The Supreme Court has upheld the liability of Archean Industries Private Limited under a “Corporate Guarantee” executed in favour of Goltens Dubai for payment of USD 100,000 towards vessel repair charges, while simultaneously holding Canara Bank Overseas Branch liable for the erroneous remittance of the said amount to the vessel owner instead of the intended beneficiary.
A bench comprising Justice R. Mahadevan dismissed both Civil Appeal No. 13861 of 2024 filed by Canara Bank and Civil Appeal No. 13862 of 2024 filed by Archean Industries, arising out of the common judgment dated 16.08.2021 passed by the Division Bench of the Madras High Court in O.S.A. No. 423 of 2012.
The dispute originated from repair works carried out by Goltens Dubai on the vessel Master Panos in early 1998. After the vessel owner defaulted, a settlement reduced the liability to USD 377,562 on the condition of payment by 08.04.1998. Archean Industries, which had chartered the vessel for shipment of granite from Chennai to Newark, agreed under a Charter Party dated 09.03.1998 that a portion of the freight payable to the vessel owner would be diverted to Goltens.
By letter dated 22.04.1998, Archean assured Goltens that USD 100,000 would be remitted upon the vessel reaching Newark. On 25.04.1998, Archean issued a document styled as “Corporate Guarantee” explicitly undertaking to pay the amount upon first written demand after the vessel’s arrival and commencement of discharge at Newark. Pursuant to these assurances, Archean instructed its banker, Canara Bank, on 21.05.1998 to remit USD 100,000 to Goltens’ account at Standard Chartered Bank, Dubai, along with the requisite Form A-2.
Instead of complying with the specific instructions, Canara Bank erroneously transferred the amount to the vessel owner’s account in Baltimore, USA. Despite repeated demands and acknowledgments by Archean that the remittance had been wrongly made, payment was not effected to Goltens, leading to the filing of C.S. No. 933 of 1998.
The learned Single Judge decreed the suit against Archean while dismissing it against the Bank. The Division Bench affirmed Archean’s liability but granted it a third-party decree against Canara Bank for recovery of the sum erroneously remitted.
Before the Supreme Court, Archean contended that the document dated 25.04.1998 was not a contract of guarantee under Section 126 of the Indian Contract Act, 1872, but merely a freight payment arrangement, and that it had discharged its obligation by issuing clear instructions to the Bank. Canara Bank argued that it was bound by foreign exchange regulations and could not remit funds to a third party without RBI approval, and that it was not a party to the underlying arrangement.
Justice R. Mahadevan, after a detailed analysis of Sections 126 to 128 and 137 to 141 of the Contract Act, as well as precedents including Phoenix ARC Private Limited v. Ketulbhai Ramubhai Patel, Maitreya Doshi v. Anand Rathi Global Finance Limited, Bank of Bihar Ltd. v. Damodar Prasad, State Bank of India v. V. Ramakrishnan and Asset Reconstruction Co. Ltd. v. Electrosteel Castings Ltd., held that the communications dated 22.04.1998 and 25.04.1998, read together with subsequent conduct, constituted a valid and enforceable contract of guarantee.
The Court observed that the undertaking was clear, unequivocal and independent of the Charter Party Agreement. It further noted that Archean had itself retained the amount from freight and issued specific remittance instructions, thereby acting upon the guarantee and estopping itself from denying liability.
On the Bank’s liability, the Court held that once a customer issues clear instructions for remittance, the bank is duty-bound to comply or seek clarification. It cannot unilaterally divert funds to a third party. The erroneous remittance was acknowledged by the Bank itself as resulting from inadvertence. The Court rejected the Bank’s defence based on foreign exchange regulations, holding that even in the absence of RBI approval, the Bank ought to have withheld the amount and awaited further instructions rather than transferring it contrary to the mandate.
The Supreme Court affirmed the third-party decree passed by the Division Bench, enabling Archean to recover the amount from Canara Bank. Both appeals were dismissed. The judgments and decrees of the Madras High Court were affirmed in their entirety.
Canara Bank Overseas Branch v. Archean Industries Private Limited & Anr. (with connected appeal) | 2026 INSC 247
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