Atv Projects India Limited vs Bharat Heavy Electricals Ltd. & ...
2009 Latest Caselaw 1874 Del

     *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

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.

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

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.

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

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

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.

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