Ultrabulk A/S v Jagatramka

A guarantee may impose a primary obligation equivalent to an on-demand bond rather than a secondary obligation mirroring the principal debtor’s liability. The court construes the instrument as a whole. Unconditional and irrevocable wording, payment of a sum equivalent to a defined liability, and an undertaking not to contest enforcement may demonstrate primary liability. A failure to obtain regulatory approval under Indian foreign-exchange law does not necessarily make a guarantee unenforceable where the applicable regulation preserves enforceability and imposes a fine instead. The absence of independent legal advice does not itself vitiate consent where the guarantor had an opportunity to obtain advice.

Ultrabulk A/S claimed under a personal guarantee given by Arun Kumar Jagatramka in respect of Gujarat NRE Coke Limited’s indebtedness. The defendant did not attend or participate in the trial. He advanced defences based on the drafting of the guarantee, its alleged status as a comfort letter, Indian foreign-exchange law, lack of capacity, the location of his assets, and alleged payments by Gujarat.

The central issue was whether the guarantee created a primary liability payable on demand for the defined sum, or a secondary liability limited to Gujarat’s liability after credit for payments.

1. Judgment for the claimant. Ultrabulk was entitled to US$4,259,395 plus interest at LIBOR plus 2% under the personal guarantee. The defendant’s absence from trial did not prevent determination of the claim, and he retained the right under CPR 39.3(3) to apply to set the judgment aside.
2. The guarantee was an on-demand bond. Although there was authority for a presumption against construing an instrument as an on-demand bond where it was not given by a bank or financial institution, the wording here clearly created a primary liability. The guarantee referred to a fixed sum, required unconditional and irrevocable payment on first written demand if Gujarat failed to pay by the specified date, and included an irrevocable undertaking not to contest enforcement.
3. The guarantee was not rendered unenforceable by the alleged absence of prior approval under the Foreign Exchange Management Act 1999. The accepted Indian-law evidence was that paragraph 3 of the applicable regulations did not require approval before entry into the guarantee. Even if approval was required and absent, the guarantee remained enforceable and the consequence was a fine.
4. The other defences failed. The defendant had been given an opportunity to obtain legal advice; the guarantee was intended to be enforceable rather than a comfort letter; there was no evidence of incapacity; and there was no evidence that all his assets were in India. The alleged payments by Gujarat were immaterial because the guarantee required payment of the defined sum.
5. A final anti-suit injunction was granted because the interim injunction had been continued and there was no reason to withhold final relief.