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RSPL Limited v/s Simplex Infrastructures Limited & Others

    Appeal From Order No. 102 of 2019

    Decided On, 27 February 2019

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE SANJIB BANERJEE & THE HONOURABLE MR. JUSTICE SUVRA GHOSH

    For the Appearing Parties: Utpal Bose, Sayan Roy Chowdhury, Phiroze Edulji, Abhishekh Mehta, Mrinalini Majumdar, S.K. Kapur, Anirban Ray, Sourav Ghosh, Prithuraj Sinha, Soumen Ghosh, Advocates.



Judgment Text

1. The appeal arises out of an ex parte ad interim order. The scope of such an appeal is very limited. Yet the appellant has something to say in this case, both on account of the quality of the order impugned-or the lack of it-and the injunction that has been issued against what is perceived to be an unconditional bank guarantee.

2. It is the order impugned that requires first attention. The one-page order gives the impression that since a new suit had been filed and a new application had been carried to court by someone who was prepared on the matter, the court felt obliged to grant an order without looking into the facts or complying with the obligations and duty cast upon the court before issuing any injunction. There are sentences that parrot the compliance of a prima facie case having been made out or the plaintiff suffering irreparable injury without a line in support of how the prima facie case was made out or how the plaintiff would suffer irreparable injury if the injunction was not granted. The bank guarantee is not referred to in the order and it would not be a surprise if the bank guarantee was not even read.

3. The issue in the present appeal, or the pretence of an issue that is sought to be made out, is as to whether the bank guarantee was conditional or unconditional. Surely, such thought ought to have occurred to the trial court before passing the impugned order. The ancillary issue raised in this appeal by the plaintiff-respondent is that since the bank guarantee was conditional and the invocation therein not in accordance with such condition, the invocation was justifiably restrained. Such reason, of course, does not appear from the order impugned dated February 4, 2019.

4. According to the appellant, which is arrayed as the first defendant in the suit, three bank guarantees were obtained from the plaintiff-contractor on account of mobilisation advance, retention money and performance. Two of such bank guarantees were furnished by the Bank of Baroda and the performance guarantee was furnished by Canara Bank. The appellant asserts that the contract was terminated by a letter dated January 31, 2019 and such letter was received by the plaintiff-contractor on February 2, 2019. The plaint was filed on February 4, 2019. The order bears the same date.

5. It must be recorded that the plaintiff does not accept that it was served the notice of termination on February 2, 2019 as alleged by the appellant herein.

6. It is the further case of the appellant that by the time the order of injunction was issued on February 4, 2019, Bank of Baroda had discharged its obligation and had allowed the encashment of the two bank guarantees furnished by it. The only bank guarantee that remained outstanding was the one in lieu of performance, furnished by Canara Bank.

7. The plaintiff, however, has a different story to tell. According to the plaintiff, Bank of Baroda refused to entertain a copy of the order that was attempted to be served on it on February 4, 2019 and, at or about 3.30 p.m., transferred the money under the two bank guarantees to the appellant by way of RTGS. Such aspect of the matter is irrelevant in the present context. What is relevant is that one of the bank guarantees has been interdicted and what has to be assessed is whether the court below was justified in so doing. For such purpose, the requisite exercise that had to be undertaken appears to have completely escaped the attention of the court below; or the court below may have been blissfully unaware of the law and judicial pronouncements pertaining to bank guarantee injunctions.

8. The relevant bank guarantee furnished by Canara Bank appears at page 471 of the stay petition. The operative words of the guarantee issued by the bank are set out:

"We ..... hereby irrevocably guarantee the fulfillment by the said Contractor of the said Work Order so far as the Execution of Civil & Structural works for Package-A is concerned and we also hereby guarantee payment to the said Purchaser up to and not exceeding altogether a sum of Rs.10,09,99,368/- ....."

9. Lest the best arguable case of the plaintiff is left unsaid, the remainder of the bank guarantee is also set out :

"Notwithstanding anything contained hereinabove,

a) Our liability under this Guarantee is restricted to Rs.10,09,99,368/-(Rupees Ten Crores nine lacs ninety nine thousand three hundred sixty eight only).

b) This Bank Guarantee shall remain in force until 30.09.2017.

c) Unless a claim in writing is received in this office before the close of business on30.09.2017, all your rights under the said guarantee shall be forfeited and we shall be released and discharged from all liabilities thereunder."

10. It is the contention of the plaintiff that the bank guarantee was not unconditional and it was subject to the fulfillment of the condition indicated therein. Such condition was that the contractor had not appropriately executed the civil and structural works for package-A under the relevant work order. There is no dispute as to the identity of the work order.

11. The letter of invocation issued by the appellant to Canara Bank appears at page 497 of the stay petition. The operative sentence in such letter of invocation of January 31, 2019 reads as follows:

"..... We are hereby invoking the bank guarantee in view of the non-compliance and violation of the provisions of the contract/work order ... and request you to immediately pay the amount of Rs.10,09,99,368 ...."

12. It is elementary that just as a document does not go by how it is intituled, the character of a bank guarantee is not decisive if it uses the word "conditional" or "unconditional" or fails to use either word. The nature of the bank guarantee has to be assessed from the terms thereof. A bank guarantee may be conditional even without the word "conditional" being used therein. Equally, a bank guarantee may be unconditional without the word "unconditional" or any variant thereof being used therein.

13. In the present case, the bank irrevocably guaranteed the payment of a particular sum upon the happening of something. The happening was the non-performance by the plaintiff-contractor in respect of a particular part of the work order. Commercial documents are not read as statutes nor are letters of invocation required to be seen in such demanding light. There was a clear assertion in the letter of invocation of January 31, 2019 that the contractor had violated the terms of the work order. There was a clear reference in the letter of invocation to the bank guarantee and there was a clear reference in the letter of invocation to the quantum that was demanded.

14. The wording of the bank guarantee does not admit of a construction that unless some condition was fulfilled, the obligation of the bank to pay thereunder would not arise. All that the bank guarantee required was a claim by the beneficiary that the execution of the civil or structural work under package A of the work order was not properly done or an assertion to similar effect without expressly spelling out the area or extent of non-performance on the part of the contractor.

15. The clear words of the bank guarantee and the manner in which the bank promised to discharge its obligation make the bank guarantee as unconditional as they come. In any event, it is not the bank's case that the guarantee was conditional.

16. The plaintiff has relied on a single Bench judgment of this Court reported at 2009 SCC Online 2425 for the proposition that when a bank guarantee is issued for a particular purpose, the invocation should indicate the compliance of such purpose before the invocation can be regarded to be proper or appropriate. The following paragraph from the relevant judgment has been placed:

"A bank guarantee may be unconditional and unequivocal in the sense that the liability of the bank may arise without reference to the person at whose behest the guarantee has been furnished or without reference to the underlying contract or the disputes thereunder. However, if the terms of the bank guarantee require the invocation thereof upon a certain situation arising or require an assertion to be made for the invocation to be effective, the bank's obligation would not arise unless the situation stipulated has arisen or unless the assertion that the relevant clause demanded has been made."

17. The observation in the paragraph quoted from the judgment cited was in the context of a Division Bench judgment reported at (Omega Shelters Pvt. Ltd. v. Unit Construction Co. Pvt. Ltd, (2009) 4 CalHN 22) where an injunction was issued on the ground that though the bank guarantee was furnished by way of a performance guarantee, the letter of invocation did not allege non-performance but merely alleged that the request for extending the bank guarantee had not been acceded to. Clearly, that is not the situation in the present case.

18. Bank guarantees and letters of credit are the life-blood of commerce and cannot be tinkered with or interdicted for the mere asking. High authorities instruct that unless a case of egregious fraud at the inception of the contract of guarantee is made out or a case of irreparable injury or irretrievable injustice is demonstrated, the operation of a bank guarantee or a letter of credit or the payment thereunder ought not to be interfered with by a court. Indeed, the very fact that a bank furnishes the guarantee on behalf of a contractor, in a sense, insulates the claim therein against the disputes that may have arisen under the underlying contract. A bank guarantee is a contr

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act between a bank and a beneficiary where the bank has no interest in the disputes between the parties to the underlying or matrix contract and the guarantor bank is required to discharge its obligation only on the basis of the terms of the guarantee without recourse to the person at whose behest the guarantee is furnished. This is particularly true of unconditional bank guarantees as in the present case. 19. For the reasons aforesaid, it is evident that the best arguable case of the plaintiff is not good enough to earn the plaintiff an order of injunction at least in respect of the bank guarantee that remains outstanding. It is recorded that the other two bank guarantees are said to have been encashed and the plaintiff accepts such position. 20. Fma 102 of 2019 and CAN 1933 of 2019 are allowed by setting aside the order impugned dated February 4, 2019 both on the ground of it being completely unreasoned and upon assessing the best arguable case of the plaintiff qua the outstanding bank guarantee. 21. There will, however, be no order as to costs.
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