Karnataka High Court
M/S Bhadrachalam Paper Boards vs M/S Alpha Williams (P) Ltd on 9 August, 2012
Author: Jawad Rahim
Bench: Jawad Rahim
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 9th DAY OF AUGUST 2012
BEFORE
THE HON'BLE MR.JUSTICE JAWAD RAHIM
R.F.A. NO. 1217/2003
BETWEEN:
1. M/S BHADRACHALAM PAPER
BOARDS, NO.31, SAROJINI
DEVI ROAD, SECUNDERABAD,
ANDHRA PRADESH
2. M/S I.T.C LTD.,
(PAPER BOARDS AND
SPECIALITY PAPER DIVISION)
REGISTERED OFFICE AT
VIRGINIA HOUSE NO.37,
J.L.NEHRU ROAD,
KOLKATA - 700 071
AND DIVISIONAL OFFICE AT
NO.106, SARDAR PATEL ROAD,
SECUNDERABAD - 500 003
REP BY R.K.TALWAR
EXECUTIVE VICE-PRESIDENT (FINANCE)
... APPELLANTS
(BY SRI S.MOHAN, ADV.,)
AND:
1. M/S ALPHA WILLIAMS (P) LTD,
143, INFANTRY ROAD,
BANGALORE - 560 001
2
REPRESENTED BY ITS DIRECTOR
2. M/S ORIENTAL BANK OF
COMMERCE LTD.,
RICHMOND ROAD,
BANGALORE - 560 025
... RESPONDENTS
(BY SRI PRASHANTH N.HEDGE, ADV., FOR R2)
THIS RFA FILED UNDER SECTION 96 OF CPC AGAINST
THE JUDGMENT AND DECREE DATED 20.06.2003 PASSED
IN OS.NO.2636/1980 (OLD CASE NO.OS.461/1978) ON THE
FILE OF THE XXXI ADDL. CITY CIVIL JUDGE, BANGALORE,
(CCH NO.14) DECREEING THE SUIT FILED BY THE
APPELLANTS HEREIN FOR RS.1,52,485.00 AGAINST
RESPONDENT NO.1 HEREIN AND DISMISSING THE SUIT
AGAINST RESPONDENT NO.2 HEREIN.
THIS APPEAL COMING ON FOR FINAL HEARING THIS
DAY, THE COURT DELIVERED THE FOLLOWING:
JUDGMENT
Plaintiffs' appeal against dismissal of the suit in O.S.2636/80 against the 2nd respondent.
2. Heard.
3. The factual matrix reveals:
a) Plaintiffs in joint action sought a decree in a sum of Rs.1,52,485/- against defendants 1 and 2, namely M/s 3 Alpha Williams (P) Limited and M/s Oriental Bank of Commerce Limited, jointly and severally on the assertive contention that the plaintiff had undertaken a project to construct a building and engaged several contractors. They accepted the offer of the 1st defendant to provide electrical and sanitary connections to the building in question.
b) In terms of the contract entered into between them, plaintiffs had to pay Rs.1,65,645/- as advance amount subject to its recovery at the rate of 10% on each bill. To release that amount, plaintiff required the 1st defendant to issue bank guarantee.
c) The 1st defendant approached the 2nd defendant and accepting its request, 2nd defendant provided guarantee vide Ex.P3 to indemnify the plaintiffs against any loss to the extent of Rs.1,65,645/- occasioned either due to breach of contract between the plaintiff and 1st defendant, or under any other circumstances.
d) Petitioners claim to have paid not only Rs.1,65,645/- under the agreement as advance, but also 4 released subsequently Rs.1,52,485/-. It is alleged 1st defendant having received the amount, abandoned work, consequent to which the contract was frustrated as the plaintiff decided to recover the advance amount paid. For recovery, they filed suit in which they brought into the party array the defaulting contractor as 1st defendant and the guarantor as the 2nd defendant. They sought decree against defendants 1 and 2 jointly and severally.
e) The 1st defendant despite service of summons remained absent and was treated ex parte. The 2nd defendant bank entered contest denying its liability to pay to the plaintiff in terms of the bank guarantee. To avoid such liability, 2nd defendant took the following defence:
• Bank guarantee was subject to the condition that the 1st defendant would submit for payment progressive bills relating to the work done by it through the 2nd defendant;
• Plaintiffs would not make any payment directly to the 2nd defendant but consider bills submitted through the 2nd defendant;5
• Any breach of the conditions so specified would render the bank guarantee ineffective.
f) Plaintiff did not file re-joinder to such defence but proceeded to take lead evidence based on the propositions in the plaint.
g) In the trial that ensued, plaintiff tendered evidence through its authorized agent as PW1 and examined PW2-
Naresh Kumar Malhotra and relied on 32 documents. On behalf of the 2nd defendant, one Usha Maslekar was examined as DW1.
h) Learned trial judge analyzing the evidence, opined though plaintiff succeeded in establishing 1st defendant was liable to pay to the plaintiff Rs.1,52,485/-, the 2nd defendant could not be held liable for such claim. In that, the trial court recorded a specific finding that the bank guarantee vide Ex.P3 is conditional rendering it ineffective and unenforceable, if there is breach of any of such condition.
i) Assailing it, this appeal is filed.
6
4. Learned counsel was at his best reiterating the plea of the plaintiff, but was at a loss to explain why the plaintiff despite willingness of the 2nd defendant to comply with the terms of Bank guarantee, failed to comply with the conditions imposed on it vide Ex.P3. Learned counsel endeavoured to show that the 2nd defendant was called upon to indemnify the plaintiff in a sum of Rs.1,52,485/-, but it set up a counter-claim. He would submit, the bank guarantee spells out clearly that irrespective of the fact as to who is at fault, 2nd defendant had to pay the amount released by the plaintiff. His core contention is, plaintiff has established before court that the 1st defendant had committed breach of contract, consequent to which plaintiff became entitled to recover the amount.
5. He submits because of breach committed by the 1st defendant, the contract was frustrated and therefore, plaintiff became entitled to invoke the bank guarantee. So far as the 2nd defendant is concerned, it had only to honour the bank guarantee, but it has taken a stand which is untenable. He refers to letters addressed by the bank vide 7 Exs.P8 and P9 and the reply of the 1st defendant at Exs.P10 and P11. He submits the dispute was between defendants 1 and 2 of which the plaintiff had no concern. He therefore seeks to enforce the bank guarantee.
6. All these grounds have met with serious resistance form the 2nd defendant. I do not wish to address to those grounds as the dispute falls in a narrow compass.
7. The question is, whether the plaintiff can invoke the bank guarantee against the 2nd defendant. In view of Clause (4) of the bank guarantee which reads thus:
"This guarantee shall expire on 31st May 1978, at the latest without prejudice to your claim or claims arisen and demanded from or otherwise notified to us in writing on or before the said date should it be necessary to extend this guarantee beyond the said date on account of any unforeseen reasons or for the extension of last date of delivery, as may be mutually agreed between you and the contractor, we undertake to extend the period, as may be mutually settled between you and the contractor.
Not with standing anything mentioned hereinbefore, the Bank Guarantee shall cease to be effective as soon as the full guarantee amount is adjusted against progressive bills to be forwarded to you for payment through us, as mentioned in the contract under clause."8
Therefore, the conditions stipulated are binding on the parties. It spells out that 'all progressive bills for recovery of amount towards contract work performed by the 1st defendant had to be routed through the 2nd defendant and plaintiff, on receipt of such bill, had to process and pay it into the account of the 2nd defendant to keep the transaction alive.'
8. In support of its contention that the bank guarantee is no longer enforceable against the petitioner, the 2nd defendant has brought in evidence through correspondence. Ex.P28 is a letter dated 31.1.1978 addressed to the plaintiff wherein the 2nd defendant has taken exception to the plaintiff making payment directly to the 1st defendant in contravention of the terms and conditions on which the bank guarantee was issued. It reads thus:
'We acknowledge receipt of your letter BP/297/D/745 dated 25.11.78. We also draw your attention to our letter dated 20.01.78. There is no response from M/s Alpha Williams (P) Ltd., when their attention was drawn to the cheques mailed by your office inadvertently to them which were not deposited in their account with us eventually.9
We now call upon you to recover these amounts from them and arrange to remit to us directly. We are forced to do this in view of your knowledge that there were financial commitments of the subject to us and since the inadeqtance on your part might cause difficulties in the recovery of their dues. We would request you to let us have your reply immediately failing which we may have to resort to other impleasant steps which we would positively like to avoid.'
9. The 2nd defendant has relied on a letter addressed by the plaintiffs to them on 11.02.1978 wherein plaintiffs have admitted in clear terms as under:
'2. In defence to the request of M/s Alpha Williams Private Limited, through their letter dated 10th August, 1977, we had only confirmed to you by our letter No.BP/297/(D)/476 of 18.08.1977 that we would be mailing the cheque to you direct. Only for felicitating an y commitments between you and M/s Alpha Williams, with which we are not concerned. As had been advised to you through our letter NO.BP/297/(D)/599 dated 17th January 1978 in response to your letter dated 11th January, 1978 asking us as to whether any payment was due to Alpha Williams and further requesting us to arrange to remind the amount directly to you, we clarified that an amount of Rs.1,49,382.30 was paid to Alpha Williams inadvertise and assured you that we would send all further payment only to you, we in fact stopped payment of a cheque Rs.11,114,54 and posted the same to you as has been to you by our letter No.BP/297(D)/743 dated 25.1.1978 which clearly shows and is a proof of our benefidence regard to the arrangement we agreed to. On the same as our letter to you dated 17th January, 1978 we ever advised M/s Alpha Williams 10 with a copy to you, that should have cleared the cheques sent to them directed you of atleast should have returned the cheques to. This further shown our anxiety that Alpha Williams should only honour their commitments if any, with you. Even our letter No.BP/297(D)/743 of 25th January, 1978, reiterating tht no further direct payments would be made to M/s Alpha Williams in reply to your letter dated 20th January, 1978 requesting us to co- operate with you, shows our good faith to help you in this regard.' Plaintiff to overcome the fact that it had made payment directly to the 1st defendant, by-passing the 2nd defendant, could not claim that it was out of the bank guarantee cover. In this view, the stand of the 2nd defendant that there was breach of the main condition in the bank guarantee rendering it unenforceable has been upheld by the trial court.
9. There is no other material evidence to the contrary to show the 2nd defendant-bank had committed any breach of conditions. When the plaintiffs have violated the main condition on which the bank guarantee was operating, it has to hold itself responsible for the loss. The 2nd defendant could not have been compelled to honour the bank 11 guarantee in the absence of compliance to clause (4) which was the basis on which the bank guarantee was created.
10. In this view, the conclusion of the trial court that the suit claim against the 2nd defendant was not established needs no interference. The same is confirmed. If the plaintiffs have withdrawn the amount deposited by the defendant in court in pursuance to the appellate decree passed before the case was remanded to the trial court, it is ordered the same shall be reimbursed to the 1st defendant.
SD/-
JUDGE vgh*