Can't Pass Orders For Encashment Of Bank Guarantees That Are Not Alive As On Date: Delhi High Court

The Delhi High Court today dismissed an appeal seeking encashment of bank guarantees issued in the year 2013, and that expired in 2016.

"Bank guarantees that are not alive as on today cannot be encashed. It's a simple piece of paper, that's all. At best, the aggrieved party can file a suit for recovery or for damages," the Division Bench of Chief Justice DN Patel and Justice Jyoti Singh observed orally.

In its order, the Bench recorded thus:

"Once the life of bank guarantees comes to an end, the same cannot be encashed nor the same can be allowed to be enchased, neither by the bank, nor by the Court, nor by any Tribunal or any other authority. At the highest, at the time of filing of plaint for encashment of bank guarantee, if it were alive and wrongfully encashment was not allowed, in that eventuality the claimant may be entitled for damages but certainly no order can be passed once the life of bank guarantee comes to an end."

Background

The Court was hearing an appeal against a single Judge order denying relief to the original petitioner, an importer selling goods to global brands. It was alleged that though goods were supplied by the appellant to some global brands, no consideration was received. Following this, the appellant requested the concerned bank for encashment of bank guarantee, which was denied.

Senior Advocate Ritin Rai for the appellant argued that the bank guarantees were unconditional in nature and therefore the bank should have allowed its encashment.

Findings

The Court observed that it is an admitted fact that as on today the bank guarantees in question are not alive. The life of bank guarantee came to an end in the month of March in 2016, it noted.

"It ought to be kept in mind that no bank guarantee can be allowed to be encashed if it is not kept alive as on date of passing of orders," it thus observed.

The Bench added, "Moreover, no suit has been filed by this appellant for recovery of consideration after supplying goods to global brands."

Furthermore, the bank concerned had already filed a civil suit against the appellant and global brands wherein the prayer was that bank guarantee was unenforceable. An appeal against that suit is also pending before the Court.

Case Title: Ncubate India Services Pvt Ltd v. Union of India