2000 (6) TMI 807 - HC - Indian Laws

Date of Letter Determines Contract Validity: Bank Guarantee Temporarily Frozen

Kilburn Engineering Ltd. Versus Oil And Natural Gas Corporation

The court held that the letter dated 15-9-1999 did not constitute an acceptance of the offer, rendering the contract nonexistent. As the Bank Guarantee ... - Issues Involved:1. Whether the letter dated 15-9-1999 constituted an acceptance of the offer.2. Whether the Bank Guarantee could be invoked by the first defendant.3. Whether the Bank Guarantee was absolute and unconditional.4. Whether the court could issue an injunction against the invocation of the Bank Guarantee.Issue-wise Detailed Analysis:1. Whether the letter dated 15-9-1999 constituted an acceptance of the offer:The court examined whether the letter dated 15-9-1999 from the first defendant to the plaintiff amounted to an acceptance of the offer. According to Section 7 of the Contract Act, acceptance must be absolute and unqualified. The court noted that the letter from the first defendant mentioned that the award of the contract was 'likely to be issued on or before 30-9-1999,' which lacked certainty and commitment. The court concluded that the letter did not constitute a clear and unambiguous acceptance of the offer, as required by law. Therefore, the contract never came into existence, and the Bank Guarantee ceased to operate after the offer period ended on 15-9-1999.2. Whether the Bank Guarantee could be invoked by the first defendant:The court analyzed whether the first defendant had the right to invoke the Bank Guarantee after the offer period had ended. The Bank Guarantee was issued to safeguard the interest of the Corporation during the validity period of the offer. Since the offer was not valid beyond 15-9-1999 and there was no valid acceptance of the offer within that date, the court held that the Bank Guarantee ceased to operate. Consequently, the first defendant had no cause of action to invoke the Bank Guarantee.3. Whether the Bank Guarantee was absolute and unconditional:The court considered the argument that the Bank Guarantee was absolute and could be invoked by the first defendant on demand. The relevant clause of the Bank Guarantee stated that the amount could be demanded 'without any demur and recourse.' However, the court noted that this clause had to be read in conjunction with the preamble of the Bank Guarantee, which stipulated the period and purpose for which it was executed. Referring to the Supreme Court judgment in Hindustan Construction Company Ltd. v. State of Bihar, the court held that the Bank Guarantee could only be invoked under specific circumstances mentioned in the preamble. Thus, the Bank Guarantee was not absolute and unconditional as argued by the first defendant.4. Whether the court could issue an injunction against the invocation of the Bank Guarantee:The court addressed the contention that it could not issue an injunction against the invocation of the Bank Guarantee unless fraud was established. The court acknowledged the general principle that Bank Guarantees are to be honored unless there is clear evidence of fraud. However, in this case, the court found that the Bank Guarantee had ceased to operate after the offer period ended and that the first defendant had no right to invoke it. Therefore, the court allowed the Notice of Motion and granted a temporary injunction restraining the defendants from encashing the Bank Guarantee.Conclusion:The court concluded that the letter dated 15-9-1999 did not constitute an acceptance of the offer, and therefore, the contract never came into existence. The Bank Guarantee ceased to operate after the offer period ended on 15-9-1999, and the first defendant had no right to invoke it. The court held that the Bank Guarantee was not absolute and unconditional and granted a temporary injunction restraining the defendants from encashing it. The Notice of Motion was allowed in terms of prayer Clause (a), and the motion was disposed of accordingly.