Citicorp International Limited vs Shiv-Vani Oil & Gas Exploration ...
2018 Latest Caselaw 4110 Del

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*    IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                        Date of decision: 19.07.2018
+    CO.PET. 446/2013
     CITICORP INTERNATIONAL LIMITED                  ..... Petitioner
               Through     Mr.Ashish Virmani,          Adv. for         the
                           Ex.Management.
                    versus

     SHIV-VANI OIL & GAS EXPLORATION
     SERVICES LTD                              ..... Respondent
              Through   Mr.Kunal Sharma, Adv. for the OL.
                        Mr.Neeraj Yadav, Mr.Davesh Bhatia and
                        Mr.Saurabh Kumar, Advs. for applicant in
                        CAs. 1053 &1055/2017.
                        Mr.Moazzam Khan, Mr.Uyapak Desai,
                        Mr.Alipak      Banerjee,       Mr.Mohammad
                        Kamran and Mr.Brijesh Kumar, Advs. for
                        applicant in CAs.1641 and 1660/2017.
                        Mr.Anil Agarwalla and Mr.Shakya Sen,
                        Advs. for applicant in CAs. 2041/2017 Adv.
                        293/2018.

     CORAM:
     HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J. (ORAL)

CA Nos.1053 and 1055/20157 Let the OL file a reply.

List for arguments on 19.11.2018.

CA Nos.1641 and 1660/2017

1. This application is filed under section 446 of the Companies Act,

Co.PET.446/2013 Page 1 1956 (hereinafter referred to as the 'Act, 1956') seeking permission to continue the execution proceeding; to execute the arbitral award dated 09.09.2015 and also to request to the Bombay High Court for appropriate orders in relation to the bank guarantee provided by the respondent company.

2. As noted by this court in its order dated 20.03.2018, there were two awards which had been passed in favour of the applicant for Rs.12 crores plus interest. It has also been pointed out that pursuant to the proceedings under section 37 of the Arbitration and Conciliation Act, 1996, the Bombay High Court on 11.11.2014 directed the respondent company to furnish a bank guarantee of a Nationalised Bank in favour of the Bombay High Court for a sum of USD20,00,000.

3. Against the said order, an appeal was filed by the respondent company being CA. No.2929/2015 before the Supreme Court. The Supreme Court vide order dated 16.03.2015 reduced the amount of bank guarantee to Rs.4 crores and all authorities, including the Monitoring committee was directed to ensure that the bank guarantee be furnished.

4. Pursuant to the furnishing of the bank guarantee on 23.10.2015 this court noted that the bank guarantee in question of Rs.4 crores which was given by the respondent company is expiring on 31.10.2017. This court, on the request of the learned counsel for the applicant, granted permission to encash the bank guarantee subject to the condition that the amount will be released in favour of the Registrar General of the Bombay High Court. The bank guarantee has now been encashed and is lying with the Bombay High Court.

5. I have heard the learned counsel for the parties.

Co.PET.446/2013 Page 2

6. The learned counsel for the applicant has relied upon the judgment of the Supreme Court in the case of Maharashtra State Electricity Board, Bombay v. Official Liquidator, High Court, Ernakulam & Anr., (1982) 3 SCC 358, to contend that the applicant is entitled to receive the proceeds from the bank guarantee that has been furnished by the respondent and merely because the respondent company has gone into liquidation would not be a bar on the respondent receiving the same. He has also submitted that the bank guarantee which was given by ICICI Bank was an independent contract between the applicant and the bank and the winding up proceedings of the respondent company would not have any effect on the liability of the bank in terms of the bank guarantee.

7. The learned counsel for the OL however submits that the facts of the judgment of the Supreme Court in Maharashtra State Electricity Board, Bombay v. Official Liquidator, High Court, Ernakulam & Anr.(supra) are materially different. He has pointed out that in that case the bank guarantee is encashed before the winding up petition was filed. However, in this case the encashment has taken place after the petition was admitted and winding up proceedings had commenced and the OL had been appointed as the provision liquidator. He also submits that allowing the applicant to proceed with the bank guarantee would mean that an unsecured creditor like the applicant would steal a march over the other unsecured creditors.

8. I may first look at the judgment of the Maharashtra State Electricity Board, Bombay v. Official Liquidator, High Court, Ernakulam & Anr (supra). The Supreme Court held as follows:

"7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum upto Rs.

Co.PET.446/2013 Page 3 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the supplier of goods i.e. the company in liquidation. The liability is absolute and unconditional. The fact that the Company in liquidation i.e. the principal debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e. the guarantor. Under section 128 of the Indian Contract Act, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under section 134 of the Indian Contract Act by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (See Jagannath Ganeshram Aggarwala v. Shivnarayan Bhagirath & Ors.(1). See also In re Fitzgeorge Ex parte Robson(2). In view of the unequivocal language of the letter of guarantee, no reliance can be placed by the Company in liquidation on the decision of this Court in Punjab National Bank Limited v. Bikram Cotton Mills & Anr.(3) in which the surety's liability was limited to the 'ultimate balance' found due from the principal debtor and the said balance had not been ascertained beforethe institution of the suit................"

9. The Supreme Court has clearly noted that the discharge of a principal debtor by operation of law in bankruptcy does not absolve the surety of his liability under sections 128 and 134 of the Indian Contract Act.

Co.PET.446/2013 Page 4

10. The contention of the learned counsel for the OL that on account of the different facts of the aforenoted case, the said judgment would not have any application to this case is not correct. The legal position is not altered merely because the bank guarantee was encashed after the winding up proceedings had commenced. Under Section 128 of the Indian Contract Act, the liability of the surety is coextensive with that of the principal debtor. Reference in this context may also be had to the judgment of the Supreme Court in Ansal Engineering Projects Ltd. vs. Tehri Hydro Development Corporation Ltd. & Ors., (1996) 5 SCC 450. The Supreme Court held as follows: -

"4. It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity exists, is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions unhedged by pending disputes between the beneficiary and the contractor."

It clearly follows that the bank guarantee is an independent and distinct contract between the bank and the beneficiary. It has no connection with the primary contract. Merely because the respondent Company has

Co.PET.446/2013 Page 5 gone into liquidation would not in any manner affect the said obligation of the bank in terms of the bank guarantee. There is no evidence on record to show that there would be a diminution in the immovable assets of the respondent Company on account of encashment of the bank guarantee.

11. Regarding the plea that the applicant would steal a march over the other unsecured creditors, as noted above that the bank guarantee was an independent contract between the applicant and the bank who had agreed to be a guarantor on behalf of the respondent company. The payment which is being sought by invocation of the bank guarantee could not be sought by the respondent company from the bank that has given the guarantee. Further, the bank guarantee was furnished pursuant to orders of the Bombay High Court which were verified by the Supreme Court.

12. I, accordingly, allow the present application to the extent that the applicant would be entitled to approach the Bombay High Court seeking relief of release of the amount received, which is lying deposited with the Bombay High Court pursuant to the encashment of the bank guarantee along with accumulated interest thereon.

13. The application stands disposed of.

14. At this stage, the learned counsel for the applicant submits that this court may hear the execution petition filed by the applicant to enforce the award or this court may permit the court hearing the execution petition to continue to hear the same. He relies upon the judgment of the Supreme Court in the case of Harihar Nath & Ors. v. State Bank of India & Ors., (2006) 4 SCC 457 stating that the status of the applicant is that an unsecured creditor will have to stand along with other unsecured creditors to recover his dues.

Co.PET.446/2013 Page 6

15. It will be for the OL/this court to take steps under section 528 of the Companies Act regarding the claim of the applicant arising from the award. The judgment relied upon by the applicant in the case of Harihar Nath & Ors. v. State Bank of India & Ors.(supra), would not have any application to the facts of this case. In that case, the observations have been made regarding the suit/proceedings to be tried by an appropriate court. In this case what the applicant is seeking is execution, namely attachment of the assets of the respondent company and sale of the same to satisfy the decree in favour of the applicant. It would be for the OL to deal with the claim of the applicant, as per law.

CA Nos.2041/2017 and 243/2018 The learned counsel for the OL seeks some time to file a reply. Needful be done within four weeks from today.

CO.PET. 446/2013 The learned counsel appearing for the Ex.Management states that they will file an audited balance sheet as directed by this court vide order dated 20.03.2018 within six weeks from today. Needful be done before the next date of hearing.

List on 19.11.2018.

JAYANT NATH, J.

JULY 19, 2018/v




Co.PET.446/2013                                                        Page 7