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SUPREME COURT OF INDIA
M. HIDAYATULLAH AND C.A. VAIDIALINGAM, JJ.
State of Maharashtra, Petitioner
Versus
Dr. M. N. Kaul (dead) by his legal representatives and another, Respondents.
Civil Misc. No. 331 of 1966 and Writ Petn. No. 9 of 1962,
D/- 28-3-1967.
Advocates appeared
Mr. R. H. Dhebar, Advocate for Mr. S. P. Nayyar, Advocate, for Petitioner: Mr. Sardar Bahadur, Advocate, for Respondent No. 1; M/s. Rameshwar Nath and Mahindra Narain, Advocates of M/s. Rajinder Narain and Co., for Respondent No. 2 (National and Grindlays Bank, Ltd.).
{'KEYWORD': 'Guarantee', 'SUBJECT': 'Enforcement of Guarantee', 'ACT SECTION LIST': [], 'SUMMARY': 'The Supreme Court held that a bank guarantee furnished by the National and Grindlays Bank Ltd. in favor of the Registrar of the Supreme Court for the payment of sales tax dues in the event of the dismissal of a writ petition or the holding of liability by the Court, was not enforceable beyond the time limit specified in the guarantee, which was one calendar month after the pronouncement of the judgment or a period of 12 months from the date of execution of the guarantee, whichever was later.'}
Fact of the Case:
Dr. M. N. Kaul, the petitioner in a writ petition challenging a sales tax assessment order, furnished a bank guarantee from the National and Grindlays Bank Ltd. as a condition for stay of the operation of the assessment order. Dr. Kaul passed away during the pendency of the writ petition, and the State of Maharashtra sought to recover the amount due under the guarantee from the Bank.
Finding of the Court:
The Supreme Court held that the guarantee was not enforceable beyond the time limit specified in the guarantee, which was one calendar month after the pronouncement of the judgment or a period of 12 months from the date of execution of the guarantee, whichever was later. The Court found that no attempt was made to enforce the guarantee within the specified time limit, and therefore, the guarantee was no longer enforceable.
Issues: 1. Whether the bank guarantee furnished by the National and Grindlays Bank Ltd. was enforceable beyond the time limit specified in the guarantee?
Ratio Decidendi: The Court held that a guarantor cannot be made liable beyond the terms of his engagement. The guarantee in question clearly specified a time limit for its enforcement, and the State of Maharashtra failed to enforce the guarantee within that time limit. Therefore, the guarantee was no longer enforceable.
Final Decision: The Supreme Court dismissed the State of Maharashtra's notices of motion seeking to recover the amount due under the guarantee from the Bank and the security deposit of Dr. Kaul. The Court held that the guarantee was not enforceable beyond the specified time limit, and the security deposit could only be used to meet costs, which were not ordered in this case.
Judgment
HIDAYATULLAH, J. : By an order dated February 12, 1962 this Court granted conditional stay of the operation of an Assessment Order passed by the Sales Tax Officer (XII) Enforcement Branch. Greater Bombay, and of the notice of demand issued by him against Dr. M. N. Kaul (deceased). The notice of demand required Dr. Kaul to say Rs. 18,240,06 P. and stay was granted on condition that Dr. Kaul must furnish bank guarantee for the amount in favour of the Registrar of this Court Dr. Kaul furnished guarantee of the National and Grindlays Bank Ltd. and it was accepted by this Court and the Sales Tax Officer. We shall presently refer to the terms of this guarantee which was executed by the Bank on March 23, 1962. Dr. Kaul died and the Writ Petition was placed before this Court on March 15, 1965. On that date the minutes record:
" The Court made no order as the Writ Petition has abated due to the death of the petitioner."
2. On November 25, 1965 the State of Maharashtra moved Civil Miscellaneous Petition No. 331 of 1966. It was stated that the order of stay had come to an end and the amount of Rs. 18.240.06 P. which had by addition of interest become Rs. 19,581.50 P. became payable. The State, therefore, sought to recover the amount from the guarantor. As there was a deficit of a sum of Rs. 1.341.44 P., the State asked to be paid that amount from the security for costs of Rs. 2,500 deposited by Dr. Kaul in this Court. The matter was heard on a notice of motion taken out on February 7, 1966. On February 3, 1966, the Bank addressed a letter to the Registrar to the following effect: -
"The Deputy Registrar,
SC of India,
New Delhi.
Dear Sir,
Re: Our L/G No. 100/37 dt. 23-3-1962 issued on account of Dr. M. N. Kaul for Rs. 18,240.06 P. in the matter of Kaul vs. State of Maharashtra and Anr.
Our Customer Dr. M. N. Kaul has expired and this guarantee is lying outstanding in our books.
To enable us to take this guarantee out of our books please send it to us for cancellation urgently.
Yours faithfully,
(Sd.) Illegible,
P. Manager
(D. R. OSHIDAR)"
3. On February 23, 1966, the Bank filed a counter-affidavit, raising several objections. The first objection was that the application was incompetent in the absence of the legal representatives of Dr. Kaul. The second was that the guarantee had become unenforceable as the time limit for its enforcement had expired. Lastly the Bank declined liability in excess of the amount of the guarantee. A further affidavit was filed by the Bank stating that on or about March l1, 1966 the Bank received a notice purporting to be under S. 17 of the Bombay Sales Tax Act from the Office of the Sales Tax Officer asking the Bank to pay the sum of Rupees 18,240.06 P., without prejudice to the application for directions pending in this Court. The Bank further stated that an amount of Rs. l8,411.97 P. was standing to the credit of the late Dr. M. N. Kaul with the Bank. The Bank offered to remit the amount in answer to the notice under S. 17 of the Sales Tax Act provided the Bank Guarantee was cancelled and discharged. The notice of March 11, 1966 was made an annexure of the affidavit.
4. The C.M.P was placed before the Court on March 23, 1966 when the legal representatives of Dr. Kaul were ordered to be joined and the Bank was ordered not to pay the amount to anyone including the Sales Tax Officer. One R.N. Kaul (brother of Dr. M. N. Kaul) was brought on record as the legal representative. Dr. Kaul had left behind no issue, male or female. The State of Maharashtra repeated its demands by another petition, dated November 25, 1966. P. N. Kaul appeared and filed an affidavit in reply opposing payment of the amount under the guarantee and the payment of the deficit amount from the security amount.
5. In view of this opposition, the matter was heard fully. The terms of the guarantee may now be seen. The guarantee is in the form of a letter addressed to the Registrar of this Court. The first two paragraphs at its forefront are preambles
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