Case: Hindustan Const. Co. Ltd Vs. State Of Bihar

2. Hindustan Construction Company Limited (fir short, `HCCL) was awarded a contract for the construction of Icha Dam across the river Kharkai in village Kuju by the State of Bihar (for short, `the defendants). The contract was awarded in the sum of Rs. 39,71,31,019/on 25.4.1989. The period of contract was 42 months and the work was to be completed by 24th of October, 1992. in terms of the agreement, HCCL was required to furnish, and it did furnish, a Bank Guarantee for 10 per cent of the contract price as "Performance Guarantee" in the sum of Rupees Three Crores Ninety Seven Lakhs Thirteen Thousand One Hundred and Two only. Another Bank Guarantee which was required to be furnished by HCCL, and which it did furnish, was the Guarantee against "Mobilisation Advance" which was to be provided by the defendants from time to time to the HCCL during the course of the contract. HCCL has already furnished fifty "Mobilisation Advance" Bank Guarantees aggregating in all to Rs. 532 lacs. In addition to these Bank Guarantees, HCCL had also furnished another "Mobilsation Advance" Bank Guarantee dated 2.7.1991 for Rs. 40 lacs, for which no advance has been paid by the State of Bihar. This Bank Guarantee is, however, not in question in these proceedings.3. Both the Bank Guarantees were invoked by the defendants and it was, at this stage, that HCCL filed a suit on 21.10.1992 in the Bombay High Court against State Bank of India, State Bank of Patiala and Indian Bank (defendants 1 to 3) and the State of Bihar and its officers (defendants 4 to 6) for various reliefs, including principal relief that defendants 1 to 3 may be restrained from making payment of the amount covered by the aforesaid Bank Guarantees to defendants 4 to 6. An interim order was passed by the Single Judge in the suit on 27.10.1992 and under this interim order, the defendants were restrained from invoking the Bank Guarantees and the Banks were restrained from making payment of the amount covered by the Bank Guarantees to the defendants. The interim order was confirmed on 9.2.1996.4. Defendants 4 to 6, who contested the suit, pleaded, inter alia, that HCCL had not adhered to the schedule of work and had rather abandoned the work after it had received "Mobilisation Advance" and it was for this reason that both the Bank Guarantees were invoked.5. The order passed by the Single Judge was challenged in appeal by the defendants before the Division Bench and the Division Bench, by the impugned judgment dated 20.3.1998, vacated the injunction order in respect of Bank Guarantee relating to "Mobilisation Advance", but the injunction order in respect of the "Performance Guarantee" was maintained.The defendants have filed a separate appeal against that part of the order by which the injunction order in respect of the "Performance Guarantee" has been upheld by the Division Bench. Itis contended on their behalf that the "performance Guarantee", which constituted a separate and distinct contract between the defendants and the Bank, was unconditional and unequivocal and since the Bank had undertaken to pay the amount covered by that Guarantee to the defendants on their demand, the injunction order, granted by the High Court, was liable to be set aside.

Reasoning:
21. As pointed out above, Bank Guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the defendants. It is independent of the main contract between the HCCL and the defendants. Since the Bank Guarantee was furnished to the Chief Engineer and there is no definition of "Chief Engineer" in the Bank Guarantee nor is it provided therein that "Chief Engineer" would also include Executive Engineer, the Bank Guarantee could be invoked by none except the Chief Engineer. The invocation was thus wholly wrong and the Bank was under no obligation to pay the amount covered by the "Performance Guarantee" to the Executive Engineer.22. We have scrutinised the facts pleaded by the parties in respect of both the Bank Guarantees as also the documents filed before us and we are, prima facie, of the opinion that the lapse was on the part of the defendants who were not possessed of sufficient funds for completion of the work. The allegation of the defendants that HCCL itself and abandoned the work does not, prima facie, appear to be correct and it is for this reason that we are of the positive view that the "special equities" are wholly in favour of HCCL.