UNION OF INDIA Vs. PEARL HOSIERY MILLS

JUDGEMENT

(1.) ON the 3rd July, 1954, Messrs D. N. Revri and Co. , defendant No. 1, entered into a contract with the Union of India, defendant No. 3, for the supply of 30,000 tons of East German white crystal sugar on the terms and conditions contained in the contract, Exhibit D. 3/1. According to Clause 12 of this contract, defendant No. 1 had to deposit with defendant No. 3, not later than the 19th July, 1954, an amount representing 3 per cent of the cost and freight value of the contract as security towards the due and satisfactory fulfilment of the contract, in default of which the contract was liable to be cancelled by defendant No. 3. This security deposit was to be refunded after the satisfactory completion of the contract and Submission of a 'no Demand Certificate' by defendant No. 1. It was further stated in the contract that the security deposit in favour of the President of the Union of India would be in the form of an indemnity bond or a Bank guarantee from a scheduled Bank. The Punjab National Bank, Limited, defendant No. 2, agreed to give the required guarantee, if it was secured by defendant No. 1 against any losses that may be suffered by defendant No. 2 by furnishing this guarantee. Consequently, on the 19th July, 1954, Messrs. Pearl Hosiery Mills, plaintiff, executed a counter indemnity bond (Exhibit P, 26) in favour of defendant No. 2, undertaking to indemnify the Bank for any loss or damage which defendant No. 2 might incur in consequence of its furnishing the said guarantee to defendant No. 3. On the same day, the plaintiff deposited Rs. 3,00,000/- in cash and pledged goods worth Rs. 2,00,000/- as securities with the Bank. It was stated that these securities shall remain with the Bank during the period of the continuance of the guarantee given by the Bank to defendant No. 3 at the request of the plaintiff and defendant No. 1, and that these securities shall be refunded to the plaintiff on furnishing to defendant No. 2 a. 'no Demand Certificate' from defendant No. 3.

(2.) ANOTHER counter indemnity bond (Exhibit P. 27) was executed on this very date by which both defendant No. 1 and the plaintiff undertook to make good all the losses if suffered by defendant No. 2 by furnishing the said guarantee in favour of the President of the Union of India. In this document also it was stated that if any security was deposited by the plaintiff with defendant No. 2, it would be refunded to the plaintiff alone on furnishing to defendant No. 2 a 'no Demand Certificate' from the President of the Union of India.

(3.) ON the same date, in consideration of defendant No. 2 having issued a letter of guarantee in favour of the President of India to the extent of Rs. 4,55,500/- on behalf of defendant No. 1, the plaintiff (vide Exhibit P. 28) deposited a sum of Rs. 3,00,000/- with defendant No, 2 and also undertook that goods of the value on which a margin of 25 per cent, aggregating to Rs. 2,00,000/- would be available, would always remain pledged with defendant No. 2, and would continue to form security under this guarantee.