STATE OF MAHARASHTRA Vs. NATIONAL CONSTRUCTION COMPANY BOMBAY

JUDGEMENT

(1.) -The appellants are the State of Maharashtra and its Executive Engineer who was posted at the Masonry Dam Division. Nathnagar, during the relevant period. In 1967, the appellant invited tenders for performing work on the masonry portion of the Paithan Dam on Godavari River, as part of the Jayakwadi Project, Stage-I (hereinafter called "the work"). The first respondent, M/s. National Construction Company, Bombay (hereinafter called "the contractor") submitted its tender offer for the work which was conditionally accepted by the appellants on 30-3-1967.

(2.) On 6-1-1968, the second respondent, the Central Bank of India (hereinafter called "the Bank"), executed performance guarantee No. 57/22 whereby it guaranteed that the contractor would faithfully conform to the terms and conditions of the contract to be entered into between the appellants and the contractor. Under the terms of the guarantee, the Bank was jointly and severally liable with the contractor for the latter's default in performance; the liability of the Bank being limited to Rs.14,12,836/- i.e. 5% of the contract price. The guarantee was to remain in force till 3-7-1972. Soon thereafter, on 8-1-1968, the contract for commencing construction was executed. However, no work was initiated for almost two years. On 11-12-1969, the appellants gave an ultimatum to the contractor to begin work. It is alleged that instead of commencing work, the contractor abandoned the work on 19-12-1969. The appellants allege that the contractor did not respond to their repeated requests for recommencing work, forcing them to employ other agencies for completing the work. In the process, by 31-5-1972, they claim they had incurred expenses totalling Rs. 1,44,18,970.24.

(3.) At this stage, on 21-6-1972, the appellants filed Short Cause Suit No.491/72 only against the Bank on the original side of the Bombay High Court praying for the recovery of Rs.14,12,836/-, which was the amount stipulated in performance guarantee No.57/22, with interest. It would be pertinent to note that the suit was filed before the guarantee lapsed on 3-7-1972. On 17-1-1983, the Bombay High Court dismissed the suit for non- joinder of parties, holding that the contractor was a necessary party for deciding the issue of default and the bank's consequent liability. In appeal against this order. Appeal No. 303/83, the appellants included the contractor as a party in the cause title of the memo of appeal but the appeal was dismissed on 7-4-1983 on the very same ground. It may, however, be clarified that the contractor was not impleaded as a party by the Court's order.