TMI Blog2019 (12) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... ney which the 1st respondent had advanced against supply of the plant and equipment by SCIL. The said guarantees covered any loss and damage caused to or suffered by the 1st respondent-plaintiff in due performance of the contract for supply of plant and equipment - From the correspondence that has been exchanged by and between them pertaining to invocation of the said guarantees, it clearly manifests that the initial letter of invocation written by the 1st respondent-plaintiff dated 6th November, 1998 indeed was per se inadequate and did not enumerate any condition for invocation of said guarantees save and except a reference to a substantial amount to be recovered from SCIL . Once the demand was made in due compliance of bank guarantees, it was not open for the appellant Bank to determine as to whether the invocation of the bank guarantee was justified so long as the invocation was in terms of the bank guarantee. The demand once made would oblige the bank to pay under the terms of the bank guarantee and it is not the case of the appellant Bank that its defence falls in any of the exception to the rule of case of fraud, irretrievable injustice and special equities - In absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FIVE THOUSAND AND ONE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding ₹ 71,35,100/( RUPEES SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIER. Bank Guarantee No. G/1001/84/608 dated 29 th August, 1984 We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 do hereby undertake the Indemnity and keep the CORPORATION indemnified to the extent of ₹ 20,32,500(Rupees TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding ₹ 20,32,500/( RUPEES TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent (plaintiff) from time to time advanced for the said work against several bank guarantees furnished by SCIL. It may be noticed that the instant dispute pertains to two bank guarantees dated 16th February, 1983 and 29th August, 1984, which were advanced to SCIL, the details of which have been indicated above. The said guarantees furnished by the appellant bank were extended from time to time and revalidated. 8. In due course of time, in breach of contract with the 1st respondentplaintiff, SCIL failed to duly complete the supply of equipment and the other conditions of the letter of intent and further defective equipments. It is alleged that the work had to be abandoned due to which 1st respondent suffered huge losses and damages. Ultimately, a sum of ₹ 139.90 lakhs, was deducted by the 1st respondent from final bill which pertained to the apportioned work handed over to SCIL. 9. In view of the letter dated 6th November, 1998, 1st respondent plaintiff demanded encashment of both the said guarantees which were refused by the bank to honour and diverse correspondence was exchanged by and between the 1st respondent plaintiff and the appellant defendant bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your reputation and honour the beneficiaries claim for encashment. Thanking you, Yours faithfully, T.L.N. SOURI GENERAL MANAGER (PROJECTS MNTG) (emphasis supplied) 10. This was followed by the letter dated 28th December, 1998 which is also reproduced hereunder: No.GGM(CM)/ /98 28th December, 1998 To The Chief Manager ANZ Grindlays Bank CALCUTTA. (Atten: Shri Vasudeo Kundu) Fax No.0332211196 Sub: Encashment of two Bank Guarantees Nos. 1) G/1001/83/108G for ₹ 71,35,100/2) G/1001/88/608 for ₹ 20,32,500/Ref: Our letter dated 19.11.1998. Dear Sir, We have intimated vide our above letter to encash the above two Bank Guarantees issued by you on behalf of SCIL India Ltd., to HEC. You are requested to encash the above Bank Guarantees and send the proceeds amounting to ₹ 91,67,600/within 3 days time. Kindly treat this as most urgent and failing on the part of the Bank to honour the beneficiaries demand will be viewed seriously. Thanking you, Your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of losses (i) non-supply/ defective supply of plant equipment (ii) other contractual deficiencies and by the invocation vide letter dated 19th December, 1998 claims caused by non-supply/ defective supply of plant equipment and other contractual deficiencies is outside the purview of the bank guarantee. Further, assuming the correctness of the claim, the 1st respondent if suffered loss for both (i) nonsupply/ defective supply of plant and equipment (ii) other contractual deficiencies , it is difficult to determine the apportionment between the two categories, because the invocation does not state how they are apportioned. The invocation is thus inchoate and incomplete and this according to the appellant does not constitute a valid invocation at all and it has not been properly appreciated by the Division Bench of the High Court in the impugned judgment and has to be interfered by this Court. 16. In support of his submission, learned counsel has placed reliance on the judgment of this Court in Hindustan Construction Co. Ltd. Vs. State of Bihar Others 1999(8) SCC 436 and Gangotri Enterprises Ltd. Vs. Union of India and Others 2016(11) SCC 720. 17. Per c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial banking transactions un-hedged by pending disputes between the beneficiary and the contractor. 5. ..The court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties. (emphasis supplied) 20. A bank guarantee constitutes an independent contract. In Hindustan Construction Co. Ltd. Vs. State of Bihar and Others(supra), a two Judge Bench of this Court formulated the condition upon which the invocation of the bank guarantee depends in the following terms: 9. What is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned. 23. The settled position in law that emerges from the precedents of this Court is that the bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this Rule when there is a clear case of fraud, irretrievable injustice or special equities. The Court ordinarily should not interfere wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would oblige the bank to pay under the terms of the bank guarantee and it is not the case of the appellant Bank that its defence falls in any of the exception to the rule of case of fraud, irretrievable injustice and special equities. In absence thereof, it is not even open for the Court to interfere with the invocation and encashment of the bank guarantee so long as the invocation was in terms of the bank guarantee and this what has been observed by the Division Bench of the High Court in the impugned judgment and that reflected the correct legal position. 27. It is informed by the learned counsel for the appellant that the Standard Chartered Bank s predecessor in interest, ANZ Grindlay s Bank had opened a fixed deposit of ₹ 91,67,600/on 18th May, 2001, which was lien marked to HEC(Heavy Engineering Corporation Ltd.) and is being held under the control of the Registry of the High Court of Calcutta and the current fixed deposit is valued at ₹ 2,32,69,129.71/and the total liability under the impugned order as on date will be ₹ 2,78,03,681.64/. The Registry of the High Court of Calcutta may release the money lying in the account in favour of the 1st respon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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