( 1 ) THIS appeal arises from the order passed on an application under older 39 Rules 4 and 5 Civil Procedure Code. moved by the appellant wherein it had sought permission to invoke bank guarantee which had been furnished by the respondent.

( 2 ) IT appears that the appellant was trying to negotiate with the Iranian State Railways for the supply of certain goods. In order to be able to negotiate the proposed contract the appellant, it seems, approached the respondents in order to ascertain for itself as to whether it would be in a position to make the supplies.

( 3 ) SOME understanding between the parties was apparently arrived at. This is reflected in a bank guarantee dated 14th July, 1976 in favour of the appellant by the Punjab National Bank, Shahdara, Delhi, which had been furnished at the instance of the respondent. The relevant portions of the bank guarantee, with which we are concerned in the present case, read as under:

"with reference to contract made between Iranian State Railways and M/s. Harprashad and Company Limited, Mahajan House, E 1 and 2 NDSE Part II New Delhi for supply of Railway Track Components and in compliance with request made by M/s. Sudarshan Steel Rolling Mills, 601 Motiram Road, Shahdara, Delhi-110032. We Punjab National Bank, Shahdara, Delhi-32, hereby guarantee the good performance of the obligations which M/s. Sudarshan Steel Rolling Mills has assumed towards Harparshad and Company Limited in accordance with the above contract. In case M/s. Sudarshan Steel Rolling Mills fails in the judgment of M/s. Harparshad and Company Ltd. to carry out and fulfil any of the obligation assumed under the said contract, we undertake to promptly pay the Punjab National Bank, Parliament Street, New Delhi, in favour of M/s. Harparshad and Company Ltd. , or their order, purely upon receipt of first written notice, any amount upto Rs. 12,13,616. 00 that may be claimed by them for any reason or purpose, at their own discretion without it being necessary for M/s, Harparshad and Company Ltd. , to issue a declaration or take action through administration legal or order channels, or to prove the default of M/s. Sudarshan Steel Rolling Mills, and/or the variety of the affirmations made by them. Guarantee will be effective on execution of contract between Messra Harparshad and Co. Ltd. and Messrs Sudershan Steel Rolling Mills/receipt of confirmed orders/lc in favour of Messra Sudarshan Steel Rolling Mills. "

( 4 ) THEREAFTER on 3rd March, 1977 a formal contract between the? appellant and the Iranian State Railways was executed. The aforesaid bank guarantee contemplated that a formal contract between the parties herein would be executed. After the appellant had entered into an agreement with the Iranian State Railways, it entered into the said formal agreement with the respondents on 22nd June. , 1977. Under this agreement the respondent (who was referred to in the agreement as the "contractor") undertook certain obligations to be fulfied qua the appellant (referred to in the agreement as the "exporter" ). The provisions of the said agreement, which arc relevant for the purposes of this appeal, are contained in Clauses 4,5 and 7 which read as follows:

"4. That the contractor shall be paid in Indian Rupees for supply of the goods at price equivalent to US $ 490. 34 per metric ton C and F Khorramshahr Bunder Shahpour. This C and F price of US S 490. 34 per metric tonnes mentioned above has been arrived at after deducting from the gross C and F price of US $ per metric ton, a sum of US $ 20. 06 per metric ton) being the share of cash incentive apponionable to the exporter calculated @24% on US 83. 60 i. e. F. OB. value assigned to exporter out of the total cash incentive receivable from the Government of India. It is agreed by and between the parties that in the event of any variation in the rate or amount of cash assistance, proportionate change will be made in the amount of US S 20. 06 per metric ton as af