Water (Prevention and Control of Pollution) Act, 1974 – Environment (Protection) rules, 1986 – Respondent was manufacturing and selling instant coffee – Appellant received complaints against the appellant in regard to the environmental pollution – A Task Force Committee was constituted by the appellant, which after hearing the respondent issued some directions – In addition, the appellant directed respondent to furnish bank guarantee of Rs.25 lakhs to secure the compliance with conditions specified in the directions – Respondent furnished the required bank guarantee – Thereafter, Board officials of the appellant inspected the industry and observed certain violations – Pursuant thereto, the bank guaranties were invoked and amount of Rs.25 lakhs covered by the bank guarantees was paid over to the appellant – Aggrieved, respondent moved to the Tribunal – Tribunal held that Principles of natural justice were not followed and invocation was unwarranted and directed appellant to refund the amount to the respondent – On appeal, held: It was not for the bank to determine as to whether the invocation of the bank guarantee was justified so long as the invocation was in terms of the bank guarantee – A demand once made would oblige the bank to pay under the terms of the bank guarantee – In the instant case, the bank correctly understood its legal obligations and paid over the amount to the appellant – Thus, having regard to the terms of the bank guarantees, the principle of law formulated by Tribunal cannot be accepted – Besides, it is evident from materials on record that a show cause notice was issued by the appellant to the respondent and respondent had also submitted a response – Thus, Tribunal erred in interfering with the invocation of the bank guarantees, as appellant had clearly adverted to the fact that the status of compliance was reviewed in the Task Force Committee meeting and the officials had observed certain violations – The invocation of the bank guarantees was therefore in terms of the conditions stipulated in the bank guarantees.
The respondent commenced its operations in 1995 for the manufacture and sale of instant coffee. Complaints were received by the appellant and by the District Collector in regard to the environmental pollution caused by the appellant. A Task Force Committee was constituted by the appellant which, after hearing the respondent, issued directions to it on 12 August 2011. In addition, the appellant directed the respondent to furnish three bank guarantees: two in the amount of Rs 10 lakh each and the third in the amount of Rs 5 lakh to secure compliance with the conditions. On 6 September 2011, three bank guarantees executed by the Bank were furnished to the appellant. The Board officials inspected the industry and observed certain violations. Pursuant thereto, the bank guarantees were invoked on 12 September 2012 and the amount of Rs 25 lakh covered by three bank guarantees was paid over to the appellant. The Tribunal held that the invocation was unwarranted and the amount which has been received by the appellant should be refunded to the respondent. Hence, the present appeals.
Allowing the appeal, the Court
HELD : 1. The settled legal position which has emerged from the precedents of this Court is that absent a case of fraud, irretrievable injustice and special equities, the Court should not interfere with the invocation or encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee. [Para 19] [866-E-F]
2. In the present case, the bank undertook to the appellant that it would pay the guaranteed amount on demand, subject to the overall amount stipulated in each of the three bank guarantees. It was not for the bank to determine as to whether the invocation of the bank guarantees was justified so long as the invocation was in terms of the bank guarantee. A demand once CCL PRODUCTS (I) LTD.
made would oblige the bank to pay under the terms of the bank guarantee. The Bank correctly understood its legal obligations and paid over the amount to the appellant. In this view of the matter and having regard to the terms of the bank guarantees, this Court is of the view that the principle of law which has been formulated by the Tribunal cannot be accepted as reflecting the correct legal position. [Para 20] [866-F-H]
3. That apart, this Court is unable to accept the finding of the Tribunal that the respondent was kept in the dark on the invocation. It is evident that following the invocation of the bank guarantees, the respondent itself addressed a communication on
20 September 2012 to the Member Secretary of the appellant. The communication contains a specific reference to the invocation of the bank guarantees. That apart, it is evident from the material on the record that the appellant had issued a notice to show cause to the respondent to which the respondent also submitted a response. The purpose and object of the bank guarantees was to enable the appellant to secure compliance with environmental standards prescribed in accordance with law. The appellant has invoked the bank guarantees issued by the respondent because of the failure of the respondent to discharge the obligations imposed upon it by the Task Force Committee on 26 August 2011. [Para 21] [867-A-C]
4. For the above reasons, this Court is of the view that the Tribunal has erred in interfering with the invocation of the bank guarantees and in directing the appellant to refund the amount of Rs 25 lakhs covered by the three guarantees. While invoking the bank guarantees, the appellant has clearly adverted to the fact that the status of compliance was reviewed in the Task Force Committee Meeting; and that the officials of the appellant had inspected the industry and had observed certain violations. The invocation of the bank guarantees was therefore in terms of the conditions stipulated in the bank guarantees. [Para 22] [867-D-G]
Ansal Engineering Projects Ltd. v Tehri Hydro Development Corporation Ltd (1996) 5 SCC 450 : [1996] 4 Suppl. SCR 226 ; State Bank of India v Mula Sahakari Sakhar Karkhana Ltd. (2006) 6 SCC 293 : [2006] 3 Suppl. SCR 320 ; Hindustan Construction Co. Ltd. v. State of Bihar (1999) 8 SCC 436 : [1999] 3 Suppl. SCR 554 – relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.