Issuance of bank guarantee will not confer territorial jurisdiction on court: DHC

The Delhi High Court recently reiterated that merely issuance of bank guarantee within the territory of a court will not confer territorial jurisdiction on the court when the guarantee itself vests jurisdiction in courts outside India.

The Court said, “…….it is settled that if the cause of action has taken place in India and the Indian law applies, the parties cannot choose to vest territorial jurisdiction to try the suit in a Court which does not have the jurisdiction though they may agree to vest exclusive jurisdiction in one of such Court having jurisdiction, however, where one party is not subject to the law of India, the parties may vest jurisdiction outside the country in a neutral forum as has been done in the present case. The cause of action in the present case does not arise by virtue of the omnibus agreement between BHEL [Bharat Heavy Electricals Limited] and BOB [Bank of Baroda] as there is no prayer in respect of the omnibus agreement to be enforced or violation thereof alleged but of the Counter Guarantee and the Performance Bank Guarantee which both vest jurisdiction in Courts outside India.”

The case pertained to a power plant for which a state-owned company of Turkey (EGI) had a contract with BHEL. BHEL had issued a counter guarantee through an Indian commercial bank on the basis of which a performance guarantee was issued by the Indian commercial bank and EGI sought to enforce it after termination. The counter guarantee had a jurisdiction clause vesting exclusive jurisdiction to the commercial court at London.

The Court also held that failure to use the term only will not mean that the jurisdiction is not exclusive.

The court also held that paucity of time does not confer jurisdiction as time can be granted via interim orders.

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