Bank Guarantee Contracts shall be dealt with only on the basis of their contents says Supreme Court
Recent decision of Hon’ble Supreme Court in Gujarat Maritime Board vs L&T Infrastructure dated 28.09.2016 creates quite an impractical situation.
What can be derived from this is very simple.
There is an involvement of three parties, say A, B and C. In a work contract between A and C, the “B” on behalf of C gives a guarantee that in case of breach stating that to be absolute and decision of A regarding breach to be binding.
Now, “A” treats the contract as breached and invokes the grantee but “C” does not find the same justified.
Hon’ble Supreme Court in this situation says that “A” can invoke the grantee irrespective of whether its assumption regarding breach is justified or not and that “C” can have its remedies available in law but “B” cannot escape the guarantee as the same was absolute and decision of “A” was binding.
Interestingly then, there is a fight between “A” and “B” about the guarantee, another fight in future between “A”and “C” and yet another fight in future between “B” and “C” whereas basic equation remains the same i.e. whether the assumption of breach was justified or not.
However, the law stated in the judgment can be taken as this that if there is an independent contract (say of bank guarantee), the same should be dealt with on the basis of contents thereof without having been influenced the dispute between the parties of the main work contract unless the term says so.