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Steel Authority of India Ltd. v/s Unit Construction Company Private Limited & Another

    A.P.O. No. 196 of 2012 & C.S. No. 237 of 2009

    Decided On, 19 April 2013

    At, High Court of Judicature at Calcutta


    For the Appellant: Pradip Kumar Ghosh, Senior Advocate, Abhijit Gangopadhay, Advocate. For the Respondents: Ratnanko Banerjee, Tarun Aich, Advocates.

Judgment Text

Ashim Kumar Banerjee, J.

The respondent was a construction company. They entered into a contract for purchase of TMT bars from the appellant on credit basis. Ensuring payment of the dues, the respondent furnished bank guarantees in favour of the appellant through their banker. The respondent No. 2 Canara Bank issued the guarantees in favour of the appellant. The present controversy would relate to invocation of the bank guarantees.

The respondent filed a suit against the appellants inter-alia, claiming for an order of restraint against invocation of the bank guarantees dated March 6, 2009 and March 25, 2009.

The facts would depict, there had been diverse supplies from time to time followed by part payments. The appellant invoked the guarantee dated March 2, 2009 for Rs.1.8 Crores on the plea of recovery of the outstanding. The respondent paid a sum of Rs.60 lakhs on July 30, 2009 vide letter of the said date. The contents would be as follows:

“As discussed and agreed please find enclosed herewith Cheque No. 030739 dated 30.07.2009 drawn on Axis Bank, CRPF Square Branch, Bhubaneswar fo

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an amount of Rs.60 lacs (Rupees Si9xty Lakhs only) towards payment of our dues against your supply of steel materials.”The appellant withdrew the invocation vide letter dated July 31, 2009 inter-alia communicating the bank as follows:“Kindly refer to our above letter for invocation dated 30.07.09 against BG No. 090047 dated 24.03.09 for Rs.1,80,00,000/- issued on behalf of M/s Unit Construction Company Private Limited. The party has cleared the Outstanding Amounts due to us subsequent to our letter. Hence you are requested to kindly treat our invocation letter for above BG as WITHDRAWN.”The respondent made further payment of Rs12.77 lakhs vide letter dated August 5, 2009. The appellant again invoked the said guarantee dated March 25, 2009 vide letter dated August 21, 2009 inter-alia making a claim of Rs.1.08 crores. The contents are set out below:“This refer to the Bank Guarantees 090047 dated 25.0.09 for Rs.1,80,000,00/- issued on behalf of M/s. Unit Construction Company Private Limited. As the party has failed to perform/fulfill the obligations with the Company, we hereby Invoice the aforesaid Bank Guarantee and demand of you the payment of Rs.1,08,00,000/- (in words Rupees One Crores Eight Lakhs only) governed under Bank Guarantee under reference.The said amount may please be paid to us by 25.03.09. Through RTGS made by crediting our bank account no. 10872481618 in SBI Main Br. Bhubaneswar IFSC code SBIN0000041 and Confirm to us on our FAX number 0674-2501411.”In this backdrop the respondent filed the suit and obtained an exparte ad-interim order of injunction on August 24, 2009 that was extended on September 9, 2009.When the application was pending for final adjudication, the appellant rectified the demand by correcting the letter of invocation by a subsequent letter dated September 19, 2009 appearing at pages 110-111 of the paper book. The parties would term it as the third invocation. The contents are quoted below:“Your client M/s. Unit Construction Company Private Limited, has failed to pay us under this captioned bank guarantee, an outstanding amount of Rs.83,43,060/- ( Rs. Eighty three lakhs forty three thousand sixty only). As price and other charges which is due and payable to us on 17.09.2009.We hereby invoke the aforesaid Bank Guarantee and demand from you a sum of Rs.83,43,060/- ( Rs. Eighty three lakhs forty three thousand sixty only).The same may please by paid through a banker’s cheque /DD favouring STEEL AUTHORITY OF INDIA LIMITED, or through TGS made by crediting our bank account no. 10872481618 in SBI, Main Branch, Bhubaneswar, IFSC Code SBIN000041 immediately on presentation of this letter.In this connection, it is to be noted that the amount of Rs.1,08,00,000/- claimed by us vide our invocation letter dated 21st August, 2009 has now been corrected and the net amount payable is Rs.83,43,060/- (under this captioned guarantee).A pre-receipt is attached for a sum of Rs.83,43,060/-.This is without prejudice to our rights and contention on the legal principles as to invocation of bank guarantee involved in the appeal preferred against order of Hon’ble Justice Patherya dated 9.9.2009 in GA No. 2267 of 2009.”After calling for affidavits the learned Judge disposed of the application vide judgment and order dated March 30, 2012 inter-alia confirming the interim order. Being aggrieved, the appellant preferred the instant appeal that was heard on the above mentioned dates.CONTENTIONS:Mr. Pradip Ghosh learned senior counsel appearing for the appellant would contend, the bank guarantee was an independent contract between the appellant and the bank. The learned Judge should not have passed an order of restraint that too, at the instance of the respondent who was not a party to the contract. Mr. Ghosh would further contend, the letter of withdrawal of the first invocation was due to the assurance given by the respondent for payment coupled with a substantial payment of Rs.60 lakhs and Rs.12.77 lakhs that would, however, not cover the entire dues. Since no payment was forth-coming the appellant was compelled to issue the second letter of invocation. Mr. Ghosh would admit mistake committed by the appellant by not giving credit to the sums already received. Such mistake stood corrected by the subsequent letter dated September 19, 2009. Hence, the learned Judge should not have continued the order of injunction.Mr. Ghosh relied on the following decisions:1. Himadri Chemicals Industries Limited Vs. Coal Tar Refining Co. reported in 2007 Volume-8 Supreme Court Cases page- 110.2. Jai Prakash Gupta Vs. Riyaz Ahamad and another reported in 2009 Volume 10 Supreme Court Cases page-197.3. Mahatma Gandhi Sahakra Sakkare Karkhane Vs. National Heavy Engineering Co-operative Limited and another reported in 2007 Volume-6 Supreme Court Cases page-470.Per contra, Mr. Ratnanko Banerjee learned counsel appearing for the respondent would submit, the proposition of law so advanced by Mr. Ghosh would be applicable in case of un-conditional guarantee. In the instant case, the guarantee would have a pre-requisite, in absence of compliance of such pre-requisite the appellant was not entitled to invoke the guarantee. Mr. Banerjee described the third letter as an attempt to overreach the Court to bypass the order of injunction subsisting on the day when it was issued. He relied on two Apex Court decisions:1. Hindustan Construction Co. Ltd Vs. State of Bihar and others reported in 1999 All India Reporter Supreme Court page 3710.2. Larsen and Toubro Limited Vs. Maharashtra State Electricity Board and others reported in 1996 All India Reporter Supreme Court page-334.Law on bank guarantee is settled. Lord Denning would say, bank guarantee is as good as cash. The appellant agreed to sell and respondent agreed to purchase TMT bars. Such sale would ordinarily be on the terms of the seller. Seller might demand simultaneous payment or security against payment in case sale is made on credit.In the instant case, the parties agreed to have transaction on credit coupled with co-lateral security through bank guarantees. The bank agreed to secure the appellant in respect of any demand being made by them in the transaction. Mr. Banerjee was critical about the conditions of the guarantee, according to him, conditions were not fulfilled. If we look to the bank guarantee appearing at pages 46-47 we would find the recital would say “we undertake to pay to your good selves, on demand and without demur or protest and without reference to the client, immediately on receipt of (a) your letter stating that the client has failed to pay the amount of Rs.1,80,00,000 due from him/them as price and other charges, and (b) your pre-receipted claim for the said amount.” At the concluding portion of the guarantee the bank would again say “we are liable to pay the guaranteed amount or any part thereof under this bank guarantee only and only if you serve upon us a written claim or demand on or before 24.09.2009.”If we read the quotations as a whole and try to interpret, we would find, it was unequivocal, unconditional terms on the bank to pay on demand any sum with an outer limit of Rs.1.8 crores. Mr. Banerjee at one point of time tried to interpret first withdrawal as settlement of dispute and payment being full and final settlement. The relevant paragraphs of the correspondence quoted (supra) would not indicate so. The second invocation did not quantify the exact amount of claim. We are told, the second guarantee for Rs.20 lacs was invoked and encashed for a sum of Rs.12,04,127 In the second invocation the appellant should have given credit to all sums received earlier. We however, find, the letter dated August 21, 2009 was for Rs.1.08 crores and not the full amount that admittedly did not take care of the subsequent payments. The appellant thus corrected their demand by the subsequent letter dated September 19, 2009. By the said letter the appellant reduced their claim to the extent of Rs.83,43,060 by taking into account all payments including payment received for Rs.12,04,127 as and by way of encashment of a second guarantee. We do not see any attempt to overreach the Court. The contents, quoted (Supra) would make it clear, such letter was without prejudice to the rights and contentions of the parties in the pending application.Coming back to the present issue, we find, the appellant, having a definite claim of Rs.83,43,060 duly informed to the bank hence, bank would have no other option but to honour the same. The learned Judge should not have continued the order of injunction. In fact, learned Judge should not have passed any interim order. However, appellant did not prefer any appeal. Hence, we do not make any further comment on the same. We once again deprecate the attempt to forestall invocation of a guarantee that would deny the well-settled principle of law. It would rather an attempt to circumvent the settled proposition at the Apex Court level.In a recent decision a Division Bench of our Court in which one of us was a party observed as follows:“In our view, if the invocation was wrongful, the aggrieved party would definitely have a right to claim for compensation and/or damage in the arbitration. Bank Guarantee is an independent contract between the bank and the beneficiary. When it is unconditional it would depend upon the decision of the beneficiary to have it encashed at any time as he likes. His decision is final and binding upon the bank. If his decision is wrong that would give rise to a right to the aggrieved party to sue him for damage. However, the Court cannot pass an order of injunction restraining the bank to dishonour the said requisition, if any, or any order of injunction which would in effect stop invocation of an unconditional guarantee.”The appeal succeeds and is allowed. The judgment and order impugned is set aside. There would be no order as to costs.

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