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M/s Adani Agri Fresh Ltd v. Mahaboob Sharif & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 14015 of 2015)Decided 2 Dec 2015
Civil Appeal No. 14015 of 2015
Justice J.S. Khehar · Justice R. Banumathi

Background

Adani Agri Fresh, a fruit and vegetable supplier, sold produce on credit to a wholesaler, RMS Fruits, whose proprietor Mahaboob Sharif gave three bank guarantees from State Bank of Mysore to secure payment. When the wholesaler did not pay, the supplier tried to invoke the guarantees. The wholesaler filed a civil suit claiming damaged apples and a settlement letter, and the trial court, appellate court and High Court stopped the bank from paying under the guarantees.

Decision Breakdown

The Supreme Court allowed the supplier's appeal and directed the bank to honour the three guarantees immediately. It held that the guarantees were unconditional, so the bank had to pay on demand, and that a bank guarantee is an independent contract that is not affected by a dispute between the two parties. Courts may stop payment only for clear and egregious fraud, or where payment would cause irretrievable injury or injustice, and neither was shown here. The Court refused to decide whether the wholesaler's settlement letter was genuine, leaving that for the civil suit, and gave the wholesaler liberty to amend its plaint. Because the supplier said the letter was fabricated, the Court added that the wholesaler may bring civil and criminal proceedings if that statement proves untrue.

Lesson Learnt

An unconditional bank guarantee is generally payable on demand, and an ongoing dispute between the buyer and seller usually does not stop the bank from paying. Anyone who gives or receives a guarantee should know that a court will intervene only in narrow cases of proven fraud or serious irreparable harm.

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

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