TaxTMI 
TaxTMI 
2025 (7) TMI 1722
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....ed 05.01.2019, 15.01.2019 and 29.01.2019 is invalid, illegal and void. Plaintiff also seeks a decree in the sum of Rs. 48,77,13,600/- along with interest from the date of payment against Defendant No. 1. BRIEF FACTS 2. It is averred that Plaintiff is a Banking Company registered under the Companies Act, 1956 engaged in the business of banking. Defendant No. 1/Ministry of Road, Transport and Highways ('MoRTH') is an Organization under the Government of India entrusted with task of formulating and administering, in consultation with other Central Ministries/Departments, State Governments etc., policies for Road Transport, National Highways and Transport Research, with a view to increasing the mobility and efficiency of road transport system in the country. Defendant No. 3 is a Company against which NCLT, Mumbai has admitted insolvency proceedings and appointed Resolution Professional. During the pendency of Corporate Insolvency Resolution Process ('CIRP'), no legally compliant resolution plan was received by the Committee of Creditors till 269th day and hence by efflux of time, on 270th day, Defendant No. 3 went into liquidation and NCLT thereafter appointed a Liquidator. 3.....
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....e BG for advance payment. Clause 19.5.1 provided that the Authority shall make electronic payment directly to contractor's bank account, which meant that payments were to be made by Defendants No. 1 and 2 into Joint Venture's bank account, as intimated from time to time. 7. It is averred that Defendant No. 3 approached the Plaintiff for availing certain credit facilities, including issuance of BGs. For sanctioning the BGs, Plaintiff required Defendant No. 3 to open an Escrow Account with the Plaintiff for all transactions related to the Project and requested that all advances/payments/receivables shall be routed through such Escrow Account only and this payment methodology would not be changed until Defendant No. 3 submitted a 'No Objection Certificate' ('NOC') from the Plaintiff. Defendant No. 3 was also required to issue a letter to MoRTH in this regard, which was further required to be duly acknowledged and confirmed by MoRTH. In furtherance of this understanding, on 17.06.2016, Defendant No. 3 addressed a letter to Executive Engineer, NH Division, Sitamarhi, Bihar requesting payment of receivables in the Escrow Bank Account maintained with the Plaintiff, with copy to Regiona....
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....had changed, without NOC from the Plaintiff. It was highlighted that the rationale for specifying the escrow condition was to ensure proper control and monitoring on the cash flows and smooth functioning and closure of the Project. Plaintiff requested MoRTH to restart all payments related to the Project in the designated Escrow Account, however, neither MoRTH nor Defendant No. 3 responded to the said communication. 11. It is averred that in the meanwhile, an Insolvency Petition being CP(IB) 2295(MB)/2018 was filed against Defendant No. 3 under Section 7 of Insolvency and Bankruptcy Code, 2016 ('IBC, 2016') before NCLT, Mumbai. By order dated 07.09.2018, NCLT admitted the Company Petition thereby initiating CIRP against Defendant No. 3. On 21.09.2018, Plaintiff filed its claims against Defendant No. 3 before the Resolution Professional ('RP'). On 10.10.2018, Joint Venture informed MoRTH that it was unable to repay the balance Mobilization Advance as per Clauses 19.2.6 and 19.2.7 of EPC Agreements and sought deferment against recovery of the advance payments along with interest till completion of the Project. On 16.10.2018, MoRTH wrote to Regional Officer, Patna informing that the....
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....le. By the same letter, Plaintiff also clarified that it shall not be liable and will not honour the invocation/encashment request in respect of the BGs. In fact, Plaintiff also wrote to Defendant No. 2 on 01.02.2019 not to release retention money in favour of Defendant No. 3 until issues between Plaintiff and MoRTH were finally resolved and requested to maintain status quo. It was also pointed out that Defendant No. 1 was holding an aggregate sum of Rs.14,50,65,690/- in the form of retention money, recoveries of mobilization advance, withheld monies, etc. 14. It is further averred that without prejudice to its rights and to demonstrate its bona fides as also considering the long-standing relationships between the Plaintiff and MoRTH, Plaintiff deposited a sum of Rs. 14 crores in MoRTH's account maintained with another Bank. Again, without prejudice to its rights, Plaintiff remitted a further sum of Rs. 34,77,13,600/- on 02.05.2019, totalling to the actual amount under the BGs i.e. Rs. 48,77,13,600/-. However, despite this MoRTH vide letter dated 16.07.2019 informed the Plaintiff that payment to Defendant No. 3 shall be made in the bank account as requested by it, which triggere....
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....with a view to protect its interest and maintain an overall supervision over the Project, Plaintiff sought an assurance to the effect that all payments/advances/receivables, present and future, to be received by the Joint Venture will be routed through an Escrow Account maintained with the Plaintiff Bank. Defendants No. 1 and 2 explicitly agreed to such arrangement and in fact, acted upon it from August, 2016 to May, 2018. However, in June, 2018, Defendants No. 1 and 2 stopped making payments into the designated Escrow Account and soon thereafter the Joint Venture defaulted on its contractual obligations under the EPC Agreements as well as in its payment obligations to the Plaintiff Bank. Fraudulently, the payment methodology, which was originally acknowledged, agreed and acted upon by the parties, was unilaterally modified/varied to Plaintiff's prejudice and thus Plaintiff stands discharged of its obligations to honour the BGs in question and resultantly, invocation of the BGs by MoRTH is completely illegal and invalid. 19. Unilateral alteration of payment methodology by Defendants No. 1 and 2 is violative of Doctrine of Promissory Estoppel. Defendants No. 1 and 2 had assented ....
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....ments through designated bank account, which was within Plaintiff's control so that Plaintiff could monitor the inflow and outflow of monies from the bank account and this was thus a critical pre-condition for issuance of the BGs. By letter dated 21.06.2016, Defendants No. 1 and 2 clearly acknowledged and agreed to this condition. It is trite that BG is a contract between the bank and the beneficiary and therefore, it cannot be claimed that there was no privity of contract with the Plaintiff Bank. [Ref.: Hindustan Steelworks Construction Ltd. v. Tarapore & Co. and Another, (1996) 5 SCC 34]. 22. By virtue of provisions of Section 133 of the 1872 Act, Plaintiff being surety for Defendant No. 3's obligations, stood discharged from its liability as soon as the payment methodology was modified/varied by MoRTH, without Plaintiff's knowledge and/or consent and hence, Plaintiff is no longer bound to honour the BGs on invocation. This Court in M/s D.S. Constructions Ltd. v. Rites Ltd. and Anr., 2006 SCC OnLine Del 68, observed that Section 133 makes it clear that any variance made without surety's consent in terms of the contract between the principal-debtor and the creditor, discharges ....
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....de. It was also held that a surety cannot waive its rights under Sections 133 and 135 of 1872 Act and give consent in advance to the future acts, in contravention of these provisions and statutory rights of a guarantor or a surety cannot be abridged by contractual provisions in the Deed of Guarantee. 24. It is a settled law that if any deliberate or conscious act is done by a third party because of an inducement by the contracting party and that leads to breach of contract, the act resulting in breach is termed as 'tortious interference'. In such a situation, third party can be held liable for causing economic loss to the contracting party, as held by the Calcutta High Court in Lindsay International Pvt. Ltd. & Ors. v. Laxmi Niwas Mittal & Ors., 2017 SCC OnLine Cal 14920. In the present case, Defendants acted in collusion with each other with an intent to cause loss to the Plaintiff, which is evident from the bare fact that as soon as the payment methodology was changed by Defendants No. 1 and 2 at the instance of Defendant No. 3, the latter violated its undertaking to the Plaintiff, resulting in actual quantifiable loss to the bank and this amounts to tortious interference with....
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....hat Defendants No. 1 and 2 had bound themselves to make payments in the Escrow Account and/or that the BGs were conditional upon the opening of the Escrow Account. Moreover, there is no averment by the Plaintiff in the pleadings as to how it became aware of: (a) letter dated 17.06.2016 from Defendant No. 3; (b) letter dated 17.06.2016 from Regional Officer, Patna; and (c) letter dated 21.06.2016 from Executive Engineer, NH-104, since none of these communications were marked/sent to the Plaintiff. 27. Plaintiff has not placed on record the initial sanction letter issued to Defendant No. 3 and its Joint Venture before issuing the BGs in question, which would have shed light on whether there was any pre-condition to the issuance of BGs mandating Defendant No. 3 to ensure that payments are made in Escrow Account maintained with the Plaintiff. Plaintiff has averred in paragraph 3.11 of the plaint that Defendant No. 1 accepted all incoming payments including advances being deposited in the Escrow Account and that it was also agreed that payment methodology will not change without NOC from the Plaintiff. However, Defendants have categorically denied the averm....
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....s a pe-condition of the BGs, by inviting attention to letter dated 17.06.2016. Strangely, even in the several letters written by Plaintiff to MoRTH on 01.12.2018, 21.01.2019, 30.01.2019, 01.02.2019, 22.02.2019 and 10.05.2019, there was no reference to the initial sanction letter. In this backdrop, Defendants No. 1 and 2 validly invoked the BGs, in consonance with the terms and conditions of the EPC Agreements and the terms of the BGs. 30. Contention of the Plaintiff that it stood discharged of its liability under the BGs for the sole reason that there was variance in payment methodology, is misconceived. Defendant No. 3's letter dated 17.06.2016 only reflects some understanding between Defendant No. 3 and the Plaintiff with regard to the Escrow Account/NOC, however, clearly these were not pre-conditions in the BGs, which were admittedly unconditional. Clause 19.5.1 of EPC Agreements dated 18.02.2016 provided that within 10 days of receipt of the Stage Payment Statement from the contractor, pursuant to Clause 19.4, Authority's Engineer shall broadly determine the amount due to the contractor and recommend release of 90% of the amount so determined as part payment, pending issue o....
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....f payment to the contractor. Therefore, a clause describing modalities of Stage Payment cannot be relied upon or imported out of context to be construed as payment methodology for advance payments and Clause 19.5 is not attracted in the present situation. 32. The stand of Defendants No. 1 and 2 that the purpose of contractor's letter dated 17.06.2016 was to notify MoRTH of the bank account in which payments/receivables were to be routed and the said correspondence had no connection with the Plaintiff, has no basis and had that been the case, there was no necessity for the contractor to mention that: (a) Defendant No. 3 had approached the Plaintiff to issue BGs extending specific Financial Facilities towards the same; (b) Escrow Account had been opened with the Plaintiff in which monies from all transactions, past or future, will be deposited; (c) all advances/payments/ receivables, both present and future, to be received by the Joint Venture in future shall be routed through the said account only; (d) payment of receivables (including advances) by way of cheques/RTGS/ NEFT, favouring Defendant No. 3 shall be made in the Escrow Account; and ....
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....e was filed earlier, MoRTH would have simply denied the same. Moreover, renewal sanction letter dated 11.12.2017 was always on record and its contents reveal the same position that opening of the Escrow Account was a pre-condition to issue the BGs and in fact, the said letter makes a clear reference to the original sanction letter dated 12.04.2016. There was thus no change in this stand of the Plaintiff on this score. 35. Plaintiff has never contested that the BGs were unconditional and irrevocable. However, furnishing an unconditional BG does not and cannot amount to waiver of Plaintiff's statutory rights under the 1872 Act. Sections 133 and 139 of the said Act are equally applicable to cases of conditional and unconditional/revocable and irrevocable guarantees. Regardless of the nature of BGs or the terms incorporated therein, a beneficiary, i.e. MoRTH can never jeopardize or strip away the security available with the surety, i.e. the Plaintiff. In fact, being a Ministry under the Government of India, duty of MoRTH to act fairly in contractual matters, is on a higher pedestal than a private party. Actions of MoRTH must be rational and free from arbitrariness. [Ref.: Kumari Shr....
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.... undertaking work under Lot-I and Lot-II, which were superseded by two Supplementary Agreements, both dated 23.11.2015, Ex.P-5 and Ex.P-6, whereby the Joint Venture partners inter alia agreed that execution of the project would be undertaken 100% by Defendant No. 3 and RCM Infrastructure Limited would only provide project management services and technical consultations for smooth and timely execution of the Project. RCM Infrastructure Limited also agreed to waive its right of 49% participation as earlier agreed under the Joint Bidding Agreements. It was also agreed that under Clause 5 of the Supplementary Agreements, it shall be the responsibility of Defendant No. 3 to furnish any bond, Performance BG etc. required by MoRTH. These facts are proved by Plaintiff's witness, Mr. Dipanshu Singh, Associate Vice President-Legal. 37. Mr. Dipanshu Singh deposed that pursuant to Letters of Acceptance dated 15.10.2015, MoRTH executed in favour of Joint Venture, two EPC Agreements dated 18.02.2016 in respect of Lot-I and Lot-II of the Project on the terms and conditions set out therein albeit the originals were not in possession of the Plaintiff and excerpts were furnished by Defendant No. ....
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....erating terms and conditions of Master Facility Agreement signed by Mr. Atul Bansal, Ex-Vice President of the Plaintiff. Witness identified the signatures of Mr. Bansal on the renewal sanction letter Ex.P-18. 40. Witness further stated that having issued the BGs, Plaintiff sent various e-mails to Defendant No. 3 requesting early completion of the Project between 03.05.2018 to 22.05.2018, Ex.P-19 (colly.). After almost two years, Plaintiff realised that monies earned or generated by the Joint Venture from the Project were not being routed through the Escrow Account and on 07.08.2018, Plaintiff addressed a letter (Ex.P-20) to MoRTH reminding about the agreed payment mechanism with copy to Defendant No. 3. In the meantime, insolvency proceedings were filed against Defendant No. 3 under Section 7 of IBC, 2016 before NCLT, which was admitted vide order dated 07.09.2018 (Ex.P-21) and CIRP process started. Plaintiff filed its claims against Defendant No. 3 before the Resolution Professional on 21.09.2018. Witness also deposed that MoRTH recovered first installment of mobilisation advance for Rs. 3,09,24,000/- with interest and therefore, BG bearing No.0691OBG16011654 for an amount of R....
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....yment of installments of the advance amount. MoRTH being the beneficiary under the BGs was the sole judge to ascertain the breaches. 42. Mr. Chandra further stated that vide letter dated 05.06.2018 (Ex.DW- 1/3), Joint Venture informed MoRTH that all advances/payments/ receivables shall be routed through an account other than the earlier Escrow Account. This account was maintained with Indian Overseas Bank and on receipt of this request, all advances/payments/receivables etc. henceforth were routed through the said account. The letter is in possession of Defendant No. 2. By two letters dated 10.10.2018, Joint Venture intimated that it was not in a position to repay the advance payments due to financial constraints and MoRTH thus decided to encash the BGs and recover the balance amount of mobilisation advance with interest. Thereafter, a letter was sent on 27.11.2018 to Plaintiff Bank seeking encashment of the BGs informing the reason for taking such an action considering that BGs were unconditional and irrevocable. 43. Witness further stated that there was no escrow arrangement between MoRTH, Defendant No. 3 and the Plaintiff and neither was the opening of the Escrow Account a....
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....al BGs. Since the Joint Venture did not complete the project, retention money was retained by MoRTH to protect its interests. Plaintiff is a stranger to these EPC Agreements and cannot lay a claim over the retention money. 45. For the sake of completeness, it may be noted that no other evidence was led by the parties and it was agreed that neither party will cross-examine the witnesses, who had filed their evidence by way of affidavits and the matter would proceed for final arguments. The only issue settled by the Court was whether Plaintiff is entitled to refund of Rs. 48,77,13,600/- along with interest from MoRTH and the onus to prove the entitlement was on the Plaintiff. By filing evidence affidavits, witnesses of Plaintiff and MoRTH have deposed on the lines of the plaint and the written statement, respectively. 46. Main plank of the argument of the Plaintiff is that the BGs were issued only after Defendant No. 3 agreed that all advances/payments/ receivables etc. received from the project, present and future, will be routed through Escrow Account maintained with the Plaintiff Bank and the payment methodology will not change, save and except, with the NOC of the Bank and ....
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.... Infrastructure Limited JV a Joint Venture Between M/s. Sunil Hitech Engineers Limited (Lead Member), having its office at MET Educational Complex, 6th Floor, "C" Wing, A.K. Vaidya Marg, Bandra Reclamation, Bandra (West), Mumbai-400050 and M/s RCM Infrastructure Limited (Other Member), having its office at D. No. 8-2-622/5/A/2, 2nd Floor, Indira Chambers, Avenue-4, Road No. 10, Bajanara Hills, Hyderabad-500034 (hereinafter called the "Contractor") has executed an agreement dated 18.02.2016 (hereinafter called the "Agreement") with the DG (RD) & SS, Ministry of Road Transport & Highways, Transport Bhawan, Parliament Street New Delhi-110001, (hereinafter called the "Authority") for the "Construction of the Rehabilitation and Upgrading to 2 lanes/2 lane with paved shoulders configuration and Strengthening of Sitamarhi-Jaynagar-Narahia section (km 40.000 to Km 219.945 ) of NH 104 in the state of Bihar (Package No. NHIIP-BR-104-11) for LOT-II Km 79.00 to Km 156.500 under phase-I National Highways Inter-Connectivity Improvement Projects (NHIIP)" on Engineering Procurement and Construction (the "EPC") basis, subject to and in accordance with the provisions of the Agreement. (B) I....
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....hall be the sole judge as to whether the Contractor is in default in due and faithful performance of its obligation during and under the Agreement and its decision that the Contractor is in default shall be final and binding on the Bank notwithstanding any differences between the Authority and the Contractor, or any dispute between them pending before any court, tribunal, arbitrators or any other authority or body or by the discharge of the Contractor for any reason whatsoever. 3. In order to give effect to this Guarantee, the Authority shall be entitled to act as if the Bank were the principal debtor and any change in the constitution of the Contractor and/or the Bank, whether by their absorption with my other body or corporation or otherwise, shall not in any way or manner affect the liability or obligation of the Bank under this Guarantee 4. It shall not be necessary, and the Bank hereby waives any necessity, for the Authority to proceed against the Contractor before presenting to the Bank its demand under this Guarantee. 5. The Authority shall lays the liberty, without affecting in any manner the liability of the Bank under the Guarantee, to vary at a....
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....h notice and to effect payment thereof forthwith and if sent by post it, shall be sufficient to prove that the envelope containing the notice was posted and a certificate signed by an officer of the Authority that the envelope was so posted shall be conclusive. 11. This Guarantee shall come into force with immediate effect and shall remain in force and effect up to the date specified in paragraph 8 above or until it is released earlier by the Authority pursuant to the provisions of the Agreement. 12. This Guarantee is subject to the Uniform Rules for Demand Guarantees (URDG) 2010 Revision, ICC Publication No. 738, except that the supporting statement under Article 15(a) is hereby excluded. Notwithstanding anything contained herein above: 1. Our liability under this Bank guarantee shall not exceed is Rs. 10,54,94,400/-(Rupees Ten Crore Fifty Four Lakh And Ninety Four Thousand Four Hundred Only) 2. This Bank guarantee will be valid up to 25-Nov-2017. 3. We are liable to pay the guarantee amount or any part thereof under this Bank guarantee only if you serve upon us a written claim or demand (and which should be received by us), on....
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........ (i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is entitled to realise such a bank guarantee or a letter of credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. (ii) The bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The courts should be slow in granting an order of injunction to restrain the realisation of a bank guarantee or a letter of credit. (iv) Since a bank guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a bank guarantee or letter of credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional b....
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.... 12. It is equally well settled in law that bank guarantee is an independent contract between bank and the beneficiary thereof. The bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and of no consequence. In BSES Ltd. v. Fenner India Ltd. [(2006) 2 SCC 728] this Court held: (SCC pp. 733-34, para 10) "10. There are, however, two exceptions to this rule. The first is when there is a clear fraud of which the bank has notice and a fraud of the beneficiary from which it seeks to benefit. The fraud must be of an egregious nature as to vitiate the entire underlying transaction. The second exception to the general rule of non-intervention is when there are 'special equities' in favour of injunction, such as when 'irretrievable injury' or 'irretrievable injustice' would occur if such an injunction were not granted. The general rule and its exceptions has been reiterated in so many judgments of this Court [Ed.: See e.g. U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568 at pp. 574-77, paras 12....
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....also settled that Courts have to be extremely slow in injuncting invocation/encashment of unconditional BGs and the only exceptions carved out by the Courts are: (a) existence of fraud of an egregious nature; or (b) irretrievable injustice of an exceptional nature; or (c) special equities. In this context, I may also refer to judgment of the Division Bench of this Court in CRSC Research and Design Institute Group Co. Ltd. v. Dedicated Freight Corridor Corporation of India Limited and Others, 2020 SCC OnLine Del 1526 and of the Co-ordinate Bench in SMS Limited v. Oil & Natural Gas Limited, 2021 SCC OnLine Del 5728. 52. As noted above, Mr. Sandeep Sethi, learned Senior Counsel for the Plaintiff in his usual candour and fairness admitted that the BGs in question were unconditional and did not question the position of law with regard to the scope of interference by the Courts in invocation/encashment of unconditional and irrevocable BGs. However, what was strenuously urged was that as a pre-condition of issuance of BGs, Defendant No. 3 was under a mandate to open an Escrow Account with the Plaintiff Bank and the payment methodology agreed upon between the ....
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.... on the other hand, was obliged to furnish an unconditional and irrevocable BG while applying for the first installment of advance payment from a Bank for an amount equivalent to 110% of such installment, and the BG was to remain effective till complete and full repayment thereof. The same procedure was to be followed for the second and the third installments. Clause 19.2.7 provided that in the event of Defendant No. 3's failure to repay on time, MoRTH was entitled to encash the BGs towards advance payment. It is in this context that Defendant No. 3 called upon the Plaintiff to furnish the BGs in question. Clause 19.5.1 provided that MoRTH shall make electronic payment directly to contractor's bank account. Opening of the Escrow Account and/or issuance of NOC by Plaintiff as a pre-condition for issuance of BGs is not a term of the Agreements in question. There is no separate agreement between Plaintiff and Defendants No. 1 and 2 binding the latter parties to necessarily route the monies in favour of Defendant No. 3 through an Escrow Account with the Plaintiff Bank. 55. It is a matter of record that letter dated 17.06.2016/Ex.P-9 was sent by Defendant No. 3 to MoRTH informing tha....
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....2016, the said officer sent a letter to the Joint Venture inter alia acknowledging and conveying its acceptance to all incoming payments including advances for both Lots. The witness deposed that only because the terms of accepting payment including advances being deposited in the Escrow Account was acceptable to Defendant No. 1 that Plaintiff agreed to issue the BGs on behalf of Defendant No. 3. Evidence was led with regard to the Renewal Sanction Letter dated 11.12.2017 providing for continuation of the escrow arrangement. From the deposition of the witness, the only thing that stands proved is intimation by Defendant No. 3 to Defendants No. 1 and 2 of the arrangement of Escrow Account and methodology of payment in the said account as also the requirement of NOC before change of methodology and its acknowledgement by Defendants No. 1 and 2. This arrangement was purely between Defendant No. 3 and the Plaintiff and certainly, Defendants No. 1 and 2 were neither party to this arrangement nor was the same a term of the unconditional BG and therefore cannot bind Defendants No. 1 and 2. 57. In fact, Mr. Vikash Chandra, witness of Defendants No. 1 and 2 has stated in his affidavit th....
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....ity and provides that liability of the surety is co-extensive with that of the principal-debtor unless otherwise provided by the contract. Sections 133 to 139 deal with discharge of surety. As rightly placed by Mr. Sethi, learned Senior Counsel if any variance is made without surety's consent in the terms of the contract between the principal-debtor and the creditor, it amounts to discharge of the surety as to the transactions subsequent to the variance. Section 139 of 1872 Act provides that if the creditor does any act which is inconsistent with the rights of the surety or omits to do any act which his duty to the surety requires him to do and the eventual remedy of the surety himself against the principal-debtor is thereby impaired, the surety is discharged. As can be seen from the plaint and the relief claimed therein, Plaintiff seeks discharge from its obligations under the BGs as also a decree of recovery from MoRTH of an amount of Rs. 48,77,13,600/-. Therefore, it is clear that the claim is against MoRTH and not Defendant No. 3. There is no contract between the Plaintiff and MoRTH mandating that the monies under the project were to be routed through the Escrow Account maintai....
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....the parties and Defendant No. 1 was thus not entitled to forfeit the EMD or invoke the BG. Defendant No. 1, on the other hand, argued that it was entitled to forfeit the EMD and invoke the BG in view of Clauses 8.1 and 8.2 of the 'Instructions to Tenderers' as Clause 8.2 did not permit a conditional acceptance. It was interpretation of this clause which became the subject matter of discussion and in this context, the Court held as follows:- "17. I shall now examine the relevant provisions of the Contract Act. Section 126 of the said Act, which defines the terms 'contract of guarantee', 'surety'. 'principal-debtor' and 'creditor', provides that a 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'. The person in respect of whose default the guarantee is given is called the 'principal-debtor' and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written. In the context of the present case, the bank guarantee is a contract of guarantee. The bank (defendant No. 2) is the surety inasmuch as ....
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....ent, would discharge the surety as regards all transactions subsequent to the variance. Thirdly, if the principal-debtor and the creditor enter into an arrangement whereby the principal-debtor is released or because of any act or omission on the part of the creditor the legal consequence of which is the discharge of the principal-debtor, the surety is also automatically discharged. Therefore, under the scheme of the provisions under the Contract Act itself, the contract of guarantee is not entirely independent of the underlying contract between the principal-debtor and the creditor and/or of their acts of omission or commission resulting in any variation or modification or discharge of the principal-debtor. Going strictly by these provisions, it would be seen that when a principal-debtor is discharged or released of its liability, then, the surety is also so discharged. In the context of the present case, it would mean that if the plaintiff is discharged of its liability, then, the surety (defendant No. 2) would also stand discharged under the contract of guarantee. As I have held while discussing Issue No. 1 that there was no contract between the plaintiff and the defendant No. 1 ....
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.... the hypothecation of machinery and stocks. Defendant No. 4 executed a Guarantee Deed in favour of the Bank undertaking to become liable for the amounts payable by Defendants No. 1 to 3. Liability was sought to be fastened on Defendant No. 5 on the ground that it had undertaken the liability of Defendant No. 1 under some internal arrangement. 63. Defendant No. 4 contested his liability and sought discharge under Section 133 of 1872 Act on the ground that he was a guarantor vide Agreement of Guarantee dated 01.02.1964, however, the Bank got new loan documents executed from the Defendants on 01.05.1964, subsequent to the Guarantee Agreement and there was thus a novation and variance of the contract between creditors and Defendants No. 1 to 3 without his consent. One of the issues settled by the Court was whether liability of Defendant No. 4 stood discharged by virtue of Section 133 of 1872 Act and on this issue, the Court held as follows:- "Issue No. 5: 22. It appears that it is on account of typographical mistake that s. 33 of the Contract Act has been mentioned in the issue instead of s. 133. It is only s. 133 which deals with the discharge of liability of a gu....
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....agreement of guarantee, which reads as under: "The guarantors hereby consent to the bank making any variance that it may think fit in the terms of the contract with the borrower, to the bank determining, enlarging or varying any credit to him or making any composition with him or promising to give him time or not to sue him and to the bank parting with only security it may hold for the guaranteed debt. The guarantors also agree that they shall not be discharged from their liability by the bank releasing the borrower or by any act or omission of the bank the legal consequence of which may be to discharge the borrower or by any act of the bank which would, but for this present provision, be inconsistent with their rights as guarantors or by the bank's omission to do any act which but for this present provision the bank's duty to the guarantors would have required the bank to do. Though as between the borrower and guarantors they are guarantors only, the guarantors agree that as between the bank and the guarantors they are debtors jointly with the borrower and, accordingly, they shall not be entitled to any of the rights conferred on guarantors and surety by sections ....
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....t of the surety. That means that if there is a variance, the surety must consent to the same simultaneously and not in advance. The words "without the surety's consent" clearly indicate that the consent should be given along with or at the time of the variance and there could not be any such consent when no variance had been made or even though the same was not in contemplation. Similarly, words "unless the surety assents to such contract" occurring in s. 135 also indicate that the consent should exist at the time of the acts mentioned in the said provision. The word "assent" suggests present tense which is indicative of the fact that the assent should be simultaneous with the composition, etc., mentioned in s. 135. In fact the statutory rights of a surety or guarantor cannot be abridged by a contractual provision in the deed of guarantee unless it had been specifically provided in s. 133 or s. 135 of the Contract Act that such rights were subject to a contract. 31. Under these circumstances not only the judgment of the Madras High Court has no application to the facts of the present case, Ieven beg to differ with the view expressed by the said High Court. The view exp....