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Judgment
V.V.S. Rao, J.—M/s. Aditya Exports Ltd., availed benefit of duty exemption entitlement under the Export-Import Policy of India. The said
company was given three licences by the first respondent for availing the said benefit. As required under the exemption scheme, second and third
respondents were required to give bank guarantee. Under the said licences, Government of India permitted import of goods for a value of US$
2,56,440/-on the terms and conditions specified in the scheme, licence and Export-Import Policy and Procedure 1992-97. In pursuance thereof,
as noticed, respondents 2 and 3 and the petitioner executed Indemnity-cum-Bank Guarantee Bonds. The first bond one was executed on 22-3-
1993 and the second one was executed on 13-4-1993 for a sum of Rs. 1,53,86,400/- and Rs. 73,93,800/-respectively. The Indemnity-cum-
Bank Guarantee Bonds shall remain in force until the obligations of the party and the guarantor are fulfilled to the full and final satisfaction of the
Government as specified in the Guarantee Bonds. Nonetheless, a condition with non-obstante clause formed part of the Guarantee Bonds. As per
this, notwithstanding what has been prescribed in the Guarantee Bonds, the liability of the petitioner bank was restricted to Rs. 1,53,86,400/- in
relation to the Guarantee Bond dated 22-3-1993 and Rs. 73,93,800/-in relation to the guarantee bond dated 13-4-1993.
Respondents 2 and 3 failed to submit necessary documents towards fulfilment of export obligations. Therefore, the first respondent declared
Respondents 2 and 3 as defaulters. Further, by letter dated 21-6-1996 addressed to the petitioner, the first respondent called for invocation of
bank guarantees. In the meanwhile, the third respondent filed a writ petition before this Court being W.P. No. 4790 of 1998. By an order dated
23-2-1998, this Court granted interim stay directing Respondent No. 1 not to take steps for invocation of bank guarantees. These orders are
passed by the Central Excise and Gold Control Appellate Tribunal (CEGAT), Chennai. Be it noted, the appeal was filed by Respondents 2 and 3
before the CEGAT, Chennai against the orders of the Customs Department dated 18-8-1997. After CEGAT dismissed the petition, the petitioner
bank remitted the amount of Rs. 97,34,894/- by way of pay order dated 4-2-1999 and another sum of Rs. 1,30,45,306/- on 7-10-1999.
The first respondent issue notice to Respondent No. 3 and passed orders on 17-11-1999 imposing penalty of Rs. 5,69,15,000/- on M/s.
Aditya Exports Ltd., and imposed penalty of Rs. 20 lakhs on the Director of the said company. The first respondent also directed the bank to pay
a sum of Rs. 1,79,67,182/- towards interest at 24% on the balance of bank guarantee amount. Respondents 2 and 3 appear to have not
challenged the order either by filing an appeal before the Additional Director General of Foreign Trade or elsewhere. The Vysya Bank which
guaranteed due performance by Respondent No. 3 filed this writ petition.
The first respondent has filed a counter-affidavit inter alia stating that in spite of issuing notice invoking bank guarantees after fulfilling the
amounts, the bank delayed settlement of bank guarantees for which the first respondent had to run from pillar to post. The Bank is bound to
honour the interest of the beneficiaries without any demur or protest. In spite of the same, the bank went on protesting repayment and went on
taking recourse to unwanted correspondence. The payment by the bank was delayed by more than 3 172 years. The due payment of the bank
guarantees is, however, admitted. The writ petition is also opposed on the ground that the petitioner has an effective alternative remedy.
Learned Counsel for the petitioner, Sri S. Ravi, submits that the bank could not discharge its obligation by reason of the orders passed by this
Court on 23-2-1998 in W.P.No. 4790 of 1998. The same was also communicated to the petitioner bank by the Counsel for the second
respondent and, therefore, the bank could not have paid the amount in contravention of the orders of this Court. He also submits that the liability of
the bank is in accordance with the bank guarantees and the first respondent cannot claim any interest.
Learned Standing Counsel for the first respondent refutes the allegations and submits that whatever be the reason there is delay in payment of
bank guarantees and the petitioner is liable to pay interest.
The only question is whether the first respondent can claim interest from the petitioner under the Indemnity-cum-Guarantee Bonds from the
petitioner.
To appreciate the controversy, it is necessary to read the following three clauses covenanted in the Bonds which are as under:
(x) That this Bond shall remain in full force until all the obligations of the party and the guarantor are fulfilled to the full and final satisfaction of the
Government as specified above and till such satisfaction is communicated to the guarantor.
(xii) That the party and guarantor irrevocably undertake and guarantee that in the event of the parties default in meeting the aforesaid export
obligations/conditions, they shall pay an amount equal to 18% interest per annum on the amount of custom duties saved from the date of import of
the first consignment till the date of payment.
Notwithstanding what has been written above, our liability shall be restricted to Indian Rs. 73,93,800/-. Payment of claim under this guarantee will
be in Indian rupees only payable in India.
It is no doubt true that the bonds shall remain in force until all the obligations between the party and the guarantor are fulfilled to the full and final
satisfaction of the Government as specified in the bonds. Clause (xii) also throws an obligation on the petitioner as well as Respondents 2 and 3 to
pay a sum equal to 18% per annum on the amount of custom duty saved from the date of import of the first consignment till the date of payment.
However, these two clauses have to be read subject to the clause restricting the liability of the bank to a specified amount. The non-obstante
clause in the covenant incorporated after Clause (xiii), leaves no doubt that the guarantor''s liability is restricted to the amount agreed to thereunder.
When the Guarantee Bond contains such a non-obstante clause, the Court should give full meaning to the same and cannot ignore the effect of the
said clause on the other covenants. Further, when the Customs Department passed orders adjudicating the same against respondents 2 and 3, they
preferred an appeal before the CEGAT. Pending the same, bank guarantees came to be enforced and they filed writ petition. This Court passed
interim orders directing the petitioner and respondents not to enforce the bank guarantees and the petitioner was requested to extend the bank
guarantees for a period of two years. In the meanwhile, the Managing Director of the second respondent addressed the petitioner to the effect that
the company is approaching the designated authority under the Kar Vivad Samadhan Scheme (KVSS) and requested the petitioner not to take
any steps for invocation of the bank guarantees. In view of the same, the amount was not paid till 4-2-1999 when a part of the amount being Rs.
97,34,894/- was paid. Though initially, the petitioner demurred the payment of Rs. 1,30,45,306/-, the said amount was paid on 7-10-1999.
In this writ petition, however, the bank is not seeking an order to refund all the amounts paid by way of bank guarantees. The only contention
raised is that the bank has discharged its obligation from the two guarantee bonds and therefore there cannot be any burden of payment of interest
which is not permitted under the Indemnity-cum-Bank Guarantee Bonds. Either in the counter-affidavit or across the Bar this argument has not
been met effectively. Indeed, having regard to the provisions of Section 128 of the Indian Contract Act, the submission of the learned Counsel for
the first respondent cannot be countenanced. The liability of the guarantor mainly flows from the terms and conditions of the guarantee bond and no
guarantor can be made liable to pay the amount or interest on the amount which is not agreed to by the parties. Further, whether a person is liable
to pay interest in accordance with bank guarantee or not is a dispute between the petitioner and the first respondent and the first respondent cannot
unilaterally adjudicate the matter. The first respondent, if so advised, may agitate the matter before the Civil Court.
The writ petition, for the above reasons, is allowed and the impugned order passed by the first respondent in F.No. 4(14)/96/ECA/Hyd/124,
dated 17-11-1999 insofar as the same fixes liability on the petitioner bank to pay an amount of Rs. 1,79,67,182/-towards interest is set aside and
it is declared that such liability cannot be enforced against the petitioner bank. There shall be no order as to costs.