w w w . L a w y e r S e r v i c e s . i n



State Bank of India v/s Sun Pharmaceuticals Industries Ltd. & Another

    Appeal from Order No. 119 of 2019 & Civil Suit No. 39 of 2019

    Decided On, 04 September 2019

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE SOUMEN SEN & THE HONOURABLE MR. JUSTICE RAVI KRISHAN KAPUR

    For the Appearing Parties: Rudraman Bhattacharyya, Souvik Mazumdar, Jishnu Saha, K.R. Thakher, Arindam Chandra, Souvik Ghosh, Advocates.



Judgment Text

Ravi Krishan Kapur, J.

1. The instant appeal arises from an order dated 17 May, 2019, passed in GA 518 of 2019, CS 39 of 2019 by which the Learned Trial Judge restrained the appellant bank from giving any effect to or invoking the two bank guarantees both dated 21 October, 2016 as extended from time to time.

2. The facts:

The suit is filed seeking a declaration that the aforesaid bank guarantees furnished at the instance of the plaintiffs are not enforceable and could not be enforced by the beneficiary (i.e the appellant bank) to claim any payment. There is also a prayer for an injunction and for recovery of money. In short, this is another instance of a party seeking an injunction against a beneficiary from enforcing its rights under a bank guarantee.

3. The case of the plaintiff is that, Gujarat NRE Coke Ltd. "GNRE", was the owner of certain wind-mills located at Gujarat which were encumbered in favour of a consortium of lenders of whom the appellant bank was the lead banker. In 2015, the plaintiffs entered into slump sale agreements with GNRE to acquire the wind-mills. However, the consortium of lenders led by the appellant bank did not approve the sale of the wind-mills to the plaintiffs. Ultimately, by an e-mail dated 12 August, 2016, SBI Capital Markets Limited informed the public of the decision of the Assets Sale Committee inviting fresh bids for the wind-mills. The plaintiffs participated in such bid and submitted their respective offers of Rs.154 crores and Rs.26 crores for the wind-mills situated at Jamnagar and Kutch respectively belonging to GNRE.

4. By a letter dated 7 October, 2016, the appellant bank communicated its acceptance of the bids submitted by the plaintiffs and declared the plaintiffs to be successful bidders subject to the plaintiffs complying with certain terms prescribed therein. The agreement entered into between the plaintiffs and GNRE dated 5 October, 2015 stipulated the terms and conditions on which the wind-mills assets would be transferred to the plaintiffs. The only obligation of the lenders and the appellant bank was to issue NOCs for transfer of the assets to the successful bidder. The letter of intent dated 7 October, 2016 inter alia provided as follows:

(a) Both the plaintiffs are jointly and severally liable for compliance of the terms of this LOI and the Conditions;

(b) The plaintiffs are required to pay 25% of the bid amount as mentioned in their Bid as an upfront payment within seven (7) days from the date hereof on a non-refundable basis ('Upfront Consideration'), provided however that only in the event where noobjection certificates for sale of the Assets are not received from all the Lenders ('NOC') within 60 days from the date of the receipt of the Upfront Consideration, then the Upfront Consideration will be refunded to the plaintiffs without any interest, and the plaintiffs will not hold SBI on behalf of all the Lenders liable, or raise any claim or objection for non-receipt of any NoC or for any matter whatsoever:

(c) The plaintiffs shall submit to the appellant bank, State Bank of India ('SBI') (acting on behalf of the Lenders) a copy of this LOI duly signed (all the pages including the Annexure), satisfactory evidence of such authority of the person executing this LOI (such as a certified true copy of a board resolution and/or power of attorney), and specimen signatures of such persons;

(d) The plaintiffs shall provide a Bank Guarantee (BG) in favour of the appellant bank for the benefit of the Lenders, towards the balance 75% of the bid amount in the format provided in the Annexure to this LOI;.

5. It is next alleged in the plaint that in due compliance with the letter of intent, the plaintiffs remitted 45 crores to the appellant bank towards the aggregate upfront amount i.e. 25% of the bid amount. Thereafter, the plaintiffs issued two separate bank guarantees in favour of the appellant bank bearing no.136GM01162920002 dated 21 October, 2016 for Rs.115.50 crores and OGT0009160007099 for Rs.19.50 crores respectively being the balance 75% consideration for the sale of the wind-mills. These bank guarantees were issued by the defendant no.2 being YES Bank Limited and the defendant no.3 being Indus Ind Bank respectively. For the sake of convenience, the relevant terms of the bank guarantees which are practically in identical language are quoted below:

In consideration of the Sun Pharmaceutical Industries Ltd. Sun House, Plot No.201 B/1, Western Express Highway, Goregaon (E), Mumbai-400063 agreeing to undertake the obligations under the Letter of Intent dated 07th Oct, 2016 issued by State Bank Of India, Commercial Branch, 24 Park Street, Magama House, Kolkata700016 (hereafter referred as 'SBI') on behalf of the consortium of lenders of M/s. Gujarat NRE Coke Ltd. and any other required documents, the YES BANK LTD., a Company incorporated and registered under The Companies Act, 1956 and a Banking Company within the meaning of Section 5(c) of the Banking Regulation Act, 1949 and having its Registered Office at Nehru Centre, 9th Floor, Discovery of India, Worli, Mumbai-400018 & a Branch Office inter alia at Ground Floor, ALPS Building, 56, Janpath, Connaught Place, New Delhi-110001 (hereinafter referred to as 'Guarantor Bank') hereby agrees unequivocally, irrevocably and unconditionally to pay to SBI forthwith on demand in writing from the SBI or any Officer authorized by it in this behalf, any amount up to and not exceeding Rs.115,50,00,000 (Rupees One Hundred Fifteen Crores & Fifty Lacs only) on behalf of M/s. Sun Pharmaceutical Industries Ltd. Sun House, Plot No.201 B/1, Western Express Highway, Goregaon (E), Mumbai-400063 [insert name of the Ultimate Buyer].

This guarantee shall be valid and binding on the Guarantor Bank up to and including 30-APR-2017 and shall in no event not be terminable by notice or any change in the constitution of the Bank or by any other reasons whatsoever and our liability hereunder shall not be impaired or discharged by any extension of time or variations or alternations made, given, or agreed with or without our knowledge or consent, by or between parties to the respective agreement.

Our liability under this Guarantee is restricted to Rs.115,50,00,000/- (Rupees One Hundred Fifteen Crores & Fifty Lacs only). Our guarantee shall remain in force for a period of 6 months starting from 21-OCT-2016 (date), SBI shall be entitled to invoke this Guarantee up to thirty (30) days of the last date of the validity of this Guarantee by issuance of a written demand to invoke this guarantee.

The Guarantor Bank hereby expressly agrees that it shall not require any proof in addition to the written demand from SBI, made in any format, raised at the above mentioned address of the Guarantor Bank, in order to make the said payment to SBI.

The Guarantor Bank shall make payment hereunder on first demand without restriction or conditions and notwithstanding any objection by, Sun Pharmaceutical Industries Ltd, Sun House, Plot No.201 B/1, Western Express Highway, Goregaon (E), Mumbai-400063, and/or any other person. The Guarantor Bank shall not require SBI to justify the invocation of this BANK GUARANTEE, nor shall the Guarantor Bank have any recourse against the Procurer(s) in respect of any payment made hereunder.

This BANK GUARANTEE shall be interpreted in accordance with the laws of India and the courts at Kolkata shall have exclusive jurisdiction. The Guarantor Bank represents that this BANK GUARANTEE has been established in such form and with such content that it is fully enforceable in accordance with its terms as against the Guarantor Bank in the manner provided herein.

The BANK GUARANTEE shall not be affected in any manner by reason of merger, amalgamation, restructuring, liquidation, winding up, dissolution or any other change in the constitution of the Guarantor Bank.

This BANK GUARANTEE shall be a primary obligation of the Guarantor Bank and accordingly SBI shall not be obliged before enforcing this BANK GUARANTEE to take any action in any court or arbitral proceedings against the Ultimate Buyer, to make any claim against or any demand on the Ultimate Buyer or to give any notice to the Ultimate Buyer or to exercise, levy or enforce any distress, diligence or other process against the Ultimate Buyer.

The Guarantor Bank hereby agrees and acknowledge that SBI shall have a right to invoke this Bank Guarantee either in part or in full, as it may deem fit.

Notwithstanding anything contained hereinabove, our liability under this guarantee is restricted to Rs.115,50,00,000/- (Rupees One Hundred Fifteen Crores & Fifty Lacs only) and it shall remain in force for a period of 6 months starting from 21-OCT-2016 (date) i.e. 30-APR-2017, with an additional claim period of thirty (30) days thereafter. This BANK GUARANTEE shall be extended from time to time for such period, as may be desired by Sun Pharmaceutical Industries Ltd, Sun House, Plot No.201 B/1, Western Express Highway, Goregaon (E), Mumbai400063 (Insert name of the Ultimate Buyer). We are liable to pay the guarantee amount or any part thereof under this Bank Guarantee only if SBI serves upon us a written claim or demand.

In witness whereof the Bank through its authorized officer, has set its hand and stamp on this 21st Day of October, 2016 at New Delhi.

(emphasis supplied)

6. Thereafter, the appellant bank called upon the management of GNRE to initiate the process for transfer the assets in favour of the plaintiffs. The plaintiffs alleged that it was a term of the letter of intent that the appellant bank was to obtain the requisite consent from the consortium of lenders within 60 days from the date of receipt of the upfront consideration of Rs.45 crores. It is also alleged in the plaint that, in spite of receiving the upfront consideration, the appellant bank failed to furnish the requisite consent from the other banks and correspondence was exchanged between the appellant bank and the plaintiffs relating to the consent and the no objection which was required from the other lenders to transfer the windmills in favour of the plaintiffs. It is then alleged that the plaintiffs were committed to complete the sale of assets within a definite time schedule for completing the transaction. On 1 April, 2017 GNRE finally executed agreements for the sale of the wind-mills with the plaintiff no.1 and the plaintiff no.2 respectively. It is next alleged in the plaint that, notwithstanding the agreements dated 1 April, 2017, the power purchase agreements linked with the wind-mills were not transferred to the plaintiffs. By a letter dated 12 April, 2017 the appellant bank forwarded the letters of consent and called upon to the plaintiffs "to renew the said bank guarantees". Again, by a letter dated 26 April, 2017 addressed to the defendant nos.2 and 3 respectively with a copy whereof also sent to the plaintiffs, the appellant bank called upon the respondent nos.2 and 3 banks to renew the bank guarantees for a further period of six months. The letter of 26 April, 2017 categorically recorded that in case the bank guarantees were not extended that letter should be treated as the final demand of invocation of the aforesaid guarantees.

7. It is then alleged that at such a stage the appellant bank was not entitled to invoke the bank guarantee since the completion of transfer of the power purchase agreement linked with the wind-mills had not been completed. It is further alleged that the power purchase agreement linked with the windmills had not been transferred by them to the plaintiffs. It is next alleged in the plaint that, the plaintiffs were not obliged to renew the bank guarantees and that the plaintiffs were coerced into renewing the said bank guarantees on 28 April, 2017 whereby the validity was extended till October, 2017.

8. On 14 June, 2017, SBI Capital Market Limited, informed the plaintiffs that an application under Section 10 of the Insolvency and Bankruptcy Code 2016 had been filed by the GNRE which had been admitted by the National Company Law Tribunal. The plaintiffs then suggested that the transaction should be completed within a month failing which the agreement would stand terminated and the appellant bank would be obliged to return the deposit and bank guarantees. By an e-mail dated 18 August, 2017 the plaintiffs informed the appellant bank that in view of the delay in completing the sale agreement they had withdrawn from purchasing the wind-mills from GNRE and were taking steps for withdrawal of the bank guarantee. By an e-mail dated 31 August, 2017 the appellant bank duly informed the plaintiffs that the National Company Law Tribunal Kolkata Bench, Kolkata (NCLT) had by an order dated 22 August, 2017, approved the transaction of sale of the assets permitting the lenders to sell off the wind-mills. Accordingly, the lenders including the appellant bank were in a position to take the sale transaction ahead and complete the remaining formalities. It is next contended in the plaint that time was of essence of the contract and the appellant bank had delayed in completion the contract. The plaintiffs alleged that the sale had to be completed within a period of 120 days from the date of the agreement and since the same had not been concluded within the stipulated time period the plaintiffs sought return of the entire deposit of Rs.45 crores and withdrawal of the bank guarantees. Accordingly, a notice dated 1 September, 2017 was issued by the Advocates on behalf of the plaintiffs and the appellant bank through their Advocate's letter dated 8 September, 2017 duly replied to the same.

9. It is also alleged in the plaint that, the plaintiffs filed proceedings under Article 226 of the Constitution of India before the Hon'ble High Court of Gujarat at Ahmedabad and obtained restraint orders. The plaintiff further alleges that time was the essence of contract and that the no objection certificate was never obtained by the appellant bank from the lenders in time. It is also alleged that when the appellant bank had sought extension of the bank guarantees they had not informed the plaintiffs about the pending proceedings before the NCLT and in that light certain particulars of fraud and suppression were spelt out in the plaint. Accordingly, the plaintiffs have sought to restrain the invocation of the bank guarantees and claim refund of payment of Rs.45 crores paid as an advance. Hence the instant suit. The suit was filed in February 2019 in such background and the plaintiffs filed an interlocutory application seeking an order of injunction restraining the appellant bank from invoking the bank guarantees. By an ex-parte order dated 20 February, 2019 this Hon'ble Court directed that the appellant bank be restrained from enforcing either of the bank guarantees with a rider that the plaintiffs shall keep the bank guarantees alive till the disposal of the suit. This order was ultimately confirmed by the impugned judgment. The Learned Trial Judge recorded the terms and conditions of the letters of intent dated 7 October, 2016 and duly considered the diverse correspondence exchanged between the parties including the letter dated 14 June, 2017 and other e-mails between the parties. The Learned Judge came to a finding that it could not be said that the bank guarantees were unconditional. The Learned Judge held that the bank guarantees were meant to be part of the consideration to be paid by the plaintiffs to the appellant bank for sale of the wind-mills and that the bank guarantees could be invoked only if sale of the assets in question was completed in favour of the plaintiffs. The Learned Judge further held that the plaintiffs waited for a reasonable period of time even after expiry of 120 days and they could not be expected to wait indefinitely and that there was frustration of the contract after the proceedings had been initiated before the NCLT. The Learned Judge therefore concluded that since no property in the assets in question was transferred to the plaintiffs they were under no obligation to pay the price of the goods to the appellant bank and, therefore, came to a finding that the appellant bank was not entitled to invoke or encash the two bank guarantees.

10. The Learned Judge further held that one of the exceptions to warrant interference with bank guarantees was the rule of "special equities". The Learned Judge held that an injunction on the ground of "special equity" could be granted if the Court found the circumstances to be iniquitous, grossly unfair and unjust and that the instant case was unique and an exceptional case. The Learned Judge further held that in the facts there was no whisper of the NCLT proceedings or of the moratorium period in the letter dated 12 April, 2017 and this was an act of suppression. The Learned Judge also found that a strong prima facie case of fraud and special equities has been made out by the plaintiffs and so the balance of convenience was in favour of the plaintiffs and that encashment of the bank guarantees would result in commercial disaster of the plaintiff. The Learned Judge also observed that if the appellant bank was to succeed at the trial the appellant bank would be able to encash the bank guarantees. Accordingly, sufficient protection was provided to the appellant bank.

11. Submissions of the appellant:

Counsel on behalf of the appellant bank assailed the judgment both on facts and on law. He submitted that the Learned Judge disregarded and ignored the entire law of bank guarantees in passing the impugned judgment. On the facts he argued, that time was not of essence of the contract which was evident from the correspondence between the parties and that the plaintiffs by their own conduct had anyway waived such conditions. He relied on Clause 24 of the agreement dated 1 April, 2017 between the plaintiffs and GNRE to contend that time could and was in fact extended by the parties. He specifically argued that the e-mail dated 14 June, 2017, could not be construed to be a reasonable notice. He submitted that the plaintiffs had waited since 2015 for such sale and the entire argument of time being essence of the contract was belated and an afterthought. He submitted that there was no fraud in the facts and circumstances of the instance case. He submitted that from 21 August, 2017 till 11 January, 2018 there was no embargo to the sale of the assets. He submitted that the entire defence of fraud was an afterthought created after the lawyers had come into the picture. He submitted that there was nothing in the records to demonstrate even an iota of fraud. He further submitted that there was no frustration of the contract and also that there was no suppression of any kind whatsoever. He submitted that the appellant bank was under no obligation to inform to the plaintiff of the moratorium or the NCLT proceedings. He contended that the plaintiffs were hand and glove with GNRE and were acting at their instance. He submitted that there was no special equity in the facts and circumstances of the instant case that warranted the passing of the impugned order particularly when a claim for recovery of money paid as advance had already been made in the instant suit. Hence, the plaintiffs could always be awarded a money decree at trial. Finally, he submitted that the appeal should be allowed with costs. He submitted that due to the order of injunction the appellant bank had been deprived of approximately Rs.100 crores for more than a year.

12. Submissions on behalf of the plaintiffs:

Counsel on behalf of the plaintiffs, re-argued the facts as before the Trial Court and submitted that the respondent became entitled to avoid the contract by the letter dated 18 August, 2017. He submitted that the bank guarantees perished and were discharged or became in enforceable with the passing of the orders by the NCLT. He submitted that it would be wholly inequitable for the appellant bank to make an unjust windfall or an unconscionable gain by invoking the bank guarantees.

13. The law:

a) I am of the view that the law relating to bank guarantees has been certain, comprehensible and well settled. The problem which has arisen has been in its application. Section 126 of the Contract Act 1872 defines a "contract of guarantee" as a contract to perform the promise or discharge the liability of a third person in case of his default. In Halsbury's Laws of England [4th Edition para 101 Volume 20] a bank guarantee has been defined as "an accessory contract whereby the promisor undertakes to be answerable to the promisse for the debt, default or miscarriage of another person whose primary liability to the promissee must exist or be contemplated". In order to be enforceable in law, a guarantee must be in writing.

b) Ordinarily, there are three parties to a guarantee they are: firstly, the principal debtor or the person at whose instance the guarantee is issued or the person in respect of whose default the guarantee is given. Secondly, the guarantor or surety which is usually a bank or a financial institution is the person who gives the guarantee and lastly, the beneficiary or the creditor who is the person to whom the guarantee is given. In such cases a bank or a financial institution acting as the guarantor or a surety makes itself immediately liable to the full extent for the obligations due to the beneficiary.

c) Bank guarantees are the most common method of payment in the mercantile world and have been described as the "the life blood of international commerce (as per Kerr L.J. In R.D. Harbottle (Mercantile) Ltd. vs. National Westminister Bank Ltd., (1978) QB 146 at 155 where they are treated as equivalent to cash. It is for this reason that Donaldson L.J. in a commonly cited passage observed "Irrevocable letter of credit and bank guarantees given in circumstances such that they are equivalent to an irrevocable letters of credit have been said to be the life blood of commerce. Thrombosis will occur if, unless fraud, is involved, the courts intervened and thereby disturbed the mercantile practice of treating rights thereunder as being equivalent to cash in hand". [Intraco vs. Notis Shipping Corporation of Liberia the Bhoja Trader, (1981) 2 LloydsRep 256 at 257].

d) "Thrombosis" has been defined as a local coagulation or clotting of blood in a part of the circulary system which creates a traffic congestion in the free circulation of blood (The New Shorter Oxford Dictionary 1993 Edition). In certain cases, it may cause instant death and I imagine that this is the kind of serious impact which is caused every time any Court interferes with or interdicts with the working of a bank guarantee. A Court by interdicting or interfering with the working of the bank guarantee is in effect intimating to the beneficiary that "your cash is not cash or that you are not entitled to your cash." This is akin to thrombosis in the business world.

14. There are a plethora of decisions not only of the Indian Courts but also of other jurisdictions from which the following further well settled principles emerge:

a) The Courts are ordinarily slow in granting an order of injunction to restrain the working of a bank guarantee. U.P. State Sugar Corporation vs. Sumac International Ltd., (1997) 1 SCC 568 at para 12, Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Company, (2007) 8 SCC 110 at para 14 (iii).

b) A bank guarantee is a distinct, separate and independent contract and absolute in nature. Such a contract is independent of the underlying contract or the matrix contract between the beneficiary and the principal debtor or the person at whose instance the bank guarantee has been issued. It is a fundamental feature of bank guarantees that contracts relating to them are autonomous and separate from the underlying contract. The bank is not concerned in any way with the merits or the demerits of the underlying transactions. It is only in well known and extremely exceptional circumstances should a Court interfere with payment under bank guarantees always bearing in mind that free and unrestricted flow of normal commercial dealings is a prime consideration. Andhra Pradesh Pollution Control Board vs. CCL Products (India) Limited,2019 SCCOnLineSC 985 at para 19, Ansal Engineering Projects Ltd. vs. Tehri Hydro Development Corporation Ltd. and Ors.,1996 5 SCC 540 at paras 4 and 5, Hindustan Steel Works Construction Ltd. vs. Tarapore & Co. & Ors., (1996) 5 SCC 34 at para 14, Federal Bank Ltd. Vs. M Jog Engineering Ltd.,2001 1 SCC 633 at para 55. State of Maharashtra & Anr. Vs. National Construction Company Bombay and Another, (1996) 1 SCC 735 at para 13.

c) What is of essence in such matters are the terms of the bank guarantee. These are extremely significant, vital, decisive and material. A bank guarantee must be construed independently on its own terms. In every case, what has to be ascertained is whether the bank guarantee is in unequivocal and in clear terms that is to say, whether it is conditional or unconditional and whether it clearly recites that the amounts thereunder are to be paid without demur or protest. Then, there is always the question of whether the invocation of a bank guarantee is in terms of the bank guarantee or else the invocation may be bad. What every Court must be careful of is to that whilst interpreting the bank guarantee it does not get entwined into the terms and conditions of the underlying contract between the beneficiary and the principal debtor. This intermingling is prohibited unless the terms and conditions of the bank guarantee so provide in clear and identifiable terms. Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engineering Cooperative Ltd. & Anr., (2007) AIR SC 2716 at paras 22 and 28, Eastern Countries Building Society vs. Russell,1947 1 AllER 500 at 502-503.

d) In the absence of fraud, irretrievable injustice or some special equities the Courts should not interfere with the working of a bank guarantee as long as the bank guarantee has been lawfully invoked. The evidence of the fraud which is demanded is required to be of an egregious nature which is such as to vitiate the entire underlying transaction or such that the beneficiary seeks to take advantage of some exceptional situation. There must also be clear and convincing evidence both as to the fraud and as to the bank's knowledge of the fraud. Fraud which vitiates the contract ordinarily must have a nexus with the acts of the parties prior to entering into the contract. Simple breach of contract occurring subsequently on the part of a party would not vitiate the guarantee itself. Nor would breach of contract alone lead to the conclusion that fraud has been committed. The other exceptions of irretrievable injury and special equities can only be invoked in exceptional or rare cases. The most commonly cited example is that of the American decision in Itek Corporation (566 Fed supp.1210). In that case, it was held on the facts that it was impossible for the guarantor to reimburse himself if he ultimately succeeded at trial. A mere apprehension that a party could not or would not pay is not enough. In the Itek decision, there was certainty on this issue. The second reason which weighed with the American Court was that the Court was prima facie satisfied that the guarantor i.e. bank would be found entitled to receive the amount paid under the guarantee. Thus, the rule is that special equity or the case of irretrievable injury must be of an exceptional nature. It must be one of those rare cases where a future decree for money in favour of the guarantor proves to be unrealisable or uncollectible which would be equivalent to putting a party in an irretrievable situation. Special equities or irretrievable justice must not be confused with mere hardship or what a Judge may consider to be just and proper. It is not akin to the Chancellor's foot or as what a Judge may regard to be his interpretation of unjust or unfair or inequitable. Reliance Salt Ltd. Vs. Cosmos Enterprise and Anr., (2006) 13 SCC 599 at paras 16 and 17, State Bank of India vs. Mula Sahakari Sakhan Karkhana Ltd., (2006) 6 SCC 293 at paras 33, 34 & 42, Svenska Handelsbanken vs. Indian Charge Chrome and Ors., (1994) 1 SCC 502 at paras 38 to 40, 84, and 86, National Highways Authority of India vs. ELSAMEX-TWS-SNC Joint Venture,2008 Supp1 ArbLR 559 at para 68, Vinitec Electronics Private Limited vs. HCL Infosystems Limited, (2008) 1 SCC 544 at paras 25 and 27, BSES Ltd. (now Reliance Energy Ltd.) vs. Fenner India Ltd. and Ors., (2006) AIR SC 1148 at para 10, Owen Engineering Ltd. Vs. Barclays Bank International Ltd., (1978) 1 AllER 976 at 983 (b) & c.

e) In Dwarikesh Sugar Industries Limited vs. Prem Heavy Engineering Works Limited,1976 4 SCC 480 at para 22, it was held that, the special consideration of irretrievable injury meant a circumstance that made it impossible for the guarantor to reimburse itself by way of restitution. In U.P. State Sugar Corporation vs. Sumac International Ltd. at para 12, it was held that, the fact that the beneficiary was a sick company and revival was pending under the Sick Industrial Company (Special Provisions) Act, 1985 was not to be regarded as a circumstance where that the money would be irretrievably lost if the claim ultimately was awarded in favour of the contractor.

f) There was an attempt in BSES Ltd. vs. Fenner India Ltd. and Ors., (2006) 2 SCC 728 at para 10 to widen the exceptions to the rule against interference with bank guarantees by including the principles of "lack of good faith" or "enforcing with an oblique motive" following Singaporean Law but this was rejected by the Apex Court.

15. My findings:

At the outset, it is important to ascertain on a plain reading of the bank guarantee as to what are the terms and conditions of the instant bank guarantees. The duty of the bank is created by these documents themselves, that define the obligations of the parties. The nature of the bank guarantees has to be assessed from the terms thereof. Both the bank guarantees have identical language and specifically provide that the guarantor bank agrees unequivocally, irrevocably and unconditionally to pay the appellant bank on demand in writing from the appellant bank or any officer any amount not exceeding Rs.115 crores and Rs.19.50 crores respectively on behalf of the plaintiffs nos. 1 and 2. The guarantees further categorically mention that they would be payable on first demand of without restriction and condition and notwithstanding any objection either of the plaintiff or any other person. The guarantees further record that the bank shall not require the appellant bank to justify the invocation nor shall the guarantor banks have any recourse in respect of payment demanded thereunder. On a reading of either of the two bank guarantees, it will be evident that, the same were unconditional and payable on demand. The liability of each of the banks i.e. the respondent nos. 3 and 4 herein was absolute and unequivocal under either of the guarantees. I am of the view that a plain reading not requiring any further analysis of the guarantees establish that the guarantees were unconditional, irrevocable and unequivocal. In fact, they are as unconditional in their terms as they could possibly be. In my view, the clear words of the bank guarantees and the manner in which the banks promised to discharge their obligations made the bank guarantees unconditional. I categorically reject the contention made out in the Notes of Arguments filed on behalf of the plaintiffs (though not made in the submissions during the course of hearing) that the bank guarantees were dependent on the performance of the obligations under the letter of intent or linked to the performance of any such obligations. This aspect of the matter was most relevant and required a careful analysis by the Trial Court. With the greatest of respect, I respectfully dissent with the view of the Learned Single Judge regarding this aspect of the matter. On the contrary, there is only a conclusion in the impugned judgment that the bank guarantees were conditional. Before this Court, during the course of arguments, the Learned Senior Advocate on behalf of the appellant, in all fairness when confronted, fairly conceded, that he could not interpret the bank guarantees to be conditional. The Trial Court also referred to the fact that both the bank guarantees referred to the letter of intent dated 7 October, 2016. It is now well settled that the fact that the bank guarantee merely refers to the underlying agreement without incorporating any specific clause in the guarantee does not make a guarantee conditional [Mahatma Gandhi Sahakra Sakkare Karkhane vs. National Heavy Engg. Coop. Ltd., (2007) 6 SCC 470]. I am of the view that there is nothing in the express or plain language of the guarantees which would make the same conditional. On the contrary, the guarantees provided were unconditional and irrevocable.

16. Once it is found that the bank guarantees were unconditional and irrevocable, it was not open to the bank or the principal debtor to raise any objection whatsoever to pay the amounts under the guarantees. The beneficiary, in such circumstances, in whose favour the guarantees were furnished by the bank could not be prevented from enforcing the bank guarantee on the pretext that there were "serious breaches" of the underlying contract.

17. Again with respect, I am also of the view that the Learned Judge erred in entering into the merits of the underlying contract between the plaintiffs i.e. the principal debtor and GNRE. This approach was contrary to the well settled principle that a bank guarantee is an independent and distinct contract between the bank and the beneficiary. The dispute between the beneficiary and the party at whose instance the bank guarantees had been given is immaterial and of no consequence. This is not to say that a Court cannot even look into the underlying contract to examine whether the bank guarantee has been encashed as per its terms or is not a result of fraud or an act which maybe classified as irretrievable injustice or exceptional special equities. However, in treading down this path, a Court must maintain a clear line of demarcation or division between that which can be considered and that which ought not to be considered. There was no need to enter into the merits of the disputes relating to the principal contract or the issues regarding whether time was of essence of the contract or the allegation about repudiation or frustration. These issues or the question of passing of property were not called for nor any issues concerning payment for the price between the principal contractors. All of these were outside the arena of consideration at this stage. In this case the only issue involved at this stage is, whether the appellant bank could be restrained from enforcing either of the bank guarantees dependant on the terms of the guarantee themselves. I am of the view that even on the merits of the disputes of the underlying contract, it is highly debatable whether (a) time was of essence of the contract; (b) the underlying contract stood frustrated; (c) whether the extension of the bank guarantee was obtained by coercion; (d) whether there was a duty on the part of the appellant bank to inform he plaintiffs of the initiation of the proceedings before the NCLT and so on. These are all issues which would have to be ultimately decided in the suit. If called upon to opine, I would be inclined to hold that it appears at this prima facie stage, that, the plaintiffs had by their own conduct waived the term as to time being of the essence of the contract. On the contrary, it would seem that the plaintiffs having waited since 2015 to purchase these wind-mills thereafter had taken a commercial decision to wriggle out of its obligations. I prima facie find little merit in the case of frustration as urged by the plaintiffs. I find that between 22 August, 2017 till 11 January, 2018 there was no embargo in conducting the sale. I find, prima facie, little merit in all these arguments at this stage because they are irrelevant to the issue raised in the interlocutory application. The only question as this stage was that whether an injunction should be issued or not against unconditional bank guarantees. As stated hereinabove, the bank guarantees were unconditional and irrevocable and were payable without demur of protest. I am of the view that, even if every ground urged by the plaintiffs on the merits of the underlying contract is accepted, it would still not be good enough for the plaintiffs to be entitled to any order of injunction restraining payment under the bank guarantees. None of the exceptions would come into play in the facts and circumstances of the instant case. The plaintiffs cannot show as to why they cannot wait till the final decision in the suit to obtain refund of the money which the appellant bank may receive upon encashment of the bank guarantees. It is also not the case of the plaintiffs that, the appellant bank does not have the means to satisfy any future decree which may be granted in favour of the plaintiffs. The plaintiffs have at the highest only canvassed a strong prima facie case that the appellant bank has committed a breach of contract and that it may be entitled to get the entire consideration refunded. All of the grounds urged by the plaintiffs deal with the underlying contact. This is what is meant by the autonomy of the bank guarantees remaining independent of the underlying transactions i.e. the sale of the wind-mills. Here, a Court should not interfere to prevent the operation of bank guarantee on specious grounds which are extraneous to the guarantee itself.

18. I am also of the view that the Learned Trial Judge totally misinterpreted and erred in his construction of the exception of special equities. Merely unfair, unjust or inequitable conduct is not the test for special equity. Nor is the test for special equity simply an act of the contracting parties which might shock the conscience of the Court. I am of the view that whether the conduct be wrongful, harsh or burdensome inter-partes would be insufficient to invoke the exception of "special equity". I am of the view that the whole case of the plaintiffs centres around the allegations with regard to alleged breaches of the underlying contract by the appellant. All the points urged by the plaintiffs whether a) time was of essence of the contract; b) and that no objection certificate had not been received; c) or that the sale could not be completed with the extended time period; d) or that the contract stood frustrated in view of the proceedings before the NCLT; e) or that the wind-mills could or could not be transferred to the plaintiffs maybe good grounds under the underlying contract but are utterly irrelevant in the context of an injunction to restrain an unconditional bank guarantees. The entire object of the guarantees was for the purpose of keeping the demand thereunder insulated from the disputes pertaining to the underlying contract.

19. The origins as to the exception of "special equities" lies in a Single Bench decision of this High Court where Sabyasachi Mukharji, J. (as he then was) had after referring to a number of English decisions coined the phrase "special equities" which arise from a particular situation entitling a party to an injunction restraining the performance of a bank guarantee (AIR 1979 Cal 44 Texmaco vs. State Bank of India, (1979) AIR Calcutta 44). It was much later in 1987, in the decision in UP Cooperative Federation Ltd. Vs. Singh Consultant and Engineering (P) Ltd., (1988) 1 SCC 174 where the same Judge (Mukharji, J.) then sitting in the Apex Court, had reiterated "special equities" in the form of proving irretrievable justice to be an exception warranting inference with the working of a bank guarantee. It is now well recognised by Courts all over the country that "special equities" is a known exception to the rule against the interference with bank guarantees. Sometimes though the judgments use the phrase "special equities" interchangeably with "irretrievable injustice". A number of Indian decisions refer to the decision reported in Elian and Rabbath (Trading) vs. Matsas and Matsas,1966 2 LlyodsRep 495 for the origin of the exception of "special equities". Significantly, though in that case, an injunction was granted restraining the defendant from enforcing the guarantee, there is no mention of the words "special equities" in the dicta of any of the Law Lords. In fact, Lord Denning gave the leading judgment but used the words "a special case in which an injunction should be granted in order to proving what might be irretrievable injustice". Subsequently, the Court of Appeal in England, declined to follow Elian and Rabbath vs. Matsas (Supra) stating that the decision should be regarded as very special [ Howe Richardson Scale Co. Ltd vs. Polimex-Cekop,1978 1 LlyodsRep 161]. It was Roskill L.J, who said that " ..in my view it would be quite wrong for the Court to interfere with Polimex's apparent right under this guarantee to seek payment from the bank, because to do so would invoke putting upon the bank an obligation to enquire whether or not there had been timeous performance of the seller's obligation under the sale contract".

20. Nevertheless, in India it is now well settled that "special equities" is a recognized exception to the rule against interference with bank guarantees. In order to understand what the phrase "special equities" means it is appropriate to look at the examples which appear from the decided cases and the test would seem to succeed in cases concerning injuries of "an irretrievable, irremediable, unrecoverable and irreversible kind".

21. Here the case of special equities has no merit. All that the plaintiffs have tried to plead is the fact that there are serious disputes in respect of the main contract. These deal with the merits of the main contract. There is no question of the appellant bank making any unconscionable gain by invoking either of the two guarantees. As held by Kerr L.J, in R.D. Harbottle (Mercantile) Ltd. vs. National Westminister Bank Ltd. (Supra) at page 155 H and 156 A-B. "The courts will leave the merchants to settle their dispute under the contract by litigation or arbitration as available to them or as stipulated in the contracts. The Courts are not concerned with their difficulties to enforce such claims; these are risks which merchants take. In this case, the plaintiffs took the risk of the unconditional wordings of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the Courts. Otherwise, trust in international commerce would be irreparable damaged."

22. For the foregoing reasons, there are no grounds that exist or have been made out which warrant interference with either of the two guarantees. The impugned order cannot be sustained either on facts or in law and is set aside.

23. There is another strange finding which is contained in the impugned order. The Learned Judge whilst granting the order of injunction has held that if the bank guarantees are allowed to be encashed, the same may result in commercial disaster for the plaintiffs. He further held that, in the event the plaintiffs lose at the trial the appellant bank would be able to encash the bank guarantees since he had directed that the bank guarantees be kept alive till the disposal of the suit. This is expressly contrary to what the Hon'ble Supreme Court had held in BSES Limited vs. Fenner India Ltd. & Ors, (2006) 2 SCC 728 at paragraph 25 where it said this: "There is no dispute that arbitral proceedings are pending .we see no situation of irretrievable injustice, if at the present moment the appellant is allowed to encash the bank guarantees. For justice can always be rendered to the first respondent if he succeeds before the Arbitrators". The plaintiffs have already included a money claim for Rs.45 crores in the instant suit. It cannot be urged by the plaintiffs that the plaintiffs will be left "remediless" or that the money will be "irrecoverable" or that the situation will become "irretrievable" if the bank guarantees are encashed by the appellant bank. The plaintiffs always have the remedy to include its claim in the instant suit and succeed at the time of trial.

24. Decisions cited on behalf of the plaintiffs:

The number of cases cited by the plaintiffs for the reasons I have given above, have no application whatsoever. They were decided on their special facts and are not appropriate illustrations for the issues that arise in the present facts and circumstances. On the aspect of the bank guarantees being dependent on the performance of the obligations under the letter of intent, the plaintiffs have relied on the decision of Hindustan Construction Co. Ltd. vs. State of Bihar & Ors., (1999) 8 SCC 436 (paras 9, 13 and 14). There is no quarrel with the proposition enumerated in the paragraph 9 of the said judgment. In fact, at paragraph 9, the Hon'ble Supreme Court has specifically held that a bank guarantee should be in unequivocal and unconditional terms and the terms of the bank guarantee are extremely material. However, in the said decision, it was held that the bank guarantee could not be invoked by anyone except the Chief Engineer. It was in this background that the invocation was held to be totally wrong and could not be held to be payable to the Executive Engineer. This case is squarely distinguishable on facts and has no application whatsoever in the facts and circumstances of the instant case. In the present case, since the bank guarantee has not yet been invoked there is no question of the same being lawfully or unlawfully invoked. The decision in Hindustan Construction Co. Ltd. (supra) has also been distinguished in Pollen Dealcom Pvt. Ltd. & Anr. vs. Chambal Fertilizers & Chemicals Ltd. & Anr. GA No.2967 of 2019, CS No.332 of 2009 passed by a Learned Single Judge of this Hon'ble Court decided on 30 November, 2009, Omega Shelters Pvt. Ltd. vs. Unit Construction Co. Pvt. Ltd, (2009) 4 CalHN 22 (DB) : 2009 SCC OnLine Cal 2117 at paras 21 & 22 and Bharat Heavy Electricals Ltd. vs. India Power Corporation [Haldia] Ltd.,2018 SCCOnLineCal 1484 at para 29.

25. There is no quarrel with the proposition laid down in the decisions reported in Gangotri Enterprises Ltd. vs. Union of India & Ors., (2016) 11 SCC 720 and Kailash Nath Associates vs. Delhi Development Authority & Anr., (2015) 4 SCC 136. Both these cases support the proposition that there cannot be any unilateral determination or realization of penalty or damages by a party to a contract without any adjudication. I am of the view that the said decision is distinguishable on facts. The proposition of law enumerated in the said decisions deals with breaches of the main or underlying or matrix contract between the parties. For the reasons aforementioned these issues have no relevance whatsoever at this stage of the proceeding. The decision of Larsen & Toubro Ltd. vs. Maharashtra SEB, (1995) 2 ArbLR 482 (SC) at paragraph 14 is a case where the Hon'ble Supreme Court was dealing with a conditional bank guarantee. The said decision is clearly inapposite to the facts and circumstances of the instant case. The plaintiffs have next relied on the decision reported in Banerjee & Banerjee vs. Hindustan Steel Works Construction Ltd. & Ors.,1986 2 CalHN 297. In a subsequent Division Bench decision of this Hon'ble Court, reported in Hindustan Paper Corporation vs. Keneilhouse Angami, (1990) 1 CalLT 200 at para 13, the Hon'ble Division Bench had distinguished the decision reported in Banerjee & Banerjee (Supra) on the ground that the said Single Judge did not take into consideration the two earlier Division Bench decisions of this Court. Moreover, the Hon'ble Division Bench at para 13 has specifically held that the decision reported in Banerjee & Banerjee (Supra). "does not set out the correct position of law". In any event, in the said decision, the principles laid down therein also dealt with a conditional bank guarantee and have no application in the facts and circumstances of the instant case. The said decision has also been distinguished in Bharat Heavy Electricals Ltd. vs. India Power Corporation [Haldia] Ltd.,2018 SCCOnLineCal 1484 at para 27. In respect of the decisions cited by the plaintiffs for the proposition that time is essence of the contract the plaintiffs have relied on the decision reported in Orissa Textile Mills Ltd. & Anr. vs. Ganesh Das Ramkishan, (1961) AIR Patna 107 and British Paints (India) Ltd. vs. Union of India, (1971) AIR Calcutta 393. I am of the view that the question of whether time is the essence of the contract relates to the underlying contract and has no application on the aspect of whether bank guarantee ought to be interdicted or not.

26. The next decision relied on by the plaintiffs is Continental Construction Ltd. vs. Satrujit Jal Vidyut Nigam Ltd.,2006 1 ArbLR 321. The said decision has been distinguished in two subsequent decisions of Manmohan Singh, J reported in Abir Infrastructure Pvt. Ltd. vs. Teestavally Power Transmission Limited, (2014) 214 DLT 235 : 2014 SCC Online Del 4503 (at para 33) and Futecht Project (India) Pvt. Ltd. vs. Abott Healthcare Pvt. Ltd., (2016) 155 DRJ 474 : (2016) SCC Online Del 763 (at paras 7 & 8). I am of the view that the test of special equities laid down in the said decision i.e. "that which would prick the judicial conscience of the Court" is not the correct position of the law. Infact, as has been correctly held in Futecht Project (India) Pvt. Ltd. (Supra) that for the case of special equities to apply a party must be left "remediless" to recover the said amount.

27. Conclusion:

For the forgoing reasons, the appeal is allowed and the appellant bank is at liberty to invoke the bank guarantees. There is not an iota of merit in the claim of the plaintiffs which warrants any kind of interference with any of the two bank guarantees. In view of the unmeritorious, misadventure and kite flying exercise undertaken on behalf of the plaintiffs which stretches from Narmada (the writ petitions) to Yamuna (legal notice) to Hooghly (the instant suit), costs are assessed at Rs.5,00,000/- (Five lacs) payable to the appellant bank within a period of eight (8) weeks from the date. In default of payment, within the stipulated period, the plaintiffs will pay reasonable interest at 8% per annum from the expiry of the aforesaid 8 weeks till the date of payment and the appellant bank shall be at liberty to execute this portion of the order as a decree in accordance with the provisions of Code of Civil Procedure 1908.

28. A cautionary note:

I am of the view that matters such as this, i.e. bank guarantee injunctions, are fodder for any Interlocutory or Commercial Court. They are filed a dime a dozen across the country. The main attempt in a bank guarantee matter is of trying to be "in pocket or to prevent from being out of pocket". A person who provides a bank guarantee gains several advantages: a) He is not required to make advance payment in case of a bank guarantee so his funds can be utilized more effectively; b) His status as a reliable partner to do commerce with increases multifolds; c) He generally obtains benefits from various opportunities and is able to demand more beneficial conditions from the beneficiary; and d) He is entitled to pay a commission fee for obtaining a bank guarantee which varies from banks to financial institutions but he does not have to be immediately out of pocket for the entire amount. The parties involved in the bank guarantees are neither poor nor illiterate nor uneducated nor minors. They generally include, a bank or a financial institution and seasoned businessmen, whether the beneficiary or the principal debtor. The decision to provide a bank guarantee is more often than not a well considered business decision which is deliberate, intentional and conscious. The plea of counsel notwithstanding, there is no question of showing any charity or benevolence to any of these parties. It is not the role of this Court to be charitable or benevolent at the expense of somebody else. There is no question of showing any sympathy or compassion to any of the parties involved in a bank guarantee case. This is purely a commercial matter. The law may appear to be harsh but there is sound rationale behind the law. The law has been settled for more than half a century and even as it stands today, there is a restrictive approach which every Court ought to follow before interfering with the working of a bank guarantee unless there is fraud or irretrievable injury or a proved case of special equity. This is not to suggest that, there can be no injunction against a bank guarantee. The law as it is on bank guarantees permits the well-known exceptions of fraud, irretrievable injury and special equities. But, it must be that extraordinary case. Otherwise bank guarantees ought not to be toyed with or tinkered with or interdicted in casual circumstances. RSPL Limited vs. Simplex Infrastructures Limited & Others,2019 AIR Calcutta 203 at para 18, Bridge & Roof Co.(I) Ltd. Vs. SKP Buildeon Pvt. Ltd.,2017 SCCOnLineCal 17051.

29. Historically, suretyship is as ancient as the pyramids and nearly as distinctive. More than 2,500 years ago, a contract of suretyship was recorded on a tablet found in the Library of Sargon I, King of Accad and Sumer. The Old Testament also records an instance of suretyship. In Anglo-Saxon England, a surety was a means of enforcing the criminal law and maintaining peace and good order. Sureties were also used to secure repayment of debts. The examples go so far as the early Middle Ages. A brief historical background on sureties and the origins of guarantees can be found in The Modern Contract of Guarantee, 2nd Edition by J.C. Phillips (paras 1.01 to 1.17).

30. The growth of trade and commerce has accelerated the usage of bank guarantees as a means of securing payment of debts owed to merchants in the modern business world. In order for there to be certainty in the law, which is required in commercial matters, the Courts advisedly continue to follow and adopt a restrictive or cautions approach before interfering with the working of bank guarantees. This is also in consonance with the "ease of doing business" culture propagated in modern India.

Soumen Sen, J.: I have had the opportunity to read the draft judgment prepared by my esteemed brother Justice Kapur. I am in agreement with the findings arrived at by my brother. However, I wish to briefly indicate my reasons.

The facts have been summarized by my brother Justice Kapur and I shall only refer to some of the facts that are necessary to understand why the argument of fraud, irretrievable prejudice and special equity must fail.

Shorn of details, the plaintiff had entered into a slum sale agreement in 2015 with Gujarat NRE Coke Limited (in short 'GNRE') to acquire their Wind Mill assets which at the relevant point of time, were hypothecated with the consortium of lenders lead by the appellant bank, State Bank of India. However, the said assets could not be transferred in favour of the plaintiffs on the basis of the said agreement. In the mean time on 12th August, 2015 SBI Capital Markets acting on behalf of the Assets Sale Committee ('ASC') constituted by the consortium of lenders of GNRE invited bid for sale of Wind Mill Assets of GNRE. On 30th August, 2016 the plaintiffs participated in the bid by submitting their offers Rs.154 crores and Rs.26 crores for the assets at Jamnagar and Kutch respectively. The appellant bank by its letter dated 7th October, 2016 communicated its acceptance of the offer and declared the plaintiffs as a successful bidder subject to the compliance of the terms and conditions mentioned in the letter of intent. On 26th October, 2016 the plaintiff remitted Rs.44.55 crores in terms of the letter of intent towards payment of the aggregate upfront amount and thereafter furnished two bank guarantees both dated 21st October, 2017 for an aggregate sum of Rs.135 crores. The sale of the assets was on "as is where is basis and as is what is basis" which necessarily means that the assets have to be taken over by a successful bidder at their present operating conditions along with all outstanding liability pertaining to the assets.

The lenders of GNRE were only to issue No Objection Certificates (NOCs) for transfer of assets to the successful bidder and they would not provide any further assistance or provide any representation regarding the assets or the said transfer of the lease deeds. The ASC would provide maximum six months time to the successful bidder to have the Power Purchase Agreement ('PPA') and other requisite projects agreements entered into by GNRE with various counter parties transferred in its name and other obligations. Upon selection of the successful bidder, the selected party would be required to pay 25% of the bid amount as payment upfront within 7 days from the issuance of the letter of intent on a nonrefundable basis. Towards the balance 75% of the consideration amount, the successful bidder would be required to provide a bank guarantee (BG) in favour of SBI, Commercial Branch, 24 Park Street, Magma House, Kolkata- 700016 for the benefit of the lenders. The BG will be released only when the full sale consideration amount is received from the successful bidder. The successful bidder would be required to pay balance 75% of the sale consideration amount within seven days of the completion of the transfer of PPAs failing which the BG will be invoked. If under any circumstances the processes for PPA transfer take more than 6 months time, then the BG will have to be renewed for a further period of maximum 6 months. The lenders having charge over the assets will be requiring around 60 days' time to issue the NOC. However, the said is subject to obtaining of approval from the sanctioning authority of the respective lenders.

On 7th October, 2016 SBI issued the letter of intent in favour of the plaintiffs. The letter of intent was, inter alia, to the following effect:

"We are pleased to inform you that your Bid for purchase of Assets is acceptable to the Lenders and you are hereby declared as the Successful Bidder, subject to the following:

(a) Both Sun Pharma and Unimed are jointly and severally liable for compliance of the terms of this LOI and the Conditions;

(b) You are required to pay 25% of the bid amount as mentioned in your Bid as an upfront payment within seven (7) days from the date hereof on a non-refundable basis ('Upfront Consideration'), provided however that only in the event where noobjection certificates for sale of the Assets is not received from all the Lenders ('NoC') within 60 days from the date of the receipt of the Upfront Consideration, then the Upfront Consideration will be refunded to you without any interest, and you will not hold SBI on behalf of all the Lenders liable, or raise any claim or objection for nonreceipt of any NoC or for any matter whatsoever:

(c) You shall submit to State Bank of India ('SBI') (acting on behalf of the Lenders) a copy of this LOI duly signed (all the pages including the Annexure), satisfactory evidence of such authority of the person executing this LOI (such as a certified true copy of a board resolution and/or power of attorney), and specimen signatures of such persons;

(d) You shall provide a Bank Guarantee (BG) in favour of State Bank of India, Commercial Branch, 24 Park Street, Magma House, Kolkata 700016, for the benefit of the Lenders, towards the balance 75% of the bid amount in the format provided in the Annexure to this LOI;"

The plaintiffs admittedly paid the upfront consideration 25% of the bid amount and furnished the bank guarantees. The NOCs were to be received by 21st December, 2016 in terms of the letter of intent. However, such NOCs were not received by that date. On 26th April, 2016 SBI informed the plaintiffs that both the bank guarantees would expire on 30th April, 2017 and since the obligation of the plaintiff companies under the LOI were yet to be fulfilled, the plaintiffs were requested for extension of validity period of the two bank guarantees no.IN-DL078014422067570 dated 11th October, 2016 by another six months with additional claim period of 30 days; and in the event the plaintiffs failed to extend the bank guarantees on or before 28th April, 2017 for another period of six months with additional claim period of 30 days, the said letter would be treated as the final demand of invocation of the above mentioned bank guarantees and the said letters should be construed as demand for the encashment of the bank guarantees. In between, on 7th April, 2017 GNRE filed an application under Section 10(1) of Insolvency and Bankruptcy Code, 2016, for initiating corporate insolvency resolution process. The tribunal admitted the application on 7th April, 2017 and an interim resolution professional (IRP) was appointed for initiating the corporate insolvency resolution process of the corporate debtor. The first meeting of the committee of creditors was held on 5th May, 2017. In the said meeting the Committee decided sale of 87.5 MW-Wind Mill Assets of the corporate debtor. SBI as the lead bank of joint lenders forum (JLR) was authorised on behalf of the committee of COC to appoint an appropriate legal firm to take up the matter with the Tribunal. In a meeting held on 5th May, 2017 the COC unanimously decided to sell the wind mill assets of the corporate debtor. However, neither the initiation of the insolvency proceeding nor the order passed in the said proceeding were communicated to the plaintiffs until 14th June, 2017 when in an email for the first time the plaintiffs were informed about the initiation and pendency of the proceeding before the NCLT. In the email dated 14th June, 2017 the appellant while communicating the opinion received from Cyril Amarchand Mangaldas on regulation 29 of the IBC, "an opinion was sought for from the plaintiffs regarding transfer of assets". The relevant extract of the said email is indicated below:

"Sale of assets outside the ordinary course of business" can be done subject to that the book value of all assets sold during corporate insolvency resolution process period in aggregate under this sub-regulation shall not exceed 10% of the total claims admitted by the Interim Resolution Professional and also the sale of assets under this regulation shall require the approval of the committee."

In response to the said communication, the plaintiffs by an email of the same date communicated its decision in which they agreed to an extension for one month with a rider that in the event the sale could not be concluded by that time, the appellant should return the deposit and the bank guarantees should stand cancelled. The two line communication dated 14th June, 2017 reads:

"We have been waiting long for purchase of this assets. We will now wait for one more month otherwise you return our deposit and BG and cancel the deal".

On 22nd August, 2017 the NCLT allowed the application filed by the lenders for sale of the assets. The order permits the Resolution Professional to complete the proposed sale transaction by executing the conveyance under the law in favour of the buyers.

These facts are not in dispute.

On these set of facts, the rival submission of the parties are required to be considered with regard to the enforceability of the bank guarantee by the appellant.

I have read the bank guarantees.

Although the bank guarantees have referred to the Letter of Intent but there cannot be any doubt that the bank guarantees are unconditional and payable on demand. The LOI has no bearing on the enforceability of the guarantees. The bank guarantees represent 75% of the sale consideration to be paid by the plaintiffs as a condition precedent for transfer of the title in favour of the plaintiffs. There cannot be any doubt that on 26th April, 2017 the appellant did not inform the respondents with regard to the moratorium on sale of the Wind Mill Assets but required the plaintiffs to renew the bank guarantee with a threat that if the said bank guarantees are not extended, it would be invoked immediately. The impression one would carry at this stage is that the bank did not act fairly as it was incumbent upon the appellant bank to inform the plaintiffs about the moratorium and to call for the views of the plaintiffs with regard to the further continuation of the sale. The appellant had a duty to speak and by keeping silent the appellant had withheld essential and important information which had direct bearing on the decision of the plaintiffs with regard to the extension of the bank guarantees.

However, what is significant and undisputed is prior to 26th April, 2017, the plaintiffs and GNRE, on 1st April, 2017 had entered into an agreement for transfer of wind mill assets in favour of the plaintiffs which, inter alia, records the following facts:-

"f. In terms of the letter of intent, the Buyer has already made upfront payment of an amount of Rs.38,50,00,000/- (Rupees Thirty Eight Crore Fifty Lakhs only) being 25% of the Total Consideration (as defined herein) to the Designated Account, and has furnished Bank Guarantee for the Balance Consideration (as defined herein) being 75% of the Total Consideration in favour of State Bank of India (acting on behalf of all lenders) on 27th October, 2016.

g. The No-Objection Certificate from all lenders to the Seller Company have been made available. The parties hereto are desirous of recording the terms and conditions of agreement to sell the wind assets." (emphasis supplied).

The lenders have on or before 23rd March, 2017 issued no-objection certificate (NOC) to GNRE for release of the security created over the assets for the benefit of the Lenders. This is recorded in Clause (g) of both the agreements of transfer of wind assets dated 1st April, 2017 between GNRE and the plaintiffs.

On these facts it cannot be said that the appellant is guilty of fraud or misrepresentation in obtaining extension of the bank guarantees.

Much argument has been advanced by Mr. Jishnu Saha on Clause-f of the said agreement to impress upon us that the bank guarantees were to secure balance consideration amount and said bank guarantees cannot be treated as a classical and conventional bank guarantees and accordingly in deciding the matter, the court should take into consideration whether the appellant was in a position to transfer the title of the wind mills in favour of the plaintiffs, failing which, it would be inequitable on the part of the appellant to invoke the bank guarantees towards 75% of the total consideration amount. The letter dated 26th April, 2017 records that the extension of the bank guarantee is required since the obligations of the plaintiffs under the LOI are yet to be fulfilled. The plaintiffs in reply to the letter dated 26th April, 2017 did not refer to the agreement dated 1st April, 2017 to contend that since no objection certificates from the lenders have been made available to GNRE and the plaintiffs were in a position to pay the balance consideration amount, the question of extending the bank guarantees could not and does not arise. The plaintiffs have not denied the execution of the agreement dated 1st April, 2017 and availability of the no objection certificates. The plaintiffs and GNRE had prior negotiations in 2015 before the ASC assumed charge for sale of the wind mill assets. The plaintiffs did not tender any amount between 1st April, 2017 and 6th April, 2017 when admittedly no moratorium on the sale was declared.

It has been strenuously argued on behalf of the plaintiffs that time was the essence of the contract and the appellants were not in a position to pass on the title in favour of the plaintiffs in view of the moratorium proceedings. Furthermore, in its reply dated 14th June, 2017 the plaintiffs have agreed to the extension of time by one month followed by an email dated 18th August, 2017 by which the plaintiffs have communicated decision to withdraw its offer for purchase of the wind mills from GNRE and made demand for refund of 25% deposit along with interest.

In the light of the communication dated 14th June, 2017 it cannot be said that the time was the essence of contract and although it may appear that the factum of moratorium was not disclosed by the bank on 26th April, 2017 but the plaintiffs having put to notice of such proceedings on 14th June, 2017, there was no compulsion on the part of the plaintiffs to extend the period and it would be inequitable and unjust when on 22nd August, 2017 the NCLT permitted the resolution professional to complete the proposed sale transactions by executing necessary documents in favour of the buyers.

In the event the plaintiffs paid the entire consideration amount between 23rd March, 2017 and 6th April, 2017 by which time the NOCs were made available to GNRE, as evidenced in the agreement for transfer of wind assets dated 1st April 2017, and moratorium was not declared, this impasse would not have occurred at all.

Interference of the court with invocation of bank guarantee as laid down in several judgments including the judgments relied upon and referred to by the parties is limited. The courts have consistently held that unconditional bank guarantee has to be honoured as an unconditional bank guarantee or an irrevocable letter of credit is the life blood of international commerce. The agreement between the bank and the beneficiary, unless vitiated by fraud, has to be respected. The court can interfere with invocation of bank guarantee if it is found that the contract is vitiated by fraud and the bank guarantee has been obtained fraudulently. The fraud, as observed in Reliance Salt Limited vs. Cosmos Enterprises and Anr., (2006) 13 SCC 599, "must have a nexus with the acts of the parties prior to entering into the contract. In G. S. Atwal & Co. (Engineers) Pvt. Ltd., (1995) 6 SCC 76, it was observed that "in case of confirmed bank guarantees and irrevocable letters of credit, the Court will not interfere with the same unless there is fraud and irretrievable damages are

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involved in the case and fraud has to be an established fraud." The nature of the fraud that the courts talk about is fraud of an "egregious nature to vitiate the entire underlying transaction. This is the view in U.P. Cooperative Federation Ltd. vs. Singh Consultants and Engineers (P) Ltd.,1998 1 SCC 174. Then there comes special circumstances as special equities which may persuade a court to pass an order of injunction restraining invocation of an unconditional bank guarantee if the court is satisfied that the plaintiff is able to make out a special equity in its pleadings. In Hindustan Steelworks Construction Ltd. vs. Tarapore & Co. & Anr., (1996) 5 SCC 34, it was observed that commitments of banks must be honoured free from interference by courts and it is only in exceptional cases i.e. in case of fraud or in case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the Court should interfere. What would constitute special equities has not been laid down in any decisions. It has been left to the discretion of the court to be applied on sound judicial principles and to prevent irretrievable injustice. There cannot be any doubt that the bank guarantee is unconditional in terms and on demand the bank is obliged to pay the aforesaid sum. However, the special equity would only come in if it appears prima facie that injustice would be caused at this stage without the issue being decided as to whether the contract was impossible to perform by allowing the defendant no.1 to appropriate the said amount during the pendency of the suit. The Courts in India exercise jurisdiction both in equity as well as at law but exercise of equity jurisdiction is always subject to the provisions of law. Equity jurisdiction can be exercised only when no law operates in the field. Injunction is a discretionary and equitable remedy intended to prevent injustice. The exercise of the jurisdiction must be principled, but the criterion is injustice (see Mercedes-Benz AG Vs. Leiduck, (1996) 1 AC 284). The bank giving a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of using a bank guarantee is otherwise be defeated. The Courts, therefore, are extremely cautious and slow in granting an injunction to restrain the realization of a bank guarantee. The Courts, however, have carved out two exceptions, namely, fraud and irretrievable harm or injustice as grounds on which the encashment and/or enforcement of bank guarantee may be refused. A fraud in connection with a bank guarantee would vitiate the very foundation of such bank guarantee and, accordingly, if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under the head of irretrievable harm or injustice must be of such an exceptional and irretrievable nature as would override the terms of the bank guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may co-exist in some cases. (See Uttar Pradesh State Sugar Corpn. Vs. Sumac International Ltd., (1997) 1 SCC 568) The third exception which is of recent origin is special circumstances or special equity which may at times overlap with the irretrievable harm or injustice on which encashment may be refused. The limited categories on which the Court may refuse encashment of a bank guarantee or a performance guarantee are summarized below:- (i) If there is a fraud in connection with the bank guarantee which would vitiate the very foundation of such guarantee and the beneficiary seeks to take advantage of such fraud. (ii) The applicant, in the facts and circumstances of the case, clearly establishes a case of irretrievable injustice or irreparable damage. (iii) The applicant is able to establish exceptional or special equities of the kind which would prick the judicial conscience of the Court. (iv) When the bank guarantee is not invoked strictly in its terms and by the person empowered to invoke under the terms of the guarantee. In other words, the letter of invocation is in apparent violation to the specific terms of the bank guarantee. The exceptional cases would be few but it could never be stated as an absolute proposition of law that under no circumstances the Court would injunct encashment/invocation of a bank guarantee which might have been furnished by a party as an independent contract. A beneficiary is not vested with an unquestionable or unequivocal legal right to encash the bank guarantee on demand. The obligation of the bank furnishing the bank guarantee to pay would be subject to a limited exceptional circumstance aforenoticed. As a matter of rule, the bank would be under obligation to encash the bank guarantee, once it is invoked in its terms. The exceptions aforenoticed are merely indicative of the kind of cases where the Court may injunct encashment of a bank guarantee. It is neither possible nor permissible to exhaustively classify the cases where the Court would not interfere and where the Court would judicially intervene in such matters. In the instant case the bank guarantee was extended upto six months till 31st October, 2017 within which time the appellant was in a position to transfer the title of the assets and furnish the required NOCs. In matters relating to bank guarantee the court is not concerned with the matrix contract. The grounds on which the court can grant injunction against unconditional bank guarantee are whether there are elements of fraud or irretrievable injury or special equity. On the basis of the pleadings and the materials on record I find that the plaintiffs have not been able to make out any case of special equity or special circumstances justifying interference by the trial Court. The subsequent events canvassed before us making it now difficult for the plaintiffs to acquire the assets in view of the liquidation process would not justify the court to apply special equity and/or special circumstances largely in view of the fact that not only during the extended period of the bank guarantees the appellants through the mechanism of the insolvency proceeding was in a position to sale the assets to the plaintiffs but even before the proceedings had commenced. The appellant also could not be held responsible for the delay beyond 14th July, 2017 till 22nd August, 2017 as the appellant may not have any control over the proceedings before the NCLT but it needs to be emphasised that within a very short time the RP was directed to sell the assets to the buyers. Moreover, as I have observed that earlier between 23rd March, 2017 and 6th April, 2017, there was no embargo operating against purchase of the assets by the plaintiffs. In view of the Clause (g) of the agreements dated 1st April, 2017 between the plaintiffs and GNRE by which a clear representation was made by GNRE that no objection certificate have already been issued by the lenders on 23rd March, 2017 there was no reason for the plaintiffs not to deposit the sale consideration. If the plaintiffs were really interested in buying the assets, they could have done so between the aforesaid periods or even on the basis of the order dated 22nd August, 2017. In view of the aforesaid, the judgment under appeal dated 18th April, 2019 is set aside. However, the observations and conclusions should not be construed as a final determination of the issues that are likely to arise at the trial of the suit and shall not influence the trial of the suit. The appeal succeeds.
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