G H STANDARD CHARTERED BANK versus HEAVY ENGINEERING CORPORATION LTD. & ANR.

Citation: [2019] 15 S.C.R. 368 · Decided: 18-12-2019 · Supreme Court of India · Bench: L. NAGESWARA RAO, AJAY RASTOGI · Disposal: Dismissed

cites 3 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
368
SUPREME COURT REPORTS
[2019] 15 S.C.R.
STANDARD CHARTERED BANK
v.
HEAVY ENGINEERING CORPORATION LTD. & ANR.
(Civil Appeal No. 9288 of 2019)
DECEMBER 18, 2019
[L. NAGESWARA RAO AND AJAY RASTOGI, JJ.]
Banks/Banking – Bank guarantees – Law relating to
invocation of – By letter of intent dtd. 19.05.81, 1st respondent
placed order on the 2nd respondent 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 Rs.21.10 crores – Two bank guarantees,
dtd.16.02.83 and 29.08.84 amounting to Rs.71,35,100/- and Rs.
20,32,500/- furnished on behalf of the 2nd respondent by the
appellant-Bank in favour of the 1st respondent – Memorandum of
Agreement executed – In due course of time, the 2nd respondent
failed to complete the supply of equipment and the other conditions
of the letter of intent – 1st respondent demanded encashment of
both the bank guarantees – Refused by the bank – Eventually, the
1st respondent filed suit before the High Court of Calcutta for
Rs.1,10,33,207.07/- with interest being the aggregate sum of both
the bank guarantees – Dismissed – Division Bench passed decree
for Rs.1,10,33,207.00/- with interest @ 8% p.a. – Held: Bank
guarantee is an independent contract between bank and the
beneficiary – Bank is always obliged to honour its guarantee as
long as it is an unconditional and irrevocable one – Dispute
between the beneficiary and the party at whose instance the bank
has given the guarantee is immaterial and is of no consequence –
However, exceptions to this Rule are when there is clear case of
fraud, irretrievable injustice or special equities – 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
guarantee – In the instant case, guarantees were unconditional,
specific in nature and limited in amount – Guarantee documents,
as a whole and clause 2 in particular cover the advance paid by
the 1st respondent by reason of any breach or failure by 2nd
respondent in due performance of the contracts i.e. against the
   [2019] 15 S.C.R. 368
368
A
B
C
D
E
F
G
H
369
contract for supply of plant and equipment – On reading of letters
exchanged by and between the 1st respondent and the appellant
pertaining to invocation of the guarantees, the condition of the
guarantees had been duly complied with – Once the demand was
made in due compliance of bank guarantees, it was not open for
the appellant to determine as to whether the invocation of the bank
guarantee was justified – Standard Chartered Bank’s predecessor
in interest, ANZ Grindlay’s Bank had opened fixed deposit of
Rs.91,67,600/- on 18.05.01, which was lien marked to Heavy
Engineering Corporation Ltd. (HEC) and is being held under the
control of the Registry of the High Court of Calcutta – 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/-
– Registry of the High Court of Calcutta may release the money
lying in the account in favour of the 1st respondent – It is for the
appellant (judgment debtor) to settle and satisfy the decree
impugned in the instant proceedings – Contract.
Dismissing the appeal, the Court
HELD: 1.1 A bank guarantee constitutes an independent
contract. 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
guarantee. 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 1st
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 1st respondent-plaintiff in
due performance of the contract for supply of plant and
equipment. The guarantee documents dated 16th February, 1983
and 29th August, 1984, a

Excerpt shown. Read the full judgment & AI analysis in Lexace.