Bank of Baroda & Ors v GVK & Ors

A contractual term is implied only where it is necessary to give business efficacy to the contract or so obvious that it goes without saying. An interim arrangement preserving existing payment obligations cannot be construed as deferring enforcement where the alleged term contradicts its express wording.

A regulatory moratorium does not automatically alter contractual obligations where its application is discretionary, the borrower did not elect to use it, or the relevant accounts were already non-performing. Contractual default interest accrues from the due date until payment, although payment becomes due on demand. A guarantee demand is effective only once the contractual condition of non-payment has been satisfied, but an indemnity may provide an independent basis of liability.

The claimant banks sought recovery of sums advanced under 2011 and 2014 facility agreements, together with interest and agency fees. The second to tenth defendants were also sued under guarantees and indemnities relating to the 2011 facility.

The defendants did not attend the trial. The court proceeded in their absence under CPR 39.3, while considering their written expert and accounting evidence. The principal issues were the validity of acceleration and guarantee demands, the effect of Reserve Bank of India COVID-19 moratorium circulars, force majeure, limitation of interest, default interest and quantum.

1. Proceeding in the defendants’ absence. The court proceeded under CPR 39.3 but required the claimants to prove their case and to draw attention to factual or legal points potentially benefiting the defendants. The exercise was not a rubber-stamping exercise.
2. Governing law and implied terms. The facility agreements expressly selected English law. The existence of Indian insolvency proceedings and the other matters relied upon did not displace that choice. The alleged term in the Interim Solution Undertaking postponing enforcement until 2022, or requiring at least 12 months’ notice, contradicted clause 18.2, which preserved the payment obligations under the facility agreements. It was neither necessary for business efficacy nor otherwise capable of implication.
3. RBI moratorium. It was unnecessary to decide whether the circulars applied mandatorily to the lenders. The evidence and Small Scale Industrial Manufacturers Association v Union of India showed that the lending institutions retained discretion. The claimants offered a moratorium, but the defendants did not elect to accept it. In any event, the acceleration notice was issued after the moratorium period, the loans had already been classified as non-performing assets, and the instalments were not deferred. Default and compound interest therefore continued to accrue.
4. Force majeure. Section 56 of the Indian Contract Act 1872 did not suspend the parties’ obligations. On the evidence, COVID-19 did not strike at the basis or frustrate the practical purpose of the facilities, which had defaulted before the pandemic. If applicable, section 56 operated as frustration bringing the contract to an end, not as a suspension of obligations.
5. Guarantees and indemnities. The acceleration notice made the remaining instalments due. The demands delivered to the second to fourth defendants on 2 November 2020 preceded the company’s failure to pay on that date and did not satisfy clause 17.1. The demands received by the fifth to tenth defendants on 3 November did satisfy the contractual condition. Independently, the indemnity provisions made the relevant guarantors liable for the lenders’ loss.
6. Default interest and quantum. On the natural meaning of clause 10.6, interest was payable on demand but accrued from the original due date until actual payment. The applicable rate could be calculated retrospectively. The claimants established principal of US$1,132,450,591.19, interest of US$1,058,358,139.92 and outstanding agency fees of US$210,000.
7. Judgment was entered for the claimants, with a draft order to be prepared.