Case Note & Summary
The applicant, Palladian Hotels Private Limited, filed a company application seeking an order to encash a bank guarantee of Rs.38,53,000/- furnished by the respondent, Hotel Horizon Private Limited, and to release the amount to the applicant. The background involves a term sheet dated 9 December 2013 between the parties for a leave and license agreement, under which the applicant deposited Rs.10,53,000/- as security deposit. The term sheet provided that if the final agreement was not executed within four months, the term sheet would stand cancelled and the deposit refunded. The time was extended by a letter dated 9 July 2014, and an additional Rs.28,00,000/- was deposited, totaling Rs.38,53,000/-. However, no final agreement was executed even by the extended date. The applicant filed a winding up petition (Company Petition No.489 of 2015) on 6 April 2015 for recovery of the deposit. On 5 April 2017, the court passed a consent order referring the dispute to arbitration, and the respondent undertook to furnish a bank guarantee in favor of the Prothonotary & Senior Master for the said amount, initially for one year, with a direction to keep it renewed. The bank guarantee was furnished and renewed from time to time. The arbitration culminated in an award dated 31 August 2019, directing the respondent to pay the applicant Rs.38,53,000/- with interest. The respondent challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, which is pending. The bank guarantee expired on 30 September 2019, and the respondent did not renew it. The applicant filed this application to encash the bank guarantee and receive the funds. The court considered the submissions and held that the applicant is entitled to encash the bank guarantee as the respondent failed to comply with the consent order to keep the guarantee renewed. The court directed the Prothonotary & Senior Master to encash the bank guarantee and release the amount to the applicant within one week.
Headnote
A) Company Law - Winding Up - Security Deposit Refund - Bank Guarantee Encashment - The applicant deposited Rs.38,53,000/- as security deposit under a term sheet for a leave and license agreement which was not finalized within the extended period. The court referred the dispute to arbitration and the respondent furnished a bank guarantee. Upon expiry of the guarantee and failure to refund, the court allowed encashment and release of funds to the applicant. Held that the applicant is entitled to the refund and the bank guarantee can be encashed. (Paras 1-22)
Issue of Consideration
Whether the applicant is entitled to encash the bank guarantee and receive the sum of Rs.38,53,000/- from the Prothonotary & Senior Master upon the respondent's failure to refund the security deposit after the term sheet stood cancelled.
Final Decision
The court allowed the application and directed the Prothonotary & Senior Master to encash the bank guarantee and release the sum of Rs.38,53,000/- to the applicant within one week from the date of the order.
Law Points
- Bank guarantee encashment
- Security deposit refund
- Consent order
- Winding up petition
- Leave and license agreement
- Term sheet
Case Details
2020 LawText (BOM) (01) 39
Company Application No.282 of 2019 in Company Petition No.489 of 2015
Mr.Naushad Engineer with Ms.Spenta Havewalla, Murtuza Federal, Ms.Pauloni Mehta and Ms.Arushi Poddar i/b M/s.Federal & Co. for the Applicant / Petitioner. Mr.Shadab Jan with Ms.Komal Khushalani i/b M/s.Crawford Bayley & Co. for the Ex-Director of the Respondent Company.
Palladian Hotels Private Limited
Hotel Horizon Private Limited
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Company application seeking encashment of bank guarantee and release of funds to the applicant in a winding up petition context.
Remedy Sought
Applicant seeks order to encash bank guarantee and release Rs.38,53,000/- to the applicant within one week.
Filing Reason
Respondent failed to refund security deposit after term sheet for leave and license agreement stood cancelled, and failed to renew bank guarantee as per consent order.
Previous Decisions
Consent order dated 5 April 2017 referring dispute to arbitration and directing furnishing of bank guarantee. Arbitration award dated 31 August 2019 directing respondent to pay Rs.38,53,000/- with interest. Section 34 challenge pending.
Issues
Whether the applicant is entitled to encash the bank guarantee and receive the sum of Rs.38,53,000/- from the Prothonotary & Senior Master upon the respondent's failure to refund the security deposit after the term sheet stood cancelled.
Submissions/Arguments
Applicant argued that the term sheet stood cancelled as no final agreement was executed, and the respondent failed to refund the deposit. The bank guarantee was furnished pursuant to consent order and was not renewed, entitling encashment.
Respondent's ex-director argued that the bank guarantee was only a security and should not be encashed pending the Section 34 challenge to the arbitration award.
Ratio Decidendi
The court held that the respondent failed to comply with the consent order to keep the bank guarantee renewed, and the applicant is entitled to the refund of the security deposit. The bank guarantee can be encashed as the respondent's obligation to refund the deposit is crystallized by the arbitration award, and the pendency of a Section 34 challenge does not prevent encashment.
Judgment Excerpts
By this company application, the applicant seeks an order and direction against the Prothonotary & Senior Master of this Court to encash the bank guarantee and to receive the funds in his account and seeks further direction to release a sum of Rs.38,53,000/- to the applicant within a period of one week from the date of passing of the order in this application.
The respondent through its counsel undertook to furnish a bank guarantee of a nationalized bank in the name of the Prothonotary & Senior Master of this Court in the sum of Rs.38,53,000/- initially for a period of one year and for like period.
Procedural History
The applicant filed a winding up petition (Company Petition No.489 of 2015) on 6 April 2015. On 5 April 2017, a consent order was passed referring the dispute to arbitration and directing the respondent to furnish a bank guarantee. The arbitration award was passed on 31 August 2019. The respondent filed a Section 34 challenge. The bank guarantee expired on 30 September 2019. The applicant filed this application on 16 October 2019 seeking encashment.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
