Time-bound bank guarantee clauses can extinguish liability if no claim is lodged within the stipulated period.

A bank guarantee with a fixed invocation period can lawfully extinguish the bank's liability if no written claim is lodged within that period, and Section 28 of the Indian Contract Act, 1872 supports such time-bound clauses where statutory conditions are met. The Tribunal recognised the distinction between making a claim within time and enforcing rights after a claim has already been lodged. Because no claim was invoked within the stipulated period, the respondent bank could not rely on the guarantee clause to retain the corporate debtor's fixed deposit, and it was directed to release the secured amount.

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Issues: Whether the respondent bank could refuse to release the corporate debtor's fixed deposit on the ground that a claim under the bank guarantee was not invoked within the stipulated period and Section 28 of the Indian Contract Act, 1872 protected the bank's stand.

Analysis: The fixed deposit had been pledged as security for a bank guarantee issued by the respondent bank in favour of a third party. The guarantee itself was valid only up to the specified date, and the relevant clause required any written claim to be made within that period, failing which the bank stood discharged from liability. Section 28 of the Indian Contract Act, 1872, as amended, permits bank guarantee stipulations that extinguish rights or discharge liability after a specified period, provided the statutory conditions are met. The legal distinction between lodging a claim within time and enforcing rights after a claim is lodged was also recognised. Since no claim was made within the stipulated period, the bank could not rely on the guarantee clause to retain the fixed deposit.

Conclusion: The objection of the respondent bank was unsustainable, and it was directed to release the fixed deposit belonging to the corporate debtor.

Ratio Decidendi: Where a bank guarantee stipulates a valid time-bound period for invocation and no claim is lodged within that period, the guarantor bank cannot retain the secured funds by invoking the guarantee after expiry of the stipulated time.

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