IMPORTANT POINT
Whether the express terms of the guarantee bond give rise to the contract of guarantee sought to be enforced will be the only limited enquiry which could be gone into by the courts while deciding the rights and obligations flowing from such contract of guarantee which is a tripartite contract.

Headnote:GUARANTEE-Bank guarantee -Bank which gives the guarantee would be liable to fulfil its obligations flowing from terms of guarantee -Court would not interfere with such obligations flowing from bank guarantee unless there is fraud and irretrievable damages-When guarantee bonds are reduced to writing -Express terms of this writing would be repository of obligations of guarantor-No evidence de hors terms of agreement can be led by parties to get out of express terms thereof. (Evidence Act-Sections 91 and 92).
       Held that when such guarantee bonds are reduced to writing the express terms of this writing containing the guarantee bond would be the repository of the obligations of the guarantor flowing from the surety bond. As per Sections 91 and 92 of the Indian Evidence Act no evidence de hors the terms of the agreement, whether documentary or oral, can be led by the parties to get out of the express terms thereof. Whether the express terms of the guarantee bond give rise to the contract of guarantee sought to be enforced will be the only limited enquiry which could be gone into by the courts while deciding the rights and obligations flowing from such contract of guarantee which is a tripartite contract between the creditor, principal debtor and the surety. Once such suretyship agreement is established on the clear terms of the bond then as laid down by the aforesaid decisions of this Court no latitude can be given to the contracting party, namely, the surety or even the principal debtor to enable them to get out of the obligations of the suretyship agreement flowing from such contract, except in exceptional circumstances as indicated in these decisions. (Para 6)
       Further held, it is found that the appellant-insurance company or its predecessor had not given any guarantee to cover the liability of defendant No. 2 to the extent of Rs. 1,25,000/- flowing from Dissolution Deed Annexure A-2. The guarantee given was for entirely a different transaction, that is for securing the payment of unpaid price of goods to be sold on credit by the plaintiff to dealer defendant No. 2 over a course of period and the guarantee was to continue for such future period upto one year. It is not the case of the plaintiff that defendant No. 2 had during that period failed to pay purchase price of the goods, namely, nylon yarn and fishing requisites. Nor has the plaintiff invoked suretyship agreement in that connection. The suit is based on entirely a different alleged guarantee said to have been given by the insurance company to cover the liability of defendant No. 2 flowing from the Dissolution Deed. For such an obligation of defendant No. 2 flowing from Annexure A-2 there is no contract of guarantee at all given by defendant No. 1. In short on the basis of the surety bond Annexure A-1 no liability can be foisted on the appellant to meet the obligation of defendant No. 2 flowing from the Dissolution Deed. (Para 7)

JUDGMENT

S.B. Majmudar, J.-This appeal on the grant of special leave to appeal under Article 136 of the Constitution of India brings in challenge the judgment and decree passed by Division Bench of the Andhra Pradesh High Court at Hyderabad whereby respondent No. 1 s suit against the appellant-insurance company, which was defendant No. 1 in the suit, came to be decreed. In order to appreciate the grievance of the appellant against the impugned decree a few background facts deserve to be noted at the outset. We shall refer to the appellant as defendant No. 1 respondent No. 1 as the plaintiff and respondent No. 2 as defendant No. 2 in the latter part of this judgment.

2. The plaintiff filed a suit for recovery of Rs. 1,25,000/- against both the defendants in the Court of Subordinate Judge, Kakinada East Godavari District in the State of Andhra Pradesh. The plaintiff s case is that by a Deed dated 23rd April 1971 (Annexure A-2) entered into between the plaintiff and defendant No. 2, the 2nd defendant agreed and undertook to pay to the plaintiff a sum of Rs. 1,68,499.32 being the amount settled to be due to the plaintiff. The 2nd defendant also agreed to furnish a guarantee bond from the 1st defendant-insurance company for the due payment of Rs. 1,25,000/- from out of the said amount of Rs. 1,68,499.32. Accordingly at the request of the 2nd defendant the 1st defendant agreed to execute a guarantee bond in favour of the plaintiff for the said amount of Rs.1,25,000. The 1st defendant executed a guarantee bond dated 26th April 1971 (Annexure A-1) in favour of the plaintiff by and under which the 1st defendant agreed and undertook to pay to the plaintiff at Kakinada the said sum of Rs. 1,25,000/- or such lesser amount as may be demanded by the plaintiff on failure of the 2nd defendant to fulfil the terms of the agreement dated 23rd April 1971 (Annexure A-2). It is the further case of the plaintiff that the first defendant also unconditionally and irrevocably agreed that the payment due under the guarantee bond, will be made to the plaintiff within ten days after the receipt of a written notice of demand from the plaintiff and without reference to the 2nd defendant. The plaintiff contended that the said guarantee bond provided that it will be valid for a period of one year thereof. The plaintiff contended that as the 2nd defendant failed to perform the terms of the agreement (Annexure A-2) the plaintiff demanded the guaranteed amount of Rs. 1,25,000/- from the 1st defendant by registered notice dated 27th March 1972. As it was not complied with, the plaintiff filed the aforesaid suit against both the defendants.

3. The 2nd defendant remained ex parte and did not file any written statement. But the 1st defendant-insurance company, appellant herein, filed written statement contending that it was not aware of any agreement dated 23rd April 1971 (Annexure A-2) said to have been entered into between the plaintiff and the 2nd defendant under which the 2nd defendant agreed and undertook to pay to the plaintiff a sum of Rs. 1,88,499.32 as being the amount settled to be due to the plaintiff. The plaintiff and the 2nd defendant represented that the plaintiff was a wholeseller for the sale of nylon yarn and fishing requisites and that he appointed the 2nd defendant as a dealer for the sale of nylon yarn and the fishing requisites and that in connection with credit facilities that were being given by the plaintiff to the 2nd defendant the 1st defendant might give a guarantee for the said sum of Rs. 1,25,000/- in respect of the faithful performance of the said dealership. Based on the said representations of the plaintiff and the 2nd defendant, the 1st defendant executed a guarantee bond in favour of the plaintiff in a sum of Rs. 1,25,000/- for the sale of nylon yarn and fishing requisites etc. The 1st defendant never agreed to furnish any guarantee to the plaintiff in respect of any amount that had been settled to be due to the plaintiff on dissoluti

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1996 Supreme(SC) 2032

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