LARSEN AND TOUBRO LTD. versus MAHARASHTRA STATE ELECTRICITY BOARD AND ORS.

LARSEN AND TOUBRO LTD. versus MAHARASHTRA STATE ELECTRICITY BOARD AND ORS.

No prima facie case of established fraud or irretrievable injustice was made out, except in the case of the conditional guarantee furnished by Citi Bank, N.A. for partial release of retention money, which was linked to successful completion of trial operation and plant takeover—once these conditions were fulfilled, invocation was not warranted; appeals on other guarantees dismissed as invocation was in time and guarantees were otherwise unconditional.

Parties
Appellant: Larsen and Toubro Ltd.; Respondent No. 1: Maharashtra State Electricity Board; Respondent No. 2: Standard Chartered Bank; Respondent No. 3: ANZ Grindlays Bank PLC; Respondent No. 4: Citi Bank, N.A.; Respondent No. 5: Bank of Baroda
Jurisdiction
India
Judgment Date
13 September 1995
Procedural Posture
Civil Appeal / Appeal From Order of Bombay High Court in Arbitration Petition Lodg. No. 240 of 1994
Outcome
Appeal allowed in part
Legal Topics
Bank Guarantees, Injunction Against Invocation of Bank Guarantee, Fraud Exception in Bank Guarantees, Irretrievable Injustice, Conditions for Encashment of Bank Guarantees
Contract Law Arbitration Banking Law Bank Guarantees Injunction Against Invocation of Bank Guarantee Fraud Exception in Bank Guarantees Irretrievable Injustice Conditions for Encashment of Bank Guarantees

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Parties

Larsen and Toubro Ltd.

Appellant

Maharashtra State Electricity Board

Respondent No. 1

Standard Chartered Bank

Respondent No. 2

ANZ Grindlays Bank PLC

Respondent No. 3

Citi Bank, N.A.

Respondent No. 4

Bank of Baroda

Respondent No. 5

Procedural Posture

Civil Appeal / Appeal From Order of Bombay High Court in Arbitration Petition Lodg. No. 240 of 1994

Legal Issues

  1. 1 Whether confirmed bank guarantees furnished under contract can be interfered with by injunction except in cases of established fraud or irretrievable injustice
  2. 2 Whether invocation of bank guarantees after expiry date is void
  3. 3 Whether bank guarantees for partial release of retention money and security against liquidated damages were lawfully invoked

Ratio Decidendi

No prima facie case of established fraud or irretrievable injustice was made out, except in the case of the conditional guarantee furnished by Citi Bank, N.A. for partial release of retention money, which was linked to successful completion of trial operation and plant takeover—once these conditions were fulfilled, invocation was not warranted; appeals on other guarantees dismissed as invocation was in time and guarantees were otherwise unconditional.

Court Disposition

Appeal allowed in part

Orders

  • Appellant entitled to order of injunction, to a limited extent, against respondent nos. 1 and 4 (Citi Bank, N.A.), restraining them from invoking the Bank Guarantee given by Citi Bank, N.A. dated 10.5.1989 (for partial release of retention money).
  • Order of Bombay High Court dated 20.10.1994 otherwise affirmed. No order as to costs.