Skip to content


Shiv Ispat Udyog P. Ltd. Vs. Indus Valley - Court Judgment

LegalCrystal Citation
Subject Company
CourtDelhi High Court
Decided On
Case NumberCivil Regular First Appeal No. 194 of 1983
Judge
Reported inAIR1984Delhi405b
AppellantShiv Ispat Udyog P. Ltd.
Respondentindus Valley
Cases ReferredHarprashad and Co. v. Sudarshan Steel Rolling Mills
Excerpt:
.....was not entitled to confiscate the guarantee amountthe case examined the extent of encashment of bank guarantee under sections126 & 124 of the contract act, 1872 - it was held that the encashment of bank guarantee was not permissible beyond the amount due under specific terms of the contract. - section 13: [altamas kabir & cyriac joseph,jj] custody of child - welfare of child vis--vis comity of courts - the minor girl child of 3 1/2 years was brought to india by her mother. the minor girl was a citizen of u.k. being born in u.k. her parents had set up their matrimonial home in u.k. and had acquired status of permanent residents of u.k. the child with her mother was supposed to return to u.k. but the mother cancelled her tickets and remained behind in india. the husband thereupon..........the purchaser agreed to the extension of time but 'without prejudice to our right of encashing the bank guarantee for default committed by you in supplying the material in terms of the agreement'. in the agreement dated september 19, 1978, clause 5 reads as follows : 'in case the second party does not supply whole quantity of goods in time then the second party will be penalised 1/1000% of the total value of the goods for every day's delay and the corresponding amount will be collected from the performance bank guarantee. in case the delay exceeds 7 days, then the first party will cancel the contract and will confiscate the guarantee of rs. 40,000 in his own favor.' 3. this was the term of the contract regarding damages on account of delay in delivery of goods. 4. it is disputed that on.....
Judgment:

Avadh Behari Rohatgi, J.

1. This is an appeal from the order of the Additional District Judge, dated July 30, 1983.

2. The appellant, Shiv Ispat Udyog P. Ltd., is the seller. They are a company engaged in the manufacture of nuts and bolts. They entered into a contract dated September 19, 1978, with the respondent purchaser, Indus Valley, for the supply of a large quantity of nuts. The value of the goods to be supplied was roughly Rs. 8,00,000. The goods were to be delivered on or before February 28, 1979. Before the time for the delivery of goods arrived, the seller wrote the purchased a letter dated February 2, 1979, asking for extension of time up to March 15, 1979. The purchaser agreed to the extension of time but 'without prejudice to our right of encashing the bank guarantee for default committed by you in supplying the material in terms of the agreement'. In the agreement dated September 19, 1978, clause 5 reads as follows :

'In case the second party does not supply whole quantity of goods in time then the second party will be penalised 1/1000% of the total value of the goods for every day's delay and the corresponding amount will be collected from the performance bank guarantee. In case the delay exceeds 7 days, then the first party will cancel the contract and will confiscate the guarantee of Rs. 40,000 in his own favor.'

3. This was the term of the contract regarding damages on account of delay in delivery of goods.

4. It is disputed that on September 21, 1978, the seller furnished a bank guarantee in the sum of Rs. 40,000. The Andhra Bank was the guarantor. The guarantee bond was submitted 'as per the contract' between the parties. As 'per the contract', the bank bound itself to pay a sum of Rs. 40,000. The guarantee bond expressly says :

'We hereby declare in case the manufacturer, M/s Shiv Ispat Udyog (P) Ltd., fails to manufacture the nuts as per the contract which is up to February 28, 1979, we will promptly pay to M/s Indus Valley the sum of Rs. 40,000.'

5. The purchaser claimed that they were entitled to realise the entire amount of Rs. 40,000 from the bank because there was a default on the part of the seller inasmuch as goods had not been supplied to them by February 28, 1979. The seller then filed a suit for declaration claiming that the purchaser was not entitled to receive the amount of Rs. 40,000 from the bank. The suit was dismissed on July 30, 1983. From that order the seller appeals to this court.

6. It is not denied that time for delivery of goods was extended up to March 15, 1979. Nor it is dispute that the seller delivered the goods by March 12, 1979. Now, in terms of clause 5, which we have quoted above, the purchaser is entitled to 1/1000 per cent. of the total value of the goods for each day's delay. This is his right. He has no right to claim or 'confiscate' the entire amount of Rs. 40,000, because the contract was never cancelled. Only where there is delay of more than seven days, the purchaser is given the right to cancel the contract and to 'confiscate the guarantee of Rs. 40,000'. But that is not the case here. In fact, under the contract, supply was made and was accepted by the purchaser. The second part of the clause will not, thereforee, come into operation. The first part of the clause giving a right to claim damages at the rate of 1/1000 per cent. of the total value of the goods is all that the purchaser is entitled to in this case.

7. The learned trial judge was of the opinion that the guarantee bond created an absolute liability on the seller and the purchaser was entitled to enforce his right to claim Rs. 40,000. He referred to Harprashad and Co. v. Sudarshan Steel Rolling Mills, : AIR1983Delhi128 , in support of his view. In our opinion, he was in error. This case is different from Harprashad's case. Here, the terms of the contract will govern the parties. The purchaser cannot claim anything more than what is stipulated in the contract. The guarantee bond was furnished in terms of the contract. The contract is paramount. The guarantee bond is subordinate to the contract. The rights and obligations of the parties are defined in the contract. The purchaser is entitled to damages in terms of the contract. The contract gives him a right to 'confiscate' the entire amount of Rs. 40,000 only if the delay exceeds 7 days and the purchaser cancels the contract. That will be a case where the seller has failed to deliver the goods. This is not so here.

8. The contract is of paramount importance. The guarantee is subordinate to its paramountcy. It is subject to its terms. The contract says that if there is a delay in delivery of goods, damages will be ascertained on each day's delay at a given rate. If there is no delivery at all for more than seven days, the purchaser will have a right to cancel the contract and confiscate the entire amount of Rs. 40,000. This is the long and short of the whole case.

9. We have calculated damages at the rate of 1/1000 per cent. of the total value of the goods and find that the purchaser will be entitled to Rs. 9,500 only. Mr. Dhir on behalf of the purchaser prays for interest on this amount. This request is granted. The amount of interest comes to Rs. 4,500 from the date of the order of stay passed by the court of first instance in the suit on March 27, 1979, up to date. thereforee, the respondent purchaser, Indus Valley, will be entitled to get Rs. 14,000 only in all from the Andhra Bank out of the security amount of Rs. 40,000 in full and final satisfaction of their claim for damages. The balance amount of Rs. 26,000 and interest, if any, will be paid by the Andhra Bank to the seller, Shiv Ispat Udyog (appellant). The bank will act strictly in accordance with our directions. The parties will be entitled to approach the bank. Shiv Ispat Udyog will be paid Rs. 26,000 and interest, if any. Indus Valley will be paid Rs. 14,000 only.

10. For these reasons, the appeal is accepted to the extent indicated above. The parties are left to bear their own costs throughout.

11. A copy of this order be sent to the Andhra Bank.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //