M/S. Aravali International vs Jammu And Kashmir Bank Ltd. & Ors.
2012 Latest Caselaw 2413 Del

*    IN THE HIGH COURT OF DELHI AT NEW DELHI


+                     CS(OS) 698/1995



M/S. ARAVALI INTERNATIONAL                 ....Plaintiff
               Through: Mr. Janendra Lal and Ms. Yasmin
                        Tarapore, Advocates.

             versus

JAMMU AND KASHMIR BANK LTD. & ORS.         ..... Defendants
            Through: Mr. S.P. Singh, Sr. Advocate with
                     Mr. G.M. Kawoosa, Advocate.


%                          Date of Decision : April 13, 2012


CORAM:
HON'BLE MS. JUSTICE REVA KHETRAPAL

                           JUDGMENT

: REVA KHETRAPAL, J.

1. The aforementioned suit is filed by the plaintiff for the

recovery of a sum of ` 23,73,364.38 (Rupees Twenty Three Lacs

Seventy Three Thousand Three Hundred Sixty Four and Paise Thirty

Eight Only) together with costs and interest thereon premised on a

Bank Guarantee issued by the defendants, whereby the defendants

unconditionally bound themselves to make the payment as mentioned

in the Bank Guarantee to the plaintiff in the event of non-performance

of export obligations by a third party.

2. Briefly the facts may be delineated as follows.

3. On 19th April, 1994, M/s. Chittagong Cement Clinkers &

Grinding Co. Ltd., South Halisher, Chittagong (hereinafter referred to

as "M/s. Chittagong") entered into an agreement for the supply of

25,000 Metric Ton of cement clinkers with the plaintiff. On the same

date, i.e., on 19th April, 1994, M/s. Chittagong entered into another

agreement with M/s. Project & Equipment Corporation of India Ltd.,

Hansalaya, 15 Barakhamba Road, New Delhi (hereinafter referred to

as "M/s. Project Equipment") for supply of another 25,000 Metric

Ton of cement clinkers. On 25th April, 1994, M/s. Project Equipment

further entered into an agreement with the plaintiff assigning the

contract in favour of the plaintiff on the same terms and conditions as

contained in the principal agreement entered into by it with M/s.

Chittagong. On the same day, i.e., on 25.04.1994, the plaintiff in turn

entered into two contracts for the supply of 25,000 Metric Ton of

cement clinkers each with M/s. Impression International India, 110-

111 Pragati Tower, Rajindra Place, New Delhi (hereinafter referred to

as "M/s. Impression") on the same terms and conditions as contained

in the principal agreements, in consideration of commission to be paid

by M/s. Impression to the plaintiff.

4. In terms of the principal contracts, i.e., the contracts with M/s.

Chittagong, the plaintiff was required to furnish, within a period of

five days from the signing of the said contracts, an unconditional

performance guarantee of the value of 4% of the contract value

entered into between the plaintiff and M/s. Chittagong, and of the

value of 3% of the contract value entered into with M/s. Project

Equipment and later assigned to the plaintiff. On 1/4-06-1994, the

plaintiff in keeping with the above terms and conditions got two

performance Bank Guarantees opened through their bankers, Bank of

Baroda, Sansad Marg, New Delhi in favour of M/s. Chittagong, viz.,

Performance/Bank Guarantee No.FGN/BG/94/8 dated 1st/4th June,

1994 for contract No. Nil and Performance/Bank Guarantee

No.FGN/BG/94/7 dated 1st/4th June, 1994 for contract No.RKG/4/94.

In turn, the plaintiff in the contract with M/s. Impression also required

the furnishing of performance Bank Guarantees by the said M/s.

Impression, who caused to be issued a single performance guarantee

in favour of the plaintiff through its bankers, M/s. Jammu & Kashmir

Bank Ltd., Lajpat Nagar, New Delhi (the defendant No.2 herein)

bearing No.18/94 dated 14th May, 1994 for the due performance of

the export obligation cast on them. The said Bank Guarantee was

forwarded by the defendants to the plaintiff on 14.05.1994 vide Ex.P-

1 and on 19.05.1994, the defendants admitted issuance of guarantee

vide Ex.P-2. Clause 2 of the said guarantee is significant, which, for

the sake of facility, is reproduced hereunder:-

"2. This GUARANTEE shall become effective and shall bind the BANK Provided the IRREVOKABLE LETTER OF CREDIT for sale of 50,000 mts of CEMENT CLINKER valuing US Dollars 22,95,750/- CONFIRMED by a PRIME BANK in Delhi and stipulating payment at SIGHT on presentation of documents expeditiously by transfer of funds in US Dollars from the Confirming Banks Accounts in New York, complete, valid and without any discrepancies is received by the BANK in original within FIFTEEN DAYS from the date of this Guarantee i.e. not later than _29_May 1994. The Date of receipt of the valid and discrepancy free Irrevocable Confirmed Letter of Credit shall be confirmed by the BANK to BUYERS AGENTS in writing. In the event of the non-receipt of the said Irrevocable and confirmed Letter of Credit by the day stipulated heretofore this Guarantee shall become

inoperative and shall not be enforceable against the Bank in any manner."

5. It is the case of the plaintiff that the defendants vide the said

Performance Guarantee/Bank Guarantee unconditionally bound

themselves to make the payment as mentioned in the Bank Guarantee

to the plaintiff in the event of non-performance of the export

obligation cast upon M/s. Impression and were obliged to pay on

demand and without any demur, a sum to the tune of ` 21,50,000/-

(Rupees Twenty Lacs Fifty Thousand Only) to the plaintiff on the

occurring of such an eventuality. It is further the case of the plaintiff

that the original Bank Guarantee as issued by the defendants

contained a stipulation that the said Bank Guarantee would take effect

and would become effective and binding only upon the receipt from

the plaintiff of the Letter of Credit by 29th May, 1994. As the said

Letter of Credit had not been received, the plaintiff called upon M/s.

Impression to extend the period for transmission of the Letter of

Credit and by amendment dated 27.05.1994 (Ex.P-3), the period for

receipt of the Letter of Credit was extended to 6th June, 1994, other

terms and conditions remaining the same. Since the Letter of Credit

could not be received even by the said extended date, by amendment

dated 8th June, 1994 the period for receipt of the Letter of Credit was

extended to 20th June, 1994 (Ex.P-4), other terms and conditions

remaining the same. Thereafter, the period for transmission of the

Letter of Credit was further extended till 7th July, 1994 vide

amendment dated 30.06.1994 (Ex.P-5), by which date the Letters of

Credit were duly provided to M/s. Impression and had been

transmitted to the defendants.

6. Since the plaintiff had entered into two contracts with M/s.

Chittagong, one directly and the other through M/s. Project

Equipment, M/s. Chittagong had instructed their banker to open two

separate Letters of Credit under each contract for the supply of 25,000

Metric Ton of cement clinkers under each Letter of Credit.

Accordingly, Letters of Credit bearing Nos.C/11/0070 (hereinafter

referred to as No.70) and C/11/0071 (hereinafter referred to as No.71)

both dated 15th June, 1994 were issued by Bank Indo Suez on behalf

of M/s. Chittagong in favour of the plaintiff. The said Letters of

Credit were transmitted to the plaintiff's bankers in India. The first

Letter of Credit bearing No.70 stipulated that the material was to be

shipped latest by 3rd August, 1994 and date of negotiation as provided

for therein was 17th August, 1994. This Letter of Credit was

amended from time to time by various amendments and was last

amended on 20th July, 1994 whereby the last date by which the

material was to be shipped was extended till 30th August, 1994 and

accordingly the date of negotiation stood extended till 13th September,

1994.

7. As regards the other Letter of Credit bearing No.71 dated 15th

June, 1994, the last date of shipment stipulated therein was originally

3rd July, 1994 and the date of negotiation was 17th July, 1994. By the

very first amendment in the said Letter of Credit dated 20th June,

1994, the validity of shipment was extended till 30th August, 1994

and negotiation date stood extended till 13th September, 1994. By

virtue of this amendment, both the Letters of Credit had the same

validity of shipment and negotiation. But at a later date, besides other

amendments, an amendment was incorporated by the issuing bank in

the said Letter of Credit bearing No.71 on 20th July, 1994, whereby

the latest date by which the material was to be shipped was extended

till 29th September, 1994 and the date of negotiation till 13th October,

1994.

8. Thus, after all the amendments for the Letter of Credit bearing

No.70, the ultimately extended date for shipment was 30th August,

1994 whereas as per the Letter of Credit bearing No.71 after all the

consequent amendments, the extended date of shipment was till 29th

September, 1994.

9. It may be noted at this juncture that originally the said Letters

of Credit were not transferable, and as such M/s. Impression as also

the defendants sought the transfer of the said Letters of Credit,

whereupon the plaintiff requested M/s. Chittagong to amend both the

Letters of Credit and make them transferable. Thus, the Letter of

Credit bearing No.70 was made transferable vide amendment dated

22nd June, 1994 whereas the Letter of Credit bearing No.71 was made

transferable vide amendment dated 23rd June, 1994.

10. It is the case of the plaintiff that the said amended Letters of

Credit were transferred in the name of M/s. Impression by the

plaintiff's bankers and were duly transmitted to M/s. Impression on

4th July, 1994, who forwarded the same to the defendants. On receipt

of the duly transferred Letters of Credit in favour of M/s. Impression

and on the request of M/s. Impression, the defendants extended the

date of the Performance/Bank Guarantee and claim period vide

amendment made by the defendants in the Bank Guarantee on 1st

August, 1994. The said amendment extended the validity and claim

period of the guarantee as per Clause 3 and Clause 6 of the Bank

Guarantee No.18/94 to 30th August, 1994 and 30th September, 1994

respectively. Thus, by virtue of these amendments, the validity of the

guarantee stood extended till 30th August, 1994 and the claim period

stood extended till 30th September, 1994. It would be apposite at this

point of time to note that it is the contention of the plaintiff that the

last amendment was necessitated only upon the receipt of the Letter

of Credit by the defendants and the absence of any reference to the

non-receipt of the Letter of Credit in the amendment clearly

testifies to the fact of receipt of a valid Letter of Credit by the

defendants, and further to the fact that the bank accepted the

said Letters of Credit and only upon being satisfied about the

validity of the same caused an amendment extending the validity

period of the Bank Guarantee to 30th August, 1994 and claim

period to 30th September, 1994.

11. The plaintiff alleges that M/s. Impression did not carry out the

export obligation and as a result of the said default, the plaintiff

suffered financial loss on account of the invocation of the Bank

Guarantees provided by the plaintiff to M/s. Chittagong as also the

loss of goodwill. Accordingly, in terms of the Bank Guarantee dated

14th May, 1994 issued by the defendants, the plaintiff on 24th

September, 1994 invoked the said Bank Guarantee, calling upon the

defendants to make payment of the said sum of ` 21,50,000/- (Rupees

Twenty Lacs Fifty Thousand Only).

12. The plaintiff further alleges that although the defendants was in

law bound to make payment under the aforesaid Bank Guarantee, the

defendants illegally and with malafide intent by letter dated 3rd

October, 1994 informed the plaintiff that the Bank Guarantee was

issued conditionally upon the Letter of Credit being delivered to the

defendants within 15 days, i.e., not later than 29th May, 1994 and the

defendants not having received the same within the aforesaid period,

the said guarantee was not operative in law.

13. The aforesaid stand of the defendants is assailed by the plaintiff

by institution of the present suit as false, malafide and contrary to

their records as the defendants extended the validity and claim period

of the aforesaid guarantee through various amendments and also acted

upon and negotiated the Letter of Credit duly delivered to them.

14. The plaintiff alleges that a further ground for the defendants

declining to make payment under the Bank Guarantee was that the

Letter of Credit was not confirmed by a prime bank in Delhi,

stipulating the payment of the amount in US Dollars by debiting their

account in New York. The plaintiff further alleges that the

defendants were fully aware that Bangladesh, being a member of the

Asian Clearing Union, payment was to be made not in US Dollars but

in Indian Rupees or the currency of the participating country, namely,

Bangladesh. The defendants were also fully aware that the clause

inserted in the guarantee was contrary to the Foreign Exchange

Manual and Rules of the Reserve Bank of India and unenforceable in

law.

15. The defendants having repudiated their liability to make

payment, the plaintiff by a legal notice dated 18th October, 1994

informed the defendants that the stand taken by them was without any

basis and that the defendants were bound to make payment under the

Bank Guarantee issued by them. Notice was also given to the

defendants under the provisions of the Interest Act contending that

the plaintiff in the event of default in making payment would hold the

defendants liable for interest @ 24% per annum with quarterly rests,

being the prevalent commercial rate of interest. The said notice was

duly served on the defendants but the defendants not having honoured

its liability, the plaintiff on 24th November, 1994 caused a final notice

to be sent to the defendants through its Advocate, calling upon them

to make payment of ` 21,50,000/- (Rupees Twenty Lacs Fifty

Thousand Only) together with interest @ 24% per annum with

quarterly rests from 24th September, 1994 till payment, failing which

the plaintiff would have no option but to file a suit for recovery of its

dues.

16. On 5th December, 1994, the defendants sent a reply to the

aforesaid notice again repudiating its liability and repeating the

aforesaid grounds for non-payment. The defendants denied having

received the irrevocable Letters of Credit and consequently its

liability to make payment. The defendants having willfully neglected

to make payment, which, according to the plaintiff, it was bound to

make, the present suit was instituted by the plaintiff for recovery of

the aforesaid sum of money with interest thereon from the defendants.

17. The defendants filed a written statement contending that the

invocation of the Bank Guarantee was invalid and, therefore, the

defendant Bank was justified in not making the payment in terms of

the guarantee. The defence set up was that the defendants had issued

a conditional Bank Guarantee which was to become operative subject

to the receipt of the irrevocable Letter of Credit for the sale of 50,000

Metric Ton of cement clinkers valuing US $ 22,95,750/- by the bank

within the stipulated period by 29th May, 1994, which was later on

amended to 30th August, 1994, duly confirmed by a prime bank in

Delhi. No irrevocable Letter of Credit having been received by the

bank by 30th August, 1994, the guarantee never became operative, and

as such, no liability could be fastened upon the defendants and the

entire suit was misconceived. In paragraph 18 of the written

statement, however, the defendants submitted that one Letter of

Credit for US $ 11,43,750/- was received by the defendants from M/s.

Impression on 1st September, 1994. The said Letter of Credit not

having been received by the defendants within the extended period of

the guarantee and further not being confirmed by a prime bank in

Delhi and being for a lesser amount than the stipulated amount, the

guarantee never became operative and no cause of action, therefore,

accrued to the plaintiff.

18. Replication to the aforesaid written statement was filed by the

plaintiff categorically denying the contents of the written statement

and reiterating the averments made in the plaint.

19. On the pleadings of the parties, the following issues were

framed on 22nd August, 1997 for adjudication:-

"1. Whether the plaint has been signed and suit instituted by a duly authorised person?

2. Whether the suit of the plaintiff is misconceived and not maintainable as alleged in the written statement?

3. Whether the guarantee No.18/94 dated 14th May, 1994 was not conditional and as such could not be invoked without satisfying the terms stipulated therein?

4. Whether the guarantee could be enforced despite the fact that it was stipulated that the payment shall be made in U.S. Dollars and not in Indian rupees?

5. Whether the guarantee never became operative? If so, to what effect?

6. Whether the guarantee could be invoked without fulfilling the terms of the guarantee which were clearly stipulated

in the guarantee itself? To what rate of interest, the plaintiff is entitled to?

7. Whether an irrevocable Letter of Credit in the sum of Rs.22,95,750/- U.S. Dollars was received by the defendant within stipulated period? If not, to what effect?

8. Relief."

20. On or about 31st August, 2004, the plaintiff filed an application

being IA No.5700 of 2004 under Order XI Rule XII read with Section

151 of the Code of Civil Procedure for discovery and inspection

alleging therein that the falsity of the claim of the defendants was

apparent from the fact that if the irrevocable Letter of Credit had not

been received by the defendants prior to 7th July, 1994, there would

have been no occasion for the bank to issue another amendment on 1st

August, 1994 as the Performance Guarantee would have

automatically lapsed. The attention of the Court was also invited by

the plaintiff in the said application to the earlier orders of the Court

dated 20th September, 2000 and 17th January, 2001 directing the

defendants to place on record the irrevocable Letter of Credit as

received by it from M/s. Impression, and to the fact that the

defendants ultimately instead of filing the said irrevocable Letter of

Credit filed an affidavit dated 22nd April, 2002 stating, inter alia, that

the defendants had received the irrevocable Letter of Credit dated 15th

June, 1994 for US $ 11,43,750/- on 1st September, 1994 from M/s.

Impression and that after negotiation, the same was returned to M/s.

Impression in September, 1994. In paragraphs 7 and 8 of the

aforesaid application, the plaintiff submitted as follows:-

"7. That similarly in transactions pertaining to foreign exchange, all banks are required to inform the Reserve Bank of India by submitting GR-I forms with regard to documents sent under collection or otherwise and also the fate of the documents i.e. whether payment was received or not. At the time of such negotiation of documents, GR-I forms are submitted to the Reserve Bank of India and since payment has not been received the same would still be pending. The Defendants would be in possession of the said correspondence with the Reserve Bank of India including the GR-I forms and other connected documents and correspondence.

8. The Plaintiff states that the above documents are necessary for the adjudication of the matters in issue and it is a fit and proper case where this Hon'ble Court would be pleased to direct the Defendants to make discovery on oath of the documents which are or have been in the power and possession of the Defendants pertaining inter alia to the date on which the Irrevocable Letter of Credit was received by the Defendant No.1, the date on which the documents were negotiated by Defendant No.1 under the said Irrevocable Letter of Credit, the correspondence with M/s.

Impression International India with regard to the said Irrevocable Letter of Credit and/or the consignment/documents negotiated thereunder, the correspondence with the Reserve Bank of India including the furnishing of the GR-I forms and all correspondence which would show that in fact the Irrevocable Letter of Credit was received by the Defendants much prior to 31st August, 1994."

21. In response to the aforesaid application, the defendants filed

their reply stating that on 01.09.1994 one export documentary bill for

US $ 3,04,416 against one Letter of Credit No.70 for US $ 11,43,740

was received from M/s. Impression but the said Letter of Credit was

discrepant. Against this, an amount of US $ 2,80,984 had been

realized on 12.10.1994 and after applying the conversion rate of `

31.37, a sum of ` 88,14,468/- was credited to the loan account of M/s.

Impression. This entry had been reported to the Reserve Bank of

India under GR-I Form No.AG 211506 with relevant R-returns on

realisation. It was further stated that copies of the said documents

were now not available with the defendant Bank as it was not

mandatory to preserve this record permanently.

22. By an order dated 11th July, 2005, the aforesaid application of

the plaintiff was allowed by the Court and the defendants were

directed to discover the documents regarding the receipt of the Letter

of Credit by filing of an affidavit in accordance with the rules.

Pursuant to the said order, the defendants filed the affidavit of their

Assistant General Manager - Shri Ashok Kapoor. In paragraph 3 of

the said affidavit, the defendants reiterated the stand taken by them

with regard to LC No.70 in response to the application for discovery

being IA No.5700/2004 that the same was not now in possession,

power or custody of the documents. The defendants further stated

that no export bill under LC No.71 for US $ 11,43,750 was ever

received by it from M/s. Impression and, therefore, no record of the

same was available with them. It was further stated that the

defendants were not in possession of any record pertaining to return

of the Letter of Credit to M/s. Impression.

23. Thereafter, the parties went to trial and adduced their respective

evidence through affidavits. In the course of evidence, the plaintiff

filed its affidavit by way of evidence of Shri Davinder K. Bhalla,

Company Secretary of the plaintiff (PW1), who proved on record

documents Ex.PW1/1 to Ex.PW1/25, besides documents P-1 to P-8,

which were unconditionally admitted and documents A-1 to A-3,

which were conditionally admitted by the defendants. The defendants

filed the affidavits of DW1 Shri J.M. Rafiqui and DW2 Mohd. Shafi

Bhatt but did not offer Mohd. Shafi Bhatt for cross-examination.

24. Detailed submissions were made by Mr. Janendra Lal,

Advocate on behalf of the plaintiff and by Mr. S.P. Singh, Senior

Advocate on behalf of the defendants. In order to avoid prolixity, it is

proposed to deal with the respective submissions of parties issue-

wise.

ISSUE No.1

"1. Whether the plaint has been signed and suit instituted by a duly authorised person?"

25. On Issue No.1, the plaintiff proved the Certificate of

Incorporation of M/s. Aravali Traders and Investments Company

Limited dated 11th June, 1980 (Ex.PW1/1); the Certificate of

Amendment dated 4th May, 1994 certifying the change of name of

M/s. Aravali Leasing Limited, which was originally incorporated on

11th June, 1980 under the name of M/s. Aravali Traders and

Investments Limited to M/s. Aravali Securities and Finance Limited

(Ex.PW1/2); Resolution of the Board of Directors of Aravali Leasing

Limited dated 27.05.1993 resolving that a proprietorship firm in the

name and style of M/s. Aravali International be opened under the

proprietorship of the Company (Ex.PW1/3); Resolution of the Board

of Directors of M/s. Aravali Securities and Finance Limited dated 14th

December, 1994 resolving that Shri Ranjan Kumar Poddar, Managing

Director be authorised to execute a Power of Attorney in favour of

any person as he may deem fit to represent on behalf of M/s. Aravali

International in the case of recovery of ` 21,50,000/- from the Jammu

& Kashmir Bank (Ex.PW1/4) and the Power of Attorney in favour of

Shri D.K. Bhalla executed by Shri Ranjan Kumar Poddar

(Ex.PW1/5).

26. All the aforesaid documents were proved in evidence by PW1

Shri Davinder K. Bhalla, whose testimony in this regard was not

assailed by cross-examination of the witness.

27. Issue No.1 is accordingly decided in favour of the plaintiff by

holding that the plaint has been signed and the suit instituted and filed

by a duly authorised person.

"2. Whether the suit of the plaintiff is misconceived and not maintainable as alleged in the written statement?

3. Whether the guarantee No.18/94 dated th 14 May, 1994 was not conditional and as such could not be invoked without satisfying the terms stipulated therein?

4. Whether the guarantee could be enforced despite the fact that it was stipulated that the payment shall be made in U.S. Dollars and not in Indian rupees?

5. Whether the guarantee never became operative? If so, to what effect?

6. Whether the guarantee could be invoked without fulfilling the terms of the guarantee which were clearly stipulated in the guarantee itself? To what rate of interest, the plaintiff is entitled to?

7. Whether an irrevocable Letter of Credit in the sum of Rs.22,95,750/- U.S. Dollars was received by the defendant within stipulated period? If not, to what effect?"

28. Issue Nos.2, 3, 4, 5, 6 and 7 being interlinked and

interconnected and the evidence thereon being substantially the same

are being dealt with together.

29. On the aforesaid issues, the plaintiff has adduced evidence to

show that as per the Reserve Bank of India restrictions as contained in

the Guidelines and Foreign Exchange Manual placed on record and

marked as "A" for the sake of identification, it is provided that in

export transactions with member countries of the Asian Clearing

Union which includes Bangladesh, payment could only be made in

Indian rupees or in the currency of the participating country in which

the other party to the transaction is resident and, therefore, not in US

Dollars. The relevant part of the Foreign Exchange Manual is

reproduced hereunder:-

"Permitted Methods of Payments 2.6 Authorised dealers should make remittances from India or provide reimbursement to their overseas branches and correspondents in foreign countries (other than Nepal and Bhutan) against payments due for imports into India and other payments in a manner conforming to the methods of payment indicated below:-

              Group                  Permitted methods
              (i) All     countries (a) Payment in rupees
                  other than those       to the account of a
                  listed under (ii)      resident of any
                  below                  country in this
                                         Group.
                                     (b) Payment in any
                                         permitted currency.

              (ii) Member             (a) Payment for all
                   countries in the       eligible     current
                   Asian Clearing         transactions      in
                   Union      (except     Indian rupees or
                   Nepal),                Asian      Monetary
                   Bangladesh,            unit (AMU) or in
                   Myanmar,               the currency of the
                   Islamic Republic       participating
                   of Iran, Pakistan,     country in which
                   Sri Lanka.             the other party to
                                          the transaction is
                                          resident.



                                      (b) Payment in any
                                         permitted currency
                                         in other cases.

30. Predicated on the aforesaid Foreign Exchange Regulation, Mr.

Janendra lal, the learned counsel for the plaintiff submitted that any

condition/term requiring payment to be made otherwise would be

unenforceable in law. He pointed out that PW1 in cross-examination

had affirmed so, and stated that the plaintiff had informed M/s.

Impression that the stipulation as contained in para 2 of the

Performance Guarantee was contrary to the Reserve Bank of India

Guidelines, who had, in turn, informed the defendants and thereafter

confirmed to the plaintiff that the defendants were not going to rely

upon the said clause. He further pointed out that significantly, in his

cross-examination DW2, who at the relevant time was the Manager,

Foreign Exchange of the defendants and signatory to the Guarantee,

claimed not to remember the aforesaid restrictions of the Reserve

Bank of India Regulations, but admitted that any such restriction in

the guarantee contrary to Reserve Bank of India directions would not

be enforceable. The learned counsel urged that, therefore, such a

condition in the Guarantee issued by the defendants were

unenforceable and the said term/condition in the Guarantee was to be

ignored as being contrary to the Regulations and the Guarantee

operable and enforceable accordingly.

31. As regards Issue No.7, regarding the delivery of the Letter of

Credit to the defendants, Mr. Lal contended that there is ample

evidence on record to suggest that the same was received by M/s.

Impression on 4th July, 1994 and thereafter delivered to the

defendants with a request to extend the period of validity of

Guarantee and also the claim period. In this context, he placed

reliance on document dated 4th July, 1994 from the plaintiff to M/s.

Impression enclosing the Letter of Credit No.70 dated 15th June, 1994

for supply of 25,000 Metric Ton clinkers as per the contract with the

original amendment Nos.1 and 2 to the said Letter of Credit and

requesting M/s Impression to extend the Performance Guarantee in

reference (Ex.PW1/21); document dated 4th July, 1994 from the

plaintiff to M/s. Impression enclosing the Letter of Credit No.71

dated 15th June, 1994 for supply of 25,000 Metric Ton clinkers as per

the contract with the original amendment Nos.1 and 2 to the said

Letter of Credit and requesting M/s Impression to extend the

Performance Guarantee in reference (Ex.PW1/22) and document

dated 04.07.1994 from the plaintiff to M/s. Impression enclosing the

carbon copy of Letter of Credit No.70 dated 15th June, 1994 for

supply of 25,000 Metric Ton clinkers as per the contract with the

original amendment Nos.1 and 2 to the said Letter of Credit and

requesting M/s Impression to extend the Performance Guarantee in

reference (Ex.PW1/23). Significantly, this documents contains the

following endorsement:-

"CC: The Jammu & Kashmir Bank Ltd. in reference to your B.G. No.18/94 - for information.

KIND ATTN: Branch Manager/The Jammu & Kashmir Bank Ltd., Lajpat Nagar Branch, New Delhi."

32. The learned counsel submitted that the factum of delivery of

the Letter of Credit to the defendants on 4th July, 1994 is further

bolstered by the amendment letters Ex.P-3, Ex.P-4, Ex.P-5 and Ex.P-

6, all admitted documents. He submitted that the original Bank

Guarantee as issued by the defendants stipulated that the Bank

Guarantee would take effect on receipt of the Letter of Credit by 29th

May, 1994. Since the Letter of Credit could not be received by the

said date, by amendment the period for receipt of the Letter of Credit

was extended to 6th June, 1994, other terms and conditions remaining

the same (Ex.P-3). Since the Letter of Credit could not be received

by the said extended date, by amendment the period for receipt of the

Letter of Credit was extended to 20th June, 1994 other conditions

remaining the same (Ex.P-4). The said amendment was forwarded by

the defendants on 08.06.1994 (Ex.PW1/14). On 30th June, 1994, by

amendment, the period for receipt of the Letter of Credit was again

extended to 7th July, 1994, other terms remaining the same (Ex.P-5).

On 4th July, 1994, as stated hereinabove, Letters of Credit in the name

of M/s. Impression by the plaintiff's bankers were transmitted to M/s.

Impression who, in turn, forwarded the same to the defendants

(Ex.PW1/22 and Ex.PW/23). He pointed out that on 01.08.1994 an

amendment was necessitated on account of the furnishing of the

Letter of Credit. On the said date, the defendants extended the

validity and claim period of the guarantee as per Clause 3 and Clause

6 of the Bank Guarantee No.18/94 to 30th August, 1994 and 30th

September, 1994 respectively vide document Ex.P-6. Significantly,

there was no extension of the period of furnishing the Letter of

Credit or reference to the 'Letter of Credit to be received by the

Bank' as the same had already been furnished by M/s. Impression

to the defendants.

33. Mr. Lal, the learned counsel for the plaintiff further contended

that the defendants have from time to time taken contradictory stands.

In reply to the legal notice dated 05.12.1994 (Ex.P-8), there is a total

denial of receipt of the Letters of Credit. In his written statement at

paragraph 18, the defendants claimed not to have received the Letters

of Credit and amendments by 30.08.1994. However, they claimed

that one Letter of Credit for US $ 11,43,750 was received by them

from M/s. Impression on 01.09.1994 but the same was defective. In

the affidavit filed on 22.04.2002 pursuant to the orders of this Court,

the defendants claimed to have received one Letter of Credit No.0070

from M/s. Impression after the expiry of the guarantee, and stated that

the same after negotiation was returned to M/s. Impression, but no

records were available with the defendants to support its stand. In yet

another affidavit dated 26.07.2005, it is stated by the defendants that

after negotiation a certain sum had been credited to the account of

M/s. Impression and that the said entry had been reported to the

Reserve Bank of India under GR-I No.AG 211506, which had been

sent to Reserve Bank of India with the relevant R-returns. The

defendants were, however, not in possession of the copy of the GR-I

form as it was not mandatory to preserve the record permanently.

34. Mr. S.P. Singh, the learned senior counsel for the defendants,

on the other hand, contended that there is no direct evidence on the

record to prove that the Letters of Credit were in fact received by the

Bank and the plaintiff, in fact, had sought to establish the receipt

thereof by a process of interpretation, relying upon the amendments to

the Bank Guarantee and the fact that the last amendment did not make

any reference to the Letter of Credit. He urged that the plaintiff's

contention that since they had sent the Letters of Credit to M/s.

Impression, M/s. Impression must have conveyed it to the Bank is not

supported by any evidence at all that M/s. Impression as a matter of

fact had sent the Letters of Credit to the Bank and the Bank had

received the said Letters of Credit. The Bank Guarantee was to

become effective and enforceable only on the receipt of the Letters of

Credit, which were to be received by 29.05.1994. As per Clause 3,

the validity of the Bank Guarantee was for a period of 60 days and

within that period 30 days was stipulated for making the claim.

Referring to documents Ex.P-3, Ex.P-4, Ex.P-5 and Ex.P-6, the

learned counsel contended that Ex.P-6 predicated a comprehensive

amendment showing that the Bank Guarantee was to become

effective on receipt of the Letter of Credit by 30th August and remain

valid till 30th September and that claims were to be made by 30th

September.

35. Mr. Singh submitted that the consistent stand of the defendant

Bank has been that the irrevocable Letter of Credit was not received

by the Bank till 30th August, 1994 and the Bank Guarantee thus

became ineffective. He further submitted that the reliance placed by

the plaintiff on document Ex.PW1/23 is of no avail to the plaintiff,

inasmuch as this document does not establish receipt of the Letter of

Credit by the Bank either by 07.07.1994 or till 30.08.1994. There

were missing links in the chain of evidence, in that it was not clear

whether M/s. Impression had received the Letters of Credit by letter

dated 04.07.1994, if so on which date, whether M/s. Impression had

sent it to the defendant Bank and in what manner.

36. Finally, it was contended by the learned senior counsel for

the defendants that the invocation was not in terms of Clause 1 of

the Bank Guarantee in that it was not mentioned which condition of

the irrevocable Letter of Credit was breached. Reliance was placed

by him in this context upon the decision of the Supreme Court in

Hindustan Construction Company vs. State of Bihar, (1999) 8 SCC

436, to contend that where the invocation is not in terms of the

Letter of Credit, the Bank is not obliged to honour the guarantee.

37. In response to the aforesaid contentions raised by Mr. Singh on

behalf of the defendant Bank, Mr. Lal on behalf of the plaintiff

submitted that there were no pleadings to suggest that the invocation

was not in terms of the Bank Guarantee. He pointed out that there

was not even a whisper in the reply sent by the defendants to the

notice of the plaintiff to suggest that the invocation of the Bank

Guarantee was not in accordance with the guarantee nor any plea

to that effect was contained in the written statement. He pointed

out that the defendants for the first time in the course of hearing

had taken up the aforesaid plea. Only two points of defence had

been taken by the defendants in the written statement, viz., that the

defendants did not receive the Letter of Credit and that payment was

to be made in US Dollars. There is no assertion in the written

statement of rejection of the Letter of Credit as defective. The

assertion is that no Letter of Credit was received and that if it

was received it was on 1st September and, therefore, being beyond

30th August, 1994 the defendants stood discharged.

38. After hearing the detailed submissions of the counsel for the

parties, the Court is not inclined to consider the contention of the

learned senior counsel for the defendants that the invocation of the

Bank Guarantee was not in terms of the Bank Guarantee, the said

contention being beyond pleadings. This leaves the Court with the

two issues raised in the present suit based on the pleadings of the

parties, viz., whether the guarantee could be enforced despite the fact

that it was stipulated that payment was to be made in US Dollars and

not in Indian rupees; and whether the Letter of Credit was received by

the defendants within the stipulated period as envisaged by Clause 2

of the Guarantee. As regards the first, the plaintiff has conclusively

proved that in export transactions pertaining to member countries of

the Asian Clearing Union including Bangladesh, the Foreign

Exchange Regulations mandate that payment can only be made in

Indian Rupees or the currency of the participating country and,

therefore, not in US Dollars. The stipulation as contained in Para 2 of

the Performance Guarantee in the instant case being contrary to the

Reserve Bank Guidelines and the defendants having been informed

about the same by the plaintiff, in my opinion, it would not be open to

the Court to uphold the plea taken by the defendants with regard to

the mode of payment, more so, when in cross-examination DW2, who

at the relevant time was the Manager, Foreign Exchange of the

defendant-Bank and signatory to the Guarantee extended to the

plaintiff, has admitted in cross-examination that any such restriction

in the Guarantee contrary to the directions would not be enforceable.

39. As regards the plea that the Letter of Credit was not received

by the defendant-Bank within the stipulated period of time and,

therefore, the Bank Guarantee never became operative in law,

notwithstanding the various amendments issued, PW1 Shri Davinder

K. Bhall categorically stated in the witness box that both Letters of

Credit with amendments were delivered to M/s. Impression on

04.07.1994, and that M/s. Impression had delivered the same by hand

to the defendants soon thereafter. In the cross-examination of DW1 -

Mr. J.M. Rafique, it has been admitted by him that all extensions of

the Bank Guarantee (Ex.P-3, Ex.P-4, Ex.P-5 and Ex.P-6) bear his

signatures. On a query put to DW1, he could not explain why Ex.P-6

did not mention extension of the period for receipt of Letter of Credit.

He stated that the Letter of Credit was received on 01.09.1994, which

information was as per the case file of defendant-Bank. However, in

his cross-examination, he stated that the Letter of Credit, received

from M/s. Impression did not pertain to the Guarantee in suit, and

that the Letter of Credit received from M/s. Impression on

01.09.1994 and negotiated by the Bank did not pertain to any

Bank Guarantee.

40. From the aforesaid, in my view, it is clear that the defendants

have all along been adopting oscillating stands. The initial stand of

the defendants, as noted above, was that they had not received any

Letter of Credit which is falsified by their own subsequent affidavits

and statement on oath of their witness. Their subsequent stand that

only one of the Letters of Credit was received on 01.09.1994 also is

not supported by any documentary evidence, which documentary

evidence the Bank is required to maintain in the normal course of its

business, such as Receipt and Despatch Registers, entries in relevant

records and correspondence with the Reserve Bank of India. The

bald plea of the defendants that no records are available with

them as it is not mandatory to preserve the record permanently is

altogether unsustainable, more so, as the Guarantee in the instant

was invoked in the year 1994. The invocation received by the

defendant-Bank was in fact dated 24.09.1994 (Ex.A-1). Admittedly,

the defendant-Bank had communicated with the Reserve Bank of

India and had sent to the Reserve Bank of India the relevant R-returns

in the same month, i.e., in September, 1994. When the defendant-

Bank was well aware that the Bank Guarantee had been invoked by

the plaintiff, what justification did it have for destroying its records

which ought to have been preserved by it for the purpose of

production by it in Court?

41. Thus, in my view, the defendants, who admit receipt of the

Letter of Credit are bound to make payment under the Guarantee. It

is also abundantly clear that the defendant-Bank is evading payment

of the amount due to the plaintiff under the Bank Guarantee issued by

it by raising pleas which are clearly unsustainable and unsubstantiated

by its own records, apart from being contradictory to each other. The

Court, therefore, feels impelled to hold that the defendants are not

entitled to repudiate their liability to make payment on the grounds

raised by it. In view of the abovesaid, issue Nos.2, 3, 4, 5 and 6 are

answered in favour of the plaintiff and against the defendants.

42. On the aspect of interest, the plaintiff by its legal notice dated

18.10.1994 had notified the defendants that under the Interest Act it

was claiming interest at the rate of 24% per annum with quarterly

rests being the prevalent commercial and market rate of interest.

Before the Court, the plaintiff has claimed the same rate of interest

and deposed to the same in its evidence. The plaintiff's counsel

accordingly prays that the issue of interest be also decided in favour

of the plaintiff and the plaintiff be held entitled to a decree in the sum

of ` 23,73,364.38 (being the amount of ` 21,50,000/- under the

Guarantee with interest @ 24% per annum with quarterly rests from

24.09.1994 till the filing of the suit on 15.03.1995) and pendente lite

and future interest @ 24% per annum with quarterly rests till

payment, with costs.

43. On the totality of fact and circumstances, the Court is of the

view that the plaintiff having proved its case is entitled to a decree in

the sum of ` 23,73,364.38 (Twenty three lacs seventy three thousands

three hundred sixty four and thirty eight paisa). This amount is

inclusive of interest @ 24% per annum with quarterly rests from

24.09.1994 till the filing of the suit on 15.03.1995. Insofar as

pendente lite and future is concerned the plaintiff is entitled to the

same at the uniform rate of 9% per annum with quarterly rests till

payment. The plaintiff shall also be entitled to costs in the suit.

44. CS(OS) 698/1995 is disposed of in the above terms.

REVA KHETRAPAL (JUDGE) April 13, 2012 km