Written undertakings to discharge third-party debts constitute valid, co-extensive, and independently enforceable guarantee liabilities.

The Plaintiff (Goltens Dubai), a ship-repair company, carried out repairs on the vessel Master Panos.

To settle outstanding dues, the vessel owner (Royal Swan/Pevson Shipping) arranged for Defendant No. 1 (Archean Industries), who had chartered the vessel, to remit US$ 100,000 from the payable freight directly to the Plaintiff.

Defendant No. 1 issued a "Corporate Guarantee" on 25.04.1998, undertaking to pay the sum upon the vessel’s arrival at Newark.

Defendant No. 1 subsequently instructed its banker, Defendant No. 2 (Canara Bank), to remit the funds to the Plaintiff via Form A-2.

However, the Bank erroneously remitted the amount to the vessel owner’s account in Baltimore.

The Trial Court decreed the suit only against Defendant No. 1.

The High Court Division Bench affirmed Defendant No. 1’s liability but also allowed a third-party decree enabling Defendant No. 1 to recover the misdirected sum from the Bank.

1. Whether the letter dated 25.04.1998 constituted a valid "contract of guarantee" under Section 126 of the Indian Contract Act or a mere freight payment arrangement.

2. Whether the suit was maintainable without impleading the vessel owner (the principal debtor).

3. Whether the Bank was liable to indemnify Defendant No. 1 under third-party procedure despite the alleged lack of Reserve Bank of India (RBI) approval for the remittance.

Section 126 of the Indian Contract Act, 1872, defining a "contract of guarantee" as a promise to discharge the liability of a third person in case of default.

Section 128, establishing that a surety's liability is co-extensive with the principal debtor.

The court cited Bank of Bihar Ltd. v. Damodar Prasad, holding that a creditor is not required to exhaust remedies against the principal debtor before proceeding against the surety.

Regarding procedure, it applied the "third-party procedure" under Order VIII-A of the CPC (as incorporated by Madras High Court Original Side Rules), which allows a defendant to seek indemnity from a co-defendant or third party within the same suit.

Finally, it upheld the principle of dominus litis, confirming that a plaintiff determines which parties to sue.

The Court rejected Defendant No. 1's argument that the "Corporate Guarantee" was merely an agency direction. It held that the language of the 22.04.1998 and 25.04.1998 letters was clear and unequivocal, creating an independent contractual obligation to discharge the vessel owner’s debt.

The Court found that Defendant No. 1’s own conduct—processing RBI papers and instructing the Bank—estopped it from denying liability.

Regarding the Bank, the Court held that once a customer issues a specific mandate (Form A-2), the Bank is duty-bound to follow it or seek clarification.

The Bank's unilateral decision to remit funds to the vessel owner contrary to instructions constituted a breach of duty.

The Court brushed aside the "lack of RBI approval" defense, noting it was not pleaded and that the Bank could not rely on the Charter Party Agreement to which it was not a party to justify its error.

(i) Defendant No. 1 is liable to the Plaintiff as a surety under a valid contract of guarantee.

(ii) the Plaintiff was not required to implead the vessel owner.

(iii) the Bank is liable to indemnify Defendant No. 1 under the third-party procedure for its negligence in misdirecting the remittance.

Both appeals were dismissed with no order as to costs.