Explained: Why Two Judges of Supreme Court Differ on China Bank Vs Indian Scheduled Bank

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The judgment authored by Justice Indrani Banerjee approved the contention of appellant that there is no difference between a Scheduled Foreign Banks in India and Scheduled Indian Banks, whereas the judgment written by Justice V. Ramasubramanian ruled in favour of Indian Bank.

New Delhi (ABC Live India); The Supreme Court divisional bench consisting of Ms Indrani Banerjee J and V. Ramasubramanian J has given split judgments in case titled Sepco Electric Power Construction Corporation Vs Power Mech Projects Ltd on the issue of substituting an irrevocable Bank Guarantee, issued by the Industrial and Commercial Bank of China Limited (ICBC), Mumbai with Indian with a Bank Guarantee   of   a   “Scheduled   Indian   Bank.

On 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 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.

The Bench after delivering two split judgments referred the case to the Chief Justice of India for appropriate directions.

Facts of the case are as under;

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   sub-contractor   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.

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.

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.

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 herein below:-

“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. Re-notify 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.”

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 issued by the Industrial and Commercial Bank of China Limited (ICBC), Mumbai was filed in the Registry on 26.03.2019.

On 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 herein below:-

 “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.”

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.

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 (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.

On 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.”

The judgment authored by Justice Indrani Banerjee approved the contention of appellant that there is no difference between a Scheduled Foreign Banks in India and Scheduled Indian Banks, whereas the judgment written by Justice V. Ramasubramanian ruled that, “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, adjudication   had   been   made   by   the   Court   directing   the   petitioner   to 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.

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The ABC Legal Research Team keeping track on this case will report as the matter will be decided by the CJI.

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