Full Judgment Text
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CASE NO.:
Appeal (civil) 5151 of 2006
PETITIONER:
M/s. Reliance Salt Ltd
RESPONDENT:
M/s. Cosmos Enterprises & Anr
DATE OF JUDGMENT: 22/11/2006
BENCH:
S.B. Sinha & Dalveer Bhandari
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) No.2749 of 2006)
S.B. Sinha, J.
Leave granted.
The 1st Respondent herein was appointed as a Consignment Agent by
an agreement dated 23.12.1993 in regard to the sale of products of the
Appellant Company-plaintiff, namely, Salt and Tea in South and Central
Bihar. In terms of the said agreement it was required to furnish a Bank
Guarantee for a sum of Rs.5 lakhs. The transactions between the parties
started in January, 1994. Some of the clauses in the said Bank Guarantee are
as under :
".......We................................(hereinafter referred to as
the Bank) do hereby agree to pay the Principal Co. an
amount not exceeding Rs.6,00,000/- (Rupees Six Lacs
only) against any loss or damage caused to or suffered or
would be caused to or suffered by the Principal Co. by
reason or any breach of contract by the consignment
agent as their due performance of their duties as
consignment agent for the Principal Co., the major term
being settlement of the Principal Co.’s bills by the
consignment agent within 30 days from the date of
receipt of material.
(2) We......................(Bank) do .............. hereby
undertake to pay the amounts due and payable under this
guarantee without any demur merely on a demand from
the Managing Director or any other director of the
Principal Co. stating that the amount claimed is due by
way of loss or damage caused to suffered by the Principal
Co. by reason of any breach of contract for non payment
of the Principal Company’s bills within 30 days from the
date of receipts of materials by the consignment agent of
any of the terms and conditions agreed upon/to be agreed
in performance of their duties of consignment agent on
behalf of the Principal Co. Any such demand made on
the ......... (Bank) shall be conclusive as regard the
amount due and payable by the Bank under this
guarantee.
(3) We ....................... (Bank) further agree that the
guarantee shall remain in full force and effect for a
period of 12 (Twelve) months from the date of issue of
this guarantee or till the period that would be taken by the
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consignment agent for the due performance of their
duties as consignment agent on behalf of the Principal
Company on the terms and conditions mutually agreed
upon/to be agreed upon shall continue to be enforceable
till all the dues of the Principal Company have been fully
paid and its claims satisfied or discharged or till the
Managing Director or any other director of the Principal
Company certified that the due performance of their
duties as consignment agent have been fully and properly
carried by the consignment agent and accordingly
discharge the Guarantee, which ever date is earlier.
(4) We .................. (Bank), further agree with the
Principal Company that the Principal Company have
been fullest liberty without our consent and without
AFFECTING IN ANY MANNER. Our OBLIGATIONS
HEREUNDER to vary any of the terms and conditions
agreed/to be agreed with the consignment agent in the
due performance of their duties as consignment agent or
to extent time of performance by the consignment agent
from time to time any of the power exercisable by the
Principal Company against the consignment agent and to
forbear or enforce any of the terms and conditions agreed
upon and we shall not be relieved from our liabilities by
the reason for any such variation or extension being
granted to the consignment or any forbearance act or
omission on the part of the Principal Company or any
indulgence by the Principal Company or any indulgence
by the Principal Company to the Consignment Agent by
any such manner or thing whatsoever which under the
law relating to sureties would but for this provision have
effect of so relieving us."
Pursuant to or in furtherance of the agreement entered into by and
between the parties herein, the 1st Respondent furnished a Bank Guarantee
of Rs.5 lakhs issued by Respondent No.2, Bank of India, Muradpur,
Chouhatta Branch, Patna on 12.1.1994.
Indisputably, the business dealings between the parties continued upto
July, 1994. Appellant’s bills allegedly remained unpaid for more than 30
days after the same had been raised amounting to Rs.5,04,739.92p. The said
Bank Guarantee was invoked by letter dated 4.8.1994 whereabout
Respondent No.2 intimated to 1st Respondent. A Title Suit No.316/94 was
filed by 1st Respondent herein in the Court of Subordinate Judge at Patna,
inter alia, for the following reliefs :
"(a) declaration that the petitioner is not entitled to
invoke the Bank Guarantee for Rs.5 lakhs.
(b) order of injunction restraining the respondent No.2
from encashing the Bank Guarantee at the instance
of the petitioner"
In the said suit, whereas Appellant filed a written statement, the Bank
did not choose to file any. The suit was decreed on contest against
Appellant and ex parte against Respondent No.2. An appeal taken therefrom
by Appellant before the Patna High Court being First Appeal No.28/1997
was dismissed by a learned Single Judge by an order dated 31.7.2000. An
intra-court appeal was filed as against by Appellant, which was found to be
not maintainable, purported to be in view of the amended provisions of
Section 100-A of the Code of Civil Procedure.
The learned Trial Judge framed several issues, the issue No.7 being :
"VII. Is the defendant no.1 is entitled to invoke the
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bank guarantee in question?"
The learned Trial Judge, inter alia, found that (i) the invocation of
Bank guarantee was vitiated by fraud; and (ii) the 1st Respondent would
suffer irreparable injury in regard to the issue of fraud.
It was held :
"So, I find that plaintiff has made a specific plea of the
case of fraud and irreparable harm in his pleading and
therefore, the plaintiff is entitled to establish the fact of
fraud and irreparable harm, the exceptions for granting
injunction in case of invoking bank guarantee."
In the very nature of the things fraud is secret in its
origin or inception and in the means adopted for its
success. Each circumstances of by itself may not mean
much, but taking all of them together they may reveal a
fraudulent and dishonest plea.
So, the plaintiff is able to establish that the dealing
of the plaintiff was sincere for the business whereas the
defendant No.1 has not made sincere dealing which
caused irregularity in supply and other difficulties for
which the plaintiff made complaint to the defendant No.1
time to time.
Now from the perusal of the Ext. E, the original
bank guarantee, it is clear that the bank guarantee was
revocable on the ground of any loss and damage caused
to the defendant No.1 due to breach of the contract by the
plaintiff or due to no-settlement of the bills of the
defendant No.1 within 30 days from the date of those
bills.
From the perusal of the letter dated 4.8.94 of
Defendant No.1 to the Bank of India, Muradpur,
Chouhatta Branch, Patna, it is clear that the ground for
invoking the Bank Guarantee as stated in the letter dated
4.8.94 is only non payment of the bills within the
stipulated period. Therefore there is no ground of loss or
damage caused to the Defendant No.1 due to non
performance of work in business by the plaintiff or due to
any breach of contract by the plaintiff."
The learned Trial Judge further opined that the evidence of the
plaintiff corroborated in the form of contemporary documents as well as the
unexplained failure of the beneficiary to respond thereto would lead to the
conclusion that the only realistic inference to draw would be fraud, holding :
"The defendant No.1 has not submitted any document in
support of the balance amount as given in the written
statement whereas the plaintiff has filed all the relevant
documents regarding his accounting in order to prove
that actually up to 31.7.94 only Rs.32,864.35 paise was
due."
"Besides, the defendant had filed objection petition of the
injunction petition of the plaintiff on 23.8.94 and there
has been annexure given as Annexure A in which
detailed account of the dealing of business has been also
given. In this, bill dated 16.7.94 is given as the last bill
amounting to Rs.28,000/-."
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"So it appears that up to 16.7.94 the defendant No.1 has
sent goods to the plaintiff and in that case the bill dated
16.7.94 is liable to be paid up to 16.8.94 i.e. within 30
days as per the terms of the agreement vide Ext. (1) and
defendant No.1 is entitled to invoke the bank guarantee
only after the lapse of 30 days from the date of bill as
stipulated in the deed of bank guarantee Ext. E."
"In this view of the fact the amount given in Ext. D does
not seem to be correct and the account given in the
written statement vide para 9 also does not seem to be
correct."
"The absence of these things indicate that the action of
defendant no.1 was not clean and honest rather it was
fraudulent one and therefore, the invocation of bank
guarantee was made by way of fraud."
"Therefore, the defendant No.1 had difference with the
consigning agent in the State of Uttar Pradesh and
Andhra Pradesh. This circumstance also leads to show
that the action of the defendant No.1 was of a fraudulent
nature."
In regard to the issue of irreparable injury, it was held :
"In the instant case, as discussed above, on the basis of
oral and documentary evidence, I find that the defendant
No.1 had played fraud for withdrawing the amount of
bank guarantee and it will also cause irreparable harm to
the plaintiff. Therefore this case comes in purview of the
exception given in the settled law and accordingly,
injunction can be granted and defendant No.1 can be
prevented from invoking the bank guarantee. Thus, this
issue is also decided in favour of the plaintiff and against
the defendant."
The High Court in its judgment opined that although the bank cannot
be prevented from honouring the Bank Guarantee as and when demanded by
the beneficiaries except in the case of fraud which would vitiate the entire
transaction. It was further opined that the plaintiff in paragraph 11, 16 and
19 of the plaint, specifically and clearly pleaded about the fraud played on
the part of Appellant herein. It was furthermore stated that Appellant ought
to have produced and proved all its Books of Accounts to show that the
accounts furnished by the plaintiff were not correct.
Before we embark upon the rival contentions of the parties, it would
be necessary to notice the salient features of the Bank Guarantee. The Bank
Guarantee was limited to the extent of Rs.5 lakhs. It was given only against
any loss or damage caused to or suffered by the Principal Company, by
reason or any breach of contract by the consignment agent their due
performance of the duties of consignment agent of the Principal Company,
the major terms being settlement of the Principal Company’s bills by the
consignment agent within 30 days from the date of those bills. The Bank
undertook to pay the amounts due without any demur and merely on demand
by the Company. Such payment was merely to be made on the basis of a
statement that the amount claimed, inter alia, is due by way of loss or
damage caused to suffer by the Principal Company by reason of any breach
of contract for non-payment of the Principal Company’s bill by the
consignment agent of any of the terms and conditions to be agreed upon in
performance of their duties of Consignment Agent on behalf of the Principal
Company. Any such demand made on the Bank of India should be
conclusive as regards the amount due and payable by the Bank under the
said Bank Guarantee. It was furthermore stated :
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"......that the Bank Guarantee shall remain in full force
and effect for a period of 12 (twelve) months from the
date of issue of this guarantee or till the period that would
be taken by the Consignment Agent on behalf of the
Principal Company as the terms and conditions mutually
agreed upon shall continue to be enforceable till all the
dues of the Principal Company have been fully paid and
its claim satisfied or discharged or till the managing
director or any other director of the Principal Company
certified that the due performance of their duties as
Consignment Agent have been fully and properly carried
out by the Consignment Agent and accordingly discharge
the guarantee whichever date is earlier."
In its judgment, the learned Single Judge referring to paragraphs 11,
16 and 19 of the plaint, stated :
".......In para 11 it has been stated that "they are not ready
for settlement of the account as that would reveal their
own fault and misconduct" and the defendant No.1 intent
to somehow or other to obtain huge amount of the
plaintiff and thereafter vex and harassed the plaintiff in
refunding the same." Similarly, in para 16 of the plaint it
has been stated that defendant No.1 is guilty of
misconduct, irregularity, deception, misrepresentation
and fraud etc. and under the circumstances, the defendant
has no right to invoke the bank guarantee."
Paragraphs 11, 16 and 19 of the pleadings and the evidences adduced
on behalf of 1st Respondent, thus, were confined to the issue of inferior
quality of supply, late supply and short supply of consignments.
"Fraud" is defined in Section 17 of the Indian Contract Act, 1872 in
the following terms :
"S.17. "Fraud" defined.\026 "Fraud" means and includes
any of the following acts committed by a party to a
contract, or with his connivance, or by his agent, with
intent to deceive another party thereto or his agent, or to
induce him to enter into the contract :
(1) the suggestion, as a fact, of that which is not true,
by one who does not believe it to be true;
(2) the active concealment of a fact by one having
knowledge or belief of the fact;
(3) a promise made without any intention of
performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specifically
declares to be fraudulent.
Explanation. \026 Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such that,
regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself,
equivalent to speech."
A bare perusal of the contents of the Bank Guarantee, as noticed
hereinbefore, shows that there is no escape from arriving at a conclusion that
the guarantee furnished was an unconditional one. It not only provided for
loss or damage in case of breach of contract, but also loss or damage by
reason of non-settlement of bills. Such bills under the agreement of
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consignment were to be settled within a period of 30 days. In the event the
bills are not settled within the period stipulated in the agreement, the parties
intended, as it appears from the tenor of the Bank Guarantee, that the same
would constitute a breach of contract. It is not in dispute that some amount
was due to the Appellant from the Respondent. The suit was not a suit for
settlement of accounts. The suit was, inter alia, only for a decree for
injunction restraining Appellant from invoking the Bank Guarantee.
Respondent No.2-Bank, indisputably, did not controvert allegations
contained in the demand of the appellant. It did not contest the suit. It even
did not support Plaintiff-Respondent No.1 before the learned Trial Judge or
before the High Court.
A claim which is denied or disputed, in the event of necessity for
determination of the lis, may not be found to be correct. If Appellant was to
allege a breach of contract in a properly framed suit, Respondent No.1 could
also allege the breach of contract on the part of Appellant herein. Breach of
contract by reason of supply of inferior quality of tea or salt or delay in
supply or a short supply may render a party responsible for damages for
commission of breach of contract, but, breach of contract alone does not lead
to the conclusion that a fraud had been committed thereby. It is contended
that commission of fraud would include any act to deceive but then such act
must be confined to acts committed by a party to a contract with intention to
deceive another party or his agent or to induce him to enter into a contract.
Fraud, which vitiates the contract, must have a nexus with the acts of the
parties prior to entering into the contract. Subsequent breach of contract on
the part of a party would not vitiate the contract itself.
"Contract of guarantee" is defined under Section 126 of the Indian
Contract Act in the following terms :
"126. ’Contract of guarantee’, ’surety’,
’principal debtor’ and ’creditor’ \026 A ’contract of
guarantee’ is a contract to perform the promise, or
discharge the liability, of a third person in case of his
default. The person who gives the guarantee is called the
’surety’; the person in respect of whose default the
guarantee is given is called the ’principal debtor’ and the
person to whom the guarantee is given is called the
’creditor’. A guarantee may be either oral or written."
Bank Guarantee constitutes an agreement between the Banker and the
Principal, albeit, at the instance of the promisor. When a contract of
guarantee is sought to be invoked, it was primarily for the bank to plead a
case of fraud and not for a promisor to set up a case of breach of contract.
The discrepancies in the bills or non-submission of the detailed
account in respect of business cannot be a ground for denial of encashment
of Bank Guarantee if it is otherwise invokable.
Although, the learned Trial Judge as also the High Court observed that
the Bank Guarantee was invokable after lapse of 30 days from date of the
bill, as stipulated therein, on its own terms the Bank was bound to pay the
amount in question on its invokation, subject of course to the fulfillment of
the other conditions laid down therein. It could not have refused to honour
its commitment only because the purported accounts were not settled
between the parties or the accounts furnished to the Court were wrong ones.
The other reasons assigned by the learned Trial Judge as also the High Court
that the conduct of Appellant was not clean or it had tried to defraud other
customers in other parts of the State, in our considered opinion, are of not
much significance in view of the nature of the guarantee furnished by the
Bank.
Submission of Mr. Ranjit Kumar that after the judgment of the High
Court the 1st Respondent has got all documents released, cannot be a ground
to refuse invokation of Bank Guarantee by Appellant, if it was otherwise
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entitled thereto.
We, therefore, are of the opinion that the impugned judgments cannot
be sustained. They are set aside accordingly. The appeal is allowed. This
order shall not, however, come in the way of Respondents to file a suit for
accounts or take other measures which are available to them in law.
Respondent No.1 shall pay and bear the costs of Appellant in the appeal.
Counsel fee assed at Rs.10,000/-.