TMI Blog1999 (10) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... HCCL was required to furnish, and it did furnish, a Bank Guarantee for 10 per cent of the contract price as Performance Guarantee in the sum of Rupees Three Crores Ninety Seven Lakhs Thirteen Thousand One Hundred and Two only. Another Bank Guarantee which was required to be furnished by HCCL, and which it did furnish, was the Guarantee against Mobilisation Advance which was to be provided by the defendants from time to time to the HCCL during the course of the contract. HCCL has already furnished fifty Mobilisation Advance Bank Guarantees aggregating in all to ₹ 532 lacs. In addition to these Bank Guarantees, HCCL had also furnished another Mobilisation Advance Bank Guarantee dated 2.7.1991 for ₹ 40 lacs, for which no advance has been paid by the State of Bihar. This Bank Guarantee is, however, not in question in these proceedings. 3. Both the Bank Guarantees were invoked by the defendants and it was, at this stage, that HCCL filed a suit on 21.10.1992 in the Bombay High Court against State bank of India, State bank of Patiala and Indian Bank (defendants 1 to 3) and the State of Bihar and its officers (defendants 4 to 6) for various reliefs, including princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the defendants on their demand, the injunction order, granted by the High Court, was liable to be set aside. 8. Now, a Bank Guarantee is the common mode, of securing payment of money in commercial dealings as the beneficiary, under the Guarantee, is entitled to realise the whole of the amount under that Guarantee in terms thereof irrespective of any pending dispute between the person on whose behalf the Guarantee was given and the beneficiary. In contracts awarded to private individuals by the Government, which involve huge expenditure, as, for example, construction contracts, Bank Guarantees are usually required to be furnished in favour of the Government to secure payments made to the contractor as Advance from time to time during the course of the contract as also to secure performance of the work entrusted under the contract. Such Guarantees are excusable in terms thereof on the lapse of the contractor either in the performance of the work or in paying back to the Government Advance , the Guarantee is invoked and the amount is recovered from the Bank. It is for this reason that the Courts are reluctant in granting an injunction against the invocation of Bank Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce loan to the Contractor at 13 per cent simple interest per annum for the costs of mobilisation in respect of the works in a lump sum amount equivalent upto 15 per cent of the Contract Price named in the Letter of Acceptance, payable in the proportionate amounts of foreign and local currencies as provided for in the Contract. Payment of the loan will be due under separate certification by the Engineer after (i) execution of the Form of Agreement by the parties thereto, (ii) Provision by the Contract of the Performance security in accordance with Clause 5, and (iii) provision by the Contractor of a Bank Guarantee, by a Bank acceptable to the Employer in an amount equal to the advance loan, such Bank Guarantee to remain effective until the advance loan has been completely repaid by the Contractor out of current earnings under the Contract and certified accordingly by the Engineer. A form of bank guarantee acceptable to the Employer is indicated in Section 9. Annex. B. The advance loan shall be used by the Contractor exclusively for mobilisation expenditures, including the acquisition of Constructional Plant, in connection with the works. Should the Contractor misappropriate any por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the contractor, shall in any way release us from any liability under this guarantee, and we hereby waive notice of any such change, addition or modification. Our liability under this guarantee is restricted to an amount not exceeding ₹ 10,00,000 (Rupees Ten lakhs only) and the said guarantee shall remain in full force upto 11th October, 1990 with a claim period of six months thereafter i.e., upto 11th April, 1991 twelve months after the issuing of maintenance certificate, whichever is earlier. Unless demand or claim under this guarantee is made on us in writing on or before 11th April, 1991 we shall be relieved and discharged from all liabilities thereafter. This guarantee shall remain valid and in full effect from the date of the advance payment under the contract until the Executive Engineer, Kharkai Dam Division II, Icha, Chaliama, Post Kearagarhia, Dist, Singhbhum, Bihar, receives full repayment of the same amount from the contractor, but not later than 11th April, 1991 any case. Dated at Bombay this 12th October, 1989. For STATE BANK OF INDIA Sd/- MANAGER Commercial Branch, Bombay - 400 023 13. The Bank, in the above Guarantee, no doubt, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trained from making payment of the amount stipulated by the Performance Guarantee to the defendants. 16. The Performance Guarantee was furnished in terms of Clause 5 of the agreement which provides as under ; (a) For the due performance of the contract, the Tender shall contain an undertaking by the Contractor to obtain when required a bond or guarantee of an insurance company or bank, or other approved sureties to be jointly and severally bound with the Contractor to the Employer, in a sum not exceeding that stated in the Letter of Acceptance for such bond or guarantee, the said insurance company or bank sureties and the terms of the said bond or guarantee shall be such as shall be approved by the Employer. The obtaining of such bond or guarantee or the provisions of such sureties and the cost of the bond or guarantee to be so entered into shall be at the expense in all respects of the Contractors unless the contract otherwise provides. (b) The performance security shall be submitted by the Contractor within 30 days of issue of the Letter of Acceptance and shall be in the form of a bank guarantee or a bond (at the Contractor's option). The amount of the bank guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 3,97,13,102 (Rupees Three crores ninety seven lakhs thirteen thousand one hundred and two only) as aforesaid without your needing to prove or to show grounds or reasons for your demand for the sum specified therein. We hereby waive the necessity of your demanding the said debt from the Contractor before presenting us with the demand. We further agree that no change or addition to or other modification of the terms of the Contract or the Works to be performed thereunder or of any of the Contract documents which may be made between you and the Contractor shall in any way release us, from any liability under this guarantee, and we hereby waive notice of any such change, addition or modification. Our liability under this guarantee is restricted to an amount not exceeding ₹ 3,97,13,102 (Rupees Three crores ninety seven lakhs thirteen thousand one hundred and two only) and the guarantee ' shall remain in force upto 16th October, 1992 with a claim period of one year thereafter i.e., upto 16th October, 1993 or twelve months after the issuing of maintenance certificate. Unless a demand or claim under the guarantee is made on us in writing on or before 16.10.1993, we s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... har acting through the Chief Engineer or his authorised representatives. The word Engineer Incharge or Engineer has been defined separately to mean Superintending Engineer or the Engineer appointed from time to time by the employer and notified in writing to the contractor to act as Engineer, It is contended that Executive Engineer who has invoked the guarantee would be covered not only by the definition of employer but also by the definition of Engineer Incharge or Engineer as set out in the general conditions of contract. We are not prepared to accept this contention. 21. As pointed out above, Bank Guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the defendants. It is independent of the main contract between the HCCL and the defendants. Since the Bank Guarantee was furnished to the Chief Engineer and there is no definition of Chief Engineer in the Bank Guarantee nor is it provided therein that Chief Engineer would also include Executive Engineer, the Bank Guarantee could be invoked by none except the Chief Engineer. The invocation was thus wholly wrong and the Bank was under no obligation to pay the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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