The beneficiary of an unconditional bank guarantee is estopped from encashing the same if it induces the person causing the bank guarantee to be furnished that it would not be encashed.

1. The Court: This is another application in aid of a suit seeking an order of injunction from this Court restraining the defendant from invoking a bank guarantee. The plaintiff company [plaintiff] seeks such an order to restrain invocation of a bank guarantee for Rs.8,65,17,900/- dated 29th June, 2011 and renewed in 2013 upto December, 2014, furnished by them in favour of the first and second defendants. The first defendant is Coal India Ltd. The second defendant is South Eastern Coalfields Ltd., a subsidiary of the first defendant. The third defendant is Allahabad Bank.

2. This bank guarantee was furnished in connection with a contract between the parties evidenced by a Letter of Assurance [LOA] issued by the first/second defendants [hereinafter referred to collectively as the defendants]. It was dated 12th August, 2011 and valid for two years uptill 11th August, 2013.

3. The validity of the Letter of Assurance [LOA] was extended by the defendants upto 11th November, 2013. It is quite clear from the available evidence that this extension was made by the defendants considering some factors in the performance of the contract, which were not within the control of the plaintiff. This is so because the minutes of the meeting of the Standing Linkage Committee [Long Term] [SLC(LT)]for power to review the status of existing coal linkages/LoAS in power sector and other related matters dated 7th January, 2013 stated that such cases were to be brought before the SLC [LT] for making suitable recommendations. These minutes are to be read with the Minutes of the meeting of the Committee held on 20th December, 2013. These documents were produced by Mr. P.K. Dutta, learned senior counsel for the defendant. That the case of the plaintiffs was considered by this Committee is quite undisputed. Some clauses of the contract are crucial for the purpose of a decision in this matter. They are reproduced hereinbelow :

“3.1 Amount of Commitment Guarantee

Prior to the date of issue of this LOA, the Assured have provided to the Assurer, a Commitment Guarantee (CG), in bank guarantee, for a sum of Rs.8,65,17,990 (Rs. Eight Crore Sixty Five Lakhs Seventeen Thousand Nine Hundred) equivalent to ten percent (10%) of base price of Grade F* Runof- Mine (ROM) coal of the Assurer prevalent on the date of application for issue of LOA, multiplied by the quantity of coal mentioned in the Preamble. {Note: In no case shall the CG be less than Rs.2,50,00,000/- (Indian Rupees Twenty Fifty Million only) per mtpa of coal quantities requested by the Assured or part thereof.} Such CG shall be non-interest bearing, and in case of it being deposited in the form of bank guarantee it should comply with the format specified by the Assurer and issued by a scheduled bank acceptable to the Assurer.

3.2 Validity of Commitment Guarantee

The Commitment Guarantee (CG) shall remain valid until four (4) months after the expiry of the LOA period of twenty-four (24) months. Thereafter, the CG shall stand converted into the Contract Performance Guarantee (CPG) that would be the condition precedent to signing of the FSA, in which case, validity of the CG shall be extended in accordance with the terms of the FSA. For the avoidance of any doubt, the Assured shall be liable to submit the guarantee for such further amount that may result from the difference between the CPG under FSA and the CG under this LOA.

3.3. Additional Commitment Guarantee

If any activity/milestone is not duly performed or completed by the Assured within the time stipulated against each such activity/milestone, as specified in Annexure 1, then the Assured shall be liable to furnish to the Assurer one tenth (1/10th) of the amount of CG for each such non-performed or incomplete milestone, as additional CG, within fifteen (15) days from the date such activity/milestone is falling due for completion. For the avoidance of any doubt, such additional CG may need to be deposited multiple times subject to partial/non-fulf