Judgements Section - आरबीआय - Reserve Bank of India
Judgements Section
Clips from Judgements in Cases by or against the Reserve Bank |
Interference of Court in Encashment of Bank Guarantees -Some Recent Decisions |
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D.N. Tripathi |
Deputy Legal Adviser |
I. Appointment |
1. High Court of Judicature at Bombay, Nagpur Bench-Writ Petition No. 1132 of 1996-Pravin M. Khaparde vs. Reserve Bank of India (2) Writ Petition No. 3270 of 1997 - Sudhir Gopikishan Soni vs. Reserve Bank of India -Decided on 15th September 1998 by Hon'ble Mr. Justice J.N. Patel and Hon'ble Mr. Justice D.D. Sinha |
Facts |
Bank issued an advertisement inviting applications from eligible candidates for inclusion of their names in the waiting list for twelve posts of part-time Encoder Operators in Bank's Nagpur Office. After written test and interview, petitioners were advised by the Bank vide letter dated 7-2-1990 about inclusion of their names in the waiting list. It was clearly mentioned in the Bank's advice that the waiting list was current up to 7-1-1991. It was also made clear that mere inclusion of the petitioners' names in the waiting list did not confer any right on them to claim appointment in the Bank. The currency of the waiting list was extended from time to time. The waiting list ultimately lapsed on 30th May 1995. Till then six candidates from the waiting list were appointed by the Bank as part-time Encoder Operator. The petitioners were out of the six remaining candidates who claimed appointment in view of their selection as Encoder operators. The Bank refused to appoint them in the service as Bank did not require Encoder Operators any more. Even the candidates appointed earlier as part-time Encoder Operators were absorbed in the Bank by offering them full time post of machine operators on humanitarian ground, in the light of the settlement by the Bank entered into on 31-1-1992 with recognised trade union. As such, there was no vacancy available for offering employment to the petitioners. The petitioners were advised that the waiting list had already been cancelled on 30-6-1995. The petitioners filed writ petition in the High Court challenging the Bank's decision refusing them offer of appointment. Bank opposed the writ petition by filing return. |
Observations of the High Court |
The High Court held that petitioners did not have any vested right for the appointment for which they were selected on the waiting list as the respondent Bank had no vacancy to be filled up. The writ petition was dismissed accordingly. |
2. High Court of Judicature at Allahabad -Special Appeal No. 993 of 1995 - Reserve Bank of India, Kanpur vs. Vijay Kumar Dixit & Others - Decided on 7-7-99 by Hon'ble Mr. Justice Palok Basu and Hon'ble Mr. Justice, M.L. Singhal |
Facts |
An advertisement was issued by Kanpur Office in the news papers in the year 1980 inviting applications from eligible candidates for the post of Clerk Gr. II/Coin Note Examiner Gr. II. Respondents applied for the post of Clerk Gr. II/ Coin Note Examiner Gr. II. As per the conditions of the advertisement only those candidates who qualified in a written test were to be called for the interview. On the basis of aggregate marks obtained in the interview and the written test the waiting list was to be prepared in the order of merit. Separate select list was required to be prepared for candidates belonging to general and special categories. The candidates were to be offered appointment in the order of their position in the waiting list as and when the vacancies arose during the currency of the waiting list. The respondents were called for attending the interview and were included in a waiting list of 443 candidates. All the candidates were intimated individually about inclusion of their names in the waiting list. The candidates were advised that the currency of the waiting list was usually one year from the date of preparation of the waiting list. The Bank appointed 213 candidates from the waiting list serially. The respondents were not appointed. The respondents filed writ petition No. 18171 of 1987 in Allahabad High Court seeking appointment in the Bank. Hon'ble Mr. Justice R.A. Zaidi vide judgement dated 9th November 1995 allowed the writ petition of the respondents with costs and directed the Bank to appoint the respondents in the Bank's service on the post of Clerk Gr. II/Coin Note Examiner Gr. II (Graduate) and not to appoint any other person until the said list was exhausted. Bank preferred special appeal No. 993 of 1995 in Allahabad High Court against the judgement dated 9th November 1995 of the Single Judge. |
Observations of the High Court |
The Division Bench of the High Court held that the Learned Single Judge had erred in coming to the conclusion that the list was to be taken as a select list. No direction for appointment could be issued even if it is held that the list published by the Bank was a select list. No person selected in an interview can claim appointment as a matter of right,onlyonthestrengthoftheselectlistsolong as the employer does not chose to appoint the persons against the vacancies then existing. The appeal of the Reserve bank was allowed. However, the court has desired that in future the Reserve Bank should announce the number of vacancies which it wants to fill so that there should not be any controversy about the list to be called as select or a waiting list. Vijay Kumar Dikshit and Motilal Yadav submitted before the court that in case they are considered for any vacancy by the Reserve Bank which may be existing today in pursuance of the result declared in the year 1982 relating to the vacancy of 1980, they would not claim any salary, arrears or seniority from 1980, 1981 or 1982 up to the date and shall confine all claims from the year 1999. The High Court also gave a direction to the Reserve Bank for considering the request of the respondents Vijay Kumar Dixit and Motilal Yadav sympathetically. |
Comments |
In view of the above direction of the High Court, it is advisable to the Bank to identify the number of posts vacant which are required to be filled up for which an advertisement is issued. Wait list of candidates may be limited to the extent of number of vacancies required to be filled as per the recruitment policy. |
II. Absence due to arrest by police |
Jammu & Kashmir High Court - SWP No. 766 of 1995 - Satish Bhardwaj vs. Reserve Bank of India others - Decided on 29th July 1999 by Hon'ble Mr. Justice R.C. Ganghi |
Facts |
Petitioner, an employee of the Bank was arrested by police in a criminal complaint on 11th August 1992 and was subsequently granted bail by the court. The petitioner applied to the Bank for treating him as on duty on the date of his arrest as he was in police custody and could not attend to his duties. The Bank did not treat him as on duty on 11th August 1992 when he was in police custody. The petitioner was treated as having absented from duty without pay and allowances under sub Regulation (2) of Regulation 39 read with Regulation 46 of the Reserve Bank of India (Staff) Regulations, 1948. Sub regulation (2) of Regulation 39 provides that an employee who absents himself from duty without leave or overstays his leave except under circumstances beyond his control for which he must tender a satisfactory explanation, shall not be entitled to draw any pay and allowances during such absence or overstayal and shall further be liable to such disciplinary measure as the competent authority may impose. The period of such absence or overstayal may be treated as period spent on extraordinary leave. Further in terms of sub Regulation (5) of Regulation 46 of the Reserve Bank of India (Staff) Regulations, where the absence of an employee from duty is without leave or his overstayal is due to being arrested for debt or for a criminal charge or for his having been detained in pursuance of any process of law, the provisions of Regulation 39 shall also apply and the employee shall be treated as having absented himself without leave or, as the case may be, overstayed otherwise than under circumstances beyond his control. In the light of these provisions petitioner's absence was regularised. Petitioner challenged the Bank's decision granting him extra ordinary leave without pay and allowances in the writ petition filed by him in the High Court. The Bank opposed the writ petition. |
Observations of the High Court |
The High Court held that the petitioner had absented himself without leave and had remained in police custody. The Petitioner was therefore, not entitled to be treated as on duty. The petitioner's acquittal from the criminal charge by criminal court has nothing to do with the absence from duty. Writ Petition filed by the petitioner was dismissed by the High Court. |
III. Promotion |
High Court of Judicature at Patna - CWJC case No. 2988 of 1998 - Kalyan Kumar vs. Reserve Bank of India, decided on 4-5-1999 by Hon'ble Mr. Justice A.K. Ganguly |
Facts |
Petitioner Shri Kalyan Kumar, an officer Grade 'B' of the Bank the writ petition prayed for quashing of the order of his non selection communicated by letter dated 26th March 1997 by the Chief General Manager, Patna. For considering an officer suitable for promotion to the post of Officer Grade. 'C' his annual performance appraisal reports for the preceding three years were considered by the Selection Committee. The selection Committee in the present case did not find it possible to include the name of the petitioner in the panel of successful officers for promotion to the post of officer Grade 'C'. The case of the petitioner was considered by the Selection Committees in the year 1995, 1996, 1997 and 1998. The petitioner was not found suitable for inclusion of his name in the respective panel of candidates for four years. The petition was opposed by the Bank. |
Observations of the High Court |
It was held by the High Court that nobody has a right to be promoted. The only right is to be considered for promotion fairly and in accordance with law. The petitioner's case was considered for promotion and it was not the case of the petitioner that authorities were biased against him. The High Court was not inclined to interfere in the matter of assessment and consideration by the respondent Bank. The petition was dismissed. |
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Accuracy and diligence are much more necessary to a lawyer, than great comprehension of mind, or brilliancy of talent. His business is to refine, define, and split hairs, to look into authorities, and compare cases. A man can never gallop over the fields of law on Pegasus, nor fly across them on the wing of oratory. If he would stand on terra firma he must descend; if he would be a great lawyer, he must first consent to be only a great drudge. |
- Webster, Daniel, Letter to Thomas Merrill, November 11, 1803, See Speak for Yourself, Daniel, edited by Walker Lewis (Boston: Houghton Mifflin Company, 1969), pp. 22-23. |
(i) That the bank undertakes to unconditionally pay the amount claimed by Hindustan Steel Works Construction Ltd. (HSCL) without demur and thus to indemnify HSCL against any loss or damage, charges and expenses suffered by HSCL by reason of breach by appellant of any of the terms of contract. |
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(ii) That the decision of the HSCL as to the question of breach or as to the amount of loss or damage suffered by it shall be final and binding on the bank. |
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The Court observed that the dispute regarding payment of contribution towards dues under the Kerala Construction Workers Welfare Fund Act cannot be resolved in the present proceedings. The dispute between the parties on the interpretation of certain provisions contained in the underlying contract does not amount to fraud. As far as the bank is concerned when HSCL says that there is breach by appellant of the terms of contract that would be the final word. The obligations arising under the bank guarantee are independent of the obligation arising out of the specific contract between the parties. The Court further observed that in order to restrain the operation of the bank guarantee by an order of the Court, there should be a good prima facie act of fraud or irretrievable injustice. The person who pleads "irretrievable injury" must establish that the injury caused to him is genuine and immediate and also irreparable. |
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(c) Decision |
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The Court held that the appellant has not established a prima facie case nor is there any ground for the grant of temporary injunction against the invocation of the bank guarantee by the first respondent. The appeal was dismissed. |
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II. Hindustan Copper Ltd., vs. Rana Builders Ltd. - AIR 1999 Calcutta 230 |
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(a) Issues before the court |
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The questions to be decided were whether interim relief against enforcement of bank guarantee could be granted and whether during pendency of arbitration proceedings relating to the disputed matter, the order of injunction granted by the lower court could be interfered with. |
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(b) Reasoning |
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The Bank of Baroda had furnished a bank guarantee undertaking to pay a specified amount to the appellant at the request of M/s. Rana Builders, contractor against any loss or damage caused to or suffered by appellant by reason of any breach by the said contractor of any of the terms and conditions of the agreement. The High Court of Calcutta observed that the learned single judge was in error in assuming that this matter was not to be decided strictly on principles of injunction in relation to bank guarantee but general principles of injunction on lenders would be applicable and on that basis had proceeded to decide the matter. The contention of the respondent that the entire dispute was pending before arbitration and until the same was adjudicated upon, the injunction order under appeal which had provided adequate safeguard to both the parties could not be set aside, had to be rejected. The Court relied upon the judgement of the Supreme Court of India in Hindustan Steel Works Construction Ltd. vs. GS Atwal and Company (AIR 1966 SC 131) in which the Supreme Court did not accept the reasoning of the High Court that before invoking the performance guarantee the appellant should assess the quantum of loss and damages and mention the ascertained figure. The Court further observed that the letter of invocation in respect of the bank guarantee cannot be equated with documents that are required to be tendered under letters of credit. The bank guarantee can be invoked in a commercial manner and it is sufficient if the bank is satisfied that the guarantee is being invoked in accordance with its terms. |
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(c) Decision |
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The Court held that the respondent had failed to show prima facie case of fraud or irretrievable injury and the order of the learned single judge restraining the enforcement of bank guarantee was set aside. The appeal was allowed. |
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III. Lloyds Steel Industries Ltd. vs. Indian Oil Corporation Ltd. and Another - AIR 1999 Delhi 248 |
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(a) Issue before the court |
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The question to be decided was whether an order restraining the first defendant from encashing the bank guarantee can be passed in favour of the plaintiff. |
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(b) Observations of the court |
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The High Court of Delhi observed referring to the relevant provisions of the bank guarantee that even assuming there had been a variation in the contract between the plaintiff and first defendant, the impugned bank guarantee given at the instance of the plaintiff by second defendant permitted suchtypeofvariationwithoutaffectingtheliability of second defendant in any manner. Thus any change, modification or novation of the contract was taken care of by the bank guarantee in question and it would remain unaffected despite the change or modification. The contract of guarantee by a bank in favour of the beneficiary is an independent contract between the bank and the said beneficiary and the said contract can always be enforced by the beneficiary by invoking the said bank guarantee at any time, during the subsistance of the contract of guarantee, whenever the beneficiary thinks it fit to do so. The Court referred to and relied upon the decision in Hindustan Steel Works Construction Ltd. vs. Tarapur & Company (AIR 1996 SC 2268). The Court further observed that the plaintiff had nowhere pleaded the particulars of any fraud nor had he shown prima facie case of any irretreivable injury. The variation was within the general condition of the contract. Since the contract of guarantee is regarded as an independent contract the variation would have absolutely no effect on the liability of the banker to make payment to the beneficiary in accordance with the bank guarantee. |
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(c) Decision |
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The Court held that there is no force in the application for injunction to restrain the encashment of bank guarantee. The petition was dismissed and the encashment of bank guarantee was allowed. |
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IV. DLF Cement Ltd. vs. Inspector of Police, Hyderabad and Others - AIR 1999 AP 359 |
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(a) Issue before the court |
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The question to be decided was whether the second and third respondents which are nationalised banks could be restrained by an order of injunction from honouring the bank guarantee. |
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(b) Reasonong |
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The Court of the learned City Civil Judge had allowed the application under section 8 of the Arbitration and Conciliation Act for reference of dispute between the petitioner and the first respondent to arbitration and passed a direction to the respondent banks to maintain status quo pending arbitration proceedings in respect of release of the bank guarantee. The petitioner had filed this revision petition before the High Court of Andhra Pradesh against the part of the said order directing the banks to maintain status quo. The Court observed that from the facts it is clear that there is no dispute regarding the entrustment of the contract to the fourth respondent and that there was delay in execution of the contractual work. In the event of any dispute between the petitioner and fourth respondent it was provided that the same should be referred to the arbitrator. It is not the duty of the Court to investigate the internal disputes between the parties who are entering into agreement. The banks which have issued guarantees are bound to honour the same when demand is made unless fraud is established. The Court referred to and relied upon the decisions in NTPC Ltd. vs. Hind Galvanising & Engineering Company Ltd. (AIR 1990 Calcutta 421); NTPC Ltd. vs. Flowmore Private Ltd. (AIR 1996 SC 445) and Svenska Handelsbanken Ltd. vs. M/s. Indian Charge Chrome (AIR 1994 SC 626). In the light of the said decisions, the Court observed that the rule is well established that a bank issuing guarantee is not concerned with the underlying contract between the parties to the contract and if the documents are in order, the bank giving the guarantee must honour the same and make payment. Hence the Court was of the view that when the dispute had been made out, while referring the dispute to arbitration the lower Court had erred in restraining the bank from making payment. |
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(c) Decision |
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The Court set aside the order of the lower Court directing the bank to stop payment till the pendency of the proceedings before the arbitrator. The revision petition was allowed. |
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V. M/s. Saw Pipes Ltd. vs. Gas Authority of India Ltd. & Another - AIR 1999 Delhi 308 |
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(a) Issue before the court |
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The question to be decided was whether the application of the petitioner under Section 9 of the Arbitration and Conciliation Act seeking to restrain the first respondent from encashing the bank guarantee issued on behalf of the petitioner by ANZ Grindlays Bank Ltd. in favour of first respondent could be allowed. |
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(b) Observations of the court |
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The High Court of Delhi referred to a number of decisions of the Supreme Court of India and summarised the principles to be borne in mind by the Court in the matter of grant of injunction against enforcement of bank guarantee as under :- |
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(i) |
"a bank guarantee is an independent and distinct contract between the beneficiary and the bank and the rights and obligations therein are to be determined on its own terms; |
(ii) |
a bank guarantee which is payable on demand implies that the bank is liable to pay as when a demand is made upon the bank by the beneficiary. The bank is not concerned with any inter se disputes between the beneficiary and the person at whose instance the bank had issued the bank guarantee. |
(iii) |
Commitments of the banks must be honoured free from interference by the Courts. Otherwise trust in commerce, internal and international, would be irreparably damaged; |
(iv) |
An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with except in case of established fraud of an egregious nature as to vitiate the entire underlying contract; or in case of special equities in the form of preventing irretrievable injustice between the parties as noticed in the case of Itek Corporation. |
(v) |
The First National Bank of Boston etc. (566 Fed Supp 1210). Allegations of irretrievable injustice must be genuine and immediate as wellasirreversible." |
The Court pointed out that the petition contains no facts or particulars in support of allegation of fraud. The main contract pursuant to which the bank guarantee was furnished was not sought to be avoided on the ground of fraud nor was it at any point of time alleged that the bank guarantee was issued because the first respondent was responsible for playing any fraud. On the facts no case of fraud has been made out. The question whether any amount was due to the first respondent was to be adjudicated in arbitration proceedings. In this context, the Court observed that the mere allegation that first respondent is attempting to encash the bank guarantee for an amount which has already been recovered by it, will not suffice to bring the case within the purview of the exception of irretrievable injustice. The Court referred to the specific provisions of the bank guarantee while opining that the guarantee was indisputably irrevocable and gave absolute discretion to the first respondent for invoking the same. |
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(c) Decision |
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The Court held that the bank cannot be restrained from honouring its commitment under the bank guarantee. The petition was dismissed. |
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VI. Comments |
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In the above cases, the Hon'ble High Courts have acknowledged and emphasised the binding nature of the Bank's undertaking and obligation to make payment to the beneficiary in accordance with the provisions of the document of bank guarantee. The Courts have declined to interfere and refused to grant injunction restraining the encashment of bank guarantee having found that no cogent ground has been established. The above decisions support the view that the banks have a duty to honour the bank guarantee when called upon to do so subject to certain limited exceptions. |
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(Devices of a lawyer in trouble). |
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First he wants to refer it to a committee. Secondly he thinks what terrible things may happen in the futrure. |
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- VANDERBILT, Arthur T., in Proceedings of Annual Conference of Municipal Magistrates and Traffic Court Prosecutors for 1949 (Trenton: Administrative Office of the Courts, 1949), p. 199G. |