By TIOL News Service

KOLKATA, DEC 14, 2016: THE unconditional bank guarantee invoked by a letter dated 6th December, 2016 is resisted in this application filed by the petitioner on the ground that in terms of the request made by the respondent to renew the bank guarantee up to 6th December, 2016, the bank guarantee was renewed. Although the petitioner disputes the liability towards service tax but surprisingly without any intimation to the petitioner after filing the petition on 6th December, 2016, the said bank guarantee was invoked with an oblique motive disregarding the dispute raised by the petitioner with regard to their liability to pay the service tax.

The High Court observed,

The bank guarantee is an unconditional bank guarantee. The petitioner is not required to be informed before the invocation of the bank guarantee unless there is any requirement to that effect. The dispute is arising out of the contract with which the bank is no way connected or concerned.

The law with regard to unconditional bank guarantee is well-settled and it does not require any reiteration that the bank is bound and obliged to remit the amount covered under the bank guarantee, if properly invoked, and is no way connected with the underlying contract between the petitioner and the respondent.

The petitioner contends in view of the nature of the dispute and clear assertion of the petitioner that service tax is not payable and the opinion of the Government on the basis of which the respondent invoked the bank guarantee is untenable in law. The bank guarantee should not have been invoked inasmuch as the petitioner is willing to extend the bank guarantee till the disposal of the arbitration proceeding for which the petitioner has already issued notice under Section 21 of the Arbitration and Conciliation Act.

The Court ordered:

In the event, the bank has not yet remitted the amount under the bank guarantee, the bank shall not do so upon the petitioner furnishing a bank guarantee for a sum of Rs.20.34 lakhs on the same terms and conditions on which they have submitted earlier in favour of CIWTC together with an indemnity bond for any consequential payments towards penalty or otherwise which the CIWTC would be liable in the event of non-payment of Rs. 20.34 lakhs towards service tax within a week from date, failing which the bank shall be obliged to remit the said amount in favour of the respondent. The bank guarantee shall be initially for a period of eight months and shall be kept renewed until further orders. Upon furnishing a bank guarantee for a sum of Rs.20.34 lakhs and the indemnity bond in favour of the respondent the earlier bank guarantee shall be returned to the petitioner by the respondent.

There shall be an unconditional order of injunction restraining the respondent to realise the amount from IDBI Limited for a period of seven days from date.

It is made clear that the merits of the dispute have not been gone into and are left open to be decided by the Arbitrator in accordance with law.

(See 2016-TIOL-3000-HC-KOL-ST)