Case law shows that seeking and granting injunctions to delay the payment of bank guarantees is usually unjustified. By VN Paranjape

In the era of business, trade and commerce, most commercial entities rely on financial guarantees issued by domestic and international banks in accordance with the terms and provisions of contracts executed with other commercial entities. Sometimes, the courts also accept bank guarantees as valid security.

The term “bank guarantee” is not specifically defined in the Indian Contract Act, 1872. This article focuses on the concept’s evolution through various judicial pronouncements in the context of its enforcement, and shows that even though the principles of law relating to bank guarantees are well settled favouring the beneficiary, banks, particularly private sector banks, seek judicial recourse to delay encashment instead of honouring their commitment to pay the beneficiary under the document of guarantee.

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VN Paranjape is the deputy general manager and chief law officer at Power Grid Corporation of India in Gurgaon.