TMI Blog2016 (9) TMI 1619X X X X Extracts X X X X X X X X Extracts X X X X ..... l be absolute and binding on the bank. An injunction against the invocation of an absolute and an unconditional bank guarantee cannot be granted except in situations of egregious fraud or irretrievable injury to one of the parties concerned - Between the Appellant and the first Respondent, in the event of failure to perform the obligations under the LoI dated 06.02.2008, the Appellant was entitled to cancel the LoI and invoke the bank guarantee. On being satisfied that the first Respondent has failed to perform its obligations as covenanted, the Appellant cancelled the LoI and resultantly invoked the bank guarantee. Whether the cancellation is legal and proper, and whether on such cancellation, the bank guarantee could have been invoked on the extreme situation of the first Respondent justifying its inability to perform its obligations under the LoI, etc., are not within the purview of an inquiry Under Article 226 of the Constitution of India. Between the bank and the Appellant, the moment there is a written demand for invoking the bank guarantee pursuant to breach of the covenants between the Appellant and the first Respondent, as satisfied by the Appellant, the bank is bound t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k guarantee to the Appellant on 26.11.2011 for an amount of ₹ 5 crores. The relevant conditions read as follows: (a) We, YES BANK Ltd. do hereby guarantee and undertake to pay to GMB an amount not exceeding ₹ 5,00,00,000/- (Rupees Five Crores only) as against breach by the Lead Promoter for the development of Kachchigarh Port. The decision of GMB as to any breach having been committed and loss/damages caused or suffered shall be absolute and binding on us. (b) We, YES BANK Ltd., do hereby undertake to without any reference to the Lead Promoter or any other person and irrespective of the fact whether any dispute is pending between GMB and the Lead Promoter or any court of Tribunal or arbitrator relating thereto, pay the amount due and payable under this guarantee without any demur, merely on demand from GMB stating that the said Lead Promoter's failure to perform the covenants of the same. Any such written demand made by GMB on the Bank shall be conclusive, absolute and unequivocal as regards the amount due and payable by the Bank under this guarantee. However, Bank's liability under this guarantee shall be restricted to an amount not exceeding ₹ 5,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee. I, undersigned hereby put my claim to forfeit the Bank Guarantee No. 005GM07113300001 dated November 26, 2011 worth Rs. Five crores issued by your bank and to reimburse the amount of the Bank Guarantee in the account of Gujarat Maritime Board, Gandhinagar. It is requested to issue Demand Draft in the name of Vice Chairman Chief Executive Officer, Gujarat Maritime Board payable at Gandhinagar at the earliest. 7. The first Respondent filed a writ petition before the High Court challenging the cancellation of the LoI and the invocation of the bank guarantee. The following are the two main reliefs: (a) That this Hon'ble Court be pleased to issue an appropriate writ, order or direction and be pleased to quash and set aside the decision dated 23.02.2015 of the Respondent No. 2 and the consequential decision of the Respondent No. 1 communicated vide letter of 10.03.2015, to approve the request of the Petitioner to cancel the LoI issued to the Petitioner, with the condition of forfeiting the Bank Guarantee worth ₹ 5 crores, and further command the Respondent No. 1 to cancel the LoI dated 06.02.2008 and return the Bank Guarantee to the Petitioner; (b) Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner cannot avoid encashment thereof, can also not be accepted. The parameters for avoiding the payment of a bank guarantee by the bank giving such guarantee cannot be applied in the present case. The question in the present case is not so much as to allowing the authorities to encash the bank guarantee as much as the authority of the GMB to retain such amount even if it was so allowed to be encashed. If the decision of GMB to cancel the contract and to award the penalty of forfeiture of ₹ 5 crores on the Petitioner itself is found to be erroneous and therefore, set aside, the question of allowing GMB to encash the bank guarantee would simply not arise. 26. In the result, petition is allowed. Impugned communication dated 10.3.2015 is set aside. The Respondents shall not encash the bank guarantee in question. 9. Heard Shri Mukul Rohatgi, learned Attorney General for India, and Shri Tushar Mehta, learned Additional Solicitor General, appearing for the Appellant and Shri Gopal Jain, learned Senior Counsel appearing for the first Respondent. 10. Unfortunately, the High Court went wrong both in its analysis of facts and approach on law. A cursory reading of LoI wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks. [(1998) 8 SCC 1]) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction. 69. The position thus summarised in the aforesaid principles has to be understood in the context of discussion that preceded which we have pointed out above. As per this, no doubt, there is no absolute bar to the maintainability of the writ petition even in contractual matters or where there are disputed questions of fact or even when monetary claim is raised. At the same time, discretion lies with the High Court which under certain circumstances, it can refuse to exercise. It also follows that under the following circumstances, normally , the Court would not exercise such a discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties had accepted with open eyes. It cannot ever be that a licensee can work out the licence if he finds it profitable to do so: and he can challenge the conditions under which he agreed to take the licence, if he finds it commercially inexpedient to conduct his business. 70.6. Ordinarily, where a breach of contract is complained of, the party complaining of such breach may sue for specific performance of the contract, if contract is capable of being specifically performed. Otherwise, the party may sue for damages. 11. It is contended on behalf of the first Respondent that the invocation of Bank Guarantee depends on the cancellation of the contract and once the cancellation of the contract is not justified, the invocation of Bank Guarantee also is not justified. We are afraid that the contention cannot be appreciated. The bank guarantee is a separate contact and is not qualified by the contract on performance of the obligations. No doubt, in terms of the bank guarantee also, the invocation is only against a breach of the conditions in the LoI. But between the Appellant and the bank, it has been stipulated that the decision of the Appellant as to the breach shall be abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been undertaken by the bank that such written demand from the Appellant on the bank shall be... conclusive, absolute and unequivocal as regards the amount due and payable by the bank under this guarantee . Between the Appellant and the first Respondent, in the event of failure to perform the obligations under the LoI dated 06.02.2008, the Appellant was entitled to cancel the LoI and invoke the bank guarantee. On being satisfied that the first Respondent has failed to perform its obligations as covenanted, the Appellant cancelled the LoI and resultantly invoked the bank guarantee. Whether the cancellation is legal and proper, and whether on such cancellation, the bank guarantee could have been invoked on the extreme situation of the first Respondent justifying its inability to perform its obligations under the LoI, etc., are not within the purview of an inquiry Under Article 226 of the Constitution of India. Between the bank and the Appellant, the moment there is a written demand for invoking the bank guarantee pursuant to breach of the covenants between the Appellant and the first Respondent, as satisfied by the Appellant, the bank is bound to honour the payment under the guara ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
