Karnataka High Court
The Karnataka Bank Limited vs Mysore Urban Development ... on 13 July, 2021
Author: S.Sujatha And P.N.Desai
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF JULY, 2021
PRESENT
THE HON'BLE MRS.JUSTICE S.SUJATHA
AND
THE HON'BLE MR.JUSTICE P.N.DESAI
REGULAR FIRST APPEAL NO.1179/2011(MON)
BETWEEN:
THE KARNATAKA BANK LIMITED
WILSON GARDEN BRANCH
WILSON GARDEN, BANGALORE - 560 027
REPRESENTED HEREIN BY ONE OF
ITS PRINCIPAL OFFICERS AND
SENIOR MANAGER OF WILSON
GARDEN BRANCH - SRI SURESH NAYAK N.
... APPELLANT
(BY SRI Y.V.PARTHASARATHY, ADVOCATE)
AND:
01. MYSORE URBAN DEVELOPMENT AUTHORITY
A BODY CORPORATE ESTABLISHED
UNDER THE KARNATAKA URBAN
DEVELOPMENT AUTHORITIES ACT
1987, HAVING ITS OFFICE AT
JHANSI LAKSHMI BAI ROAD
(J.L.B. ROAD), MYSORE
REPRESENTED HEREIN BY ITS
COMMISSIONER.
2
02. M/S VENU ELECTRICALS
A PROPRIETARY CONCERN HAVING
ITS PLACE OF BUSINESS AT NO.307/18
10TH CROSS, WILSON GARDEN,
BANGALORE - 560 027
REPRESENTED HEREIN BY ITS
PROPRIETRIX SMT. NAGAMANI V.
...RESPONDENTS
(BY SRI T.P.VIVEKANANDA, ADVOCATE FOR R1,
V/O DATED 21.03.2014 SERVICE NOTICE TO R2 IS
HELD SUFFICIENT)
THIS REGULAR FIRST APPEAL IS FILED UNDER SECTION
96 OF CIVIL PROCEDURE CODE PRAYING TO CALL FOR THE
RECORDS IN O.S.NO.765 OF 2004 ON THE FILE OF THE
HON'BLE PRL. JUDGE, SMALL CAUSES AND SENIOR CIVIL
JUDGE, MYSORE AND STAY THE OPERATION OF THE JUDGMENT
AND DECREE DATED 31.03.2011 PASSED IN O.S.NO.765 OF
2004 ON THE FILE OF THE HON'BLE PRL. JUDGE, SMALL
CAUSES AND SENIOR CIVIL JUDGE MYSORE AND SET ASIDE
THE JUDGMENT AND DECREE DATED 31.03.2011 PASSED IN
O.S.NO.765 OF 2004 ON THE FILE OF THE HON'BLE PRL.
JUDGE, SMALL CAUSES AND SENIOR CIVIL JUDGE, MYSORE
AND DISMISS THE SUIT AGAINST THE APPELLANT AND DIRECT
THE PLAINTIFF/1ST RESPONDENT TO PAY COSTS OF THE
APPELLANT THROUGHOUT AND ETC.
THIS REGULAR FIRST APPEAL HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT ON 12.04.2021 AND COMING ON
FOR PRONOUNCEMENT OF JUDGMENT THIS DAY,
P.N.DESAI. J., DELIVERED THE FOLLOWING:
3
JUDGMENT
This appeal is filed challenging the judgment and
decree dated 31.03.2011 in O.S.No.765/2004 passed
by the Principal Judge, Court of Small Causes and
Senior Civil Judge, Mysore, wherein suit of the plaintiff
is decreed for sum of Rs.24,23,620/- with future
interest at the rate of 24% p.a., from the date of suit
till realisation.
2. The appellant was the defendant No.1
before the Trial Court. Respondent No.1 was the
plaintiff and respondent No.2 was the defendant No.2
before the Trial Court.
3. The parties in the appeal will be referred to
as plaintiff and defendants as per their respective
ranks before the Trial Court for convenience.
4. The plaintiff filed a suit for recovery of sum
of Rs.24,23,620/- with interest at the rate of 24% per
annum from the date of suit till realisation.
5. Brief case of the plaintiff is-
Under notification MUDA:DB:TN:14/2003-04
dated 14.01.2003 plaintiff invited sealed bids from
experienced and eligible bidders as per details
mentioned in notification for work of electrification and
providing street lighting for residential sites and
services in Sathagalli Zone A and B Extension at
Mysore city. The second defendant-Firm offered its bid
on 17.03.2003 for the contract price of
Rs.2,27,08,196/- and same was accepted by the
plaintiff. In this regard necessary agreement was
executed by second defendant in favour of plaintiff.
6. It is further contended that the first
defendant in its letter dated 26.10.2003 intimated the
plaintiff that the second defendant-Firm is one of their
esteemed customer and is enjoying sufficient credit
facilities with them and they are dealing with second
defendant since 1996 and also stated that the Firm
has given its proposal for renewal of their existing
credit facilities and same was submitted to Head
Office and sought time for furnishing Bank Guarantee.
7. The first defendant issued Bank Guarantee
dated 08.10.2003. It is mentioned by the first
defendant in the said Guarantee that it would
undertake to pay the plaintiff upon its first written
demand and without cavil argument, any sum within
the limits of Rs.22,70,820/- without the plaintiff needs
to prove or show grounds or reasons for its demand
for sums specified therein. The first defendant also
agreed to other conditions by issuing the
unconditional performance Bank Guarantee.
8. The second defendant-Firm did not
carryout his obligation and Sri.K.N.Venugopal
representing defendant No.2 died on 25.10.2003.
Then his wife-Smt.Nagamani, Proprietrix took over the
Firm and undertook the work entrusted to second
defendant-Firm. The defendant No.2 was granted time
to obtain electrical licence etc. Then it is intimated by
the second defendant that it was unable to mobilize
the funds as the first defendant did not come forward
to assist the Firm to carryout the project and
therefore, sought for termination of the contract.
Accordingly, plaintiff terminated the contract with
second defendant-M/s Venu Electricals and plaintiff
intimated the second defendant that performance
security provided was also invoked as per the bid
clause 63.3 vide letter dated 29.04.2004 (as per
Ex.P47) and 11.05.2004 (as per Ex.P4). The first
defendant was also intimated by the plaintiff on
07.05.2004 that the Bank Guarantee furnished has
been invoked by the plaintiff and requested the first
defendant to send Rs.22,70,820/- being the Bank
Guarantee amount to the plaintiff.
9. It is further contended that the first
defendant sent a letter on 05.06.2004 to the plaintiff
stating that Sri K.N.Venugopal, Proprietor of M/s Venu
Electricals expired on 25.10.2003 before the plaintiff
could issue the work order to him and therefore, Bank
is not liable to pay the amount on the strength of
Bank Guarantee issued to it. Then plaintiff issued legal
notice and in spite of demand, the first defendant has
not paid amount covered under Bank Guarantee
furnished and invoked by the plaintiff.
10. It is further averred that Bank Guarantee
furnished by the first defendant is in relation to Firm
of M/s Venu Electricals and not in favour of individual.
As such, the first defendant cannot deny its liability.
There is no allegation of fraud on the part of the
second defendant/Firm. The only ground is that, Sri
K.N.Venugopal expired before the work order could be
issued, the Bank cannot be made liable to pay the
amount. It is contended that the Bank Guarantee is an
independent and distinct contract between the first
defendant-Bank and the plaintiff beneficiary and it is
not qualified by any underline transaction and the
Bank Guarantee has been invoked by the plaintiff in
accordance with terms of Bank Guarantee. The
general principle is that Banker is bound to honour the
Bank Guarantee on its face value. But as the Bank
denied its liability in spite of demand and issue of legal
notice, the suit came to be filed for recovery of the
same from both the defendants.
11. The defendant No.1/Bank in its written
statement though admitted about the plaintiff inviting
the sealed bid but denied the other plaint averments.
It is further contended that late Sri K.N.Venugopal
was doing business in the name and style of M/s Venu
Electricals and he was its Proprietor. It is he who
participated in the said tender, but not the second
defendant. Though the first defendant admitted that
the Bank Guarantee referred by the plaintiff was
issued to the plaintiff but it was on behalf of late
Venugopal, the Proprietor of M/s Venu Electricals and
not on behalf of the second defendant. Exchange of
legal notice is admitted. It is further contended that
that the second defendant i.e. M/s Venu Electricals
represented by its Proprietrix is a stranger to the
contract that was entered into between the plaintiff
and the first defendant and she is neither necessary
nor proper party to this suit.
12. It is further contended by the first
defendant-Bank that at the request of said Venugopal
and upon executing necessary documents furnishing
security, the first defendant on 08.10.2003 issued a
Bank Guarantee on its behalf to the plaintiff as a
security, but before issuance of any work order he
expired. Therefore, their contract got frustrated
because of death of Sri K.N.Venugopal.
13. It is further contended that the second
defendant filed a suit in O.S.No.33/2004 against the
plaintiff restraining it from enforcing the Bank
Guarantee against the first defendant. But the plaintiff
has independently dealt with Smt. Nagamani and
proceeded to issue work order on 01.01.2004. The
said second defendant had no expertise or experience
in carrying out the work, failed to carryout the work,
which was entrusted to her. At no point of time the
plaintiff informed the first defendant regarding
entrustment of work to Smt.Nagamani and at no point
of time it obtained the consent of the first defendant
to substitute Smt. Nagamani in place of late
Venugopal. The Bank had not consented for extending
the Bank Guarantee to Smt. Nagamani. Therefore, in
view of frustration of contract and substitution of
Smt.Nagamani after death of Sri K.N.Venugopal the
first defendant is discharged from its obligation.
Hence, the first defendant is not liable to pay the
amount and prayed to dismiss the suit.
14. The second defendant filed written
statement contending that the averments of the plaint
are to be strictly proved by the plaintiff. It is
contended that it was the late Venugopal Proprietor of
M/s Venu Electricals who participated in the said
tender, the defendant No.2 never participated in the
alleged bid. Hence, the contention in this regard are
all baseless. The Bank Guarantee issued by the
Karnataka Bank to the plaintiff is with reference to
late Sri.Venugopal, the Proprietor of M/s Venu
Electricals and not on behalf of defendant No.2. The
other allegations were denied as all false, except the
death of Sri. K.N.Venugopal. It is further contended
that after death of late K.N.Venugopal, the second
defendant did not take over the said business M/s
Venu Electricals, but after his death Smt.Nagamani
started her own business in the name and style as M/s
Venu Electricals. There is no agreement or contract
between plaintiff and Smt.Nagamani. The second
defendant is not a party to any of alleged tender or
contract. There is no privity of contract between
second defendant and MUDA and the first defendant.
The developments subsequent to the demise of late
Venugopal do not bind second defendant. The second
defendant is not legal heir of said Venugopal instead
of she is a Proprietrix of M/s Venu Electricals. The
work order was not issued to late Venugopal during
his life time. So the second defendant is not bound by
any contract entered between plaintiff i.e. Mysore
Urban Development Authority (hereinafter referred to
as 'MUDA' for short) and late Sri.Venugopal and first
defendant. With these main contentions, the second
defendant prayed to dismiss the suit.
15. On the basis of the above pleadings, the
Trial Court framed the following issues:
(i) Whether plaintiff proves that
defendants 1 and 2 are jointly and
severely liable to pay Rs.24,23,620/-
to plaintiff?
(ii) Whether the plaintiff is entitled for
future interest at the rate of 24%
p.a., from the date of suit till
realisation of entire amount?
(iii) Whether plaintiff is entitled for the
relief sought for?
(iv) Whether 2nd defendant proves that
the suit is bad for mis joinder of
parties?
(v) What orders or decree?
16. In order to prove the case, the plaintiff got
examined the Asst. Executive Engineer of MUDA as
PW.1 and got marked fifty-five documents, which
were marked as Exs.P1 to P55. Defendant No.1-Bank
got examined its Senior Manger as DW.1. Defendant
No.2 got examined as DW.2 and got marked two
documents, which were marked as Exs.D1 and D2.
17. After hearing the arguments, the Trial
Court decreed the suit with costs holding that
defendant Nos.1 and 2 are jointly and severally liable
to pay Rs.24,23,620/- with future interest at the rate
of 24% p.a. from the date of suit till realization. It is
further ordered that defendant No.1-Bank has to
make payment of decreetal amount in favour of
plaintiff-Institution and thereafter, defendant No.1 is
at liberty to recover the same from defendant No.2 in
accordance with law.
18. Aggrieved by the same, defendant No.1
has preferred this appeal. The second defendant has
not preferred any appeal challenging the impugned
judgment and decree.
19. The respondent No.1 has filed application
in I.A.No.1/2020 under Order 41 Rule 27 of CPC
seeking production of additional evidence. The
respondent No.1 has mentioned in the affidavit filed
along with I.A.No.1/2020 that in the cross
examination the appellant witness admitted that 20%
of the Bank Guarantee amount as deposit is still with
the Bank. The Bank has not produced any document
to show that the said amount was refunded to M/s
Venu Electricals or not. Even during cross examination
DW.1 has stated that there are three to four bulky
files relating to M/s Venu Electricals but no such files
were produced before the Court deliberately. It is
further contended that the Bank has published public
notice for sale of property belonging to M/s Venu
Electricals and borrowers and reply given to the letters
sent by the respondent No.1, which indicate that the
recovery of dues which were outstanding under O.D.
Account No.18 availed by M/s Venu Electricals for
working capital purpose and also housing loan availed
by Smt.Nagamani. Therefore, even after death of Sri
Venugopal on 26.10.2003 the appellant-Bank
continued the account of M/s Venu Electricals and the
O.D. Account No.18 was permitted to be operated by
Smt.Nagamani. Therefore plaintiff intends to produce
public auction notice and letter written by respondent
No.1 as additional evidence.
20. The appellant has filed objections to this
application contending that the said document No.1
was not in existence when the judgment was passed.
Regarding document No.2 it is not necessary to
produce the said document as it does not indicate
anything since the defendant No.2 is still due large
amount to the Bank, so refund of 20% deposit does
not arise. The other allegations are denied as false.
Mere death of person holding account does not debar
the Bank for claiming interest from the date of death
till the date of realisation. With these main objections,
appellant-defendant No.1 prayed to dismiss the
application.
21. We have heard Sri Y.V.Parthasarathy,
learned counsel for the appellant and
Sri T.P.Vivekananda, learned counsel for the
respondent No.1. Respondent No.2 though served
remained absent.
22. The learned counsel for the appellant
argued that the performance Bank Guarantee gets
frustrated after the death of Sri Venugopal. The Firm
is different and person is different. The Bank entered
into execution of performance of Bank Guarantee to
plaintiff as Venugopal had experience and capacity to
perform the contract. The learned counsel also
referred to the meaning of "performance" contract in
Black's Law Dictionary, Sixth edition wherein it is
stated that the "performance" means-"Performance-
The fulfillment or accomplishment of a promise,
contract, or other obligation according to its terms,
relieving such person of all further obligation or
liability thereunder." The learned counsel also referred
to the meaning of "Proprietory" as-"Proprietary-
Belonging to ownership; owned by a particular
person; belonging or pertaining to a proprietor;
relating to a certain owner or proprietor."
23. Learned counsel further argued that the
contract gets frustrated on the death of Sri
Venugopal. Therefore, the question of invocation of
Bank Guarantee does not arise. The fresh work order
was issued after the death of Sri Venugopal.
Therefore, no contract remain to be performed
between Sri Venugopal and in turn first defendant.
The frustration of the contract was within the
knowledge of MUDA. In fact the MUDA called fresh
bid. Therefore, acting on a new bid MUDA is estopped
from invoking Bank Guarantee under previous
contract. There is no communication made to the
Bank about death of Sri Venugopal or calling fresh bid
or acting on a new bid. The transaction between
defendant No.2 and plaintiff is a different transaction
in view of fresh bid.
24. The learned counsel further argued that
second defendant filed a suit in O.S.No.33/2004
denying liability. The Bank also issued letter dated
05.06.2004 denying its liability. The evidence of PW.1
and his admission clearly demonstrate that the
contract got frustrated. So when there is frustration of
contract, the dissolution of contract occurs
automatically, in spite of that the Trial Court wrongly
decreed the suit. It is further argued that upon death
of Sri.Venugopal the proprietary concerned ceased to
exist automatically, not like a partnership Firm where
it can be continued. The Trial Court mistook it.
25. There is also no pleading about the rate of
interest at 24% p.a as claimed. It is the plaintiff and
defendant No.2 committed fraud on the Bank.
Therefore, the judgment and decree of the Trial Court
is perverse, contrary to the pleadings and evidence
and prayed to set aside the judgment and decree. The
learned counsel further argued that for the reasons
mentioned in the objection filed to I.A.No.1/2020 the
additional evidence sought to be produced be
rejected. The learned counsel for appellant in support
of his contentions relied on decision of Calcutta High
Court in the case of Shree Ram Cloth Stores vs.
M/s Trading Corporation of Bangladesh & Ors.
reported in (1980) 1 CHN 132.
26. Against this, the learned counsel for the
respondent No.1 argued that the Bank Guarantee-
Ex.P1 terms clearly show that it was "unconditional
guarantee". Whether Smt.Nagamani informed the
Bank about continuing Bank Guarantee, is not for the
plaintiff to verify. The learned counsel argued that
when the plaintiff issued notice of demand of Bank
Guarantee, the Bank sold the other properties of the
defendant No.2 and adjusted the amount received to
its other loan dues by the second defendant. This is
nothing but just to defraud the payment of Bank
Guarantee amount. The Bank issued public notice of
sale of second defendant property and assets on
01.10.2011 i.e. after the judgment in this suit was
passed. The total liability to be recovered according to
Bank was Rs.3,82,95,586/- from defendant No.2. The
Bank Guarantee was dated 08.10.2003 for
Rs.22,70,820/- The documents produced by the
plaintiff clearly indicates that it is M/s Venu Electricals
which entered into agreement and it is M/s Venu
Electricals which offered the Bank Guarantee. The
work order, all orders and letters were issued by
plaintiff in favour of M/S Venu Electricals but not in
individual name of Sr.K.N.Venugopal or
Smt.Nagamani.
27. The learned counsel argued that Bank
cannot now say that they have adjusted the amount
received from sale of defendant No.2 property in
respect of their other loans without making payment
to plaintiff. There is no pleading by the Bank that
there is any fraud. The Bank can very well recover the
amount from the defendant No.2. The Bank has not
withdrawn the Bank Guarantee till the demand is
made by plaintiff.
28. The learned counsel supported the
judgment of the Trial Court stating that the learned
Judge of the Trial Court has properly appreciated
both oral and documentary evidence and the
judgment and decree is neither any erroneous nor
perverse. The second defendant has not challenged
the judgment. Therefore, the Bank cannot commit
fraud on the public authority like respondent MUDA
and deprive them the amount meant for public
welfare. Contract of Bank Guarantee is not frustrated.
The learned counsel further argued that the
respondent No.1 has produced documents as
additional evidence in I.A.No.1/2020 to show that the
Bank dealt with the account of M/s Venu Electricals
subsequent to death of Sri.Venugopal and even after
passing judgment. The learned counsel prayed to
allow the application for the reasons mentioned in the
affidavit filed along with the application. With these
main arguments, he prayed to dismiss the appeal. In
support of his arguments, the learned counsel for the
respondent No.1, relied on the following decisions:
1) AIR 2011 Madras 179 in State Bank of India
and Anr. Vs. Mrs. Jayanthi and Ors.;
2) (2003) 4 SCC 690 in Daewoo Motors India
Ltd. Vs. Union of India and Others;
3) AIR 1996 SC 2268 in Hindustan Steel Works
Construction Ltd. Vs. Tarapore and Co. and
another;
4) AIR 1997 SC 1644 in U.P.State Sugar
Corporation Vs. M/s Sumac International
Ltd.
29. In the light of the arguments advanced,
the following points arise for our consideration:
1. Whether the documents produced along
with I.A.No.1/2020 to lead the additional
evidence are necessary to enable this
Court for just decision of the controversy
involved between the parties or for any
other substantial cause?
2. Whether the plaintiff is entitled for the
recovery of Bank Guarantee for sum of
Rs.22,70,820/- under performance of
unconditional Bank Guarantee dated
8.10.2003 with interest at the rate of
24% p.a. from the date of suit?
3. Whether the judgment of the Trial Court
is erroneous, illegal and needs
interference by this Court?
30. Reasons for Point No.1:- On considering
documents produced along with I.A.No.1/2020 it is
evident that those documents are not essential for
just decision of the case. They are subsequent to suit
and they are not denied by the appellant. On the
other hand, an affidavit was filed by the appellant-
Manager as referred in subsequent paras regarding
the Bank proceedings with the account of defendant
No.2 after death of Sri.Venugopal. Looking into the
nature of documents and the reasons assigned for
their production at this stage and also the objections
filed by the applicant, in our view, these documents
are not at all essential for just decision of the case.
Therefore, the said application deserves to be
dismissed. Accordingly, I.A.No.1/2020 is rejected.
Reasons for Point No.2:-
31. We have perused the judgment of the Trial
Court.
32. The learned Judge of the Trial Court has
answered issue Nos.1 to 4 together. The contention of
defendant No.2 regarding Order 30 Rule 10 of the CPC
was negatived and it is held that description of
defendant No.2 was proper. The learned Judge also
held that Ex.P1 the Bank Guarantee indicates that it
was issued in favour of M/s Venu Electricals but not in
the name of any particular person. The learned Judge
of Trial Court held that the defendant No.1-Bank has
undertaken the liability under said guarantee and they
have waived any change or addition or modification in
the contract. The said deed is unconditional Bank
Guarantee executed on behalf of defendant No.2-Firm
in favour of plaintiff. The learned Judge held that
simply because Sri. Venugopal died it cannot be said
that Institution ceases to exist. On the other hand, the
said Institution continued its business through wife of
Sri.Venugopal. In fact, the bid applied by defendant
No.2 was accepted and the same was communicated
to defendant No.2 by letter of acceptance as per
Ex.P.15 on 10.09.2003. Ex.P16 letter dated
10.09.2003 indicates that M/s Venu Electricals has
thanked the plaintiff for awarding the work to M/s
Venu Electricals.
33. It is further held by the Trial Court that the
defendant No.1 has written a letter to the plaintiff for
extension of time for furnishing Bank Guarantee. The
learned Judge of the Trial Court held that even after
the death of Sri. Venugopal, the defendant No.2-Firm
continued to be represented through Smt.Nagamani.
The defendant No.1-Bank had knowledge about the
death of Sri Venugopal. They confirmed issue of Bank
Guarantee on behalf of M/s Venu Electricals in favour
of plaintiff after his death.
34. The defendant No.1-Bank continued its
transaction with M/s Venu Electricals. As the
defendant No.2 could not start the said work as per
agreement, the plaintiff terminated the contract. Then
the plaintiff issued notice with regard to forfeiture of
Bank Guarantee and to compensate the loss caused to
the plaintiff-Institution. The Trial Court held that
defendant No.1 who had issued an unconditional Bank
Guarantee on behalf of M/s Venu Electricials is liable
to pay the said amount. But in spite of issue of notice,
the said amount is not paid. Hence, the Trial Court
based on oral and documentary evidence on record
held both are liable to pay the claim amount.
However, the Bank has issued unconditional Bank
Guarantee it has to pay the amount to the plaintiff-
Institution and can recover the same from defendant
No.2. Accordingly, decreed the suit.
35. We have perused the pleadings, evidence
and materials placed on record and reassessed the
evidence.
36. PW.1-Assistant Executive Engineer of
MUDA, Mysore, has given evidence as PW.1. He has
deposed that the Bank Guarantee issued by the
defendant No.1 is in relation to Firm-M/s Venu
Electricals and not in favour of any individual. The
contractor is M/s Venu Electricals and not Mr.
K.N.Venugopal in his individual capacity. PW.1 has
produced documents in favour of plaintiff. These
documents also support the case of the plaintiff. He
has denied the suggestion that after death of Sri
Venugopal the liability of the Bank get discharged. He
has stated that defendant No.2 Smt. Nagamani has
represented the said M/s Venu Electricals and given a
letter to the plaintiff to continue the contract.
37. The plaintiff has produced Ex.P1 the
performance guarantee, which shows it is an
unconditional Bank Guarantee. At page-2 of Ex.P1 it
is mentioned as under:
"Now therefore we hereby affirm that we
are the Guarantor and responsible to you,
on behalf of the Contractor, up to a total of
Rs.22,70,820/- (Rupees Twenty two lakhs
seventy thousand eight hundred and
twenty only), such sum being payable in
Indian Rupees in which the contract price is
payable, and we undertake to pay you,
upon your first written demand and without
cavil argument any sum within the limits of
Rs.Twenty-two lakh seventy thousand eight
hundred twenty only [amount of
Guarantee] as aforesaid without your
needing to prove or to show grounds or
reasons for your demand for the sum
specified therein.
We hereby waive the necessity of your
demanding the said debt from the
Contractor before presenting us with the
demand.
We further agree that no change or
addition or other modification of the terms
of the Contract or of the Works to be
performed there under or of any of
Contract documents which may be made
between you and the Contractor shall in
any way release us from any liability under
this guarantee, and we hereby waive notice
of any such change, addition or
modification."
38. On perusing terms of Ex.P1 it is crystal
clear that it is an unconditional deed of guarantee.
The defendant No.1 has agreed that no change or
other modification of the terms of contract of the
works performed thereunder or any of the contract
which may be made between MUDA and contractor
shall any way release them, even they waived notice
of any such change, addition or modification.
39. Therefore, the defendant No.1-Bank now
cannot go back against the terms of deed of
Guarantee and contend that in view of the death of Sri
Venugopal the contract get frustrated. On the other
hand, the contract continued with the M/s Venu
Electricals. Only difference is the wife of Sri Venugopal
is representing the M/s Venu Electricals after his
death. It is also pertinent to note that on 24th March
2004 i.e. even after the death of Sri Venugopal the
defendant No.1-Bank has confirmed the issuance of
Bank Guarantee dated 08.10.2003 for Rs.22,70,820/-
on behalf of M/s Venu Electricals as per its letter at
Ex.P3. In view of said letter the plaintiff has issued
work order. Ex.P4 is the letter written by plaintiff to
the Bank. Ex.P8 is letter written by defendant No.1-
appellant which indicates that the plaintiff has
informed the defendant No.1 that the death of Sri
Venugopal has nothing to do with the Bank
Guarantee. But the Bank refused to pay the said
amount stating that as without knowledge and the
consent of the defendant No.1-Bank, the plaintiff dealt
with M/s Venu Electricals represented by
Smt.Nagamani. Such contention is not tenable in view
of the letter of confirmation Ex.P3 issued by Bank
after death of Sri Venugopal. Terms of Ex.P1,
indicates that defendant No.1 waives any such notice
or consent and also modification or change in contract
with M/s Venu Electricals. In fact, the plaintiff has
issued the letter of acceptance to M/s Venu Electricals
on 10.09.2003 as per Ex.P15. Further, Ex.P18 the
letter issued by Bank dated 26.09.2003 indicates that
the Bank has sought time from the plaintiff informing
as under (at para 1, 2 and 3):
"We write to inform you that the said firm
M/s Venu Electricals, Wilson Garden,
Bangalore, has given the letter of
Acceptance, vide your above reference, for
the works of MUDA amounting to
Rs.227-08 lakhs.
The firm is our one of the esteemed
customer and is enjoying sufficient credit
facilities with us and are dealing with us
since 1996. The firm has submitted their
proposal for renewal of their existing credit
facilities with a request for enhancement in
their fund based and non-fund based limits.
The proposal has been submitted by us to
our sanctioning authorities at Head Office,
Mangalore, which is under consideration.
We are expecting the sanction in a
fortnight's time. Under these
circumstances, we request you to grant
time to the said firm for furnishing the
Bank Guarantee to the work allotted, as a
special case."
40. Therefore, in view of Ex.P18 it is evident
that the M/s Venu Electricals have transaction with
Bank since 1996. Therefore, based on Ex.P3 letter
plaintiff issued work order and agreement was also
entered between M/s Venu Electricals and plaintiff as
per Ex.P23. The subsequent correspondence was
made by Smt.Nagamani for M/s Venu Electricals with
plaintiff. The plaintiff has produced several documents
to show that Smt. Nagamani defendant No.2
represented M/s Venu Electricals.
41. It is not that the said M/s Venu Electricals
has no other transaction with Bank except transaction
with the plaintiff. It has several transactions with the
defendant No.1-Bank. Several properties were
mortgaged. The same is also admitted by DW.1 in his
evidence. It is also evident that subsequent to
demand made by plaintiff and after the judgment is
passed, the Bank has auctioned the property
belonging to M/s Venu Electricals and mortgaged in its
favour and also properties of sureties showing Smt.
Nagamani representing M/s Venu Electricals as its
proprietor.
42. The defendant No.1 got examined one of
its Senior Manager Sri Suresh Nayak N. as DW.1. He
deposed that the contract was no more in existence in
view of death of Sri. Venugopal. On the other hand he
has admitted that they have issued unconditional
Bank Guarantee Ex.P1 in favour of M/s Venu
Electricals. He has also contended that Ex.P1 does not
contain any recital to show M/s Venu Electricals is
represented by Sri. Venugopal. He has also admitted
that M/s Venu Electricals was transacting with Bank
since 1996. They have opened over draft account with
Bank and he cannot say whether there is current
account of defendant No.2 with them. He has also
admitted that they have given some other Bank
Guarantee other than disputed Bank Guarantee in
favour of M/s Venu Electricals. He has admitted that at
the time of giving Bank Guarantee 20% amount was
kept deposited in their Bank and said amount is still
with them.
43. Defendant No.2 has given her evidence as
DW.2. She has admitted that she continued M/s Venu
Electricals after death of her husband-Sri
K.N.Venugopal. She has admitted about the Bank
Guarantee issued in favour of M/s Venu Electricals.
She has admitted that she has mortgaged one house
to defendant No.1.It is evident that the defendant
No.2 has not challenged the judgment and decree.
44. This Court on 22.03.2021 passed an order
directing the Branch Manager of the appellant-Bank to
file an affidavit giving particulars of the financial
transactions of M/s Venu Electricals dealt with the
appellant-Bank as well as the liabilities and the
amount realized towards the said liability, if any. The
status of the collateral security of building property
made with the appellant-bank by M/s Venu Electricals,
pursuant to the application dated 08.10.2003
submitted by the then proprietor Mr.K.N.Venugopal,
representing M/s. Venu Electricals for issue of bank
guarantee relating to performance security for
electrification and providing the street lights to the
residential sites and services of Mysore Urban
Development Authority, Mysore shall be placed on
record.
45. In pursuance of the order, the Manager of
the Bank has filed an affidavit dated 08.04.2021,
which indicates that M/s Venu Electricals availed
overdraft facility of 150 lakhs and bills/cheques
purchase facility to a limit of Rs.15.00 lakhs and Bank
Guarantee facility to a limit of Rs.25.00 lakhs and
there were co-obligants and Smt. Nagamani extended
mortgage of her property bearing No.170. Even
Smt.Nagamani has also borrowed Rs.10.00 lakhs.
According to Bank the account becomes non
performance account on 29.02.2004. Accordingly,
they initiated action under SARFAESI Act and issued
demand notice on 30.04.2011 demanding payment of
Rs.2,14,43,396.16 due in overdrafts and a sum of
Rs.7,04,366/- as a termed loan. So as the amount
was not paid, the property mortgaged by
Smt.Nagamani was sold on 04.11.2011 and
Mr.N.R.Dayanand and Mr.N.R.Manjunath the
mortgagers paid Rs.50.00/- lakhs. Totally Bank has
received Rs.2,26,50,000/-. Simultaneously they also
filed recovery proceedings and recovery certificate
was issued and it provides for interest @ 13% p.a.
compounded monthly relating to dues in respect of
overdraft account of M/s Venu Electricals. The Bank
has also received 20% of it as a cash margin in
respect of Bank Guarantee in question. This amount of
Rs.4,55,000/- is still with the Bank. According to them
no mortgage security is available which is referred to
in the application for issue of Bank Guarantee in
question.
46. The said affidavit shows after filing of this
suit, the Bank started proceeding for recovery of the
amount due to the M/s Venu Electricals and in fact
after the judgment is passed they have sold the
property by auction to recover their due from M/s
Venu Electricals. This conduct of the defendant is
nothing but just to defeat the fruits of the decree.
Knowing full well that there are properties belonging
to M/s Venu Electricals the Bank instead of paying
Bank Guarantee amount and adjusting it with the
amount recovered by selling them, but stated that it
has adjusted the sale proceed to some other dues of
M/s Venu Electricals.
47. The defendant No.1-Bank has not
produced documents to show how and in what manner
they proceeded against M/s Venu Electricals and its
property after death of Sri Venugopal. Who
represented M/s Venu Electricals in all these
proceedings is not forthcoming though no documents
are produced by Bank to show what was the amount
due by M/s Venu Electricals towards the Bank.
Admittedly, the proceedings are in respect of loan
borrowed by M/s Venu Electricals. Therefore, the
defendant No.1 now cannot contend that in view of
death of Sri.Venugopal the said M/s Venu Electricals is
not in existence and contract is frustrated.
48. On the other hand, the amount of 20% of
Bank Guarantee is with them only. It is not returned
to M/s Venu Electricals. Therefore, the defendant No.1
is estopped from contending that in view of death Sri.
Venugopal their liability for M/s Venu Electricals comes
to an end. On the other hand, they proceeded against
the said M/s Venu Electrials to recover the amount
due by it. Immediately after the judgment is passed,
sold the property belonging to the M/s Venu Electricals
and also Smt.Nagamani to adjust their other account
amount. Therefore, in view of contents of Ex.P1
unconditional bank guarantee and also issuing of
Ex.P3 letter after death of Sri Venugopal confirming
issuance of Bank Guarantee, appellant's contention
that immediately after death of Sri Venugopal, their
transaction with M/s Venu Electricals ceases to exist
cannot be accepted.
49. It is also evident that as per Ex.P51 letter
of M/s Venu Electricals dated 28.04.2004 though
Smt.Nagamani has requested plaintiff to terminate the
said contract as M/s Venu Electricals could not
perform the agreement.
50. On the other hand, the defendants have
raised untenable reasons when the documentary
evidence and evidence of DW.1 and affidavit clearly
indicate that defendant No.1-appellant is trying to
avoid the liability by taking untenable grounds.
Therefore, none of the contentions raised by the
appellant are tenable. The defendant No.1 cannot
avoid its liability. The plaintiff only after receiving
letter from M/s Venu Electricals represented by
Smt.Nagamani decided to issue work order to M/s
Venu Electricals. In fact they got confirmed the Bank
Guarantee through defendant No.1 who has confirmed
by issuing confirmation letter Ex.P3 on 24.03.2004 i.e.
long after death of Sri.Venugopal.
51. The decision relied by the learned counsel
for the appellant of Calcutta High Court in Shree Ram
Cloth Sotres (supra) will not help to the case on
hand. In that case, it was only a performance of
guarantee by way of security. In that decision, it is
held that whether Bank Guarantee has become
enforceable can be decided at the trial of the suit.
Therefore, that decision regarding appeal in respect
grant of injunction order will not help the appellant.
On the other hand, in the suit based on the oral and
documentary evidence, the Trial Court held that the
Bank Guarantee is enforceable. Hence, the principle
stated in that decision will not help the appellant.
There is no question of frustration of contract after
death of Sri.Venugopal.
52. The learned counsel for respondent No.1
has relied on the judgment of the Madras High Court
reported in AIR 2011 Madras 179 in the case of
State Bank of India and Anr. Vs. Mrs. Jayanthi
and Ors. The Court held that while considering the
liability as guarantor after his death held that the
liability does not stand extinguished and at paragraph-
8 it is held as under:
"8. From the aforesaid conclusion, it is clear that the
learned Single Judge, without disputing the stand of
the appellant-bank that it can retain the documents
as a lien on the basis of the power conferred by
Section 171 of the Indian Contract Act, took a view
that having regard to the fact that the respondent's
husband Mahendran, who was the guarantor in
respect of the loan advanced to one M/s. Somerset
Tea Plantation, died and therefore, on his death, the
liability as against the guarantor stands
extinguished. With due respect, the learned Single
Judge is not correct in law in holding that the liability
under the guarantee stands revoked or extinguished
on the death of the Guarantor. Section 131 of the
Contract Act clearly provides that in case of death of
Guarantor, the date of guarantee/continuing of the
guarantee executed in favour of the bank stands
revoked in respect of future transactions. Hence, we
have no hesitation in holding that the liability of the
guarantor cannot be extinguished on his death so far
the liability which existed on the date of the death of
the guarantor. It is well settled that on the death of
the guarantor, the liability exists and such liability
can be fastened on the estate of the deceased, being
inherited by his legal heirs, and the creditor can
recover the dues out of the estate of the deceased."
53. Further, the learned counsel relied upon
the decision of the Hon'ble Supreme Court reported in
(2003) 4 SCC 690 in the case of Daewoo Motors
India Ltd. vs. Union of India and Others wherein
the Hon'ble Supreme Court dealt with unconditional
and absolute terms of Bank Guarantee and held that
when the obligation could not be
performed the respondent is entitled to revoke the
Bank Guarantee and the Bank is liable to encash the
same. The terms of contract between the parties has
no relevance and it is held at paragraphs 13 and 14 as
under:
"13. From a perusal of the above clauses, it is
abundantly clear that the bank guarantee furnished
by the Bank is an unconditional and absolute bank
guarantee. The Bank has rendered itself liable to pay
the cash on demand by the President of India
"notwithstanding any dispute raised by M/s. Daewoo
Motors India Limited in any proceeding before any
court or tribunal". It is worth noticing that the clause
in the bank guarantee specifically provides that the
demand made by the President of India shall be
conclusive as regards the amount due and payable
by the bank under this guarantee and the liability
under the guarantee is absolute and unequivocal. In
the face of the clear averments, it is trite to contend
that the bank guarantee is a conditional bank
guarantee. Therefore, the Bank has no case to resist
the encashment of the bank guarantee. Inasmuch as
we have held that the bank guarantee is an
unconditional bank guarantee, the case M/s.
Hindustan Construction Company Limited, v. State of
Bihar and Ors., reported in [1999] 8 SCC 436 is of
no avail to the appellant.
14. It is true that the bank guarantee has to
be read in conjunction with the terms of the contract
but when the bank itself is in absolute terms, the
agreement between the company and the first
respondent would be of no avail to the Bank."
54. Further, the learned counsel also relied on
the decision of the Hon'ble Supreme Court reported in
AIR 1996 SC 2268 in the case of Hindustan Steel
Works Construction Ltd. Vs. Tarapore and Co.
and another wherein the Hon'ble Supreme Court
considered the nature of unconditional Bank
Guarantee and held that no distinction can be drawn
between the guarantee for due performance of
contract or towards security deposit. Referring to its
earlier decision the Hon'ble Supreme Court held that
the obligation is same. Paragraphs 13 and 14 reads as
under:
"13. It is, therefore, difficult to appreciate the
attempt of the High Court to distinguish that decision
and to raise a doubt whether in India also the same
principles apply in case of a performance guarantee
issued by a bank. In our opinion, the High Court was
not right either in its attempt to distinguish that
decision or to raise a doubt regarding the correct
position of law.
14. The High Court also committed a grave
error in restraining the appellant from invoking bank
guarantees on the ground that on India only a
reasonable amount can be awarded by way of
damages even when the parties to the contract have
provided for liquidated damages and that a term in a
bank guarantee making the beneficiary the sole
judge on the question of breach of contract and the
extent of loss or damages would be invalid and that
no amount can be said to be due till and adjudication
in that behalf is made either by a Court on an
arbitrator, as the case may be. In taking that view
the High Court has overlooked the correct position
that a bank guarantee is an independent and distinct
contract between the bank and the beneficiary and is
not qualified by the underlying transaction and the
primary contract between the person at whose
instance the bank guarantee is given and the
beneficiary. What the High Court has observed would
applicable only to the parties to the underlying
transaction or the primary contract but can have no
relevance to the bank guarantee given by the bank,
as the transaction between the bank and the
beneficiary is independent and of a different nature.
In case of an unconditional bank guarantee the
nature of obligation of the bank is absolute and not
dependent upon any dispute or proceeding between
the party at whose instance the bank guarantee is
given and the beneficiary. The High Court thus failed
to appreciate the real object and nature of a bank
guarantee. The distinction which the High Court has
drawn between a guarantee for due performance of
a works contract and guarantee given towards
security deposit for that contract is also
unwarranted. The said distinction appears to be the
result of the same fallacy committed by the High
Court of not appreciating the distinction between the
primary contract between the parties and a bank
guarantee and also the real object of a bank
guarantee and the nature of bank's obligation
thereunder. Whether the bank guarantee is towards
security deposit or mobilisation advance or working
funds or for due performance of the contract if the
same is unconditional and if there is a stipulation in
the bank guarantee that the bank should pay on
demand without a demur and that the beneficiary
shall be the sole judge not only on the question of
breach of contract but also with respect to the
amount of loss or damages, the obligation of the
bank would remain the same and that obligation has
to be discharged in the manner provided in the bank
gurantee. In General Electric Technical Services
Company Inc. vs. Punj Sons (p) Ltd. (1991 (4) SCC
230): (1991 AIR SCW 2136), while dealing with a
case of bank guarantee given for securing
mobilisation advance it has been held that the right
of a contractor to recover certain amounts under
running bills would have no relevance to the liability
of the bank under the guarantee given by it. In that
case also the stipulations in the bank guarantee were
that the bank had to pay on demand without a
demur and that the beneficiary was to be the sole
judge as regards the loss or damage caused to it.
This Court held that notwithstanding the dispute
between the contractor and the party giving the
contract, the bank was under an obligation to
discharge its liability as per the terms of the bank
guarantee. Larsen and Toubro Limited vs.
Maharashtra State Electricity Board (1995) (6: (1995
AIR SCW 4134), and Hindustan Steel Workers
Construction Ltd. Vs. G.S. Atwal & Co. (Engineers)
Pvt. Ltd. (1995) (6) SCC 76: (1995 AIR SCW 3821),
were also cases of work contracts wherein bank
gurantees were given either towards advances or
release of security deposits or for due, performance
of the contract. In both those cases this Court held
that the bank gurantees being irrevocable and
unconditional and as the beneficiary was made the
sole judge on the question of breach of performance
of the contract and the extent of loss or damages an
injunction restraining the beneficiary from invoking
the bank guarantees could not have been granted.
The above referred three subsequent decisions of
this Court also go to show that the view taken by the
High Court is clearly wrong."
55. Further, the learned counsel also relied on
the decision of the Hon'ble Supreme Court reported in
AIR 1997 SC 1644 in the case of U.P.State Sugar
Corporation vs. M/s Sumac International Ltd
wherein the Hon'ble Supreme Court considered two
exceptions for realization of unconditional Bank
Guarantee one is fraud, second-one is irretrievable
injustice. Here both the things either pleaded or
proved. It is held at paragraph 12 as under:
"12. The law relating to invocation of such bank
guarantees is by now well settled. When in the
course of commercial dealings an unconditional bank
guarantee is given or accepted, the beneficiary is
entitled to realise such a bank guarantee in terms
thereof irrespective of any pending disputes. The
bank giving such a guarantee is bound to honour it
as per its terms irrespective of any dispute raised by
its customer. The very purpose of giving such a bank
guarantee would otherwise be defeated. The Courts
should, therefore, be slow in granting an injunction
to restrain the realisation of such a bank guarantee.
The Courts have carved out only two exceptions. A
fraud in connection with such a bank guarantee
would vitiate the very foundation of such a bank
guarantee. Hence if there is such a fraud of which
the beneficiary seeks to take advantage, he can be
restrained from doing so. The second exception
relates to cases where allowing the encashment of
an unconditional bank guarantee would result in
irretrievable harm or injustice to one of the parties
concerned. Since in most cases payment of money
under such a bank guarantee would adversely affect
the bank and its customer at whose instance the
guarantee is given, the harm or injustice
contemplated under this head must be of such an
exceptional and irretrievable nature as would
override the terms of the guarantee and the adverse
effect of such an injunction on commercial dealings
in the country. The two grounds are not necessarily
connected, though both may co-exist in some cases.
In the case of U.P. Co-operative Federation Ltd. v.
Singh Consultants and Engineers (P) Ltd. (1988 [1]
SCC 174), which was the case of works contract
where the performance guarantee given under the
contract was sought to be invoked, this Court, after
referring extensively to English and Indian cases on
the subject, said that the guarantee must be
honoured in accordance with its terms. The bank
which gives the guarantee is not concerned in the
least with the relations between the supplier and the
customer; nor with the question whether the supplier
has performed his contractual obligation or not, nor
with the question whether the supplier is in default
or not. The bank must pay according to the tenor of
its guarantee on demand without proof or condition.
There are only two exceptions to this rule. The first
exception is a case when there is a clear fraud of
which the bank has notice. The fraud must be of an
egregious nature such as to vitiate the entire
underlying transaction. Explaining the kind of fraud
that may absolve a bank from honouring its
guarantee, this Court in the above case quoted with
approval the observations of Sir John Donaldson,
M.R. in Bolivinter Oil SA v. Chase Manhattan Bank
NA (1984 [1] All ER 351 at 352): "The wholly
exceptional case where an injunction may be granted
is where it is proved that the bank knows that any
demand for payment already made or which may
thereafter be made will clearly be fraudulent. But the
evidence must be clear both as to the fact of fraud
and as to the bank's knowledge. It would certainly
not normally be sufficient that this rests on the
uncorroborated statement of the customer, for
irreparable damage can be done to a bank's credit in
the relatively brief time which must elapse between
the granting of such an injunction and an application
by the bank to have it charged". This Court set aside
an injunction granted by the High Court to restrain
the realisation of the bank guarantee."
56. Therefore, in view of the principles stated
in above decisions and also discussion made above,
we are of the considered view that the contention of
the appellant that, it is not liable to pay the Bank
Guarantee amount does not hold good. In spite of
demand and issuing notice, the appellant has not paid
the amount. On the other hand, immediately after the
judgment and the decree sold the properties
belonging to M/s Venu Electricals and adjusted it with
other loan amount of M/s Venu Electricals and
Smt.Nagamani. According to appellant still the M/s
Venu Electricals is due some amount. The appellant
can very well pay the Bank Guarantee amount to the
plaintiff and recover the same from the properties of
M/s Venu Electricals or Smt.Nagamani or as is deemed
fit in accordance with law. But the very conduct of the
appellant in hurriedly auctioning the property and
adjusting it with its other loan due of M/s Venu
Electricals is just to deprive the plaintiff the fruits of
the decree. This conduct of the appellant itself
disentitle to any relief to it.
57. In answer to Issue No.2, the Trial Court
has awarded future interest at the rate of 24% p.a.
from the date of suit till realization of decreetal
amount. The appellant has taken a contention that
performance bank guarantee does not contain any
clause for payment of interest. Plaint also does not
make any allegation as to how the plaintiff is entitled
to interest. There is no evidence led by the plaintiff to
show how plaintiff is entitled to interest at the rate of
24% p.a. Therefore, judgment and decree in this
regard needs to be modified. The learned counsel for
the respondent No.1 has also not placed any material
to show as to how the plaintiff is entitled for interest
at the rate of 24% p.a.
58. Admittedly, the Performance Bank
Guarantee does not contain payment of interest. The
plaintiff demanded the defendant No.1 to pay the
Bank Guarantee amount. In view of termination of
contract as requested by M/s Venu Electricals, the
defendant No.1 without any valid reasons withheld the
payment. As we have observed above, the defendant
No.1-Bank is not justified in withholding the amount.
Therefore, for delayed payment and withholding the
amount without any valid reasons, the defendants are
liable to pay the interest even though there is no
agreement in this regard.
59. The Section 34 of Code of Civil Procedure
deals with grant of interest which reads as under:
"34. Interest.- (1) Where and in so far as a
decree is for the payment of money, the Court
may, in the decree, Order interest at such rate
as the Court deems reasonable to be paid on the
principal sum adjudged, from the date of the suit
to the date of the decree, in addition to any
interest adjudged on such principal sum for any
period prior to the institution of the suit, 1[with
further interest at such rate not exceeding six
per cent per annum as the Court deems
reasonable on such principal sum], from the date
of the decree to the date of payment, or to such
earlier date as the Court thinks fit:
[Provided that where the liability in relation to
the sum so adjudged had arisen out of a
commercial transaction, the rate of such further
interest may exceed six per cent per annum, but
shall not exceed the contractual rate of interest
or where there is no contractual rate, the rate at
which moneys are lent or advanced by
nationalised banks in relation to commercial
transactions.
Explanation I.-In this sub-section, "nationalised
bank" means a corresponding new bank as
defined in the Banking Companies (Acquisition
and Transfer of Undertakings) Act 1970 (5 of
1970).
Explanation II.-For the purposes of this section,
a transaction is a commercial transaction, if it is
connected with the industry, trade or business of
the party incurring the liability.]
(2) Where such a decree is silent with respect to
the payment of further interest [on such
principal sum] from the date of the decree to the
date of payment or other earlier date, the Court
shall be deemed to have refused such interest,
and a separate suit therefore shall not lie.
60. In view of the above Section, it is evident
that the Court has got discretion to award interest
pendente lite and future interest. The plaintiff has
calculated the claim amount as Rs.22,70,820/- +
interest on it at the rate of 24% p.a. and calculated it
as Rs.1,52,300/- and calculated totally as
Rs.24,23,620/-. The plaintiff has not shown as to how
and on what basis he is entitled for interest at the rate
of 24% p.a. from the date of suit till the date of filing
of suit. He has not shown any such agreement or any
authority as to how he is entitled interest prior to the
filing of suit under Section 34 of CPC. Unless there is
some provisions or authority or document to pay such
interest, the plaintiff is not entitled for interest at the
rate of 24% p.a. on the principal sum of
Rs.22,70,820/-. Admittedly, transaction is commercial
transaction which has arisen out of a commercial
contract. It is evident that in the absence of any
agreement to pay interest at the rate of 24% p.a. and
in view of Section 34 of CPC in respect of commercial
transaction, the rate at which the moneys are lent or
advanced by nationalized banks in relation to
commercial transactions fixed by the Bank during the
year of transaction will have to be taken into
consideration. Since the transaction is of the year
2004, we deem it appropriate to award pendente lite
and future interest at the rate of 10% p.a. The Trial
Court has not given any reasons as to why and how
the plaintiff is entitled for future interest at the rate of
24% p.a. from the date of suit till realisation.
Therefore, the same needs to be modified and the
plaintiff is entitled for the interest at the rate of 10%
p.a. on principal sum adjudged at Rs.22,70,820/-
from the date of suit till the realisation of entire
decreetal amount. Therefore, the finding regarding
issue Nos.1 and 2 are answered partly in favour of the
plaintiff.
61. Reasons for Point No.3:- The learned
Judge of the Trial Court has considered both oral and
documentary evidence and assigned proper reasons
by appreciating the evidence on record. We find no
error or illegality in the judgment of the Trial Court.
Therefore, the appeal being devoid of merits is liable
to be dismissed. Accordingly, we pass the following:
ORDER
(i). The appeal is allowed in-part.
(ii). The judgment and decree dated
31.03.2011 passed in O.S.No.765/2004 by the
Principal Judge, Small Causes and Senior Civil Judge,
Mysore, directing the defendants to pay
Rs.24,23,620/- (Rupees Twenty-four lakhs twenty-
three thousand six hundred twenty only) is hereby
modified holding that the defendant Nos.1 and 2 are
jointly and severally liable to pay a sum of
Rs.22,70,820/- (Rupees Twenty-two lakhs seventy
thousand eight hundred twenty only) with future
interest at the rate of 10% p.a. to the plaintiff from
the date of suit till the realisation of entire decreetal
amount.
(iii). The order of the Trial Court directing the
defendant No.1-Bank to make payment of the
decreetal amount in favour of plaintiff and thereafter
defendant No.1 is at liberty to recover the same from
defendant No.2 in accordance with law is hereby
confirmed.
iv). I.A.No.1/2020 filed under Order 41 Rule 27
of Code of Civil Procedure, is hereby dismissed.
(v) In view of disposal of main appeal,
I.A.No.2/2020 does not survive for consideration.
In view of facts and circumstances of the case,
the parties shall bear their own costs.
Sd/-
JUDGE
Sd/-
JUDGE
sdu
