While granting interim injunction in cases of bank guarantees the width and amplitude of Courts powers is narrower

Ordinarily, encashment of an unconditional bank guarantee is not injuncted by a court. In order to obtain an order of injunction, the aggrieved party is required to demonstrate that it is either a case of fraudulent invocation or, one of special equities or in a given case, covered by both exceptions. 

In the present matter impugned order was passed in reference to an application moved under Section 17 of the Arbitration and Conciliation Act, 1996 (Act) whereby an injunction was sought against the encashment of bank guarantees in question. The application was dismissed. It was the contented that once the contracts having been duly performed, the bank guarantees cannot be invoked and encashed. The injunction qua encashment of the bank guarantees was sought on the ground of special equities and it was accordingly further contended that the arbitrator could not have passed the impugned order having regard to the fact that the contracts in issue had been performed.

On the contrary the Appellant was alleged of fudging the balance sheet filed, at the time when it had bid for the contract(s). It was alleged that the filing of incorrect balance sheets was deliberate and intended to secure the contracts in issue. By way of the impugned order the Respondent was restrained from encashing the bank guarantees in issue subject to the condition that they would be kept alive. 

It was held that in matters of grant of interim injunction, the court, exercises an equitable jurisdiction, and that, jurisdiction extends not only to orders generally passed for interim injunctions but also vis-à-vis those pertaining to bank guarantees. In so far as bank guarantees are concerned, the width and amplitude of power available to the court is narrower. Ordinarily, encashment of an unconditional bank guarantee is not injuncted by a court. In order to obtain an order of injunction, the aggrieved party is required to demonstrate that it is either a case of fraudulent invocation or, one of special equities or in a given case, covered by both exceptions. 
The impugned order was accordingly held to be correct.

[Avinash EM Projects Pvt. Ltd. vs. Gail (India) Limited]
(Delhi HC, 10.11.2014)