Microwave Communications Ltd. And Ors. vs Credit Agricole CIB And Ors.

Ranjit Singh, J

Both appellants, Microwave Communications Ltd. & others and Credit Agricole CIS, have felt aggrieved against the order passed by the Tribunal below while allowing the O.A. filed by the assignor of appellant Credit Agricole CIB for recovery of a sum of Rs. 3,30,55,750/- but keeping the execution of R.C. in abeyance until the Bank parted with the actual amount by making payment to the beneficiary of the guarantee, i.e., Department of Telecommunication (DoT). The Bank has felt aggrieved against that part of the order whereby the R.C. has been directed to be kept in abeyance whereas Microwave Communications Ltd. and others are aggrieved against the direction to issue R.C. for the sum which, according to them, is yet not paid by the concerned Bank. These two appeals, as such, are filed against the same order and, therefore, are being disposed of through this common order.

The facts are being noticed from the Appeal No. 115/2012 filed by M/s. Microwave Communications Ltd. & others.

Appellant Microwave Communications Ltd. (for short, MCL) was engaged in the business of radio paging operations in various States of the country for which it was awarded licence by the DoT. Sometimes in the year 1994, at the request of appellant MCL, erstwhile Caylon Bank executed eight Performance Bank Guarantees for a total sum of Rs. 1.40 crore. In April 1995, the Bank executed a Financial Bank Guarantee to the extent of Rs. 1,13,40,000/- and another Performance Bank Guarantee to the extent of Rs. 50 lacs. All these guarantees were executed in favour of the President of India acting through the Telegraph Authority, while corporate guarantee was executed by Himachal Futuristic Communications Ltd. (HFCL) (appellant No. 2) in favour of the Bank. The Managing Director and the Director of Appellant No. 2 who was also the Managing Director of appellant MCL executed personal guarantees to secure the facilities extended by the respondent Bank, which is also appellant in connected Appeal No. 139/2011.

On 28.3.2000 and 27.6.2000, the DoT, acting on behalf of the President of India, wrote to the Bank that the appellant MCL had not performed its contractual obligations. While so informing, the DoT categorically instructed the Bank to await further instructions. From this, the appellant MCL would contend that the DoT had lodged only a formal information with the Bank but did not demand the payment under the Bank guarantees. Rather, the DoT had specifically requested the Bank not to make payment immediately 'until further instructions. The appellant MCL would accordingly claim that the DoT had never demanded from the Bank payment of any of the aforesaid Bank guarantees. It is alleged that after four years of issuance of the said letters and without making payment of any amount whatsoever to DoT, the Bank filed O.A. No. 63/2004 seeking recovery of Rs. 3,30,55,750/- being an amount paid to DoT under the same Bank guarantees along with commission charges. Reiterating that the Bank guarantee amounts sought to be recovered by the respondent Bank had not been paid to the DoT, it was urged that there was no subsisting demand from the DoT for payment and, therefore, there is no debt within the meaning of Section 2(g) of the RDDBFI Act recoverable by the Bank from the appellants.

The Tribunal below issued notice on 18.3.2005 and passed an ex parte ad interim order restraining MCL and others from selling, alienating, transferring, encumbering or otherwise disposing of or dealing with or creating any third party right in whatsoever manner with regard to their movable fixed assets and moveable properties till further orders. On receipt of the order, the appellants moved the Tribunal below for dismissal of the O.A. on the ground of non-disclosure of any cause of action and vacation of the ex parte ad interim restraint order granted by the Tribunal.

The appellant MCL also filed written statement raising a preliminary objection that the O.A. was barred by limitation even if it was assumed that any cause of action did accrue to the respondent Bank. As per the appellants, the cause of action, if any, accrued four years prior to the filing of the O.A. Besides, the appellants also questioned the commission charges sought to be recovered by the Bank.

Pleading urgency in disposal of their application, which allegedly was under consideration by the Tribunal below, the appellant MCL states to have filed a writ petition before the High Court assailing the jurisdiction of the Tribunal to entertain the O.A. While, the writ petition was pending hearing, the Presiding Officer passed an order dismissing the application filed by the appellants for vacation of ex parte interim order. The High Court permitted the appellants to withdraw the writ petition with liberty to approach the Appellate Tribunal, if it had carried any grievance against the order so passed.

The appellant MCL accordingly preferred an appeal before this Tribunal, which was disposed of on 11.9.2009 This Tribunal left the question of jurisdiction and maintainability of the O.A. open to be decided by the Tribunal below, while remanding the matter back to the Tribunal below for adjudication.

The parties accordingly led evidence in respect of their respective stands. Appellants would allege that ignoring the direction issued by this Tribunal, the Tribunal below, without considering the facts, has directed he recovery of the aforesaid amount from the appellants on 20.4.2010 The appeal against the said order passed by the Tribunal below was allowed and the impugned order dated 20.4.2010 was set aside remanding the matter back to the Tribunal to decide the same afresh in accordance with law.

The parties accordingly appeared before the Tribunal below. The Tribunal has now held that the appellants MCL are liable to pay the amount of Rs. 3,30,55,750/-, but has directed that the payment be kept in abeyance until the respondent actually part with the money by making payment to the DoT. Aggrieved against the same, the appellants have filed the present appeal. On the other hand, the Bank is in appeal against the same order to challenge that part of the order whereby the R.C. has been ordered to be kept in abeyance until the Bank actually part with the money on payment to the DoT.

The appellant Credit Agricole CIB is the Bank which had extended these Bank guarantees. Credit Lyonnais, a Banking company duly incorporated was predecessor-in-interest of Caylon Bank. Credit Lyonnais had entered into a transaction which is the subject-matter of O.A., Credit Lyonnais subsequently merged with Credit Agricole Indosuez. All assets and liabilities of Credit Lyonnais came to be transferred and merged with Credit Agricole Indosuez which, subsequently, changed its name to Caylon Bank. It has further changed its name to Credit Agricole Corporate and Investment Bank w.e.f. 31.3.2010. That is how the present appeal is being pursued by the Credit Agricole CIB.

The transaction giving rise to the claim made in the O.A. has already been taken note of After considering the request of the appellant MCL, the appellant had acceded to the credit facility of Bank guarantee. The guarantees were issued supported with the personal guarantees already referred to above. As per the appellant Bank, the respondent (appellant MCL) had duly executed general counter-guarantee and indemnity covering several guarantees within the sanctioned guarantee limits dated 19.7.1995. The counter-indemnity dated 3.7.1998 was for an amount not exceeding Rs. 3,41,30,000/- which was executed by Dr. Deepak Malhotra. HFCL in its capacity as corporate guarantor thus has been made liable by the Bank in terms of the condition of the respective guarantees furnished. The Bank, which is also in appeal, would rely upon Clauses (1), (2), (6) and (9) of the corporate guarantee dated 15.2.1996 executed by respondent HFCL in favour of the Bank. These clauses of the guarantee are as under:

"1. The company hereby guarantee to pay the Bank on demand at New Delhi all principal, interest and all costs charges and expenses due and which may at any time become due to the Bank from the Borrower on the account or accounts in respect of the accommodation as aforesaid (hereinafter called "the said Account") upto the date of payment and also all losses or damages, costs charges and expenses and in the case of costs, legal or otherwise, occasioned to the Bank by reason of omission, failure or default temporary or otherwise in such payment by the Borrower or by the company including costs' (as aforesaid) of enforcement or attempted enforcement of payment by suit or otherwise or by sale of realization or attempted sale of realization or any security for such accommodation as aforesaid or otherwise howsoever or any costs (such costs to be as aforesaid) charges or expenses which the Bank may incur by being joined in any proceeding to which the Bank may be made or may make itself a party either with or without in connection with any such securities or any proceeds thereof.

The Company agrees that the amount hereby guaranteed shall be paid by them to the Bank immediately on demand and without demur merely upon the Bank sending to the Company a demand notice requiring payment of the amount Any such demand made by the Bank on the Company shall be conclusive as regards the amount claimed therein having become due and payable by the Borrowers to the Bank in respect of the credit facilities mentioned therein and also conclusive as regards the default having been committed by the Borrowers in repayment of the said amount to the Bank. The Company agrees that it will not require any further proof of these facts from the Bank and will pay the amount demanded forthwith on receipt of the demand notice."

"2. The Bank shall be at liberty to take other securities besides those now held by the Bank for the said account and to have such securities secured from time-to-time."

"6. To give effect to this guarantee the Bank shall be at liberty to act as though the Company were principal debtors or principal debtor to the Bank for all payments guaranteed by the Company as aforesaid to the Bank and company waives in favour of the Bank all or any of its rights as guarantor against the Bank so far as may be necessary to give effect to any provisions of this guarantee."

"9. This guarantee shall be continuing guarantee to the extent at any time of Rs. 9,60,00,000/- (Rupees nine crores sixty lacs only) and shall not be considered as wholly or partially satisfied or exhausted by payment or liquidation at any time or times hereafter of any sum or sums of money for the time being due in respect of any advance in respect of such accommodation as aforesaid but shall within the limit aforesaid extent to cover and be a security for every sum and all sums of money at any time due to the Bank in respect thereof notwithstanding the fact that the said account may at any time or from time-to-time be reduced or extinguished and thereafter reopened or the balance of the said account be brought to credit."

The Bank has relied upon the letters dated 28.3.2000 and 27.6.2000 written by DoT and addressed to the Bank intimating the Bank that MC, had not performed its contractual obligation. In letter dated 28.3.2000, the DoT has made reference to the guarantees issued by the appellant Bank. It is recorded that the licensee had failed to discharge its contractual obligation by not paying Rs. 24.50 crores towards licence fee, and thereafter it is stated in the communication that:

"in view of the above, I have been directed to say that this communication be deemed to be our formal claim against the entire value of above mentioned guarantees. You may await further instructions from us regarding payment of the proceeds."

This was followed by letter dated 27.6.2000. Mention is made to the guarantees which were available with the DoT. Stating-that the licensee had failed to discharge its contractual obligation to extend the validity of the said guarantees, it is written:

"In view of the above, I have been directed to say that this communication be deemed to be our formal claim against the entire value of above mentioned guarantees. You may await further instructions from us regarding payment of the proceeds."

On the basis of above communication, the appellant Bank would urge that DoT in an unambiguous manner had lodged a formal information with the Bank. The appellant Bank would term this as formal claim against the entire value of the guarantees. On the other hand, the respondent/appellant company (MCL) would state that the request in these letters was not to make payment immediately but wait further instructions. Counsel for MCL would further urge that the DoT had never demanded payment of any of the Bank guarantees and the Bank has also not made any payment till date. Appellant MCL accordingly would submit that there is no subsisting demand from DoT for payment under any of the aforesaid Bank guarantees but, still, the Bank had filed O.A. in July 2004 after four years of issuance of these letters, seeking recovery of an amount of Rs. 3,30,55,750/-. Simple plea is that the Bank is not entitled to recover any amount from appellant MCL as the Bank has not paid any amount to DoT and there is no subsisting demand to make this liability fall within the term 'debt' as defined in Section 2(g) of the RDDBFI Act.

On the other hand, the appellant Credit Agricole C1B would rely upon the subsequent letters issued by DoT for release of the amount. Reference is made to the communication by the Bank extending the validity of the guarantees till September 2000 whereas the appellant Credit Agricole CIB has heavily relied upon the terms and conditions of the guarantees to urge that there was liability which the Bank was entitled to claim and, thus, irrespective of non-payment of this amount to DoT, the debt was legally recoverable on the date of application and has rightly been allowed by the Tribunal below. Counsel would contend that the Tribunal had no justification in holding R.C. in abeyance and, hence, the grievance against that part of the order for which it has filed the appeal.

The appellant MCL has termed the O.A. as premature and liable to be dismissed on the ground that there was no subsisting debt at the time when the O.A. was filed. The Counsel would submit that as per Section 2(g) of the RDDBFI Act, the debt has to be subsisting as on the date when the O.A. was filed. As per MCL, DoT had only invoked the Bank guarantees but had not asked for remittance of proceeds of Bank guarantees.

Conceded position is that no amount has been paid by the Bank to DoT. Even when the case came up for hearing, there was no demand from DoT for remittance of this amount. In order to resolve this controversy, DoT was permitted to be impleaded as party respondent and was asked to file its response to indicate if there was any liability which the Dot would claim from Credit Agricole CIB or not. The DoT has filed its response to urge that it had invoked the Bank guarantees in the year 2000 but because of some unexplained reasons it has not sought remittance of the amount till date. Relying on these facts, appellant MCL would contend that under no law any contingent decree can be passed in anticipation of a liability which may or may not arise in future. The plea accordingly is that the O.A. was premature and had disclosed no subsisting cause of action when it was filed in the year 2000.

As already noticed, the plea by the appellant Credit Agricole CIB is that it could competently file O.A. for seeking enforcement of the indemnity clause as per the indemnity documents. The indemnity relied upon by the appellant Credit Agricole CIB is available on record. MCL had undertaking to indemnify and keep the Bank, its successors and assigns indemnified and against all actions, proceedings, claims and demands, duties, penalties, taxes, losses, damages, costs charges expenses and other liabilities whatsoever incurred or which may be brought or made against or sustained or incurred or become payable by the Bank etc. The Credit Agricole CIB has relied upon Clause (9) of this counter-guarantee, which reads as under:

"9. We further undertake on demand to do, perform and execute and cause to be done, performed and executed any act, deed, matter or thing which you may require for your further security and for indemnifying you against the consequence of the said guarantee given by you or otherwise in connection with the said guarantee and in particular, without prejudice to the generality of the foregoing, to deposit with you cash or other collateral security satisfactory to you and of sufficient amount to cover your total liability and obligation under the said transaction."

The Bank has very heavily relied upon this clause which required of the MCL to deposit cash or other collateral security satisfactory; to the Bank and of sufficient amount to cover the total liability and obligation of the Bank under the said transaction. Thus, this clause requires the MCL to deposit cash or collateral security to cover the total liability and obligation. What is then the total liability or obligation of Credit Agricole CIB to seek direction for MCL to deposit cash or security. Besides, appellant MCL would term this clause to be essentially in nature of indemnity to indemnify the Bank against the losses consequent to the Bank guarantees as given by it in favour of DoT.

The submission by the Credit Agricole CIB is that it had become liable to the amount under the Bank guarantees to DoT once the Bank guarantees were invoked, and payment or non-payment thereof would not make any difference is contested by the appellant MCL. Counsel for MCL would submit that this argument is liable to be rejected as the concept of indemnity is to indemnify the losses which might have been suffered by the Bank. This is also stated to be the stand of the appellant in the legal notice dated 15.6.2001 wherein it was stated as under:-

"in view of the aforesaid, our clients are bound and are liable to make payments to department of telecommunication of the amounts covered by the Bank Guarantees and are entitled to the reimbursement thereof from you No. 1-2".

(Highlights mine)

From this, the Counsel would contend that the Bank had prayed for reimbursement only on the basis of indemnity bond which presupposes that the Bank had paid the amount in the first instance. Plea accordingly is that mere invocation of Bank without there being demand for any remittance would not legally result in activating the indemnity bond.

The appellant Credit Agricole CIB, on the other hand, has relied upon a Division Bench judgment of Hon'ble Gujarat High Court in the case of The New India Assurance Company Ltd. v. The State Trading Corporation of India Ltd. & Anr., AIR 2007 (NOC) 517 (Guj), in support of its stand. Counsel for the appellant MCL would submit that this case has no relevance to the facts-situation in the present case.

The issue in the case before the High Court was whether or not leave to defend could be granted to the defendant in the facts of the case. The Single Judge of the Gujarat High Court had observed that if the indemnity holder had incurred a liability and that liability is absolute, he is entitled to call upon indemnifier to save him from that liability and pay it off. These observations are based on the provisions of Sections 124 and 125 of the Contract Act. The Single Judge had also taken note of the proposed amendment namely, Section 125A of the Contract Act. The Counsel for MCL would urge that ratio of this judgment would not apply to the facts in the case, more so, when the Parliament has not accepted the recommendation of the Law Commissioner so far as introducing Section 125A of the Contract is concerned. While considering the contention regarding indemnity, the Court has made reference to Section 124 of the Contract Act, which defines the Contract of indemnity This section states:

"A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity."

In this regard, reference is made to the decision of the Bombay High Court in the case of Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, AIR 1942 Bombay 302, where the Hon'ble Mr. Justice Chagla (as he then was) has observed that Section 124 deals only with one particular kind of indemnity which arises from a promise made by the indemnifier to save the indemnified from the loss caused to him by the conduct of the indemnifier himself or by the conduct of any other person. However, it does not deal with those classes of cases where the indemnity arises from loss caused by events or accidents which do not or may not depend upon the conduct of the indemnifier or any other person, or by reason of liability incurred by something done by the indemnified at the request of the indemnifier. Reference is also made to the English Common Law where no action could be maintained until actual loss is incurred. It is also observed that it was very soon realized that an indemnity might be worth very little indeed if the unified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced and it was only after he had satisfied the judgment that he could sue on his indemnity. It is observed that this might under certain circumstances throw an intolerable burden upon the indemnity-holder. He might not be in a position to satisfy the judgment and yet he could not avail himself of his indemnity till he had done so. The Court of equity, therefore, stepped in and mitigated the rigour of the common law. The Court of equity held that if his liability had become absolute then he was entitled either to get the indemnifier to pay off the claim or to pay into Court sufficient money which would constitute a fund for paying off the claim whenever it was made.

It was conceded at the bar that in England the plaintiff could have maintained a suit of the nature which he has filed here, but, that the law in this country is different. It is observed that Sections 124 and 125 of the Contract Act are not exhaustive of the law of indemnity and that the Courts here would apply the same equitable principles that the Courts in England do. Therefore, if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off.

After making reference to the commentary of Mulla on Contract Act and the Law Commission of India which has accepted the view to indemnify does not mean to reimburse in respect of money paid, but, in accordance with its derivation, to save from loss in respect of the liability against which the indemnity has been given, the Court has held that in view of the provisions of the Contract Act and in view of the judgment of the Bombay High Court, it appears that where the defendant's promise to indemnify is an absolute one, the suit can be filed immediately upon the failure of performance, irrespective of actual loss. If the indemnity holder had incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and pay it off.

It is on the basis of this judgment that the appellant Credit Agricole CIB has justified its action of filing the O.A. and pressing for its prayer to direct the appellant/respondent MCL to deposit this amount with the Bank.

The appellant MCL, on the other hand, would rely upon the judgment of Jagjit Kaur & Anr. v. United India Insurance Co. Ltd., 2007(2) GLT 142. The Court in this case was dealing with a money suit filed by the plaintiff who was the owner of the vehicle (truck). He had become owner by purchasing it from the original owner. This vehicle met with an accident on 13.7.1992. It was pleaded that at the time of accident the vehicle was covered by a comprehensive insurance policy in the name of its owner the trial Court had denied the claim of the appellant, which was challenged before the High Court. The Court in this case has observed that the basic theory of the Insurance contract in such respect is the contract of indemnification. Reference is made to Section 124 of the Contract Act, which defines the Contract of Indemnity. The Court has held that if transferee is not entitled to the benefit of the bonus or subjected to Malus already shown on the policy, the recovery of the differences between his entitled (if any) and that shown on the policy shall be waived till the expiry of the policy. The Court has observed in this case that the appellant is not entitled to get the benefit of indemnity merely by giving information under Section 157 of the M.V. Act without anything more. There was no merit found in the appeal and the same was dismissed.

The Counsel would then rely upon the case of Oriental Fire and General Insurance Co. Ltd., Jabalpur v. Saifuddin & Anr., 2011 (3) M.P.L.J. 350. The Court in this case has observed that the appellant had indemnified the appellant Bank to the extent of Rs. 20,000/- on behalf of the contractor-defendant No. 1. Since the actual damages were caused to plaintiff Bank only on 30.8.1978 when it paid the amount of Rs. 17,446.20 to the State Government and the cause of action accrued to it on this date and not earlier to it and within three years from this date the suit has been filed which was found within limitation. In this case, the Court has observed that Section 125 of the Contract Act has to be read in the context of Article 83 of the Limitation Act. It is further observed that under a contract of indemnity, cause of action to file suit would arise only when the damage is suffered by the plaintiff and if a suit is brought before actual loss, it will be a premature suit. In this regard, reference is made to the judgment of Lahore High Court in Sham Sundar v. Chandu Lal & Ors., AIR 1935 Lahore 974. The similar view is taken by the Bombay High Court in Shankar Nimbaji Shintre & Ors. v. Laxman Supdu Shelke & Ors., AIR 1940 Bombay 161. In a case titled Ranganath v. Pachusao & Ors., AIR 1935 Nagpur 147, plaintiff filed suit before actual damages caused to it. It was held that the same is premature. In this regard only, reliance is placed on Mulla's Indian Contract and Specific Relief Acts, where it is mentioned that:

"It has been held the cause of option for a claim against the promisor in a contract of indemnity accrues to the promise when the promise is damnified; a suit before actual loss being premature "

The Counsel for MCL would accordingly contend that the OA filed by the Bank was premature and ought to have been dismissed on this ground. The Counsel justified in pointing out that DoT had not made any demand for payment of the Bank guarantees even till now.

The Counsel would also submit that this non-existent liability thus cannot be termed as absolute or legally payable. After having invoked the Bank guarantees in the year 2000, the DoT has taken no action to seek recovery of the Bank guarantee amount. The plea is that no suit could be filed against the respondent Bank for claiming this amount after a lapse of so many years. The plea by the Counsel for the appellant Credit Agricole CIB that Article 112 of the Limitation Act would apply in this case and not Article 55 is a plea which need not be gone into in the present case. No such issue was ever raised by the parties before the Tribunal below and they cannot be permitted to urge now in the present appeal.

The alternative prayer by the appellant MCL is that the O.A. if not found to be premature, then it would be barred by limitation. This plea is offered in the alternative by assuming that the plea of O.A. being premature is not accepted. In this regard, the plea is that O.A. filed on 8.7.2004, though the first invocation of Bank guarantee was 13.9.1999 and subsequent invocations being 28.3.2000, 27.6.2000 and 27.9.2000 is barred by time. Plea is that these subsequent invocations would not extend the period of limitation as cause of action had arisen with the invocation of Bank guarantees in the year 1999. Counsel would contend that repeated invocation subsequent to earlier invocation cannot extend the period of limitation for filing the O.A. as the alleged first invocation took place in the year 1999. Even the first legal notice would not defer the limitation. The Tribunal below has taken the starting date of limitation as 19.6.2004 which is the date of second legal notice. The plea accordingly is that the O.A. would be barred by limitation and period of 13 years, as per Article 112 of the Limitation Act would not be available as the relationship between the appellant MCL and the appellant Credit Agricole CIB is such that Article 55 of the Limitation Act would apply.

The issue regarding limitation would arise for consideration only if it is held that the O.A. filed by the appellant is not premature. To maintain the O.A. as filed, the Bank has relied upon Clause (9) of the Indemnity and the legal position as stated in the case of New India Assurance Company (supra). When the Bank was approached by DoT for invoking the Bank guarantees, the appellant MCL had initiated a communication to the Bank on 21.6.2000. Vide this communication, the appellant MCL had asked the Bank to furnish information about the amount of commission payable on account of extension of the Bank guarantees. This information was again sought through a communication dated 15.9.2000, On 22.9.2000, the Bank had written to MCL stating that it had been advised by Mr. Vinay Maloo and Mr. Goshal at HFCL, Mumbai that these guarantees would be replaced by guarantees from another Bank and as a result the Credit Lyonnais Bank would not be required to furnish the renewed guarantees. On 3.10.2000, the appellant MCL had forwarded 8 Bank guarantees issued by Vysya Bank Ltd. in favour of DoT by replacing the guarantees issued by appellant Bank. DoT accordingly was required to acknowledge the receipt thereof and for withdrawing the claim and return of the original Bank guarantees issued by Credit Lyonnais. The appellant Bank then wrote a letter to DoT on 9.10.2000 informing that the guarantees issued by the said Bank had been replaced by the guarantees issued by Vysya Bank. Accordingly, the Bank had requested the DoT to return the original guarantee to the Bank with the evidence of cancellation. Even Dr. Deepak Malhotra was approached to arrange return of the original guarantees from DoT. On 20.11.2000, the appellant MCL had written to the Bank forwarding copies of Bank guarantees issued by Vysya Bank and informing that these Bank guarantees had already been submitted to the DoT and that MCL was in touch with DoT for return of the earlier guarantees. In turn, the DoT wrote to the appellant MCL to extend the time of guarantees within 15 days of receipt of the said letter for a period not less than one year, failing which DoT would be constrained to encash and credit the same against the outstanding licence fee.

In the above noticed factual position, it is required to be examined if the O.A. filed by the appellant Bank would be maintainable or it was prematurely filed. As already noticed, "contract of indemnity" is defined in Section 124 which is noticed above. The expression "contract of indemnity" in Section 124 has been used in a narrow sense and the general law about contracts of indemnity is much wider than the contract of indemnity as defined in this section. Under this section, when one person promises to another person to save such other person from any loss caused to him by the conduct of the promisor himself or some third person, the promisor is said to indemnify the other person, and the contract between the parties is said to be a contract of indemnity. Almost all insurances other than life and personal accident insurances are contract of indemnity (See: The New India Assurance Co. Ltd. v. State Trading Corporation of India (supra).

It is a general principle of law that when act is done by one person at the request of another which in itself is not manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done. The liability is said to be based on a contract implied by law, the request importing a promise to indemnify the other party against the consequences to him of acting upon the request. A contract of guarantee, unlike a contract of indemnity which is bilateral, is tripartite where three persons, viz. the principal debtor, the creditor and the surety, are involved. A promise to be primarily and independently liable for another person's conduct may amount to a contract of indemnity. Contract of guarantee requires concurrence of three persons, i.e., principal debtor, surety and guarantor. Surety undertakes an obligation at the request expressed or implied by principal debtor. The obligation of surety depends substantially on the principal debtor's default. However, under a contract of indemnity, liability arises from loss caused to the promise by the conduct of the promisor himself or by the conduct of another person.

Under Section 124, an indemnifier becomes liable when the promisee suffers a loss. But when does the promisee suffers a loss, is a question which is not free from difficulty. Under English Common Law no action could be maintained except on proof of actual loss by the promisee. As noticed above, it was, however, soon realized that indemnity might be valueless if the indemnified could not enforce his indemnity till he had actually paid the loss. The Courts of Equity stepped in to mitigate the rigour of the common law. It was held that where one person has covenanted to indemnify another, an action for specific performance may be sustained before the plaintiff has been actually damnified and the limit of the defendant's liability is the full amount for which he is liable.

In India also, there is conflict of authorities. According to some cases where a person contracts to indemnify another in respect of any liability which the latter may have undertaken on his behalf such other person may compel the contracting party, before actual damage is done, to place him in a position to meet the liability that may hereafter be cast upon him. It could not be urged that words "may be compelled to pay" signify that indemnity cannot be claimed unless and until damages have already been paid. It is held that there is no justification for putting such a narrow construction upon these words. See: Chunibhai Patel v. Natha Bhai Patel, AIR 1944 Pat 185 and also Prafullo Kumar Basu v. Gopee Ballabh Sen, AIR 1946 Cal. 159). These cases favouring this view has distinguished the Privy Council decision in Ivvatunissa Bibi v. Kumar Pertap Singh, ILR 31 All. 583, as being one based on its own facts and not as laying down any general proposition of law. In the case of Kumar Nath Bhattacharjee v. Nobo Kumar, ILR 26 Cal. 241, the Court has held that all those cases point substantially to the conclusion that when a person contracts to indemnify another in any liability which the latter may have undertaken on his behalf such other person may compel the contracting party before actual damage is done, to place him in a position to meet the liability that may thereafter be cast upon him.

There are equally good number of authorities for the opposite view as well. In a contract of indemnity the promisor engages to save the promisee from loss caused by the conduct of the promisor himself or by the conduct of any other person. Thus, under a contract of indemnity the promisee can claim only damages as distinguished from the debt for the non-payment of which the promisor has agreed to indemnity him. Under a contract of indemnity the cause of action arises when the damage which the indemnity is intended to cover is suffered, and a suit brought before the actual loss had accrued must be thrown out as premature (See: Shankar Nimbaji Shintre v. Laxman Supdu Shelke, AIR 1940 Bom. 161; Ranga Nath v. Pachusao, AIR 1935 Nag. 147; Sham Sundar v. Chandu Lal, AIR 1935 Lah. 974). The indemnifier would not be called on to make good his promise unless the indemnified had incurred actual loss. The loss can be incurred by making payment of the debt which the indemnifier undertook to pay by the transfer of property which is taken as an equivalent of money and not merely by incurring of pecuniary obligation in the shape of a bond, promissory note or an acknowledgement of liability. The vendors can have a cause of action against the vendee on the contract of indemnity contained in the sale-deed only when they make an actual payment to the creditor of the amount which was due to him at the date of the sale and which the vendee had undertaken to pay or when the vendor sues the creditor and obtains a decree against them for it.

Section 125 talks of right of indemnity-holder when sued. This section provides as under:

"125. Rights of indemnity - holder when sued--The promise in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor--

(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;

(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;

(3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

It is held that this section is also not exhaustive and does not set out all the reliefs which an indemnity-holder who has been sued may get. This section leaves untouched certain equitable reliefs which he may get. It is observed that the rights of the indemnity-holder are not confined to those mentioned in this section. Even before damage is incurred, it is open to him to sue for the specific performance of the contract of indemnity, provided that it is shown that an absolute liability has been incurred by him and that the contract of indemnity covers the said liability (See: Khetrapal Amarnath v. Madhukar Pictures, AIR 1956 Bom. 106). So where the contract of indemnity covers an absolute liability incurred by him, he can, even before damage, has been incurred by him, sue for specific performance of the contract of indemnity; and, except where the indemnifier is himself interested in the application of the money, it is open to him to ask for a decree for the amount in question in his own favour. In exceptional class of cases the only relief which the indemnity-holder is entitled to is to call upon the indemnifier to perform specifically the contract of indemnity and pay the amount in question to the creditor concerned. English decision in British Union and National Insurance Co. v. Rawson, (1916) 2 Ch. 476, it was held that it is the liability of the promisor, - and not its capacity to pay, - that is material. Thus, the question may be as to what loss the promisee have suffered on account of the conduct of the promisor? It is quite plain that in law the promisors have to indemnify the plaintiffs, i.e., promisee only to the extent of the loss sustained by them, and, therefore, they can recover from the promisor only the amount which they had to pay to a third person and also to the promisor.

As per Section 125 of the Contract Act, the indemnity holder can recover all damages which he may be compelled to pay. He is also entitled to all costs which he has been compelled to pay. He can also recover all sums which he may have paid under the terms of any compromise etc. Thus, a promisee can recover not only damages which he may sustain but all the costs and any amounts, bona fide, paid in respect of any compromise etc. The word 'loss' used in Section 124 of the Contract Act would seem to imply that the indemnified should have actually suffered a loss before he could recover. It has also been held that the liability arises as soon as the loss or injury to the indemnity holder becomes eminent.

It is in the background of above-noted conflicting views that one may have to see whether this O.A. filed by the appellant Credit Agricole CIB was premature or not. Analyzing the legal precedents available on the issue, it may not be possible to say that the indemnity holder under no circumstances would be entitled to make a claim unless he has suffered a loss. There are precedents to the effect that on defendant's failure to pay according to his contract gives rise to a cause of action in which substantial damages are recoverable. Where the defendant's promise is an absolute one to do a particular thing, as to discharge or acquit the plaintiff from such a bond, an action may be brought the moment he has failed to perform his contract, and a plea of non-demnificatus would on an estate be bad. In the case of Shankar Nimbaji Shintre (supra), the Court has drawn distinction between contract of guarantee and the contract of indemnity. It is observed that in a contract of guarantee there is expectation that a third person, the principal debtor, will perform the promise or discharge his liability to the creditor and the promise of the guarantor or surety is conditional on the default of that third party. In these cases, the collateral security offered by the surety for its performance is deemed to constitute but one cause of action. On the contrary, in a contract of indemnity the promisor engages to save the promisee from the loss caused by the conduct of the promisor himself or by the conduct of any other person. The cause of action for a claim against the promisor accrues to the promisee when the latter is actually damnified. Under contract of indemnity, the promisee can claim only damages as distinguished from debt for nonpayment of which the promisor had agreed to indemnify him. The Bombay High Court in Re: British India General, AIR 1971 Bom 102, while dealing with petition filed for winding up of the British India General Insurance Company Ltd., came to consider the aspect of indemnity. The petitioner used to carry out business of producing and distributing brochures entitled "Cricket in The Air" during the visits of foreign cricketing teams in India. This winding up petition was filed pleading that he had secured confirmed orders to the tune of Rs. 62,400/- due to impending visit of M.C.C. Cricket Team to play Test Match at Bombay, which was subsequently cancelled. The petitioner had taken a special contingency policy on payment of premium of Rs. 800/- with a view to insure himself against the risk of non-publication and/or non-production of his proposed brochure during the test match to be played by M.C.C. Cricket Team. In this background, the High Court considered the question whether the policy contained contract of indemnity or whether it was special contingency policy as was shown in the heading. The operative part of the policy read "the Company shall indemnify the Insured against....". The Court has observed that it is now well settled that the essence of any indemnity clause is that the assured must prove a loss. The assured cannot recover anything under the main indemnity clause or make any claim against the insurers until the assured has been found liable and so sustained a loss. Sometimes it may happen that the policy may be a pure and simple contingency insurance. When such is the case, ordinarily in general terms, it may be deemed as an insurance which provides for the making of a payment in the event of specified event occurring, the payment representing either the loss or the possibility of loss which that event entails. The view which can emerge from this observation is that the essence of the indemnity clause is that the assured must prove a loss.

As has been noticed above, Section 124 also uses the word "loss caused to him", which has been held to imply that the indemnified should have actually suffered a loss. Even if the contrary view is taken into consideration, the liability arises as soon as loss or injury to the indemnity holder becomes eminent or the liability has become absolute. Even as per the view canvassed by the Counsel for the appellant Bank, it is required to be shown that liability has become an absolute.

The DoT in this case had, after writing a letter to the appellant Bank in the year 2000, has not taken any action to direct the Bank to make payment. DoT in their letters had written that those be deemed to be formal claim but asked the Bank to await further instructions from DoT regarding payment of the proceeds. Further instructions regarding payment have never been issued and are not received till date. DoT even after being impleaded as party in the appeal has stuck to the claim but has not pressed for payment. This is stated to be due to some unforeseen circumstances which are not disclosed. Is it possible to say, in this background, that the liability of the Bank has become 'absolute' or is eminent? If it had been so, the Bank could be expected to make a complaint immediately in the year 2000. What ignited the cause for the Bank to file O.A. in the year 2004 without any apparent change in the situation is not made out from the record. The material on record shows that these Bank guarantees were replaced and some Bank guarantees were issued by Vysya Bank. There is thus a lurking doubt if the encashment of these Bank guarantees still can be sought or not. All this would show that liability may not be termed as absolute. The action of the Bank in filing this O.A. in the year 2004 could have had some justification if the Bank had immediately sought recovery of the amount in the year 2000 once these letters were issued. After writing letter, DoT did not take any action to seek recovery of this amount for almost 15 years. The DoT has sought recovery only once it was called upon to file its response in the appeal. Even now the DoT has not invoked the Bank guarantees to seek payment thereof. The plea by the Counsel for MCL is that if it is held that the O.A. was not prematurely filed, then appellant Bank would face serious objection in regard to the O.A. being time-barred.

Once the DoT has not sought payment, the claim of the DoT cannot be termed as absolute as the claim was with caveat to await instructions. DoT has not sought payment of the guarantees till date and so it can easily be said that claim is not imminent. The Bank guarantees may have created a liability, but such liability to take shape of debt has to be claimed as due. Invoking Bank guarantee may have gone on to create liability but it is not claimed as due till date. There is a clear and wide distinction between creation of liability and accruing cause of action thereof. A liability may be absolute or contingent; it may be unconditional or limited; it may be presently enforceable by action, or there may be time given for its performance; but, whatever its character, it is created by the consummation of the contract, act, or omission by which the liability is incurred. Even the dictionary meaning of 'liability' is in contradistinction to 'debt'. It is stated that liability is the condition of being actually or potentially subject to an obligation and is used either generally as including every kind of obligation or in a more special sense to denote inchoate, uncertain or imperfect obligations as opposed to debts, the essence of which is that they are ascertained and certain. The liability is used in more comprehensive sense than the word 'debt'. The liability thus in itself may not give a cause action unless it is absolute, unconditional etc. The liability might be incurred although such liability might not be capable of enforcement except upon some contingency or in the future. The liability may of course exist without right of immediate enforcement. With this view of what constitutes a liability as distinguishable from creation of debt, it is apparent that under the provisions of law a liability is created when a contract binding on it is made and independent of any question as to whether that liability is absolute or contingent or as to when the right to enforce it may accrue. (See Coulter Dry Goods Co. v. Wentworth, 171 Cal. 500 (Cal. 1915) in this regard). The cause of action would arise when the encashment of the Bank guarantees is sought and prior to that it will remain only as a liability on the part of the appellant MCL.

Concededly, the Bank guarantees even if sought to be invoked in the year 2000 have not been encashed till date, there was even no move on the part of the DoT to seek encashment of the same. No payment has so far been made. Whether DoT can recover this amount after lapse of so much time may arise when DoT would stake its claim. This may not be a matter of concern in the present appeal. But, till date no such claim has been made and even no payment has been made by the Bank in this regard to the DoT. Even if viewed from the angle of equity, would it be fair to direct the appellant MCL to make payment of this amount to Credit Agricole CIB though DoT has yet not sought encashment of the Bank guarantee in any manner? Fifteen years have lapsed without there being any move made by the DoT to recover this amount. If the DoT had not been impleaded as party in the present appeal, perhaps, it may not have become aware or may not have come up with the plea now raised. The Counsel for the MCL has referred to some internal communication of the DoT to urge that DoT may not press for encashment of guarantee, which, of course, may not have much relevance in the appeal. Question is if the appellant MCL can be asked to deposit this amount merely because it had undertaken to indemnify the appellant Credit Agricole CIB.

The commitment to indemnify would be for a total liability and obligation under the said transaction. It would be against the consequences of the said guarantees. Once the Bank is required to make the payment of this amount, it can immediately ask the appellant to indemnify it in terms of the guarantee. The O.A. was filed in the year 2004. Till the date of appeal, no claim has been made by the DoT. Unless the Bank is required to discharge the liability, if any, arising out of the Bank guarantees, it cannot fairly ask MCL to deposit the amount, which, in fact, may amount to undue enrichment of Credit Agricole CIB. The Bank had furnished the Bank guarantees and it is a contract between the Bank and the beneficiary DoT. If the Bank guarantees are invoked and payment sought, then Credit Agricole CIB really cannot dispute the same. The obligation to indemnify the Bank, of course, would remain on the part of MCL and as soon as it is asked to part with the money, It can certainly seek reimbursement thereof from MCL.

Having considered the various legal precedents cited before me, I am unable to accept the submission that there was any loss or injury caused to the appellant Bank or that such injury or loss can be termed as eminent in the facts and circumstances of the case. If any claim is now made from the appellant Bank and it is required to make any deposit to DoT, then, certainly, it can be said that the Bank would have a cause to approach the Tribunal for indemnification. As on date, the position would be that appellant MCL would not only be required to deposit this amount with the appellant Bank without it further handing over to the DoT which has not made any claim against it so far. Whether such a claim now can be made is not for this Tribunal to comment and is left open to decide if ever raised. To me, the present O.A. filed before the Tribunal below would appear to be prematurely filed. It is a different matter if any cause of action arose for the appellant Bank to file the O.A. seeking recovery of the amount on account of the loss being eminent to rely upon the observations, and judgment rendered in the present case. In view of above, the appeal filed by Microwave Communications Ltd. to challenge the impugned order is allowed and it is held that the O.A. filed by Credit Agricole CIB is held to be premature. Consequently, the appeal filed by Credit Agricole CIB shall stand dismissed. Since the appeal is being dismissed on the ground that the O.A. was prematurely filed, this order will not have any effect on the merit of the case.