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Print Out Cases For Guarantee Fall 2022
Print Out Cases For Guarantee Fall 2022
Print Out Cases For Guarantee Fall 2022
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8/10/22
Contd.
Now, the borrower firm had pledged some goods (as security) with the Bank with the following
conditions / disclaimers:
1. The borrowers were responsible for the quantity and quality of the goods pledged with the
Bank.
2. The borrowers were responsible for the correctness of Statements (dealing with market value
of the goods / balance due to the bank etc.) to be provided to the Bank.
3. At the time of pledging the goods, the borrowers declared that the goods had not been
weighed or valued and that the Bank could do so at any time. If the goods were lacking in any
manner whatsoever, the borrower promised to recoup them.
Contd.
Arguments by Surety:
1. There has been variation in the contract between the borrower firm and the Bank and therefore in line
with Section 133 he stands discharged. The variation pointed out by the Surety was the change in the
limit of Cash Credit Account from Rs. 1 lakh to Rs. 50 thousand and then back again to Rs.1 lakh. The
only evidence in support of this condition was entries in the accounts maintained by the Bank with the
title “limit”.
2. The Bank had given time to the partnership firm to make up for the shortage of goods pledged to the
value of Rs. 35,000 (approx.) and therefore the Surety stands discharged under Section 135.
3. Weekly statement on March 15, 1957 shows that the stock of pledged goods was valued at Rs. 1 lakh.
However, in the weekly statement on April 18, 1957 shows that the stock of pledged goods was approx.
Rs. 65,000.
Based on the above, the Surety argues that the Bank must be deemed to have lost the security under Section
141 and that the Surety should stand discharged of up to Rs. 35,000.
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2. Argument No. 2:
◦ The Court held that this extension of time was not the same as has been contemplated under Section
135.
◦ The Court stated, “What really constitutes giving of time is the extension of the period at which (by
contract between them) the principal debtor was originally obliged to pay the creditor, by substituting a
new and valid contract between the creditor and the principal debtor to which the surety does not
assent.”
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8/10/22
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8/10/22
Contd.
◦ The figure “5” in the amount of guarantee of Rs. 25,000 appeared to have been altered to “0” so that the
new guarantee amount is Rs. 20,000. (b) Also, the word “five” was struck out resulting in the sum being
“Rupees Twenty Thousand only”
◦ These changes were NOT approved or known to the Surety, however, it was accepted by the Bank.
5. After Sankaran defaulted on his dues, the Bank sued the Appellant and he took up a defense
that originally he had guaranteed Rs. 25000, whereas the deed was altered to now state his
liability to Rs. 20,000.
Issue: Whether or not the Surety stands discharged, where he himself hands over the possession
of the letter of guarantee to the sole custody of the principal debtor and some immaterial change
is made to the same, without taking the Surety on board?
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5
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… require a distinct consent and such consent can be taken as implied. Thus, the alteration made
by Mr. Sankaran in the letter of guarantee cannot be considered as a material one.
4. In such a case the principal debtor is deemed to be acting on behalf of the surety as it is at his
instance that the surety is furnishing the guarantee and also has entrusted his letter of guarantee
with him. This entrusting is important.
5. Entrusting means – Handing over the letter of guarantee to the Principal Debtor instead of
handing it themselves to the creditor.
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8/10/22
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Contd.
6. The Court further added that if the release of the surety did not follow from that of the debtor,
the latter's release would be purely illusory because the consequence would be that the surety on
being compelled to pay would immediately turn round on the debtor.
Note: The liability of the Surety is always co-extensive with that of the Principal debtor!
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8/10/22
2. It was a lumpsum contract for which a deadline was set but the contractor
could not finish work on time and extended the deadline.
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FACTS
4. In August, 1988 by mutual agreement the contract work was reduced and the contract price was
fixed at Rs. 4.5 crores. Again, the deadline was extended due to unfinished work.
5. Finally, when for the 2nd time the reduced work could not be completed on the set date, HSCL
cancelled the contract on 17.10.1988.
6. In between 30.1.84 and 8.12.87, fourteen guarantees had been given by Bank of India in favour
of HSCL at the instance of the Contractor for various objects.
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FACTS
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Whether High Court was right in restraining the appellant from enforcing the bank guarantees?
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8/10/22
Contentions raised:
1. The counsel for the appellant submitted that in the matter of encashment of
a bank guarantee the Court should not as a rule interfere unless it is a clear
case of fraud and is likely to result in irretrievable injustice.
2. The Counsel for the respondents, on the other hand, contended that though
fraud is an established exception to the general rule regarding interference
with the autonomy of irrevocable letter of credit or a bank guarantee, that is
not the only exception and the Court can and should interfere where special
circumstances or special equities exist and they are likely to result in
irretrievable injustice.
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Judgment
1. The court held bank guarantees were irrevocable obligations assumed by
banks and should be treated as confirmed letter of credits.
2. The correct position of law is that commitment of banks must be honoured
free from interference by the courts and it is only in exceptional cases, that
is to say, in case of fraud or in a case where irretrievable injustice would be
done if bank guarantee is allowed to be encashed, the court should interfere.
3. That a dispute was pending before the arbitrators to find out the defaulter
and fix the award was not sufficient to be a special circumstance or equity in
the case.
4. It was thus held that the HC of Andhra Pradesh was not right in restraining
HSCL from enforcing the bank guarantees till the arbitration as it failed to
observe the real object nature of bank guarantees and overlooked its
position as an independent and distinct contact.
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