LexNATIONAL THERMAL POWER CORPORATION LTD versus M/S. FLOWMORE PRIVATE LTD. AND ANR.
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...... ~ NATIONAL THERMAL POWER CORPORATION LTD. A v. MIS. FLOWMORE PRIVATE LTD. AND ANR. MAY 8, 1995 [J.S. VERMA AND SUJATA V .. MANOHAR, JJ.] B Arbitration Act, 1940: Section 41. Contract-Bank guarantees-Peiformance guarantees and guarantees against advance-<Juarantees payable on demand-:Dispute between par- c;: ties-Arbitration proceedings-Non-invokation of guarantees by owner during the proceedings-Conduct' of party in renewing the guarantees from time to time-Held no ground for preventing the beneficiary from invoking the guaran- _,, tees. Bank Guarantee-Clause that demand by beneficiary shall be bind- D ,... ing-Effect of ..... In a contract between the appellant and the respondent, the latter furnished five bank guarantees in favour of the appellant all of which were payable on demand. Out of five, one of the guarantees contained an express E clause that any demand made by the owner shall be conclusive and binding on the bank notwithstanding any difference between the parties or any dispute pending before any court, Tribunal, Arbitrator or any other authority. Disputes having arisen between the parties the matter was referred for arbitration, and in view of these proceedings the appellant did not invoke the bank guarantees while the respondent kept them alive by F making necessary renewal from time to time. However, before the expiry of the bank guarantees the appellant invoked three bank gnarantees but on a petition filed by the respondent under Section 41 of the Arbitration Act, 1940 a single judge of the High Court passed an injunction order restraining the appellant from encashing the bank guarantees. The appeal G preferred before the Division Bench was dismissed. -:-• In appeal to this Court it was contended for the respondent that (i) the bank guarantees were not properly invoked and (ii) the appellant was precluded from invoking the bank guarantees because subsequent to in- itiation of the arbitration proceedings the parties had proceeded on the H 29 30 SUPREME COURT REPORTS (1995] SUPP. I S.C.R. A basis that the bank guarantees would not be invoked until the arbitration a\.vard was made. Allowing the appeals and oetting aside the injunction order passed by the High Court, this Court B HELD : 1. The High Court was not justified in issuing an order of injunction to restrain the realisation of the bank guarantees by the appel- lant. [35-F] 2. A bank guarantee which is payable on demand implies that the C bank is liable to pay as and when a demand is made upon the bank by the beneficiary. The bank is not concerned with any inter se disputes between the beneficiary and the person at whose instance the bank had issued the bank guarantee. All the bank guarantees invoked are payable on demand. There is, therefore, no merit in the submission that the bank guarantees have not been properly invoked. It is true that only one bank guarantee contains an D express term to the effect that any demand made by the owner shall be conclusive and binding on the bank. Nevertheless, this express term merely reiterates the nature of a bank guarantee which is payable on demand being made by the beneficiary of the bank guarantee. (35-B, 34-G, 35-A] E 3. The fact that the respondent kept all the bank guarantees alive by renewing them from time to time during the pendency of arbitration as well as the fact that the appellant did not invoke the bank guarantees while the arbitration was in progress cannot lead to the conclusion that the bank guarantees cannot be invoked while the arbitration is pending. These cir- cumstances do not constitute a bar on the right of the appellant to encash F the bank guarantees. There is also no circumstance pointed out which would result in any irretrievable injustice to the respondent. [35-C to E] G Itek Co!poration v. 77ie First National Bank of Boston Etc., 566 Fed. Suppl. 1210, referred to. Svenska Handelsbanken v. Ms. Indian Charge Chrome and Ors., [1994] 1 S.C.C. 502 and U.P. Co-operative Federation Ltd. v. Singh Consult- ants & Engineers Pvt. Ltd., [1988] l SCR 1124, relied on. CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5437-38 H of 1995. , . N.T.P.C. v. FLOWMORE[SUJATA V.MANOHAR,J.] 31 From the Judgment and Order dated 20.10.94 of the Delhi High A Court in 0.M.P. No. 47 of 1993. Shanti Bhushan and Prashant Bhushan for the Appellant. F.S. Nariman, Sanjeev Puri and N. Ganpathy for the Respondents. B The J
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