Bank Guarantee Is an Independent Contract, Cannot Be Affected by Side Agreements: Delhi High Court

The Delhi High Court has held that banks cannot avoid liability under an unconditional and irrevocable bank guarantee by invoking side arrangements not reflected in the guarantee itself.

Justice Jyoti Singh held that a bank guarantee is an independent contract, enforceable solely on its written terms, regardless of disputes in underlying agreements. 

The Court dismissed Kotak Mahindra Bank’s ₹48.77 crore recovery suit against the Union of India, finding no escrow condition in the guarantees and rejecting claims under Sections 133 and 139 of the Contract Act. 

However, Kotak was permitted to pursue claims in the defaulting contractor’s liquidation proceedings.

[Kotak Mahindra Bank v Union of India]