Bank guarantee : Bank guarantee given for performance of particular contract cannot be encashed for alleged breach of another contract : Contract Act S. 126.

A contract agreement was arrived at between the petitioner
and the respondents for maintenance of Abu Road-Deesa Section National Highway.
As per the contract, during the period when the contract was in operation, the
petitioner had submitted two bank guarantees.

There was no dispute pertaining to the contract of
maintenance pursuant to which the aforesaid both the bank guarantees were
tendered by the petitioner. But there was dispute between the respondents and
the petitioner pursuant to another contract for calculation of toll and
maintenance of Samakhyali-Gandhidham National Highway No. 8-A. The respondents
authority found that there is huge loss caused by the petitioner in the said
contract by not crediting the actual toll, etc. and therefore, it had involved
the bank guarantee submitted pursuant to the said contract, namely, Samakhali
Gandhidham National Highway and it also invoked the bank guarantee which is
subject matter of the present petition pertaining to Abu Road-Deesa National
Highway No. 14. Under these circumstances, the petitioner had approached the
Court by preferring the present petition.

The Court observed that had the bank guarantee been given in
its absolute term, irrespective of any contract whatsoever, it might stand on
different footing, but in the present case, it is an admitted position that the
bank guarantee was given by way of performance of contract for maintenance of
Abu Road-Deesa National Highway and it was not irrespective of any contract
between the petitioner and the respondent No. 1 authority. Therefore, the
contention raised on behalf of the respondent No. 1 cannot be accepted.

The impugned action of respondent No. 1 for encashing the
bank guarantee submitted for maintenance of Abu Road-Deesa Section National
Highway is quashed and set aside.