B.B. Patel vs M/S. Nexim Exports Pvt. Ltd. & Anr.
2000 Latest Caselaw 533 Del

ORDER

S.K. Agarwal, J.

1. This is an application filed by the plaintiff under Order 37 rule 3 sub rule (6)(b) of the Code of Civil Procedure, 1908 (for short CPC), seeking judgment and decree forthwith interalia on the ground that defendants have failed to pay Rs. 15 lacs in cash to plaintiff as per the Supreme Court order dated 14.2.2000 passed in Civil Appeal (Nos. 1119-11120/2000). The defendants are opposing this application.

2. Brief facts necessary for the disposal of the application are : that the plaintiff filed a suit under Order 37 CPC for recovery of Rs. 24,20,000/- against the defendants along with interest @ 21% from the date of filing of the suit till realisation and costs. On 3rd May, 1993 the defendants were granted leave to defend the suit subject to the conditions that they shall furnish a bank guarantee for Rs. 12.10 lacs which shall be kept alive till the disposal of the suit and that they shall deposit Rs. 12.10 lakh in the Court to be kept in the fixed deposit receipt. These two conditions were to be complied with within two months. The defendants initially failed to comply with these conditions within two months. Consequently on 15th October,1993 the suit was decreed in favour of the plaintiff. The defendants filed an appeal, RFA (OS) 6/94, and the appellate court vide orders dated 16th May, 1994, set aside the decree and granted further two months time to the defendants to comply with the said order dated 3rd May, 1993, granting leave to defend the suit.

3. The defendants in compliance with the above said order and deposited Rs.12.10 lacs (Twelve Lacs Ten Thousand only) in the Court, which is lying in the fixed deposit. They also furnished a bank guarantee No.25/94 for Rs.12.10 lacs (for short BG), issued Indian Bank (Overseas Branch), Kasturba Gandhi Marg, New Delhi (for short the bank). Statement of Sh. T. Ramaswami, Chief Manager of the bank was recorded, who confirmed the execution of the bank guarantee (Ex. P1) and stated that the bank shall remain bound by the terms of the BG and shall take steps to renew the same from time to time,till it is finally discharged by the Court. However, concluding clause of the BG provided that it shall remain valid up to 28th April,1995. There fore, it had to renewed after its expiry period which has given rise to controversy between the parties. There is no dispute with regard to first extension of the BG uptill 28-4-97. On 6.1.1998 the plaintiff moved an application (IA.115/98), claiming that the BG was no longer valid and pressed for a decree forthwith under subrule (6) (b) of Rule 3 of Order 37, CPC; The application was rejected on 28th January,1998, and the parties were directed to appear before the Registrar on 9th February, 1998 for completion of necessary formalities for renewal of the BG and the FDR. Consequently, on 9th February, 1998 Senior Manager of the bank appeared before the Registrar and brought the letter extending BG for a further period of two years commencing from 29th April, 1997. However the letter was not taken on record and he was directed to bring his power of attorney on the next date.

4. In the meantime, the plaintiff filed an appeal against the order dated 28th January, 1998 (FAO(OS) No. (46/98) and proceeding before the Registrar were stayed. The Division Bench held that in view of the extension letter issued by the Chief Manager of the Bank, that the BG was very much alive and held that did not matter if the extension letter was on the record for a few months or not. The appeal was dismissed no 23.7.98.

5. Against the said order the plaintiff filed Special Leave Petition in the Supreme Court (No.13210/98) which was allowed, and the matter was remanded back to the High Court, for deciding whether on 23rd July,1998 (date of disposal of the appeal by the High Court) and on 13th January,1999 (date on which the matter was remanded back by the Supreme Court), the bank guarantee was alive or not. The subsequent events were ordered to be taken into account while deciding whether the defendants can be said to have complied with the initial order dated 3rd May, 1993 by which conditional leave to defend the suit was granted. Relevant portion of the order reads:

"We, therefore, allow this appeal, set aside the impugned judg ment and order passed by the High Court in the first Appeal No.45 of 1998 and remit the matter to the High Court for deciding whether on the date of disposal of the appeal i.e., 23.7.98, the bank guarantee was alive or not. The High court shall also take into consideration the subsequent events and decide whether as on date i.e.13.1.1999, the defendant can be said to have complied with the order passed on 3.5.1993 by keeping the bank guarantee alive. If the High Court comes to the conclusion that the said order has been complied then it will pass an appropriate order in the First Appeal which is now remanded to the High Court for fresh hearing. If it comes to the conclusion that the defendant has not kept alive the guarantee then it shall pass an appropriate order in the appeal and on the application which was made by the plaintiff for passing a decree in its favour."

6. The Division Bench heard the appeal,and as per order of the Supreme Court, subsequent events were to be taken into consideration. On 15th February,1999, Mr. S. Sethu Raman, Senior Manager, Indian Bank, appeared in the court and stated that on 9th February, 1998, he had appeared before the registrar of this court and brought the letter extending the BG for a period of two years, commencing from 29th April,1997 and subsequently had also brought authorisation by the bank in his favour but the same was not taken on record; on the same day the Court took on record the 2nd extension letter of the bank dated 9th February, 1998, extending the said BG from 29th April,1997 till 28th April,1999 and the copies of two power of Attorneys of the bank in his favour. The appeal of the plaintiff was again dismissed on 4th March, 1999 holding:-

Aforesaid letter dated 9th February, 1998 and the undertaking given on 11th August,1994 by the two bank officers clearly go to show that the bank guarantee in question, which is valid for two years uptill 28th April, 1999, was very much alive on both the dates in question, i.e. 23rd July,1998 and 13th January,1999. Appeal being meritless, thus, deserves to be dismissed.

For the foregoing discussion, the appeal is dismissed. No order as to costs."

7. The plaintiff preferred two Specia lLeave Petitions, in the Supreme Court one against the order dated 15.2.1999 taking the letter of 2nd BG extension letter of the bank on record and other against the final order dated 4.3.1999 (civil Appeal 1119-11120/2000). As per the orders of the Supreme Court, on 26th October, 1999 an affidavit of Baby Thomas, Sr. Manager, Indian Bank (Overseas Branch) explaining the procedure and practice for grant and renewal of Bank Guarantee was filed. It was stated therein that the BG is usually issued after obtaining cash margin,which may be kept in fixed deposit. The bank also charges commission for issuing BG and that the same are issued after obtaining necessary covering documents from the party concerned to secure the interest of the bank. After issuing the bank guarantee, the same is sent to the beneficiary along with covering letter. The liability of the bank is restricted to the maximum amount mentioned in the BG and with regard to the renewal it was stated that whenever any customer makes prayer for the extension of the BG such extension is allowed after getting approval from the appropriate authority of the bank. At the time of processing the proposal involving extension the bank considers whether it is really warranted or asked for in routine, to avoid invocation of the bank guarantee. On 26.11.99 the Supreme Court further ordered that as the question of validity of renewal of the bank guarantee was in issue, the bank was directed to file another affidavit explaining the accepted procedure for executing the bank guarantee and also explaining whether any stamp duty was paid at the time of reneval of the bank guarantee. Thereafter, on 10.12.99, affidavit of the Sr. Manager of the Bank was filed explaining the procedure and further stating "that after issuing the bank guarantee, if the customer seeks further extension as per the prevailing practice a letter in the prescribed proforma is addressed to the beneficiary informing about the extension of guarantee. It was further stated that on account of bona fide error proper stamp duty was not paid on such extensions of the bank guarantee. It was submitted that the Bank was bound by all the terms of the aforesaid bank guarantee no.25/94 as also by the extensions given by the Bank and that the bank shall not take any objection on the ground of non-payment of the stamp duty on extensions. It was also pleaded that the bank was ready to make up deficiency in stamp duty.

8. On 14.2.2000 when the matter came up for hearing before the Supreme Court and the issue of validity of BG on the basis of the extension letters was neither considered nor decided as the defendant offered to make cash payment of Rs.15 lacs to the plaintiff, if he was relieved from the obligation of furnishing the bank guarantee and bank was ordered to return the FDR. In view of the offer made by the defendant, it was ordered that the bank guarantee be treated as cancelled and the bank was directed to return the FDR to the defendant within two days who in turn was ordered to deposit Rs.15 lacs in cash with the plaintiff thereafter. It was observed :

"After some discussion the learned counsel for the respondents stated that the respondents have no objection in making cash payment of Rs.15 lacs to the appellant if the respondents are relieved from the obligation of furnishing a Bank Guarantee. In view of this offer made by the respondents,we direct the Bank to treat the Bank Guarantee,submitted to the High Court as cancelled and return the Fixed Deposit Receipt against which the Bank Guarantee was given, within two days, thereafter, the respondents shall pay Rs.15 lacs in cash to the appellant. The respondents undertake to file an undertaking to this effect within one week from today.

Payment of Rs.15 lacs to the appellant shall be subject to the result of the suit. The appellant shall give an undertaking that in case he loses in the suit he shall return the amount and shall abide by the orders passed by the High Court. Appellant to file the undertaking within one week from today."

9. When a copy of the order dated 14th February, 2000 was served on the bank, it was found that it could not return the FDR as in 1996 the bank had already filed an application before the Debt Recovery Tribunal, Delhi (OA No.870/96) for recovery of the huge amount due to them, after adjusting the proceeds of the FDR; In view of this, the bank approached the Supreme Court seeking clarification/modification of the order dated 14th February, 2000. In their application the bank again pleaded that it was bound by the terms and conditions of the bank guarantee and shall honour the same.

10. On 23.2.2000 the plaintiff moved the above noted application (No.2109/2000) under Order 37 Rule 3 sub rule 6(b) CPC for a forthwith decree. This application came up for hearing before the court for the first time on 27.3.2000. Notice of the same was accepted by the defendant and he sought time to file reply. The matter was adjourned to 5.4.2000. However, on earlier dates i.e. 28.2.2000, 21.3.2000 and 27.3.2000 when the matter was listed for hearing counsel for the parties did not appear as lawyers were abstaining from work. In the mean time the appeal was listed before the Division Bench on 7th March, 2000, the plaintiff did not bring to the notice of the court that he had already moved the above said application for a judgment forthwith. The Division Bench directed the matter to be listed before the Single Bench observing:

The order of the Supreme Court states that the respondents undertook to pay Rs.15 lacs in cash to the appellant only on the Bank's returning the FDR. In case the appellant has any grievance in the manner in which the order of the Supreme Court is to be worked out now the appellant is at liberty to take such recourse as may be permissible to him under the law."

11. Against the order dated 7th March,2000 passed by the Division, Bench the plaintiff again filed two applications before the Supreme Court being IA No.3-4/2000 praying for setting aside the above observations of the Division Bench. The two applications filed by the plaintiff and the applications filed by the bank for modification/clarification of the order dated 14.2.2000 were dismissed by the Supreme Court on 16.3.2000 observing:

"We find no reason to modify the order dated 14.2.2000 IA No. 1-2 (for modification and clarification) and IA No. 3-4 (for direc- tions) are dismissed accordingly."

12. I have heard the learned counsel for the parties and have been taken through the record.

Learned counsel for the plaintiff relying upon the last sentence in the Supreme court order dated 14.2.2000 : "The parties shall appear before the High Court on 1-3-2000. With these observations we allow these appeals and set aside the impugned order passed by the High Court" argued that appeals of the plaintiff,a gainst the orders dated 15th February,1999 taking letter of second extension of the BG and power of attorneys on record and the order dated 4.3.99 holding that the BG was alive on 23.7.98 and on 13.1.99,passed by Division Bench in FAO(OS) No.46/98, were set aside and the appeals were allowed. It was further argued that thereby it was held by the Supreme Court that the BG was not alive on any of the abovemen tioned dates and that his earlier IA 115/98 under Order 37 Rule 3 sub rule 6(b) CPC for forthwith judgment and decree in the suit was also allowed. The Supreme Court while disposing the appeals only took note of the offer made by the defendant,at he time of hearing of the appeals to make payments in cash of Rs.15 lacs to the plaintiff, if the BG is cancelled and the Bank is directed to return the FDR to him. There is no reference in the Supreme Court order with regard to the validity of the BG on 23.7.1998 and 14.1.1999. The argument of the learned counsel for the plaintiff that the application No. IA 115/98 for immediate decree also stands allowed by the Supreme Court order, is without any basis. If by the order dated 14.2.1999 earlier application (IA No. 115/98) for immediate decree was allowed, there was no necessity for the plaintiff to move another application for the same relief. Thus, there is no merit in the submission of the appellant and the same is rejected.

13. Next it was argued that when the appeals were being heard by the Supreme Court defendant made an offer of payment of Rs.15 lakhs in cash with an ulterior motive to get back the FDR which the bank could not return. There was specific direction issued to the defendant to pay Rs.15 lakhs within two days. The defendant by failing to pay Rs.15 lakhs within the specified time has failed to carry out directions as given by the Supreme Court. It was argued that the failure of the bank to return the FDR to the defendant, would not discharge the liability of the defendant to obey the order and to pay Rs.15 lakhs in cash to the plaintiff, the direction to the defendant to pay Rs.15 lakhs was independent. Relying upon M/s. Shanalal & etc. Vs. Bank of Maharashtra, , it was argued that if the contention of the defendant is accepted, that he would make payment only after the FDR is returned to him by the bank, in that case the suit will have to be adjourned sine die, which would be contrary to Order 37 (6) (b) CPC. It was a case of an ex parte decree, where the defendant had not obtained leave to defend the suit and the ex parte decree was passed. It was held that the defendant could not assail the decree on merits in appeal except on the limited grounds. The ratio of this case is not applicable to the facts of the case in hand. Reliance was also placed on the Supreme Court decision in Ramkarandas Radhavallabh Vs. Bhagwandas Dwarkadas., wherein it was held:-

"On the merits too, we think that the contention is fallacious. It proceeds on the basis that when leave to defend has been refused to a defendant, the Court is bound to pass a decree. It seems to us that what subrule (2) of R. 2 of 0.37 contemplates is that the court will accept the statements in the plaint as correct and on those statements pass such decree as the plaintiff may in law be entitled to. If, for example, the plaint discloses no cause of action, the court cannot pass any decree in favour of the plaintiff. If this were not so, the words "allegations in the plaint shall be admitted" in subrule (2) of R.2 of 0.37 would have been unnecessary. The court in making a decree under sub- rule (2) R.2 of 0.37 has to keep the law in mind. If the law requires the Court to exercise a discretion on the facts deemed to be admitted, it will have to do so."

14. There can be no dispute about the proposition that it is the duty of the court to look into the question with regard to the legality of the plaintiff's claim like whether plaint discloses any cause of action etc. even in cases where the defendant does not enter appearance. Learned counsel for the plaintiff also laid stress on the language of sub rule (6) Rule (3) of Order 37 CPC. The relevant rule reads as under:-

"3. Procedure for the appearance of defendant .-

(1) in a suit to which ...

(2) ......

(6) At the hearing of such summons for judgment ;-

(a) .....

(b) if the defendant is permitted to defend as to the whole or any part of the claim, the Court of Judge may direct him to give such security and within such time as may be fixed by the Court of Judge and that, on failure to give such security within the time specified by the Court of Judge or the carry out such other directions as may have been given by the court or Judge, the plaintiff shall be entitled to judgment forthwith."

15. The above rule provides that if the defendant is permitted to defend the claim subject to certain conditions fixed by the court, on his 'failure' to carry out such directions, the plaintiff becomes entitled to the judgment forthwith. The essence of the summary procedure under Order 37 CPC is that the defendant is not, as in the ordinary suit, entitled as of right to defend the suit, he must apply for the leave to defend the matter. Therefore the question arises whether under the peculiar facts and circumstances of this case,is there any failure on the part of the defendant to obey the directions which should deprive the defendant of the opportunity of contesting the suit and suffer the decree?

16. At this stage it would be beneficial to recall the operative portion of the Supreme Court order dated 14.2.2000 on basis which present application is being pressed.

"In view of this offer made by the respondent,we direct the bank to treat the bank guarantee, submitted to the High Court as cancelled and return the fixed deposit receipt against which the bank guarantee was given,within two days, thereafter the respondents shall pay Rs.15 lakhs in cash to the appellant."

17. The reading of the order shows that the Supreme Court directed the bank to treat the bank guarantee submitted to the High Court as cancelled; and to return the FDR to the defendant within two days; thereafter the defendant was to pay Rs.15 lakhs in cash,to the appellant. Admittedly,the bank did not return the FDR to the defendant consequently the defendant did not deposit Rs.15 lacs in cash with the plaintiff. The condition precedent for the operation of the order against the defendant was the return of the fixed deposit receipt by the bank to the defendant. The condition precedent having not happened, nonperformance of the obligation by the defendant cannot be deemed as the failure, within the meaning of this sub Rule 6(b) of Rule 3 of Order 37, CPC. To constitute a failure of the defendant under this sub rule, it has to be a "failure" of the defendant alone,which is not the case here. Thus there is no force in this contention as well and the same is rejected.

18. In this case, as noticed above, half of the suit amount is already lying deposited in this Court in FDR. Regarding BG of the remaining half of the suit amount, the Chief Manager of the bank made the statement in the court that the bank guarantee shall be kept alive during the pendency of the suit; Bank Guarantee was accepted by the court and the validity of the same was extended from time to time. There is no dispute with regard to its validity upto 28th April,1997. The Supreme Court specifically ordered on 13th January,1999 to take subsequent events into consideration. As per the orders of the Supreme Court, Division Bench of this Court, while hearing the appeal on 15.2.1999 specifically questioned the Senior Manager who brought the letter of extension of BG, which was taken on record, he stated BG was alive and valid. On the basis of the subsequent events Division Bench held BG to be valid on 23rd July,1998 and also on 13th January,1999. The two affidavits filed by the Sr. bank managers on 26.10.1999 and 10.12.1999 before the Supreme Court shows that the bank guarantee was very much valid and alive upto 28.4.2002. A letter of extension dated 29th April,1999 extending the bank guarantee for a period of another three years i.e. upto 28.4.2002 is also on record. The plaintiff has already filed objections and these are being examined by the Joint Registrar. Section 126 of the Contract Act is the statutory provisions dealing with BGs and it speaks of three parties. therefore, all BGs are tripartite documents, between the defendant, the bank and the beneficiary. Reference in this regard can be made to, Nangia Construction India (P) Ltd. Vs. NBCC & Ors. and Punjab National Bank Vs. Sri Bikram Cotton Mills Ltd. & Anr. . Here, the case of the bank consistently has been that BG in question is valid and alive uptill 28.4.2002 and that they are ready and willing to pay stamp duty if any, on the extension letters. Under the circumstances, the defendant cannot be made to suffer the decree with out trial as the technical rules of procedure are meant to advance substantial justice between the parties.

19. The suit is listed for trial on 23rd and 20th November, 2002. As the trial has already been delayed,under the peculiar circumstances of this case,the dates of trial are preponed. The matter be now listed for trial on 21st and 22nd August,2000. Parties to summon and produce their respective witnesses for the fresh trial dates as per rules. List the matter before JR for scrutiny on 17th July, 2000.

20. The objections filed by the plaintiff against the bank's third extension letter of BG upto 28.4.2002 are still pending. List the matter before the Joint Registrar on 3rd July,2000 for disposal of the objections of the plaintiff and further action as per rules.

21. For the foregoing reasons the application of the plaintiff (IA 2109/2000) is dismissed with the above directions, No order as to costs.