Delhi District Court
M/S U.P. Cooperative Federation Ltd vs Corporation Bank on 2 May, 2011
IN THE COURT OF MS. CHHAVI KAPOOR
CIVIL JUDGE -05 (WEST DISTRICT)
TIS HAZARI COURTS: DELHI
Suit No. 244/10
Unique ID No. 0240IC1016422006
M/s U.P. Cooperative Federation Ltd.
HO 32, Station Road,
Lucknow, UP
..........Plaintiff
Versus
Corporation Bank,
having its Head Office
at Manglore (South Kanara)
Karnataka State, also at M-1 Market, Great Kailash, Part -II, New Delhi.
..............Defendant
Date of Filing : 15.12.1988
Date on which order has been reserved : 20.04.2011
Date of pronouncement of Judgment : 02.05.2011
JUDGMENT
1 A Suit for recovery of an amount of Rs.2,85,284/- was filed under Provisions of Order 37 CPC on 15.12.1988. Leave to defend application filed on behalf of the Defendant was dismissed vide orders dated 23.09.1996 by the court of Sh. P.S. Teji, the then Ld. ADJ, Delhi. However, the said order was set aside and conditional leave to defend was granted by Hon'ble Justice B.A.Khan vide orders dated 15.11.2000 and accordingly, the Defendant was given an opportunity to contest the case on merits subject to deposit of Rs. 1,85,600/-( by way of two bank guarantees). The suit was contested by the Defendant. Facts in brief necessary for disposal of the suit are being enumerated as under:-
M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 1/15
2 Plaintiff is a federation of cooperatives societies and is registered under the Cooperative Societies Act. The Defendant is a nationalized bank constituted under the Banking Companies Act, 1980. In the year 1983, Plaintiff decided to set up a cold storage of 4000 MT capacity at Sikandarpur District Aligah and at Jagdishpur, District Sultanpur for which two identical agreements dated 18.11.1983 and 2.11.1983 with one M/s Atlantic Engineering Services Pvt. Ltd (hereinafter referred to as private Limited Company) were executed and the said company undertook to make ready for use the cold storages on commission basis by 15.02.1984 (at Sultanpur ) and by 28.02.1984 (at Sikandarpur) .
3 The two agreements entered into between the Plaintiff and the private limited company contained identical terms out of which Clause 5 and Clause 6 were relevant . Same are being reproduced as under:-
Clause:5 "In case the seller fails to fulfill any of the obligations as referred to in this agreement the P.C.F shall be at liberty to get the same completed through only other agency agencies without the approval of the seller and all additional expenses so incurred by the P.C.F shall be recoverable from the seller"
Clause:6 "Terms of payment by the P.C.F"
"The said price of Rs.9,28,000/- shall be paid by the PCF to the seller in the following manner.
(i) The seller shall furnish a Bank Guarantee on the proforma attached as annexure - to this agreement from a nationalized bank for 10% (Ten percent) value of the contract price i.e for Rs.
92,800/- as security for fulfilling this obligations. In case the seller fails to fulfill any of this obligations as per this agreement. The P.C.F shall give 15 days notice in writing to the seller to fulfill their part of the obligations. If the seller fails to fulfill their part of the obligations, the P.C.F shall be at liberty to invoke the Bank Guarantee with out any reference to the seller.
The guarantee shall remain valid upto 30.04.84 or M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 2/15 till the cold storage is handed over by the seller to the P.c.F which ever is latter."
4 On 5.12.1983, two bank guarantees bearing No.BG/18/83 and BG/19/83 of an amount of Rs.92,800/- each on behalf of the Defendant bank in favour of the Plaintiff at the instance of the private limited company were drawn for a period uptill 30.04.1984 but were later renewed vide a letter dated 29.12.1984 uptill 31.12.1985. Thereafter, the bank guarantees were being extended on request from time to time . However, no work was carried out by the private limited company but a demand for increase in the payment to the tune of Rs. 1,72,436/- was made which was accepted by the Plaintiff vide office letter dated 12.09.1985 reference no. 57952/50. Thereafter, vide letter dated 4.10.1985 reference no.71651 -53 and reference no. 86706-10 dated 19.10.85, Plaintiff had requested the private limited company to start the work but in vain. On 31.10.1985, vide letter reference no.123243-49, Plaintiff called upon the private limited company to start the work by 04.11.85 failing which Plaintiff made implicit that the work would be given to some other agency. 5 After waiting till 21.11.1985, the Plaintiff sent a demand notice dated 10.12.1985 calling upon the Defendant to make payment of Rs.1,85,600/- as stipulated by the relevant two bank guarantees no.18/83 and 19/83. Instead of releasing the payment under the aforesaid bank guarantees, the Defendant vide its letter dated 22.12.1985 confirmed its obligation to pay and asked for a confirmation as to the failure on the part of the private limited company. Meanwhile, by a letter dated 24.12.1985, the private limited company asked the Defendant Bank not to release the payment under the bank guarantee to the Plaintiff after which the Defendant bank again asked the Plaintiff (vide letter dated 01.01.1996) to confirm the failure , if any on the part of the private limited company.
6 The Defendant bank has since then failed to release payment under the said bank guarantees despite repeated requests and reminders. It is stated that the Defendant bank is bound to release payment in accordance with the terms M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 3/15 of the bank guarantee agreement and, therefore, the present suit has been filed by the Plaintiff for recovery of an amount of Rs.1,85,600/-along with interest @18% p.a uptill 30.10.1988 and pendentalite and future interest @18% p.a . 7 In the Written Statement filed on behalf of the Defendant, various preliminary objections as well as objections on merits were taken. It was pleaded that the suit was filed beyond the period of limitation; that the suit was bad for non joinder of necessary party ; M/s Atlantic Engineering Services Private Limited. On merits, it was claimed that the liability , if any under the bank guarantees could only be recovered uptill 31.12.1985. It was further claimed that the said bank guarantees were never extended beyond 31.12.1985 and, therefore, the Plaintiff was barred from claiming upon it. Averments made in the plaint were vehemently denied and the Defendant pleaded that the letter dated 22.01.1996 as averred in the plaint was of no consequence and had not resulted in extension of the limitation period. It was averred that the bank guarantees were not invoked by the Plaintiff as per the terms stated therein and, therefore, no claim or liability could be enforced upon the Defendant in respect of the same. It was stated that the Defendant was not legally bound to release the payment under the bank guarantees and all the rights of the Plaintiff stood forfeited. Thus, it was stated that the suit was liable to be dismissed.
8 Replication was filed wherein the averments made in the Written Statement were vehemently denied and the averments made in the plaint were reaffirmed and reiterated.
9 On the basis of the pleadings of the parties, following issues were framed on 20.11.2002:-
(i) Whether the present suit is barred by limitation?OPD
(ii) Whether the present suit has not been filed, signed and verified by duly authorized person?OPD
(iii) Whether the present suit has not been properly valued for the purposes of court fees and jurisdiction?OPD
(iv) Whether the Plaintiff is entitled to the Decree as claimed?OPP M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 4/15
(v) Whether the Plaintiff is entitled to any interest if so, at what rate and from which date?OPP
(vi) Relief
10 Plaintiff examined only one witness namely Sh. S.N.Sharma (Regional Accountant of the Plaintiff Society) in support of their case. PW-1 relied upon the following documents. Authorization letter ; Ex.P1, copy of letter of powers of delegation in favour of PW-1; Ex. P2, copy of authorization letter dated 30.10.95 ; Ex.P3. Bank guarantee nos.BG18/83 and BG 19/83; Ex. P6 and Ex.P7, letter dated 29.12.1984; Ex.P8 , copy of demand notice dated 10.12.85; Ex.P 9, original letter dated 22.12.85; Ex. P10, copy of letter dated 24.12.1985, 01.01.1986 and 22.01.1986; Ex.P11 , P 12 and P13 respectively. Copy of legal notice dated 03.10.1988 and reply to the same; Ex. P14 and Ex.P15 .PW-1 has corroborated the facts set out in the plaint.
11 Defendants produced only one witness namely Sh. Anil Pal, (Manager, Cooperation Bank-Kasturba Gandhi Marg) as DW-1 in support of their case. The witness also relied upon the documents which were relied upon by the PW-1 in support of Plaintiffs case ;Ex. P6,Ex. P7, Ex.P8, Ex.P9 & Ex. P10. DW-1 has corroborated the facts set out in the written Statement. 12 I have heard arguments advanced at the bar on behalf of both the parties and have perused the judicial record.
13 My Issue -wise findings are as under:-
14 Issue Nos. I, IV and V are connected and are taken up together. Issues Nos. I, IV and V 15 Claim for Suit amount of Rs.2,85,284/- was based upon two Bank Guarantees i.e. Guarantee No. 18/83 and 19/83 . The said Guarantees guarantee have been proved as Ex.P 6 and Ex.P 7 respectively. The Bank guarantees contained an unconditional undertaking on behalf of the Defendant Bank whereby they had bound themselves to pay an amount of Rs.92,800/- each to the Plaintiff upon their invocation. Relevant clause of the Bank Guarantee is reproduced below:-
M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 5/15 " Now, therefore, the Bank hereby guarantees to make unconditional payment of Rs.92,800/- (Rupees Ninety Two Thousand Eight Hundred Only) to the Federation on demand at its office at Lucknow without any further question or reference to the seller on the seller's failure to fulfill the terms of the Sale on the following terms and conditions."
16 The Bank guarantees were initially valid uptil 30.04.1984. However, later on, by a letter dated 29.12.1984, the Bank guarantees were extended uptill 31.12.1985.
17 PW-1 had testified that the private limited company had failed to initiate work undertaken by them till 04.11.1985. Thereafter, by way of notices/communication dated 10.12.1985, the Plaintiff federation had called upon the Defendant to make good their liability in accordance with the terms of the guarantee agreement executed by them. However, to no avail. Thus, the present suit for recovery of the principal guarantee amount of Rs1,85,600/- a/w claim for interest on the same @18% p.a came to be filed. 18 Defendants had contested the claim and had raised only one objection as regards limitation for enforcing the liability upon the documents Ex.P 6 and Ex.P7. As per them, the said documents; Bank guarantees were valid uptill 31.12.1985 and, therefore, the present suit as filed on 15.12.1988 was barred by limitation. No other ground was averred or pressed for. 19 The nature of contract of guarantee (Bank guarantee in this case) requires a careful analysis. In this regard, a reference may be made to the observations in a judgment reported as B.L.R. Mohan, M/s V. P.S. Op. S. and M. Federation Ltd. (Delhi), 1982 AIR (Delhi_) 357:-
" It is well settled that the performance guarantees or performance bonds, a comparatively recent species of Banker's commercial credit, variously described as 'a new type of commercial credit' or " a new business transaction" or "a mew creature", and " the life blood of international commerce" , has many similarities to a M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 6/15 letter of credit and stands on a similar footing to a letter of credit. Such guarantees, even though having their genesis in the primary contract between the parties, are nevertheless "autonomous" and independent contracts and a bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer, nor with the question whether the supplier has performed his contracted obligations or not, nor with the question whether the supplier is in default or not and the only exception is when there is a clear fraud, of which the bank has notice."
20 The Supreme Court has also affirmed this dicta in the case of Tarapore and Co.; AIR 1970 SC 891, wherein it has been held " that the opening of a confirmed letter of credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker " an absolute obligation to pay" in its terms".
21 It was observed that Courts usually refrain from interfering in the obligations "arising out of a letter of credit or a Bank guarantee". The Court has consistently applied the aforesaid principles to Bank guarantees. 22 No objection or any allegation as regards fraud or any other exceptions as available under the terms of the Contract Act have been pleaded on behalf of the Defendants apart from the bar of limitation. In their only defence, it was claimed that the letter of credit entitled the Plaintiffs to claim for the amount of Rs. 1,85,600/-(consolidated for both the bank guarantees) uptill 31.12.1985 after which any claim arising out of the same could not be enforced. DW 1 has admitted in his cross examination as to the factum of receipt of letter of the Plaintiff dated 10.12.1985 i.e document Ex. P9 which was also replied vide letter M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 7/15 dated 22.12.85 (document Ex. P10). Reading of both the letters makes it amply clear that the Plaintiff Federation as well as the Defendant Bank were in process of deliberations as regards release of payment under the bank guarantees consequent to default on part of the private limited company. Infact, the Defendant had even acknowledged its liability to pay the bank guarantee amount in the letter dated 22.12.1985. Relevant excerpt is reproduced below:-
"Dear Sirs, Referring to our Bank Guarantees and your above referred letter, while confirming our obligation to pay the amount under the Bank Guarantees we would require you to confirm the following:-
a. That your demand of M/s. Atlantic Engineering Services Pvt. Ltd. Having not completed your works in terms of the agreement is in context and meaning of the covenants prescribed in the Bank Guarantee to the effect. "Atlantic's failure to fulfill the terms of sale under the Agreement."
23 Thereafter, a notice dated 22.01.1986; Ex. P13 demanding the amount of bank guarantees was addressed upon the Defendants but, in vain. A legal notice dated 3.10.88 (Ex.P14) was henceforth served upon the Defendants calling upon them to make the outstanding payment of which a reply dated 17.10.88 was also received (Ex.P15). A perusal of the contents of the said notice Ex.P 15 reveals that the Defendant had admitted its liability for payment under the bank guarantee while acknowledging the failure of the private limited company to discharge its obligations with the Plaintiff. However, the said admission was appended along with another claim of amount of Rs.3,72,418/- sought to be enforced upon the Plaintiff in respect of another transaction. It was further stated that another suit titled Corporation bank vs Atlantic Engineering Services Private Limited and others , Suit No. 105/86 was pending disposal. Defendants had averred that since claims between the Plaintiff and the private limited M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 8/15 company were pending adjudication, thus the liability upon the bank guarantee could not be enforced upon them. This contention has found no mention in the Written Statement filed on record, neither does it give any weight to the defence propounded. As has already been stated, a letter of guarantee or a bank guarantee (as in this case) constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay, irrespective of any dispute that may be between the parties as to whether the goods are upto contract or not. Even otherwise, in view of the admissions of the Defendant, be it of the bank guarantees or the letter/communications, it has became quite explicit that the Defendants were liable to release payment of Rs. 1,85,600/- under the contract of guarantee. Plaintiffs have demanded interest @18% p.a on the amount of Rs.1,85,600/- uptill 3.10.88. The rate of interest has not been disputed to by the Defendant in their Written Statement. 24 It is settled principle of law of limitation that any claim arising out of a letter of credit or Bank guarantee can be enforced within a period of three years from the execution thereof. The letters of Guarantees were admittedly extended uptill 31.12.85. Therefore, the suit filed on 15.12.1988 was well within the period of three years of limitation. Therefore, in view of the aforesaid discussion, Plaintiff is held entitled to recovery of amount of Rs. 2,85,284/- along with pendentalite and future interest on the said amount @10% p.a. Issues are accordingly decided in favour of the Plaintiff and against the Defendant. Issue No. II 25 This issue has not been pressed by the Defendant. Even otherwise, in his testimony, PW 1 has deposed that the plaint was filed and signed by Sh.V.P.Sharma, who was duly authorized to do so by Sh. Surjeet Bannerji, the then Managing Director of Plaintiff Federation. He has proved on record the letter of authorization; document Ex. P2. There is no rebuttal to the above evidence. It is therefore, held that the Plaint has been signed and filed by a duly authorized person. Issue is accordingly decided in favour of the Plaintiff. Issue No.III M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 9/15 26 Onus to prove that the suit had been properly valued for the purposes of court fee and jurisdiction was placed upon the shoulders of the Defendant. No evidence was led on his account to prove this assertion. On the contrary, Plaintiff had valued the suit for the purposes of court fee and jurisdiction at a sum of Rs.2,85,284/- on which court fee of amount of Rs.5,175/- has been duly affixed. This is proper as per Court Fees Act. Accordingly, Issue is decided in favour of the Plaintiff.
Relief 27 In view of the findings on the Issues stated above, Suit of the Plaintiff is Decreed for a sum of Rs.2,85,284/- along with pendentalite and future interest @10% p.a from the date of filing of the suit till its realization. Cost of the suit is also awarded to the Plaintiff. Let a Decree Sheet be prepared accordingly. File be consigned to Record Room.
Announced in the open court, Today on May 2. 2011 (Chhavi Kapoor) Civil Judge -05 (W) THC, Delhi/02.05.2011 M/s UP Cooperative Federation Ltd. Vs. Corporation Bank 10/15