Indian Telephone Industries vs Bharat Photocircuits Ltd & Ors
2012 Latest Caselaw 5329 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI


%                        Judgment reserved on:- 03.09.2012
                         Judgment delivered on :- 06.09.2012

+     CS(OS) No. 671/2005

INDIAN TELEPHONE INDUSTRIES               ..... Plaintiff
                  Through  Mr. R.P.A. Jaiswal, Advocate for
                           the plaintiff.
             Versus

BHARAT PHOTOCIRCUITS LTD. & ORS.         ... Defendants
                 Through   Mr. N. K. Kantawala, Adv for D-
                           2.
                           Mr. I.S. Kohli, Adv. for D-10.
                           Mr Kanwal Chaudhary, Adv. for
                           the Official Liquidator.
    CORAM:
    HON'BLE MS. JUSTICE INDERMEET KAUR

INDERMEET KAUR, J.

1 The present suit has been filed by the plaintiff (Indian Telephone

Industries Pvt. Ltd.) against ten defendants of whom Bharat Photo

Circuits Ltd. is defendant no.1 and is a company in liquidation. At the

time when the suit was filed the company was alive but vide order dated

09.01.1998 the company had been wound up.

2 The Official Liquidator thereafter represented defendant no.1 in

the suit proceedings. Defendants no.2 to 9 are the Ex-Directors of the

company (in liquidation). Defendant no.10 is the Canara Bank which

had issued the bank guarantee in favour of the petitioner which

admittedly stood expired before its invocation.

3 Defendant had supplied Printed Circuit Boards (PCBs) to the

plaintiff which is a necessary component for the manufacturer of

telephone instruments. This was in terms of a Purchase Order dated

19.4.1988. The PCBs were required to be supplied for a value of

Rs.160,31,994.11. Defendant no.1 was to dispatch the PCBs through the

ARC Transport Corporation of India at the Mankapur destination of the

plaintiff. Necessary documents were to be dispatched by defendant no.1

through defendant no.10. Payment was to be made accordingly. Further

submission of the plaintiff is that in terms of condition no.4 of the

„General Terms and Conditions‟ of the Purchase Order the material

supplied by the defendant no.1 was to be the subject matter of inspection

at Mankapur before the acceptance of the goods and the goods which

were not accepted were liable to be rejected and had to be removed by

the supplier within a period of 15 days.

4 The goods supplied by defendant no.1 were received in 93 lots at

Mankapur and they were inspected by the Inspector of the plaintiff; the

"Onward Goods Advice Note" prepared by the Inspector had noted that

the total number of the components of the PCB which were rejected

were 33899. Defendant was to remove these defective goods but he

failed to do so. Defendant no.1 has wrongly and by fraud received

excessive payments of Rs.18,97,170.73.

5 On 05.6.1990 the Director of the defendant company had visited

the office of the plaintiff and had verbally assured the plaintiff that the

defective material would be replaced and that the bank guarantee which

was to expire on 30.6.1990 would also be extended; defendant no.2

(Mr.Ajay Kumar) also gave letters in reply on 05.6.1990 and 08.6.1990

to the said effect. However, these commitments have not been

honoured.

6 Vide registered letter dated 05.6.1990 the Canara Bank has been

asked to honour the bank guarantee in the sum of Rs.8,00,000/- which

amount the petitioner is entitled to claim along with interest @ 18%.

He is also entitled to recover Rs.18,97,170.73 on account of excess

payments made by him to defendant No. 1.

7 Suit has accordingly been filed claiming a sum of

Rs.23,52,491.69 (Principal sum of Rs.18,97,170.73 + Rs. 4,55,320.96 as

interest) from defendant no.1 to 9; a decree of Rs.9,92,000/- (i.e.

Rs.8,00,000/- towards principal plus interest) has also been claimed

from defendant no.10 in terms of the bank guarantee which has not been

honoured by the Bank.

8 Written statement was filed by the defendant no.1. This written

statement was filed by the company at the time when it was not in

liquidation. It is dated September 1992 and has been filed through its

director defendant no.2. Submission is that the alleged claim of the

defective goods is absolutely wrong. Plaintiff has already claimed

MODVAT in its excise records; MODVAT can be claimed only on the

consumption and utilization of the goods and as such this submission

that the goods were defective and were returned back to the defendant is

a false statement. Reference has been made to the letter dated

13.10.1988 written by the plaintiff to the defendant which was

confirmed in the subsequent meeting held on 16.10.1988; submission

being that the goods continued to remain with the plaintiff; further the

atmosphere in which the goods were retained in the godown was

uncongenial for them as the goods being of a sensitive quality and not

being used for six to eight months had for this reason got spoilt. On no

count the plaintiff is entitled to any amount.

9 Written statement was also filed by defendants no.2 to 4, the Ex-

Directors of the company; they have supported the stand of defendant

no.1.

10 Defendant no.10 Canara Bank has filed separate written

statement; his submission was that no letter has been sent by defendant

No. 1 seeking extension of the bank guarantee; the letter dated

05.6.1990 has been written by the plaintiff and was received by the

defendant only on 25.6.1990. Further submission being that the bank

guarantee stood extended lastly only up to 30.6.1990. No

communication was ever received to extend the bank guarantee

thereafter. On 07.6.1990 the plaintiff had himself intimated to the bank

that the agreement of guarantee should be treated as withdrawn and

cancelled and this was prior to the expiry of the extended period of the

bank guarantee; the plaintiff is himself responsible for the expiration of

the bank guarantee. An additional written statement was also filed by

defendant No. 10. Submission being that the prayer made by the

plaintiff is liable to be rejected.

11 Separate written statement was also filed by the Official

Liquidator. He has adopted the stand set up by defendants no.1 and 2.

He had denied that any payment is to be made to the plaintiff.

12 On 18.8.2005, the following issued were framed:

i. Whether the suit has been filed under proper authority and by a proper person duly authorized to sign and verify the claim? OPD ii. Whether the goods delivered by defendant no.1 to the plaintiff were defective and whether there is a proper rejection of those goods by the plaintiff? OPD iii. Whether the plaintiff has claimed MODVAT in the excise records in respect of the goods supplied by defendant no.1 to the plaintiff? If so, to what effect?

iv. Whether the suit is based on mis-statement and suppression of facts?

OPD v. Whether the suit maintainable against the defendant no.2 to 9? vi. Whether the defendant no.2 to 9 were proper and necessary parties?

If so, to what effect? OPP vii. Whether the plaint is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure? OPD/10 viii. Whether the alleged invocation of the bank guarantee was within the period of guarantee and according to its terms? ix. Whether the invocation of the bank guarantee was withdrawn and cancelled by the plaintiff vide letter No.ESS/N/K bills 1707 dated 7.6.1990 as mentioned in para 29 of the written statement of defendant no.10.

x. Whether the plaintiff has any cause of action against defendant no.10?

xi. Whether the suit is liable to be dismissed against defendant no.10? xii. To what amount, if any, is the plaintiff entitled and from which of the defendants?

xiii. Relief.

13 Three witnesses were examined on behalf of the plaintiff. PW-1

is the Assistant Manager (Law) of the plaintiff company. He has

reiterated the averments made in the petition. Letter dated 05.6.1990

written by defendant no.2 (Ajay Kumar) agreeing to extend the bank

guarantee for further period of six months has been proved as Ex.PW-

1/6; second letter issued by defendant no.2 dated 08.6.1990 reiterating

this position has been proved as Ex. PW-1/13; proof of dispatch of the

aforenoted communication has been proved as Ex. PW-1/8 to Ex.PW-

1/10. In his cross-examination PW-1 has stated that Ajay Kumar was

intimated of the defects; he was asked to remove them; PW-1 however

had no personal knowledge of the matter.

14 PW-2 was the Manager of the ITI Mankapur and being the

Quality Control In-charge of the plaintiff company at the Mankapur unit

was an important witness. He had deposed that PCBs amounting to

Rs.29,14,538.65 were defective; these were 338995 in number; plaintiff

has suffered a loss on this count. In his cross-examination he admitted

that he was the Quality Control In-charge of the plaintiff company and if

the goods were found to be defective the same would be rejected.

15 PW-3 was the Manager of the ITI Mankapur; he has deposed on

the same lines as PW-2. In his cross-examination he has admitted that

the inspection of the premises of the defendant was carried out by the

Quality Control Department which is a separate department and he has

no knowledge of the inspections which had been carried out; final

inspection was done at the plaintiff‟s premises; he admitted that once the

goods are rejected it is intimated to the contractor; there were numerous

letters vide which the defendant was notified of this rejection.

16 The defendants also produced two witnesses in defence.

Defendant no.2 (Ajay Kumar), the Ex-Director of the defendant

company had come into witness box. He had admitted that a purchase

order was placed upon the defendant company on 19.4.1988 for a value

of Rs.1,60,31,994.11 which was later reduced to Rs.1,54,92,420.25; he

deposed that pre-inspection was permitted at the premises of defendant

no.1 and accordingly Clause No.4 of the Purchaser Order 19.4.1988 was

amended to the extent that the place for final inspection was shifted

from the premises of the plaintiff to the factory of defendant no.1;

inspection was being conducted by the Inspector of the plaintiff at the

premises of defendant no.1. His further deposition is to the effect that

the PCBs are highly sensitive high and they have a limited shelf-life; the

delay in inspection by the plaintiff could have led to the deterioration of

the PCBs; last consignment was sent to the plaintiff on 19.9.1989 for

which an inspection was conducted on 24.02.1990. No replacement IGA

had been provided for the period up to 01.9.1989 when the last re-

inspection for replacement IGA dated 07.8.1989 was recorded; in mid

May 1990 the Finance Department of the plaintiff suddenly wrote to

defendant no.1 invoking the two bank guarantees of Rs.8,00,000/-

issued by defendants no.1 to 10 in its favour and on being informed of

this defendant no.2 visited the premises of the plaintiff and met the

Executive Director of the Company on 05.6.1990; the Executive

Director of the plaintiff was himself surprised that the bank guarantees

were being invoked; they thereafter agreed to withdraw their letter

invoking the bank guarantee; the director admitted that it was under a

mistaken impression that the bank guarantees were being invoked.

Accordingly the plaintiff withdrew his letter dated 05.6.1990 and also

issued a conditional letter of the same dated (Ex.PW-1/D-10) reflecting

the understanding of the plaintiff‟s director that either the bank

guarantees would be extended for further six months after their expiry

on 30.6.1990 otherwise the plaintiff would invoke the bank guarantee

prior to 30.6.1990. Letter dated 08.6.1990 was thus kept in abeyance;

plaintiff has never requested defendant no.10 to extend the bank

guarantee nor any letter was written subsequent to the letter dated

08.6.1990 invoking the bank guarantees.

17 Defendant no.10 the Canara Bank had filed the affidavit of Pratap

Singh, Senior Manager, in evidence in support of his claim. He has also

reiterated that two bank guarantees (for Rs. 5 lacs and Rs. 3 lacs) had

been issued by the bank on behalf of defendant no.1 initially on

23.3.1989 which was extended up to 30.6.1990; terms of the guarantee

that the defendant bank shall stand responsible to the extent of the

amount mentioned in the guarantee in case of failure to discharge

liabilities of the defendant was only up to 30.6.1990 and no further

request was made by the defendant to extend the time period.

18    Issue wise findings are returned as under:-

 Issue No. (i)

19    The onus to discharge this issue was upon the defendant. The

defendant has not addressed any argument on this issue. The plaintiff is

a company duly incorporated under the Companies Act and the plaint

has been filed through its constituted attorney Mr. Krishan Kumar

Upadhyay.

20 Issue No. 1 is accordingly decided in favour of the plaintiff and

against the defendant.

Issue No. (vii)

21 The onus to discharge this issue was upon the defendant. No

evidence has been led by the defendant. He has in fact not pressed this

issue which is disposed of accordingly.

Issues No. (ii) & (iv)

22 Issues No. (ii) & (iv) are connected and shall be decided by a

common discussion.

23 This claim has arisen out of the PCBs which had been supplied by

the defendant to the plaintiff; contention being that in terms of clause 4

of the purchase order dated 19.04.1988 (Ex. PW-1/1), inspection was to

be carried out of the goods prior to their acceptance. Clause 4 reads

herein as under:-

"All the stores are subject to inspection at our works before acceptance. If any goods are rejected due to defective or wrong supply, the report of our inspector in this respect shall be final and no correspondence on the subject would be entertained. The rejected goods should be removed from our premises within 15 days after receipt of our inspection report, failing the same shall be returned to you at your risk and expense or disposed off in auction and the proceeds, if any, less our expenses credited to your account."

24 The case of the plaintiff is that the goods were to be inspected at

the site of the plaintiff and not at the office of the defendant as is the

defence sought to be propounded by the defendant. Further case of the

plaintiff is that the goods once inspected and rejected (as was so in the

instant case), it was the liability of the defendant to pick up the goods

from the site of the plaintiff at Mankapur failing which the defendant

would be liable for all further expenses incurred.

25 Testimony on this score is relevant. PW-1 was the Assistant

Manager (Law) of the plaintiff company posted at Mankapur i.e. the site

where the goods had to be dispatched by the defendant to the plaintiff.

He was admittedly from the Law Department. In his cross-examination,

he has admitted that there are different departments in the plaintiff

company some of whom accepts the goods and some of whom rejects

them; he further deposed that Ajay Kumar (defendant No. 2 and Ex-

director of the company) used to come on behalf of defendant No. 1 to

whom the defective goods were intimated; PW-1 in his cross-

examination admitted that he does not have any personal knowledge of

the alleged fact that Ajay Kumar used to be informed of the defects

noted in the goods; he relies upon the information given to him by the

Purchase Department who had informed that they used to tell Ajay

Kumar about the defects noted in the goods. This part of the testimony

of PW-1 has no relevance. A specific query had been put to PW-1 as to

whether there was any inspection report that the PCBs were defective to

which there is a categorical answer in the positive; on looking at the

documents filed by the plaintiff, PW-1 has admitted that the documents

filed by the plaintiff in Court do not show that any such inspection/test

report have been placed on record to show that the PCBs supplied by the

defendant to the plaintiff were defective. A specific query was again put

to the witness as to whether the plaintiff company had ever written to

the defendant that PCBs were defective to which again his answer is that

he does not have any personal knowledge and cannot say whether any

such letter was written. A specific query was again on this score put to

the learned counsel for the plaintiff (as the record shows that in fact no

document has been placed on record by the plaintiff to substantiate his

claim that the defective goods had been notified to the defendant) to

which the frank and candid answer by the learned counsel for the

plaintiff is that there is no such document which has been proved in the

evidence of the plaintiff. PW-1 has also admitted that there is no

document to show that the last consignment supplied by the defendant

was defective except the letter dated 08.06.1990 (Ex.PW-1/13) wherein

the defendant has admitted that some of the PCBs were defective and

the same shall be replaced. Relevant would it be to look at Ex.PW-1/13.

This is a communication dated 08.06.1990 written by Ajay Kumar

(defendant No. 2 and Ex-managing director of the company) to the

plaintiff wherein there is no such admission; this letter only details that

the segregation/re-inspection work at Mankapur should be expedited as

it is a time consuming process; this document does not in any manner

support the deposition of PW-1 that this communication had admitted

that PCBs supplied by the defendant to the plaintiff were defective. Ex.

PW-1/14 and Ex. PW-1/15 were two other documents which had been

proved by PW-1 which were inspection reports of the goods supplied by

the defendant to the plaintiff. Ex. PW-1/14 is dated 30.05.1989 and Ex.

PW-1/15 is dated 03.06.1989 which only state that the report submitted

by the Quality Control Department has noted the quantity supplied,

quantity passed and quantity rejected. Further these documents (as is

evident from the testimony of the witness recorded on 11.10.2004) were

given exhibit marks only for the purposes of identification; these

documents had been denied by the defendant; these documents have in

fact not been proved as per the rules of evidence; writer of these

documents or any other person identifying the signatures of the persons

writing the documents have not been summoned in the witness box to

prove these documents. These documents Ex. PW-1/14 and Ex. PW-

1/15 have necessarily to be ignored.

26 Testimony of PW-2, the Quality Control In-charge of the plaintiff

company is relevant. He has admitted that the goods used to be

inspected at the pre-inspection stage which used to be carried out at the

office of defendant No. 1 and if found in order were sealed with tapes;

there were guidelines for inspection; once the goods were supplied by

defendant No. 1, inspection was again carried out at the premises of the

plaintiff and if found defective, the same would be rejected; PW-2 has

admitted that it normally used to take 15-30 days time to inspect the

material at the premises of the plaintiff and defendant No. 1 used to be

intimated about the post-inspection in writing. Admittedly there is no

communication on record about the intimation by the plaintiff to

defendant No. 1 about any post-inspection wherein they had found the

goods of defendant No. 1 to be defective.

27 PW-3 was a witness working in Switching Department of the

plaintiff which is again a separate department; he having admitted that

the inspection was being carried out by the Quality Control Department;

in his cross-examination, he has admitted that the goods of the defendant

were rejected in lots and defendant No. 1 had sought permission for

rectification and part of the goods were rectified; however 33,899 pieces

of PCBs were not rectified.

28 DW-2 (Ajay Kumar), the Ex-director of the company has

reiterated his stand as depicted in the written statement on oath; he has

relied upon clause 4 of the purchase order Ex. PW-1/1. In para 14 of his

deposition on oath, he has stated that the plaintiff was under a duty to

retire the documents in a period of 7-10 days but in some cases he used

to take more than 3 and 3½ months and details of invoices and the

period taken by the plaintiff to retire the document has been detailed in

paras 14, 16, 17, & 18.

29. Ex. DW-2/1 to Ex. DW-2/30 are the pre-inspection reports i.e. the

inspection carried by the Quality Control staff at the site of the

defendant; attention has been drawn to the last part of the aforenoted

document where it has been noted that the above noted goods have been

accepted. Ex. DW-2/131 to Ex. DW-2/151 are the bills raised by the

defendant upon the plaintiff for the goods which have been supplied.

DW-2 in his cross-examination has also admitted that the shelf-life of

the goods was 1-2 months if they are stored in proper condition. On this

score, the defence of the defendant has been that the goods which were

supplied to the plaintiff had a limited shelf-life and it was incumbent

upon the plaintiff to have retired the documents of the plaintiff in a time

bound manner; PW-1 in his cross-examination has admitted that as per

their guidelines normally 15-30 days used to be taken by the plaintiff to

inspect the material at site; at the same time, he has admitted that some

of the goods used to be inspected after 30 days to 90 days; sometime

inspection used to be carried out beyond six months; he has admitted

that PCBs requires a proper storage.

30 In the light of the stand of the defendant and the admissions of

PW-2 it appears that the defence set up by the defendant that the

plaintiff was taking an undue time for retiring the documents which had

resulted in the deterioration of the goods supplied by the defendant to

the plaintiff (which normally have a shelf-life of 1-2 months) and where

the goods were being taken up for inspection even six months later, the

said goods i.e. the PCBs also being sensitive in nature and requiring a

controlled atmosphere in which they are to be stored; the deterioration in

these circumstances due to natural condition of the goods cannot be

over-looked.

31 Record thus clearly establishes that the claim of the plaintiff has

not been substantiated. He has failed to show that the goods which were

(33899 PCB) components supplied by defendant No. 1 were defective

and intimation of the same had been given (vide post-inspection reports

made by the plaintiff) to defendant No. 1. It has come on record that

there is no such communication of these post-inspection reports by the

plaintiff to the defendant. Inspection of the goods was being permitted at

the site of the plaintiff at Mankapur also pursuant to which post-

inspection reports were prepared and this has come in the categorical

deposition of PW-2; no such post-inspection report has been placed on

record; there is not a single document on record to show that in fact any

such defects were ever pointed out by the plaintiff to the defendant.

32 There is no dispute that the shelf-life of the PCBs is 1-2 months.

PW-2 has admitted that sometime inspections used to be conducted by

the plaintiff even after six months; PW-1 has also admitted that the

PCBs require a proper storage as they are sensitive components; DW-2

has also reiterated this stand; his evidence being categorical to the effect

that if the goods are not lifted in time, it might result in oxidation of the

PCBs; he has given various instances and details when the inspections

were being carried out after 6-8 months; no cross-examination has been

effected of DW-2 on this score. The goods having deteriorated/oxidized

over a period of time also cannot be ruled out.

33 The plaintiff is supposed to stand on his own legs. Evidence both

oral and documentary shows that the suit is based on misrepresentation

and suppression of facts. Plaintiff has not been able to establish the

claim of excess payment of Rs.23,52,491.69 allegedly made by him to

the defendant. Claim qua defendants No. 1 & 2 must fail. He is not

entitled to any relief qua this excess payment made to defendants No. 1

& 2. The suit of the plaintiff qua this amount of Rs.23,52,491.69 fails.

34 These issues are accordingly decided against the plaintiff and in

favour of the defendants.

Issue No. (iii)

35 The onus to discharge this issue was upon the plaintiff.

36 DW-2 has deposed that the plaintiff has claimed MODVAT on

goods which he could not if goods were not being used by him.

37 Rule 57-G of the Central Excise Rules, 1944 provides the

procedure to be observed by the manufacturer in the matter of excise.

Rule 57-G (3) & (4) reads herein as under:-

"57G. Procedure to be observed by the manufacturer:- (1)xxxxxxxxxxxx (2)xxxxxxxxxxxx (3) A manufacturer of the final products shall maintain:-

(a) an account in Form R.G. 23A, Parts I & II;

(b) in respect of duty payable on final products, an account-current with adequate balance to cover the duty of excise payable on the final products clear at any time.

(4) A manufacturer of the final products shall submit a monthly return to the Superintendent of Central Excise including the particulars of the inputs received during the month and the amount of duty taken as credit, along with extracts of Parts I & II of Form R.G. 23A and shall also make available the documents

evidencing the payment of duty on the inputs on demand by the proper officer."

38 DW-2 in his affidavit has categorically averred that this

MODVAT has been claimed by the company for the total value of the

goods supplied by the defendant to the plaintiff; the plaintiff has not

reversed the entry for the alleged defective goods in its

MODVAT/excise record. No cross-examination has been conducted of

DW-2 on this count. PW-1 Manager (Law) had in fact been cross-

examined by the counsel for the Official Liquidator specifically on this

score. A specific query had been put to him as to whether any

MODVAT was claimed by the company for the goods supplied by the

defendant to which the answer was that he was not aware as to what is

MODVAT. PW-1 also could not say whether RG-23 A (parts I & II) or

PLA register was filled up with respect to the rejected goods.

39 Thus the defence of the defendant that the MODVAT had been

claimed by the plaintiff company to which there has been no denial and

in fact the Law Officer of the company being completely ignorant of this

specific query put by the learned defence counsel on this score to PW-1

leaves no manner of doubt that if MODVAT had been claimed by the

plaintiff company for the goods which had been supplied by the

defendant and if the stand of the plaintiff that the goods were

rejected/defective is correct why no reversal entry had been made in the

accounts of the plaintiff has neither been explained and nor answered.

40 It is thus clear that the goods have been utilized by the plaintiff;

there being no reversal entries in the books of the plaintiff. This defence

of the defendant also carries weight.

41 This issue is also decided against the plaintiff and in favour of the

defendant.

Issues No. (v) & (vi)

42 On a specific query put to the learned counsel for the plaintiff as

to how he has roped in defendants No. 2 to 9 who are Ex-directors of the

company, his candid stand is that defendant No. 2 is the only person

with whom the plaintiff was having talks and the purchase order had

been entered into between the plaintiff and the company of which

defendant No. 2 was the Managing Director and was representing and

acting on behalf of defendant No. 1. Admittedly defendants No. 3 to 9

have no role to play in this transaction.

43 At this stage, learned counsel for the plaintiff seeks permission of

this Court to delete defendants No. 3 to 9 which is ordered accordingly.

Defendant No. 2 being the transacting party on behalf of defendant No.

1 is however kept alive.

44 Issues No. (v) & (vi) are decided accordingly.

Issues No. (viii) to (xi)

45 A sum of Rs.9,92,000/- (of which Rs. 8 lacs is the principal figure

and the balance is the interest quotient) has been claimed from

defendant No. 10 i.e. the Canara Bank who had not extended the bank

guarantees qua the plaintiff.

46 This amount is predicated on the bank guarantees which had been

executed by defendant No. 10 in favour of the plaintiff at the asking of

defendant No. 1. These are two bank guarantees (Ex. PW-1/2 & Ex.

PW-1/3) in the sum of Rs.5 lacs and Rs. 3 lacs both of which are dated

30.06.1989. These bank guarantees had admittedly last been renewed up

to 30.06.1989.

47 The case as set up by the plaintiff is that vide two

communications (Ex. PW-1/8 & Ex. PW-1/11) both dated 05.06.1990,

the Bank had been notified about the extension of the bank guarantees

but defendant No. 10 has deliberately and intentionally not renewed the

bank guarantees causing a loss to the plaintiff which defendant No. 10 is

liable to reimburse.

48 Relevant would be to extract both the aforenoted documents:-

Ex. PW-1/8
MPRS/87-C/C/I/S507/DL                                                 05.06.90
M/s Bharat Photo Circuit Ltd.
C-10, Site -IV
Industrial Area,
Sahibabad-201010
Dear Sir,

Please refer out PO under ref. dated 19.4.1988. In this connection we wish to clarify as follows:

i)Your B/G No.10/89 & 66A/88 dated 31.12.88 for Rs.3.00 lacs and Rs.5.00 lacs is going to expire on 30.06.1990. Please furnish extension for minimum 6 months from 30.6.1990 at stamp paper and ensure that P.A. No. of the signing authority of bank official should appear on body of B/G extn.

ii) If you are not extending B/G minimum 6 months from 30.06.1990 we will lodge the claim to bank for B/G amount. Thanking you.

Yours faithfully

For INDIAN TELEPHONE INDSTRIES LTD.

cc to : (ARUN JHA) The Branch Manager, (The B/G stated above shall expire on 30.6.90. We Canara Bank, (lodge claim for the guarantee amount if further Sector 12, R.K.Puram, (extension of B/G for above period is not arranged New Delhi (party.)

EX.PW-1/11 ESS/M/F/Bills/ 05.06.90 The Branch Manager, Canara Bank

Sector 12, R.K.Puram NEW DELHI Ref. Our letter ESS:M:F: Bills:125 dated 19.5.90 lodging our claim against Bank Guarantee No.10/89 & 66 1/88 dated 31.12.88 for Rs.3,00,000/0- & Rs.5,00,000/- respectively.

Dear Sir, Please refer to the above mentioned letter invoking the Bank Guarantees.

The claim lodged against the Bank Guarantees be treated as withdrawn and cancelled.

The Bank Guarantee may be extended for a further period of six months till 31.12.90.

Thanking you.

Yours faithfully

For Indian Telephone Industries Ltd.

FINANCE OFFICER (BILLS) copy to :-

M/s Bharat Photo Circuits C-10, Site IV, Industrial Area Sahibadbad Distt-Gaziabad (UP) Copy to :

Purchase Deptt."

49 Ex. PW-1/8 dated 05.06.1990 has been written by the plaintiff to

the defendant. The plaintiff has notified the defendant that the bank

guarantees of Rs.5 lacs and Rs. 3 lacs are to expire on 30.06.1990 and in

case they are not extended, he would be lodging his claim to the Bank.

50 The second document Ex. PW-1/11 is also dated 05.06.1990. This

is a communication sent by the plaintiff to defendant No. 10 wherein

reference has been made to the aforenoted two bank guarantees; the

plaintiff has notified the Bank that the bank guarantees may be treated as

withdrawn and cancelled; however, the bank guarantees may be

extended for six months further. This communication has been

vehemently relied upon by the learned counsel for the plaintiff to

substantiate his case that he had in fact written to the bank to extend the

bank guarantees.

51 The stand of the bank is clear and categorical. Submission being

that it has to take instructions from defendant No. 1 for extension of the

bank guarantees; undisputed position at law is that on his invocation of

the guarantee, the amount had to be paid to the plaintiff but no condition

could have been attached. Submission of the bank on this count being

reiterated that there were inter-se disputes and settlement talks were

going on between the parties i.e. the plaintiff and the defendant which is

evident from the two communications (Ex. PW-1/8 & Ex. PW-1/11).

The plaintiff had notified the Bank that the claim which it had made

against the bank guarantees be treated as withdrawn and cancelled;

simultaneously he had requested for extension of the both guarantees for

a further period of six months. Ex. PW-1/6 dated 05.06.1990 and Ex.

PW-13 dated 08.06.1990 written by defendant No. 2 to the plaintiff

again make a reference to the letter of the plaintiff dated 05.06.1990

(Ex. PW-1/11) wherein the plaintiff had communicated to the Bank that

his claim against the bank guarantee be treated as withdrawn and

cancelled. The case of the Bank is in fact categorical. It had received the

communication dated 05.06.1990 (Ex. PW-1/11) only on 25.06.1990

which contained a request for renewal of the bank guarantee coupled

with a request to treat its claim on the bank guarantee as cancelled.

These requests were rightly construed as contrary and conflicting.

52 There is no doubt to the legal proposition that as and when the

bank guarantees is invoked, the beneficiary has to be paid.

53 From these communications it is however evident that the

plaintiff had himself written to the Bank that the claim which it had been

lodged qua the bank guarantees may be treated as withdrawn and

cancelled. Further instructions had been given to the Bank to extend the

period of six months up to 31.12.1990. Undisputed position at law is

that the bank guarantee can be extended only on the asking of the person

at whose behest the bank guarantee has been executed which in this case

is defendant No. 1 and not the plaintiff. There is no such communication

by defendant No. 1. Defendant No. 10 in these circumstances, had

rightly not extended the bank guarantees.

54 The Bank in not renewing the bank guarantees after 30.06.1990

thus did not commit any folly. No claim was lodged by the plaintiff for

the invocation of the bank guarantees up to 30.06.1990.

55 In these circumstances, the non-extension of the bank guarantees

by the Bank from 30.06.1990 up to 31.12.1990 does not suffer from any

infirmity.

56 The claim of the plaintiff against defendant No. 10 is also not

established; it must fail.

57 These issues are also decided against the plaintiff and in favour of

the defendants.

Issues No. (xii) & (xiii)

58 Plaintiff is not entitled to any relief. The suit of the plaintiff on

both counts stands dismissed.

INDERMEET KAUR, J SEPTEMBER 06 , 2012 A