Point of Law: Work tender - Bank guarantee - To arise a right under the Bank Guarantee Agreement, a demand has to be made within the period of validity of the Agreement. Having not made any demand within the validity period of the Bank Guarantee, the petitioner is not entitled to invoke the Guarantee.

JUDGMENT :

N. NAGARESH, J.

1. The petitioner-Cochin Port Trust is aggrieved by the refusal of the 1st respondent to encash Bank Guarantee and transfer the same to the petitioner. The petitioner also seeks to declare that invocation of the Bank Guarantee during the claim period is valid invocation and binding on the Bank.

2. The petitioner states that a tender was floated by them for awarding the work of providing consultancy services for design and supervision of flyover and ROB at ICTT area in Vallarpadam. The 2nd respondent being the successful bidder, Ext.P1 agreement dated 20.08.2014 was executed with the 2nd respondent. The 2nd respondent was required to provide a performance security in the form of a Bank Guarantee. The 2nd respondent furnished Ext.P2 Bank Guarantee dated 21.07.2014.

3. By Ext.P2, the 1st respondent-Bank agreed to pay the petitioner on demand any and all money payable by the 2nd respondent to the extent of Rs. 19,40,000/- at any time up to 30.09.2015. The Bank Guarantee which was valid up to 30.09.2015 was extended as per Ext.P3, up to 30.09.2016. In Ext.P3, it was stipulated that though the period of Bank Guarantee is up to 30.09.2016, the claim period is up to one year after the expiry of the validity of the Bank Guarantee i.e. up to 30.09.2017. The Bank Guarantee was extended from time to time on same conditions. The final extension as per Ext.P8, was up to 31.03.2019 with claim period up to 31.03.2020.

4. Certain defects were noticed in the work of the 2nd respondent and the 2nd respondent was instructed to inspect the site and suggest appropriate remedial measures. The 1st respondent-Bank was informed on 06.06.2019 to return the Bank Guarantee amount until further communication is received from the petitioner. As the 2nd respondent did not initiate remedial measures even within a period of one month, the petitioner invoked the Bank Guarantee on 28.06.2019, 29.06.2019 and 01.07.2019, as per Exts.P10 to P12.

5. By Ext.P13 dated 06.07.2019, the 1st respondent informed the petitioner that the Bank Guarantee cannot be paid as the guarantee period has lapsed and only claim period is remaining. The petitioner contends that refusal of the 1st respondent to honour the Bank Guarantee is illegal and in violation of the conditions of the Bank Guarantee. The petitioner therefore challenges the refusal of the 1st respondent-Bank to realise the Bank Guarantee.

6. The 1st respondent filed a counter affidavit in the writ petition and contested the claim of the petitioner. The 1st respondent pointed out that it has been categorically stated in Ext.P3 that the Bank is liable to pay the guarantee amount only if the petitioner makes a written claim or demand on or before the expiry of the renewed guarantee. The claim period of one year over and above the validity period is incorporated as per Exception 3 to Section 28 of the Contract Act, by the Banking Laws Amendment Act, 2012 with effect from 18.01.2013.

7. The 1st respondent contended that the petitioner cannot have any advantage by the incorporation of a clause in terms of the said Exception 3 to Section 28 of the Indian Contract Act, in the Bank Guarantee. The right of the petitioner to have the Bank Guarantee invoked, is only during the currency of the Bank Guarantee and not during the extended claim period of one year. No relief can therefore be given to the petitioner in this writ petition.

8. The 2nd respondent also filed a counter affidavit. According to the 2nd respondent, the clause regarding arbitration in case of dispute, is applicable to the contract. The clause would take in dispute relating to encashment of Bank Guarantee also. The consultancy work was completed on 30.04.2018. A team of experts from the 2nd respondent Firm visited the site, inspected the work and presented a report to the petitioner regarding the remedial measures to be taken. The 2nd respondent stated that despite the fact that the contract period and obligation are over, the 2nd respondent is