*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ IA No.1965/2000 in CS(OS) No.1022/1993
% Date of decision: 5th May, 2009
ATV PROJECTS INDIA LIMITED ....... Plaintiff
Through: Mr. Rajeev Nayar, Sr. Advocate
with Mr. Praveen Marahatta and
Mr. Vipul Maheshwari, Advocates
for Mr. Chaturvedi.
Mr. G.L. Rawal, Sr. Advocate with
Mr. H.P. Sharma, Advocate for
Mr. S.P. Banerjee.
Versus
BHARAT HEAVY ELECTRICALS LTD. & ORS ....... Defendants
Through: Mr. Raj Panjwani and Ms. Sonia
Singhani, Advocates for BHEL.
Mr. Vijay Gupta and Ms. Geeta
Goel, Advocates for the defendant
No. 3/Central Bank of India
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may No
be allowed to see the judgment?
2. To be referred to the reporter or not? No
3. Whether the judgment should be reported No
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. A suit under Section 20 of the Arbitration Act, 1940 was filed along with an application for interim relief restraining encashment of bank guarantee. The two banks which had issued the bank guarantees were impleaded as defendants No.2&3. It appears that the defendant No.1 appeared on the very first date i.e. 4th May, 1993 and arguments were heard. However, arguments remained unconcluded. In the circumstances, this court ordered that "since the arguments have already commenced, it is directed that if the bank guarantees have not been encashed so far, they may not be IA.No.1965/2000 in CS(OS)1022/1993 Page 1 of 8 encashed during the continuance of arguments". The record shows that the hearing continued from time to time. On 18th May, 1993 the counsel for the plaintiff made a statement before the court "that the plaintiff would get the aforesaid two bank guarantees renewed for a further period of one year and that the intimation in this regard will be filed in court by 27th May, 1993". With these directions the application for interim relief was disposed of. The defendants No.2&3 banks had not been served with the summons of the suit till then. There is nothing to show that the banks were served with the order dated 4th May, 1993 also.
2. On 19th May, 1993, it was pointed out by the counsel for the defendant No.1 that one of the bank guarantee issued by the Central Bank of India was valid till 30th June, 1993 only and sought direction to the plaintiff to get the same renewed. The counsel for the plaintiff again undertook to get the bank guarantee renewed for one year and to submit the information in that regard in the court by 15th June, 1993. The counsel for the plaintiff on 16th August, 1993 again informed that the plaintiff had already taken steps for getting the bank guarantees in question renewed and instructions had since been issued to the concerned banks in this regard and the information of renewal of bank guarantees shall be submitted in the court. On 24th August, 1994 again the statement of the counsel for the plaintiff that the plaintiff shall keep all the eight bank guarantees alive on year to year basis till the disposal of the suit was recorded and "with this undertaking given by counsel for the petitioner" the application was disposed of.
IA.No.1965/2000 in CS(OS)1022/1993 Page 2 of 8
3. Thereafter on 14th July, 2000, the counsel for the plaintiff informed that as per his instructions only four bank guarantees had been extended up to 16th August, 2000. "By way of last opportunity" it was ordered "that all the eight bank guarantees be got extended positively by the next date of hearing and an affidavit in this regard be filed".
4. The appearance on behalf of the defendant No.3, Central Bank of India, with which we are now concerned is noted for the first time in the order sheet of 8th February, 2001. On 31st May, 2001, the counsel for the Central Bank of India informed the court that the bank had filed suit for recovery of certain amounts against the plaintiff and further confirmed that the plaintiff had not extended the bank guarantee till then.
5. On 3rd April, 2002 it was noted by this court that out of the eight bank guarantees four stood renewed up to August, 2002 and further recorded the statement of the counsel for the plaintiff to get the said bank guarantees renewed for a further period of one year. It was further noticed that validity of the remaining four guarantees i.e. those issued by defendant No.3, Central Bank of India had expired in 1998 and were not renewed by the plaintiff in spite of specific orders passed by the court for renewal of the bank guarantees. The counsel for the plaintiff informed that the plaintiff had been making sincere efforts to get the said four bank guarantees extended. This court formed a prima-facie opinion that the plaintiff had disobeyed the order of the court. On request of the counsel for the plaintiff three weeks' time was granted as a last opportunity to enable the plaintiff to get the said four bank guarantees renewed or IA.No.1965/2000 in CS(OS)1022/1993 Page 3 of 8 in lieu thereof to place four fresh bank guarantees on record. On 2 nd May, 2002 again it was noticed that in defiance of the earlier orders of the court the plaintiff had allowed four bank guarantees to lapse and did not even seek any variation of the orders from the court. Contempt proceedings were initiated against the plaintiff and its whole time Director.
6. The whole time Director of the plaintiff appeared before this court on 11th December, 2002 and stated that since the defendant No.3 bank was refusing to renew the four bank guarantees, fresh security shall be furnished by the plaintiff after complying with necessary formalities. This court accepting the said statement directed the plaintiff to furnish the particulars and nature of assets which would be furnished by the plaintiff as security in lieu of the bank guarantees.
7. However, on 21st January, 2003 the then senior counsel for the plaintiff urged that the court should examine the question of liability of the bank for payment, once the bank guarantee has been invoked during its currency even though the payment is not made on account of interim stay. It was further urged that the question of obligation of the bank to renew the bank guarantee on agreed terms would arise. It was submitted that as a result of interim stay the encashment of the bank guarantee is only suspended and it is not open for the bank to deny payment at a subsequent stage if the invocation was within the validity period, on the ground that the bank guarantee has not been renewed. The court directed the defendant No.3 Bank to respond on this aspect.
IA.No.1965/2000 in CS(OS)1022/1993 Page 4 of 8
8. I have since, vide order dated 22nd January, 2009 held the plaintiff and its Directors guilty of contempt of this court and violation of the orders of this court. On the same day, the arguments on the aforesaid plea of the plaintiff of the liability of the bank were also heard and order on that aspect only was reserved. The plaintiff preferred FAO(OS) No.46/2009 against the finding of guilt of the plaintiff for contempt of this court. The said appeal was dismissed on 10th February, 2009.
9. Since then the plaintiff has paid the principal amount of about Rs.54 lacs of the lapsed bank guarantees to the defendant No.1 and has also undertaken to pay interest for delay in payment @8% per annum. On such undertaking of the plaintiff/its directors, it has been ordered that no further punishment is to be meted out in the contempt proceedings.
10. The orders aforesaid would show that the plea raised by the counsel for the plaintiff as to the liability of the bank does not arise for consideration in the present case. As would be borne out from the above, the order restraining the encashment of the bank guarantee was in force only from 4th May, 1993 till 18th May, 1993 i.e. when the bank guarantees were still alive. At that time, the defendant No.3 bank was nowhere in picture also. Thereafter, since 18th May, 1993 the order of this court was only a direction or acceptance of undertaking of the plaintiff to keep the bank guarantees renewed/in force during the pendency of the proceedings. This being the position, it cannot be said that the payment under the bank guarantee was suspended owing to an order of the court and which the bank remains liable to make. Since the IA.No.1965/2000 in CS(OS)1022/1993 Page 5 of 8 time, the bank started appearing in the present proceedings, the interim arrangement in the proceedings was only of the plaintiff being required to keep the bank guarantees alive.
11. The counsel for the Central Bank of India has also argued that the bank has claims of over Rs.150 crore against the plaintiff and for recovery whereof proceedings are under way. With regard to the plea of the plaintiff that the bank did not renew the bank guarantees inspite of the plaintiff approaching the bank in this regard, it is contended that since the bank already had a huge exposure qua the plaintiff, the bank could not be expected to expose itself further by renewing the bank guarantee. It is contended that the relationship between the plaintiff and the bank was contractual and the bank could not be compelled to enter into a contract of issuing the bank guarantee at the instance of the plaintiff and to its own detriment. The counsel for the plaintiff in this regard has also contended that the plaintiff has instituted proceedings in the Bombay High Court for recovery of over Rs.300 crore from several banks including the Central Bank of India.
12. In my view, when a person/party at whose instance the bank has issued a guarantee and at whose instance the encashment whereof is stayed by an order of the court, irrespective of whether the bank is impleaded as a defendant/respondent in the proceedings or not, the court while restraining encashment of bank guarantee can impose conditions/terms only on the party seeking the order of the court and not upon the bank. In this regard see Delhi Automobile Ltd. vs. Economy Sales 55 (1994) DLT 39. Thus the question of imposing any term or condition on the bank or of interference with the relationship between the bank and its customer IA.No.1965/2000 in CS(OS)1022/1993 Page 6 of 8 does not arise. The issuance of the guarantee by the bank, at the instance of the customer is a matter of contract between the bank and its customer. The guarantees are generally not indefinite in terms of time and are for a definite duration only. The continuance/renewal of a bank guarantee is dependent upon the volition of the bank and its customer. Unless the bank has agreed to renew the guarantee from time to time, the customer has no such right of renewal on agreed terms, as contended by counsel for the plaintiff. Merely because the customer has gone to the court seeking restrain on invocation / encashment of guarantee, cannot compel the bank to renew the guarantee if unwilling to do so. Judicial notice has to be taken of the considerable length of time, interim orders of stay remain pending. In the present case itself, the bank guarantees which were valid till 1993, though got renewed till 1998 under orders of court, but the proceedings culminated only in the year 2009. In today's fast changing economy, the entire equation/consideration may change in such a long span of time. The security which the bank may have taken from its customer or considered sufficient for issuing the bank guarantee may itself disappear/dissipate in such a long span of time. The prospects of the business of the customer may not remain rosy. The stocks and shares of the customer or held by the customer may be adversely effected by change in government policy, competition or any other reason. The Apex Court in State of Maharashtra Vs Dr. M.N. Kaul AIR 1967 SC 1634 has held that the cardinal principle is that the guarantor must not be made liable beyond the terms of his engagement. It was further held that it is impossible to ignore the time limit which is an integral part of the guarantee. IA.No.1965/2000 in CS(OS)1022/1993 Page 7 of 8
13. Certainly the bank, when the guarantee is invoked during the term and in terms thereof is liable to make the payment, irrespective of whether it has sufficiently covered itself against the said risk or not. However, that risk of the bank is for the term of the bank guarantee only and till shortly thereafter if there is any delay in making the payment or if the invocation is on the last day of the said term.
14. This while the question posed by counsel for the plaintiff of the Bank being obliged to renew the guarantee on agreed term is answered against the plaintiff, the other question, as to whether the bank will remain liable, if once guarantee is invoked in terms thereof and if payment thereunder is interfered with by interim order of court and till vacation thereof, after howsoever long, is left unanswered as not arising from the facts of the case.
15. I, therefore, find that the defendant No.3 bank cannot be made liable for making payment. The defendant No.3 bank is not found liable in any manner whatsoever to the plaintiff or the defendant No.1, under the guarantees aforesaid.
RAJIV SAHAI ENDLAW (JUDGE) May 05, 2009 PP IA.No.1965/2000 in CS(OS)1022/1993 Page 8 of 8