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2021 Supreme(Bom) 1247
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
G.S. Patel, J.
S.K.S. Power Generation (chattisgarh) Ltd - Appellant
Versus
Canara Bank - Respondent
Summons For Judgment No. 42 of 2021; Commercial Summary Suit No. 234 of 2020; Interim Application (L) No. 9458 of 2020
Decided On : 11-08-2021
Venkatesh Dhond, Advocate, Rohaan Cama, Advocate, Vinodini Srinivasan, Advocate, Rashna Khan, Advocate, Poorva Garg, Advocate, Mulla & Mulla, Advocate, Craigie Blunt & Caroe, Advocate, Prateek Seksaria, Advocate, Nishit Druva, Advocate, Prakash Shinde, Advocate, Niyati Merchant, Advocate, Astha Thakur, Advocate, M.D.P. & Partners, Advocate, R. Subramanian, Advocate
The main legal point established in the judgment is the strict adherence to the principles of interference with unconditional bank guarantees, emphasizing the exceptions of fraud and irretrievable injustice, and the necessity to decisively establish irretrievable injury.
Headnote:
BANK GUARANTEES - Commercial Summary Suit - Techno Unique Infratech Pvt Ltd v Gammon Infrastructure Projects Ltd,2020 SCCOnLineBom 42 - The court discussed the law on bank guarantees, emphasizing the principles of interference with unconditional bank guarantees, exceptions of fraud and irretrievable injustice, and the necessity to decisively establish irretrievable injury. The court made the Summons for Judgment absolute, decreeing the suit in favor of the Plaintiff.
Fact of the Case:
The case involved two proceedings: an impleadment action by the principal debtor, Cethar, and a Summons for Judgment by the beneficiary of the Bank Guarantees, SKS Power. The court analyzed the background facts related to the bank guarantees, including the issuance, extension, and invocation of the guarantees. It also addressed the impleadment application by the liquidator of Cethar, dismissing the application and keeping all contentions open for appropriate proceedings.
Finding of the Court:
The court found that Canara Bank had no valid defense to the Summons for Judgment and decreed the suit in favor of SKS Power. The court declined to award costs due to the size of the claim and the Defendant being a public sector bank.
Issues: The issues involved the validity of the bank guarantees, the impleadment application by the liquidator of Cethar, and the defense presented by Canara Bank in response to the Summons for Judgment.
Ratio Decidendi: The court emphasized the principles of interference with unconditional bank guarantees, exceptions of fraud and irretrievable injustice, and the necessity to decisively establish irretrievable injury. It also clarified that financial incapacity or liquidation of the principal debtor is insufficient to invoke special equities.
Final Decision: The Summons for Judgment was made absolute, and the Summary Suit was decreed in favor of SKS Power. No costs were awarded due to the size of the claim and the Defendant being a public sector bank.
JUDGMENT
G S Patel, J. - A. PRELIMINARY
1. The Interim Application is not in the correct form. The full title is incomplete: it does not have the full address of the Applicant, Cethar Ltd. This is to be rectified. Leave to amend without need of re verification. Amendment to be effected in two weeks by the Applicant. Fresh service of the amended Interim Application is dispensed with.
B. OVERVIEW & BACKGROUND FACTS RELATING TO THE BANK GUARANTEES
2. There are two separate proceedings before me. Both are in a Commercial Summary Suit filed on a set of unconditional Bank Guarantees. The Interim Application is an impleadment action by the principal debtor ("Cethar"), at whose instance the Bank Guarantees in question were issued. The Summons for Judgment is by the beneficiary of the Bank Guarantees, the Plaintiff in the suit ("SKS Power"). The issuing bank ("Canara Bank") is the only Defendant to the suit. It issued the Bank Guarantees and periodically renewed them.
3. Cethar'S Interim Application for impleadment and Canara Bank's defence to the Summons for Judgment. Both plead fraud; each takes a slightly different approach.
4. Sks Power was once part of the SKS Ispat group. In November 2018, in a one-time settlement deal, Agritrade Resources, a Singapore-based entity acquired SKS Power, which then ceased to be part of the SKS Ispat group. This has relevance to the impleadment Interim Application, not the Summons for Judgment.
5. In 2011, SKS Power entered into various agreements with Cethar Constructions Limited and Cethar Limited to set up a 1200 MW (4x300 MW) power project in Raigarh District, Chhattisgarh. The agreements required Cethar to furnish advance and performance bank guarantees. In November 2013, there was some amendments to the principal contracts. Nothing turns on that, or on the fact that project completion was delayed.
6. At Cethar's request, on 16th February 2012 and 17th February 2012, Canara Bank issued five Bank Guarantees in favour of SKS Power in the aggregate amount of Rs.121,65,00,000/-. BG001/2012 was dated 16th February 2012 for Rs.5.6 crores. BG002/2012 also 16th February 2012 was for Rs.9.6 crores. BG003/2012 dated 17th February 2012 was also for Rs.9.6 crores. BG004/2012 dated 17th February 2012 was for Rs.78.20 crores. BG005/2012 of 17th February 2012 was for Rs.18.65 crores. Copies of the individual Bank Guarantees are annexed. Three of these Bank Guarantees are advance Bank Guarantees, in identical terms. The remaining two are performance Bank Guarantees also in identical terms. All five Bank Guarantees are payable on demand and all five are unconditional.
7. Any one of these bank guarantees will suffice. I will take the one at Exhibit "A1". That it, like all the others, is unconditional is not in dispute. Its initial period of validity was till 31st January 2014. Of necessity, being an advance Bank Guarantee it was to be on a quarterly reducing basis as the advances were returned. This is the usual form in any contract of construction where advances paid by the client are returned in stages and the advance Bank Guarantee (which guarantees the return of the advances) is progressively reduced. That these Bank Guarantees were extended periodically is also not in dispute. All the bank guarantees have a jurisdiction clause that confer exclusive jurisdiction on courts in Mumbai, where, demonstrably, a at least a part of the cause of action arises.
8. On 6th March 2017, Cethar asked Canara Bank to extend the bank guarantees.
9. By an order of 16th June 2017, the NCLAT, Chennai admitted an application against Cethar Limited and ordered the commencement of a Corporate Insolvency Resolution Process or CIRP. This resulted in an immediate moratorium.
10. On 30th June 2017, Canara Bank extended the bank guarantees until 30th September 2017 (on Cethar's application of 6th March 2017).
11. On 19th July 2017, the NCLT appointed one Mr V Nagarajan ("Nagarajan") as the Resolution Professional/Interim Resolution Professional (RP/
