Repeated invocations under a bank guarantee are permissible if not restricted by its terms.

Valmiki J. Mehta, J. (Oral) :—

The subject suit has been filed by the plaintiff-M/s Videsh Sanchar Nigam Limited for recovery of Rs.2,57,56,350/- alongwith interest @ 24% per annum from the defendant no.1/UTI Bank Ltd., being the unpaid balance of the bank guarantee dated 20.7.1996 issued by the defendant no.1.

2. The facts of the case are that the defendant no.1-bank at the request of the defendant no.2 issued the subject bank guarantee dated 20.7.1996 (Ex.PW1/5) for a total amount of Rs.4,20,00,000/-. The bank guarantee was given because of reserving space segment by the plaintiff in an Intelsat Satellite IS-704 at 66 degrees East with a guaranteed 36 Mhz bandwidth transponder for a lease of 10 years with effect from 1.4.1995. The Intelsat Satellite was in the C-band Spot Beam Transponder covering Indian sub-continent and some portions of the Middle East. The plaintiff partially invoked the bank guarantee by its letter dated 7.2.1997 (Ex.PW1/6) for an amount of Rs.1,62,43,650/-, and which was paid by the defendant no.1-bank. Thereafter, the plaintiff issued its letter dated 12.7.1997 (Ex.PW1/12) asked for payment of the balance amount of Rs.2,57,56,350/-, and which amount the defendant no.1 failed to pay, resulting in filing of the subject suit for recovery with interest.

3. The defendant no.1 filed its written statement and the basic facts were not disputed of the issuance of the bank guarantee, of the fact that the bank guarantee was for Rs.4,20,00,000/-, the fact that an amountj of Rs.1,62,43,650/- was paid under the invocation letter dated 7.2.1997 and for the balance amount of ‘2,57,56,350/-the bank guarantee was invoked for being paid vide letter dated 12.7.1997 (Ex.PW1/12). The basic defence of the defendant no.1-bank was that there cannot be repeated invocations under the bank guarantee.

4. The following issues were framed in this suit on 26.8.2003:- “1. Whether the agreement dated 31.7.1996 entered into between the plaintiff and defendant no.2 is valid and binding qua defendant no.1?OPP. 2. Whether the invocation by the plaintiff of the amount of Rs.1,62,43,650/- qua defendant no.1, by its letter dated 7th February 1997 addressed to defendant no.1 extinguishes the full liability of defendant no.1 under the Bank Guarantee No.23/96-97 dated 20th July, 1996? OPD.3. Whether the plaintiff is entitled to receive from defendant no.1 the remaining sum of Rs.2,57,56,350/- plus interest accruing thereon at the rate of 24% per annum from 12th July, 1997 till the date of decree or payment in full and final, whichever is earlier? OPP. 4. Relief.”

5. Issue no.3 was modified vide order dated 14.2.2006 to read as under:-

“3. Whether the plaintiff is entitled to receive from defendant nos. 1 and 2, jointly and severally, remaining sums of Rs.2,57,56,350/- plus interest accruing thereon @ 24% per annum from 12th July, 1997? OPP.”

6. All the aforesaid issues can be disposed of together inasmuch as the issue in this case is basically a legal issue. I may note that the plaintiff filed its affidavit by way of evidence of its witness Sh.Satish Gopal Ranade and who was not cross-examined by the defendant no.1, and as so recorded in the order dated 25.8.2009. Even the CS(OS) No.1011/1998 Page 3 of 10 plaintiff did not cross-examine the DW1, Sh. Lokender Bisht inasmuch as the issue only is with respect to the fact as to whether there can be successive invocations of the bank guarantee.

7. Let us see the language of the bank guarantee in this case. The relevant portion of the bank guarantee reads as under:-

“RE: Bank Guarantee in respect of Agreement dated 4th April, 1995 between Videsh Sanchar Nigam Limited and M/s. Srishti Video Corp. Limited. M/s. Srishti Videocorp Limited a public company incorporated under the Companies Act, 1956 and having its registered office at 24/56, Birhama Road, Kanpur-208 001 (hereinafter called “the company”) has entered into an agreement dated 4th April, 1995 (hereinafter referred to as “the said agreement