Rajanya Construction Ltd (RCL) was awarded a contract for construction of Chemical Storage Terminal at National Physical Laboratory (NPL), Ahmedabad on 20 February 2014. One of the conditions of the contract required the RCL to furnish a Bank Guarantee equivalent to 10% of the contract price within 28 days from the date of signing of the contract. Accordingly, the RCL furnished a Bank Guarantee of Bank of India dated 11 August 2014 for amount of Rs. 1,00,00,000/- (Rupees one crore only). The instrument reads thus: -

Bank Guarantee

“In consideration thereof, we Bank of India, Surat, hereinafter referred to as the Guarantor Bank hereby irrevocably and unconditionally guarantee to pay to you on your written demand and without demur such amount or amounts not exceeding the sum of Rs. 1,00,00,000/- (Rupees one crore only), 10 percent of Contract Price on receipt of your written demand within 3 working days.”

As per the terms of the contract the RCL was required to complete the contractual work within two years of the execution of the said contract. There were two extensions of one year each as granted by the NPL to enable RCL to complete the contractual work. A final extension was granted up to 30 September 2018 which has expired.

There were issues between both parties regarding the contractual work in the context of completion of the project and it clearly appears that there was delay on part of the NPL in approval of the revised plan. However, NPL invoked the bank guarantee.

The letter addressed by NPL to Bank of India reads thus: -

“This is with reference to the Bank Guarantee dated 11 August 2014, for Rs. 1,00,00,000/- (Rupees one crore only) issued in favour of NPL. As RCL (“Contractor”) have not fully complied with the terms of the Contract Agreement dated 2 June 2014 and performance is not as Contracted. Therefore, pursuant to the terms of the bank guarantee, we invoke the guaranteed amount in full and hereby demand you to credit the said amount immediately.”

The parties are in dispute.