Safiya Malik

The Division Bench of the Kerala High Court comprising Justice Dr. A.K. Jayasankaran Nambiar and Justice Easwaran S. held that “invocation of the expired Bank Guarantees is not permissible under law”, thereby setting aside the Customs Department’s letter seeking to encash guarantees issued over a decade ago. The appellate court held that the invocation lacked legal efficacy, stating that the bank guarantees “are no longer valid and have since expired.”

The matter arose in an intra-court appeal filed against the dismissal of a writ petition by a Single Judge. The core issue pertained to the legality of invoking bank guarantees furnished under the Export Promotion Capital Goods (EPCG) Scheme, in light of insolvency proceedings and the stand taken by the issuing bank.

Also Read: Supreme Court Quashes Criminal Complaint, Calls It "Abuse of Process" for Suppressing Key Replies: Notes Accused Had "No Opportunity to Respond Without Documents"

The writ appeal concerned a dispute over the attempted invocation of bank guarantees issued by a public sector bank in favour of the Customs Department. These guarantees, originally furnished to secure duty exemptions under the EPCG Scheme, became the subject of contention after insolvency proceedings were initiated against the petitioner company. The primary judicial determination made by the Division Bench was based on the affirmation by the issuing bank that the guarantees had expired and the finding that, as such, the invocation could not be sustained under law. The Bench concluded that the communication issued by the Customs Department seeking encashment was “liable to be set aside.”

The appellant, a company engaged in the hospitality sector, had imported capital goods between April 2011 and March 2014 under the EPCG Scheme administered by the Central Government. In compliance with the scheme requirements, the appellant had furnished 45 bank guarantees totaling ₹4,14,72,500 through the then State Bank of Travancore, subsequently merged with the State Bank of India.

Due to financial distress, the hotel project did not commence operations, and the imported goods remained in packaged condition at the appellant’s premises. Thereafter, on the application of the financial creditor, the State Bank of India, the National Company Law Tribunal (NCLT), Kochi Bench admitted proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016. By order dated 31 December 2021, an Interim Resolution Professional was appointed, and a resolution plan was subsequently approved by the Committee of Creditors and the NCLT.

During the resolution process, the Customs Department lodged its claim before the resolution professional. The claim was, however, rejected and did not form part of the approved resolution plan. Consequently, the Department sought to encash the bank guarantees by issuing a communication dated 11 January 2023 to the bank. This action was challenged before the High Court.

The writ petition filed by the company was dismissed by the learned Single Judge who recorded that a challenge to invocation of a bank guarantee can succeed only in cases involving fraud or irretrievable injury. Since neither ground was pleaded nor established, the writ petition was rejected.

In appeal, Senior Counsel for the appellant contended that the bank guarantees were no longer in force, having expired on 8 July 2020. It was further submitted that the Customs Department, having failed to pursue its claim before the NCLT, could not seek invocation of the expired guarantees. The counsel relied on clause 7(2) of the guarantee documents, which specified that the validity period was from 9 July 2011 to 8 July 2020.

The counsel representing the Customs Department countered this position, arguing that the language of the guarantees did not support the assertion of expiry. A specimen guarantee was placed on record to contend that the issuing bank had undertaken to keep the guarantees alive until otherwise requested by the Department.

The State Bank of India, represented through counsel and supported by an affidavit sworn by the Assistant General Manager of the Stressed Assets Management Branch, maintained unequivocally that the bank guarantees had expired. The affidavit specified that “the Bank Guarantees were alive only from 9.7.2011 to 8.7.2020” and that the bank was under no obligation to honour claims made thereafter.

The Division Bench examined the submissions and considered the documentary record, including the affidavit filed by the State Bank of India. Referring to the affidavit dated 17 March 2025, the court recorded: “in the light of the unequivocal stand taken by the Bank… Ext.P10 letter by which respondents 1 and 2 sought to invoke the Bank Guarantees cannot be sustained.” The Bench categorically stated that “invocation of the expired Bank Guarantees is not permissible under law” and consequently held that “Ext.P10 has no efficacy of law and is liable to be set aside.”

Also Read: “Relocation Is Painful, But Necessary”: Calcutta HC Upholds NCLT Shift to New Town, Rejects Judicial Independence Concerns and Says, “Birth Pangs Must Be Overcome”

The Central Government Counsel for the Customs Department submitted that the bank’s assertion regarding expiry was inconsistent with its obligations under the contractual terms. The Bench addressed this by recording: “We are afraid that in this proceedings we cannot adjudicate the disputed questions of fact touching upon the interpretation of the contract of the Bank Guarantees.” It added that “respondents 1 and 2 will have to take recourse to the appropriate proceedings under law.”

The Division Bench allowed the writ appeal and the writ petition, setting aside Ext.P10, the impugned letter issued by the Customs Department for invocation of the guarantees. The Bench directed: “Ext.P10 is set aside leaving open the rights of respondents 1 and 2 to take recourse to appropriate proceedings under law qua the Bank Guarantees issued by respondents 3 and 4, in accordance with law.”

Advocates Representing the Parties
For the Petitioners: Sri K. Sreekumar, Senior Advocate; M. Balagopal, Advocate; R. Sreejith, Advocate; Ammu Charles, Advocate; Thressy Thomas, Advocate; R. Devika (Alappuzha), Advocate; Anjali Menon, Advocate
For the Respondents: Suvin R. Menon, Central Government Counsel; P. V. Vinod, Standing Counsel for State Bank of India

Case Title: M/s. ITMA Hotels India Private Limited v. Additional Commissioner of Customs & Others
Neutral Citation: 2025:KER:24902
Case Number: WA No. 2183 of 2023
Bench: Justice Dr. A.K. Jayasankaran Nambiar and Justice Easwaran S.

[Read/Download order]