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Lucknow Commercial Bank had issued a Performance Bank Guarantee for ` 5 lakh on behalf of Karuna Chemicals Limited, Lucknow, in favour of Manorama Medicals, Ujjain, on 5 June, 2009, for a period of one year. The documents had further specified, in clear terms, that the claim, if any, pertaining to the Bank Guarantee, should be filed within six months from the date of the expiry of the Bank Guarantee. Accordingly, the beneficiary had preferred to invoke the Bank Guarantee, but as late as on 1 December, 2010, claiming that the goods supplied by the applicant, as on 30 October, 2009, did not conform to the specifications agreed upon between the two. The Bank Guarantee was in the nature of an absolute Bank Guarantee and the bank had undertaken, inter alia, to make the payment, immediately on timely invocation of the Bank Guarantee, on first demand, without demur and without making any reference to the applicant Company to this effect. But, the Bank Manager had, all the same, made a reference to the applicant, who, in turn, had asked the Bank not to make any payment against the Bank Guarantee, inasmuch as speedy arrangements were urgently being made to obtain an injunction order, in this regard, from a competent Court of law. Accordingly, the bank had refused to make the required payment to the beneficiary of the Bank Guarantee, on receipt of the injunction order, and that too, after getting the signature of the respective Judge, duly verified, in ink and under the bank’s rubber stamp, by a competent officer of the local branch of the bank, transacting the government business. Thereupon, the beneficiary of the Bank Guarantee had preferred to file a civil suit in a competent Court of law.

(i) For the vacation of the injunction order, as also (ii) For the recovery of the amount of the Bank Guarantee from the bank.

(a) What are the chances of the beneficiary’s winning the case? Give reasons for your answer.

(b) What are the various counts, if any, where the bank seems to have faulted?


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