M/S.
Reliance Salt Ltd Vs. M/S. Cosmos Enterprises & Anr [2006] Insc 833 (22 November 2006)
S.B.
Sinha & Dalveer Bhandari
(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 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 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/-." "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 :
"......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. "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. 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 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' 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 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/-.
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