In a recent ruling, the Calcutta High Court clarified that while an injunction against the invocation of a bank guarantee is generally not permissible, courts are empowered to grant interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, if a strong prima facie case is established. Justice Shampa Sarkar delivered this judgment while hearing a dispute between Gallant Equipment Pvt Ltd and Rashmi Metaliks Ltd.
The dispute arose from a “Goods & Service Order” signed on July 5, 2023, between Gallant Equipment Pvt Ltd (the petitioner) and Rashmi Metaliks Ltd (the respondent) for the supply of a core curing oven. As per the agreement, the oven was to be manufactured only after the respondent approved the specifications and drawings, and delivery was scheduled within 60 working days from the receipt of the confirmed order and advance payment.
Under the terms of the order, the respondent was required to pay 50% of the price in advance against an equivalent Advance Bank Guarantee (ABG) provided by the petitioner, valid until the oven's delivery at the respondent’s site. The balance 50% was to be paid after the respondent's engineers inspected the oven and before dispatch. Additionally, the petitioner had to furnish a 20% Performance Bank Guarantee (PBG) valid for 12 months after final installation.
The petitioner informed the court that despite manufacturing the oven as per the approved design and making it ready for delivery by October 27, 2023, the respondent did not collect the equipment. According to the petitioner, the respondent also did not communicate any reason for not accepting the delivery, even though the oven was completed within the stipulated timeframe.
The petitioner raised a concern that the respondent might invoke the ABG at any moment, leaving the petitioner in an irreversible financial loss. If the bank guarantee were invoked, the payment of Rs.50 lakhs made as an advance would return to the respondent, despite the oven remaining undelivered and the petitioner having already borne the cost of manufacturing.
On the other hand, the respondent argued that as a legal principle, courts cannot grant injunctions against the invocation of a bank guarantee. The respondent emphasized that a bank guarantee is a separate, independent contract between the bank and the beneficiary. Therefore, invocation cannot be blocked merely because of disputes arising from the main contract. The respondent also pointed out that the two companies were involved in various business dealings, and this specific transaction was just one part of their broader commercial relationship. They asserted that the reliefs sought by the petitioner were final in nature and should instead be left for the Arbitrator to decide based on evidence.
After hearing both sides, Justice Sarkar observed that courts should not overlook the need for interim protection in situations where a prima facie case is established, even though the relief sought may seem similar to the final relief.
The court highlighted that the respondent had placed the purchase order, approved the specifications, and that the petitioner had completed the manufacturing. Despite repeated requests from the petitioner via email, the respondent neither accepted delivery nor offered any explanation for refusing the oven. This silence, along with a past attempt by the respondent to instruct the bank to invoke the guarantee, raised the petitioner’s genuine concern over the imminent invocation of the bank guarantee.
"Delay in taking delivery will keep the Advance Bank Guarantee alive, exposing the petitioner to the risk of invocation at the mercy of the respondent."
Furthermore, the court clarified that while the general legal principles under Order 39 Rules 1 and 2 and Order 38 Rule 5 of the Civil Procedure Code are not directly applicable to Section 9 of the Arbitration Act, courts do have the power to grant interim protection if the facts justify it.
The judgment emphasized that the documents presented by the respondent, including two letters from July 2023, did not support the argument of any manufacturing delay or product defect. In fact, the advance payment had been made on September 27, 2023, and the bank guarantee was submitted on September 19, 2023, both actions confirming the transaction was moving forward properly at the time.
Given these facts, Justice Sarkar held that the petitioner had successfully demonstrated a strong prima facie case. The court ordered that if the respondent invokes the bank guarantee, the sum of Rs.50 lakhs must be deposited with the Registrar, Original Side, High Court at Calcutta, where it will be kept in an interest-bearing fixed deposit for three months.
The court also advised the petitioner to invoke the arbitration clause immediately and clarified that both parties would be free to approach the Arbitrator for further interim relief. The ultimate decision on the deposited money would rest with the Arbitrator.
With these directions, the court disposed of the petition.
Case Title: Gallant Equipment Pvt Ltd Vs Rashmi Metaliks Ltd
Case Number: AP-COM/277/2025
Judgment Date: April 16, 2025
Coram: Justice Shampa Sarkar
