TaxTMI 
TaxTMI 
2006 (7) TMI 669
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.....2.4 5% of the contract price shall be payable after satisfactory commissioning and working of the plant for three months that is three months from the achievement of the performance guarantee as stipulated in clause no. 8 and 9 above, by a separate letter of credit. 15.2.5 5% of the contract price shall be paid after six months after satisfactory commissioning of the plant and continuous successful working of the plant during the period i.e. six months working of the plant as per clause 8 and 9 above, by a separate letter of credit." 3. Pentagon, however, by a letter dated 6th April, 1985 suggested for a modification as regards the said payment clause regulating the cooperative society to waive its rights to retain the said 10% of the contract price, and in its turn proposed to have a letter of credit so that they can furnish appropriate bank guarantee; to which the cooperative society accepted stating: "You have also to submit the performance guarantee at 10% of the contract price, if the same guarantee is not received the karkhana is entitled to recover it from the balance payment and accordingly we have deducted it for want of performance guarantee." Pentagon in response ....
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.... a direction upon the Appellant to deposit the amount of Rs. 34,00,000/-. 7. ORDER OF THE COURT The matter relating to passing of an interim order went upto the High Court. The High Court by an order dated 23rd February, 1988 directed that the said amount be retained by the Appellant subject to the condition that in the event, the suit is decreed the said amount would be paid with interest @ 12% per annum. The suit was dismissed. An appeal was preferred thereagainst by the cooperative society before the High Court. The High Court construing the said agreement dated 25.9.1983 to be a Bank Guarantee decreed the suit directing Appellant to pay the said sum of Rs. 34,00,000/- with interest @ 14% per annum. The Appellant is, thus, before us. 8. SUBMISSIONS 8.1. Mr. G.E. Vahanvati, learned Solicitor General appearing on behalf of the Appellants submitted that: (i) On a true construction of the document dated 4th September, 1985, it would be seen that the same is a contract of indemnity and not a Bank Guarantee. (ii) The High Court committed a manifest error in considering the oral evidence adduced by the parties in construing the said document dated 4th September, 1985. (iii) ....
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....force claim under this guarantee is filed against us on or before the 3rd September, 1987 all right under this guarantee shall be forfeited and we shall be relieved and discharged from all liabilities hereunder." 9.3. The High Court, however, despite noticing the said document in extenso, committed a manifest error in opining: "The recital in the preamble in question itself cannot be the foundation to interpret the document in question as a document of indemnity" Although it was opined that the same was intended to be a contract of indemnity, the High Court wrongly observed: "There was no objection of any kind referred to or placed on the record by the appellants. The Officer of the Bank stated before the Court that the document in question was intended to be a contract of guarantee and not a contract of indemnity. The written document (Exhibit-46) as quoted above lays emphasis on the preamble as under" Yet again, in the said paragraph, the operative portion of the document was erroneously described as a preamble stating: "The preamble of the document in question creates an impression that the said document is a contract of indemnity and not a contract of guarantee." 9.4.....
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....nk's Officer itself, apart from the appellants, some statements in the cross-examination or raising doubts about the nature of the agreement by one of the Bank witness, that itself would not affect the written agreement in question" (iii) "In this background, we cannot overlook the circumstances under which the particular words were used and/ or misused" 9.6. A document, as is well known, must primarily be construed on the basis of the terms and conditions contained therein. It is also trite that while construing a document the court shall not supply any words which the author thereof did not use. The document in question is a commercial document. It does not on its face contain any ambiguity. The High Court itself said that ex facie the document appears to be a contract of indemnity. Surrounding circumstances are relevant for construction of a document only if any ambiguity exists therein and not otherwise. The said document, in our opinion, constitutes a document of indemnity and not a document of guarantee as is clear from the fact that by reason thereof the Appellant was to indemnify the cooperative society against all losses, claims, damages, actions and costs which ma....
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....ion of the promissory note but relying on the existence of a collateral agreement in writing Exs. A & G which form parts of the same transaction as the promissory note Ex. B" The High Court proceeded on the basis that Section 92 of the Evidence Act would be attracted in the instant case but despite the same it referred to the oral evidence so as to find out the purported circumstances surrounding the transaction, which in our view, was not correct. 9.9. In P.L. Bapuswami (supra), relied upon by Mr. Naphade, this Court was concerned with a question as to whether Ex. B-1 therein was a transaction of mortgage by conditional sale or a sale with a condition of re- transfer in the light of Section 58(c) of the Transfer of Property Act. We are not concerned with such a case here. It is one thing to say that the nature of a transaction would be judged by the terms and conditions together with the surrounding and/or attending circumstances in a case where the document suffers from some ambiguities but it is another thing to say that the court will take recourse to such a course, although no such ambiguity exists. [See Bishwanath Prasad Singh v. Rajendra Prasad and Anr. [(2006) 2 SCALE 69....
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....objection on our part and without his first claim to the contractor, in the amount not exceeding Rs. 10,00,000 (Rupees ten lakhs only) in the event that the obligations expressed in the said clause of the above- mentioned contract have not been fulfilled by the contractor giving the right of claim to the employer for recovery of the whole or part of the advance mobilisation loan from the contractor under the contract" 9.12. Despite such conditions, holding that the guarantee in question was a performance guarantee, this Court opined: "The Bank, in the above guarantee, no doubt, has used the expression "agree unconditionally and irrevocably" to guarantee payment to the Executive Engineer on his first demand without any right of objection, but these expressions are immediately qualified by following: "... in the event that the obligations expressed in the said clause of the above- mentioned contract have not been fulfilled by the contractor giving the right of claim to the employer for recovery of the whole or part of the advance mobilisation loan from the contractor under the contract." This condition clearly refers to the original contract between HCCL and the defendants and....
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....erusal of the above clauses, it is abundantly clear that the bank guarantee furnished by the Bank is an unconditional and absolute bank guarantee. The Bank has rendered itself liable to pay the cash on demand by the President of India "notwithstanding any dispute raised by M/s Daewoo Motors India Limited in any proceeding before any court or tribunal". It is worth noticing that the clause in the bank guarantee specifically provides that the demand made by the President of India shall be conclusive as regards the amount due and payable by the Bank under this guarantee and the liability under the guarantee is absolute and unequivocal. In the face of the clear averments, it is trite to contend that the bank guarantee is a conditional bank guarantee. Therefore, the Bank has no case to resist the encashment of the bank guarantee. Inasmuch as we have held that the bank guarantee is an unconditional bank guarantee, the case of Hindustan Construction Co. Ltd. v. State of Bihar is of no avail to the appellant." The said decision, in the facts and circumstances of the case, cannot be said to have any application here. 9.15. We are not oblivious of the decisions of this Court where, save an....