:1: IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO. 1594 OF 1985 SUIT NO. 1594 OF 1985 SUIT NO. 1594 OF 1985 Bank of India ..Plaintiffs Vs. B.C. Mody Exports P. Ltd & Anr. ..Defendants. CORAM: S.J. VAZIFDAR, J. CORAM: S.J. VAZIFDAR, J. CORAM: S.J. VAZIFDAR, J. DATE : 13TH JULY, 2006. DATE : 13TH JULY, 2006. DATE : 13TH JULY, 2006. Ms.Sowmya Srikrishna with Ms.Vandana Tiwari i/b.M/s.FZB & Associates for the Plaintiffs. Ms.K.C.Nichani for the Defendants. ORAL JUDGMENT : ORAL JUDGMENT : ORAL JUDGMENT : This suit is filed to recover a sum of Rs.5,67,332.51/- together with interest thereon at the rate of 19.5% p.a. and to enforce the hypothecation and/or charge created by the defendants in favour of the plaintiffs to secure the repayment thereof. Defendant no.1 is the borrower. Defendant no.2 who is a director of defendant no.1 is sued as a guarantor. The hypothecation/charge :2: is not pressed. The Plaintiffs’ case : 2. In or about November 1974 the Plaintiff granted defendant No.1 a Demand Cash Credit facility upto a limit of Rs.2,50,000/-. In respect thereof defendant no.1 executed various documents including a Demand Promissory Note, a Deed of Hypothecation and a letter of Lien and Set off all dated 28.11.1974. The same had been tendered and marked in evidence as Exhibits P1, P2 and P3 respectively. The documents were completed in all respects when they were signed by the defendants. In March 1975 the Cash Credit facility was enhanced to Rs. 5 lacs in respect whereof a supplemental deed of hypothecation dated 29.3.1975 was executed by defendant no.1 extending the hypothecation created under the earlier deed of hypothecation to operate in respect of the increased limit. In September 1975 the Cash Credit facility was enhanced to Rs.5,50,000/- and in respect thereof another supplemental deed of hypothecation dated 4.9.1975 (Exhibit P 5) was executed by defendant no.1 extending the earlier hypothecation to cover the enhanced limit. In July 1977 certain further documents were executed including a demand :3: promissory note (Exhibit P 6) dated 28.7.1977 in the sum of Rs.5,50,000/- and a Continuing Security Bond dated 28.7.1977 (Exhibit P 7). The Demand Promissory Note stipulated interest at 7% p.a. over the bank rate with a minimum of 13% p.a. with quarterly rests. The continuing security bond stipulated that the promissory note was to operate as a continuing security for repayment of all monies due and payable by defendant no.1 to the plaintiffs. In consideration of the aforesaid facilities defendant no.2 executed a deed of guarantee also dated 28.7.1977 (Exhibit P 8) in his personal and individual capacity guaranteeing the repayment by defendant no.1 of the plaintiffs dues upto a limit of Rs.5,50,000/- with interest thereon. 3. Prior to the cash credit facilities initially granted in 1974 the plaintiffs had granted to defendant No.1 a "Foreign Bills Purchase" Facility (FBP facility) in 1969. Under this facility the plaintiffs were to purchase/negotiate bills of exchange drawn by defendant No.1 on various parties to whom defendant No.1 had sold goods. The Plaintiffs would thereupon credit the FBP facility account with the amount of the bills after deducting their charges. :4: 4. The plaintiff’s case, which is one of the main disputes between the parties, is that there was an agreement and/or arrangement between defendant No.1 and itself that in the event of dishonour of any of the bills of exchange purchased by it from defendant No.1 and negotiated under the FBP facility and/or in the event of the plaintiffs not receiving for any reason whatsoever the amounts of any such bills of exchange from the respective drawee and/or acceptor thereof the plaintiffs would debit the first defendant’s account under the aforesaid Cash Credit facility by the amount which the plaintiffs had credited the first defendant’s account in respect of the FBP facility at the time of negotiation. This agreement and/or arrangement is seriously disputed by the defendants. The arrangement is deposed to by Ved Prakash Sood on behalf of the Plaintiffs in his affidavit in lieu of examination-in-chief as under : " Apart from the Demand Cash Credit Facility, the plaintiffs had also granted another facility to Defendant no.1 viz. a Foreign Bills Purchase Facility in or about 1969. Under the said facility the plaintiffs would purchase/negotiate bills of exchange drawn by defendant no.1 on various parties to whom Defendant no.1 had sold goods. :5: the agreement and/or arrangement between the plaintiffs and Defendant no.1 was that in the event of dishonour of any of the said Bills of Exchange, so negotiated under the said Facility and/or in the event of the plaintiff not receiving for any reason whatsoever, the amount of any of such Bills of Exchange from the respective drawees and/or Acceptors thereof the plaintiffs would debit the 1st Defendant’s account under the aforesaid Cash Credit Facility with the amount with which the plaintiffs had given credit to the 1st Defendants at the time of negotiation. The arrangement was accepted and agreed by the 1st Defendants." 5. In consideration of the FBP Facility defendant no.2 and one L.B. Soman as directors of defendant no.1 executed a bill Form dated 28.11.1974 (Exhibit P-43A) the nature of which I will deal with at the appropriate place. 6. According to the plaintiffs five bills of exchange drawn by defendant no.1 on one M/s. Copal Ltd. were negotiated by it with the plaintiff under the FBP facility. The bills of exchange were in the sum of U.S. Dollars 16,356.00, 2,088.00, 2,088.00, 6, 264.00, 17,400. The said bills of exchange were accepted on 24.3.1977, 13.5.1977, 13.5.1977, 13.5.1977 and 6.6.1977 respectively for diverse :6: quantities of hydrochloric acid sold by defendant no.1 to M/s. Copal Ltd. The bills of exchange have not been produced in evidence. 7. In accordance with the arrangement arrived at, Defendant No.1 handed over the relevant shipping documents and bills of exchange to the plaintiffs who negotiated the same after deducting their charges. Thereupon the plaintiffs credited the account of defendant no.1 with the proceeds. Thereafter the plaintiffs sent the shipping documents to the Commercial Bank of Africa which was the collecting bank/ collection agent. 8. According to the plaintiffs the Commercial Bank of Africa was appointed by M/s. Copal Ltd. The plaintiffs gave written instructions to the Commercial Bank of Africa to hand over the original shipping documents to M/s. Copal Ltd only after they had accepted the bill of exchange. The procedure was as per the instructions of defendant no.1. According to the plaintiffs its responsibility ended upon the bills of exchange being accepted by M/s. Copal Ltd. After acceptance of the documents the bill of exchange were to be presented by the Commercial Bank of Africa to M/s. :7: Copal Ltd for payment 90 days after acceptance. On M/s. Copal Ltd honouring the bills of exchange the proceeds were to be sent to the plaintiffs who would adjust the same in the defendant’s account. According to the plaintiffs it was the responsibility of the Commercial Bank of Africa to present the bills of exchange to M/s. Copal Ltd for payment on the due dates. As per the alleged arrangement between the plaintiffs and defendant no.1 in the event of dishonour by M/s. Copal Ltd of the bills of exchange the plaintiffs would be entitled to debit the Cash Credit Account of defendant no.1 for the amounts credited to the FBP facility account on negotiation of the dishonoured bill of exchange. 9. In respect of each of the bills of exchange defendant no.1 addressed a letter to the plaintiffs requesting the plaintiffs to negotiate the documents enclosed therewith including a bill of exchange, Invoice, Bill of Lading, GRI Form, Packing List, Form I for Bank Certificate and a Bank Guarantee Form. The letters are produced at Exhibits P 9, P 11, P 13, P 15 and P 17 respectively in respect of each of the five bills of exchange. :8: 10. In respect of each of the bills of exchange the plaintiffs issued collection instructions to the Commercial Bank of Africa authorising them to hand over the documents against acceptance. The collection instructions are marked in evidenced as Exhibits P 10, P 12, P 14, P 16 and P 18 respectively. Upon purchase of the five bills of exchange the plaintiffs credited the first defendant’s FBP facility account after deducting their charges. 11. The plaintiff’s case finally is that the said bills of exchange were duly accepted by M/s. Copal Ltd and the shipping documents were thereupon handed over to M/s. Copal Ltd. The bills of exchange were however dishonoured for non-payment. The plaintiffs arranged to have the bills duly noted and protested. This case is to be found in the plaint and in paragraphs 19 to 23, of P.W.1’s (V.P. Sood) affidavit in lieu of examination-in-chief. The plaintiffs have relied upon various documents in regard to the acceptance and dishonour by non-payment including certain contrary instructions issued by defendant no.1 which is a telex dated 29.3.1977 (Exhibit P 19), Notary Certificate dated 23.3.1977 notifying and protesting in respect of one :9: of the bills of exchange in the sum of U.S.$ 2.088.00 (the remaining certificates have not been produced in evidence though they have been referred to in the evidence of V.P. Sood). In these circumstances the plaintiffs claim that they are entitled to recover the amounts in respect of the dishonoured bills of exchange. The plaintiffs debited the Cash Credit Account as per the alleged agreement and/or arrangement referred to earlier. In support of the claim the plaintiffs have relied upon various debit invoices forwarded by them to the defendants, letters of acknowledgement of debt and security executed by the defendants and a resolution of the board of directors of defendant no.1 admitting and acknowledging the liabilities of the defendants to the plaintiff. I will refer to these documents while dealing with the issues. 12. Defendant no.1 filed Suit No. 1868 of 1980 (Exhibit "D") inter-alia to recover the amounts in respect of the said five bills of exchange. Even after Suit No.1866 of 1980 was filed by defendant no.1, defendant no.1 executed letters of acknowledgment dated 30.11.1980 and 28.6.1982. I will deal with these letters while considering the :10: rival contention between the parties. The defendants’ case : 13. The defendants filed a common written statement. The defendants have admitted the request for the grant of the two facilities namely the Cash Credit facility and the FBP Facility in the years 1974 and 1969 respectively. The defendants contend that it was the plaintiffs duty to present the documents and bills of exchange to the purchaser within reasonable time and to get the same accepted and to present the bills of exchange on the due dates to the acceptor for payment. The defendants also admit that they discounted the said bills of exchange with the plaintiffs inter-alia by forwarding the documents and the bills of exchange drawn on M/s.Copal Ltd and that they had requested the plaintiffs to credit the amount of the bills to their FBP account. It is contended that the Commercial Bank of Africa is the agent of the plaintiffs for the purpose of delivery against acceptance of the bills of exchange and receiving the price thereof. According to the defendants the Commercial Bank of Africa did not present the bills of exchange to the drawee within reasonable time and :11: the plaintiffs also took no steps for due presentation of the bills of exchange to the drawee and thereby jeopardised the position of the first defendant. 14. The defendants contended that there was collusion between M/s. Copal Ltd, Commercial Bank of Africa and the plaintiffs as a result whereof the bills of exchange were not presented to the drawee within reasonable time from the date of the receipt of the documents nor were they presented to the drawee within reasonable time. On account of the said collusion the drawee managed to obtain delivery of the goods at the port of destination without payment. The defendant’s grievance is that they were not kept informed about non-presentation of the bills of exchange for acceptance and/or for payment. The defendants allegedly came to know about it only in September 1977 and accordingly deputed their Export Executive to visit Kenya to ascertain the facts. On 29.10.1977 the defendants instructed the Commercial Bank of Africa to get the bills protested. M/s. Copal Ltd had managed to obtain delivery of the consignments without production of the bills of lading upon their furnishing a bank guarantee to the Shipping Corporation of India, the :12: carrier of the goods. 15. The defendants have denied the agreement and/or arrangement pleaded by the plaintiffs as set out earlier regarding debiting the Cash Credit Account with the amount of the dishonoured bills purchased by the plaintiffs. The defendants have alleged that they signed all the documents referred to above in blank inter-alia on the representation of the plaintiffs officers that the same were required to be signed in blank and that they would not be filled in without the consent of all the parties. The defendants have alleged that when the Cash Credit facility was granted the banks norms required them to sign various documents in favour of the bank in blank. These allegations have also been made in respect of the documents as well as certain letters written on the letter heads of the defendants. In para 8 of the affidavit in lieu of examination-in-chief defendant no.2 has made the above allegations in respect of the documents including in respect of Exhibits P 2 to P 8, P 22 to P 30 and P 43 A. 16. According to the defendants the accounts relating to the cash credit facility were closed in :13: the year 1982 and that the transactions had not been clearly reflected in the plaintiffs books of accounts. The defendants have disputed the accounts. The defendants have denied that the bills of exchange were presented for acceptance. The defendants have denied that the plaintiffs sent any debit invoices. 17. By an order dated 29.6.2005 S.U. Kamdar, J (as His Lordship then was) settled the following issues :- 1. Whether the plaintiff has advanced foreign bill purchase facility to the defendant and thereunder a sum of Rs.3,57,363.58/- is payable alongwith interest at the rate of 19.5% p.a. ? 2. Whether the plaintiff proves that the plaintiff were entitled to debit the cash credit account with the amount covered by the five bill of exchange purchased by the plaintiff and dishonoured by the drawee M/s.Copal Ltd. ? 3. Whether the plaintiff proves that the bill of :14: exchange were dishonoured on the ground of non-payment ? 4. Whether the defendant proves that the plaintiff were negligent in not ensuring proper presentation of the bill of exchange and thus they are not liable to make payment in respect of the said five bills of exchange ? 5. Whether the defendant proves that the Commercial Bank of Africa was the agent of the plaintiff and thus on the defaults on the part of Commercial Bank of Africa the plaintiffs are liable ? 6. Whether the defendant proves that the defendant no.1 executed the documents in blank and as such the same are not binding on the defendants ? 7. Whether the defendant no.2 proves that the deed of guarantee executed by him was without consideration ? 8. Whether the plaintiff proves that the :15: defendant has accepted and or confirmed the liability under the cash credit account by signing the letter of acknowledgement as set out in the plaint ? 9. Whether the defendant proves that there was a collusion between the plaintiff Commercial Bank of Africa and M/s. Copal Ltd. and by virtue of such collusion the liability of the defendants in respect of the suit transaction is discharged ? 10. Reliefs, if any ? 18. Evidence of all the witnesses was led before the Commissioner for taking evidence. The plaintiffs led the evidence of one V.P. Sood and one Suhas Eknath Kulkarni. Defendant no.2 examined himself on behalf of defendant no.1 and himself. Re : Re : Re : ISSUE NO.6 Whether the defendant proves that the defendant no.1 executed the documents in blank and as such the same are not binding on the defendants ? :16: 19. In paragraph 8 of his examination-in-chief, Defendant No.2 deposed that the various documents referred to and relied upon by the Plaintiff were executed by/on behalf of the Defendants in blank. He further alleged that he had handed over several blank letter heads of Defendant No.1 which were subsequently filled-in by the Plaintiffs. While mentioning certain specific documents, he has alleged that they constituted only some of the documents which were given in blank. In other words, according to the Defendants, all the documents, agreements, deeds, writings and letters in the case were executed by or on behalf of the Defendants in blank. 20. The evidence suggests the contrary. Indeed, in respect of certain crucial documents, Defendant No.2 admitted in cross-examination that they were not executed in blank. 21. Firstly, it is pertinent to note that the reasons for, and the circumstances in which the documents were allegedly executed in blank on behalf of the Defendants have not been proved. Defendant No.2 alleged that the various documents were executed in blank as the Plaintiff required them to :17: do so. He stated in paragraph 8 of his evidence that, "...........one of the bank official who was dealing with me in respect of the said cash credit facilities had assured me that the said documents are required to be signed in blank.......". He does not mention who the bank official was. He did not mention the name of the bank official in his written statement. He did not mention his name in the evidence. Later, in paragraph 8, he once again deposed : "The said bank official also asked me to hand over certain blank letter heads duly signed by me in my capacity as a director of the first Defendant". Once again, he does not mention the name of the bank official. He further went on to state : "I was reluctant to do so but the said bank official assured me that the same will not be tampered with or filled in without my consent and without my knowledge. He insisted that forwarding of the said documents was essential before the bank agrees to grant cash credit facilities." Here again, he does not mention the name of the bank official. :18: 22. On a question such as this, it was incumbent upon the Defendant to name the bank official. The Defendants ought at least to have indicated some facts by which the name of the bank official could have been ascertained. Such alleged assurances even if given, would be beyond the normal authority of the Plaintiff’s officers. The assurances would not be binding on the Plaintiff in the absence of anything more. The Defendant has not indicated any circumstances which would suggest that the alleged assurances, even if given, were binding on the Plaintiff. 23. Secondly, four documents, which are of crucial importance in the case inasmuch as they constitute an acknowledgment of the Defendant’s liability are at Exhibit "P-27", "P-28", "P-29" and "P-30" in evidence. Before I describe these documents, it is important to note that in paragraph 8 of the examination-in-chief, Defendant No.2 specifically, and not merely generally, referred to them as having been signed in blank. It is further important to note that Defendant No.2 in paragraph 26 in his examination-in-chief stated as under : "26. In the various Exhibits :19: which are printed blanks have been subsequently filled in by the Plaintiff’s officers. Exhibits P-27, P-28 and P-29 were furnished by the Defendants to the Plaintiffs which were completely blank and the Defendant No.1 has merely signed on the documents without the documents being either typed out or filled in". 24. The attention of Defendant No.2 was specifically drawn to Exhibits P-27 to P-30. The second Defendants’ answers to Questions 27 and 28 are of crucial importance. They read as under : "[Attention of the Witness is drawn to Exhibits ‘P27’, ‘P28’, ‘P29’ and ‘P30’ of the Compilation of Documents] Q.27 Please show me where are the blanks in the documents which have been filled in by hand ? Ans. As far as these documents, being Exhibits ‘P27’, ‘P28’, ‘P29’ and ‘P30’ are concerned, there is nothing in the said documents that the Plaintiffs have filled in any blanks. Q.28. I put it to you that the documents at Exhibits ‘P27’, ‘P28’, ‘P29’ and ‘P30’ did not contain any blanks and that you have signed the same and handed them over to the Plaintiffs with the full knowledge and understanding of the :20: contents thereof. Ans. The fact that I had signed these documents automatically concludes that I had understood the documents and contents thereof." 25. It must be noted that there was no re-examination on this issue. The question whether these documents were executed in blank or not, must therefore be conclusively answered in the negative, against the Defendants. 26. Thirdly the 2nd Defendant answers to Question Nos.11 to 17 in his cross-examination are relevant and read as under : "Q.11 Where would you normally keep letter-heads of Defendant No.1 Company ? Ans. The said letter-heads were kept in the office with the concerned persons generally. Q.12 Have you ever handed over blank signed letter-head/s to strangers ? Ans. Never Q.13 Therefore, would it be correct to say that under normal circumstances you would not hand over signed blank letter-head/s of :21: Defendant No.1 to any stanger ? Ans. Except to the banker (Witness volunteers) Whenever the same is asked for and with the understanding that the same will not be used without my consent. Q.14. As a commercial person, are you aware of the procedure followed by the Banks while granting credit facilities to the customers ? Ans. I am not aware about the bank procedures. Q.15. Apart from dealing with the Plaintiff-Bank, did you ever availed any credit facilities from any other bank/s ? Ans. Yes. Q.16 At that time, did you hand over to that bank blank letter-heads of Defendant No.1 Company signed by you? (At this stage Ms.K.C. Nichani objects saying that it is not relevant question as to how many banks the Witness has dealt with and in what manner and the same is not the issue in the present matter that the Witness is dealing with any third party/bankers) (Ms.Sowmya Srikrishna replies saying that the question is relevant to show whether the Defendants were in the practice of handing over blank signed :22: letter-heads as that is the defence raised by the Defendants in the present suit). Ans. I do not remember. Q.17. You had filed suit being Suit No.1866 of 1980 against the Plaintiffs. Please look at the Plaint (Exhibit-D3). Is there any allegations in the said Plaint that the Plaintiffs herein requested you to hand over blank signed letter-heads to them ? Ans. It is not mentioned in the said Plaint." 27. The objection to Question No.16 is overruled. The question is relevant as regards the Defendant’s allegation about the practice of signing blank documents. Defendant No.2 has alleged that he had signed the suit documents in blank. An enquiry as to his practice in other matters especially regarding bank transactions is relevant. 28. The above answers do not inspire much confidence in regard to his case of having signed blank documents in this case. There is no convincing reason why the Defendants executed blank documents only in the present case. While volunteering the answer to Question No.13, Defendant :23: No.2 does not even state when the alleged "understanding" was arrived at. Nor does he state with whom the "understanding" was arrived at. 29. Fourthly even in Suit No.1866