Supreme Court Reclassifies Document as Indemnity Contract, Overturning High Court; Restores Trial Court's Ruling with 12% Interest.

The SC set aside the HC's judgment, determining the document in question was a contract of indemnity rather than a bank guarantee. The HC's interpretation errors and inappropriate reliance on oral evidence were highlighted. The SC restored the trial court's decree, reinstating the original 12% interest rate, and allowed the appeal with costs.

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Issues Involved:
1. Nature of the document (Indemnity vs. Bank Guarantee)
2. Construction of the document by the High Court
3. Consideration of oral evidence by the High Court
4. Rate of interest awarded

Detailed Analysis:

1. Nature of the Document (Indemnity vs. Bank Guarantee):
The central issue was whether the document dated 4th September 1985 constituted a contract of indemnity or a bank guarantee. The Appellant argued that it was a contract of indemnity, not a bank guarantee. The document stated that the Appellant would indemnify the cooperative society against all losses, claims, damages, actions, and costs. The Supreme Court agreed with the Appellant, noting that the document did not contain typical bank guarantee terms such as "unequivocal condition" or "unconditional and absolute." The Court concluded that the document was indeed a contract of indemnity.

2. Construction of the Document by the High Court:
The High Court had construed the document as a bank guarantee. The Supreme Court found that the High Court committed a manifest error by misinterpreting the document. The High Court incorrectly treated the operative portion of the document as a preamble and inserted terms that were not present in the original document. The Supreme Court emphasized that a document must be construed based on its terms and conditions without adding any words not used by the author. The High Court's approach was deemed patently wrong.

3. Consideration of Oral Evidence by the High Court:
The High Court considered oral evidence despite the bar contained in Sections 91 and 92 of the Indian Evidence Act. The Supreme Court criticized this approach, stating that a document should primarily be construed based on its written terms. The High Court's reliance on oral evidence and surrounding circumstances was inappropriate because the document did not suffer from any ambiguity. The Supreme Court reiterated that a bank guarantee must be construed on its own terms and is considered a separate transaction.

4. Rate of Interest Awarded:
The Appellant contended that the interest rate awarded by the High Court at 14% per annum was contrary to the High Court's earlier order dated 23rd February 1988, which specified an interest rate of 12% per annum. The Supreme Court found this contention incontrovertible and held that the High Court erred in awarding a higher interest rate. The Supreme Court restored the trial court's decree, which aligned with the original interest rate of 12% per annum.

Conclusion:
The Supreme Court set aside the High Court's judgment, concluding that the document in question was a contract of indemnity and not an unconditional or absolute bank guarantee. The Court restored the trial court's decree and allowed the appeal with costs, assessing the counsel's fee at Rs. 5000/-.

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