# SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION v. POWER MECH PROJECTS LTD

- **Citation:** [2021] 12 S.C.R. 259
- **Court:** Supreme Court of India
- **Decided:** 2021-08-24
- **Case number:** Civil Appeal Nos. 4936-4937 of 2021
- **Bench:** Indira Banerjee, V. Ramasubramanian
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sepco-electric-power-construction-corporation-v-power-mech-projects-ltd-34800
- **Pages:** 25

## Headnote

Arbitration and Conciliation Act, 1996 - ss. 9, 37 -
Commercial Courts Act, 2015 - s.13(1A) - Reserve Bank of India
Act, 1934 - Bank Guarantee from a 'schedule Bank' and a 'schedule
Indian Bank' - The appellant, an entity in corporate in China was
awarded contracts in relation to coal based power projects in India
and the respondent, a company incorporated in India was engaged
as a sub-contractor of the appellant -Dispute arose between the
parties - Arbitration clause invoked - Arbitration Award was passed
of approximately Rs.1,42,00,00,000 (One hundred and forty two
crores) in favour of the respondent - Appellant filed an application
u/s.34of the Act challenging the Arbitral Award before the
Commercial Division of the High Court - Respondent also filed an
application u/s. 9 of the Arbitration Act seeking, inter alia, directions
to secure the amount of the Arbitral Award - On 12.02.2019, Single
Judge of the High Court directed the Appellant to furnish to the
Registry, a Bank Guarantee for a sum of Rs.30 Crores, from a
Scheduled Bank located in India - On 22.03.2019, appellant got
Industrial and Commercial Bank of China Limited (ICBC) to issue
an unconditional, irrevocable Bank Guarantee for a sum of Rs.30
Crores - However, on 09.04.2019 the Single Bench directed the
appellant to substitute the Bank Guarantee issued by ICBC, by a
Bank Guarantee of equivalent amount from a "Scheduled Indian
Bank" - Appellant filed an application for recall of the order of the
Commercial Division (Single Bench) of the High Court directing
the Appellant to substitute the Bank Guarantee - Application
dismissed by the High Court - On appeal, held: Per Indira Banerjee,
J: ICBC is also a Scheduled Bank within the meaning of s.2 (e) of
the RBI Act - The RBI Act only defines 'Scheduled Banks' which
includes Scheduled Foreign Banks operating in India - There is no
definition of Scheduled Indian Bank in the RBI Act - The Court
may legitimately disapprove a Bank Guarantee of a bank with a
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history which raises doubts with regard to its credibility - In the
instant 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 - Therefore, the High Court erred
in directing the Appellant to replace the Bank Guarantee of ICBC -
Per V. Ramasubramanian, J.: 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 the order passes by Single Bench which was rectified
later on -The order dated 09.04.2019 was to correct a mistake that
had inadvertently crept in - 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 -
Therefore, the Special Leave Petitions are dismissed - No
interference u/Art.136 of the Constitution required - Since, both
the Judges have not been able to agree, the matter to be placed
before the Chief Justice of India for appropriate directions.

## Text

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[2021] 12 S.C.R. 259
259
SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
v.
POWER MECH PROJECTS LTD.
(Civil Appeal Nos. 4936-4937 of 2021)
AUGUST 24, 2021
[INDIRA BANERJEE AND V. RAMASUBRAMANIAN, JJ.]
Arbitration and Conciliation Act, 1996 - ss. 9, 37 -
Commercial Courts Act, 2015 - s.13(1A) - Reserve Bank of India
Act, 1934 - Bank Guarantee from a 'schedule Bank' and a 'schedule
Indian Bank' - The appellant, an entity in corporate in China was
awarded contracts in relation to coal based power projects in India
and the respondent, a company incorporated in India was engaged
as a sub-contractor of the appellant -Dispute arose between the
parties - Arbitration clause invoked - Arbitration Award was passed
of approximately Rs.1,42,00,00,000 (One hundred and forty two
crores) in favour of the respondent - Appellant filed an application
u/s.34of the Act challenging the Arbitral Award before the
Commercial Division of the High Court - Respondent also filed an
application u/s. 9 of the Arbitration Act seeking, inter alia, directions
to secure the amount of the Arbitral Award - On 12.02.2019, Single
Judge of the High Court directed the Appellant to furnish to the
Registry, a Bank Guarantee for a sum of Rs.30 Crores, from a
Scheduled Bank located in India - On 22.03.2019, appellant got
Industrial and Commercial Bank of China Limited (ICBC) to issue
an unconditional, irrevocable Bank Guarantee for a sum of Rs.30
Crores - However, on 09.04.2019 the Single Bench directed the
appellant to substitute the Bank Guarantee issued by ICBC, by a
Bank Guarantee of equivalent amount from a "Scheduled Indian
Bank" - Appellant filed an application for recall of the order of the
Commercial Division (Single Bench) of the High Court directing
the Appellant to substitute the Bank Guarantee - Application
dismissed by the High Court - On appeal, held: Per Indira Banerjee,
J: ICBC is also a Scheduled Bank within the meaning of s.2 (e) of
the RBI Act - The RBI Act only defines 'Scheduled Banks' which
includes Scheduled Foreign Banks operating in India - There is no
definition of Scheduled Indian Bank in the RBI Act - The Court
may legitimately disapprove a Bank Guarantee of a bank with a
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history which raises doubts with regard to its credibility - In the
instant 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 - Therefore, the High Court erred
in directing the Appellant to replace the Bank Guarantee of ICBC -
Per V. Ramasubramanian, J.: 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 the order passes by Single Bench which was rectified
later on -The order dated 09.04.2019 was to correct a mistake that
had inadvertently crept in - 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 -
Therefore, the Special Leave Petitions are dismissed - No
interference u/Art.136 of the Constitution required - Since, both
the Judges have not been able to agree, the matter to be placed
before the Chief Justice of India for appropriate directions.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.49364937 of 2021.
From the Judgment and Order dated 12.03.2021 of the High Court
of Delhi at New Delhi in Review Petition No.5 of 2021 in FAO (OS)
(COMM) 136 of 2019.
K. V. Vishwanathan, Sr. Adv., Satvik Varma, Ranjit Prakash,
Apoorv Singhal, Gaurav Lavania, Harsh Gokhale, Pai Amit, Adv. for the
appellant.
Dr. Abhishek Manu Singhvi, Sr. Adv., Dharmesh Misra, Prateek
Gupta, Krishna Dev Jagarlamudi, Sahil Garg, Vishal Singh, Advs. for the
respondent.
The following Judgment and Order of the Court were delivered :
JUDGMENT
INDIRA BANERJEE, J.
1. 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
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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.
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".
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
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 there from, are irrelevant to the issues involved
in these Appeals. Suffice it to mention that the Arbitration culminated in
SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
v. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]
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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:-
"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
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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:-
"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."
SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
v. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]
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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 (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
Scheduled Bank located in India. The Appellant complied with the
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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 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
SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
v. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]
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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, 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
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
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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 12TH 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 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
SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
v. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]
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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 12TH
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 22ND 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
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less effective. Furthermore, the 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.
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.
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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.
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,
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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,..."
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
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:-
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"Annexure I
(Refer to para 2(b) of notification dated April 13, 2020)
List of Scheduled Commercial Banks
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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.
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.
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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'.
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
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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 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 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
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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 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.
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
*Ed. Note : Order passed by Hon'ble Mr. Justice V. Ramasubramanian
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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 award-debtor 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
(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 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.
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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.