BANK OF INDIA versus NANGIA CONSTRUCTIONS (I) PVT. LTD. AND ORS.

Citation: [2008] 8 S.C.R. 1020 · Decided: 15-05-2008 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Dismissed
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Judgment (excerpt)

[2008] 8 S.C.R. 1020 
' 
I 
• 
A 
BANK OF INDIA 
-~ 
v. 
NANGIA CONSTRUCTIONS (I) PVT. LTD. AND ORS. 
(Civil Appeal No.1315 of 2001) 
B 
MAY 15, 2008 
[TARUN CHATTERJEE AND DALVEER BHANDARI, 
JJ.] 
~ 
Bank Guarantee: 
c 
Nationalized Bank - Unconditional on-demand bank 
) 
guarantee - Invoked during validity period of the bank guar-
, 
antee - On facts, held: The bank was bound to honour its com-
mitment and pay the amount of guarantee - The bank refused 
to make payment on totally untenable and frivolous grounds 
D - High Court was fully justified in deprecating the conduct of 
'of 
Appellant-bank. 
• 
The bank guarantee in question was an uncondi-
tional on-demand bank guarantee. It was invoked during 
E the validity period of the bank guarantee. Thereafter, an 
application was filed in the Court for stay of payment un-
der the bank guarantee. To that application, the Appel-
lant-bank was not a party. Initially, an injunction was 
granted by the High Court on the condition that the bank 
\\'I) 
"t 
f 
guarantee should be kept alive. This injunction was con-
I 
F firmed again on the condition that the bank guarantee 
should be kept renewed. The constituent who had ob-
tained injunction and who was to keep the bank guaran-
tee alive, did not pay the charges of the Bank in respect 
; 
of renewals of the bank guarantees. Consequently, the 
G Appellant bank refused to renew the bank guarantee and 
thereafter took the stand that since the bank guarantee 
"+-
was not being renewed, the bank was under no obliga-
tion to pay the amount under the bank guarantee. 
H 
1020 
Ji . 
• 
1 
BANK OF INDIA v. NANG IA CONST~UCTIONS 
1021 
(I) PVT. LTD. AND ORS. 
A Single Judge of the High Court however held that A 
the invocation of bank guarantee was within the validity 
period of the bank guarantee and hence the Appellant 
bank could not have declined to make the payment. The 
Division Bench in the impugned judgment while dismiss-
ing the appeal observed that the bank guarantee was 
B 
merely renewed under orders of the Court as there was a 
stay order against encashment of the bank guarantee; that 
once the stay order was vacated there was no question of 
any invocation of the bank guarantee; that in the instant 
case, the invocation had already taken place within the c 
validity period and thereafter, all that was to be done was 
to intimate the Bank that the stay has been vacated and 
that payment has to be made under the bank guarantee. 
In appeals to this Court, the Appellant bank con-
tended that there was substituted agreement of contract, D 
therefore, he invocation of the bank guarantee by Respon-
dent No.2 was of no consequence. 
Dismissing the appeals, the Court 
HELD: The bank was bound to honour its commit-
E 
ment and pay the amount of guarantee. It is unfortunate 
that a nationalized bank is finding excuses for refusing 
to· make the payment on totally untenable and frivolous 
grounds. The Division Bench was fully justified in mak-
ing observations regarding the conduct of the national-
F 
ized bank. The entire trust, faith and confidence of people 
depend on the conduct and credibility of the nationalized 
bank. In the present day world, the national and interna-
tional commercial transactions largely depend on bank 
guarantees. In case the banks are permitted to dishonour G 
their commitments by adopting such subterfuges, the 
entire commercial and business transactions will come 
to a grinding halt. [Paras 13, 14] [1025-C,D, & ] 
The Union of India v. Kishorila/ Gupta and Brothers 
(1960) 1 SCR 493 and Makharia Brothers v. State of Nagaland H 
1022 
SUPREME COURT REPORTS 
[2008] 8 S.C.R. 
A and Ors. (2000) 10 SCC 503 - distinguished. 
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1315 
of 2001 
From the final Judgment and Order dated 26.10.1999 of 
B the High Court of Delhi at New Delhi in F.A.O. (OS) No. 81/ 
1999 
K.N. Bhat, Swigin, Akanksha, Nina Gupta and Bina Gupta 
for the Appellant. 
c 
Ginny Jetley Rautray, Kanchan Kaur Dhodi, Sangeeta 
D 
Kumar, Ashwani Garg and Shivangi Thagela for the Respondents. 
DALVEER BHANDARl,J. 1. This appeal is directed 
against the judgment and order dated 26.10.1999 of the High 
Court of Delhi at New Delhi in FAO (OS) No.81 of 1999. 
2. The learned Single Judge of the High Court has taken 
the view thatthe invocation of bank guarantee was within the va-
lidity period of the bank guarantee and the bank cannot decline 
to make the payment. The Division Bench in the impugned judg-
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