TMI Blog2019 (7) TMI 1866X X X X Extracts X X X X X X X X Extracts X X X X ..... tly understood its legal obligations and paid over the amount to the Appellant. In this view of the matter and having regard to the terms of the bank guarantees, the principle of law which has been formulated by the Tribunal cannot be accepted as reflecting the correct legal position. It is evident that following the invocation of the bank guarantees, the Respondent itself addressed a communication on 20 September 2012 to the Member Secretary of the Appellant. The communication contains a specific reference to the invocation of the bank guarantees. That apart, it is evident from the material on the record that the Appellant had issued a notice to show cause to the Respondent to which the Respondent also submitted a response - The Appellant has invoked the bank guarantees issued by the Respondent because of the failure of the Respondent to discharge the obligations imposed upon it by the Task Force Committee on 26 August 2011. The Tribunal has erred in interfering with the invocation of the bank guarantees and in directing the Appellant to refund the amount of ₹ 25 lakhs covered by the three guarantees. While invoking the bank guarantees, the Appellant has clearly advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Improvement of existing system a. The industry shall submit the efficiency of the ETP for the treatment of effluents to the board standards. b. The Industry shall revamp the existing APC installed to the boilers to meet the board specified standards. Part B a. Fixation of flow meters at various points to ensure continuous operation of existing systems b. The industry shall install separate energy meters for all the pollution control equipments installed and submit the records to the RO, Guntur every month. Part C a. The industry shall store the treated effluents in lined lagoons only, for storing the effluents during rainy season. b. The industry shall use the treated effluents in industry's own land. c. The industry shall provide separate storm water drains so that the colored effluents do not mix with the rain water. d. The industry shall empty the stored effluents in unlined lagoons and lagoons shall be dismantled. e. The industry shall not discharge any effluents outside the premises under any circumstances. f. The industry shall submit an action plan for removal of colour within 30 days. 6. In addition, the Appellant directed the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10,00,000/- (Rupees Ten lakhs only). Our Guarantee shall remain in force until 06.09.2013, unless a suit or action to enforce a claim under this guarantee is filed in writing against us before the date of expiry, all our rights under this guarantee shall be forfeited and we shall be relieved and discharged from all liabilities whatsoever there under. Notwithstanding anything contain herein: a) Our liability under this Bank Guarantee shall not exceed ₹ 10,00,000/- b) This Bank Guarantee shall be valid upto 06.09.2013. c) We are liable to pay the guaranteed amount any part thereof under this Bank Guarantee only and only if you serve upon us a written claim or demand on or before 06.09.2013. 9. The third bank guarantee in the amount of ₹ 10,00,000 covered Part A of the stipulations which the Task Force Committee had required the Respondent to fulfill on 26 August 2011. The bank guarantee contained the following stipulation: In pursuance to the above, we M/s. CCL PRODUCTS (INDIA) LIMITED, Guarantee the observance and performance by the company of the various terms and obligations as provided in the commitment made above and undertake to pay to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantees. Finding fault with the Appellant for failing to do so, the Tribunal held that the invocation was unwarranted and the amount which has been received by the Appellant should be refunded to the Respondent. 13. In the view of the Tribunal, the purpose of the bank guarantees was not commercial, contractual or industrial since the guarantees were issued to secure compliance with the directions of the Appellant regarding environmental norms that must be complied with by the Respondent. Hence, it came to the conclusion that before invoking the bank guarantees, it was incumbent upon the Appellant to serve a notice and to furnish a hearing to the Respondent. 14. Assailing the judgment of the Tribunal, it has been urged by Mr. T.V.S. Raghavendra Sreyas, learned Counsel appearing on behalf of the Appellant that first, the Tribunal erred in applying the principles of natural justice as a condition to invoke the guarantees. This, it has been submitted, is contrary to the settled legal position. Second, it has been urged that the finding by the Tribunal that there was a breach on the part of the Appellant to furnish a reasonable opportunity to the Respondent is belied by the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the purpose of the bank guarantee was not commercial or industrial but was to secure compliance by the Appellant with environmental norms that had been prescribed. Hence, in the view of the Tribunal, the Appellant should have furnished a hearing to the Respondent before the bank guarantees were invoked. 17. We are unable to subscribe to the legal position which has been formulated by the Tribunal. A bank guarantee constitutes an independent contract between the issuing bank and the beneficiary to whom the guarantee is issued. Such a contract is independent of the underlying contract between the beneficiary and the third party at whose behest the bank guarantee is issued. 18. The principle which we have adopted accords with a consistent line of precedent of this Court. In Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd., (1996) 5 SCC 450 a three judge Bench of this Court held thus: 4. It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , will have to be in accordance with the terms of the bank guarantee, or else, the invocation itself would be bad. 19. The settled legal position which has emerged from the precedents of this Court is that absent a case of fraud, irretrievable injustice and special equities, the Court should not interfere with the invocation or encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee. 20. In the present case, the bank undertook to the Appellant that it would pay the guaranteed amount on demand, subject to the overall amount stipulated in each of the three bank guarantees. It was not for the bank to determine as to whether the invocation of the bank guarantees was justified so long as the invocation was in terms of the bank guarantee. A demand once made would oblige the bank to pay under the terms of the bank guarantee. The State Bank of India correctly understood its legal obligations and paid over the amount to the Appellant. In this view of the matter and having regard to the terms of the bank guarantees, we are of the view that the principle of law which has been formulated by the Tribunal cannot be accepted as reflecting the correct lega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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