Supreme Court

Sepco Electric Power Construction Corporation Vs. Power Mech Projects Ltd.

MANU/SC/0564/2021

24.08.2021

Arbitration

Court has discretion to insist on a Bank Guarantee from any specific bank or class of banks to safeguard the interest of beneficiary of Bank Guarantee

Present appeals are against a judgment passed by the High Court, dismissing the Appeal filed by the Appellant under Section 37 of the Arbitration and Conciliation Act, 1996 read with Section 13(1A) of the Commercial Courts Act, 2015, and affirming an order passed by the Delhi High Court whereby the Court refused to recall its earlier order, directing the Appellant to substitute an irrevocable Bank Guarantee, issued by the Industrial and Commercial Bank of China Limited (ICBC), Mumbai Branch for Rs. 30 Crores furnished pursuant to an order dated 12th February, 2019 of the Court, with a Bank Guarantee of a “Scheduled Indian Bank” of the same amount.

The short question in present Appeals is, whether the High Court was right in refusing to accept a legally valid irrevocable Bank Guarantee of Rs. 30 Crores, issued by the Industrial and Commercial Bank of China Limited, Mumbai, referred to as ‘ICBC’ which is a Scheduled Bank included in the Second Schedule of the Reserve Bank of India Act, 1934, and insisting that the Appellant should furnish a fresh Bank Guarantee of the same amount, with identical terms, issued by a “Scheduled Indian Bank”, notwithstanding the expenditure incurred by the Appellant in obtaining the Bank Guarantee from ICBC.

The Court has the discretion to insist on a Bank Guarantee from any specific bank or class of banks to safeguard the interests of the beneficiary of the Bank Guarantee. The Court may legitimately disapprove a Bank Guarantee of a bank with a history which raises doubts with regard to its credibility. In this case, there is nothing on record to give rise to any doubts with regard to the credibility of ICBC or its financial ability or willingness to honour guarantees.

In the absence of any adverse material against ICBC and in the light of a plethora of reports showing its financial soundness, present Court is of view that, the High Court erred in directing the Appellant to replace the Bank Guarantee of ICBC, already furnished pursuant to an order of Court passed on 12th February, 2019, with another Bank Guarantee, oblivious of the practical realities in the arena of banking activities, specially the difficulties in obtaining a Bank Guarantee from banks with which the applicant has no transaction and ignoring the cost already incurred by the Appellant by way of bank charges for obtaining the guarantee. Appeal allowed.

Tags : Bank Guarantee Replacement Direction

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