Can a bank guarantee valid for 90 days be invoked on the 91st day, if the 90th day happens to be a Sunday or a public holiday?
Can a bank guarantee valid for 90 days be invoked on the 91st day, if the 90th day happens to be a Sunday or a public holiday?
Nearly 30 years after the question was raised in a suit filed by ICICI Bank, the Bombay High Court last week upheld the invocation of a 90-day bank guarantee on the 91st day.
Dismissing an appeal filed by ICICI Bank, Chief Justice Swatanter Kumar and Justice JP Devadhar upheld Tata International Ltd’s move to invoke a bank guarantee valid for 90 days on the 91st day because the 90th day fell on a Sunday and the bank was closed.
The bank guarantee, which gave rise to the suit, was executed on March 13, 1978, for US$ 9000 by ICICI on behalf of Vishal International in favour of TIL, an international marketing company. The guarantee was conditional and valid for 90 days. However since the 90th day - June 11, 1978 - fell on Sunday, TIL invoked the guarantee on the 91st day - June 12, 1978.
Challenging the delay in invoking the guarantee, ICICI filed a suit in 1979 for recovery of Rs 76,613 (US $ 9000 with interest) stating that the guarantee was invoked after the guarantee period had expired. They argued that the contract of agreement was valid for 90 days. Thus, if it is invoked after the 90-day guarantee period, then guarantor cannot be made liable beyond the term of his agreement.
TIL, on the other hand argued that since the 90th day was a Sunday, invocation on 91st day cannot be said to be time-barred. Upholding TIL’s contention, the judges said in their April 10 order that the guarantee stated that it “is valid for 90 days from date thereon”. The judges noted that the guarantee did not state that the bank is liable only if the guarantee is invoked “within 90 days” or “not later than 90 days”. Also, the guarantee does not contemplate that if the 90th day is a Sunday then it would be valid only for 89 days.
Noting that the bank was closed on the 90th day, which was a Sunday, and had made no provisions to enable TIL to invoke the guarantee on that day, the judges held that therefore “it cannot be said that invocation of the guarantee on immediate next working
day of the bank was time-barred.”
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