State Bank of India & Anr. Vs Mula Sahakari Sakhar Karkhana Ltd.(Supreme Court of India)
FACTS
In the given case, the respondent is a cooperative organisation that has signed a contract with Pentagon Engineering Pvt. Ltd. for the complete installation of a paper factory for Rs. 3,40,00,000/-. The cooperative organisation had the right to retain 10% of the contract price under the terms of the contract, but the Pentagon asked that the responder renounce that right and instead provide a letter of credit so that they could provide a sufficient bank guarantee. The Pentagon and the reply had a disagreement, and the latter used the bank guarantee to resolve the situation. The appellant objected to the bank guarantee demand, claiming that it had entered into an indemnification arrangement rather than a bank guarantee agreement.
ISSUE
In this case, whether the statements in document of the bank constitutes or is giving the liability for a bank guarantee (commonly known the guarantee by the bank) in the given situation or was it for a contract of indemnity in the given situation?
JUDGEMENT:
The Supreme Court said that one must need to be read the document very basically based on its terms and condition applied to it. The court may not substitute terms for those used by the author when construing a document. The paper in question is a very clear commercial document. According to the High Court, the paper seems to be a contract of indemnity at first view. That’s the reason why the conditions are only considered very important for document generation when the document is ambiguous; otherwise, they are ignored.
