2014 (12) TMI 194 - HC - Customs

Enforcement of the bank guarantees - Obligation of bank towards expired BG - Non fulfilment of its obligations under the BGs - interpretation of the BGs issued by IOB in favour of the President of India to secure the Customs Authorities against any loss, damage caused or suffered on account of failure on the part of Alpine to comply with any terms and conditions as contained in the provisional assessment test bond - Held that - The latter part of clause 5 of the BGs clearly indicate that the BGs would be in force only for a limited period of time and would be renewed at the request of the customer i.e. Alpine. If clause 7 of BGs is read harmoniously with clause 5, the inescapable conclusion is that while IOB is obliged to keep the BGs alive and not permit the same to be revoked by Alpine, the said obligation is limited only during the valid tenure of the BGs. The obligation of IOB to renew the BGs as expressed in the opening words of clause 7 is subject to compliance with clause 5, that is, subject to request of Alpine. Alpine has not made any request for renewal of the BGs and the respondent authorities have also not ensured that Alpine take the necessary steps for IOB to renew the BGs and the BGs lapsed. It is difficult to accept that clause 7 of the BGs would enjoin IOB to renew the BGs without any request from IOB s customer at whose instance the BGs had been issued. Notably, the opening words of clause 8 contain a non obstante clause which expressly indicates that IOB would be liable to pay the guaranteed amount only if a written claim was served on IOB before the last date of the validity of the BG - no claim had been received by IOB during the validity period of the BGs and thus IOB has no obligation to pay any amount to the Customs Authorities. In this view, the present petition is allowed and the communications dated 22.04.2012 and 12.05.2014 issued by respondent no.1 stand quashed - Decided in fsvour of assessee.

Summary

Issues: Interpretation of bank guarantees (BGs) issued by a petitioner bank, obligation to renew BGs, validity of clauses in the BGs, impact of non obstante clause in the BGs, liability of the bank under the BGs, and the petitioner's obligation to pay the guaranteed amount.

Analysis:
1. The petitioner bank filed a petition seeking to quash certain communications and notices issued by the Customs Authorities. The petitioner objected to adverse actions threatened against them, including blacklisting, based on the alleged non-renewal of bank guarantees (BGs) and failure to fulfill obligations under the BGs.

2. The Customs Authorities had called upon the petitioner bank to appear with relevant documents regarding the BGs and warned of enforcement in case of non-appearance. Additionally, communications were sent to the Reserve Bank of India seeking action against the petitioner for not meeting BG obligations.

3. The petitioner argued that as the BGs had lapsed and no renewal request was made by the beneficiary, they could not be compelled to renew them. The dispute centered on the interpretation of clauses in the BGs issued to secure the Customs Authorities against losses due to the beneficiary's non-compliance.

4. The court analyzed clauses 5, 7, and 8 of the BGs to determine the petitioner's obligations. While clause 7 required renewal of the BGs, it was held that this obligation was limited to the valid tenure of the BGs and subject to the beneficiary's request for renewal.

5. The presence of a non obstante clause in clause 8 indicated that the bank's liability to pay the guaranteed amount was contingent upon a written claim served before the BG's validity period expired. Since no claim was received during this period, the petitioner was not obligated to pay any amount to the Customs Authorities.

6. Relying on legal principles and precedents, the court concluded that the petitioner had no liability to fulfill the demands made by the Customs Authorities based on the BGs. Consequently, the court allowed the petition, quashed the adverse communications, and set aside the enforcement notice issued by the Customs Authorities.

7. The judgment clarified the petitioner's rights and obligations under the BGs, emphasizing the importance of interpreting contractual clauses in conjunction with legal principles to determine the parties' responsibilities accurately.