Standard Chartered Bank vs Heavy Engineering Corporation Ltd. & Anr.

1 st respondent filed suit before the High Court of Calcutta for Rs.1,10,33,207.07/- with interest being the aggregate sum of both the bank guarantees – Dismissed – Division Bench passed decree for Rs.1,10,33,207.00/- with interest @ 8% p.a. – Held: Bank guarantee is an independent contract between bank and the beneficiary – Bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one – Dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence – However, exceptions to this Rule are when there is clear case of fraud, irretrievable injustice or special equities – Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee – In the instant case, guarantees were unconditional, specific in nature and limited in amount – Guarantee documents, as a whole and clause 2 in particular cover the advance paid by the 1 st respondent by reason of any breach or failure by 2 nd respondent in due performance of the contracts i.e. against the contract for supply of plant and equipment – On reading of letters exchanged by and between the 1 st respondent and the appellant pertaining to invocation of the guarantees, the condition of the guarantees had been duly complied with – Once the demand was made in due compliance of bank guarantees, it was not open for the appellant to determine as to whether the invocation of the bank guarantee was justified – Standard Chartered Bank’s predecessor in interest, ANZ Grindlay’s Bank had opened fixed deposit of Rs.91,67,600/- on 18.05.01, which was lien marked to Heavy Engineering Corporation Ltd. (HEC) and is being held under the control of the Registry of the High Court of Calcutta – Current fixed deposit is valued at Rs. 2,32,69,129.71/- and the total liability under the impugned order as on date will be Rs.2,78,03,681.64/– Registry of the High Court of Calcutta may release the money lying in the account in favour of the 1st respondent – It is for the appellant (judgment debtor) to settle and satisfy the decree impugned in the instant proceedings – Contract.

Dismissing the appeal, the Court

HELD: 1.1 A bank guarantee constitutes an independent contract. The bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this Rule when there is a clear case of fraud, irretrievable injustice or special equities. The Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee. The guarantees in the instant case were unconditional, specific in nature and limited in amount. The terms of the guarantee categorically covered money which the 1 st respondent had advanced against supply of the plant and equipment by SCIL. The said guarantees covered any loss and damage caused to or suffered by the 1st respondent-plaintiff in due performance of the contract for supply of plant and equipment. The guarantee documents dated 16th February, 1983 and 29th August, 1984, as a whole and clause 2 of the guarantee document in particular cover the advance which had been paid by the 1st respondent-plaintiff by reason of any breach or failure by SCIL in due performance of the aforesaid contracts i.e. against the contract for supply of plant and equipment. On reading of letters exchanged by and between 1 st respondent and the appellant Bank pertaining to invocation of the guarantees, the condition of the guarantees had been duly complied with. [Paras 20, 23-25] [379-G; 381-G-H; 382-A-C-G]

Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd. and Another (1996) 5 SCC 450 : [1996] 4 Suppl. SCR 226 ; Hindustan Construction Co. Ltd. v. State of Bihar & Others (1999) 8 SCC 436 : [1999] 3 Suppl. SCR 554 ; State Bank of India and Another v. Mula Sahakari Sakhar Karkhana Ltd. (2006) 6 SCC 293 : [2006] 3 Suppl. SCR 320 ; Himadri Chemicals Industries Limited v. Coal Tar Refining Co. (2007) 8 SCC 110 : [2007] 8 SCR 869 ; Gujarat Maritime Board v. Larsen & Toubro Infrastructure Development Projects Limited and Another (2016) 10 SCC 46 : [2016] 8 SCR 692 – relied on.

Gangotri Enterprises Ltd. Vs. Union of India and Others (2016) 11 SCC 720 : [2016] 2 SCR 1074 – referred to.

1.2 Once the demand was made in due compliance of bank guarantees, it was not open for the appellant 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. The demand once made would oblige the bank to pay under the terms of the bank guarantee and it is not the case of the appellant Bank that its defence falls in any of the exception to the rule of case of fraud, irretrievable injustice and special equities. In absence thereof, it is not even open for the Court to interfere with the invocation and encashment of the bank guarantee so long as the invocation was in terms of the bank guarantee and this what has been observed by the Division Bench of the High Court in the impugned judgment and that reflected the correct legal position. It is informed that the Standard Chartered Bank’s predecessor in interest, ANZ Grindlay’s Bank had opened a fixed deposit of Rs. 91,67,600/on 18 th May, 2001, which was lien marked to HEC (Heavy Engineering Corporation Ltd.) and is being held under the control of the Registry of the High Court of Calcutta and the current fixed deposit is valued at Rs. 2,32,69,129.71/- and the total liability under the impugned order as on date will be Rs. 2,78,03,681.64/-. The Registry of the High Court of Calcutta may release the money lying in the account in favour of the 1 st respondent and it is for the appellant Bank(judgment debtor) to settle and satisfy the decree which is impugned in the instant proceedings. [Paras 26, 27] [382-G-H; 383-A-D]