Case: Daewoo Motors India Ltd Vs. Union Of India

3. The controversy in these appeals relates to the encashment of the bank guarantee by the Union of India, the first respondent. As an import policy during the periodthe first respondent introduced an Export Promotion Capital Goods (E.P.C.G.) Scheme. The Scheme envisaged exemption from custom duty on the imported goods, plants and equipment, etc., subject to the conditions incorporated in Exemption Notification No.dated 5th June, 1995 which was issued under Section 25(1) of the Customs Act, 1962. The appellant in the appeals arising out of S.L.P.(C) Nos.of 2002, M/s. Daewoo Motors India Limited, availed the Scheme which, inter alia, provided that upon importing plants and equipment, it should fulfil the export obligation equivalent to six times the CIF value of the goods which had been imported on FOB basis, or alternatively four times the CIF value of the goods imported on net foreign exchange basis within a period of eight months. The period was divided into different blocks. Agreeing to fulfil the export obligation, the appellant obtained various import licences in respect of which guarantees were furnished by it from various banks, one of them being the Times Bank Limited, now H.D.F.C. Bank Limited, which is the appellant in the appeal arising out of S.L.P. (C) No. 15022 of 2002. It appears that in respect of CIF value of Rupees one hundred crore and more, period to fulfil the export obligation was extended. But later, the Deputy Director General of Foreign Trade, by communication dated February 25, 2002, revoked the export obligation extension period and invoked various bank guarantees.4. Thefiled writ petition in the High Court at Delhi challenging the validity of the said order invoking the bank guarantee. The High Court took the view that as the writ petition involved disputed questions of fact and as therelated to encashment of bank guarantee, it would not be appropriate to exercisejurisdiction of the High Court under Article 226 of the Constitution. It also observed that the order impugned before the High Court was an appealable order and in that view also, the writ petition ought not to be entertained. The writ petition was, thus, dismissed on July 16, 2002. It is against the correctness of this order that the present appeals have been preferred.

Court's reasoning:
13. From a perusal of the above clauses, it is abundantly clear that the bank guarantee furnished by the bank is an unconditional and absolute bank guarantee. The bank has rendered itself liable to pay the cash on demand by the President of India notwithstanding and dispute raised by M/s. Daewoo Motors India Limited in any proceeding before any court or Tribunal". It is worth noticing that the clause in the bank guarantee 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 guarantee and the liability under the guarantee is absolute and unequivocal. In the face of the clear averments, it is trite to contend that the bank guarantee is a conditional bank guarantee. Therefore, the bank has no case to resist the encashment of the bank guarantee. Inasmuch as we have held that the bank guarantee is an unconditional bank guarantee, the case of M/s. Hindustan Construction Company Limited vs. State of Bihar and others, reported in 1999(8) SCC 436, is of no avail to the appellant.14. It is true that the bank guarantee has to be read in conjunction with the terms of the contract but when the bank guarantee itself is in absolute terms, the agreement between the company and the first respondent would be of no avail to the bank.15. Insofar as the contention of theis concerned, firstly, the order extending the export obligation period has been revoked. Even assuming that the revocation is not a valid revocation, the fact remains that the plant of thehas been closed down; the entire production of thehas come to an end. It is also on record that public notices have been issued for auctioning the plant of theby the company itself. In such circumstances, when there is no apparent possibility of the fulfilment of the export obligation, thecannot seek refuge under the extended period. In our considered view, when it becomes apparent on the facts and circumstances of the case that there is no chance of the appellant fulfilling its export obligation, the action of the first respondent in invoking the bank guarantee cannot be said to be premature and unjustified, much less arbitrary and illegal so as to warrant any interference by this Court.