1. What is Confirmation?

There are 3 levels of bank involvement under UCP 600:

Confirmation is normally done by way of a counter-guarantee. The Indian bank issues its own BG in favour of Indian beneficiary, backed by counter-guarantee of foreign bank. For the beneficiary, the Indian bank is the paying bank.

Legal basis:

• Indian Contract Act, Sec.126 - Contract of guarantee is independent from underlying contract
• FEMA (Guarantees) Regulations, 2000 - Resident cannot give guarantee outside India without RBI approval, but can receive guarantee from non-resident
• RBI Master Direction on Guarantees and Co-acceptance
• DAP 2020, Art 1.4.1 Chapter VI and Para 1.3.5.1 Appendix M - BGs shall be from Indian Public/Private Scheduled Commercial Bank (notified by RBI) or First Class banks of international repute. Buyer has right to seek confirmation through counter-guarantee from Indian bank at seller's cost.

MoD SOP for Confirmation dated 14.09.2021 illustrates Indian practice:

1. On receipt of foreign BG, MoD refers to SBI, Parliament Street Branch, New Delhi for advice whether to accept without confirmation.
2. SBI renders advice within 07 days based on rating, assets, ownership, country of issuing bank.
3. If bank is of international repute, BG accepted.
4. If not, MoD asks bidder to get confirmation through counter-guarantee by Indian Public or Private Scheduled Commercial Bank at bidder's cost.

2. Why Confirmation is Insisted

• Jurisdiction risk - Foreign bank may plead its local law prohibits payment
• Sovereign risk / sanctions
• Operational risk - Time to enforce
• RBI requirement - Scheduled bank guarantee is easily enforceable via Indian courts

Justice Indira Banerjee in dissent in Insistence on Bank Guarantee of Scheduled Indian Private Banks observed: "it is incomprehensible why bank guarantee from Scheduled Private Banks in India should be preferred to Scheduled Foreign Banks in India with high global rating". Majority still prefers Indian confirmed BG.

3. Legal Effect of Confirmation

Once confirmed:

• Confirming bank cannot revoke - irrevocable and independent
• Must honour on first compliant demand, irrespective of disputes between buyer-seller or between foreign bank and its customer
• Beneficiary can sue confirming bank in India

4. Case Laws - The Twin Exception Rule

Indian law on invocation of confirmed/unconditional BGs is now well settled - No injunction except (a) Fraud of egregious nature (b) Irretrievable injustice / Special equities.

A. Foundation Cases:

1. UP Cooperative Federation Ltd. v. Singh Consultants & Engineers (P) Ltd. (1988) 1 SCC 174
SC held bank guarantee is independent contract. Bank must pay irrespective of underlying contract dispute. Purpose would be defeated if courts stay payment.

2. Svenska Handelsbanken v. Indian Charge Chrome & Ors. (1994) 1 SCC 502 - Leading case on CONFIRMED BGs
Facts: Indian party got guarantee from Swedish bank Svenska Handelsbanken, confirmed by Indian bank. Supreme Court (3 Judges Bench):

"In case of confirmed bank guarantees / irrevocable letters of credit, it cannot be interfered with unless there is fraud and irretrievable injustice involved and fraud has to be an established fraud"

Court distinguished that mere allegation of fraud is not enough. Established fraud must be of beneficiary, vitiating foundation of guarantee.

3. UP State Sugar Corp. v. Sumac International Ltd. (1997) 1 SCC 568
Reaffirmed Svenska - Courts should be slow to grant injunction.

4. Hindustan Steelworks Construction Ltd. v. Tarapore & Co. (1996) 5 SCC 34 and United Commercial Bank v. Bank of India (1981) 2 SCC 766
If third party stranger to BG seeks to interdict bank from honouring, it would erode public faith in banking institution.

B. What is Fraud / Irretrievable Injustice?

5. BSES Ltd. v. Fenner India Ltd. (2006) 2 SCC 728
Supreme Court held irretrievable injustice must be such that if BG encashed, no court can restore status quo ante by refund. Example: Guarantee not encashable on its terms.

6. Standard Chartered Bank v. Heavy Engineering Corp. - 2019
High Court held confirming bank is equally liable as issuing bank. Beneficiary can proceed against either.

7. Federal Bank Ltd. v. VM Jog Engineering Ltd. (2001) 1 SCC 663
SC distinguished advising vs confirming. Advising bank only certifies signature, no liability. Confirming bank adds its own liability and becomes principal debtor. If Indian bank merely advises foreign BG without adding "we confirm", it is not liable.

8. Adani Agrifresh Ltd. v. Mahaboob Sharif & Ors. (2015) 13 SCC 222 and SC order May 7, 2025
SC reiterated: No court interference in bank guarantees unless fraud of egregious nature or irretrievable harm.

5. Practical Risks if Confirmation Not Obtained

• Buyer may reject BG at bid stage - common in MoD, NTPC, PSU tenders
• Even if accepted, injunction to restrain invocation may be easier against foreign bank on ground of lack of jurisdiction
• Enforcement requires filing suit abroad, letters rogatory
• FEMA violation if Indian bank co-accepts foreign guarantee prohibited under French law - See SC case Chagganlal Jain v. Banque de l'Indochine where French bank argued under French law co-acceptance not permissible.

Checklist before accepting Foreign BG in India:

1. Is issuing bank on SBI/ RBI list of First Class banks? Rating at least A- from S&P/Moody's?
2. Has validity + 3 months claim period?
3. Is it governed by Indian law and subject to Delhi/Mumbai jurisdiction?
4. Is it confirmed by Scheduled Commercial Bank in India with non-revocation clause?
5. Is confirmation via SFMS message (MT760) from Indian bank?
6. Does it state "payable on first demand without demur, without reference to applicant"?