( 1 ) THIS petition under Section 9 of the Arbitration and conciliation Act, 1996 (hereinafter referred to as the act ) against invocation of Bank Guarantee by respondent No. 1 MTNL, principally on account of the fact that the letter dated 5th April, 2004 stipulating terms of extension of delivery period was posted on 29th April, 2004 and accordingly, valuable time of one month was taken away. The relevant clause of the Bank Guarantees in question reads as under:

"bank Guarantee No. 25/2003-04 dated 6. 1. 2004 in consideration of the CMD, MAHANAGAR TELEPHONE NIGAM ltd. (hereinafter called mtnl ) having agreed to exempt Surya Nagri telelinks Pvt. Ltd. , Regd. Office 18-B, Lake Road, Kolkatta - 700 029 [hereinafter called the "the said Contractor (s)"] from the demand, under the terms and conditions of an agreement/ Advance Purchase Order No. MTNL/20-80 (66)/ 2003-2004/2003-MM/pijf/vol. II/sury Nagri dated 24. 12. 2003 made between mahanagar Telephone Nigam Ltd. and Surya Nagri Telelinks Pvt. Ltd. , 18-B, lake Road, Kolkata-700 029 for the supply of 750 Km. of 10/05 A (hereinafter called "the said Agreement"), of security deposit for the due fulfilment by the said Contractor (s) of the terms and conditions contained in the said Agreement, on production of the Bank Guarantee for Rs. 11,66,640. 00 we, Indian Bank, 5-B, russell St. Kolkata-700 071 having our Registered Office at 31, Rajaji Salai, chennai-600 001 (hereinafter refer to as the "the Bank") at the request of Surya nagri Telelinks Pvt. Ltd. [contractor (s)] do hereby undertake to pay to the mtnl an amount not exceeding Rs. 11,66,40. 00 against any loss or damage caused to or suffered or would be caused to or suffered by the MTNL by reason of any breach by the said Contractor (s) of any of the terms or conditions contained in the said Agreement.

2. We, Indian Bank do hereby undertake to pay the amounts due and payable under this Guarantee without any demur, merely on a demand from the MTNL by reason of breach by the said Contractor (s) of any of the terms and conditions contained in the said Agreement or by reason of the Contractor (s) failure to perform the said Agreement. Any such demand made on the Bank shall be conclusive a regards the amount due and payable by the Bank under this Guarantee where the decision of the MTNL in these Courts shall be final and binding on the Bank. However, our liability under this Guarantee shall be restricted to an amount not exceeding Rs. 11,66,640. 00. "

( 2 ) THE letter of invocation dated 17th August, 2004 reads as follows:

"mahanagar TELEPHONE NIGAM LIMITED (A GOVERNMENT OF INDIA ENTERPRISE) speed POST MTNL/bg/2004-05/1310 Dated: 17. 08. 04 To, The Manager Indian Bank 5-B Russell Street, kolkata-700 071 Sub: Invocation of Bank Guarantees No. BG No. 25/03-04 dated 6. 1. 04 for rs. 11,66,640/- dvance purchase order No. MTNL/20-80 (66)/2003- 2004/2003-MM/pijf/vol. n/surya Nagri dated 24. 12. 2003 We hereby invoke the captioned Bank Guarantee furnished in our favour on behalf of M/s. Surya Nagri Telelinks Pvt. Ltd. , Kolkata, for Rs. 11,66,640 /- on account of loss suffered by MTNL by reason of breach of m/s. Surya Nagri Telelinks Pvt. Ltd. of terms and conditions contained in the captioned agreement and call upon you to remit the amount within three days from the date of receipt of this letter. The amount may be remitted by transfer to our Account No. 60017 maintained with your New delhi Main Branch, P-Block, Connaught Circus, New Delhi. Please note that if the amount is not remitted within 3 days, from the date of issue of this letter, we shall be constrained to take such action as we deem fit at your risk and responsibility. Thanking you, Yours faithfully, (K. C. KHANNA) sr. Accounts Officer (BKG)"

( 3 ) THE learned Counsel for the petitioner has contended that whole delivery schedule was disturbed by the lethargy of quality assurance department of the respondent by not making inspection in time and it is reflected in t