- (1.) The petitioner company entered into a contract with Nizam Sugar Factory Ltd. of Hyderabad, a Government Company within the meaning of S.617, Companies Act, 1956 (hereinafter referred to as the Government Company). The said contract was for supply of 12 lacs gunny bags by the petitioner company to the said Government Company at Hyderabad. One of the conditions of the contract was that a sum of Rs. 1,00,000/- should be deposited towards earnest money, either in the shape of cash or Demand Draft or a bank guarantee of a Schedule Bank in favour of the Government Company and should be furnished along with the tender. One of the conditions of the said contract is that in the case of any default by the petitioner either in quantity to be supplied or in the delivery period or in the event of any defect in the quality of gunny bags supplied, the Government Company is entitled to invoke, the Bank Guarantee and purchase the defaulted quantity at the prevailing market rate at the risk and responsibility of the petitioner. The loss or damages incurred would be recovered from the petitioner. The contract was entered in August 1983. The petitioner company furnished Bank Guarantee from Allahabad Bank, Calcutta, as and by way of earnest money of Rs. 1,00,000/-. The said Bank Guarantee is dt. 8-8-1983, and was to remainl valid till 30-4-1984. One of the clauses of the said Bank Guarantee is that the said Government Company shall have the right to demand payment under the said Bank Guarantee at any time in their discretion and Allahabad Bank bind themselves to pay to the Government Company the guaranteed amount of Rs. 1,00,000/- without raising any objection or making any reference to the petitioner. One other term of the said Bank Guarantee is that Allahabad Bank shall not raise any question on a demand being made by the Government Company and shall forthwith on demand pay the guaranteed amount to the Government Company.
(2.) It is alleged by the petitioners that due to the strike commenced at the petitioners' factory with effect from 16-1-1984; the petitioners could not fulfil the terms and conditions of the said contract. By a letter D/-13-2-1984, the Government Company cancelled the said contract in the following terms: - "Sub : Supply of "A" Twill bags. Ref : Our Order No. P/RD/Gunnies/83-84/M/11765 dated 12-8-1983. As per the terms of the above order you should have made supplies as per the schedule indicated below :- October, 1983 - 2.00 lakh bags. December, 1983 - 2.62 lakh bags. January, 1984 - 2.38lakh bags. February, 1984 - 3.28 lakh bags. To our dismay we found that at the end of December 1983, you have hardly supplied 2.00 lakh bags and you could supply a further quantity of 1.8 lakh bags approximately till 15-1-1984. Subsequently you informed us that you will not be able to supply any bags due to strike in the Jute Mills till normalcy returns. As you had failed to stick to the delivery schedule at least up to 15-1-1984 we were put to lot of inconvenience and forced to make alternative arrangement for keeping our factory running. Kindly treat our order for the balance quantity as cancelled, as we had already made alternative arrangements to meet our requirements. This cancellation is issued without prejudice to the terms and conditions of our order......."
(3.) By a letter D/-14-3-1984, Allahhbad Bank intimated the petitioner company that they have received a letter from the beneficiary of the Bank Guarantee (that is the Government Company) stating that the petitioners had failed to supply them bags as per terms of the order and that the Government Company has registered their claim for Rs. 1,00,000/- with the Allahabad Bank against the said Bank Guarantee. By the said letter, petitioner Company was requested to advise Allahabad Bank their instructions/comments and if nothing was heard regarding encashment of the Bank Guarantee within a week, then Allahabad Bank would have no other alternative but to remit the amount to the beneficiary of the guarantee to honour the commitment under the said Bank Guarantee. It is surprising that although it was specifically mentioned in the Bank Guarantee that before making the payment, no reference would be made to the petitioner company, even then. Allahabad Bank, for the reasons best known to them, without encashing the Bank Guarantee intimated the petitioner company about the demand made by the Government Company.;