Judgment

Mrs. SUJATA V. MANOHAR

( 1 ) LEAVE granted.

( 2 ) THE appellant had entered into a contract with respondent No. 1 on 18-1-80 under which respondent No. 1 had agreed to supply to the appellant pumps together with butterfly valves, motors etc. The terms of the contract also contained an arbitration clause.

( 3 ) IN connection with various payments made or to be made under this contract, the first-respondent furnished to the appellant, inter alia, five bank guarantees in favour of the appellant issued by the Canara Bank which are the subject-matter of dispute before us. These are: (1) a bank guarantee Dated 27-2-80 for Rs. 11,54,290. 00, (2) a bank guarantee Dated 26-7-86 for Rs. 85,000. 00 (3) a bank guarantee Dated 26-7-86 for Rs. 2,53,250. 00, (4) a bank guarantee Dated 26-7-86 for Rs. 63,411. 42 and (5) a bank guarantee Dated 26-7-86 for Rs. 3,79,875. 00. While the first two bank guarantees are performance guarantees, the other three bank guarantes are to secure the advances given by the appellant to the first-respondent to be adjusted against payments to be made under the contract. All these bank guarantees are payable on demand. Clause 1 of the bank guarantee Dated 26-7-86 for Rs. 85,000. 00 is as follows:-

"in consideration of the Owner having agreed to accept from the contract First Pump with Cast Iron Impeller temporarily in lieu of Stainless Steel Impeller (to be replaced by the Contractor with Stainless Steel Impeller by 31-12-86. We, Canara Bank, having our Head Office at Bangalore -560 002 and Branch at F-19, Connaught Circus, New Delhi (hereinafter referred to as the "bank" which expression shall unless repugnant to the context or meaning thereof (includes its successors, administrators, executors and assigns) do hereby guarantee and undertake to pay the Owner immediately on demand any or, all moneys payable by the Contractor to the extent of Rs. 85,000. 00 (Rupees Exighty five thousand only) at any time upto 31-12-1986 without any reference to the Contractors. Any such demand made by the owner shall be conclusive and binding notwithstanding any difference between the owner and the Contractor or any dispute pending before any Court, Tribunal, Arbitrator or any other Authority.

THE Bank agrees that the Guarantee hereinafter contained shall continue to be enforceable till the sum due to the Owner or till the Owner discharges this Guarantee. " The other four bank guarantees do not contain such an express clause to the effect that the demand made by the beneficiary shall be binding. They all, however, provide that the Canara Bank "do hereby guarantee and undertake to pay the owner on demand any and all monies payable by the contractor by reason of any branch" of the terms of the contract.

( 4 ) THERE were disputes between the parties in respect of the supply of pumps under the contract. The appellant by its letter Dated 15th of March, 1990 addressed to the first-respondent demanded from the first-respondent payment of a sum of Rs. 13,22,466. 80, being the net recovery which the appellant was entitled to make from the first-respondent as per the particulars set out in that letter. The appellant called upon the first-respondent to pay the said amount on or before 25-3-90 failing which they would invoke the above bank guarantees without any further notice.

( 5 ) ON 11-6-90 the first-respondent invoked the arbitration clause under the contract and appointed his Arbitrator. The appellant thereafter also appointed its Arbitrator. The Institute of Engineers, India appointed a third Arbitrator. The disputes between the parties were referred to arbitration. In view of the arbitration proceedings the appellant did not realise the bank guarantees while the first-respondent kept the bank guarantees alive by renewing them from time to time. The time for making the award expired in January 1992. As the appellant declined to extend the time for making the award, an application under Section 28 of the Arbitration Act for extendin