JUDGMENT :- These are appeals against the judgment and order of the High Court of Assam, Nagaland, Meghalaya, Manipur and Tripura.

2. Makharia Brothers (the contractor) entered into a works contract with the State of Nagaland (the 1st respondent). The contract stipulated that the contractor should furnish to the State security in the sum of Rs. 2,87,800/- for due performance of the contract. Clause 5.3 of the contract read thus :

"The Security Deposit may also be furnished in the form the Bank guarantee as per prescribed pro forma annexed with the contract. The Bank guarantee against security deposit shall be valid initially for a period of one year from the date not later to 20th day of the signing of contract and will be subsequently extended for any period as directed by the Chief Engineer so as to cover the guarantee period of 90 days of the successful commissioning of the generating sets, equipments and auxiliaries to the satisfaction of the Chief Engineer."

3. Pursuant to the aforesaid, the contractor furnished a bank guarantee dated 12th December, 1977 issued by the Vyasa Bank Ltd. (the bank). It was valid in the first instance up to 5th January, 1979 and was extended up to 5th