- (1.) These are appeals against the judgment and order of the High Court of Assam, Nagaland, Meghalaya, Manipur and Tripura.
(2.) Makharia Brothers ('the contractor') entered into a works contract with the State of Nagaland (the 1st respondent). The contract stipulated that the contractor should furnish to the State security in the sum of Rs. 2,87,800/- for due performance of the contract. Clause 5.3 of the contract read thus: "The Security Deposit may also be furnished in the form the Bank guarantee as per prescribed pro forma annexed with the contract. The Bank guarantee against security deposit shall be valid initially for a period of one year from the date not later to 20th day of the signing of contract and will be subsequently extended for any period as directed by the Chief Engineer so as to cover the guarantee period of 90 days of the successful commissioning of the generating sets, equipments and auxiliaries to the satisfaction of the Chief Engineer."
(3.) Pursuant to the aforesaid, the contractor furnished a bank guarantee dated 12th December, 1977 issued by the Vyasa Bank Ltd. ('the bank'). It was valid in the first instance up to 5th January, 1979 and was extended up to 5th July, 1979. The relevant part of the bank guarantee read thus: "We the Vyasa Bank Ltd. do hereby undertake to indemnify the GOVERNMENT to the extent of Rs. 2,87,800/- (Rupees Two Lacs Eighty Seven Thousand Eight Hundred only) against any loss or damage caused to or suffered by the Government by reason of any breach of the said AGREEMENT. We the Vyasa Bank Ltd. undertake and guarantee to pay the GOVERNMENT ON DEMAND NOT EXCEEDING Rs. 2,87,800/- (Rupees Two Lacs Eighty Seven Thousand Eight Hundred only) in the event of the CONTRACTOR not fulfilling the terms and conditions of the said AGREEMENT. We the Vyasa Bank Ltd. ...............further agree that the guarantee herein contained shall remain in full force and effect up to and inclusive of 8-1-79 or the expiry of the extended period if any and that it shall be continued to be enforceable till all the dues of the Government under or by virtue of the same AGREEMENT have been fully paid and its claim satisfied or discharged or till the GOVERNMENT certifies that the terms and conditions of the said AGREEMENT have been fully and properly discharged out by the said CONTRACTOR and accordingly discharges the Guarantee subject, however, that the GOVERNMENT shall have no right under the bonds after the expiry of six months stated above or extended if any ............ Our liability under the bond is restricted to Rs. 2,87,800/- (Rupees Two Lacs Eighty Seven Thousand Eight Hundred only). Our guarantee will remain in force till 5-1-79 and unless the suit or action to enforce the claims under this guarantee is filed against us within six months from its expiry, all your rights under the guarantee shall be forfeited and we shall be released and discharged from all liabilities thereunder." ;