Obligations Under Bank Guarantee

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Obligations under Bank Guarantee


S J Tubrazy

The perusal of various precedented law the obligations under bank guarantee seems as follows:‑

            (i) ‘The performance of guarantee stands on the footing similar to an irrevocable     letter of credit of Bank, which gives performance guarantee must honour that           guarantee according to its terms. It is not concerned in the least with the relations      between the supplier has performed his contracted obligation or not, nor with the             question whether the supplier is in default or not. The Bank must pay according to             its guarantee all demand if so stipulated without proof or conditions. Only   exception is when there is a clear fraud of which Bank has notice.

            (ii) There is an absolute obligation upon the banker to comply with the terms and   conditions as enumerated in the guarantee and to pay the amount stipulated     therein irrespective of any disputes there may be between buyer and seller as to            whether goods are up to contract or not.

            (iii) The bank guarantee should be enforced on its own terms and realization           against the bank guarantee would not affect or prejudice the case of contractor, if         ultimately the dispute is referred to arbitration for the reason, once the terms and      conditions of the guarantee were fulfilled, the bank’s liability under the guarantee was absolute and it was wholly independent of the dispute proposed to be raised.

            (iv) The contract of bank guarantee is an independent contract between the bank   and the party concerned and is to be worked out independently of the dispute           arising out of the work agreement between the parties concerned to such work          agreement and, therefore, the extent of the dispute and claims or counter‑claims             were matters extraneous to the consideration of the question of enforcement of the            bank and were to be investigated by the arbitrator.

            (v) Where the bank had undertaken to pay the stipulated sum, at any          time, without demur, reservation, recourse, contest or protest, and without any             reference to the contractor, no interim injunction restraining payment under the      guarantee could be granted.

            (vi) The Bank guarantee is an autonomous contract and imposes an absolute           obligation on the bank to fulfill the terms and the payment on the bank guarantee       becomes due on the happening of a contingency on the occurrence of which the          guarantee becomes enforceable.

            (vii) When once bank guarantee is discharged, the obligation of the bank ends and             there is no question of going behind such discharge bank C guarantee. Courts    should refrain from probing into the nature of the transactions between the bank            and customer, which led to the furnishing of the bank guarantee.

            (viii) In the absence of any special equities and the absence of any clear fraud, the             bank must pay on demand, if so stipulated and whether the terms are such must be     have to found out from the performance l guarantee as such.

            (ix) The unqualified terms of guarantee could not be interfered with by Courts       irrespective of the existence of dispute.


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