A bank guarantee is an independent contract between the bank and the beneficiary and its invocation is not subject to the terms of the underlying contract.

Ashim Kumar Banerjee J.

Thermal Power Project:

The respondent no.1, Videocon Industries Limited (hereinafter referred to as Videocon), is a well-known multinational company in the field of electronic gadgets. They ventured to set up a thermal power project in Chattisgarh as they claimed. The Memorandum of Understanding dated February 1, 2008 was entered into for setting up coal based power project at Jangjir in the district of Champa in the State of Chattisgarh. The State Government approved the scheme on May 14, 2008. On May 28, 2008 the respondents made an application for coal linkage with the appellant. They also applied for land. The State Government permitted them to acquire private land vide letter dated December 13, 2010. On October 26, 2010 the State entered into an implementation agreement. The respondents applied for water connection on December 29, 2010 and deposited Rs.18.31 crores for the purpose. The Environment Board fixed the hearing for permission on April 18, 2011 as informed to the company vide letter dated February 8, 2011. Subsequently, the State withdrew the approval for acquiring the private land vide letter dated April 1, 2011. Thus, the company would claim, they could not proceed further with the power project.

LINKAGE:

As per the policy of the Central Government, the coal companies were required to make bulk supply to various industrial sectors including power sector. Since the subject project was coal based power project, it would require huge quantity of coal and that too, by a ready flow to make the project ongoing. To make the smooth supply of such huge quantity, the coal companies would have to make special arrangement ensuring bulk supply to the company. For such purpose, they would enter into a linkage agreement. In this case the company applied for linkage as referred to hereinafter. The coal company being the South Eastern Coalfields Limited, the appellant, issued a letter of assurance dated June 9, 2011/August 12, 2011 assuring smooth supply on condition, the company would have to secure compliance of milestone specified in the project. They would also have to furnish commitment guarantee for Rs.8.65 crores. Allahabad Bank issued the guarantee on June 29, 2011. As per the guarantee, the same was to expire on December 28, 2013. As per Clause 3.5 the Coal Company was obliged to return the commitment guarantee in case of expiry of the period. This would also provide Force Majeure Clause that would at best permit extension for three months only. If we take the extension, the guarantee was to expire in March, 2014. The Videocon by their letters dated June 21, 2012 and October 1, 2013 expressed their inability to achieve the milestone. In fact, they could not achieve any of the milestones. At the instance of the coal company, the Videocon got the guarantee extended till December 28, 2014.

CONTROVERSY:

The Videocon would put the blame on the State. According to them, State initially approved the project and thereafter withdrew the approval for land acquisition that made the situation worse.

There is some grey area where we could not get any plausible answer. If the State was at fault, how the coal company or the bank could be dragged in litigation. We are trying to find out the answer. We are yet to get.

Videocon would contend, Coal Company was at fault. They threatened to invoke the guarantee on February 17, 2014 after they got the bank guarantee extended. Videocon would also make a complain, fraud was committed upon them. There is special equity in their favour to restrain the bank from acting upon the request for invocation at the instance of Coal Company.

THE PRESENT LIS:

On November 25, 2013 Videocon approached the learned Single Judge by filing a suit, inter-alia, praying for an order of restraint against the coal company and the Bank from invoking the guarantee. They also filed application simultaneously for interim protection. They kept the application pending, however, did not