Assignment MBA Banking and Finance Semester 2 MBF204-BRLP Assignment (30 Marks) Descriptive Assignments

1. Describe the three Bill Financing Schemes provided by law. 5 2. (a) Distinguish between an Indemnity and Guarantee. 5 (b) State Bank of India Vs. Mula Sahakari Sakhar Karkhana Ltd. 10 The cooperative sugar factory had contracted with Pentagon Engineering Ltd. for setting up a paper factory with bagasse as raw material and had obtained a Bank Guarantee for Rs.34,00,000/-to cover losses arising out of improper performance of the contract. The concluding clause of the Bank Guarantee read thus: " THIS BANK GUARANTEE is made in favour of Mula Sahakari Sakhar Karkhana Ltd. by State Bank of India (Dombivli Industrial Estate Branch) agreed security the Sate Bank of India (Dombivli Industrial Estate Branch) hereby agrees and undertake subject to the terms and conditions set forth in this agreement to indemnify and keep indemnified Mula Sahakari Sakhar Karkhana Ltd. against all losses claims, damages actions and cost in respect of such sums which the Supplier shall become liable to pay as the terms of the said order." When there was a dispute regarding payment for performance under the contract, The sugar factory wanted to implement the Bank Guarantee in toto and recover Rs.34,00,000 from Pentagon Engg. Ltd. Pentagon wrote to the Bank not to honour the Bank guarantee as the claim of Sugar Factory was not justified. In order to decide the issue of honouring the Bank Guarantee, the main question before the court was whether this is a Bank Guarantee or Indemnity.

The lower court decided that it was an Indemnity. On appeal, the High Court of Mumbai upheld the contention of Sugar Factory and ordered Pentagon to pay up Rs.34,00,000 with interest under the Guarantee as it was a Bank Guarantee and not an Indemnity. The matter then went to Supreme Court. The Supreme Court set aside a judgment of the Bombay High Court in the above case. Q.(i) Though Supreme Court finally settled the matter, in view of the conflicting decisions by the lower court and High court, what is your contention? Q.(ii). Why did opinion differ with different courts as to the interpretation of Guarantee and Indemnity? Q 3. Define Partnership and explain what you understand by mutual agency. 5 Q 4. A and B, two Chartered Accountants, agree to carry on practice in common at the office of A under the name A and B for a period of seven years. The terms of agreement entered into between them provide that B should manage the office and supervise the clerical work and that he should draw a fixed allowance of Rs.10,000 per month in lieu of profits. It is further agreed that losses, if any, shall be borne by A alone, and that after 7 years, A would be entitled to the office and all the other equipments, and B would not have any right, title, interest or claim, in respect of them. Q(i). Are A and B partners? Justify. 5