{"id":241094,"date":"1991-08-07T00:00:00","date_gmt":"1991-08-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/general-electric-technical-vs-punj-sons-p-ltd-and-another-on-7-august-1991"},"modified":"2016-02-19T20:21:56","modified_gmt":"2016-02-19T14:51:56","slug":"general-electric-technical-vs-punj-sons-p-ltd-and-another-on-7-august-1991","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/general-electric-technical-vs-punj-sons-p-ltd-and-another-on-7-august-1991","title":{"rendered":"General Electric Technical &#8230; vs Punj Sons (P) Ltd. And Another on 7 August, 1991"},"content":{"rendered":"<div class=\"docsource_main\">Supreme Court of India<\/div>\n<div class=\"doc_title\">General Electric Technical &#8230; vs Punj Sons (P) Ltd. And Another on 7 August, 1991<\/div>\n<div class=\"doc_citations\">Equivalent citations: 1991 AIR 1994, \t\t  1991 SCR  (3) 412<\/div>\n<div class=\"doc_author\">Author: K Shetty<\/div>\n<div class=\"doc_bench\">Bench: Shetty, K.J. (J)<\/div>\n<pre>           PETITIONER:\nGENERAL ELECTRIC TECHNICAL SERVICESCOMPANY INC.\n\n\tVs.\n\nRESPONDENT:\nPUNJ SONS (P) LTD. AND ANOTHER\n\nDATE OF JUDGMENT07\/08\/1991\n\nBENCH:\nSHETTY, K.J. (J)\nBENCH:\n<a href=\"\/doc\/1741472\/\">SHETTY, K.J. (J)\nRAMASWAMI, V. (J) II\nYOGESHWAR DAYAL (J)\n\nCITATION<\/a>:\n 1991 AIR 1994\t\t  1991 SCR  (3) 412\n 1991 SCC  (4) 230\t  JT 1991 (3)\t360\n 1991 SCALE  (2)272\n\n\nACT:\n     Contract--Termination due to failure to comply specifi-\ncations--Bank guarantee--Claim for encashment--Liability  of\nBank--Order  restraining Bank from making  payment--Legality\nof.\n\n\n\nHEADNOTE:\n     The appellant's contract with Indian Airlines  included\nthe  construction and fabrication of air craft testing\tcen-\ntre\/engine  repair  centre in Delhi. For getting  that\twork\ndone,  the  appellant entered into a contract with  the\t re-\nspondent-1.\n     As\t per  the  contract, respondent-1  was\trequired  to\nprovide\t performance bond equal to 30 per cent of the  total\nvalue  of contract price, which was to be split up into\t two\nperformance bonds partly to be released on completion of the\nproject, and the balance upon the expiration of the  warran-\nty, and to furnish a Bank guarantee to secure the  mobilisa-\ntion advance of 25 per cent of contract value.\n     Respondent-II,  instead of furnishing the two  perform-\nance bonds, wrote a letter for a revised proposal, which was\naccepted by the appellant.\n     As\t the  respondent-1 failed to  complete\tthe  project\nwithin\tthe stipulated time, as per  contractual  specifica-\ntions, despite repeated opportunities, the appellant  termi-\nnated  respondent-1's  right  to continue  the\tproject\t and\nsought\tfor  encashment\t of  the  Bank\tguarantee  for\t Rs.\n1,06,12,500, which was issued to the appellant by the Bank.\n     The  respondent-I filed a suit for\t injunction  against\nthe appellant and the Bank in the High Court and obtained an\nex-parte  injunction from the Single Judge, restraining\t the\nBank and the appellant from encashing the Bank guarantee.\n      When the ex-parte injunction was vacated, respondent-I\npreferred an appeal to the Division Bench of the High Court.\nThe Division\n413\nBench allowed the appeal, staying the encashment Of the Bank\nguarantee till the disposal of the respondent's suit.\n    On\tthe  question, whether the Court  was  justified  in\nrestraining  the  Bank from paying the appellant  under\t the\nBank guarantee at the instance of respondent-I, allowing the\nappeal of the appellant company, this Court,\n    HELD: 1. In the instant case, the High Court has miscon-\nstrued the terms of the Bank guarantee and the nature of the\ninter-rights of the parties under the contract. The  mobili-\nsation advance is required to be recovered by the  appellant\nfrom  the running bills submitted by the respondent. If\t the\nfull  mobilisation advance has not been recovered, it  would\nbe to the advantage of the respondent. Secondly, the Bank is\nnot  concerned\twith the outstanding amount payable  by\t the\nappellant under the running bills. The right to recover\t the\namount\tunder  the  running bills has no  relevance  to\t the\nliability of the Bank under the guarantee. The liability  of\nthe  Bank  remained intact irrespective of the\trecovery  of\nmobilisation  advance or the non-payment under\tthe  running\nbills.\tThe failure on the part of the appellant to  specify\nthe remaining mobilisation advance in the letter for encash-\nment  of  Bank\tguarantee is of little\tconsequence  to\t the\nliability of the Bank under the guarantee. The demand by the\nappellant  is under the Bank guarantee and as per the  terms\nthereof. The Bank has to pay and the Bank was willing to pay\nas  per the undertaking. The Bank cannot be  interdicted  by\nthe Court at the instance of respondent-I in the absence  of\nfraud  or special equities in the form of  preventing  irre-\ntrievable  injustice between the parties. The High Court  in\nthe absence of prima facie case on such matters has  commit-\nted  an\t error in restraining the Bank\tfrom  honouring\t its\ncommitment under the bank guarantee. [421E-422A]\n    <a href=\"\/doc\/329587\/\">U.P.  Cooperative Federation Ltd. v.  Singh\t Consultants\nand Engineers (P) Ltd.,<\/a> [1988] 1 SCC 174, Followed.\n\n\n\nJUDGMENT:\n<\/pre>\n<p>    CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3087  of<br \/>\n1991.\n<\/p>\n<p>    From  the  Judgment and Order dated 23.11. 1990  of\t the<br \/>\nDelhi High Court in F.A.O. (O.S.) 123 of 1989.<br \/>\nKapil  Sibal, D.D. Thakur, Ms. Lira Goswamy,  A.K.  Mahajan,<br \/>\nA.S.  Chandhoik, Ms. Meera Chibar and Dinesh Agnani for\t the<br \/>\nappearing parties.\n<\/p>\n<p><span class=\"hidden_text\">414<\/span><\/p>\n<p>The Judgment of the Court was delivered by<br \/>\n    K.\tJAGANNATHA  SHETTY, J. We grant\t special  leave\t and<br \/>\nproceed to dispose of the appeal.\n<\/p>\n<p>    The\t General Electric Technical Services Company  (`GET-<br \/>\nSCO&#8217;) had entered into a contract with Indian Airlines which<br \/>\nincluded,  inter alia, the construction and  fabrication  of<br \/>\nair craft testing centre\/engine repair centre in Delhi.\t The<br \/>\nGETSCO\tin turn entered into a contract with M\/s  Punj\tSons<br \/>\n(P) Ltd. respondent-1 for getting that work done for  Indian<br \/>\nAirlines.  As per the contract respondent-I was required  to<br \/>\nprovide\t performance bond equal to 30 per cent of the  total<br \/>\nvalue  of contract price which was to be split up  into\t two<br \/>\nperformance bonds partly to be released on completion of the<br \/>\nproject, and the balance upon the expiration of the  warran-<br \/>\nty.  The  respondent-I was also required to furnish  a\tbank<br \/>\nguarantee to secure the mobilisation advance of 25 per\tcent<br \/>\nof  the\t contract value. On 28\tOctober,  1986\trespondent-1<br \/>\nfurnished  the\tbank guarantee to  secure  the\tmobilisation<br \/>\nadvance\t of Rs. 1,86,00,000. The guarantee was furnished  by<br \/>\nHongkong &amp; Shanghai Bank (&#8216;the Bank&#8217;) respondent-2.<br \/>\n    Respondent-I  instead of furnishing the two\t performance<br \/>\nbonds,\tas  agreed upon, wrote a letter dated  3  September,<br \/>\n1987, as follows:\n<\/p>\n<blockquote><p>\t       &#8220;&#8230;..\n<\/p><\/blockquote>\n<blockquote><p>\t      Sub: Jet Engine Test &amp; Repair Centre at Palam<br \/>\n\t      Finance September 3, 1987<br \/>\n\t      Dear Sir,<br \/>\n\t\t\tIn  terms of above contract we\thave<br \/>\n\t      to submit two separate Bonds for\tMobilisation<br \/>\n\t      advance &amp; performance guarantee &amp; 25% and\t 30%<br \/>\n\t      of  the  Contract value.\tBank  Guarantee\t for<br \/>\n\t      mobilisation advance has already been  submit-<br \/>\n\t      ted and we have not to submit the\t Performance<br \/>\n\t      Bonds for 30% of the Contract value. Since the<br \/>\n\t      amount  of Performance Bond shall be  progres-<br \/>\n\t      sively  utilised over the contract period,  in<br \/>\n\t      order  to\t reduce Bank  charges  and  marginal<br \/>\n\t      money,  we would like to\tsuggest\t alternative<br \/>\n\t      proposals to meet with your requirements:\n<\/p><\/blockquote>\n<p><span class=\"hidden_text\">\t      415<\/span><\/p>\n<blockquote><p>\t      AA.  We propose to submit performance  guaran-<br \/>\n\t      tees for 30% of the contract value duly signed<br \/>\n\t      by  two directors in their  personal  capacity<br \/>\n\t      and countersigned by Punj Sons (Pvt) Ltd. This<br \/>\n\t      Performance bond shall include identical terms<br \/>\n\t      &amp;\t conditions,  as  desired  in  your  format.<br \/>\n\t      Similar Bond has already been accepted by\t M\/s<br \/>\n\t      Hindustan\t Petroleum Corporation\tLtd.  Bombay<br \/>\n\t      for their Bombay-Pune Pipeline Project  valued<br \/>\n\t      at Rs.7.05 crores.\n<\/p><\/blockquote>\n<blockquote><p>\t      BB. Alternatively, we would suggest submission<br \/>\n\t      of  a  Composite Bank  gurantee  where  amount<br \/>\n\t      vacated  by  Mobilisation\t advance  shall\t  be<br \/>\n\t      utilised by Performance Bank Guarantee amount.<br \/>\n\t      This Guarantee shall at any time be valid\t for<br \/>\n\t      equivalent  to 30% of the contract  value,  to<br \/>\n\t      cover  unrecovered  mobilisation\tadvance\t and<br \/>\n\t      Performance  Guarantee  amount  of  the\twork<br \/>\n\t      certified.\n<\/p><\/blockquote>\n<blockquote><p>\t\t       We have submitted similar Bonds to  a<br \/>\n\t      number of our customers to their entire satis-<br \/>\n\t      faction.\tMay we request you to look into\t the<br \/>\n\t      above  arrangement and allow us to submit\t the<br \/>\n\t      above  Bond or Composite Bank Guarantee  under<br \/>\n\t      this Contract.\n<\/p><\/blockquote>\n<blockquote><p>\t\t       Thanking you and assuring you of\t our<br \/>\n\t      best services at all times&#8230;.  &#8220;<\/p><\/blockquote>\n<p>    GETSCO  has accepted the revised proposal  contained  in<br \/>\nthe aforesaid letter. Consequently, on 25 January  1988, the<br \/>\nBank   furnished  a  composite\tbank  guarantee\t for   Rs.2,<br \/>\n12,25,000. Out of this composite bank guarantee 15 per\tcent<br \/>\nbeing  Rs. 1,06,12,500 would remain in force until 30  June,<br \/>\n1988  and  the balance 15 per cent would remain\t valid\ttill<br \/>\nfinal acceptance certificate i.e. till 30 June 1989.<br \/>\n    It\tseems  respondent-1 failed to complete\tthe  project<br \/>\nwithin the stipulated time as per contractual specifications<br \/>\ndespite repeated opportunities to rectify defects and  defi-<br \/>\nciencies prior to August 1988 and thereafter. GETSCO  termi-<br \/>\nnated respondent-1&#8217;s right to continue the project and wrote<br \/>\na letter dated 17 April 1989 to the Bank seeking  encashment<br \/>\nof  the bank guarantee dated 25 January 1988 for  Rs.  1,06,<br \/>\n12,500.\t On the same day the bank issued a  cashier&#8217;s  order<br \/>\nNo.  2605  for Rs. 1,06, 12,500 in favour of GETSCO.  On  18<br \/>\nApril  1989  the respondent-1 filed a  suit  for  injunction<br \/>\nagainst\t GETSCO and the Bank in the High Court and  obtained<br \/>\nan ex-parte injunction at the residence<br \/>\n<span class=\"hidden_text\">416<\/span><br \/>\n   of  learned Single Judge restraining the Bank and  GETSCO<br \/>\nfrom  encashing the bank guarantee. On 11 July 1989 the\t ex-<br \/>\nparte  injunction was vacated. On the same day\trespondent-1<br \/>\npreferred an appeal to the Division Bench of the High  Court<br \/>\nand obtained stay of encashment of he bank guarantee. On  23<br \/>\nNovember  1990, the Division Bench allowed the\tappeal,\t set<br \/>\naside  the  order  of learned Single Judge  and\t stayed\t the<br \/>\nencashment  of the bank guarantee till the disposal  of\t the<br \/>\nrespondent&#8217;s suit.\n<\/p>\n<p>    It seems to us that the Division Bench of the High Court<br \/>\nhas  misconstrued  the terms of the bank guarantee  and\t the<br \/>\nrights and liabilities of the parties thereunder. The  first<br \/>\nbank guarantee dated 28 October, 1986 is in these terms:\n<\/p>\n<blockquote><p>\t      &#8220;1.  In  consideration  of  General   Electric<br \/>\n\t      Technical Services co. Inc. Cincinnati,  Ohio,<br \/>\n\t      U.S.A.  C\/o  M\/s\tP.L.  Jaitly  &amp;\t co.  IE\/12,<br \/>\n\t      Jhandewalan Extension, New Delhi\t(hereinafter<br \/>\n\t      called  the  owner)  having  agreed  to  grant<br \/>\n\t      mobilisation  advance  of Rs.18,600,000\t[Rs.<br \/>\n\t      Eighteen million six hundred thousand only] to<br \/>\n\t      M\/s  Punj\t Sons Pvt.  Ltd.,  Industrial  Area,<br \/>\n\t      Kalkaji, New Delhi 110019 (hereinafter  called<br \/>\n\t      Contractor) under the terms and conditions  of<br \/>\n\t      Tender No. HB-040-I made by and between, owner<br \/>\n\t      and Contractor for Indian Airlines Jet  Engine<br \/>\n\t      Repair and Test Facilities Phase II  Construc-<br \/>\n\t      tion  being  undertaken at the  Indira  Gandhi<br \/>\n\t      International  Airport,  New Delhi  (here\t in-<br \/>\n\t      called the Agreement)  on\t the  production  of<br \/>\n\t      Bank   Guarantee\tfor  Rs.18,600,000   [Rupees<br \/>\n\t      eighteen\tmillion\t six  hundred thousand only]<br \/>\n\t      we,  Hongkong &amp; Shanghai Banking\tCorporation,<br \/>\n\t      28  Kasturba  Gandhi  Marg,  New\tDelhi-110001<br \/>\n\t      (hereinafter called Bank) do hereby  undertake<br \/>\n\t      to  pay to the Owner an amount  not  exceeding<br \/>\n\t      Rs.  18,600,000  [Rs.  eighteen  million\t six<br \/>\n\t      hundred  thousand only], against any  loss  or<br \/>\n\t      damage  caused  to  or suffered  or  would  be<br \/>\n\t      caused  to or suffered by the owner by  reason<br \/>\n\t      of  any breach by the Contractor of the  terms<br \/>\n\t      and conditions-contained in the Agreement.\n<\/p><\/blockquote>\n<blockquote><p>\t      2. We, the Bank do hereby undertake to pay the<br \/>\n\t      amount  due and payable under  this  Guarantee<br \/>\n\t      with  demur, merely on demand from  the  owner<br \/>\n\t      stating that the amount claimed is due by\t way<br \/>\n\t      of loss or damage caused to or would be caused<br \/>\n\t      to  or suffered by the owner by reason of\t any<br \/>\n\t      breach<br \/>\n<span class=\"hidden_text\">\t      417<\/span><br \/>\n\t      by  the  Contractor  of any of  the  terms  or<br \/>\n\t      conditions  contained in the Agreement  or  by<br \/>\n\t      reason of the Contractor&#8217;s failure to  perform<br \/>\n\t      the  Agreement.  Any such demand made  on\t the<br \/>\n\t      Bank  shall  be  conclusive,  as\tregards\t the<br \/>\n\t      amount due and payable by the Bank under\tthis<br \/>\n\t      Guarantee.  However, our liability under\tthis<br \/>\n\t      Guarantee shall be restricted to an amount not<br \/>\n\t      exceeding\t  Rs.18,600,000\t  [Rupees   eighteen<br \/>\n\t      million six hundred thousand only].\n<\/p><\/blockquote>\n<blockquote><p>\t      3. We, the Bank further agree that the Guaran-<br \/>\n\t      tee herein contained shall remain in force and<br \/>\n\t      effect  during the period that would be  taken<br \/>\n\t      for the performance of the Agreement and\tthat<br \/>\n\t      it  shall continue to be enforceable till\t all<br \/>\n\t      the due of the owner under or by virtue of the<br \/>\n\t      Agreement have been fully paid and its  claims<br \/>\n\t      satisfied\t or  discharged or  till  the  owner<br \/>\n\t      certifies that the terms and conditions of the<br \/>\n\t      Agreement have been tully and properly carried<br \/>\n\t      out  by  the Contractor and  accordingly\tdis-<br \/>\n\t      charges  the  Guarantee. Unless  a  demand  or<br \/>\n\t      claim  under this Guarantee is made on  us  in<br \/>\n\t      writing  on or before the date (named  in\t the<br \/>\n\t      Agreement\t as the end of\tthe  warrant\/mainte-<br \/>\n\t      nance period) we shall be discharged from\t all<br \/>\n\t      liability under this Guarantee thereafter.\n<\/p><\/blockquote>\n<blockquote><p>\t      4.  We, the Bank further agree with the  Owner<br \/>\n\t      that the owner shall have the fullest  liberty<br \/>\n\t      without  our consent and without affecting  in<br \/>\n\t      any  manner our obligations hereunder to\tvary<br \/>\n\t      any of the terms and conditions of the  Agree-<br \/>\n\t      ment  or to extend time of performance by\t the<br \/>\n\t      Contractor  from time to time or\tto  postpone<br \/>\n\t      for  any time or from time to time any of\t the<br \/>\n\t      powers  exercisable by the owner\tagainst\t the<br \/>\n\t      Contractor  and to forbear or enforce  any  of<br \/>\n\t      the  terms  and  conditions  relating  to\t the<br \/>\n\t      Agreement\t and we shall not be  relieved\tfrom<br \/>\n\t      our liability by reason of any such variation,<br \/>\n\t      or extension being granted by the owner or any<br \/>\n\t      indulgence  by the owner to the Contractor  or<br \/>\n\t      by  any such matter or thing whatsoever  which<br \/>\n\t      under  the law relating to sureties would\t but<br \/>\n\t      for this provision have effect of so relieving<br \/>\n\t      us.\n<\/p><\/blockquote>\n<blockquote><p>\t      5. We, the Bank lastly undertake not to revoke<br \/>\n\t      this Guarantee during its currency except with<br \/>\n\t      the previous consent of the owner in writing.\n<\/p><\/blockquote>\n<p><span class=\"hidden_text\">\t      418<\/span><\/p>\n<blockquote><p>\t      Notwithstanding  anything\t stated\t above,\t our<br \/>\n\t      liability\t under this Guarantee is  restricted<br \/>\n\t      to  a  sum  of Rs.  18,600,000  [Rs.  eighteen<br \/>\n\t      million six hundred thousand only]. Our  Guar-<br \/>\n\t      antee  shall remain in force until  the  (date<br \/>\n\t      named  in\t the  Agreement as the\tend  of\t the<br \/>\n\t      warrant\/maintenance  period). Unless a  demand<br \/>\n\t      is  lodged with us on or before that  date  13<br \/>\n\t      day  of February 1988, all your  rights  under<br \/>\n\t      the  said guarantee shall be forfeited and  we<br \/>\n\t      shall  be\t relieved and  discharged  from\t all<br \/>\n\t      liabilities thereafter.&#8221;\n<\/p><\/blockquote>\n<blockquote><p>\t\t  The relevant terms of the second composite<br \/>\n\t      bank  guarantee dated 25 January 1988  are  as<br \/>\n\t      follows:\n<\/p><\/blockquote>\n<blockquote><p>\t      &#8220;Bank Guarantee No. 86 NDH 918 dt.  28.10.1986<br \/>\n\t      for  Rs.\t1,86,00,000  favouring\tM\/s  General<br \/>\n\t      Electric &amp; Technical Services Co. Inc.<br \/>\n\t      Under  the instructions from our\tclients\t M\/s<br \/>\n\t      Punj  Sons (Pvt) Ltd. M-13,  Connaught  Place,<br \/>\n\t      New Delhi 110001, we hereby enhance the  value<br \/>\n\t      of the above Bank Guarantee upto Rs.21,225,000<br \/>\n\t      [Rupees twenty one million two hundred  twenty<br \/>\n\t      five  thousand only] being 30% of the  revised<br \/>\n\t      Lumpsum\tContract   value   of  Rs.70,750,000<br \/>\n\t      [Rupees  seventy million seven  hundred  fifty<br \/>\n\t      thousand only].\n<\/p><\/blockquote>\n<blockquote><p>\t      This Bank Guarantee shall act &#8216;Composite\tBank<br \/>\n\t      Guarantee&#8217;    for\t Mobilisation  Advance\t and<br \/>\n\t      Performance  Bond where in Bank Guarantee,  to<br \/>\n\t      the extent of amounts of Mobilisation  Advance<br \/>\n\t      so  recovered, shall be utilised\ttowards\t Two<br \/>\n\t      Performance Bonds of 15% of the Contract value<br \/>\n\t      each valid upto 30th June, 1988 and 30th June,<br \/>\n\t      1989, respectively.\n<\/p><\/blockquote>\n<blockquote><p>\t      All  the\tother terms and\t conditions  of\t the<br \/>\n\t      original Guarantee will remain unchanged.<br \/>\n\t      We,  the Hongkong &amp; Shanghai Banking  Corpora-<br \/>\n\t      tion,  28,  Kastruba Gandhi Marg,\t New  Delhi-<br \/>\n\t      110001,  hereby undertakes not to\t revoke\t the<br \/>\n\t      Guarantee during the currency except with\t the<br \/>\n\t      previous consent of the General Electric<br \/>\n<span class=\"hidden_text\">\t      419<\/span><br \/>\n\t      and Technical Services Company Inc.<br \/>\n\t      Notwithstanding,\tanything  contained   herein<br \/>\n\t      before  our liability under this Guarantee  is<br \/>\n\t      restricted to Rs.21,225,000 [Rupees Twenty One<br \/>\n\t      Million Two Hundred Twenty five thousand only]<br \/>\n\t      and the recovery of Mobilisation advance\tfrom<br \/>\n\t      Running  Bills Account will be  in  accordance<br \/>\n\t      with the contract, the Guarantee against\tsuch<br \/>\n\t      amounts  of Mobilisation Advance as so  recov-<br \/>\n\t      ered  shall  be  treated\ttowards\t performance<br \/>\n\t      Guarantee with the intent that after  recovery<br \/>\n\t      of Mobilisation Advance in full, the Guarantee<br \/>\n\t      shall  operate against the full value of\tPer-<br \/>\n\t      formance\tBond.  Out  of\tthe  said  guarantee<br \/>\n\t      amount,\tthe   Bank   Guarantee\t amount\t  of<br \/>\n\t      Rs.10,612,500 [Rupees ten million six  hundred<br \/>\n\t      twelve thousand &amp; five hundred only] being the<br \/>\n\t      15%  of  lumpsum value of the  contract  shall<br \/>\n\t      remain  in  force till the completion  of\t the<br \/>\n\t      Project i.e. upto 30th June 1988 and the\tBank<br \/>\n\t      Guarantee\t  for\tthe  balance   amount\ti.e.<br \/>\n\t      Rs.10,612,500 [Rupees ten million six  hundred<br \/>\n\t      twelve  thousand five hundred only] being\t 15%<br \/>\n\t      amount  shall remain in force till  final\t ac-<br \/>\n\t      ceptance certificate till 30th June, 1989.<br \/>\n\t      NOTWITHSTANDING  anything contained  hereinbe-<br \/>\n\t      fore  our liability under this Guarantee\twill<br \/>\n\t      be restricted to Rs.21,225,000 [Rupees  twenty<br \/>\n\t      one million two hundred twenty five  thousands<br \/>\n\t      only] until 30th June 1988 and will  automati-<br \/>\n\t      cally  stand  reduced  from  Rs.21,225,000  to<br \/>\n\t      Rs.10,612,500 (Rupees ten million six  hundred<br \/>\n\t      twelve thousand and five hundred only) on 30th<br \/>\n\t      June,  1988 without further reference to\tyou.<br \/>\n\t      Our liability will continue only to the extent<br \/>\n\t      of the balance amount of Rs.10,612,500 [Rupees<br \/>\n\t      ten  million six hundred twelve  thousand\t and<br \/>\n\t      five  hundred only] after 30th June, 1988\t and<br \/>\n\t      will  be conditional upon a claim being  filed<br \/>\n\t      with  us\tin writing on or  before  30th\tJune<br \/>\n\t      1989.  Thereafter\t our  liability\t under\tthis<br \/>\n\t      guarantee\t shall\tstand  extinguished  and  we<br \/>\n\t      shall  be\t relieved and  discharged  from\t all<br \/>\n\t      liabilities thereunder.&#8221;<\/p><\/blockquote>\n<p>    The\t second bank guarantee with which we  are  concerned<br \/>\nmakes a reference to the first guarantee. It states that the<br \/>\nguarantee is a composite bank guarantee for mobilisation  of<br \/>\nadvance and performance bond. It further states that all the<br \/>\nother terms and conditions of<br \/>\n<span class=\"hidden_text\">420<\/span><br \/>\nthe original Guarantee will remain unchanged. The  liability<br \/>\nof   the   Bank\t   shall    automatically    reduce\tfrom<br \/>\nRs.2,12,25,000\t to Rs. 1,06, 12,500 on 30 June 1988,  which<br \/>\nwill  continue even after 30 June, 1988 and will  be  condi-<br \/>\ntional upon a claim being filed with the Bank in writing  on<br \/>\nor before 30 June 1989. In the first guarantee, the Bank has<br \/>\nundertaken  to pay to GETSCO the amount\t guaranteed  without<br \/>\nany demur merely on demand stating that the amount is due by<br \/>\nway  of loss  or damage caused to or would be caused  to  or<br \/>\nsuffered by GETSCO by reason of any breach committed by\t the<br \/>\nrespondent  on any of the terms or conditions  contained  in<br \/>\nthe  agreement or by reason of respondent&#8217;s failure to\tper-<br \/>\nform the agreement. It is also provided that any such demand<br \/>\nby  GETSCO made on the Bank shall be conclusive\t as  regards<br \/>\nthe amount due and payable by the Bank under the  guarantee.<br \/>\nThe GETSCO has only sought to enforce the bank guarantee for<br \/>\nthe  balance amount of Rs. 1,06, 12,500 on a complaint\tthat<br \/>\nrespondent-1, has failed to perform the contract as per\t the<br \/>\nterms  and conditions. The Bank has undertaken to  pay\tthis<br \/>\nsum  of money and it is a commitment of the Bank.  The\tBank<br \/>\nmust honour its commitment when demand is made. Indeed,\t the<br \/>\nBank  was prepared to pay and has in fact issued  the  Cash-<br \/>\nier&#8217;s  order  as per demand from GETSCO, but the  Court\t has<br \/>\ndirected the Bank not to pay under the guarantee.<br \/>\n    The\t question  is  whether the Court  was  justified  in<br \/>\nrestraining  the Bank from paying to GETSCO under  the\tbank<br \/>\nguarantee at the instance of respondent-1. The law as to the<br \/>\ncontractual  obligations under the bank guarantee  has\tbeen<br \/>\nwell  settled in a catenae of cases. Almost all\t such  cases<br \/>\nhave  been considered in a recent judgment of this Court  in<br \/>\n<a href=\"\/doc\/329587\/\">U.P.  Cooperative Federation Ltd. v. Singh  Consultants\t and<br \/>\nEngineers  (P)\tLtd.,<\/a> [1988] 1 SCC  174\t wherein  Sabyasachi<br \/>\nMukherji,  J.,\tas he then was, observed (at 189)  &#8216;that  in<br \/>\norder to restrain the operation either of irrevocable letter<br \/>\nof credit or of confirmed letter of credit or of bank  guar-<br \/>\nantee,\tthere should be serious dispute and there should  be<br \/>\ngood  prima facie case of fraud and special equities in\t the<br \/>\nform  of  preventing  irretrievable  injustice\tbetween\t the<br \/>\nparties.  Otherwise,  the very purpose\tof  bank  guarantees<br \/>\nwould be negatived and the fabric of trading operations will<br \/>\nget jeopardised&#8217;. It was further observed that the Bank must<br \/>\nhonour\tthe  bank guarantee free from  interference  by\t the<br \/>\nCourts.\t Otherwise, trust in commerce internal and  interna-<br \/>\ntional\twould be irreparably damaged. It is only  in  excep-<br \/>\ntional\tcases that is to say in case of fraud or in case  of<br \/>\nirretrievable injustice, the Court should interfere. In\t the<br \/>\nconcurring opinion one of us (K. Jagannatha Shetty, J.)\t has<br \/>\nobserved that whether it is a<br \/>\n<span class=\"hidden_text\">421<\/span><br \/>\ntraditional bond or performance guarantee, the obligation of<br \/>\nthe Bank appears to be the same. If the documentary  credits<br \/>\nare  irrevocable  and independent, the Bank  must  pay\twhen<br \/>\ndemand\tis made. Since the Bank pledges its own\t credit\t in-<br \/>\nvolving its reputation, it has no defence except in the case<br \/>\nof  fraud.  The Bank&#8217;s obligations of course should  not  be<br \/>\nextended  to  protest the unscrupulous party, that  is,\t the<br \/>\nparty who is responsible for the fraud. But the banker\tmust<br \/>\nbe sure of his ground before declining to pay. The nature of<br \/>\nthe  fraud that the courts talk about is fraud of an  &#8220;egre-<br \/>\ngious  nature as to vitiate the entire\tunderlying  transac-<br \/>\ntion&#8221;.\tIt  is fraud of the beneficiary, not  the  fraud  of<br \/>\nsomebody else.\n<\/p>\n<p>    The High Court has observed that failure on the part  of<br \/>\nGETSCO\tto make a reference to mobilisation advance  in\t the<br \/>\nletter\tseeking\t encashment of the bank guarantee  would  be<br \/>\ntantamount  to suppression of material facts, in  the  sense<br \/>\nthat the mobilisation advance was, under the contract to  be<br \/>\nrecovered  from the running bills. It was  further  observed<br \/>\nthat  disclosure  of such facts would have put the  bank  to<br \/>\nfurther\t inquiry as to what was the amount covered by  those<br \/>\nbills and what was the corresponding amount of the mobilisa-<br \/>\ntion  advance and to what extent the amount covered  by\t the<br \/>\nbank  guarantee\t remained payable. In any  event,  the\tHigh<br \/>\nCourt said, that GETSCO could not demand full amount of\t the<br \/>\nbank  guarantee\t on 17 April 1989. It seems to us  that\t the<br \/>\nHigh Court has misconstrued the terms of the bank  guarantee<br \/>\nand  the nature of the inter-se rights of the parties  under<br \/>\nthe  contract.\tThe mobilisation advance is required  to  be<br \/>\nrecovered by GETSCO from the running bills submitted by\t the<br \/>\nrespondent.  If the full mobilisation advance has  not\tbeen<br \/>\nrecovered,  it would be to the advantage of the\t respondent.<br \/>\nSecondly,  the\tBank is not concerned with  the\t outstanding<br \/>\namount payable by GETSCO under the running bills. The  right<br \/>\nto  recover the amount under the running bills has no  rele-<br \/>\nvance to the liability of the Bank under the guarantee.\t The<br \/>\nliability  of the Bank remained intact irrespective  of\t the<br \/>\nrecovery  of mobilisation advance or the  non-payment  under<br \/>\nthe  running  bills. The failure on the part  of  GETSCO  to<br \/>\nspecify the remaining mobilisation advance in the letter for<br \/>\nencashment of bank guarantee is of little consequence to the<br \/>\nliability  of  the Bank under the guarantee. The  demand  by<br \/>\nGETSCO\tis  under the Bank guarantee and as  per  the  terms<br \/>\nthereof. The Bank has to pay and the Bank was willing to pay<br \/>\nas  per the undertaking. The Bank cannot be  interdicted  by<br \/>\nthe Court at the instance of respondent-1 in the absence  of<br \/>\nfraud  or special equities in the form of  preventing  irre-<br \/>\ntrievable injustice between the parties.\n<\/p>\n<p><span class=\"hidden_text\">422<\/span><\/p>\n<p>The  High Court in the absence of prima facie case  on\tsuch<br \/>\nmatters has committed an error in restraining the Bank\tfrom<br \/>\nhonouring its commitment under the bank guarantee.<br \/>\n    In\tthe result, we allow the appeal, set aside  the\t im-<br \/>\npugned\tjudgment and order of the High Court. The  appellant<br \/>\nis entitled to costs in this Court.\n<\/p>\n<p>      S.L.P. (Civil) No.-of 1991<br \/>\n(In CC-13 153\/91)<br \/>\n    Since we have set aside the order of the Division  Bench<br \/>\nof  the\t High  Court this Special Leave\t Petition  does\t not<br \/>\nsurvive and is accordingly dismissed.\n<\/p>\n<p>       No costs.\n<\/p>\n<pre>V.P.R.\t\t\t\t\t\t      Appeal\nallowed.\n<span class=\"hidden_text\">423<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court of India General Electric Technical &#8230; vs Punj Sons (P) Ltd. And Another on 7 August, 1991 Equivalent citations: 1991 AIR 1994, 1991 SCR (3) 412 Author: K Shetty Bench: Shetty, K.J. (J) PETITIONER: GENERAL ELECTRIC TECHNICAL SERVICESCOMPANY INC. Vs. RESPONDENT: PUNJ SONS (P) LTD. AND ANOTHER DATE OF JUDGMENT07\/08\/1991 BENCH: SHETTY, K.J. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-241094","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>General Electric Technical ... vs Punj Sons (P) Ltd. 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