Rajendra Babu, J. - (1.) Leave granted.
(2.) This appeal arises out of a suit filed to enforce a Bank Guarantee against the respondent under Order XXXVII, CPC. The respondent filed an application seeking leave to defend the suit unconditionally. That application having been allowed this appeal is filed by special leave. Facts leading to this appeal are as follows: The appellant entered into a contract with a consortium of M/s. Saipem SPA/Suamprogetti of Italy for construction of a system of undersea pipelines known as the Gas Lift Pipelines. The work comprised of pre-engineering survey, design and engineering, procurement, wrap and coat, fabrication, transportation, laying, installation, testing and pre-commissioning of forty submarine pipeline segments of approximately total length of 181.8 kms. The contract price was to the tune of US $63,875,000 plus Indian Rs. 8,06,00,000/-. The scheduled completion date of the entire works subject to any requirements in the contract specifications as to the time of completion of any part of the work before completion of the whole, the whole of the work was to be completed by April 30, 1991. The contract also provided for levy of liquidated damages if the contractor failed to complete the entire works or any part thereof comprising the total turn key project before the respective scheduled completion date fixed for the entire works or part thereof at a rate equal to 3% of the total contract price for each month's delay subject to a maximum of 10% of the contract price. The contractor was obliged to furnish a bank guarantee to cover liquidated damages for an amount equivalent to 10% of the contract price not later than 4 months prior to the scheduled completion date. However, if the project's completion date slips beyond the scheduled completion date, the contractor shall get validity of said guarantee suitably extended. In case, the contractor fails to provide the guarantee for liquidated damages within the time stipulated therein, the appellants shall be entitled to encash the performance guarantee. All disputes arising out or in connection with the contract shall be settled in accordance with the laws of India and the exclusive jurisdiction of the Courts in India. In compliance with this requirement, the contractor had furnished a bank guarantee from the State Bank of India, Overseas Branch, Bombay, to cover liquidated damages claim. That guarantee was for a sum of US $6,387,500 plus Indian Rs. 8,060,000/-. Through the said guarantee, the respondent Bank had unconditionally undertaken as under:- "Now therefore, in consideration of the premises aforesaid and at the request of the contractor, we, State Bank of India, Overseas Branch, Bombay, Bank organised under the laws of India and having its registered/head office at Calcutta (hereinafter called "the Bank") so as to bind ourselves and our successors and assignees, do hereby irrevocably and unconditionally undertake to pay to you, the Company, on demand in writing without demur or protest and irrespective of any contest or dispute between your goodselves and the contractor and without reference to the contractor, any sum of money at any time or from time to time demanded by the Company up to an aggregate limit of USD. 6,387,500/- (US Dollars six million three hundred eighty seven thousand and five hundred only) plus INR 8,060,000/- (Indian Rupees eight million sixty thousand only) on account of any liquidated damages due from the contractor to the company. We further agree that as between us and the company for the purpose of this guarantee/undertaking, any notice of demand by the company towards liquidated damages and any amount claimed on account thereof, shall be final and binding as to the factum of the L.D. and the amount payable by us to the company hereunder relative thereto. We further agree that this guarantee shall be governed by and construed in accordance with Indian laws. We further agreed that if the project completion date slips beyond schedule completion date because of whatsoever reason we shall extend validity of this guarantee suitably so as to keep it valid for 180 days beyond actual completion date. We further confirm that this guarantee has been issued with the approval of Exchange Control Authorities in India and that the issuance of the guarantee is in order and in accordance with the laws and regulations in force in India."
(3.) As a result of protracted correspondence and extension or increase or decrease in value of Bank Guarantee the same was kept alive from time to time. On March 17, 1993 after taking into account the total delay of 306 days in completing the work, the appellant assessed the liquidated damages as US $ 4,320,432 plus Indian Rs. 55,15,959.00. Accordingly by letter dated March 17, 1993 the appellant advised the contractor to extend the bank guarantee for a further period of six months. The contractor was given certain options. The respondent Bank furnished an enhanced value of US $ 4,320,432 plus Indian Rs. 5,515,959/- with validity up to October 4, 1993 under a covering letter of the same date. The appellant by its letter dated September 13, 1993 advised the contractor to extend the validity of the bank guarantee and on September 23, 1993 the contractor got issued a notice through a lawyer for referring the dispute to arbitration and also appointed its arbitrator. Again the appellant on September 27, 1993 informed the respondent Bank that the contractor was separately advised vide its letter dated September 13, 1993 to extend the validity of the bank guarantee and in case the validity of the same is not extended on or before October 1, 1993, the said letter be treated as its notice invoking the said bank guarantee. The contractor as well as the bank not having honoured the terms of the bank guarantee, the appellant once again asked the respondent bank to credit the said guarantee along with interest from October 4, 1993. On December 3, 1993 the respondent Bank stated that (a) they have issued the guarantee in question in favour of ONGC against the counter guarantee of the Italian Bank Credito Italiano, Milan and the contractor obtained an order of injunction from an Italian Court restraining Credito Italiano from making any payment to the respondent Bank under the counter guarantee; (b) they are also considering the question of validity or otherwise of the appellant's demand for the guaranteed sum under the liquidated guarantee vide its letter dated September 27, 1999; (c) in terms of exchange control regulations, the rupee payment under the guarantee shall be made only on receipt of reimbursement from the foreign bank in an approved manner; (d) since the matter is sub judice, the appellant should wait until the issue is resolved. In the meanwhile, apart from engaging in correspondence both the appellant and respondent appeared through counsel before the Italian Court. It was contended that the bank guarantee is autonomous, unconditional and they are bound to honour the same irrespective of any counter guarantee they have from the Credito Italiano and that any proceeding with regard to enforcement of any such counter guarantee should not obstruct payment under the guarantee given by the respondent bank. The respondent Bank fearing that if the Italian Court order continuation of the restraint order, it would be difficult for them to get reimbursement from the Credito Italiano. In the alternative, they invited the Court to restrain them so that they can avoid payment to the appellant under such guarantee and also an order directing the appellant not to request for payment from the respondent bank under the said bank guarantee. The Italian Court on March 2, 1994 made an order which is as under:- "Credito Italiano, Milan branch, in the person of its legal representative and the State Bank of India Overseas Branch, Bombay, to abstain from payment of any sum in execution of the agreement of guarantee/counter guarantee arising between the parties originating from relationship between Snam Progetti SPA and Saipem SPA on the one side and Oil and Natural Gas Commission on the other side arising from the Contract of the 6th March, 1990." ;