HARPRASHAD AND COMPANY LIMITED Vs. SUDARSHAN STEEL MILLS

JUDGEMENT

(1.) General proposition do not solve concrete cases. Justice Holmes has said. While the law generally stated is that liability arising out of the unilateral contracts of commercial credits, such as letters of credit, bank guarantees and performance bonds is absolute, the intention of the parties as gathered from a reasonable construction of the language of the particular contract must ultimately govern the decision of the court as to the arising of the liability thereunder. The terms of a particular document may even constitute an exception to the general rule.

(2.) The bank guarantee furnished by the Punjab National Bank (defendants-respondents 2 and 3) in favour of M/s. Harprashad & Co. Ltd. (appellant-defendant No. 1) contains the following material words :

(3.) Mr. Anil Diwan, learned counsel for the appellant urged the following contentions in support of the appeal. 1. The contract referred to in the bank guarantee was the agreement between the plaintiff and defendant No. 1. dated 22nd June, 1977 under which the plaintiff was responsible for the preparation of documents, such as bills of lading under which the goods were to be exported to the foreign buyer. These documents were negotiated by the Punjab National Bank through the State Bank of India with the foreign buyer. This was done 'under reserve', because the bills of lading described the appellant as 'M/s. Harprashad & Company' without the addition of the word 'Limited' after it. The bank told the appellant that 'if payment of documents is refused on account of any discrepency." The sale proceeds of the goods received by the foreign buyer and credited to the account of the appellant would be recalled. The appellant in his judgment regarded this as a failure on the part of respondent No. 1 to carry out and fulfil any of the obligations assumed under the said contract. The appellant was, therefore, entitled to invoke the bank guarantee and recover the amount of it from the bank. 2. This bank guarantee, dated 14th July, 1976 was to be effective on execution of the contract between the appellant and defendant No. 1, which was the agreement later arrived at on 22nd June, 1977. Clause 7 of the agreement referring to the bank guarantee was as follows: