Insistence On Bank Guarantee Of Scheduled Indian Private Banks In Preference To Scheduled Foreign Banks In India A Fallacy: Justice Indira Banerjee

Justice Indira Banerjee of the Supreme Court has observed in a dissenting judgment that it is incomprehensible why bank guarantee from Scheduled Private Banks in India should be preferred to Scheduled Foreign Banks in India with high global rating, even though, some Scheduled Private Sector Banks have not even been running well.

The bench of Justice Indira Banerjee and V. Ramasubramanian was considering appeals against the High Court order refusing to accept a legally valid irrevocable Bank Guarantee of Rs.30 Crores, issued by the Industrial and Commercial Bank of China Limited, Mumbai, which is a Scheduled Bank included in the Second Schedule of the Reserve Bank of India Act, 1934, and insisting that the Appellant should furnish a fresh Bank Guarantee of the same amount, with identical terms, issued by a "Scheduled Indian Bank", notwithstanding the expenditure incurred by the Appellant in obtaining the Bank Guarantee from ICBC. The Delhi High Court had passed this order in an Arbitration appeal filed under Section 37 of the Arbitration and Conciliation Act.

While Justice Banerjee allowed the appeal, Justice Ramasubramanian observed that the Special Leave Petitions should be dismissed since there is no substantial question of law warranting the interference under Article 136 of the Constitution. Therefore, now the appeal is referred to Chief Justice of India for appropriate directions.

Referring to the provisions of the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, Justice Banerjee observed:

"55. It is incomprehensible why Scheduled Private Banks in India should be preferred to Scheduled Foreign Banks in India with high global rating, even though, some Scheduled Private Sector Banks have not even been running well. It would perhaps not be out of place to take judicial notice of reports that in March, 2020, Yes Bank, a private Sector bank, which was on the brink of complete financial collapse, had to be placed under a moratorium by RBI. Yes Bank has been cited by this Court as an example only to illustrate the fallacy of insistence upon the Bank Guarantee of a Scheduled Indian Bank in preference to that of Scheduled Foreign Bank in India, and not to cast any aspersion on the present functioning of Yes bank or any other Scheduled Bank in the Private Sector in India."

The judge observed that a Court has the discretion to insist on a Bank Guarantee from any specific bank or class of banks to safeguard the interests of the beneficiary of the Bank Guarantee. "The Court may legitimately disapprove a Bank Guarantee of a bank with a history which raises doubts with regard to its credibility. In this case, there is nothing on record to give rise to any doubts with regard to the credibility of ICBC or its financial ability or willingness to honour guarantees.", she added.

The bench noted that ICBC is not only a Scheduled Bank in India, but it also ranks very high in terms of asset value in atleast three extremely authoritative lists being 'The Banker's Top 1000 World Banks 2018', 'The Forbes Global 2000 2019' and 'The Fortune Global 500 Sub-list of Commercial Banks'.

According to Justice Ramasubramanian, the question whether there exists statutorily, a distinction between "a Scheduled Indian Bank" and "a Scheduled Bank located in India" does not arise for consideration in this case.

"23. In my humble considered view, these special leave petitions do not deserve to be entertained under Article 136 of the Constitution of India in view of the fact (i) that the very same Judge who passed the first Order dated 12.02.2019, clarified the same by his subsequent Order dated 09.04.2019; (ii) that the same learned Judge dismissed on 16.05.2019, the petition to recall the Order dated 09.04.2019; (iii) that the Commercial Division Bench of the High Court dismissed the appeal arising out of the Order dated 16.05.2019; and (iv) that the Commercial Division Bench again reiterated its orders, by dismissing the review petition. We must remember that all this arose out of an interim measure under Section 9 of the Act and the petitioner is seeking to upset all of this in a petition under Article 136 of the Constitution as though there is a substantial question of law of great importance.", the judge said.

Case: SEPCO Electric Power Construction Corporation Vs. Power Mech Projects Ltd. ; CA 4936-4937 OF 2021

Citation: LL 2021 SC 403

Coram: Justice Indira Banerjee and V. Ramasubramanian

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