Bangalore District Court
M/S Sree Charan Souharda Co vs ) Sri V. Riaz Ahmed on 25 August, 2015
IN THE COURT OF THE X ADDL. CITY CIVIL &
SESSIONS JUDGE, BANGALORE (CCH-26).
Dated this the 25th day of August, 2015.
Present
Sri G.K. GOKHALE, M.A., LL.B.(Spl.),
X Addl. City Civil & Sessions Judge,
Bangalore.
O.S.No.2065/2009
Plaintiff: M/s Sree Charan Souharda Co-
operative Bank Ltd. (Formerly Sree
Charan Co-op. Bank Ltd.), No.89
H.B. Samaj Road, Basavanagudi
Bangalore-560 004, represented
By its Manager/Principal Officer
Sri Sudharshan.
(By Sri H.R. Anantha
Krishnamurthy, Adv.)
Vs.
Defendants: 1) Sri V. Riaz Ahmed
Prop: Kohinoor Exporters
No.217, 8the Main Road
I Block, Kalyan Nagar
HRBR Layout, Banaswadi
Bangalore-560 043.
2) M/s Kohinoor Exporters
No.44, 1st Floor, Milkman Street
Ulsoor, Bangalore-8
Represented by its Prop.
Sri V. Riaz Ahmed.
3) State Bank of Mysore
Vyalikaval Branch
P.B.No.346, No.81/61
2nd Main, Vyalikaval
Bangalore-3, represented
By its Manager.
(By Sri T.S. Mahabaleswara, Adv.)
Date of institution of the suit 23-02-2005
2 O.S.No.2065/2009
Nature of the suit For recovery of
money
Date of the commencement 24-01-2012
of recording of evidence
Date on which the judgment 25-08-2015
Pronounced
Total duration Years Months Days
10 06 02
JUDGMENT
This is a suit filed by the plaintiff-bank against the defendants for recovery of sum of Rs.38,61,604/- with interest at 18% p.a.
2. The brief facts of the plaint averments are that:-
The plaintiff is a registered co-operative Bank carrying on banking business throughout Bangalore Metropolitan Region. The first defendant is a customer of third defendant-Bank, who introduced the first defendant to the plaintiff. The first defendant is carrying on business under the name and style of M/s Kohinoor Exporters- the second defendant. During last week of April, 2002, the first defendant approached the plaintiff for short term loan for his business purpose. The third defendant agreed to extend its guarantee to the said 3 O.S.No.2065/2009 loan. Upon the guarantee of third defendant, the plaintiff granted loan of Rs.26,00,000/-. The plaintiff, after deducting interest for 45 days, issued pay orders bearing No.022231 dated 02.05.2002 for Rs.21,00,000/- and No.022232 dated 02.05.2002 for Rs.4,13,095/-. Both pay orders are drawn in the name of first defendant and payable to the first defendant at the account maintained with the third defendant-Bank. The first defendant for repayment of said loan amount issued a post dated cheque bearing No.086432 dated 15.06.2002 drawn on State Bank of Mysore- third defendant for Rs.26,00,000/- . In view of guarantee letter and endorsement of cheque by the third defendant, the defendants are jointly and severally liable to pay a sum of Rs.26,00,000/- as on 15.06.2002 to the plaintiff-bank. The third defendant as a token of its liability endorsed upon the said cheque issued by the first defendant as 'marked good for payment'. The said fact of guarantee was also confirmed through its letter dated 30.04.2002 wherein the third defendant-bank promised the plaintiff that they will honour the said cheque dated 15.06.2002 bearing No.086432 for Rs.26,00,000/-. On the promise made by 4 O.S.No.2065/2009 the defendants, the plaintiff presented the above said cheque for encashment. But the third defendant has returned the said cheque unpaid with an endorsement 'payment stopped by the drawer'. Since the third defendant guaranteed the repayment of the loan and cheque issued by the first defendant, it is their bounden duty to honour the said cheque and make payment. But in order to gain unlawfully with malafide intention, the third defendant has dishonoured the said cheque.
Immediately after receipt of the endorsement, the plaintiff has caused legal notice on 22.06.2002. The defendants have given reply to the said notice. Thereafter, the plaintiff filed a criminal complaint against the defendants in C.C.No.35417/2002 on the file of XVI ACMM, Bangalore u/s 138 of N.I. Act and the same is pending. Even after issuance of notice and filing case, the defendants were in due for sum of Rs.38,61,604/- as on the date of filing the suit. Hence, the suit is filed.
3. The defendants No.1 & 2 inspite of summons remained absent and placed exparte. The third defendant- Bank appeared and filed written statement, stating that the suit as not maintainable against third 5 O.S.No.2065/2009 defendant both in law and on facts and lacks merit and is traversty of truth given for the purpose of this case. This defendant is not privy or party to the alleged suit transaction. The transactions of third defendant are governed by the Banking Regulation Act 1949 and N.I. Act. Banking business to be done as per R.B.I. guidelines issued from time to time. Manager of third defendant had no authority, actual or otherwise to certify post dated cheque. This defendant is relying on the General Circular No.13 dated 06.05.12992. The post dated cheque is not recognized as negotiable instrument and the instrument is void in the eye of law. Any promise held out in respect of such an instrument is also void. Such a promise if any held out by the Manager is not authorized by the bank and has been prohibited in terms of above circular. This defendant has denied all the averments of the plaint.
It is submitted by this defendant that the second defendant is a proprietor concern and first defendant is its proprietor. It was maintaining the accounts with this defendant. In the course of business, the third defendant has discounted the export bills. The said bills were not released. Hence, the loan of the defendants 1 & 6 O.S.No.2065/2009 2 with the third defendant was outstanding. At that point of time, the first defendant represented to the third defendant that he has approached the plaintiff-bank for taking loan by giving post dated cheques with the understanding that before the date of cheque, the loan would be sanctioned by the plaintiff. It is reported that the said cheque was marked 'good for payment' by the Manager of the third defendant bank and the understanding letter, stating that the said cheque will be honoured on presentation was issued. All these were done by the then Manager on the representation of defendants 1 & 2. The third defendant has stated that there is no practice in the banking industry to make the cheque 'good for payment'. Post dated cheque cannot to be marked 'good for payment' as the drawer of the cheque can countermand the payment before the payment at any time. The defendants 1 & 2 cleared the loan of the third defendant and the third defendant released the security in favour of the defendants 1 & 2. It transpires that based on the post dated cheque and the alleged letter of undertaking the plaintiff is laboring under the impression that the third defendant has 7 O.S.No.2065/2009 guaranteed the loan given by the plaintiff to the defendants 1 & 2. The letter dated 30.04.2002 said to have been issued by the third defendant's branch Manager cannot be construed as a guarantee for the payment of the cheque in question. The said letter is without any authority of the bank and does not bind the bank. The letter dated 30.04.2002 shows that the same has been issued on behalf of Kohinoor Exports and therefore, no liability could be attributed against the bank. The bankers have stopped marking of the cheques. The plaintiff is colluding with defendants 1 & 2 to make unlawful gain. The third defendant has not done any illegal thing. Hence, the third defendant is not liable to pay any amount to the plaintiff. Therefore, this defendant prayed to dismiss the suit with cost.
4. In view of the averments of plaint and written statement, the following issues are framed:-
1) Whether the Plaintiff co-operative bank entitled to recover suit amount of Rs.38,61,604/- with current and future interest at 18% p.a. compounded with monthly rests from 23.2.2005 until the repayment along with the costs of the suit 8 O.S.No.2065/2009 against the defendants 1 to 3 jointly and severally?
2) Whether the Plaintiff co-operative bank also entitled to receive a recovery certificate for the suit amount as shown as per issue No.1 for recovery against defendants 1 to 3 jointly and severally?
3) Whether the defendant No.3 bank proves that it is not liable to make any payment as guarantee to the suit amount and the suit of the Plaintiff bank lacks jurisdiction to recover the suit amount jointly and severally defendant No.3 along with defendant No.1 and 2?
4) Whether the suit of the Plaintiff bank lies within the jurisdiction of this court?
5) What order or decree?
ADDL. ISSUE Whether the suit of plaintiff is barred by limitation?
5. During the course of evidence, the plaintiff-bank examined P.W.1 and got marked documents Ex.P.1 to Ex.P.15 and closed its side. The third defendant 9 O.S.No.2065/2009 examined D.W.1 & D.W.2 and got marked documents Ex.D.1 to Ex.D.10 and closed its side.
6. Heard arguments.
7. My answer to the above issues is as follows:-
Issue No.1:- Partly in the affirmative; Issue No.2:- Partly in the affirmative; Issue No.3:- In the affirmative; Issue No.4:- In the affirmative; Addl. Issue:- In the negative;
Issue No.5:-As per final order, for the following:-
REASONS
8. ISSUE No.1:- In order to prove its case, the plaintiff-bank examined its Senior Manager as P.W.1. This P.W.1 has filed his sworn affidavit in the form of chief examination and stated that the first defendant is a customer of third defendant-Bank, who introduced the first defendant to the plaintiff. The first defendant is carrying on business under the name and style of M/s Kohinoor Exporters- the second defendant. During last week of April, 2002, the first defendant approached the plaintiff for short term loan for his business purpose. The third defendant agreed to extend its guarantee to the said loan. Upon the guarantee of third defendant, the 10 O.S.No.2065/2009 plaintiff granted loan of Rs.26,00,000/-. The plaintiff, after deducting interest for 45 days, issued pay orders bearing No.022231 dated 02.05.2002 for Rs.21,00,000/- and No.022232 dated 02.05.2002 for Rs.4,13,095/-. Both pay orders are drawn in the name of first defendant and payable to the first defendant at the account maintained with the third defendant-Bank. The first defendant for repayment of said loan amount issued a post dated cheque bearing No.086432 dated 15.06.2002 drawn on State Bank of Mysore- third defendant for Rs.26,00,000/-. In view of guarantee letter and endorsement of cheque by the third defendant, the defendants are jointly and severally liable to pay a sum of Rs.26,00,000/- as on 15.06.2002 to the plaintiff-bank. The third defendant as a token of its liability endorsed upon the said cheque issued by the first defendant as 'marked good for payment'. The said fact of guarantee was also confirmed through its letter dated 30.04.2002 wherein the third defendant-bank promised the plaintiff that they will honour the said cheque dated 15.06.2002 bearing No.086432 for Rs.26,00,000/-. On the promise made by the defendants, the plaintiff presented the 11 O.S.No.2065/2009 above said cheque for encashment. But the third defendant has returned the said cheque unpaid with an endorsement 'payment stopped by the drawer'. Since the third defendant guaranteed the repayment of the loan and cheque issued by the first defendant, it is their bounden duty to honour the said cheque and make payment. But in order to gain unlawfully with malafide intention, the third defendant has dishonoured the said cheque. Immediately after receipt of the endorsement, the plaintiff has caused legal notice on 22.06.2002. The defendants have given reply to the said notice. Thereafter, the plaintiff filed a criminal complaint against the defendants in C.C.No.35417/2002 on the file of XVI ACMM, Bangalore u/s 138 of N.I. Act and the same is pending. Even after issuance of notice and filing case, the defendants were not cared to repay the loan account and they are liable to pay the outstanding balance.
9. The oral evidence of P.W.1 is supported by documents Ex.P.1 to Ex.P.15. The Ex.P.1 is general power of attorney authorizing the P.W.1 to prosecute the suit. The Ex.P.2 is resolution-cum-board meeting held on 12.01.2012 authorizing P.W.1 to represent on behalf of 12 O.S.No.2065/2009 the plaintiff. The Ex.P.3 is letter written by authorised signatory of SBM to the Chairman of plaintiff-bank, promising to honour the cheque No.086432 dated 15.06.2002 for Rs.26 lakhs. The Ex.P.4 is copy of legal notice issued by the plaintiff to defendants 1 & 3 calling upon them to pay sum of Rs.26 lakhs. The Ex.P.5 is returned RPAD cover. The Ex.P.6 is postal acknowledgement served to SBM. The Ex.P.7 is legal notice dated 26.06.2002 to DGM, SBM. The Ex.P.8 is postal acknowledgement served to SBM. The Ex.P.9 is reply notice dated 5.7.2002 by DGM, SBM. The Ex.P.10 is reply notice by first defendant. The Ex.P.11 is letter by plaintiff to DGM, SBM dated 18.06.2002. The Ex.P.12 is letter by third defendant to the plaintiff dated 19.06.2002. The Ex.P.13 is letter by Kohinoor Exports to plaintiff dated 30.06.2002. The Ex.P.14 is cheque dated 15.06.2002. The Ex.P.15 is bank endorsement with memo.
10. The third defendant examined its present Branch Manager as D.W.1. He has filed his sworn affidavit before the Court in lieu of chief-examination. He has stated that this defendant is not privy or party to the 13 O.S.No.2065/2009 alleged suit transaction. The transactions of third defendant are governed by the Banking Regulation Act 1949 and N.I. Act. Banking business to be done as per R.B.I. guidelines issued from time to time. Manager of third defendant had no authority, actual or otherwise to certify post dated cheque. This defendant is relying on the General Circular No.13 dated 06.05.12992. The post dated cheque is not recognized as negotiable instrument and the instrument is void in the eye of law. Any promise held out in respect of such an instrument is also void. Such a promise if any held out by the Manager is not authorized by the bank and has been prohibited in terms of above circular. This defendant has denied all the averments of the plaint.
11. He has contended that the second defendant is a proprietor concern and first defendant is its proprietor. It was maintaining the accounts with this defendant. In the course of business, the third defendant has discounted the export bills. The said bills were not released. Hence, the loan of the defendants 1 & 2 with the third defendant was outstanding. At that point of time, the first defendant represented to the third 14 O.S.No.2065/2009 defendant that he has approached the plaintiff-bank for taking loan by giving post dated cheques with the understanding that before the date of cheque, the loan would be sanctioned by the plaintiff. It is reported that the said cheque was marked 'good for payment' by the Manager of the third defendant bank and the understanding letter, stating that the said cheque will be honoured on presentation was issued. All these were done by the then Manager on the representation of defendants 1 & 2. The third defendant has stated that there is no practice in the banking industry to make the cheque 'good for payment'. Post dated cheque cannot to be marked 'good for payment' as the drawer of the cheque can countermand the payment before the payment at any time. The defendants 1 & 2 cleared the loan of the third defendant and the third defendant released the security in favour of the defendants 1 & 2. It transpires that based on the post dated cheque and the alleged letter of undertaking the plaintiff is laboring under the impression that the third defendant has guaranteed the loan given by the plaintiff to the defendants 1 & 2. The letter dated 30.04.2002 said to 15 O.S.No.2065/2009 have been issued by the third defendant's branch Manager cannot be construed as a guarantee for the payment of the cheque in question. The said letter is without any authority of the bank and does not bind the bank. The letter dated 30.04.2002 shows that the same has been issued on behalf of Kohinoor Exports and therefore, no liability could be attributed against the bank. The bankers have stopped marking of the cheques. The plaintiff is colluding with defendants 1 & 2 to make unlawful gain. The third defendant has not done any illegal thing. Hence, the third defendant is not liable to pay any amount to the plaintiff.
12. In support of its case, the D.W.1 has produced documents Ex.D.1 to Ex.D.6. The Ex.D.1 is certified copy of the order in C.C.No.35417 dated 21.01.2010. The Ex.D.2 is certified copy of the order in C.C.No.35417/2002 dated 27.07.2011. The Ex.D.3 is Bank Circular dated 06.05.1992. The Ex.D.4 is notice dated 14.06.2002. The Ex.D.5 is notice dated 11.07.2002. The Ex.D.6 is certified copy of judgment in Crl.P.No.1137/2004.
16 O.S.No.2065/2009
13. In the cross-examination, the P.W.1 has admitted that as per sanction order of the Head Office, the loan was disbursed by the then Manager. The defendants 1 & 2 were not hold S.B. Account prior to this loan. He has stated that he is not sure about S.B. Account. Generally, the loan would be sanctioned to the account holders. He further stated that at the time of sanctioning the loan, the financial statements of borrower for 3 years will be verified. So also income tax returns. He has admitted that in case of advancing loan, the bank used to get the application for loan and other documents and then they used to get the loan documents signed by the borrowers and guarantors and in case of loan of Rs.50,000/- or more, they used to get the security to the said loan. The defendant's counsel has questioned the witness that can you say why above procedure was not followed in the present case while granting the loan? He has replied that the party came to his office along with Manager of SBM, Vyalikaval branch and more over party requested to give the loan through discounting of cheque and it is purely temporary accommodation for 45 days and therefore, they have not followed above procedure. 17 O.S.No.2065/2009 It shows that at the time of sanctioning loan, the plaintiff-bank has not followed the above procedure in favour of the defendants 1 & 2. He has further admitted that there is no practice of granting loan to the third parties on guarantee of another bank. There is recovery branch in their head office to look after the recovery matters in co-ordination with branch managers. He has admitted that their bank has filed criminal case against the defendants before CMM Court and the Hon'ble High Court of Karnataka in Crl.Petition No.1137/2004 has quashed the proceedings against third defendant on 27.02.2008. He does not know whether the criminal case against defendants 1 & 2 is also dismissed by CMM Court for non-prosecution. He has admitted that they used to enquire the customer regarding non-sanction of loan by other at the time of sanctioning of loan. Further the defendants questioned this witness that what are the records to show the recommendation of the loan by the then manager of the plaintiff-bank and sanction of the loan by Head Office? He has replied that the cheque issued by defendant duly endorsed by the then branch manager of SBM, Vyalikaval Brach itself is a primary 18 O.S.No.2065/2009 document for sanction of loan. He does not know the limit of amount to be sanctioned by the manager at that time. He has admitted that while sanctioning the loan, the branch manager will put up the financial condition and history of the borrower with recommendation. Question of recommendation in this case does not arise as it is temporary accommodation. He has denied that the then manager of the plaintiff-bank had no power to issue letter as per Ex.P.3. Further he has admitted that third defendant has given reply to this notice. He denied the suggestion that the defendant No.3 is not a guarantor for the loan transaction and that plaintiff is not entitled to proceed against third defendant. He has denied the other suggestions.
14. In the cross-examination, the D.W.1 has stated that he has no personal knowledge about the facts and transaction but he knows the same on records. There are many correspondences between plaintiff and defendant No.3 regarding administrative matters apart from financial matters. He has admitted that Ex.P.3 is the letterhead of the third defendant-bank. It also bears seal of office of third defendant. Normally, the letterhead pad 19 O.S.No.2065/2009 and seals will be in the custody of concern bank officers. He admitted the seal of the bank appearing on back page of Ex.P.14 is their bank. He has answered to the question 'what do you mean by marked good for payment?' that it means the cheque may be honoured without any reference to banking practice and it is grammatical meaning. But, there is no such practice in the bank to mark any cheque 'good for payment'. He has further answered to the question 'Whether third defendant has undertaken to honour the Ch.No.086432 dt:15.06.2002 as per Ex.P.3? that the then Manager has undertaken to honour the cheque as noted in Ex.P.3. He has further stated that in normal circumstances, the person authorized by the bank will represent the bank as mentioned in Ex.P.3. The defendants 1 & 2 obtained loan prior to 2002. He denied the suggestion that Ex.P.3 fulfills all requirements to offer guarantee. He has admitted that based on the post-dated cheques, bank used to initiate action against borrower. He further stated that he did not ask any explanation from the then manager about Ex.P.3. He did not inform the head office about Ex.P.3. He denied the suggestion that the plaintiff 20 O.S.No.2065/2009 sanctioned the loan to the defendants 1 & 2 only due to guarantee offered by defendant No.3.
15. The third defendant examined its Deputy Manager as D.W.2- Raghavendra Kini. This D.W.2 has filed sworn affidavit stating that he was the Branch Manager of the third defendant during 19.05.2001 to 18.05.2002. The third defendant is not privy or party to the suit transaction between plaintiff and defendants 1 &
2. The transaction of third defendant is governed by the Banking Regulation Act 1949 and N.I. Act 1881. Banking business has to be conducted as per Reserve Bank of India guidelines issued from time to time. The Manager of third defendant has no authority, actual or otherwise to certify post dated cheque. This defendant is relying on General Circular No.13 dated 16.05.1992. The post dated cheque is not recognized by negotiable instrument and the same is void in the eye of law.
16. The D.W.2 has further stated that the Branch Head can issue a bank guarantee only on 100% cash margin. The letter of undertaking issued by him cannot be construed as Bank Guarantee as Bank Guarantee is issued after following various formalities such as 21 O.S.No.2065/2009 application, payment of bank charges, security for the guarantee, sanction from competent authority, issue of guarantee bond on stamp paper and will be issued as per prescribed format only. The guarantee bond for above Rs.50,000/- has to be signed by two officers of the Bank. The holder of the guarantee bond has to obtain confirmation from Regional Office/Head Office before acting on it. The undertaking letter does not fulfil any of the above criteria and cannot be construed as bank guarantee. He has further stated that the document is not in prescribed format and the defendant-bank had neither issued the bank guarantee nor stood as guarantor for defendants 1 & 2.
17. The D.W.2 has further stated that as per the request of customer, he has marked cheque as good for payment on behalf of M/s Kohinoor Export. The marking of cheque and issue of letter is not as per banking practice. The letter of undertaking is just a supporting paper obtained by the second defendant to the cheque under reference and not a guarantee to repay the loan of defendants 1 & 2. He deposed that he has not issued any letter of introduction to the plaintiff-bank for granting 22 O.S.No.2065/2009 any loan to the defendants 1 & 2 nor he has visited the plaintiff-bank for executing any loan documents as guarantor either in his personal or official capacity. The loan was sanctioned by the plaintiff-bank on its own as per understanding with the defendants 1 & 2. There is no practice of discounting post dated cheques in banks.
18. The D.W.2 has contended that the first defendant had given a letter on 14.06.2002 requesting stop payment of the cheque alleging dispute between the plaintiff and defendants. Hence, return of the cheque endorsing 'payment stopped by the drawer' by third defendant-bank is in order. The third defendant is not liable to pay the amount claimed by the plaintiff-bank.
19. The D.W.2 has stated that a Domestic Enquiry was instituted against him by bank and after due course of enquiry, the third defendant has taken disciplinary action against him and demoted him from Middle Management Grade-3 to Junior Management Scale-1 as there is wrong impression created in public minds due to his conduct and for putting the Bank into litigation uncalled for. The plaintiff-bank has filed Criminal Case in C.C.No35417/2002 against the third defendant and 23 O.S.No.2065/2009 proceeding against Bank Manager was quashed by Hon'ble High Court of Karnataka in Crl.Petition No.1137/2004. In support of his evidence, he has produced Ex.D.7- covering letter dated 20.08.2014. The Ex.D.8 is R.B.I. circular dated 20.09.1978. The Ex.D.9 is circular dated 26.11.1983. The Ex.D.10 is circular dated 12.02.1985.
20. In the cross-examination, the D.W.2 has stated that he was branch manager of the third defendant. He came to know about the plaintiff-bank only through first defendant. He knew about the first defendant only in 2001 but not earlier. The first defendant was customer of his bank. He has stated that he has not given any undertaking to his bank stating that he is responsible for any misappropriation or exceeding of powers. As per the request of first defendant, he endorsed on Ex.P.14, which bears his signature and bank seal. He has stated that he visited the plaintiff-bank once after return of the cheque. The first defendant requested that he is intended to avail loan from plaintiff-bank and for that purpose, he wants endorsement on cheque. He has answered to the question "What do you mean by 'marked good for 24 O.S.No.2065/2009 payment'? that such type of endorsement were being made earlier during 1957 to 1960. The meaning of said endorsement is that cheque is genuine, signature is genuine and drawer of cheque is genuine. He has further stated that he does not know based on his endorsement, the amount was given by plaintiff to first defendant. At the time of his endorsement, the cheque was filled and signed, which is drawn in the name of plaintiff. He did not ascertain whether the first defendant was having any transaction with plaintiff-bank. The cheque was followed by Ex.P.3- letter. He has admitted that he was kept under suspension on the allegation that I was exceeded by power. The defendants 1 & 2 were holding current account since prior to reporting the duty at third defendant. The defendants 1 & 2 were availing overdraft facility. There was no outstanding balance payable by defendants 1 & 2 as on 15.06.2002. They were regular customers. He has admitted that before sanctioning overdraft facility, bank used to verify the genuine requirement of customers and that the amount released by the plaintiff was credited to the account of defendants 1 & 2 at his branch. Since his head office asked me to 25 O.S.No.2065/2009 resolve the matter, he went to the plaintiff-bank after dishonour of cheque. There is a bar to stand as a guarantor by the bank as per clause (vi) of Ex.D.9. As on Feb.2002, the defendants 1 & 2 might have requested for credit facility as customers. He wrote Ex.P.3- letter only at the request of defendant No.1. He further stated that as per letter- Ex.P.3, he promised as a branch manager of third defendant to honour the Ch.No.86432 dated 15.06.2002. He denied the question 'you also promised to pay Rs.26 lakhs within 45 days?'. After 4-5 days of date of the letter- Ex.P.3, the payment might have bee credited to the account of defendants 1 & 2. About Rs.15 lakhs was utilized for repayment of the dues of defendants 1 & 2 to the third defendant. He has admitted that defendants 1 & 2 were exhausted their overdue facility as on Ex.P.3 and Ex.P.3 & Ex.P.14(a) are written in his official capacity. He further stated that he verified the genuine requirement of credit facility by defendants 1 & 2. He does not know why the loan was not sanctioned by his bank as he was not sanctioning authority for higher amount of Rs.26 lakhs. He did not consider request of defendants to sanction cash credit facility of 26 O.S.No.2065/2009 Rs.50 lakhs. He does no know total amount credited to the account of defendants 1 & 2.
21. The overall case of the plaintiff is that the defendants 1 & 2 approached the plaintiff through the third defendant. The State Bank offered to extend the guarantee to the said loan and upon the guarantee, the plaintiff granted loan of Rs.26 lakhs after deducting the interest of 45 days and issued two pay orders for Rs.25,13,095/- and the same were issued in the name of first defendant at the account maintained by the first defendant with the third defendant- Bank. The third defendant issued a guarantee letter by marking and endorsing the cheque by the third defendant. The important ingredient in this case is that issue No.1 framed by this Court. The issue No.1 is whether the plaintiff is entitled to recover suit amount of Rs.38,61,604/- with current and future interest at 18% p.a. compounded with monthly rests from 2302.2005 until the repayment along with the costs of the suit against the defendants 1 to 3 jointly and severally. It is an important fact that the defendants 1 & 2 have approached the plaintiff-bank for financial assistance. As 27 O.S.No.2065/2009 per their request, the plaintiff-bank has sanctioned loan. The plaintiff-bank has contended that the third defendant-bank Manager has given a letter- Ex.P.3 stating that loan has been given to the defendants 1 & 2. Therefore, the plaintiff has taken that letter as guarantee and sanctioned the loan. As per the contention of third defendant, the transaction of third defendant is governed by the Banking Regulation Act 1949 and Negotiable Instruments Act and Banking Business to be done as per guidelines of R.B.I. from time to time and the Manager of third defendant has no authority, actual or otherwise to certify post dated cheque without placing reliance upon the Circular dated 06.05.1992, which is marked as Ex.P.8. The post dated cheque is not recognized as negotiable instrument and instrument is void. It is an admitted fact that the third defendant has not issued any guarantee bond or guarantee letter and the bank itself has not authorized to issue such a guarantee letter or marking the cheques and the banking transaction are governed by the banking laws and rules of R.B.I. Though it has been done by the third defendant in good faith, he has given endorsement on the back side of the cheque 28 O.S.No.2065/2009 'good for payment'. In that regard, the plaintiff has filed criminal case against the defendants 1 to 3 for the dishonour of cheque u/s 138 of N.I. Act. The defendants have challenged the said case before the Hon'ble High Court of Karnataka. The Hon'ble High Court of Karnataka passed the orders in Crl.Petition No.1137/2004 and quashed the proceedings against third defendant.
22. Therefore, it is evident from above pleadings, evidence and documents that the defendants 1 & 2 are held responsible for the said loan transaction. The third defendant has issued an endorsement on back side 'good for payment'. The third defendant has issued letter to the plaintiff-bank is not a guarantee letter. As per the guidelines of the Reserve Bank of India, the third defendant is not entitled to issue such type of letter. The third defendant has not empowered the then Manager to issue such type of endorsement and letter. Therefore, the third defendant is not responsible for the repayment of loan. The then Manager of the third defendant has committed mistake in issuing endorsement 'making good for payment, on back side of the cheque and issuing letter. In that the bank has taken action against the then 29 O.S.No.2065/2009 Manager of the third defendant and demoted him. The D.W.2 has stated that he has done the same as Manager of the plaintiff-bank and not in individual capacity. The criminal case initiated against the third defendant for recovery of the amount has been quashed by the Hon'ble High Court of Karnataka. The third defendant is not a surety or guarantor for the loan obtained by the defendants 1 & 2. The Manager of the third defendant has not executed any guarantee. Hence, the defendants 1 & 2 alone are held liable to pay the suit claim amount to the plaintiff-bank.
23. The counsel for the plaintiff has relied on the following citations:-
i) Section 6 of the Banking Regulation Act, 1949;
ii) Section 115 of Indian Evidence Act, 1872;
iii) AIR 1997 KARNATAKA 253 (G.C. Prabhuswamy v/s Special Deputy Commissioner, Tumkur & others);
iv) AIR 1997 KARNATAKA 256 (Bellam Thimmappa & others v/s Karnataka Slum Clearancee Board & others);
v) AIR 2006 ANDHRA PRADESH 286 (Darsi Masthanamma v/s Mandiga Rama Krishna);30 O.S.No.2065/2009
vi) AIR 2006 ANDHRA PRADESH 292 (M/s Reliance Granite Pvt. Ltd. v/s Government of Andhra Pradesh & others);
vii) AIR 1974 MADHYA PRADESH 75 (Shikharchand & others v/s Mst.Bari Bai & others);
viii) (2015)4 SUPREME COURT CASES 228 (National Bank Limited v/s Ghanshyam Das Agarwal & others);
ix) AIR 2010 SUPREME COURT 2077 (Karam Kapahi & others v/s M/s Lal Chand Public Charitable Trust & another).
I have gone through the above decisions cited by the plaintiff. Section 115 of Indian Evidence Act reads that Estoppel- When one person has by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief. Sub-section (i) The guarantee bond is not in the proper format and (ii) bank cannot share a guarantee letter. Form is prescribed under the Banking Regulation Act. In the present case, the third defendant, though Manager of the third defendant-bank, has given a letter Ex.P.3. I have gone through this Ex.P.3. In the said letter, he has promised to honour the cheque but he has not undertaken to stand as security for the said loan. It is not in a format. It was issued in good faith. He has 31 O.S.No.2065/2009 written this letter to the defendants 1 & 2 on their request. The defendants 1 & 2 are responsible for repayment of entire loan. The Manager of the third defendant has endorsed 'marked for payment' on the back side of the cheque- Ex.P.14 presented by the defendants 1 & 2. The Hon'ble High Court of Karnataka has already discussed about this endorsement that it is not a security of said loan amount. The Manager has endorsed the same as in the capacity of representative of the Bank. These are the above reasons, I come to the conclusion that the citations referred by the plaintiff are not applicable to the case on hand and third defendant is not liable to pay the suit claim amount. On the other hand, the counsel for third defendant has cited a decision reported in AIR (31) 1944 PRIVY COUNCIL 58 (Bank of Baroda Ltd. v/s Punjab National Bank Ltd. & others). It is held in the said decision that a custom has grown up among bankers themselves of marking cheques as good for payment for the purposes of clearance by which they become bound to each other. In the case of a cheque acceptance is not necessary to create a liability to pay as between the drawer and the drawee bank. The liability 32 O.S.No.2065/2009 depends on the contractual relationship between the bank and the drawer, its customer. On going through the above decision, it is clear that the Manager of the third defendant has issued an endorsement on the representative of the Bank and for clearance purpose. Therefore, this citation is applicable to the case on hand.
24. The plaintiff-bank has claimed interest at 18% p.a. on the suit claim amount. The plaintiff-bank has calculated the interest at 18% p.a. till filing of the suit. The plaintiff-bank has claimed future interest at 18% p.a., which is exorbitant. Therefore, I come to the conclusion that the plaintiff-bank is entitled to recover the suit claim amount with simple interest at 9% p.a. from the date of suit till realization from defendants 1 & 2 jointly & severally. Accordingly, I answer issue No.1 partly in affirmative.
25. ISSUE No.2:- In view of my findings on issue No.1, the plaintiff-bank is entitled to receive a recovery certificate for the suit claim against defendants 1 & 2 jointly and severally. Accordingly, I answer this issue partly in affirmative.
33 O.S.No.2065/2009
26. ISSUE No.3:- In view of my findings on issue No.1, the third defendant is not liable to pay the suit claim amount and the plaintiff lacks jurisdiction to recover the same from third defendant. Accordingly, I answer this issue in affirmative.
27. ISSUE No.4:- The third defendant has taken contention that this Court has to jurisdiction to try this suit as plaintiff being a co-operative society. The third defendant has not produced any document to show that this Court bars to try this case. The transaction between the parties held is within the jurisdiction of this Court and the parties are residing within the jurisdiction of this Court. Hence, this Court is empowered to try this case. Accordingly, I answer this issue in affirmative.
28. ADDL. ISSUE:- The transaction of the parties was held during May 2002. The post dated cheque was issued on 15.06.2002. The defendants were calling upon to pay the cheque amount through legal notice dated 22.06.2002. The third defendant received legal notice on 25.06.2002 and replied on 05.07.2002. This suit is filed on 23.02.2005. Therefore, the plaintiff-bank has filed the 34 O.S.No.2065/2009 suit well within the limitation. Accordingly, I answer this issue in negative.
29. ISSUE No.5:- For the reasons stated above, I proceed to pass the following:-
ORDER Suit of the plaintiff-Bank is partly decreed with cost against defendants 1 & 2.
Suit against third defendant is
dismissed.
The plaintiff-bank is entitled to recover a sum of Rs.38,61,604/- from the defendants 1 & 2 jointly and severally with simple interest at 9% p.a. from the date of suit till its realization in full.
Draw decree accordingly.
(Dictated to the Judgment Writer, transcribed by him on computer, printout taken, corrected and then pronounced in the Open Court on this the 25th day of August, 2015).
(G.K. GOKHALE) X Addl. City Civil & Sessions Judge, Bangalore.
ANNEXURE List of witnesses examined for the plaintiff:
PW.1 : M. Raghavendra List of documents exhibited for plaintiff:
Ex.P1 : GPA
35 O.S.No.2065/2009
Ex.P2 : Resolution-cum-board meeting
Ex.P3 : Letter written by SBM
Ex.P4 : Copy of legal notice
Ex.P5 : Returned RPAD cover
Ex.P6 : Postal Acknowledgement served to SBM
Ex.P7 : Legal notice dated 26.6.2002 to DGM,
SBM.
Ex.P8 : Postal Acknowledgement served to SBM
Ex.P9 : Reply notice dated 5.7.2002 by SBM
Ex.P10 : Reply notice by D1
Ex.P11 : Letter by plaintiff to DGM, SBM dated
18.6.2002
Ex.P12 : Letter by D3 to the plaintiff dated
19.6.2002
Ex.P13 : Letter by Kohinoor Exports to plaintiff
dated 30.6.2002
Ex.P14 : Cheque dated 15.6.2002
Ex.P15 : Bank endorsement with memo
List of witnesses examined for defendants:-
D.W.1 : N.M. Krishnamurthy D.W.2 : G. Ravindra Kini
List of documents got exhibited for defendants:-
Ex.D1 : Certified copy of the order in
CC.No.35417/02 dt.21.1.2010
Ex.D2 : Certified copy of the order in CC
No.35417/02 dt.27.7.2011
Ex.D3 : Bank Circular dt.6.5.1992
Ex.D4 : Notice dt. 14.6.2002
Ex.D5 : Notice dt.11.7.2002
36 O.S.No.2065/2009
Ex.D6 : Certified copy of the judgement in
Crl.P.No.1137/04.
Ex.D7 : Covering letter dt.20.8.2014
Ex.D8 : RBI circular dt.20.9.1978
Ex.D9 : -do- dt.26.11.2983
Ex.D10 : -do- dt.12.2.1985
G.K. GOKHALE)
X Addl. City Civil & Sessions Judge,
Bangalore.