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IN THE HIGH COURT OF CALCUTTA
Soumen Sen, Ravi Krishan Kapur, JJ.
State Bank of India – Appellant
Versus
Sun Pharmaceuticals Industries Ltd. and Another – Respondents
Appeal From Order No. 119 of 2019; Civil Suit No. 39 of 2019
Decided On : 04-09-2019
The instant appeal arises from an order dated 17 May, 2019, passed in GA 518 of 2019, CS 39 of 2019 by which the Learned Trial Judge restrained the appellant bank from giving any effect to or invoking the two bank guarantees both dated 21 October, 2016 as extended from time to time.
Fact of the Case:
The suit is filed seeking a declaration that the aforesaid bank guarantees furnished at the instance of the plaintiffs are not enforceable and could not be enforced by the beneficiary (i.e. the appellant bank) to claim any payment. There is also a prayer for an injunction and for recovery of money. In short, this is another instance of a party seeking an injunction against a beneficiary from enforcing its rights under a bank guarantee.
Finding of the Court:
The Court found that the bank guarantees were unconditional and irrevocable and were payable on demand. The liability of each of the banks i.e. the respondent nos. 3 and 4 herein was absolute and unequivocal under either of the guarantees. The Court also found that the Learned Trial Judge erred in entering into the merits of the underlying contract between the plaintiffs i.e. the principal debtor and GNRE. This approach was contrary to the well settled principle that a bank guarantee is an independent and distinct contract between the bank and the beneficiary. The dispute between the beneficiary and the party at whose instance the bank guarantees had been given is immaterial and of no consequence. The Court further found that the Learned Trial Judge totally misinterpreted and erred in his construction of the exception of special equities. Merely unfair, unjust or inequitable conduct is not the test for special equity. Nor is the test for special equity simply an act of the contracting parties which might shock the conscience of the Court.
Issues: 1. Whether the bank guarantees were unconditional and irrevocable? 2. Whether the Learned Trial Judge erred in entering into the merits of the underlying contract between the plaintiffs and GNRE? 3. Whether the Learned Trial Judge totally misinterpreted and erred in his construction of the exception of special equities?
Ratio Decidendi: 1. The Court held that the bank guarantees were unconditional and irrevocable and were payable on demand. The liability of each of the banks i.e. the respondent nos. 3 and 4 herein was absolute and unequivocal under either of the guarantees. 2. The Court held that the Learned Trial Judge erred in entering into the merits of the underlying contract between the plaintiffs i.e. the principal debtor and GNRE. This approach was contrary to the well settled principle that a bank guarantee is an independent and distinct contract between the bank and the beneficiary. 3. The Court held that the Learned Trial Judge totally misinterpreted and erred in his construction of the exception of special equities. Merely unfair, unjust or inequitable conduct is not the test for special equity. Nor is the test for special equity simply an act of the contracting parties which might shock the conscience of the Court.
Final Decision: The appeal was allowed and the appellant bank was at liberty to invoke the bank guarantees. There is not an iota of merit in the claim of the plaintiffs which warrants any kind of interference with any of the two bank guarantees. In view of the unmeritorious, misadventure and kite flying exercise undertaken on behalf of the plaintiffs which stretches from Narmada (the writ petitions) to Yamuna (legal notice) to Hooghly (the instant suit), costs are assessed at Rs.5,00,000/- (Five lacs) payable to the appellant bank within a period of eight (8) weeks from the date. In default of payment, within the stipulated period, the plaintiffs will pay reasonable interest at 8% per annum from the expiry of the aforesaid 8 weeks till the date of payment and the appellant bank shall be at liberty to execute this portion of the order as a decree in accordance with the provisions of Code of Civil Procedure 1908.
JUDGMENT :
Ravi Krishan Kapur, J.
The instant appeal arises from an order dated 17 May, 2019, passed in GA 518 of 2019, CS 39 of 2019 by which the Learned Trial Judge restrained the appellant bank from giving any effect to or invoking the two bank guarantees both dated 21 October, 2016 as extended from time to time.
2. The facts:
The suit is filed seeking a declaration that the aforesaid bank guarantees furnished at the instance of the plaintiffs are not enforceable and could not be enforced by the beneficiary (i.e. the appellant bank) to claim any payment. There is also a prayer for an injunction and for recovery of money. In short, this is another instance of a party seeking an injunction against a beneficiary from enforcing its rights under a bank guarantee.
3. The case of the plaintiff is that, Gujarat NRE Coke Ltd. "GNRE", was the owner of certain wind-mills located at Gujarat which were encumbered in favour of a consortium of lenders of whom the appellant bank was the lead banker. In 2015, the plaintiffs entered into slump sale agreements with GNRE to acquire the wind-mills. However, the consortium of lenders led by the appellant bank did not approve the sale of the wind-mills to the plaintiffs. Ultimately, by an e-mail dated 12 August, 2016, SBI Capital Markets Limited informed the public of the decision of the Assets Sale Committee inviting fresh bids for the wind-mills. The plaintiffs participated in such bid and submitted their respective offers of Rs.154 crores and Rs.26 crores for the wind-mills situated at Jamnagar and Kutch respectively belonging to GNRE.
4. By a letter dated 7 October, 2016, the appellant bank communicated its acceptance of the bids submitted by the plaintiffs and declared the plaintiffs to be successful bidders subject to the plaintiffs complying with certain terms prescribed therein. The agreement entered into between the plaintiffs and GNRE dated 5 October, 2015 stipulated the terms and conditions on which the wind-mills assets would be transferred to the plaintiffs. The only obligation of the lenders and the appellant bank was to issue NOCs for transfer of the assets to the successful bidder. The letter of intent dated 7 October, 2016 inter alia provided as follows:
(b) The plaintiffs are required to pay 25% of the bid amount as mentioned in their 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 are 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 the plaintiffs without any interest, and the plaintiffs 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) The plaintiffs shall submit to the appellant bank, 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) The plaintiffs shall provide a Bank Guarantee (BG) in favour of the appellant bank for the benefit of the Lenders, towards the balance 75% of the bid amount in the format provided in the Annexure to this LOI;
5. It is next alleged in the plaint that in due compliance with the letter of intent, the plaintiffs remitted 45 crores to the appellant bank towards the aggregate upfront amount i.e. 25% of the bid amount. Thereafter, the plaintiffs issued two separate bank guarantees in favour of the appellant bank bearing no.136GM01162920002 dated 21 October, 2016 for Rs.115.50 crores and OGT00091
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