Invocation letter for bank guarantee declared void

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INVOCATION-LETTER-FOR-BANK-GUARANTEE-DECLARED-VOID

Bharat Heavy Electricals Ltd v M/s PT Merak Energi, Indonesia & State Bank of India is a significant judgment regarding contracts of bank guarantees involving Indian entities in commercial transactions as the granting of stay/injunction against invoking bank guarantee is generally not considered appropriate by Indian courts. Merak Energi had expressed interest to work with Bharat Heavy Electricals Ltd (BHEL), the country’s largest power generation equipment manufacturer, for the construction of a 2×60 MW coal-fired thermal power plant in Merak, West Java, Indonesia. But the contract agreement did not materialize. BHEL filed a civil suit at Delhi High Court seeking restraint of invocation of a bank guarantee issued by State Bank of India (SBI) in favour of the Indonesian company. The Indonesian company, while objecting to the territorial jurisdiction of the court, contended that because the bank guarantee issued was irrevocable and independent, SBI should under no circumstances refuse payment because it was bound to make it irrespective of any pending contractual disputes.

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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.