TaxTMI 
TaxTMI 
2021 (8) TMI 1129
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.... recall its earlier order dated 09.04.2019, 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 12.02.2019 of the Court, with a Bank Guarantee of a "Scheduled Indian Bank" of the same amount. The Appellant has also impugned a judgment and order dated 12.03.2021 passed by the Division Bench dismissing Review Petition No.5/2021 filed by the Appellant for review of the said judgment and order dated 27.11.2020 dismissing the Appeal. 3. The short question in these 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, hereinafter 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 I....
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....meanwhile, the Judgment Debtor will continue to make deposit with the Registry of this Court in terms of the order dated 24.7.2018." 9. On 22.03.2019, the Appellant got ICBC to issue an unconditional, irrevocable Bank Guarantee for a sum of Rs. 30 Crores payable on demand to the Registrar General of the Delhi High Court. An electronic copy of the Bank Guarantee was filed in the Registry on 26.03.2019. 10. Mr. K.V. Vishwanathan, learned Senior Counsel appearing on behalf of the Appellant submitted that the Appellant incurred expenditure of Rs. 30,00,000/- (Thirty Lakhs) approximately towards bank charges for furnishing the Bank guarantee. Furthermore, an amount of Rs. 36,40,00,000/- was frozen in the Bank Account of the Appellant with ICBC in China. 11. However, by an order dated 09.04.2019, the Single Bench directed the Appellant to substitute the Bank Guarantee issued by ICBC, which had been filed in the Registry of the High Court, by a Bank Guarantee of equivalent amount from a Scheduled Indian Bank. The relevant paragraphs of the said order are extracted hereinbelow:- "5. Furthermore, Mr. Sethi says that in compliance of the order dated 12.02.2019 which require....
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.... at the outset, that it is not this court's endeavour to doubt in any manner the credentials of ICBC. The record, however, shows that the applicant/respondent had in fact, on its own, offered to furnish a bank guarantee of a Scheduled Indian Bank. The confusion, if any, in the mind of the applicant/respondent, as rightly pointed out by Mr. Nigam, was removed on 09.04.2019. The applicant/respondent has moved this application after nearly four weeks of the clarification issued in that behalf. Thus, having passed an order based, essentially, on the offer made by the counsel for the applicant/respondent, I do not see any good reason to recall the direction." 15. From the orders dated 09.04.2019 and 16.05.2019, it appears that the senior Counsel, representing the Respondent in the High Court had vehemently objected to the Bank Guarantee of ICBC, arguing emphatically, that the Appellant itself had, through Counsel, offered to furnish a Bank Guarantee of a Scheduled Indian Bank, but had retracted from its offer, taking advantage of an inadvertent typographical error in Paragraph 6 of the order dated 12.02.2019, which read "Further the bank guarantee in the sum of Rs. 30 crores will be ....
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....word by reason of pressing a wrong key of the keyboard or the omission or duplication of a word or phrase or even a sentence/sentences. A typographical error is obvious. That was not the case here. 21. The direction to furnish a Bank Guarantee of a Scheduled Indian Bank located in India, is perfectly legal. There was no reason for the Appellant to proceed on the basis that the direction had been issued by mistake. The Respondent also did not take any steps to get the direction rectified or altered. The direction was allowed to remain intact for almost two months. In the meanwhile, the Appellant furnished a Bank Guarantee of an Indian Branch of ICBC, a Scheduled Bank in India. 22. In this case, perhaps the intention of the Court was not expressed in the order accurately. However, the order was otherwise correctly worded and legally valid. It is not uncommon for Courts to give directions, which might be at variance with an oral offer. The Appellant having acted in accordance with the order dated 12.02.2019 and changed his position to his detriment by incurring an expenditure of about Rs. 30 lakhs to comply with the said order, it was not appropriate for the Court to change the ....
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....ank Guarantee might not be served. 28. Significantly, there is no finding of the Single Bench that the bank guarantee is conditional. A copy of the Bank Guarantee is included in the Paper Book. The Bank Guarantee reads: "NOW THESE PRESENTS WITNESSETH THAT THE SAID BANK DOTH HEREBY STAND SURETY IN PURSUANCE OF THE SAID ORDER DATED 12TH FEBRUARY 2019 FOR THE SUM OF RS. 300,00,000/- (RUPEES THIRTY CRORES ONLY) AND THE SAID BANK DOTH HEREBY GUARANTEE TO AND COVENANT WITH THE REGISTRAR GENERAL, DELHI HIGH COURT THAT THE SAID BANK SHALL FORTHWITH PAY THE SAID SUM OF RS. 300,00,000/-(RUPEES THIRTY CRORES ONLY) TO THE REGISTRAR GENERAL, DELHI HIGH COURT IN TERMS OF THE ORDER/JUDGEMENT OF THE HON'BLE HIGH COURT OF DELHI ALLOWING THE ENFORCEMENT OF THE ARBITRAL AWARD DATED 17TH OCTOBER, 2017 AND AS PER ORDER/DIRECTION/JUDGMENT BY THE HON'BLE HIGH COURT OF DELHI IN THE MATTER ARISING OUT OF ABOVE MENTIONED LEGAL PROCEEDINGS. AND THE SAID BANK DOTH HEREBY FURTHER COVENANT AND DECLARE THAT THE BANK GUARANTEE HEREIN SHALL REMAIN IN FORCE UP TO AND INCLUSIVE OF A PERIOD OF ONE YEAR AND THE SAID BANK SHALL IN CIRCUMSTANCES AS ABOVE, WITHOUT ANY DEMUR OR DEMAND, ACTION, NOTICE ....
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....t, lacks the force of law, and must thus be expressly incorporated by the parties in order for it to apply to a demand guarantee or counter-guarantee. Guarantees issued by guarantors and counter-guarantors, which incorporate the URDG, are entirely subject to their own terms, while incorporating beneficial terms of the URDG. 33. It is important to note that the URDG may apply without the parties expressly including it in certain instances, where it is in the general usage of a particular trade, where the applicable law provides for its application; or where it has been in consistent use in the course of a transaction or dealings between the parties. 34. The provisions of the URDG are limited to the scope of the matters upon which the contracting parties are free to contract on, and is subject to mandatory national laws of the governing jurisdiction, which is the law and jurisdiction of the guarantor or counter-guarantor, unless otherwise agreed by the parties. 35. Under the URDG, guarantees are completely independent of any underlying relationship between the applicant and beneficiary, and subject to only the terms contained in it, thereby limiting the liabilities and right....
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....the State Bank of India, any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959, any corresponding new bank constituted by Section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and any other financial institution notified by the Central Government in this behalf,..." 41. ICBC is also a Scheduled Bank within the meaning of Section 2 (e) of the RBI Act, which defines a 'Scheduled Bank' to mean a bank included in the Second Schedule to the RBI Act. ICBC has its branch office at the Bandra Kurla Complex, Mumbai, India. The Mumbai branch of ICBC has been granted license by RBI to carry on banking business in India pursuant to a Memorandum of Understanding between the Governments of India and China. 42. The Mumbai branch of ICBC commenced operations in September 2011 and was included in the Second Schedule to the RBI Act by Notification DBOD IBD. No.8137/23.03.026/2011-12 dated 01.12.2011 published in the Gazette of India (Part III Section 4). 43. ICBC evidently continues to be in the Second Schedule to the RBI Act till date. In this context, it may be pertinent to point out that some banks have been excluded fro....
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.... of Ceylon 30 UBS-AG 9 Bank of Nova Scotia 31 American Express Banking Corporation 10 Bank of Tokyo-Mitsubishi Ltd. 32 First Rand Bank Ltd. 11 Barclays Bank 33 Commonwealth Bank of Australia 12 BNP Paribas 34 United Overseas Bank Ltd. 13 China Trust Bank 35 Credit Suisse A.G. 14 Shinhan Bank 36 Sberbank 15 Citibank N.A. 37 Australia and New Zealand Banking Group Ltd. 16 Credit Agricole Corporate and Investment Bank 38 Rabobank International 17 Deutsche Bank 39 National Australia Bank 18 DBS Bank Ltd. 40 Woori Bank 19 Hongkong and Shanghai Banking Corpn. Ltd. 41 Industrial & Commercial Bank of China 20 J.P. Morgan Chase Bank N.A. 42 Sumitomo Mitsui Banking Corporation 21 Krung Thai Bank 43 Westpac Banking Corporation 22 Mashreqbank 44 Doha Bank 46. As a Scheduled Bank and a banking company within the meaning of the Banking Regulation Act, ICBC is governed by the regulatory provisions of the RBI Act and the Banking Regulation Act and the Rules, Regulations, Orders, Notifications etc. issued thereunder. The circulars and directives of the Reserve Bank of India with regard to Bank Guarantees/ Dema....
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....on, HSBC Limited etc. which are household names in India in the arena of banking. On the other hand, Scheduled Indian Bank, as stated above would include all categories of banks in the Second Schedule except those in the category of Scheduled Foreign Banks. Scheduled Banks would therefore, include Scheduled Private Sector Banks such as Bandhan Bank Limited, City Union Bank Limited, Ratnakar Bank Limited, Dhanalaxmi Bank Limited, Kotak Mahindra Bank Limited, Lakshmi Vilas Bank Limited, Nainital Bank Limited, Yes Bank Limited etc. 53. Mr. Abhishek Manu Singhvi, learned Senior Counsel opposing these appeals on behalf of the respondents could not demonstrate any real prejudice likely to be caused by reason of furnishing of a Bank Guarantee of ICBC in preference to Scheduled Indian Banks nor could he show any plausible reason for preference of Scheduled Private Sector Banks in India to Scheduled Foreign Banks like ICBC. 54. As pleaded in the appeal being FAO (OS) (COMM) No.136 of 2019 the Respondents have not been able to advert to a single instance of default, fraud or any other malpractice of ICBC which could cast any doubt over ICBC's ability or inclination to honour the Bank G....
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....ore the order dated 09.04.2019 was passed. 59. As discussed above, all that is required for invocation of the Bank Guarantee is an order of the High Court in the proceedings relating to the Arbitral Award. The statement that the guarantee is subject to the URDG does not dilute the guarantee or make it conditional. Mr. Singhvi's client has not been able to demonstrate how the URDG can cause any prejudice to the beneficiary of the Bank Guarantee. Having passed an order on 12.02.2019 which directed "..Further, the bank guarantee in the sum of Rs. 30 crores will be that of a scheduled bank located in India..." on the basis of which the Appellant altered its position to its detriment by extending Rs. 30 lakhs in obtaining a Bank Guarantee of ICBC. The High Court was not justified in altering and/or modifying the said direction after almost two months and after its compliance. 60. For the reasons discussed above, the appeal from the impugned judgment and order of the Division Bench dated 27.11.2020 in FAO(OS) (COMM) No. 136 of 2019 is allowed. The impugned judgment and order of the Division Bench dated 27.11.2020 in FAO(OS) (COMM) No. 136 of 2019 and orders dated 09.04.2019 and 16.....
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.... of a scheduled Indian bank. 2. Learned senior counsel says that on account of the spring festival in China, it could take at least six (6) weeks to furnish the bank guarantee. 3. Mr. Sethi says, however, the affidavit can be furnished within the next two (2) weeks. It is ordered accordingly. 4. The Judgment Debtor will file the affidavit within two (2) weeks; with a copy being furnished to the counsel for the decree holder. 5. Insofar as the bank guarantee is concerned, it will be furnished within 6 weeks as indicated by the counsel. 6. Further, the bank guarantee in the sum of Rs. 30 crores will be that of a scheduled bank located in India. 7. Renotify the matter on 31.7.2019. 8. In the meanwhile, the Judgment Debtor will continue to make deposit with the Registry of this Court in terms of the order dated 24.7.2018." 5. Pursuant to the aforesaid order, the petitioner furnished a bank guarantee issued by the Industrial and Commercial Bank of China Limited, Mumbai Branch dated 22.03.2019 (hereinafter referred to ICBC). 6. It appears that thereafter the respondent moved another application in I.A.No.5185 of 2019 in....
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....y be taken as a reflection on the reputation of the bank. 9. But by an order dated 16.05.2019, the learned Judge dismissed I.A.No.7096 of 2019, clarifying that the credentials of ICBC are not at all doubted and that what was sought to be done by the order dated 09.04.2019, was merely to correct an error that crept in the order dated 12.02.2019. Paragraph 5 of the order dated 16.05.2019 reads as follows: "... ... ... 5. I may clarify, at the outset, that it is not this court's endeavour to doubt in any manner the credentials of ICBC. The record, however, shows that the applicant/respondent had in fact, on its own, offered to furnish a bank guarantee of a Scheduled Indian Bank. The confusion, if any, in the mind of the applicant/respondent, as rightly pointed out by Mr. Nigam, was removed on 09.04.2019. The applicant/respondent has moved this application after nearly four weeks of the clarification issued in that behalf. Thus, having passed an order based, essentially, on the offer made by the counsel for the applicant/respondent, I do not see any good reason to recall the direction. ..." 10. Challenging the order dated 16.05.2019, passed in I.A.No. 7096 of 20....
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....ated 12.02.2019 and the relevant portions of the orders dated 09.04.2019 and 16.05.2019. The order dated 12.02.2019 shows (i) that it was not an adjudicatory order but passed entirely on the basis of an offer made by the petitioner herein; and (ii) that paragraphs 4 and 5 of the order gave two weeks time to the petitioner to file an affidavit and six weeks time to furnish bank guarantee. The statement of the learned senior counsel for the petitioner to file an affidavit is recorded in paragraph 1 of the order dated 12.02.2019. Paragraph 1 of the order dated 12.2.2019 indicates three items with respect to which the petitioner undertook to file an affidavit. Item no. (iii) of paragraph 1 is very specific that one of the contents of the affidavit should be to furnish a bank guarantee in a sum of Rs. 30 crores of a 'scheduled Indian bank'. Paragraph 5 directs the petitioner to furnish bank guarantee within six weeks 'as indicated by the counsel'. 16. To a pointed question whether an affidavit containing all the three items mentioned in paragraph 1 was filed or not, as directed in paragraph 4 of the order dated 12.02.2019, the reply of Mr. K.V. Vishwanathan, learned senior counsel fo....
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....me to the petitioner to file an affidavit incorporating all the three items of matters indicated in paragraph 1 of the order dated 12.02.2019; and (ii) six weeks time to furnish bank guarantee as indicated by the counsel. Therefore the petitioner ought to have filed an affidavit containing all the three ingredients, before taking the bank guarantee from ICBC. If they had done so, the affidavit would have contained a statement, in tune either with what was undertaken by them or with what was mentioned in the order. The filing of an affidavit in such a manner, would have given a wake up call to the respondents and shown the bonafides of the petitioner. But without doing so, the petitioner filed an affidavit containing only those matters covered by Items (i) and (ii) of paragraph 1 and thereafter furnished a bank guarantee of ICBC. Since the petitioner did not adopt a course of action as undertaken by them, it is not open to them to say that they were misled by the direction in paragraph 6 of the order dated 12.02.2019 and that therefore they should not be prejudiced on account of a mistake committed by the court. 22. This is a case where the petitioner, after making a clear offer ....