respondent-accused, it was used for unlawful reason as it appears to have been submitted for encashment on a date when it was not meant to be presented as in that event the respondent would have had no reason to ask for a loan from the complainant if he had the capacity to discharge the loan amount on the date when the cheque had been issued. In any event, it leaves the complainant’s case in the realm of grave doubt on which the case of conviction and sentence cannot be sustained. Thus an accused was acquitted due to cheque issued for illegal purpose.

Ans:   B. Krishna Reddy vs Syed Hafeez (Died) Per Lr. Smt. on 30 September, 2019. The honourable Supreme Court held that the offence alleged was that a cheque was given towards consideration for purchase of a property. Neither any document was produced on record nor there was any evidence that any conveyance was executed in favour of the appellant. Thus, the submission of the appellant that there was no existing debt or liability against which the cheque was given had to be accepted. In our view, the High Court was in error in accepting the appeal and upsetting the view taken by the Trial Court. We, therefore, allow this appeal, set-aside the decision of the High Court and restore the judgment and order of acquittal passed by the Trial Court.

Ans: Vinitec Electronics Private limited vs Hcl Infosystems Limited on 2 November, 2007. In the case of Vinitec Electronics Ltd. vs HCL Infosystem Ltd., the honourable Supreme court  clarified that the operative part of the contract will not be controlled by the preamble of the guarantee contract.  The honourable Supreme Court held that:  In our considered opinion such vague and indefinite allegations made do not satisfy the requirement in law constituting any fraud much less the fraud of an egregious nature as to vitiate the entire transaction. The case, therefore does not fall within the first exception. The recitals in the preamble in the deed of guarantee do not control the operative part of the deed. After careful analysis of the terms of the guarantee we find the guarantee to be an unconditional one. The appellant, therefore, cannot be allowed to raise any dispute and prevent the respondent from encashing the bank guarantee. Whether encashment of the bank guara...

 Ans:  Mahatma Gandhi Sahakra Sakkare vs National Heavy Engg. Coop. Ltd. on 11 July, 2007 The honourable Supreme Court said that on careful analysis of the terms and conditions of the guarantee, we find the guarantee to be an unconditional one. The respondent, therefore, cannot be permitted to raise any dispute and prevent the appellant from encashing the bank guarantee. For all the aforesaid reasons, the honourable Supreme Court hold that the respondent herein did not make out any case for grant of injunction restraining the appellant herein from encashing the bank guarantee. The honourable Supreme Court stated held the contract to be unconditional and refused to grant injunction. 

Ans:  Hindustan Construction Co. Ltd vs State Of Bihar And Ors on 8 October, 1999 In this case, the honourable Supreme Court held that the bank only pays the amount after certain conditions which might be enumerated in the guarantee contract, are fulfilled by the debtor. Conditions can be like- Proof of default, approval of a third party etc. To invoke the encashment of the bank guarantee, the conditions put forth in the contract have to be fulfilled. Injunction against encashment of conditional Bank guarantees can be granted by the courts in view of the facts of the case present and the beneficiary can’t have an unrestrained right to invoke the bank guarantees. Therefore, the invocation of the bank guarantee should be in strict conformity with the conditions on which the guarantee is issued. In the case of Hindustan Construction Co. Ltd. vs State of Bihar and othrs, the honourable supreme court held that  under conditional bank guarantees, the beneficiary does not have an unf...