RAWLA CONSTRUCTION CO Vs. UNION OF INDIA

JUDGEMENT

(1.) ORDER :

(2.) THE petitioner entered into a contract with the Union of India for the construction of residential accommodation for certain units at Meerut being agreement No. CENZ/ MRT/E/34 of 1971-72 (hereinafter referred to as Contract agreement). THE contract agreement was subject to General Conditions of Contracts as contained in I.A.F.W. 2249. Under Clause 64 of the said General Conditions of Contracts, the petitioner/contractor was entitled to running payments at intervals of not less than one month. Such running payments were to be made up to the extent of 90% of the value of work executed and the remaining 10% could be retained by the Union of India as a reserve in case of works not exceeding Rs. 5 Lacs; 7% on the next Rs. 5 Lacs and 5% on the balance after the first Rs. 10 Lacs. In one of the provisos to said clause 64 it was provided that the contractor may be paid advance on account to the full value of work executed on the site on his furnishing Guarantee bond(s) from a Scheduled Bank for the amount of the retention money which should otherwise be recoverable from him under the contract, that the said bond shall be executed for a period and on a form as directed by the Accepting Officer and that the Contractor shall further arrange to extend the period of the Guarantee bond or shall furnish fresh Guarantee bond(s) of equal value so as to cover the period till after payment of the final bill. THE petitioner in pursuance of the said cl. 64 was asked to furnish a guarantee bond in the sum of Rs. 4 Lakhs only in lieu of the reserve of the retention money applicable to the contract. THE petitioner furnished the guarantee bond of National and Grindlays Bank Ltd. and a copy of the same has been placed on the record, as Annexure P-l to the petition. THE guarantee bond was renewed from time to time and finally extended upto 30-4- 1976.

(3.) IN the contract agreement the Government had a right to retain certain percentage out of the bills submitted by the petitioner as reserve or 'retention money. The petitioner was paid on account of the full value of the executed work on the site because he furnished the guarantee bond from the bank to the extent of Rs. 4 lacs for the amount of the reserve or retention money which would have otherwise been recovered from the petitioner under the contract. The Government would have retained the money if the bank guarantee had not been furnished by the petitioner. But with a view to facilitate the entering into of the contracts and the payment of the full value of the work executed, the Government adopted the alternative mode of securing that money by obtaining a bank guarantee. The undoubted value of such bank guarantees given on behalf of contractors in the contracts with the Government and/or public undertakings is becoming an increased practical advantage to the contractors, but at the same time securing the amount due and payable to the Government and/or Public Undertakings. But this system of securing the reserve or retention money would break down completely, if the Courts start issuing injunctions which would result in freezing the amount due and payable under the bank guarantee. The bank guarantee is a well recognised and accepted mode of enforcing the obligations arising out of the contract and has to be protected in the same manner as the irrevocable letter of credit was protected by the Supreme Court. IN such cases the Courts should refrain from interfering with the rights which flow from the bank guarantees. The Court's jurisdiction to grant injunctions is wide, but it would be wrong to interfere normally with the established commercial practice.