Bank of India v Firestar Diamond FZE (a company incorporated in Dubai) & Ors

A contractual guarantee remains enforceable where regulatory approval is capable of being obtained retrospectively, even though approval was absent when the guarantee was given. The guarantor responsible for obtaining approval cannot rely on that omission to avoid liability. A contractual notice clause is construed objectively. Service is valid when undertaken by one of the contractual methods and delivered to the stipulated address, unless the contract requires actual receipt. A guarantee may be enforced without a prior demand on the principal debtor where the guarantee so provides. Where a contract specifies how an unavailable benchmark rate is to be replaced, using the contractually identified equivalent rate is not a variation requiring the guarantor’s consent.

The Bank sought payment from Mr Modi under a personal guarantee securing liabilities of Firestar Diamond FZE. The principal borrower had previously become subject to summary judgment for USD 4,105,189.34, which remained unpaid. Mr Modi disputed service of the demands, contended that the guarantee was void or unenforceable under regulation 3 of the Foreign Exchange Management (Guarantees) Regulations 2000, and challenged interest charged after synthetic LIBOR ceased to be published.

The court also considered whether earlier demands had been validly served, whether the borrower’s liabilities were properly demandable, and whether the post-LIBOR interest calculation released Mr Modi under section 133 of the Indian Contract Act 1872.

1. October 2025 demand. The demand was validly served at the contractual Indian address. Actual receipt was not a contractual precondition, although the court found that Mr Modi had in fact received it. The demand identified indebtedness of the borrower which Mr Modi had guaranteed.
2. Prior demand on the borrower. Clause 7 of the guarantee expressly provided that the Bank need not first claim against or demand payment from the borrower. In any event, valid demands had been made on the borrower. The facility was repayable on demand under clause 6.1.
3. FEMA enforceability. The court accepted the Bank’s expert evidence. Regulation 3 placed the obligation to obtain approval on Mr Modi. The guarantee remained a valid and binding document because the Reserve Bank of India could grant approval retrospectively. The Bank’s knowledge of the absence of approval did not make the guarantee void or unenforceable.
4. April 2018 demand. The demand was properly posted to the contractual address and was delivered on the balance of probabilities. The notice clause permitted service by letter and did not require registered post. The clause was construed objectively by reference to Chartbrook Ltd v Persimmon Himes Ltd [2009] AC 1101.
5. Interest. The facility agreement defined the replacement methodology where LIBOR was unavailable. The Bank’s use of SOFR was an exercise of its contractual rights, not a variation. Section 133 of the Indian Contract Act 1872 was therefore not engaged.
6. Disposition. Mr Modi was liable under the guarantee for the principal sum of USD 4,105,189.34 and the applicable interest. The court’s additional findings were recorded for costs and in case of challenge.