1 IN THE HIGH COURT OF BOMBAY AT GOA FIRST APPEAL NO. 297 OF 2004 M/s Prabhu Electricals, A partnership firm, duly registered under The Indian Partnership Act, having its Registered Office at Dr. Shirgaonkar Road, Near Saraswati Building, Panaji, Goa, represented by its partner Shri Motiram Prabhu, residing at St. Inez, Panaji, Goa. ... Appellants versus 1. State of Goa, through its Chief Secretary, having office at Secretariat, Panaji, Goa. 2. The Executive Engineer, Division I(O & M), Electricity Department, 2nd floor, Vidyut Bhavan, Panaji, Goa. ... Respondents Mrs. A. A. Agni, Advocate for the Appellants. Ms. S. Linhares, Additional Government Advocate for the Respondents. CORAM : F. M. REIS, J. DATE : 29TH JANUARY, 2011. 2 ORAL JUDGMENT The above appeal challenges the Judgment and Decree dated 26-10-2004 passed by the learned IInd Adhoc Additional District Judge at Panaji in Civil Suit No.160 of 2004(New). 2. The suit came to be filed by the appellants on the ground that respondent No.2 invited tenders for the work of laying of 11 KV underground feeder cable from Panaji Bus terminal by Tender No.4/89-90. The appellants further stated that respondent No.2 accepted the tender submitted by the appellants and by Order dated 12-2-1990 the appellants were intimated that their tender was accepted for a sum of Rs.6,37,275/-, and the appellants were called upon to commence the work immediately. It is further their case that as per the tender notice the appellants had to complete the work within 45 days after the date of the written orders to commence the work. It is further their case that on receipt of the order from respondent No.2 intimating the acceptance of the tender, the appellants signed the agreement with respondent No.2. As per the terms and conditions, the appellants were liable to furnish the performance guarantee for a period of 24 months from the date of commencement of the work. Accordingly, in terms of the said 3 agreement, the appellants were supposed to give a bank guarantee to the tune of 10% of the order value towards the performance during the guarantee period. In terms of the said agreement, the appellants furnished such guarantee for a sum of Rs.65,000/- dated 8-6-1990 which was to be in force till 7-12-1990. The bank guarantee was extended by the concerned bank upto 7-6-1993 by letter dated 2-12-1992. It is further their case that the work was completed by the appellants as per the agreement and that the respondent No.2 was not aggrieved with the appellants on account of the said tender work. According to the appellants thereafter suddenly they received a letter in the month of April, 1993 from respondent No.2 asking the appellants to extend the bank guarantee for a further period of one year from 7-6-1993. The appellants refused to extend the bank guarantee as demanded by the respondent No.2 since they had not violated any of the terms of the agreement or any amount were owed by the appellants to the respondents. A letter was also written by the respondent No.2 to the Canara Bank, Panaji requesting to encash the said bank guarantee and forward the amount to the respondent No.2 in case the appellants failed to extend the said bank guarantee by 30th May, 1993. Another letter was received on 18-5-1993 from the respondent No.2 asking the appellants to 4 extend the bank guarantee. The respondent No.2 had also invited tenders for the work of laying underground cable from Altinho, Panaji in the year 1989 and the tender was submitted by the appellants to execute the said work which was accepted. A separate bank guarantee was issued in respect of the said agreement for a sum of Rs.40,000/-, and the said bank guarantee was still in force. It is further their case that the claim of the respondent No.2 to seek for extension of the bank guarantee was absolutely illegal as the appellants had followed all the terms of the agreement. A reply was written by the appellants dated 19-5-1993 refusing to extend the bank guarantee of Rs.65,000/- but despite of their reply the respondent No.2 sent another letter to the appellants again asking them to extend the bank guarantee. The appellants also wrote a letter to the Bank calling upon them not to allow the respondent No.2 to encash the bank guarantee. Thereafter on 7-6-1993, the appellants received a letter dated 7-6-1993 addressed by the respondent No.2 to Canara Bank making his claim to encash the said bank guarantee for the said sum of Rs.65,000/-. It is further their case that the respondents were not entitled to seek any extension of the bank guarantee and as such sought a permanent injunction restraining them from encashing the said bank guarantee of Rs.65,000/-. For other reasons stated in the plaint, the 5 appellants sought for a permanent injunction restraining the respondents from encashing the bank guarantee. 3. The respondents filed their written statement admitting the execution of the bank guarantee in their favour and it is further their case that as per Clauses 29 and 29-A of the agreement executed between the parties in respect of the work of laying of 11 KV underground feeder cable from Panaji Bus terminal to the Secretariat, it is noticed that the respondents shall be entitled to withhold and also have a lien to retain such sum or sums, in whole or in part from the security, if any, deposited by the contractor and for that purpose the Government shall be entitled to withhold the security deposit as the case may be and also have a lien over the same, pending finalization and adjudication of any such claim. It is further their case that pending finalization and adjudication of such claims in terms of the said Clause 29-A they were entitled to withhold the same. It is further their contention that in view of the terms of the said agreement they had requested the appellants to renew the bank guarantee which they failed to do so. It is further their case that in view of Clauses 29 and 29-A of the agreement, the respondent No.2 directed encashment of the bank guarantee as the appellants are liable to pay a 6 huge amount of Rs.4,00,000/- towards the losses sustained by the respondent No.2. For other reasons stated in the written statement, it is further their contention that they are entitled to encash the bank guarantee in view of the dues on the part of the appellants payable to the respondents. 4. The learned Judge framed the issues and thereafter the evidence came to be recorded. The appellants examined as PW1 Motiram Prabhu who has filed his affidavit in evidence and produced the relevant documents. He was cross-examined by the respondent and has admitted that by letter dated 15-4-1993 the appellants were informed by the respondent No.2 that he will encash the bank guarantee in case it is not extended and/or before 20th May, 1993. He has further stated that the appellants had agreed to check the cable by the Central Power Research Institute at Bangalore to ascertain authenticity of such cable and also admitted that the report had come saying that the cable was faulty, however, he was informed by the manufacturer that the sample of the cable was itself faulty. The learned Judge by the impugned Judgment has held that the appellants had failed to prove that they could not complete the work of laying the cable at Altinho on account of the fault of the 7 respondents. The learned Judge has further held that there is no correspondence produced by the appellants that it was brought to the notice of the respondent No.2 that they have a faulty system which was causing high short circuit level which had led to the failure of the cable. The learned Judge further held that Clause 29-A of the agreement empowers the respondent to encash the bank guarantee in their favour. Consequently, the learned Judge dismissed the suit. 5. Learned Counsel Smt. A. Agni, for the appellants has assailed the impugned Judgment and has pointed out that as per the terms of the agreement there is no question of the respondent claiming any lien over the bank guarantee which was issued in respect of the contract. Learned Counsel took me through the notes of the evidence as well as the agreement executed between the parties and pointed out that there is no cause therein which entitles respondent No.2 to encash the bank guarantee. Learned Counsel further submitted that the bank guarantee which was given in respect of the work given at Panaji Bus terminal was completed to the satisfaction of respondent No.2 and as such, the question of invoking the bank guarantee would not arise. Learned Counsel further submitted that Clause 29-A does not entitle the 8 respondent No.2 to encash the bank guarantee. Learned Counsel for the appellants has further submitted that the learned Judge has failed to give any reasons as to whether the bank guarantee could be invoked on account of any alleged breach in respect of any agreement executed between the respondents and the appellants. She further pointed out that there are no reasons given by the learned Judge on that count and as such the impugned Judgment deserves to be quashed and set aside and the matter be remanded. Learned Counsel submitted that by Order dated 7-10-2005 there was a specific order passed by this Court directing that in case the appellants were to succeed in the appeal, the respondents will pay them the amount encashed from the bank guarantee along with interest at 6% per annum. 6. On the other hand, Mrs. Susan Linhares, learned Additional Government Advocate for the respondents has supported the impugned Judgment. It is her case, that as per the terms of the agreement there was a specific condition to the effect that the respondents were entitled to invoke such guarantee in case there was any breach committed by the appellants in connection with the other agreement including the contract given by the respondents to the appellants in connection with the 9 underground cable at Altinho, Panaji. Learned Additional Government Advocate further submitted that in view of the breaches committed by the appellants they were entitled to invoke the bank guarantee. Learned Additional Government Advocate pointed out that though there are no reasons given by the learned Judge, it is obvious that the learned Judge came to the conclusion that the respondents were entitled to invoke the bank guarantee. She further pointed out that at this stage the question of invoking the Order dated 7-10-2005 would not arise as according to her such an aspect will have to be considered only in case the matter stands remanded for fresh adjudication. 7. Having heard the learned Counsel for the appellants and the learned Additional Government Advocate for the respondents and on perusal of the records as well as the impugned Judgment, I find that the learned Judge whilst passing the impugned Judgment has not given any reasons with regard to the contentions raised by the respective parties, with regard to the ground on which the bank guarantee was to be encashed. 10 8. The main point for consideration would be to ascertain as to whether the said bank guarantee given by the appellants pursuant to an agreement executed between them entitled the respondents to invoke such guarantee in view of the alleged breach committed by the appellants in respect of the other contract executed between the appellants and the respondents in respect of the laying of the cable at Altinho, Panaji. This crucial aspect has not been considered by the learned Judge whilst passing the impugned Judgment. The law is well settled that the terms of the guarantee have to be strictly construed and as such the terms of the bank guarantee will have to be construed. The learned Additional Government Advocate has pointed out that in fact on perusal of the impugned Judgment there are no reasons given with regard to the contentions of both the parties on the basis of the terms of the bank guarantee. The contention of the appellants that in any event the bank guarantee could not be encashed as there was no subsisting liability determined or in the process of determination as payable by the appellant has also not been considered. As such, in the interest of justice, I find that it is a fit case wherein the matter deserves to be remanded to the learned Additional District Judge, Panaji to decide the matter afresh after 11 giving both the parties an opportunity to be heard in respect of the contentions raised in the suit. 9. In view of the above, I pass the following Order:- O R D E R 1. The appeal is partly allowed. 2. The impugned Judgment and Decree dated 26-10-2004 passed by the learned Additional District Judge at Panaji is quashed and set aside. 3. Civil Suit No.160 of 2004 is restored to the file of the learned Additional District Judge. 4. The learned Additional District Judge is directed to decide the suit afresh after giving both the parties an opportunity of being heard without being influenced with any of the observations made herein on or before 30-6-2011 in accordance with law. 5. The learned Judge shall consider granting appropriate reliefs by taking into account the said Order dated 7-10-2005 if occasion arises, at the time of the final disposal of the suit in accordance with law. All the contentions of the parties are left open. 6. The appeal stands disposed of accordingly with no order as to costs. 12 7. Parties are directed to appear before the learned Additional District Judge on 14-3-2011 at 10.00 a.m. F. M. REIS, J. RD 13