# Canara Bank Overseas Branch Rep. by Senior Manager v. Archean Industries Private Limited and Another

- **Citation:** 2026 INSC 247
- **Court:** Supreme Court of India
- **Decided:** 2026-03-17
- **Case number:** Civil Appeal No. 13861 of 2024
- **Bench:** J.B Pardiwala, R. Mahadevan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/canara-bank-overseas-branch-rep-by-senior-manager-v-archean-industries-private-39102
- **Pages:** 33

## Headnote

(i) Whether there is a valid undertaking by way of a guarantee
executed by Defendant No.1 and whether Defendant No.1 can
absolve from its liability; (ii) Whether the reasons adopted by the
Division Bench of the High Court warrant interference by this Court.
Headnotes†
Contract Act, 1872 - ss.126, 127, 128, 137, 138, 140, 141 -
Plaintiff-Goltens Dubai carried out extensive repair works on
the vessel Master Panos at request of the owner - Defendant
No.1 had entered into a Charter Party Agreement dated
09.03.1998 with the vessel owner for shipment - Under the
said arrangement, it was agreed that out of the freight payable
by Defendant No.1 to the vessel owner, a sum of US $100,000
would be paid directly by the owner to the plaintiff in partial
discharge of the vessel owner's liability towards repair
charges - Defendant No.1 addressed a letter to its banker,
Defendant No.2, namely Canara Bank, to remit US $ 100,000 by
telegraphic transfer to the account of the plaintiff - However,
instead of remitting the amount to the account of the plaintiff as
instructed, Defendant No.2 erroneously transferred the amount
to the account of the vessel owner - As the amount remained
unpaid, the plaintiff instituted a recovery suit - The Single
Judge of the High Court by judgment dated 18.11.2010 decreed
the suit in favour of the plaintiff and held that Defendant No.1
was liable to pay the suit amount - Aggrieved, Defendant No.1
preferred appeal - The Division Bench allowed the appeal
to the limited extent by granting Defendant No.1 the benefit
of a third-party decree against Defendant No.2 for recovery
* Author
152
[2026] 4 S.C.R.
Supreme Court Reports
of the amount which had been erroneously remitted by the
bank, while affirming the liability of Defendant No.1 towards
the plaintiff - Correctness:
Held: In C.A.No.13862 of 2024 filed by Defendant No.1, a perusal
of the record reveals that Defendant No.1 had executed multiple
documents expressing its commitment to pay the plaintiff including
the letter dated 25.04.1998 styled as a "Corporate Guarantee" - In
the instant case, the owner of the vessel had instructed Defendant
No.1 to pay a sum of US $100,000 to the plaintiff towards discharge
of its liability for the repairs carried out to the vessel - By a letter
dated 22.04.1998, Defendant No.1 addressed the plaintiff assuring
that a sum of US $100,000 would be paid after the cargo was
cleared, in clear and unequivocal terms - The contents of the said
letter also indicate that Defendant No.1 had undertaken to make
the payment and had requested that the arrangement should not
be disclosed to the owner of the vessel - A conjoint reading of the
documents on record, particularly the letter dated 22.04.1998 and
the Corporate Guarantee dated 25.04.1998, clearly establishes that
the undertaking to pay was not merely a freight-sharing arrangement
but an independent guarantee satisfying the requirements of ss.126
to 128 of the Contract Act - Exhibits P10 and P11 constitute a
valid undertaking by Defendant No.1 to discharge the liability of
the vessel owner in the event of its default in payment of the repair
charges - Further, after the cargo had been delivered by the owner
of the vessel, and upon the plaintiff demanding payment, Defendant
No.1, by Exhibit P14, requested Defendant No.2 Bank to transfer a
sum of US $100,000 to the plaintiff - This conduct clearly reflects
the intention of Defendant No.1 to honour the undertaking given by
it - This Court, therefore, concur with the findings recorded by the
High Court - There is a valid undertaking by way of a guarantee
executed by Defendant No.1, and Defendant No.1 cannot absolve
from its liability - Further, the interests of Defendant No.1 are
protected as its right to recover the amount from the owner of
the vessel is preserved u/s.140 of the Contract Act, and the High
Court has also granted a third-party decree in its favour against the
Bank - In CA. No.13861 of 2024 filed by Defendant No.2 Bank, the
Divisi

## Text

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[2026] 4 S.C.R. 151 : 2026 INSC 247
Canara Bank Overseas Branch Rep. by Senior Manager
v.
Archean Industries Private Limited and Another
(Civil Appeal No. 13861 of 2024)
17 March 2026
[J.B Pardiwala and R. Mahadevan,* JJ.]
Issue for Consideration
(i) Whether there is a valid undertaking by way of a guarantee
executed by Defendant No.1 and whether Defendant No.1 can
absolve from its liability; (ii) Whether the reasons adopted by the
Division Bench of the High Court warrant interference by this Court.
Headnotes†
Contract Act, 1872 - ss.126, 127, 128, 137, 138, 140, 141 -
Plaintiff-Goltens Dubai carried out extensive repair works on
the vessel Master Panos at request of the owner - Defendant
No.1 had entered into a Charter Party Agreement dated
09.03.1998 with the vessel owner for shipment - Under the
said arrangement, it was agreed that out of the freight payable
by Defendant No.1 to the vessel owner, a sum of US $100,000
would be paid directly by the owner to the plaintiff in partial
discharge of the vessel owner's liability towards repair
charges - Defendant No.1 addressed a letter to its banker,
Defendant No.2, namely Canara Bank, to remit US $ 100,000 by
telegraphic transfer to the account of the plaintiff - However,
instead of remitting the amount to the account of the plaintiff as
instructed, Defendant No.2 erroneously transferred the amount
to the account of the vessel owner - As the amount remained
unpaid, the plaintiff instituted a recovery suit - The Single
Judge of the High Court by judgment dated 18.11.2010 decreed
the suit in favour of the plaintiff and held that Defendant No.1
was liable to pay the suit amount - Aggrieved, Defendant No.1
preferred appeal - The Division Bench allowed the appeal
to the limited extent by granting Defendant No.1 the benefit
of a third-party decree against Defendant No.2 for recovery
* Author
152
[2026] 4 S.C.R.
Supreme Court Reports
of the amount which had been erroneously remitted by the
bank, while affirming the liability of Defendant No.1 towards
the plaintiff - Correctness:
Held: In C.A.No.13862 of 2024 filed by Defendant No.1, a perusal
of the record reveals that Defendant No.1 had executed multiple
documents expressing its commitment to pay the plaintiff including
the letter dated 25.04.1998 styled as a "Corporate Guarantee" - In
the instant case, the owner of the vessel had instructed Defendant
No.1 to pay a sum of US $100,000 to the plaintiff towards discharge
of its liability for the repairs carried out to the vessel - By a letter
dated 22.04.1998, Defendant No.1 addressed the plaintiff assuring
that a sum of US $100,000 would be paid after the cargo was
cleared, in clear and unequivocal terms - The contents of the said
letter also indicate that Defendant No.1 had undertaken to make
the payment and had requested that the arrangement should not
be disclosed to the owner of the vessel - A conjoint reading of the
documents on record, particularly the letter dated 22.04.1998 and
the Corporate Guarantee dated 25.04.1998, clearly establishes that
the undertaking to pay was not merely a freight-sharing arrangement
but an independent guarantee satisfying the requirements of ss.126
to 128 of the Contract Act - Exhibits P10 and P11 constitute a
valid undertaking by Defendant No.1 to discharge the liability of
the vessel owner in the event of its default in payment of the repair
charges - Further, after the cargo had been delivered by the owner
of the vessel, and upon the plaintiff demanding payment, Defendant
No.1, by Exhibit P14, requested Defendant No.2 Bank to transfer a
sum of US $100,000 to the plaintiff - This conduct clearly reflects
the intention of Defendant No.1 to honour the undertaking given by
it - This Court, therefore, concur with the findings recorded by the
High Court - There is a valid undertaking by way of a guarantee
executed by Defendant No.1, and Defendant No.1 cannot absolve
from its liability - Further, the interests of Defendant No.1 are
protected as its right to recover the amount from the owner of
the vessel is preserved u/s.140 of the Contract Act, and the High
Court has also granted a third-party decree in its favour against the
Bank - In CA. No.13861 of 2024 filed by Defendant No.2 Bank, the
Division Bench of the High Court concurred with the findings of the
trial Court that the Bank had been instructed by Defendant No.1
through Exhibit P14 and the accompanying Form A-2 to remit a sum
of US $100,000 to the plaintiff - This Court, is in agreement with the
view taken by the High Court - The facts of the present case reveal
[2026] 4 S.C.R.
153
Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
that the Bank, despite clear instructions to remit the US $100,000
to the account of the plaintiff, failed to do so due to an error on its
part - This mistake was also admitted by the Bank - The Division
Bench has carefully considered these aspects - Defendant No.1
was therefore rightly held entitled to a third-party decree against
Defendant No.2 Bank. [Paras 14, 23, 25, 33, 34, 36]
Contract Act, 1872 - ss.126, 127, 128, 137, 138, 140, 141 - A
contract of guarantee:
Held: A contract of guarantee is an undertaking to perform the
promise or discharge the liability of a third person, in case of his
default - It is essentially a voluntary act of taking up the burden
of a third party, who has received or is about to receive some
benefit and has failed to make the payment - The guarantor is
called the "surety" and person in default is called the "Principal
Debtor". [Para 15.1]
Contract Act, 1872 - ss.126, 127, 128, 137, 138, 140, 141 -
Whether it is necessary for the guarantor to derive any direct
benefit from the transaction:
Held: It is well settled that it is not necessary for the guarantor to
derive any direct benefit from the transaction - It is sufficient if the
principal debtor derives the benefit - The consideration for a contract
of guarantee may be past, present or future - The guarantee is,
in itself, a separate contract and enforceable independently, and
the liability of the surety is co-extensive with that of the principal
debtor unless otherwise provided by the contract - Consequently,
both are jointly and severally liable - The creditor, to whom both
the principal debtor and surety are liable, can sue either or both
of them - In case, the creditor proceeds to recover only from
the surety, the surety is at liberty to recover the same from the
principal debtor as he would have stepped into the shoes of the
original creditor by virtue of the doctrine of subrogation, and all
the attendant remedies available to the creditor are available to
him. [Para 16]
Case Law Cited
Phoenix ARC Private Limited v. Ketulbhai Ramubhai Patel [2021]
1 SCR 1043 : (2021) 2 SCC 799; Maitreya Doshi v. Anand Rathi
Global Finance Limited and Another [2022] 15 SCR 536 : (2023)
17 SCC 606 - held inapplicable.
154
[2026] 4 S.C.R.
Supreme Court Reports
Union of India v. Ibrahim Uddin and Another [2012] 8 SCR 35 :
(2012) 8 SCC 148; Ram Sarup Gupta (Dead) by LRs. v. Bishun
Narain Inter College and Others [1987] 2 SCR 805 : (1987) 2
SCC 555; Bank of Bihar Ltd. v. Damodar Prasad and Others
[1969] 1 SCR 620 : MANU/SC/0220/1968; State Bank of India v.
V. Ramakrishnan and Others [2018] 10 SCR 974 : (2018) 17
SCC 394; Asset Reconstruction Co. Ltd. v. Electrosteel Castings
Ltd. [2026] 1 SCR 130 : 2026 SCC OnLine SC 26 : (2026) 264
Comp Cas 11; Mumbai International Airport (P) Ltd. v. Regency
Convention Centre & Hotels (P) Ltd. [2010] 7 SCR 790 : (2010)
7 SCC 417; Rohit Singh & Others v. State of Bihar [2006] Supp.
7 SCR 278 : (2006) 12 SCC 734; Sanjay Tiwari v. Yugal Kishore
Prasad Sao & Others, 2025 LiveLaw (SC) 1097; Kanaklata Das
and others v. Naba Kumar Das and Others [2018] 1 SCR 806 :
(2018) 2 SCC 352 : MANU/SC/0041/2018 - referred to.
List of Acts
Contract Act, 1872.
List of Keywords
Remittance; Indemnity; Contract of guarantee; freight; Bank's
liability; Third-party procedure; Co-extensive Liability; Consideration
for Guarantee; Banker's Mandate; Wrongful Remittance; Letters
of Undertaking; Admitted Negligence.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
13861 of 2024
From the Judgment and Order dated 16.08.2021 of the High Court
of Judicature at Madras in OSA No. 423 of 2012.
With
Civil Appeal No. 13862 of 2024
Appearances for Parties
Advs. for the Appellant(s):
Ramakrishnan Viraraghavan, Gopal Jain, Sr. Advs., K. Krishna
Kumar, Dhananjay Kumar, Rajesh Kumar Gautam, Anant Gautam,
Ajay Sharma, Deepanjal Chaudhary, Vibhu Sharma, Ms. Likivi
Jakhalu, Ms. Azal Aekram.
[2026] 4 S.C.R.
155
Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
Advs. for the Respondent(s):
Ramakrishnan Viraraghavan, Siddharth Yadav, Sr. Advs.,
K. Krishna Kumar, Dhananjay Kumar, Rajesh Kumar Gautam,
Anant Gautam, Ajay Sharma, Deepanjal Chaudhary, Vibhu Sharma,
Ms. Likivi Jakhalu, Ms. Azal Aekram, Wasim Ashraf, Krishna Ballabh
Thakur, Narender Lodiwal, Narendar Lodiwal, Ms. Rashmi Kumari.
Judgment / Order of the Supreme Court
Judgment
R. Mahadevan, J.
1.
Since both the appeals assail the same judgment and involve
interconnected issues, they were heard together and are being
disposed of by this common judgment.
2.
The present Civil Appeals arise out of the common judgment and
decree dated 16.08.2021 passed by the High Court of Judicature at
Madras1 in O.S.A. No. 423 of 2012, whereby the Division Bench of
the High Court allowed the appeal to the limited extent of decreeing
the claim of Defendant No. 1 (Appellant in C.A. No. 13862 of 2024)
against Defendant No. 2 (Appellant in C.A. No. 13861 of 2024) under
the third-party procedure as prayed for, while affirming the judgment
and decree dated 18.11.2010 passed by the learned Single Judge
of the High Court in C.S. No. 933 of 1998 in all other respects.
3.
The aforesaid Civil Suit was instituted by the plaintiff - Goltens Dubai
(Respondent No. 2 in C.A. No. 13861 of 2024 and Respondent No. 1
in C.A. No. 13862 of 2024) seeking a judgment and decree against
Defendant Nos. 1 and 2 viz., Archean Industries Private Limited
(Appellant in C.A. No. 13862 of 2024) and Canara Bank, Overseas
Branch, Chennai (Appellant in C.A. No. 13861 of 2024) jointly and
severally, for a sum of Rs. 48,26,750/- together with interest at the
rate of 21% per annum on Rs. 43,00,000/- from the date of the
plaint till realisation along with costs. By judgment and decree dated
18.11.2010, the learned Single Judge decreed the suit as prayed
for only against Defendant No. 1 while dismissing the suit insofar
as Defendant No. 2 is concerned, without costs.
1
Hereinafter referred to as "the High Court"
156
[2026] 4 S.C.R.
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4.
The Plaintiff is a company engaged in ship repair and marine
engineering services in Dubai. Defendant No. 1 is a company engaged
in the export of granite and had chartered the vessel Master Panos
for shipment of granite from Chennai to Newark in the United States
of America. Defendant No. 2 acted as the banker of Defendant No.
1 and was entrusted with the remittance of the amount in question.
For the sake of convenience, the parties shall hereinafter be referred
to as per their status in the suit.
FACTUAL BACKGROUND
5.
The facts giving rise to the present dispute, in brief, are that the
plaintiff - Goltens Dubai, a ship repair company based in the United
Arab Emirates, carried out extensive repair works on the vessel Master
Panos during the period January to March 1998 at the request of its
owner and operator/manager namely M/s. Royal Swan Navigation
Co. Ltd. and M/s. Pevson Shipping Company S.A., respectively.
The cost of the repair works was invoiced at US $ 435,232. As the
payment remained outstanding, the plaintiff initiated legal proceedings
which resulted in the arrest of the vessel at Dubai, thereby causing
additional expenses of US $ 42,330 and raising the total outstanding
liability to US $ 477,562.
5.1. Following negotiations between the plaintiff and the vessel
owner, a Memorandum of Agreement dated 18.03.1998 was
executed whereby the liability was reduced to US $ 377,562
on the condition that the entire amount would be paid on or
before 08.04.1998, failing which the original liability of US $
477,562 would stand revived. Under the said settlement, the
amount was to be paid from various sources, including a sum
of US $ 100,000 which was to be remitted directly to the plaintiff
through the owner Royal Swan.
5.2. In the meantime, Defendant No. 1 had entered into a Charter
Party Agreement dated 09.03.1998 with the vessel owner for
shipment of approximately 2,500 metric tonnes of granite from
Chennai to Newark in the United States of America. Under the
said arrangement, it was agreed that out of the freight payable
by Defendant No. 1 to the vessel owner, a sum of US $ 100,000
would be paid directly by the owner to the plaintiff in partial
discharge of the vessel owner's liability towards repair charges.
[2026] 4 S.C.R.
157
Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
5.3. The vessel owner by communication dated 21.04.1998
addressed to Defendant No. 1, issued instructions to Defendant
No. 1 that the said sum be remitted directly to the bank account
of the plaintiff maintained with Standard Chartered Bank, Deira
Branch, Dubai.
5.4. Pursuant thereto, Defendant No. 1 by communication dated
22.04.1998, acknowledged that a sum of US $ 100,000 had
been retained from the freight payable to the vessel owner and
confirmed that the amount would be remitted to the plaintiff
upon the vessel reaching the port of Newark. Subsequently, on
25.04.1998, Defendant No. 1 issued a document styled as a
"Corporate Guarantee" in favour of the plaintiff undertaking to
pay the said amount upon the vessel's arrival at Newark and
commencement of discharge operations.
5.5. The vessel arrived at Newark in May 1998 and Defendant No.
1 informed the plaintiff by communication dated 19.05.1998 that
the remittance was being processed and that approval from
the Reserve Bank of India was being obtained for the foreign
exchange transaction.
5.6. Thereafter, on 21.05.1998, Defendant No. 1 addressed a letter
to its banker, Defendant No. 2, namely Canara Bank, Overseas
Branch, Chennai, instructing it to remit US $ 100,000 by
telegraphic transfer to the account of the plaintiff. Defendant No.
1 also submitted Form A-2 containing the requisite particulars
for the remittance.
5.7. However, instead of remitting the amount to the account of the
plaintiff as instructed, Defendant No. 2 erroneously transferred
the amount to the account of the vessel owner maintained with a
bank in Baltimore, United States of America. The said mistaken
remittance was subsequently acknowledged by Defendant No.
1 in its communication dated 03.06.1998 addressed to the
brokers of the vessel.
5.8. By a further communication dated 12.06.1998, Defendant No.
1 reiterated that the amount had been inadvertently remitted
to the vessel owner and reaffirmed its commitment to make
payment to the plaintiff.
158
[2026] 4 S.C.R.
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5.9.
As the amount remained unpaid despite repeated communications
and demands, the plaintiff issued a legal notice dated 29.07.1998
to Defendant Nos. 1 and 2 demanding payment of US $ 100,000
together with interest. Defendant No. 1 replied to the said notice
disputing its liability and contending that the document styled as
a Corporate Guarantee was not a guarantee in law but merely
an acknowledgment of a freight payment arrangement.
5.10. In these circumstances, the plaintiff instituted the aforesaid
recovery suit. Defendant No. 1 contested the suit by filing its
written statement and also raised a third-party claim against
Defendant No. 2 alleging that the erroneous remittance made
by the bank was responsible for the non-payment. Defendant
No. 2 filed its written statement denying liability.
5.11. The parties adduced oral and documentary evidence before the
learned Single Judge of the High Court. Upon appreciation of
the pleadings, evidence and materials on record, the learned
Single Judge by judgment dated 18.11.2010 decreed the suit
in favour of the plaintiff and held that Defendant No. 1 was
liable to pay the suit amount together with interest and costs,
while dismissing the claim against Defendant No. 2. Aggrieved
thereby, Defendant No. 1 preferred O.S.A. No. 423 of 2012
before the Division Bench of the High Court.
5.12. The Division Bench, upon consideration of the submissions of
the parties, allowed the appeal to the limited extent by granting
Defendant No. 1 the benefit of a third-party decree against
Defendant No. 2 for recovery of the amount which had been
erroneously remitted by the bank, while affirming the liability
of Defendant No. 1 towards the plaintiff.
5.13. Aggrieved by the findings of the Division Bench holding it liable
to the plaintiff, Defendant No. 1 has filed C.A. No. 13862 of
2024. Similarly, Defendant No. 2 has filed C.A. No. 13861 of
2024 challenging the direction of the Division Bench permitting
Defendant No. 1 to recover the sum of US $ 100,000 from it
under third-party procedure.
SUBMISSION OF THE PARTIES
6.
The learned senior counsel appearing for the Appellant in C.A.
No. 13862 of 2024 / Defendant No. 1 contended that the courts
[2026] 4 S.C.R.
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Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
below erred in fastening liability upon Defendant No. 1 by treating
the communication dated 25.04.1998 as a contract of guarantee. It
was submitted that the said document, described as a "Corporate
Guarantee", does not satisfy the essential requirements of a valid
contract of guarantee within the meaning of Section 126 of the
Indian Contract Act, 1872. A contract of guarantee necessarily
contemplates the existence of three distinct parties, namely the
creditor, the principal debtor and the surety, wherein the surety
undertakes to discharge the liability of the principal debtor in the event
of default. According to the learned senior counsel, in the present
case, Defendant No. 1 was itself a party to the freight arrangement
under the Charter Party Agreement dated 09.03.1998 and was not
a surety for any debt allegedly owed by the vessel owner to the
plaintiff. The document relied upon by the plaintiff merely records an
arrangement whereby Defendant No. 1 agreed to retain a portion
of the freight payable to the vessel owner and remit the same to
the plaintiff on its behalf.
6.1. The learned senior counsel submitted that the language of
the communication dated 25.04.1998 itself demonstrates that
Defendant No. 1 was acting on behalf of the vessel owner and
under its authority. The arrangement was, therefore, in the nature
of a freight assignment or payment arrangement between the
vessel owner and the plaintiff, and Defendant No. 1 merely
agreed to facilitate the remittance of a portion of the freight to
the plaintiff. It was contended that such an arrangement cannot
be construed as an independent and enforceable guarantee
undertaken by Defendant No. 1.
6.2. It was further contended that the courts below failed to appreciate
that the liability, if any, arose primarily from the underlying
transaction between the plaintiff and the vessel owner and
operator/manager. The vessel owner and the operator/manager
were the alleged principal debtors in respect of the repair charges
for the vessel Master Panos. However, no proceedings were
initiated by the plaintiff against the vessel owner and operator/
manager for recovery of the alleged dues. The learned senior
counsel pointed out that even during the course of evidence,
the witness examined on behalf of the plaintiff admitted that no
legal proceedings had been initiated against the vessel owner.
160
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In such circumstances, fastening liability upon Defendant No.
1, who was neither the principal debtor nor a valid surety, was
legally unsustainable.
6.3. The learned senior counsel further submitted that Defendant
No. 1 had duly complied with the arrangement between the
parties by issuing clear instructions to its banker, Defendant
No. 2, for remittance of the amount of US $ 100,000 to the
plaintiff. Defendant No. 1 addressed a letter dated 21.05.1998
to its banker along with the requisite Form A-2 directing the
bank to remit the said amount to the account of the plaintiff.
It was contended that once such specific instructions were
issued, Defendant No. 1 had fulfilled its obligation under the
arrangement. The subsequent remittance of the amount to
the vessel owner occurred solely due to the error committed
by the bank. Instead of transferring the amount to the account
of the plaintiff as instructed, the bank erroneously remitted the
amount to the vessel owner. The evidence on record, according
to the learned senior counsel, indicates that the bank itself
acknowledged that such remittance may have occurred due to
inadvertence on the part of its employee. In these circumstances,
the resulting loss, if any, cannot be attributed to Defendant No. 1.
6.4. The learned senior counsel also submitted that the vessel owner,
who had actually received the remitted amount of US $ 100,000,
was necessary party to the proceedings. The failure to implead
the vessel owner resulted in a situation where the party which
had actually received the amount was not before the Court. It
was contended that such omission caused serious prejudice to
Defendant No. 1 as it was deprived of the opportunity to seek
appropriate reliefs against the vessel owner.
6.5. The learned senior counsel further contended that the Courts
below failed to properly appreciate the nature of the transaction
and the defence raised by Defendant No. 1. According to the
learned senior counsel, the evidence adduced on behalf of
Defendant No. 1 clearly demonstrated that the transaction was
essentially a freight payment arrangement arising out of the
Charter Party Agreement and did not create any independent
contractual liability in the nature of a guarantee in favour of
the plaintiff.
[2026] 4 S.C.R.
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Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
6.6. Reliance was also placed on the documents filed by the plaintiff
in its pleadings, particularly paragraph 4 thereof, which records
that Defendant No. 1 had been instructed by the vessel owner
(Royal Swan) to pay a sum of US $ 100,000 directly to the
plaintiff towards discharge of the owner's liability. According to
the learned senior counsel, these materials demonstrate that
Exhibit P11 was merely an agency letter authorising payment
on behalf of Royal Swan, and not a guarantee.
6.7. In support of the above submission, reliance was placed on
the decision of this Court in Phoenix ARC Private Limited v.
Ketulbhai Ramubhai Patel2, wherein it was held that the liability
of a surety arises only when there is a clear and unequivocal
undertaking to discharge the debt of the principal debtor upon
default. It was submitted that no such undertaking is present
in Exhibit P11.
6.8. The learned senior counsel also relied upon the judgment of
this Court in Maitreya Doshi v. Anand Rathi Global Finance
Limited and another3, wherein it was reiterated that the
existence of a clear undertaking to discharge the liability of
another is a fundamental requirement for a contract of guarantee
under Section 126 of the Contract Act, 1872. According to
the learned senior counsel, the arrangement evidenced in
Exhibit P11 is merely an agency direction for payment and not
a guarantee. In the absence of any unequivocal promise by
Defendant No. 1 to assume liability for the debts of the vessel
owner, Exhibit P11 cannot be treated as a guarantee in law
6.9. The learned senior counsel therefore submitted that both the
learned Single Judge as well as the Division Bench of the High
Court failed to correctly appreciate the legal character of the
document viz., letter dated 25.04.1998 and the surrounding
circumstances in which it was issued. The impugned judgment,
according to the learned senior counsel, proceeds on an
erroneous assumption that Defendant No. 1 had undertaken
an independent guarantee in favour of the plaintiff, whereas in
reality Defendant No. 1 had merely agreed to remit a portion
of the freight payable to the vessel owner.
2
(2021) 2 SCC 799
3
(2023) 17 SCC 606
162
[2026] 4 S.C.R.
Supreme Court Reports
6.10. In the above circumstances, learned senior counsel submitted
that the findings recorded by the Courts below suffer from errors
of law and misappreciation of the nature of the transaction
and therefore warrant interference by this Court.
7.
The learned senior counsel appearing for the appellant in C.A. No.
13861 of 2024 / Defendant No. 2 Bank submitted that the decree
passed by the Division Bench fastening liability upon the Bank is
unsustainable both on facts and in law. It was contended that the
High Court failed to properly appreciate the limited role of the Bank
in the transaction and the statutory framework governing foreign
exchange remittances.
7.1. It was submitted that the repairs of the vessel Master Panos
had been carried out by the plaintiff and the primary liability for
payment of the repair charges was that of the vessel owner.
The arrangement subsequently entered into between the vessel
owner and Defendant No. 1 relating to payment of freight
charges was essentially a commercial arrangement between
those parties. According to the learned senior counsel, the Bank
was not a party to that arrangement and had undertaken no
independent contractual obligation either towards Defendant
No. 1 or towards the plaintiff in relation to the alleged payment
of US $ 100,000.
7.2. The learned senior counsel submitted that the Bank was
acting merely in its capacity as an authorised dealer in foreign
exchange and its role was confined to executing remittance
instructions in accordance with the statutory regime governing
such transactions. It was contended that any remittance of
foreign exchange outside India during the relevant period was
governed by the provisions of the Foreign Exchange Regulation
Act, 1973, and the Bank was required to strictly comply with
the statutory restrictions and regulatory directions issued by the
Reserve Bank of India. In particular, reliance was placed upon
Section 18(8) of the Foreign Exchange Regulation Act, 1973,
which regulates the handling of export proceeds and foreign
exchange transactions by authorised dealers.
7.3. It was further submitted that the remittance sought to be effected
by Defendant No. 1 involved diversion of freight payable to
the vessel owner in favour of the plaintiff, who was not the
[2026] 4 S.C.R.
163
Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
contracting party to the freight agreement. According to the
learned senior counsel, such diversion of foreign exchange
to a third party could not be effected by an authorised dealer
without prior approval from the Reserve Bank of India.
7.4. The learned senior counsel drew attention to the contemporaneous
correspondence to demonstrate that Defendant No. 1 itself had
acknowledged this regulatory requirement. Reference was
made to the communication dated 19.05.1998 addressed by
Defendant No. 1 to the plaintiff wherein Defendant No. 1 had
stated that the payment of US $ 100,000 was being processed
with the Reserve Bank of India for necessary approval.
7.5. It was further submitted that the said position was clearly admitted
by the witness of Defendant No. 1 during cross examination
before the trial Court, stating that without the permission of the
Reserve Bank of India there could be no question of the Bank
remitting the amount to the plaintiff.
7.6. The learned senior counsel therefore submitted that the Bank,
being an authorised dealer under the foreign exchange regime,
was bound to act strictly within the statutory framework and
the regulatory directions issued by the Reserve Bank of India.
In the absence of the mandatory approval, the Bank could not
lawfully remit the amount to the plaintiff.
7.7. It was accordingly contended that the Bank had merely acted
within the statutory limitations governing foreign exchange
transactions and had not undertaken any independent obligation
towards the plaintiff. The dispute, if any, arose from the private
commercial arrangement between Defendant No. 1 and the
plaintiff, and Defendant No. 2 Bank cannot be made liable for
the consequences thereof.
7.8. The learned senior counsel submitted that the Division Bench
erred in passing a third-party decree against the Bank without
properly appreciating the statutory limitations governing the
Bank's role as an authorised dealer in foreign exchange. It
was therefore prayed that the civil appeal filed by the Bank be
allowed by setting aside the decree passed against the Bank.
8.
Per contra, the learned senior counsel appearing for the plaintiff /
Respondent No.1 in CA. No. 13862 of 2024 and Respondent No.2
164
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in CA No. 13861 of 2024, submitted that the liability of Defendant
No. 1 arises from a clear and unequivocal contractual undertaking
given in favour of the plaintiff. It was contended that Defendant No.
1 had expressly undertaken to remit a sum of US $ 100,000 directly
to the plaintiff towards discharge of the liability owed by the vessel
owner for the repair works carried out by the plaintiff. According to the
learned senior counsel, this obligation arose pursuant to a specific
arrangement under which Defendant No. 1 had agreed to retain the
said amount out of the freight payable to the vessel owner and remit
the same directly to the plaintiff.
8.1. The learned senior counsel further submitted that Defendant
No. 1 had issued written communication dated 22.04.1998
acknowledging its obligation to make the payment and had also
executed a Corporate Guarantee by letter dated 25.04.1998
assuring payment of US $ 100,000 to the plaintiff upon the
arrival of the vessel at the port of Newark. The undertaking
was thereafter reiterated through subsequent communications
wherein Defendant No. 1 confirmed that the payment was being
processed and that the amount had been retained specifically
for the purpose of remittance to the plaintiff.
8.2. It was submitted that Defendant No. 1 had also issued
instructions to its banker dated 21.05.1998 for remittance of
the said amount and had submitted the necessary banking
documentation for transfer of funds to the account of the plaintiff.
However, owing to an error on the part of the Bank, the amount
was mistakenly remitted to the vessel owner instead of being
transferred to the plaintiff.
8.3. The learned senior counsel contended that such an erroneous
remittance by the Bank cannot absolve Defendant No. 1 of the
contractual obligation voluntarily undertaken by it in favour of
the plaintiff. At best, such an error may give rise to a separate
claim available to Defendant No. 1 against the Bank, but the
same cannot defeat the independent liability of Defendant No. 1
towards the plaintiff.
8.4. The learned senior counsel further submitted that Defendant
No. 1 attempted to introduce certain defences at the stage of
evidence which were not pleaded in the written statement. It
was argued that portions of the affidavit of evidence filed by
[2026] 4 S.C.R.
165
Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
Defendant No. 1's witness sought to set up an entirely new
case beyond the pleadings. In support of this submission,
reliance was placed upon the decision of this Court in Union of
India v. Ibrahim Uddin and another4, wherein it was held that
evidence without foundational pleadings cannot be considered.
Reliance was also placed upon Ram Sarup Gupta (Dead) by
LRs. v. Bishun Narain Inter College and others5, reiterating
the settled principle that parties cannot travel beyond their
pleadings while leading evidence.
8.5. The learned senior counsel also submitted that the legal position
governing contract of guarantee clearly supports the case of the
plaintiff. It was contended that past consideration constitutes
valid consideration for a contract of guarantee and that even
forbearance to sue the principal debtor amounts to sufficient
consideration in law.
8.6. The learned senior counsel submitted that reliance placed by
Defendant No. 1 on illustration (c) to Section 127 of the Contract
Act is misconceived, as it is well settled that illustrations cannot
control or limit the clear meaning of the substantive provision.
8.7. The learned senior counsel therefore submitted that the
documentary record, including the written undertaking, the
Corporate Guarantee and the subsequent communications,
clearly establishes Defendant No. 1's liability towards the
plaintiff. Defendant No. 1 cannot escape its liability merely
because the Bank mistakenly remitted the amount to the vessel
owner, particularly when Defendant No. 1 itself had retained
the amount specifically for the purpose of making payment to
the plaintiff.
8.8. It was further pointed out that the Division Bench of the High
Court, while affirming the decree in favour of the plaintiff, had
granted a third-party decree in favour of Defendant No. 1
against the Bank, thereby safeguarding Defendant No. 1's right
to recover the amount from the Bank in view of the mistaken
remittance.
4
(2012) 8 SCC 148
5
(1987) 2 SCC 555
166
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Supreme Court Reports
8.9. In these circumstances, learned senior counsel submitted that
the findings recorded by the learned Single Judge, as affirmed
by the Division Bench, are based on a proper appreciation of
the pleadings, documentary evidence and settled principles of
law governing contractual liability and guarantees. The learned
senior counsel therefore prayed that the concurrent findings of
the Courts below be affirmed.
9.
By way of reply, the learned senior counsel for Defendant No. 1
submitted that the bank's own admission shows that the remittance
was effected due to inadvertence on the part of its employee.
According to the learned senior counsel, this clearly establishes
negligence in the discharge of Bank's duties.
9.1. It was further submitted that the Bank's reliance on the Charter
Party Agreement is wholly misplaced, as the Bank was not
a party to the said agreement. The obligations of the Bank
arise solely from the mandate issued by its customer. Once
instructions were issued by Defendant No. 1, the Bank was
dutybound to act strictly in accordance with those instructions.
Even assuming that the Bank had reservations regarding
regulatory approval, it ought to have sought clarification or
declined to process the transaction. Instead, the Bank unilaterally
remitted the amount to the vessel owner without authorisation,
which was impermissible.
9.2. The learned senior counsel for Defendant No. 1 therefore
contended that the unilateral act of the Bank in debiting
Defendant No. 1's account and remitting the amount to the
vessel owner, contrary to the specific instructions issued by
Defendant No. 1, constitutes a clear breach of duty and cannot
be justified in law.
DISCUSSION AND FINDINGS
10. We have considered the submissions made by the learned senior
counsel appearing for the parties and perused the materials available
on record.
11. This Court by order dated 20.10.2022 in SLP (C) No. 18106 of 2022
out of which Civil Appeal No. 13861 of 2024 arises, granted an
interim stay of the judgment passed by the High Court. Further, by
[2026] 4 S.C.R.
167
Canara Bank Overseas Branch Rep. by Senior Manager v.
Archean Industries Private Limited and Another
order dated 28.08.2023 in SLP (C) No. 19275 of 2023, out of which
Civil Appeal No. 13862 of 2024 arises, this Court directed that the
execution proceedings shall not be precipitated.
12. The challenge in the present civil appeals is to the judgment dated
16.08.2021 passed by the Division Bench of the High Court in O.S.A.
No. 423 of 2012. C.A. No. 13862 of 2024 filed by Defendant No. 1
is confined to the finding holding it liable to pay the plaintiff. On the
other hand, C.A. No. 13861 of 2024 filed by Defendant No. 2 Bank
assails the direction of the Division Bench requiring it to indemnify
Defendant No. 1 in the third-party proceedings.
13. The sum and substance of the submissions advanced on behalf
of Defendant No. 1 is that the document in the form of letter dated
25.04.1998 executed by it does not constitute an undertaking or
guarantee, but merely reflects a freight payment arrangement. It is
further contended that Defendant No. 1 had issued clear instructions
to the Bank to transfer the funds to the plaintiff and that the mistaken
remittance occurred solely due to an error committed by the Bank.
Hence, according to Defendant No. 1, no liability can be fastened
upon it.
13.1. The contention of the Bank, against whom a decree has
been passed under the third-party procedure, is that though
instructions were issued to remit the amount to the plaintiff, no
approval had been obtained from the Reserve Bank of India
and therefore, the remittance could not have been effected in
favour of the plaintiff. It is further submitted that the Bank was
not a party to the inter se arrangement between the parties and
consequently, no decree could have been passed against it.
Civil Appeal No. 13862 of 2024 filed by Defendant No. 1
14. We shall first deal with the appeal filed by the appellant / Defendant
No.1. A perusal of the record reveals that Defendant No. 1 had
executed multiple documents expressing its commitment to pay the
plaintiff including the letter dated 25.04.1998 styled as a "Corporate
Guarantee".
15. Chapter VIII of the Indian Contract Act, 1872 deals with the law
regarding "Indemnity and Guarantee". The relevant provisions are
extracted hereunder, for better appreciation:
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"126. "Contract of guarantee", "surety", "principal
debtor" and "creditor".-A "contract of guarantee" is a
contract to perform the promise, or discharge the liability,
of a third person in case of his default. The person who
gives the guarantee is called the "surety"; the person
in respect of whose default the guarantee is given is
called the "principal debtor", and the person to whom the
guarantee is given is called the "creditor". A guarantee
may be either oral or written."
"127. Consideration for guarantee.-Anything done, or
any promise made, for the benefit of the principal debtor,
may be a sufficient consideration to the surety for giving
the guarantee."
"128. Surety's liability.-The liability of the surety is
co- extensive with that of the principal debtor, unless it
is otherwise provided by the contract."
"137. Creditor's forbearance to sue does not discharge
surety.-Mere forbearance on the part of the creditor to
sue the principal debtor or to enforce any other remedy
against him does not, in the absence of any provision
in the guarantee to the contrary, discharge the surety."
"138. Release of one co-surety does not discharge
others.-Where there are co-sureties, a release by the
creditor of one of them does not discharge the others;
neither does it free the surety so released from his
responsibility to the other sureties."
"140. Rights of surety on payment or performance.-
Where a guaranteed debt has become due, or default
of the principal debtor to perform a guaranteed duty has
taken place, the surety upon payment or performance of
all that he is liable for, is invested with all the rights which
the creditor had against the principal debtor."
"141.