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TMI Blog2004 (11) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... ance to plaintiff s outstation branches would be done free of cost. (iii) Cash would be remitted to plaintiffs office at their cost, and (iv) They invited proposal of Bank Guarantee, from the plaintiff for their consideration. 3. The plaintiff, in response to their letter dated 27.2.1992 informed the defendants, vide letter dated 28.2.1992, that in course of its business the plaintiff is required to furnish necessary Bank Guarantee against the advances received from its clients and the plaintiff being a public sector undertaking, its clients are mostly public sector undertakings and Government organizations except a few private parties, so a request was made to waive any commission if payable for issuance of such Bank guarantees. The plaintiff informed that necessary margin money for the Bank guarantee would be kept in deposit with defendants. Thereafter plaintiff submitted two applications dated 24.3.1992 and 30.3.1992 respectively for sanction of bank guarantee limit of ₹ 25.00 crores each totaling to ₹ 50.00 crores to the defendants as the plaintiff was expecting a big order from a public sector undertaking. The plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee as margin money. (iv) The plaintiff would keep its trade surplus with the defendant No. 2 from time to time. 4. On the basis of aforesaid sanction letter dated 14.7.1992 for granting bank guarantee, the plaintiff kept fixed deposits to the extent of ₹ 5.00 crores with the defendants for the purposes of using the same as margin money of 10% of the value of bank guarantee to be issued by the defendants from time to time upto the value of ₹ 50.00 crores. In view of the aforesaid contract, the transaction between both the parties commenced and on the request of the plaintiff the bank guarantee of different values were issued by the defendant No. 2 without charging any commission over the same as contemplated in their sanction letter dated 14.7.1992. The further case of the plaintiff-respondent is that after one and half years of the banking transaction, the defendant No. 2 suddenly by its letter dated 8.12.1993 informed the plaintiff about the unilateral decision of their higher authorities to charge commission @ 15% per month from the plaintiff on the three bank guarantees aggregating to ₹ 19.86 crores issued by them on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... month, as indicated earlier. The plaintiff, by its letter dated 16th May, 1994, reiterated that bank guarantee issued in terms of the sanction against the margin money of 10% without charging any bank commission did not in any way permit the defendants to charge bank commission at a later date. Three bank guarantees of ₹ 2,42,98,609/- issued by the defendants' Chowringhee Branch have been returned after being duly discharged by the beneficiary. The further case of the plaintiff is that in spite of the clear contractual posi- tion the plaintiff relied on the terms and conditions of sanction and disputed the right of the bank to charge commission on the amount of Bank guarantee. The defen- dants by the lawyer's letter dated 29.12.1994 demanded payment of commission on bank guarantee, which was replied to by the plaintiff by its lawyer's letter dated 11.1.1995. The plaintiff by its letter dated 22.1.1995 returned the bank guarantee Nos. 17/92 and 18/92 both dated 24.10.1992 to the defendant No. 2 for cancellation and requested them to return the fixed deposit receipts kept with them as margin money. The plaintiff had kept fixed deposit to the extent of ₹ 5.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned a sum of ₹ 1,63,80,166 through a banker's cheque No. 541019/ 1017 and they also returned plaintiffs other thirteen nos. of FDRs amounting to ₹ 2.60 erores. The plaintiff by its letter dated 24.4.1995 requested the defendants to refund a sum of ₹ 85,79,834/-, which were illegally appropriated- towards Bank Commission out of the maturity proceeds of FDRs amounting to ₹ 2.40 crores and plaintiff also requested to pay interest over the matured amount of FDRs for the period from the date of maturity till the date of actual payment. The defendants by their letter dated 23.5.1995 declined to refund the commission already charged by them, however, they agreed to pay interest on the FDRs. 4. The defendants-appellants ap- peared and contested the suit. Besides taking ornamental defences such as suit is not maintainable and barred by principle of waiver and estoppel and barred by law of limitation, ' the defendants, stated that plaintiff has availed the bank facilities from the bank such as bank guarantee etc. for doing its business and said privileges were extended by the Bank on payment of commission and as such the plaintiff is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives the commission, definitely being commercial organization, it will be compen-. sated by otherwise, which was committed by the plaintiff by depositing a lump sum amount. The contention of the defendants is that the plaintiff itself by its letter requested the defendants to furnish the terms and conditions for waiving the bank guarantee and thereafter the Regional Manager of the Bank referred the matter to the Deputy General Manager (Zonal Office), vide letter dated 5.3.1992 with its recommendation that on 10% margin money Bank may issue bank guarantee free from any commission and prior to their formal proposal Bank may agree in principle to the same and in turn thereof bank expect to deposit a sum of ₹ 25.30 crores in term deposit or in any other form and their current account is being opened within a day or two, and a copy of the said letter was also sent to the General Manager, Finance of the plaintiff. Thereafter plaintiff-respondent through its Chairman-cum-Managing Director issued a letter dated 10.3.1992 and requested the Regional Manager of the defendants to open current account styled Metallurgical and Engineering Consultants (India) Ltd. in following Branches : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be possible for the Bank to issue the Bank guarantee about ₹ 40 to 50 lakhs in anticipation of the Board's approval and by another letter dated 7.5.1992 the Finance Manager of the plaintiff communicated the minutes of the 103rd meeting of the Board of Directors of the plaintiff held on 24.4.1992 according approval for obtaining bank guarantee from the defendant Bank upto limit of ₹ 25 crores and till date there was no assurance even written or oral for extending bank guarantee free of cost. But, bank guarantee of ₹ 50 crores was extended by the defendant Bank to * the plaintiff on the understanding that substantial deposit approximately to the tune of ₹ 40 crores will be given by the plaintiff to the defendants to meet the cost which was calculated by the Bank, which comes about ₹ 134.81 (in lakhs) per year. On the aforesaid understanding that the plaintiff will place deposit of ₹ 40 crores, the defendant No. 2 issued a letter to the Deputy General Manager on 4.7.1991 to issue direction with regard to bank guarantee to the plaintiff and Head Office of the defendant Bank sanctioned a limit of ₹ 50 crores for the purpose of bank gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the plaintiff violated the promise and assurance, bank was justified in cancelling the facilities to the plaintiff. The Bank has never charged penal rate of interest for non-payment of commission for issuing bank guarantee on several dates. It is denied that FDRs deposited by the plaintiff was a general deposit, which was deposited by way of margin money. It was connected with the bank guarantee and since the plaintiff did not pay the commission towards the bank guarantee, the defendants rightly withheld the payment and until realization of the bank commission from the plaintiff. Hence a prayer has been made to dismiss the suit. 9. On the pleadings of the parties, the following issues were framed for their determination in the suit : (i) Is the suit as framed maintainable? (ii) Has the plaintiff valid cause of action for the suit? (iii) Whether the plaintiff is entitled to a decree as prayed for? (iv) To what other relief or reliefs the plaintiff is entitled to? 10. Issues were decided in favour of the plaintiff and against the defendant and suit was decreed. 11. While decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit of ₹ 42 crores and the plaintiff should execute the entire contract through Bank. I further find that plaintiff, by its letter dated 27.7.1992 (Ext. 2/D), stated that the plaintiff could not ensure of keeping the deposit of the order mentioned in the letter but at the same time promised to keep the trade surplus from time to time with the Bank. I further find that defendant accepted the proposal of the plaintiff and in pursuant to the contract furnished three Bank guarantee aggregating 19.86 crores free of commission. Therefore, I find and hold that the defendant have no right to claim any amount towards Bank Commission for establishing the Bank guarantee on behalf of the plaintiff. I further find and hold that defendants are not entitled to withhold the payment of matured fixed Deposits receipts after their maturity period, if the same are not under lien or charge. I further find and hold that plaintiff is entitled a decree for sum of ₹ 87,23,609/- with interest at the rate of 21.75% per annum at quarterly, rests from the date of release of FDRs till the billing of the suit, pendente lite and future till the date of realization. This issue is decided in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract of issuance of bank guarantee without charging any commission? (iii) Whether the plaintiff has been able to establish the case of waiver of commission on bank guarantee? (iv) Whether the learned Court below is justified in awarding the interest as has been given in the impugned judgment? 16. Issue Nos. I, II and III : All the three issues are interconnected with one another and are being taken up together for sake of convenience. The learned Court below, although did no frame any specific issue like these issues, but has decided the main issue as issue No. 3 and while assailing the judgment, the learned Senior Counsel for the appellants submitted that there was no contract which can be called as concluded contract between the parties by which appellants-defendants refused to waive the commission on issuance of bank guarantee and there is no such document before the learned Trial Court from which it can be gathered that the document has incorporated all the terms of contract for issuance of bank guarantee and waiving of commission on the same. The learned counsel referred to Section 101 of the Evidence Act and submitted that thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. at higher rate of interest and thus, there was a violation on the part of the plaintiff-respondent in fulfilling the terms and conditions and the plaintiff-respondent further failed to honour its promise to route the transaction through the appellant bank, so far as contract with Steel Authority of India Ltd. Rourkela Steel Plant is concerned and, therefore the deduction as made by the appellant from the matured FDRs of plaintiff-respondent was justified. The learned Senior Counsel further advanced his argument that the banks has got lien over the FDRs of plaintiff-respondent kept with the bank, as the FDRs were kept in the nature of margin money and this margin money amounted as a collateral security and when the respondent failed to perform its part of the promise, the appellant-defendant had no alternative but to deduct the bank commission from the FDRs. In this connection, learned Senior Counsel referred to. Section 171 of the Indian Contract Act, which is quoted hereinbelow : 171. General lien of bankers, factors, wharfingers, attorneys and policybrokers.-Bankers, factors, wharfingers, attorneys of High Court and policy-brokers may, in the absence of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are required to be proved and in the instant case plaintiff, who alleges that there was a concluded contract has failed to prove existence of all the three ingredients, as there was neither an acceptance nor there is any consideration. It was also pointed out that plaintiff respondent in paragraphs 4, 9 and 10 of the plaint has specifically pleaded a case for waiver of bank commission on the bank guarantee and as such onus is upon the plaintiff-respondent to prove its case for waiver. It is not secret that bank guarantee is issued and for that commission is charged on issuance of bank guarantee by the bank and the plaintiff-respondent has pleaded waiver/exception of the commission but from no where, either from oral evidence or from the documents of the parties, it will appear that plaintiff-respondent has proved waiver of commission on issuance of bank guarantee by the bank. Although plaintiff-respondent has argued that the letter dated 14.7.1992 (Ext. I/A) is same, which was received by MECON vide letter dated 27.7.1992 {Ext. 2/D), where they have themselves refused to accept the condition of letter dated 14.7.1992 and they have mentioned in that very reply that they cannot keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r opening of account with the appellant bank and pursuant to that discussions were held on 26.2.1992 and on 27.2.1992 (Ext. 1/G), and defendant-Bank wrote a letter to the General Manager (Finance) for the facilities to be provided to the plaintiff-respondent by the defendant-appellant. On 28.2.1992 (Ext. 2/D) Controller of Finance and Accounts of the plaintiff-respondent wrote to the Regional Manager of the defendant-appellant that bank guarantee commission, if any, chargeable on the bank guarantee may be waived, since respondent's clients are mainly comprised of public sector undertakings and Government's units and on 5.3.1992 (Ext. B) the Regional Manager of the appellant wrote to the Deputy General Manager (Zonal Office) regarding issuance of bank guarantee free of commission. It was mentioned therein that on 10% margin money the bank guarantee should be made available free of any commission and prior to any formal proposal from respondent the appellant may agree in principle to the same and in turn the bank may expect a deposit of ₹ 25 to 30 crores from respondent. Through letters dated 24.3.1992 (Ext. C) and 30.3.1992 (Ext. 3) respondent filed applications for is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 14.7.1992 but promised to keep its trade surplus from time to time with the bank and in reply to this, bank did not respond to the letter dated 27.7.1992 (Ext. 2/B) and remained silent over this matter. The bank issued guarantees on 23-24.10.1992 but while issuing bank guarantee the defendant-bank did not rebut the offer or counter the proposal of the respondent. It was further submitted that in view of communications between the parties and if the same are read as whole, it will be crystal clear that the appellants agreed to issue bank guarantee to the limit of ₹ 50 crores without charging commission on the same but with 10% margin money to be deposited by the plaintiff-respondent with the appellant and the terms to be complied with by MECON was that it would keep trade surplus from time to time with the bank and it would route the transaction with regard to the contract with Reourkela Steel Plaint through the appellant-bank. In this connection, learned Senior Counsel further referred to Section 8 of the Indian Contract Act, which has already been quoted earlier and submitted that on application of Section 8 of the Indian Contract Act to the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appellant issued bank guarantee to the tune of ₹ 19.86 crores only as bank guarantee and thereafter terminated all the banking transactions with the respondent. It is an admitted fact that plaintiff-respondent had opened a current account with the bank and transactions through this account had taken 'place regularly and plaintiff-respondent did not receive any interest on the amount deposited in current account but bank circulated the money so deposited to its various customers at the lending rate prevalent at that time. It was also pointed out that appellant also earned profit through the margin money deposited with the appellant by lending it to various customers as per the normal banking practice and the difference between the deposit rate and the lending rate is the amount earned as profit by the bank and, therefore, it cannot be said that there was no consideration for the bank in entering into a contract with the respondent. It was also pointed out that prospect of future business is also a key consideration and consideration can be past, present as well as future. In this connection he placed reliance upon a case law reported in, AIR 1997 Bombay 225, Central Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant-defen- dant deducted the claim of the respondent and that was not a debt and pointing out difference between claim and debt, the learned Senior Counsel submitted that a debt will accrue only when a claim is ad- judicated by legal means and resources. The learned Senior Counsel placed reliance upon the ruling, AIR 1993 SC 953, Purewall and Associates and Anr. v. Punjab Na- tional Bank and others, in which Hon'ble Supreme Court directed the bank to initiate proper legal proceedings for recovery of al- leged dues instead of taking any other coercive step against the debtor. 24. The learned Senior Counsel fur- ther submitted that in para 2 of the written statement appellant-defendant has claimed that commission on bank guarantee has been charged as per norms and practice of the banking system and it was for the ap- pellant-defendant to prove that the commission was charged as per the norms and practice of the banking system and if this was a case then plaintiff-respondent would have not received commission free bank guarantee or on a negligible commis- sion bank guarantee from other banks and, therefore, the claim that as per norms and practice bank guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rourkela Steel Plant through the bank. So far as the words trade surplus is concerned, the learned Senior Counsel submitted that it can only be assessed after end of the transaction and in this connection he has given definition of the words trade surplus as defined in Black's Law Dictionary, 6th Edition, page 1493, which means excess of nation's imports over export (trade deficit), or exports over imports (trade surplus). He further pointed out that term excess of exports over imports can be safely interpreted to mean profit and profit can only accrue or can be calculated after the close of a transaction or the termination of transaction. 28. It was further pointed out that initial amount received by the plaintiff respondent from Steel Authority of India Ltd. was mobilization amount and the same could not be routed through the bank as Steel Authority of India Ltd. had requested the plaintiff-respondent to keep the said amount deposited with them and as such, plaintiff-respondent had no control over the said transaction because Steel Authority of India Ltd., being a principal party to the contract between the plaintiff-respondent and Rourkela Steel Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples of procedural code as well as principles of equity may fix the rate which it finds reasonable in the facts and circumstances of each case as because the interest allowed by the Courts will have the following components : (i) Compensatory aspect; (b) penal aspect; and (c) deterrent aspect. 30. The contention of the learned Senior Counsel was that since the money kept with the bank was being given to other borrowers at the above mentioned rate and the appellant-defendant wanted to deprive the plaintiff-respondent of that rate of interest and, therefore, learned Court below was justified in granting interest at the aforesaid rate pendente lite and future. 31. On the basis of submissions made above, the learned Senior Counsel for the respondent has submitted that the judgment does not require any interference and this appeal is fit to be dismissed with costs. 32. Admitted facts, which emerge on perusal of oral as well as documentary evidence and after hearing the submissions of the parties, are that the appellant-bank requested the plaintiff-respondent by its letter dated 20.2.1992 (Ext. 1/G) for opening of a bank account with them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 28.5.1992 the plaintiff-respondent was communicated of sanction of various enhanced limits of banking facilities by the Manager of Doranda Branch of the appellant and on 14.7.1992 (Ext. 1 /A) a sanction letter was issued by the appellant-bank wherein it has been specifically stated that the limit of bank guarantee would be ₹ 50 crores and commission charged on the same would be nil and margin money to be kept with the bank would be 10% of the value of bank guarantee and the period of bank guarantee would be one year/tenure of the contract. The sanction letter was accompanied by forwarding letter, in which it was stated that in lieu of facilities provided by the appellant-bank, the appellant-bank was expecting a deposit of ₹ 42 crores and was also expecting that the transaction with Steel Authority of India Ltd. with regard to the contract with Rourkela Steel Plant would be routed through the bank but thereafter on 27.7.1992 (Ext. 2/D). plaintiff- respondent intimated the Branch Manager of Allahabad Bank that it was not possible for the respondent to keep the deposit of the order mentioned in the sanction letter dated 14.7.1992 but ft would keep its trade surplus from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank guarantee without any commission and consequently withholding of FDRs and thereafter releasing FDRs realizing bank commission is not justified. 34. Hence so far as the issue are concerned, such as whether there was a concluded contract or not, whether there was consideration or not and whether plaintiff respondent has been able to establish the case of waiver of commission of bank guarantee, all these issues are decided in favour of the plaintiff-respondent and against the defendants-appellants. 35. If for any reason the appellant Bank felt that the plaintiff-respondent has violated terms and conditions of agreement and contract, course was open to the appellant-Bank under Section 73 of the Indian Contract Act, which provides for compensation for loss or damage caused by breach of contract. It is an admitted fact that appellant-Bank issued bank guarantee aggregating to ₹ 19.86 crores on the request of the plaintiff-respondent on certain conditions and those conditions, as per case of the appellant-Bank, were not performed and thereby plaintiff-respondent committed breach of contract, but it appears that appellant-Bank resorted to Section 171 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of interest may be more than 6% but it will not be more than the contractual rate or where there is no contractual rate, the rate at which money is lent or advanced by nationalized bank in relation to a commercial transaction. Here in the instant case, there was no contract with regard to payment of interest nor both the sides have brought on record the rate, at which money was being lent, by nationalized bank. But, since it has been found that appellant Bank has illegally and arbitrarily withheld the payment of money on FDRs even after their maturity, the main issue has been decided in favour of the plaintiff-respondent and hence appellants-defendants are liable to pay interest on the FDRs illegally and arbitrarily withheld. However, the rate of interest allowed to the plaintiff-fespondent @ 21.75% with quarterly rests is modified and is allowed to the FDRs, holder at the rate of interest, which is allowed to the FDRs' holder at that time on the date of maturity of the FDRs without quarterly rests and other terms will remain the same. 40. From the discussions made above, I am of the view that the judgment of the learned Court below does not require any i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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