Article

Note: Rec Wafer Norway AS (Supplier/ Beneficiary), a Norwegian company, entered into a long-term agreement with Moser Baer Photo Voltaic Ltd (Manufacturer/Applicant), an Indian company, to supply Manufacturer/Applicant with silicon wafers for solar panel production. As security for its payment obligations, Manufacturer/Applicant provided Supplier/Beneficiary with two irrevocable on-demand bank guarantees. The first was issued by Canara Bank for US$40 million, and the second was issued by Union Bank of India for US$45 million. Both the contract and the guarantees were to be governed by English law.

The opinion stated that:

The bank guarantees recite the Agreement and contain irrevocable undertakings by the issuing banks to pay up to the guarantee limits upon receipt of [Supplier/Beneficiary's] first demand in writing and a written statement detailing [Manufacturer/Applicant's] breach of its payment obligations. Both the guarantees state that the issuing banks will pay upon their receipt of such documents, waiving all [Manufacturer/ Applicant's] rights of objections and defence.

Shortly after contracting, Manufacturer/Applicant complained about the quality of Supplier/Beneficiary's product, claimed that "the wafers failed to conform to the contractual specifications", rejected delivery, and refused payment to Supplier/Beneficiary. Supplier/Beneficiary drew on one of the bank guarantees but was not paid.

In the Indian courts, Manufacturer/Applicant alleged fraud against Supplier/Beneficiary and applied for an injunction against Supplier/Beneficiary drawing on the bank guarantees. Supplier/Beneficiary demanded a total of US$17,969,654.90 for past-due payments, but in light of orders made by the Indian court, no further attempt to draw on the guarantees was made. The District Court of Gautum Buhd Magar, Noida, J., denied Manufacturer/Applicant's request for an injunction. The District Judge stated "It is now well settled law that the existence of any dispute between the parties to the contract is not a ground to restrain the enforcement of a bank guarantee." Manufacturer/Applicant filed an appeal.

Supplier/Beneficiary applied to the English Commercial Court for an anti-suit injunction to end Manufacturer/Applicant's appeal in the Indian court. Queen's Bench Division, English Commercial Court, Blair, J., granted the anti-suit injunction in favor of Supplier/Beneficiary.

The Judge stated that the guarantees were bank demand guarantees. In consideration of the waiver of Manufacturer's/Applicant's rights, the Judge ruled that Supplier's/Beneficiary's claim was reasonable and valid. Furthermore, since the guarantees were expressly governed by English law, and the supply agreement expressly provided for settlement by ICC arbitration in London, the Judge ruled that Manufacturer's/Applicant's claim in the Indian court system was unconscionable and enjoined it.

[JEB/kmw]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.