Business and commercial law
Supreme Court Undermines The Sanctity Of Bank Gaurantees
09 Jun 2016  |  Views: 123  | 
Tanushree Sharma

The condition of business law in India is in doldrums. This is exemplified by a recent decision of the Supreme Court in Gangotri Enterprises v. Union of India (Civil Appeal No. 4814/2016dt. 05.05.2016) which is not only erroneous but against the settled standards with respect to limitation of bank certifications.

A portion of the striking certainties for the situation are that Northern Railways needed to encash bank ensure given by the Contractor in admiration of an agreement which was obviously tastefully performed. Northern Railways needed to do as such in appreciation an asserted break of another agreement. Northern Railways took backing of a statement in the Contract which qualified it for encash bank ensures given under an agreement to set-off "any money… due" under that agreement or some other contract.

The Contractor approached the court to restrain Northern Railways from encashing the bank ensure. The inquiry went up to the Supreme Court. The Supreme Court held, entomb alia, the accompanying:

  • The sum due implied an aggregate for which is in a matter of seconds payable and due and in this manner, such totals might be recouped from the security store just if the whole which is to be set-off is payable. Northern Railways has looked for encashment in appreciation of a sum which is in the way of harms. Be that as it may, the Contractor has questioned the same and is a topic of an assertion.
  • Sum tried to be recouped was in admiration of an agreement particular from the agreement under which the bank insurance was outfitted. On the premise of the over, the Court reasoned that there was "a by all appearances case to support them for conceding of directive against the respondents so likewise they have presented out a defense of equalization of comfort and hopeless misfortune to support them… "


It is humbly submitted that this decision is flawed. The decision of the Supreme Court does not appear to be a choice on directive against bank ensure but on a case for harms for wrongful summon of bank insurance. Taking after are the reasons:

The Court has not thought about the settled position of law that injunction will lie against bank ensures just if there is misrepresentation or unique values. For this situation, no extortion was made out by the Contractor. Special equities would imply that the Contractor ought to build up that it is difficult to repay himself regardless of the fact that he eventually succeeds for a situation for harms for wrongful conjuring of bank certification. The Supreme Court in the moment case has not gone into such an enquiry by any stretch of the imagination.

It is well-established that the three pronged test of at first sight case, parity of accommodation and hopeless misfortune would alone not be adequate on account of orders against bank ensures however the applicant ought to set up extortion or unique values.

The Supreme Court fell in gross mistake when it went ahead to the benefits of accuracy of the choice of Northern Railways in summoning the bank ensure. This is not required in a procedure identifying with order against a bank ensure.

For all these reasons, the choice of the Supreme Court is terribly mistaken and must be held per incurium. The choice of the Supreme Court is authoritative on all courts in India. This choice is prone to be referred to in a few courts in India in backing of order against bank ensures consequently undermining the holiness of bank sureties and in this way business. It is tragic that when there is a dire squeezing need to upgrade business law in India, choices like these take the Indian legitimate framework a few stages in reverse.

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