The only option available to the bank in case of improper invocation of Stand-by Letter of Credit (SBLC) is to proceed against the beneficiary and not against the bank that makes the payment – UCO Bank Vs. Yes Bank Ltd. – DRAT Mumbai
DRAT Mumbai held that the issuing bank cannot investigate whether there has been any violation by the beneficiary of the underlying contract. The bank issuing a guarantee is not concerned with the underlying contracts between the parties to the contract. The duty of the bank under the performance guarantee is created by the document itself. The issuing bank cannot sit on judgment as to whether the construction is as per the mandate or not. The only option available to the bank in case of improper invocation is to proceed against the beneficiary and not against the bank that makes the payment.