CS(COMM) 497\/2019<\/p>\n
(Delivered by JYOTI SINGH, J )<\/p>\n
The case\u00a0was\u00a0initiated\u00a0as\u00a0a commercial\u00a0suit\u00a0filed by Kotak Mahindra Bank Ltd. (Plaintiff)\u00a0in\u00a0the Delhi High Court against the Union of India (Defendant),\u00a0represented\u00a0by\u00a0the Ministry of Road Transport and Highways (MoRTH), primarily\u00a0related\u00a0to\u00a0five Bank Guarantees\u00a0made\u00a0by the Plaintiff in\u00a0favour\u00a0of MoRTH. The Plaintiff\u00a0prayed\u00a0for\u00a0a declaration that it\u00a0was\u00a0discharged from its\u00a0obligation\u00a0under the BGs and that\u00a0invocation of\u00a0such\u00a0guarantees by MoRTH\u00a0by\u00a0way of\u00a0letters dated 05.01.2019, 15.01.2019, and 29.01.2019 was illegal, void, and unenforceable.\u00a0In addition, the Plaintiff prayed for a money decree of \u20b948.77 crores, being\u00a0the\u00a0sum\u00a0encashed by MoRTH under the said BGs\u00a0along with interest.<\/p>\n
The\u00a0subject\u00a0of the case\u00a0is\u00a0a highway infrastructure project in Bihar,\u00a0viz.,\u00a0rehabilitation and upgradation of NH-104 (Sitamarhi\u2013Jaynagar\u2013Narahai Section) under Phase I of the National Highways Inter-Connectivity Improvement Project. MoRTH had\u00a0assigned\u00a0the\u00a0task\u00a0to the Government of Bihar and\u00a0called\u00a0for\u00a0bids for two\u00a0independent\u00a0project lots. Defendant No.3 (a private\u00a0limited\u00a0company) and RCM Infrastructure Ltd.\u00a0both\u00a0entered into joint bidding\u00a0arrangements\u00a0to\u00a0constitute\u00a0a joint venture, which successfully bid for both lots. MoRTH accepted their bid of \u20b9154.62 crores and\u00a0sent\u00a0Letters of Acceptance on 15.10.2015.\u00a0Subsequently, the\u00a0initial\u00a0joint venture agreement was\u00a0replaced, and Defendant No.3 was\u00a0assigned\u00a0complete\u00a0responsibility for execution, including\u00a0the\u00a0provision of\u00a0performance and advance BGs.<\/p>\n
On 18.02.2016,\u00a0EPC\u00a0contracts\u00a0were\u00a0signed\u00a0between MoRTH and the Joint Venture\u00a0for mobilisation advances\u00a0against\u00a0irrevocable BGs.\u00a0According to\u00a0this, Defendant No.3\u00a0requested\u00a0Kotak Mahindra Bank to issue the\u00a0bank guarantees. As a\u00a0prerequisite\u00a0for\u00a0granting\u00a0these guarantees, the Plaintiff\u00a0insisted\u00a0that\u00a0an Escrow Account\u00a0be set up, through which all\u00a0payments and advances\u00a0related to the project\u00a0were to be\u00a0made. This\u00a0structure\u00a0was\u00a0duly\u00a0recognized\u00a0and\u00a0agreed\u00a0to\u00a0by\u00a0Defendant No.3 and MoRTH\u00a0through\u00a0a\u00a0June 2016\u00a0correspondence.\u00a0Following\u00a0this\u00a0provision, the Plaintiff\u00a0released\u00a0six irrevocable and unconditional BGs\u00a0totalling\u00a0110% of the mobilisation advances.<\/p>\n
The Plaintiff\u00a0alleged\u00a0that it\u00a0subsequently\u00a0found\u00a0that the payment mechanism was\u00a0breached\u00a0by MoRTH and Defendant No.3,\u00a0since\u00a0the\u00a0project funds and advances were no longer being\u00a0channeled\u00a0through the Escrow Account. This\u00a0violation\u00a0was\u00a0raised\u00a0through\u00a0several\u00a0communications\u00a0made\u00a0by the bank,\u00a0more\u00a0so\u00a0in May and August 2018,\u00a0where\u00a0the Plaintiff\u00a0insisted\u00a0that MoRTH\u00a0recall\u00a0the agreed\u00a0mode of\u00a0payment.\u00a0These letters\u00a0remained\u00a0unanswered. The Plaintiff\u00a0complained\u00a0that\u00a0circumventing\u00a0the Escrow\u00a0process\u00a0circumvented\u00a0the risk controls and financial\u00a0protections\u00a0it had\u00a0implemented\u00a0and\u00a0left\u00a0it\u00a0vulnerable\u00a0to\u00a0monetary\u00a0losses.<\/p>\n
When\u00a0these events\u00a0were taking place, insolvency proceedings were\u00a0commenced\u00a0against Defendant No.3\u00a0in\u00a0terms of\u00a0Section 7 of the Insolvency and Bankruptcy Code, 2016, before the NCLT, Mumbai. On 07.09.2018, CIRP was\u00a0accepted\u00a0against Defendant No.3.\u00a0According\u00a0to\u00a0the EPC agreement,\u00a0the Joint Venture was\u00a0to\u00a0refund\u00a0the mobilisation advances within a\u00a0timeline, and\u00a0in\u00a0case\u00a0of default,\u00a0MoRTH\u00a0was\u00a0entitled\u00a0to encash the BGs. On 10.10.2018, the Joint Venture\u00a0communicated\u00a0to\u00a0MoRTH\u00a0that\u00a0it\u00a0was\u00a0not in a position\u00a0to\u00a0refund\u00a0the\u00a0outstanding\u00a0mobilisation advance due to\u00a0a lack\u00a0of\u00a0funds\u00a0and\u00a0asked\u00a0for deferral.\u00a0Later, on 16.10.2018, MoRTH\u00a0decided\u00a0to\u00a0realise\u00a0the BGs.\u00a0Interestingly enough, the sixth BG was\u00a0refunded\u00a0by MoRTH to the Plaintiff on 16.10.2018\u00a0as the\u00a0matching\u00a0advance had been\u00a0returned. The\u00a0rest\u00a0of the\u00a0BGs were\u00a0called\u00a0between January 5 and\u00a029, 2019.<\/p>\n
In its\u00a0lawsuit, the Plaintiff\u00a0contended\u00a0that MoRTH’s\u00a0actions\u00a0in\u00a0calling\u00a0for\u00a0the BGs\u00a0were\u00a0illegal\u00a0by\u00a0violating\u00a0the fundamental payment structure\u00a0agreed\u00a0to,\u00a0namely, the Escrow mechanism.\u00a0As\u00a0MoRTH had\u00a0specifically\u00a0agreed\u00a0to this arrangement and\u00a0subsequently\u00a0breached\u00a0the\u00a0same\u00a0by making payments outside the Escrow Account without a No Objection Certificate (NOC)\u00a0of\u00a0the Plaintiff, the Plaintiff\u00a0asserted\u00a0that such\u00a0an\u00a0act\u00a0rendered\u00a0the\u00a0grounds\u00a0on\u00a0which the BGs\u00a0were\u00a0issued\u00a0invalid.\u00a0Accordingly, the Plaintiff\u00a0requested\u00a0a\u00a0decree\u00a0that it be\u00a0released\u00a0from liability under the BGs, the\u00a0presentation\u00a0was\u00a0void\u00a0ab\u00a0initio, and it was entitled to recover\u00a0amounts\u00a0paid\u00a0by MoRTH\u00a0through the encashment, along with interest.<\/p>\n
The case\u00a0involves\u00a0significant\u00a0legal issues\u00a0around\u00a0the enforceability of escrow-based financial\u00a0arrangements\u00a0in public infrastructure\u00a0projects, the\u00a0obligation\u00a0of government agencies when\u00a0tied\u00a0by agreed financial\u00a0conditions, and the\u00a0entitlement\u00a0of financial institutions\u00a0providing\u00a0BGs when contractual\u00a0protection\u00a0is\u00a0breached. It also\u00a0involves\u00a0crossover\u00a0with insolvency law,\u00a0with\u00a0the\u00a0intricate\u00a0relationships\u00a0between creditors, corporate debtors, and third-party contractual obligations.<\/p>\n
The Court dismissed the suit filed by Kotak Mahindra Bank. It held that the Bank was not discharged from its obligations under the unconditional and irrevocable bank guarantees, despite its arguments about breach of an escrow arrangement. The Court reaffirmed that a bank guarantee is an independent contract, enforceable solely by its written terms, and separate from any underlying agreements or side arrangements. The\u00a0ruling\u00a0is\u00a0important\u00a0as it reaffirms that a bank guarantee stands on its own. Unless a pre-condition or limitation is expressly included in the guarantee, internal or external arrangements (like escrow mechanisms) cannot prevent its invocation, even if underlying agreements have been compromised.<\/p>\n\n","protected":false},"excerpt":{"rendered":"
KOTAK MAHINDRA BANK LIMITED (Plaintiff) v. UNION OF INDIA & ORS. (Defendants), 2025 CS(COMM) 497\/2019 (Delivered by JYOTI SINGH, J ) The case\u00a0was\u00a0initiated\u00a0as\u00a0a commercial\u00a0suit\u00a0filed by Kotak Mahindra Bank Ltd. (Plaintiff)\u00a0in\u00a0the Delhi High Court against the Union of India (Defendant),\u00a0represented\u00a0by\u00a0the Ministry of Road Transport and Highways (MoRTH), primarily\u00a0related\u00a0to\u00a0five Bank Guarantees\u00a0made\u00a0by the Plaintiff in\u00a0favour\u00a0of MoRTH. The Plaintiff\u00a0prayed\u00a0for\u00a0a […]<\/p>\n","protected":false},"author":1,"featured_media":3330,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-3328","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-judgement"],"_links":{"self":[{"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/posts\/3328","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/comments?post=3328"}],"version-history":[{"count":1,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/posts\/3328\/revisions"}],"predecessor-version":[{"id":3331,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/posts\/3328\/revisions\/3331"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/media\/3330"}],"wp:attachment":[{"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/media?parent=3328"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/categories?post=3328"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/xpertslegal.com\/blog\/wp-json\/wp\/v2\/tags?post=3328"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}