K. Jagannatha Shetty, J. - (1.) We grant special leave and proceed to dispose of the appeal.
(2.) The General Electric Technical Services Company ('GETSCO') had entered into a contract with Indian Airlines which included, inter alia, the construction and fabrication of air craft testing centre/ engine repair centre in Delhi. The GETSCO in turn entered into a contract with M/ s Punj Sons (P) Ltd. - respondent 1 for getting that work done for Indian Airlines. As per the contract respondent 1 was required to provide performance bond equal to 30 per cent. of the total value of contract price which was to be split up into two performance bonds partly to be released on completion of the project, and the balance upon the expiration of the warranty. The respondent 1 was also required to furnish a bank guarantee to secure the mobilisation advance of 25 per cent. of the contract value. On 28 October, 1946 respondent 1 furnished the bank guarantee to secure the mobilisation advance of Rs. 1,86,00,000/-. The guarantee was furnished by Honkong and Shanghai Bank ('the Bank') respondent 2.
(3.) Respondent 1 instead of furnishing the two performance bonds, as agreed upon, wrote a letter dated 3 September, 1987, as follows: "********** Sub:Jet Engine Test and Repair Centre at Palam Finance September 3, 1987 Dear Sir, In terms of above contract we have to submit two separate Bonds for Mobilisation advance and performance guarantee and 25% and 30% of the Contract value. Bank Guarantee for mobilisation advance has already been submitted and we have not to submit the Performance Bonds for 30% of the Contract value. Since the amount of Performance Bond shall be progressively utilised over the contract period, in order to reduce Bank charges and marginal money, we would like to suggest alternative proposals to meet with your requirements: AA. We propose to submit performance guarantees for 30% of the contract value duly signed by two directors in their personal capacity and countersigned by Punj Sons (Pvt.) Ltd . This Performance Bond shall include identical terms and conditions, as desired in your format. Similar Bond has already been accepted by M/s. Hindustan Petroleum Corporation Ltd. Bombay for their Bombay-Pune Pipeline Project valued at Rs. 7.05 crores. BB. Alternatively, we would suggest submission of a Composite Bank Guarantee where amount vacated by Mobilisation advance shall be utilised by Performance Bank Guarantee amount. This Guarantee. shall at any time be valid for equivalent to 30% of the contract value, to cover unrecovered mobilisation advance and Performance Guarantee amount of the work certified. We have submitted similar Bonds to a number of our customers to their entire satisfaction. May we request you to look into the above arrangement and allow us to submit the above Bond or Composite Bank Guarantee under this Contract. Thanking you and assuring you of our best services at all times......" ;