Bangalore District Court
Kirloskar Electric Company Ltd vs Deutsche Bank on 26 May, 2020
1
Com.OS.No.3215/2001
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE, BANGALORE CITY. (CCH.NO.83)
Dated: This the 26th day of May 2020.
PRESENT : Sri. Jagadeeswara.M.,B.Com,LL.B.,
LXXXII Addl.City Civil & Sessions Judge, Bangalore.
Com.OS No.3215/2001
Plaintiff KIRLOSKAR ELECTRIC COMPANY LTD
an existing company under the Companies
Act, 1956 having its registered office
at Industrial Suburb, Rajajinagar,
Bangalore-560 010 represented herein
by its Company Secretary
Sri H.L.Shankaranarayana Rao.
(By M/s Sundaraswamy Ramdas & Anand -
Advocate)
- Versus -
Defendant DEUTSCHE BANK, AG,
a foreign Bank having its
Bangalore Branch at Raheja Towers,
Ground Floor, West Wing,
26-27, M.G.Road, Bangalore-560 001
Represented herein by one of its Principal
Officers Head-Credit Administration
R.Venugopal.
(By B.K.S. - Advocate)
Date of institution of the suit : 21.04.2001
Nature of the suit (suit on
pronote, suit for declaration
and possession suit for Suit for recovery of money
injunction,etc) :
Date of the commencement 30.10.2010
of recording of the evidence
Date on which the Judgment 26.5.2020
was pronounced
Total duration Year/s Month/s Day/s
19 01 05
2
Com.OS.No.3215/2001
(JAGADEESWARA.M.)
LXXXII Addl. City Civil & Sessions Judge,
Bangalore.
JUDGMENT
Plaintiff has filed this suit for recovery of a sum of Rs.59,54,26,677/-, Euro 837.27, Deutsche Marks 30,459.62 and US Dollars 88683.47 from the defendant with interest at 18% p.a. from the date of suit till realization.
2. Brief facts of the plaintiff's case are as under:
It is contended in the plaint that plaintiff is well known and reputed company involved in the business of manufacture and sale of electrical machinery such as motors, generators, transformers etc. The defendant is a foreign bank and it has a branch at Bangalore. In the course of business, plaintiff used to avail the services of several banks including the defendant bank. Plaintiff had obtained facility of bank guarantee limit of Rs.One Crore and cash credit upto a limit of Rs.2 Crores without any difficulty.
2(a). Further it is also contended in the plaint that plaintiff was also availing credit and other banking facilities from the following banks and financial institutions:-
a) Industrial Credit & Investment Corporation of India Ltd., (now known as ICICI Ltd.,)
b) Bank of India
c) Hong Kong & Shanghai Banking Corporation Ltd.3
Com.OS.No.3215/2001
d) State Bank of Travancore
e) Bank of Baroda
f) State Bank of Mysore
g) State Bank of India
h) Indian Bank In connection with credit facilities so availed, plaintiff executed several documents. One of them being Consortium Agreement dated 23.2.1996 which was entered between the plaintiff on one hand and the above noted all the banks on the other hands, which consists of several provisions relating administration of the credit limits and the interse rights of the banks.
2(b). Further it is contended in the plaint that plaintiff has executed the first supplemental Joint Deed of Hypothecation to the banks on 5.2.1997which includes the various credit limits and facilities extended by the banks including the defendant bank. As per this deal, defendant had agreed to extend the following facilities:
Rs. Crores
a) Cash credit secured by hypothecation of stocks and book debts 4.80
b) Bank Guarantee limit 3.60
c) Letter of Credit 6.00 All the credit facilities of the banks were secured by creating first charge ranking Pari Passu interse over the current assets and movables of plaintiff. Additional security was provided to the banks by creating second charge by a joint mortgage by deposit of title deeds of immovable properties of plaintiff. Hypothecation of immovables of the 4 Com.OS.No.3215/2001 plaintiff was also created in favor of ICICI Ltd., who was acting as an Agent of Consortium banks which had extended credit and other facilities to the plaintiff. In that regard, declaration dated 10-07-1998 was executed by ICICI Ltd.
2(c). Further it is contended in the plaint that relating to credit limit sanctioned by the defendant, plaintiff executed Promissory Note dated 18.08.1997 for Rs.48 Million(Rs.4.80 crores) and Deed of Counter-guarantee dated 18.08.1997 in that regard to the Bank Guarantee and letter of Credit facility to the extent of Rs.100 Million. By letter dated 09.12.1998, the defendant sanctioned an Over draft of Rs.4.80 Crores, Letter of Credit of Rs.5 Crores and Bank Guarantee Limit of Rs.10 Crores to the plaintiff.
2(d). Further it is contended in the plaint that plaintiff by filing application availed another service from the defendant known as 'Cash Management Service' from April 1999 which envisaged collection of cheques and other negotiable instruments on behalf of plaintiff all over the country to make available credit for the said instrument at the earliest and as per its terms and conditions. Defendant could not terminate this facility without giving one month's notice to the plaintiff .
2(e). Further it is contended in the plaint that in the middle of the year 1999, plaintiff faced industrial unrest due to workmen strike resulting decrease of production, stressful market conditions of greater competition and increase in the prices of fuels, petroleum products and electricity etc. The bankers of the plaintiff were appraised of these 5 Com.OS.No.3215/2001 issues and they went out of way to support and assist the plaintiff. Hence, several meetings of Consortium of Banks were held to discuss and arrive at a scheme for supporting the plaintiff in its difficult time. At that time, Bank of India was lead bank of the Consortium. Again Consortium Meeting was held on 28.2.2000, in which defendant's representative Sri.Adwait Nene, expressed certain reservations about accepting the decisions of the Consortium. However he stated to the plaintiff and all the members of the Consortium that the defendant bank would extend the assistance to the plaintiff as per Co-operative limits which may be fixed at the meeting. In the said meeting Consortium of Bankers allocated the share of credit requirements of the plaintiff to each member. In case of defendant, it was indicated that the cash credit limit would be Rs.4.80 Crores, Letter of Credit limit would be Rs.3.50 Crores and Bank Guarantee limit would be Rs.4.75 Crores. Accordingly Minutes of the Meeting of the Members of Consortium was recorded on 28.2.2000 which was circulated by the lead Bank on 20.3.2000.
2(f). Further it is contended in the plaint that as per the Cash Management Service, the defendant was entrusted the work of collecting Cheques as a Collecting Banker of revenues accruing to the plaintiff. The entire revenue was being credited to the cash credit account and was being allocated and disbursed to the other members of the Consortium. There was variations and ups and downs in the business process of the plaintiff. Independent to the Consortium 6 Com.OS.No.3215/2001 Meeting dated 28.2.2000, plaintiff's Chairman had met the Chief Executive of the defendant on 10.2.2000 and impressed him as to measures taken to correct the course of action of the plaintiff and sought co-operation from the defendant. Director of the defendant visited the plaintiff and offered/suffered the existing facilities and all these things were followed by a letter dated 13.3.2000. Simultaneously, discussions with the lower level executives of the defendant were held in which it was suggested that the plaintiff should give a letter assuring the defendant to continue to avail cash management services and certain other aspects. A draft of the letter was also provided to the plaintiff. In terms thereof, plaintiff prepared the letter dated 15.3.2000 and furnished it to the defendant. In the said letter the plaintiff was made to state that the defendant is authorised to collect at any time without prior notice and to appropriate margins towards letter of credit and guarantee facilities to be extended by the defendant. However, blanket authorisation was not given to the defendant. The said letter was given as per the draft furnished by the defendant.
2(g). Further it is contended in the plaint that plaintiff received letter at late night on 4.4.2000 despatched by the defendant by fax informing that the Cash Management Service is withdrawn. This was done by the defendant abruptly without any justification and without issuing one month's notice. After sending such information, immediately the defendant denied access to electronic banking to the plaintiff and thereby the plaintiff was denied information about its own 7 Com.OS.No.3215/2001 account and funds available and this act was done by the defendant with malafide intention. Subsequently on 6.4.2000 the defendant had sent another letter by fax to the plaintiff informing that it wanted cash marging of 100% on the Letter of Credit facility availed and cash margin of 50% on the bank guarantee limit availed. Further in the said letter dated 6.4.2000 it was informed to the plaintiff that from 7.4.2000 the overdraft facility would not be available and facility of roll over of short term loan is being withdrawn and the entire amount would have to be paid forthwith and until these were done, any Cheques issued would not be honoured. These measures taken by the defendant were unilateral, unjustified, punitive, vexatious, arbitrary and to cause business loss and loss of reputation of the plaintiff which is reversal contractual stand of the defendant though no event had taken place between 28.2.2000 which is the date of Meeting of Consortium and till 4.4.2000 to justify such an action of the defendant. Plaintiff had sent a letter dated 10.4.2000 to the defendant's Office at Mumbai and requested to withdraw its communications dated 4.4.2000 and 6.4.2000 and to restore the facilities including cash management arrangement. Since defendant did not consider this request, plaintiff got issued legal notice to the defendant issued on 24.4.2000 calling upon to withdraw communications dated 4.4.2000 and 6.4.2000. But defendant has failed to consider the request of plaintiff. Hence plaintiff had sent letter dated 28.4.2000 informing the defendant that there was a credit balance of Rs.73,47,120.03 in its account and it issued 7 Cheques for 8 Com.OS.No.3215/2001 Rs.10,00,000/- each, drawn by the defendant bank for transfer of funds to Bank of India and the cheques should be honoured. But the defendant had sent letter dated 28.4.2000 to the plaintiff reiterating its letter dated 6.4.2000 and asserting that cheques would not be honoured for two reasons i.e., (a) Terms of plaintiff's letter dated 15.3.2000 and
(b) Clause-9 of the Counter Guarantee dated 18.8.19997 executed by the plaintiff. The reasons given by the defendant to justify the set off Rs.63,75,823.52 against cash management of 100% and 50% of the Letter of Credit and Bank Guarantee Facility, is falacious and untenable. In the letter dated 15.3.2000 it was indicated that authorisation to collect margins was relating to Letter of Credit and Bank Guarantee facilities to be extended and Clause-9 of the Counter guarantee would apply only when beneficiary invoked the Bank Guarantee and demanded payment. Apart from this, plaintiff had a sanctioned limit of Rs.4.8 Crores which had not been withdrawn by the defendant. Plaintiff had credited funds of Rs.1.57 crores to the said account with defendant. Thus plaintiff was entitled to draw Rs.6.37 Crores from the defendant. But the defendant illegally prevented plaintiff from utilizing the said amount and it illegally withheld Rs.6.37 Crores which the plaintiff was entitled to draw and utilize for its business.
2(h). Further it is also contended in the plaint that plaintiff being exporter of goods to the foreign countries, held Export Earners Foreign Current Account (In short 'EEFC') with the defendant and plaintiff had 48,34,304.64 in all in the said account as shown in para No.23 of the 9 Com.OS.No.3215/2001 plaint and as per the Foreign Exchange Regulation Act and the regulations and the guidelines of the RBI thereunder, the said amount was to be used for certain permitted purposes only. Plaintiff had sent letter dated 4.4.2000 informing the defendant to effect two remittances of US $ 955 and US $ 850 to Commercial Bank of Syria . Defendant informed the plaintiff through letter dated 28.4.2000 and 3.5.2000 that it has lien on the amount of EEFC and it has not made the said remittances. Thus, defendant has not only violated the provisions relating to EEFC but has also committed breach of trust and violated its fiduciary character.
2(i). Further it is contended that defendant has also collected cheques, realised amounts by transfer from various branches of the plaintiff and also from various customers through their cash management system from time to time to the tune of Rs.7,81,38,775/-. This amount was available with the defendant as on 4.4.2000 and same was required to be utilised by the defendant for payment of loan availed from Consortium Banks, payment of Cheques drawn by the plaintiff and adjustment of the part of the loan of defendant etc. The said amount is withheld by the defendant illegally and without authority from 4.4.2000. The said amount is not meant for adjustment of the entire loan or 100% margin for the L.C.facility or 50% towards Bank Guarantee. There is no contract to adjust the said amount unilaterally. Defendant was therefore not legally entitled to retain, withhold, adjust or appropriate the said amount. Defendant instead of managing the funds of the plaintiff 10 Com.OS.No.3215/2001 company, has misappropriated the funds of the plaintiff to enrich itself unjustly. Plaintiff has paid higher interest to other Consortium banks. Therefore, defendant is liable to pay Rs.7,81,38,775/-with interest at 18% p.a., amounting to Rs.1,59,17,822/- from 4.4.2000 till 20.4.2001. On account of freezing of the account of plaintiff by the defendant, plaintiff could not repay amounts to the Consortium banks and therefore, Consortium bank have debited over due interest apart from the interest payable. Plaintiff has, therefore, suffered loss of Rs.15,58,080/- as on 31.3.2001 and therefore, plaintiff is entitled to recover this amount from the defendant. Due to such illegal acts of the defendant in freezing the amount and withholding the amounts, Cheques issued by the plaintiff to its customers were dishonoured and due to this reason many of the plaintiff's customers stopped placing orders for supply of goods and equipments and also withheld supply of raw materials, inputs and other goods required for manufacturing activities, which resulted in not reaching production targets. Consequently plaintiff was not in a position to achieve its sales targets. Thus, plaintiff suffered loss of Rs.42,55,00,000/- which is entirely on account of such action of the defendant and therefore, defendant is liable to compensate the plaintiff by bearing the said loss. Plaintiff suffered damages and loss of reputation and lost the business in terms of procurement of orders and sales. Plaintiff has been exposed to a long term debilitating effect. There is a serious drop in the market share of the plaintiff to the extent of 36.46% in the case of motors and 48% in the case of generators and 11 Com.OS.No.3215/2001 plaintiff has suffered loss on profits to the tune of Rs.416.12 lakhs on account of the shortfall in the sales of motors and Rs.327.00 lakhs in case of generators, totaling to a loss of Rs.743.12 lakhs for the financial year 2000-01, which is entirely on account of the illegal acts and omissions of the defendant and therefore, the defendant is liable to bear the same. Inspite of issuance of legal notice on 25.4.2000, the defendant has not paid the said amounts. Hence, Plaintiff is entitled to recover total sum of Rs.59,54,26,677/- to the plaintiff with current and future interest at 18% per annum. Accordingly, plaintiff has requested to decree the suit.
3. Defendant has appeared through its counsel and filed written statement contending that the suit is misconceived and not maintainable and is liable to be dismissed. The defendant has always acted at all times legally, validly and in accordance with their legal and contractual rights and ave not committed any misconduct or negligent Act or breach of the terms and conditions on which the defendant agreed to grant and granted various credit facilities to the plaintiff. The Consortium Agreement have seven other banking companies as parties to the said contract and the obligations and liabilities that are emanated from the said contracts have contractual consequences inter se between the parties. When the plaintiff seeks to plead a right under the said contracts, it is legally pertinent and requisite to arraign the other constituents of the contract as necessary party to this suit. Plaintiff cannot plead a breach individually and exclusively against the defendant 12 Com.OS.No.3215/2001 under the said agreement without making the other constituents of the agreement as party to the suit. Hence, the suit is bad for non-joinder of parties and is liable to be dismissed. The alleged loss caused to the plaintiff is a consequence of natural business & commercial circumstances and not due to any particular act of alleged breach or any series of acts committed by the defendant to result in loss to the plaintiff company. The pleadings of the plaint itself convey that there is no breach, but circumstances were such that the defendant took certain actions which in no circumstances would be called as illegal or breach of contract, but inevitable business consequences of deprivation of economic situations and parameters which was certainly not caused by the defendant bank.
3(a). It is further contended in the written statement that there is no allegation or even innuendos of negligence pleaded by the plaintiff in a suit for damages. There is no cause of action and that the cause pleaded is sham. A legal and claimable damage can only accrue pursuant to an illegal Act. Natural consequence of events within the realms of law even if renders loss, cannot be sought to be adjudicated before this court.
3(b). It is further contended in the written statement that the defendant is a bank incorporated under the Laws of Federal Republic of Germany and is operating in India under the License issued by Reserve Bank of India. Plaintiff had approached the defendant bank for certain credit facilities in its ordinary course of business and the defendant bank 13 Com.OS.No.3215/2001 rendered several facilities and services to the plaintiff Company. Plaintiff Company had also sought facilities from various other banks and that charges sought to be created by these various banking companies were getting confused and overlapping. The banks thus formed a Consortium and an agreement dated 23.2.1996 as "Joint Deed of Hypothecation of Stocks & Book Debts" was entered into and various rights and powers are conferred on the defendant under the said agreement. The terms of the said Agreement, inter alia, confer an absolute discretion, right and power on each of the Bank to recall the advances and to refuse to allow further drawings and advances within its own discretion without any previous notice to the plaintiff Company without assigning any reasons to the said effect. The plaintiff has admitted in the plaint its own defaults towards the lenders and that the plaintiff was in a hopeless financial state. Therefore, to safeguard its own interests, the defendant was entitled to take steps and actions within the provisions of the various documents, which the defendant legitimately did.
3(c). It is further contended in the written statement that The facilities totally rendered by the Banks in the Consortium as evinced under the Consortium Agreement is to the tune of about Rs.185 Crores jointly by the banks in the Consortium. The facilities that were rendered by the defendant bank is only to the extent of Rs.14.40 Crores which is computed to about 7.6% of the entire facilities communally rendered by the Banks in the Consortium. In the said Rs.14.40 Crores, only about 4.8 14 Com.OS.No.3215/2001 Crores is fund based facility, the remaining Rs.9.60 Crores concern the 'letter of credit' and 'Bank guarantees', which would actually mean and constitute less than 5% of all the credit facilities rendered by the Banks in the Consortium. The plaintiff Company is inherently bad, commercially unviable and did not take any steps to improve its position as was recommended and mandated by the banks in the consortium in their several meetings. No contractual obligations were made or rendered in the Consortium Agreement by the defendant for which the defendant could be made liable for breach of said obligations. Several meetings were held to assess the improvement and compliance directed to be made by the plaintiff company by the Bankers, as the banks were eminently uncomfortable and could perceive the economic deterioration of plaintiff company. The defendant's action to keep on hold further exposure and to optimize the accounts was legally requisite, prudent as a Banker and bonafidely compelled and taken in a due course of time an was not immediate or sudden as is alleged by the plaintiff.
3(d). It is further contended in the written statement that in a meeting held on 15.10.1999, when it was enquired by the bankers that whether the Chairman & Managing Director Mr. Vijay Kirloskar would extend his personal guarantee for securing the working capital facility, he replied that he has to examine the request. When the Chairman of the plaintiff Company himself was not sure of the revival of his own Company and further indicated that he had no commitment towards the revival package suggested by the bankers, the plaintiff cannot blame the 15 Com.OS.No.3215/2001 defendant of breach of terms. The plaintiff's poor financial position itself compelled the defendant to act. The defendant so acted bonafide, in good faith and within its legal rights. The defendant's conduct was always bonafide, fair and legal. What the defendant discontinued by the letter dated 4.4.2000 was merely the credit facility in the nature of Cheque purchase and the defendant was fully within its legal and contractual rights to discontinue this particular credit facility to the plaintiff. By letter dated 6.4.2000, defendant informed plaintiff Company that overdraft facility extended would not be available w.e.f. 7.4.2000 for utilisation meaning no further credits by way of overdraft would be allowed to the plaintiff and that they would not rollover the short term loan (working capital demands loans) aggregating to Rs.2.75 Crores which had earlier matured and had already fallen due for repayment and thus, refused to continue loans and grant further credit to the plaintiff.
3(e). It is further contended in the written statement that the defendant has not utilized amounts in the EEFC account wrongly or for any wrongful purpose or in breach of any law. The defendant was and is entitled to hold these amounts lying to the credit of the EEFC account, under the defendant's lien having regard to the various agreements and documents and also having regard to the defendant's right of general lien and set off in law. The defendant has not dealt with the amounts in the EEFC accounts, but has merely frozen the sum so as to maintain the defendant's lien thereon, towards securing the liabilities of the plaintiff 16 Com.OS.No.3215/2001 which are outstanding and which will arise. Plaintiff's liability and the appropriations made thereof are stated in para-36 of the written statement. The amounts were appropriated and set off by the defendant from the total amount of Rs.5,19,63,285/- then lying to the credit of plaintiff and thus, the liabilities were fully discharged by such appropriation and set off and due credit for such appropriation and set off has been given by the defendant to the plaintiff. Sum of Rs.8975,825.06 remained after the appropriations out of total amount of Rs.5,19,63,285/-, which was held as margin in respect of various outstanding guarantees issued by the defendant under the guarantee facility. On 6.4.2000, total contingent liability under various guarantee facilities then outstanding was Rs.4,58,34,897.22 as against which only a sum of Rs.89,75,825.06 could be set up as a margin because that was the only balance amount remaining from the total of Rs.5,19,63,285/-. A sum of Rs.34,87,409.27 was the amount standing to the credit of plaintiff in EEFC accounts and a sum of Rs.38,81,744/- was standing to the plaintiff's credit by way of fixed deposit with the defendant. This amount was added to the said amount of Rs.89,75,825.06 by way of margin in respect of the guarantee facility. Since 6.4.2000, till date, some of the guarantees have lapsed and/or expired without any claim having been made thereunder against the defendant for payment. The value of such guarantee is Rs.1,91,89,871.09 and in respect whereof no liability now can fasten on the defendant. At present, guarantees of the value of Rs.2,66,45,026.13 is outstanding and in force under the 17 Com.OS.No.3215/2001 guarantee facility. As against the said value of guarantees still outstanding and in force i.e., Rs.2,66,45,026.13, the amount now held in margin by the defendant for the guarantee facility after all the aforesaid appropriation, set off etc., is only Rs.16,344,978.33, which includes the sum of Rs.34,87,409.27 being the rupee equivalent of the EEFC accounts credits and the fixed deposit amount of Rs.38,81,744/-. The defendant is entitled to hold the said amounts in margin till the guarantee liability of the defendant under all the guarantees are discharged. The defendant so acted bonafide, in good faith and within its legal rights. The defendant's conduct was always bonafide, fair and legal. Accordingly, defendant has requested to dismiss the suit.
4. From the above pleadings of the parties, the following Issues and additional issue have been framed :
ISSUES
1. Whether the plaintiff proves that the defendant has illegally withheld Rs.7,81,38,775/- preventing the plaintiff from utilizing that amount?
2. Whether the plaintiff proves that he is entitled to interest in sum of Rs.1,51,17,882/- towards the amount illegally withheld by the defendant?
3. Whether the plaintiff proves that he is entitle for a sum of Rs.15,58,080/- from the defendant towards over due interest on cash credit account and other accounts from the defendant?
4. Whether the plaintiff proves that the company has suffered loss as the sales of the company affected 18 Com.OS.No.3215/2001 due to illegal, unjust and unfair action of the defendant?
5. Whether the plaintiff proves that it has suffered damages on account of loss of reputation due to action of the defendant?
6. Whether the plaintiff proves that it has suffered loss of future business due to illegal action of the defendant?
7. Whether the plaintiff proves the liability of defendant to pay Rs.59,54,26,667/- and Euro 834.27 and deutsche marks 30,459.62 and U.S. dollars 88,683.47
8. What decree or order parties entitle ?
Additional Issue :
1. Whether the suit without making the other banks in the consortium as parties is liable to be dismissed on the ground of non-joinder of necessary parties?
5. In proof of suit claim,Deputy Managing Director of the plaintiff company and the Deputy Senior Manager in Corporate Finance Division of plaintiff Company have been examined as PWs.1 & 2 respectively. Documents are marked as Ex.P.1 to Ex.P.30. On the other hand, the Operations Officer-Global Business Services with Deutsche Bank, AG, Bangalore branch, got examined himself as DW.1 and got marked the documents as Exs.D.1 to D.29.
19Com.OS.No.3215/2001
6. Heard the arguments of both sides.
7. My findings on the above issues are as follows: -
Issue Nos.1 to 7 : Negative
Additional Issue No.1 : Negative
Issue No.8 : As per final order
for the following:
REAS O NS
8. Issue Nos.1 to 3 : It is argument of learned advocate for plaintiff and it is also submitted in the written argument that as per the cash management service rendered by the defendant in furtherance of DB- Direct Customer Service Agreement dated 25.2.1998 at Ex.P.22 and also another agreement at Ex.P.30, the defendant collected cheques and also realized amounts by transfer from various branches of the plaintiff and from its various customers through cash management system from time to time to the tune of Rs.7,81,38,775/- which is shown in Ex.P.12 and this sum includes Rs.1.57 Crores available as on 4.4.2000 and this amount was required to be utilized by the defendant towards repayment of the loan drawn by the plaintiff and adjustment of part of the loan with the defendant etc. The said amount was not meant for adjustment of the entire loan of defendant or 100% margin for the Letter of Credit Facility or 50% margin towards Bank Guarantee. As per Clause-8 of Ex.P.30, defendant had to terminate Cash Management Service by issuing one month's notice to the plaintiff. This fact has been admitted by DW.1 in page No.21 of his cross examination. But 20 Com.OS.No.3215/2001 defendant had withdrawn Cash Management Service abruptly by sending letter dated 4.4.2000 as per Ex.P.25, which is contrary to Clause-8 of Ex.P.30 and then illegally and without any authority retained the amount of Rs.7,81,38,775/- and thereby prevented the plaintiff from using the said amount. This Act of the defendant is contrary to the Clause-29(d) of the Consortium Agreement at ExP.17 also. The so called admissions obtained in the cross examination of PW.2 are inconsequential since documentary evidence produced by the plaintiff shows complete different picture.
8(a). Further it is also argument of learned advocate for plaintiff that in page Nos.36 and 37 of the written statement, the defendant has set out the position of the various accounts and the plaintiff's liabilities and also the various appropriations made. Plaintiff has no dispute relating to the details shown in Column(A) of page No.36 of written statement. But plaintiff has dispute relating to details shown in Col.Nos.B and C of page No.36 of written statement. The details shown in page No.37 of the written statement relating to adjustment of Rs.91,52,459.49 against the retirement of bills are not reflecting in Ex.D.30. Defendant has not made correct entries in the current account statement at Ex.D.24. The credit added to the current A/c of the plaintiff from April 2000 to September 2000 would be amounting to Rs.7,48,65,855.45 as shown in Ex.P.12. However defendant has shown that amount as Rs.3,22,55,285/- in page No.37 of the written statement. It is not shown by the defendant as to what happened to the remaining 21 Com.OS.No.3215/2001 amount. Defendant has illegally withheld Rs.7,81,38,775/- and thereby prevented the plaintiff from using the said amount. Therefore defendant is liable to pay interest at 18% p.a. from 4.4.2000 till filing of suit, amounting to Rs.1,59,17,822/- on the illegally withheld amount of Rs.7,81,38,775/-. Further it is also submission of learned advocate for plaintiff that due to freezing of the plaintiff's account by the defendant, plaintiff could not repay the amounts to the Consortium Banks which imposed overdue interest. Due to this reason plaintiff has suffered loss to the tune of Rs.15,58,080/- in this regard. Accordingly it is submission of learned advocate for plaintiff that defendant is liable to pay Rs.7,81,38,775/- which was in the credit of plaintiff's current A/c as on 4.4.2000 and also interest on it at 18% p.a. amounting to Rs.1,59,17,822/- till the date of suit and also overdue interest amounting to Rs.15,58,080/- imposed on the plaintiff by the Consortium Banks. Accordingly learned advocate for plaintiff has requested to answer Issue Nos.1 to 3 in the affirmative.
9. On the other hand it is submission of learned advocate for defendant and it is also contended in the written arguments that the burden to prove Issue Nos.1 to 3 is on the plaintiff. There was no such amount of Rs.7,81,38,775/- in the account of the plaintiff. Records at Ex.P.12 to P.14 are self created by the plaintiff and they have no evidenciary value. All the details of the accounts of the plaintiff such as amount existing, liability of the plaintiff to the defendant etc. are clearly furnished by the defendant in page Nos.36 and 37 of the written 22 Com.OS.No.3215/2001 statement. Correctness of these details are admitted by PW.2 in his cross examination at page No.29. Thus, it is clearly proved by the defendant that as on 6.4.2000, the total amount then lying to the plaintiff's credit was Rs.5,19,63,285/- only and not Rs.7,81,38,775/- as contended by the plaintiff. Out of said amounts of Rs.5,19,63,285/- that was lying to the plaintiff's credit the liabilities relating to items (C)(i to
v) as shown in page No.37 of the written statement were fully discharged by such appropriation and set off and its due credit has been given to the plaintiff so that those liabilities have been cleared. As regards item 'A'(iii) shown in page No.37 of the written statement i.e., the pending letters of credit, as on 6.4.2000, the letters of credit of value of Rs.55,38,602.90 were outstanding. Therefore the defendant duly credited a margin in that regard out of total sum of Rs.5,19,63,285/- that was in the credit. As and when the letters of credit were invoked by the respective beneficiaries, payments fell due and accordingly payments were made by the defendant and thus Letters of Credit were duly discharged and thereby entire amount of Rs.55,38,602.90 was utilised for making payment. A sum of Rs.89,75,825.06, out of total amount of Rs.5,19,63,285/- that was in the plaintiff's credit, was held as margin relating to various outstanding guarantees issued by the defendant under the guarantee facilities. As on 6.4.2000 the total contingent liability under the various guarantee facilities then outstanding was Rs.4,58,34,897.22 as against which only Rs.89,75,825.06 could be set up as a margin since that was the only balance amount available from 23 Com.OS.No.3215/2001 the total of Rs.5,19,63,285/-. However, a sum equivalent to Rs.34,87,409.27 was standing to the plaintiff's credit in the EEFC accounts and a sum of Rs.38,81,744/- was standing in the FD account of the plaintiff.
9(a). Further it is also argument of learned advocate for defendant that since 6.4.2000 guarantee value of Rs.4,58,34,897.22 were outstanding. Till date some of the guarantees have lapsed/expired without any claim against the defendant for payment and value of such lapsed/expired guarantees is Rs.1,91,89,871 and relating to this, no liability can be fastened on the defendant. The remaining guarantee value of Rs.2,66,45,026.13 was outstanding and in force relating to which the amount held by the defendant in the margin for guarantee facility, after all the appropriations, set off etc., was only Rs.1,63,44,978.33 which includes a sum of Rs.34,87,409.27 in EEFC accounts and Rs.38,81,744/- in the FD account. These amounts were held under the defendant's lien and/or in margin to meet any liability that may arise under various guarantees which was still outstanding and in force. Accordingly it is submission of learned advocate for defendant that plaintiff is not entitled to recover alleged amounts of Rs.7,81,38,775/- and Rs.1,51,17,882/- and Rs.15,58,080/- as claimed in the suit.
10. After having heard both sides on Issue Nos.1 to 3, I have carefully gone through the materials on record. At this stage itself it is material to note that the burden to prove these Issues is on the plaintiff.
24Com.OS.No.3215/2001 Undisputed facts between the parties are that the plaintiff for the purpose of its business of manufacture and sale of electrical machinery, had availed financial facilities such as loans, overdrafts, letter of credits and bank guarantees from the following banks including defendant bank:
a) Industrial Credit & Investment Corporation of India Ltd., (now known as ICICI Ltd.,)
b) Bank of India
c) Hong Kong & Shanghai Banking Corporation Ltd.
d) State Bank of Travancore
e) Bank of Baroda
f) State Bank of Mysore
g) State Bank of India
h) Indian Bank Consortium Agreement was entered into between the plaintiff and above noted all the banks including the defendant on 23.2.1996 as per Ex.P.17 under which the banks had agreed to provide certain financial assistances to the tune of Rs.185 Crores. Out of said total financial assistances of Rs.185 Crores agreed to be provided by the banks to the plaintiff, the defendant agreed to extend financial assistance of Rs.14.40 Crores only as under:
Rs. Crores
a) Cash credit secured by hypothecation of stocks and book debts 4.80
b) Bank Guarantee limit 3.60
c) Letter of Credit 6.00 It is admission of PW.2 in page No.20 of his cross examination as under:
"It is true that the total financial assistance given by Consortium Banks was totally Rs.184 Crores. Out of which 25 Com.OS.No.3215/2001 the financial asst. extended by the defendant bank was 14.40 Crores. It is true this amount works out 7.6% of the amount given by entire Consortium. It is true that out of 14.40 Croes, a sum of Rs.4.8 Crores was fund based facility and remaining 9.60 Crores was concerned with Letter of Credit and Bank Guarantee, which is non-fund based facility."
As per the terms of Consortium Agreement at Ex.P.17, the plaintiff had executed first Supplemental Joint Deed of Hypothecation of stocks/book debts/movable properties dated 5.2.1997 to Consortium Banks as per Ex.P.8. Similarly plaintiff also executed Joint Mortgage by Deposit of Title deeds on 10.7.1998 creating second charges on its properties in favor of Consortium Banks as per Ex.P.9.
11. It is also undisputed fact between the parties that the defendant had sent letter dated 9.2.1998 to the plaintiff as per Ex.P.3 sanctioning
(a) over draft facility upto 4.80 Crores (b) Letter of Credit facility limit of Rs.5 Crores and (c) Bank guarantee facility limit of Rs.10 Crores, which certain terms and conditions. Accordingly plaintiff had executed demand promissory note dated 18.8.1997 to the defendant as per Ex.P.1 for Rs.4.80 Crores and counter guarantee dated 18.8.1997 to the defendant as per Ex.P.2 upto Rs.10 Crores.
12. From both pleadings and also from the oral evidence of both sides, it is also undisputed fact between the parties that plaintiff and defendant had entered into DB-Direct Trial Service Agreement dated 10.8.1998 at Ex.P.4 under which the defendant provided the plaintiff direct access to its bank account by use of electronic banking for a 26 Com.OS.No.3215/2001 period of 4 months from 15.8.1998 till 15.12.1998. Even prior to that, DB-Direct Customer Service Agreement dated 25.2.1998 as per Ex.P.22 was also entered into between the plaintiff and defendant with certain terms and conditions.
13. Ex.P.30 produced by the plaintiff is copy of application, with certain terms and conditions submitted by the plaintiff to the defendant seeking to provide 'Cash Management Service'. It is contended in para No.11 of the plaint that the defendant offered 'Cash Management Service' which envisaged collection of cheques and other negotiable instruments on behalf of the plaintiff and the defendant offered to collect these instruments and make available credit for the said instruments at the earliest point of time and as per Clause-8 of Ex.P.30, the defendant could terminate this facility by giving one month's notice. Plaintiff availed this facility from April 1999. This Cash Management Service provided by the defendant on the basis of application as per Ex.P.30 submitted by the plaintiff, is admitted by DW.1 in his cross examination in page Nos.20 and 21.
14. It is contended by the plaintiff in para No.12 of the plaint that in the middle of the year 1999 it underwent industrial unrest since its workmen went on a strike for nearly two months demanding wage settlement and production came to a grinding halt. At the same time it faced very stressful market conditions due to greater competition, general slow down in the industry, inability to secure good price, slow down in garment expenditure, steep increase in the prices of fuels, 27 Com.OS.No.3215/2001 electricity charges and petroleum products etc. It is evidence of PW.2 in page No.27 as under:
"I see the manual report along with profit and loss statement for the year 1999-2000 pertaining to the plaintiff company, it is marked Ex.D.3. It is true that as per this statements the loss carried was Rs.45,51,39,000/-."
Thus, the plaintiff already suffered huge loss in its manufacture and sale business and loss of Rs.45,51,39,000/- was carried in the Annual report along with Profit and Loss Statement for the year 1999-2000, which has been marked as Ex.D.3 by way of confrontation.
15. It is contention of the plaintiff in para No.25 of the plaint that amount of Rs.7,81,38,775/- was available as on 4.4.2000 in its account held in the defendant bank and this sum includes Rs.1.57 Crores referred to in para No.21 of the plaint. It is submission of learned advocate for plaintiff that plaintiff has proved through document at Ex.P.12 that such amount of Rs.7,81,38,775/- was available to it in its account of the defendant bank.
16. It is relevant to note that there is no clarity in the say of the plaintiff as to what was total amount available as on 4.4.2000 in its bank account held in the defendant bank. It is stated in para No.21 of the plaint that it had a sanctioned limit of Rs.4.8 Crores and this limit had not been withdrawn by the defendant and it had credited funds to the extent of Rs.1.57 Crores to its said account with the defendant and thus it was entitled to draw Rs.6.37 Crores. Further it is stated in para No.23 of the plaint that it had foreign currency which is equivalent to Indian 28 Com.OS.No.3215/2001 Rs.48,34,304.60 in its EEFC account. If that is so, the total of Rs.6.37 Crores and Rs.48,34,304.60 comes to Rs.6,85,34,304.60. This amount cannot be equated to Rs.7,81,38,775/- which is stated in para No.25 of the plaint and recovery of which is also claimed in this suit along with past and future interest thereon. Whereas it is say of the plaintiff in para No.25 of the plaint that defendant had collected Cheques and realized amounts from various branches and customers of the plaintiff to the tune of Rs.7,81,38,775/-. Again it is stated in this para No.25 of the plaint that this sum of Rs.7,81,38,775/- includes amount of Rs.1.57 Crores referred to in para No.21 of the plaint. If this amount of Rs.1.57 Crores is deducted from Rs.7,81,38,775/-, the net would be Rs.6,24,38,775/-. Therefore, there is no clarity in the say of the plaintiff as to what was the total amount available in its account as on 4.4.2000. So far alleged record marked as Ex.P.12 is concerned, it is pertinent to note that this record is self serving and self prepared by the plaintiff which could not be treated as evidence.
17. The defendant has denied contention of the plaintiff that amount of Rs.7,81,38,775/- was available in the credit of plaintiff's account. The defendant, in page No.36 and 37 of the written statement, has furnished the details of the plaintiff's account as on 6.4.2000 such as its sanctioned limit, liability of the plaintiff, the sum available in the accounts of the plaintiff and the appropriation of amounts made by it etc. The details of said pleadings of the defendant are as under:-
A). Liability of the plaintiff to the defendant immediately prior to 6.4.2000 was :
a) Towards overdraft facility ------- Rs.51,48,098.34 29 Com.OS.No.3215/2001
b) Interest on it Rs. 1,87,000.00
c) Short term loan liability Rs.2,75,00,000.00
d) Liability towards Letters of Credit Rs. 55,38,602.90
e) Liability towards guarantee facility Rs.4,58,34,897.22 B) Amounts shown as released to the credit of plaintiff's account are as under:
a) Cash Management Credits Rs.3,22,55,285.00
b) Export bills collected Rs.1,64,90,000.00
USD 87588.4
DEM 87313.54
c) Conversions(50%) of EEFC
Account balances into Indian
as per RBI directives Rs.32,59,000.00
( USD 44762.44
DEM 58528.06)
______________
Total Rs.5,91,63,285.00
Balance Outstanding in EEFC
Accounts USD 44762.43
DEM 58528.06
EURO 417.13
C) It is pleaded by the defendant that from the total amount of Rs.5,19,63,285/-, it made the following appropriations:
a) Settlement of liability under the O/D facility Rs.51,48,000.00
b) Settlement of liability under Short Term Loans Rs.2,75,00,000.00
c) towards interest dues Rs. 1,87,000.00
d) Retirement of bills under Letters of Credit,
Bank charges, costs and expenses Rs.91,52,459.94
e) Payment to tax authorities as per requests
of the plaintiff Rs.10,00,000.00
f) margin towards letter of credit and guarantee facilities Rs.89,75,825.06 USD 44762.43 DEM 58528.06 EURO 417.13 30 Com.OS.No.3215/2001 Further it is pleaded by the defendant in para No.41 of the written statement that till 6.4.2000 the guarantees of the value of Rs.4,58,34,897.22 were outstanding and among them, some of the guarantees with the value of Rs.1,91,89,879.09 were lapsed/expired relating to which it is not liable. After deducting the lapsed/expired value, the remaining guarantee value of Rs.2,66,45,026.13 was outstanding and it was in force under the guarantee facility. After all the aforesaid appropriations, set off etc., the amount held by the defendant for the guarantee facility was only Rs.1,63,44,978.33 as margin amount which includes Rs.34,87,429.27 in the EEFC accounts and Rs.38,81,744/- in the FD Account of the plaintiff. This contention of the defendant as pleaded in page Nos.36 and 37 of the written statement is clearly admitted by PW.2 in his cross examination at page Nos.29 and 30 as under:
"It is true that as on 6.4.2000 our existing liability in the O.D. facilities account was Rs.51,48,098.34ps. It is true that the interest payable under the O.D. facilities was Rs.1,87,000.00 as on 6.4.2000. It is true that the total amount due O.D. facilities was Rs.53,35,098.34ps. It is true that the outstanding amount under short term loan was Rs.2,75,00,000.00. It is true that the outstanding due under letter of credit facility was Rs.55,38,602.90. It is true the contingent liability under the guarantee issued by the defendant on behalf of our company to various parties was Rs.4,58,34,897.22. It is true that as against these liabilities of our company to the defendant the cash management credit was Rs.3,22,55,285.00. It is true that the export bills collected was R.1,64,80,000.00. It is true that after taking above mentioned amount along with conversion of 50 percent of EEFC account that the total amounts as mentioned para 36 page 37 of written statement towards the total amount of credit lying in our account. It is true that the bank is entitled 31 Com.OS.No.3215/2001 to hold the amount is margin till all the guarantees are discharged or comes to an end."
Due to this admission of PW.2, I have no hesitation to hold that contention pleaded by the defendant in page Nos.36 and 37 of the written statement is proved. In fact the defendant has produced all the account extracts/statements of the plaintiff which have been marked as Ex.D.20 to Ex.D.31 by way of confrontation in the cross examination of DW.1. I have carefully perused these account extracts/statements. These records do not support the contention of the plaintiff that the available credit in its account as on 6.4.2000 was Rs.7,81,38,775/-. On the other hand, the facts pleaded by the defendant relating to available amount in the credit of accounts of plaintiff and also plaintiff's liability towards defendant as on 6.4.2000, are clearly admitted by PW.2 in his cross examination at page Nos.29 and 30 which is noted supra.
18. Now it is necessary to find out as to whether defendant was entitled to appropriate the amounts in credit of plaintiff's account towards plaintiff's liability to the bank. It is admitted fact that relating to guarantee facility given by the defendant bank, plaintiff had executed counter guarantee agreement at Ex.P.2. In Clause 3(vi) of Ex.P.2, plaintiff had agreed to furnish forthwith upon demand of the bank such security or additional security to secure its obligations under the Counter Guarantee and indemnify, as may be required by the bank, so as to fully secure the bank's interest and to execute, deliver and register such security demands to the decision and satisfaction of the bank which shall be final, conclusive and binding on the plaintiff. Further in Clause-3(ix) of Ex.P.2, the plaintiff 32 Com.OS.No.3215/2001 had agreed that the bank shall have a lien on and shall be entitled without any further consent of the plaintiff to debit account or accounts, whether loan, cash credit, overdraft, saving, current, fixed or short deposit or any other accounts of the plaintiff at any of the branches of the bank with the amount of any payments the bank may make under or in respect of all or any of such guarantees. In view of these clauses in the Counter Guarantee at Ex.P.2 executed by the plaintiff, it cannot be held that defendant had no authority to appropriate the amounts in the credit of the account of plaintiff towards its liability to the bank with regard to guarantee facility offered by it.
19. Plaintiff has produced letter dated 9.12.1998 at Ex.P.3 to show that defendant bank communicated its sanction extending the credit facilities to it and by this sanction letter, an overdraft facility of Rs.4.80 Crores, letters of credit limit of Rs.5 Crores and bank guarantee limit of Rs.10 Crores were sanctioned. This sanction letter at Ex.P.3 is undisputed fact. In this sanction letter at Ex.P.3, the defendant has clearly stated as under:
"The facilities are valid until further notice and the bank will be entitled at any time by a notice in writing and without assigning any reason to demand and or cancel and or decrease all or any of the facilities. The rates of interest and commission stated above are valid until further notice and are subject to our internal review and subject to changes or externally availing directives by the authorities."33
Com.OS.No.3215/2001 This Clause in the sanction letter at Ex.P.3 has been marked as Ex.P.3(a). Thus in this sanction letter, the bank i.e., the defendant has specifically stated that it is entitled, at any time, by a notice in writing and without assigning any reason to demand or cancel and/or decrease all or any of the facilities.
20. It is contended in para No.25.1 of the plaint that the amount of Rs.7,81,38,775/- which was in the credit of plaintiff's account as on 4.4.2000, was not meant for adjustment of the entire loan or 100% margin for L.C.facility or 50% towards Bank Guarantee and there is no contract to adjust the said amount unilaterally. Relating to this contention of the plaintiff is concerned it is relevant to note that there is no merit in this contention for the reasons that in the first instance the plaintiff has failed to establish that such amount of Rs.7,81,38,775/- was in the credit in its account as on 4.4.2000 and this fact is already discussed supra. Secondly, it is undisputed fact that plaintiff had executed counter guarantee at Ex.P.2 to the defendant. As per Clause(vi) of Ex.P.2, the plaintiff undertook to furnish upon the demand of the bank such security or additional security to secure bank's obligation under the counter guarantee and indemnity, as may be required by the bank, so as to fully secure the bank's interest and to execute, deliver and register such security documents in form and substance satisfactory to the bank and the decision of the bank as to the nature and value of such security and as to the form of such security documents shall be final conclusive and binding upon the plaintiff. Similarly as per Clause No.(ix) of Ex.P.2, the bank shall have a lien on and shall be entitled without 34 Com.OS.No.3215/2001 any further consent from the constituent to debit the Accounts, such as Loan, Cash Credit, Overdraft, Saving, Current, Fixed or Short Deposit or any other accounts of the constituent/plaintiff at any of the branches of the bank with the amount of any payments the bank may make under or in respect of all or any of such guarantees. Even PW.2 has admitted this fact in his cross examination at page No.5 as under:
"ನಶಶನನ ಪ-2 ಕಕಕಟರರ ಗಶಗರಕಟ ನಶನನ ಓದ ನನನನಡದನದನನನ. ನಶಶನನ ಪ-2 ಕಕಕಟರರ ಗಶಗರಕಟಯ ಕಶಕಸರ 9 ರಲಕ ಪಪತವಶದ ಬಶಗಕಕನವರನ ನಮಮ ಸಶಲದ ಅಕಕಕಟರ ಗನ ನಮಮ ಅನನಮತ ಇಲಕದನನ ಹಣವನನನ ಜಮಶ ಮಶಡನವವದನ ಅಕತ ಒಕದನ ಒಕಕಣನ ಇದನ ಅನನನವ ವಚಶರ ಸರ."
21. It is admitted fact that several above noted banks including the defendant bank had agreed to provide certain financial facilities to the plaintiff and Consortium Agreement as per Ex.P.17 was entered into in that regard between the plaintiff and the banks including the defendant bank. Term No.2 in page No.4 of Ex.P.17 has been marked as Ex.P.17(a) in the cross examination of PW.2. This Term No.2 of Ex.P.17 provides that each of the Banks shall have absolute discretion to determine what amount within the aforesaid limit it will advance and/or allow to be outstanding from time to time in the respective separate and special account or accounts opened by it and each of the Banks shall be at liberty to refuse to allow further drawings or advances or to make available any facility at any time without any previous notice to the Company and without assigning any reasons therefore but will give notice of such intention/action to other Banks.
35Com.OS.No.3215/2001
22. In the same way Term No.14 of Ex.P.17, which is marked as Ex.P.17(c) provides that the Company shall at all times during continuance of the security keep and maintain such margin of security in favour of the Banks (hereinafter called the said margin) as may be stipulated by the Banks from time to time. The Company shall not at any time borrow or draw against the said facility/accounts so as to cause the total debit balance on such accounts at any time to exceed the uniform percentage of margin stipulated by the Banks from time to time of the total cost or market value (market value is found the Banks), whichever is lower of the hypothecated goods and hypothecated book debts. If and wherever the said margin shall fail to be maintained, the Company shall forthwith (accounting as the Banks may require) either hypothecate to the Banks further goods and/or further book debts approved by the Banks and of sufficient value (the decision of the Banks as to such value to be final and binding on the Company) the make up deficit or shall reduce the amount for the time being due to the Banks by a cash payment so as to maintain the said margin or furnish additional security acceptable to the Banks. From these terms of Ex.P.17 it is clear that though banks, including defendant bank, had agreed to provide certain financial facilities to the plaintiff, but liberty was with the banks to refuse to all drawings or advances or to make available any facility at any time without any previous notice to the plaintiff and without assigning any reasons therefor and plaintiff was obliged to keep such margin as security as determined by the banks which shall be final. Even in last para of page No.19 it is evidence of PW.2 as under:
36Com.OS.No.3215/2001 "It is true that the under the agreement dated 23.02.1996 the banks were not obligated to render assistance irrespective the position of the plaintiff company. It is true that there is no clause in Ex.P.17 that the defendant bank would continue to render financial assistance to the plaintiff company irrespective of the facts that financial condition of the plaintiff company is deteriorating."
23. The Cash Management Service provided to the plaintiff by the defendant, as pleaded in para No.11 of the plaint, is admitted fact. DW.1 has admitted this fact in page Nos.20 and 21 of his cross examination. Plaintiff has produced copy of application form filed to the defendant bank for availing this Cash Management Service. This copy of application form is marked as Ex.P.30. IT is stated in para No.11 of the plaint that 'Cash Management Service' envisaged the collection of Cheques and other negotiable instruments by the defendant on behalf of the plaintiff and to make available credit for the said instruments at the earliest point of time. It is evidence of PW-2 in page Nos.24 and 25 as under :-
"It is true that we had a facility of cash management service in purchasing Cheques by the defendant bank and credit payment of the same with the account of the company even before the cheques were cleared. It is true that the defendant bank withdrew this facilities by their letter dated 04.04.2000 as per Ex.P.25. It is true that as per the contents of letter service was not terminated, but only the above facilities as referred above withdrawn. It is true that even after this letter the defendant bank continued the service of cheque collection, except that credit was given only after due clearance of the cheques."
From the above noted oral evidence of the parties and also from the materials on records it is clear that on the basis of application as per 37 Com.OS.No.3215/2001 Ex.P.30 filed by the plaintiff, the defendant provided cash management service to the plaintiff. As per the cash management service, the defendant immediately after receipt of Cheques and other negotiable instruments from various customers of the plaintiff for payment to the plaintiff and also Cheques and other negotiable instruments deposited by the plaintiff to credit it to it's account, defendant used to credit the amounts of such negotiable instruments to the account of the plaintiff prior to clearance/realisation of the instruments. But subsequently defendant had withdrawn this facility by informing the plaintiff through letter dated 04.04.2000 at Ex.P.25.
24. It is contention of plaintiff that act of the defendant in withdrawing the cash management service is illegal, unjust and contrary to clause No.8 of Ex.P.30 which clearly stipulates that the defendant could terminate the arrangement of cash management service by giving one month's notice to the plaintiff. But no such one month's notice was given to the plaintiff prior to termination of cash management service. After hearing both side in this regard, I have carefully gone through the materials on record. There is no substantial merit in the above noted contention of the plaintiff for the reasons that though clause No.8 of the Ex.P.30, which is marked as Ex.P.30(a), provides that arrangement of cash management of service may be terminated by giving one month's notice, but factually defendant by issuing letter dated 04.04.2000 at Ex.P.25 had withdrawn advance credit system of the negotiable instruments as admitted by PW.2 in his cross-examination at Page No.24 as noted supra. It is admission of 38 Com.OS.No.3215/2001 PW.2 in Page No.24 that service was not terminated by issuing Ex.P.25. Facilities i.e., advance credit system of negotiable instruments was withdrawn through letter at Ex.P.25 and even after this letter defendant bank continued its service of Cheque collection. It is pleaded by the defendant that a Cheque issued by one of the plaintiff's customer dated 25.02.2000 from a sum of Rs.50,15,520/- bearing Cheque No.135082 drawn on State Bank of India, Hatia, Bihar, the plaintiff circumvented the defendant bank to realize the said amount directly from said customer and received a demand draft in the lieu of the said payment without notice to the defendant and this is the malice on the part of plaintiff. It is submission of learned advocate for defendant that this type of malice act of the plaintiff forced the defendant bank to withdraw the cash management service facility by issuing letter dated 04.04.2000 at Ex.P.25. There is substance and acceptable force in this submission of learned advocate for defendant for the reasons that such malice act committed by the plaintiff is clearly admitted by the PW.2 in Page No.25 of his cross examination as under :-
"It is true that on 25.02.2000 one of our customer issued a cheque for Rs.50,15,520/- bearing cheque No.135082 drawn on S.B.I., Hatia, Bihar. The defendant bank credited the above amount to our bank account even before realization of the cheque, suppressing this facts we went and collected the cheque from the customer in form of DD."
Due to this clearcut and categorical admission of PW.2 relating to the malice act of the plaintiff, the plaintiff has no right to contend that the defendant has illegally withdrawn cash management service by issuing letter dated 04.04.2000 at Ex.P.25.
39Com.OS.No.3215/2001
25. Apart from the above, it is also relevant to note that it is pleaded in the plaint that to continue cash management service, after negotiations held with the officials of the defendant, the plaintiff gave letter dated 15.03.2000 to the defendant. Plaintiff has produced copy of said letter as Ex.P.24. Relating to this letter at Ex.P.24, it is evidence of PW.2 in page No.9 as under :-
" ನಶಶನನ ಪ-24 ಪಪತವಶದ ಬಶಗಕಕಗನ ಬರನದ ಪತಪದಲಕ ಪಶಗರ 3 ರಕತನ ನಶವವ ಒಪಪಗನ ಕನನಟಟದನದನವನಕದರನ ಸರ, ಅದನನ ನಶಶನನ ಪ-24(ಎ) ಅಕತ ಮತನತ ಅದನನ ಪತಪದಲಕ ಕನನನನ ಪಶಗರಶದಲಕ ನಶಶನನ ಪ-24(ಬ) ರನತ ಅಕಡರರ ಟನನಕಕಗರ ಕನನಟಟದನದನವನ ಅನನನವ ವಚಶರ ಸರ."
Further it is evidence of PW.2 in page No.15 as under :-
"It is true that in our letter Ex.P.24 we have authorized defendant bank as set down in para No.2 marked as Ex.P.24(c)."
The relevant term of Ex.P.24, which is marked as Ex.P.24(a) is as under:-
"You may at any time without notice to us combine or consolidate all or any of our accounts with and liabilities to you Bank and adjust and/or set off or transfer any sum or sums standing to the credit of any one or more of such accounts in or towards satisfaction of any of out liabilities to your Bank anywhere on any other account or in any other respect. The right of set off as hereinabove is on a continuing security basis and in addition to and without prejudice to any other securities or right your Bank may now or hereafter hold or acquire."
Similarly relevant term of Ex.P.24, which is marked as Ex.P.24(b) is as under :-
"This letter of undertaking shall be in addition to any other letter of undertaking(s) and/or security documents that you may anytime hold covering the credit facilities extended by yourselves to our company."40
Com.OS.No.3215/2001 Similarly relevant term of Ex.P.24, which is marked as Ex.P.24(c) is as under :-
"You are authorized to collect, at any time without prior notice, appropriate margin towards the Letter of Credit and Guarantee facilities to be extended by yourselves to the company by debiting the current account of the company or by earmarking funds from the sales collections."
In view of this letter at Ex.P.24 admittedly given by the plaintiff to the defendant, there is no merit in the contention of the plaintiff that defendant had not right or authority to collect and appropriate margin towards letter of credit and guarantee facilities or to adjust or set off to the liabilities of the plaintiff.
26. For the above discussed reasons plaintiff has failed to prove its entitlement of sums referred to in issue Nos.1 to 3. For these reasons issue Nos.1 to 3 are answered in the 'Negative'.
27. Issue Nos.4 to 7:- It is submission of learned advocate for plaintiff that as per the terms of agreement dated 26.04.1999 and as for the letter of sanction of credit facilities dated 09.12.1998, the defendant was required to issue notice to the plaintiff before suspending, withdrawing, canceling, decreasing of any of the facilities. But the defendant has failed and neglected to adhere to the terms and conditions of the contract and thereby committed breach of terms and conditions of the contract. Defendant has illegally terminated the facilities without issuing notice to the plaintiff and has illegally made appropriation of the amounts in the credit of the account of plaintiff which resulted decrease of production of 41 Com.OS.No.3215/2001 the plaintiff in the year 2000-2001 which is proved by the plaintiff by producing production registers at Ex.P.15 and Ex.P.19. Due to such illegal act of the defendant, plaintiff has suffered loss of Rs.42.55 Crores. Thus due to such illegal act of the defendant, plaintiff suffered damages and loss of reputation and lost the business in terms of procurement of orders and sales. Due to such illegal act of the defendant, there was shortfall in the turnover to the extent of Rs.1853.01 Lakhs relating to the motors and Rs.2121.05 Lakhs relating to the generators which is clearly shown in the statistics furnished as Ex.P.16. Further it is also submission of learned advocate for plaintiff that plaintiff had a sanctioned limit of Rs.4.8 Crores which was not withdrawn by the defendant. Plaintiff had credited Rs.1.57 Crores to its said account and thus plaintiff was entitled to draw Rs.6.37 Crores from the defendant but the defendant has illegally withheld said amount and prevented the plaintiff from utilizing said amount to it's business. Further it is also submission of learned advocate for plaintiff that as per the Foreign Exchange Regulation Act and Guidelines of the RBI, the plaintiff was required to use the amount, which was available in Export Earners Foreign Currency Account(EEFC), for the permitted purpose only. But the defendant has failed to effect two remittances of US $850 to Commercial Bank of Syria from its Export Earners Foreign Currency Account. Plaintiff had given this instruction to the defendant for two remittances on 04.04.2000. Since defendant did not follow such instruction of plaintiff, plaintiff issued letter dated 28.04.2000 at Ex.P.28 to the defendant calling information for not making remittances. Defendant by 42 Com.OS.No.3215/2001 it's letter dated 03.05.2000 at Ex.P.29 informed that it had exercised it's right of lien and set off and had utilized the amounts available in the Export Earners Foreign Currency Account to satisfy the cash margin of letter of credit and guarantee facility. The amount available in the Export Earners Foreign Currency Account was equivalent to Indian Rs.48,34,304.64 and defendant has not only violated the provisions of law in utilizing the amount of Export Earners Foreign Currency Account amount but has also committed breach of trust and has violated it's fiduciary obligation towards plaintiff. Further it is also submission of learned advocate that the defendant has set-out the position of the various accounts and the liability of the plaintiff and the various appropriations made in the written statement at Page No.36 and 37 under "A", "B" and "C" columns. Plaintiff has no dispute relating to details shown in Column (A) mentioned at Page No.36 of written statement. But details shown in Column (B) and (C) at Page No.37 of written statement are disputed. However, plaintiff has no dispute in so far as item Nos.(i) to (iii) and (v) in Column (C) at Page No.37 of written statement. There is no proper answer given by the DW.1 relating to the appropriations made as shown in Page No.37 of written statement. Records produced by the defendant at Exs.D.27 to 29 support the claims of the plaintiff that defendant has unjustifiably withheld the amounts of the plaintiff. Accordingly it is submission of learned advocate for plaintiff that plaintiff is entitled to recover the amounts of issue Nos.4 to 7 and defendant is liable to pay said amounts to the plaintiff.
43Com.OS.No.3215/2001
28. On the other hand it is submission of learned advocate for defendant that burden to prove these issues is on the plaintiff. Except Exs.P.15 and 16, there are no other records at Exs.P.15 and 16 do not have evidenciary value since they are self prepared by the plaintiff to suit its purpose. Evidence deposed by PW.2 in his cross examination clearly disproves the claim of plaintiff. It is admitted by the PW.2 that plaintiff had suffered loss due to separate reasons. Even in para No.12 of the plaint also it is stated plaintiff had suffered loss on account of various reasons within the company and not attributable to the defendant. Further it is also submission of learned advocate for defendant that it is evidence of PW.2 that there are no documents to show the defendant breached which terms of the contract. In the first instance plaintiff has failed to prove that Rs.7,81,38,775/- was available in the credit of its account and this amount was illegally withheld by the defendant. The details such as amounts available in the accounts of the plaintiff, liability of the plaintiff and appropriations made by the defendant, which details are shown in page Nos.36 and 37 of the written statement, are admitted by the PW.2 in page Nos.29 and 30 of his cross examination. As per the terms of consortium agreement at Ex.P.17 and letter of plaintiff at Ex.P.24, the defendant bank was authorized to collect, at any time without prior notice, appropriate margin towards the letter of credit and guarantee facilities and also to adjust or set-off or transfer any sums standing to the credits of the plaintiff and the decision of the defendant bank in this regard shall be final. It is admitted by the PW-2 that there was no contract between the parties to extend 44 Com.OS.No.3215/2001 financial facilities and services to the plaintiff by the defendant irrespective of financial status and condition of the plaintiff. Further it is also argument of learned advocate for defendant that defendant by exercising it's right of general lien and set-off in law, has frozen the amounts in the Export Earners Foreign Currency Account of the plaintiff, to secure the liabilities of plaintiff and except this, the defendant has not dealt with the amounts. There are no reliable materials placed by the plaintiff to prove alleged illegal, unjust and unfair action of the defendant resulting loss of business and reputation of the plaintiff. Accordingly learned advocate for defendant has requested to answer issue Nos.4 to 7 in the 'Negative'.
29. After having heard both sides on Issue Nos.4 to 6, I have carefully gone through the materials on record. In the first instance burden lies upon the plaintiff to prove that Rs.7,81,38,775/- was available in the credit of its account held in the defendant bank and this amount was wrongly withheld and illegally appropriated by the defendant and thereby defendant prevented the plaintiff from legally utilizing said amount which resulted damages to the plaintiff and also loss of its business and reputation. Secondly, the burden is on the plaintiff to prove that the defendant has illegally withdrawn/terminated the financial facilities provided under consortium agreement at Ex.P.17 and case management service as per Ex.P.30 and this act of defendant is illegal, unjust and unfair and contrary to the terms of Exs.P.17 and 30 and this resulted damages to the plaintiff and also loss of its business and reputation.
45Com.OS.No.3215/2001
30. As discussed above under issue Nos.1 to 3, plaintiff has failed to prove that Rs.7,81,38,775 was available in it's account as on 04.04.2000. At the cost of repetition it is to be noted that it is contention of plaintiff in para No.26 of the plaint that an amount of Rs.7,81,38,775/- was available as on 04.04.2000 in its account held in the defendant bank and this sum includes Rs.1.57 Crores referred to in para No.21 of the plaint. As discussed above in para No.16 of this judgment, the plaintiff has failed to prove that such amount of Rs.7,81,38,775/- was available in it's account as on 04.04.2000. There is no clarity in the say of the plaintiff as to what was total amount available as on 4.4.2000 in its bank account held in the defendant bank. It is stated in para No.21 of the plaint that it had a sanctioned limit of Rs.4.8 Crores and this limit had not been withdrawn by the defendant and it had credited funds to the extent of Rs.1.57 Crores to its said account with the defendant and thus it was entitled to draw Rs.6.37 Crores. Further it is stated in para No.23 of the plaint that it had foreign currency which is equivalent to Indian Rs.48,34,304.60 in its EEFC account. If that is so, the total of Rs.6.37 Crores and Rs.48,34,304.60 comes to Rs.6,85,34,304.60. This amount cannot be equated to Rs.7,81,38,775/- which is stated in para No.25 of the plaint and recovery of which is also claimed in this suit along with past and future interest thereon. Whereas it is say of the plaintiff in para No.25 of the plaint that defendant had collected Cheques and realized amounts from various branches and customers of the plaintiff to the tune of Rs.7,81,38,775/-. Again it is stated in this para No.25 of the plaint that this sum of 46 Com.OS.No.3215/2001 Rs.7,81,38,775/- includes amount of Rs.1.57 Crores referred to in para No.21 of the plaint. If this amount of Rs.1.57 Crores is deducted from Rs.7,81,38,775/-, the net would be Rs.6,24,38,775/-. Therefore, there is no clarity in the say of the plaintiff as to what was the total amount available in its account as on 4.4.2000. So far alleged record marked as Ex.P.12 is concerned, it is pertinent to note that this record is self serving and self prepared by the plaintiff which could not be treated as evidence.
31. Similarly at the cost of repetition it is necessary to note that the defendant, in page Nos.36 and 37 of the written statement, has furnished the details of the plaintiffs account as on 06.04.2000 such as its sanctioned limit, liability of the plaintiff, the sum available in the accounts of the plaintiff and the appropriation of amounts made by it etc. The details of said pleadings of the defendant are as under:-
A). Liability of the plaintiff to the defendant immediately prior to 6.4.2000 was :
a) Towards overdraft facility ------- Rs.51,48,098.34
b) Interest on it Rs. 1,87,000.00
c) Short term loan liability Rs.2,75,00,000.00
d) Liability towards Letters of Credit Rs. 55,38,602.90
e) Liability towards guarantee facility Rs.4,58,34,897.22 B) Amounts shown as released to the credit of plaintiff's account are as under:
a) Cash Management Credits Rs.3,22,55,285.00
b) Export bills collected Rs.1,64,90,000.00
USD 87588.4
DEM 87313.54
c) Conversions(50%) of EEFC
Account balances into Indian
47
Com.OS.No.3215/2001
as per RBI directives Rs.32,59,000.00
( USD 44762.44
DEM 58528.06)
______________
Total Rs.5,91,63,285.00
Balance Outstanding in EEFC
Accounts USD 44762.43
DEM 58528.06
EURO 417.13
C) It is pleaded by the defendant that from the total amount of Rs.5,19,63,285/-, it made the following appropriations:
a) Settlement of liability under the O/D facility Rs.51,48,000.00
b) Settlement of liability under Short Term Loans Rs.2,75,00,000.00
c) towards interest dues Rs. 1,87,000.00
d) Retirement of bills under Letters of Credit,
Bank charges, costs and expenses Rs.91,52,459.94
e) Payment to tax authorities as per requests
of the plaintiff Rs.10,00,000.00
f) margin towards letter of credit and guarantee facilities Rs.89,75,825.06 USD 44762.43 DEM 58528.06 EURO 417.13 Further it is pleaded by the defendant in para No.41 of the written statement that till 6.4.2000 the guarantees of the value of Rs.4,58,34,897.22 were outstanding and among them, some of the guarantees with the value of Rs.1,91,89,879.09 were lapsed/expired relating to which it is not liable. After deducting the lapsed/expired value, the remaining guarantee value of Rs.2,66,45,026.13 was outstanding and it was in force under the guarantee facility. After all the aforesaid appropriations, set off etc., the amount held by the defendant for the guarantee facility was only Rs.1,63,44,978.33 as margin amount 48 Com.OS.No.3215/2001 which includes Rs.34,87,429.27 in the EEFC accounts and Rs.38,81,744/- in the FD Account of the plaintiff. This contention of the defendant as pleaded in page Nos.36 and 37 of the written statement is clearly admitted by PW.2 in his cross examination at page Nos.29 and 30 as under:
"It is true that as on 6.4.2000 our existing liability in the O.D. facilities account was Rs.51,48,098.34ps. It is true that the interest payable under the O.D. facilities was Rs.1,87,000.00 as on 6.4.2000. It is true that the total amount due O.D. facilities was Rs.53,35,098.34ps. It is true that the outstanding amount under short term loan was Rs.2,75,00,000.00. It is true that the outstanding due under letter of credit facility was Rs.55,38,602.90. It is true the contingent liability under the guarantee issued by the defendant on behalf of our company to various parties was Rs.4,58,34,897.22. It is true that as against these liabilities of our company to the defendant the cash management credit was Rs.3,22,55,285.00. It is true that the export bills collected was R.1,64,80,000.00. It is true that after taking above mentioned amount along with conversion of 50 percent of EEFC account that the total amounts as mentioned para 36 page 37 of written statement towards the total amount of credit lying in our account. It is true that the bank is entitled to hold the amount is margin till all the guarantees are discharged or comes to an end."
Due to this admission of PW.2, the contention pleaded by the defendant in page Nos.36 and 37 of the written statement is proved. In fact the defendant has produced all the account extracts/statements of the plaintiff which have been marked as Ex.D.20 to Ex.D.31 by way of confrontation in the cross examination of DW.1. I have carefully perused these account extracts/statements. These records do not support the contention of the plaintiff that the available credit in its account as on 6.4.2000 was 49 Com.OS.No.3215/2001 Rs.7,81,38,775/-. On the other hand, the facts pleaded by the defendant relating to available amount in the credit of accounts of plaintiff and also plaintiff's liability towards defendant as on 6.4.2000, are clearly admitted by PW.2 in his cross examination at page Nos.29 and 30 which is noted supra.
32. There is no merit in the contention of plaintiff that defendant has illegally appropriated amounts towards 100% margin as security to the letters of credit facility and 50% margin to the guarantee facilities provided etc., for the reasons that as per the terms of counter guarantee at Ex.P.2, which was admittedly executed by the plaintiff to the defendant, plaintiff had agreed to furnish forthwith upon demand of the bank such security or additional security to secure its obligations under the counter guarantee and indemnity, as may be required by the bank, to fully secure bank's interest and to execute, deliver and register such security demands to the decision and satisfaction of the bank which shall be final, conclusive and binding on the plaintiff. Further plaintiff had agreed that the bank shall have a lien on and shall be entitled without consent of the plaintiff to debit accounts whether loan cash credit, overdraft, saving, current, fixed, short deposit or any other accounts of the plaintiff at any of the branches of the bank with the amount of any payments the bank may make under or in respect of all or any of such guarantees and therefore it cannot be held that the defendant bank had no authority to appropriate the amounts in the credit of the amount of the plaintiff towards its liability to the bank with regard to guarantee facility offered by it.
50Com.OS.No.3215/2001
33. Plaintiff has produced letter dated 09.12.1998 at Ex.P.3 to show that defendant bank communicated it's sanction extending the credit facilities such as overdraft facilities, letters of credit and bank guarantee limit. The defendant by its letter dated 06.04.2000 at Ex.P.26 had withdrawn the overdraft facility and also the facility of short term loans and it demanded the plaintiff to provide a cash margin of 100% in respect of the outstandings under the letter of credit facility and a cash margin of 50% in respect of the outstandings under the guarantee facility. In the said letter itself it was stated by the defendant that it proceeds to exercise it's all right of lien and set-off without further notice to the plaintiff. It is relevant to note that in the sanction letter at Ex.P.3 itself it is clearly stated by the defendant that it is entitled, at any time, by a notice in writing and without assigning any reason to demand or cancel and/or decrease all or any of the facilities. Therefore it cannot be held that the defendant had no authority to withdraw overdraft and short term loans facility provided to the plaintiff and to seek to provide cash margin of 100% in respect of the outstandings under the letter of credit facility and cash margin of 50% in respect of the outstandings under the guarantee facility.
34. Relating to withdrawal of cash management services provided by the defendant to plaintiff is concerned it is relevant to note that as discussed above under issue Nos.1 to 3, plaintiff had submitted application as per Ex.P.30 to the defendant to avail cash management service which envisaged the collection of Cheques and other negotiable instruments of the plaintiff and to make the credit at early point of time which means immediately after 51 Com.OS.No.3215/2001 receipt of Cheques and other negotiable instruments, defendant was required to credit the amounts of those negotiable instruments to the accounts of plaintiff before clearance/realization of those negotiable instruments. Though clause No.8 of Ex.P.30 provides that arrangement of cash management service may be terminated by giving one month's notice, but defendant by issuing letter dated 04.04.2000 at Ex.P.25 had withdrawn advance credit system only in cash management service and continued cash management service to credit the collection of the Cheques on clear funds basis. This shows defendant bank did not terminate entire cash management service facility by issuing letter at Ex.P.25. Rather, by such letter at Ex.P.25, defendant had withdrawn advance credit system only in the cash management service facility. The word "may be" used in clause No.8 of Ex.P.30, cannot be termed as "shall" or "mandatory" on the part of defendant to issue prior one month's notice to terminate cash management service. Apart from that, as discussed above under issue Nos.1 to 3, the defendant had to withdraw advance credit system in the cash management service due to such malice act of the plaintiff which is admitted by the PW.2 in page No.25 of his cross examination. Therefore plaintiff cannot claim that act of the defendant in withdrawing cash management service and appropriating the amounts towards 100% margin for the letters of credit and 50% margin for guarantee facilities is illegal, unjust and unfair.
35. As discussed above under issue Nos.1 to 3, it is admitted fact that several banks including the defendant bank, had agreed to provide certain 52 Com.OS.No.3215/2001 financial facilities to the plaintiff as per the consortium agreement at Ex.P.17. The terms of this agreement at Ex.P.17, which terms or marked as Ex.P.17(A) to (c), provides that liberty was with the banks to refuse to all drawings or advances or to make available any facility at any time without any previous notice to the plaintiff and without assigning any reasons and plaintiff was obliged to keep such margin as security as determined by the banks which shall be final. There is nothing in this agreement at Ex.P.17 to show that banks had undertaken to provide and to continue such financial assistances/facilities to the plaintiff irrespective of financial status/condition of the plaintiff. In the cross-examination it is evidence of PW.2 in page No.19 as under :-
"It is true that main intention of the consortium was to create pari-pasu charge inter say between the parties of consortium. It is true that the said consortium agreement apart from creating non-preferential pari-pasu charge did not render any obligation on any of the banks."
Further in same page No.19 itself it is evidence of PW.2 as under :-
"It is true that under the agreement dated 23.02.1996 the banks were not obligated to render assistance irrespective the position of the plaintiff company. It is true that there is no clause in Ex.P.17 that the defendant bank would continue to render financial assistance to the plaintiff company irrespective of facts that financial condition of the plaintiff company is deteriorating."
36. It is undisputed fact that consortium agreement, as per Ex.P.17, was entered into between the banks and plaintiff on 23.02.1998, under which banks including defendant bank had agreed to provide certain financial assistances to the plaintiff. As admitted by the PW.2 in page 53 Com.OS.No.3215/2001 No.19 of his cross-examination, there is no clause in Ex.P.17 that the defendant would continue to render financial assistance to the plaintiff company irrespective of financial condition of the plaintiff. In para No.12 of the plaint itself it is pleaded by the plaintiff that it underwent industrial unrest due to workmen strike in connection with wage settlement and as such its production came down and at the same time plaintiff faced very stressful market conditions on account of greater competition, general slowdown in the industry, inability to secure remunerative price, slowdown in government expenditure. At the same time the plaintiff was also exposed to higher costs on account of steep increase in the price of fuels, petroleum products and electricity etc. It is evidence of PW.2 in page No.27 as under :-
"I see the manual report along with profit and loss statement for the year 1999-2000 pertaining to the plaintiff company, it is marked Ex.D.3. It is true that as per the statements the loss carried was Rs.45,51,39,000/-."
Thus, the plaintiff had already suffered huge loss in it's manufacture and sale business. The loss of Rs.45,51,39,000/- was carried on in the annual report along with profit and loss statement for the year 1999-2000, which has been marked as Ex.D.3 by way of confrontation.
37. It is relevant to note the evidence deposed by the PW.2 in page Nos.20 to 23 relating to the financial condition of the plaintiff prior to 04.04.2000, as under :-
"It is true that entire credit facilities extended by defendant bank was less than 5%. It is true that in a consortium meeting held on 20.03.2000 the senior manager M.K.Bhat of Bank of Baroda stated that enough time had been given 54 Com.OS.No.3215/2001 to the plaintiff company for sale of immovable property and disinvestment.
It is true that Sri.Muddaveerappa of Bank of Baroda also stated that as plaintiff company was not serious in bringing funds they would like to withdraw the facilities. It is true that he also insisted personal guarantee of our Chairman and Managing Director Sri. Vijay R. Kirloskar. It is true that the S.B.M., in the said meeting stated that they wanted to watch the progress to extent of holding on operation of our company. It is true that Mr. S.S.Prahalad of S.B.M., wanted to know that whether the existing limits were being considered for approval. It is true that Mr. B.K.Shivaram, expressed concern over the Company poor regard to the consortium advise for regularize the excess borrowing by bringing in funds.
It is true that he also expressed that we cannot expect grant to extend further assistance without contribution from the plaintiff company. It is true that they expected the company to muster about 25 Crores, to bring ease to the liquidity. Kit is true that State Bank of Travancore concurred to the said opinion and stated that no purpose would be served if the company is deteriorating in such a fashion.
It is true that Standard Chartered Bank stated that an amount of Rs.187 Lakhs was due to them and same was not repaid before 31.3.2000 the accoutn would be non- performing asset (NPA). It is true that Mr. Mani of Bank of India stated that the present borrowing would be treated as excess borrowing. It is true this was position of our company during March 2000. "
Further in page Nos.8 and 9 of the cross-examination it is evidence of PW.2 as under :-
"ದದ20-3-2000 ದಕದನ ಸನಟನಟರ ಬಶಗಕಕರ ಆಫರ ಇಕಡಯದವರನ ಇತರನ ಎಲಶಕ ಬಶಗಕಕರ consortium bank ಪರವಶಗ ವಜಯ ಕಲನನನರಸಕರರ ರವರಗನ ಪತಪ ಬರನದನ ಒಪಪಕನನಕಡಕತನ ಹಣವನನ ವಶದ ಸಕಸನಸಯವರನ ತನನಡಗಸದದದರನನ consortium bank ಗಳಗನ ಹಣವನನ ನಮಗನ Assistant ಕನನಡಲನ ಕಷಟವಶಗನತತದನ ಅಕತ ಪತಪ ಬರನದದಶದರನಕದರನ ಸರ. Consortium bank ನವರನ ದದ28-2-2000 ರಕದನ ಒಕದನ ಮನಟಕಗರ ಮಶಡದರನ ಆ ಮನಟಕಗರಗನ ನಶನನ ಕಕಪನ ಪರವಶಗ ಭಶಗವಹಸದನದ ಅನನನ ವಚಶರ ಸರ.55
Com.OS.No.3215/2001 ಈ ಮನಟಕಗರನಲಕ ಸನಟನಟರಬಶಗಕಕರಆಫರಇಕಡಯಶದವರನ ಮನಟಕಗರ ಮನಟರಟ ನಲಕ bill discounting ಸಕಲಭಗವನನ ಹಕತಗನದನಕನನಳನಳವವದಶಗ ಹನನಳದದರನ ಅನನನವ ವಚಶರ ಸರ. ಇದನನ ಮನಟಕಗರ ನಲಕ ಪಪತವಶದ ಬಶಗಕಕನವರನ ಸಹ bill discount ಸಕಲಭಗ ಓವರರ ಡನಗ ಆದನದರಕದಶಗ ಅವರನ ಕನನಟಟ ಈ ಸಕಲಭಗವನನನ ಹಕತನಗನದನಕನನಳನಳವವದಶಗ ಪಪಸಶತವನನ ಮಶಡ, ಈ ಬಗನಗ ಒಕದನ ಮನಟರಟ ಸಹ ಆಗದನ ಅನನನವ ವಚಶರ ಸರ .
ಸನಟನಟರ ಬಶಗಕಕರ ಟಶಪವಕಕನರಪವರನ ಸಹ ಇದನನ ಮನಟಕಗರನಲಕ ಅವರ ಮನಖಗ ಕಛನನರಯಕದ ವಶದ ಸಕಸನಸಗನ letter of credit facilities ನನ ಮನಕದನವರನಸಬಶರದನ ಅಕತ ನಧಶರಪ ತನಗನದನಕನನಕಡ ವಚಶರವನನನ ನಮಗನ ತಳಸದರನ ಅನನನವ ವಚಶರ ಸರ. ಈ ಬಗನಗ ಇದನನ ಮನಟಕಗರ ನಲಕ ಒಕದನ ಮನಟರಟ ಸಹ ಆಗದನ."
This evidence of PW.2 shows that prior to the consortium meeting dated 20.03.2000 itself the plaintiff company was facing severe financial crisis and in the said consortium meeting dated 20.03.2000 the banks expressed displeasure relating to deteriorating condition of plaintiff and they express their doubt to continue or extend financial assistance to the plaintiff.
38. Further it is also evidence of PW.2 in his cross-examination at page Nos.32 and 33 as under :-
"ನಮಮ ಕಕಪನನಯ ಆರರಕ ಸಸತ ಹದಗನಟಟದದರಕದ ನಶವವ ಮಶನಗ ಉಚಚ ನಶಗಯಶಲಯದಲಕ ಕಕಪನನ ಪಟಷನರ ನಕದ97/2002 ಹಶಕದನದನವವ ಅಕದರನ ಸರ . ಅದರಲಕ ನಶವವ ಒಕದನ ಸಕನಕ ಆಫರಅರನನಕಜರಮಕಟರಕನನಳದನದನವವ ಅಕದರನ ಸರ . ನಶವವ 35 ಸಶವರದ 805 ಲಕಕ ರನಪಶಯ ಬನನರನಯವರಗನ ಕನನಡಬನನಕಶಗತನತ. ನಶವವ ಬಶಗಕಕರ ಗಳ ಸಶಲವಲಕದನನ ನಮಮ ಕಕಪನನಯ ನಕಕರರ ಸಕಬಳ, provident fund ಆದಶಯ ತನರಗನ, ಕನನಕದಪ ಮಶರಶಟ ತನರಗನ, ರಶಜಗ ಮಶರಶಟ ತನರಗನ, ಹಶಗನ ಎಕಟಪ ಟಶಗಕರಟ ಹಶಗನ ಗಶಪಚನಗಟ ಇತಶಗದ ಕನನಡಬನನಕಶಗತನತ ಅಕದರನ ಸರ . ನಶವವ ಮಲನಕನಶಶರಕ ಹಶಗನ ಪನಣಗದಲಕರನವ ನಮಮ ಸಶತನತಗಳನನನ ಹಶಗನ ಪವಣನಯಲಕರನವ ನಮಮ ಕಕಪನನಗನ ಸಕಬಕಧಪಟಟಕತಹ ಕಟಟಡವನನನ ಮಶರಶಟ ಮಶಡಲನ ಒಪಪದನದವವ. ಮಲನಕಶಶರಕನಲಕದದಕತಹ ಆಸತಯನನನ 2005 ರಲಕ ಮಶರಶಟ ಮಶಡದನವವ. ಪನಣಗದಲಕರನವ ಆಸತಯನನನ ಕನಡ 2005 ರಲಕ ಮಶರಶಟ ಮಶಡದನವವ. ಅದನನ ವಷರ ಪವಣನಯಲಕರನವ ಕಟಟಡವನನನ ಕನಡ ಮಶರಶಟ ಮಶಡದನವವ. ಸಕನಕ ಆಫರ ಅರನನಕಜರ ಮಕಟರ ಮಶನಗ ಉಚಚ ನಶಗಯಶಲಯದಲಕ ದದ13-02- 2003 ರಲಕ ಮಕಜನರಶಗತನತ ಅಕದರನ ಸರ . ಸದರ ಆದನಶದ ಧಧಢನಕಧತ ಪಪತಯನನನ ನನನನಡದನದ ಅದನನನ ನಶಶನನ ಡ-6 ಅಕತ ಗನರನತಸಲಶಯತನ. ಬಐಎಪಎಫರಆರರ ಮನಕದನ ಕನನಸರನಕದ320/2002 ಹಶಕದನದವವ ಅಕದರನ ಸರ . ಬಐಎಪಎಫರಆರರ ನವರನ ತಮಮ ಪರವಶನಗನ ಇಲಕದನನ ಯಶವವದನನ 56 Com.OS.No.3215/2001 ಆಸತಯನನನ ಮಶರಶಟ ಮಶಡಬಶರದನ ಅಕತ ಆದನನಶ ಮಶಡದರನ ಅಕದರನ ಸರ . ನಮಮ ಕಕಪನನಯನನನ ಸನಟನಟರಬಶಗಕಕರಆಫರಟಶಪವಕಕನರರ ಹಶಗನ ಇತರನ ಬಶಗಕಕರ ಗಳನ nonperformance assets ಅಕತ ಡಕನಕನರರ ಮಶಡದದವವ ಅಕದರನ ಸರ. ಅದನ 2001 ರಲಕ. 2001 ರಲಕ ನಮಮ ಕಕಪನನ ಸಕರಇಕಡಸಟಸ ಆಗರನವವದರಕದ ನಶವವ ಬಐಎಪಎಫರಆರರ ಮನಕದನ 2002 ರಲಕ ಕನನಸನ ಹಶಕದನವವ."
This evidence of PW.2 shows plaintiff's accounts were declared as non- performance assets by the State Bank of Travancore and other banks in the year 2001. Since in the year 2001 plaintiff company became sick industry, a petition was filed in BIFR in the year 2002. Similarly due to such severe economic deteriorating condition, plaintiff company had filed Company Petition No.97/2002 before Hon'ble High Court of Karnataka. At that time plaintiff owed huge sums to others. Even scheme of arrangement was also granted as per Ex.D.6. Apart from this, it is also evidence of PW.2 in page No.27 that loss of Rs.45,51,39,000/- was carried on by the plaintiff in the year 1999-2000. From these materials record it is clear that due to such economic condition of the plaintiff and also its malice act, which malice act has been admitted by the PW.2 in page No.25 his cross-examination, the defendant bank has withdrawn the facilities provided to the plaintiff and further the bank sought the plaintiff to provide 100% security towards letter of credit facility provided and also 50% margin towards guarantee facility. From these materials it is clear that plaintiff had suffered severe loss of business and reputation prior to 04.04.2000 itself for various some other reasons and this fact is admitted in para No.12 of the plaint itself. There are no acceptable materials placed by the plaintiff to hold that due to alleged illegal acts of the defendant, plaintiff had suffered damages and loss to the 57 Com.OS.No.3215/2001 business and reputation. There are no materials to hold that the defendant bank has committed any illegal acts towards the plaintiff.
39. So for the amount in the EEFC account is concerned it is relevant to note that it is contention of the plaintiff that the amounts available in its EEFC account was Rs.48,34,304.64 in all i.e., (a) EURO 834.27 which was equivalent in Indian Rs.34,988.28, (b) Deutsche Marks 30,459.52 which was equivalent in Indian Rs.6,53,363.14 and (c) US $ 88,683.47 which was equivalent in Indian Rs.41,45,952.22. Further it is contention of plaintiff that this amount in EEFC account was to be used for permitted purpose only as per Foreign Exchange Regulation Act and the Regulations and guidelines of the RBI there under, but as stated in the letter dated 03.05.2000/- the defendant has illegally utilized this amount by exercising its right of lien and set-off to satisfy the cash margin of letter of credit and guarantee facility. Whereas it is contention of the defendant that Rs.34,87,409.27 was standing in the EEFC account i.e., (a) DEM - 58.529.6 which was equivalent in Indian Rs.13,20,848.65, (b) US $ 44.762.43 which was equivalent in Indian Rs.21,48,149.02 and EURP 417.17 which was equivalent in Indian Rs.18,411.60. Further it is contention of defendant in page No.37 of written statement that it has held up this amount as cash margin towards letter of credit and guarantee facility.
40. Ex.P.5 is the copy of letter dated 28.04.2000 which was sent by the plaintiff to the defendant and same was received by the defendant on 03.05.2000. In this letter at Ex.P.5 it was stated by the plaintiff that on 58 Com.OS.No.3215/2001 04.04.2000 it had requested the defendant to effect remittances of US $ 55 and US $ 850 to Commercial Bank of Syria, but defendant has not made remittance of the same. Accordingly plaintiff in this letter at Ex.P.5 called upon the defendant to furnish reasons for not affecting remittance. After receipt of this letter as per Ex.P.5 the defendant had issued it's response on 03.05.2002 as per Ex.P.29 stating that it exercised right of lien and set-off against the plaintiff, pursuant to clause No.2 of the letter of plaintiff dated 15.03.2000 (Ex.P.24) and clause (ix) of the counter guarantee dated 18.08.1997 (Ex.P.2) on the amount of EURO 834.27/- DEM 30,459.62/- and USD 88,683.47/- towards the required cash margin of 100% and 50% under the letter of credit facility and guarantee facility respectively.
41. It is relevant to note that except the admission of DW.1 that the amounts in EEFC account was to be used for the permitted particular purposes as per the provisions of Foreign Exchange Regulation Act and the guidelines of RBI, the plaintiff has not shown as to which were permitted particular purposes for which amounts in EEFC account were to be used. It is shown by the plaintiff that defendant was not entitled to use it's general right lien under Sec.171 of the Indian Contract Act, 1872 on the said amounts of EEFC accounts. It is submission of learned advocate for the defendant that by exercising the right of general lien under Sec.171 of the Indian Contract Act, the defendant only held amounts of EEFC account of the plaintiff as the cash margin towards letter of credit facility and guarantee facility provided to the plaintiff and except this, the defendant never mis-utilized the said amounts which were still lying in the same 59 Com.OS.No.3215/2001 EEFC account and there was no impediment to the plaintiff to get those amounts released by furnishing proper security to cash margin. After going through the materials on record and having regards to the facts and circumstances of this case and also the nature of the right of general lien available to the defendant under Sec.171 of the Indian Contract Act, 1872 and the authority given by the plaintiff to the defendant in the letter dated 15.03.2000 at Ex.P.24 to exercise such right of lien and set-off on all the amounts, it cannot be held that defendant has illegally utilized the amounts of EEFC account of the plaintiff.
42. For the above discussed reasons plaintiff has failed to prove that defendant has committed any illegal acts causing damages and loss to the business and reputation of plaintiff. Therefore plaintiff is not entitled to claim amount against the defendant. Hence these issue Nos.4 to 7 are answered in the 'Negative'.
43. Additional Issue No.1:-Plaintiff has filed this suit against the defendant making allegations of illegal acts of withholding/terminating the financial assistances, case management service and also alleging illegal appropriation of amounts to cause damage and loss of business and reputation of plaintiff. It is not shown by the defendant how other banks of consortium agreement at Ex.P.17 are necessary or proper parties to the suit. Therefore suit is not bad for non-joinder of necessary parties. Hence additional issue No.1 is answered in the 'Negative'.
60Com.OS.No.3215/2001
44. Issue No.8:- For the above discussed reasons and also above recorded findings to the issue Nos.1 to 7, suit of the plaintiff is liable to be dismissed. Hence I proceed to pass the following:
ORDER Suit of plaintiff is dismissed.
Under the circumstances of this case both parties shall bear their own costs.
(Dictated to the JW, typed by her, corrected and then pronounced by me in Open Court, on this the 26th day of May 2020.) (JAGADEESWARA.M.) LXXXII Addl. City Civil & Sessions Judge, Bangalore.
ANNEXURE LIST OF WITNESS EXAMINED FOR PLAINTIFF:
PW.1 Sri P.S. Mallik
PW.2 Sri N.V.Madhvarayanavar
LIST OF DOCUMENTS MARKED FOR PLAINTIFF
Exs.P-1 Demand promissory note dated 18.08.1997
" P-2 Original deed of counter guarantee dated
18.08.1997
" P-3 Letter of sanction issued by the defendant dated
09.12.1998
" P-4 Trial Service Agreement dated 10.08.1998
61
Com.OS.No.3215/2001
" P-5 Letter of the plaintiff dated 28.04.2000
" P-6 Another letter dated 28.04.2000
" P-7 Original legal notice dated 24.04.2000
" P-8 Attested copy of Joint Deed of Hypothecation of
Stock of Bank of India (in 10 sheets)
" P-9 Original declaration in respect of Joint Mortagage
executed by the plaintiff in favor of ICICI Bank
" P-9(a) Attested copy of Ex.P9
" P-10 Postal acknowledgement
" P-11 Reply notice dated 09.05.2000
" P-12 Copy of the statement annexed to the plaint
" P-13 Interest calculated statement produced at annexure-
II
" P-14 Copy of the statement over due interest paid due to
operation over the limits Annexure-III
" P-15 Production and sale details from April 2000 to
January 2001 Annexure-IV
" P-16 Statement showing market share- Loss of future
business Annexure-V
" P-17 Copy of the Consortium agreement dated
23.02.1996
" P-18 Copy of minutes of meeting along with letter dated
20.03.2000
" P-19 Production statistics register
"P-19(a)to(u)
" P-20
" P-21 Copy of the letter dated 25.02.1999
" P-22 Copy of the Customer Service agreement dated
25-02-1998
" P-23 Copy of the letter dated 13th March 2000
" P-24 Copy of the letter dated 15th March 2000
" P-25 Letter dated 4th April 2000
" P-26 Letter dated 6th April 2000
" P-27 Letter dated 10th April 2000
" P-28 Letter dated April 2000
" P-29 Letter dated 2000 May
" P-30 Copy of the cash management application
62
Com.OS.No.3215/2001
LIST OF WITNESSES EXAMINED FOR DEFENDANTS:
DW.1 Vandane Singh
LIST OF DOCUMENTS MARKED FOR DEFENDANTS
Exs.D-1
" D-2 Paper cutting of the publication
" D-3 Annual report along with profit and loss statement for
the year 1999-2000
" D-4 Reply notice dated 19.05.2000
" D-5 Copy of the letter dated 15.05.2001
" D-6 Copy of the Order issued by the Hon'ble High Court
of Karnataka, Bengaluru in COP No.97/2002 dated 13.02.2003 " D-7 Power of Attorney dated 07.02.2014 " D-8 Letter dated 13.05.1998 " D-9 Letter dated 25th June 1998 " D-10 Letter dated 13th July 1998 " D-11 Another letter dated 13th July 1998 " D-12 Letter dated 28th July 1998 " D-13 Letter dated 7th September 1998 " D-14 Letter dated 11th January 1999 " D-15 Letter dated 14th January 1999 " D-16 Letter dated 21st January 1999 " D-17 Customer engagement report " D-18 Statement of accounts " D-19 Certificate from the Vice President of Bank dated 10 th February 2014 " D-20 Certificate issued by the defendant bank " D-21 Statement of account for the month of April 2000 " D-22 Statement of accounts for the month of April 2000 " D-23 Certificate under banker's book evidence act " D-24 Current account statement " D-25 Complete account details statement " D-26 Account statements " D-27 EURO margin account for the month of May 2000 " D-28 Deutsche mark, margin account statement 63 Com.OS.No.3215/2001 " D-29 Statement of export bill " D-30 Statement of the letter of credit bill and charges (JAGADEESWARA.M.), LXXXII Addl. City Civil & Sessions Judge, Bangalore.