1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVL JURISDICTION WRIT PETITION NO. 841 OF 2002 State Bank of India. ... Petitioner. V/s. Deputy Commissioner of Customs and others. ... Respondents. Ms.Poornima Advani with H.V.Kode i/b. Law Point for the petitioner. P.S.Jetly for the respondents. CORAM : V.C.DAGA AND S.J.KATHAWALLA, JJ. DATED : 16th June 2010. JUDGMENT : (Per Vijay Daga, J.) This petition, filed by State Bank of India (“Bank” for short) under Article 226 of the Constitution of India is seeking to challenge the invocation of the bank guarantee by the Commissioner of Customs contending that the bank guarantee was not a continuing bank guarantee and that it was valid only up to 23rd September, 1988 unless a suit or action to enforce a claim is filed against the petitioner- Bank within six months from 23rd September, 1988 i.e. on or before 23rd March, 1989. 2 The Facts : 2. The factual matrix in short is that the petitioner-Bank on 24th September, 1987 had issued bank guarantee in favour of the President of India through the Assistant Commissioner of Customs guarantying an amount of Rs.9,25,000/- and thereby limiting its liability to the extent of Rs.9,25,000/-. The bank guarantee was to remain in full force for a period upto 23rd September, 1988. The clauses of the bank guarantee relevant to the issue are reproduced hereinbelow; “(2) This bond shall remain in force for a period of twelve months from the date hereof and the obligation and liability of the Importer shall be continuing one in respect of all goods imported from time to time by the importer between the period. 4 SET 1987 dated 23 rd SEPT 1988. ” “NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOING CLAUSES OUR LIABILITY UNDER THIS GUARANTEE IS RESTRICTED TO Rs.9,25,000/- (RUPEES NINE LAKHS TWENTY FIVE THOUSAND ONLY) and our guarantee shall remain in force until 23.9.88 unless a suit or action to encore a claim under the guarantee is filed against us within six months from 23.9.88 i.e. on or before 23.3.89 all your Rights under this guarantee shall be forfeited and we shall be relieved and discharged from all liability hereunder” (emphasis supplied) 3 3. The Commissioner of Customs, vide his letter dated 5th December, 2001 requested the petitioner- Bank to renew the bank guarantee for further period, to which the Bank replied on 3rd January 2002 that it did not receive any claim under the said bank guarantee, as such Bank stood relieved and discharged from all its liabilities thereunder. The Customs department on receipt of this reply threatened the Bank with legal action as such the Bank was constrained to invoke writ jurisdiction of this Court. Submissions : 4. Ms.Advani, learned counsel for the petitioner- Bank would submit that the Commissioner of Customs did not invoke bank guarantee before its expiry or within six months from the date of its expiry as such Bank stood discharged of its liabilities under the bank guarantee. At any rate, the act of invoking bank guarantee after more than 10 years from the date of its expiry is not legal and valid. According to her, by no stretch of imagination the Bank could be called upon to remit amount guaranteed under the bank guarantee in facts of this case. 5. Per contra, Mr.Jetly, learned counsel appearing for the respondents, at the outset, urged that the petition involves disputed questions of fact as such the petitioner should be relegated to a remedy of suit. According to him, the bank guarantee was continuing one and that it was to operate so long as the entire liability of the Customs Department guaranteed under the bank 4 guarantee is not satisfied by the customer of the bank on whose behalf the bank guarantee was given by the petitioner- Bank. He, thus, submits that the invocation of the bank guarantee was in accordance with law. Consideration : 6. Having heard rival views, the issue sought to be involved in the petition is in narrow compass. Firstly we must observe that this petition was admitted by an order dated 26th March, 2002. The petition has come up for hearing after eight years. In our considered view, it will not be in the interest of justice to relegate the petitioner to an alternate remedy of suit since suit itself would be barred by limitation. The petition does not involve any disputed questions of fact requiring investigation thereof. (See:Hirday Narayan Vs. ITO Berrity AIR 1971 SC 33) 7. The issue involved in the petition revolves around two clauses of the bank guarantee which can conveniently be interpreted and decided in writ jurisdiction of this Court. 8. Clause (2) of the bank guarantee extracted hereinabove goes to show that the bank guarantee was to remain in force for a period of 12 months from the date of issue and the obligation and liability of the importer i.e. customer of the petitioner- Bank was a continuing one in respect of goods imported from time to time during the period 4th September, 1987 to 23rd September, 1988. It is, therefore, clear that the life of the bank guarantee was 5 12 months commencing from 4th September, 1987 and was to expire on 23rd September, 1988. It was a continuing guarantee during this period of one year alone. It was not to operate after expiry of one year from the date of its issue. 9. The last para of the bank guarantee extracted hereinabove further makes it clear beyond doubt that the bank guarantee was to remain in force only upto 23rd September, 1988 and that the obligation under the bank guarantee was enforceable provided legal action is initiated within six months from 23rd September, 1988 i.e. on or before 23rd March, 1989, failing which, all rights under the bank guarantee were to stand forfeited and the Bank was to be relieved and discharged from all its liabilities under the said bank guarantee. Since the bank guarantee was not invoked in terms of last para of the bank guarantee, bank guarantee stood forfeited. The Apex Court had an occasion to consider the very same issue in the case of State of Maharashtra v. Dr.M.N.Kaul, (1968) 38 Company Case 1 (SC); wherein the Court ruled as under: “The time limit is an integral part of a bank guarantee and once the last date for enforcement of the guarantee has expired the guarantee will no longer be enforceable. The question whether a bank guarantee is enforceable depends upon the terms under which the guarantor bank bound itself. Under the law it cannot be made liable for more than it has undertaken. The cardinal rule is that the guarantor must not be made liable beyond the terms of his engagement.” 6 10. In view of the aforesaid specific integral conditions of the bank guarantee, the petitioner- Bank refused to enforce the bank guarantee since it had already expired. The Commissioner of Customs was not justified in invoking bank guarantee, that too, after the period of 10 years from its expiry, especially, having accepted the terms and conditions of the bank guarantee with open eyes. No attempt was made at any time during its validity period to invoke the bank guarantee by the respondents. Now it is too late to seek enforcement thereof. 11. At this juncture, it is needless to mention that the Customs department was absolutely negligent in protecting its own interest. This is not an isolated case; wherein the Customs department failed to invoke bank guarantee well within time but numerous such cases came to the notice of this Court and from time to time this Court was required to pass orders including the order fixing responsibility on the officers involved. We feel it is high time that the Customs department, one of the wings of the Government, should put its house in order before it is too late. 12. In the result, petition is allowed. Rule is made absolute in terms of prayer clauses (a) and (b) with no order as to costs. (S.J.KATHAWALLA, J.) (V.C.DAGA J.)