Mr. Anil Dev Singh, J. ( 1 ) THIS is plaintiff s application under Order 39rules 1 and 2 read with Section 151 of the Code of Civil Procedure seeking adirection restraining the second defendant i. e. Syndicate Bank from paying tothe first defendant any amount under Bank Guarantees No. 24/87 and No. 25/87 dated 1/07/1987. ( 2 ) IT is an admitted case of both the parties that the plaintiff wasawarded contract for "construction of Additional Shed for L. P. G. Bottlingplant at Tikrikalan" by defendant No. 1. The total value of the contract wasrs. 49,10,043. 00, Under Clause 2. 1. 0. 0 of the General Conditions of thecontract, the plaintiff was required to furnish security deposit in the amountequivalent to 10% of the total value of the contract for the due performanceof its obligations under the contract. Again according to Clause 18 of thetender documents, the plaintiff was also required to furnish a bank guaranteefor securing mobilization advance to the tune of Rs. 4,91,004. 00. It seemsthat the plaintiff and defendant No. 1 came to a further arrangement wherebythe latter agreed to accept a composite bank guarantee both for the mobilization advance as well as for the security deposit. Accordingly the plaintifffurnished a bank guarantee bearing No. 24 of 1987, issued by the defendantno. 2, to the defendant No. 1 covering both mobilization advance and securitydeposit. This bank guarantee was for a sum of Rs. 4,91,004. 00. That apartthe plaintiff also furnished another bank guarantee being Guarantee No. 25/87,on 1/07/1987 for an amount of Rs. 1,22,751. 00 in lieu of unpaid balanceof initial security deposit which was required to be paid under clause 2. 12. 0of the General Conditions of the contract. It may be relevant to point outthat the contract in question was terminated on 20/11/1988 when thebank guarantees in question were also invoked by the defendant No. 1. ( 3 ) LEARNED Counsel appearing for the plaintiff submits that thedefendant No. 1 was not justified in invoking the bank guarantee No. 24/1987to the full extent when admittedly a sum of Rs. 2,46,304. 00 had already beenrecovered by it from the running bills of his client and adjusted towards themobilization advance. Learned Counsel for the plaintiff farther urges that byinvoking the bank guarantee the defendant No. 1 has practised fraud on theplaintiff which vitiates the underlying contract. 2,46,304. 00 had already beenrecovered by it from the running bills of his client and adjusted towards themobilization advance. Learned Counsel for the plaintiff farther urges that byinvoking the bank guarantee the defendant No. 1 has practised fraud on theplaintiff which vitiates the underlying contract. According to the learnedcounsel the defendant No. 1 could have invoked the bank guarantee onlyfor the balance amount of the mobilization advance which remained due afterthe adjustment of the said amount of Rs. 2,46,300. 00. ( 4 ) LEARNED Counsel appearing for the defendant No. 1 in replycontends that the bank guarantee No. 24/87 is a composite one and coversboth advance and security deposit. Since the plaintiff did not furnish thesecurity deposit the bank guarantee No. 24/87 was to take care of this amountas well. Learned Counsel further submits that there is no question of underlying contract being vitiated as the invocation of the bank guarantee was notfraudulent. The invocation, according to him, is in terms of the bankguarantee which was furnished at the instance of the plaintiff. ( 5 ) I have considered the respective contentions of the learned Counselfor the parties. As already pointed out the plaintiff under the principalcontract was to furnish a cash deposit of 10%, of the value of the contracttowards security for due performance of the contract and was also liable tofurnish a bank guarantee for a sum of Rs. 4,91,004. 00 for securing the mobi-lization advance. Pursuant thereto the plaintiff furnished a composite bank,guarantee, being Bank Guarantee No. 24/87 issued by Syndicate Bankdefendant No. 2 against the mobilization advance as well as in lieu of securitydeposit. This position is quite apparent from the third and fourth paragraphsof the bank guarantee which read as under : "and WHEREAS the Corporation agreed to advance the Contractor a sum of Rs. 4,91,004. 00 (Rupees four lacs Ninety onethousand and four only) for utilisation in the performance of thework covered by the said contract (hereinafter referred to as the"said advance" which expression shall include any and all furtheradvance made by the Corporation to the Contractor with referenceto the said contract) on production of an undertaking from a bankin respect of the said advance, which shall, without prejudice to anyother mode of recovery available to the Corporation be recoverableby deduction from the gross accepted value of the Running Accountbills and Final Bill of the Contractor commencing with the Firstrunning Account Bill. AND WHEREAS the contractor is also required to furnish anundertaking from a Bank in lieu of cash deposit of 10% of the valueof the contract towards security deposit (hereinafter referred to as the "security deposit") valid till -the end of the defect liability periodas specified in the said contract". Thus the bank guarantee covered both the advance and the security deposit. Clauses 2,3 and 4 of the bank guarantee are also relevant so far as inter serights of the parties to the bank guarantee are concerned. The said clauses areas under: "now, THEREFORE, in consideration of the promises aforegoingand at the request of the Contractor, the Bank hereby irrecovablyand unconditionally undertake to pay to the Corporation at Newdelhi forthwith on first demand without protest or demur of proofor condition any and all amounts demanded by the Corporationin writing from the Bank with reference to this undertaking uptoan aggregate limit of Rs. 4,91,004. 00 (Rupees Four Lacs Ninety onethousand and four only ). (ii) It shall not be necessary for the Corporation to proceedagainst the Contractor before proceeding against the bank and theundertaking herein contained shall be enforceable against the Bankus Principal debtor notwithstanding the existence of any security forany indebtedness of the Contractor to the Corporation (includingrelative to the said advance or for the security deposit and notwithstanding that any such security shall at the time when claim is madeagainst the bank or proceedings taken against the bank hereunder,be outstanding or unrealised. (iii) As between the Bank and the Corporation for the purpose ofthis undertaking the amount claimed or demanded by the Corporation from the Bank with reference to this undertaking shall be finaland binding upon the Bank as to the amount payable by the bank tothe Corporation hereunder. (iii) As between the Bank and the Corporation for the purpose ofthis undertaking the amount claimed or demanded by the Corporation from the Bank with reference to this undertaking shall be finaland binding upon the Bank as to the amount payable by the bank tothe Corporation hereunder. (iv) The liability of the Bank to the Corporation under thisundertaking shall remain in full force and effect notwithstanding theexistence of any difference or dispute between the contractor andthe Corporation, the Contractor and the Bank and/or the Bank andthe Corporation or otherwise howsoever touching or affecting thesepresents or the liability of the Contractor to the Corporation, andnotwithstanding the existence of any instructions or purportedinstructions by the Contractor or any other person to the Bank notto pay or for any cause withhold or defer payment to the Corporation under these presents, with the intent that notwithstanding theexistence of such difference, dispute or instruction, the Bank shallbe and remain liable to make payment to the Corporation in termshereof. "( 6 ) A bare perusal of these clauses show that the bank had irrevocablyand unconditionally undertook to pay on demand without protest or demurall amounts demanded by the defendant No. 1 from the Bank under the saidguarantee. It is also clear that the bank had undertaken to pay the amountirrespective of the existence of any difference or dispute between the parties tothe underlying contract. Clause (iii) of the bank guarantee makes theinvocation of the bank guarantee by defendant No. 1 final and binding uponthe bank as to the amount payable by the bank to the defendant. The merefact that the defendant had recovered mobilization advance of Rs. 2,46,304. 00will not make the invocation illegal or fraudulent as the plaintiff was alsorequired to secure the defendant No. 1 to the extent of 10% of the value ofthe contract towards a cash security deposit. It is well settled that unconditional and irrevocable letters of credit and bank guarantees must be honouredby the banks regardless of the existence of disputes between the parties to theunderlying contract as otherwise the whole edifice of the commercial activitywill crumble. ( 7 ) THIS view finds support from series of judgments of various Courtssee : U. P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P)Ltd. , 1988 (1) SC 174, General Electric Technical Services Company Inc. Punjsons (P) Ltd. and Another, 1991 (4) SCC 230 , Centax (INDIA) Ltd. v. Vinmarimpex Inc. ( 7 ) THIS view finds support from series of judgments of various Courtssee : U. P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P)Ltd. , 1988 (1) SC 174, General Electric Technical Services Company Inc. Punjsons (P) Ltd. and Another, 1991 (4) SCC 230 , Centax (INDIA) Ltd. v. Vinmarimpex Inc. and Others, (1986) 4 SCC 136 , Triveni Engineeaing Works Ltd. v. M/s. Belganga Sahakari Sakhar Karkhana Ltd and Another, 1991 (4) Delhilawyer, 189 Kalpavrisha Engineers and Management Consultants (P) Ltd v. M/s National Projects Construction Corporation Ltd. (Suit No. 2154 of 1991decided on 20/02/1992 ). ( 8 ) LEARNED Counsel for the plaintiff has invited my attention to adecision of this Court in M/s. Nangia Construction (India) Ltd. v. Internationalairport Authority of India and Other;,, 1992 (1) Delhi Lawyer 246. Thisjudgment does not help the plaintiff as it was not a case of a compositeguarantee. In this case different bank guarantees were furnished to securemobilization advance and for due performance of the contract. Part of themobilization having been received it was held that invocation of the bankguarantee to the full extent, not limited to the balance mobilization advance,was fraudulent. With regard to the other bank guarantees furnished forsecuring due performance of the contract, the invocation was upheld on thebasis of the principles laid down in U. P. Cooperative Federation Ltd. case. Theguarantee No. 24/87, which was furnished in the instant case, was a compositeone. Two purposes were rolled into one. It is not denied by learned Counselfor the plaintiff that the said bank guarantee was also in lieu of deposit of10% of the total value of the contract. Therefore the recovery of the mobilization advance partially or even to full exent will not in any way make theinvocation of the bank guarantee illegal as it was also to serve as a performance guarantee. ( 9 ) REGARDING invocation of bank guarantee No. 25/87, which wasfurnished in lieu of unpaid balance of initial security deposit, nothing lias beenurged which makes the invocation illegal. ( 10 ) IN view of the aforesaid discussion the interim order dated 30/12/1988 is vacated. ( 11 ) IA stands disposed of. IA2233;92learned Counsel for the defendants seek time to file a reply. Let the same be filed within three weeks. List the matter on 25/08/1992.