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1984 DIGILAW 35 (GAU)

Makharia Brothers v. State of Nagaland and Others

1984-03-24

B.L.HANSARIA

body1984
The broad and relevant facts of the case are these. A suit was filed by respondent no. 1 against the petitioner and respond­ents 2 and 3. The suit was for declaration and perpetual injun­ction. The declaration sought was that the bank guarantee for a sum of Rs. 2,87,800/- furnished by defendants no. 2 and 3 which was extended till 5. 7. 79 and whose further extension till 5.1.80 was refused, must subsist until expiration of a period of 90 days of the successful commissioning of the gener­ating sets etc., to the satisfaction of a Chief Engineer as per terms and conditions of the contract, entered into by defend­ant no. 1 with the Government of Nagaland. The suit was filed on 27.12.79. It was desired by the defendant that issues 1, 2, 3, 4 and 5 be heard as preliminary issues which was done. These issues are :- "(1) Whether the Bank Guarantee No.3008 dated 12 Dec. 1977 issued by Visya Bank Ltd. revalidated up to 5. 7. 1979 shall be binding on the defendants untill the expiration of a period of 90 days of the successful commissioning of the regenerating sets, equipments and auxilaries to the satisfaction of the Chief Engineer as per contract agreement No. CEL/DB/151/A/710(A) dated Kohima, the 29th November, 1977. (2) Whether the suit is liable to be dismissed for want of causes of action? (3) Whether the suit is barred by the principle of the law of estoppel, waiver and acquiscence? (4) Whether the plaintiff, the Chief Engineer got authority to compel the defendant nos. 2 and 3 to extend Bank guarantee No. 3008 dt. 12. 12. 77 till the commissioning of the generating sets, equipments and auxilaries to the satisfaction of the Chief Engineer. (5) Whether the Court of the Assistant Commissioner, Kohima has got jurisdiction to try this suit." 2. Of these, issues 3 and 5 were not pressed before the learned Asstt. to the Deputy Commissioner, and I was also not addressed on the same. Issues 1 and 4 are related and they have been answered in favour of the plaintiff, i. e., the State of Nagaland. Issue No. 2 has to follow these. For the sake of completeness, it may be pointed out that the guarantee was forfeited on 1. 10. 80. Issues 1 and 4 are related and they have been answered in favour of the plaintiff, i. e., the State of Nagaland. Issue No. 2 has to follow these. For the sake of completeness, it may be pointed out that the guarantee was forfeited on 1. 10. 80. on the ground that the contract was rescinded due to assignment on Sub-eletting of the contract in contravention of clause 15 of the agreement. 3. The approach to this Court is by defendant no, 1 above, and is under Rule 34 of the Rules for the Administration of Justice and Police in Naga Hills District, hereinafter called the Rules. As an appeal lay under the aforesaid Rule to the Deputy Commissioner, an objection has been taken about the maintaina­bility of the petition. Another preliminary point raised by res­pondent no. 1 relates to non-approach by defendant nos. 2 and 3 against whom also the impugned order was passed, and who have been arrayed here as respondents 2 and 3. 4. To decide the question of maintainability, Rule 34 of the Rules may be set out in so far as it is material: "34. The High court or Deputy Commissioner may, on application or otherwise, call for the proceedings of any case decided by any officer subordinate to him and pass such order as he may deem fit. An appeal shall lie to the Deputy Commissioner against the decision of any of his Assistants (and of any trial) and to the High Court against an original decision of the Dep­uty Commissioner, if the value of the suit be rupees five hundred or over, or if the suit involve a question of tribal rights or customs or of right to, or possession of, immovable property; Provided that the petition of appeal accompanied by a copy of the order appealed against and by a clear state­ment of the grounds of appeal be filed within 30 days from the date of decision, excluding the time required for obtain­ing a copy of the decision." 5. Learned Advocate General, Nagaland appearing for respond­ent no.1 contends that as an appeal did lie to the Deputy Commissioner against the impugned order, and as the same was not preferred, and as the period, of limitation mentioned in the proviso was over by the time this Court was approached on 25. 2. 82 (the impugned order is dated 7. 12. Learned Advocate General, Nagaland appearing for respond­ent no.1 contends that as an appeal did lie to the Deputy Commissioner against the impugned order, and as the same was not preferred, and as the period, of limitation mentioned in the proviso was over by the time this Court was approached on 25. 2. 82 (the impugned order is dated 7. 12. 81), the petition merits rejection on this ground alone. In reply, Shri Das for the petitioner as well as Shri Lahiri for the Vysya Bank Ltd. (respondents 2 and 3) contend that as the revisional power of this Court conferred by first part of the Rule is not hedged, unlike Section 115 CPC whereunder the power is available in cases where no appeal lies, it would be against the letter and spirit of this part of the Rule to hold that approach to the revisional authority would be barred if on appeal is preferred. It is reminded by Shri Lahiri that those Rules were framed as back as in 1937 to cater to the needs of the trial people, and as such this should be interpreted in such a way as would adv­ance the cause of uninterrupted justice which is dear to the heart of the tribal. 6. I am inclined to accept this submission and would regard the direct approach to the High Court or the Deputy Commi­ssioner under the first part of the Rule as not inhibited by the provision of appeal mentioned in the second part. The direct approach to the High Court might have been advisedly incor­porated in the Rules to give it a large supervisory power over all the judicial proceedings. It may be pointed out that these Rules had been framed long before such a power came to be conferred on the High Court by Article 227 of the Constitution. It would be opposite in this connection to refer to Order 6 of the Assam High Court (Jurisdiction Over District Council Courts) Order, 1954 which has empowered this Court to call for the proceedings of any civil or criminal case decided by or pending in any Court in the autonomous district. To accept the rival contention would virtually amount to adding some condition in the first part of the Rule which is not there. 7. I would however add a rider. To accept the rival contention would virtually amount to adding some condition in the first part of the Rule which is not there. 7. I would however add a rider. Though the High Court can be approached against any decision by any subordinate officers, it would be within the discretion of the Court whether to entertain the same or not, if an appeal, where lies, has not been prefers/ed. While deciding this aspect, the Court may have to consider the status of the parties, the point involved, the importance of the subject matter; the time taken in approaching the reason for not preferring appeal, and such other relevant factors. In so far as the present case is concerned, I have not thought it fit to dismiss the petition on the score of maintainability after having heard the learned counsel of the parties on the merits of the case, more so, in view of the important point involved in the petition. It may be pointed out that for approaching this Court under the first part of rule 34, no period of limitation has been prescribed. Of course this does not mean that the revisional power can be invoked at any time. As the present petition was filed on 25th February, 1982 against an order of 7th December, 1981, it cannot be stated that the approach was beyond reasonable time. 8. The petitioner cannot therefore be sent back at the threshold. Before going into the merits, the objection that the Bank has not approached this Court may be taken care of. As to this, it would be enough to refer to the provisions of Order 41 Rule 33 and to the decision in Choudhury Sahu vs. The State of Bihar, AIR 1982 SC 98 . While referring to this provision, I am not oblivious of the fact that under the Rules it is the spirit, and not the letter, of the code which applies. The provisions contained in Rule 33 being a salutary provision and being one which takes away the rigour of technicalities, spirit behind the same can well be invoked in cases coming for the tribal areas also. That Rule permits a Court to give relief to the non-appealing party/parties also where the same is necessary to avoid contradictory and inconsistent decision. The provisions contained in Rule 33 being a salutary provision and being one which takes away the rigour of technicalities, spirit behind the same can well be invoked in cases coming for the tribal areas also. That Rule permits a Court to give relief to the non-appealing party/parties also where the same is necessary to avoid contradictory and inconsistent decision. This was stated to be the object of the rule in Choudhury Sahu (supra) It was further stated in para 13 of this judgment that "Ordinarily the power conferred by this rule will be confined to those cases where as a result of interference in favour of the appellant further interference with the decree of the lower Court is rendered necessary in order to adjust the rights of the parties according to justice, equity and good conscience." In the present case if the petitioner is entitled to any relief the same cannot be given without passing order in favour of respondents 2 and 3 also. The one cannot stand without the other. So, non-approach by the bank has not much of significance. 10. The Segal position emerges from State of Maharastra vs. M. N. Kaul, AIR 1967 SC 1634 : MSEB vs. Official Liquid­ator, AIR 1982 SC 1497 ; Pesticides India vs. State Chemical Corporation, AIR 1982 Delhi 78; Banwarilal vs. Punjab State Co-operatic Society, AIR 1982 Delhi 357 and AIR 1983 Delhi 86; and Road Machines Ltd. vs. Projects and Equipments Corporation, AIR 1983 Calcutta 91. 11 In M. N. Kaul's case (supra) it was pointed out that whether a guarantee is enforcible or not depends upon the terms under which the guarantor bound himself. It was stated that there were some exceptions to this. In case of ambiguity when all other rules of constraction fail, the court interprets the guarantee, contra proferentum, i. e., against the guarantor or use the recitals to control the meaning of operative part where that is possi­ble. It was however made clear that whatever the mode employed, the cardinal rule is that the guarantor must not be made liable beyond the terms of his agreement. MSEB ( AIR 1982 SC 1497 ) was a case where the bank guarantee formed the security deposit as in this case. It was however made clear that whatever the mode employed, the cardinal rule is that the guarantor must not be made liable beyond the terms of his agreement. MSEB ( AIR 1982 SC 1497 ) was a case where the bank guarantee formed the security deposit as in this case. As, however, by the letter of guarantee in that case the bank had undertaken to pay the amount within 48 hours of the demand, it was pointed out that bank could not raise the plea that it was liable only to extent of any loss that might have been sustained by the beneficiary. The liability on the terms of the agreement, was said to be absolutely and unconditional. 12. The Delhi cases noted above have made it clear that the bank guarantees are independent of the dispute; they are auto­nomous in character and are self contained. Of course, it has been pointed out in the 1983 decision that this would be so "unless the guarantee itself says that it will be enforceable on the proof of breach of the primary underlying contract". The Calcutta decision (AIR 1981 SC 91) says that a bank guarantee can be invoked in a commercial manner, and for doing so it is sufficient that the bank understands that the guarantee is being invoked. 13. So, let the terms of the guarantee be noted, which in so far it is material for our purpose reads as below:- "We the Vysya Bank Ltd. do hereby undertake to indem­nify the GOVERNMENT to the extent of Rs. 2,87,800/- (Rupees Two Lacs Eighty Seven Thousand Eight Hundred only) against any loss or damage caused to or suffered by the GOVERNMENT by reason of any breach of the said AGREEMENT. We the Vysya Bank Ltd. undertake and guarantee to pay the GOVERNMENT on demand not exceeding Rs. 2,87,800/- (Rupees Two Lacs Eighty Seven Thousand Eight Hundred only) in the event of the CONTRACTOR not fulfiling the terms and conditions of the said AGREE­MENT. We the Vysya Bank Ltd.........further agree that the guarantee herein contained shall remain in full force and effect upto and inclusive of 5. 1. 2,87,800/- (Rupees Two Lacs Eighty Seven Thousand Eight Hundred only) in the event of the CONTRACTOR not fulfiling the terms and conditions of the said AGREE­MENT. We the Vysya Bank Ltd.........further agree that the guarantee herein contained shall remain in full force and effect upto and inclusive of 5. 1. 79 or the expiry of the extended period if any and that it shall be continued to be enforceable till all the dues of the GOVERNMENT under or by virtue of the same AGREEMENT have been fully paid and its claim satisfied or discharged or till the GOVERNMENT certifies that the terms and conditions of the said AGREEMENT have been fully and properly disch­arged out by the said CONTRACTOR and accordingly discharges the Guarantee subject however that the GOVERN­MENT shall have no right under the bonds after the expiry of six months stated above or extended if any..........., Our liability under the bond is restricted to Rs. 2,87,800/-(Rupees Two Lacs Eighty Seven Thousand Eight Hundred only). Our Guarantee will remain in force till 5. 1. 79 and unless the suit or action to enforce the claims under this guarantee is filed against us within six months from its expiry all your fights under the guarantee shall be forfeited and we shall be released and discharged from all liabi­lities thereunder.'' 14. The guarantee thus leaves nothing to doubt that the terms of the agreement entered into by defendant no. 1 with the Government have also to be read in it wherever required. This is not disputed by Sri Lahiri appearing for the bank. His submission rather is that as the extended period had expired by 5. 7. 79, and as the suit filed on 27. 12. 79 (though within the time contemplated by the guarantee) could not be regarded as an action “to enforce the claims under this guarantee", respondent no. 1 had ceased to have any right under the guarantee and the bank and stood released and discharged from all the liabilities under the guarantee. It has therefore to be seen what claims were enforceable under the guarantee. According to Sri Lahiri all that could be claimed under this document was indemnifi­cation "against any loss or damage" caused to the Government by reasons of the breach of the parent agreement. It has therefore to be seen what claims were enforceable under the guarantee. According to Sri Lahiri all that could be claimed under this document was indemnifi­cation "against any loss or damage" caused to the Government by reasons of the breach of the parent agreement. It is urged that the suit was not of that nature as much as it only prayed for a declaration that the guarantee was to subsist till a parti­cular period mentioned in the plaint. Further submission in this regard is that forfeiture of the guarantee, which was given as security deposit, could have been ordered only where loss was caused to the Government. Reliance has been placed in this connection on Union of India vs. Rampur Distillery, AIR 1973 SC 1098 and Maula-Box vs. Union of India, AIR 1970 SC 1955 . 15. I would refrain to express any opinion in this case on the merits of the forfeiture ordered on 1.10.80, as that lis is not before the Court in the present proceeding. All that has to be seen is whether the prayer of extension could have been allowed or not. To decide that it is to be seen whether the suit was "to enforce claims" under the guarantee. Now, the guarantee was not only to indemnify against any loss or-damage caused to the Government, as submitted by Shri Lahiri. It was also to pay the required sum "on demand'' in the event of the contractor (meaning the petitioner) not fulfiling the terms and conditions of the agreement entered by him with the Government. One of the terms of the agreement was that the bank guarantee against the security deposit shall be "extended for any period as directed by the Chief Engineer so as to cover the guarantee period of 90 days of the successful commissioning of the guarantee sets, equipments and auxiliaries to the satis­faction of the Chief Engineer" as stated in clause 5.3. As the contractor did not comply with this term and as the security deposit was to be released under clause 5.6 of the agreement on the completion of the guarantee period, the suit as filed cannot be stated to be not connected with enforcement of claim under the guarantee. As the contractor did not comply with this term and as the security deposit was to be released under clause 5.6 of the agreement on the completion of the guarantee period, the suit as filed cannot be stated to be not connected with enforcement of claim under the guarantee. It is apparent that without extension of the guarantee, the amount covered by it would not have been available to the Government for the purpose for which security deposit was required. Further, the guarantee was to be enforceable "till all; the dues of the Government under or by virtue of the same AGREEMENT have been fully paid and its claim satisfied or discharged or till the GOVERNMENT certifies that the terms and conditions of the said AGREEMENT have been fully and properly discharged." As, however, the bank, and for that matter the contractor, had refused to make the guarantee enforceable till the above period, the suit filed for extending the period of the guarantee as mentioned in the plaint, has to be regarded to "enforce claims under the guarantee". It may be pointed out in this connection that, as held in M. N. Kaul's case AIR 1967 SC 1934, in case of ambiguity, the Court has to interpret the guarantee contra proferentum i. e. against the guarantor. It is not the case of the petitioner that the Government had certified that the terms and conditions of agreement have been fully and properly discharged, or that all claims of the Government had been satisfied or discharged. It is rather on record that for one reason or the other, the contract was rescinded (whether validity or not, I do not express any opinion) and the work of commissioning the generating sets etc. was entrusted to some other firm. 16. This being the position, I would hold that issues I and 4 were rightly decided in favour of respondent no. 1 as the parties were under contractual obligation to extend the period of the guarantee as ordered. The petition is therefore dismissed.