A Division Bench of Justice Vibhu Bhakrau and Justice Amit Mahajan disposed of the appeal instituted by the appellant against an ex- parte order dated March 12, 2021 passed by the District Judge, whereby directions were issued to maintain the status quo in respect of the Performance Bank Guarantee number no. 3178120BG0000192, dated August 21, 2020 and the Security Deposit Bank Guarantee no. 3178120BG0000272 dated October 6, 2020. The Bench was of the opi nion that financial difficulties due to the outbreak of Covid-19 do not give rise to any special equities to interdict an unconditional bank guarantee. More importantly, special equities are not an independent ground for seeking interdiction of the bank guarantee.
The appellant preferred the present appeal against an ex- parte order dated March 12, 2021 passed by the District Judge, whereby directions were issued to maintain the status quo in respect of the Performance Bank Guarantee number no. 3178120BG0000192, dated August 21, 2020 and the Security Deposit Bank Guarantee no. 3178120BG0000272 dated October 6, 2020.
The first respondent filed a suit, inter alia, praying for a decree of permanent injunction in order to restrain the appellant from invoking and encashing the PBG and SDBG. The respondent further sought a decree of permanent injunction restraining the second respondent from acting upon any letter received from Conocor demanding the invocation of the two bank guarantees in question.
Averments made in the plaint filed by the SIL indicated that there were certain points of dispute between the Concor and SIL with respect to execution of the balance work in pursuance to the contract that was entered between the two. SIL sent a letter dated March 3, 2021 stating that it would not be possible for SIL to complete the balance work at the rates agreed between the parties.
It was the case of the SIL that there was reasonable delay in execution of the contract for reasons attributable to Concor and in view of rise in the prices of material and resources it was not possible to complete the work at the rated initially decided upon, the SIL stated.
It was further submitted by SIL that it is settled in law that unconditional bank guarantees cannot be interdicted except in exceptional cases of egregious fraud and special equities. Reliance was placed on the cases namely, Svenska Handelsbanken v. M/s Indian Charge Chrome and Ors, Larsen & Toubro Limited v. Maharashtra State Electricity Board and Others, Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. And Anr and Himadri Chemicals Industries Ltd. v. Coal Tar Refining Company.
The Court while pursuing the plaint was of the opinion that there was no allegation that contract between the parties was vitiated by fraud. The only allegation was that invocation of the bank guarantee would result in fraud. The Court noted that the same was not a ground for interdicting an unconditional bank guarantee. In absence of SIL establishing any fraud of an egregious nature, the question of interdicting an unconditional bank guarantee does not arise, the Court remarked. It was further stated that financial difficulties due to the outbreak of Covid-19 do not give rise to any special equities to interdict an unconditional bank guarantee. More importantly, special equities are not an independent ground for seeking interdiction of the bank guarantee.
The Court further stated that the District Judge passed the impugned order in a mechanical manner without stating any reasons for granting the extraordinary ad- interim relief of interdicting the unconditional bank guarantees. It was also stated that the Judge took into note the averments made in the plaint, however the averments made in the plaint only reflected certain contractual dispute and the same cannot be the ground to interdict the unconditional bank guarantees, the Court observed. In light of the aforesaid observations, the Court stated that the impugned order was unsustainable and was liable to be set aside.
On the contention of the respondent, that the letter of invocation submitted by the Concor was not in terms of bank guarantees in question, the Court observed that since PBG could only be invoked by a letter in terms of paragraph 2 of the PBG. However, the letter dated March 15, 2021 was not in terms of the PBG, the SBI was not in a position to encash the PBG in pursuance of the same, the Court noted.
At last, the Court submitted that the Bank Guarantees will not be invoked if SIL deposits the entire amount within a period of one week from today. Also liberty was given to Concor to approach the Trial Court for appropriate orders for release of the amounts as may be deposited by SIL. Accordingly, the appeal was disposed of.
Case name: CONTAINER CORPORATION OF INDIA LTD v. M/S SHIVAKRITI INTERNATIONAL LTD & ANR
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