Restraining Invocations of Unconditional Bank Guarantees under Section 9 ACA
Advocate Shlok ChandraAugust 26, 20266 min read
The invocation of an unconditional bank guarantee is traditionally viewed as independent of underlying contract disputes. However, Section 9 of the Arbitration and Conciliation Act, 1996 empowers commercial courts to grant urgent protective relief.
### 1. The Twin Exceptions: Fraud and Special Equities
To restrain a beneficiary from encashing a performance bank guarantee, Indian jurisprudence requires meeting two strict threshold tests:
- **Egregious Fraud:** Fraud of an egregious nature that vitiates the very execution of the underlying transaction.
- **Special Equities & Irretrievable Injustice:** Demonstrating that encashment would inflict irreparable financial ruin on the contractor before arbitral adjudication.
### 2. Strategic Pleadings before the Commercial Bench
In recent Division Bench rulings of the Delhi High Court, establishing mutual non-fulfillment of reciprocal obligations and arbitrary termination has provided a robust foundation for interim protection pending tribunal constitution.
