Himadri Chemicals Industries Ltd. vs Coal Tar Refining Company - Supreme Court Case

Himadri Chemicals Industries Ltd. vs Coal Tar Refining Company - Supreme Court Case Important Judgments -

On 7th August, 2007, a two Judges Bench in Himadri Chemicals Industries Ltd. vs Coal Tar Refining Company [Civil Appeal No.3522 of 2007] elucidated principles for grant or refusal to grant of injunction to restrain enforcement of a Bank guarantee or a Letter of Credit. The Bench held that “the Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.” It further held that “since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.”

The Bench however held that there are two exceptions when Courts can grant an order of injunction in favour of an aggrieved party in the matter of encashment of a Bank Guarantee or a Letter of credit, viz. when (i) there is fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation; and ii) when allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.

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