MAHARASHTRA STATE ELECTRICITY BOARD, BOMBAY versus OFFICIAL LIQUIDATOR, HIGH COURT, ERNAKULAM, ANR.

Citation: [1983] 1 S.C.R. 561 · Decided: 13-10-1982 · Supreme Court of India · Bench: E.S. VENKATARAMIAH · Disposal: Appeal(s) allowed
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Judgment (excerpt)

MAHARASHTRA STATE ELECTRICITY BOARD, 
BOMBAY, 
•• 
OFFICIAL LIQUIDATOR, HIGH COURT, 
ERNAKULAM, ANR. 
October 13, 1982 
[E.S. VENKATARAMIAH AND V. BALAKRISHNA BRAD!, JJ.) 
561 
Companies Act, J956~Company gave bank guarante~ for supply of goods 
on tenders-Company ordered to be wound up-Appellant restrained from realising 
the amount of guarantee-Liability of bank-Nature of. 
. 
. . 
Contract Act-Bank gave guarantee for Q company for 1upply of goods 
against tenders-Company ordered to be wound up-Liability of surety-Natur~ of.· 
The appel1ant Board invites tenders for· the supply of goods. . One ·or the 
terms of the tenders required the intending supplier of goods to pay earnest 
money and/or security to the Board along with the tender a sum approximately 
·equivalent to 10% of the estimated price of goods tendered. But where an 
intending tenderer deposited· a sum of Rs; S0,000 either in cash or in any form 
approved by the BOard such as a .Bank guarantee he could offer to supply goods 
of any value either under one or more.tenders without compJying with the above 
condition. 
' 
In accordance with the terms of tender the company in liquidation offered 
a bank guaranree fo~ a sum of Rs. 50,000 for supply of goods to the Board. 
As security for the guarantee, t~e Bank took from the company in liquidation a 
fixed deposit receipt and some quantity of imported zinc ingots and the Bank had 
certain rights in respect of these securities. 
' 
In August, 1973 the Board cailed upon the· Bank to pay to it the gua:·rantee . 
amount. In the meanwhile, however, the High Court ordered the winding up of 
the company in liquidation. The Bank then wrote to the Official Liquidator that 
the company in liquidation was liable to the Bank a large sum of money one of 
which was the sum of Rs. 50,000 demanded by the Board. 
On application by the Official Liquidator the· company Judge issued an 
order restraining the Board from realising the amount from the Bank on the 
ground that since the Bank would have r~course to the. securities given by the 
ccmpany in liquidation for realising the amount paid by it in accord.ance with the 
bank guarantee and that since such action of th4' Bank would affect the assets of 
the company in·liquidatioo, it was not Open to the Board to claim the amount of 
guarantee from the Bank except as a creditor in.the windiog!up proceedings. A 
Division Bench oft~~ Hi~h Court Qisq:i~ssc;d the ,P:oard's appeal~ 
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A 
B 
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562' 
SUPIUlME COURT IUlPOBTS 
(1983] I s.c.a, 
On the question whe~her the Board could recover from the Bank the sum 
of Rs. 50,000 according to the terms of the bank guarantee and what its effect 
would be on liquidation proceedings, 
~Hawing the Appeal, 
HELD : It was not open to the company Judge to make any order under 
8 
the Compani!!s 'Act 1956 prohibiting the Board from realising the amount 
gtiaranteed by the Bank as this had nothing to do with the assefs of the company 
in liquidation. (568-D] 
c 
D 
E 
F 
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The terms of the document on the basis of which the Board has claimed 
the amount from tht Bank constituted a 'contract Or guarantee and not a contract 
of indemnity. [566-F] 
The three' transactions, namely (I) the bank guarantee, (2) the' contract of 
supply between the Board and the Company in liquidation 8.nd .(3) the document 
. under which the Company in liquidation 'gave a fixed deposit receipt and some 
quantity of zinc ingots as security are independent of each other in so fat-as their 
legal incidents are concerried .. [566-H; 567-A] : 
In order to realise the guarantee amount of .Rs. 50,000 all that the Board 
had to do' was to make _a demand, within 48 hours of which the Bank had to pay 
the sum to the Board. The BOard was not required to prove a·ny default on the 
part of the Company in l~uidation. Nor could the Bank raise the plea that it 
was liable only to the extent of any loss sustained by the Board. The Bank's 
liability to pay the sum demanded by the Board was absolute and unconditional. 
(567-C-D] 
The fact that the principal debtor had gone into liquidation would not 
have any effect.on the Bank's liability as guanintor. Under ·section 128 of the 
Indian Contract Act the liability of the surety is co·extensive with 'that of the 
principal debtor unless it is otherwise provided by the contract. A surety is no 
doubt discharged under section 134 of the Indian Contract Act by any contract. 
between the creditor and the principal debtor by whic
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