19 Jul 2121

It is trite to state that because a bank guarantee is an independent contract, there is little opportunity for intervention in the event of its encashment and that the lack of signature matching with other papers is not a basis for interference - Supreme Court of India

Case : Atlanta Infrastructure Ltd. (Rechristened as Atlanta Ltd.) v. Delta Marine Company & Ors. Civil Appeal No. 2876 of 2021 [Arising Out of SLP (C) No. 14979 of 2020]

Court : Supreme Court of India

Bench : Justice Sanjay Kishan Kaul and Justice Hemant Gupta

Decided on : 19 Jul 2121

The Relevant Statutes

Order 41 Rule 27 Code of Civil Procedure, 1908

Section 45 of the Indian Evidence Act, 1872

Brief Facts & Procedural History

1. The initial plaintiff, Respondent No. 1, opted to appeal to the learned Addl. District Judge, Khurda. The appeal court issued an interim injunction preventing the delivery of the bank guarantee payment, which was later upheld. Later, in SLP(C) No.6394/2017, the Honourable Supreme Court of India issued an order ordering that the appeal is heard within three months of the next date. In the meantime, respondent No.1 applied to Order 41 Rule 27 of the Code of Civil Procedure, 1908, requesting admission of a copy of the expert report under Section 45 of the Indian Evidence Act, 1872. They wanted to get some of the appellant's documents on the record to compare signatures. The renowned ADJ, Khurda, turned down such a request. Respondent No.1 subsequently filed an appeal against the aforementioned order, which resulted in a notice being issued and the stay of further proceedings before the learned ADJ.

2. The Honourable Supreme Court of India was informed of the aforementioned information. After noticing the farce that had been made of the proceedings, a report was requested to prevent the bank guarantee from being encashed. The stay was lifted by the High Court, which noted that the ruling of the Honourable Supreme Court of India had not been brought to its attention. The order of the learned ADJ was set aside by the impugned decision, and the issue was remanded to the learned ADJ to consider the application under Order 41 Rule 27 Code of Civil Procedure, 1908 again at the time of the appeal hearing.

The Issue(s) of the Case

Whether the impugned judgment dated 4 December 2020 valid?

The Observations of the Court

1. Honourable Supreme Court of India observes that the complaint sought a permanent injunction prohibiting the appellant from cashing the bank guarantee and prohibiting the bank from making payment. A separate request was submitted for a decision declaring the contract, including the arbitration clause, null and invalid and unenforceable. The respondent's motion under Order 41 Rule 27 Code of Civil Procedure, 1908 was based on the argument that the appellant had been served with some interrogatory that would reveal a scheme to defraud the Court. That is why a handwriting expert's opinion was sought to compare signatures on accepted papers marked as exhibits to signatures on the reply to the interrogatories and the vakalatnama. The report was just received on December 4, 2019.

2. Honourable Supreme Court of India also observes that the first respondent's reasoning is erroneous. It is trite to remark that because a bank guarantee is an independent contract, there is little scope for intervention in the event of its encashment, as many judges, including this Court, have stated from time to time. Egregious fraud might be one of the reasons for intervention. The bank guarantee must be linked to the fraud. Learned counsel for respondent No. 1 concedes that what he was seeking to demonstrate is that the signatures of the appellant's officials on papers do not match the vakalatnama or other documents, implying that the appellants were behaving falsely in another case. This, however, has nothing to do with the question of the appellant's representatives' signatures, which they do not dispute. We believe this is another attempt by respondent No. 1 to extend the problem unduly to prevent the bank guarantee from being encashed.

The Decision Held by the Court

Honourable Supreme Court of India Set aside the impugned judgement and dismiss respondent No. 1's appeal to the High Court, which was filed in response to the first appellate court's rejection of their request for further papers. As a result, the appeal is permitted, with the parties responsible for their expenses.

Click here to view/download the judgement >