UP Cooperative Federation Ltd v. Singh Consultants & Engineers Pvt Ltd
Rule established
Bank guarantees are autonomous instruments; bank must pay on invocation regardless of underlying disputes
Facts
- Singh Consultants & Engineers was engaged by UP Cooperative Federation under a contract
- A bank guarantee was furnished to secure performance
- Disputes arose in the underlying contract
- The Federation invoked the bank guarantee
- Singh Consultants obtained an injunction restraining encashment
Issue
- Whether the bank must pay under an unconditional bank guarantee even when the customer disputes liability under the underlying contract.
Held
- The Supreme Court vacated the injunction. Bank guarantees are autonomous transactions, independent of the underlying contract. The bank's obligation to pay upon invocation is absolute (subject only to fraud/irretrievable injustice). The customer's remedy for the underlying dispute lies in separate proceedings (arbitration/suit) against the beneficiary. The commercial utility of bank guarantees depends on their unconditional nature.
Ratio Decidendi
Bank guarantees are autonomous instruments independent of the underlying contract. The bank must pay on invocation. Underlying contractual disputes between customer and beneficiary do not affect the bank's obligation.
How to use it in an exam
Cite alongside State of Maharashtra v. National Construction (1996) for bank guarantee questions. Key line: "The commercial utility of bank guarantees depends on their unconditional nature; underlying disputes are irrelevant to the bank's obligation to pay."
Source
Source: SCC Online
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.