V. MOHTA ANOOP, J.

( 1 ) THE appellant-plaintiff has preferred the present appeal against the judgment and order dated 4th February 1989, passed by the Civil Judge, Senior Division, Ahmednagar, in Special Civil Suit No. 310 of 1987, whereby, the Suit was dismissed.

( 2 ) THE appellants is a Co-operative Sugar Factory, having its registered office at Post Sonai village Taluka Newasa, District Ahmednagar. By an agreement dated 25th September, 1983, the appellant executed the contract for erection of a paper plant at village Sonai on a turn-key basis to utilise the left over material called "bagasse" of the sugarcane with M/s. Pentagon Engineering pvt. Ltd. (for short "m/s. Pentagon" ). The total value of the contract was Rs. 3,40,00,000/ -. Time was the essence of the contract. The said Pentagon had guaranteed the performance as agreed. As per Clauses 15 to 17 of the agreement, the appellants were entitled to retain 10% of the amount and which were to be paid after 3 to 6 months after successful working of the same after it was commissioned. In view of Clauses 15. 2. 4 and 15. 2. 5, the appellant, while making payment against the performance invoice sent by M/ s. Pentagon, used to deduct 10% value of the said invoice. This 10% amount corresponds to the amount of 5% which was referred to in Clauses 15. 2. 4 and 15. 2. 5 of the agreement. However, by letter dated 6th April, 1985, Pentagon requested the appellant-plaintiffs to rescind the term about the retention of the said 10% amount. The appellant agreed to accommodate Pentagon on a condition to submit the Bank Guarantee against the release of the amount of rs. 34,00,000/ -. The correspondences in that regard is at Exhibit-47 to Exhibit-52 of the Paper Book. The document in question (Exhibit-46) was accordingly executed based on the original agreement between appellant and pentagon dated 28/9/1983.

( 3 ) THERE arose disputes and differences between the appellant and M/s. Pentagon. By Notice dated 17th July, 1987, the contract was terminated by pentagon. The appellant raised the claim by Notice in the sum of Rs. 3,23,28,209. 10 as set out in paragraphs 10 and 11 of the Plaint. Pentagon, however, denied the liability and claimed an amount of Rs. 4,66,73,300/- vide their Advocate's letter dated 18th July, 1987 (Exhibit-53 ). The appellant, therefore by letter dated 12th August, 1987 (Exhibit-57) invoked the Bank guarantee in question.

( 4 ) THE respondents, by letter dated 13th August, 1987, resisted the said demand and pointed out that at the request of Pentagon, on 4th September 1985, the respondents executed an agreement of indemnity, thereby indemnifying the appellants against all losses, claims, damages, actions and costs which may be suffered as a result of payment of Rs. 34,00,000/ -. The indemnity given was only to cover the claims of the appellants against the said company. Therefore, it was pointed out that unless adjudicated that the appellants had suffered any loss or damage for design, performance, workmanship or against defective material through the competent Court or authority, and the claims, disputes and differences between the parties determined accordingly, the demand of the claim by the appellant was premature and not maintainable.

( 5 ) THE appellants sent several reminders and called upon them to make the payment of Rs. 34,00,000/- under the said Bank Guarantee. The appellants, therefore, on 2nd September, 1987, filed the Special Civil Suit No. 310 of 1987 against the respondents before the Civil Judge, Senior Division, ahmednagar. On 9th February, 1988, the trial Court, on an application of the appellants, directed the respondents to deposit an amount of Rs. 34,00,000/-, but the said amount remained with the respondent Bank in view of the order dated 9th February, 1988, passed by the Hon'ble Court on appeal filed by the respondent-Bank with condition that the respondent-Bank should pay the amount with interest @ 12% in case appellants succeeds in the