TMI Blog1991 (4) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... 415.75 equivalent to Rs. 96,500/-. According to the appellant the entire matter of furnishing of the bank guarantee was routed through the Central Bank of India, an authorised dealer under the said Act. All Rules and Regulations in the matter were duly complied with and the matter was reported also to the Reserve Bank of India. The said guarantee was a performance guarantee. By reason of labour unrest and lockout at the appellant s factory, there was some delay in the supply of materials. According to the appellant s foreign buyer, their principal being the Ministry of Electricity and Water, Doha had deducted an amount from their invoice. The foreign buyer, in its turn, invoked the unconditional performance guarantee and obtained payment thereunder through the Hongkong Shanghai Banking Corporation and the Central Bank of India. In relation to the said matter, the appellant was served with a show cause notice alleging that the appellant had accepted the claim of the foreign buyer and had acknowledged a debt thereby allegedly contravening Section 9(l)(c) of the said Act. At the hearing before the Adjudication Officer it was, inter alia, contended by the appellant that all requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total value of US $ 74,157.52 was opened through Qatar National Bank, Doha for supply of the materials; 50% of the materials was to be supplied by December, 1984 and the balance before Mid-February, 1985. A bank guarantee of 10% being performance guarantee bond for delivery of the materials according to the above schedule of supply was also furnished. The L/C was opened with Qatar National Bank through Central Bank of India. The appellant could not fulfil its commitment within the period stipulated in the Contract. This fact was communicated to Mars Trading Contracting Co., Qatar who had contracted with the Electricity Water Department, Doha, to whom the contracted materials were to be supplied. On supply of the goods M/s. Mars Trading Contracting Co., Doha submitted invoice for payment, but the Electricity and Water Department had deducted 10% from the contracted amount. On September 4, 1986 the Central Bank of India by its letter dated September 4,1986 informed the appellant that the bank guarantee had been invoked and advised the appellant to deposit Rs. 96,500/-. On these facts a show cause notice was issued on the ground that the appellant allegedly accepted the debit cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s creditor to secure the payment of a debt payable by him. (See Stroud s Judicial Dictionary, Fourth Edition, Sweet and Maxwell, Volume II, at page 1198.) A guarantee creates an obligation of the principal debtor to repay the guarantor paying off the debt. Therefore, the learned Adjudicating Officer was correct in holding that the appellant was guilty of the contravention as indicated in the show cause notice. 8. At the hearing before us, Mr. Sunil Mitra, learned Counsel appearing for the respondent, contended that in this case there was no special or general exemption granted by the Reserve Bank of India and accordingly although the appellant might have been compelled to make the payment under the bank guarantee, nonetheless it was contravention of the provisions of Section 9(l)(c). 9. Mr. Sudipta Sarkar, learned Counsel for the appellant on the other hand, contended that the Reserve Bank Manual has specifically granted the exemption in such cases, otherwise foreign trade could not be carried on by the Indian exporters. We, therefore, by consent of the parties directed the Reserve Bank of India to appear before us and produce the records to ascertain whether any exemption was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, if any, obtained for furnishing the bond/guarantee. Authorised dealers should confirm in the special report that they have satisfied themselves that the invocation of bond/guarantee by the overseas beneficiary was prima facie in order and also enclose copy of the claim received from the latter. 11. Authorised dealers may freely give on behalf of their customers and overseas branches and correspondents, guarantees, in the ordinary course of business in respect of missing or defective documents, authenticity of signatures and for other similar purposes." 12. Subsequently a clarification was also made by the Exchange Control Department of the Reserve Bank of India on March 8, 1989 regarding the counter-guarantees in favour of foreign correspondents in respect of commodity exports, as follows :- 2. Counter-guarantees in favour of foreign correspondents in respect of commodity exports: In terms of paragraph 11A.17 of the Manual, authorised dealers can furnish bid bonds, performance bonds and guarantees in favour of overseas buyers on behalf of Indian Exporters, without prior reference to Reserve Bank in cases relating to commodity exports, subject to conditions listed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FBG/M/ 84/24 dt. 16-10-1984 a photocopy of which has been submitted. We may enquire - (i) It appears that the beneficiary cannot claim under this guarantee after 30-4-1986. Then how their demand has been entertained. (ii) The grounds on which the guarantee has been invoked. (iii) The facts of the case with the A.D. s comments. It may be mentioned the A.D. s are allowed to make payment to o/s buyers if the bank guarantee is invoked under 11G 6 of E.C.M." On October 28, 1986 the Reserve Bank wrote to the Central Bank of India as follows : The following particulars/documents required : (1) It appears that the beneficiary cannot claim under the guarantee No. FBG/M/84/24, dated 16-10-1984 (84) after 30-4-1986. Then how their demand has been entertained. (2) The grounds on which the guarantee has been invoked. (3) The facts of the case with the Authorised Dealer s comments." 18. On November 12, 1986 the Central Bank of India replied to the Reserve Bank s aforesaid letter of October 28, 1986 as follows :- As required in your captioned letter, we give below the following particulars for your kind information : (1) The guarantee was primarily valid up to 30-4-1986. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exporter is maintaining account. Our letter reference is FB/BG/87/09/10 dt. 07-9-1987. Incidentally, we may mention that we do not appear to have received your office memo no. CA. EC. XM. OR. 540/X.236(C)-87, dt. 10-12-1986. You are requested to kindly arrange to send us a copy of the same on receipt of which we shall try to comply with the requirement you have asked for. 22. From the records it further appears that on 25th May, 1988 the following letter was addressed by the Reserve Bank to the Central Bank of India:- We advise to explain the following :- (1) The circumstances under which the guarantee (No. FBG/M/84/214 dt. 16-10-1984 for US $ 7415.75) was invoked and whether the authorised dealer was satisfied that the invocation of guarantee was prima facie in order. (2) The allegation made by the exporter in their letter dt. 25-4-1988 addressed to this office that they paid the claim amount and withdraw a court case lodged in City Civil Court, Calcutta regarding the invocation, under pressure of Central Bank of India and the Hongkong and Shanghai Banking Corporation. (3) How did the invokement of Bank Guarantee affect the Section 9(l)(c) of Foreign Exchange Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o give guarantees in favour of persons resident in India in respect of any debt or other obligation or liability of persons resident outside India; (ii) to give performance bonds or guarantees (including those in lieu of earnest money) in favour of overseas buyers on account oibonafide exports made from India; (b) Firms and companies resident in India to give guarantees to Income-tax Officers and other authorities under the Income-tax Act, 1961 (43 of 1961) in respect of taxes due by nationals of foreign States in employ of such firms or companies." From the facts and circumstances mentioned hereinabove it will be evident that the Bank is an authorised dealer and as such authorised dealer the Bank can furnish guarantee in connection with the export of commodities from India. Thus, the Bank was enjoying general exemption from the provisions of Section 9(l)(c). The Bank was authorised to draw, issue or negotiate any bill of exchange or acknowledge any debt. The Reserve Bank of India have also accepted the invocation of the Bank guarantee which could not have been done had it not been in conformity with the Exchange Control Regulations of the Reserve Bank of India. It is no doub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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