Bank of Saurashtra Vs. M/S Ashit Shipping Services Pvt. Ltd. & Anr  Insc
197 (12 April 2002)
Shah Mohammed Quadri & S.N. Variava S. N. Variava, J.
Briefly stated the facts are as follows:
1st Respondent is working as an agent for one M/s Palm Oil Transportation Pvt.
Ltd., C/o M/s Samta Shiping Agency P. Ltd., Singapore for their vessel MV Hec Ann which arrived at Kandla port on 20th June, 1995. The said ship was carrying logs of
timber consigned to various parties under the following documents:
Bills of lading No. HA/9504/47 to 49 dated 30.5.95.
Invoice Nos VB 95003 dated 30.5.95 for US$ 10,566.43 -do- Nos. VB 95003/Int of
-do- for US $ 312.65 -do- Nos. VB 95002 of -do- for US $ 5,029.23 -do- Nos. VB
95002/Int of -do- for US $ 148.81 -do- Nos. VB 95001 of -do- for US $ 44,539.65
-do- Nos. VB 95001/Int of -do- for US $ 1,317.89 $ 61,914.66" It appears
that the 2nd Respondent sent to the 1st Respondent a Bond which, inter alia,
provided as follows:
above goods were shipped on the above vessel by M/s. Matsui and company (Hong Kong) Limited Hong Kong 59 pieces (and
consign to the order) but relevant bills of lading has not yet arrived.
hereby request you to deliver such goods to M/s. (Vasani Bros) Bhavnagar in accordance with our request.
indemnify you and held harmless in respect of any liability loss or damage or
whatsoever nature which you may sustain by reason of delivering the goods of
M/s. Vasani Brothers, Bhavnagar in accordance with our request.
pay you on demand the amount of any loss on which the Master / agent of the
vessel or any other of your services or agents whatsoever may incur as a result
of delivering the goods aforesaid.
xxx xxx xxx xxx
produce and deliver to you the Bills of lading for the above goods duly
endorsed as such as documents shall have arrived. xxx xxx xxx xxx xxx xxx"
said Bond the following notation appears with the stamp of the Appellant Bank
and the signature of their Manager:
the undersigned hereby join in the above indemnity and jointly and severally
guarantee due performance of the above contract and accept all the formalities
Stamp and Signature of Bank."
1st Respondent claim that on the basis of this Bond they issued a Delivery Memo
dated 14th June, 1995 to the 2nd Respondent.
Respondent thereafter took delivery of the cargo. It further appears that the
2nd Respondent never delivered to the 1st Respondent the duly discharged bills
1st Respondent therefore wrote a letter dated 31st August, 1995 to the Appellants, terming the document as an indemnify
guarantee. The 1st Respondent stated, in the latter, that if the bills of
lading were not delivered they would invoke the guarantee. The Appellant
replied to the said letter by the letter dated 16th September, 1995 and asked for copy of the Bond and delivery Orders.
Further correspondence thereafter took place between the parties. The 1st
Respondent then filed a summary Suit under Order 37 of the Code of Civil
Procedure. They claimed a sum of Rs. 21,08,813.32 with interest of Rs.
1,62,450.02 upto filing of the suit and further interest from date of Suit till
Appellants and the 2nd Respondent filed applications for leave to defend. The
2nd Respondent has not come up in Appeal to this Court. We are thus only
concerned with the application for leave to defend filed by the Appellants.
the application for leave to defend the Appellant, inter alia, contended that
the suit was for recovery of the price of the goods and the interest on the
said amount. They contended that the Court at Gandhidham had no jurisdiction.
They also contended that the document was an indemnity bond and the 1st
Respondent should thus prove that they had suffered a loss. They pointed out
that in the Plaint the 1st Respondent had not averred that they had suffered
any loss or damage. It was, inter alia, averred as follows:
this connection it is submitted that the so called and alleged bond is not Bank
Guarantee or Guarantee Bond and it is only Indemnity Bond. The said Bond
purported to have been signed by the defendant No. 2 in favour of the plaintiff
and countersigned by the Manager of the defendant No. 1 of Bhavnagar Station
Branch which is in flagrant violation of the Bank's Procedure as it was never
entered in the Bank's record nor Controller's permission or sanction was
obtained. It is submitted that the Branch Manager has exceeded his powers and
alleged indemnity bond is not binding on the defendant No. 1. It therefore
leads to the suspicion that the same is fraudulently obtained by the plaintiff
in collusion with the defendant No. 2 and also with assistance of the then
Branch Manager of the said Branch.
xxx xxx xxx xxx Without prejudice to the averments made hereinbefore and
hereinafter and making no admission of what so ever nature it is submitted that
the Bhavnagar (main) Branch had received an inquiry from the negotiating Bank
about certain discrepancies noticed in the Bank documents submitted by the
beneficiary M/s. Mstui & Co., and therefore, they sought the confirmation
of the said Branch whether the bill with those discrepancies could be
negotiated. As this defendant/opener of the I/C was not accepting the discrepancies,
the said negotiating Bank was advised not to negotiate the bills under the L/C.
Thought the L/C was established by the defendant No. 1 the negotiating Bank was
advised not to negotiate the documents. Therefore, there is no liability arises
of this defendant of whatsoever nature." Thus it is to be seen that the
Appellant had, amongst other contentions, averred that a fraud had been made on
them by the 1st Respondent in collusion with the 2nd Respondent and their
also averred that they had refused to negotiate L/C as there were
discrepancies. No rejoinder was filed by the 1st Respondent. Thus there was no
denial of these averments.
trial Court by an Order dated 30th October, 1996 refused leave to defend. The trial Court held that the Appellant had
not raised any triable issue. It, inter alia, held as follows:
facts clearly show that bank has categorically given a guarantee and so no triable
issue is arising, and therefore, provisions of Order 37 of CPC specifically
applies to the suit of the plaintiff and these facts are supported by the
decision reported in AIR 1990 Patna Page-221. Further, it is not the say of the
Defendant that the plaintiff has committed fraud and for that reason it cannot
also stop the payment under the Bank Guarantee and that this fact has also been
denied by Defendant No. 2 and has stated that the plaintiff has not colluded
with Defendant No. 2 and as only on the imaginary facts, it cannot be said that
the fraud has been committed."
Both the Appellants and the 2nd Respondent then filed Revisions before the High
Court of Gujarat at Ahmedabad. Both those Revisions came to be dismissed by the
impugned Order dated 18th
High Court also held that no triable issue had been raised. The High Court held
that the defence sought to be raised was "nothing but a sham".
The law on the subject is well settled. In the case of Mechalec Engineers &
Manufacturers v. Basis Equipment Corporation reported in AIR (1977) SC 577, it
has been held that the question of granting leave to defence has to be
considered in the light of following principles:
the defendant satisfies the Court that he has a good defence to the claim on
its merits the plaintiff is not entitled to leave to sign judgment and the
defendant is entitled to unconditional leave to defend.
the defendant raised a triable issue indicating that he has a fair or bona fide
or reasonable defence although not a positively good defence the plaintiff is
not entitled to sign judgment and the defendant is entitled to unconditional
leave to defend.
the defendant discloses such facts as may be deemed sufficient to entitle him
to defend, that is to say, although the affidavit does not positively and
immediately make it clear that he has a defence, yet, shows such a state of
facts as leads to the inference that at the trial of the action he may be able
to establish a defence to the plaintiff's claim the plaintiff is not entitled
to judgment and the defendant is entitled to leave to defend but in such a case
the Court may in its discretion impose conditions as to the time or mode of
trial but not as to payment into Court or furnishing security.
the defendant has no defence or the defence set up is illusory or sham or
practically moonshine then ordinarily the plaintiff is entitled to leave to
sign judgment and the defendant is not entitled to leave to defend.
the defendant has no defence or the defence is illusory or sham or practically
moonshine then although ordinarily the plaintiff is entitled to leave to sign
judgment, the Court may protect the plaintiff by only allowing the defence to
proceed if the amount claimed is paid into Court or otherwise secured and give
leave to the defendant on such condition, and thereby show mercy to the defendant
by enabling him to try to prove a defence.
the case of Raj Duggal v. Ramesh Kumar Bansal reported in AIR (1990) SC page
2218, it has been held that leave to defend must be declined where the Court is
of the opinion that grant of leave would merely enable the defendant to prolong
the litigation by raising untenable and frivolous defences. It has been held
that the test is to see whether the defence raises a real issue and not a sham
one. It has been held that when there is a plausible defence leave to defend
must be granted. It has been held that if there is a dispute as to the meaning
of a document or uncertainty as to the amount actually due or the facts are of
such a nature as to entitle the defendant to interrogate the plaintiff or to cross-examine
his witness leave should not be denied.
this case, as already set out hereinabove, there is a dispute as to whether the
document is a guarantee or merely an Indemnity.
1st Respondent termed the document to be an indemnity/guarantee. The Appellants
denied that the document was a Guarantee. On the face of it the document
appears to be an Indemnity and not a Guarantee. The Court was therefore
required to consider the nature and meaning of the document. This by itself
necessitated granting of leave to defend.
Further this is a document given by the 2nd Respondent to the 1st Respondent.
On this document, contrary to the normal practice, the Manager of the Appellant
Bank has merely affixed the stamp of the Appellants and signed under a paragraph
which states that they had joined in the indemnity. The Appellants had also set
out in their application for leave to defend that the documents submitted to
the negotiating Bank were not negotiated as there were discrepancies in those
documents. To this averment there was no reply or denial by the 1st Respondent.
The Appellants have made serious allegations of fraud and collusion. They had
stated that such a document did not exist in their records. This was not a defence
which could be characterised, at this stage, as sham or illusory or practically
moonshine. These triable issues should not have been summarily rejected by the
trial Court and/or the High Court.
stated above, prima facie, the document appears to be an Indemnity Bond. In
cases of Indemnities the question of making good the loss arises only when
there is proof that loss is suffered. In this behalf the wording of Order 37
are relevant. Rule 1 of Order 37 reads as follows:
Courts and classes of suits to which the Order is to apply.- (1) This order
shall apply to the following Courts, namely:-
High Courts, City Civil Courts and Courts of Small Causes; and
that in respect of the Courts referred to in clause (b), the High Court may, by
notification in the Official Gazette restrict the operation of this Order only
to such categories of suits as it deems proper, and may also, from time to
time, as the circumstances of the case may require, by subsequent notification
in the Official Gazette, further restrict, enlarge or vary, the categories of
suits to be brought under the operation of this Order as it deems proper.
Subject to the provisions of sub-rule (1), the Order applies to the following
classes of suits, namely:-
upon bill of exchange, hundies and promissory notes;
in which the plaintiff seeks only to recover a debt or liquidated demand in
money payable by the defendant, with or without interest, arising,-
a written contract; or
an enactment, where the sum sought to be recovered is a fixed sum of money or
in the nature of a debt other than an penalty; or
a guarantee, where the claim against the principal is in respect of a debt or
liquidated demand only." It is to be seen that under sub-rule (2)(iii) of
Rule (1) of Order 37 a claim could be made on the basis of a guarantee.
Significantly Order 37 CPC does not provide for a claim based on an Indemnity
reason is obvious. In cases of claims on Indemnity Bonds the loss would first
have to be proved. Thus a summary procedure cannot be adopted in such cases.
Mr. Chidambaram relied upon the case of Oil & Natural Gas Corpn. Ltd. v.
SBI, Overseas Branch reported in (2000) 6 SCC 385. In this case the question
was whether leave to defend could have been granted in a summary suit based on
an unconditional bank guarantee.
Court held that such bank guarantees must be honoured unless fraud had been
played. This Court held that in the absence of any fraud leave to defend should
not be granted in cases of unconditional bank guarantees. There can be no
dispute with the above proposition.
this decision is based on the law regarding unconditional bank guarantees.
Courts have consistently held that unconditional bank guarantees must be honoured
by the banks. In the present case, it is not clear whether the document is an
indemnity or a guarantee. In any event, there is no unconditional bank
if the document is held to be a guarantee it is only on proof of loss. Also in
this case fraud has been alleged. Thus the authority is of no assistance to the
our view, for the aforesaid reasons, leave to defend could not have been
refused to the Appellants. We therefore set aside the impugned Judgment dated 18th April, 2001 and the trial Court Order dated 30th October, 1996 and grant the Appellants leave to
defend the suit. They shall file their written statement within a period of 8
weeks from today. The parties are at liberty to disclose documents within 4
weeks thereafter. The parties are at liberty to apply to the trial Court for
expeditious hearing of the suit.
Mr. Chidambaram also relied upon the authority in the case of Kamlesh Kohli v. Escortrac
Finance & Investment Ltd. reported in (2000) 1 SCC 324. In this case it has
been held that leave to defend could be granted to one of the defendants and
not the others. It was held that the Court was not obliged to grant leave to
defend to other defendants merely because leave to defend is granted to one of
the defendants. We clarify that the leave to defend has been granted only to
the Appellants. The 2nd Respondent is not before this Court. We have not
considered the case of the 2nd Respondent. Merely because leave to defend is
granted to the Appellant does not necessarily mean that the 2nd Respondent is
also to be entitled as of right to leave to defend. We also clarify that all
observations made herein are prima facie and that they shall not be taken into
account at the final hearing of the Suit.
The Appeal stands disposed of accordingly. There shall be no order as to costs.
SHAH MOHAMMED QUADRI) J.