Monday, June 25, 2018 | ePaper

Demand for encashment of Bank Guarantee cannot be injuncted

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(From previous issue) :
Therefore such breach of contract will automatically give rise to a claim for damages by the respondents and since the respondents suffered loss and damages due to the non performance of contract by the petitioner they rightly demanded encashment of the aforesaid Bank Guarantees.
5. Mr Sheikh Md Morshed, the learned Advocate for the petitioners submits that the respondents without, giving any prior showcause notice or opportunity of being heard decided to forfeit and encash the tender security money by encashing the Bank Guarantees which is illegal and without lawful authority and in breach of the principles of natural justice. The learned Advocate further submits that the petitioner did not violate any of the provisions of the Public Procurement Act and Rules there under and the impugned action of the respondents is liable to be declared to have been made without lawful authority and of no legal effect. The learned Advocate further submits that the petitioner did not violate any of the provisions of the tender documents and did not sign any formal, contract with the respondent's and their demand for encashment of the Bank Guarantees is illegal and without lawful authority. The learned Advocate further submits that the respondents awarded the contract to other suppliers after the petitioner expressed his inability to perform and she respondents have not incurred any loss and therefore their remand for encashment of the Bank Guarantees is without any basis and designed to harass the petitioner and that he should be discharged from his obligation under the said Bank Guarantees.
6. The learned Advocate for me petitioner has drawn our attention to the case of Continental Construction Ltd. vs Sailuj jal Vidhut Nigam Ltd. a decision of the Indian High Court reported in 2006 (1) ARBLR 321 Delhi where it has been held that encashment of a Bank Guarantee may be restrained by a Court on the ground of special equities i.e. irretrievable injustice. In the instant case the petitioner submits that the Bank Guarantees are of a huge amounted and that if it is allowed to be encashed then the petitioner is going to suffer irreparable loss end cause him great hardship and prays for at order to stop the encashment of the said Bank Guarantees.
7. As against this, Mr Shaikh Mohammed Zakir Hossain the learned Advocate for the Respondent No.1 submits that by issuance of the Notifications of Awards the Respondents accepted the petitioner's tender offer which is  which is itself a contract at his refused to sign the performance contract within the stipulated time by his clear statement that he is unable to supply the tender goods after getting the Notifications of Awards is a non-performance of the said contract for which the respondents have suffered loss and damages and that they have rightly demanded encashment of the Bank Guarantees. The learned Advocate further submits that due to the petitioner's failure to supply the tender goods and materials the respondents were constrained to retender the same and award the contract to another supplier at a higher rate causing loss of over seven crore and it is not correct to say that the respondents suffered no loss due to the petitioner's failure to supply the goods. The learned Advocate finally submits that the Bank Guarantees issued in favour of the respondents at the instance of the petitioner is a security for performance of tender work i.e. supply of the materials and on-his failure to do so the demand for encashment was rightly made and no interference is called for by this Court in the instant matter and the Rules are liable to be discharged.
8. We have considered the submissions of the learned Advocates.
9. It appears that the aforesaid Bank Guarantees were provided by the petitioner as security for supply of certain materials pursuant to the aforesaid tenders floated by the respondents. Each Bank Guarantee states as follows:
 "Bank Gurantee No: 159/2015
For Taka : Tk 35,00,000
Issue date: 6-10-2015
Validity: 4-3-2016
At the request of the Tenderer, we, Export Import Bank of Bangladesh Limited, Motijheel Branch, Sharif Mansion" 56-57, Motijhee1 C/A, Dhaka-1000, hereby irrevocably undertake to pay you, without cavil or argument, any sum of sums not exceeding in total an amount of BDT 35,00,000 (BD Thirty Five Lac) only upon receipt by us of your first written demand accompanied by a written statement that the Tenderer is in breach of its obligation(s) under the Tender conditions, because the Tenderer:
a. has withdrawn its Tender after opening of Tenders but within the validity of the Tender Security; or
b. refused to accept the Notification of Award (NOA) within the period as stated under Instructions to Tenderers (ITT); or
c. failed to furnish Performance Security within the period as stipulated in the NOA; or
d. refused to sign the Contract Agreement by the time specified in the NOA; or
e. did not accept the correction of the Tender price following the correction of the arithmetic errors in accordance with the ITT; or
This guarantee will expire:
(a)    if the Tenderer is the successful Tenderer, upon our receipt of a copies of the contract signed by the Tenderer and the Performance Security issued to you in accordance with the ITT; or if the Tenderer is not the successful Tenderer, twenty eight (28) days after the expiration of the Tenderer's Tender validity period, being 4-3-2016.
Consequently, we must receive at the above-mentioned office any demand for payment under this guarantee on or before that date.
For and on behalf of
Export Import Bank of Bangladesh Ltd Motijheel Branch, Dhaka.
Sd/ Authorised person"
10. The aforesaid Bank Guarantees appear to be encashable on the first written demand by the respondents or the happening of certain conditions including the refusal to sign the contractual agreement specified in the Notifications of Awards. In the instant case the petitioners did not sign the Notification of Awards and the respondents demanded encashment of the Bank Guarantees. It is admitted by the petitioner that he refused to sign the contractual agreement as specified in the Notifications of Awards. In such Circumstances the question arises whether the EXIM Rank which issued the Bank Guarantees is bound to honour its commitment of paying the respondents on the Bank Guarantees as demanded by them. The Bank Guarantee is a separate contract on the underlying contract between the parties. The Court will not look at disputes between the parties while considering the demand for encashment of a Bank Guarantee.
11. The general rule regarding Bank Guarantees is that they are liable to be encashed on demand by the beneficiary otherwise trade and commerce will suffer but the demand for encashment can be refused if it is not made in accordance with the terms of the Bank Guarantee. The only exception recognized by the Courts is the existence of fraud and the Bank has knowledge of it before encashment. A Bank Guarantee is a unconditional undertaking to make payment on demand and when the beneficiary of the Gurantees makes such a demand for encashment the Bank is bound to comply and make the payment.
12. In Volivintar Oil SA vs Chase Manhattan Bank (1984) 1 All ER 351 it has been held that, in an exceptional case an injunction may be granted where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent but the evidence must he dear, both as to the fact of fraud and as to the bank's knowledge. The uncorroborated statement of the customer will not be sufficient in this regard as irreparable damage can he done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it discharged.
13. The rule, is well established that a bank issuing guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment unless there is clear evidence of fraud.
14. In Nuvista Pharma Ltd. vs Chairman, National Board of Revenue 65 DLR (AD) 302 the Appellate Division reiterated their earlier view in Uttara Bank vs Macneill & Kilburn, 33 DLR (AD) 298 where it was held that
"a court will not interfere by granting an injunction from performing discharging the contractual obligations. Such is the case here. The letter of or guarantee was given in this case by the plaintiff and the defendant placed it for the encashment of the letter of guarantee. The bank (chartered bank) is only obliged to comply with the demand made by the appellant Uttara Bank. It is nobody's case that there is any fraud of which the bank got notice."
15. In view of the aforesaid decisions and judicial pronouncements it is clear that the demand for encashment of Bank Guarantees cannot be injuncted by a Court unless there is clear evidence of fraud and the Bank has notice of it.
16. The Bank is not concerned about the disputes between the parties and the demand for encashment of Bank Guarantees cannot be stopped. The petitioner is at liberty to file appropriate case in the civil court for damages and other relief if he has suffered any loss due to the action of the respondents and this court will not go into the merit of the petitioner's claim on that score. The performance guarantees as stated earlier are separate commitments by the bank and it cannot be stopped due to a dispute between the parties.
17. Accordingly, these Rules have no merit and they are discharged. Our interim orders of stay are hereby recalled and vacated.
There will be no order as to costs.
(Concluded)

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