2003 (2) TMI 71 - SC - Customs

Whether the impugned order of the High Court dismissing the writ petition of the appellant-company warrants any interference in exercise of the jurisdiction of this Court under Article 136 of the Constitution? Held that - It is true that the bank guarantee has to be read in conjunction with the terms of the contract but when the bank guarantee itself is in absolute terms, the agreement between the company and the first respondent would be of no avail to the bank. When there is no apparent possibility of the fulfilment of the export obligation, the appellant-company cannot seek refuge under the extended period. Thus when it becomes apparent on the facts and circumstances of the case that there is no chance of the appellant fulfilling its export obligation, the action of the first respondent in invoking the bank guarantee cannot be said to be premature and unjustified, much less arbitrary and illegal so as to warrant any interference by this Court. Appeal dismissed.

Summary

Issues:
1. Validity of the order invoking the bank guarantee by the Union of India.
2. Jurisdiction of the High Court under Article 226 of the Constitution regarding encashment of bank guarantee.
3. Interpretation of the bank guarantee clauses and conditions.
4. Applicability of the extended export obligation period and its revocation.
5. Company's financial position and potential hardships due to encashment of bank guarantee.
6. Locus standi of the Bank to contest the invocation of the bank guarantee.

Analysis:

1. The appeals addressed the controversy surrounding the encashment of a bank guarantee by the Union of India under the Export Promotion Capital Goods (E.P.C.G.) Scheme. The appellant company challenged the validity of the order invoking the bank guarantee, leading to a dispute over the fulfilment of export obligations and the subsequent revocation of the extended period.

2. The High Court dismissed the writ petition, citing the presence of disputed factual questions and the nature of the bank guarantee encashment issue as not suitable for extraordinary jurisdiction under Article 226 of the Constitution. The correctness of this order was challenged in the Supreme Court, questioning the interference under Article 136 of the Constitution.

3. The interpretation of the bank guarantee clauses was crucial in determining the Bank's liability. The unconditional and absolute nature of the bank guarantee rendered it enforceable on demand by the President of India, irrespective of any disputes raised by the appellant company in court or tribunal proceedings. The bank's attempt to resist encashment based on the extended export obligation period was deemed invalid.

4. Despite arguments regarding the extended export obligation period and the company's financial difficulties, the Court found that the revocation of the extension, coupled with the closure of the appellant's plant and cessation of production, indicated a lack of possibility for fulfilling the export obligation. This circumstance justified the Union of India's decision to invoke the bank guarantee.

5. The Court emphasized that when the bank guarantee is absolute, the terms of the contract between the company and the Union of India hold no relevance in resisting encashment. The Bank's contention regarding the extended export obligation period and potential financial hardships did not sway the decision, leading to the dismissal of the appeals.

6. Ultimately, the appeals failed, and no costs were awarded in the case. The judgment highlighted the importance of upholding the terms of unconditional bank guarantees and the significance of factual circumstances in determining the validity of invoking such guarantees.