Bank Guarantee Claims Must Be Made Within Validity Period

The Hon’ble High Court of Bombay in the case of Commissioners of Customs (Export) v. Bank of India & Anr., (2025 SCC OnLine Bom 2850), dated August 6, 2025, reaffirmed the principle that a bank guarantee is a contract that must be enforced strictly in accordance with its terms, and that a claim made after the expiry of the stipulated period cannot be sustained. The Court rejected the attempt of the Customs Department to enforce guarantees nearly a decade after their expiry, holding that such belated enforcement is impermissible, even if the guarantee contains language suggesting continuity.

The petition arose out of four bank guarantees aggregating to approximately ₹1.95 crores furnished by Bank of India. The guarantees were expressly valid until May 31, 2011, and required any claim to be lodged in writing on or before that date, failing which the bank stood discharged of all liability. The party at whose instance the guarantees were issued subsequently entered into corporate insolvency resolution proceedings (CIRP), during which the petitioner’s [Commissioners of Customs’ (Export)] claim under the guarantees was rejected as time barred. No challenge was carried against that rejection. Despite this, in 2021, the petitioner invoked the writ jurisdiction of the High Court under Article 226 of the Indian Constitution, 1950, contending that the guarantees were in the nature of a continuing and personal guarantee which survived both the expiry of the specified period and the completion of CIRP.

The Court, after examining the rival submissions, held that the argument advanced by the petitioner was untenable. The guarantees were not revoked during their validity, but critically, no demand or written claim was made within the stipulated time. Instead, the first claim was raised only in 2018, long after the guarantees had lapsed. The Court emphasized that the operative clauses of the guarantees had to be read as a whole. While one clause described the guarantee as continuing and irrevocable during its currency, another clause, commencing with a non-obstante expression, unequivocally restricted the liability of the bank to claims made on or before May 31, 2011. In the absence of any such claim, the liability of the bank stood discharged. The Court noted that attempts to rely solely on the ‘continuing’ character of the guarantee overlooked this critical limitation.

Further, the Court clarified that the petitioner’s argument regarding personal guarantees surviving CIRP was misplaced, as the guarantees in question had expired well before the commencement of CIRP. Since no claim was lodged during their currency, no obligation could be fastened upon the bank thereafter. The Court also remarked that ordinarily, the enforcement of bank guarantees is a matter of contract and not amenable to writ jurisdiction, and that in any case, the terms of the contract on their face disentitled the petitioner to relief.

The judgment underscores the settled law that the liability of a guarantor bank is confined strictly to the terms of the guarantee, and that failure to act within the prescribed validity period extinguishes the right of the beneficiary to seek enforcement.