Rashtriya Chemicals And ... vs State Bank Of Patiala
2006 Latest Caselaw 2030 Del

JUDGMENT

Reva Khetrapal, J.

1. The short question which arises for decision in the instant case is whether the bar created by Sections 22 of the Sick Industrial Companies (Special Provisions) Act (1 of 1986 as amended by Act No.12 of 1994) will apply to a suit invoking a bank guarantee, executed by the bank to secure payment for supply of goods to an industrial company which stands referred to the Board for Industrial & Financial Reconstruction (for short BIFR).

2. The facts are in a very narrow compass:

(i) A summary suit under Order xxxvII Rule 2 of the Civil Procedure Code, 1908 was filed by the plaintiff M/s Rashtriya Chemicals & Fertilizers Limited against the defendant State Bank of Patiala praying for a decree in the sum of Rs.40,83,759.82 (Rupees forty lakhs eighty three thousand 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) @ 18% per annum from the date of the filing of the suit till payment and/or realization.

(ii) 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 willfully 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 Limited to ensure 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 ensure the due payment of the purchase price of the said product (Anhydrous DMA) by Montari Industries, the defendant executed in favor of the plaintiff a bank guarantee bearing No.SBP/NPND/ BG/64/94-95 dated 9th /12th September, 1994, for an amount not exceeding Rs.50,00,000/- (Rupees fifty lakhs only) on the terms and conditions more particularly set out therein. The said guarantee was to remain in force up to 7th September, 1995 and a claim under the same was to be made and served on the defendant on or before 6th March, 1996.

(iii) The said bank guarantee was irrevocable and specifically provided that the defendant agreed and undertook to pay the amount due and payable under the said guarantee without any demur, merely on a demand from the plaintiff that the amount claimed had become due by reason of the said Montari Industries' failure to pay to the plaintiff the amount of their invoices within 30 days. The said guarantee further provided that any such demand made by the plaintiff would be conclusive in regard to the amount due and payable by the defendant to the plaintiff under the said bank guarantee. The validity of the said bank guarantee dated 12th September, 1994 was extended from year to year, the last extension being up to 7th September, 2000 and a demand under the same was to be made on or before 6th March, 2001.

(iv) As the said Montari Industries failed to pay the invoices raised by the plaintiff within 30 days as stipulated, the plaintiff invoked the bank guarantee issued by the defendant vide letter dated 29th May, 2000, addressed from their registered office at Mumbai, and called upon defendant to make payment of sum of Rs.47,38,693.69 (Rupees forty seven lakhs thirty eight thousand six hundred ninety three and paise sixty nine only), including interest within two days from the receipt of the said letter. As there was no response from the defendant, the plaintiff by their letter dated 7th June, 2000 once again called upon the defendant to pay the aforesaid sum of Rs.47,38,693.69 (Rupees forty seven lakhs thirty eight thousand six hundred ninety three and paise sixty nine only) under the said bank guarantee to the plaintiff. In reply thereto, the defendant by their letter dated 8th June, 2000 inter alia contended that even though they were intending to honour the amount under the said bank guarantee, they were unable to do so because of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

(v) In the course of subsequent correspondence between the parties, the plaintiff informed the defendant that Montari Indutries Limited had made payment of a sum of Rs.10,00,000/- (Rupees ten lakhs only) 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 7th August, 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 Section 22 of SICA. It is further the case of the plaintiff that the bar of Section 22 is to the filing of a proceeding against the industrial company or a suit on a guarantee in respect of any loan or advance granted to the industrial company. Plaintiff asserts that it is apparent that the bank guarantee given by the defendant was not in respect of any loan or advance granted to industrial company and, thus, there is no bar under the said section for the defendant to make payment under the said bank guarantee.

4. The defendant does not dispute the bank guarantee dated 12th September, 1994 or that the said bank guarantee was extended from year to year or that the plaintiff invoked the said bank guarantee vide its letter dated 29th May, 2000, but categorically denies that the bank guarantee in the present case stands on a different footing than any other third party guarantee given to secure a loan or advance. Defendant asserts that the cause of action never arose in favor of the plaintiff, as it could not invoke the bank guarantee in question without taking permission from BIFR and AAIFR.

5. By order dated August 28th, 2003, this Court granted leave to defend to the defendant, holding that the defendant has succeeded in raising a friable issue in regard to the maintainability of the suit filed by the plaintiff in view of the provisions of Section 22 of the SICA.

6. On the pleadings of the parties, the following issues were framed for consideration on 9th May, 2005:

(i) What would be the impact of the fact that Montari Industries Limited stood referred to the Board of Industrial & Financial Reconstruction on the bank guarantee issued by the defendant at behest of Montari Industries Limited in favor of the plaintiff? Onus on parties.

(ii) If Issue No.1 is decided in favor of the plaintiff, to what amount would plaintiff be entitled to and at what rate of interest?

7. Learned Counsel for the parties agreed, as recorded in order dated 9th May, 2005, that qua issue No.1 no evidence would be required. Counsel for the parties further agreed that qua issue No.2, the sum under the bank guarantee is to be ascertained in terms of the guarantee, which is an admitted document. Counsel for parties, therefore, stated that the only evidence required would be on the rate of interest, and agreed that limited evidence pertaining to the rate of interest would be led by them. 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(a). 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(b). 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 sections 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 industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof [and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.

7(c). Looking to the plain and unambiguous wording of Section 22(1) of SICA, it is clear that where an industrial company has been referred to the Board, as is the case here with Montari Industries Limited, no suit for the recovery of money or for the enforcement of any security against an industrial company would lie without the consent of the Board. Counsel for the plaintiff, however, contends that the instant claim is not directed against the industrial company at all, but against the defendant bank which executed an irrevocable bank guarantee in favor of the plaintiff. As such the instant suit is founded on an independent contract between the plaintiff and the defendant bank to which the provision of Section 22(1) of the SICA are not attracted.

8. The question, thus, which arises for consideration is whether the bar created by Section 22(1) of SICA applies to the instant proceedings for encashment of a bank guarantee against the defendant bank, and whether the instant suit is not maintainable in the absence of the consent of the Board for Industrial and Financial Reconstruction as envisaged by the provisions of the said section.

9. At the outset, learned Counsel for the plaintiff emphasized the following undisputed facts:

(i) The defendant bank has not disputed that it executed a bank guarantee dated 12th September, 1994 in favor of the plaintiff for an amount not exceeding Rs.50,00,000/- (Rupees fifty lakhs only) at the request of M/s Montari Industries Limited, and had thereby irrevocably agreed and undertaken to pay to the plaintiff the said amount in case Montari Industries Limited (the buyer) fails to pay to the plaintiff the amounts due under the plaintiff's invoices within 30 days of supply of Anhydrous DMA to the buyer.

(ii) The defendant bank has not disputed that the said guarantee provided that the bank agrees that the plaintiff's decision with regard 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 M/s 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 1st August, 1997, despite being fully aware of the same, but further extended the term of the bank guarantee on 31st August, 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 7th September, 2000.

(vi) The defendant bank has not disputed that the plaintiff invoked the said bank guarantee vide its letter dated 29th May, 2000 and since there was no response from the defendant, the plaintiff vide letter dated 7th June, 2000 again called upon the defendant to pay Rs.47,38,693.69 (Rupees forty seven lakhs thirty eight thousand six hundred ninety three and paise sixty nine only) under the said bank guarantee to the plaintiff.

(vii) The defendant bank has not disputed that the State Bank of India, Mahul Road (Chembur Branch), Mumbai addressed a letter dated 14th June, 2000 to the defendant stating that its Law Department, Local Head Office, Mumbai had opined that Section 22(1) of the SICA is not applicable in cases of bank guarantee which is a contract under the Contract Act, and therefore, it would be in order for the defendant bank to honour the guarantee commitment in terms of the contract, without any further delay.

(viii) Admittedly, vide letters dated 8th June, 2000, 18th July, 2000, 7th August, 2000 and 3rd November, 2000 addressed to the plaintiff, the defendant bank has not disputed the amounts due and payable under the bank guarantee, but seeks to take refuge under the embargo engrafted in Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

(viii) Admittedly also, by letter dated 3rd November, 2000 addressed to the plaintiff, the defendant bank reiterated its earlier stand:

The guarantee in question is to secure payment of material supplied to the borrowing company on credit. The bar of Section 22 of SICA is thus attracted and the guarantee in question cannot be realized by the beneficiary without the permission of BIFR.

10. As regards the second part of section 22(1), counsel for the plaintiff urges that though it is apparent from a plain reading of Section 22(1) of the Act that no suit for the encashment of any guarantee in respect of any loan or advance granted to an industrial company that has been referred to BIFR would lie or can be proceeded with, except with the consent of the Board, the instant bank guarantee was not in respect of any loan or advance granted to M/s Montari Industries Limited (the Industrial company), but admittedly was executed to secure payment for material supplied to M/s Montari Industries Limited by the plaintiff. As such, it is not a guarantee 'in respect of any loan or advance granted to any industrial company', within the meaning of the aforesaid section, and the instant suit for enforcement of the same is not, therefore, 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 fulfilll 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 Bros. Forging & Stamping v. ICICI Limited 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 1994, are crystal clear. There is no ambiguity therein. The Court further held that no suit for the enforcement of a guarantee in respect of a loan or advance granted to the industrial company will lie or can be proceeded with, without the consent of the Board or the Appellate Authority under the said Act. It was observed by the Apex Court that when the words of legislation are clear, the court must give effect to them as they stand and cannot demur on the ground that the legislature must have intended otherwise, therefore, the respondent's suit for the enforcement of the guarantees in respect of the loans granted to the appellant cannot be proceeded with unless consent as required by Section 22 is obtained.

13. In a subsequent decision of the Hon'ble Supreme Court, Kailash Nath Aggarwal v. Pardeshiya Industrial and Investment Corporation of Uttar Pradesh Limited , the Court held that having regard to the semantic difference between the words suit and proceeding and the absence of such omnibus expression and expansive words or the like, which appear after the expression proceedings, after the word suit, it is not possible to accede to the submission of the appellants that the word suit in Section 22(1) of the Act means anything other than some form of curial process. In paragraph 34 at page 316 of the Report, the Court further held as follows:

... The court in Patheja Case merely observed that the creditor could recover its sum from the principal debtor under the scheme and, therefore, the claim on the guarantee would not arise if the amount is so recovered under the scheme. We do not read the observations quoted as holding that protection of guarantors of loan to a sick company is an object of the 1994 Amendment which object must colour our interpretation of the amendment. Till 1994 no protection was afforded to the guarantors under the Act at all. A limited protection has been given in 1994. The expression used being clear and unambiguous, it is not for us to question the wisdom of the legislature in giving the limited protection it did or why such protection was necessary at all.

14. After making the above observations, the Supreme Court in Kailash Nath (supra) held that since Section 22(1) only prohibits recovery against the industrial company, there is no protection afforded to guarantors against recovery 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. (supra), and Kailash Nath (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. (supra) and Kailash Nath Agarwal (supra) are not applicable to the facts of the present case, where the bank guarantee is not in respect of a loan or advance granted to the concerned industrial company viz. Montari Industries Limited.

16. Likewise, he contended that the judgment of this Court in Chander Capital Services v. Mideast India , wherein after referring to Patheja Bros., this Court held that the legislature clearly intended that a guarantor who gives a guarantee in respect of any loan or advance granted to the industrial company should be equally placed with the industrial company which is declared sick, and no proceedings in the nature of suit shall be allowed to be proceeded with for enforcement of such a guarantee without obtaining the consent of the Board, is clearly distinguishable. The question which arorse for consideration in Chander Capital's case (supra) was whether execution proceedings could continue against a guarantor for enforcement of a guarantee in respect of a loan or advance granted to the industrial company? This is to be contra-distinguished with the bank guarantee in the instant case which is not in respect of loan or advance extended to the industrial company.

17. Reliance was placed by learned Counsel for the plaintiff on the decision of this Court in LML v. Saraswati Trading Company Limited and Ors. , holding therein that the suit for enforcement of guarantee in respect of deferred sale consideration of Rs.9.45 lakhs was not barred by the provisions of Section 22 of the SICA. At page 240 of the Report, it was observed as follows:

10. ...

Under Section 22 of the Sick Industrial Companies (Special Provisions) Act, no suit or proceedings for enforcement of any guarantee in respect of any loan or advance granted to the industrial company shall lie or be proceeded with further except with the consent of the Board or, as the case may be, appellate authority. The present suit filed by the plaintiffs is for enforcement of guarantee which is alleged to have been given by defendants 1 & 2 for payment of the amount allegedly due from defendant No.3. However, for stay of this suit, it has to be proved that this guarantee was in respect of any loan or advance granted to the industrial company. In case the guarantee given by defendants 1 & 2 was not in respect of any loan or advance granted to the sick company, the present suit can proceed and the provisions of Section 22 of the Act will not apply.

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 v. Commissioner of Income Tax , 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.

19. Next, reliance was placed by counsel for the plaintiff on a Division Bench decision of the Bombay High Court in Ved Prakash v. Rama PetroChemical Limited 2005 (1) Maharashtra Law Journal 599. In the said case, the suit claim was with respect to the unpaid lease rental in an Agreement of Lease Finance for Equipment, the payment of which rental was guaranteed by the appellant. The affairs of the company to which the equipment was given on lease were under investigation before the BIFR and, therefore, the question arose whether the suit could not be proceeded against the guarantor (appellant) in view of the provisions of Section 22(1) of the SICA. It was urged that the lease finance was essentially a loan or advance granted to the industrial company and, therefore, the suit should not be proceeded with. After noting that in Patheja Bros. (supra), there was no dispute that it was the repayment of the loan which was guaranteed by the guarantor, the Bombay High Court observed that the material question to be examined was whether the lease finance granted by the respondent to the industrial company was in fact a loan or advance granted to the industrial company and, therefore, the suit had to be suspended in view of the provisions of Section 22(1) of SICA. Having crystalized the question it was called upon to answer, the Bombay High Court held as follows:

12. ...

When it comes to guarantors, it is only the suits for enforcement of any guarantee which would be stayed as against them provided they are in respect of loans or advances granted to the industrial company. Thus it is not that merely because the industrial company has become sick that the suits against the guarantors thereof would automatically get halted. The guarantors will have to show that they are suits in respect of loans or advances granted to the industrial company to get the protection and not otherwise. Therefore, merely because the industrial company is protected, the guarantor does not get protected automatically. All that was submitted before the learned Single Judge was that the industrial company, to which equipment was given on lease by the guarantor, was before the BIFR and, therefore, the suit against the guarantor cannot be proceeded with. On the submission, as it was placed before him, the learned Judge was right in answering that the suit cannot be stayed merely on that footing.

In paragraph 25 of its judgment, the Bombay High Court further held:

25. It is clear from the 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 fulfill 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.

20. From the above, it would appear that the Bombay High Court in Ved Prakash (supra) has expressed the same view as this Court in LML Limited (supra), namely, that if a guarantor is to invoke the protection conferred by Section 22(1) of the SICA, it must prove that the concerned guarantee is in respect of a loan or advance granted to the industrial company. In other words, it is only where the said guarantee is in respect of a loan or advance extended to the industrial company that the provisions of Section 22(1) will ensure to the benefit of the guarantor.

21. Per contra, learned Counsel for the defendant, apart from relying upon the decisions of the Apex Court in Patheja Bros. (supra) and Kailash Nath (supra) and of this Court in Chander Securities (supra), contended that the object of SICA is to revive and rehabilitate such industries as have gone sick on account of economic and other related reasons. As such, any narrow construction to the words of Section 22 would render the provision nugatory and defeat the remedial object sought to be achieved. Counsel for defendant also placed reliance upon the meaning of the words 'advance' and 'debt' as set out in the 'New Shorter Oxford Dictionary', which are as under:

ADVANCE MEANS:

payment before hand, or on security, an anticipatory payment, a loan

DEBT MEANS:

something owed or due; something (as money), goods, or service) which one person is under an obligation to pay or render to another.

A liability or obligation to pay or render something; the condition of being so liable or obligated.

Floating debt, payable on demand or at a certain time.

22. As already noticed, this Court in LML Limited (supra) categorically held that a loan is undoubtedly a debt, but every debt may not be a loan liability (Bombay Steam Navigation v. Commissioner of Income Tax AIR 1965 SC 1201). It was also held that an agreement to pay the balance of consideration due by the purchaser does not in truth give rise to a loan.

23. In the Usurious Loans Act, 1980, the term loan has been defined as follows:

Section 2 defines:

In this Act, unless there is anything repugnant in this context:

(1) ...

(2) Loan means a loan whether of money or any kind and includes any transaction which is, in the opinion of the court in substance a loan.

24. From the above definition of loan, it is clear that the touchstone for determination 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 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 M/s Montari Industries Limited nor it can 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 outstanding 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 M/s 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 based on an independent contract between the plaintiff and defendant to which the industrial company viz. Montari Industries is not a party. The necessary corollary is that the sanction of the Board or the Appellate Authority under Section 22(1) of the SICA cannot be said to be a sine qua non for the institution of the suit.

26. Issue no.1 is accordingly decided in favor of the plaintiff.

Issue No.2

27. Issue No.1 having been decided in favor of the plaintiff, the only question which remains to be decided is to what amount would the plaintiff be entitled to and at what rate of interest?

28. As already stated, the plaintiff has prayed for grant of a decree in the sum of Rs.40,83,759/- (Rupees forty lakhs eighty three thousand seven hundred fifty nine) as per particulars set out in 'Annexure-U' to the plaint together with further interest on the principal sum of Rs.33,36,792/- (Rupees thirty three lakhs thirty six thousand seven hundred and ninety two only) at the rate of 18% per annum from the date of the filing of the suit till payment and/or realization. There is no specific denial to the calculation of the amount claimed by the defendant in the written statement of the defendant. In the course of hearing also, counsel for the defendant did not contest the position that the principal amount due and payable as on 21st October, 1999 was Rs.43,36,792.10 (Rupees forty three lakhs thirty six thousand seven hundred ninety two and paise ten only) and that after deduction of Rs.10,00,000/- paid to the plaintiff by M/s Montari Industries, the balance principal amount due was Rs.33,36,792.10 (Rupees thirty three lakhs thirty six thousand seven hundred ninety two and paise ten only).

29. As regards the interest payable by the plaintiff to the defendant, two affidavits by way of evidence were filed by the plaintiff. Both the affidavits are of Shri K.C. Prakash, son of Sh. K. Ramamoorthy, Company Secretary of the plaintiff, stating on oath that there are no directives issued by the Reserve Bank of India relating to the rate of interest chargeable and that all banks are free to fix their own Prime Lending Rates (PLR) and that different banks have different Prime Lending Rates, the only requirement being that PLR should be published by each bank for information to the public. It is further stated on oath that the plaintiff would be entitled to the rate of interest on the amounts due and payable to the plaintiff by the defendant under the bank guarantee as per the certificate dated 3rd August, 2005 issued by the State Bank of India. The said certificate dated 3rd October, 2005 certifies that the Prime Lending Rates of the State Bank of India, Commercial Branch, Chembur from 1st April, 2002 to 1st November, 2004 varied from 11% on 1.4.2002 to 10.25% on 1.11.2004.

30. After calculating the interest on the principal amount from 21st October, 1999 to 1st May, 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 lacs only) which is inclusive of interest. The bank further agrees to pay to R.C.F. interest at one percent more than borrowing rate of interest on default in prompt payment on the amounts due and payable by the buyer from the due date to the actual date on which payment is made to R.C.F. with a condition that the total claim amount including interest does not exceed Rs.50,00,000/- (Rupees fifty lacs only).

31. Accordingly, in view of Clause 2 of the bank guarantee, though a larger amount is due to the plaintiff, the decree must be restricted to the sum of Rs.50,00,000/- (Rupees fifty lakhs only). In the circumstances, therefore, a decree in the sum of Rs.50,00,000/- (Rupees fifty lakhs only) inclusive of interest is passed in favor of the plaintiff and against the defendant. The defendant shall, however, be liable to pay interest at the rate of 10% per annum to the plaintiff from the date of the suit till the date of the decree and further interest at the rate of 6% per annum from the date of the decree to the date of payment.

32. The suit stands disposed of accordingly.

33. Parties are left to bear their own costs.