S. K. MAHAJAN ( 1 ) BY this petition under Section 41 of the Arbitration Act read with schedule II the petitioner seeks to restrain the respondent from invoking the bank guarantee No 33/91 dated 13th February. 1991 for Rs. 57. 57. 970. 00 - pursuant to the letter of invocation dated 5th April. 1995. The facts in short are that tender of the petitioner for construction of 108 residential quarters at Kathara. Bhagirathi Punam. Tehri was accepted by respondent No 1 Time allowed for completing the work was 12 months from 8th August. 1990 however for certain reasons, about which the Court is not concerned in this application the work could not be completed and the petitioner filed petition under Section 20 of the Arbitration Act being Suit No 844/94 for appointment of an arbitrator In terms of the contract which had been entered into between the parties, the petitioner was given mobilisation ad\ance of Rs. 57 57 970. 00 against bank guarantee The mobilisation advance was to be recovered from the each running bill at the rate of 15% of the gross amount of the bill The bank guarantee was in the first instance valid upto 15th February. 1992. however. the validity was extended from time to time and at the time of filing of the present petition, the same was valid upto 30th December. 1995. It is alleged that from out of the total mobilisation advance a sum of Rs 6. 54 lakhs has already been recovered by respondent No. l from the running bills of the petitioner. ( 2 ) BY a letter dated 5th July 1993 the contract was rescinded By a letter dated 30th November 1992. respondent No 1 invoked the bank guarantee and called upon respondent No. 2 to make payment of the amount of Rs. 57,57. 970. 00 to respondent No. 1. The bank informed the petitioner about the invocation of the bank guarantee by respondent No. 1 and the petitioner, accordingly, filed a petition being OMP. NO. 39/94 in this Court for restraining the bank from releasing the payment in respect of the bank guarantee No. 3 3/91. The Court vide order dated 9th March. 1994 issued notice of the petition to respondent No. 1 and restrained it from encashing the bank guarantee In the said suit. respondent No. 1 filed a letter dated 5th August. NO. 39/94 in this Court for restraining the bank from releasing the payment in respect of the bank guarantee No. 3 3/91. The Court vide order dated 9th March. 1994 issued notice of the petition to respondent No. 1 and restrained it from encashing the bank guarantee In the said suit. respondent No. 1 filed a letter dated 5th August. 1993 which was claimed to be a letter of invocation. During the pendency of the petition, it appears that respondent No. 1 informed the Court that as an objection had been taken by the petitioner that the letter of invocation was not in accordance with the terms of the guarantee, it may be given an opportunity to raise fresh demand in accordance with the terms of the bank guarantee. The Court vide order dated 1st September. 1994 allowed respondent No. 1 to have recourse to the guarantee on the basis of fresh notice of invocation in terms of the bank guarantee. By a fresh letter of invocation dated 5th April. 1995 respondent No. l has again invoked the bank guarantee and has called upon respondent No. 1 to make payment of the amount of the guarantee without any delay. It is this letter of invocation which prompted the petitioner to file the present petition for injunction for restraining the bank from making paymnent under the aforesaid bank guarantee. ( 3 ) THE case as set up in the petition is that termination of the contract by respondent No 1 was not only illegal but also amounted to fraud on its part in as much as by a letter dated 7th April. 1993 respondent No. 1 had agreed that the petitioner would complete and hand over 36 more houses by 30th September. 1993. It is. therefore, the submission of the petitioner that there w as no case for respondent No. 1 to invoke the bank guarantee which had been extended now upto 30th December. 1995. It is also the case of the petitioner that though the liability of the petitioner under the guarantee was limited to Rs. 57. 57. 970. 00 respondent No. 1 has im oked the guarantee including in it a claim of Rs. 51,02. 658. 00 - and interest of Rs. 13. 89. 625. 00 The said claim is. 1995. It is also the case of the petitioner that though the liability of the petitioner under the guarantee was limited to Rs. 57. 57. 970. 00 respondent No. 1 has im oked the guarantee including in it a claim of Rs. 51,02. 658. 00 - and interest of Rs. 13. 89. 625. 00 The said claim is. therefore, stated to be beyond the amount of the guarantee and it is alleged that the same cannot be encashed It is also alleged that respondent No. 1 has not quantified the actual amount of loss or damage in the letter of inocation and. therefore, the aforesaid invocation was bad. It was for these reasons that the petitioner wanted this Court to issue an order of restraint against the respondent No. 2 from making any payment under the bank guarantee to respondent No. 1 ( 4 ) REPLY has been filed by the respondent denying the allegations made in the petition It is stated that there is no case made out by the petitioner for the grant of relief in the petition and the invocation of the bank guarantee has been justified by the respondent in the facts and circumstances of the case. ( 5 ) TO appreciate the respective contentions of the parties, it will be relevant to reproduce the relevant portion of the bank guarantee as under:- "on production of a Bank Guarantee for the above principal amount and interest due thereon we UCO Bank 5-Parliament Street. New Delhi (hereinafter REFERRED TO to as "the Bank ) at the request of Ansal Engineering Projects, Ltd Contractor (s) do hereby undertake to pay to the Corporation an amount not exceeding Rs. 57. 57. 970. 00 - plus interest as aforesaid against am loss or damage caused to or suffered or would becaused to or suffered by the Corporation by reason of any breach by the said Contractor (s) of any of the terms or conditions contained in the said Agreement We, UCO Bank. 5-Parliament Street. 57. 57. 970. 00 - plus interest as aforesaid against am loss or damage caused to or suffered or would becaused to or suffered by the Corporation by reason of any breach by the said Contractor (s) of any of the terms or conditions contained in the said Agreement We, UCO Bank. 5-Parliament Street. New Delhi do hereby undertake to pay the amount due and payable under this guarantee without any demur, merely on a demand from the Corporation stating that the amount claimed is due by way of loss or damage caused to or would be caused to or suffered by the Corporation by reason of breach by the said contractor (s) of am of the terms or conditions contained in the said Agreement or by reason of the contractor (s) failure to perform the said Agreement Any such demand made on the bank shall be conclusive as regards the amount due and payable by the bank under this guarantee However our liability under this guarantee shall be restricted to an amount not exceeding Rs. 57. 57. 970. 00 plus interest due on the outstanding balance of mobilisation advance @, 18% p a. We undertake to pay to the Corporation money so demanded notwithstanding any dispute or disputes raised by the contractor (s)/supplier (s) in any suit or proceeding pending before am court or Tribunal relating thereto Our liability under this present being absolute and unequivocal" ( 6 ) THE argument of the petitioner can be summed up as under - 1 It was required by respondent No 1 to state in the letter of invocation as to what was the loss or damage suffered by it and should have duly quantified the same and unless the same was done. no payment could be made under the bank guarantee. and 2 The words appearing in paragraph 2 of the guarantee that the bank undertakes to pay the amount due and payable under the guarantee" means that there has to be an adjudication of this amount before it can said to be due and payable and as such the guarantee could not be invoked ( 7 ) RELIANCE has been placed by Mr Mukul Rohtagi. Sr Advocate, appearing on behalf of the petitioner upon the judgments reported as M/s. Nangia Construction (India) Limited Vs. International Airport Authority of India and others, AIR 1992 Delhi 243 and Union of India Vs. Sr Advocate, appearing on behalf of the petitioner upon the judgments reported as M/s. Nangia Construction (India) Limited Vs. International Airport Authority of India and others, AIR 1992 Delhi 243 and Union of India Vs. Air Foam Industries Private Limited, AIR 1974 SC 1265 ( 8 ) IN Union of India Vs. Air Foam Industries Private Limited. AIR 1974 SC 1265 . the question for consideration was whether in view of the provisions contained in clause 18 of the agreement between the parties the Govemment could adjust the amount which was alleged to be due and payable from the contractor from the other amount which was due to the contractor under other contracts It was in this context that the Court had held that the words due and payable as appeared in clause 18 of the agreement meant that either the party should have admitted the amount to be due from him or there has to be an adjudication of such amount either by the arbitrator or by a Court of law and the Government could not therefore recover the said amount from the amount due to the contractor in respect of other contracts, unless the same was adjudicated upon by a proper authority The Court was interpreting clause 18 of the contract as it appeared in that case and. In my opinion, the said judgment is not applicable to the facts and circumstances of the present case The words of the guarantee clearly show that it is merely on demand of respondent No 1 that the bank has to make payment of the amount claimed by it The bank is not to look into the question as to whether there is am dispute or disputes which have been raised by the contractor relating to the amount which is sought to be claimed under the guarantee by respondent No 1 There is. therefore, no force in the arguments of the petitioner that unless the amount alleged to be due and payable. is adjudicated upon by a proper authority, the bank cannot make am payment under the guarantee. ( 9 ) THE next contention of the petitioner that respondent No 1 was required to quantify the loss or damage which he had suffered or it was likely to suffer before it could invoke the bank guarantee. is adjudicated upon by a proper authority, the bank cannot make am payment under the guarantee. ( 9 ) THE next contention of the petitioner that respondent No 1 was required to quantify the loss or damage which he had suffered or it was likely to suffer before it could invoke the bank guarantee. in my opinion, has also no basis What is required by respondent No 1 to state in the letter of invocation is that the amount claimed in the letter is due by way of loss or damaged caused to or would be caused to or suffered by it by reason of breach by the petitioner of am of the terms or conditions contained in the agreement or by reason of the petitioner s failure to perform the contract Any such demand made on the petitioner is conclusive as regards the payment due under the bank guarantee and the petitioner is bound to make payment so demanded notwithstanding any dispute or disputes raised by the contractors in any suit or proceedings which may be pending in Court Relevant portion of the letter of invocation where the demand is raised reads as under - "we hereby invoke subject Bank Guarantee and demand the amount detailed herein after as the amount claimed is due by was of loss and damages caused to or would be caused to or suffered by THDC/ourselves by reason of breach by our customer of the terms and conditions contained in the said agreement and also by reason of your customer s failure to perform the said agreement THDC/we are limiting our claim against you to the extent of the principal amount of mobilisation advance lying outstanding against your customer plus interest due on the outstanding balance of mobilisation advance @ 18% per annum You are as such. requested to pay the following amounts (a) Outstanding amount of mobilisation advance due and payable by M/s Ansal Engineering Project Ltd In terms of the Bank Guarantee in question Rs. 51,02. 658. 00 (b) Balance interest @ 18% perannum calculated on the outstanding mobilisation advance up to 30th Oct. 1994, Rs. 13,89. 625. (c) Interest @ 18% per annum on the outstanding mobilisation advance of Rs 51. 02. 658/- w e f 31. 10. 51,02. 658. 00 (b) Balance interest @ 18% perannum calculated on the outstanding mobilisation advance up to 30th Oct. 1994, Rs. 13,89. 625. (c) Interest @ 18% per annum on the outstanding mobilisation advance of Rs 51. 02. 658/- w e f 31. 10. 94 till the date of payment by you This notice of demand may be treated as a fresh demand to pay the above noted amounts in terms of order dated 1 9 1994 passed by the Hon ble High Court of Delhi at New Delhi in O M P No 39/94 titled as M/s. Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development Corp. Ltd and yourself Photo copy of the said order is enclosed herewith for ready reference" ( 10 ) A bare perusal of the letter clearly shows that respondent No 1 has claimed only the amount of mobilisation advance which was due and payable by respondent No 2 It has not been disputed by the petitioner that after adjusting the amount of Rs. 6. 54 lakhs which had been recovered from the running bills of the petitioner, a sum of Rs. 51. 02. 658. 00 was due from the petitioner as balance of the mobilisation advance In terms of the bank guarantee, the bank is liable to pay not only the mobilisation advance but also the interest accrued thereon Any disputes which have been raised or which might be raised by the petitioner under the principal contract cannot be looked into while making payment under the bank guarantee It has been repeatedly held by the Courts that the bank guarantee is a separate contract which has nothing to do with the claims under the principal contract and the Courts while deciding as to whether the amount is pay able under the guarantee or not has to see only the terms of the bank guarantee Unless a good prima facie case of fraud and special equities in the form of preventing irretnevable injustice between the parties had been made out. there cannot be any ground to restrain the invocation of the bank guarantee, otherwise the very purpose of bank guarantee would be negatived and fabric of trading operation would be jeopardised In the present case. there cannot be any ground to restrain the invocation of the bank guarantee, otherwise the very purpose of bank guarantee would be negatived and fabric of trading operation would be jeopardised In the present case. the plaintiff has not made out am case of fraud what to speak of irretrievable injustice All that has been argued by the petitioner is that it is respondent No 1 who is guilty of the breach of the principal contract and that the bank is not liable to make payment of a sum of more than Rs. 57. 57. 970. 00 which is the higher limit ( 11 ) IN U. P. Cooperative Federation Limited Vs. Singh Consultants and Engineers (P) Limited. 1988 (1) SCC 174 . 57. 57. 970. 00 which is the higher limit ( 11 ) IN U. P. Cooperative Federation Limited Vs. Singh Consultants and Engineers (P) Limited. 1988 (1) SCC 174 . the Court had held as under - "in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or ofbank guarantee, there should be a serious dispute and a good pnma facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties, otherwise, the very purpose of bank guarantees would be negative and the fabric of trading operation would be jeopardised The commitments of the banks must be honored free from interference by the courts, otherwise, trust in commerce internal and international would be irreparable injustice that the court should interfere This is not a case where irretnevable injustice would be done by enforcement of the bank guarantee This is also not a case w here a strong prima facie case of fraud in entering into a transaction was made mout The High Court should not have interfered with the bank guarantee The judgment and order of the High Court set aside The order of the Civil Judge restored" ( 12 ) I need not refer to various other judgments of the Supreme Court where a similar view has been taken and it has been held that bank guarantee is a separate contract nothing to do with the principal contract ( 13 ) UNDER the bank guarantee the bank was liable to paynot only the principal amount but also the interest accrued thereon and the claim made by respondent No. I is only about the balance of the mobilisation advance which has not been disputed by the petitioner and the interest which has accrued thereon In my opinion, there is nothing wrong with the letter of invocation and no case has been made out for restraining the bank not to release payment under the same: ( 14 ) THE petition is accordingly dismissed with costs quantified at Rs. 2,000. 00