TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1722
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....iff 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. It is averred that MoRTH had entrusted the Government of Bihar the work of develop....
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.... 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 Regional Office, MoRTH, Patna. Defendant No. 3 further requested MoRTH to make payments of all rec....
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.... 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 Joint Venture was not in a position to repay the advance payment towards Mobilization Advance due ....
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....vocation/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 triggered filing of the present suit. 15. It is pertinent to note at this stage that vide order dated 28.11.2019....
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....fect 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 to the escrow arrangement and cannot unilaterally depart therefrom, citing absence of privity of contract. Plain reading of letter ....
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....onies 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 the surety as to the transactions subsequent to the variance. As per Section 139 of the 1872 Act, if a creditor does an act which is cont....
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.... 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 the rights of the bank. Plaintiff has thus become entitled to recover a sum of Rs. 48,77,13,600/- from MoRTH or at least to recovery of Rs. ....
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.... 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 averments in the written statement in paragraph 37 thereof and stated that MoRTH did not enter into any kind of agreement with the Plaintiff in relation to routing payments ....
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....9, 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 of Interim Payment Certificate by the Engineer and within 10 days of receipt of recommendation, Authority shall make electronic payment directly to contractor's bank account. ....
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....r 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 (e) the payment methodology was not to change until the Joint Venture submitted NOC from the Plaintiff bank. If Plaintiff was a completely unconnected entity, MoRTH would have responded to Defendant No. 3's....
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.... 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 Shrilekha Vidyarthi and Others v. State of U.P. and Others, (1991) 1 SCC 212 and ABL International Ltd. and Another v. Export Credit Guarantee Corporation of India Ltd. and Others, (2004) 3 SCC 553]. The fact that MoRTH i....
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....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. 3 to the Plaintiff as supporting documents with its loan application. He stated that Defendant No. 3 approached the Plaintiff to avail certain credit facilities including issuance of BGs and while sanctioning the BGs, Plaint....
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....r 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 Rs. 3,40,16,400/- was returned on 16.10.2018. By letter dated 10.10.2018, Joint Venture intimated MoRTH that it was not in a position to repay the advance payment due to financial constraints upon which MoRTH decided to encash the ....
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....med 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 term or condition of the BGs. MoRTH had nothing to do with the internal arrangement of opening an Escrow Account entered into between the Plaintiff and Defendant No. 3. On continuous denial by the Plaintiff to fulfil its obligations to....
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....ke 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 this pre-condition was made clearly known to Defendants No. 1 and 2 and was acknowledged by them in writing. It is on this assurance given in writing by Defendant No. 3, that Plaintiff furnished the BGs as this was the only security with the ....
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....g 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) In accordance with Clause 19.2 of the Agreement, the Authority shall make to the Contractor an interest free advance payment (herein after called "Advance Payment'") equal to 10% (ten per cent) of the Contract Price; and that the Advance Payment shall be made in three installments subject to the....
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....etween 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 any time the terms and conditions of the Advance Payment or to extend the time or period of its repayment or to postpone for any time, and from time to time, any of the rights and powers exercisable by the Authority against the Contractor, and either to enforce or forbear from enforcing any of the terms and conditions contained in the Agreement an....
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....ified 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 or before 25-Nov-2017 (Inclusive of Claim Period) at Kotak Mahindra Bank Ltd. Corporate Operations, 7th Floor, Ambadeep Building, KG Marg New Delhi 110001 and a copy of the same to be sent to Bank Guarantee Dept. (BGLC Team), Corporate Banking Operations (CPC), 6th Floor, Kotak Infiniti, Zone 4, Building No. 21, Infinity Park, Off Western Express Highway, Goregaon Mulund Link Road, Malad (E), Mumbai-400097 whereafter it ....
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....respective 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 bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned." 50. In Vinitec Electronics Private Ltd. v. HCL Infosystems Ltd, (2008) 1 SCC 544, the Supreme Court held as follows:- "11. The law relating to invocation of bank guarantees is by now well settled by a catena of decisions of this Court. The bank guarantees which provided that they are payable by the guarantor on demand is considered to be an unconditional ....
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.... 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 12-16; State of Maharashtra v. National Construction Co., (1996) 1 SCC 735 at p. 741, para 13. See also United Commercial Bank v. Bank of India, (1981) 2 SCC 766; Centax (India) Ltd. v. Vinmar Impex Inc., (1986) 4 SCC 136.], that in U.P. State Sugar Corpn. v. Sumac International Ltd. [(1997)1 SCC 568] (hereinafter 'U.P. State Sugar Corpn. [(1997) 1 SCC 568]') this Court, correctly declared that the law was 'settled'." xxx xxx xxx 14. In Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. C....
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....rdinate 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 parties could not change or vary without NOC from the Plaintiff. Once this methodology changed and Defendants No. 1 and 2 agreed to deposit the receivables from the project in another account of Defendant No. 3 without NOC from the Plaintiff, Section 133 of 1872 Act was attracted and Plaintiff was discharged from honouring the BGs. I am afraid this argument cannot be accepted. 53. Indisputably, the BGs were unconditional and irrevocable and as the terms of BGs, one of which has been extracted above, Plaintiff unconditionally guaranteed due and faithful repaym....
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....e 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 that the Joint Venture had opened an Escrow Account with the Plaintiff Bank and all advances/payments/ receivables, present and future to be received by the Joint Venture shall be routed through the said account and payment methodology shall not change until Defendant No. 3 submitted NOC from Plaintiff to MoRTH. It is also a matter of record that this letter was forwarded by Regional Office of MoRTH to PIU Head-cum-Executive Engineer by another letter sent on the same day. However, as rightly flagged by Mr. Ravi Prakash, learned Senior Counsel, this letter was only an ....
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....y 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 that there was no escrow arrangement or mechanism signed between Defendant No. 1, Defendant No. 3 and Plaintiff and nor was there any provision in the contract agreements signed between Defendant No. 1 and the Joint Venture or the Contractor for Lot-I and Lot-II projects. He has also deposed that Defendant No. 1 never entered into any kind of agreement with the bank for routing the payments payable to Defendant No. 3 through escrow mechanism and emphasised on Clause 19.5.1 of the Agreements whereby the Authority was required to make electronic payment directly to contract....
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.... 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 maintained with the Plaintiff Bank and none has been shown during the course of hearing. Once the contract between the Plaintiff and MoRTH did not incorporate any term of Escrow Account, the question of variation under Section 133 of 1872 Act does not arise and consequently, it cannot be urged that since the variation was without surety's consent, it stood discharged. Opening the Escrow Account was at the highest an agreement/arrangement between the Plaintiff and Defendant No. 3. On this score, the judgment relied on by the Plaintiff in Indo-Afghan Agencies Ltd. (supra), where it ....
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....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 it has extended the guarantee and the plaintiff and the defendant No. 1 are the principal-debtor and creditor respectively. The transaction between the aforesaid three parties is essentially a matter of three separate contracts. The first and main being the underlying contract between the principal-debtor and the creditor, i.e. between the plaintiff and the defendant No. 1. The second being the contract of guarantee or the bank guarantee which is between the surety and the creditor, i.e. the defendant No. 2 and the defendant No. 1. The third is the contract between the principal-debtor and the su....
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....r 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 and the period of validity of the offer had also expired on 23-9-2003, the defendant No. 1 (creditor) could not forfeit the earnest money amount and, therefore, could not insist upon the defendant No. 2 (surety) to discharge its liability under the bank guarantee. Clearly, therefore, the defendant No. 1 would not be entitled to invoke the bank guarantee and seek payment thereunder when by its own act and omission the principal-debtor has been discharged." 61. The question of discharge of Defendant No. 2 as a surety was one of the issues that the Court decided in the aforesaid paragraph in the fa....
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....4, 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 guarantor in certain circumstances. That provision reads as under: "Any variance, made without the surety's consent, in the terms of the contract, between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance." 23. In the present case, there is no dispute about the facts. The agreement of guarantee, ex. PW-2/13, which is sought to be enforced against defendant No. 4, was executed on February 1, 1964. Vide that agreement, defendant No. 4 undertook to pay up to the extent of Rs. 1,50,000 principal, interest, costs, charges and expenses due or which might at an....
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....on, 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 133, 134, 135, 139 and 141 of the Contract Act." 27. The learned counsel for the plaintiff contended that the said clause clearly indicated that defendant No. 4 undertook that he would not claim benefit of the provisions of s. 133 of the Contract Act and that, therefore, he was not exonerated or discharged from liability. The learned counsel relied upon a judgment of the Madras High Court in A.R. Krishnaswamy Aiyar v. Travancore National Bank Ltd., [1940] 10 Comp Cas 162 (Mad); AIR 1940 Mad 437, in support of his contention that a surety could waive his rights available to him under the provisions of the Contract Act. The following was held by the Madras High Court [at p. 438 of AIR's ....
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....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 expressed by the said High Court does not take note of the reasons whatever have been mentioned by me above and, in fact, any of the provisions of the Contract Act have not been specifically mentioned or commented upon in the judgment. 32. Hence I find that the liability of defendant No. 4 stands discharged by virtue of the provisions of s. 133 of the Contract Act. Issue is decided, accordingly, in favour of defendant No. 4." 64. As for the proposition of law brought forth in the aforesaid judgment, there can be no debate that the surety does not waive his rights by virtue of Sections 133 or 135 and give consent in advance to the future acts and that Section 133 debars a creditor from making a variance in the terms of the contract without ....