Calcutta High Court
Besco Ltd vs State Bank Of India & Anr on 26 November, 2009
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
GA No. 3067 of 2009
GA No. 3594 of 2008
GA No. 3568 of 2008
CS No. 234 of 2008
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
Besco Ltd.
Versus
State Bank of India & Anr.
BEFORE:
THE HON'BLE JUSTICE
SANJIB BANERJEE DATED, THE 26TH NOVEMBER, 2009 Appearance:
Mr. Pratik Prakash Banerjee, Adv.
For the plaintiff.
Mr. Pramit Roy, Adv.
Mr. Arnab Mukherjee, Adv.
For the defendant No. 2.
The Court:- Though the plaintiff seeks an extension of the subsisting interim order in this application, all three interlocutory applications in the suit can be disposed of. Accordingly, G.A. No. 3568 of 2008 and GA No. 3594 of 2008 are taken on board by consent of the appearing parties.
The plaintiff caused a bank guarantee to be furnished by the first defendant in favour of the second defendant. The bank guarantee of July 18, 2007, in its material terms, provided as follows:
"1. We hereby undertake and agree with you that if default shall be made by the `Contractor' in performing any of the terms and conditions of the tender or in payment of any money payable to 2 ECIL, we shall on demand pay to you in such manner as you may direct the amount upon your assessing to the extent the Contractor is in default or otherwise maximum amount of Rs.45,32,250/- (Rupees Forty five lacs thirty two thousand two hundred fifty only) or such portion of the guaranteed amount in that case we shall not be liable to pay the said sum, but only the defaulted amount. "2 You will have the full liberty without reference to us and without affecting this guarantee, postpone for any time or from time to time the exercise of any of the powers and rights conferred on you under the contract with the said Contractor and to enforce or force or to forbear from endorsing any power or rights or by reason of time being given to the said Contractor which under law relating to the sureties would but for provisions have the effect of releasing us."
It was an unconditional bank guarantee in the sense that the bank could not question any demand that was made by the beneficiary thereunder. However, the bank's obligation to pay was subject to the beneficiary asserting that default had been committed by the plaintiff in performing any of the terms and conditions of the tender or in payment of any money payable to the beneficiary. The beneficiary was also required to assess the extent to which the plaintiff was in default. In addition, the liability under the guarantee was limited to Rs.45,32,250/- and it was valid till March 31, 2008. The guarantee stipulated that the bank was liable to pay the amount thereunder "only and only if" the beneficiary served the bank a written claim or demand on or before March 31, 2008.
The plaintiff says that there was no written claim or demand made by the beneficiary on the first defendant bank on or prior to March 31, 2008. The plaintiff relies on a communication issued by the bank on August 21, 2008 advising the plaintiff that the bank guarantee had been closed as it had already expired. The plaintiff says that such letter was issued by the bank following the plaintiff's complaint on August 8, 2008 3 that the beneficiary had unilaterally sought an extension of the validity of the bank guarantee.
The plaintiff says that not only was there no invocation of the bank guarantee within the time permitted by the document, it would also appear that the bank had contemporaneously represented that there had been no invocation. The plaintiff assails the subsequent conduct of the bank in releasing payment to the second defendant which, according to the plaintiff, it got to know only upon receiving a bank statement some time in November, 2008. The debit in the plaintiff's account was made early in November,2008.
The bank is not represented and has not used any affidavit. The beneficiary relies on the copy of a document appended at page 105 of the most recent application and submits that such writing would belie the plaintiff's case. The second defendant claims that it would be evident from the document which is dated July 18, 2007 that the guarantee number is specified, the date of issue is stated, the quantum of the guarantee is mentioned and the dates of expiry and claim have been recorded. The second defendant would have the Court believe that the document of July 18, 2007 records that the claim had been made on March 31, 2008. It is an absurd argument and recklessly made in a Court of law. The document is dated July 18, 2007 and merely records the particulars of the guarantee and the "date of claim" that finds mention therein merely records the period by which any claim made under the guarantee would be valid. The document does not record that the claim had been made on March 31, 2008 as it could not have since the document is dated July 18, 2007.
4
The further argument on behalf of the second defendant is upon reliance on the affidavit used by it in G.A. No. 3568 of 2008. At page 16 of such affidavit there is a copy of letter dated March 10, 2008 issued by the second defendant to the bank. The letter reads as follows:
"We invite your attention to the below cited bank guarantee(s) issued by you in our favour on behalf of M/s. Besco Limited, 7B & C, Poonam, 5/2 Russel Street, Kolkata 700 071. In terms of the aforesaid Bank Guarantee (s) we hereby call upon you to extend the said bank guarantee(s) for a period of 6 (six) months from the date of expiry since the requirement of these bank guarantee(s) is/are yet to be fulfilled. In case, we do not receive any extension, this may be treated as our claim against the said bank guarantee".
The second defendant has stated at paragraph 20 of its said affidavit that not only did the bank act contrary to the beneficiary's demand of March 10, 2008, it also failed to adhere to the beneficiary's subsequent instructions of May 8, 2008 and August 2, 2008. The later letters had been issued in furtherance of the first.
As has been noticed above, notwithstanding the bank guarantee being unconditional to the extent of the bank's liability thereunder and further to the extent that the bank could not have relied on any dispute between the plaintiff and the beneficiary for the purpose of refusing payment thereunder, the beneficiary's entitlement to receive payment was only upon the strict compliance of the terms of the guarantee. The opening clause required an assertion to be made by the beneficiary that there was a default committed by the "contractor". It also required the beneficiary to assess in money terms the extent of the default.
If the letter dated March 10, 2008 is taken to be the letter of invocation, which strictly speaking it is not, then the bank was under no obligation to 5 release any payment following the receipt thereof. There is no assertion in the letter of March 10, 2008 that the plaintiff had committed any default. There is no allegation that the beneficiary had suffered any loss and there is no attempt made at assessing the extent of the default that the first clause of the bank guarantee mandated the beneficiary to do.
Since the two subsequent letters that the second defendant relies on were issued after March 31, 2008, it is not necessary to consider such letters at all. However, it would appear from the copies of the such subsequent letters of May 8, 2008 and August 2, 2008 that the beneficiary had merely complained to the bank that the bank had failed to extend the validity of the guarantee. But, nothing in the bank guarantee entitled the beneficiary to either demand any extension thereof or obliged the bank to accede to a request by the beneficiary for extending the validity thereof.
Clearly there was no invocation of the bank guarantee at all prior to the guarantee running out on March 31, 2008. Accordingly, the payment received by the second defendant in respect of the bank guarantee cannot be retained by the second defendant and has to be forthwith returned to the bank.
Since the money paid to the second defendant by the bank in respect of the guarantee remains deposited pursuant to earlier orders, such money will now revert to the bank and the debit in the plaintiff's account will stand reduced accordingly, including the amounts that may have been charged thereon on account of interest.
GA No. 3067 of 2009, G.A. No. 3568 of 2008 and GA No. 3594 of 2008 are disposed of.
There will be no order as to costs.
6Urgent certified photostat copies of this order be supplied to the parties, if applied for, upon compliance will all requisite formalities.
( SANJIB BANERJEE, J) CS.
A.R.(CR).