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2020 Supreme(Bom) 414
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.J. Kathawalla, J.
IN THE MATTER OF :
Kryshnajay Developers Private Limited - Plaintiff
Versus
Kapil M. Mahtani & Ors. - Defendants
Notice of Motion (L) No. 17 of 2018, In Suit (L) No. 14 of 2018
Decided On : 22-05-2020
For the Plaintiff : Mr. Mustafa Doctor, Sr. Adv. a/w. Mr.Atul Daga, Mr. Kishore Vussonji, Mr. Chirag Shah, Ms. Apeksha Murray, Mr. Phiroze Merchant i/b. Kanga and Company
For the Defendant : Mr.Darius Khambata, Sr. Adv. a/w. Mr. Ali Anthulay, Mr.Kaiwan Kalyaniwalla, Mr.Shehzad A.K. Najam-es-sani, i/b. Maneksha and Sethna
Headnote:
BANK GUARANTEE - INVOCATION - UNCONDITIONAL AND IRREVOCABLE - SOLE JUDGE CLAUSE - INTERPRETATION - MAINTAINABILITY OF SUIT - FRAUD - EXTENSION OF TIME - EFFECT.
Fact of the Case:
Plaintiff, a developer, entered into a Development Agreement (DA) with Defendant Society for redevelopment of its property. Plaintiff also executed two Bank Guarantees: one in favor of the Society and another (Suit Bank Guarantee) in favor of the Mahtanis, who were members of the Society and had a 99-year leasehold right over a portion of the property. The DA and the Suit Bank Guarantee were executed contemporaneously. Subsequently, the project timeline was extended by one year through a Supplementary Agreement between the Plaintiff and the Society. The Mahtanis, claiming that the Plaintiff had failed to complete the project within the extended timeline, invoked the Suit Bank Guarantee. The Plaintiff filed a suit seeking a declaration that the invocation was illegal and void, and an injunction restraining the Mahtanis and the Bank from encashing or making payments under the Suit Bank Guarantee.
Finding of the Court:
The Court held that the Suit Bank Guarantee was absolute, unconditional, and irrevocable. It rejected the Plaintiff's contention that the Guarantee was conditional, relying on the specific clauses of the Guarantee, which made the demand by the Mahtanis conclusive, final, and binding, and provided that the Bank's liability was unconditional and irrespective of any dispute or demur. The Court also held that the reference to the underlying contract (DA and APAA) in the Guarantee did not make it conditional, as long as the subsequent clauses clarified the unconditional nature of the Guarantee. The Court further held that the Mahtanis, as the beneficiaries of the Guarantee, were the sole judges to determine whether there was a breach of the underlying contract and whether any amount should be claimed under the Guarantee. The Court also rejected the Plaintiff's argument that the extension of time granted by the Society through the Supplementary Agreement affected the Suit Bank Guarantee, as the Guarantee was independent of the DA and APAA and was given solely to the Mahtanis due to their special leasehold rights.
Issues: 1. Whether the Suit Bank Guarantee was conditional or unconditional? 2. Whether the Mahtanis were the sole judges to determine whether there was a breach of the underlying contract and whether any amount should be claimed under the Guarantee? 3. Whether the extension of time granted by the Society through the Supplementary Agreement affected the Suit Bank Guarantee?
Ratio Decidendi: 1. A bank guarantee is unconditional and irrevocable if it contains clauses that make the demand by the beneficiary conclusive, final, and binding, and provide that the bank's liability is unconditional and irrespective of any dispute or demur. A reference to the underlying contract in the guarantee does not make it conditional, as long as the subsequent clauses clarify the unconditional nature of the guarantee. 2. Where a bank guarantee contains a 'sole judge' clause, the beneficiary is the sole judge to determine whether there is a breach of the underlying contract and whether any amount should be claimed under the guarantee. 3. An extension of time granted by the society to the developer through a supplementary agreement does not affect a bank guarantee that was given solely to a member of the society due to their special leasehold rights, as the guarantee is independent of the development agreement and the agreement for permanent alternate accommodation.
Final Decision: The Court dismissed the Plaintiff's suit, holding that the invocation of the Suit Bank Guarantee was valid and that the Mahtanis were entitled to invoke the Guarantee. The Court also granted the Plaintiff's request for a continuation of the ad-interim stay for a period of three weeks.
JUDGMENT :
1. By the present Suit, the Plaintiff – Kryshnajay Developers Private Limited (hereinafter referred to as “the Plaintif Developer”) inter alia seeks a declaration that the invocation by Defendant Nos. 1 and 2 (hereinafter referred to as “the Mahtanis”,) of the Bank Guarantee dated 12th November, 2014 bearing reference No. 0268BGD000315 (hereinafter referred to as “the Suit Bank Guarantee”) is illegal, null and void and deserves to be set aside. The said Suit Bank Guarantee was issued by the Defendant No. 3 (ICICI Bank) in favour of the Mahtanis for a sum of Rs.10,00,00,000/-to essentially secure the due and timely performance of the Plaintiff’s obligations under the Development Agreement dated 26th July, 2012, (hereinafter referred to as “the DA”) and the Agreement for Permanent Alternate Accommodation dated 22nd December, 2014 (hereinafter referred to as “the APAA”).
2. The Plaintiff Developer has in the Suit, taken out the above Notice of Motion seeking an interim order of injunction restraining the Mahtanis from encashing the Suit Bank Guarantee and to restrain ICICI Bank from acting on its invocation dated 4th January, 2018, or making any payments to the Mahtanis in furtherance of such invocation.
3. The relevant facts leading to the fling of the present Notice of Motion, are as under :
3.1. On 26th July, 2012 the Plaintiff Developer had executed the aforesaid DA with Defendant No. 4 – Pali Hill Navroze Cooperative Society Limited pursuant to its Resolution dated 11th April, 2020, to have the entire immovable property of the Society re-developed. The Society consisted primarily of two properties : the first being (i) Navroze Apartments, which was constructed on land bearing CTS Nos. C/1342, C/1343 and C/1344, Plot No. 66, 1 in Revenue Village : Danda, Revenue Taluka : Andheri in the Registration District of Mumbai Suburban ; and the second being (ii) Building No. II which was constructed to the west of Navroze Apartments and had two floors with four residential fats, each admeasuring approximately 810 square feet. A portion of land admeasuring around 644 square meters out of the entire immovable property, comprising of an independent Building II, along with ownership of Building II, was leased by the Society in favour of the Mahtanis vide a Lease Deed dated 27th September, 1994, for a period of 99 years.
3.2. As per the aforesaid DA, the Plaintiff Developer agreed to construct ‘free of cost ownership fats for Defendant No. 4 Society and the Mahtanis, in consideration for utilizing the available FSI of the plot, along with the TDR plus any compensatory fungible FSI, to the extent permissible by the Development Control Regulations. To execute these obligations effectively, separate APAA were entered into between the Members of the Defendant No. 4 Society including the Mahtanis, and the Plaintiff Developer.
3.3. Consequently, in order to secure the performance of its obligations under the aforesaid DA and APAA, the Plaintiff Developer furnished two Bank Guarantees : (i) one dated July, 2012 in favour of Defendant No. 4 Society for a sum of Rs.5,25,00,000/-; and (ii) an additional Guarantee in favour of the Mahtanis, namely, the Suit Bank Guarantee as mentioned above. The issuance of the Suit Bank Guarantee was recorded in the APAA between the Plaintiff Developer and the Mahtanis.
3.4. Thereafter, on 26th December, 2014 the Plaintiff Developer received possession of Building No. II to begin re-development of the Society properties. Since the above mentioned Guarantees enjoined the Plaintiff Developer to complete the redevelopment project within 36 months, the Bank Guarantees were likewise amended on 29th December, 2014, in order to reflect the commencement date and mark the beginning of the project.
3.5. However, subsequently on 26th August, 2016, the Plaintiff Developer informed the Defendant No. 4 Society in a Special General Body Meeting (‘SGBMf) that due to certain restrictions imposed by the Civil Aviation Department /
