Kilburn Engineering Ltd v Oil and Natural Gas Corporation Ltd

Hi I would like to know about the courts judgement in the Kilburn Engineering Ltd v Oil and Natural Gas Corporation Ltd case delivered on 22nd June 2000?

The courts judgement in the Kilburn Engineering Ltd v Oil and Natural Gas Corporation Ltd case delivered on 22nd June 2000 is as given below:

Kilburn Engineering Ltd. vs Oil And Natural Gas Corporation ... on 22 June, 2000
Equivalent citations: AIR 2000 Bom 405, 2001 (1) BomCR 111
Author: T C Das
Bench: T C Das
ORDER T.K. Chandrashekhara Das, J.
1. By consent Notice of Motion is made returnable forthwith.
Heard counsel for the plaintiffs and the defendants. The suit is for one permanent injunction filed by the plaintiff for restraining the first defendant to encash the Bank Guarantee executed by the second defendant on behalf of the plaintiff in favour of the first defendant. It is produced along with the covering letter as Exh. B at page 20 of the plaint.
2. The first defendant had invoked the said Bank Guarantee and the Notice of Motion is for a temporary injunction restraining the first defendant from encashing that Bank Guarantee Exh. B. The short facts which gave rise to the suit are as follows :
3. The first defendant had invited tender for installation of Pig Barrels for WI and WF pipe lines at 13 Platforms as per bid evaluation criteria on the terms and conditions mentioned therein. However, we are not very much concerned with the details of the work. In pursuance of the said invitation, the plaintiff submitted their tender. As per the tender condition under 12.1.2 under the general head BID BOND the plaintiff is required to furnish a Bank Guarantee apparently as earnest money which is valid initially up to 60 days beyond the required period for the offer. For better appreciation of the facts of the case, it is necessary to extract here that Clause 12.1.2.
12.1.2. The bidders not covered under para 12.1.1 above must enclosed with their offer (in case of two bid system, with technical commercial bid earnest money in the form of Bank Draft in pro forma at Appendix 3 from a Nationalized Bank/Scheduled Indian Bank of a Foreign Bank acceptable to ONGC. The amount of Bid Bond/Earnest Money has been indicated at serial 7 on covering letter of this tender. The Bid Bond should initially be valid up to 60 days beyond required period for the offer. The Indian Bidders are to execute Bid Bond on non-judicial stamp paper of the requisite value.
4. Under the Clause 12.1.4 of the tender condition, the Earnest Money shall be forfeited by the Corporation on the following grounds :
(a) If tender is withdrawn during the validity period of any extension thereof.
(b) If tender is varied or modified in a manner not acceptable to Corporation during the validity period or any extension of the validity duly agreed by the bidder.
(c) If bidder, whose offer has been accepted fails to furnish security Deposit/Performance Bank Guarantee within 30 days before the expiry of Bank Guarantee/Bid Bond.
5. In compliance with these clauses, the second defendant issued the aforesaid Bank Guarantee at the instruction of the plaintiff. While the offer of the plaintiff was under consideration, a request has been made by the first defendant to the plaintiff by their letter dated 1-6-1999, which is evidenced by Exhibit C, confirming certain clarifications and modifications, which were presumably discussed between the parties. One of the confirmations did suggest to extend the validity period of offer up to 15-9-1999 and Bid Bond validity up to 15-11-1999. In reply to this letter the plaintiff informed by letter Exh. D that the validity period of the tender has been extended up to 15-9-1999 and Bid Bond validity up to 15-11-1999, as required by the letter of the Corporation.
6. Therefore we have to proceed on the basis that the tender offered by the plaintiff was valid up to 15-9-1999 and consequently the Bank Guarantee in question is operative during the aforesaid period. Till then there was no controversy between the parties. However controversy between the parties starts by a letter written by the first defendant to the plaintiff on 6-9-1999, evidenced by Exh. F wherein the first defendant requested the plaintiff again to extend the validity period of the Bid for another 45 days namely up to 31-10-1999. The said letter also insisted that such extension should be confirmed on or before 9-9-1999. Evidently no reply has been received by the first defendant till 9-9-1999 extending the period up to 31-10-1999. In the normal course of things, the Corporation would have thought that the plaintiff was not inclined to extend the period when they did not get the reply as expected, on or before 9-9-1999. Presumably in response to the letter dated 6-9-1999, the plaintiff wrote a letter on 15-9-1999 expressing their inability to extend the period of Bid as requested by the first defendant. In short plaintiff rejected their request for further extension by this letter. On the same day i.e. on 15-9-1999, the first defendant wrote a letter (Exh. 1) to the plaintiff by which the first defendant is claimed to have accepted the offer made by the first defendant. These two letters of the plaintiff and first defendant must have crossed each other. Since the entire case of the parties depend on the interpretation of the letter of the first defendant, I think it is necessary to extract the relevant portion of that letter hereunder.
""Please refer to the above vide which M/s. Kilburn have confirmed their acceptance to ONGC's award of contract latest by September 1999. Based on your above confirmation and submission of your revised price bid (opened on 9-8-1999) M/s. Kilburn is evaluated lowest tenderer. In view of the above and M/s. Kilburn being lowest tenderer, ONGC has considered your above proposal for award of contract and the Notification of Award is likely to be issued on or before 30-9-1999."
7. According to the counsel for the first defendant, by this letter they have accepted the offer of first defendant and therefore they are bound by the Bank Guarantee issued in pursuance of the tender. On the other hand the contention of the plaintiff is that at any stretch of imagination, this letter cannot be treated as an acceptance of the offer and the period of offer was over and therefore the Bank Guarantee executed by the second defendant during the validity period of the tender is ceased to have any legal force.
8. In this factual matrix, my endeavour would be to interpret this letter, Exh. 1, as to whether this letter would amount to acceptance of the offer made by the plaintiff. As per Section 7 of the Contract Act, the acceptance of the offer must be absolute. It must be absolute and unqualified and it should be expressed in some usual and reasonable manner unless the tender prescribed by any other manner in which it should be accepted. The cardinal principal, in the light of the Section 7 of the Contract Act is that the offer and acceptance of an offerer must be absolute without giving any room of doubt. It is well settled that the offer and acceptance must be based or founded on three components: Certainly, commitment and communication. A contract is built upon three components as three pillors, certainty, commitment and communication. If any one of three components is lacking either in the offer or in the acceptance there cannot be a valid contract. One of the important components that is lacking in this case is certainty. The offer and acceptance must be devoid of any doubt either in the mind of the offerer or accepter as the case may be. It must be clear and unambigious. In this legal paradigm, we have to examine the letter in question whether it amount to a acceptance of an offer.
9. As I indicated earlier, by letter dated 6-9-1999 the first defendant insists that the extension for further period from 15-9-1999 should be communicated to the first defendant before 9-9-1999. Admittedly no reply was received by 9-9-1999 from the plaintiff. Therefore it goes without saying that the offer has not been extended beyond 15-9-1999 or they refused to extend the offer beyond 15-9-1999. Either or the party is not able to point out to me any clause of the tender, which gives the power to the Corporation to insist on the offerer to extend the period as and when they demanded. In the absence of such clause when the first defendant did not get a reply by 9-9-1999 extending the period of tender, it cannot be said that the offer is valid beyond 15:9-1999.
10. The contention of the learned counsel for the first defendant is that even if, it is assumed in the above circumstances, the time has not been extended within the validity period of the offer namely 15-9-1999, the offer was accepted on the last date i.e. 15-9-1999. As I indicated earlier, the whole case of the first defendant depends on the interpretation of the letter dated 15-9-1999 issued by the first defendant. That letter cannot be spelt out in absolute terms as an acceptance of the offer of the plaintiff. What is stated in the letter is that though the offer made by the plaintiff is found to be lower and ONGC has considered the proposal for award of contract, and award is likely to be issued on or before 30-9-1999, I am not able to find any certainty in the words "notification is likely to be issued on or before 30-9-1999". This makes all the difference about certainty which I discussed above. It does not contain any commitment either. I do not find that the first defendant used the word in absolute term that the offer of the first defendant has been accepted. But still stated that award or contract is likely to be issued on or before 30-9-1999. Therefore going by Section 7 of the Contract Act, the acceptance lacks certainty and commitments. Therefore the letter of the first defendant dated 15-9-1999 cannot be treated as acceptance of the offer.
11. The consequential corollary therefore is that the contract never came into existence. As noted above the Bank Guarantee is operative only up to the period of acceptance of the offer. During the validity period, if the tender has withdrawn from the offer, in order to safeguard the interest of the Corporation, the Bank Guarantee is' sought to be executed. Therefore in sum and substance, there is no cause of action arose for the first defendant to invoke the Bank Guarantee because by 15-9-1999, the period of offer ends and there is no valid acceptance of that offer within that date, the Bank Guarantee ceased to operate.
12. In this context the argument advanced by the learned counsel for the first defendant is that this Court cannot go into the disputes involved between the parties. The Bank Guarantee authorizes the first defendant on absolute terms to invoke it as and when the first defendant demands. He drew my attention to the relevant clause 2 of the Bank Guarantee which reads as follows :--
"Guarantee and undertake to pay immediately on first demand by Corporation the amount of Rs. 30,00,000/- (Rupees Thirty Lakhs only) in aggregate at any time without any demur and recourse, and without Corporation having to substantiate the demand. Any such demand made by Corporation shall be conclusive and binding on the Bank irrespective of any dispute or difference raised by the bidder."
13. Relying upon the above clause the learned counsel for the first defendant argues that Bank Guarantee is absolute and no Court can issue injunction unless a fraud is being established. He also cited a decision of the Supreme Court in support of this proposition which U. P. State Sugar Corporation v. M.S., Sumae International Ltd. There is no quarrel for the proposition that has been propounded by the learned counsel for the first defendant. To examine as to whether the Bank Guarantee is absolute or not, we have to consider the relevant clauses in the Bank Guarantee itself. It is relevant to note here the preamble clause of the Bank Guarantee, which reads as follows ;
"A tenderer having agreed to furnish as a condition precedent for participation in the said tender an unconditional and irrevocable Bank Guarantee of Rs. 30.00.000/- (Rupees Thirty Lakhs only) for the due performance of tenderer's obligations as contained in the terms of the Notice inviting Tender (NIT) and other terms and conditions contained in the Tender documents supplied by Corporation which amount is liable to be forfeited on the happening of any contingencies mentioned in said documents."
14. Therefore the so called absolute clause contained in Clause (2) of the Bank Guarantee has to be read in conjunction with the preamble clause. It stipulates the period during which the Bank Guarantee should operate. It stipulates the intend and purpose of which the Bank Guarantee has been executed. Therefore the question whether the Bank Guarantee is absolute or not, or whether it could be invoked in the event of happening of any contingency, has to be examined by the Court even (if) it is established that there is no fraud. I am fortified for this proposition by a judgment of the Supreme Court in Hindustan Construction Company Ltd. v. State of Bihar, . The Apex Court has considered in the aforesaid case the invocation of the Bank Guarantee executed in respect of mobilization advanced for the performance of the contract. The Supreme Court has considered that clause which says that the advanced loan has been used only by the contractor exclusively for mobilization expenditure as, for example, construction contracts, bank guarantees are usually required to be furnished and no further loan will be given thereof. The Supreme Court has attempted to read this clause along with the absolute clause which normally every Bank Guarantee does contain as is in the present case also and held that in paragraphs 13 and 14 thus :
13. The Bank, in the above guarantee, no doubt, has used the expression "agree unconditionally and irrevocably" to guarantee payment to the Executive Engineer on his first demand without any right of objection, but these expressions are immediately qualified by following :
"in the event that the obligations expressed in the said clause of the above mentioned contract have not been fulfilled by the contractor giving the right of claim to the employer for recovery of the whole or part of the advance mobilization loan from the contractor under the contract".
14. This condition clearly refers to the original contract between HCCL and the defendants and postulates that if the obligations expressed in the contract, are not fulfilled by HCCL giving to the defendants the right to claim recovery of the whole or part of the "advance mobilizations loan", then the Bank would pay the amount due under the guarantee to the Executive Engineer. By referring specifically to Clause 9, the Bank has qualified its liability to pay the amount covered by the guarantee relating to "advance mobilization loan" to the Executive Engineer only if the obligations under the contract were not fulfilled by HCCL or HCCL has misappropriated any portion of the "advance mobilization loan". It is in these circumstances that the aforesaid clause would operate and the whole of the amount covered by the "mobilisation advance" would become payable on demand. The bank guarantee thus could be invoked only in the circum-
stances referred to in Clause 9 whereunder the amount would become payable only if the obligations are not fulfilled or there is misappropriation. That being so, the bank guarantee could not be said to be unconditional or unequivocal in terms so that the defendants could be said to have had an unfettered right to invoke the guarantee and demand immediate payment thereof from the Bank. This aspect of the matter was wholly ignored by the High Court and it unnecessarily interfered with the order of injunction, granted by the single Judge, by which the defendants were restrained from invoking the bank guarantee."
The Supreme Court in the aforesaid paragraph has stated that such Bank guarantee could be operated only in the circumstances referred to in the clause. Therefore I have no hesitation to hold that the present Bank guarantee can operate only during the period and for the purpose for which the Bank guarantee postulates in its preamble. That preamble has to be read along with Clause (2). If the Clause (2) read in conjunction with the preamble it goes without saying that the Bank Guarantee cannot be called as an absolute Bank Guarantee, as contended by the counsel for the defendant No. 1.
15. Another contention of the learned counsel for the first defendant is that the original Bank Guarantee as evidenced by' Exh. B is valid upto 25-5-1999. Therefore the Bank Guarantee sought to be injuncted is that Bank Guarantee which was extended upto 15-9-1999. The learned counsel raised an objection that there is no pleading that the plaintiff is seeking an injunction for restraining the extended Bank Guarantee. It appears to me too technical that it does not merits any consideration, in the circumstance of the case.
16. In view of this as I found earlier that there was no acceptance of the offer made by the plaintiff, the obligation of the tenderer is over on 15-9-1999 and the Bank Guarantee ceased to operate and the first defendant has no any manner of right to invoke the Bank Guarantee. In that circumstances the Notice of Motion is allowed in terms of prayer Clause (a).
Prayer (a) :
That pending the hearing and final disposal this suit the Hon'ble Court may be pleased by its order and temporary injunc-
tion restrain the Defendants from encashing the Bank Guarantee No. 353/99 dated 7-1-99 for Rs. 30 lacs issued by 2nd defendant in favour of 1st defendant and copy whereof is annexed a Exhibit "B" to the plaint.
Motion is disposed of accordingly.
P.A. to issue ordinary copy of this order authenticated by the Associate of this Court.

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Answered By StudyChaCha Member