JUDGMENT

K. JAGANNATHA SHETTY, J.:—We grant special leave and proceed to dispose of the appeal.

2. The General Electric Technical Services Company (GETSCO) had entered into a contract with Indian Airlines which included, inter alia, the construction and fabrication of air craft testing centre/ engine repair centre in Delhi. The GETSCO in turn entered into a contract with M/ s Punj Sons (P) Ltd. - respondent 1 for getting that work done for Indian Airlines. As per the contract respondent 1 was required to provide performance bond equal to 30 per cent. of the total value of contract price which was to be split up into two performance bonds partly to be released on completion of the project, and the balance upon the expiration of the warranty. The respondent 1 was also required to furnish a bank guarantee to secure the mobilisation advance of 25 per cent. of the contract value. On 28 October, 1946 respondent 1 furnished the bank guarantee to secure the mobilisation advance of Rs. 1,86,00,000/-. The guarantee was furnished by Honkong & Shanghai Bank (the Bank) respondent 2.

3. Respondent 1 instead of furnishing the two performance bonds, as agreed upon, wrote a letter dated 3 September,