Back
High Court Of Calcutta
Dipak Kumar Sen
ROAD MACHINES (INDIA) PVT.LTD. - Appellant
Versus
THE PROJECTS AND EQUIPMENT CORPORATION OF INDIA LTD. - Respondent
Suit 947 Of 1981
Decided On : 01/21/1982
BANK GUARANTEE - INVOCATION - TERMS AND CONDITIONS - INTERPRETATION - LEGAL PRINCIPLES: 1. A bank guarantee is a commercial document and not a statutory notice or a pleading in a legal proceeding. 2. A bank guarantee may be invoked in a commercial manner and it is sufficient if the bank concerned understands that the guarantee is being invoked by the beneficiary in terms of the guarantee. 3. An irrevocable and unconditional bank guarantee cannot be affected by any change, modification, or alteration in the parent contract without reference to the bank. 4. The decision of the beneficiary under the guarantee as to the liability of the bank is final and binding on the bank. 5. A bank cannot question the judgment of the beneficiary under the guarantee. 6. The courts usually refrain from granting injunctions to restrain the performance of contractual obligations arising out of a letter of credit or a guarantee between banks. 7. In exceptional cases, the courts may interfere with the machinery of irrevocable obligations assumed by banks.
Fact of the Case:
The plaintiff, Road Machines (India) Private Ltd., sought to prevent the invocation of a bank guarantee issued in favor of the defendant, Projects and Equipment Corporation of India Ltd., by the United Bank of India. The guarantee was issued to secure the plaintiff's obligations under a contract for the supply of road dumpers. The plaintiff claimed that the guarantee had been invoked on the allegation of default of the plaintiff in satisfactory execution of the contract, but that on the date of the invocation no contract existed between the parties and/or a new contract had been substituted.
Finding of the Court:
The court found that the plaintiff had failed to perform the whole of the contract and ship the goods within the stipulated time. The court also found that the plaintiff had not raised the Force Majeure clause with the defendant at any material time. The court further found that the bank guarantee was irrevocable and unconditional and that the plaintiff had not established any exceptional circumstance on which the recognized principles laid down by the highest authorities should not be followed.
Issues: 1. Whether the bank guarantee could be invoked in a commercial manner. 2. Whether the decision of the beneficiary under the guarantee as to the liability of the bank was final and binding on the bank. 3. Whether the courts could interfere with the machinery of irrevocable obligations assumed by banks.
Ratio Decidendi: 1. A bank guarantee is a commercial document and not a statutory notice or a pleading in a legal proceeding. 2. An irrevocable and unconditional bank guarantee cannot be affected by any change, modification, or alteration in the parent contract without reference to the bank. 3. The decision of the beneficiary under the guarantee as to the liability of the bank is final and binding on the bank. 4. The courts usually refrain from granting injunctions to restrain the performance of contractual obligations arising out of a letter of credit or a guarantee between banks.
Final Decision: The court dismissed the plaintiff's application to prevent the invocation of the bank guarantee.
( 1 ) THE plaintiff, Road Machines (India) Private Ltd. , in this application made in the above suit, is seeking to prevent invocation of a Bank Guarantee dated the 9th Oct. , 1980 which was issued in favour of the Projects and Equipment Corporation of India Ltd. , the defendant No. 1 by the United Bank of India, the defendant No. 2 whereby the defendant No. 2 guaranteed irrevocably and unconditionally that the plaintiff would perform their obligations in respect of timely delivery of goods, quality of goods delivered and other conditions as contained in a Contract dated 8th Aug. , 1980 entered into by and between the plaintiff and the defendant No. 1 and in default of the plaintiff to honour the said obligations to pay to the extent of Rs. 1,52,760/- to the defendant No. 1. The Letter of Guarantee further provided that: (a) the decision of the defendant No. 1 as to the liability of the defendant No. 2 under the said guarantee and the amount payable thereunder would be final and binding on the defendant No. 2 and that a certificate issued by the defendant No. 1 in this regard would be conclusive and binding on the defendant No. 2. (b) the said guarantee would not be affected by any indulgence shown by the defendant No. 1 to the plaintiff without reference to the defendant No. 2 and/or by any change, amendment, modification or alteration that may be effected in the contract concerned without reference to the defendant No. 2.
( 2 ) UNDER the said contract dated the 8th Aug. , 1980 the plaintiff was required to supply 107 road dumpers to the defendant No. 1 on stipulated terms and conditions. It was a term of the contract that deliveries under the contract would be F. O. B. Bombay or Calcutta Port subject to a "force Majeure" clause.
( 3 ) THE clauses in the contracts relating to "force Majeure" are as follows:" (a) If at any time during the continuance of this contract either party is unable to perform, in whole or in part, any obligation under this contract because of Force Majeure, then the date of fulfilment of such obligation shall be postponed during such time as the circumstances of Force Majeure are operative. (b) Force Majeure means all events outside the control of the parties hereto which cannot be foreseen or if foreseeable, are unavoidable and which occur after the date of signature of this contract and which prevent or hinder the performance of obligations or any of them under it and without being limited thereto. It includes, war, hostility, military operations of any character, acts of public enemy, civil commotion, sabotage, lock-outs, fire, floods, explosions, epidemics, quarantine restriction, acts of God, nonavailability of vessels and acts of Government (including but not restricted to prohibition of exports or imports ). Any waiver/ extension of time in respect of a delivery of any instalment or part of the goods shall not be deemed to be a waiver/extension of time in respect of the remaining deliveries. (c) Any party which is unable to fulfil its obligations under the contract shall inform the other about the matter by a written or cabled notice within 30 days after cause OF causes have commenced to occur. A certificate issued by a Chamber of Commerce in the country of the seller or buyer, as the case may be, shall be sufficient proof of the existence of the above circumstances and of their duration. (d) Where the circumstances of Force Majeure continue for a period of 12 months, either party shall have the right then or at any time thereafter, to cancel the contract by a simple misa en demcure served on the other party without having recourse to any judicial action, as to any part then left unperformed. Such cancellation shall have effect without prejudice to either party's rights to recover any money paid in respect of that portion of the contract so cancelled but without interest, costs or compensation. (e) Subject to the said right of cancellation, the operation of Force Majeure s
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
