Q: Elaborate the citation of UP. STATE SUGAR CORPN. VERSUS SUMAC INTERNATIONAL LTD. [1996 (12) TMI 294 ?

Ans: In U.P. STATE SUGAR CORPN. VERSUS SUMAC INTERNATIONAL LTD. [1996 (12) TMI 294

 The honourable Supreme Court held that the bank giving a guarantee is bound to honor it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head 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. The two grounds are necessarily connected, though both may co-exist in some cases.
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