Case: STANDARD CHARTERED BANK Vs. HEAVY ENGINEERING CORPORATION LTD. &amp; ANR.

4. The dispute primarily arose with regard to two bank guarantees amounting to Rs. 71,35,100/- and Rs. 20,32,500/- in terms of the letters of intent, HEC-CS-1502-81 dated 19 th May, 1981 and HEC-CS-1502-81 dated 19 th May, 1981 furnished on behalf of the 2 nd defendant by the appellant Bank(1 st defendant) in favour of the 1 st respondent-plaintiff as advance against supply of plant and equipment by the 1 st respondent-plaintiff to the 2nd respondent (defendant no. 2). The two bank guarantees are on identical terms and the only difference is the date and the amount which are reproduced as under:-Bank Guarantee No. 1001/03/100G dated 16 th February, 1983We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 71,35,100/-(Rupees SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. 71,35,100/-(RUPEES SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIERBank Guarantee No. G/1001/84/608 dated 29 th August, 1984We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 do hereby undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 20,32,500(Rupees TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. 20,32,500/-(RUPEES TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIER5. The said two bank guarantees were furnished for and on behalf of 2 nd respondent towards the sum insured against any loss or damage caused to or suffered by the Corporation by reason or any breach or failure by the said supplier, in due performance of the aforesaid contract4. The dispute primarily arose with regard to two bank guarantees amounting to Rs. 71,35,100/- and Rs. 20,32,500/- in terms of the letters of intent, HEC-CS-1502-81 dated 19 th May, 1981 and HEC-CS-1502-81 dated 19 th May, 1981 furnished on behalf of the 2 nd defendant by the appellant Bank(1 st defendant) in favour of the 1 st respondent-plaintiff as advance against supply of plant and equipment by the 1 st respondent-plaintiff to the 2nd respondent (defendant no. 2). The two bank guarantees are on identical terms and the only difference is the date and the amount which are reproduced as under:-Bank Guarantee No. 1001/03/100G dated 16 th February, 1983We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 71,35,100/-(Rupees SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. 71,35,100/-(RUPEES SEVENTY ONE LAKHS THIRTY FIVE THOUSAND AND ONE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIERBank Guarantee No. G/1001/84/608 dated 29 th August, 1984We, GRINDLAYS BANK P.L.C., 19 Netaji Subhas Road, Calcutta 700001 do hereby undertake the Indemnity and keep the CORPORATION indemnified to the extent of Rs. 20,32,500(Rupees TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. 20,32,500/-(RUPEES TWENTY LAKHS THIRTY TWO THOUSAND FIVE HUNDRED ONLY) without making any prior reference to the said SUPPLIER with and exclusion of any action in Court by SUPPLIER5. The said two bank guarantees were furnished for and on behalf of 2 nd respondent towards the sum insured against any loss or damage caused to or suffered by the Corporation by reason or any breach or failure by the said supplier, in due performance of the aforesaid contract6. By a letter of intent dated 19 th May, 1981, 1 st respondent placed an order on 2 nd respondent(Simon Carves India Ltd. SCIL) for the complete design, supply of both indigenous and imported equipments, erection and commissioning of requisite civil and construction works of the Dankuni Coal Complex at a total price of Rs. 21.10 crores. The letter of intent dated 19 th May, 1981 after describing 4 sections of the LTC plant at Dankuni stated as under:-The above price covers the complete design, supply of both indigenous and imported equipment, erection and commissioning with requisite civil and structural works complete in all respects except land filling upto 4.00 M level, railways siding, roads & outside drawing and perphorial lighting which will only be outside your scope or workThe break up of the total price of Rs. 21.10 crores for purpose of billing is enclosedWe have noted the terms of payment proposed by you in your letter dated 18.05.81. As we have indicated about the terms of payment agreed to by us, it will not be possible to consider your proposal for relaxation of the same. However, attempts will be made to consider some softening of payment terms later depending our own cash flows on this projectKindly let us have your detailed technical specifications etc to enable us to draw up a detailed contract for the workKindly communicate your acceptance of this letter of intent and furnish us a bank guarantee on approved proforma to release the initial advance of Rs. 15.64 lakhs to youIn pursuance of the letter of intent two bank guarantees have been furnished by the defendant no. 1 on behalf of the defendant no. 2 as advance against the supply of plant and equipment7. Pursuant to the letter of intent, a formal Memorandum of Agreement dated 8 th August, 1985 was executed by and between SCIL. Thereafter, the 1 st respondent (plaintiff) from time to time advanced for the said work against several bank guarantees furnished by SCIL. It may be noticed that the instant dispute pertains to two bank guarantees dated 16 th February, 1983 and 29 th August, 1984, which were advanced to SCIL, the details of which have been indicated above. The said guarantees furnished by the appellant bank were extended from time to time and revalidated8. In due course of time, in breach of contract with the 1 st respondent-plaintiff, SCIL failed to duly complete the supply of equipment and the other conditions of the letter of intent and further defective equipments. It is alleged that the work had to be abandoned due to which 1 st respondent suffered huge losses and damages. Ultimately, a sum of Rs. 139.90 lakhs, was deducted by the 1 st respondent from final bill which pertained to the apportioned work handed over to SCIL9. In view of the letter dated 6 th November, 1998, 1 st respondent- plaintiff demanded encashment of both the said guarantees which were refused by the bank to honour and diverse correspondence was exchanged by and between the 1 st respondent -plaintiff and the appellant-defendant bank. 1 st respondent in continuation made subsequent demands for encashment of the guarantees by letter dated 19 th December, 1998 which is reproduced hereunder:-the 19 th December, 1998With reference to your St. Relationship Managers letter dtd. 7.12.98 regarding encashment of B.Gs issued by you on behalf of M/s. SCIL for a total value of Rs.91.68 lakhs you are very much aware that M/s. SCIL owes to H.E.C. Rs.139.90 lakhs due to defective supply of Plant & Equipment as well as non-supply of Plant & Equipment and also other contractual deficiencies which has caused loss as reflected in the handing over/taking over report of the DCC Project by CIL. You are also aware that HEC has gone out of the way in supporting SCIL and getting the Plant completed with minimum damage. It is within HECs full rights to invoke the BG as per Clause No.2 of the BGs which is reproduced below; (BG No.G1001/83/1084 dt. 16.8.83 for Rs. 71,35,100.00 and BG No.G1001/84/608 dt. 29.8.84 for Rs. 20,32,500.00)WE GRINDLAYS BANK PLC 19, Netaji Subhas Road, Calcutta – 700001 do hereby undertake the Indemnity of Rs. (Rupees ____________) against any loss or damage caused to or suffered by the CORPORATION by reason or any breach or failure by the said SUPPLIER, in due performance of the aforesaid contract, we shall forthwith on demand pay to the CORPORATION any sum or sums not exceeding Rs. (RUPEESwithout making any prior reference to the said SUPPLIER with an exclusion of any action in court by SUPPLIERThe failure of M/s. SCIL in fulfilling the contractual obligation which includes performance Guarantees of Plant & Equipment are very well documented by HEC & CIL. In fact, the unadjusted advance of SCIL on account of Plant & Equipment is far in excess of the loss suffered by HEC. The same has been brought down to Rs.139.90 lakhs after allowing credit for contractual settlementAlthough as per terms of BG we are not bound to explain you all these things but the above details are furnished so that good sense will prevail and we expect you to live up to your reputation and honour the beneficiaries claim forL MANAGER (PROJECTS & MNTG)10. This was followed by the letter dated 28 th December, 1998 which is also reproduced hereunder:-Sub: Encashment of two Bank Guarantees2) G/1001/88/608 for Rs.20,32,500/- Ref: Our letter dated 19.11.1998We have intimated vide our above letter to encash the above two Bank Guarantees issued by you on behalf of SCIL India Ltd., to HEC. You are requested to encash the above Bank Guarantees and send the proceeds amounting to Rs.91,67,600/- within 3 days time. Kindly treat this as most urgent and failing on the part of the Bank to honour the beneficiaries demand will be viewed11. A further complaint was made by way of a letter dated 22 nd February, 1999 to the Banking Ombudsman, Calcutta. Ultimately, 1 st respondent-plaintiff was constrained to institute a suit before the High Court of Calcutta for decree of Rs. 1,10,33,207.07/- along with interest being the aggregate sum of both the said guarantees12. The appellant Bank filed its written statement and primarily took objection that the invocation of the bank guarantees was not in accordance with either of the said guarantees and contrary to the terms thereof and accordingly the appellant Bank was not liable to make payment to the 1 st respondent-plaintiff under either of the said guarantees. In support of its defence, the appellant Bank referred to the diverse correspondence exchanged between the appellant and 1 st respondent. In brief, the defence of the appellant Bank was that the invocation of the said bank guarantees was contrary to the terms or not in terms thereof13. On the pleadings of the parties, the suit in the first instance came to the dismissed vide judgment & decree dated 16 th October, 2015 which came to be challenged by the 1 st respondent in appeal before the Division Bench of the High Court of Calcutta. In a concurring judgment while setting aside the judgment of the Single Judge of the High Court, it was finally held that the bank guarantees were properly invoked in law by the 1 st respondent- plaintiff and accordingly passed a decree of Rs. 1,10,33,207.00/- together with interest at the rate of 8% per annum on and from the date of institution of the suit until payment.

Reasoning: 23. The settled position in law that emerges from the precedents of this Court is that the bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this Rule when there is a clear case of fraud, irretrievable injustice or special equities. The Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee24. The guarantees in the instant case were unconditional, specific in nature and limited in amount. The terms of the guarantee categorically covered money which the 1 st respondent had advanced against supply of the plant and equipment by SCIL. The said guarantees covered any loss and damage caused to or suffered by the 1 st respondent-plaintiff in due performance of the contract for supply of plant and equipment. The guarantee documents dated 16 th February, 1983 and 29 th August, 1984, as a whole and clause 2 of the guarantee document in particular cover the advance which had been paid by the 1 st respondent-plaintiff by reason of any breach or failure by SCIL in due performance of the aforesaid contracts i.e. against the contract for supply of plant and equipment25. From the correspondence that has been exchanged by and between them pertaining to invocation of the said guarantees, it clearly manifests that the initial letter of invocation written by the 1 st respondent-plaintiff dated 6 th November, 1998 indeed was per se inadequate and did not enumerate any condition for invocation of said guarantees save and except a reference to a substantial amount to be recovered from SCIL. However, in the later correspondence exchanged between the parties dated 19 th December, 1998 followed by a letter dated 28 th December, 1998, 1 st respondent informed the appellant Bank that due to defective supply of plant and equipment as well as non-supply of plant and equipment and also other contractual deficiencies of SCIL, losses had been suffered by the 1 st respondent and it was duly informed to the appellant Bank that the losses had been incurred both on account of supply of plant and equipment and on account of performance of the supply of plant and equipment. On reading of letters exchanged by and between 1 st respondent and the appellant Bank pertaining to invocation of the guarantees, the condition of the guarantees had been duly complied with26. In our considered view, once the demand was made in due compliance of bank guarantees, it was not open for the appellant Bank to determine as to whether the invocation of the bank guarantee was justified so long as the invocation was in terms of the bank guarantee. The demand once made would oblige the bank to pay under the terms of the bank guarantee and it is not the case of the appellant Bank that its defence falls in any of the exception to the rule of case of fraud, irretrievable injustice and special equities. In absence thereof, it is not even open for the Court to interfere with the invocation and encashment of the bank guarantee so long as the invocation was in terms of the bank guarantee and this what has been observed by the Division Bench of the High Court in the impugned judgment and that reflected the correct legal position27. It is informed by the learned counsel for the appellant that the Standard Chartered Banks predecessor in interest, ANZ Grindlays Bank had opened a fixed deposit of Rs. 91,67,600/- on 18 th May, 2001, which was lien marked to HEC(Heavy Engineering Corporation Ltd.) and is being held under the control of the Registry of the High Court of Calcutta and the current fixed deposit is valued at Rs. 2,32,69,129.71/- and the total liability under the impugned order as on date will be Rs. 2,78,03,681.64/-. The Registry of the High Court of Calcutta may release the money lying in the account in favour of the 1 st respondent and it is for the appellant Bank(judgment debtor) to settle and satisfy the decree which is impugned in the instant proceedings.