Calcutta High Court
H. Mitra Pvt. Ltd. & Anr vs United Bank Of India & Ors on 7 December, 2009
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
ORDER SHEET
G.A.No.5233 of 1999
C.S.No.195 of 1999
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
H. MITRA PVT. LTD. & ANR.
-Versus-
UNITED BANK OF INDIA & ORS.
Mr. Arindam Mukherjee, Adv.
Mrs. Mithua Sen, Adv.
...For the petitioner.
Mr. S. Sarkar, Adv.
...For the respondent Nos.2 to 5.
Before:
The Hon'ble Justice SANJIB BANERJEE Date: December 7, 2009.
The Court: This is a petition seeking to restrain the invocation of several bank guarantees and carries the attendant traits of an unworthy action. An order of injunction was obtained ex parte, directions for affidavit were thereafter taken and the application was not brought to a final hearing for more than ten years. It is not known as to what is the fate of the suit.
Several unconditional bank guarantees had been furnished by the first defendant bank against mobilization advance paid by the beneficiary to the plaintiff firm. The 2 guarantees were caused to be furnished at the behest of the plaintiffs in favour of the State of Madhya Pradesh or its relevant department. The plaintiffs say that the wording of the bank guarantees are similar, if not identical. The second clause of each of the guarantees provides that the bank would pay without any demur and merely on a demand from the beneficiary "stating that the amount claimed is due by way of loss or damage caused to or suffered by the Government by reasons of any breach by said contractor's failure to perform the said agreement". The guarantees further provide that any "such" demand made on the bank would be conclusive as regards the amount due and payable by the bank thereunder. A later clause limited the time within which the guarantees had to be invoked.
It is the plaintiffs' case that guarantees could have been invoked by March 29, 1999 in some cases and by March 31, 1999 in the other cases. The plaintiffs say that there was no invocation at all and on the plaintiffs' apprehension that there was no valid invocation, the present suit had been instituted.
The original letter of invocation, in Hindi, has been relied upon in the affidavit-in-opposition filed on behalf of the beneficiary. The plaintiffs have produced an official translation of such original letter of invocation 3 of February 10, 1999. The beneficiary had indicated that the beneficiary was in need of the amounts covered by the bank guarantees and it was, thus, invoking the same.
Clearly such letter would not meet the test under the second clause of the guarantees which required an assertion to be made in a particular manner and of a particular state of things.
The bank guarantees are otherwise unconditional and the bank's liability to pay thereunder was unfettered. However, the liability of the bank was to arise upon the beneficiary fulfilling a basic condition. The onus that the beneficiary was liable to discharge was an assertion that it had suffered loss or damage following the breach of the agreement by the contractor.
The affidavit-in-opposition reveals a second letter issued on March 22, 1999. It is not the plaintiffs' case that such letter was received by the bank subsequent to any of the bank guarantees running out. The relevant part of the letter of March 22, 1999 (which covered all the bank guarantees) recorded that the plaintiff firm had failed to perform the work as per the agreement. In the words of the letter of March 22, 1999, "no work is under progress for the last six months and this office has to recover the amount taken as advance payment in favour of mobilization and 4 machinery advance from M/s. H. Mitra (P) Ltd. besides other recoveries also including interest upon the advances."
According to the plaintiffs, there was no allegation by the beneficiary that it had suffered any loss or damage on account of the plaintiff firm. The plaintiffs say that in the absence of an assertion to such effect, the bank's unconditional liability under the guarantees did not open up.
The relevant paragraph in the letter of March 22, 1999 asserted that the plaintiff firm had failed to perform the work as per the agreement. The first limb of the second clauses of the bank guarantees was complied with. The letter went on to record that no work had been in progress for the six months prior to the letter and the beneficiary had to "recover the amount". Even though there was no assertion, stricto sensu, that the beneficiary had suffered loss and damage, the fact that the beneficiary had complained of the failure on the part of the contractor to undertake any work and had asserted the beneficiary's right to recover the advance, was enough compliance within the meaning of clause 2 of the bank guarantees.
The plaintiffs say that the third letter addressed on March 31, 1999 by the beneficiary to the bank should not be countenanced since such letter must have been received by 5 the bank after the bank guarantees became ineffective by efflux of time. The plaintiffs say that there is a categorical assertion in the third letter that the beneficiary had suffered loss and damage. It is the plaintiffs' argument that if the beneficiary got around to stating exactly what clause 2 of the bank guarantees wanted in its third letter, there was no excuse for it to have omitted any reference to the beneficiary having suffered loss and damage in its earlier letters.
The plaintiffs' argument is not acceptable since the tenor of the second letter of the beneficiary issued on March 22, 1999 made it clear that the plaintiff firm was in breach of the agreement and that the beneficiary was entitled to recover the mobilization advance that had been paid for a work to be begun since the plaintiff firm had not commenced any operation.
A bank guarantee may be unconditional and unequivocal in the sense that the liability of the bank may arise without reference to the person at whose behest the guarantee has been furnished or without reference to the underlying contract or the disputes thereunder. However, if the terms of the bank guarantee require the invocation thereof upon a certain situation arising or require an assertion to be made for the invocation to be effective, the 6 bank's obligation would not arise unless the situation stipulated has arisen or unless the assertion that the relevant clause demanded has been made.
A claim fructifies upon it being asserted and established. Loosely speaking, an unconditional bank guarantee is one where an assertion would suffice for the beneficiary to be entitled to the payment thereunder; the requirement to establish or prove the claim is dispensed with. It is this that divorces the bank guarantee from the underlying contract. There could be bank guarantees where a mere invocation would do. The bank guarantees here are not so overwhelmingly unconditional; they demand an assertion by the beneficiary of a breach by the plaintiffs and consequential loss to the beneficiary. The plaintiffs found their claim on the improper invocation rather than making out a case of fraud, special equity or irretrievable injury. They allude to the beneficiary's conduct, but only to buttress their claim of illegal invocation rather than to make out a high case to invite an embargo on an unconditional bank guarantee.
Ordinarily, Courts sit in the position of a bank to assess whether payment under a bank guarantee can be interdicted. A bank that has furnished an unconditional guarantee cannot adjudicate upon the disputes between the 7 parties. The bank cannot assert that a claim made by the beneficiary is ex facie false unless the bank is aware of any fraud. A mere mis-statement would not amount to fraud. From its position, the defendant bank could not have looked beyond the letter of invocation when the beneficiary had clearly and effectively asserted that there was a breach of the agreement committee by the plaintiff firm and that the beneficiary was entitled to recover the advances paid.
The interim order that the plaintiffs have undeservingly enjoyed for a period of ten years has to be vacated forthwith. There was an underlying undertaking that had been given by the plaintiffs as they obtained the order of injunction to keep the bank guarantees renewed together with a further underlying undertaking to keep the beneficiary indemnified against any loss or damage that the beneficiary may have suffered for the plaintiffs having obtained the order. Such undertaking is implied in any order of injunction of such nature that is made and is not necessary to be spelt out.
The first defendant bank will forthwith release the entire amount covered by the bank guarantees together with the interest at the normal bank rate from the date that the bank guarantees were stopped till the date of payment 8 and be entitled to claim the excess amount together with the amounts covered by the bank guarantees from the plaintiffs.
G.A.No.5233 of 1999 is disposed of. The plaintiffs will pay costs assessed at 5000 GM to the
beneficiary being the defendant Nos.3 to 5.
The plaintiffs seek a stay of operation of this order which is declined.
Urgent certified photostat copies of this order, if applied for, shall be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.) A/s.