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Gujarat Maritime Board v. L&T Infrastructure Development Projects Ltd. & Anr.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 9821 of 2016)Decided 28 Sept 2016
Civil Appeal No. 9821 of 2016
Justice Kurian Joseph · Justice Rohinton Fali Nariman

Background

Gujarat Maritime Board (GMB) had issued a Letter of Intent to L&T Infrastructure to develop a port, backed by an unconditional bank guarantee of Rs. 5 crores to secure the developer's obligations (project report, clearances, financial closure within fixed timelines). When GMB concluded the developer had failed to meet these obligations, it cancelled the Letter of Intent and sought to invoke the bank guarantee. The developer approached the High Court under Article 226 of the Constitution and obtained an order restraining GMB from encashing the guarantee, which GMB then challenged before the Supreme Court.

Decision Breakdown

The Supreme Court reiterated the well-settled rule that an unconditional bank guarantee is an independent contract, and courts should be slow to injunct its encashment except in narrow situations such as egregious fraud or irretrievable injustice: a mere dispute over the underlying contract is not enough. Since the bank guarantee here required the bank to pay on GMB's written demand "without demur," and GMB had made such a demand after concluding the developer breached the Letter of Intent, the High Court was wrong to use its writ jurisdiction to examine and restrain that invocation. The Court allowed GMB's appeal and set aside the High Court's order, while clarifying that the developer remains free to pursue its grievances about the legality of the cancellation through appropriate separate legal proceedings.

Lesson Learnt

An unconditional bank guarantee is meant to be honoured on demand: a party on the losing end of a contractual dispute generally cannot use a writ petition to stop the other side from encashing it, and must instead fight the underlying dispute through ordinary legal remedies.

Official source (sci.gov.in)View Judgment (PDF)

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