1 BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 06.04.2011 CORAM: THE HONOURABLE MR.JUSTICE B.RAJENDRAN W.P.(MD)No.3456 of 2011 and M.P.(MD) No.1 of 2011 K.Bharathi Petitioner Vs 1.The Branch Manager, Union Bank of India, 13/100, M.S.Road, Nagercoil - 629 001, Kanyakumari District. 2.The District Collector/Chairman, Tsunami District Implementation Unit, Kanyakumari District, Nagercoil. 3.The Project Co-ordinator, Tsunami District Implementation Unit, No.9, Popular Building, Perinba Street, Nagercoil. Respondents Prayer: Writ Petition filed under Article 226 of the Constitution of India praying to issue a Writ of Certiorarified Mandamus calling for the records pertaining to the impugned letter in ADV:VI:462/2010 dated 11.08.2010 issued by the first respondent intimating the release of the Bank Guarantee to the tune of Rs.54,05,900/- and quash the same and consequently direct the first respondent to get back the sum of Rs.49,33,000/- paid to the respondents 2 and 3 out of the Bank Guarantee as those Bank Guarantee already expired. For Petitioner M/s.M.Michael Bharathi For Respondent 1 No appearance For Respondent 2&3 Mr.K.Balasubramanian Additional Government Pleader ORDER The petitioner has come forward with this writ petition challenging the impugned order whereby the bank has released a bank guarantee calling upon the petitioner to pay back the money. 2. The petitioner would contend that she was a contractor with the third respondent and for the performance of the contract, she has given bank guarantees. As there was a dispute between the contractor/the petitioner and the second and third respondents, she was not able to complete the project; hence, the third respondent issued a show-cause notice on 14.09.2009 for which, she gave a reply on 14.10.2009 and 27.11.2009; without considering the same, the third respondent had cancelled the very contract without assigning any proper reason and https://hcservices.ecourts.gov.in/hcservices/ 2 without even giving any opportunity of being heard as per the order dated 04.12.2009 and the third respondent had further terminated the contract with forfeiture of security deposit together with amount withheld from the part of the funds scheme; the petitioner challenged the same by way of a writ petition and the same was dismissed; a writ appeal was also filed and the same also dismissed; after the dismissal of the writ petition, the bank guarantee given by the petitioner was invoked by the second and third respondents. The petitioner's only grievance is that after expiry of the guarantee period, the bank guarantee given by her was invoked; therefore, she has challenged the present order. 3. When the matter was posted for admission, the learned counsel for the petitioner would only contend that the bank guarantee itself was sought to be invoked by the bank by letter dated 07.04.2010 by the Project Coordinator which is beyond the period of bank guarantee. Therefore, the bank guarantee cannot be invoked and consequently, the question of the bank passing the impugned order, calling upon the petitioner to pay the money, would not arise at all. In this connection, it is to be seen that the prayer in the writ petition is challenging the impugned order of the bank calling upon her to pay the money which arose out of the payment made by the bank to the Government invoking the bank guarantee and not invoking of the bank guarantee. As per the impugned order, it is very clear that the Government has invoked the bank guarantee after the cancellation of the contract. 4. The petitioner earlier filed writ petitions in W.P.Nos.13743 to 12748, 14287 ad 14199 of 2009 in which, a common order was passed. The prayer in those writ petitions is not to invoke the bank guarantee and it also challenges the very cancellation of the contract. Ultimately, those writ petitions were dismissed on 26.02.2010. Thereafter, the petitioner had also invoked the arbitration clause and the arbitration, according to the petitioner, is pending. In any view of the matter, in the earlier writ petitions, only invocation of bank guarantee was questioned. Therefore, the Government could not invoke the bank guarantee as there was an interim order in those cases. Thereafter only, the bank guarantee could be sought to be invoked. Even otherwise, if we look into the bank guarantee, the bank guarantees are for the period between 23.01.2009 and 22.08.2009 and they expired on 21.02.2010 and 21.07.2010. But, the contract was cancelled as early as on 04.12.2009 itself and invoking of the bank guarantee was stalled by the petitioner by filing earlier writ petitions as early as in December 2009 itself. Therefore, the Government, after cancelling the contract, had invoked the bank guarantee, but, because of the filing of the writ petitions and in view of interim order of stay being obtained it could not be encashed. In fact, Clause No.3 of the bank guarantee reads as follows: "We are liable to pay the guarantee amount or any part thereof under this guarantee only if you serve upon us a written claim or demand on or before 21.02.2010". Even though the contract itself was cancelled, the right to invoke the bank guarantee emanates from then onwards. The Government have already invoked that but because of the writ petition filed by the petitioner, the bank did not give it. Later on, since her claim had already emanated from the Government by virtue of cancellation order in the year 2009 itself, the bank guarantee would be kept alive and should be paid after https://hcservices.ecourts.gov.in/hcservices/ 3 the disposal of the writ petition. Admittedly, there was an interim order. Therefore, the present argument of the petitioner that the bank cannot seek the amount after the period cannot be sustained at all as per the original demand made long back in the year 2009 itself even at the time of cancellation of the order which was under challenge in the earlier writ petitions. 5. In this connection, we are further fortified by the judgment of the Supreme Court. Insofar as bank guarantee is concerned, court should not interfere and no interim order should be granted for invoking the bank guarantee. In the case of Dwarikesh Sugar Industries Ltd., v. Prem Heavy Engineering Works (P) Ltd., reported in (1997) 6 SCC 450, a three Judge Bench of the Supreme Court has categorically held that except in cases of established fraud vitiating the very foundation of the bank guarantee or encashment resulting in irretrievable harm or injustice which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds, Court should not interfere with the grant of invoking of the bank guarantee and interim order should not be granted. 6. Similarly, in the case of Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd., and another reported in (2007) 6 SCC 470, it has been held that unconditional bank guarantee cannot be prevented by any court unless it is for a case of fraud. Pendency of dispute between the parties to the underling contract will not bar the bank or the parties from invoking the bank guarantee. In this connection, in the case of Himadri Chemicals Inudstries Ltd., v. Coal Tar Refining Co., reported in (2007) 8 SCC 110, in this case, if we analyse the bank guarantee, it is very clearly extracted that "notwithstanding any dispute or disputes raised by the contractor in any suit or proceedings pending before any Court or Tribunal relating thereto, our liability under this present being absolute and unequivocal. The payment so made by us under this guarantee shall be valid discharge of our liability for payment thereunder and the contractor shall have no claim against us for making such payment." Therefore, the dispute between the Government and the Contractor which has already been set at naught by the order passed in the writ petition cannot be a reason for the petitioner at this point of time to say that the bank guarantee having been invoked they are not liable to pay the bank as per the impugned order. In fact, as per the clause referred above, the petitioner cannot have any claim against the bank for making such payment. Hence, the impugned order is correct in demanding the payment from the petitioner. 7. In yet another decision of the Supreme Court in Daewoo Motors India Ltd., v. Union of India and others, reported in (2003) 4 SCC 690, it has been held that for encashment of bank guarantee, the bank cannot have any valid resistance, except of course, in a case of fraud. The bank guarantee furnished by the bank is an unconditional and absolute one. The clause in the bank guarantees specifically provides that the demand made by the President of India shall be conclusive as regards the amount due and payable by the bank under this guarantees and the liability under the guarantee is absolute and unequivocal. Once the bank has paid the money under the bank guarantee, the petitioner cannot now challenge the same under the guise that it is paid beyond the time, especially in this particular case, when the petitioner himself has earlier challenged by way of writ petition for invoking the bank https://hcservices.ecourts.gov.in/hcservices/ 4 guarantee and she lost the same and the bank has prevented from invoking the bank guarantee during the pendency of the writ petition by virtue of the interim order, it is not open to the petitioner to challenge the impugned order which is in accordance with law. For all the aforestated reasons, the writ petition is dismissed. No costs. Consequently, connected miscellaneous petition is closed. Sd/- Assistant Registrar (CO) /True copy/ Sub Assistant Registrar To 1.The Branch Manager, Union Bank of India, 13/100, M.S.Road, Nagercoil - 629 001, Kanyakumari District. 2.The District Collector/Chairman, Tsunami District Implementation Unit, Kanyakumari District, Nagercoil. 3.The Project Co-ordinator, Tsunami District Implementation Unit, No.9, Popular Building, Perinba Street, Nagercoil. +1CC TO THE SPECIAL GOVERNMENT PLEADER, SR.12888 Srm SR : 18.05.2011 : 4p/5c Order made in W.P.(MD)No.3456 of 2011 06.04.2011 https://hcservices.ecourts.gov.in/hcservices/