Back
SUPREME COURT OF INDIA
J.S.Verma : K.S.Paripoornan
Hindustan Steel Workers Construction
Versus
G.S.Atwal And Company Engineers Private Limited
Case No. : .
Date of Decision : 9/13/95
Advocates Appeared: Ahmed B.D. : Puri H.K. : Salve Harish N. : Sinha Parijat
Arbitration Act – Section 41 – Bank – Claim of compensation - Recovered on account of security deposit and other outstanding advances, - Learned Single Judge took the view that as against the agreement between the respondent and Bank that Guarantee will be for only advance, the bank had issued Advance-cum-Performance guarantee in of appellant in a standard form, which is unjustified - Learned Single Judge also took the view that Guarantee is a performance guarantee and before invoking the same the appellant should assess the quantum of loss and damages and should mention the ascertained figure in letter of invocation and, if it is not so done, the guarantee could not be invoked. The appellant has come up in appeal from aforesaid order after obtaining special leave – Held, ON a perusal of the relevant clauses of the guarantees it is evident that Bank has unconditionally and irrevocably agreed and undertaken to pay to the appellant on demand the sums specified therein - It is further seen that the amount should be paid without demur and without requiring the creditor (the appellant) to invoke any legal remedy and it is further specifically provided that the appellant shall be the sole judge of and as to whether the respondent, a party to the contract, has committed any breach and the extent of the loss and damages etc. caused to the appellant. It is stated that the decision of the appellant as to the outstanding amount due will be final and binding. A look at the particulars contained at page 83 of the paper-book shows that the appellant has put forward a plea that is due to it on account of security deposit and balance due, to be recovered by the appellant. One Libyan Dinar is equivalent to approximately and so the amount due will be approximately respectively, which are covered by the guarantees. We are of the view that the guarantees furnished by the Bank to the appellant are unconditional and the appellant is the sole judge regarding the question as to whether any breach of contract has occurred and. if so, the amount of loss to be recovered by the appellant from the respondent. The entire dispute is pending before the Arbitrator. Whether and if so, what is the amount due to the appellant is to be adjudicated in the arbitration proceeding. The order of the learned Single Judge proceeds on the basis that the amounts claimed were not or cannot be said to be due and the Bank has violated the understanding between the respondent and the Bank in giving unconditional guarantees to the appellant - Reasoning of the learned Single Judge to hold that the Bank had issued a guarantee in a standard form, covering a wider spectrum than agreed to between the respondent and the Bank, cannot be a reason to hold that the appellant is in any way fettered in invoking the unconditional bank guarantee. Similarly, the reasoning of the learned Single Judge that before invoking the performance guarantee the appellant should assess the quantum of loss and damages and mention the ascertained figure, cannot be put forward to restrain the appellant from invoking the unconditional guarantee – Appeal allowed
Judgment
K.S.PARIPOORNAN, J.
(1) SPECIAL leave granted.
(2) THE appellant herein was the respondent in Matter No. 1268 of 1984, an application filed by the respondent in this appeal under Section 41 of the Arbitration Act. The appellant and the respondent entered into 11 contracts dated 21/8/1979 whereby the respondent herein was to construct 11 schools in Nalut, Libya at a cost of LD 2,437,525.000. The United Commercial Bank, Calcutta (hereinafter referred to as Bank) gave two bank guarantees to the appellant on behalf of the respondent. The first is dated 16/8/1979 for a sum of Rs. 6.50 lakhs (No. 350 of 1979 renewed on 4/5/1982, 10/5/1983 and 3/5/1984 whereby the original date expiring on 15/5/1982 was extended from time to time. The other bank guarantee is for a sum of Rs. 32.50 lakhs (No. 399 of 1979 dated 10/10/1979, renewed on 10/6/1981, 9/7/1982, 22/2/1983 and 7/7/1983, whereby the date of expiry, 10/7/1981, was extended from time to time. The Bank renewed the guarantees on the instructions of the respondent.
(3) IT is seen that disputes arose between the appellant and respondent regarding the performance of the contract resulting in a reference to arbitration. It is further seen that the reference is still pending. While so, the respondent prayed to court for the issue of a grant of injunction to restrain the appellant from encashing the bank guarantees aforesaid. By an order dated 29/8/1988 a learned Single Judge of the Calcutta High court restrained the appellant by an order of injunction from encashing the bank guarantees, bearing No. 350 of 1979 dated 16/8/1979 (Rs 6.50 lakhs) and No. 399 of 1979 dated 10/10/1979 (Rs 32.50 lakhs), furnished by the Bank to the appellant. The learned Single Judge took the view that as against the agreement between the respondent and the Bank, that the Guarantee No. 399 of 1979 will be for only mobilisation advance, the bank had issued the Mobilisation Advance-cum-Performance guarantee in favour of the appellant in a standard form, which is unjustified. The learned Single Judge also took the view that Guarantee No. 350 of 1979 dated 16/8/1979 is a performance guarantee and before invoking the same the appellant should assess the quantum of loss and damages and should mention the ascertained figure in the letter of invocation and, if it is not so done, the guarantee could not be invoked. The appellant has come up in appeal from the aforesaid order after obtaining special leave.
(4) WE heard counsel. The Bank Guarantee No. 350 of 1979 dated 16/8/1979 for Rs. 6.50 lakhs is available at pages 36 to 39 of the paper-book (Vol. I), and Bank Guarantee No. 399 of 1979 dated 10/10/1979 for Rs. 32.50 lakhs is available at pages 40 to 45 of the paper-book (Vol. I). There is a slight variation in some of the clauses of the abovesaid two guarantees. Substantially the two bank guarantees are of same import. We will only quote clauses 1, 4 and 5, appearing at pages 41 and 42 of the paper-book (Vol. I), of Bank Guarantee No. 399 of 1979 dated 10/10/1979:
"1. In consideration of the Creditor M/s Hindustan Steelworks Construction Limited, Calcutta, agreeing to make to the Debtor: M/s G.S. Atwal & Co. (Engineers) P. Ltd. at Calcutta, a mobilisation advance of Rs. 32.50 lakhs (Rupees thirty-two lakhs and fifty thousand only) up to a maximum of the value of the contracts under the said agreements, against bank guarantee in favour of creditor by the United Commercial Bank, Calcutta. SURETY - United Commercial Bank, Calcutta hereby guarantees that the contractor will duly perform the services in accordance with the said terms and conditions under the abovesaid agreements, failing which the surety does unconditionally and irrevocably agree and undertake to pay to the creditor (principal) on demand such amount or amounts as the surety may be called upon to pay to the aggregate of Rs. 32.50 lakhs (Rupees thirty-two lakhs and fifty thousand only). 4. On account of n
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
