Visakha Industries Ltd v. ICICI Bank Ltd
Rule established
Customer's counter-indemnity obligation crystallises immediately upon bank paying under guarantee; bank entitled to immediate recovery
Facts
- ICICI Bank issued a bank guarantee on behalf of Visakha Industries
- The beneficiary invoked the guarantee and the bank paid
- Visakha Industries contended that the bank should await the underlying dispute's resolution before recovering from the customer
- The bank debited the customer's account immediately
Issue
- Whether a bank can invoke counter-guarantee (indemnity) against the customer immediately upon paying the beneficiary under the guarantee.
Held
- Once the bank pays under a guarantee, the customer's obligation under the counter-guarantee/indemnity crystallises immediately. The bank is entitled to debit the customer's account or recover through legal proceedings without waiting for resolution of the underlying dispute between customer and beneficiary.
Ratio Decidendi
The counter-indemnity creates a primary obligation independent of the underlying contract. Upon payment by the bank, the customer must reimburse immediately. The bank need not wait for the underlying dispute to be resolved.
How to use it in an exam
Use for bank's recovery rights after honouring guarantee. Key line: "Counter-guarantee crystallises on payment; bank recovers immediately without awaiting underlying dispute."
Source
Source: Andhra Law Decisions
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.
Cited in study notes
Bank as Guarantor and Special RelationshipsBank's rights after paying guarantee