Delhi HC held interest from encashed FDR applies to recover losses from wrongful bank guarantee invocation.
Delhi HC Links FDR Interest to Recovery from Wrongful Guarantee Encashment
The Delhi High Court has ruled that interest accrued on a Fixed Deposit Receipt (FDR) pledged against a bank guarantee should be applied to offset losses suffered due to wrongful encashment of the guarantee by the beneficiary.
The Court found that where a bank guarantee is invoked without legal basis, the beneficiary holds the proceeds in constructive trust. Any gains, including interest earned on the FDR used as security, must be accounted for and adjusted against the repayment obligation.
This decision strengthens remedies for applicants against abusive invocation. Practitioners should plead for restitution of both principal and derivative gains in such suits. The ruling may influence how courts assess damages in injunction and recovery proceedings involving guarantees.
