Report No. 145
4.7. Bank guarantees.-
A few words also appear to be necessary on the subject of bank guarantees. Notwithstanding the belief in certain quarters to the contrary, the correct law is, that where there is a bank guarantee and no prima facie case of fraud, courts should not restrain the enforcement of the bank guarantees.1 If there is any irrevocable commitment or obligation of the bank, either in the form of a confirmed bank guarantee or letters of credit, the guarantee must ordinarily be honoured free from interference by the courts, unless there is a prima facie case of fraud or a special equity.2 Courts should seldom restrict the holder of the guarantee from enforcing it3.
1. United Commercial Bank v. Bank of India, AIR 1981 SC 1426.
2. Ashim Ganguly v. Indian Oxygen Ltd., AIR 1989 Cal 150 (153, 154).
3. U.P. Co-operative Federation Ltd. v. Singh Consultants, (1988) 1 SCC 174.