A contract of guarantee requires a clear undertaking to discharge the liability of a principal debtor; the guarantor cannot evade liability due to a bank's error in remittance.

JUDGMENT :

R. MAHADEVAN, J.

1. Since both the appeals assail the same judgment and involve interconnected issues, they were heard together and are being disposed of by this common judgment.

2. The present Civil Appeals arise out of the common judgment and decree dated 16.08.2021 passed by the High Court of Judicature at Madras¹ [Hereinafter referred to as “the High Court”] in O.S.A. No. 423 of 2012, whereby the Division Bench of the High Court allowed the appeal to the limited extent of decreeing the claim of Defendant No. 1 (Appellant in C.A. No. 13862 of 2024) against Defendant No. 2 (Appellant in C.A. No. 13861 of 2024) under the third-party procedure as prayed for, while affirming the judgment and decree dated 18.11.2010 passed by the learned Single Judge of the High Court in C.S. No. 933 of 1998 in all other respects.

3. The aforesaid Civil Suit was instituted by the plaintiff - Goltens Dubai (Respondent No. 2 in C.A. No. 13861 of 2024 and Respondent No. 1 in C.A. No. 13862 of 2024) seeking a judgment and decree against Defendant Nos. 1 and 2 viz. Archean Industries Private Limited (Appellant in C.A. No. 13862 of 2024) and Canara Bank, Overseas Branch, Chennai (Appellant in C.A. No. 13861 of 2024) jointly and severally, for a sum of Rs. 48,26,750/- together with interest at the rate of 21% per annum on Rs. 43,00,000/- from the date of the plaint till realisation along with costs. By judgment and decree dated 18.11.2010, the learned Single Judge decreed the suit as prayed for only against Defendant No. 1 while dismissing the suit insofar as Defendant No. 2 is concerned, without costs.

4. The Plaintiff is a company engaged in ship repair and marine engineering services in Dubai. Defendant No. 1 is a company engaged in the export of granite and had chartered the vessel Master Panos for shipment of granite from Chennai to Newark in the United States of America. Defendant No. 2 acted as the banker of Defendant No. 1 and was entrusted with the remittance of the amount in question. For the sake of convenience, the parties shall hereinafter be referred to as per their status in the suit.

FACTUAL BACKGROUND

5. The facts giving rise to the present dispute, in brief, are that the plaintiff - Goltens Dubai, a ship repair company based in the United Arab Emirates, carried out extensive repair works on the vessel Master Panos during the period January to March 1998 at the request of its owner and operator/manager namely M/s. Royal Swan Navigation Co. Ltd. and M/s. Pevson Shipping Company S.A., respectively. The cost of the repair works was invoiced at US $ 435,232. As the payment remained outstanding, the plaintiff initiated legal proceedings which resulted in the arrest of the vessel at Dubai, thereby causing additional expenses of US $ 42,330 and raising the total outstanding liability to US $ 477,562.

5.1. Following negotiations between the plaintiff and the vessel owner, a Memorandum of Agreement dated 18.03.1998 was executed whereby the liability was reduced to US $ 377,562 on the condition that the entire amount would be paid on or before 08.04.1998, failing which the original liability of US $ 477,562 would stand revived. Under the said settlement, the amount was to be paid from various sources, including a sum of US $ 100,000 which was to be remitted directly to the plaintiff through the owner Royal Swan.

5.2. In the meantime, Defendant No. 1 had entered into a Charter Party Agreement dated 09.03.1998 with the vessel owner for shipment of approximately 2,500 metric tonnes of granite from Chennai to Newark in the Unite