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Vinay Engineering Vs. Neyyeh Ligonite Corporation Limited and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai High Court
Decided On
Case NumberO.S.A. Nos. 85 to 88 of 1983
Judge
Reported inAIR1985Mad213; (1985)1MLJ426
ActsIndian Contract Act, 1872 - Sections 126 and 128; - Code of Civil Procedure (CPC), 1908 - Order 39, Rules 1 and 2; Constitution of India - Article 136
AppellantVinay Engineering
RespondentNeyyeh Ligonite Corporation Limited and anr.
Appellant AdvocateAdv. General for ;K. Muthukmaraswamy, Adv.
Respondent AdvocateK.K.Venugopal, Adv. for ;S. Ramalingam and ;C. Hanumantha Rao, Advs.
Cases ReferredSupreme Court In M.S.E.B. Bombay v. Official Liquidator H.C. Ernakularn
Excerpt:
contract - bank guarantee - indian contract act, 1872 - appeal to restrain first respondent from enforcing three bank guarantees - first respondent wrote letter to second respondent-bank invoking three bank guarantees and demanding full payment on ground that appellant had failed to fulfill its obligations under contract - bank guarantees were irrevocable - bank bound to make payments as appellant failed to fulfill its obligation - documentary evidence established that first respondent's demand on second respondent was in strict compliance with terms in guarantee - respondent bank had no escape but to pay amount to first respondent - appeal dismissed. - - transelektro to the chairman cum managing director of the ist respondent, we propose to extract the said clause :to overcome the.....shanmukham, j.1. in these appeals, three common questions arise for consideration. they are; (i) whether the three bank guarantees executed by the 2nd respondent bank in favour of the ist respondent are independent contracts divorced from the contracts entered into between the appellant and the ist respondent titled contract no. 11 (ii) whether they are conditional or unconditional contracts and (iii) whether the ist respondent's demand on the 2nd respondent bank when the former sought to enforce the bank guarantees is in conformity with the terms contained in these guarantees,2. the appeals are directed against the common order of maheswaran, j. made in applications 188 to 190 and 402 to 404 of 1983 dated 30-4-1983. in all these applications, the appellant was the applicant while.....
Judgment:

Shanmukham, J.

1. In these appeals, three common questions arise for consideration. They are; (i) Whether the three bank guarantees executed by the 2nd respondent bank in favour of the Ist respondent are independent contracts divorced from the contracts entered into between the appellant and the Ist respondent titled contract No. 11 (ii) whether they are conditional or unconditional contracts and (iii) whether the Ist respondent's demand on the 2nd respondent bank when the former sought to enforce the bank guarantees is in conformity with the terms contained in these guarantees,

2. The appeals are directed against the common order of Maheswaran, J. made in applications 188 to 190 and 402 to 404 of 1983 dated 30-4-1983. In all these applications, the appellant was the applicant while respondents 1 and 2 are the respondents therein. O.S.A. No. 85 of 1983 is against application No. 403 of 1983; 0. S. A. 86 of 1983 is against application No. 188 of 1983; O.S.A. 87 of 1983 is against application No. 189 of 1983 and O.S.A.88 of 1983 is against application No. 404 of 1983. It may be noticed that no appeals were preferred against application Nos. 190 and 402 of 1983.

3. The admitted facts that led to the filing of these interlocutory applications, are set out below: - Neyveli Lignite Corporation Limited proposed to start a second lignite mine at Neyveli with the approval of the Government of India. In view of the importance and urgency in the execution of the said proposal, a global tender was called for by the Ist respondent, Neyveli Lignite Corporation Limited. Finally, the offer made by M/s. Transelektro was accepted by the I st respondent. The contract between the I st. respondent and Transelektro, is titled contract No. 1. The said contract enabled M/s. Transelektro to choose an Indian firm for erection work and accordingly, the applicant was selected as the Indian firm for erection work. Besides, Transelektro has a corporate agreement with E.V.T. West Germany. A tripartite agreement was concluded amongst Transelektro, EVT, West Germany and the 1 st respondent covering the scope of equipments under contract No. I and between the applicant and the Ist respondent under contract No. 11.On 18-10-1980. the Ist respondent issued letters of indent not only to Transelektro under contract No. 1, but also to the appellant under contract No. 11. This letter of indent authorised the commencement of the work, which also provided for time schedule. It is enough to refer to some of the relevant clauses in contract No. 11. The contract price in respect of contract No. 11 was Rs. 23.64.36,823 which is made up of Indian supplies, Rs. 14,52,56,025, Rs. 14,52,;6.025 erection and commissioning Rs. 8,72,90,000/- while service charges Rs. 38,90,798. The terms of payment for the price component of the equipment and its erection are as follows : -

'(a) Initial advance of 10%, on supplies;

(b) 10% of erectioning charges to be made within one month from the date of letter of indent:

(c) 10% of the value of supplies within the next one month:

(d) 55% against despatch of equipment:

(e) 15% on receipt of equipment

(f) 10% on completion of the performance test: The contractor namely, the appellant was to furnished bank guarantee to cover the advance amount to be paid under (a), (b) and (c) above. With provision for pro rata ireduction as contemplated by the contract.

The contract provides for termination of the contract under two heads. -

Clause 40(1) enables the Ist respondent to terminate the contract on the basis of certificate issued by the consultants. Clause 40(6) provided that in case of termination of the contract, the Ist respondent shall give detailed reasons for relevant causes within -30 days prior to such a decision and/or notice to be intended to the appellant in order to enable the Ist respondent/ consultant and the appellant to confirm and control all causes and facts for the proper solution of works. Clause 23(l) provides for arbitration in case of difference, dispute, etc. For the first 10% of initial advance on the price amount by the 1st respondent to the appellant, the 2nd respondent bank executed bank guarantee No. I 1/ 13 on 12-3-1981 for Rs. 1,45,25,602.50. For the second 10% of the initial advance made by the Ist respondent to the appellant, the 2nd respondent bank executed bank guarantee No. 11/94 dated 2-6-1981 for Rs. 1,45,25,602.50 and for 10% of the initial advance in respect of erection charges made by the I st respondent to the appellant, the 2nd respondent executed bank guarantee No. I 1/ 121 dated 1-8-1981 for Rs. 87,29,000,. On 2-1-1982, the Ist respondent issued notice both to Transelektro and the appellant for termination of the contract. The appellant and Transelektro took exception to the said termination. On 15-6-1982, the appellant made reference to arbitration relating to several questions which included the right of the Ist respondent to terminate the contract and also to enforce the bank guarantees. On 1-7-1982 the Ist respondent filed O.P. No. 191 of 1982 Linder S. 33 of the Arbitration Act for declaration that the arbitration proceedings commenced by the appellant on 15-6-1982 are illegal and for stay of the said arbitration proceedings. In the meanwhile on 30-9-1982, a joint proposal was made by Transelektro and the appellant which according to the appellant, was also accepted and acted upon by the Ist respondent. The relevant features to be noticed for the disposal of these appeals are: - (a) Though originally the appellant had to manufacture 22,000 tonnes of steel structures, by virtue of the joint proposal, the same was reduced to 3,450 tonnes of structures with the appellant's own steel. (b) Transelektro was to supply required steel for all remaining indigenous manufacture. (c) Fabrication of all such indigenous materials was to be Subcontracted to selected Indian parties in consultation with Transelcktro. (d) A sum of

Rs. 5.06 crores from the contract price of the appellant for supplies was to he reduced. As the controversy rested on 1,ara 2(B) in the letter dated 30-9-1982 from M s. Transelektro to the chairman cum Managing director of the Ist respondent, we propose to extract the said clause :-

'To overcome the difficulties occurred regarding the provision of erection crane for which import licence is not possible for VE Transelektro is ready to supply one or two cranes which suit the purposes of erection works, on a lease basis against a payment in. foreign exchange equal to Rs. 75,00,00/- This amount can be met by deducting an equivalent amount from the erection portion of VE's contract. Necessary help will be required front NLC for getting the licence for temporary import of the cranes. NLC will have no other financial liability in respect of the cranes except transfer of Rs. 75,00,000 from Vinay's contract to EE's contract in DMs. The detailed terms of payment regarding the leasing of the above crane shall be discussed and mutually agreed upon.'

On 8-12-1982. the Ist respondent called upon the appellant to finalise the sub contracting arrangement on or before 20-12-1982. The appellant is said to have finalised the subcontracting arrangement which is also alleged to have been approved by the Ist respondent. On 23-12-1982, Transelektro sent a telex to the I st respondent which is as follows : -

'Mr. K. S. Sastry Director Finance NLC. This is to thank you before all for your all out efforts to achieve progress in the matter of finalising the amendments during my stay. It is however with regret that I have to advise you that due to the last, minute postponement by you of making binding commitment we were incapable to achieve further extension of the option with the owners of the cranes. The owners went out on their way with us in accommodating you but were not in the position to keep the matter in suspense any longer against ruling of authorities to use the cranes for it Government project. The crane being essential element of the erection scheme we only hope that your action in procuring the same will be successful the more as it has enjoyed full support of KEW from its inception. KEW has been informed simultaneously.

Best regards Lindner -- Transelektro. The reply sent by the I st respondent to Transelektro is dated 24- 11-98 and is extracted below

'From K. S. Sastry Director Finance NLC for M.s Transelectro Attn: Mr. Lindner. We are in receipt of your telex dated 24 -12-1982 through Ms. Khemka. To say the least we are shocked and disappointed. This is not in accordance with the spirit of discussions or agreement reached so far. We have to reiterate that NLC have given you all necessary clearances to your entire proposals before the due date viz. 20-12-1982 required by you including for cranes. In fact but for our insistence and pressure you would not have been able to finanlise proposals and issue letters of intent to sub-contractors. Even during last meeting on 19-12-1982 1 made it very clear that you should go ahead with complete proposals including leasing of cranes: We have to categorically state that as per contract it is for Transelektro and Vinav Engg,,. to make necessary arrangements for cranes required cranes Ecc for the erection. This is also its per agreement reached at Frankfurt during discussions in Oct. 1982 NLC. is not in a position or prepared to take responsibility for providing of the required cranes at this stage nor it is possible to obtain necessary foreign exchange and import formalities for this import. Govt. of India also will view your present attitude to go back on your agreed proposals with very great concern. Kindly therefore immediately make necessary arrangements in accordance with agreements already reached and as per your proposal dated 30th Sept. 1982 and 4th Dec. and confirm. We are also making copy of this to KEW for information. Regards K. S. Sastry.'

On 17-1-1983 the Ist respondent wrote a letter to the 2nd respondent bank invoking three bank guarantees and demanding full payment on the ground that the appellant had failed to fulfil its obligations under the contract. In the meeting held on 18-l-83 the Ist respondent had informed the appellant that Transelektro expressed its inabilirty to provide erection crane which was essential for the appellant to carry out erection work and therefore directed the appellant to make alternative arrangements for erection crane or to find out sub-contractor for erection. On 19-1-1983. the I st respondent issued notice of termination of contract No. 11. As already stated. the I st respondent on 17-1-1983 sought to enforce the bank guarantees. It is relevant to state here that the Ist respondent wrote three letters all dated 19-1-1983 to the Senior Manager. Bank of Baroda, New Delhi demanding payment forthwith of the guarantee amount stating that the appellant had failed to fulfil its obligations under the contract. To these letters, the 2nd respondent bank sent three replies all dated 19-1-1983 informing the Ist respondent that the letters demand was being examined by the former's solicitors and the bank would be writing to the latter in this matter on hearing from the solicitors. Immediately, on 19-1-1983, the branch office of the Ist respondent at New Delhi wrote to tile Senior Manager, 2nd respondent bank three letters stating that in respect of bank guarantee numbers 11/13 and 11/ 94, tile appellant had failed to fulfil its delivery obligations under the contract, while in respect of bank guarantee No. 11/121, the appellant had failed to fulfil its erection and commissioning obligation under the contract. It may be useful to notice that in the bank guarantee 11 94 under cl. 3 on the advice by the I st respondent to tile 2nd respondent that the appellant had failed to fulfil its delivery obligations stipulated in the contract, the 2nd respondent bank is bound to pay the guarantee amount. As the contract stipulated that the advice should he that tile appellant had failed to fulfil its delivery obligations as regards bank guarantee numbers 11/13and 11/94 and had failed to fulfil its obligations of erection and commissioning stipulated in the contract regarding bank guarantee No. 11/121 branch office of the Ist respondent at New Delhi wrote the three letters dated 19-1-1983 quoting the very expression stipulated in the bank guarantees.

4. Application No. 188 of 1983 is for an injunction restraining the 2nd respondent bank from making any payment to the Ist respondent tinder the three bank guarantees while application No. 189 of 1981 is for an injunction restraining the Ist respondent front invoking and receiving, any payment under the said bank guarantees. The reliefs claims in both the said applications are the same and that is to restrain the Ist respondent from enforcing the three bank guarantees. The relief is again claimed in application No. 404 of 1983, while what is claimed in application No. 189 of 1983 is claimed in application No. 403 of 1983. The learned Judge finally dismissed all the four applications. Hence, these appeals by the same applicant in all those said applications.

5. The learned Advocate-General appearing for the appellant submitted that the bank guarantees are not independent contracts and that on the other hand, their enforcement depended on the applicants laches or default in its performance of contract No. I I and that, therefore, Ist respondent's enforcement of these guarantees is arbitrary, illegal and fraudulent. The second contention is that the bank guarantees are conditional and that unless the Ist respondent satisfied that the appellant had failed to perform its obligations under the contract, the Ist respondent is not entitled to invoke the bank guarantees and to demand payments. It is also argued that in any event, the Ist respondents demand for enforcement of bank guarantees is not in conformity with the terms therein.

6. In M.S.E.B. Bombay v. Official Liquidator, H.C. Ernakulam : [1983]1SCR561 , the terms of the bank guarantee are set out in para 3 arid is as follows: -

'Pursuant to the above term the company in liquidation offered on Sept. 1, 1966 a bank guarantee for a sum not exceeding Rs. 50,000/- given by the Canara Bank Ltd. (now known as Canara Bank and hereinafter referred to as the Bank). The relevant part of the said guarantee was as follows :- '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 upto and not exceeding Rs. 50,000/- (Rupees fifty thousand only) to the said Maharashtra State Electricity Board, Bombay on behalf of M/Is. Cochin Malleables ( Private) Ltd., Trichur, who have tendered and/or contracted or may tender or contract hereafter for supply of materials, equipment or service to the Maharashtra State Electricity Board and have been exempted from payment of earnest money and/or security deposit against such tenders or contracts.'

While construing the bank guarantee, the following dictum was laid down by the Supreme Court :--

'The principal question which arises for determination in this appeal relates to the effect of the liquidation proceedings on the right of the Electricity Board to recover from the bank the sum of Rs. 50,000/- as per the terms of the bank guarantee. It cannot be disputed that the terms of the document on the basis of which the Electricity Board has claimed the amount from the Bank constitute a contract of guarantee and not a contract of indemnity. Under that document the Bank has undertaken to pay any amount not exceeding Rs. 50,000 to the Electricity board within forty eighty hours of the demand. The payment of the amount guaranteed by the Bank is not made dependent upon the proof of any default on the part of the Company in liquidation. It may be that in order to give the said guarantee, the Bank had in its turn taken as security from the Company in liquidation certain fixed deposit receipt and a certain quantity of imported zinc ingots and t at the Bank had certain rights in respect of those securities. There may also be some claims or counter-claims arising out of the contracts of supply entered into between the Electricity Board and the Company in liquidation. But the transactions, viz.. ( 1) the bank guarantee executed by the bank in favour of the Electricity Board. (2) the contracts of supply entered into between the Electricity Board and the Company in liquidation and (3) the document under which the company in liquidation had given a fixed deposit receipt and certain quantity of zinc ingots as security to the bank for executing the letter of guarantee' in favour of the Electricity Board are independent of each other in so far- as their legal incidents are concerned. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the Supplier of goods.' i.e., the Company in liquidation. The liability is absolute and unconditional.'

A learned Judge of the Delhi High Court in B.L.R. Mohan v. P.S. Co-Op. S. & M. Federation Ltd. : AIR1982Delhi357 had succinctly stated thus:-

'The performance guarantees or performance bonds, a comparatively recent specie of Bankers commercial credit has many similarities to a letter of credit and stand on a similar footing to a letter of credit. Such guarantees even though having their genesis in the primary contract between the parties, are nevertheless

'autonomous: and independent contracts and bank which gives a performance guarantee must honour that

,guarantee according to its terms. It is not concerned in the least with the relation between the supplier and the customer. Nor with the question whether the supplier had performed his contracted obligations or not. nor with the question whether the supplier is in default or not and the only exception is when there is a clear fraud. of which the bank has notice. In short these guarantees impose 'in absolute obligation on the banks to pay on demand in their terms and the Courts usually refrain from interfering with the obligation, except in rare cases of fraud.

The performance guarantee is an 'autonomous' contract and imposes an absolute obligation on the bank in its terms. As such the existence of disputes between the parties under the primary contract or the possibility of a reference of these disputes to arbitration or of the pendency of proceedings. on such a reference. have absolutely no relevance to the obligation of the bank under the guarantee. The banks are bound to pay without demur irrespective of tile pendency of any arbitration proceedings or the imminence of any reference to arbitration of the disputes between the parties, arising out of the primary contract between the parties.

However, such air obligation arises only if the conditions of the bond are satisfied and if the demand made on the bank is in strict record with its terms. Any demand which is outside the terms of the guarantee bond and any payment by the bank without strict compliance with the terms of the bond would not be beyond the scope of the bond and would not give discharge to the paying bankers'.

In Tcxniaco Ltd. v. State Bank of India AIR 1979 Ca144, a learned Judge of that Court had stated the law thus

Where though the guarantee was given for the performance by the party on whose behalf guarantee was given, in an orderly manner its contractual obligation, the obligation was undertaken by the bank to repay the amount on 'first demand' and without contestation, demur or protest and without reference to Such party and without questioning the legal relationship subsisting between the party in whose favour guarantee was given and the Party on whose behalf guarantee was given,' and tire guarantee also stipulated that the bank should forthwith pay the amount due notwithstanding any dispute between the parties foresaid. it must be deemed that the moment a demand was made without protest and contestation. the bank had obliged itself to pay irrespective of any dispute as to whether there had been performance in an orderly manner of the contractual obligation by the party Consequently in such a case, the party on whose behalf guarantee was given was not entitled to an injunction restraining the bank in performance of its guarantee.'

Even in respect of the letters of credit, the following principles are settled by the Supreme Court in United Commercial Bank v. Bank of India : [1981]3SCR300 : -

'The courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of letter of credit or a bank guarantee between one bank and another. If such temporary injunction were to be granted in a transaction between a banker and a banker restraining a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the county would fail. It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligation,, assumed by banks. They are the life-blood of international commerce. The machinery and commitments of banks are on a different level. They must be allowed to be honoured free front interference by the courts. Otherwise, trust in international commerce could be irreparably damaged.

No injunction could he granted under 0. 39 Rr. I and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was bona fide contention between the parties or a serious question to be tried. A Payment 'under reserve' is uncle-stood in banking transactions to mean to that the recipient of money may not deem it his as his own but must be prepared to return it on demand, The balance of convenience clearly lies in allowing, the normal banking transactions to go forward. Furthermore, the plaintiffs have failed to establish that they would be put to an irreparable loss unless an interim injunction was granted.'

In State Bank of India v. Economic Trading Co. AIR 197 Cal 14, cited by the learned Advocated-General. a Division Bench of the Calcutta High Court has observed as follows:-

A bank guarantee has a dual aspect. It is not merely a contract between the bank and the beneficiary to 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:-

7. 1 he following principles are thus Well settled : -- If the bank guarantees are unconditional, the bank has no defence when its guarantee is sought to be enforced. It is the document of guarantee that has to be scanned to ascertain whether the guarantee is conditional or otherwise and whether it is an autonomous Contract by itself. Ordinarily, the Court shall not grant an injunction restraining enforcement of such bank guarantees save where there is clear case of fraud of which the bank had notice and where the special equity was in favour of the beneficiary under the bank guarantee in the instant case. the appellant.

8. In other words, there is no absolute fetter on the court to grant injunction.

9. Thus, the disposal of these appeals principally rests on the construction of the three bank guarantees. The terms and conditions of all the three bank guarantees are in identical terms except in bank guarantee No. 11/121 the amount of guarantee Rs. 87.29.000/- and the Ist respondent's advice Under cl. 3 related to erection and commissioning stipulated in the contract, i.e., contract No. 11, It is therefore enough to extract guarantee No. 11/ 13.

Advance payment guarantee No.11/ 13. Pursuant to the Contract hereinafter referred to as 'The contract' which Messrs. Vinay Engineering. a sole proprietary unit of Priva Engineering Company limited. B-6/4 (2nd floor) Community Centre. Safdarjung Fnclave, New. Delhi- 110029 hereinafter referred to as Contractor' have concluded with Neyveli Lignite Corporation Limited. Neyveli hereinafter referred to as the 'Purchaser' on 18th Oct. 1980 the Contractor have undertaken to manufacture and supply indigenous equipment Ex-Works in India and erect and commission indigenous equipments and also the equipments manufactured and supplied by M/s. Transelektro of Budapest, Hungary for 3 Nos. of Steam Generators with Auxiliaries of Neyveli second Thermal Power Station particularly listed in the Purchaser's letter of Intent Lr. No. 2700K H/11/ T 80-276 dated 18th Oct. 1980 of the contract as per the prices indicated hereunder against each -

a. Supplies -- Ex-works Rs. 14.52.36.025 /-b. Fraction, Testing & Commissioning Rs. 8,72,90,000/-c. Service charges Rs. 38,90,798/-Total Rs. 23,64,36,823/- (Rupees Twenty three Crores. Sixty four Lakhs. thirty six thousand and eight hundred and twenty three only).

2. According to the said Contract. the purchaser has undertaken to make an advance payment of Rs. 1.45,25.602.50 (Rupees one crore forty five lakhs, twenty five thousand and six hundred and two and paise fifty only) being the first initial advance payment of 10% for supplies of indigenous equipments of the Contract value against issuance of an advance payment guarantee by a bank.

3. For this advance payment. we the Undersigned Bank of Baroda hereby guarantee to the effect that we irrevocabIy Undertake to pay to the purchaser Upon the purchaser's first deemand and without demur the amount paid by the purchaser in advance or part amount paid by the purchaser in advance or part thereof, but not exceeding Rs. 1,45,25.002.50 (Rupees one crore forty five lakhs, twenty five thousand and six hundred and two and paise fifty only) provided the purchaser advises us that the contractor have failed to fulfil delivery obligations stipulated in the said Contract.

4. This advance payment guarantee will become effective only as soon as the amount of Rs. 1,45.25.602.50 (Rupees one crore, forty five lakhs twenty five thousand and six hundred and two and paise fifty only) has been received at the free disposal of the Contractor.

5. This guarantee shall be valid till 11-31984 and the purchaser has the right to encash the Bank guarantee upto 60 days from the said date. unless a claim has been lodged or action taken against US Linder 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 its thereafter.

6. Further. we the undersigned Bank of Baroda hereby undertake to furnish suitable fresh bank guarantee for advance payment at the instance of the Contractor for such reduced sum reckoning the proportionate progress of supplies/work carried out by the Contractor as intimated by the purchaser so as to make the guarantee continuous till the obligations Under the said contract have been fulfilled by the Contractor. However the entire period of guarantee from date of first issuance shall not be more than 60 months.

7. Our liability will be deemed to be reduced pro-rata as and when adjustments are made against the running bills submitted by the Contractor.

8. In any case our liability Under this advance payment guarantee shall not exceed Rs. 1.45,25.602.50 (Rupees One crore, forty five lakhs, twenty five thousand and six hundred and two paise fifty only).

9. This guarantee deed must be returned to us duly discharged upon the expiration of the guarantee.

10. Letter of intent No. 2700K/h III/80/276 dated 18th Oct. 1980 is enclosed.'

10. 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 Ist respondent advising the 2nd respondent that the appellant had failed to fulfil its , delivery obligations in respect of bank guarantee 11/ 13 and 11 /94 and failed to fulfil its obligations of erection and commissioning as regards bank guarantee I I /121 the bank is bound to make the payments forthwith. It is relevant to notice that what was enough for the last respondent to enforce the bank guarantees is to advise the 2nd respondent that the appellant had failed to fulfil his delivery obligations in respect of the first two bank guarantees and failed to fulfil its obligations of erection and commissioning in respect of bank guarantee 11/ 121, notwithstanding whether such advise is well founded or not. We shall emphasise that whether such advice by the Ist respondent to 2d respondent is valid or not. is not the concern of the 2nd respondent bank. but it is it a matter to be fought between the Ist respondent and the appellant.

11. So too. it is not possible to construe these documents having any link with contract No. 11 in their enforcement as. contended by the learned Advocate-General. It is easy to perceive that in such a case. the bank guarantee will loose its efficacy in banking operations. For. any dispute touching the contract as such had to be settled by the arbitrator and if so these documents shall not be enforced until then. The plain tenor of these documents will repel such a contention. Indeed. our approach finds support from the dictum of the Supreme Court In M.S.E.B. Bombay v. Official Liquidator H.C. Ernakularn : [1983]1SCR561 . The form of guarantee considered by the Supreme Court is almost similar to those under our consideration except that in the instant case, the I st respondent had to advise that the appellant either failed to fulfil its delivery obligations or its erection and commissioning obligations. Though in its three letters all dated 17-1-1983, the I st respondent did not actually use the term that the appellant had failed to fulfil its delivery obligations in respect of the first two guarantees and its erection and commissioning obligations under the contract, the branch office of the Ist respondent at New Delhi did send three communications dated 19-1-1983 specifically advising the 2nd respondent that the appellant had failed to fulfil its delivery obligations as also erection and commissioning obligations under the contract. The learned Advocate-General would submit that the three communications sent by the branch office to the I st respondent would not cure the defect inherent in the first three letters dated 17-1-1983 written by the lst respondent's head office and/therefore, the Ist respondent's demand invoking the bank guarantees is not in conformity with the terms

contained therein. We are unable to agree. For, the crucial consideration is whether there was it demand by the Ist respondent as such but not whether such demand is by the head Office or the branch office of the Ist

respondent. In Our opinion, it makes no difference whether the demand is by the head office or by the branch office. Thus, incidentally we hold that the Ist respondent's demand by virtue of its branch office's communications dated 19-1-1983 is in strict conformity with the tenor of three bank guarantees.

12. There is yet another material factor that has to be noticed at this stage. Clause 7 of the bank guarantee stipulates that the 2nd respondent's liability will be reduced pro-rata as and when adjustments are made against the running bills submitted by the appellant. Fortunately, for the I st respondent, it had by its letter dated 25-1-1983 addressed to the Senior Manager, Bank of Baroda, New Delhi, referred to the various bank guarantees, its demands in its letters dated 17-1-1983, its demand in its branch office dated 19-1-1983, and gave credit to pro-rata amount to be adjusted, i.e., 10% of the value of supplies accepted for adjustment in the guarantees in respect of numbers 11/13 and H/94. It is common ground that at that time, there was no amount to be adjusted in respect of the third bank guarantee. It is useful to point out that after such adjustment, the amount due under each of the bank guarantees is Rs. 1,39,13,768.24 while in respect of the third, the whole amount of Rs. 87,29,000/-. Thus, the documentary evidence in this case conclusively establishes that the Ist respondent's demand on the 2nd respondent was in strict compliance with the terms in the,guarantees. As such, on the principles of laws settled by the Supreme Court, the 2nd respondent bank- had no escape whatever, but to pay the amount to the I st respondent.

13. There is yet another vital feature to be noticed in this case. The bank guarantee came to be executed in respect of advance payments made by the Ist respondent to the appellant well in advance. By the enforcement of these guarantees, the Ist respondent is only trying to recall its advance payments. This in our view will disable the appellant from claiming any equity, much less special equity. Above all, it is significant to point out that at the time of payment of these advances by the Ist respondent to the appellant, it was on the expectation that the appellant was to manufacture 22,000 tonnes of structures with their own steels while by virtue of the joint proposal made by Transelektro on 30-9-1982, which we had occasion to refer to, the appellant's obligation was reduced to 3,450 tonnes. Then, we have no hesitation to conclude that the appellant is not at all entitled to invoke equity to his support. In other words, no special equity can be invoked by the appellant to sustain the relief of injunction as prayed for by it.

14. It may not be out of place to refer to the telex sent by Transelektro on 23-12-19~2 to the I st respondent. We had in fact extracted the said document earlier. It is seen from the said document that Transelektro, had expressed its inability to provide the crane to the appellant without which erection work could not be done. No doubt, the learned Advocate-General submitted that by virtue of joint proposal made by Transclektro and the appellant on 30-91982 which was accepted by the I st respondent, the appellant was relieved of its obligations to procure the crane and, therefore, if Transelektro were unable to procure such crane, he appellant is not to be blamed at all and that, therefore, the I st respondent cannot complain that the appellant had not fulfilled its obligations. Though it may not be germane, yet as the matter was argued. we propose to deal with the same. The relevant part of the 'joint proposal is para 2 (b) and we have already extracted the same. Assuming that the Ist respondent had accepted the joint proposal as set out in Transelektro's letter 30-9-1982, yet we are unable to read para 2(b) as relieving the appellant from its responsibility in finding out the crane. A fair reading of para 2(b) only shows that what was agreed if at all by the I st respondent is that the amount of Rs. 75,00,000/- should be made by deducting the equivalent amount from the erection portion of the appellant's contract and that necessary help should be rendered by the ist respondent for getting the licence for necessary import of the cranes. Thus, it is quite obvious that the appellant could not obtain for its use the requisite crane and consequently, could not complete erection and commissioning as stipulated in the contract.

15. It was also contended by the learned Advocate-General that one of the issues to be decided by the Arbitrator is whether Is respondent is entitled to invoke the bank guarantees or any of them because of the termination of the contract by the Ist respondent's notice dated 19th Jan. 1983 being invalid, that therefore the matter is within the exclusive jurisdiction of the Arbitrator and that it is not expedient on the part of this Court to collaterally decide that issue. The mere fact that was also one of the points left to the Arbitrator, will in no way remain a fetter on the absolute right inhered in the Ist respondent to enforce the bank guarantee for the reasons already stated. We may add that if it were to be found that in the invocation of the bank guarantee by the Ist respondent is not valid, it will not clothe either the appellant or the 2nd respondent to successfully desist the enforcement of unconditional bank guarantees by the I st respondent as explained by us and that if at all the remedy of the appellant and the 2nd respondent lay only in damages. In our view therefore the above contention makes no advance to the appellant's case. In conclusion, we find that the appellant had not made out any case whatever to sustain the relief of injunction prayed for in all these applications and that the order of the learned judge is quite correct.

16. The result is, all these appeals fail and are dismissed, but in the circumstances of the case without costs.

17. We have followed the principles of law as settled by the Supreme Court. So. the leave orally asked for is declined.

18. Appeals dismissed.


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