Delhi High Court
Jain Exports Pvt. Ltd. vs State Bank Of Saurashtra & Anr. on 14 May, 2001
Equivalent citations: 2001 VAD Delhi 957
Author: A Sikri
Bench: A Sikri
ORDER
A.K. Sikri, J.
1.
The plaintiff which is a company incorporated under the Indian Companies Act, has filed this suit for recovery of Rs. 33,80,316/- invoking the provisions of order xxxvII of the Code of Civil Procedure. The suit is filed on the basis of cheque No. 784051 dated 1st September, 1994 for Rs. 50 lacs issued by the defendant No.2 in favor of the plaintiff. It is stated in the plaint that defendant No.2 approached the plaintiff in the last days of February/beginning of March, 1994 the plaintiff for advancing a loan of Rs. 50 lacs with the assurance that same would be repaid within six month. He even issued two post dated cheques i.e. one cheque No. 784051 for Rs. 50 lacs and another cheque No. 784052 dated 1st September, 1995 for Rs. 4,50,000/- covering interest for a period of six months calculated at the rate of 18 per cent per annum. However, since the plaintiff was apprehensive that the cheque may not be encashed on presentation, he refused to advance the loan. The defendant no. 2 then approached the plaintiff with Chief Manager of defendant no.1 Bank and the Chief Manager assured that both the cheques dated 1st September, 1994 shall be honoured on their first presentation. The Chief Manager, in confirmity with this assurance, even wrote letter dated 3rd March, 1994 certifying that both the cheques would be honoured. On this assurance the plaintiff advanced a sum of Rs. 50 lacs to the defendant No.2. However, before the cheques could be presented for payment on their due date both the defendants approached the plaintiff stating that defendant No.2 was in bad financial position and as such presentation of the cheques be postponed by about 3-4 months. The defendant No.2 gave pay order dated 8th September, 1994 in the sum of Rs. 1 lac and another pay order dated 17th September, 1994 in the sum of Rs. 4 lacs thereby making the payment of Rs. 5 lacs. Thereafter the defendant No.2 gave letter dated 19th September, 1994 admitting the liability but stating that money could not be paid due to financial difficulties and agreeing to pay interest at the rate of 24 per cent per annum with effect from 30th August, 1994. He also assured that out of the balance amount, 75 per cent of the loan would be cleared by 30th September, 1994 and the balance with interest by middle of October, 1994. However instead of keeping the aforesaid promise by liquidating the entire liability, the defendant No.2 paid smaller amounts in Installments in the following manner:
S.No. Details of Pay order Amount(Rs.)
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1. Pay Order dtd.3.10.1994 8,00,000.00
2. " " " 15.10.1994 8,00,000.00
3. " " " 28.10.1994 2,00,000.00
4. " " " 8.11.1994 1,00,000.00
5. " " " 9.11.1994 2,00,000.00
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Total 21,00,000.00
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2. In this way the defendant No.2 made the payment of Rs. 26 lacs. However, since no further amount was paid and neither of the defendants were responding inspite of approaching these defendants several times, the plaintiff deposited cheque dated 1st September, 1994 for Rs. 50 lacs on or before 2nd-3rd December, 1994 which was returned dishonoured with the Bank memo dated 7th December, 1994 containing the remarks 'exceeds arrangements'. The plaintiff further states in the plaint that this cheque was deposited with all bonafides that whatever is left over after giving adjustment of Rs. 26 lacs would be refunded back to defendant No.2. However, as the amount was not paid, legal notice dated 13th February, 1995 was served on defendant No.1 as well who had undertaken that the cheque in question would be honoured on presentation. Ultimately present suit has been filed for a decree in the sum of Rs. 33,80,316/- calculations whereof are made in the following manner:
in Rs.
Principal Amount advanced
on 3.3.94 50,00,000.00
Interest till 8.9.94 4,66,027.00
@ 18 per cent
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54,66,027.00
Less paid on 8.9.94 1,00,000.00
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Balance 53,60,027.00
Interest till 17.9.94 31,755.00
@ 24 per cent
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53,34,272.00
Less paid on 17.9.94 4,00,000.00
--------------
Balance 49,34,272.00
Interest on 3.10.94 39,933.00
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Balance 49,73,205.00
Less paid on 3.10.94 2,00,000.00
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Balance 41,73,205.00
Interest till 15.10.94 32,928.00
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42,06,133.00
Less paid on 15.10.94 8,00,000.00
--------------
34,06,133.00
Interest till 28.10.94 29,155.00
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34,35,248.00
Less paid on 28.10.94 2,00,000.00
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Balance 32,35,248.00
Add interest till 8.11.94 21,273.00
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32,56,521.00
Less paid on 8/9.11.94 3,00,000.00
--------------
29,56,521.00
Interest till 15.6.95 4,23,795.00
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33,80,316.00
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3.
Summons were issued to both the defendants in the prescribed form. The defendant No.2 did not put in appearance and accordingly decree was passed against the defendant No.2 on 1st April, 1997.
4.
The defendant No.1 however entered appearance. Summons for judgment were taken against the defendant No.1. On receiving these summons, present IA seeking leave to defend the suit has been filed. The plaintiff has opposed the grant of leave to defend by filing the reply to which defendant No.1 has filed its rejoinder. Both the parties addressed the arguments at length.
5. Learned counsel for defendant No.1 submitted that the defendant No.1 had unnecessarily been imp leaded in the suit and could not be fastened with any liability in a transaction between the plaintiff and the defendant No.2. There was no question of the defendant no.1 agreeing to honour the cheques issued by defendant No.2. No such letter dated 3rd March, 1994 was written by the Branch Manager of defendant No.1 nor was there any practice of writing such letters. It was further submitted that the manner in which the defendant No.1 was implicated itself was suspicious inasmuch as if there was any such assurance or guarantee given by defendant no.1, where was the question of expressing financial difficulties by the defendant No.2 and giving accommodation to defendant No.2 on such representation because in that eventuality on the basis of letter dated 3rd March, 1994 the plaintiff could have insisted upon defendant No.1 to make the payment and honour the cheque. The very fact that no such step was taken by plaintiff and on the contrary the plaintiff kept on receiving the payments from defendant no.2 in various Installments showed that the transaction in question was only between the plaintiff and the defendant No.2 and that there was no such letter dated 3rd March, 1994 in existence which has been fabricated later. It was further submitted that in any case defendant No.1 was not party to the new arrangement whereby the plaintiff had started getting payments from defendant No.2 in Installments. It was also submitted that the letter dated 3rd March, 1994 was not a valid documents and three could not have been any assurance by the Bank by adopting the practice of writing such a letter, and therefore, it was unenforceable. In support of this plea, the counsel relied upon the judgment of Privy council in the case of Bank of Baroda Ltd. Vs. Punjab National Bank Ltd. & Ors. reported as . He also submitted that in any case arrangement was without any consideration because normally bank charges commission/bank charges for giving such guarantees. Without prejudice to the contention that no such letter dated 3rd March, 1994 was written it was submitted that this letter was not binding on the Bank because as per RBI guidelines, for giving any guarantee for amount of this magnitude at least two signatures of authorised persons are required and Branch Manager alone was not competent to give such a guarantee. Moreover, the involvement of defendant No.1 was doubted also on the ground that the Bank could not given such an assurance. In that case it was more viable for the defendant No.2 to take loan from the Bank itself at much lesser rate and there was no need for him to approach the plaintiff for this purpose and agree to pay interest at the rate of 18 per cent for initial period and 24 per cent per annum for subsequent period.
6. On the other hand, learned counsel for the plaintiff argued that the Branch Manager could certify the cheque as good for payment by adopting any mode including by means of letter, and therefore, letter dated 3rd March, 1994 was binding on the Bank. It was further submitted that the defendant No.1 in the application did not specifically deny that the letter was not signed by the Chief Manager. No affidavit of Chief Manager was filed either. It was also not stated that the bank approached the Chief Manager for giving affidavit and that he was not willing to give any such affidavit for certain reasons. Signatures of the Chief Manager on letter dated 3rd March, 1994 were not denied. It was also not the case of the defendant No.1, in application for leave to defend, that the Chief Manager and issued the letter in his personal capacity. The learned counsel further submitted that if on due date of the cheque i.e. 1st September, 1994 the defendant No.2 had expressed financial difficulties and if the plaintiff and agreed to give some accommodation to the defendant No.2 it did not amount to novation of the contract entered into earlier and would not discharge the defendant No.1 of its obligation created by letter dated 3rd March, 1994. In any case the liability of the defendant no.1 had been reduced as certain payments were made by defendant no.2 and this act of defendant No.2 was for the benefit of defendant No.1 as the liability of defendant No.1 also stood reduced. In such a case defendant No.1 could not plead novation of contract or its discharge. In support of this submission, learned counsel relied upon the judgment of Supreme Court in the case of M.S. Anirudhan Vs. Thomco's Bank Ltd. with particular reference to paras 27, 29 and 30 thereof.
7. Law relating to grant of leave to defend when suit is filed under order xxxvII CPC, has been crystalised by series of judgments of the Supreme Court. In the celebrated judgment in the case of M/s Mechalec Engineers & Manufacturers Vs. M/s Basic Equipment Corporation , the Supreme Court laid down five principles and on the touchstone of these principles the application for leave to defend is to be decided. These principles are as under:
(a) If the defendant satisfies the court that he has a good defense 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.
(b) If the defendant raises a friable issue indicating that he has a fair or bona fide or reasonable defense although not a positively good defense the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.
(c) If 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 defense, yet, shows such a state of facts as leads to that inference that at the trial of the action he may able to establish a defense to the plaintiff's claim the plaintiff is not 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.
(d) If the defendant has no defense or the defense 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.
(e) If the defendant has no defense 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 defense 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 defense.
8. Coming to the facts of present case, from the defense pleas taken in the application for leave to defend, it is clear that the defendant No.1 has been able to raise some friable issues. The defendant No.1 has denied letter dated 3rd March, 1994. I do not agree with the contention of the counsel for plaintiff that there is no specific denial. The relevant portion in the application for leave to defend on this aspect reads as under:
"The applicant/defendant No.1 Bank also owes no responsibility for the payment of the cheques in question. The suit of the plaintiff is not maintainable against the applicant/defendant No.1. The alleged letters upon which the plaintiff has relied upon, both dated 3rd March, 1994, were never issued by the applicant/defendant No.1 Bank as per the records of defendant No.1. Moreover, the alleged letters bear no reference numbers. In its normal course of business, the applicant/defendant No.1 Bank does not issue such letters."
9.
Thus the defendant No.1 Bank has categorically stated that no such letter is available on record from which defendant No.1 Bank is submitting that letter was not issued. It is also stated that in the normal course of business such letters are not issued. Thus what is sought to be conveyed is that three could not have been a letter of this kind issued by the defendant No.1 Bank. Moreover the defendant No.1 has raised plausible defense by submitting that had there been any such letter, the plaintiff would have not agreed to give time to the defendant No.2 when the defendant No.2 allegedly expressed his financial difficulties. Afterall even according to the averments made in the plaint, the purpose of taking such a certification or assurance from the defendant No.1 Bank was to ensure timely payment by due date i.e. 1st September, 1994 in case defendant No.2 was unable to make the payment by that date. This is what is mentioned by the plaintiff himself in paras 3 to 5 of the plaint as per which plaintiff had all apprehensions that cheque given by defendant No.2 may not be encashed on due date, and therefore, the plaintiff gave the loan only after defendant No.1 assured that both the cheques would be honoured. He was not even satisfied with verbal assurance, and therefore, took the assurance by means of letter dated 3rd March, 1994. When plaintiff had done this exercise to ensure repayment of the loan by due date, why he would not ask the defendant No.1 Bank to make the payment on 1st September, 1994 even if defendant No.2 had financial difficulties. Further the defendant No.2 kept on making payments thereafter which were received by the plaintiff over a period of time. Nothing is on record to indicate that the defendant Bank was apprised of or was involved at that stage. However, whether such letter dated 3rd March, 1994 would amount certification by the defendant No.1 Bank any liability at all is a moot question. In view of Bank of Baroda's case(supra) decided by the Privy Council such certification is not enforceable. Even if it is presumed that the Chief Manager had written such a letter, whether it would bind the Bank is also a moot question as it is the case of the defendant Bank that such unauthorised act of the Chief Manager would not bind the Bank. Thus the defense raised by the defendant No.1 is entitled to leave to defend this suit. Since defendant No.1 is a statutory Bank which itself is a financial institution, it is not necessary to impose any condition for giving bank guarantee or deposit of the amount. Purpose can be served by imposing the condition relating to the manner in which the suit should proceed.
10.
Therefore following directions for conducting the proceedings in the suit would serve the ends of justice while granting unconditional leave to defend to defendant no.1.
(a) The parties shall strictly adhere to the schedule fixed for completion of pleadings and filing of documents and framing of issues etc.
(b) When the dates of trial are fixed, parties shall produce their respective witnesses and will not seek any accommodation.
(c) Attempt would be made to dispose of the suit expeditiously.
11.
This application is accordingly allowed on these terms.
S.No. 1433/95
12. Defendant No.1 shall file written statement within four weeks. Replication to that would be filed by the plaintiff within four weeks thereafter. Parties may file documents in their possession and custody within eight weeks from today.
13.
List before the Joint Registrar for admission/denial of documents on 19th September, 2001 and before the court on 10th October, 2001 for framing of issues.
14.
This schedule would be strictly adhered to.
