IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.4936-4937 OF 2021
(Arising out of SLP (C) NOS. 11476-11477 OF 2021)
SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION … Appellant(s)
VERSUS
POWER MECH PROJECTS LTD. … Respondent(s)
O R D E R
Since we have not been able to agree, let the matter
forthwith be placed before Hon’ble the Chief Justice of India for
appropriate directions.
………………………………………………………,J.
[INDIRA BANERJEE]
………………………………………………………,J.
[V. RAMASUBRAMANIAN]
NEW DELHI;
AUGUST 24, 2021
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 4936-4937 of 2021
(Arising out of SLP(C) Nos. 11476-11477 OF 2021)
SEPCO ELECTRIC POWER
CONSTRUCTION CORPORATION …...Appellant(s)
Versus
POWER MECH PROJECTS LTD. ….Respondent(s)
J U D G M E N T
Indira Banerjee, J.
Leave granted.
2. These appeals are against a judgment and order dated 27.11.2020,
passed by the Division Bench of Delhi High Court, dismissing the Appeal
being FAO(OS) (COMM) No.136 of 2019, filed by the Appellant under
Section 37 of the Arbitration and Conciliation Act 1996, hereinafter
referred to, in short, as the “A & C Act” read with Section 13(1A) of the
Commercial Courts Act 2015, and affirming an order dated 16.05.2019
passed by the Commercial Division of the Delhi High Court in OMP(I)
(COMM) No.523/2017 under Section 9 of the A & C Act, whereby the Court
refused to recall its earlier order dated 09.04.2019, directing the Appellant
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to substitute an irrevocable Bank Guarantee, issued by the Industrial and
Commercial Bank of China Limited (ICBC), Mumbai Branch for Rs.30 Crores
furnished pursuant to an order dated 12.02.2019 of the Court, with a Bank
Guarantee of a “Scheduled Indian Bank” of the same amount. The
Appellant has also impugned a judgment and order dated 12.03.2021
passed by the Division Bench dismissing Review Petition No.5/2021 filed
by the Appellant for review of the said judgment and order dated
27.11.2020 dismissing the Appeal.
3. The short question in these Appeals is, whether the High Court was
right in refusing to accept a legally valid irrevocable Bank Guarantee of
Rs.30 Crores, issued by the Industrial and Commercial Bank of China
Limited, Mumbai, hereinafter referred to as ‘ICBC’ 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.
4. These Appeals are restricted only to the question of legality of the
direction of the High Court, requiring the Appellant to substitute a legally
valid irrevocable Bank Guarantee, issued by ICBC, which is a Scheduled
Bank, carrying on business in India, with a Bank Guarantee of equivalent
amount issued by a “Scheduled Indian Bank”.
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5. The Appellant, an entity incorporated in China was awarded
contracts in relation to various coal based power projects in India and the
Respondent, a company incorporated in India was engaged as a subcontractor of the Appellant. Disputes and differences between the
Respondent and the Appellant were referred to Arbitration. The details of
the contract between the Appellant and the Respondent, or the disputes
and differences that arose therefrom, are irrelevant to the issues involved
in these Appeals. Suffice it to mention that the Arbitration culminated in
an Award dated 17.10.2017 of approximately Rs.1,42,00,00,000 (One
hundred and forty two crores) in favour of the Respondent.
6. On 03.12.2017, the Appellant filed an application under Section 34
of the A & C Act being O.M.P. (COMM) No. 432 of 2017 challenging the
Arbitral Award dated 17.10.2017 in the Commercial Division of the Delhi
High Court, which is pending.
7. On the other hand, the Respondent filed an application being OMP
(I) (COMM) No. 523/2017 in the Commercial Division of the High Court
under Section 9 of the A & C Act seeking, inter alia, directions on the
Appellant to secure the amount of the Arbitral Award.
8. On 12.02.2019, a Single Bench of the Commercial Court of the High
Court passed an order in O.M.P.(I) (COMM.) No. 523/2017 directing the
Appellant to furnish to the Registry of the High Court, a Bank Guarantee
for a sum of Rs.30 Crores, from a Scheduled Bank located in India. The
operative part of the order dated 12.02.2019 is set out hereinbelow:-
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“3. ….. It is ordered accordingly.
4. The Judgment Debtor will file the affidavit within two (2)
weeks; with a copy being furnished to the counsel for the Decree
Holder.
5. Insofar as the bank guarantee is concerned, it will be
furnished within 6 weeks as indicated by the counsel.
6. Further, the bank guarantee in the sum of Rs.30 crores will be
that of a scheduled bank located in India.
7. Renotify the matter on 31.7.2019.
8. In the meanwhile, the Judgment Debtor will continue to make
deposit with the Registry of this Court in terms of the order
dated 24.7.2018.”
9. On 22.03.2019, the Appellant got ICBC to issue an unconditional,
irrevocable Bank Guarantee for a sum of Rs.30 Crores payable on demand
to the Registrar General of the Delhi High Court. An electronic copy of
the Bank Guarantee was filed in the Registry on 26.03.2019.
10. Mr. K.V. Vishwanathan, learned Senior Counsel appearing on behalf
of the Appellant submitted that the Appellant incurred expenditure of
Rs.30,00,000/- (Thirty Lakhs) approximately towards bank charges for
furnishing the Bank guarantee. Furthermore, an amount of
Rs.36,40,00,000/- was frozen in the Bank Account of the Appellant with
ICBC in China.
11. However, by an order dated 09.04.2019, the Single Bench directed
the Appellant to substitute the Bank Guarantee issued by ICBC, which had
been filed in the Registry of the High Court, by a Bank Guarantee of
equivalent amount from a Scheduled Indian Bank. The relevant
paragraphs of the said order are extracted hereinbelow:-
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“5. Furthermore, Mr. Sethi says that in compliance of the order
dated 12.02.2019 which required the respondent to furnish a
bank guarantee of a Scheduled Bank, the respondent has
complied with the same and submitted a bank guarantee of
Industrial and Commercial Bank of China Limited (in short
“ICBC”).
6. However, a careful perusal of the order would show that Mr.
Sethi had offered to furnish a bank guarantee of a Scheduled
Indian bank and that while dictating the operative part of the
order, I had indicated that it would be a scheduled bank located
in India, therefore, the confusion, if any caused is now removed.
The respondent will substitute the bank guarantee filed with a
guarantee of a Scheduled Indian bank of an equivalent value.
7. Pending the substitution, the Registry will hold on to the bank
guarantee already submitted and the respondent will ensure
that the same is kept alive.
8. As to whether the bank guarantee already filed is valid, the
matter will be placed before Joint Registrar (Judicial) on
23.04.2019.
8.1 It is made clear that as and when the respondent is ready to
replace the bank guarantee furnished by ICBC with a bank
guarantee of a Scheduled Indian Bank, on a request being made
in that behalf via an appropriate application, the Joint Registrar
(Judicial) will release the bank guarantee furnished by ICBC
provided the request is backed by an undertaking of the duly
authorized representative of the respondent that it shall place
the bank guarantee of the Scheduled Indian Bank on record
within a defined time line not exceeding 10 days from the date
of the request.”
12. Pursuant to the direction of the Court, the Registrar (Judicial) of the
High Court scrutinized the Bank Guarantee furnished by the Appellant,
recorded the statement of Mr. Ayush Ganediwala, Vice President of ICBC,
who had appeared before him, and passed an order dated 03.05.2019,
recording that the said Bank Guarantee was valid with effect from
22.03.2019 till 19.03.2020.
13. Thereafter, the Appellant filed an application being IA No.7096 of
2019 for recall of the order dated 09.04.2019 of the Commercial Division
6
(Single Bench) of the High Court directing the Appellant to substitute the
Bank Guarantee issued by ICBC with a Bank Guarantee of equivalent
value of a Scheduled Indian Bank.
14. By an order dated 16.05.2019, the learned Single Bench dismissed
the said application, inter alia observing:-
“5. I may clarify, at the outset, that it is not this court’s
endeavour to doubt in any manner the credentials of ICBC. The
record, however, shows that the applicant/respondent had in
fact, on its own, offered to furnish a bank guarantee of a
Scheduled Indian Bank. The confusion, if any, in the mind of the
applicant/respondent, as rightly pointed out by Mr. Nigam, was
removed on 09.04.2019. The applicant/respondent has moved
this application after nearly four weeks of the clarification issued
in that behalf. Thus, having passed an order based, essentially,
on the offer made by the counsel for the applicant/respondent, I
do not see any good reason to recall the direction.”
15. From the orders dated 09.04.2019 and 16.05.2019, it appears that
the senior Counsel, representing the Respondent in the High Court had
vehemently objected to the Bank Guarantee of ICBC, arguing
emphatically, that the Appellant itself had, through Counsel, offered to
furnish a Bank Guarantee of a Scheduled Indian Bank, but had retracted
from its offer, taking advantage of an inadvertent typographical error in
Paragraph 6 of the order dated 12.02.2019, which read “Further the bank
guarantee in the sum of Rs.30 crores will be that of a scheduled bank
located in India”.
16. The direction in the operative part of the order dated 12.02.2019
was clear. It required the Appellants to furnish a Bank Guarantee of a
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Scheduled Bank located in India. The Appellant complied with the
direction and furnished a Bank Guarantee of a sum of Rs.30,00,000,00/-
(Thirty Crores) from the Mumbai Branch of ICBC.
17. May be, there was a mistake in passing the order dated 12.02.2019,
in the sense that the Court had intended to pass an order in terms of the
offer of the Appellant, to furnish a Bank Guarantee of a Scheduled Indian
Bank. In the order dated 09.04.2019, the learned Judge very fairly stated
that while dictating the operative part of the order, the learned Judge had
said that the Bank Guarantee would be of a Scheduled Bank located in
India. That is what the order read. A party cannot be faulted for acting in
terms of the order as issued, particularly when there was no patent or
obvious error in the direction to furnish a Bank Guarantee of a Scheduled
Bank, located in India.
18. It is true, that the order dated 12.02.2019 records the oral offer
made on behalf of the Appellant, through Counsel, to submit a bank
guarantee of a Scheduled Indian Bank. However, the direction in the
operative part of the order dated 12.02.2019 gives the impression, that
the offer of the Appellant to furnish a Bank Guarantee may have
persuaded the Court to secure the Arbitral Award by directing the
Appellant to furnish a Bank Guarantee of a Scheduled Bank located in
India.
19. As recorded in the order dated 09.04.2019, there may have been
some confusion by reason of the direction to furnish a Bank Guarantee of
8
a Scheduled Bank located in India. The language and tenor of the order
dated 12.02.2019, as also the fact that the Respondent did not make any
attempt to have the direction to furnish a Bank Guarantee of a Scheduled
Bank located in India rectified and/or altered, shows that use of the
expression ‘Scheduled Indian Bank’ may have been understood by all
concerned parties to include an Indian branch of a Scheduled Bank.
20. Contrary to the contention of the Respondent, as recorded in the
order dated 16.05.2019 of the Court, there was no typographical error in
the order dated 12.02.2019. One can say that there is a typographical
error when there is an inadvertent mistake in a figure or the spelling of a
word by reason of pressing a wrong key of the keyboard or the omission or
duplication of a word or phrase or even a sentence/sentences. A
typographical error is obvious. That was not the case here.
21. The direction to furnish a Bank Guarantee of a Scheduled Indian
Bank located in India, is perfectly legal. There was no reason for the
Appellant to proceed on the basis that the direction had been issued by
mistake. The Respondent also did not take any steps to get the direction
rectified or altered. The direction was allowed to remain intact for almost
two months. In the meanwhile, the Appellant furnished a Bank Guarantee
of an Indian Branch of ICBC, a Scheduled Bank in India.
22. In this case, perhaps the intention of the Court was not expressed
in the order accurately. However, the order was otherwise correctly
worded and legally valid. It is not uncommon for Courts to give directions,
9
which might be at variance with an oral offer. The Appellant having acted
in accordance with the order dated 12.02.2019 and changed his position
to his detriment by incurring an expenditure of about Rs.30 lakhs to
comply with the said order, it was not appropriate for the Court to change
the order.
23. From the order dated 09.04.2019, it is clear that even the Single
Bench accepted that there was a confusion due to the language and tenor
of the direction in Paragraph 6 of the said order. Thus the Court, in effect,
accepted that there may not have been any deliberateness on the part of
the Appellant in furnishing a Bank Guarantee issued by ICBC.
24. Being aggrieved by the order dated 16.05.2019 refusing to recall
the earlier order of the Court dated 09.04.2019, directing the Appellant to
replace the Bank Guarantee of ICBC, with a Bank Guarantee of a
Scheduled Indian Bank, the Appellant filed an appeal under Section 37 of
the A & C Act, read with Section 13 (1A) of the Commercial Courts Act,
2015. The appeal was dismissed by the order of the Division Bench dated
27.11.2020 impugned before this Court. The prayer of the Appellant, for
review of the Order dated 27.11.2020 was rejected by an order dated
12.03.2021, which is also under challenge before this Court.
25. There may not be any infirmity in the order dated 12.03.2021,
rejecting the prayer of the Appellant for review, having regard to the
limited scope of an application for review. A matter cannot be re-argued
in the garb of an application for review. Nor does the Review Court
10
exercise appellate powers. All applications for review are governed by the
principles enshrined in Section 114 read with Order 47 Rule 1 of the Code
of Civil Procedure, 1908. A court is empowered to review its own order
only if the conditions precedent for a review, as laid down in Section 114
read with Order 47 Rule 1 of the Code of Civil Procedure exist. In this case
the prerequisites for a review did not exist. The appeal from the order
dated 12.03.2021, rejecting the application for review, is therefore,
dismissed.
26. Therefore, the question is whether the Division Bench, after having
held that the order impugned before it was appealable, should have
dismissed the appeal and allowed the direction on the Appellant to
substitute the Bank Guarantee of ICBC with a fresh bank guarantee of a
Scheduled Indian Bank, to stand.
27. Even in the proceedings before the Division Bench, the Respondent
only harped on the offer of the Appellant to furnish a Bank Guarantee of a
Scheduled Indian Bank and further contended that the Bank Guarantee of
ICBC being conditional, the Respondent feared that the purpose of the
Bank Guarantee might not be served.
28. Significantly, there is no finding of the Single Bench that the bank
guarantee is conditional. A copy of the Bank Guarantee is included in the
Paper Book. The Bank Guarantee reads:
“NOW THESE PRESENTS WITNESSETH THAT THE SAID BANK DOTH HEREBY
STAND SURETY IN PURSUANCE OF THE SAID ORDER DATED 12
TH
FEBRUARY
2019 FOR THE SUM OF RS. 300,00,000/- (RUPEES THIRTY CRORES ONLY)
AND THE SAID BANK DOTH HEREBY GUARANTEE TO AND COVENANT WITH
THE REGISTRAR GENERAL, DELHI HIGH COURT THAT THE SAID BANK
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SHALL FORTHWITH PAY THE SAID SUM OF RS. 300,00,000/-(RUPEES THIRTY
CRORES ONLY) TO THE REGISTRAR GENERAL, DELHI HIGH COURT IN
TERMS OF THE ORDER/JUDGEMENT OF THE HON’BLE HIGH COURT OF
DELHI ALLOWING THE ENFORCEMENT OF THE ARBITRAL AWARD DATED
17TH OCTOBER, 2017 AND AS PER ORDER/DIRECTION/JUDGMENT BY THE
HON’BLE HIGH COURT OF DELHI IN THE MATTER ARISING OUT OF ABOVE
MENTIONED LEGAL PROCEEDINGS.
AND THE SAID BANK DOTH HEREBY FURTHER COVENANT AND DECLARE
THAT THE BANK GUARANTEE HEREIN SHALL REMAIN IN FORCE UP TO AND
INCLUSIVE OF A PERIOD OF ONE YEAR AND THE SAID BANK SHALL IN
CIRCUMSTANCES AS ABOVE, WITHOUT ANY DEMUR OR DEMAND, ACTION,
NOTICE OR OBJECTION FORTHWITH PAY TO THE REGISTRAR GENERAL,
DELHI HIGH COURT THE SAID AMOUNT OF RS.300,00,000/-(RUPEES THIRTY
CRORES ONLY).
AND IT IS HEREBY FURTHER RECORDED THAT THE SAID BANK GUARANTEE
GIVEN HEREIN IS IRREVOCABLE AND SHALL NOT BE REVOKED BY NOTICE
OR OTHERWISE AND IT IS IN ACCORDANCE WITH THE ORDER DATED 12
TH
FEBRUARY, 2019 PASSED BY THE HON’BLE HIGH COURT OF DELHI IN
PETITION NO. O.M.P.(I) (COMM) NO.523/2017 TITLED M/S. POWER MECH
PROJECTS LTD. VS. SEPCO ELECTRIC POWER CONSTRUCTION
CORPORATION AND O.M.P. (COMM) NO.432/2017 TITLED SEPCO ELECTRIC
POWER CONSTRUCTION CORPORATION VS M/S. POWER MECH PROJECTS
LTD. NOTHWITHSTANDING ANYTHING CONTAINED HEREINABOVE THE
LIABILITY OF THE SAID BANK IS RESTRICTED TO THE SUM OF
RS.300,00,000/- (RUPEES THIRTY CRORES ONLY).
IN WITNESS WHEREOF WE, INDUSTRIAL AND COMMERCIAL BANK OF
CHINA LIMITED, MUMBIA BRANCH
NAME OF THE SCHEDULED BANK, BRANCH AND ADDRESS)
HAVE EXECUTED THESE PRESENT AT NEW DELHI
THIS 22
ND
DAY OF MARH 2019.
THE GUARANTEE IS SUBJECT TO THE UNIFORM RULES FOR DEMAND
GUARANTEES(URDG) 2010 REVISION, ICC PUBLICATION NO.758.”
29. The ICBC has unequivocally agreed to honour the Bank Guarantee
on an order and/or judgment of the High Court allowing enforcement of
the Arbitral Award, and as per Order/Direction/Judgment by the High Court
in the pending legal proceedings. The statement that the Bank Guarantee
is subject to the Uniform Rules for Demand Guarantees (URDG) 2010
Revision, does not dilute the terms of the Bank Guarantee. Nor does the
URDG render the Bank Guarantee any less effective. Furthermore, the
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High Court did not direct the Appellant to furnish an unconditional
guarantee.
30. The Uniform Rules for Demand Guarantees (URDG) 758 is a set of
voluntary contractual rules, published by the International Chamber of
Commerce (ICC) with the aim of regularising and creating a set standard
of international banking practice on demand guarantees and counter
demand guarantees.
31. The URDG balances the legitimate and competing interests of the
applicant, the guarantor and the beneficiary and limits the risk of unfair
calls and demands on guarantors and counter-guarantors, just like the
ICC's Uniform Customs and Practice for Documentary Credits (UCP) 600
which applies to Letters of Credit (LCs) and other documentary credits.
32. The URDG, being a voluntary instrument, lacks the force of law, and
must thus be expressly incorporated by the parties in order for it to apply
to a demand guarantee or counter-guarantee. Guarantees issued by
guarantors and counter-guarantors, which incorporate the URDG, are
entirely subject to their own terms, while incorporating beneficial terms of
the URDG.
33. It is important to note that the URDG may apply without the parties
expressly including it in certain instances, where it is in the general usage
of a particular trade, where the applicable law provides for its application;
or where it has been in consistent use in the course of a transaction or
dealings between the parties.
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34. The provisions of the URDG are limited to the scope of the matters
upon which the contracting parties are free to contract on, and is subject
to mandatory national laws of the governing jurisdiction, which is the law
and jurisdiction of the guarantor or counter-guarantor, unless otherwise
agreed by the parties.
35. Under the URDG, guarantees are completely independent of any
underlying relationship between the applicant and beneficiary, and
subject to only the terms contained in it, thereby limiting the liabilities and
rights of the guarantor bank to only matters to which it voluntarily
commits itself.
36. URDG 758 is a revised version of URDG 458. The revision was
conducted under the aegis of ICC Banking Commission and the ICC
Commission on Commercial Law and Practice.
37. The ICC Task Force on Guarantees, the standing expert body created
by ICC in 2003 to monitor international guarantee practice, acted as a
consultative body to the Drafting Group that produced five comprehensive
drafts during the two-and-a-half-year revision process.
38. The resulting URDG 758 were adopted unanimously by the ICC
Executive Board at its meeting in New Delhi on 3 December 2009,
following their endorsement by the members of the two sponsoring ICC
Commissions. They came into force on 1 July 2010, whereupon a
considerable number of demand guarantees and counter-guarantees
started being issued all over the world subject to the new URDG 758.
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39. It appears that all the concerned parties proceeded on the
understanding that there was no difference between a ‘Scheduled Indian
Bank’ and ‘Scheduled Bank located in India’, in the absence of any
specific definition of the expression ‘Scheduled Indian Bank’ in the RBI or
the Banking Regulation Act.
40. Incorporated on 01.01.1984, ICBC is a Chinese State-owned multi
national banking company, with capital provided by the Ministry of
Finance of China. ICBC is a banking company within the meaning of
Section 5(c) of the Banking Regulation Act, 1949, read with Section 45A
(a) of the Reserve Bank of India Act, 1934, hereinafter referred to as the
RBI Act. Sections 5(c) of the Banking Regulation Act and Section 45A(a) of
the RBI Act are set out hereinbelow for convenience”-
“Section 5(c) of Banking Regulation Act, 1949
5(c) “banking company” means any company which transacts
the business of banking in India ;
Explanation.—Any company which is engaged in the
manufacture of goods or carries on any trade and which
accepts deposits of money from the public merely for the
purpose of financing its business as such manufacturer or
trader shall not be deemed to transact the business of
banking within the meaning of this clause;
xxx xxx xxx
Section 45A (a) of the Reserve Bank of India Act, 1934
45A(a) “banking company” means a banking company as
defined in Section 5 of the Banking Regulation Act, 1949, and
includes the State Bank of India, any subsidiary bank as defined
in the State Bank of India (Subsidiary Banks) Act, 1959, any
corresponding new bank constituted by Section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970,
and any other financial institution notified by the Central
Government in this behalf,...”
15
41. ICBC is also a Scheduled Bank within the meaning of Section 2 (e) of
the RBI Act, which defines a ‘Scheduled Bank’ to mean a bank included in
the Second Schedule to the RBI Act. ICBC has its branch office at the
Bandra Kurla Complex, Mumbai, India. The Mumbai branch of ICBC has
been granted license by RBI to carry on banking business in India
pursuant to a Memorandum of Understanding between the Governments
of India and China.
42. The Mumbai branch of ICBC commenced operations in September
2011 and was included in the Second Schedule to the RBI Act by
Notification DBOD IBD. No.8137/23.03.026/2011-12 dated 01.12.2011
published in the Gazette of India (Part III Section 4).
43. ICBC evidently continues to be in the Second Schedule to the RBI
Act till date. In this context, it may be pertinent to point out that some
banks have been excluded from the Second Schedule to the RBI Act by
Gazette Notifications.
44. Banks have been listed in the Second Schedule to the RBI Act, by
Gazette Notifications issued from time to time, under the following
categories:-
1. Scheduled Public Sector Banks
2. Scheduled Private Sector Banks.
3. Scheduled Small Finance Banks
4. Scheduled Payments Banks
5. Scheduled Regional Rural Banks
6. Scheduled Foreign Banks in India
16
45. In terms of Annexure-1 to the notification dated 13th April 2020,
mentioned in Paragraph 2(b) thereof the following Scheduled Commercial
Banks have been included in the Schedule to the RBI Act:-
“Annexure I
(Refer to para 2(b) of notification dated April 13, 2020)
List of Scheduled Commercial Banks
PUBLIC SECTOR BANKS PRIVATE BANKS
1 State Bank of India 1 Axis Bank Ltd.
2 Bank of Baroda
(Including Vijaya Bank and Dena Bank)
2 Catholic Syrian Bank Ltd.
3 Bank of India 3 City Union Bank Ltd.
4 Bank of Maharashtra 4 Development Credit Bank Ltd.
5 Canara Bank
(Including Syndicate Bank)
5 Dhanlaxmi Bank Ltd.
6 Central Bank of India 6 Federal Bank Ltd.
7 Indian Bank
(Including Allahabad Bank)
7 HDFC Bank Ltd.
8 Indian Overseas Bank 8 ICICI Bank Ltd.
9 Punjab National Bank (including
Oriental Bank of Commerce and United
Bank of India)
9 IndusInd Bank Ltd.
10 Punjab & Sind Bank 10 Jammu & Kashmir Bank Ltd.
11 Union Bank of India (including Andhra
Bank and Corporation Bank)
11 Karnataka Bank Ltd.
12 UCO Bank 12 Karur Vysya Bank Ltd.
13 Kotak Mahindra Bank Ltd.
14 Lakshmi Vilas Bank Ltd.
15 Nainital Bank Ltd.
16 Ratnakar Bank Ltd.
17 South Indian Bank Ltd.
18 Tamilnad Mercantile Bank Ltd.
19 Yes Bank Ltd.
20 Bandhan Bank
17
21 IDFC Bank Ltd.
22 IDBI Bank Ltd
FOREIGN BANKS
1 The Royal Bank of Scotland N.V. 23 Mizuho Corporate Bank Ltd.
2 Abu Dhabi Commercial Bank Ltd. 24 Oman International Bank
3 Antewerp Diamond Bank N.V. 25 Societe Generale
4 Arab Bangladesh Bank Ltd. (AB Bank) 26 Sonali Bank
5 Bank International Indonesia 27 Standard Chartered Bank
6 Bank of America 28 State Bank of Mauritius
7 Bank of Bahrain & Kuwait B.S.C. 29 JSC-VTB Bank
8 Bank of Ceylon 30 UBS-AG
9 Bank of Nova Scotia 31 American Express Banking Corporation
10 Bank of Tokyo-Mitsubishi Ltd. 32 First Rand Bank Ltd.
11 Barclays Bank 33 Commonwealth Bank of Australia
12 BNP Paribas 34 United Overseas Bank Ltd.
13 China Trust Bank 35 Credit Suisse A.G.
14 Shinhan Bank 36 Sberbank
15 Citibank N.A. 37 Australia and New Zealand Banking
Group Ltd.
16 Credit Agricole Corporate and
Investment Bank
38 Rabobank International
17 Deutsche Bank 39 National Australia Bank
18 DBS Bank Ltd. 40 Woori Bank
19 Hongkong and Shanghai Banking
Corpn. Ltd.
41 Industrial & Commercial Bank of China
20 J.P. Morgan Chase Bank N.A. 42 Sumitomo Mitsui Banking Corporation
21 Krung Thai Bank 43 Westpac Banking Corporation
22 Mashreqbank 44 Doha Bank
46. As a Scheduled Bank and a banking company within the meaning of
the Banking Regulation Act, ICBC is governed by the regulatory provisions
of the RBI Act and the Banking Regulation Act and the Rules, Regulations,
Orders, Notifications etc. issued thereunder. The circulars and directives
of the Reserve Bank of India with regard to Bank Guarantees/ Demand
Guarantees are binding on ICBC.
18
47. The RBI Act only defines ‘Scheduled Banks’ which includes
Scheduled Foreign Banks operating in India. The RBI Act or the Second
Schedule thereto does not segregate Scheduled Indian Banks. There is no
definition of Scheduled Indian Bank in the RBI Act. The regulatory
provisions of the RBI Act apply equally to all scheduled banks.
48. However, since there is a list of Scheduled Foreign Banks in India
categorized separately in the Second Schedule by Gazette Notifications, it
may be presumed that all other banks listed in the Second Schedule in the
various categories except the category of Scheduled Foreign Banks, that
is, Scheduled Public Sector Banks, Scheduled Private Sector Banks,
Scheduled Small Finance Banks, Scheduled Payments Banks, Scheduled
Regional Rural Banks are all Scheduled Indian Banks, even though
Scheduled Indian Banks do not constitute any distinct category in the
Second Schedule to the RBI Act. Since ICBC has its principal branch
registered in the People’s Republic of China and is listed in the category of
Scheduled Foreign Banks in India, the High Court made a distinction
between ICBC and a ‘Scheduled Indian Bank’.
49. The Annexures to the Special Leave Petition filed in this Court, which
form part of the Paper Book in these appeals show 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’.
19
50. It is stated by the Appellant that ICBC realized a net profit of RMB
298.7 Billion in the year 2018 with the total value of its assets assessed at
27,699,540 (in RMB Millions). Mr. Vishwanathan submits that ICBC
continues to hold the largest total net profit in the global banking industry.
51. It appears that the Mumbai branch of ICBC has set up a fund for an
amount of 200 million US Dollars for investment in Indian Micro, Small and
Medium Enterprises (MSMEs). It is contended on behalf of the Appellant
that this establishes the credibility of ICBC within the Indian Commercial
Market.
52. In the Second Schedule to the RBI Act, ICBC is listed in the same
category of Scheduled Foreign Banks in India as Standard Chartered Bank,
Citi Bank, American Express Banking Corporation, HSBC Limited etc.
which are household names in India in the arena of banking. On the
other hand, Scheduled Indian Bank, as stated above would include all
categories of banks in the Second Schedule except those in the category
of Scheduled Foreign Banks. Scheduled Banks would therefore, include
Scheduled Private Sector Banks such as Bandhan Bank Limited, City Union
Bank Limited, Ratnakar Bank Limited, Dhanalaxmi Bank Limited, Kotak
Mahindra Bank Limited, Lakshmi Vilas Bank Limited, Nainital Bank Limited,
Yes Bank Limited etc.
53. Mr. Abhishek Manu Singhvi, learned Senior Counsel opposing these
appeals on behalf of the respondents could not demonstrate any real
prejudice likely to be caused by reason of furnishing of a Bank Guarantee
of ICBC in preference to Scheduled Indian Banks nor could he show any
20
plausible reason for preference of Scheduled Private Sector Banks in India
to Scheduled Foreign Banks like ICBC.
54. As pleaded in the appeal being FAO (OS) (COMM) No.136 of 2019
the Respondents have not been able to advert to a single instance of
default, fraud or any other malpractice of ICBC which could cast any doubt
over ICBC’s ability or inclination to honour the Bank Guarantee issued by
it.
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.
56. There can be no doubt that the 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
21
on record to give rise to any doubts with regard to the credibility of ICBC
or its financial ability or willingness to honour guarantees.
57. In the absence of any adverse material against ICBC and in the light
of a plethora of reports showing its financial soundness, I am of the view
that the High Court erred in directing the Appellant to replace the Bank
Guarantee of ICBC, already furnished pursuant to an order of Court passed
on 12.02.2019, with another Bank Guarantee, oblivious of the practical
realities in the arena of banking activities, specially the difficulties in
obtaining a Bank Guarantee from banks with which the applicant has no
transaction and ignoring the cost already incurred by the Appellant by way
of bank charges for obtaining the guarantee.
58. Mr. Singhvi, more as an argument in desperation, submitted that the
Petitioner would not have incurred so much expenditure if it had complied
with the order dated 09.04.2019 instead of taking recourse to different
proceedings before Court. Prompt compliance with the order of
09.04.2019 may have saved the Appellant the costs of renewal of the
Bank Guarantee. However, the initial amount of about Rs.30 lakhs had
already been spent long before the order dated 09.04.2019 was passed.
59. As discussed above, all that is required for invocation of the Bank
Guarantee is an order of the High Court in the proceedings relating to the
Arbitral Award. The statement that the guarantee is subject to the URDG
does not dilute the guarantee or make it conditional. Mr. Singhvi’s client
has not been able to demonstrate how the URDG can cause any prejudice
to the beneficiary of the Bank Guarantee. Having passed an order on
22
12.02.2019 which directed “..Further, the bank guarantee in the sum of
Rs.30 crores will be that of a scheduled bank located in India...” on the
basis of which the Appellant altered its position to its detriment by
extending Rs.30 lakhs in obtaining a Bank Guarantee of ICBC. The High
Court was not justified in altering and/or modifying the said direction after
almost two months and after its compliance.
60. For the reasons discussed above, the appeal from the impugned
judgment and order of the Division Bench dated 27.11.2020 in FAO(OS)
(COMM) No. 136 of 2019 is allowed. The impugned judgment and order
of the Division Bench dated 27.11.2020 in FAO(OS) (COMM) No. 136 of
2019 and orders dated 09.04.2019 and 16.05.2019 in OMP (I) (COMM)
523/2017 are set aside.
….……………………………………. J.
[INDIRA BANERJEE]
New Delhi;
August 24, 2021
1
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION (CIVIL) NO. 1147677 OF 2021
SEPCO ELECTRIC POWER
CONSTRUCTION CORPORATION … PETITIONER(S)
VERSUS
POWER MECH PROJECTS LTD. … RESPONDENT(S)
O R D E R
1. Despite a fine analysis by my learned sister, of the relevant
provisions of the Reserve Bank of India Act, 1934 and the Banking
Regulation Act, 1949 and the fine distinction that the Hon’ble Judge
has brought out between a ‘scheduled Bank’ defined in the Act, in
contrast to a ‘scheduled Indian Bank’ not defined anywhere
statutorily, I regret my inability to persuade myself to agree to the view
taken by my learned sister. In my considered view, the special leave
petitions deserve to be dismissed. The reasons are provided herein
below.
2. As pointed out by my sister, the awarddebtor has come up with
these Special Leave Petitions challenging (i) the dismissal of an appeal
under Section 37 of the Arbitration and Conciliation Act, 1996
2
(hereinafter referred to as the ‘Act’); and (ii) the dismissal of a review
petition arising there from. The appeal under section 37 of the Act
arose out of the rejection of a petition for recalling an order passed in
an application for interim measure under Section 9 of the Act.
3. The petitioner suffered an arbitration award dated 17.10.2017 in
a sum of Rs.142,41,14,499/. The award is the subject matter of
challenge in a petition OMP(COMM.)No.432 of 2017 under Section 34
of the Act. It appears that the petition under Section 34 was
accompanied by an application for stay of execution of the award, but
the same has not yet been finally disposed of.
4. However the respondent filed an independent petition under
Section 9 of the Act, and sought a direction to the petitioner to secure
the award amount. In the said petition in I.A.No.11128 of 2018 in
OMP (I)(COMM.)No.523 of 2017, an order was passed on 12.02.2019.
Since the genesis of the dispute before us could be traced to the said
order, it is extracted as follows:
“1. Mr. Sethi, learned senior counsel for the
respondent, says that he will file an affidavit stating
therein the following:
(i) The list of assets which find mention in the
valuers’ report along with their location and
valuation given by the valuer.
(ii) The list of assets which, according to him,
the valuer has not valued. In respect of these
3
assets their location and approximate valuation will
also be given.
(iii) Furnish a bank guarantee in the sum of
Rs.30 crores of a scheduled Indian bank.
2. Learned senior counsel says that on account of the
spring festival in China, it could take at least six (6)
weeks to furnish the bank guarantee.
3. Mr. Sethi says, however, the affidavit can be
furnished within the next two (2) weeks. It is ordered
accordingly.
4. The Judgment Debtor will file the affidavit within
two (2) weeks; with a copy being furnished to the counsel
for the decree holder.
5. Insofar as the bank guarantee is concerned, it will
be furnished within 6 weeks as indicated by the counsel.
6. Further, the bank guarantee in the sum of
Rs.30 crores will be that of a scheduled bank
located in India.
7. Renotify the matter on 31.7.2019.
8. In the meanwhile, the Judgment Debtor will
continue to make deposit with the Registry of this Court
in terms of the order dated 24.7.2018.”
5. Pursuant to the aforesaid order, the petitioner furnished a bank
guarantee issued by the Industrial and Commercial Bank of China
Limited, Mumbai Branch dated 22.03.2019 (hereinafter referred to
ICBC).
6. It appears that thereafter the respondent moved another
application in I.A.No.5185 of 2019 in OMP(I)(COMM.) No.523 of 2017
seeking Garnishee Orders in respect of the amounts that the
4
petitioner was entitled to receive under a settlement agreement
entered into with one of their customers. While dealing with the said
application, the learned Judge found that instead of furnishing a bank
guarantee of a scheduled Indian bank, the petitioner had furnished
bank guarantee of ICBC, in view of the confusion created in paragraph
6 of the order dated 12.02.2019. Therefore, by an order passed on
09.04.2019, in I.A.No.5185 of 2019, the learned Judge directed the
petitioner to substitute the bank guarantee of ICBC, with a bank
guarantee of a scheduled Indian bank. The relevant portion of the
order passed by the learned judge in I.A.No.5185 of 2019 dated
09.04.2019 reads as follows:
“… … …
5. Furthermore, Mr. Sethi says that in compliance of
the order dated 12.02.2019 which required the
respondent to furnish a bank guarantee of a Scheduled
Bank, the respondent has complied with the same and
submitted a bank guarantee of Industrial and
Commercial Bank of china Limited (in short “ICBC”)
6. However, a careful perusal of the order would
show that Mr. Sethi had offered to furnish a bank
guarantee of a Scheduled Indian bank and that while
dictating the operative part of the order, I had
indicated that it would be a scheduled bank located in
India, therefore, the confusion, if any caused is now
removed. The respondent will substitute the bank
guarantee filed with a guarantee of a Scheduled Indian
bank of an equivalent value.
… … …”
7. It is relevant to point out here that the order dated 09.04.2019
5
was passed by the very same Judge who passed the order dated
12.02.2019. The learned Judge was thus aware of what transpired in
court on 12.02.2019 and hence recorded in the order dated
09.04.2019 as to what happened in court on 12.02.2019. It is
needless to emphasize that what is recorded in a judicial order about
what transpired during the hearing in court, is to be taken to be a
correct reflection of what transpired.
8. However, the petitioner filed an application in I.A.No.7096 of
2019 seeking to recall the directions contained in paragraph 6 of the
order dated 09.04.2019. The main grievance as projected by the
petitioner in the said petition was that the nonacceptance of the bank
guarantee furnished by ICBC may be taken as a reflection on the
reputation of the bank.
9. But by an order dated 16.05.2019, the learned Judge dismissed
I.A.No.7096 of 2019, clarifying that the credentials of ICBC are not at
all doubted and that what was sought to be done by the order dated
09.04.2019, was merely to correct an error that crept in the order
dated 12.02.2019. Paragraph 5 of the order dated 16.05.2019 reads
as follows:
“… … …
5. I may clarify, at the outset, that it is not this
court’s endeavour to doubt in any manner the credentials
of ICBC. The record, however, shows that the
6
applicant/respondent had in fact, on its own, offered
to furnish a bank guarantee of a Scheduled Indian
Bank. The confusion, if any, in the mind of the
applicant/respondent, as rightly pointed out by Mr.
Nigam, was removed on 09.04.2019. The
applicant/respondent has moved this application after
nearly four weeks of the clarification issued in that
behalf. Thus, having passed an order based, essentially,
on the offer made by the counsel for the
applicant/respondent, I do not see any good reason to
recall the direction. …”
10. Challenging the order dated 16.05.2019, passed in I.A.No. 7096
of 2019, the petitioner moved an intracourt appeal in FAO(OS)
(COMM.)No.136 of 2019 under Section 37 of the Act read with Section
13 of the Commercial Courts Act, 2015. This appeal was dismissed by
the Division Bench by an order dated 27.11.2020 primarily on the
ground that the order under appeal was an interim one which is
largely discretionary and that the scope and power of the appellate
court in appeals against interim orders is limited to certain factors.
11. The petitioner thereafter moved an application for review in
R.P.No.5 of 2021 seeking a review of the order dated 27.11.2020. The
review petition was dismissed by an order dated 12.03.2021.
Therefore, challenging the dismissal of the appeal and the dismissal of
the review petition, the petitioner has come up with these Special
Leave Petitions.
12. Thus we have 2 Special Leave Petitions, one challenging the
7
dismissal of the appeal under section 37 and another challenging the
dismissal of the review petition. The SLP arising out of the order
passed in the review petition deserves to be thrown out without much
ado, since the refusal of a court to review its order due to the absence
of the parameters prescribed in Order 47 Rule 1 CPC, cannot give rise
to a substantial question of law of public importance, warranting our
interference under Article 136.
13. In so far as the other SLP challenging the order passed in the
appeal under Section 37 of the Act is concerned, the same arises out
of an interim order passed under Section 9 of the Act. As rightly
observed by the Division Bench of the High Court, interim orders are
discretionary and there is no question of interference with the exercise
of the discretion, even in an intracourt appeal, much less in an SLP
under Article 136.
14. All that the learned Judge did on 09.04.2019, was to correct a
mistake that inadvertently crept in his order. The correction that the
learned Judge sought to make, was in tune with the very offer made
by the petitioner at the first instance on 12.02.2019. When an interim
order has been passed particularly in a fact situation arising out of an
offer made by one of the parties, especially by the very same learned
8
Judge, I fail to understand how the case can be elevated to the status
of one raising a substantial question of law warranting our
interference under Article 136.
15. I have extracted in full, the first order dated 12.02.2019 and the
relevant portions of the orders dated 09.04.2019 and 16.05.2019. The
order dated 12.02.2019 shows (i) that it was not an adjudicatory order
but passed entirely on the basis of an offer made by the petitioner
herein; and (ii) that paragraphs 4 and 5 of the order gave two weeks
time to the petitioner to file an affidavit and six weeks time to furnish
bank guarantee. The statement of the learned senior counsel for the
petitioner to file an affidavit is recorded in paragraph 1 of the order
dated 12.02.2019. Paragraph 1 of the order dated 12.2.2019 indicates
three items with respect to which the petitioner undertook to file an
affidavit. Item no. (iii) of paragraph 1 is very specific that one of the
contents of the affidavit should be to furnish a bank guarantee in a
sum of Rs.30 crores of a ‘scheduled Indian bank’. Paragraph 5
directs the petitioner to furnish bank guarantee within six weeks
‘as indicated by the counsel’.
16. To a pointed question whether an affidavit containing all the
three items mentioned in paragraph 1 was filed or not, as directed in
9
paragraph 4 of the order dated 12.02.2019, the reply of Mr. K.V.
Vishwanathan, learned senior counsel for the petitioner was that an
affidavit containing the matters indicated in Item Nos. (i) and (ii) of
paragraph 1 of the order was filed and that in view of the directions
contained in paragraph 6 to furnish a bank guarantee of a scheduled
bank located in India, there was no necessity to incorporate in the
affidavit, the matter covered by Item No.(iii) of paragraph 1.
17. But I do not agree. If a party to a proceeding invites an order by
making an offer, he is obliged to honour the commitment made in the
form of the offer. The contention of Mr. K.V. Vishwanathan that his
client’s offer in paragraph 1(iii) of the order dated 12.02.2019 to
furnish a bank guarantee of a scheduled Indian bank stood modified
by paragraph 6 of the order, is not acceptable. This is for the reason
that the very same learned Judge from whom the order dated
12.02.2019 was invited, clarified on 09.04.2019 that what he had in
mind was what was actually offered by the petitioner. Once the same
learned Judge has clarified that there was no intention to accept the
offer made by the petitioner with a modification, it is not open to the
appellate court to upset the discretion exercised by the learned Judge.
18. Both in the orders dated 09.04.2019 and 16.05.2019, the very
same learned Judge had clarified (i) as to what transpired in court; (ii)
10
as to what was offered; and (iii) as to what was the purport of the
order dated 12.02.2019. Therefore, the matter should be allowed to
rest there.
19. Even the contention that the credentials of ICBC will be taken to
have been doubted, was considered by the learned Judge in his order
dated 09.04.2019 and the matter was clarified. Therefore, the
question of any harm to the reputation of ICBC does not arise.
20. Lastly it is contended by Mr. K.V. Vishwanathan, learned senior
counsel for the petitioner that the bank guarantee was taken by the
petitioner from ICBC, upon payment of a nonrefundable charge of
Rs.30 lakhs and that therefore assuming that there was a mistake on
the part of the Court, it cannot be corrected by the Court resulting in
a financial loss of Rs.30 lakhs to the petitioner. The maxim “actus
curiae neminem gravabit” is sought to be invoked by the learned senior
counsel for the petitioner.
21. But in my considered view the petitioner has to blame itself, for
the loss if any. The order dated 12.02.2019 gave (i) two weeks time to
the petitioner to file an affidavit incorporating all the three items of
matters indicated in paragraph 1 of the order dated 12.02.2019; and
(ii) six weeks time to furnish bank guarantee as indicated by the
11
counsel. Therefore the petitioner ought to have filed an affidavit
containing all the three ingredients, before taking the bank guarantee
from ICBC. If they had done so, the affidavit would have contained a
statement, in tune either with what was undertaken by them or with
what was mentioned in the order. The filing of an affidavit in such a
manner, would have given a wake up call to the respondents and
shown the bonafides of the petitioner. But without doing so, the
petitioner filed an affidavit containing only those matters covered by
Items (i) and (ii) of paragraph 1 and thereafter furnished a bank
guarantee of ICBC. Since the petitioner did not adopt a course of action
as undertaken by them, it is not open to them to say that they were
misled by the direction in paragraph 6 of the order dated 12.02.2019
and that therefore they should not be prejudiced on account of a
mistake committed by the court.
22. This is a case where the petitioner, after making a clear offer to
furnish a bank guarantee of a scheduled Indian bank, has chosen to
take advantage of a mistake that crept in paragraph 6 of the order.
Therefore, he is not entitled to take advantage of the Latin maxim
“actus curiae neminem gravabit”.
23. In my humble considered view, these special leave petitions do not
12
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.
24. 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, as the dispute
primarily revolves around what was offered in Court by one of the
parties, what was accepted in Court, and what was recorded in the
Order and clarified later. If without any offer from the petitioner, an
adjudication had been made by the Court directing the petitioner to
13
furnish bank guarantee of a particular type of bank and a dispute had
been raised thereafter, it is only then that a question of law as to the
status of such a bank with reference to the statutory provisions, would
have arisen.
25. Therefore, in my considered view and with the greatest of respect
for my learned Sister, I deem it fit to dismiss the Special Leave Petitions
as not giving rise to any substantial question of law warranting our
interference under Article 136 of the Constitution.
……………………………….J.
(V. Ramasubramanian)
New Delhi
August 24, 2021
