Delhi High Court
The Peerless General Finance And ... vs Punjab And Sindh Bank on 7 August, 2007
Equivalent citations: 2008(1)CTLJ74(DEL)
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT Sanjay Kishan Kaul, J.
1. The plaintiff filed the present suit under the provisions of Order xxxvII of the Code of Civil Procedure (for short, the 'said Code') for the recovery of Rs.5,92,98,176.57 which is stated to be due under ten bank guarantees executed by the defendant bank in favor of the plaintiff along with pendente lite and future interest @ 21 per cent per annum.
2. It is averred that one Bhasin Associates (P) Ltd. (hereinafter referred to as Bhasin Associates), a company incorporated under the Companies Act, 1956 was given a contract by M/s Larsen and Tubro Ltd. ( for short, 'L&T' ) for the execution of civil and structural work at Chandrapur. Bhasin Associates is stated to have approached the plaintiff for a loan of Rs.4,00,00,000/-. It is claimed that Bhasin Associates were asked to get guarantees from a 'respectable' bank for the consideration of their request. On 29.09.1988, ten guarantees are stated to have been issued by the defendant of Rs. 40 Lakhs each, the details of which are as under:
Number Date of expiry extended on extended till 1 24/90119/88 28.06.89 21.07.89 28.12.91 2 24/90120/88 28.09.89 19.10.89 28.03.92 3 24/90121/88 28.12.89 19.10.89 28.06.92 4 24/90122/88 28.03.90 5 24/90123/88 28.06.90 6 24/90124/88 28.09.90 7 24/90125/88 28.12.90 8 24/90126/88 28.03.91 9 24/90127/88 28.06.91 10 24/90128/88 28.09.91
3. The terms of the bank guarantees are stated to be similar. The guarantees having been received, the plaintiff claims to have advanced a sum of Rs. 4,00,00,000/- to Bhasin Associates.
4. The plaintiff claims that after paying a sum of Rs.54,10,000/- on various dates in 1989. No other amounts were paid to the plaintiff. Thus, bank guarantee no. 24/90122/88 was invoked vide letter dated 27.03.1990. It is alleged that the defendant delayed payment and ultimately failed to pay. The other bank guarantees are also stated to have been invoked but payment was allegedly not made.
5. It is stated that due to the failure of the defendant to make the payment, a civil writ petition no. 4019/1990 was filed which was dismissed in liming on 14.01.1992. The Supreme Court, vide order dated 18.08.1992 remanded the matter back to the High Court which passed an order dated 02.11.1992. The writ petition was withdrawn on 29.01.1993. A suit no. 330/1992 is stated to have been filed at Calcutta against Bhasin Associates.
6. It is claimed that the plaintiff again sought payment from the defendant by a notice dated 15.02.1993. On failure by the defendant to pay, the present suit was filed.
7. The defendant filed an application seeking leave to defend which was allowed by the order dated 18.03.1996, granting the defendant unconditional leave to defend.
8. The defendant filed a written statement wherein the stand taken is that the suit is not maintainable as the defendant is a stranger to the transaction between the plaintiff and Bhasin Associates. It is claimed that the plaintiff in the SLP filed has stated that the transaction between the plaintiff and Bhasin Associates is a purely bilateral transaction unrelated to any contract between L&T and Bhasin Associates. It is also stated that the defendant did not in any manner guarantee the loan transaction.
9. It is also the case of the defendant that the loan in question is an inter-corporate loan and the defendant bank is barred by RBI regulations from issuing a guarantee under any inter-corporate advance. It is pleaded that the bank guarantees are vaguely worded and the ambiguities being patent, the said bank guarantees are void. It is averred that the contract referred to in the bank guarantees is the contract between Bhasin Associates and L&T and the 'purchaser' referred to in the bank guarantees is L&T and where the amount was 'refundable by the contractor to the purchaser', reference is to L&T only and not to the plaintiff.
10. The defendant has also alleged that Bhasin Associates never approached the defendant with a request to issue bank guarantees in respect of the loan transaction. It is the stand of the defendant that the bank guarantees were issued in September 1998 when a contract was awarded by L&T to Bhasin Associates for the Chandrapur Coal Handling Plant. The guarantees are stated to be in respect of that transaction and have nothing to do with the plaintiff. The defendant has however denied Annexure A to the plaint which is claimed by the plaintiff to be a true copy of the terms of the bank guarantees issued. The defendant has denied knowledge of any advance made by the plaintiff to Bhasin Associates.
11. A plea has also been taken of misjoinder of parties as neither L&T nor Bhasin Associates have been made parties in the present suit and in the SLP as also the suit filed at Calcutta, Bhasin Associates was a party.
12. It is stated that the plaintiff filed a suit in the Calcutta High Court on the basis of the bank guarantees which form the subject matter of the present suit in which the defendant was imp leaded as defendant no. 2. It is averred that the plaintiff sought leave of the court in the Calcutta suit under clause 12 of the Letters Patent Act. However, the Calcutta suit was thereafter withdrawn without any leave of the court to institute or continue separate proceedings. It is thus claimed that the present suit is barred in law.
13. It is also averred that the bank guarantees have not been invoked in the terms thereof and that any letters invoking the bank guarantees are void ab initio and have thus been rightly rejected. In the absence of particulars regarding the extent of the running bills submitted and the mobilization advance recovered, the guarantees could not be invoked in law. L&T has not made any grievance for the non- recovery of the alleged advance. It is claimed that the bank guarantees were neither irrevocable nor unconditional and have not been invoked on the happening of the contingencies for which they were furnished. It is also averred that even if payments were to be made without a demur, the same could be made only if loss or damages were caused or suffered by the 'purchaser' on the default of Bhasin Associates.
14. The defendant has further averred that the plaint has not been signed by a competent person as Mr. Patit Pabon Ray is not the General Manager (Legal) of the plaintiff company and no resolution has been passed as no meeting of the board of directors was called on 22.03.1993 and that Sh. Ray is not the attorney of the plaintiff.
15. The defendant has alleged that the foundation of the suit at Calcutta and the suit at Delhi is the same and the plaintiff cannot be permitted to split up the cause of action into separate suits. The rate of interest claimed has also been alleged to be exorbitant. The defendant has thus prayed for the dismissal of the suit.
16. On the pleadings of the parties, issues were framed on 17.09.1998 which are as under:
1. Whether the plaint has been signed and verified and the suit instituted by a duly authorised and competent person?
2. Whether the bank guarantees were issued by the defendant on the basis of a loan transaction between the plaintiff and M/s. Bhasin Associates Limited?
3. Whether the defendant was obliged to pay under the bank guarantee on default of Bhasin Associates to repay the loan?
4. Whether the bank guarantees in question are to secure inter-corporate advance?
5. Whether inter-corporate advance guarantees to be issued by a Nationalised bank have been forbidden by law and opposed to public policy including Reserve Bank of India Regulations? If so, its effect?
6. Whether the guarantees were unconditional and irrevocable as alleged and the defendant is bound to pay under the same?
7. Whether the bank guarantees are unenforceable being vague and ambiguous?
8. Whether the suit is barred under Order 23 Rule 1(4) CPC?
9. Whether the suit is barred under Order 2 Rule 2 CPC?
10. Whether the suit is bad for misjoinder and non-joinder of parties?
11. Whether the guarantees in question have been invoked in terms of the bank guarantees?
12. Whether the plaintiff was entitled to invoke the guarantees when admittedly there was no breach by Bhasin Associates of its agreement with Larsen & Tubro?
13. Whether the plaintiff is entitled to any amount?
14. Whether the plaintiff is entitled to any interest? If so, at what rate, and for what period?
15. Relief.
17. The plaintiff examined Mr. A.K. Mukhuty, General Manager with the plaintiff as PW 1 and Sh. Patit Paban Ray, General Manager (Legal) of the plaintiff as PW 2 while the defendant filed the affidavit of evidence of Sh. Parmjit Singh Ghawri (DW 1), Sh. Amarjit Singh Jolly (DW 2), Sh. JBS Bedi (DW 3), Sh. Gurmukh Singh (DW4) and Sh. Satinder Pal Singh Kalsy (DW 5).
18. PW 1, who was the General Manager (finance) of the plaintiff at the relevant time has stated in his examination in chief that Bhasin Associates had approached the plaintiff for a loan. The loan was disbursed in ten equal installments of Rs.40,00,000/- each. Bhasin Associates paid only a sum of Rs.54,00,000/- against the sum disbursed. The witness identified the bank guarantees received by the plaintiff and sent to the bank at the time of invocation as PW 1/2 to PW 1/11. He has also identified the letters of invocation as PW 1/15 to PW 1/19. The said witness also identified an extract of the board meeting of Bhasin Associates (PW 1/35).
19. PW 2 in his examination in chief has stated that the plaintiff has claimed a sum of Rs.4 crores on account of the bank guarantees and Rs.1,92,98,176.578 in respect of the interest accrued thereon. It has also been stated that the plaintiff has not dealt with L&T for the performance of any contract between L&T and Bhasin Associates. The said witness has also identified his signatures on the plaint.
20. DW 1 has taken the stand that the defendant being a nationalized bank was prohibited by RBI regulations from issuing a guarantee in respect of inter corporate advances. The said witness had also stated that a letter dated 20.09.1988 (Ex DW/P) was written by Bhasin Associates for an additional ad hoc bank guarantee limit. The stand taken is that the bank guarantees were executed in consideration of L&T having awarded a contract in respect of the Chandrapur Coal Handling plant to Bhasin Associates. It is stated that the bank guarantees were not invoked on the happening of the contingencies for which they were furnished. The witness has also stated that a letter dated 29.09.1988 (Ex. DW 1/6) was issued by the Chief Manager, Head Office, Foreign Exchange Branch of the defendant intimating the approval/sanction and authorizing DW 1 to issue the guarantees. The Sanction memo has been proved by the defendant as Ex. DW 1/7. The affidavits of DW 2 and DW 3 are in similar terms. DW 4 has proved the board resolution of the defendant being Ex. DW 1/8 while DW 5 has proved the letter written by DW 1 on behalf of the defendant (Ex. DW 1/5) as also the letter received from the Head Office, Foreign Exchange (Ex. DW 1/6).
21. It may be noticed that the present suit was being heard along with C.S. (OS) 2835/1998 filed by the plaintiff against Bhasin Associates and transferred to this Court from the Calcutta High Court. On 12.07.2007, learned Counsel for the defendant in the present suit was not available. As the defendants in the two suits are different and Bhasin Associates, the defendant in C.S. (OS) 2835/1998 was already ex parte, an ex parte decree was passed in that suit on 12.07.2007.
22. Learned Counsels for the parties were heard at length. I have considered the submissions of learned Counsels for the parties.
Issue 1: Whether the plaint has been signed and verified and the suit instituted by a duly authorised and competent person?
23. Learned Counsel for the plaintiff contended that Sh. Patit Paban Ray was authorized to sign the plaint, execute the vakalatnama, sign all other pleadings and institute the suit. Learned Counsel for the plaintiff pointed out that a certified copy of the board resolution has been marked as Ex. PW 2/A2. Also, Sh. Ray on his recall as a witness filed an affidavit being Ex. PW 2/A.
24. A perusal of the affidavit PW 2/A shows that Sh. Ray has stated that he was authorized by a resolution of the board of directors dated 22.03.1993 to institute the suit under Order xxxvII of the said Code. Ex. PW2/A-1 is the minutes of meeting of the board of directors dated 22.03.1993 in which at point 'A' it has been stated that "the board may also adopt the following resolution". The said statement is followed by a resolution authorizing Sh. Patit Paban Ray to institute separate suits at Delhi against Bhasin Associates and against the defendant. Ex. PW 2/A2 is another minutes of meeting of the Board of the plaintiff dated 07.02.2006 which records that a resolution was passed on 22.03.1993 authorizing Sh. Ray to file the suit and ratifies and confirms the authority of Sh. P.P. Ray.
25. Learned Counsel for the defendant submitted that the plaintiff had filed IA nos. 1460/2006 and 1461/2006 which were decided on 07.11.2006 granting leave to the plaintiff to produce PW 2 and prove the board resolution dated 22.03.1993. However, the plaintiff has also filed a document of ratification of the authority of Sh. P.P. Ray which was not in accordance with the order dated 07.11.2006.
26. In his cross-examination, on this aspect, Sh. P.P. Ray denied that though the minutes of the meeting dated 22.03.1993 contains the statement that "the board may adopt the following resolutions", the same was a mere proposal to adopt the resolution which was not adopted. The said witness has also stated that he was present at the said meeting though his presence was not recorded as the presence of executives was not recorded. The witness has also denied that he was not authorized by the resolution dated 22.03.1993 to institute the suit.
27. In United Bank of India v. Naresh Kumar , the Supreme Court noted that in case of a company, the pleadings may be signed and verified by the secretary, director or other principal officer who is able to depose to the facts of the case. A company can also authorize any person to sign or verify the pleadings for instance by a resolution of the Board of Directors passed in his favor or by a power of attorney in his favor. In the absence thereof, in cases where pleadings have been signed by one of its officers, a corporation can ratify the said action of its officer in signing the pleadings. Such ratification can be express or implied. The court can, on the basis of the evidence on record, and after taking all the circumstances of the case, specially with regard to the conduct of the trial, come to the conclusion that the corporation had ratified the act of signing of the pleading by its officer. It was also observed that procedural defects that do not go to the root of the matter should not be permitted to defeat a just cause and as far as possible, a substantive right should not be allowed to be defeated on account of a procedural irregularity, which is curable.
28. The plaint in the present suit has been signed and verified by Sh. P.P. Ray stated to be the General Manager (Legal) of the plaintiff company. A perusal of the minutes of the meeting of the board dated 22.03.1993 (Ex. PW 2/A1) shows that the same contains a resolution to that effect which is however preceded by a statement that the board may adopt the resolution. The subsequent minutes of the meeting placed on record (Ex. PW2/A2) dated 07.11.2006 records that the said Sh. P.P. Ray was authorized in the earlier meeting dated 22.03.1993 to sign and verify the pleadings and his authority was being ratified by way of abundant caution.
29. The primary objection to the resolution dated 22.03.1993 is the statement that the same may be adopted and the absence of a statement that the said resolution was in fact passed / adopted. The subsequent resolution (Ex. PW 2/A2) attempts to clarify the position by expressly recording that the said Sh. P.P. Ray was authorized to institute a suit against the defendant by the resolution dated 22.03.1993.
30. It is apparent that in the meeting dated 22.02.1993, the institution of suits at Delhi against the plaintiff and against Bhasin Associates was discussed and a resolution was framed to authorize Sh. Ray to institute the two suits. The resolution was not however specifically passed. No reasons are forthcoming from the said minutes as to why the same was not passed/adopted. However, suits were instituted against Bhasin Associates [C.S. (OS) 2835/1998)] and against the defendant being the present suit, in which pleadings have been signed by Sh. P.P. Ray. The decision in United Bank of India case (supra) is to the effect that technicalities should not be permitted to defeat the substantive rights of parties and in a case where the pleadings have been signed by an officer of the corporation, the corporation can ratify the action of its officer in signing the pleadings. The board of directors of the plaintiff has in a subsequent meeting expressly recognized/ratified the authority of Sh. P.P Ray to institute the present suit. I am of the view that the copy of the minutes of meeting dated 07.02.2006 can be permitted to be taken on record.
31. In my considered view, the defect is a merely technical one and not one of a nature which could not be cured. The resolution permitting Sh. P.P. Ray to institute the two suits was discussed though not passed but subsequently, his authority has been ratified by the board. The suit has thus been properly instituted. The issue is thus decided accordingly.
Issue 2: Whether the bank guarantees were issued by the defendant on the basis of a loan transaction between the plaintiff and M/s. Bhasin Associates Limited?
Issue 3: Whether the defendant was obliged to pay under the bank guarantee on default of Bhasin Associates to repay the loan?
Issue 4: Whether the bank guarantees in question are to secure inter-corporate advance?
Issue 6: Whether the guarantees were unconditional and irrevocable as alleged and the defendant is bound to pay under the same?
Issue 7: Whether the bank guarantees are unenforceable being vague and ambiguous?
32. Learned senior counsel for the defendant submitted that the bank guarantees were issued in respect of an inter-corporate advance. A reference was also made to Section 20 of the Indian Contract Act, 1872 (hereinafter referred to as the 'Contract Act') which provides that an agreement is void where both parties to an agreement are under a mistake as to a matter of fact. Learned Counsel for the defendant sought to contend that the parties were not ad idem and the state of mind of the defendant was different from that of the plaintiff. The plea of the defendant was that the bank guarantees issued were in the nature of performance guarantees in respect of the contract entered into by Bhasin Associates with L&T.
33. It is also the case of the defendant that the bank guarantees are vague and ambiguous. Learned senior counsel referred to Section 29 of the Contract Act which provides that agreements, the meaning of which is not certain or capable of being made certain, are void.
34. Learned Counsel for the plaintiff referred to the cross examination of DW 2 who agreed with the suggestion that the alleged bank guarantees issued in favor of L&T were to secure an alleged advance which was to be made by L&T in favor of Bhasin Associates.
35. Learned Counsel for the plaintiff placed reliance on the judgment of the Apex Court in State Bank of India v. Mula Sahkari Sakhar Karkhana Ltd. to contend that a bank guarantee must be construed on its own terms and is considered to be a separate transaction. The contention that a bank guarantee must be construed in the light of other purported contemporaneous documents cannot be accepted. In B.S.E.S Ltd. v. Fenner India Ltd. , it was observed that to the rule that a bank guarantee must be honoured according to its terms, there are two exceptions, the first being a clear case of fraud and second where there are special equities in favor of the injunction such as irretrievable injury or irretrievable injustice would occur in case the injunction is not granted.
36. A reference was also made to the judgment of the Apex Court in New India Assurance Company Limited v. Kusumanchi K. Rao . In this case, it was observed that when guarantee bonds are reduced to writing, the express terms of this writing containing the guarantee bond would be the repository of the obligations of the guarantor flowing from the surety bond. As per Sections 91 and 92 of the Indian Evidence Act, 1872, no evidence dehors the terms of the agreement, whether documentary or oral, can be led by the parties to get out of the express terms thereof. Whether the express terms of the guarantee bond give rise to the contract of guarantee sought to be enforced will be the only limited enquiry which could be gone into by the courts while deciding the rights and obligations flowing from such contract of guarantee which is a tripartite contract between the creditor, principal debtor and the surety. Once such suretyship agreement is established on the clear terms of the bond then as laid down by the aforesaid decisions of this Court no latitude can be given to the contracting party, namely, the surety or even the principal debtor to enable them to get out of the obligations of the suretyship agreement flowing from such contract, except in exceptional circumstances as indicated in these decisions.
37. Learned Counsel for the defendant on the other hand contended that the first proviso to Section 92 of the Evidence Act would be applicable in the present case as according to it any fact may be proved which would invalidate any document or entitle a person to a decree or order thereon such as a mistake of fact or law. The said provision is as under:
92. Exclusion of evidence or oral agreement - When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying adding to, or subtracting from, its term:
Proviso (1) - Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto, such as fraud, intimidation, illegality, want for due execution, want of capacity in any contracting party, want or failure of consideration, or a mistake in fact or law.
38. In order to appreciate the contentions of the parties, it would be useful to reproduce the terms of the bank guarantees.
In consideration of M/s. Larsen & Toubro Limited, Kansbanal Works, 41, Chowringhee Road, Calcutta-700071 having its registered office at L & T House, Norottam Morarjee Marg, Ballard Estate, Bombay-400038, hereinafter called the 'Purchaser' (which expression shall unless excluded by or repugnant to the context of meaning thereof be deemed to include its successors, administrators, executors and assigns), having agreed to award Design & Execution of Civil & Structural Works including handling, erection & commissioning of all mechanicals, electrical and instrumentation and carry out test to demonstrate performance guarantee parameters being achieved A/c Chandrapur Coal Handling Plant by M/s BHASIN ASSOCIATES PVT. LIMITED, 58, Janpath New Delhi-110001, hereinafter called the 'Contractor' (which expression shall unless excluded by or repugnant to the context or meaning thereof be deemed to include its successors, administrators, executors, and assigns) on the terms and conditions contained in the 'Purchaser's' letter of intent No.(PPR/3006/0505/ADB) dated 26.4.88 which have been unequivocally accepted by the contractor and in consideration of the purchase letter of intent, M/s Peerless General Finance & Investment Co. Ltd., having their registered office at 3, Esplanade East Calcutta-700069 hereinafter called the 'Company' (which expression shall unless excluded by or repugnant to the context or meaning thereof be deemed to include its successors, administrators, executors and assigns), having agreed to pay to the contractor an advance of Rs.40,00,000.00 (Rs. Forty Lakhs only) against a Bank Guarantee to be furnished by the 'Contractor'.
We, Punjab & Sind Bank, IBD, 6, Scindia House, New Delhi hereinafter called the 'Bank' (which expression shall unless excluded by or repugnant to the context or meaning thereof be deemed to include its successors, administrators, executors and assigns), do hereby guarantee and undertake to pay to the 'Company' forthwith on demand at any time up to any money or monies not exceeding a total sum of Rs.40,00,000.00 (Rs. Forth Lakhs only) as may be claimed by the 'Company' without demur and without the company having to prove to be due from the contractor by way of refund of such advance payment or any portion of portions thereof or otherwise as the losses and/or damages caused to or suffered or would be caused to or suffered by the purchaser by reason of default on the part of the contractor to execute the work under the aforesaid contract or for any deficiency or imperfection in the execution of the work there under or for failure by the contractor in the observance and performance of any of the terms and conditions of the said contract in accordance with the true intent and meaning thereof Notwithstanding anything to the contrary the decision of the company as to whether any money is refundable by the contractor to the purchaser or whether the contractor has made any such default or defaults as aforesaid and the amount or amounts to which the company is entitled to by reason thereof will be binding on the bank and the bank shall not be entitled to ask the company establish its claim or claims under this guarantee but shall pay the same to the company forthwith on demand without any demur, reservation, recourse, contest or protest, and/or without any reference to the contractor. Any such demand made by the company on the bank shall be conclusive and binding notwithstanding any difference between the company and the contractor or any dispute pending before any court, tribunal, arbitrator or any other authority;
This guarantee shall expire on 28.06.1989 without prejudice to the company's claim or claims demanded from or otherwise notified to the bank in writing on or before the said date. Should it be considered necessary to extend tis guarantee beyond the said date, the bank undertake to extend from time to time the period of this guarantee till such time as may be required by the company.
The bank further undertakes not to revoke this guarantee during its currency except with the previous consent of the company in writing and this guarantee shall continue to be enforceable till the aforesaid date of its expiry or the last date of the extended period agreed upon as the case may be unless during the currency of the guarantee all the dues of the company under or by virtue of the said contract have been fully paid and its claims satisfied or discharged or the company certifies that the terms and conditions of the said contract have been fully and properly carried out by the contractor and accordingly discharges the guarantee.
Subject to the maximum limit of the bank's liability as aforesaid this guarantee shall cover all claim or claims of the company against the contractor form time to time arising out of or under the said contract and in respect of which the company's demand or notice in writing be served on the bank before the date of expiry of this guarantee mentioned above or of further extended period agreed upon as the case may be.
The bank agrees with the company that the purchaser shall have the fullest liberty without affecting in any manner the bank's obligations under this guarantee to vary any of the terms and conditions of the said contract or to extend the time of performance by the contractor from time to time to postpone for anytime or from time to time any of the rights or powers exercisable by the purchaser against the contractor and either to enforce or forbear to enforce any of the terms and conditions of the said contract, and the bank shall not be released from its liability by reasons of any such variations or extensions being granted to the contractor or for any forbearance, act or omission on the part of the purchaser or any other indulgence shown by the purchaser or by any other matter or thing whatsoever which under the law relating to sureties would, but for this provision, have the effect of so relieving the bank.
The bank also agrees that the company at its option shall be entitled to enforce this guarantee against the bank as a principal debtor in the first instance without proceeding against the contract, and notwithstanding any security or other guarantee that the company may have in relation to the contractor's liabilities.
This guarantee and the powers and provisions herein contained are in addition to and not by way of limitation of or substitution for any other guarantee or guarantees heretofore given to the company by the bank and now existing uncancelled and that this guarantee is not intended to and shall not revoke or limit such guarantee or guarantees.
This guarantee shall not be affected by any change in the constitution of the contractor or the bank nor shall it be affected by any change in the constitution of the company or by any amalgamation or absorption of or with the contractor, bank or the purchaser, but will ensure for and be available to and enforceable by the absorbing of amalgamated company or consent.
The bank has power to issue this guarantee under its memorandum and Articles of Association and the undersigned has full power to sign this guarantee on behalf of the bank.
39. Ex. P W 1/35 is an extract of a Board Resolution of a meeting held on 28.09.1988 of Bhasin Associates which records that the plaintiff has agreed to provide a loan of Rs. 400 lakhs to Bhasin Associates which is to be repaid in ten equal installments of Rs. 40 lakh as also a resolution to accept the offer. Ex. PW 1/ 37 is a receipt on behalf of Bhasin Associates sent to the plaintiff acknowledging the receipt of bank drafts received against the bank guarantees. Ex. PW 1/36 is a proposal for a loan on behalf of Bhasin Associates stated to have been sent to the plaintiff. Ex. PW 1/38 is a letter written by L& T to the plaintiff confirming the contract awarded to Bhasin Associates and expressing their no objection to the financial arrangements between Bhasin Associates and the plaintiff and stating that they were informed by Bhasin Associates that financial assistance was sought from the plaintiff. Insofar as Ex. PW 1/38 is concerned, the defendant contended that the same was not brought to the notice of the defendant.
40. Ex. DW/P is a letter dated 20.09.1988 written on behalf of Bhasin Associates to the defendant for an ad hoc additional guarantee limit of Rs. 400 lakh to support the Chandrapur Contract awarded by L&T. The said letter claims that the contract is a highly prestigious job and the profitability of the same is very good. Ex. DW 1/5 is a letter written by a senior manager of the defendant to the Dy. General Manager recommending the sanction of the additional ad hoc facility of bank guarantee of Rs.400 lakh. The sanction memo of bank guarantees (Ex. DW 1/6) records that ten bank guarantees of Rs.40,00,000/- each are to be issued on behalf of Bhasin Associates. The name of the beneficiary recorded herein is L&T. Similarly, a letter dated 29.09.1988 (Ex. DW /P1) of Bhasin Associates addressed to L&T has been placed on record which is a cover letter for the ten bank guarantees and requesting L&T to release the advance of Rs.4,00,00,000/-.
41. The aforesaid submissions and documents placed on record show that Bhasin Associates had received advances from the plaintiffs against bank guarantees. This is evident from the letter/receipt dated 05.12.1988 of Bhasin Associates acknowledging the receipt of the amount of Rs. 4,00,00,000/- from the plaintiff against bank guarantees. The terms of the bank guarantees reproduced aforesaid record that the plaintiff/'the company' has agreed to pay the 'contractor'/Bhasin associates an advance of Rs. 40,00,000/- against a bank guarantee to be furnished by the 'contractor'. The extract of the minutes of meeting of the board (Ex. PW 1/35) also shows that the plaintiff had agreed to provide a loan to Bhasin Associates which was decided to be accepted. The letter written on behalf of Bhasin Associates to the defendant (Ex. DW/P) only mentions that Bhasin Associates is seeking additional ad hoc guarantee limit but does not mention the party in whose favor the guarantees were to be issued though the reason for seeking the additional credit is the contract entered into with L&T. It is only the sanction memo of the defendant which mentions the name of L&T as the beneficiary. It may be noticed that the letters of extension of bank guarantees being Ex. PW 1/12 to PW 1/14 on behalf of the defendant are addressed to the plaintiff and not to L&T. It is thus apparent that the bank guarantees were issued by the defendant on behalf of Bhasin Associates in favor of the plaintiff.
42. Insofar as the aspect of the monies advanced being an inter-corporate advance is concerned, it may be noticed that PW 1 in his cross examination on 11.01.2001 has taken the stand that the advance given by the plaintiff to Bhasin Associates was in the nature of inter-corporate deposit but the same was against bank guarantees furnished by the defendant.
43. There is no dispute in the proposition that a bank guarantee must be construed on its own terms and not in the light of other contemporaneous documents as observed in the judgment in the State Bank of India case (supra). There is also no dispute that the first proviso to Section 92 of the Evidence Act is to the effect that any fact may be proved which would invalidate a document or entitle a person to a decree or order including a mistake in fact or law.
44. The defendant has in each of the bank guarantees given an undertaking to pay a maximum amount of Rs.40,00,000/- to the plaintiff on a demand at any time as may be claimed by the plaintiff. The terms of the bank guarantees clearly show that the defendant has undertaken to pay the amounts thereof on a demand made by the plaintiff.
45. A perusal of the terms of the bank guarantees issued shows that L&T has agreed to award the execution of certain civil and structural works at the Chandrapur Coal Handling Plant to Bhasin Associates; the unequivocal acceptance by Bhasin Associates of the terms and conditions of the letter of Intent, and that the plaintiff agreed to pay Bhasin Associates an advance of Rs.40,00,000/- against a bank guarantee to be furnished by Bhasin Associates. Further, the defendant has undertaken to pay an amount not exceeding Rs.40,00,000/- on a demand to be made by the plaintiff without demur and without any proof that the refund of the advance paid is due or of any loss or damage caused or that would be likely to be caused by reason of any default on the part of Bhasin Associates in executing the work under the contract. It is also stated in the bank guarantees that the same will not be revoked during their currency.
46. The terms of the bank guarantees thus clearly show that the guarantees were issued to secure the sum advanced by the plaintiff to Bhasin Associates. No doubt reference has been made in the recital to the contract between Bhasin Associates and L&T but the same merely shows the background/circumstances in which monies were advanced to Bhasin Associates in respect of which the bank guarantees were issued. The loan was sought from the plaintiff to enable Bhasin Associates to fulfilll its obligations under the contract and the loan was advanced against the bank guarantees. The circumstances in which the amount was advanced to Bhasin Associates and the bank guarantee issued i.e. the contract entered into with L&T is not in dispute but at the same time it cannot be disputed that the guarantees were issued to secure the advances and not with regard to the performance of the contract. The defendant thus cannot really claim that the plaintiff and the defendant were not ad idem or that there was any mistake.
47. There is no doubt that as laid down in Section 29 of the Contract Act, an agreement the meaning of which is not certain and is also not capable of being made certain, is void. A perusal of the terms show that the same are clear as to the liability of the defendant to pay on a demand by the plaintiff, the amount liable to be paid as also the other terms thereof. The guarantees also specifically state that they are irrevocable during the currency thereof. No conditions have been imposed for the invocation thereof.
48. It may be noticed that when the arguments on the present suit were being heard, it transpired that there were some discrepancies between the certified copies of the examination in chief and cross examination of PW 2 as available with the defendant and the testimony placed on record. It appears from a perusal of the said certified copies and the record that the certified copies were issued prior to the signature of the concerned witness thereon. A perusal of the discrepancies shows that the same are really of a minor nature i.e. insertion of the words 'or whether' and the amount of interest being Rs.1,92,98,176.57'. Also the words 'were not' appear in the copy on record while the word appearing in the certified copy is only 'were' where it has been stated that the guarantees were not in relation to the contract between M/s Larsen and Tubro and M/s Bhasin Associates. The testimony on record is in consonance with the overall testimony and that is the testimony which the learned Judge has taken on record after duly being signed by the witness and that alone ought to be relied upon.
49. The issues are thus decided accordingly.
Issue 5: Whether inter-corporate advance guarantees to be issued by a Nationalised bank have been forbidden by law and opposed to public policy including Reserve Bank of India Regulations? If so, its effect?
50. The defendant contended that the loan in question in an inter-corporate advance in respect of which it could not issue bank guarantees in view of RBI regulations. In this behalf learned Counsel for the defendant referred to EX. DW 1/1 which is a circular, DBOD. NO. GCS.BC.25/C.107(N)-74 dated 01.04.1974. The said circular is as under:
All Scheduled and Non-scheduled Commercial Banks Dear Sirs, GUARANTEE OF INTER COMPANY DEPOSITS/LOANS BY COMMERCIAL BANKS Recently, we have come across instances where commercial banks have executed guarantees in respect of funds accepted by non banking companies form other non banking companies by way of deposits/loans. Considering all the relevant aspects of the problem, particularly the credit control measures initiated by us and the long term interests of the banking system as a whole we are of the view that it is not desirable for commercial banks to issue such guarantees. We, therefore, advise that banks should not execute or renew guarantees covering inter company deposits/loans.
51. Reference was also made to Ex. DW 1/3 DBOD. No.Dir. BC. 25/C.96-84 dated 26.03.1984 in respect of all scheduled commercial banks pertaining to guarantees in respect of inter company deposits which reads as under:
All Scheduled Commercial Banks Dear Sir, GUARANTEE OF INTER COMPANY DEPOSITS/LOANS BY COMMERCIAL BANKS Please refer to our circular DBOD No.Dir BC 44/96-83 dated 30.05.1983. It has been brought to our notice that some banks are issuing guarantees in favor of private financial companies, guaranteering the repayment of multiple deposits kept by them. It is emphasized that guarantees issued for the purpose of indirectly enabling the placement of deposits with non banking institutions are contrary to the instructions issued by us.
2. We shall be glad if you will please confirm that no guarantee has been issued by your bank guaranteeing the repayment of multiple deposits kept by the private financial companies.
3. If any guarantee of the above type has been issued by your bank, the details thereof may be advised to us indicating what corrective action is proposed to be taken.
Yours faithfully, P.E. John Joint Chief Officer
52. Learned Counsel contended that the advices are binding on both the plaintiff and the defendant. Learned Counsel relied on the provisions of the Banking Regulation Act, 1949 (for short, the Banking Act) to contend that the Reserve Bank of India has the power to control advances by banking companies and to give directions. In this behalf, reference was made to Sections 21 and 35A of the Banking Act. DW 2 in his affidavit of evidence has taken the stand that directions, intimations, requests and circulars issued by the RBI have the force of statutory regulations and expressly bars any nationalized bank from issuing a guarantee securing any inter-corporate advance. A similar stand is taken in the affidavits of DW 1 and DW 3.
53. A reference was made to the provisions of Section 10 of the Contract Act to contend that the defendant was not competent to issue a guarantee in respect of inter-corporate advances which was not permissible by law and was opposed to public policy. Further reference was made to Section 23 of the Contract Act which provides what consideration and objects are not lawful which includes objects/consideration forbidden by law and consideration/object opposed to public policy. It was thus contended that the directions issued are in the nature of prohibitions for the defendant and the plaintiff cannot claim to be unaware of the same.
54. Insofar as the issue of inter corporate deposits is concerned, learned Counsel for the plaintiff submitted that Ex. DW 1/3 is an internal circular of the RBI addressed to scheduled commercial banks and not published for the general information of the public and, thus, the same cannot affect the validity of the transaction with a third party.
55. In B.O.I. Finance Ltd. v. The Custodian , the RBI circulars in question therein were found to have been not made public and were confidential documents requiring banking companies to transact businesses in a particular manner being not to enter into buy back contracts which were not according to the terms of the circulars. It was noted that the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 did not provide that transactions entered into with third parties would be invalidated in case of violation of the directions in the confidential circulars. The circulars also did not provide that the transactions would be regarded as void in case of non compliance. It was observed that no stipulation can be made which would adversely affect third parties to whom no directions have been or could be issued and who were not aware of such directions issued to the bank. The said judgment was referred to in Canara Bank and Others v. Standard Chartered Bank .
56. Insofar as the issue of whether the defendant was forbidden by law to issue bank guarantees in respect of inter-corporate advances is concerned, a perusal of the RBI circular No D.B.O.D. No. Dir. BC. 25/C.96-84 dated 26.03.1984 (Ex. DW 1/3) directs banks to confirm that no guarantee has been issued guaranteeing the repayment of multiple deposits kept by private financial companies and inquiring the corrective action proposed to be taken in case such guarantees have been issued. The said circular refers to guarantees issued in favor of non-banking financial companies guaranteeing the repayment of multiple deposits kept by financial companies. Ex. DW 1/1 similarly advises commercial banks against issuing guarantees in respect of funds accepted by non-banking companies from other non-banking companies by way of deposits/loans.
57. In B.O.I. Finance Ltd.'s case (supra), where circulars were issued to banks prohibiting certain nature of transactions, it was observed that no stipulations can be made that would adversely affect third parties who were not aware of the directions and to whom directions cannot be issued. Although that case was in respect of the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992, the principle cannot be disputed that a third party unaware of the directions issued by the RBI should not be adversely affected. The said circulars are issued to scheduled commercial banks in case of Ex. DW 1/3 and to both scheduled and unscheduled commercial banks in the case of Ex. DW 1/1. The claim of the plaintiff is that it was not aware of the same. There is nothing to indicate that the notifications were or could be known to the plaintiff. Thus, the plaintiff's rights under the bank guarantees cannot be permitted to be adversely affected due to a mistake on the part of the defendant in issuing bank guarantees contrary to the terms of the circulars. Ex. DW 1/3 merely enquires as to the corrective measures proposed to be taken by the bank. The circulars Ex. DW 1/1 and DW 1/3 do not provide any consequence in case of issuance of guarantees contrary to the provisions thereof in favor of third parties. The bank guarantees cannot be said to have been invalidated. The issue is thus decided accordingly.
8. Whether the suit is barred under Order 23 Rule 1(4) CPC?
58. The defendant has raised the objection that as the plaintiff had withdrawn the suit at Calcutta without obtaining leave to file a fresh suit, the same is barred under Rule 1(4) of O. XXIII of the said Code.
59. Learned Counsel for the plaintiff submitted that the plaintiff had filed a writ petition against the defendant praying for a direction to the defendant to pay the monies due under the bank guarantees during the pendency of which a suit was instituted at Calcutta against Bhasin Associates for repayment of the principal amount. It is claimed that the defendant was only a proforma party in the said suit and no relief was claimed against it. The plaint in the Calcutta suit is stated to have been amended to provide that no relief was being claimed against the defendant herein. The writ petition was withdrawn with leave to institute fresh proceedings and the present suit was filed on 24.03.1993. The defendant was deleted from the array of parties in the Calcutta suit by a subsequent order dated 12.06.1993. It is thus contended that the present suit is not barred under Rule 1(4) of Order XXIII of the said Code.
60. In support of his submissions learned senior counsel referred to the judgment of a learned single judge of this Court in Man Mohan Singh Bhalla v. H.L. Mehra (H.U.F) through its Karta and Ors. wherein it was observed that sub-rule 4 of Rule 1 of Order XXIII cannot be read so as to bar a suit which has already been instituted before the other suit has been dismissed. The rule is clear and can only be applied to a suit instituted after the withdrawal of the previous suit.
61. Learned senior counsel for the defendant on the other hand contended that the plaintiff cannot be permitted to do indirectly what it cannot do directly.
62. Sub-Rule (4) of Rule 1 of Order XXIII of the said Code provides that a plaintiff can be precluded from instituting any fresh suit in respect of a subject matter or part of a claim where he has withdrawn or abandoned the suit under sub- rule (1) or has withdrawn the suit without obtaining the leave of the court to institute a fresh suit in respect of that subject matter. The relevant provisions are as under:
Order XXIII Withdrawal and Adjustment of Suits
1. Withdrawal of suit or abandonment of part of claim. - (1) At any time after the institution of a suit, the plaintiff may as against all or any of the defendants abandon his suit or abandon a part of his claim:
Provided that where the plaintiff is a minor or other person to whom the provisions contained in Rules 1 to 14 of Order XXXII extend, neither the suit nor any part of the claim shall be abandoned without the leave of the Court.
(3) Where the Court is satisfied,-
(a) that a suit must fail by reason of some formal defect, or
(b) that there are sufficient grounds for allowing the plaintiff to institute a fresh suit for the subject-matter of a suit or part of a claim, it may, on such terms as it thinks fit, grant the plaintiff permission to withdraw from such suit or such part of the claim with liberty to institute a fresh suit in respect of the subject-matter of such suit or such part of the claim.
(4) Where the plaintiff-
(a) abandons any suit or part of claim under sub-rule (1), or
(b) withdraws from a suit or part of a claim without the permission referred to in sub-rule (3), he shall be liable for such costs as the Court may award and shall be precluded from instituting any fresh suit in respect of such subject-matter or such part of the claim.
...
63. The judgment in Man Mohan Singh Bhalla's case (supra) however, is to the effect that a bar under the said provision would not apply in the case of a suit which has been instituted prior to the dismissal of the other suit.
64. The present suit was filed on 24.03.1993 while the suit in Calcutta against Bhasin Associates had been filed on 05.03.1992. A perusal of the plaint in that suit shows that relief was really claimed only against defendant no. 1 i.e. Bhasin Associates. The name of the defendant in the present suit was deleted from the Calcutta suit vide an order dated 12.07.1993. The present suit has been filed prior to the deletion of the defendant from the Calcutta suit. Insofar as the writ petition filed against the defendant in the present suit is concerned, a perusal of the order dated 29.01.1993 shows that the same was withdrawn with leave of the court to file a suit/other proceedings which may be available to the petitioner (the plaintiff herein) in accordance with law. In view of the aforesaid, the suit of the plaintiff is not barred under the provisions of sub rule (4) of Rule 1 of Order XXIII of the said Code. The issue is thus decided accordingly.
Issue 9 : Whether the suit is barred under Order 2 Rule 2 CPC?
Issue 10 : Whether the suit is bad for mis-oinder and non-joinder of parties?
65. Insofar as this aspect is concerned, learned Counsel for the plaintiff contended that the liabilities of Bhasin Associates as principal debtor and of the defendant as guarantor are joint and several and it is open to the plaintiff to initiate separate proceedings against the said two parties. In this behalf, learned Counsel made a reference to the judgment in Kailash Nath Aggarwal v. Pradeshiya Industrial and Investment Corporation wherein it was observed that Section 128 of the Indian Contract Act, 1872 provides that the liability of the surety is coextensive with that of the principal debtor unless otherwise provided by the contract. A reference was also made to State of Bihar v. Damodar Prasad in which it was held that before payment, a surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance.
66. The plaintiff also placed reliance on the judgment in State of Bombay v. National Construction Co., Bombay and Anr. in support of the contention that the cause of action in respect of a claim under a bank guarantee is separate and distinct from a cause of action under the underlying contract. In this case, two suits had been filed, the first to recover the amounts due under bank guarantees and the subsequent suit to claim damages for the breach of the underlying contract. The subsequent suit was held to be not barred.
67. Learned Counsel for the defendant on the other hand contended that no relief had been claimed by the plaintiff against the defendant in the Calcutta suit and thus, the plaintiff cannot claim relief against the defendant.
68. In order to appreciate the contentions of the parties, it would be useful to reproduce the relevant provision of the said code which is as under:
Order II Frame of Suit ...
2. Suit to include the whole claim.
(1) Every suit shall include the whole of the claim which the plaintiff is entitled to make in respect of the cause of action; but a plaintiff may relinquish any portion of his claim in order to bring the suit within the jurisdiction of any Court.
(2) Relinquishment of part of claim-Where a plaintiff omits to sue in respect of, or intentionally relinquishes, any portion of his claim he shall not afterwards sue in respect of the portion so omitted or relinquished.
(3) Omission to sue for one of several reliefs-A person entitled to more than one relief in respect of the same cause of action may sue for all or any of such reliefs; but if he omits, except with the leave of the Court, to sue for all such reliefs, he shall not afterwards sue for any relief so omitted.
Explanation-For the purposes of this rule an obligation and a collateral security for its performance and successive claims arising under the same obligation shall be deemed respectively to constitute but one cause of action.
...
69. The principle insofar as the liability of sureties are concerned, is that the liability of a surety is equal and coextensive with the principal debtor as provided under Section 128 of the Contract Act [Kailash Nath Sharma's case (supra)]. The judgment in State of Bihar case (supra) is to the effect that the surety cannot ask the principal to pursue remedies against the principal in the first instance. Not only that in the present case, one of the terms of the bank guarantee is also that the plaintiff would be entitled to enforce the guarantee against the defendant at the first instance without proceeding against Bhasin Associates. A bank guarantee is a contract distinct from the underlying contract and gives rise to a separate cause of action [State of Maharashtra case (supra)].
70. The defendant had issued bank guarantees to the plaintiff in respect of the amount advanced to Bhasin Associates which were invoked by the plaintiff. Bank guarantees give rise to a separate cause of action from the claim under the underlying contract. The suit against Bhasin Associates was in effect for recovery of the amount of the loan along with the interest due thereon. No relief had been claimed against the defendant herein in that suit and the name of the defendant was in fact subsequently deleted from the Calcutta Suit. Thus, the cause of action in the suit filed against Bhasin Associates is different from the relief being claimed in the present suit. Relief in respect of the bank guarantees had been claimed against the defendant in the Civil Writ Petition filed in this Court. However, as noticed, the same had been withdrawn with leave to institute separate proceedings. Also, in case of invocation of bank guarantees, the claim really lies only against the defendant/bank. Thus, it cannot be said that there is misjoinder of parties or that the plaintiff cannot claim the relief prayed for against the defendant as the cause of action herein is different from the cause of action in the suit filed at Calcutta. The issues are thus decided accordingly.
11. Whether the guarantees in question have been invoked in terms of the bank guarantees?
12. Whether the plaintiff was entitled to invoke the guarantees when admittedly there was no breach by Bhasin Associates of its agreement with Larsen & Tubro?
13. Whether the plaintiff is entitled to any amount?
71. Learned senior counsel for the defendant contended that the bank guarantees had not been invoked in terms thereof. The letters of invocation were not in terms of the bank guarantees. In this behalf, reference was made to the letters of invocation of the bank guarantees. Ex. PW 1/15 dated 27.03.1990 is in respect of bank guarantee no. 24/90/22/88 and states that the said bank guarantee is being invoked as the entire amount and of advance with interest has become due. The letter dated 21.06.1990 (Ex. PW1/17) is a letter invoking bank guarantee no. BG HO 24/90123/88 again stating that the entire amount has become due. Similarly, bank guarantee no 24/90/25/88 has been invoked vide letter dated 10.12.1990 (Ex. PW 1/18). Ex. PW 1/19 is a composite letter dated 14.03.1991 on behalf of the plaintiff invoking the remaining bank guarantee nos. 24/90119/88; 24/90120/88; 24/90121/88; 24/90126/88; 24/90127/88; and 24/90128/88 and calling upon the defendant to make payment of the sum of Rs.2,40,00,000/- exclusive of the amount of Rs.1,60,00,00/- under the other bank guarantees invoked earlier.
72. Learned Counsel for the plaintiff on the other hand submitted that a reading of the bank guarantees show that the same had been issued in consideration of the plaintiff having granted an advance to Bhasin Associates against the bank guarantees to be furnished. The defendant has undertaken in para 2 to pay the plaintiff forthwith on demand any monies not exceeding a sum of Rs.40,00,000/-. The guarantees contemplate payment by the defendant on a demand made by the plaintiff on a default by Bhasin Associates. It was contended that the reference to losses and damages to be suffered by L&T by reason of default on part of Bhasin Associates are not relevant.
73. Learned Counsel for the plaintiff submitted that reference to losses suffered by L&T may be overlooked having regard to the dominant/ main purpose of the bank guarantees which is the promise to pay the amount there under without proof of anything being due and payable to the plaintiff. In support of the plea that main purpose rule is applicable, learned Counsel referred to the decision in Skandia Insurance Co Ltd v. Kokilaben Chandravadan .
74. It was submitted by learned Counsel for the plaintiff that each of the bank guarantees being for Rs.40,00,000/- which together make up the principal amount of Rs.4,00,00,000/- shows that they were meant for invocation by the plaintiff in case of failure of Bhasin Associates to repay the amount advanced by the plaintiff. The dates of expiry also indicate that the same coincide with each of the dates of repayment as provided in the repayment schedule of Bhasin Associates.
75. Reliance was also placed on Ex. PW 1/38, a letter written on behalf of L&T to the plaintiff referring to the request of Bhasin Associates for grant of financial accommodation by the plaintiff.
76. The plaintiff gave certain advances to Bhasin Associates against guarantees issued by the defendant. It is the claim of the plaintiff that Bhasin Associates did not repay the amounts advanced. The advance of Rs.4,00,00,000/- were paid to Bhasin Associates against the bank guarantees. The terms of the bank guarantee merely required a demand to be made by the plaintiff for the payment of the amount. No specific form of making the demand has been prescribed nor was the plaintiff required to furnish any proof of non payment of the money by Bhasin Associates. The bank guarantees were invoked by the letters Ex. PW1/15, PW1/17, PW 1/18 and PW 1/19. A perusal of the said letters shows that the same in effect state that the entire amount along with interest has become due and the bank guarantee is thus being invoked.
77. The terms of the bank guarantees show that the same were issued in respect of the amount advanced to Bhasin Associates by the plaintiff. The plaintiff claims that the principal sum as also the interest due thereon was not repaid by Bhasin Associates. The guarantees were thus invoked. The amount advanced to Bhasin Associates was for the purpose of enabling it to fulfill its contract with L&T. However the guarantees were in respect of the amounts advanced and the non performance of the terms of the contract with L&T was not a condition required for the invocation of the bank guarantees. In fact as noticed, the plaintiff was not even required to provide any proof of any amount being due from Bhasin Associates by way of refund of the advance payment or any loss being caused or damage suffered by L&T by reason of any default on the part of Bhasin Associates. The aforesaid shows that the bank guarantees were invoked in terms thereof. The plaintiff advanced money to Bhasin Associates against the bank guarantees and repayment of the advance had not been made. Thus, the same were invoked in accordance with the terms thereof.
78. The bank guarantees were duly invoked vide letters dated 27.03.1990 (Ex. PW 1/15), 21.06.1990 (Ex. PW 1/17), 10.12.1990 (Ex. PW 1/18) and 14. 03.1991 (Ex. PW 1/19) and no amounts were paid in pursuance to the said letters. The plaintiff is thus entitled to be paid Rs. 4,00,00,000/-. It may be noticed that the amount of Rs.54.00 lakh stated to have been paid by Bhasin Associates is, in fact, towards servicing of interest.
79. The issues are thus decided accordingly.
14. Whether the plaintiff is entitled to any interest? If so, at what rate, and for what period?
80. Insofar as the aspect of interest is concerned, the plaintiff has claimed pendente lite and future interest @ 21 per cent per annum on the principal amount. While the interest rates were initially high, the same have declined thereafter. The bank guarantees were invoked vide various letters between 27.03.1990 and 14.03.1991. The amount thus, should have been paid by the defendant at least by 01.04.1991.
81. I am thus of the view that it would be appropriate to grant simple interest @ 15 per cent per annum on the principal amount of Rs.4,00,00,000/-.
Issue 15: Relief"
82. In view of the aforesaid, a decree is passed in favor of the plaintiff and against the defendant for a sum of Rs.4,00,00,000/- along with simple interest thereon @ 15 per cent per annum from 01.04.1991 till the date of realization. The plaintiff is also entitled to costs.
83. The decree sheet be drawn up in the aforesaid terms.
84. Needless to state that the plaintiff is not entitled to recover the amount twice over, decree also having been passed in CS(OS) No.2835 of 1998 on 12.07.2007.