TMI Blog2021 (12) TMI 1105X X X X Extracts X X X X X X X X Extracts X X X X ..... dients, namely special equity and the invocation not being in terms of the guarantee. The clauses in the contract and more particularly the GCC clearly demonstrate that the bank guarantee was furnished towards performance security. There can be no issue with regard to performance since the petitioner has already received 90% of the contract price as discussed above. The invocation letter also demonstrates that there cannot be any performance issue with regard to the supplies effected by the petitioner. The invocation letter does not contain any allegation of a breach of performance obligations by the petitioner. The special equity also stands satisfied by reason of the petitioner facing an immediate and irreversible financial loss if the payment is made by Citibank NA, Dhaka to the respondent No. 1 in terms of the Letter of Invocation. Application disposed off. - A.P. 230 OF 2021 - - - Dated:- 23-11-2021 - MOUSHUMI BHATTACHARYA, J. For the Petitioner : Mr. Sabyasachi Chowdhury, Sr. Adv., Mr. Rajarshi Dutta, Adv., Mr. V. V. V. Sastry, Adv., Mr. Tridib Bose, Adv., Mr. Debjyoti Saha, Adv. For the Respondent no. 2 : Mr. S.N. Mookherjee, Sr. Adv., Mr. K. Thaker, Adv., M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a bank guarantee based on the stand-by letter of credit. 5. The petitioner supplied the entire material under the contract by February 2018 and the respondent No. 1 prepared Receiving Reports containing the details of the goods dispatched upon receipt of the goods. The warranty in respect of the goods shipped and supplied by the petitioner to the respondent No. 1 was to remain valid for 12 months after delivery of the goods and acceptance of the same at the final destination under Clause 28.3 of the GCC. The warranty expired on 24th February, 2019. 6. On 23rd January, 2020, the respondent No. 1 alleged short-supply of goods and demanded a sum of USD 19,389.08 and BDT 4,21,374.19 from the petitioner which was followed by another demand on 7th April, 2021 on account of the alleged short-supply, packing deviation and CD-VAT. The petitioner paid a sum of USD 15,622 to the respondent under cover of a letter dated 28th April, 2021 with a request for release of the bank guarantee. The respondent No. 1 issued a letter of invocation dated 5th May, 2021 and requested the Citibank NA, Dhaka to encash the bank guarantee. The petitioner had renewed the bank guarantee and kept it alive o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he merits of the dispute, it is contended that the petitioner has already received 90% of the contract price and the respondent No. 1 is withholding 10% as retention money and that the respondent No. 1 has no other claims against the petitioner. Counsel points to the conduct of Citibank NA, Kolkata espousing the cause of respondent no. 1 as well as Citibank NA, Bangladesh. 10. Counsel submits that there are special equities in the present matter to warrant an invocation of the bank guarantee. 11. The arguments advanced by learned counsel appearing for the petitioner and the respondent No. 2 (the respondent No. 1 is not represented in this proceeding) would make it clear that the challenge to the orders of injunction passed by the court is mounted on the premise of the absence of territorial and substantive jurisdiction. The decision accordingly proceeds on the aforesaid basis. Lack of territorial jurisdiction: 12. The objection to this court entertaining the present application on the lack of territorial jurisdiction may be answered on the basis of the clauses contained in the General Conditions of Contract (GCC) which governs the contract entered into between the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encement of the transaction entered into between the parties, the working out of the commercial relations between the parties, the dispute and differences between them as evident from the correspondence exchanged and the culmination thereof in the form of the letters of demand issued by the respondent no.1 to the petitioner and the letter of invocation dated 5th May, 2021 to the respondent no.2 and copied to the petitioner. Although speculative, had the petitioner instituted a suit for the same relief against the respondents, there would have been sufficient ground to grant leave to the petitioner under Clause 12 of the Letters Patent, 1865 to proceed with the same. 14. Section 2(4) of the Act is an interesting follow-up to Section 2(1)(e)(ii) in the matter of a court assuming jurisdiction in entertaining matters under Part I of the Act. Under Section 2(4), Part I of the 1996 Act shall apply to every arbitration under any other enactment for the time being in force unless the provisions of Part I are inconsistent with the other enactment or the rules framed thereunder. This provision therefore lends weight to the submissions made on behalf of the petitioner with regard to eclips ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A, Dhaka issued a Performance Security in the form of a bank guarantee, as the overseas office of Citibank NA, Kolkata. 17. The above facts would therefore indicate that Citibank NA, from its overseas office at Dhaka issued the Performance Security in the form of a bank guarantee on 5th November, 2015 for USD- 83,505/-. No fact has therefore been pleaded or proved to show that Citibank NA should be seen as two separate and disparate entities namely the Kolkata and the Dhaka branches. Conduct of respondent no.2 Citibank NA:- 18. By a letter dated 7th June, 2021 from Citibank NA Dhaka to the petitioner and Citibank NA, Kolkata, the latter was informed that the respondent no.1 has invoked the performance guarantee on 5th May, 2021 and that in spite of being made aware of the orders passed by this court, the respondent no.1 has reiterated its demand for payment under the performance guarantee. The letter also specifically mentions that the respondent no.1 intends to flout the orders passed by the court. Subsequent correspondence from Citibank NA, Kolkata to the petitioner shows that the petitioner is being pressurized in respect of the invocation of the performance guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh Consultants and Engineers (P) Ltd.: (1988) 1 SCC 174, was of the clear view that there was no fraud or irretrievable injustice involved in the facts of that case. The court reiterated that for restraining the operation of a bank guarantee, there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. In Hindusthan Paper Corporation Ltd. vs. Keneilhouse Angami: (1990) 1 Cal LT 200, a Division Bench of this Court, relying on an earlier decision of this court in Centax (India) Ltd. Vs Vinmar Impex Inc. Ltd; AIR 1986 Cal 356 reiterated the importance of the terms and conditions of a bank guarantee or a Letter of Credit for its enforceability. The unreported decision of a Division Bench of this court in Bridge Roof Co. (I) Ltd. vs. SKP Buildcon Pvt. Ltd. in APO No. 495 of 2017 was only concerned with the hesitation of a court to stand in the way of an unconditional bank guarantee being invoked and the apparent lack of reasons in the order of the first court. The unreported decision in Deific Abode LLP vs Union of India in WPA 11123 of 2020 is on the principle of binding precedents and has presumably bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 2018 and there was no contemporaneous demand or objection from the respondent no. 1 in relation to the supplies made within the period of warranty which was till 24 th February, 2019, from the date of delivery to the date of acceptance at the final destination indicated by the respondent no. 1. Under Clause 28.3 of the GCC, the warranty was to remain valid for 12 months after the goods or any portion thereof have been delivered to and accepted at the final destination indicated in the SCC or for 18 months after the date of shipment from the port or place of loading in the country or origin, whichever period concludes earlier. The respondent No. 1 invoked the bank guarantee in terms of the letter dated 5 th May, 2021 three years after the completion of the supply of goods and more than two years after the expiry of the warranty. Notably the demands made by the respondent No. 1 on 23rd January, 2020 and 7th April 2021 on account of short-supply of goods, packing deviation and CD-VAT were honoured by the petitioner without prejudice to its rights and contentions in the form of payment of sum of USD 15,622 by the petitioner to the respondent no. 1 under cover of a letter dated 28t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As such, it is often very difficult and challenging to approximately assess the creditworthiness of the counterparty or the business partner. Hence, over a period of time, commercial instruments have emerged for securing contractual payments. A Bank Guarantee is such an instrument that has evolved for securing payments with respect to commercial transactions. Under Section 126 of The Indian Contract Act, 1872, a Contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. In the case of a Bank Guarantee, a bank, who is the guarantor, undertakes or guarantees to pay the beneficiary an amount of money as specified in the guarantee if the original contract s debtor fails to adhere to his contractual obligations. 26. Courts are usually slow to interfere with the transaction between a bank and the beneficiary which is seen as being independent of the underlying contract between the lender and the supplier unless conditions call for such interference. The three conditions, as accepted in several decisions, are fraud of an egregious nature; special equities or the invocation not being in terms of the bank guarantee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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