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Issues Involved:
1. Nature and effect of the irrevocable power of attorney. 2. Establishment of privity of contract between the plaintiff bank and the Government. Detailed Analysis: 1. Nature and Effect of the Irrevocable Power of Attorney: The judgment discusses the irrevocable power of attorney executed by the contractors in favor of the bank, which was deposited with the Government. The contractors had a cash and credit account with the appellant bank, and the bank was supplying money to the contractors for the construction work. The loans advanced by the bank were to be repaid from the money payable to the contractors by the Union of India. The irrevocable power of attorney (Exhibit P.2) gave the bank the exclusive right to realize and receive payments from the Government, and the contractors agreed they had no right to receive such payments as long as they maintained an overdraft account with the bank. The court analyzed whether this irrevocable power of attorney amounted to an equitable assignment of the debt due from the Government to the contractors. The court referred to Section 202 of the Contract Act, which allows an agency to be irrevocable if the agent has an interest in the property subject to the agency. The court concluded that the power of attorney was an equitable assignment but not an absolute assignment, as the bank had to act as an agent of the contractors and could only receive money to the extent of the contractors' indebtedness. The court held that the irrevocable power of attorney did not authorize the bank to make an independent claim against the Government, as the contractors had to present the bill, and the Government had to measure the work done. The bank's role was limited to receiving payments on behalf of the contractors. 2. Establishment of Privity of Contract: The court examined whether a privity of contract existed between the bank and the Government. The plaintiff bank argued that the irrevocable power of attorney amounted to an equitable assignment, establishing privity of contract with the Government. However, the court held that the basic concept of a contract is that it can confer rights or impose obligations only on persons who are parties to it. The court referred to Section 2(d) of the Contract Act, which states that consideration for a promise may proceed from the promisee or any other person. The court analyzed clause 9-A of the contract between the Government and the contractors, which allowed payments to be made to the bank if the contractors desired so and provided a power of attorney. However, the proviso to clause 9-A stated that "nothing herein contained shall operate to create in favor of the bank any rights or equities vis-a-vis the President of India." The court concluded that while the bank may have an equitable assignment from the contractors, it did not have any enforceable rights against the Government. The Government's willingness to make payments to the bank was only as an agent of the contractors and not otherwise. The court emphasized that the authority given to the agent cannot exceed the powers of the principal. The court dismissed the appeal, stating that there was no privity of contract between the bank and the Government, and even if there was, it was subject to the limitation that the bank was not authorized to enforce a claim against the Government. The court suggested that the remedy for banks in such situations is to have a tripartite contract between the debtor, the creditor, and the third party or to ensure that the original contract does not disable the creditor from transferring the right to enforce the contract to a third party. Conclusion: The appeal was dismissed, and the court ordered that the costs of the appeal be borne by the parties as incurred. The court noted that while the respondents (contractors) acted contrary to the power of attorney, the bank did not make any claim against them. The court suggested that the bank should have pursued a claim against the contractors if it suspected foul play.
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