A party cannot be allowed to encash a bank guarantee if the other party has made out a prima facie case of special equity in his favor.

( 1 ) M/s. Victor Cable Industries Ltd. submitted the tenderdocument, with the respondent M/s. Engineering Projects (1) Ltd. (in short EPI ). Itwas in response to the notice inviting tender issued by respondent EPI for thesupply of cables in respect of Rayalseems Thermal Power Project of the Andhrapradesh State Electricity Board. On account of the deemed export status of theproject exemption from payment of excise duty was available to respondent EPI. This was so reflected in the purchase conditions appended to the tender enquiry. The sales tax was to be paid extra at actuals as applicable against the documentaryevidence. The petitioner s tender was accepted on 30/03/1993. The order forsupplying power cable at a total value of Rs. 77,04,210. 65 paise was placed on thepetitioner. Alongwith the order, terms and conditions of payment were annexed. Delivery was to be made within a period of four to five months. This order was tobe followed by a detailed order to be released later on.

( 2 ) IT is the case of the petitioner that the total value of the contract amountquoted was at price at Ex-works. It did not include the cost of frieght, excise dutyand sales tax because the project had been granted a deemed export status. As perthe payment terms appended to the order placed on the petitioner, the petitionerwas to furnish two Bank guarantees, namely. Bank guarantee for an amountequivalent to the advance payment received by the petitioner which was to beinterest free; and the second bank guarantee for 10% of order value as security. 65%of the order price was to be paid through an irrevocable letter of credit to beestablished by the respondent buyer in favour of the petitioner / supplier at Delhi. The balance 25% of the order price was to be paid within 30 days of the receipt ofthe equipment at project site against the performance bank guarantee of 10%) oftotal value of the project. It is further the case of the petitioner that by the letterfurnished subsequently there was a variation in respect of the clauses relating topayment of excise duty. As against the clause in the purchase conditions appendedto the tender enquiry, it exempted the excise duty on account of deemed exportstatus of the project. But in the subsequent letter a clause was added changing theearlier clause. By the new Clause it was stated therein that the EPI shall pay exciseduty at actuals against documentary proof i. e. gate pass and supplier shall furnishdis-claimer certificate in favour of EPI. The excise duty would be payable by thesupplier, the excise duty and sales tax component constituted as high as 40% of thepurchase order amounting to Rs. 30 lakhs. Because of the change in the stipulatedcondition, the petitioner was financially prejudiced. This was protested by thepetitioner indicating therein that petitioner was ready and willing to perform thecontract provided the bills raised in respect of sales tax and excise duty were paidthrough a bank in accordance with delivery schedule. This shows it was the EPIwho committed breach as a result of which the petitioner suffered irreparable less. Moreover the EPI did not open the letter of credit which was a pre-requisite of thesupply of cables. For the approval of technical requirements the EPI causedconsiderable delay. Under the terms of the bank guarantee, the EPI could onlyinvoke the security guarantee if it could be established that it had suffered any lossor damage. Before invoking this guarantee EPI was to specify and quantify theloss/damage suffered by it. So far as Advance Bank Guarantee is concerned, thesame was given against manufacture of the material. According to petitioner since,the respondent failed to open the letter of credit which was a condition precedenthence the respondent cannot invoke this bank guarantee also. The very invocationis bad in law.

( 3 ) THIS application has been contested by the EPI, inter aha, on the groundthat banker s liability to honour the guarantee is absolute. No al