Case Note & Summary
The dispute arose from a writ petition filed by the Commissioner of Customs (Export) before the High Court of Judicature at Bombay, seeking a writ of mandamus under Article 226 of the Constitution of India directing Bank of India to pay Rs 1,95,41,000 secured by four bank guarantees. The bank guarantees were furnished at the request of the second respondent, who subsequently went into Corporate Insolvency Resolution Process (CIRP). The petitioner contended that the bank guarantees were continuing guarantees, irrevocable without consent, and should be treated as personal guarantees of the bank that survive the CIRP despite the resolution plan. The bank, on the other hand, argued that the guarantees had expired on 31 May 2011, no written claim was lodged during their validity, and the claim raised during CIRP was rejected on limitation and not challenged. The material facts showed that the bank guarantees contained two crucial clauses. The first clause stated that the guarantee was a continuing one and could not be revoked during its currency without the consent of the Commissioner of Customs. The second clause began with a non obstante clause and provided that the bank would be released and discharged from all liabilities unless a written claim for payment under the guarantee was lodged on or before 31 May 2011, irrespective of whether the original guarantee was returned. It was admitted that no written claim was lodged by the petitioner on or before 31 May 2011; the claim was lodged only in 2018, almost seven years after the expiry, and even after the bank guarantee was extended up to 2013 no written demand was made. The petitioner had also raised the same relief during CIRP, but that claim was rejected due to limitation and the rejection was not challenged. The legal issues before the court were whether the writ petition under Article 226 could be entertained for enforcement of contractual obligations, whether the bank guarantee could be enforced despite expiry and absence of written claim, and whether a personal guarantee survives CIRP when the guarantee had expired before the CIRP commenced. The petitioner argued that because the bank is a State under Article 12 of the Constitution, the court should entertain the petition, and that personal guarantees continue despite resolution plan under the Insolvency and Bankruptcy Code, 2016. The bank argued that the guarantees expired and no claim was made within validity, so no liability arose. The court reasoned that the clauses of the bank guarantee must be interpreted in their entirety. While the first clause described a continuing guarantee, the second clause, which was a non obstante clause, expressly released the bank from liability unless a written claim was lodged by 31 May 2011. The court held that emphasis on the continuing guarantee language alone was misplaced; the non obstante clause controlled. The court further noted that ordinarily no writ petitions are entertained for enforcement of contractual obligations, but even if it were to entertain the petition, the contract on its face did not permit relief. The argument that a personal guarantee survives CIRP did not apply because the guarantee had expired before the CIRP began, and no claim was made during validity. The court also observed that the petition was filed almost ten years after the guarantee expired, probably realising that a suit would be barred by limitation. Ultimately, the High Court dismissed the writ petition without any order for costs, holding that the bank was not obliged to honour the expired bank guarantees.
Headnote
A) Writ Jurisdiction - Enforcement of Contract - Article 226 Constitution of India - Writ petition under Article 226 for mandamus to enforce bank guarantee; ordinarily not entertained for contractual enforcement; even though bank is State under Article 12, court examined merits and found no claim within validity period - Held that no writ can be issued because written claim was not lodged before expiry (Paras 15-17). B) Contract Law - Interpretation of Bank Guarantee Clauses - Continuing Guarantee and Non Obstante Clause - Bank guarantee clauses interpreted as a whole; non obstante clause provided bank released and discharged from liabilities unless written claim lodged on or before 31 May 2011; no such claim lodged; belated claim in 2018 insufficient - Held petitioner cannot belatedly enforce guarantee (Paras 8-12). C) Insolvency and Bankruptcy Code, 2016 - Personal Guarantee Survival in CIRP - Insolvency and Bankruptcy Code, 2016, Sections not mentioned - Argument that personal guarantees continue despite resolution plan rejected because guarantee had expired before CIRP; no claim during validity; thus personal guarantee survival principle not applicable - Held petition dismissed without costs (Paras 13-14, 18-20).
Issue of Consideration
Whether writ petition under Article 226 Constitution of India could be entertained to enforce bank guarantees after expiry when no written claim was lodged within validity period; whether non obstante clause in bank guarantee released bank from liability; whether personal guarantee survives CIRP if guarantee expired before initiation.
Final Decision
The High Court dismissed the writ petition without any order for costs. It held that the non obstante clause in the bank guarantees released the Bank from all liabilities unless a written claim was lodged on or before 31 May 2011; no such claim was lodged. The belated claim in 2018, almost seven years after expiry, did not oblige the Bank to honour the guarantees. The personal guarantee survival argument under IBC was rejected because the guarantee had expired before CIRP.
Law Points
- Writ jurisdiction under Article 226 ordinarily not invoked to enforce contractual obligations
- Bank guarantee clauses interpreted as a whole
- Non obstante clause releasing bank from liability unless written claim lodged within validity period controls
- Continuing guarantee clause does not override explicit release condition
- Personal guarantee under Insolvency and Bankruptcy Code
- 2016 does not revive expired guarantee
- Claim lodged after expiry does not bind bank
