9911796707
TMI Blog2006 (11) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Seven Hundred Fifty Nine and Paise Eighty Two only) together with further interest on the principal sum of Rs. 33,36,792.10 (Rupees Thirty Three Lakhs Thirty Six Thousand Seven Hundred Ninety Two and Paise Ten only) at the rate of 18 per cent per annum from the date of the filing of the suit till payment and/or realization. 2.2 The plaintiff has averred that the suit is for a liquidated sum arising on a bank guarantee (Annexure-B to the plaint), which has been filed as the defendant has wilfully failed and neglected to make payment to the plaintiff, when the plaintiff invoked the said bank guarantee. The said bank guarantee was furnished by the defendant to the plaintiff on behalf of one Montari Industries Ltd. to enure the due payment of the purchase price of Anhydrous DMA , which the plaintiff was supplying to the said Montari Industries since the year 1994. The supply of the said product was on a 30 days credit from the date of supply, and to enure the due payment of the purchase price of the said product (Anhydrous DMA) by Montari Industries, the defendant executed in favour of the plaintiff a bank guarantee bearing No. SBP/NPND/ BG/64/1994-95, dated 9/12-9-1994, for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y) and that, in view thereof, the plaintiff s claim under the said bank guarantee now stood revised to Rs. 38,34,186.17 (Rupees Thirty Eight Lakhs Thirty Four Thousand One Hundred Eighty Six and Paise Seventeen only), including the details of the invoices. The plaintiff requested the defendant to release the aforesaid amount by demand draft in terms of clause 4 of the bank guarantee within two days from the date of receipt of the said letter. In reply thereto, the defendant by their letter dated 7-8-2000 repeated the stand taken by them in their earlier letters, that since Montari Industries Limited on whose behalf the bank guarantee was issued was registered with the BIFR, the bar of section 22 of Sick Industrial Companies Act was attracted and the guarantee in question could not be realized by the plaintiff without the permission of the BIFR. 3. It is the case of the plaintiff that there is no dispute that there has been a failure on the part of the Montari Industries Limited to make payment of the invoices within 30 days as required under the bank guarantee and the bank guarantee being unconditional and irrevocable, the defendant cannot take refuge under the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, two affidavits by way of evidence were filed on behalf of the plaintiff on this aspect alone. The defendant, however, did not care to file any affidavit by way of evidence on the issue of rate of interest. 7.1 Having heard learned counsel for the parties at length and scrutinized the records, my findings on the issues are as follows : Issue No. 1 7.2 Before dealing with the rival contentions of parties, I propose first to set out the provisions of section 22(1) of the SICA, as amended by the Act of 1994. The same read as follows : "22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the amount of the guarantees having become payable by the buyer shall be final and binding on the bank. ( iii )The defendant bank has not disputed that the said guarantee provides that the bank agrees and undertakes to pay the amount due and payable under the guarantee without demur, merely on a demand from the plaintiff that the amount claimed has become due by reason of the buyer s failure to pay the plaintiff s invoices within 30 days, and, further, that such demand shall be conclusive as regards the amount due and payable by the bank under the said guarantee. ( iv )The defendant bank has not disputed that it did not inform the plaintiff that Montari Industries Limited had been referred to the BIFR. Not only this, the defendant bank did not inform the plaintiff that the said Montari Industries was declared sick on 1-8-1997, despite being fully aware of the same, but further extended the term of the bank guarantee on 31-8-1999 in flagrant breach of trust. ( v )The defendant bank has not disputed that the term of the said bank guarantee was further extended up to 7-9-2000. ( vi )The defendant bank has not disputed that the plaintiff invoked the said bank guarantee v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, barred by the provisions of section 22(1) of the SICA. 11. The further contention of learned counsel for the plaintiff is that the above view is bolstered by the well-settled principles regarding enforcement of bank guarantees, according to which a bank guarantee is an autonomous contract, imposing an absolute obligation on the bank to fulfil the bank guarantee. Payment becomes due under a bank guarantee on the happening of a contingency, on the occurrence of which the guarantee becomes enforceable. In the instant case, there is no dispute that the said contingency has occurred - see Syndicate Bank v. Vijay Kumar [1992] 2 SCC 330. 12. Dealing first with the contention of the plaintiff that the guarantee in question is not in respect of any loan or advance granted to the industrial company, it would be apposite to note that the Apex Court in Patheja Brothers Forgings Stamping v. ICICI Ltd. [2000] 6 SCC 545 1 held that the words no suit for the recovery of money or for the enforcement of any security against the industrial company or any guarantee in respect of any loans or advance granted to the industrial company , inserted into section 22 by the Act 12 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under the U.P. Public Moneys (Recovery of Dues) Act, 1972. 15. On the basis of the aforesaid, counsel for plaintiff contended that no doubt there is a certain protection provided to a guarantor under section 22(1) of the SICA, but this protection is limited in nature. He further contended that where the concerned guarantee, as in the instant case, is not in respect of any loan or advance granted to an industrial company, a suit for the enforcement of the said guarantee can be proceeded with without the permission required in terms of section 22(1) of the SICA. The court in Patheja Bros. Forgings Stamping s case ( supra ) and Kailash Nath Agarwal s case ( supra ), he pointed out, was not concerned with the question whether a suit for enforcement of a guarantee will lie or can be proceeded with against the guarantor in view of section 22(1), where the guarantee is not in respect of a loan or advance granted to the concerned industrial company. Therefore, the judicial pronouncements of the Apex Court in Patheja Bros. Forgings Stamping s case ( supra ) and Kailash Nath Agarwal s case ( supra ) are not applicable to the facts of the present case, where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceed and the provisions of section 22 of the Act will not apply." 17.1 At page 241 of the report, it was observed : "12. (...) Prima facie, I am of the opinion that deferred sale consideration cannot be a loan or an advance. In case it is not a loan or an advance granted to the company, the provisions of section 22 of Sick Industrial Companies (Special Provisions) Act, 1985 will not be applicable, and, consequently, the suit is not barred by the said Act." 18. Reference was made in the aforesaid case to the decision of the Apex Court in Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT AIR 1965 SC 1201 wherein it was held that : ". . . An agreement to pay the balance of consideration due by the purchaser does not in truth give rise to a loan. A loan of money undoubtedly results in a debt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse source and a loan is only one of such sources. Every creditor who is entitled to receive a debt cannot be regarded as a lender. . . ." (page 1203) 19. Next, reliance was placed by counsel for the plaintiff on a Division Bench decision of the Bombay High Court in Ved Prakash Agarwal v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e narration that it was the obligation of the industrial company to make the periodical payment and use the machines. The industrial company had defaulted in making the payment and, therefore, the respondent had every right to get back the machinery. As far as the present suit is concerned, it is with respect to the guarantee given by the appellant to fulfil the obligations of the industrial company on his own the text of the guarantee is also very clear. That guarantee cannot be said to be a guarantee with respect to the repayment of a loan. Similarly, as stated earlier, in an advance of money the right of the financier is only with respect to money and not in the property. In the present case there are clear rights of the financiers in the property. That being so, it cannot be said that the lease finance given by the respondent to the industrial company was in fact a loan or an advance and which was guaranteed by the appellant. In view of this conclusion arrived at, on the second point for determination also there is no substance in the appeal." (p. 133) 20. From the above, it would appear that the Bombay High Court in Ved Prakash Agarwal s case ( supra ) has expressed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the fact whether a liquidated sum of money due to a person or institution is a loan or not has been held to be one in the opinion of the court : needless to state that the said opinion is not to be formed on arbitrary or whimsical grounds. The court must carefully and minutely examine the various facets of transaction in question to assess if in substance the same is a loan. 25. Viewed from the above angle, in my considered view, the transaction in the instant case cannot be said to be a loan given by the plaintiff to Montari Industries Limited nor can it be said to be an advance extended by the plaintiff to the said industrial company. The transaction between Rashtriya Chemical Fertilizers Limited and Montari Industries was unquestionably of a commercial nature. The guarantee in respect of out-standing sums in respect of aforesaid commercial transactions cannot, therefore, be said to be a guarantee in respect of any loan or advance extended by the plaintiff to Montari Industry Limited. In my considered view, therefore, the present suit cannot be labelled as a suit for enforcement of a guarantee in respect of a loan or advance to the industrial company, but is a suit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of interest on the amounts due and payable to the plaintiff by the defendant under the bank guarantee as per the certificate dated 3-8-2005 issued by the State Bank of India. The said certificate dated 3-10-2005 certifies that the prime lending rates of the State Bank of India, Commer-cial Branch, Chembur, from 1-4-2002 to 1-11-2004, varied from 11 per cent on 1-4-2002 to 10.25 per cent on 1-11-2004. 30. After calculating the interest on the principal amount from 21-10-1999 to 1-5-2006, the amount due and payable, according to the plaintiff, works out to Rs. 65,46,735.77 (Rupees sixty five lakhs forty six thousand seven hundred thirty five and paise seventy seven only). It was, however, fairly conceded by counsel for the plaintiff that clause 2 of the deed of guarantee limits the bank guarantee to the sum of Rs. 50,00,000 (Rupees fifty lakhs only). It was also not disputed from the side of counsel for the plaintiff, and indeed the same is borne out from the deed of guarantee ( Annexure B ) that clause 2 thereof provides as follows : "The bank agrees that our total liability under this guarantee is restricted to Rs. 50,00,000 (Rupees fifty lakhs only) which is inclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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