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Article Published in the Express Magazine Dated
April 21, 2002
General Attorney : Rajiv K. Luthra
I have entered into a contract for supply of
notebooks to a seller of stationary. For the first
time I was asked to provide a bank guarantee,
which was irrevocable and unconditional regarding
my delivery performance under the contract. I got
delayed with my supply due to shortage of raw
material and the buyer agreed to a one-month
postponement. But I have learnt that the buyer is
in the process of invoking the bank guarantee. How
can I stop this? Please advice.
B. Jain, Ahmadabad
From the available information it appears that it
may be difficult for you to stop the encashment of
the bank guarantee.Under Section 126 of the Indian
Contract Act, 1872, a contract of guarantee is a
contract to perform the promise or discharge the
liability of a third person in case of his
default. It is an act of trust with full faith to
facilitate free flow of trade and commerce in
internal or international trade or business.The
rule is well established that a contract of bank
guarantee between the bank and the beneficiary is
independent of the primary contract between the
party furnishing the bank guarantee and the
beneficiary. The duty of the bank is created only
by the bank guarantee itself. Thus, in your case,
as it appears, the bank would be liable to pay to
the buyer, as you have not fulfilled your delivery
obligations.Only in exceptional cases, the court
would interfere in the enforcement of bank
guarantee. The Hon'ble Supreme Court has decided
that such cases are limited to fraud or
irretrievable injustice.
Broadly speaking, fraud includes acts committed
with intent to deceive or to induce the other
party to enter into the contract in question.
There are no suggestions in your query that the
buyer deceived or induced you to enter into the
contract. Contract of bank guarantee is vitiated
by fraud and it would be necessary to prove that
the bank had knowledge about such fraud.
For a case of irretrievable injustice, exceptional
circumstances, which make it impossible for the
guarantor to reimburse himself if he ultimately
succeeds, need to be decisively established. A
mere apprehension that the other party will not be
able to pay is not enough. Generally speaking it
maybe difficult to prove the existence of such
circumstances, nor are there any such suggestions
in your query.
Even though it maybe difficult to prevent the
invocation of the bank guarantee, if a dispute on
the contract is raised in a court of law and in
the event of it being decided in your favour, you
may be entitled to damages or other consequential
reliefs.
I entered into an agreement with a builder in
1996 regarding the construction of a house. As per
my understanding, the construction was to be
completed in 1999. However, there is no particular
date fixed in the agreement. The construction work
is still unfinished. I want my house now, but fear
I am too late to file a case. Please advise.
Ramni Puri, New Delhi
As per the Limitation Act 1963, the period of
limitation for specific performance of a contract
is three years. The time from which the period
begins to run is the date fixed for the
performance in the contract, or, if no such date
is fixed, when the plaintiff has notice that
performance is refused. The term “the date fixed
for the performance” must be not only an
identifiable date but also a date which the
parties intended should be the date when the
contract should be performed. On perusal of your
documents, if there appears to be no fixed date in
your agreement or if the same cannot be inferred
from the intention of the parties, the courts may
follow the three year period of limitation which
begins to run from the time you received notice
that the builder has refused his performance.
My father is the owner of a manufacturing
business. Since he is very old, he has given me an
irrevocable power of attorney, through which I am
operating all his business. He has made all
nominations in my name. Should he father do some
more legal documentation, so that I do not face
any problems in conducting the business in case of
his death?
Sanjay
A power of attorney is an instrument whereby one
person, as principal, empowers a specified person
to act for and on behalf of the principal to do
certain acts. The power is revoked/determined on
the death of the principal by operation of law.
Therefore, you will not be able to run the
business of your father after his death on the
basis of the power of attorney. It is good that he
has made you a nominee in all his business.
However, to ensure the smooth running of your
business, it is also advisable that your father
makes a will specifying all his assets and stating
unequivocally that upon his demise, the assets and
business shall devolve upon you.
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