Madras High Court
M/S.Tamil Nadu Co-Operative vs Corporation Bank on 18 November, 2014
Author: G.M.Akbar Ali
Bench: G.M.Akbar Ali
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated :18.11.2014 Coram: The Hon'ble Mr.Justice G.M.AKBAR ALI Civil Suit No.1548 of 1994 M/s.Tamil Nadu Co-operative Sugar Federation. ... Plaintiff Vs 1.Corporation Bank, Indira Nagar, Madras 600 020. 2.M/s.Indian Agro Products, Rep. By its Prop. Bhagwan, No.2, VIII Floor, A Block, Parsn Apartments, Chennai 600 006. (Second defendant impleaded as per order dated 10.9.1996 in Appln.No.764 of 1995) ... Defendants Prayer: Suit filed under Order IV Rule I of the Original Side Rules and under Order VII Rule I of CPC to direct the first defendant to honour the commitments and obligations that it has undertaken under the bank guarantees mentioned in para 7 of the plaint and direct the second defendant also jointly and severally to pay this plaintiff from the defendants a)a sum of Rs.25,06,069/- being the amount equivalent to the sales tax payable by the sellers under the agreement dated 16.2.1993 as a consequence of the failure of the buyer under the agreement dated 16.2.1993 to furnish a Form H as contemplated by Rule 12 of the CST (R&T) Rules 1957; b)a sum of Rs.5,79,507/- being the sum contemplated by Clause 6 of the agreement dated 16.2.1993 calculated in the matter set out in paragraph 20 of the plaint; c)a sum of Rs.3,09,424/- as set out in paragraph 21 above for the reasons found in paragraph 21 of the plaint; ii)an interest of Rs.4,12,326/- calculated in the manner set out in paragraph 22 of the plaint and iii)costs of the suit. For Plaintiff :Mr.N.Karthikeyan For 1st Defendant :Mr.S.Sethuraman For 2nd Defendant :No Appearance Judgment The suit is filed to direct the fist defendant to pay a sum of 25,06,069/-along with interest being the amount equivalent to the sales tax payable by the sellers, a sum of Rs.5,79,507/- being the sum contemplated by Clause 6 under the agreement dated 16.2.1993 as the first defendant has failed to furnish a Form H as contemplated by Rule 12 of the CST (R&T) Rules 1957 under the agreement dated 16.2.1993, a sum of Rs.3,09,424/- as set out in paragraph 21 and an interest of Rs.4,12,326/- calculated in the manner set out in paragraph 22 of the plaint. 2.The brief facts of the case of the plaintiff are as follows: (i)The suit is filed by M/s.Tamil Nadu Co-operative Sugar Federation, which is registered under the Co-operative Societies Act against the first defendant Corporation Bank invoking the Bank guarantee issued by the first defendant and the second defendant M/s.Indian Agro Products. (ii)The second defendant is proprietary concern registered herein by its proprietor Bhagwan. (iii)M/s.IFB, Agro Industries Ltd., Vinoba Bhave Road, Calcutta-38, which is registered under the Indian Companies Act, 1956 offered to purchase molasses from various Sugar Mills for export outside the country, for which, they submitted quotations through various letters to the Commissioner of Sugar, Government of Tamil Nadu, Madras. Consequently, the Molasses Controller and Commissioner of Prohibition and Excise, Government of Tamil Nadu, Madras issued a general permit by his proceedings dated 8.10.1992 releasing 60,000 Metric tones of molasses from Co-operative and Public Sector Sugar Mills. The validity of the general permit expired on 30.11.1992 without a ton of molasses lifted from the Sugar Mills. Hence, the validity was extended upto 4.1.1993. However, M/s. IFB, Agro Industries Ltd., did not lift any quantity of molasses even during the extended time. Hence, the Commissioner of Prohibition & Excise by his order dated 5.2.1993 reduced the quantity to 20,000 Metric tonnes from Co-operative and Public Sector Sugar Mills. As IFB Agro Industries Limited want to export the Molasses for the first time, by their authorization letter dated 15th February 1993, have authorised M/s.Indian Agro Products, the second defendant to do all the necessary acts to lift and export the allotted quantity of molasses. Pursuant to the authorization letter dated 15.2.1993 given by IFB Agro Industries Limited, the second defendant and the IFB Agro Industries Limited entered into an agreement to purchase of 20,000 Metric Tons molasses on behalf of IFB Agro Industries Limited, Calcutta. Therefore, an agreement was entered into on 16.2.1993 with Tamil Nadu Co-operative Sugar Federation, the plaintiff, who entered into the agreement on behalf of the sellers i.e., Co-operative and Public Sector Sugar Mills and the second defendant. (iv)Under Clause 6 of the agreement dated 16.2.1993, the buyer was required to execute a Performance Bank Guarantee in favour of the Tamil Nadu Co-operative Sugar Federation Ltd., the plaintiff and the second defendant. The second defendant, who is acting on behalf of IFB Agro Industries Limited, Calcutta, applied to the first defendant to grant and execute a performance guarantee. The first defendant Corporation Bank has also executed the following guarantees on 16.2.1993: 1.No.03483 for Rs.4,85,000/- 2.No.03483 for Rs.4,85,000/- 3.No.03485 for Rs.4,85,000/- 4.No.03486 for Rs.4,85,000/- 5.No.03487 for Rs.4,85,000/- 6.No.03488 for Rs.4,85,000/- 7.No.03489 for Rs.4,85,000/-. (v)Under Clause 1 of the agreement dated 16.2.1993, the second defendant had agreed to lift the entire molasses allotted in accordance with the terms and conditions of that agreement. (vi)Under Clause 5 of the agreement dated 16.2.1993, the buyers had agreed to submit Form H as contemplated by Rule 12 of the CST (Registration and Turnover) Rules 1957 or make a deposit of Rs.139.14 per Metric tone in lie of sales tax payable. The compliance of Clause 5 is necessary to lift the molasses by the second defendant in accordance with the terms of that agreement. (vii)Under Section 5(3) of the Central Sales Act, 1956, if there is a sale prior to the sale, which occasion's the export, that penultimate sale will also not suffer sales tax, if such sale took place for complying with the agreement or order for or in relation to such export. But, this exemption will be available only if the buyer furnishes to the seller a Form H in terms of Rule 12 of the Central Sales Tax (Registration and Turnover) Rules 1957. (viii)As an agreement entered into with its foreign buyer only on 5.3.1993, the second defendant lifted 19516.960 Metric tones of molasses on 4.3.1993 and 477.743 Metric Tones of molasses was lifted on 5.3.1993. The second defendant furnished Form H so that the seller is exempted from paying sales tax on sale. Therefore, the plaintiff sent a letter invoking the Bank guarantee to the first defendant on 11.5.1993, which was due to expire on 15.05.1993. However, the second defendant filed a Writ Petition No.9774 of 1993 and W.P.M.P.No.15051 of 1993 and obtained an order of injunction on 14.5.1993. Due to the order of injunction, the first defendant could not honour the guarantee. Thereafter, the order of injunction was vacated on 21.01.1994. Hence, the first defendant has become liable to honour the bank guarantee. Meanwhile, W.P.No.9774 of 1993 was dismissed. Therefore, the plaintiff approached the first defendant on 2.2.1994 to honour the bank guarantee. After repeated requests made by the plaintiff, the first defendant sent a letter dated 29.7.1994 denying their liability. Therefore, the plaintiff has constrained to file the present suit for the following reliefs: a)A sum of Rs.25,06,069/- being the amount equivalent to the sales tax payable by the sellers under the agreement dated 16.2.1993 as a consequence of the failure of the buyer under the agreement dated 16.2.1993 to furnish a Form H as contemplated by Rule 12 of the CST (R&T) Rules 1957. b)A sum of Rs.5,79,507/- being the sum contemplated by Clause 6 of the agreement dated 16.2.1993 calculated in the matter set out in paragraph 20 of the plaint. c)A sum of Rs.3,09,424/- as set out in paragraph 21 above for the reasons found in paragraph 21 of the plaint. ii)An interest of Rs.4,12,326/- calculated in the manner set out in paragraph 22 of the plaint and iii)costs of the suit. (ix)On notice, the first defendant appeared and filed a written statement denying their liability. According to the first defendant, the bank guarantee lapsed on 15.5.1993 and hence, they are not liable to pay anything on the bank guarantee. According to the first defendant, whatever it may be, the amount payable is only by the purchaser and therefore, the second respondent was impleaded as party and the second defendant remained ex-parte. Based on the averments following issues were framed: 1.Whether the first defendant has failed to honour the Bank Guarantee given in favour of the plaintiff? 2.Whether the suit is bad for non joinder of necessary parties and on that account liable to be dismissed? 3.The plaintiff is entitled to what relief? (x)To prove the case of the plaintiff, Mr.N.Devarajan was examined as P.W.1 and Exs.P.1 to P.6 were marked on the side of the plaintiff. (xi)The defendants also entered into the box. Mr.Gopalakrishnan was examined as D.W.1 and Ex.D.1 was marked on the side of the defendants. 3.Heard Mr.N.Karthikehyan, learned counsel appearing for the plaintiff and Mr.S.Sethuraman, learned counsel for the first defendant. 4.The plaintiff by their oral and documentary evidence have proved that the second defendant has entered into an agreement for lifting the molasses and they have partially lifted the molasses. It is also proved that the second defendant has not paid the sales tax and furnished only the Form H. As per the terms of the agreement, there is a breach of contract by the second defendant. On the willingness of the second defendant, the first defendant has issued bank guarantee as stated above. Therefore, the plaintiff is entitled to invoke the bank guarantee. 5.In any event, the second defendant filed W.P.No.9774 of 1993 and W.M.P.No.15051 of 1993. This Court has stayed the operation of invoking the bank guarantee by granting an order of injunction and hence, the first defendant could not honour the Bank guarantee. Later, the injunction was vacated and the writ petition was dismissed only on 21.1.1994. The learned counsel for the first defendant has rightly pointed out that at that time, the bank guarantee lapsed i.e. on 15.5.1993. But, the suit was filed in the year 1994 and at this juncture, almost two decades have passed. 6.The learned counsel for the plaintiff has further submitted that there is no collateral security for bank guarantee. However, it is clear that the bank seeks certain fixed deposit for granting bank guarantee, which are available with the bank. The first defendant bank furnished the value of fixed deposits as on date on 17.11.2014. 7.This Court directed the first defendant to produce the statement of accounts. As per the direction of this Court, the first defendant has produced the following deposits.: Corporation Bank, A Govt. of India Undertaking 77, 1st Avenue, Indira Nagar, Chennai 600 020 17.11.2014 Value of deposits as on date 1 KCC 140670 RS 1563116 2 KCC 140926 RS 1635187 3 KCC 140927 RS 1638430 4 KCC 140928 RS 1613413 5 KCC 140929 RS 1636283 6 KCC 140930 RS 1637645 7 KCC 140669 RS 1756348 ------------- Rs. 11480422 ------------- Sd/- CHIEF MANAGER. 8.The learned counsel for the plaintiff has submitted that the plaintiff is entitled to a principal sum of Rs.33,95,000/- along with interest at the rate of 18.25% and for other claims, they seek interest at the rate of 18%. However, the interest is fixed at 18% per annum. As on date, the plaintiff is entitled to Rs.1,63,02,340/- with further interest on the principal amount. 9.Since the Bank is holding this amount, it is liable to be paid by the second defendant. However, as the bank is holding security assets for the due payment of the bank guarantee, this Court is of the view that the plaintiff is entitled to the amount held by the bank of Rs.1,14,80,422/- being the guarantee given by the first defendant and the decree is granted on the amount being held by the Bank. Therefore, the issues are answered in favour of the plaintiff. The plaintiff is also entitled to a balance sum of Rs.48,21,918/- i.e. (Rs.1,63,02,340/- - Rs.1,14,80,422/-) from the second defendant. 10.In the result, the suit is decreed against the second defendant for a sum of Rs.48,21,918/- with interest at the rate of 18% per annum. Since a sum of Rs.1,14,80,422/- is being held by the first defendant, the first defendant is directed to pay the said amount, due on the deposit receipts, directly to the plaintiff within a period of two weeks from the date of the decree with accrued interest till the closure of the deposit. The said suit is decreed on the following terms: (a)There shall be a decree against the second defendant in respect of the balance amount Rs.48,21,918/- with a further interest at the rate of 18% per annum. (b)There shall be a decree in favour of the plaintiff for a sum of Rs.1,14,80,422/-. Since the said sum of Rs.1,14,80,422/- is held by the first defendant on behalf of the second defendant, the first defendant is directed to pay the same directly to the plaintiff from the date of decree with accrued interest till the closure of the deposit. No costs. 18.11.2014 Index : Yes / No Internet: Yes / No cla Witnesses Examined: For Plaintiff: 1.N.Devarajan (P.W.1) For Defendant: 1.Gopalakrishnan (D.W.1) Exhibits Marked For Plaintiff Ex.P.1 Authorisation letter 11.02.2014 Ex.P.2 Original Agreement for export of molasses 16.02.1993 Ex.P.3 Xerox copies of Bank (series) Guarantee ( 7 Nos.) ---- Ex.P.4 - Original letter sent by the first defendant to the plaintiff 13.05.1993 Ex.P.5 Office copy of the letter sent by the plaintiff to the first defendant 14.05.1993 Ex.P.6 - Original letter sent by the first defendant to the plaintiff 29.07.1994 For Defendants: Ex.D.1 Authorisation letter dated 07.04.2014 18.11.2014 G.M.AKBAR ALI, J.
cla C.S.No.1548 of 1994 18.11.2014