Case Note & Summary
The plaintiff, M/s. ABG Kandla Container Terminal Ltd., filed a suit seeking declarations that a bank guarantee had ceased to be operative and that the defendant bank (Axis Bank Ltd.) was not bound to make payment thereunder. The plaintiff also sought a permanent injunction restraining the bank from making payment to the second defendant (the beneficiary) under the guarantee. The plaintiff had completed construction of the container terminal, as acknowledged by the Independent Engineer, which was binding on the second defendant under the License Agreement. The plaintiff argued that the demand for payment under the bank guarantee was made after the guarantee had ceased to be operative and was therefore not in terms of the guarantee. The court, after considering the facts, held that the invocation was invalid and granted interim relief restraining the bank from making payment or demanding reimbursement from the plaintiff.
Headnote
A) Bank Guarantee - Invocation - Ceased to be Operative - Completion of Contract - The plaintiff sought to restrain the bank from honoring the bank guarantee invoked by the defendant after the contract was completed and the guarantee had ceased to be operative. The court held that the invocation was not in terms of the bank guarantee and the bank was not obliged to make payment. (Paras 1-3)
B) Contract - Completion - Independent Engineer's Certificate - Binding Effect - The plaintiff completed construction of the container terminal as acknowledged by the Independent Engineer, which was binding on the defendant under the License Agreement. The court held that the invocation of the bank guarantee after such completion was invalid. (Para 3)
Issue of Consideration
Whether the invocation of the bank guarantee by the beneficiary after the completion of the contract and after the guarantee had ceased to be operative is valid, and whether the bank can be restrained from making payment under the guarantee.
Final Decision
The court granted interim relief restraining Defendant No. 1 (Axis Bank) from making any payment to Defendant No. 2 under the Suit Bank Guarantee and from demanding payment from the Plaintiff or debiting its account.
Law Points
- Bank Guarantee
- Invocation of Bank Guarantee
- Ceased to be Operative
- Completion of Contract
- Independent Engineer's Certificate
- Binding Effect
- Injunction against Bank
Case Details
2013 LawText (BOM) (04) 68
Notice of Motion No. 2 of 2013 in Suit No. 1 of 2013
Dr. Veerendra V. Tulzpurkar, Senior Advocate, along with Mr. Simil Purohit and Mr. Prashant Beri, instructed by M/s. Beri & Co., for the Plaintiff. Mr. Kevic Setalvad, Senior Advocate, along with Mr. K. Shriram, and Mr. S.A. Bhalwal, instructed by M/s. Vyas & Bhalwal, for Defendant No. 2.
M/s. ABG Kandla Container Terminal Ltd.
Axis Bank Ltd. and another
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Nature of Litigation
Civil suit seeking declarations and permanent injunction regarding a bank guarantee.
Remedy Sought
Plaintiff sought declarations that the bank guarantee had ceased to be operative, that the bank was not bound to make payment, and that the bank's demand for payment was wrongful. Also sought permanent injunction restraining the bank from making payment or demanding reimbursement.
Filing Reason
The plaintiff alleged that the beneficiary invoked the bank guarantee after it had ceased to be operative due to completion of the contract.
Issues
Whether the bank guarantee had ceased to be operative upon completion of the contract.
Whether the invocation of the bank guarantee by the beneficiary was valid.
Whether the bank could be restrained from honoring the guarantee.
Submissions/Arguments
Plaintiff argued that the bank guarantee ceased to be operative upon completion of the contract as certified by the Independent Engineer, and the invocation was not in terms of the guarantee.
Defendant No. 2 argued that the invocation was valid and the bank was bound to pay.
Ratio Decidendi
A bank guarantee ceases to be operative upon completion of the underlying contract as certified by the Independent Engineer, and any invocation thereafter is not in terms of the guarantee, entitling the plaintiff to an injunction restraining the bank from honoring the invocation.
Judgment Excerpts
The demand made by Defendant No.2 on Defendant No. 1 for payment under the Suit Bank Guarantee is after the Bank Guarantee ceased to be operative.
The Plaintiff in fact has completed construction of the Container Terminal, as acknowledged by the Independent Engineer, which acknowledgement is binding on Defendant No.2 as per the terms of the License Agreement.
Procedural History
The plaintiff filed Suit No. 1 of 2013 and took out Notice of Motion No. 2 of 2013 seeking interim relief. The judgment was reserved on March 13, 2013, and pronounced on April 12, 2013.
