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SUPREME COURT OF INDIA
L. NAGESWARA RAO, AJAY RASTOGI, JJ.
Standard Chartered Bank – Appellant
Versus
Heavy Engineering Corporation Ltd. & Anr. – Respondents
Civil Appeal No(S).9288 of 2019 (Arising Out Of SLP(Civil) No(s). 23430 of 2019)
Decided on : 18-12-2019
(a) Bank guarantee - An independent contract between bank and the beneficiary - Bank is always obliged to honour its guarantee if unconditional and irrevocable - Dispute between the beneficiary and the party at whose instance the bank has given the guarantee - Immaterial - Except in case of fraud, irretrievable injustice or special equities. (Para 24)
(b) Bank guarantee - Instantly bank guarantees conditional, specific in nature and limited in amount - No case of fraud, irretrievable injustice and special equities - Guarantees invoked in due compliance of the guarantees - Not open for the appellant Bank to determine as to whether the invocation of the bank guarantee was justified - Bank obliged to pay under terms of the bank guarantee. (Para 26)
Facts of the case:
1st respondent placed an order on 2nd respondent (Simon Carves India Ltd. ‘SCIL’) for the complete design, supply of both indigenous and imported equipments, erection and commissioning of requisite civil and construction works of the Dankuni Coal Complex at a total price of Rs. 21.10 crores.
Pursuant to the letter of intent, a formal Memorandum of Agreement was executed by and between SCIL. Thereafter, the 1st respondent (plaintiff) from time to time advanced for the said work against several bank guarantees furnished by SCIL. The instant dispute pertains to two bank guarantees dated 16th February, 1983 and 29th August, 1984, which were advanced to SCIL. The said guarantees furnished by the appellant bank were extended from time to time and revalidated.
The work had to be abandoned due to which 1st respondent suffered huge losses and damages. Ultimately, a sum of Rs. 139.90 lakhs, was deducted by the 1st respondent from final bill which pertained to the apportioned work handed over to SCIL.
1st respondent plaintiff demanded encashment of both the said guarantees which were refused by the bank to honour and diverse correspondence was exchanged by and between the 1st respondent plaintiff and the appellant-defendant bank. 1st respondent in continuation made subsequent demands for encashment of the guarantees
Ultimately, 1st respondent-plaintiff instituted a suit before the High Court for decree of Rs. 1,10,33,207.0/-along with interest being the aggregate sum of both the said guarantees.
The suit was dismissed which came to be challenged by the 1st respondent in appeal before the Division Bench of the High Court. The Division Bench finally held that the bank guarantees were properly invoked in law by the 1st respondent-plaintiff and accordingly passed a decree of Rs.1,10,33,207.0/- together with interest at the rate of 8% per annum on and from the date of institution of the suit until payment.
Finding of the Court:
Bank was obliged to pay.
Result: Appeal allowed.
JUDGMENT :
Rastogi, J.
1. Leave granted.
2. The instant appeal is being preferred against the judgment and order dated 8th May, 2019 passed by the Division Bench of the High Court of Calcutta setting aside the judgment dated 16th October, 2015 of the Single Bench and accepting claim of the 1st respondent-plaintiff holding that the bank guarantees were properly invoked in law and accordingly the decree came to be passed for Rs. 1,10,33,207.0/-as claimed in paragraph 18 of the plaint with interest at the rate of 8 per cent per annum from the date of institution of the suit until payment.
3. Although both the Judges of the Division Bench has delivered their separate judgment but have expressed a concurring view on the subject.
4. The dispute primarily arose with regard to two bank guarantees amounting to Rs. 71,35,100/-and Rs. 20,32,500/-in terms of the letters of intent, HEC-CS-1502-81 dated 19th May, 1981 and HEC-CS-1502-81 dated 19th May, 1981 furnished on behalf of the 2nd defendant by the appellant Bank(1st defendant) in favour of the 1st respondent-plaintiff “as advance against supply of plant and equipment” by the 1st respondent-plaintiff to the 2nd respondent (defendant no. 2). The two bank guarantees are on identical terms and the only difference is the date and the amount which are reproduced as under:
Bank Guarantee No. 1001/03/100G dated 16th February, 1983
“We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 71,35,100/-(Rupees SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. 71,35,100/-(RUPEES SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIER.”
Bank Guarantee No. G/1001/84/608 dated 29th August, 1984
“We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 do hereby undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 20,32,500(Rupees TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. 20,32,500/-(RUPEES TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIER.”
(emphasis supplied)
5. The said two bank guarantees were furnished for and on behalf of 2nd respondent towards the sum insured “against any loss or damage caused to or suffered by the Corporation by reason or any breach or failure by the said supplier, in due performance of the aforesaid contract.”
Brief facts of the case :
6. By a letter of intent dated 19th May, 1981, 1st respondent placed an order on 2nd respondent(Simon Carves India Ltd. ‘SCIL’) for the complete design, supply of both indigenous and imported equipments, erection and commissioning of requisite civil and construction works of the Dankuni Coal Complex at a total price of Rs. 21.10 crores. The letter of intent dated 19th May, 1981 after describing 4 sections of the LTC plant at Dankuni stated as under:
“The above price covers the complete design, supply of both indigenous and imported equipment, erection and commissioning with requisite civil and structural works complete in all respects except land filling upto 4.00 M level, railways siding, roads & outside drawing and perphorial lighting which will only be outside your scope or work.
The break up of the total price of Rs. 21.10 crores for purpose of billing is enclosed.
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