Article 226 writ jurisdiction cannot decide inter se liability between parties in demerger bank guarantee disputes

The Bombay HC held that writ jurisdiction under Article 226 is limited and cannot adjudicate inter se liability issues between parties regarding demerger terms or bank guarantee obligations. The court emphasized that bank guarantees constitute independent contracts between banks and beneficiaries, and injunctions against invocation require appropriate contractual proceedings applying established principles. Since adjudication proceedings were remanded to the Assistant Commissioner, the court kept all contentions open for determination by the original authority, including which party must furnish the bank guarantee. The court directed the petitioner to extend the bank guarantee for one month pending the Assistant Commissioner's decision on remanded issues.

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Issues involved:
The petition involved issues related to the obligation to extend a bank guarantee, liability for duty payment, and the jurisdiction of the court under Article 226 of the Constitution of India.

Obligation to Extend Bank Guarantee:
The petitioner sought relief from invoking and encashing a bank guarantee issued in 2012 for INR 80 crores, contending that the liability to extend the guarantee was in question. The bank guarantee was initially furnished due to a request by the Ministry of Power, Government of India, and subsequent circumstances led to its extension multiple times. The petitioner argued that the liability for duty payment now rests with respondent no. 2, as the petitioner's business was demerged and taken over by Konkan LNG Limited. The Appellate Authority remanded the matter to the Original Authority to ascertain facts regarding the demerger and the bank guarantee, emphasizing the need for a fair decision considering the demerger details.

Jurisdiction of the Court under Article 226:
The High Court acknowledged its limited jurisdiction under Article 226, stating that it cannot delve into the terms of demerger or the inter se liability between the petitioner and respondent no. 2. The court highlighted that a bank guarantee constitutes an independent contract and cannot be easily restrained from invocation. It was emphasized that issues related to bank guarantee invocation should be dealt with in appropriate contractual proceedings, considering well-settled principles. The court directed the bank guarantee to be extended by the petitioner for one month and instructed the Assistant Commissioner to decide on the obligation of the party required to furnish or extend the bank guarantee within four weeks, keeping all contentions open for consideration.

Conclusion:
The High Court disposed of the petition by ordering the extension of the bank guarantee for one month and directing the Assistant Commissioner to hear both parties on the issue of furnishing or extending the bank guarantee. The court stressed the importance of timely resolution due to the age of the imports in question, while also allowing the Assistant Commissioner to decide the entire proceedings if deemed appropriate. No costs were awarded in this matter.

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