When encashment of bank guarantee is not permissible?

Coming now to the facts of the case at hand, we
find that wordings of Clause 62 of the contract in
question with which we are concerned is identical to

that of Clause 18 of Union of India (DGS&D) (supra).
Clause 62 of GCC provides for determination of
contract owing to default of contractor. The relevant
portion of Clause 62 reads as under:
“The amounts thus to be forfeited or
recovered may be deducted from any
moneys then due or which at any time
thereafter may become due to the Contractor
by the Railway under this or any other
contract or otherwise.”
42) On perusal of the record of the case, we find that
firstly, arbitration proceedings in relation to the
contract dated 22.08.2005 are still pending. Secondly,
the sum claimed by the respondents from the
appellant does not relate to the contract for which the
Bank Guarantee had been furnished but it relates to
another contract dated 22.08.2005 for which no bank
guarantee had been furnished. Thirdly, the sum
claimed by the respondents from the appellant is in
the nature of damages, which is not yet adjudicated
upon in arbitration proceedings. Fourthly, the sum
claimed is neither a sum due in praesenti nor a sum

payable. In other words, the sum claimed by the
respondents is neither an admitted sum and nor a
sum which stood adjudicated by any Court of law in
any judicial proceedings but it is a disputed sum and
lastly, the Bank Guarantee in question being in the
nature of a performance guarantee furnished for
execution work of contract dated 14.07.2006 (Anand
Vihar works) and the work having been completed to
the satisfaction of the respondents, they had no right
to encash the Bank Guarantee.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4814 OF 2016
(ARISING OUT OF SLP(C) No. 27052 of 2012)
M/s Gangotri Enterprises Ltd. 
V
Union of India & Ors. 
Dated:May 05, 2016.

Citation:(2016) 11 SCC 720

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When it is not necessary to prove that damages were caused due to breach of employment bond for recovery of damages?

 On the decisions as aforesaid, the principles which follow in the matter of application ofSection 74 are that where an agreement provides that an amount is to be paid in case of breach thereof whether the amount so payable is penalty or liquidated damages what is payable is reasonable compensation. The Court, therefore, is conferred the jurisdiction in adjudicating any such claim whether the amount claimed really represents the reasonable compensation or not and whether the party claiming such amount has suffered any damage or not to sustain such a claim. The Court is to decide this on consideration of all the facts and circumstances proved including the agreement itself so that if on the agreement proved it is found that the money made payable is liquidated damages bated on a genuine pre-estimate of the damage to be suffered and is not excessive or unconscionable with reference to the damage likely to have suffered by the party claiming the amount, the Court can certainly decree the amount so estimated by the party and mere absence of an independent proof of damage or the quantum thereof would not necessarily induce the Court to overrule the claim and dismiss the suit. The claim now under consideration when adjudged in the aforesaid light is quite sustainable. The agreement has been proved between the parties and on our findings made hereinbefore, the amount payable on the breach is based on a genuine pre-estimate of the damage to be suffered by the plaintiff/respondent in case of breach thereof by the defendant/appellant and that amount again on our findings already made, represents a sum which can only reasonably compensate the loss that the company must have suffered on training up the appellant for 6 months Therefore, even if we accept the contention of Mr. Bagchi that the plaintiff/respondent in the present case had not specifically plead any damage nor proved the same, since the plaintiff/respondent had sued for recovery of a liquidated damage it can rely upon the agreement itself for proof of the damage and the quantum of compensation payable there for to sustain the decree in its favour, fn this view, the second point raised by Mr. Bdgchi fails and is overruled.

Calcutta High Court

Subir Ghosh vs Indian Iron & Steel Co. on 12 September, 1976

Equivalent citations: (1977) IILLJ 120 Cal

Bench: A Sen, M Roy

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