Petitioner awarded 6% interest on wrongfully encashed bank guarantees worth Rs.4.73 crore

Karnataka HC allowed petitioner's claim for interest on wrongfully encashed bank guarantees. The court held that petitioner was illegally deprived of Rs.4,73,26,512/- from 29.03.2019 to 05.01.2022 when respondents wrongfully withheld the amount. Applying restitution principles, the court awarded 6% per annum interest for the period, finding the respondent's order denying interest refund contrary to law and facts. The impugned order was set aside and petition allowed in part.

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Issues involved:
Petitioner's claim for interest on bank guarantees encashment and subsequent refund.

Analysis:
1. The petitioner sought the quashing of an order rejecting their claim for interest on bank guarantees encashment until refund, based on a Bombay High Court judgment. The petitioner had filed statutory appeals against GST authorities' orders and the bank guarantees were encashed illegally. The Bombay High Court directed the refund of the encashed sum with applicable interest, which became conclusive. The petitioner initiated contempt proceedings, leading to a refund application and subsequent rejection of interest claimed by the petitioner. The petitioner challenged this rejection in the present petition, citing various judgments in support.

2. The High Court analyzed the impugned order and found errors in rejecting the interest claim. The Bombay High Court had clearly directed the refund of the encashed amount with applicable statutory interest, which the 3rd respondent failed to acknowledge. The 3rd respondent's reasoning that statutory provisions did not apply to grant interest was deemed erroneous and set aside.

3. The High Court further noted that the 3rd respondent's decision contradicted the Bombay High Court's judgment, which explicitly mentioned the petitioner's entitlement to interest. The 3rd respondent's reliance on specific sections of the GST Act to deny interest was deemed unfounded, as the petitioner's right to interest was established by the Bombay High Court's order.

4. Additionally, the High Court highlighted that the petitioner was deprived of the use of the encashed amount from the date of encashment until the refund, justifying the award of interest as compensation. The 3rd respondent's factual error in assuming the amount was available to the petitioner during this period was refuted, further supporting the petitioner's claim for interest.

5. Ultimately, the High Court partially allowed the petition, setting aside the impugned order and directing the respondents to pay interest at 6% p.a. on the encashed sum for the relevant period. The judgment emphasized the petitioner's rightful entitlement to interest based on legal principles and the Bombay High Court's directions.

This detailed analysis of the judgment showcases the legal intricacies involved in the petitioner's claim for interest on bank guarantees encashment and subsequent refund, highlighting the errors in the 3rd respondent's decision and affirming the petitioner's right to interest as established by the Bombay High Court's order.

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