Madras High Court
Jara Infra Tech Ltd vs The Chief General Manager on 13 April, 2022
W.P. No.18666 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 13.04.2022
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
W.P. No.18666 of 2020
and WMP No.23161 of 2020
Jara Infra Tech Ltd.
Rep. by its
Administrative Manager,
Mr.V.Vimal Kumar ...Petitioner
Vs.
1. The Chief General Manager,
The National Small Industries Corporation Ltd.,
Guindy Industrial Estate,
Ekkaduthangal,
Chennai – 600 032.
2. The Chief Manager,
Punjab National Bank,
Taylors Road Branch,
No.44, Taylors Rd.,
Telecom Quarters,
Kilpauk, Chennai – 600 010. ...Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India praying
to issue Writ of Mandamus forbearing the 1st respondent from insisting upon the
2nd respondent to foreclose the Bank guarantee 10921LG000417, 10921LG
1
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
000419, 10921LG 000120 and also grant 90 days for foreclose of three Bank
Guarantee.
For Petitioner : Mr. M.C.Swamy
For Respondents : Mr.Ajay Kumar Gnanam – R1
No appearance – R2
ORDER
The petitioner is a Technology Company and seeks a Mandamus forbearing
the 1st respondent/National Small Industries Corporation Limited (NSICL)/R1
from invoking the bank guarantees drawn on the Punjab National Bank (PNB)/R2.
2. The petitioner is a Small Scale Industry and is engaged in erection,
installation and commissioning of electrical works. It entered into an agreement
with NSICL on 08.09.2017 in terms of which, the latter agreed to act as a
financier and provide financial assistance to the petitioner for the procurement of
raw materials from canalized/Government Agencies and as against purchase
orders, sale and release orders placed upon them by Government Departments and
canalised Agencies.
3. R1 has been specifically constituted to provide aid, assistance and succor
for SSI units who do not have the wherewithal for obtaining banking facilities by
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
themselves. As per contract terms, R1 directed the petitioner to furnish bank
guarantees and the following three bank guarantees were furnished by the
petitioner:
S.No. B.G.No. Date of Stamp Validity Claim up to Amount
issue of the Paper No. Period (In lakhs)
Original of Original
BG B.G.
1 1092ILG000417 11.09.2017 BM247666 10.12.2020 10.12.2021 50.00
2 1092ILG000419 15.06.2019 BD956414 14.12.2020 14.12.2021 50.00
3. 1092ILG000120 21.05.2020 BZ234200 20.0.2021 20.02.2022 50.00
4. The terms of the agreement as relevant to decide the issue arising in this
writ petition are extracted below.
(a) The role of R1 and the transaction in question are set out in the preamble
to the agreement as below:
Whereas the Corporation acts as a Financier and as Agent
and gives financial assistance to Small Scale Industrial Units which
are otherwise not in a position to procure the raw material from the
canalized/Government Agencies and other against their purchase
orders, sale note(s), and release order(s) placed upon them by a
Government Department, canalized agency and others to lift the raw
material at a time especially where such Small Scale Industrial Units
do not have the sufficient banking facilities;
Whereas the Borrower submitted its application for
procurement of raw material namely TMT Steel Bar, Cement, Blue
Metal, Ready-mixed Concrete, Sand, Bricks, Paver Blocks,
Shuttering material, Tiles, Paint, Sanitary ware, Concrete Chemical
Solution, Steel Structurals & Other allied materials and Inverter,
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
UPS & Power converters, Process control systems & equipments,
Circuit Breakers & Components, Electrical conduits & fittings,
Cables & Wires, Electrical fittings & Components, Solar &
Renewable energy products, Control equipments, Electrical panels &
Distribution, Transformer & Transformers’ parts and Other allied
materials to the Corporation.’
(b) The scope of the agreement as set out in Clauses 1, 2,5 & 6 are as
below:
Now this Agreement witnesseth as follows:
1. That the Borrower hereby authorizes the Corporation to
procure and supply such quantities of the above said material from
the supplier as may be communicated in the indent of the Borrower
placed with the Corporation from time to time and agrees to deliver to
the Corporation letter of authority in its favour in such form as may
be required to enable it to act as a Financier and Agent and Attorney
for procurement and supply of the material referred to above against
the respective indent/indents.
2. That for the purpose of procurement of the material, the
Corporation is authorized to make payment to concerned supplier,
place order with canalized/Government Agencies and others for and
on behalf of the Borrower as its is the actual user(s) of the material
mentioned in the indent(s) and if necessary also to open letter of
credit and make remittances of payment towards goods and make
arrangements for the movement of the material so procured as well as
clearance of the goods and storage thereof undertakes to repay or
reimburse the amount(s) so debited to its account(s) with interest at
the rate of 10.50 per cent per annum or at such other rates as the
Corporation may charge as its discretion depending upon the
variation in its tending rates, within a maximum period of 90 days
from the date of debit of such amount(s). In case the payment is not
received within the stipulated period of 90 days, the Borrower agrees
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
that such repayment of or reimbursement of the amount debited to its
accounts will be made on or before the expiry of 90 days from the
date of delivery of the material to the Borrower or date of payment by
Corporation whichever is earlier.
...........
5. The Borrower agrees to pay to the Corporation processing
and administrative charges at-NIL-per cent of the amount of
advance/limit granted to the Borrower.
6. That the raw material assistance under this Agreement shall
be granted by the Corporation to the Borrower subject to furnishing
of the following securities by the Borrower:
A Bank Guarantee executed by a National/Approved Bank to
the satisfaction of the Corporation. The Corporation shall be entitled
to invoke and encash the said Bank Guarantee.
That the borrower hereby furnish the Bank Guarantee of the
Nationalized Bank covering entire raw material assistance and
requested the Corporation to waive the charge over hypothecated
good/assets as the same are charged to the Bank. The Corporation
has accordingly considered the request of the borrower and waived
the creation of charge over the hypothecated good.
*(This waiver clause shall only be applicable where the goods
are charged to the Banks under credit facility granted by the Bank).
5. The petitioner was regular in repayments till the Covid-19 Pandemic
descended upon the world. The Agreement inter se the parties had specifically
provided that the bank guarantees would be liable to be invoked, if the dues of the
petitioner exceeding the sum total of the guarantees themselves. The guarantees in
this case amounted cumulatively to a sum of Rs.1,50,00,000/-.
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
6. The petitioner, though admittedly defaulting in repayment of the
principal, had been making payments towards interest and this is borne out from
the accounts filed by R1, that reveals that taking into account the interest payable
for the month of September 2020, the closing balance of petitioner was a debit of
a sum of Rs.1,50,03,106.20.
7. R1 immediately put the petitioner to notice of the fact that the dues have
exceeded the cumulative sum of the bank guarantees and called upon the
petitioner to remit 5% of the bank guarantee value immediately, such that the
outstanding value was brought within the permissible limit.
8. The petitioner does not appear to have replied to the notices. However,
some attempts were made to effect small repayments even thereafter, though from
November 2020, the petitioner has, admittedly, not made repayments. As a result,
and admittedly, the dues would have, as on date, exceeded far beyond the amount
guaranteed by the Bank.
9. The petitioner has obtained interim protection from this Court on
11.12.2020 by virtue of which, the guarantees have not been invoked thus far. It is
relevant to note that the interim protection was only for a period of three weeks,
effective till 11.01.2021 and has not been extended thereafter. Notwithstanding
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
this, there has been no action taken by the respondents to invoke the bank
guarantees.
10. The petitioner would plead that in view of the strenuous difficulties in
business as well as the crunch in liquidity, it has admittedly defaulted but ought to
have been granted the benefit of the Directive of Reserve Bank of India which had
issued instructions to all financial institutions to the effect that there be a
moratorium on collection of arrears to enable the borrower tide over the
difficulties caused by the pandemic.
11. A copy of the Directive titled ‘Emergency Credit Line Guarantee
Scheme’ (ECLGS) as on 20.10.2021 is circulated, as per which, Scheduled
Commercial Banks, Financial Institutions as defined in Section 45-I(c)(i) of the
Reserve Bank of India Act, 1934 and Non Banking Financial Companies were
required to assess the eligibility of the borrowers for the benefits set out under the
aforesaid scheme.
12. There has been some discussion as to whether the above Scheme would
be applicable to R1. Though learned counsel for R1 would submit that it is not a
Member Lending Institution (MLI), to which the aforesaid Scheme applies, this
submission does not appear to be correct as the Certificate of Incorporation
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
downloaded from its website and placed before the Court by petitioner, does
reflect that R1 is a Non-Banking Financial Company.
13. The law is very clear on the entitlement, or otherwise, of a defaulter, for
protection from this Court. In Adani Agrifresh Vs. Mahaboob Sharif and others
(Civil Appeal No.14015 of 2015 dated 02.12.2015), the Hon’ble Supreme Court
has reiterated the settled proposition that there should be no intervention
whatsoever by the Court on the invocation of bank guarantees as invariably such
guarantee, wherein the guarantor expressly waives right of objection and defence.
Thus, irrespective of disputes/rival positions adopted by the contracting parties, it
is incumbent upon the Bank to honour the guarantee.
14. The Court makes reference to the earlier judgment in the case of UP
Co-operative Federation Limited Vs. Singh Consultants and Engineers (P)
Limited (1988 1 SCC 174) to the effect that the restraining of the operation of an
irrevocable Letter of Credit/Confirmed Letter of Credit or a bank guarantee is the
exception and not the rule.
15. Such intervention can only be where there is a serious dispute touching
upon the prima facie case of fraud and special equities in the form of preventing
irretrievable injustice between the parties. It is only in such exceptional
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
circumstances that the Court will interfere in the invocation of a bank guarantee,
as otherwise, the fabric of trading operations would be seriously jeopardised.
16. They also refer to the judgment in Vinitec Electronics Private Limited
Vs. HCL Info System Limited (2008 1 SCC 544) also reiterating the aforesaid
proposition categorically, at paragraphs 25 & 26, that it is only in the presence of
fraud of an egregious nature that would vitiate the underlying transaction, that the
Court would even consider intervening in a bank guarantee. Applying the settled
ratio, the Court in Adani Agrifresh (Supra) also rejected the plea for interference
with the commercial bank guarantee.
17. A learned Single Judge of this Court in Slar Machines and Methods Vs.
Branch Manager, National Small Industries Corporation Limited and another
(W.P.22925 of 2015 decision dated 21.01.2020) reiterated the same proposition as
aforesaid concluding that the contract between the petitioner and R1 is a
commercial contract in respect of which, there can be resort only to arbitration as
provided.
18. In light of the settled position as aforesaid, the mandamus as sought for
cannot be granted. The prayer is rejected, though with a caveat. All the decisions
as aforesaid have been rendered in times of normalcy, when commercial
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
transactions were being conducted with some measure of regularity and along
expected lines. The present times however, are exceptional, and in my view, the
difficulties faced by the petitioner must not be brushed away.
19. No doubt, the petitioner is a defaulter. However an offer has been made
by the learned counsel for the petitioner on its behalf, to the effect that the
petitioner is now in a position to settle the outstanding arrears immediately, given
a chance.
20. Thus, and to balance the interests of both sides, the mandamus as sought
for is rejected but the petitioner is permitted to remit 50% of the outstanding, i.e.,
principal and the interest, within a period of four (4) weeks from today. If the
aforesaid direction stands complied, he shall be given another four (4) weeks to
remit the balances.
21. It is made clear that default in the first limb of the relief granted as
aforesaid, will result in immediate vacation of this order and the invocation of the
bank guarantees will come into operation forthwith. So too, in case of default in
regard to compliance with the second limb of the relief as granted above.
22. The petitioner shall not attempt to delay repayment citing disputes in
quantification and disputes on the aforesaid count, if at all, shall be resolved by
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
arbitration only after the admitted outstanding of the principal with interest
computed upto the date of payment, are settled.
23. Dismissed with liberty as aforesaid. Connected miscellaneous petition is
closed. No costs.
13.04.2022
Index: Yes/No
Speaking order/Non Speaking Order
sl
To
1. The Chief General Manager,
The National Small Industries Corporation Ltd.,
Guindy Industrial Estate,
Ekkaduthangal,
Chennai – 600 032.
2. The Chief Manager,
Punjab National Bank,
Taylors Road Branch,
No.44, Taylors Rd., Telecom Quarters,
Kilpauk, Chennai – 600 010.
https://www.mhc.tn.gov.in/judis
W.P. No.18666 of 2020
DR. ANITA SUMANTH, J.
sl
W.P. No.18666 of 2020
and WMP No.23161 of 2020
13.04.2022
https://www.mhc.tn.gov.in/judis
