Sub: Contract Law Bench: Two Judges
CANARA BANK OVERSEAS BRANCH REP. BY SENIOR MANAGER … APPELLANT(S) VERSUS ARCHEAN
INDUSTRIES PRIVATE LIMITED AND ANOTHER … RESPONDENT(S)
Indian Contract Act, 1872 (ICA) – Sections 126 to 128 – Indemnity – Guarantee – Surety – Owner of
vessel instructed Defendant No. 1 to pay sum of US $ 100,000 to Plaintiff towards discharge of its
liability for repairs carried out to vessel – By letter, Defendant No. 1 addressed Plaintiff assuring that said
sum would be paid after cargo was cleared, in clear and unequivocal terms – He also gave a corporate
guarantee – Whether, document executed by Defendant merely reflects a freight payment arrangement
– No, documents clearly establishes that undertaking to pay was not merely freight–sharing
arrangement but independent guarantee satisfying requirements of Sections 126 to 128 of Contract Act
– Documents as exhibits constitute valid undertaking by Defendant No. 1 to discharge liability of vessel
owner in event of its default in payment of repair charges. (See Para 25)
Cases Mentioned
Phoenix ARC Private Limited v. Ketulbhai Ramubhai Patel (Relied – Paras 6.7 and 19)
Maitreya Doshi v. Anand Rathi Global Finance Limited and another (Relied – Paras 6.8 and 20)
Union of India v. Ibrahim Uddin and another (Relied – Paras 8.4 and 33)
Ram Sarup Gupta (Dead) by LRs. v. Bishun Narain Inter College and others (Relied – Paras 8.4 and 33)
Bank of Bihar Ltd. v. Damodar Prasad and others (Relied – Para 17)
State Bank of India v. V. Ramakrishnan and Others (Relied – Para 18)
Asset Reconstruction Co. Ltd. v. Electrosteel Castings Ltd (Relied – Para 21)
Impleadment – ICA, 1872 – Section 140 – Whether, owner of vessel ought to have been impleaded as
party to suit and had such impleadment been made, Defendant No. 1 could have sought appropriate
relief against said party – No, Plaintiff is dominus litis and it is for Plaintiff to determine cause of action
and parties against whom suit is to be instituted – Interests of Defendant No. 1 are protected as its right
to recover amount from owner of vessel is preserved under Section 140 and High Court has also granted
third party decree in its favour against the Bank. (See Paras 27.1 and 33)
Cases Mentioned
Mumbai International Airport (P) Ltd. v. Regency Convention Centre & Hotels (P) Ltd.(Relied – Para 27.1)
Rohit Singh & Others v. State of Bihar10 and Sanjay Tiwari v. Yugal Kishore Prasad Sao & Others (Relied –
Para 28)
Kanaklata Das and others v. Naba Kumar Das and others (Relied – Para 32)
Law Laid Down
It is not necessary for guarantor to derive any direct benefit from transaction. It is sufficient if principal
debtor derives benefit. Consideration for contract of guarantee may be past, present or future –
Guarantee is, in itself, separate contract and enforceable independently, and liability of surety is co-
extensive with that of principal debtor unless otherwise provided by contract. Consequently, both are
jointly and severally liable. (Mentioned in Para 16)
Case Disposition: Appeals Dismissed.