Performance Bank Guarantee Invocation Quashed for Unrelated Earlier Contract Claim: Calcutta HC

Phonex Traders Private Limited & Anr. Vs Union of India & Ors. (Calcutta High Court)

The Calcutta High Court allowed the writ petition challenging the communication dated 17th February, 2026 whereby respondent no.2 requested HDFC Bank, Chowringhee Branch, to encash the petitioners’ Performance Bank Guarantee of ₹85,06,020.

The petitioner no.1 and respondent no.2 had entered into several contracts relating to containerized cargo between 2006 and 2019. The last contract, awarded pursuant to the tender dated 16th May, 2019, was granted on 13th February, 2020 and was subsequently extended with effect from 1st March, 2024. Under this contract, the petitioner furnished a security deposit of ₹42,53,010 and a Performance Bank Guarantee of ₹85,06,020, valid up to 2nd April, 2025 with a claim period extending to 2nd April, 2026. Cargo operations at ICP Petrapole were taken over by the Land Ports Authority of India, following which the petitioner’s services were discontinued with effect from 17th May, 2024. The petitioner thereafter sought release of the security deposit and Performance Bank Guarantee, but no action was taken by the respondents.

The dispute had its origin in a demand raised in April 2012 for ₹3,49,56,927, relating to alleged excess Service Tax payments made during the period from 1st November, 2008 to 31st May, 2011 under the first contract. The petitioners challenged the respondent’s determination before the High Court. By judgment dated 1st December, 2017 in WP No. 14252 (W) of 2012, the Court set aside the respondent’s order dated 21st June, 2012, holding that the respondent could not adjudicate its own claim and enforce recovery by itself. The respondent preferred an appeal along with an application for stay, but the Appellate Court refused interim stay on 10th December, 2019.

According to the petitioners, on 19th February, 2026 they received an email from HDFC Bank informing them that respondent no.2 had invoked the Performance Bank Guarantee through a letter dated 17th February, 2026 on the ground that ₹3,49,56,927 was allegedly recoverable from the petitioners. The petitioners contended that the invocation violated the Court’s judgment dated 1st December, 2017. They further submitted that the Performance Bank Guarantee and security deposit related exclusively to the separate agreement arising from the 2019 tender and had no connection with the earlier Service Tax dispute or the expired first contract. They also referred to the set-off clause in the tender to contend that the Performance Bank Guarantee could not be invoked for recovery of the earlier claim.

The respondents submitted that the amount of ₹3,49,56,972 remained payable by the petitioners and argued that if the security deposit and Performance Bank Guarantee were released, recovery might become difficult if the pending appeal ultimately succeeded. They also submitted that the appeal against the 2017 judgment was at the hearing stage and sought dismissal of the writ petition.

The High Court identified the issue as whether respondent no.2 could invoke the Performance Bank Guarantee and withhold the security deposit furnished under the later contract on the basis of a claim arising from an earlier agreement. It reviewed the sequence of contracts between the parties and noted that the disputed Service Tax claim related to the agreement dated 21st July, 2006, which had expired on 24th June, 2011, whereas the Performance Bank Guarantee had been furnished in connection with the tender dated 16th May, 2019.

The Court reproduced substantial portions of its earlier judgment dated 1st December, 2017, wherein it had held that the respondent could not act as the judge of its own cause, that unilateral adjudication of its contractual claim was impermissible, and that the impugned order of 2012 could not be enforced. That judgment had set aside the respondent’s earlier decision while leaving the parties at liberty to pursue remedies in accordance with law. The Court also noted that the Appellate Court had refused to stay the 2017 judgment.

After considering the facts, the Court observed that the request dated 17th February, 2026 for encashment of the Performance Bank Guarantee itself indicated that no amount was recoverable under the last contract. It further observed that the claim for ₹3,49,56,927 related exclusively to the earlier agreement covering the period from 1st November, 2008 to 31st May, 2011 and had already been the subject matter of adjudication in WP No. 14252 (W) of 2012. The Performance Bank Guarantee and security deposit had been furnished in connection with the tender dated 16th May, 2019, while the respondent’s claim pertained to a separate contract that had expired and had already been adjudicated by the Court.

Accordingly, the High Court set aside and quashed the communication dated 17th February, 2026 issued to HDFC Bank for invocation of the petitioners’ Performance Bank Guarantee. It directed the respondent authorities to refund ₹85,06,020 representing the Performance Bank Guarantee amount and ₹42,53,010 representing the security deposit to the petitioners within two weeks from the date of the judgment. The writ petition, WPO No. 114 of 2026, was allowed.

Cases Discussed

• Phonex Traders Private Limited & Anr. Vs Union of India & Ors. (Calcutta High Court)
• WP No. 14252 (W) of 2012 (Judgment dated 1st December, 2017)
• Surendra Kumar Ray Chowdhury (supra)
• Reshmi Metaliks (supra)
• Bhanu Kumar Jain (supra)
• Reliance Energy Ltd. & Anr. (supra)

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

1. The petitioners have filed the present writ petition challenging the notice of invocation dated 17th February, 2026 wherein the respondent no.2 requested the respondent no. 7, namely, the HDFC Bank Chowringhee Branch for encashment of Bank Guarantee of Rs. 85,06,020/-.

2. The petitioner no.1 and the respondent no.2 have entered into diverse contracts and agreements for containerized cargo from 2006 to 2019. The last contract expired on 30th April, 2024. In the month of April, 2012, the respondent no.2 raised demand of Rs. 3,49,56,927/- for the period from 1st November, 2008 to 31st May, 2011 on account of excess Service Tax payments made to the petitioner no.1 with respect to first contract. On receipt of the said demand, the petitioners have sent a reply calling upon the respondent authorities to withdraw the said demand as the petitioners are not liable to pay any amount to the respondent no.1. The respondents have not considered the request of the petitioners and accordingly, the petitioners have filed a writ petition before this Court being WP No. 10468 (W) of 2012. The writ petition was disposed of by directing the respondent no.2 to consider the representations of the petitioners and to take appropriate decision. The respondent no.2 by an order dated 21st June, 2012, held that the petitioner no. 1 is liable to pay the amount of Rs. 3,49,56,927/- as the said amount was erroneously or by mistake released in favour of the petitioners.

3. The petitioners have challenged the order dated 21st June, 2012, in a writ proceeding being WP No.14252 (W) of 2012. By an order dated 1st December, 2017, this Court set aside the order dated 21st June, 2012, holding that the petitioners are not liable to pay the amount claimed by the respondent no.2 and also held that the respondent authorities cannot be the judge of their own cause. Being aggrieved with the order dated 1st December, 2017, the respondent authorities have preferred an appeal being MAT No. 153 of 2018 along with an application for stay of the order dated 1st December, 2017, wherein the Hon’ble Appellate Court refused to grant interim order and dismissed the application for stay.

4. The present tender dated 16th May, 2019, was awarded to the petitioner 1 by the respondent no.2 on 13th February, 2020. The said tender was subsequently extended for a period of one year with effect from 1st March, 2024. The petitioners have deposited an amount of Rs. 42,53,010/- as security deposit and Rs. 85,06,020/- in the form of Performance Bank Guarantee. The Security deposit of Rs. 42,53,010/-was paid by the petitioner no.1 upon adjusting the EMD amount of Rs. 17,01,204/-. The Performance Bank Guarantee for a sum of Rs. 85,06,020/- was valid upto 2nd April, 2025, with a claim date of additional one year upto 2ⁿd April, 2026.

5. The cargo operations at the ICP Petropole were being taken over by Land and Ports Authority of India, by a letter dated 17th May, 2024 and the respondent no.3 informed the petitioner no.1 that the services of the petitioner no.1 was being discontinued with immediate effect and requested the petitioner no.1 to obtain a No Dues Certificate. As the contract of the petitioners’ was closed on 17th May, 2024, the petitioners by a letter dated 5th August, 2024, requested the respondent no. 2 for release of security deposit and Performance Bank Guarantee. Inspite of receipt of several reminders, the respondents failed to release security deposit and Performance Bank Guarantee.

6. Mr. Ratnanko Banerji, Learned Senior Advocate representing the petitioners submits that on 19th February, 2026, the HDFC bank by an e-mail informed to the petitioner no. 1 that the respondent no.2 by a letter dated 17th February, 2026, requested the HDFC bank for encashment of the Performance Bank Guarantee. In the said notice, it is alleged that from the records of the respondent no.2, it appears that an amount of Rs. 3,49,56,927/- is receivable from the petitioner no.1. The impugned notice of invocation is issued in contravention of the order dated 1st December, 2017, passed by this Court.

7. Mr. Banerji submits that the security deposit and the Performance Bank Guarantee is no way connected to the claim of the respondent no.2 to the tune of Rs. 3,49,56,927/-. He submits that the Performance Bank Guarantee was given to a separate agreement dated 16th May, 2019, executed between the respondent no.2 and having no relation with the claim of the respondent no.2.

8. Mr. Banerji submits that the alleged claim of the respondent no.2 is refund of service tax in relation to the first contract which expired by efflux of time in the year 2011. He submits that the Performance Bank Guarantee in respect of the present tender could not be invoked to realize any part portion of the past due of Rs. 3,49,56,927/- as the same is contrary to the terms of the contract and in particular the set off Clause XIV mentioned in the present tender.

9. Mr. Samrat Chowdhury, Learned Advocate representing the respondent no.2 submits that an amount of Rs. 3,49,56,972/- is due and payable by the petitioners to the respondent no.2 and if the amount claimed by the petitioners is released, the respondent no.2 will not be in a position to recover the amount form the petitioners in future.

10. Mr. Chowdhury submits that the respondent no.2 has preferred an appeal against the order passed by this Court and the same is pending before the Hon’ble Appellate Court and if the respondents will success in the appeal, the said amount will be adjusted from the total demand.

11. Mr. Chowdhury submits that the appeal is at hearing stage and at any time the appeal will be taken up for hearing and he prayed for dismissal of the writ petition.

12. Heard the Learned Counsel for the respective parties. The issue whether the respondent no.2 can invoke the Performance Bank Guarantee and withheld the security deposit on the purported claim of earlier agreement. The petitioner no.1 and the respondent no.2 have entered into diverse contracts for containerized cargo. The details of the contract between the parties are as follows:

13. In the month of April, 2012, the respondent no.2 made a demand against the petitioner no. 1 for a sum of Rs. 3,49,56,927/- on account of excess Service Tax payments made to the petitioner no. 1 for a period from 1st November, 2008 to 31st May, 2011. The petitioners have challenged the said claim before this Court by way of a writ proceeding being WP No. 14252 (W) of 2012. By a judgment dated 1st December, 2017, this Court has disposed of the writ petition by the following order:

“The impugned order purports to uphold the decision of CWC in seeking to realize the Service Tax from the petitioners. Essentially, CWC is acting as a judge of its own cause. CWC has interpreted clause XII (h) of the contract. CWC is adjudicating on its own claim and is saying that the same is payable by the petitioners. In fact, it is enforcing its adjudication by seeking to adjust against bills receivable by the petitioners. No person can be a judge of its own cause is one of the principles of natural justice. Violation of such principles vitiates the action taken. Surendra Kumar Ray Chowdhury (supra) has held that, the Government cannot act to enforce a contract of indemnity without a judicial determination of the factum of breach of contract and the extent of loss. Reshmi Metaliks (supra) has noted Surendra Kumar Ray Chowdhury (supra) and has held that, the Government cannot unilaterally enforce the contract by self-determination regarding violation of the terms of the contract as it cannot be the judge of its own cause. Relying upon a Supreme Court decision, it has held that, no pecuniary liability arises till a Court has determined the same. In the present case, the various clauses of the two contracts are required to adjudicated upon in order to find out whether or not CWC is entitled to adjust as claimed by it. CWC is, therefore, not an authority to decide such a cause. Both the contracts contain arbitration clauses. The person who has passed the impugned order has not been treated to be an arbitrator within the meaning of the arbitration clause of either of the two contracts by the parties to the contracts. It is not an award by an arbitral Tribunal. The Order dated May 17, 2012 passed in W.P. NO. 10468 (W) of 2012 is not under Section 11 of the Arbitration and Conciliation Act, 1996. It cannot be construed to vest an authority with jurisdiction to adjudicate which the law otherwise does not recognize it to be an adjudicating authority of a claim between CWC and the petitioners. In the facts of the present case, therefore, it cannot be said that, the impugned order is an authoritative pronouncement by an adjudicating authority recognised by law to be enforceable between the parties.

It has been contended on behalf of the petitioners that, the Order dated July 6, 2012 passed in the writ petition has decided the issue as to whether clause XIII of the contract allows a set off or a recovery in the manner as sought to be done in the impugned order by CWC. Such issue being decided, it is not open to the respondents to contend otherwise. Bhanu Kumar Jain (supra) has noticed the distinction between “issue estoppel” and “res judicata”. It has held that, res judicata debars a Court to determine the lis if it has attained finality between the parties whereas the doctrine of issue estoppel is invoked against a party. If an issue is decided against a party, the party would be estopped from raising the same in the latter proceeding. The doctrine of res-judicata creates a different kind of estoppel, namely, estoppel by accord. However, the doctrine of “issue estoppel” as also “cause of action estoppel” may both be attracted. A cause of action estoppel arises wherein two different proceedings, identical issues are raised, in which event, the latter proceedings between the same parties shall be dealt with similarly as was done in the previous proceedings. In such an event, the bar is absolute in relation to all points decided save and except allegations of fraud and collusion. Noticing two previous Supreme Court judgments, it has held that, principles of res judicata apply in different stages of the same proceedings. In the facts of the present case, the Order dated July 6, 2012 has returned a prima facie view that, the Regional Manager of CWC has acted without jurisdiction. The decision rendered on the applicability of clause XIII of the contract should be understood in the context of such prima facie finding. In my view, the prima fade finding returned by a Court on an issue will not attract the provisions of res judicata as such issue has not been decided finally. In the facts of the present case, it cannot be said that, the Order dated July 6, 2012 has decided the issue finally particularly having regard to the fact that the Court has used the word prima facie in such order. The contention of the petitioners that, the Order dated July 6, 2012 is a final decision on the applicability of clause XIII and, therefore, the contentions to the contrary are hit by the principles of res judicata, cannot be accepted.

Reliance Energy Ltd. & Anr. (supra) has held that, in matters of judicial review, the basic test is to see whether there is any infirmity in the decision-making process and not in the decision itself. The decision- maker must understand correctly the law that regulates his decision-making power and he must give effect to it otherwise it may result in illegality. The principle of judicial review” is applicable to contractual matters also. Judicial review is intended to prevent arbitrariness. It must be exercised in larger public interest. Errors of law are jurisdictional errors.

In such circumstances, the decision rendered in the impugned order cannot be enforced. The same is set aside. The parties are at liberty to avail of their remedies in accordance with law. The other contentions of the respective parties need not be decided upon as the same may prejudice the parties in the subsequent proceedings that may be had. In any ever, given the view taken on the subject dispute between the parties, no decision is required to be rendered on the other points raised.

W.P. No.14252 (W) of 2012 is disposed of No order as to costs.

Urgent certified website copies of this order, of applied for, be made available to the parties upon compliance of the requisite formalities.”

14. The respondent no.2 preferred an appeal against the order dated 1st December, 2017, along with an application for stay of the said order. The Appellate Court by an order dated 10th December, 2019, refused to grant stay of the judgment dated 1st December, 2017, which reads as follows:

“CAN 1205 of 2018 is an application for stay filed in the appeal. Having regard to the fact that the learned Judge had passed an interim order while entertaining the writ petition staying recovery and that the writ petitioners have ultimately succeeded in the writ petition, there is no scope for granting any order of stay. The stay application stands dismissed without any order for costs.”

15. After the period of more than 6 years and after the service of the petitioner no.1 was being discontinued with effect from 17th May, 2024, by a letter dated 17th February, 2026, the respondent no.2 requested the Branch Manager, HDFC Bank for encashment of Bank Guarantee No. 469GT02200940005 of the petitioners amounting to Rs.85,06,020/- on the pretext that as per available records of the respondent no.2, an amount of Rs. 3,49,56,927/- is receivable from the petitioners. From the request of the respondent no.2, it is clear that no amount is recoverable from the petitioners with respect to the last contract/agreement entered between the petitioners and the respondent.

16. The claim of Rs. 3,49,56,927/- was made by the respondent no.2 against the petitioners for the period from 1st November, 2008 to 31st May, 2011 with respect to the agreement dated 21st July, 2006, which was expired on 24th June, 2011. The claim of the respondent no.2 has already adjudicated by this Court in WP No.14252 (W) of 2012 dated 1st December, 2017 and the Hon’ble Appellate Court refused to grant stay of the said judgment.

17. The Performance Bank Guarantee and the security deposit which the respondent no.2 has withheld is in connection with the tender dated 16th May, 2019 and the claim of the respondent no.2 is in respect of separate contract which expired efflux of time and has been duly adjudicated by this Court in WP No. 14252 (W) of 2012.

18. Considering the above, the communication made by the respondent no.2 to the HDFC Bank dated 17th February, 2026, for invocation of Performance Bank Guarantee of the petitioners is set aside and quashed. The respondent authorities are directed to refund the amount of Rs. 85,06,020/- being the amount of Performance Bank Guarantee and Rs. 42,53,010/- being the security deposit to the petitioners within a period of two weeks from date.

19. WPO No. 114 of 2026 is allowed.

Parties shall be entitled to act on the basis of a server copy of the Judgment placed on the official website of the Court.

Urgent Xerox certified photocopies of this judgment, if applied for, be given to the parties upon compliance of the requisite formalities.