Bombay High Court
Kryshnajay Developers Pvt. Ltd vs Kapil M. Mahtani And 3 Ors on 22 May, 2020
Equivalent citations: AIRONLINE 2020 BOM 536
Author: S. J. Kathawalla
Bench: S.J.Kathawalla
Nitin 1 / 42 NMSL-17-2018-Final.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION (L) NO. 17 OF 2018
IN
SUIT (L) NO. 14 OF 2018
Kryshnajay Developers Private Limited )
a company incorporated under the provisions of the )
Companies Act, 1956 and having its registered ofce )
address at "Krystal", R.K. Patkar Marg, Waterfeld )
Road, Bandra (West), Mumbai - 400 068. )... Applicant
IN THE MATTER OF :
Kryshnajay Developers Private Limited )
a company incorporated under the provisions of the )
Companies Act, 1956 and having its registered ofce )
address at "Krystal", R.K. Patkar Marg, Waterfeld )
Road, Bandra (West), Mumbai - 400 068. ... Plaintiff
Versus
1. Kapil M. Mahtani )
2. Vikas M. Mahtani )
being adult individual of Mumbai, Indian Inhabitant )
and having their address at Navroze Apartments )
Annexe, Pali Hill Navroze Premises, 66 Pali Hill, )
Bandra (West), Mumbai - 400 050 )
And )
also at 20, 2nd Floor, Sukh Shanti Building-1, 19, )
Dr.G.Deshmukh Marg, Peddar Road, )
Mumbai - 400 026.
Nitin 2 / 42 NMSL-17-2018-Final.doc
3. ICICI Bank Limited, )
being a banking company and having its address )
at Vedanta Commercial Complex, Vartak Nagar, )
Thane, Mumbai - 400 606. )
And )
also at ICICI Bank Tower, Bandra-Kurla Complex, )
Bandra (East), Mumbai - 400 051. )
4. Pali Hill Navroze Cooperative Society Limited, )
being a Society registered under the Maharashtra )
Co-operative Societies Act, 1960 )
and having its registered ofce at 66, Pali Hill, )
Bandra (West), Mumbai - 400 050 )... Defendants
Mr.Mustafa Doctor, Sr. Adv. a/w. Mr.Atul Daga, Mr. Kishore Vussonji, Mr. Chirag
Shah, Ms. Apeksha Murray, Mr. Phiroze Merchant i/b. Kanga and Company for the
Applicant / Plaintiff.
Mr.Darius Khambata, Sr. Adv. a/w. Mr. Ali Anthulay, Mr.Kaiwan Kalyaniwalla,
Mr.Shehzad A.K. Najam-es-sani, i/b. Maneksha and Sethna for Defendant Nos. 1
and 2.
CORAM : S.J.KATHAWALLA, J.
JUDGMENT RESERVED ON : 19TH MAY, 2020
JUDGMENT PRONOUNCED ON : 22ND MAY, 2020
JUDGMENT :
1. By the present Suit, the Plaintiff - Kryshnajay Developers Private Limited (hereinafter referred to as "the Plaintif Developer" ) inter alia seeks a declaration that the invocation by Defendant Nos. 1 and 2 (hereinafter referred to as Nitin 3 / 42 NMSL-17-2018-Final.doc "the Mahtanis",) of the Bank Guarantee dated 12th November, 2014 bearing reference No. 0268BGD000315 (hereinafter referred to as "the Suit Bank Guarantee") is illegal, null and void and deserves to be set aside. The said Suit Bank Guarantee was issued by the Defendant No. 3 (ICICI Bank) in favour of the Mahtanis for a sum of Rs.10,00,00,000/- to essentially secure the due and timely performance of the Plaintifffs obligations under the Development Agreement dated 26 th July, 2012, (hereinafter referred to as "the DA") and the Agreement for Permanent Alternate Accommodation dated 22nd December, 2014 (hereinafter referred to as "the APAA").
2. The Plaintiff Developer has in the Suit, taken out the above Notice of Motion seeking an interim order of injunction restraining the Mahtanis from encashing the Suit Bank Guarantee and to restrain ICICI Bank from acting on its invocation dated 4th January, 2018, or making any payments to the Mahtanis in furtherance of such invocation.
3. The relevant facts leading to the fling of the present Notice of Motion, are as under :
3.1. On 26th July, 2012 the Plaintiff Developer had executed the aforesaid DA with Defendant No. 4 - Pali Hill Navroze Cooperative Society Limited pursuant to its Resolution dated 11th April, 2020, to have the entire immovable property of the Society re-developed. The Society consisted primarily of two properties : the frst being (i) Navroze Apartments, which was constructed on land bearing CTS Nos.
C/1342, C/1343 and C/1344, Plot No. 66, 1 in Revenue Village : Danda, Revenue Nitin 4 / 42 NMSL-17-2018-Final.doc Taluka : Andheri in the Registration District of Mumbai Suburban ; and the second being (ii) Building No. II which was constructed to the west of Navroze Apartments and had two foors with four residential fats, each admeasuring approximately 810 square feet. A portion of land admeasuring around 644 square meters out of the entire immovable property, comprising of an independent Building II, along with ownership of Building II, was leased by the Society in favour of the Mahtanis vide a Lease Deed dated 27th September, 1994, for a period of 99 years. 3.2. As per the aforesaid DA, the Plaintiff Developer agreed to construct 'free of costf ownership fats for Defendant No. 4 Society and the Mahtanis, in consideration for utilizing the available FSI of the plot, along with the TDR plus any compensatory fungible FSI, to the extent permissible by the Development Control Regulations. To execute these obligations effectively, separate APAA were entered into between the Members of the Defendant No. 4 Society including the Mahtanis, and the Plaintiff Developer.
3.3. Consequently, in order to secure the performance of its obligations under the aforesaid DA and APAA, the Plaintiff Developer furnished two Bank Guarantees : (i) one dated July, 2012 in favour of Defendant No. 4 Society for a sum of Rs.5,25,00,000/- ; and (ii) an additional Guarantee in favour of the Mahtanis, namely, the Suit Bank Guarantee as mentioned above. The issuance of the Suit Bank Guarantee was recorded in the APAA between the Plaintiff Developer and the Mahtanis.
Nitin 5 / 42 NMSL-17-2018-Final.doc 3.4. Thereafter, on 26th December, 2014 the Plaintiff Developer received possession of Building No. II to begin re-development of the Society properties. Since the above mentioned Guarantees enjoined the Plaintiff Developer to complete the re- development project within 36 months, the Bank Guarantees were likewise amended on 29th December, 2014, in order to refect the commencement date and mark the beginning of the project.
3.5. However, subsequently on 26th August, 2016, the Plaintiff Developer informed the Defendant No. 4 Society in a Special General Body Meeting ('SGBMf) that due to certain restrictions imposed by the Civil Aviation Department / Airport Authority of India, it was not possible to complete the aforesaid project within a period of 36 months from the commencement date. The Defendant No. 4 Society thereafter allegedly conducted a SGBM on 11th September, 2016 and agreed to extend the timeline of the project. In the said Meeting, the Mahtanis were not present. 3.6. The Mahtanis claim that they were not aware about the SGBM dated 11 th September, 2016. In a letter dated 11th November, 2016, the Mahtanis had also stated that the proper procedure for amending the DA or APAA would be to take their written consent and furthermore the Plaintiff Developer had failed to furnish the requested documents to the Mahtanis in order to assist them in deciding the future course of the project. The Plaintiff Developer has allegedly never replied to this Letter dated 11th November, 2016 and nor have the Minutes of the said SGBM been circulated to the Mahtanis.
Nitin 6 / 42 NMSL-17-2018-Final.doc 3.7. Notwithstanding the above, the Defendant No. 4 Society and the Plaintiff Developer executed a Supplementary Agreement dated 9 th December, 2016 (hereinafter referred to as "SA") to amend the DA and extend the timelines for completion of the project by one year. It is important to note that the Suit Bank Guarantee and the APAA between the Plaintiff Developer and the Mahtanis were not amended.
3.8. Thereafter, the Mahtanis were at continuous loggerheads with the Plaintiff Developer through an array of correspondence dated 28 th March, 2017, 22nd June, 2017 and 23rd August, 2017, maintaining inter alia that : (i) the Plaintiff Developer has amended the terms and conditions of the DA without their consent and in a manner contrary to the procedure envisaged in the APAA ; (ii) that the Plaintiff Developer is enjoined to pay to the Mahtanis rentals as per Clause 10.2 of the APAA ; and (iii) that the extension granted to the Plaintiff Developer is bad in law and not binding on any Member of the Society, including the Mahtanis. 3.9. In response to this, the Plaintiff Developer in its Letters dated 20 th April, 2017 and 12th August, 2017 stated : (i) that it had no intention to amend the APAAs by keeping the Mahtanis in the dark about the extension of the project timeline ; (ii) that the issue regarding payment of rentals was discussed with the Society, in the earlier General Body meeting ; and (iii) that the project timeline has been extended by one year, vide the execution of the SA pursuant to the SBGM dated 11 th September, 2016 and with the consent of the Defendant No. 4 Society. Further, the Plaintiff Developer Nitin 7 / 42 NMSL-17-2018-Final.doc also claims that it has continued to make good its obligation to pay rentals to the Mahtanis and the same have been duly accepted by the Mahtanis. 3.10. Finally, on 4th January, 2018 the Mahtanis invoked the Suit Bank Guarantee dated 12th November, 2017 in the manner prescribed in the Suit Bank Guarantee.
3.11. The Plaintiff Developer therefore seeks to assail the said invocation as being bad in law and obtain, vide the present Notice of Motion, an injunction to restrain any payments thereunder.
4. Before enumerating the arguments advanced by the Learned Counsel representing the Parties, it would be appropriate to set out certain clauses of the said Suit Bank Guarantee :
Clause 1 - The said Bank doth hereby irrevocably and unconditionally agrees, guarantees and undertakes to the members for and on behalf of the Developers, that the Bank shall within a period of 48 hours from the date of receipt of the written claim / demand made by the Members in conformity with Clause 12 of this Performance Guarantee as specifed herein below without any deductions, reservation, protest, demur, delay or reference to the Developers pay by demand draft or pay order the sum of Rs.10,00,00,000/- (Rupees Ten Crores only) or part thereof as provided hereinbelow irrespective and notwithstanding any dispute or demand to the contrary made / raised by the Developers. The aforesaid written claim / demand shall be made by the Members only in the event of Developers failing in the due and timely Nitin 8 / 42 NMSL-17-2018-Final.doc performance of the Developer's obligations and covenants under the said Agreements for Permanent Alternate Accommodation and under the said Development Agreement dated 26th July, 2012 to the end and intent that the Members shall be handed over vacant possession of the said new fats constructed in the manner mentioned in the Agreements for Permanent Alternate Accommodation and the said Development Agreement dated 26 th July, 2012 within 36 months (including a grace period of 6 months) from 26th December, 2014 the date on which members have handed over possession of the said fats / areas / premises belonging to the members in the existing Building-II to the Developers as of existing one.
Clause 6 - The Bank further agrees that the Members, at his option, shall be entitled to enforce this Guarantee against the Bank without in the frst instance proceeding against the Developers or making any demand upon the Developers to pay and notwithstanding any security or other Guarantee that the Member may be possessed of in relation to the Developer's liabilities either in relation to the Agreement for Permanent Alternate Accommodation or otherwise and the Bank's liability to make unconditional payment on demand by the Members shall not be affected or diluted and shall remain valid, enforceable and unaltered. Any such demand made on the Bank shall be conclusive, fnal and binding as regards to the amount due and payable by the Bank under the Guarantee.
Clause 7 - The guarantee contained in this deed is absolute irrevocable unconditional and unqualifed and a continuing one and shall remain in force until the terms and conditions of the Nitin 9 / 42 NMSL-17-2018-Final.doc aforesaid Agreements for Permanent Alternate Accommodation are performed in full and if any default is committed the said Bank shall be liable to pay the guaranteed sum of Rs.10,00,00,000/- (Rupees Ten Crores only) in full to the Members without any demur and irrespective of any instructions or demand to the contrary made / raised by the Developers to the said Bank to withhold payment thereof on any ground whatsoever. Provided the Bank received from the Members a written demand / claim in conformity with Clause 11 of this Bank Guarantee.
Clause 12 - The Bank irrevocably guarantees to honour the written demand / claim made to Bank by the Member provided such written demand / claim is received by the Bank at its Bank Guarantee issuing ofce on or before the expiry of 38 months from 12th day of November, 2014. That is upto 12 th January, 2018 (i.e. last date of lodgement of claim) and such claim / demand shall comprise submission of the following original documents.
(a) A Certifcate from an independent architect certifying that the new fat has not been constructed in the manner and within the time prescribed therefore in the said Agreement for Permanent Alternate Accommodation and are not ready for occupation;
(b) The members issuing a letter to the Bank specifying therein the date on which the Member had handed over vacant possession of the existing fats / areas premises belonging to the Members in the existing Building No. II and also specifying that the period of 38 months from that date has expired. This letter shall be signed by both the Members in favour of whom this Bank Guarantee has been issued. This letter should be accompanied with a letter that the Developer should issue in favour of the Member at the time of Nitin 10 / 42 NMSL-17-2018-Final.doc the Developer taking possession of the existing premises of the Members confrming having received possession of the premises belonging to the Members.
(c) Original Bank Guarantee alongwith all original amendments, if any, duly discharged by all the Members in favour of whom this Bank Guarantee has been issued against the Bank's cheque for the guarantee amount in favour of the Members.
Clause 13 - The Bank shall accept the submission of the aforesaid documents as tendered by the Members and without any onus as to their veracity / legality. The payment of the claimed amount shall not exceed the guaranteed amount. In case of the aforesaid documents are not tendered along with the claim then in that event such claim shall be deemed to be invalid and the Bank shall not process the claim and shall not make any payment to the Members. Clause 15 - The Bank further undertakes to honour the claim / demand so received without delay or demur. The Bank is hereby bound to honour such claim / demand notwithstanding any dispute / differences between the Members and the Developer and notwithstanding any protest, contestation or proceedings pending before any court, tribunal or administrator / regulators.
5. Likewise, Recitals 7 and 8 of the said Suit Bank Guarantee are also reproduced herein, since the Plaintiff Developer has relied on the same :
"7 At the time of execution of the aforesaid Agreements for Permanent Alternate Accommodation, it was agreed by and between the Developers and the Members that in order to secure the due and timely performance of the Developer's obligation and covenants under Nitin 11 / 42 NMSL-17-2018-Final.doc the said Agreement for Permanent Alternate Accommodation and under the said Development Agreement dated 26 th July, 2012 to the end and intent that the Members shall be handed over vacant possession of the said new fats constructed in the manner mentioned in the Agreements for Permanent Alternate Accommodation within 36 months (including a grace period of 6 months) from the date of the Members handing over vacant possession the said demised land and Building II standing thereon, the Developer shall simultaneously against the Members handing over possession of the existing fats / areas held by the Members in the existing Building II together with the demised land mentioned in Recital 2 hereinabove, furnish to the Members an irrevocable and unconditional Bank Guarantee for a sum of Rs.10,00,00,000/- (Rupees Ten Crores only) invocation whereof shall be in terms of the provisions of the said Bank Guarantee. The said Bank Guarantee shall be in addition to the Bank Guarantee to be provided by the Developer in favour of the Society in terms of Clause 22 of the said Development Agreement dated 26th July, 2012.
8. The Developers have thus in accordance with the aforesaid undertaking caused the said Bank to enter into this Deed of Guarantee with the Members in the manner hereinafter appearing."
6. Mr. Mustafa Doctor, the Learned Senior Advocate representing the Plaintiff Developer strenuously argued that the language and clauses employed in the Suit Bank Guarantee explicitly suggest that it is a conditional and contingent Guarantee. In support of this argument, the Learned Senior Advocate made the Nitin 12 / 42 NMSL-17-2018-Final.doc following submissions :
6.1. That Recitals 7 and 8 of the Suit Bank Guarantee in effect set out the object and purpose behind issuance of the said Guarantee, which was primarily to secure due and timely performance of the APAA and the DA. If this fact is disregarded, it would amount to rendering the entire recitals 1 to 7 totally otiose.
6.2. That the selective wording of the operative part i.e. Clause 1 of the Suit Bank Guarantee clearly provides for a demand to be made "only" in the event that the Plaintiff Developer fails in due and timely performance of its obligations under the APAA and DA. The mere use of the words "unconditional" or "irrevocable" cannot make the Clause/Guarantee unconditional. These words are not to be read in isolation but in harmony with the latter portion of Clause 1, which lays down the condition for invocation. This is a strict qualifcation and deprives the Mahtanis from asserting an unfettered right to invoke the Suit Bank Guarantee.
6.3. That in a similar manner, Clause 7 employs the terms, "and if any default is committed", implying that the Mahtanis can invoke the Suit Bank Guarantee only upon the breach of the APAA or DA by the Plaintiff Developer.
6.4. That the Suit Bank Guarantee, APAA and the DA were executed contemporaneously to form a united transaction and hence must be read together like a single document. Specifcally, reliance is placed on Clause 5.5 of the APAA to show that the Suit Bank Guarantee is conditional, which states that the said Guarantee may be invoked only in the event the Developer fails to complete the project in the manner Nitin 13 / 42 NMSL-17-2018-Final.doc and conditions contained therein.
6.5. That the argument that the Mahtanis are the "sole-judge" of the demand made under Clause 6 is misconceived. The demand is conclusive only as to the "amount" payable and not in reference to the satisfaction of the condition precedent to the invocation of the Suit Bank Guarantee.
6.6. That Clause 10 further bolsters the argument for the conditional nature of the Suit Bank Guarantee. It highlights that the Developer shall be absolved from his obligation under the Suit Bank Guarantee and the Mahtanis shall not be permitted to invoke the same in the event that the new fats are ready for occupation within the time period mentioned therein.
6.7. That a contract of guarantee has an independent nature. However, if it permits the benefciary to invoke the guarantee upon happening of a specifed uncertain future event, then it becomes a conditional contract and it cannot be enforced until the happening of that event.
6.8. That the Judgment of the Supreme Court in the case of Mahatma Gandhi Sahakarre Karkhane v. National Heavy Eng. Coop. Limited 1 is of little assistance to the Defendant Nos. 1 and 2.
6.9. That in Paragraphs 16 and 17 of the Judgment of the Supreme Court in Mahatma Gandhi Sahakarre Karkhane (supra), the Supreme Court had analyzed the terms of the bank guarantee in the facts of that case. In Paragraph 18, it has arrived at 1 (2007) 6 SCC 470 Nitin 14 / 42 NMSL-17-2018-Final.doc its conclusion based on the language of the bank guarantee in the facts of that case.
Ultimately, in Paragraph 28 of the Judgment, the Supreme Court holds that, "What is relevant, therefore, is the terms incorporated in the guarantee executed by the bank. On careful analysis of the terms and the conditions of the guarantee, we fnd the guarantee to be an unconditional one." That it is therefore clear that the fndings of the Supreme Court in this case are restricted to interpreting the guarantee that was before it. 6.10. That the clauses, language and words used in the bank guarantee in the present matter are signifcantly different from the one that was dealt with by the Supreme Court in the case of Mahatma Gandhi Sahakarre Karkhane (supra). 6.11. That the Defendants have wrongly placed reliance on the Bombay High Court Judgment in the matter of Felguera Gruas India Pvt.Ltd. v. Tuticorin Coal Terminal Pvt.Ltd.,2 (hereinafter referred to as "Felguera Gruas") since the material facts of the instant case are extremely distinct therefrom. In Felguera Gruas, the parties recorded their intention in an express clause stating that, the "Guarantee shall be primary, direct and immediate..." and the benefciary was made the sole judge of whether the conditions to invoke the guarantee are satisfed or not. None of these circumstances exist in the instant case.
6.12. That the instant matter must be adjudicated upon the ratio and observations made by the Honfble Supreme Court in the case of Hindustan Construction Company v State of Bihar3 (hereinafter referred to as "Hindustan 2 Arbitration Petition (L) No. 366 of 2016 3 (1999) 8 SCC 436 Nitin 15 / 42 NMSL-17-2018-Final.doc Construction") since the clauses and language of the Suit Bank Guarantee are similar to the guarantee which was under consideration in Hindustan Construction. The Honfble Supreme Court in the said case allowed the appeal and held that the bank guarantee was a conditional one, in the light of the peculiar phraseology of its clauses. 6.13. That the cases relied upon by the Mahtanis, namely U.P. Co-operative Federation v. Singh Consultants and Engineers4 (hereinafter referred to as "U.P. Co- operative") and ITD Cementation v. Reliance Infrastructure5 are not applicable to the present matter, due to the signifcant differences in the facts and language of the bank guarantee under consideration therein.
7. In response to the above submissions, Mr. Darius Khambata, the Learned Senior Advocate representing the Mahtanis has contended that the Suit Bank Guarantee is entirely unconditional in its terms. The Learned Advocate has made the following submissions in support of his arguments :
7.1 That merely because Recital 7 or Clause 1 makes a reference to the APAA and DA and refers to the Suit Bank Guarantee as being given to secure due and timely performance of the Developerfs obligations thereunder, does not in law make the Suit Bank Guarantee conditional. If the bank guarantee clauses were to be construed in the manner as submitted, then no performance guarantee could ever be an unconditional one.
7.2 That the underlying idea behind specifying when a Bank Guarantee can 4 (1988 (1) SCC 174) 5 (2014 (3) ALLMR 506) Nitin 16 / 42 NMSL-17-2018-Final.doc
be invoked is to provide a cause of action to the Plaintiff in an appropriate civil remedy to recover the monies. Such words do not indicate or suggest in any manner that the said Guarantee is conditional.
7.3. That a recital cannot be used to interpret, the operative portion if the same is unambiguous. Construing the recitals to transform the Suit Bank Guarantee into a conditional one would cause a direct confict between Clause 1, Recital 7 and also Clause 6 which makes the demand by the benefciary, "conclusive, fnal and binding as regards to the amount due and payable by the Bank under the Guarantee."
7.4. That Clause 1 of the Suit Bank Guarantee does not impose any condition, but instead, uses the words, "irrevocably and unconditionally agree" and "irrespective and notwithstanding any dispute or demand to the contrary made / raised by the Developers".
7.5. That the wordings in Clause 6 reiterates the unconditional nature of the Suit Bank Guarantee, and makes it clear that any dispute as to the validity of the invocation by the Mahtanis cannot be raised by either the Bank or the Plaintiff Developer and the liability is unconditional.
7.6. That the words in Clause 6, that the demand made is conclusive, fnal and binding "as regards to the amount due and payable by the Bank under the Guarantee", does not limit the conclusiveness of the demand to the actual amount due by the Bank since such an interpretation would make this clause a meaningless one. In any event, granting fnality even to the amount of the Suit Bank Guarantee, if the Nitin 17 / 42 NMSL-17-2018-Final.doc amount covers the whole, is equivalent to granting fnality to the invocation of the Suit Bank Guarantee.
7.7. That Clause 7 records that the Suit Bank Guarantee is "absolute, irrevocable, unconditional and unqualifed" and that the Bank shall pay "without any demur and irrespective of any instructions or demand to the contrary made / raised by the Developers to the said Bank to withhold payment thereof on any ground whatsoever." which goes to show that the Suit Bank Guarantee is an unconditional one.
7.8. That the Plaintiff Developer has indulged in selective Clause 7 and has ignored the full clause.
7.9. That the Plaintiff Developer has relied on Clause 10 of the Suit Bank Guarantee to submit that once the Plaintiff Developer has completed its obligations under the underlying contract, then Defendant Nos. 1 and / 2 Mahtanis are not entitled to invoke the Suit Bank Guarantee. However, the Plaintiff Developer has nowhere claimed to have complied with Clause 10.
7.10. That Clause 12 prohibits the Bank from disputing the veracity / legality of the documents tendered by the Mahtanis.
7.11. That Clause 15 has clarifed that the Bank "is bound to honour the claim / demand so received without delay and demur" and "notwithstanding any protest, contestation or proceedings pending before any court, tribunal or administrator / regulator."
7.12. That wherever a Bank Guarantee specifes that (i) a demand made by the benefciary would be a conclusive, fnal and binding one and (ii) the Bankfs liability to Nitin 18 / 42 NMSL-17-2018-Final.doc pay is notwithstanding any dispute or demur ; the Bank Guarantee is unconditional.
7.13 Reliance for the aforesaid proposition is placed on four major cases on this issue namely (i) U.P. Co-operative (supra), (ii) ITD Cementation India Pvt. Ltd.
7.14. That it is a settled position of law that a reference to the principal contract does not make the guarantee a conditional one. The Honfble Supreme Court has enunciated in various judgments that a bank guarantee is unconditional even if it refers to the underlying contract between the parties and requires some basic failure on the part of the guarantor with respect to such an underlying contract for the bank guarantee to be invoked. To support this submission, reliance is placed on the Judgment of the Honfble Supreme Court in the case of (i) Mahatma Gandhi Sahakarre Karkhane (supra) and the Judgment of this Court in Felguera Gruas and (iii) Felguera Gruas Appeal (supra).
7.15. That the ratio of Hindustan Construction is not applicable in the present matter, since unlike the Suit Bank Guarantee, the bank guarantee in Hindustan Construction did not make the demand by the benefciary, conclusive, fnal and binding.
7.16. That the present case must be decided on the ratio of Felguera Gruas since: (i) in the instant case the Clauses of the Suit Bank Guarantee, particularly 6 (Commercial Appeal (L) No. 20 of 2018 ) (Bombay High Court, Hon'ble Mr. Justice Naresh Patil and Nitin W. Sambre) at para 18.
Nitin 19 / 42 NMSL-17-2018-Final.doc Clauses 6, 7 and 15 are similar to the Clauses in Felguera Gruas and (ii) likewise, the reference to the underlying contract between the parties i.e. the APAA and the DA, is only a general reference which is clarifed by subsequent Clauses, suggesting an unconditional guarantee, again analogous to the position in Felguera Gruas. 7.17. That the Suit Bank Guarantee and the bank guarantee in Mahatma Gandhi Sahakaree Karkhane (supra) are almost identical and therefore the Suit Bank Guarantee must be construed as an unconditional one as per the ratio laid down in the aforesaid decision of the Honfble Supreme Court.
8. I have considered the submissions advanced on behalf of the Plaintiff Developer and the Mahtanis, the written submissions tendered by them from time to time and the case law relied upon by them. The relevant Clauses of the Suit Bank Guarantee, as well as the Recitals are already reproduced in paragraphs 4 and 5 above, and are not required to be reproduced once again.
9. The frst and main contention of the Plaintiff Developer is that the Suit Bank Guarantee is conditional and contingent. Referring to the Recitals 7 and 8, it is submitted on behalf of the Plaintiff Developer that the said Recitals, in effect set out the object and purpose behind the issuance of the Suit Bank Guarantee, which was primarily to secure due and timely performance of the APAA and the DA. It is submitted on behalf of the Plaintiff Developer that if this fact is disregarded, it would amount to rendering the Recitals totally otiose.
10. The above submissions made on behalf of the Plaintiff Developer cannot Nitin 20 / 42 NMSL-17-2018-Final.doc be accepted. Merely because Recital 7 makes a reference to the APAA and DA and reference to the Suit Bank Guarantee as being given to secure due and timely performance of the developerfs obligations thereunder, it does not in law make the Suit Bank Guarantee conditional. If that was so, then no Performance Bank Guarantee could ever be an unconditional one. In any event, the recitals cannot overwrite or even interpret a substantial provision of a Bank Guarantee. It is a well settled principle of law that where the operative parts / clauses of a contract are clear, then they cannot be controlled, cut down, or qualifed by the recitals.
11. The Plaintiff Developer has also relied on Clause 1 of the Suit Bank Guarantee to argue that a demand can be made 'onlyf in case of failure of the Plaintiff Developer in performance of the Development Agreement and that this makes the Suit Bank Guarantee conditional and contingent. This submission cannot be accepted since all performance Bank Guarantees are limited to and provide for invocation only in cases of failure / default in performance. That does not make all performance bank guarantees conditional or contingent. The word 'onlyf does not add anything. The meaning of the sentence would remain the same without the word 'onlyf. Again, the Plaintiff Developer completely ignores the express words in Clause 1 that describe and qualify the nature of the Guarantee specifcally, viz. "irrevocably and unconditionally"
and "irrespective and notwithstanding any dispute or demand to the contrary made / raised by the Developer." There would be no conceivable dispute / demand made / raised by the Plaintiff Developer other than that they had not failed in due and timely Nitin 21 / 42 NMSL-17-2018-Final.doc performance of the Development Agreement.
12. In my view, as in the case of recitals, a mere reference to the contract between the parties in the Articles / Clauses of a bank guarantee and / or a mere statement in the bank guarantee, specifying as to when the bank guarantee should be invoked by the benefciary, does not make the bank guarantee conditional or contingent. A conjoint reading and appreciation of the relevant clauses of the Suit Bank Guarantee is necessary for arriving at a decision as to whether the Suit Bank Guarantee is conditional or unconditional.
13. A conjoint reading of Clauses 1, 6, 7, 13 and 15 of the Suit Bank Guarantee indicates as follows :
A.(i) The earlier portion of Clause 1 of the Suit Bank Guarantee provides that the Bank has, "irrevocably and unconditionally" agreed, guaranteed and undertaken to the benefciary / Mahtanis, for and on behalf of the Plaintiff Developer, that the Bank shall within 48 hours from the date of receipt of the written claim / demand made by the benefciary / Mahtanis, in conformity with Clause 12 of the Performance Guarantee, "without any deductions, reservation, protest, demur, delay or reference to the developer, pay to the benefciary / Mahtanis, the sum of Rs.10 Crores or part thereof, "irrespective and notwithstanding any dispute or demand to the contrary made / raised by the Developers".
ii. The later portion of Clause 1 provides that the Guarantee be invoked by the benefciary / Mahtanis in the event the Plaintiff Developer fails in due and timely Nitin 22 / 42 NMSL-17-2018-Final.doc performance of the Developerfs obligations and covenants under the APAA and DA dated 26th July, 2012.
B. Clause 6 of the Suit Bank Guarantee provides that, "the Bank's liability to make unconditional payment on demand by the members shall not be afected or diluted and shall remain valid, enforceable and unaltered" (without any proceeding or demand against the Developers) and makes it clear that the demand made on the Bank by the Mahtanis shall be conclusive, fnal and binding.
C. Clause 7 of the Suit Bank Guarantee provides / reiterates that the Bank Guarantee is "absolute, irrevocable, unconditional and unqualifed" and that the Bank shall be liable to pay the guaranteed sum "without any demur and irrespective of any instructions or demand to the contrary made / raised by the Developers to the said Bank to withhold payment thereof on any ground whatsoever."
D. Clause 13 of the Suit Bank Guarantee prohibits the Bank from disputing the veracity / legality of the documents tendered by the Members i.e. the Mahtanis.
E. Clause 15 of the Suit Bank Guarantee provides that the Bank "is bound to honour the claim / demand so received without delay or demur" and "notwithstanding any protest, contestation or proceedings pending before any Court, Tribunal or Administrators / Regulators".
14. A conjoint reading of the above Clauses of the Suit Bank Guarantee, therefore makes it clear, that the Suit Bank Guarantee is absolute, irrevocable, unconditional and unqualifed; that the amount under the Suit Bank Guarantee is to be Nitin 23 / 42 NMSL-17-2018-Final.doc paid to the benefciaries without any demur and irrespective of any instructions or demand to the contrary made / raised by the Plaintiff Developer to the said Bank to withhold payment thereof on any ground whatsoever ; the Bank is prohibited from disputing the veracity / legality of the documents tendered by the Mahtanis, and the Bank is bound to honour the claim / demand so received, without delay or demur and notwithstanding any protest, contestation or proceedings pending before any Court, Tribunal or Administrators / Regulators, and establishes beyond any doubt that the Suit Bank Guarantee is unconditional and the Mahtanis would be the sole Judge to determine whether there is breach of the underlying contract for the purpose of invocation of the bank guarantee and therefore whether any amount should be claimed under the Suit Bank Guarantee, and the mere reference to the underlying contract or the statement in the Bank Guarantee as to when the benefciary / Mahtanis can proceed to invoke the Suit Bank Guarantee, cannot make the Suit Bank Guarantee conditional and render all the other clauses otiose.
15. As regards the contention of the Plaintiff Developer that the phrase, "as regards to the amount" in Clause 6 of the Suit Bank Guarantee, means that the demand made would be conclusive only with respect / regard to the amount and not with regard to whether the condition mentioned in the Suit Bank Guarantee has been fulflled or not, I am in agreement with the submission advanced by the Learned Senior Advocate appearing for the Mahtanis, that the same would be misreading the Clause for the following reasons :
Nitin 24 / 42 NMSL-17-2018-Final.doc i. Firstly, there is absolutely no dispute as to the amount that would have to
be paid to the Mahtanis by the Bank in the event of invocation of the Suit Bank Guarantee. The Suit Bank Guarantee clearly states in Clause 1, that the Mahtanis would be paid an amount of Rs.10,00,00,000/-, in case of invocation of the Suit Bank Guarantee. Therefore, if we were to interpret this Clause the way the Plaintiff Developer is interpreting it, it would make this Clause a meaningless one. ii. Secondly, by stating that the Mahtanis cannot be questioned, "as regards to the amount due and payable by the Bank under the Guarantee" the Suit Bank Guarantee makes it clear that the Mahtanis cannot be questioned at all with respect to whether the Suit Bank Guarantee can be invoked or not. The words, "due and payable" used in this Clause attach a conclusivity /fnality to the fact that an amount is payable, which means that if the Mahtanis state that the Plaintiff Developer has a liability towards them, then this cannot be questioned by the Bank, either with respect to the amount claimed, or with respect to the fact that there is a liability. This is nothing but a 'Sole Judgef clause.
iii. Thirdly, Clause 15 of the Suit Bank Guarantee further goes on to state that the Bank will honour the claim without any delay or demur and that the Bank is bound to honour this claim notwithstanding any dispute / difference between the Members and the Developers and notwithstanding any protest, contestation or proceedings pending before any court, tribunal or administrators / regulators.
16. The submission of the Plaintiff Developer that the phrase, " and if any Nitin 25 / 42 NMSL-17-2018-Final.doc default is committed" in Clause 7 of the Suit Bank Guarantee indicates that the Suit Bank Guarantee is a conditional one, is nothing but selective reading on the part of the Plaintiff Developer, who chooses to ignore the full Clause, which clearly states, "and if any default is committed the said Bank shall be liable to pay the guarantee sum of Rs.10,00,00,000/- (Rupees Ten Crores only) in full to the Members without any demur and irrespective of any instructions or demand to the contrary made / raised by the Developers to the said Bank to withhold payments thereof on any ground whatsoever". The underlined words show that far from being conditional, payment has to be made without any demur and irrespective of any instructions to the bank by the Plaintiff Developer to withhold payment on any ground whatsoever. The Suit Bank Guarantee is hence an unconditional one, even under Clause 7 itself, let alone if read as a whole with Clauses 1, 6 and 15 as well.
17. Relying on Clause 10 of the Suit Bank Guarantee, it is submitted on behalf of the Plaintiff Developer that once the Plaintiff Developer has completed its obligations under the underlying contract, then the Mahtanis are not entitled to invoke the Suit Bank Guarantee. Clause 10 of the Suit Bank Guarantee states, "In case the Developer intimates to the Member that the said new fats are ready for occupation together with the Occupation Certifcate / part occupation certifcateee then in that event the Developer shall be absolved from its obligations under this Bank Guarantee and the Member shall not be entitled to invoke this Bank Guarantee". The Plaintiff Developer itself has nowhere claimed to have fulflled Clause 10.
Nitin 26 / 42 NMSL-17-2018-Final.doc
18. Thus, in my view, making invocation of the Suit Bank Guarantee dependent upon failure / default in performance of the underlying contract, does not make it a conditional / contingent guarantee, particularly if there are other clauses conferring conclusivity / fnality upon the demand of the benefciary and making the bank liability unconditional, notwithstanding demur or dispute.
19. I am fortifed in my above view by the Judgment of the Honfble Supreme Court in the case of Mahatma Gandhi Sahakarre Karkhane (supra). The relevant portion of the Bank Guarantee, which was being examined by the Supreme Court in that case, is reproduced hereunder :
"17. eeee..
"1. In consideration of the above premises, the Guarantor hereby undertakes to pay to the purchasers within 30 days of demand, without demur such a sum not exceeding Rs. 92,40,000/- (Rupees Ninety two lakhs forty thousand only), representing 3% of the contract price as the purchasers may demand upon the failure of the supplier to conduct the trial test of the sugar plant by 24th July, 2003 and also upon the failure of the sellers to commission the Project (Plant and Machinery) before December 2003.
2. The Guarantor shall pay to the purchasers on demand the sum without demur and without requiring the purchasers to invoke any legal remedy that may be available to them, it being understood and agreed FIRSTLY that the purchasers shall be the sole judge of and as to whether the amount of bank guarantee has become recoverable from the sellers or whether the sellers Nitin 27 / 42 NMSL-17-2018-Final.doc have committed any breach(es) of the terms and conditions of the said agreement and the extent of losses, damages, costs, charges and expenses caused to or suffered by or that may be caused to or suffered by purchaser'ss from time to time shall be fnal and binding to the Guarantor and SECONDLY that the right of the purchasers to recover from the guarantor any amount due to the purchasers under this guarantee shall not be affected or suspended by reasons of the fact that any dispute or disputes have been raised by the sellers with regard to their liability or that proceedings are pending before any tribunal/ arbitrator(s) or court with regard thereto or in connection therewith and THIRDLY that the guarantor shall immediately pay the aforesaid guaranteed amount to the purchasers on demand and it shall not be open to the Guarantor to know the reasons of or to investigate or to go into the merits of the demands or to question or challenge the demand or to know any facts affecting the demand, and LASTLY that it shall not be open to the guarantor to require the proof of the liability of the sellers to pay the amount, before paying the sum demanded under Clause 1 above.
* * *
8. The invocation of this guarantee shall be by a letter as herein, signed by the purchasers and countersigned by the Commissioner of Sugar, Bangalore, Karnataka State."
(Emphasis supplied) It is therefore clear that Article 1 of the Bank Guarantee in that case provided that the bank had undertaken to pay to the purchaser a sum of Rs.92,40,000/- upon failure of the supplier to conduct the trial test of the sugar plant by 24 th July, 2003 and also upon Nitin 28 / 42 NMSL-17-2018-Final.doc the failure of the sellers to commission the Project (Plant and Machinery) before December, 2003. The aforesaid clause thus contemplated that the bank guarantee is payable upon the failure of the trial test and/or failure of commissioning of the project by the dates specifed in the bank guarantee itself. However, the Honfble Supreme Court rejected the argument that the bank guarantee was conditional and held that clauses 1 and 2 of the said bank guarantee are capable of harmonious interpretation and no part of the bank guarantee was to be discarded. While arriving at the said fnding, the Honfble Supreme Court held as follows :
"18. A plain reading of Clauses (1) and (2) of the bank guarantee makes it abundantly clear that the guarantor had undertaken to pay to the appellant within 30 days of demand, without demur such an amount not exceeding Rs.92.40 lakhs. The sole discretion is conferred on the purchasers as to whether the amount of bank guarantee has become recoverable from the sellers or whether the sellers have committed any breach of the terms and conditions of the said agreement. The right of the purchaser to recover from the guarantor the guaranteed amount shall not be affected or suspended by the reasons of the fact that any dispute or disputes have been raised by the sellers with regard to their liability or that the proceedings are pending before any tribunal or court with regard thereto or in connection therewith.
19. However, Shri Jayant Bhushan, learned senior counsel submitted that the purchasers were entitled to invoke the bank guarantee and demand the payment of money only upon the failure of the supplier to conduct the trial test of the sugar plant by 24th July, 2003 and also Nitin 29 / 42 NMSL-17-2018-Final.doc upon the failure of the sellers to commission the project before December, 2003. This condition forms an integral part of the bank guarantee was the submission. We fnd it difcult to accept the submission. The guarantee executed by the guarantor (PNB) in favour of the purchaser (appellant) cannot be dissected in the manner suggested by the learned senior counsel for the respondent. Clauses 1 and 2 of the guarantee executed by the banker in favour of the purchaser are required to be read together. The respondent cannot be allowed to contend that there is a dispute as to whether it had failed to conduct the trial test of the sugar plant by 24 th July, 2003 and therefore bank guarantee cannot be invoked. The acceptance of the argument would make Clause 2 of the bank guarantee totally meaningless and inoperative. The guarantor essentially agreed that the purchasers alone shall be the sole judge in the matter as to whether the amount of bank guarantee has become recoverable from the sellers or whether the seller had committed any breach of the terms and conditions of the agreement. The dispute, if any, between the parties with regard to the liability in any proceedings either before the arbitral tribunal or court in no manner affects the right of the purchaser to invoke the bank guarantee and realise the guaranteed sum from the guarantor.(Emphasis supplied)".
20. A similar question arose before this Court in the case of Felguera Gruas. The subject bank guarantees in that case were the Advance / Down Payment Bank Guarantee and the Performance Guarantee. The relevant clauses of the Advance / Nitin 30 / 42 NMSL-17-2018-Final.doc Down Payment Bank Guarantee are reproduced hereunder :
"1. If the Delivery Obligation is not performed by the Seller in accordance with the terms of the PURCHASE ORDER, the Guarantor shall, within 7 (seven) days from the receipt of a demand by the Purchaser, pay to the Purchaser any sum not exceeding Rs.1,70,00,000/- (Rupees One Crore Seventy Lakhs Only) .
2. The obligation of the Guarantor under this Guarantee shall be unconditional, absolute and irrevocable, irrespective of the genuineness, validity, regularity or enforceability of the PURCHASE ORDER or any other circumstances which might otherwise constitute a legal and/or equitable discharge of a surety or the Guarantor under the law relating to sureties. The Guarantor shall not be entitled to dispute or inquire into whether the Purchaser has become entitled to claim the said amount under the PURCHASE ORDER or not or whether the Supplier has committed any breach of the PURCHASE ORDER and/or the General Terms and Conditions applicable thereto or not or whether the Purchaser is entitled to recover any damages from the Supplier for breach thereof or not.
3. The Purchaser need not initiate any proceeding or claim against the Seller before lodging any claim under this Guarantee. e
6. The liability of the Guarantor under this Guarantee shall be primary, direct, and immediate, and not conditional, and/ or contingent upon pursuit by the Purchaser of any remedies that it may against the Seller and/ or any other person in relation to the Purchase Order.
7. The Guarantor hereby expressly waives:
...
Nitin 31 / 42 NMSL-17-2018-Final.doc D. Demand for observance, performance and/ or enforcement of any terms and / or provisions of this Guarantee and/ or the Purchase Orders.
e
15.A demand for payment under this Guarantee shall be deemed to have been sufciently made if a claim in writing is sent by post or hand delivered to Guarantor at its ofce and is received by the Guarantor.
(Emphasis supplied)"
21. Articles of the Performance Bank Guarantees are identical as in the case of Advance / Down Payment Bank Guarantees save and except Article 1, which is reproduced hereunder :
"1. If the Delivery Obligation is not performed by the Seller in accordance with the terms of the purchase order, the Guarantor shall, within 7 (seven) days from the receipt of a demand by the Purchaser, pay to the Purchaser any sum not exceeding Rs.1,70,00,000/- (Rupees One Crore Seventy Lakhs Only)" (emphasis supplied)."
22. The learned Senior Advocate appearing for the Felguera Gruas in that matter in support of his submission that all the bank guarantees are conditional, mainly relied on Articles 1 and 2 of the Advance / Down Payment Bank Guarantees and Performance Bank Guarantee. This Court after observing that a conjoint reading inter alia of Articles 1, 2, 3, 6, 7D and 15 is relevant for arriving at a decision as to whether the bank guarantees are conditional or unconditional, in paragraph 18 of its Judgment Nitin 32 / 42 NMSL-17-2018-Final.doc dated 11th January, 2018 held as under :
"..e..It is therefore clear that Article 1 of the Advance Bank Guarantee as well as the Performance Bank Guarantee have only made a general reference to the purchase order and generally set out that if the delivery obligation is not performed by the seller/FGIPL in accordance with the terms of the purchase order, or if the seller fails to perform any of its obligation/s under the purchase order, or breaches or violates any of the terms of the purchase order, the guarantor bank shall within seven days from receipt of the demand from the purchaser make payment to TCTPL in a sum not exceeding the amount for which the Bank Guarantee is provided. After the above general reference to the purchase orders in Article 1, the subsequent Articles have made it clear that the Bank Guarantees are absolute and unconditional by a clear assertion that the bank shall not be entitled to dispute or inquire into whether TCTPL has become entitled to claim the guaranteed amount under the purchase order or not ; or whether FGIPL has committed any breach of purchase order and/or general terms and conditions applicable thereto or not ; or whether TCTPL is entitled to recover any damages from the Supplier/FGIPL for breach thereof or not. It is further clearly asserted in Articles 3, 6, 7(D) and 15 of the Bank Guarantees that TCTPL need not initiate any proceeding or claim against FGIPL before lodging any claim under the guarantee; that the liability of the Guarantor/Bank under the Guarantees shall be primary, direct and immediate, and not conditional and/or contingent upon pursuit by the purchaser/TCTPL of any remedies that it may have against the seller/FGIPL and/or any other person in relation to the purchase order ; that the demand Nitin 33 / 42 NMSL-17-2018-Final.doc for observance, performance and/or enforcement of any terms and/or provisions of the guarantees and/or purchase order is expressly waived ; and that a demand for payment under the guarantees shall be deemed to have been sufciently made if a claim in writing is sent by post or hand delivered to the Guarantor/Bank at its ofce and is received by the guarantor. It is required to be made clear that only because TCTPL has in its invocation letters stated that, "the delivery obligation is not performed by the seller" and that "the seller has failed to perform its obligation/s under the purchase order", the submission of FGIPL that TCTPL is conscious of the fact that the Bank Guarantees are conditional, cannot be accepted."
23. The learned Senior Advocate appearing for the Petitioner / Felguera Gruas in the said matter had also submitted that the subject bank guarantees do not make the benefciary Tuticorin Coal Terminal Pvt. Ltd. (TCTPL), the Sole Judge of whether the conditions for invoking the bank guarantees are satisfed. The said submission was rejected by this Court by holding that it is not necessary that the party invoking a bank guarantee cannot be treated as the Sole Judge to decide whether the conditions for invoking the bank guarantees are satisfed, unless the words 'Sole Judgef are found in the Bank Guarantee. Paragraph 19 of the Judgment is relevant in this regard and is reproduced hereunder :
"19. Mr. Khambatta, as set out hereinabove, has submitted that the subject Bank Guarantees do not make the benefciary i.e. TCTPL the sole Judge of whether the conditions for invoking the Bank Guarantees Nitin 34 / 42 NMSL-17-2018-Final.doc are satisfed. I am not in agreement with the submissions made by Mr. Khambatta, since I am of the view that the language of Article 2 i.e. "the Guarantor (Bank) shall not be entitled to dispute or inquire into whether the purchaser (TCTPL) has become entitled to claim the said amount under the purchase order or not or whether the supplier (FGIPL) has committed any breach of the purchase order and/or the general conditions applicable thereto or not or whether the purchaser (TCTPL) is entitled to recover any damages from the supplier (FGIPL) for breach thereof or not", clearly establishes that the Purchaser/TCTPL is the sole Judge to decide as to whether the conditions for invoking the bank guarantees are satisfed. It is not necessary that the party invoking a bank guarantee cannot be treated as the sole Judge to decide whether the conditions for invoking the bank guarantees are satisfed, unless the words 'ssole Judge's are found in the Bank Guarantee."
24. The aforestated clauses of the Suit Bank Guarantee as compared to the clauses in Felguera Gruas and Mahatma Gandhi Sahakarre Karkhane (supra), show that they are very similar, if not identical, in content and effect.
25. Felguera Gruas had fled an Appeal being Commercial Appeal (L) No. 20 of 2018 against the decision of the Single Judge, which was dismissed by a detailed Order dated 10th April, 2018, by the Division Bench of this Court ( Coram : Mr.Naresh H. Patil and Mr. Nitin W. Sambre, JJ.). The Special Leave Petition fled therefrom, was also dismissed by the Honfble Supreme Court on 27th April, 2018.
26. The Learned Senior Advocate appearing for the Plaintiff Developer has Nitin 35 / 42 NMSL-17-2018-Final.doc relied on the decision of the Honfble Supreme Court in Hindustan Construction Company (supra), wherein the Honfble Supreme Court has analysed the clauses of the Bank Guarantee and held it to be a conditional guarantee. The relevant clauses of the bank guarantee are extracted below :
"In accordance with the provisions of the Conditions of Contract, Clause 9 (Advance Mobilisation Loan) of the abovementioned contract, the Hindustan Construction Co. e. shall deposit with the Executive Engineer, Kharkal Dam Division II, e.. a bank guarantee to guarantee their proper and faithful performance under the said clause of the contract in an amount of Rs.10,00,000/- (Rupees Ten lakhs only.
We, the State Bank of Indiae. agree unconditionally and irrevocably to guarantee as primary obligator and not as Surety merely, the payment of the Executive Engineer, Kharkal Dam Division II, Icha, Chaliama, Post Kesargarhia, Dist. Singhbum, Bihar, on his frst demand without whatsoever right of objection on our part and without his frst claim to the contractor, in the amount not exceeding Rs.10,00,000 (Rupees Ten lakhs only) in the event that the obligations expressed in the said clause of the abovementioned contract have not been fulflled by the contractor giving the right of claim to the employer for recovery of the whole or part of the Advance Mobilisation Loan from the contractor under the contract."
27. In my view, the decision in Hindustan Construction (supra) does not assist the Plaintiff Developer, since as correctly pointed out on behalf of the Plaintiff Developer, in the case of Hindustan Construction, the Bank Guarantee did not make Nitin 36 / 42 NMSL-17-2018-Final.doc the demand by the benefciary conclusive, fnal and binding unlike Clause 6 of the Suit Bank Guarantee. Thus, the Honfble Supreme Court in Hindustan Construction was not dealing with a guarantee that put the invocation / demand beyond review. Again, in the Suit Bank Guarantee, Clause 7 made the Guarantee "absolute, irrevocable, unconditional and unqualifed" and the Bankfs liability "without any demur and irrespective of any instructions or demand to the contrary made / raised by the Developers to the said Bank to withhold payment thereof on any ground whatsoever", which provisions are not found in the Hindustan Construction Bank Guarantee.
28. Since a similar argument based on the decision in the Hindustan Construction case (supra) was advanced before the Honfble Supreme Court in Mahatma Gandhi Sahakarre Karkhane (supra), the Honfble Supreme Court distinguished the same in paragraph 28 and pointed out that in the very said Judgment i.e. Judgment in Hindustan Construction case, the Supreme Court has observed that :
"e.what is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the benefciary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an independent contract between the bank and the benefciary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the bank Nitin 37 / 42 NMSL-17-2018-Final.doc guarantee, or else, the invocation itself would be bad."
29. The Judgment in Hindustan Construction (supra) is also distinguished by this Court in the case of Felguera Gruas. Paragraph 27 of the Judgment in Felguera Gruas is reproduced hereunder :
"Therefore, in view of the peculiar facts and circumstances of the HCC'ss Case and the language of the bank guarantee therein, the Hon'sble Supreme Court in that case held that the bank guarantee therein was conditional. The contents of none of the Articles found in the subject Bank Guarantees, i.e. Articles 2, 3, 6, 7(D) and 15 are found in the HCC'ss Case and therefore the decision in that case will not apply to the present case."
30. I am therefore of the view that Article 1 of the Suit Bank Guarantee and the other Articles set out hereinabove can be harmoniously construed, and since I do not fnd any confict between the earlier and the latter portions of Article 1 as well as between Article 1 and / or any other Article/s of the Suit Bank Guarantee, I hereby hold that the Suit Bank Guarantee in question is absolute and unconditional. The submissions made on behalf of the Plaintiff Developer in support of his contention that the Bank Guarantee is conditional and contingent therefore cannot be accepted and the case laws relied upon by them do not assist them. The distinction sought to be made by them, with regard to the case laws relied upon by the Mahtanis, also cannot be accepted.
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31. The Learned Advocate appearing for the Plaintiff Developer also submitted that pursuant to the decision taken in the General Body Meeting of the Society dated 11th September, 2016 (which Meeting is disputed by the Mahtanis) , a Supplementary Agreement was executed by and between the Plaintiff Developer and the Society dated 9th December, 2016, extending the project timeline by 1 year, and therefore there has been no default on the part of the Plaintiff Developer within the meaning of the abovementioned Clauses and the Mahtanis are not justifed in invoking the Suit Bank Guarantee. Though, it is settled law that a Court cannot go into the underlying contract or dispute for the purpose of granting or refusing to grant an injunction for the invocation of an unconditional bank guarantee, the Mahtanis have without prejudice to this position in law, correctly submitted in response that assuming that the General Body Meeting of the Society dated 11 th September, 2016 did extend the timeline for the development project by a period of one year, this extension of the timeline only affects the Societyfs Bank Guarantee and not the Suit Bank Guarantee ; that the Suit Bank Guarantee was given solely to the Mahtanis due to the special lease hold rights they had in the property; that the Agreement for Permanent Alternate Accommodation expressly records in Clause 5.5. that the period for invoking the Bank Guarantee can only be extended by the parties to the APAA ; that the Society was not a party to the APAA and therefore was not in a position to amend the Suit Bank Guarantee; that considering the APAA is admittedly not been amended and only the Development Agreement (DA) has been amended there is no question of the Suit Nitin 39 / 42 NMSL-17-2018-Final.doc Bank Guarantee being amended; that therefore even if it is assumed that the Suit Bank Guarantee is a conditional one and that the time under the DA has been extended, the Plaintiff has in any event breached the APAA and the Mahtanis are entitled to invoke the Suit Bank Guarantee, which is independent of both the APAA and the DA.
32. It is also submitted on behalf of the Plaintiff Developer that the Mahtanis being the Members of the Society, all the decisions taken by the Society are binding on them. In this regard, the Plaintiff Developer has relied on the decisions of this Court in the matter of Girish Mulchand Mehta v. Mahesh Mehta7 and in the matter of Disha Constructions v. Jaysen Mastakar 8. As correctly submitted on behalf of the Mahtanis, the rights of the Mahtanis under the Suit Bank Guarantee and four APAAs with the Mahtanis are completely independent of the rights of the Society and its Members. The Suit Bank Guarantees were given because the Mahtanifs held lease hold rights (for 99 years) over a separate portion of the land (admeasuring 644 square meters), which they were exclusively occupying and enjoying. Neither the Society nor the body of its Members have any rights in this regard. No other Member of the Society has surrendered a 99 year lease. Hence, the Mahtanis had rights under the Suit Bank Guarantee, over and above and independent of their rights and obligations, as members of Defendant No. 4 Society. There was admittedly a separate Bank Guarantee dated 26th July, 2012 (Ex.B / Pg. 24 of the Plaint) in respect of the Societyfs rights. The Plaintiff Developer is trying to subsume these independent rights 7 2010 (2) MhLJ at Page 657 8 2014 (2) MhLJ at Page 353 Nitin 40 / 42 NMSL-17-2018-Final.doc of the Mahtanis into the Societyfs rights, which is not permissible in law. The decisions in the case of Girish Mulchand Mehta and Disha Constructions do not lend any assistance to the Plaintiff Developer because in both those cases the member/s had no independent right but was/were merely claiming the same through the Society.
33. It is next submitted on behalf of the Plaintiff Developer that the Mahtanis have committed a fraud by seeking to invoke the Suit Bank Guarantee contrary to the terms of the DA dated 26th July, 2012, as the Mahatnis were aware that the DA dated 26th July, 2012 had been amended in the General Body Meeting dated 11th September, 2016. The averment of fraud are found in paragraph 25 of the Plaint and reproduced hereunder :
"25. The fraud committed by the Defendant Nos. 1 and 2 is clear from the fact that inspite of the execution of the Supplementary Agreement dated 9th December, 2016, inspite of being aware of the Resolution dated 11th September, 2016 and further having taken advantage of receiving rentals in accordance with the said Supplementary Agreement dated 9th December, 2016 and the Plaintiff duly complying with all the terms of the Agreement between the parties, the said Defendant Nos. 1 and 2 have proceeded to invoke the Suit Bank Guarantee."
In my view, the above avernment is not adequate to reach a conclusion that a fraud is perpetrated on the Plaintiff Developer. In fact, it is repeatedly held by the Honfble Supreme Court and followed by this Court that the Bank can only be Nitin 41 / 42 NMSL-17-2018-Final.doc injuncted by the Court from making payment as per a Bank Guarantee at the instance of the Guarantor, if the fraud averred is of such an egregious nature so as to vitiate the entire underlying transaction between the parties. The question therefore of restraining payment of the Suit Bank Guarantee on the ground that a fraud is perpetrated on the Plaintiff Developer does not arise.
34. The Honfble Supreme Court has in the case of U.P.Co-operative (supra) held in paragraph 34 that :
"On the basis of these principals, I reiterate that commitments of Banks must be honoured free from interference by the Court.
Otherwise, trust in the commerce internal and international would be irreparably damaged. It is only in exceptional cases that are to say in case of fraud or in case of irretrievable in justice be done, The Court should interfere.
35. It will not be out of place to mention here that the Mahtanis have accepted rentals for the extended period without prejudice to their rights and contentions, and further that despite the expiry of even the extended period, the Plaintiff Developer has till date not handed over the agreed fats to the Mahtanis.
36. The submission with regard to the alleged fraud is therefore rejected. No case of irretrievable injustice is advanced, or made out.
Nitin 42 / 42 NMSL-17-2018-Final.doc
37. The above Notice of Motion is therefore dismissed. However, there shall be no order as to costs.
( S. J. KATHAWALLA, J. ) After the Judgment is pronounced, the learned Senior Advocate appearing for the Plaintiff Developer seeks continuation of the ad-interim stay for a period of three weeks. The Application seeking extension of stay is strongly opposed by the Mahatnis. However, the request made on behalf of the Plaintiff Developer is granted. The ad-interim order shall continue to be in force upto 12th June, 2020.
( S. J. KATHAWALLA, J. ) N. D. Jagtap Digitally signed by N. D. Jagtap Date: 2020.05.23 15:28:57 +0530