Bank Guarantee Expired During The Stay Period, Must Be Renewed Once The Order Granting Stay Is Vacated Due To Withdrawal Of Petition: Himachal Pradesh High Court

The bench of Justice Rakesh Kainthla held that principle of restitution demands that the party, who had received the benefit of an order should make restitution to the other party for what he had lost, if the order that granted the benefit to the party is vacated, varied or set aside.

Facts

The parties entered into an agreement. The agreement also contained an arbitration clause. In terms of the agreement, the respondent submitted a performance bank guarantee for a sum of Rs. 40,00,000/- valid till 11.09.2018.

A dispute arose between the parties. Consequently, the petitioner issued a notice of termination of agreement. Against the notice of termination, the respondent approached the Court under Section 9 of the A&C Act restraining the petitioner from acting on the notice of termination and invoking the performance bank guarantee.

The Court passed an interim order and directed the parties to maintain the status quo. Accordingly, the petitioner could not encash the performance bank guarantee. The interim protection in favour of the respondent continued till the petition was ultimately dismissed as withdrawn on 06.12.2018. However, in the meantime, the bank guarantee expired. Thereafter, the petitioner issued a letter to the respondent requesting it to renew or submit a fresh bank guarantee. However, the respondent did not renew the bank guarantee.

Aggrieved by the expiry of the bank guarantee, the petitioner approached the Court under Section 151 of CPC praying the Court to direct the respondent to renew the expired bank guarantee.

Contentions

The petitioner sought the renewal of the bank guarantee on the following grounds:

• The application filed by the respondent under Section 9 of the A&C Act was an abuse of the process of law. It was filed merely to restrain the petitioner from encashing the bank guarantee and was withdrawn as soon as the bank guarantee expired.
• The principle of restitution demands that the petitioner be put back in the same position in which it was before the passing of the interim order.

Analysis by the Court

The Court observed that admittedly, the bank guarantee expired during the continuation of the interim protection granted by the Court and it was not renewed by the respondent upon its expiry. It held that the interim protection stood vacated upon the dismissal of the petition as withdrawn.

The Court held that Bank Guarantee expired during the stay period, must be renewed once the order granting stay is vacated due to withdrawal of petition.

The Court relied on the judgment of the Supreme Court in Bansidhar Sharma v. State of Rajasthan, (2019) 19 SCC 701 to hold that principle of restitution demands that the party, who had received the benefit of an order should make restitution to the other party for what he had lost, if the order that granted the benefit to the party stands vacated, varied or set aside.

Accordingly, the Court allowed the petition and directed the respondent to renew or furnish a new bank guarantee in favour of the petitioner. The Court held that it puts both the parties in a position they were in before approaching the Court.

Case Title: Rudra- XI Infrastructure Pvt. Ltd v. Municipal Corporation of Shimla, OMP No. 739 of 2021 in Arb. Case No. 53 of 2018

Citation: 2023 LiveLaw (HP) 68

Date: 18.09.2023

Counsel for the Petitioner: Mr. Vivek Sharma

Counsel for the Respondent: Mr. Nitin Thakur

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