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Kudremukh Iron Ore Co. Ltd. Vs. Koruls Rubber Co. Pvt. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtKarnataka High Court
Decided On
Case NumberC.R.P. No. 113 of 1985
Judge
Reported inAIR1987Kant139; ILR1986KAR3313
ActsContract Act, 1872 - Sections 126; Code of Civil Procedure (CPC), 1908 - Order 39, Rules 1 and 2
AppellantKudremukh Iron Ore Co. Ltd.
RespondentKoruls Rubber Co. Pvt. Ltd. and anr.
Appellant AdvocateS.G. Sundaraswamy, Adv. for ;King & Partridge
Respondent AdvocateAnil Mehta and ;R. Malikarjuna, Advs. for ;Hegde Associates and ;V. Sridevan, Adv.
Excerpt:
- motor vehicles act, 1988 [c.a. no. 59/1988]section 168; [ram mohan reddy, j] quantum of compensation bodily injury - held, bodily injury is to be treated as deprivation entitling the claimant to damages, the amount of which varies according to the gravity of the injury. deprivation due to injuries brings with it there consequences, viz., (i) loss of earning and earning capacity; (ii) expenses to pay others for what otherwise he would do for himself; (iii) loss or diminution in full pleasures and joys of living. further, although it is not possible to equate money with human suffering or personal deprivation, the court has duty to make an attempt to award damages so far as money can compensate the loss. while considering deprivation, the court should have regard to the gravity and.....order1. this is a revision by the respondent no. i against the order dated 25th march, 1981, passed by the iv additional city civil judge, metropolitan area, bangalore city, in arbitration petition no. 12/1981, allowing i.a.i. and thereby restraining the first respondent from realising the bank guarantees until the disposal of the main arbitration petition.2. the parties are referred to with reference to their p6sition in the trial court.3. the petitioner korula rubber company private ltd., a private limited company, having its registered office at bombay, is carrying on business of manufacturing and selling rubber goods and rubber-lining of steel pipes and fittings. the respondent no. i kudremukh iron ore company ltd. is a government of india undertaking and is engaged in the business of.....
Judgment:
ORDER

1. This is a revision by the respondent No. I against the order dated 25th March, 1981, passed by the IV Additional City Civil Judge, Metropolitan Area, Bangalore City, in Arbitration Petition No. 12/1981, allowing I.A.I. and thereby restraining the first respondent from realising the bank guarantees until the disposal of the main arbitration petition.

2. The parties are referred to with reference to their p6sition in the trial Court.

3. The petitioner Korula Rubber Company Private Ltd., a private limited company, having its registered office at Bombay, is carrying on business of manufacturing and selling rubber goods and rubber-lining of steel pipes and fittings. The respondent No. I Kudremukh Iron Ore Company Ltd. is a Government of India undertaking and is engaged in the business of iron ore mining at Kudremukh. The respondent No. 2 United Commercial Bank is a Nationalised bank. The Engineers India Ltd. is the authorised inspection agent, nominated by the respondent No. I and Metchdhi in respect of the work of rubber lining of pipes and fittings entrusted to the petitioner under a contract. The respondent No. 2 bank has executed five bank guarantees in favour of -the respondent No. 1.

4. In May 1978, the respondent No. I floated, a tender for rubber-lining of steel pipes and fittings. The said tender also invited offers for the supply of steel fabricated items. The petitioner offered to do the work of rubber-lining of pipes and fittings and supply the other materials and to do the work of grooving and machining etc at the rates and on the terms and conditions mentioned in the letter-dated 22-6-1978. /Several negotiations went on between the petitioner and the respondent No. 1. The- petitioner submitted its final offer in August 1978, and it was accepted by the first respondent by its Purchase Order dated 28th September 1978. As per1he said order, the petitioner was to attend to the Work of rubber-lining of I pipes and fittings of approximately 8100 sq. mettles and for a total value of Rs. 27,78,431/-. The said contract was subject to some conditions and specifications mentioned therein. The, terms of payment were:

i) 20% of the order value to be paid as advance against a Bank Guarantee as per the' pro forma of the respondent No. 1;

ii) 70% against dispatch of documents and Inspection Certificates; and

iii) 101/6 within 60 days of receipt of materials and joint verification at site.

5. The petitioner was required to submit security deposit to the extent of 10% and give guarantee for workmanship, for defective materials- and life guarantee against total erosion of rubber-lining taking place. To an extent which exposed the materials during *t4e life guarantee. The said order provided for inspection of materials before dispatch in accordance with the technical specifications mentioned in the contract. The relevant clauses are:

'8. Security Deposit: You are requested to submit security deposit by way of Bank Guarantee to the extent of 10'/ value of order as per clause 3 of the General Conditions of' Contract wit bin 15 days. The Bank guarantee should be as per our pro forma from any of the banks approved by us and should be valid up to the expiry of the guarantee period.'

'9. Inspection : (a) The inspection shall be carried out prior to despatch by M/s. Canadian Metchdhi Consultants Ltd., 25, Mahatma Gandhi Road, Bangalore or their representative. (b) The inspection procedure/ programmed should be settled with the Inspection authority immediately on receipt of order and guarantee/test certificate and other data necessary as asked by M/s. Canadian Matched Consultants Ltd., should be furnished.'

'10(a): Workmanship Guarantee: The rubber-fining shall be guaranteed against defective material and workmanship for a period of 12 months from the date of commissioning or June 1981, whichever is earlier. This workmanship guarantee shall mean the rubber compound totally coming off from the metal because of poor workmanship/material. If such failures are noticed during the guarantee period, the replacement/repairs of rubber-lining shall be done by you at site free of cost.'

'10(b): Life Guarantee: Your rubber-fitting shall have a minimum life of 30 months from the date of commissioning or till December, 1982 whichever is earlier subject to same being stored and protected and subjected to the duty conditions specified in the tender documents.

This guarantee shall relate to the erosion of 6nim thick Rubber lining. The rubber-fining shall be deemed to have failed against fife guarantee, if total erosion of Rubber lining takes place and metal is exposed during this period. During the life-time guarantee period replacement shall be done on pro-rata basis, i.e., if the rubber lining of one pipe fails in the 15th month, against the total fife guarantee of 30 months. You shall bear 50% of the rubber-lining price. To and fro transportation charges of such pipes shall be arranged by you at your cost'

6. In or about July 1979, the respondent No, I drastically reduced the quantities in 11,11-1 fin4l scope of supplies and* unilaterally cancelled the order for rubber lining by 2073 sq. meters.

7. Disputes and differences arose between the parties. The petitioner by its letter dated 2nd April, 1980, set out the aforesaid facts and called upon the respondent No. I to pay an amount of Rs. 4,89,500/- as due to it for wrongful reduction -of the said quantity. By its reply dated 16th June, 1980, the respondent No. I denied the liability to pay the aforesaid amount. Hence, as required by Clause 32.1 of the General Conditions of Contract, the petitioner referred the said dispute- to arbitration by its letter' dated 21st July, 1980. Both the parties appointed their respective arbitrators.

8. Subsequent to the reference of the dispute to the arbitrators, the respondent .No. I complained about some of the rubber peeling off at the ends of the pipes and fittings. . Its first complaint was made in the middle of August, 1980,'by which time the petitioner had completed deliveries of nearly 95% of the pipes and fittings duly rubber-lined. Thereafter, a joint survey of the defects was carried out at Bhagwati lay down area and the area around the concentration section on 22-8-1980. The result of the joint survey was recorded in the Minutes of the meetings held at Malleswara on 22nd and 23rd August, 1980. The rubber on 3 pipes of 100 mm, I pipe of 125 min and few pipes of 400 min was found to be peeling off at the ends. The rubber on one 150 bend and the Reducer was found to have peeled off as a whole. The defects were summarized. It was arranged at the suggestion of respondent No. 1 that the petitioner would arrange for rubber lining/repair work at Kudremukh site itself. It was further arranged that the petitioner should depute its representative within a week thereafter along with materials/repair kits for taking up repairs in the following order:

(a) Pipes, fittings and adaptors already available on ground to be repaired first; and

(b) Pipes, fittings and adaptors to be dismantled line by line and repairs completed.

9. The petitioner on 29-9-80 sent its representative to Kudremukh site for final assessment of the damaged pipes and for planning regular repairs and a further survey of the pipes and fittings of different sizes was carried out. The repair crew carried out the repair work of bonding of loose ends through the pipes and fittings which was the only repair work till then pointed out by respondent No, 11 except for relining of 4 Nos. of pipes and 3 Nos, of fittings. A joint inspection report dated 20th November, 1980, of the rubber lined

pipes/fittings repaired by the petitioner was prepared stating that the repaired pipes were found to be peeling off from the end. Based on the said report, the Assistant Technical Manager of the petitioner inspected the rubber-lined pipes supplied by the petitioner, which had been repaired by the petitioner's crew by the cold bonding process. It was felt by respondent No. I that the bonding at the ends as a result of the said process was not adequate and therefore it was suggested that hot vulcanising method may be tried. It was decided that the petitioner would bring one steam generator and an autoclave from Bombay to Kudremukh site and initially carry out repairs to about 150 pipes and offer them for inspection. After it was accepted, the balance pipes would be rectified by the same process. Pursuant thereto, the petitioner despatched an autoclave and a boiler to Kudremukh site along with crew in or about middle of December, 1980, for redoing , the work of repairs to the pipes and fittings with the new process of hot vulcanising. Whilst the repair work was going on, there was labour trouble in the Bombay unit of the petitioner firm in the last week of January 1980, which fact was intimated by the petitioner to respondent -No. I by letter dated 9th February, 1981, however, or. 11-2-1981, the 'petitioner was surprised to receive a telegram from the respondent No. I am giving an ultimatum to commence rectification/ relining work on or before 16th February, 198.1 and to ensure completion thereof by 28th February, 1981. The petitioner was threatened that if the work was not commenced by 16th February 1981, completed by 28th February, 1981 respondent No. I would be constrained to take alternate action for relining by other sources at the best possible prices at the risk and cost of the petitioner without further reference to the petitioner. On the date when the petitioner received the said telegram dated 11-2-1981, the labour trouble at petitioner's Bombay undertaking had become very severe to such an extent that the petitioner and its executives and officers were being totally prevented by workers from entering the undertaking. Hence, the petitioner informed the respondent No. I by telex dated 171st February, 1981, that their officer Shri Mani along with crew would reach Kudremukh on 2-3-2-1981. The respondent No. I threatened to carry out the risk purchase action. The petitioner informed the respondent No. I that it is doing everything possible to carry out the work of repairs; but respondent No. I was really preventing the petitioner from carrying out repairs and therefore it called upon the respondent No. I to desist from so doing failing which the petitioner would take legal action, Since the Assistant Technical Manager resigned in the meanwhile, the Technical Manager was sent to the site on 28-2-1981 to carry out the repairs. The crew sent by the petitioner was not allowed to do the work, the threat of the respondent No. I to carry out the work by other sources is a clear violation of its rights and interests arising under the contract. It can still enforce its right to carry out the repairs. In continuation of the earlier dispute which had been referred to the arbitrators, the petitioner by its letter dated il-3-1981 referred this dispute also to arbitraian.

10. Thereafter, the present application was filed by the petitioner restraining the respondent No. I from encashing the bank guarantees and restraining the bank from paying cash to the respondent No. I .

11. The respondent No. I resisted the application.

12. The trial Court on a circumspection of the materials granted the injunction restraining the respondent No. I from realising the bank guarantees till the disposal of, petitions.

13. The respondent No. 1, being aggrieved, has come up with the present revision.

14. The learned counsel Shri Sundaiaswarny for the revision-petitioner referred me to thru- following decisions: : [1981]3SCR300 (United Commercial Bank v. Bank of India, : [1983]1SCR561 (Mahprashtra State. Electricity Board, Bombay v. Official Liquidator, High Court, Ernakulam, (19781; 1 ;UI ER 976 (17Award Owen Engineering Ltd. v. Barclays Bank International Ltd.), OR 1985 Delhi 237 (ACC Babcock Ltd. v.Straw Products Ltd.), : AIR1985Mad213 (Vinay Engineering v. Neyveli Lignite Corporation, Ltd.),, : AIR1985Cal23

(National Projects Construction. Corporation Ltd. v. G. Ranjan), AIR 1983al 91 (Road Machines (India) Private Ltd v. Projects & Equipment Corporation of India Ltd.). : AIR1983Delhi128 (Harprasad & Co. Ltd., New Delhi v. Sudarshan Steel Rolling Mills,) and AIR 1982 Delhi 78 (Pesticides India, Props Mewar Oil & Gen. Mills Ltd. v. State Chemicals & Pharmaceuticals Corporation India Ltd.).On the other hand, the learned counsel Shri Mehta, appearing for the petitioner attempted to distinguish the said decisions cited by the learned. counsel Shri Sundaraswarny, and relied on : AIR1975Cal145 (State Bank of India v. Economic

Trading Co. S.A.A.,) and : AIR1980Delhi174 (Harprasad & Co. Ltd. v. Sudarshan Steel Mills).

15. To appreciate the said rulings referred to by both the advocates, it is necessary to find out the meaning of the words

(i) Letter of credit;

(ii) Contract of guarantee; and

(iii) Contract of indemnity.

16. The learned author H.P. Sheldon his Practice and Law of- Banking, 8th Edition (Revised) has stated as:

I 'Letter of Credit :- There are various bonds of these, instruments. One kind is an I

I or addressed by one banker to another, requesting the banker to whom the letter is addressed to the party a specified amount of money, and to charge the issuing banker with the total amount of all cheque, payments made on the authority of the letter.

Another kind of Letter of Credit authorities the person named in the Letter to draw bills on the issuing banker at the tenor and up to the amount stated in. the Letter, -the issuing banker on his part promising to accept all bills drawn in accordance with his instructions. This kind of Letter of Credit is usually issued for a specified period, generally not longer than six months. If the. Letter undertakes the acceptance of bills without conditions, it is termed as 'Open or ' Clean' Letter of Credit. If the promise to accept is a conditional one, viz., that the documents of title to the goods in respect of which the bills are drawn shall be sent- to the issuing bank together with the bills for acceptance, the letter is called a Documentary. Letter of Credit.

Both these kinds of Letters of Credit contain a stipulation that the amount of all cheque or bills drawn under them shall be indorsed upon them. So that the Letters always show how much of the credit remains available.

Letters of Credit may be either Conch mod. or Unconfirmed, Irrevocable or Revocable, or in an authorised the negotiation of bills With or without recourse to the drawers. A confirmed Credit embodies a bankers written confirmation. If such a Credit be advised to the beneficiary through another banker, such advice does not carry the confirmation or guarantee of the advising banker unless it is. So stated. The terms of Confirmed or Irrevocable Credits cannot be altered without the consent of all the parties there to,' Ax Unconfirmed Credit is one which down not carry a banker's confirmation. From the beneficiary's point of view, the best form is a Banker's Confirmed Irrevocable Credit.'

'Letters of Credit ate not negotiable, and, also not transferable. If the person named ire, the Letter loses it, or has h stolen from him and the. finder or thief or any other person gets possession of the Letter and presents it to the banker to whom it is addressed, that banker will have to bear any loss should he negotiate any draft bearing the forged signature of the person named in the letter, as such a payment would be no payment as between the paying banker and the person rightly entitled to sign the drafts. A Letter of Credit states the limit of the credit and the, time during which it is held at the disposal of the grantee. These conditions and any others imposed by the grantor-banker must be rig6rously observed. No holder of a bill on which the signature of the grantee is forged can maintain an action against the grantor banker for refusing to accept such a bill, and the holder cannot- maintain an action unless the bill drawn on the authority of the Letter' complies with the terms expressed in the letter.

The banker, having pledged himself to pay drafts drawn under a credit, takes a letter of guarantee, and if necessary, security, from the person who has requested him to grant the credit. In the case of a. documentary credit, the banker has the security of the merchandise shipped. The terms the customer wishes embodied in A credit should be set out clearly in his request and passed on by the baker-the same way. Care is particularly needed where the terms. Of the credit have to be cabled. In the guarantee the guarantor undertakes to provide the funds necessary to meet the drafts before their maturity or undertakes to accept and pay them according to whether the bills are drawn on the banker or-on the guarantor himself. Of the specimen forms of credit given above, two are addressed, direct to the beneficiary and one to another bank.

In order to be able to, take advantage of a credit . opened in his favour, the 'beneficiary must see that he complies ,'Strictly with the terms, of the credit 'in every respect. The banker opening the credit cannot be expected to make all sorts of external inquiries as to whether the description of the merchandise, as given in the documents presented to him, does in fact conform to the credit although expressed in different way. The accepting banker is concerned only with documents which must conform precisely with the terms of the credit, these terms having been settled by the banker's principles., This principle was emphasised in-J.H. Rayner and Co. Ltd. v. Hambros Bank, ((1943) KB 37), and Bank Meffi Iran v. Barclays Bank (D.C. & 0), ((1951) 2 TLR 1057).

Letters of Credit are very useful instruments in facilitating commercial relations between, say, an importer here and a merchant abroad, or in financing the shipment of merchandise from one foreign country to another. The importer, for instance, gets his banker to issue a Letter of Credit undertaking to accept bills up to a certain amount drawn by the merchant abroad. Seeing that the credit of the importer is reinforced by the credit of the bank, the foreign merchant is in no doubt about receiving payment for the goods he exports. Moreover, he himself is able to use the Letter in order to get the bills negotiated or discounted, and so obtain payment for his produce, or in getting credit for the purchase of; he produce shipped. The Letter of Credit described above is a 'Confirmed Banker's Credit', and when once the Letter has been confirmed to the beneficiary, i.e., the person in whose favour the credit has been granted, the credit cannot be revoked except with the beneficiary's consent. Such transactions would be impossible unless it was clear that the grantor-banker must comply with the terms of the Letter irrespective of the state of accounts between him and the importer.' The essence of this Letter (of Credit)', said Earl 'Cairns, In re Agra & Masterman's Bank,

((1867) 2 Ch App 391),'is that the person taking bills on the faith of it is to have the absolute benefit of the undertaking in the Letter, and to have it in order to obtain the acceptance of the bills, which are negotiable instruments payable according to their tenor, and without reference to any collateral or cross claims.'

.. Another form of credit very frequently used in connection with the financing of Amounts of merchants and produce 1rom countries overseas to this country, and. Between foreign countries, is one under which bills, are drawn on the importer himself, the banker's services in the matter being requisitioned in order that the foreign exporter may be able to negotiate the bills he has drawn on the importer. The importer signs a document called a -Letter of Guarantee'. In which he undertakes to accept and pay all bills drawn under the credit in accordance with the terms and conditions set out therein. The credit is communicated to the beneficiary (or exporter) who can sell his draft to his local banker and so obtain payment for his produce. These credits are generally *Documentary*, and the bills must, therefore, be accompanied by bills of lading. invoices and insurance policies, though, as regards insurance, the matter may be arranged this side on receipt of cable advice from the shipper that the goods are ready for shipment. The bills drawn by the foreign exporter may be for the full invoice value of the goods, or for an agreed percentage, according to the terms of the contract between the parties. The banker who purchases (or negotiates) the bills sends them forward to a banker on this side, and gets as security the documents representing the produce. The latter is hypothecated or pledged to the banker as security under a 'Letter of Hypothecation% signed by the exporter. In which the banker is given power to sell the goods on default of the drawer to meet the bills. If the importer does not meet the bills in due course, the banker can sell the goods and thus recoup himself, and call upon the parties for any deficiency: It should be noted that in a credit of this nature. The exporter is fully liable as drawer of the hill, and that the transaction. In effect, is ale advance made on the joint responsibility of the drawer and drawer, with the merchandise as collateral security? The banker who issues the credit reserves to himself the right to cancel a credit of this nature in respect of any unused portion of the credit. On giving dt) notice to the parties concerned.

If the credit is so worded that the amount for which it is available automatically reverts to the original amount, it is termed a *Revolving Credit% that is to say, it may. E.g. authorised the drawing of drafts up to a limit of EIM) outstanding at any one time, in which case, as soon as the drafts have run off, the credit becomes available again, until cancelled. Or until the date of expiration.

In Sheldon and Fielder's Practice and Law of Banking, I Itch Edition, on page 542. it is stated as :

'An unconfirmed credit is one on which the issuing bank advises the credit as either revocable or irrevocable but the correspondent bank does not add its confirmation thereto.

Another form of credit, frequently used in connection with the finance of shipments of merchandise and produce from countries overseas to this country and between foreign countries, is one under which bills are drawn on the importer himself, the bank*s services in the matter being requisitioned in order that the foreign exporter may be able to negotiate the bills he has drawn on the buyer. The credit is communicated by the bank to the beneficiary who can sell (i.e. negotiate) his draft to his local banker, sometimes -without recourse'. And so obtain payment for his produce. This is known as a negotiation credit. -

Thus it becomes crystal clear that the letters of credit are mostly used between the seller and the purchaser in order to see that the seller gets his money without much difficulty.

17. Section 124 of the Contract Act defines the contract of indemnity as: -

'A contract by which one party promises to save the other from loss caused to him by the conduct of the promissory himself, or by the conduct of any other person, is called a contract of indemnity- '

Section 125 of the Contract Act reads as: -

The promise in a contract of indemnity, acting within the scope of his authority, is entitled to) recover from the promissory-

(1) All damages which he may be compelled it) pay in any suit in respect of any matter to which the promise to indemnify applies;

(2) All costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promissory, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promissory authorized him to bring or defend the suit;

(3) All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promissory, and was one which it would have been prudent for the promise to make in the absence of, any contract 43of indemnity, or if the promissory authorized him to compromise the suit.'

As to sub-section (1), it is,observious that when a person has altered his position in any way on the faith of a contract of indemnity, and an action is! Brought against him for the matter against which he has indemnified, it would be very hard indeed if when he, came to claim the indemnity the person against whom he claimed it could fight the question over again and run the chance of whether a different view could be taken. In the case of contracts of indemnity, the liability of the party indemnified to a third person is not only contemplated at the time of the indemnity, but is the very moving cause of that contract and in cases of such a nature the costs reasonably incurred in resisting or reducing or ascertaining the claim may-be recovered.

Section 126. Of the Contract Act reads as: -

'A contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the. Surety': the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written.'

There can be no contract of guarantee unless there be a principal debtor. The surety's obligation must be substantially dependent on a third person's default. A promise to be primarily and independently liable is not a guarantee, though it may be an indemnity. In a contract of guarantee there have to be three parties; (1) a principal debtor whose liability may be actual or prospective, (2) a creditor and (3) a third party who in consideration of some act or promise on the part of the creditor promises to discharge the debtor's liability if the debtor should fail to do so. In the case of indemnity, the promissory makes him primarily liable and undertakes to discharge the liability in any event. Therefore there is a lot of difference between the letters of credit on -the one hand and contract of indemnity on the other. There is also a lot of difference between the letters of credit on the one hand and contract of guarantee on the other. This distinction would be of much assistance in understanding the various views referred to by both the parties.

18. Shri Sundara Swamy. As already stated above. relied on United Commercial Bank v. Bank of India : [1981]3SCR300 . In the said Supreme Court case. it was on ' lee a letter of credit that was involved, but not a contract of indemnity or guarantee. The argument of the learned counsel Shri Sundara Swamy that the said ruling indicated that there was not much difference between letter of credit and contract of indemnity or contract of guarantee does not appeal to me in the least. There is no reference to contract of guarantee or contract of indemnity in the said Supreme Court case. Para 27 of the said Supreme Court case reads as: -The main point in controversy is : Whether the Court should in a transaction between a banker and a banker grant an injunction, at the instance of the beneficiary of an irrevocable letter of credit, restraining the issuing bank from recalling the amount paid under reserve from the negotiating bank, acting on behalf of the beneficiary against a document of guarantee/ indemnity at the instance of the beneficiary?'

In para 28 of the said Supreme Court case, it is stated as : -

'The nature of the contractual obligations flowing from a banker's letter of irrevocable credit and more particularly, the rights of the seller as the accredited party or beneficiary of the credit, against the issuing and drawer bank was dealt with by this Court in Tara pore and Co., Madras v. Tractors Export, Moscow, : [1969]2SCR920 . It was held that the opening of a confirmed 'letter of credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker an absolute obligation to pay. It was, however. pointed out relying on a passage in 'Charmers' Bills of Exchange' that it can hardly be over emphasised that the banker is not bound or entitled to honour the bills of exchange drawn by the seller unless they, and such accompanying documents as may be required there under, are in exact compliance with the terms of the credit. Such documents must be scrutinised with meticulous care. If, the' seller has complied with the terms of the letter of credit. However, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not.'

In para 32-B of the said decision. it is stated as

'The authorities are uniform to the effect that a letter of credit constitutes the sole contract with the banker, and the bank issuing the letter of credit has no concern with any question that may arise between the seller and the purchaser of the goods, for the purchase price of which the letter of credit was issued. There is also no lack of judicial authority, which lay down the necessity of strict compliance both by the seller with the letter of credit and by he banker with his customer's instruction. -

It is also stated in the same para as:- 'It is also elementary to say that a bank is .not bound or indeed entitled to honour drafts presented to it under a letter of credit unless those drafts with the accompanying documents are in strict accord with the credit as opened.'

In para 38 of the same ruling,, it is stated as: -

'In the light of these principles, the rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit.'

Para4l of the said Supreme Court case reads as: -

'A letter of credit some times resembles and is analogous to a contract of guarantee. In Elian v. Matsas (1966) 2 Lloyds Rep 495, Lord Denning, M. R., while refusing to grant an injunction stated : .... a bank guarantee is very much like a letter of credit. The courts will do their utmost to enforce it according to its terms. They will not, in the ordinary course of things, interfere by way of injunction to prevent its due implementation. Thus they refused in Malasv. British Imex Industries Ltd. (0958) 1 All ER 262). But that is not an absolute rule. Circumstances may arise such as it warrants interference by injunction.

19. Therefore a reference to the said various paragraphs would clearly bring out that there is a. marked distinction between letters of credit, contracts of guarantee and contracts of indemnity. The said Supreme Court case involved only a letter of credit. Therefore the reliance placed by the learned counsel Shri Sundara Swamy on the said decision will not help him in the least. Further even the said Supreme Court decision clearly lays down that it is the terms of the particular document that must be looked into by the courts while interpreting the tenor of that document. As it was a case of an irrevocable letter of credit, the temporary injunction granted by the High Court was vacated by the Supreme Court.

20. Shri Sundar a Swamy relied on Edward Owen Engineering Ltd. v. Barclays Bank International Ltd., (1978) 1 All ER 976. It is stated on page 981 as :-

-A performance bond is a new creature so far as we are concerned. It has many similarities to a letter of credit. with which of course we are very familiar. It has been long established that when a letter of credit is issued and confirmed by a bank. The bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit. That was clearly stated in Malas (Trading as Harnzeh Malas & Sons) v. British Imex Industries Ltd.. (1958 1 All I-R 262. Jenkins U, giving the judgment of this, Court. said : .....it seems to be plain that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes on the banker an absolute obligation to pay, irrespective of any dispute which there may be between the parties on the question whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that 6ankers' confirmed credits are of that character, -and, in my judgment, it would be wrong for this court in the present case to interfere with -that established practice.'

Further it has been stated in the said case as : -

'It is well established that a letter of credit is independent of the primary contract of sale between the buyer and seller. The issuing bank agrees to pay upon production of documents, not goods. This rule is necessary to preserve the efficiency of the letter of credit as an instrument for the financing of trade.'

It is further stated in the said case as:-

'That case shows that there is this exception to the strict rule; the bank ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances when there is no right to payment.'

Further it is stated on page 982 as:-

'Such is the law as to a confirmed letter of credit. How does it stand with regard to a performance bond or a performance guarantee'! Seeing that it is a guarantee of performance, that is a guarantee that the supplier will perform his contracted obligations, one would expect that it would be enforced in such a case as the following.-

It is further stated on page 983 as : - 'So, as one takes instance after instance, these performance guarantees are virtually promissory notes payable on demand.'

It is also further stated as : -

'All this leads to the conclusion that the performance guarantee stands on a similar footing to a letter of credit.'

Therefore even the said English law relied on by the learned counsel Shri Sundara Swamy emphasises on the footing that the document in question is a letter of credit.

21. Shri Sundara Swamy then relied on Maharashtra State Electricity Board, Bombay v. Official Liquidator, High Court, Ernakulam. : [1983]1SCR561 . The guarantee which came up for interpretation in the said case is stated in para 3 as : -

'The Canara Bank Ltd., hereby agrees unequivocally and unconditionally to pay, within 48 'Forty-eight) hours, on demand in writing from the Maharashtra State Electricity Board or any officer authorised by it in this behalf, of any amount up to and not exceeding Rs. 530000 Rupees fifty thousand only) etc., etc.

Therefore the guarantee that came up for interpretation in the said Supreme Court case contained an agreement to pay unequivocally and unconditionally on demand. Practically it was a promissory note payable on demand.

22. In para 7 of the said decision. the Supreme Court stated as : -

-Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rupees 50.(XX)/- and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. -

The Supreme Court further stated in para 7 on page 1500 as: - 'In view of the unequivocal language of the letter of guarantee, no reliance can be placed by the Company in liquidation on the decision of this Court in Punjab National Bank Limited v. Sri Bikram Cotton Mills : [1970]2SCR462 in which the surety's liability was limited to the. Ultimate balance' found due from the principal debtor and the said balance had not been ascertained before the institution of the suit.'

Therefore even the said Supreme Court case was decided on the wordings found in the bond of guarantee itself. It does not lay down the principle that in every case of guarantee the Bank is bound to pay the money to the party concerned irrespective of the fact as to whether any loss or damage is proved or not. Every document whether it be a contract of guarantee or a contract of indemnity must be considered by the Court with reference to the words found in the document and the tenor thereof. The Court should find out room the terms as to whether the Bank has given any unconditional or irrevocable promise to pay the person concerned irrespective of the fact as to whether any damage or loss is proved to have been sustained by it.

23. Shri Sundara Swamy relied on ACC Babcock Limited v. Straw Products Limited AIR 1985 Delhi 237. One of the conditions of the guarantee which came up for interpretation in the said Delhi case is found in para 5 of the said judgment. It reads as: -

5(2) We, State Bank of India do hereby agree to pay without any demur to SPL (Straw Products Ltd., defendant) on first demand an amount not exceeding Rs. 36,10,000/- (Rupees thirty-six lakhs ten thousand only for failure to fulfil the performance guarantee as per the contract.'

In para 6,it is stated by the Delhi High Court as:-

'From the perusal of the various clauses of this performance bank guarantee it is made out prima facie that the plaintiff does not figure anywhere as far as the enforcement of the same by the defendant against the bank is concerned and that the bank has undertaken to pay to the without any demur on first demand by the defendant,and the defendant has also been made the sole judge whether the plaintiff has fulfilled the performance guarantee as provided in the contract and the guarantee further makes the demand made by the defandant conclusive as regard the amount due and payable by the bank under the guarantee'.

In para 14,it is stated by the Delhi High Court as:-

'There was a bank guarantee. The Corportation made a demand on the bank to pay the amount covered by the guarantee. When Pesticides took note of this they immediately brought a petition and sought an injunction against the bank restraining it from making payment to the Corporation. The Question posed was as to what was the meaning and effect of the bank guarantee. There was also an arbitration clause in the contract between the parties. It was observed as under:- .....Whether the Corporation has committed breach of contract or Pesticides are in default is a question which has to be decided by the arbitrator.But the bank guarantee are independent of this dispute.They are autonomous in character.They are self-contained.The bank as undertaken to pay the amount of the guarantees in the event of default failure on the part of pesticides to observe all or any of the conditions regarding the supply of goods on first demand without protest or demur and without reference to Pesticides.They have further agreed to make the payment notwithstanding any contestation by pestcides or the existence of any dispute whatever between the Corporation and the Pesticides.It means this that the bank has agreed to pay unconditionally and irrevocably the amount of the bank guarantee in the event of default of Pesticides'.

24. In para 16, the Delhi High Court has to fulfill the performance guarantee as per the contract.'

stated as : -

'In a Calcutta case reported as Texmaco Ltd. v. State Bank of India (1979) 83 Cal WN 807, the bank under the performance guarantee, undertook irrevocably and unconditionally, obligations without any contestation, demur, or protest and/ or without any reference to the manufacturer. and/or without questioning the legal relationship subsisting between the exporter and the manufacturer, to pay the suin of money under the guarantee, on first demand being made by the exporter.'

Thus the argument of the learned counsel Shri Sundara Swamy by relying on the said decision that in a case of the present type (in hand, the bank is bound to pay notwithstanding the fact that an arbitration is pending between the parties or dispute has started between the parties and notwithstanding the fact that the amount of loss has not been as yet calculated or determined cannot be accepted because every contract entered into will have to b interpreted with reference to the specific terms or the words used in the bond itself. If the bond whatever be its nature shows that the bank has undertaken to pay without any demur or contestation on demand. It would be an irrevocable or unconditional contract and the bank if the contract is unconditional or irrevocable is bound to pay the amount to the person concerned notwithstanding fact that the arbitration proceeding disputes between the parties are pending.

25. Shri Sundara Swamy, as already dated above. Also relied on. Vinay Engineering V. Neyveli Lignite Corporation Limited, : AIR1985Mad213 . Condition No. 3 in the said bond which came up for interpretation in the said Madras case is to be found on page 220. It reads as: -

3. For this advance payment, we the undersigned Bank of Baroda hereby guarantee to the effect that we irrevocably undertake to pay to the purchaser upon the purchaser's first demand and without demur the amount paid by the purchaser in advance or part thereof etc.'

Condition No. 5 also reads as

This guarantee shall be valid till 11-31984 and the purchaser has the right to en cash the Bank guarantee up to 60 days from the said date. Unless a claim has been lodged or action taken against us under this guarantee before the said date, we the Bank of Baroda shall be deemed to be discharged of our liability and no action shall lie against us thereafter.'

In para 10 of the said Madras case, it is stated as :-

'The plain reading of Cl. 3 unmistakably points out that the bank guarantees are irrevocable and that on the Ist respondent*s demand and on the lst respondent advising the 2nd respondent that the appellant had faded to fulfil its delivery obligations in respect of bank guarantee I I / 13 and 11/94 and failed 10 Quail its obligations of erection and commissioning as regards bank guarantee 11/121 the bank is bound to make the payments forthwith.'

Therefore it was also a case of an irrevocable and unconditional contract.

26. Shri Sundara Swamy then relied on National Project Construction Corporation Ltd. v. G. Rajan. : AIR1985Cal23 . The bond that came up for interpretation in the said case also made it clear that the Bank had undertaken unconditionally and irrevocably to pay to the Corporation on demand and without demur. The said Calcutta case would also show that the words or the terms in every bond must be scrutinised. analysed and interpreted and it is on the analysis and interpretation of the terms entered into between the parties, the particular covenant will have to be enforced. The said Calcutta case does not support the view of the learned counsel Shri Sundara Swamy that in every case of guarantee given,: the bank is bound to pay the money to the person concerned notwithstanding any dispute or litigation subsisting between them. The Calcutta case also makes it clear that if the terms mentioned in the contract do not amount to an unconditional or irrevocable contract and if it does not contain any undertaking to pay on demand. The person concerned has no right to insist on the bank making the payment as mentioned in the guarantee.

27. Shri Sundara Swamy then relied on Harprashad and Co. Ltd., New Delhi v. Sudarshan Steel Rolling Mills. : AIR1983Delhi128 . What has been stated in the said case is as

'Merely because suits between the parties are pending would not. ipso facto, entitle the plaintiff to the grant of an injunction. Further a bank guarantee is a contract between the issuing bank and the person in whose favour the guarantee has been furnished. Though the bank guarantee may have been issued by the banker at the instance of its client. as far as the bank guarantee is concerned, it is a bilateral contract between the banker and the party in whose favour the guarantee has been furnished. The party at whose instance the guarantee has been furnished is, in a way, a stranger to the said contract of bank guarantee. The person in whose favour the bank guarantee has been issued has a right to ask the bank to fulfil its obligations in terms of the bank guarantee. If the terms of the bank guarantee entitled a party to ask for the payment of money from the bank then that right cannot be interfered with merely for the reason that there exists a dispute between the party and the client at whose instance the bank guarantee had been issued.- Ultimately even as per the said Delhi decision. The Court should consider the terms of the guarantee that is sought to be enforced against the Bank itself. Even in Pesticides India %. State Chemicals and Pharmaceuticals Corporation of India Ltd.. AIR 1982 Delhi 78, it is stated that the guarantee was, unconditional and irrevocable.

28. In State Bank of India Economic Trading Co.. S.A.A., : AIR1975Cal145 . it is stated as : -

'A bank guarantee has a dual aspect. It is n(.-A merely a contract between the bank and the beneficiary of the guarantee. it is also a security given to the beneficiary by a third party. In seeking to enforce the guarantee. the beneficiary in effect seeks to realise the security furnished by the third party and the third party has. therefore. locus standi to challenge the enforcement of the guarantee. In the case of a letter of a credit, however. Courts are slow to interfere with its operation not merely on the ground of their importance in international trade but also on the ground that the beneficiary is assured of the payment by the bank once he has complied with the terms and conditions of the letter of credit irrespective of his non-compliance with the contract into which he had entered with the third party or in other words on the ground of autonomy of the letter of credit.''

It has been stated in para3 on page 14h by the Calcutta High Court as : -

It was. Next, submitted that the State Bank of India had given an undertaking to the Bank of Alexandria to Pay without contestation or without protest. It was, then, submitted that there was an indemnity given by the State Bank of India to the Bank of Alexandria. Therefore, as a result of this indemnity the Bank of Alexandria was entitled to enforce the obligation of payment and in the premises such an order should not be passed which would hamper the international reputation and credit of the State Bank of India. Lastly. It was urged that there was an obligation or undertaking by the guarantee of instruction of the plaintiff to indemnify and make payment to the State Bank of India by the plaintiff by a letter dated the 29th August. 1967. Therefore. the impugned order was illegal and not in accordance with the law. In support of this contention reliance mainly was placed on a decision of the Supreme Court in the case of Tarapore and Co.. Madras v. Tractors Export. Moscow, : [1970]1SCR322 1. There what had happened was that in pursuance of a contract with a Russian firm for-supply of machinery, an Indian firm opened a confirmed, irrevocable and divisible letter of credit with a Bank in favour of the Russian firm. In a wit by the Indian firm alleging that the, machinery supplied was not up to the contract, the Supreme Court held that in that suit the,Court would not be justified in granting temporary injunction restraining the Bank as well as the Russia' firm front taking any further steps in pursuance of t he letter of create. The Supreme Court allowing t fie appeal expressed the view that an irrevocable letter of credit had a definite implication. It was a mechanism of 41reat importance in international trade. Any inference with that mechanism was bound to have serious repercussions on the international trade. Except under very exceptional circumstances, the Courts should not interfere with that mechanism. The Supreme Court further observed that opening of a confirmed letter of credit constituted a bargain between the banker and the vendor Of t lie goods which imposed upon the banker he absolute obligation to pay irrespective of any dispute there might be between the parties as to whether the goods were up to contract or not. A vendor of goods selling against a confirmed letter of credit was selling under the assurance that nothing would prevent him from receiving the price. If the buyer had an enforceable claim that adjustment must be made by way of refund by the seller ,and not by the way of retention by the buyer. The letter of credit was independent of and unqualified by the contract of sale or underlying transaction. The autonomy of an irrevocable letter of credit was entitled to protection. In these circumstances, the Supreme Court, interfered with the injunction granted by the trial Court. It has to be mentioned that in that case there was an irrevocable letter of credit the operation of which was being restrained by way of injunction. In the instant case the obligation between the State Bank of India act the Bank of Alexandria or the obligation between the plaintiff and the State Bank of India does not arise under any irrevocable letter of credit. The importance of irrevocable letter of credit being mechanism of international trade was emphasised by the Supreme Court because of special relationship between the banker and the customer. That principle will not supply to contract-or letter of guarantee given by a banker to a bank. That distinction has been clearly brought out in the bench decision of this Court in the case of Minerals and Metals Trading Corporation of India Ltd. v. Surajbalaram Sethi, (1970) 74 Cal WN 991. The Division Bench observed that a bank guarantee had a dual aspect. It was not merely a contract between the Bank and the beneficiary of the guarantees. It was also a. security given to the beneficiary by a third party. In seeking to enforce the bank guarantee the beneficiary of the guarantee, in effect, sought to realise the security furnished by the third party and the third party had, therefore, locus stand to challenge the enforcement of the guarantee.'

The said Calcutta case brings out a clear distinction between the letter of credit and a contract of guarantee. The said Calcutta decision is a clear authority for the proposition that it is a mistake to equate letters of credit with contract of guarantee or contract of indemnity.

29. In Harprashad and Co. Ltd. v. Sudarshan Steel Mills, : AIR1980Delhi174 , the point has been further clearly explained. The said Delhi decision clearly lays down the principle that every document or contract must be interpreted with due reference to the terms. In para 6. It is stated as

That the liability under a bank guarantee is absolute and cannot be evaded by raising disputes is illustrated by several decisions. But a perusal of each off these decisions would show that the absolute nature of the liability depended on the language of the guarantee in that particular case.'

30. Para 10 in the said Harprashad's case speaks about the conditions contained in the bond which came up for interpretation. It reads as :-

'The crucial conditions creating liability of the bank in the bank guarantee before us may be analysed from the bank guarantee as below

(1) In case M/s. Sudershan Steel Rolling Mills'fails;

(2) In the judgment of M/'s. Harprashad & Co. Ltd..

(3) To carry out and fulfill of the obligations assumed- under te said contract:

(4) We undertake to plan merely upon receipt of first written notice. Any amount covered by the bank guarantee thou nazi be claimed by M/s. Harprashad and Co. Ltd. for any reason or purpose. At their own discretion without it being necessary to issue declaration or take action through administration, legal or any other channels or to prove the default of A s. Sudershan Steel Rolling Mills and/or the veracity of the affirmation made by them.'

In para 11. the Delhi High Court has stated as :-

If that had been the intention of the parties the bank guarantee would not have said that the liability would arise on failure of respondent No. I in the judgment of the appellant to fulfil the terms of the contract. There is a distinction between the absolute liability. As contended by the appellant. And the absolute liability which arises after the terms of the bank guarantee are fulfilled. The intention of the parties according to the language of the bank guarantee was that the absolute liability should arise only after the terms of the bank guarantee are fulfilled. It was necessary for the appellant to show that it had become entitled to recover the amount under the bank guarantee because in its judgment respondent No. I had failed to perform any of the obligations Under the contract. The appellant has made no attempt show that it has complied with the conditions of the bank guarantee'

In para 12 it is clearly stated as :-

'The bank has itself a duty to satisfy itself that the demand by the beneficiary under the bank guarantee is made in accordance with the terms of the bank guarantee. -

In para 14 it is stated as: - 'Until the terms of the bank guarantee are fulfilled the amount is not placed into the pockets of the beneficiary. It still remains with the bank. It is no use for the beneficiary to save that the amount under the bank guarantee is payable to the beneficiary on demand if the demand must be preceded by a proper statement in the demand notice'

31. Thus a perusal of the ruling referred to by both the parties makes it clear that the Court must interpret every - document of contract with reference to the terms. Phrases and words used in it. The Courts should not hasten to interpret a particular document only with reference to the wordings used in some of the rulings referred to above. In each one of the said cases. peculiarities of the terms in the bonds, come up for interpretation. The sunvan&substance; of the principles laid down in all the said cases is that if the contract, entered into is an irrevocable or unconditional agreement and if the payment is required to be made without any demur or demand, the Court should he slow in restraining the party from encashing the bank guarantee. But on the other hand. If the bond which comes up for interpretation before, the Court, does not contain and irrevocable-or unconditional undertaking and does not contain anything to indicate that the payment should be made on demand, the Court should insist on compliance with the requirements laid down by the bond. The material terms (if guarantee No. I dated 2610- 1978 involved in this case reads as: -

'We undertake to indemnify you and keep you indemnified from time to time to the extent of Rs. 2,77.844,1- (Ruppes two lakhs seventy seven thousand eight hundred forty four only) against any loss or damage caused to or suffered by or that may be caused or suffered by you by reason of any breach or breaches on the part of the contractor of any of the terms and conditions contained in the said contract and in the event of contractor shall make any default or defaults in carrying out any of the works under the said contract or otherwise in the observance and performance of any of the terms an conditions relating thereto in accordance with the true intent and meaning thereof. We shall forthwith on demand pay to you such sum or sums not exceeding in total the said sum of Rs. 2.77,844/'- (Rupees two lakhs seventy-seven thousand eight hundred forty four only) as may be claimed by you as your losses and or damages, costs, charges or expenses by reason of such defaults on the part of the contractor.'

Therefore this condition only undertakes to indemnify the revision petitioner Kudremukh Iron Ore Company Ltd. from time to time if any loss or damages is caused to it or is suffered by it by the act of respondent No. 1. Therefore the question of indemnifying the Kudremukh Iron Ore Company Ltd., as contained in Cf. could depend upon the loss or damage Caused to it or suffered by it by the conduct of respondent No. 1. It further clearly lays down that the revision petitioner would be entitled to be indemnified by reason of any breach or breaches on the part of the contractor of any one of the terms and conditions contained in the said contract. Therefore it clearly goes to show that the revision petitioner would be entitled to the amount' only on proof of the breach or breaches on the part of the contractor of any of the terms and conditions contained in the said contract. It further makes it clear. That it has undertaken to indemnify the revision petitioner in a sum not exceeding Rs. 2,77,844/- This. In my opinion. Merely goes to show that the maximum liability which the Bank has undertaken is Rs. 2,77,844/-. It does not mean that even in the case small breach of a condition. The revision petitioner would be entitled to get Rs. 2,77,844/'- simply on the ground that it makes a demand. This clause makes it clear that there should be a relationship between the actual damage caused to it and the demand made. It does not contain any irrevocable or unconditional undertaking to pay the said amount of Rs. 2.77.844/-. Therefore the use of the word .sum or sums' also indicates that the revision petitioner must show the quantum of the damage or the loss caused to it and * that amount should not exceed Rs. 2,77,844,'-. Therefore the said condition. In my opinion. does not amount to an irrevocable or unconditional promise to pay on demand.

32. Condition No. 2 reads as :-

'Notwithstanding anything to the contrary your decision as to whether the contractor has made any such default or defaults and the amount or amounts to which you are entitled by reason thereof will be binding on us and we shall not be entitled to ask you to establish your claims under this guarantee but will pay the same on demand without any objection.'

If this is read along with the other terms found in the bond, it only follows that the decision of the revision petitioner as to whether the contractor has made any such default or defaults and the amount or amounts to which the revision petitioner is entitled by reason thereof will be binding on the Bank. If this is read along with the tenor of the document and other conditions' it only follows that the decision of the revision petitioner that the contractor has committed a default would be binding on the Bank. However this condition does not mean that the Bank has undertaken to pay the entire amount of Rs. 2.77.,844/- on demand.

33. Proviso to condition No. 3 reads as :-

'Provided always this guarantee shall in no event remain in force after the day of 30th September, 1980 without prejudice to your claim or claims arisen and demanded from or otherwise notified to us in writing on or before the said date which will be enforceable against us etc., etc.'

Therefore this goes to show that the demand must be made before the expiry of the period mentioned in the bond or before the expiry of the extended period. Here the period mentioned is 30th September, 1980. The period extended is 30th June, 1981. That alleged demand alleged to he made by the revision petitioner in September 1980 reads as :-

'We hereby prefer our claim against you for the amount covered under the guarantee. However. We have separately requested your clients to arrange the extension of the validity of the above Bank guarantee and you may treat this claim as withdrawn on the extension of the' validity of the Bank guarantee up to 31-12-1980'

It does not make any specific claim or demand as such. Simply stating that-we hereby prefers our claim against you for the amount covered under the guarantee- does not amount to a demand contemplated by the said various decisions.

34. The wordings found in the other four guarantees are also to the same effect. The so-called demands made also are contained in the same terms. Therefore I am of. The opinion that no specific demand has been made by the revision petitioner calling upon the Bank to pave. As alreadv itldicatme above, each one of the five guarantees which are the subject-manner of interpretation in this case does not contain any irrevocable or unconditional promise to pay.

35. Further all the five guarantees now sought it) he enforced. In my opinion, amount, to a contract of indemnity. If it is a case tit' contract of indemnity, the beneficiary must show the loss or the damage caused to it. If it is it case of indemnity. it can be enforced only after the amount is determined. So long as they are not determined, it would not be open to the revision petitioner to enforce it. Even if it is it case of contract of guarantee. The enforcement of the sonic would depend upon the fact as to whether there is a breach of promise to perform the contract or to perform the duty. Unless that is established. The guarantee cannot he enforced because each one of the guarantee its referred it above does not contain all- unconditional or irrevocable promise to pay. None of them in any opinion involves it promise to pay on demand notwithstanding the dispute between the parties or notwithstanding the subsistence (If arbitration proceedings between the parties.

Condition No. II reads as: -

Not with standing anything contained therein the liability of the guarantor under this guarantee is restricted it) Rs. 2,77,844(Rupees two lakhs seven, seven thousand eight hundred forty four only) and that this guarantee shall remain in force till its expiry on 30th September, 1980. Unless a suit or action to enforce it claim under this guarantee is filed against the guarantor within six months from the above said date of expiry i.e. on or before 31st March 1981, all the rights of the beneficiary under the said guarantee shall be forefeited and guarantors shall he released and discharged from all the liabilities thereafter.

As already shown above, no demand claiming a specific amount or alleging breach has been made before the expiry of even the extended date. Admitted1y no suit or action or claim has been made to; enforce the claim under this guarantee within six months from the above said date a expiry. There is no compliance with C1. 11 also of the bond therefore even viewed from this angle the revision petitioner cannot lay claim it this stage to the amounts mentioned in each of these five bonds.

36. The learned counsel Shri Sundara Swamy relied on Road Machine India Private Ltd. v. Projects and Equipment Corporation of India Ltd.v Projects and Equipment Corporation of India Ltd.. : AIR1983Cal91 and D.T.H.Construction (P) Ltd. V.Steel Authority of India Ltd.. : AIR1986Cal31 .in support of this contention

That the notice of demand need not be strictly in accordance with any of the Bank guarantee and it would not be an excuse for the bank for nonpayment.Any vague demand would not come within the meaning of there should be specified demand showing the breach and showing the approximate loss of damage caused to it by the conduct of the contractor.The language used in both these decisions will not given any understried right to the revision petitioner to contend that it has made a demand and t5han therefore theBank must compaly with its request.Therefore the said petitioner in this case

37. therefore the temporary injunction granted by the Court below needs to be confirmed though obviously not for the reasons mentioned by it but for the reasons stated above by me.

38. 1. A. No. 2 has been filed by the revision petitioner calling upon the Bank to deposit money in Court. The law provides I . Or the institution of a suit or an action in a Court of law. If the revision petitioner feels that he is entitled to that amount. He is at liberty to initiate an act ion. So long as it does not do it. I think this Court has no jurisdiction to call upon the Bank to deposit the money in Court. Therefore I.A. No. 2 also merits to be dismissed.

39. Respondent No. 2 Bank has filed a Memo in this case. It reads as: --

The undersigned has instructions to report that: -

1. Bank guarantees are not renewed.

2. Korulla Rubber Compani, has requested

The Bank whether the Bank is willing for renewal pending a reference for composite arbitration of the dispute.

3. The Bank is willing to renew the guarantees subject to the following :-

(a) Extension will be up to the date of making and publishing of award and for a period of (4) days thereafter.

(b) Extension will be in respect of liabilities. If any. as on date on which the guarantees were invoked.

This Memo is filed in answer to the* application made by the petitioner for an order directing the ind respondent Bank to deposit the value of the Bank guarantees into Court. A copy of the Telex message received from the 2nd respondent Bank at Bombay is enclosed herewith.- The Memo filed by the Bank is recorded. In view of this Memo, it is for the revision petitioner to express its view clearly as to whether it is going to wait till the making and publishing of the award as mentioned in the Memo. If the revision petitioner gives an undertaking to wait till the making and publishing of the award and for a period of N) days thereafter. It should intimate the sane to the Bank and the Bank in view of this Memo should comply with the undertaking given by it in the Memo.

40. In the result, the revision is dismissed.

41. No costs in this revision.

42. Revision dismissed.


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