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The demand once made would oblige the bank to pay under the terms of the bank guarantee: SC


This appeal was brought to the Supreme Court of India before the bench consisting of Honourable Justice L. Nageswara Rao and Honourable Justice Ajay Rastogi.

The instant appeal is being preferred against the judgment and order dated 8th May 2019 passed by the Division Bench of the High Court of Calcutta setting aside the judgment dated 16th October 2015 of the Single Bench and accepting claim of the 1st  respondent-plaintiff holding that the bank guarantees were properly invoked in law and accordingly the decree came to be passed for Rs. 1,10,33,207.00/as claimed in paragraph 18 of the plaint with interest at the rate of 8 percent per annum from the date of institution of the suit until payment.


Learned senior counsel for the appellant Bank, Shri Amit Sibal submitted that the said bank guarantees only covered losses arising out of supply of plant & equipment and according to the pleadings on record, the plant stood installed in October 1990 and this was the case where the appellant Bank in its independent capacity, refused the claim for it is clearly false to its knowledge and also not in accordance with the terms of the guarantee, i.e. beyond the purview of the bank guarantees and failing to apportion those losses suffered on account of claims which would be within the terms of the bank guarantees.

Learned counsel further submitted that the bank guarantees are in reference to two categories of losses (i) nonsupply/defective supply of plant & equipment (ii) “other contractual deficiencies” and by the invocation vide letter dated 19th December 1998 claims caused by “nonsupply/defective supply of plant & equipment and other contractual deficiencies” was 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 was difficult to determine the apportionment between the two categories, because the invocation does not state how they are apportioned. The invocation was thus inchoate and incomplete and this according to the appellant did not constitute a valid invocation at all and it had not been properly appreciated by the Division Bench of the High Court in the impugned judgment and has to be interfered by this Court. 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 and Gangotri Enterprises Ltd. Vs. Union of India and Others


Per contra, Ms. Madhavi Diwan, learned ASG appearing on behalf of the 1st respondent while supporting the finding recorded by the High Court in the impugned judgment submitted that as per precedents laid down by this Court, the question of law was no more res Integra and was well settled that the bank guarantee was an independent contract between the bank and the beneficiary and the bank was always obliged to honour its guarantee as long as it was an unconditional and irrevocable one. At the same time, the dispute between the beneficiary and the party at whose instance the bank has given the guarantee was immaterial and was of no consequence and two exceptions to the rule have been carved out. The first was when there was a fraud of which the Bank had notice and fraud of the beneficiary from which it seeks to benefit. The second exception to the general rule of nonintervention was such when there is an ‘irretrievable injury’ or ‘irretrievable injustice’ that would occur to the Bank.


Thereby, after inferring the facts and circumstances of the case, this Honourable Court gave its judgment as under,

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 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.

“We have heard learned counsel for the parties and with their assistance perused the material available on record. 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 Rs. 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 Rs. 2,32,69,129.71/and the total liability under the impugned order as on date will be Rs. 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 respondent and it is for the appellant Bank (judgment debtor) to settle and satisfy the decree which is impugned in the instant proceedings.

We do not find any merit in the appeal which is hereby dismissed. No costs. Pending application(s), if any, stands disposed of.”

– Tanvi Srivatsan



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