Bombay HC Orders Return of Deposit and Discharge of Bank Guarantee

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 22.09.2026

Bombay HC Orders Return of Deposit and Discharge of Bank Guarantee

The Bombay High Court has permitted Kunal Sancheti Associates to withdraw the amount it had deposited before the Court pursuant to an interim stay order, along with accrued interest, if any, and has also ordered discharge of the corresponding bank guarantee after noting that the underlying recovery notice had already been declared illegal, null and void by the competent civil court.

Justice Gauri Godse held that once the decree was in favour of the applicant and the impugned recovery notice stood declared illegal, there was no surviving liability requiring the applicant to make payment to the State.

Dispute Originated From Section 48 Maharashtra Land Revenue Code Notice

• The dispute originated from a notice issued against Kunal Sancheti Associates under Section 48 of the Maharashtra Land Revenue Code, 1966.
• The firm challenged the notice by instituting a civil suit. However, the plaint was initially rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908, following which the applicant preferred First Appeal No. 784 of 2010 before the Bombay High Court.
• During the pendency of the first appeal, the High Court granted an interim stay subject to conditions requiring the applicant to deposit part of the amount covered by the notice and furnish a bank guarantee for another part of the amount. The applicant complied with those conditions, and both the deposit and bank guarantee remained with the Court.

Appeal Transferred to District Court; Suit Ultimately Restored

• Subsequently, because of a change in pecuniary jurisdiction, the first appeal was transferred to the District Court.
• The District Court allowed the appeal and restored the applicant’s civil suit. The litigation thereafter proceeded before the trial court.
• Eventually, by a judgment and decree dated 20 October 2021, the suit was decreed in favour of Kunal Sancheti Associates.
• The impugned notice was specifically declared “illegal, null and void”, and Defendant No. 3 was restrained from executing the order for recovery of the amount.

Deposit and Bank Guarantee Continued Despite Decree in Applicant’s Favour

• Despite the decree, the amount deposited before the High Court and the bank guarantee furnished pursuant to the earlier interim order dated 12 January 2011 continued to remain with the Court.
• Kunal Sancheti Associates therefore filed Interim Application No. 3183 of 2026, seeking permission to withdraw the deposited amount and requesting discharge and cancellation of the bank guarantee.
• The applicant argued that because the recovery notice itself had already been declared illegal and the decree in its favour had not been challenged, there was no longer any justification for retaining either the deposited money or the bank guarantee.

State Unable to Confirm Any Challenge to Decree

• The High Court recorded that the learned Assistant Government Pleader had been granted time on various occasions to verify whether the decree passed in favour of Kunal Sancheti Associates had been challenged.
• However, the State’s counsel had no instructions as to whether any such challenge had been filed.
• Counsel for Kunal Sancheti Associates stated that, to the applicant’s knowledge, the respondents had never challenged the decree.

No Liability Survives After Recovery Notice Declared Illegal: Bombay HC

• After examining the application and the decree passed by the trial court, Justice Gauri Godse accepted the applicant’s submission.
• The High Court held that, in view of the decree in the applicant’s favour, there was no liability upon Kunal Sancheti Associates to make payment to the respondents under the impugned notice, because that notice had already been declared illegal.
• The Court also emphasised the purpose for which the money had originally been deposited. It had not been deposited as satisfaction of a final adjudicated liability; rather, the deposit was made as a condition for obtaining an interim stay against implementation of the disputed recovery notice.
• Once the underlying notice itself ceased to have legal effect following the decree, the basis for continuing to retain the security also disappeared.

Bombay High Court Allows Withdrawal With Accrued Interest

• The High Court accordingly allowed the interim application and permitted Kunal Sancheti Associates to withdraw the amount deposited pursuant to the order dated 12 January 2011, together with accrued interest, if any.
• The Court further directed that the amount should be released in favour of the applicant upon production of an authenticated copy of the order.
• This part of the order is particularly relevant in disputes where substantial sums remain deposited before courts for extended periods solely because of interim protection granted during litigation.

Bank Guarantee Stands Discharged

• The Court also granted the second substantive relief sought by the applicant.
• The bank guarantee furnished pursuant to the High Court’s order dated 12 January 2011 was declared discharged.
• The Court directed that the bank guarantee be returned to Kunal Sancheti Associates so that it could be submitted to the concerned bank for cancellation.
• The Interim Application was consequently allowed in these terms.

Legal Significance of the Order

• The order illustrates an important procedural consequence when a litigant has furnished money or security merely as a condition for interim protection.
• Where the underlying demand is subsequently adjudicated against the authority and declared illegal, continued retention of the security may lose its foundation. In the present case, the Bombay High Court expressly linked the applicant’s entitlement to withdrawal and cancellation of the bank guarantee to the fact that the recovery notice had been declared illegal and, consequently, no liability remained payable under that notice.
• The ruling should, however, be understood in its procedural context. This order did not itself decide the original legality of the Section 48 notice. That issue had already been decided by the trial court through its decree dated 20 October 2021. The High Court’s order dealt specifically with the consequential release of the amount deposited and discharge of the bank guarantee.

Key Takeaway

The Bombay High Court’s order makes the position straightforward in this case: once the underlying recovery notice had been declared illegal, null and void, and the applicant consequently had no liability to make payment under that notice, the amount earlier deposited merely as a condition of interim stay could not continue to be retained.

Kunal Sancheti Associates was therefore permitted to recover its court deposit along with accrued interest, if any, while the bank guarantee furnished in 2011 was ordered to be discharged and returned for cancellation.

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Source: Bombay High Court

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