Gimpex Minerals Pvt. Ltd., Madras vs State Bank of India, Overseas Branch, Madras and Bharat Overseas Bank Ltd., Madras <BR>Bharat Overseas Bank Ltd., Madras Vs State Bank of India, Overseas Branch, Madras and Gimpex Minerals Pvt. Ltd., Madras

K. Raviraja Pandian, J.—The defendants No.1 and 2, who suffered a decree, at the hands of the learned Single Judge of this Court in a suit

filed by the first respondent herein by the decree and judgment dated 9.3.1993 made in C.S.No.43 of 1983, filed two appeals in O.S.A.Nos.107

and 159 of 1994 respectively.

By the decree, defendants No.1 and 2 were directed to pay the plaintiff/respondent herein a sum of Rs.46,05,077-65ps with further interest at

the rate of 20.5 percent per annum on the sum of Rs.14,70,148-70ps from the date of the decree till the realisation and in view of the indemnity in

favour of the first defendant by the second defendant, the learned Judge directed the plaintiff to proceed and exhaust their remedies against the

second defendant in the first instance and in the case of non-realisation, to proceed against the first defendant. Aggrieved by the said decree,

defendants No.1 and 2 filed the above appeals.

The learned counsel Mrs. Nalini Chidambaram appearing for the appellant in O.S.A.No.107 of 1994 has contended that the guarantee granted

by the plaintiff in favour of the foreign Bank i.e., Rafidain Bank, Baghdad was not invoked within the claim period as agreed to. After the expiry of

the claim period, the respondents are not bound to pay the guaranteed amount. Further, she contended that no evidence was made available by the

plaintiff to the effect that the foreign bank discharged the liability due to the foreign company and unless the same is established, the plaintiff cannot

claim the amount, which has been guaranteed by the defendants by way of counter guarantee.

Mr. T.K. Seshadri, learned counsel appearing for the appellant in O.S.A.No.159 of 1994 has in all material part adopted the argument of the

learned counsel for the appellant in O.S.A.No.107 of 1994 and contended that since the guarantee granted by the plaintiff in favour of the foreign

Bank has not been enforced or invoked within the period accepted for invoking the same, the claim of the plaintiff against the defendants is not

sustainable.

In order to resolve the only point raised in these appeals viz., ""whether the guarantee granted by the plaintiff in favour of the foreign company has

been enforced or invoked within the enforceable period"", the admitted facts, which are necessary, are stated below:

For the sake of convenience, the parties are referred to, as arrayed in the suit.

The second defendant in the suit M/s. Gimpex Minerals Private Limited entered into an agreement with the foreign Company in Iraq by name Iraq

National Oil Company (hereinafter referred to for brevity, the foreign Company) for the supply of 19,000 M.Ts of Barytes powder, a mineral used

for the purpose of extraction of oil. The said foreign Company demanded a performance guarantee in a sum of U.S. Dollars 1,48,200/- being 10

percent of the C & F value of the goods to be supplied. The second defendant approached the first defendant - Bharat Overseas Bank Limited,

for giving such guarantee to the foreign Company. Since the first defendant did not have the foreign agency at Iraq for giving the performance

guarantee as requested by the second defendant, the first defendant approached the plaintiff - the State Bank of India to give Bank guarantee on

behalf of the second defendant through their agency at Iraq to the foreign Company under Ex.P.1 dated 30.5.1978. In Ex.P.1, the first defendant

(Bharat Overseas Bank Limited) has expressed that in consideration of the plaintiff''s issuing the guarantee, the first defendant would undertake to

hold the plaintiff harmless and indemnify the plaintiff against any loss or damage arising out of the guarantee by that indemnity letter. The plaintiff

being accepted for the same, defendants No.1 and 2 executed a counter guarantee agreement on 6.5.1978 in L.G.No.3/50 in favour of the plaintiff

Bank under Ex.P.3 undertaking to indemnify the plaintiff Bank all costs, claims, damages, loss and expenses, which might be made against or

sustained by the plaintiff Bank by reason of having given the guarantee by the plaintiff Bank and it was further declared that the counter guarantee

should remain in force until the plaintiff Bank had not only discharged the liability under the guarantee and duly redeemed and also to reimburse the

Bank the amount or amounts so paid by the plaintiff Bank with all costs, interest and other charges within seven days from the receipt of the advice

from the plaintiff Bank of such payment. Pursuant to the same, the plaintiff Bank approached the Rafidain Bank at Baghdad (hereinafter referred

for brevity, foreign Bank) to give performance guarantee on behalf of the second defendant. The foreign Bank had given a guarantee for the said

sum to the foreign Company. The second defendant in its turn had given a separate counter guarantee in favour of the first defendant under

Ex.D.26. At the first instance, the first defendant made a request to the plaintiff under Exs.P.2 and P.4 to keep alive the guarantee, it granted in

favour of the foreign Bank up to 30.6.1978. However, under Ex.P.5, the first defendant requested the plaintiff to extend the validity period of the

guarantee upto 31.7.1978 and the period for enforcing the claim under the guarantee was upto 31.8.1978. In turn, the plaintiff Bank directed the

foreign Bank to extend the validity of the guarantee upto 31.7.1978 and it was agreed that any claim for enforcement of the guarantee should be

made on or before 31.8.1978 under Ex.P.6.

The foreign Bank under Ex.P.11 Cable dated 10.8.1978 requested the plaintiff to authorise them either to extend the guarantee upto

31.10.1978, otherwise, to remit the guaranteed amount. Therefore, the plaintiff under Ex.P.13 dated 21.8.1978 informed the first defendant, the

message received from the foreign Bank and requested for the extension of the guarantee period. For that, the first defendant replied under

Ex.P.14 dated 31.8.1978 that the second defendant''s Director had gone to Baghdad to sort out the matter and requested the plaintiff to convey

this to foreign Bank. As there was no direct answer from the first defendant for extension of the guarantee period as requested under Ex.P.13, the

plaintiff wrote a letter to the first defendant either to cancel the guarantee or to extend the guarantee period beyond 31.8.1978. However, the first

defendant under Ex.P.17 informed the plaintiff that the guarantee expired on 31.7.1978 itself and on the expiry of that date, the guarantee stood

cancelled automatically. Again, on 19.10.1978, the first defendant informed the plaintiff under Ex.P.18 dated 19.10.1978 that the second

defendant had fulfilled the contractual obligation as per the terms of the contract and therefore the guarantee need not be extended beyond

31.8.1978. In view of the letter of the first defendant under Ex.P.18, the plaintiff wrote to the foreign Bank to cancel the guarantee as the first

defendant had requested to arrange for cancellation and return the original guarantee. However, the foreign Company by Cable under Ex.P.30

informed that the Principal - the second defendant had failed to fulfil the contractual obligation concerning the delivery of the goods and hence the

entire guarantee amount had to be credited to their account with their London Office. Hence, the plaintiff requested the first defendant under

Ex.P.14 to honour the claim of foreign Bank as the claim was made within 31.8.1978.

While so, the second defendant filed a suit in C.S.No.312 of 1979 in this Court and obtained an interim injunction on 20.5.1980 against the first

defendant not to effect any payment to either foreign Bank or to the foreign Company. The suit, it seems, was subsequently transferred to the City

Civil Court and numbered as O.S.No.2576 of 1981 and injunction application has been re-numbered as I.A.No.11269 of 1981 and application

for injunction was ultimately dismissed on 14.10.1982. The next day the plaintiff remitted the full amount under the guarantee to the foreign Bank.

Defendants No.1 and 2 resisted the suit on the main contention that the guarantee period as accepted by them was only upto 31.7.1978. The

enforcement or invocation period of the guarantee was upto 31.8.1978. Both the validity and invocation periods of the guarantee have already

been expired. The inaction on the part of the foreign Bank to enforce the guarantee granted by the plaintiff before 31.8.1978 would make the

guarantee as stale one and as such, the plaintiff should not have remitted the amount, that too, long after the expiry of the validity period i.e., on

15.10.1982 and as such, the plaintiff is not entitled to enforce the counter guarantee granted by defendants No.1 and 2. The second defendant has

also taken a ground that it performed its part of the contract as agreed and on that ground also, the defendants defended the action of the plaintiff

invoking the counter guarantee granted by it along with the first defendant.

The learned Judge after taking into consideration of the material placed before him and also arguments advanced on behalf of the parties, has

ultimately concluded that the foreign Bank enforced or invoked the guarantee granted by the plaintiff within the period of invocation as agreed and

as such, the plaintiff is entitled to enforce the counter guarantee granted by the defendants jointly in favour of the plaintiff. Hence, the above appeals

by the defendants as stated in the preamble portion of the judgment.

In order to appreciate the contention raised on behalf of the defendants/appellants in these appeals, we will have to look into the nature of

counter guarantee granted in favour of the plaintiff by the defendants and also the guarantee granted by the plaintiff in favour of the foreign Bank

and the terms under which they were granted.

On a perusal of the documents of the first defendant under Exs.P.2, P.4 and P.6, we are able to find that the first defendant has requested the

plaintiff Bank initially to fix up validity period of the guarantee granted in favour of the foreign Bank up to 30.6.1978. Subsequently in view of

Ex.P.5, the validity period of the guarantee was extended upto 31.7.1978 and the enforcement period of guarantee was also agreed upto

31.8.1978. In this context, it is the contention of the learned counsel for the defendants/appellants that the validity period of guarantee automatically

expired by 31.7.1978 and the enforcement or invocation period upto 31.8.1978 was also expired. The liability under the guarantee got

automatically extinguished on the expiry of the said periods and hence the plaintiff was not bound to make any payment to the foreign Bank on

15.10.1982 long after the expiry of the enforcement period and as such, the plaintiff cannot have any right to claim reimbursement on the basis of

the counter guarantee.

Mrs. Nalini Chidambaram, learned counsel appearing for the second defendant, the appellant in O.S.A.No.107 of 1994 has also relied on

Section 145 of the Indian Contract Act to contend that the plaintiff cannot claim the amount which the Bank paid wrongfully to foreign Bank. In

this context, it would be apposite for us to refer the counter guarantee under ExP.3. The said counter guarantee provided that the guarantor, the

defendants would hold the plaintiff Bank harmless and indemnified against and would pay the plaintiff on demand at its Overseas Bank Madras

Office, the amount of all costs, claims, demands, damages, losses and expenses, which might be made against or sustained by the plaintiff Bank for

which the Bank might become liable by reason of the plaintiff Bank having given and signed the said agreement, forthwith on demand, any amount

which the plaintiff Bank might be called upon to pay under the said guarantee (and whether the Bank should have paid any such amount or not)

plus all costs and charges which may be incurred by the Bank or become payable in connection with the fulfilment of the terms and conditions of

the said guarantee and any payment made by the Bank on demand from the said Rafidain Bank Account M/s. Iraq National Oil Company should

be deemed to be an amount which the Bank had been called upon to pay under the said agreement. Further, clause (b) of the agreement provided

that the Bank should be at liberty to debit the account maintained by the defendants at the plaintiff Bank''s Overseas Branch, Madras Office with

any amount paid or payable by the Bank pursuant to Clause (a) of this Indemnity and counter guarantee and the Bank in its absolute discretion

make a lien for U.S $ 1,48,200/- (US Dollars One Lac Forty Eight Thousand two hundred only) against the defendants said account for this

purpose. The defendants further agreed that the counter-guarantee should remain in force until the Bank was finally discharged of the liabilities

under the said guarantee and has obtained confirmation in writing thereof from Rafidain Bank Account M/s. Iraq National Oil Company and

received therefrom the said guarantee duly redeemed. Clause (d) provides for the mode of service of notice and clause (e), rather we find it as

important, which provided as follows:

We irrevocably declare that the Bank will be entitled to pay without any prior reference to us any claims or demands whatsoever made by

Rafidain Bank A/c. Iraq National Oil Company against the Bank as a result of the issue of the guarantee by the Bank notwithstanding any

directions or notice by us to the contrary whether on account of the pendency of any dispute between us and the Rafidain Bank A/c. Iraq National

Oil Company or of a dispute as to our liability to the said or of any other reason whatsoever and we hereby undertake to reimburse the Bank the

amount or amounts so paid by the Bank together with all costs interests and other charges within seven days from the date of receipt of advice

from the Bank of such payment.

Hence, under this counter guarantee executed by defendants No.1 and 2, they undertook to reimburse the plaintiff for any payment made by the

plaintiff Bank to the foreign Bank account M/s. Iraq National Oil Company and the said counter guarantee would remain in force until the plaintiff

Bank got finally discharged from the liabilities and the guarantee was duly redeemed. There is no qualification fixed in the counter guarantee as to

the time limit or any other contingency and it is an unqualified and unconditional guarantee in favour of the plaintiff by defendants No.1 and 2.

Since the contention of the defendants/appellants is the time limit i.e., the validity period and the enforcement period expired before the

guarantee was invoked, we rather feel it apposite to refer the guarantee granted by the plaintiff in favour of the foreign Bank under Ex.P.7, which

reads thus:

Please issue your performance guarantee under our full responsibility in your standard form or in a form specified by the beneficiary for US

Dollars 1,48,200/- (US Dollars One hundred and forty eight thousand and two hundred) favouring Iraq National Oil Company, Baghdad, Iraq

Account M/s. Gimpex Minerals Pvt. Ltd., 19/20 Linghi Chetty Street, Madras-1., being 10% of the total C & F value of US Dollars 14,82,000/-

against Tender No.PO/4/78 dated 7-1-78 for supply of 19,000 M. Tons of Barytes Powder. This guarantee is valid upto 30-6-78. Guarantee is

placed at the entire disposal of the Head Office upon the first request submitted by them. Our liability under this guarantee is restricted to US $

1,48,200 (US Dollars One hundred and forty eight thousand and two hundred only) and is valid until 30-6-78. Your claims will be paid on first

demand despite contestation with fifteen days mailing time from expiry date for your claims. Unless we receive your claim within 15.7.78, all your

rights under this guarantee shall be forfeited and we will be relieved and discharged from all our liabilities thereunder. All exchange control

formalities complied with stop please.

Thereafter, on the request of the first defendant, the guarantee period mentioned in Ex.P.7 was extended upto 31.7.1978 and the claim period

was fixed upto 31.8.1978. Ex.P.6 is the cable of the plaintiff to foreign Bank, which reads as follows:

... Please extend validity of guarantee upto 31.7.78. Your claims will be paid on first demand despite contestation within one month from the

expiry date that is on or before 31.8.78. Please send us your copies of original guarantee and amendment.

By virtue of this letter, the validity period has been extended upto 31.7.1978 and the claim period was fixed at 31.8.1978. This Ex.P.6 would

automatically form part of Ex.P.7. The defendants/ appellants are also not disputing this factum of the validity period and the claim period as

31.7.1978 and 31.8.1978.

The guarantee bond executed by the foreign Bank in favour of the foreign Company under Ex.P.9 provided that the Bank undertook to pay

the foreign Company the 10 percent of the total C & F value of US Dollars 14,82,000/- against tender No.PO/4/78 dated 7.1.1978, provided the

claim fell within the direct scope of the matter indemnified and among other things provided that the claim should be made on or before 31.7.1978.

Otherwise, the foreign Bank''s liability would cease and letter of guarantee would become null and void and it would be removed from the foreign

bank''s record.

The foreign Bank sent a Cable under Ex.P.11 dated 10.8.1978 to the plaintiff Bank requesting either to authorise the extension of the

guarantee upto 31.7.1978 or remit the amount. By Ex.P.11, the foreign Bank has made a claim for the guaranteed amount on 10.8.1978 itself, in

case, the defendants did not agree to extend the validity period of guarantee upto 31.10.1978. As the request for extension upto 31.10.1978 was

not acceded by the defendants, by virtue of Ex.P.11 dated 10.8.1978, the plaintiff was bound to remit the amount guaranteed as per the terms of

Exs.P.7 and P.6, when particularly the claim was made by the foreign Bank on 10.8.1978, which is within the enforcement or invocation period as

agreed to by the parties. Ex.P.11 is unequivocal, imperative and unambiguous in its terms. It directed the plaintiff to remit the amount in case of the

guarantee being not extended upto 31.10.1978. It is categorical and clear invocation of the guarantee.

It is pertinent to state here that the second defendant enforced the letter of credit issued by the foreign Company through their Banker, thereby

received the sale consideration of the 19,000 M.Ts of Barytes powder. But it seems that the shipment did not reach the buyer, the foreign

company. But that is not the dispute in the present action. However, we can incidentally note that under Ex.D.23, it is clear the goods were sent

only on 31.10.1978 i.e., after the expiry of the guarantee period granted by the foreign Bank to the foreign Company. Naturally, prior to the expiry

of the guarantee granted by the foreign Bank, the beneficiary, the foreign Company would have invoked the guarantee since they did not receive

the goods on that date. In view of the discussion they had with the Director of the second defendant, they would have sought for the extension of

the period upto 31.10.1978, but that has not been acceded to by the defendants. The fact remains under Ex.P.11 dated 10.8.1978, the foreign

Bank invoked the bank guarantee of the plaintiff. Hence, we are of the opinion that the Bank guarantee has been invoked within the period

accepted for invocation. The payment of the amount on 15.10.1982 would not make any difference as to the invocation period. The making of

payment is totally different than the invocation of the guarantee. There is absolutely no condition that the amount should be remitted on the date of

invocation of the bank guarantee. Further, it is matter between the plaintiff and its Iraqui Agencies, the foreign Bank. The amount could very well

be accounted by making necessary debit and credit entries in the books of accounts of the plaintiff and its Iraqui Agency. The payment made by

the plaintiff at a latter point of time would not alter the terms of Ex.P.11 on which date the plaintiff was directed to remit the amount.

The counter guarantee executed in favour of the plaintiff by the defendants, as stated above, is unqualified and unconditional and there is no

time limit fixed for the invocation on the part of the plaintiff. Since we are of the view that the guarantee granted by the plaintiff in favour of the

foreign Bank has been invoked within the invocation period as agreed to by the defendants and the plaintiff with the foreign Bank, the plaintiff in

turn is entitled to invoke the counter guarantee granted by the defendants in their favour, which as stated above, is unqualified and unconditional.

Hence, we are of the view that there is absolutely no infirmity or irregularity as to the finding arrived at by the learned Judge as to the invocation is

within the time agreed on the basis of the above referred clinching materials.

Since we have come to the conclusion that the payment made by the plaintiff to the foreign Bank is in accordance with the guarantee and the

payments are made rightfully, there is no wrongful payment as envisaged u/s 145 of the Contract Act. The guarantor/the plaintiff has to be

indemnified by defendants No.1 and 2 the sum which the plaintiff has rightfully paid under the guarantee agreement.

The learned Judge has ultimately given a direction to the plaintiff to recover the amount at the first instance from the second defendant and if the

amount is not realisable from him, to realise the same from the first defendant. The reason for the said direction, according to the learned Judge,

was the second defendant has given a counter guarantee to the first defendant. We are of the view that since the suit is not between the first

defendant and the second defendant and it is between the plaintiff and the defendants, as per the counter guarantee executed by the defendants in

favour of the plaintiff, it is well open to the plaintiff to execute the decree against both the defendants jointly and severally. To this extent, we modify

the decree. In other aspects of the matter, we see no merit in the appeals so as to interfere with the judgment and decree. Hence, both the Original

Side Appeals are dismissed with the above modification. However, there shall be no order as to costs.