Bank guarantees are to be honored according to their terms, but exceptions exist in cases of fraud and special equity. The court found that the sale not going through and becoming impossible of performance due to NCLT's moratorium constituted special equity in favor of the plaintiffs, justifying the restraint of SBI from invoking the bank guarantees.

JUDGMENT :

1. In this interlocutory application the plaintiffs pray for orders restraining the respondent no. 1 (hereinafter referred to as ‘SBI’) from invoking two bank guarantees issued by the respondent nos. 2 and 3 banks and an order restraining the respondent nos. 2 and 3 from making payment under the bank guarantees issued by them.

2. The material facts of the case are that a consortium of banks led by SBI had lent and advanced moneys to a company by the name of Gujarat NRE Coke Limited (in short ‘GNRE’). Amongst the securities furnished by GNRE were certain windmill assets of the company. Moneys fell due to the consortium of banks. SBI took steps to liquidate the wind-mill assets of GNRE. The plaintiffs jointly participated in the process of sale of wind mill assets of GNRE and became the highest bidder. In compliance with the terms and conditions as stipulated by SBI, two bank guarantees were furnished by the plaintiffs in favour of SBI. Both the bank guarantees were dated 21 October, 2016. One was issued by the defendant no. 2 for an amount of Rs. 115,50,00,000/-. The other was issued by the defendant no. 3 for an amount of Rs. 19,50,00,000/-. Thus, two bank guarantees for the aggregate sum of Rs. 135 crores were furnished by the plaintiffs to SBI.

3. A letter of intent dated 7 October, 2016 was issued by SBI in favour of the plaintiffs. The letter of intent was, inter alia, to the following effect:-

“We are pleased to inform you that your Bid for purchase of Assets is acceptable to the Lenders and you are hereby declared as the Successful Bidder, subject to the following:

(a) Both Sun Pharma and Unimed are jointly and severally liable for compliance of the terms of this LOI and the Conditions;

(b) You are required to pay 25% of the bid amount as mentioned in your Bid as an upfront payment within seven (7) days from the date hereof on a non-refundable basis (‘Upfront Consideration’), provided however that only in the event where no-objection certificates for sale of the Assets is not received from all the Lenders (‘NoC’) within 60 days from the date of the receipt of the Upfront Consideration, then the Upfront Consideration will be refunded to you without any interest, and you will not hold SBI on behalf of all the Lenders liable, or raise any claim or objection for non-receipt of any NoC or for any matter whatsoever:

(c) You shall submit to State Bank of India (‘SBI’) (acting on behalf of the Lenders) a copy of this LOI duly signed (all the pages including the Annexure), satisfactory evidence of such authority of the person executing this LOI (such as a certified true copy of a board resolution and/or power of attorney), and specimen signatures of such persons;

(d) You shall provide a Bank Guarantee (BG) in favour of State Bank of India, Commercial Branch, 24 Park Street, Magma House, Kolkata – 700016, for the benefit of the Lenders, towards the balance 75% of the bid amount in the format provided in the Annexure to this LOI;”

4. Appearing for the plaintiffs Mr. Saha, Learned Sr. Adv. Submitted that the contract between the parties was a contingent contract. It was subject to the receipt of No Objection Certificates (in short ‘NOC’) certificates from all the lenders. Such NOCs were to be received within 60 days from the date of payment of the upfront consideration by the plaintiffs, in default of which, the upfront consideration was to be refunded to the plaintiffs without interest. Admittedly, the upfront consideration of 25 per cent of the bid amount was paid by the plaintiffs on 21 October, 2016. The NOCs were to be received by 21 December, 2016 in terms of the letter of intent. However, such NOCs were not received. The plaintiffs were entitled to resile from the contract. However, the parties by their conduct extended the period for performance of the contract.

5. On 14 June, 2017 SBI Capital Markets Limited acting on behalf of SBI, sent an e-mail to the plaintiffs, which was inter alia to the following effect:

“Further, th