IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 5-8-2008 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE M.VENUGOPAL O.S.A.No.333 of 2007 and MP No.2 of 2007 Allahabad Bank 41, Anna Salai Chennai represented by its Manager .. Appellant/2nd Defendant vs 1.Tamilnadu Electricity Board 2nd Floor, KRR Maligai Electricity Avenue 800, Anna Salai Chennai 600 002 rep. By its Chief Engineer Thermal Designs 2.Beacon Tileman Limited (In Liquidation) represented by the Official Liquidator High Court, Madras. (Amended as per order dt. 7.12.2001 in Application No.4409 of 2001 in CS No.628/92) .. Respondents/Plaintiff 1st Defendant Original side appeal preferred under Order 36 Rule 1 of O.S. Rules read with Clause 15 of Letters Patent against the judgment and decree of this Court dated 29.4.2003 in C.S.No.628 of 1992. For Appellant : Mr.T.S.Gopalan For Respondents ; Mr.N.Muthuswami for R1 Mr.A.P.Babu for R2 https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT (Judgment of the Court was delivered by M.CHOCKALINGAM, J.) This appeal challenges a judgment of the learned Single Judge made in C.S.No.628 of 1992 whereby the second defendant was directed to pay interest to the first defendant on the bank guarantee from 18.11.1987 as per the Reserve Bank of India rates. 2.The case of the plaintiff is as follows: Pursuant to the tender and supplementary tender invited for the design and construction of chimney as well as a passenger lift, the plaintiff quoted Rs.1,95,93,360/-. The first defendant accepted the same, and the plaintiff paid Rs.1 lakh towards earnest money deposit, and as regards the balance of Rs.21,29,976/-, the plaintiff was permitted to give bank guarantee. Accordingly, it was furnished for Rs.21,30,000/-. It was to remain in force till 30.4.1990, and later on, it was extended till 30.4.1992. In spite of due completion of the work by the plaintiff, the first defendant unilaterally and wrongfully invoked the bank guarantee on the ground of breach of contract for non-employment of four expatriate staff (Tileman experts). The contract did not provide for any right to the first defendant to specify the number of experts to be deployed from time to time. In the absence of any such agreement, it is not open to the first defendant to unilaterally specify the number of persons to be deployed. The first defendant has no right to invoke the bank guarantee and compel the second defendant to remit the sum of Rs.21,30,000/- since the first defendant had not suffered any damage or injury in the performance of the contract, and there is no clause in the contract. Hence, the suit for declaration and consequential permanent injunction. 3.The first defendant filed a written statement alleging that by letter dated 8.6.1987, the plaintiff confirmed that during execution of the work at various phases, experts from Tileman, U.K., will be available; that on that assurance, the price bids were ordered to be opened by the Board; that as per the contract, the company should have completed the work by 2.11.1989; that the entire delay is attributed to the plaintiff; that the company completed the work on 27.1.1992; that a fine of Rs.20,000/- was imposed on the plaintiff for slow progress; that the delay is due to the plaintiff and also due to the non- deployment of foreign experts; that the first defendant has not wrongfully invoked the bank guarantee; that had the plaintiff not furnished the names of the experts and the collaborator's undertaking at the time of finalisation of the tender, the plaintiff's offer would have been straightaway rejected; that an amount of Rs.18,96,810/- is the minimal amount recommended by the Committee constituted by the first defendant to go into the issue of recovery for non-deployment of foreign experts, towards recovery for the lapses by the plaintiff; that the plaintiff had https://hcservices.ecourts.gov.in/hcservices/ categorically admitted that in the event of decision taken against them, they agreed to pay the entire penalty of Rs.18,96,810/- with interest to the Board; that the plaintiff was given two months' time to remit the same; that according to the terms of the contract, liquidated damages of Rs.5,55,075/- has been levied on the plaintiff; that the amount covered under the bank guarantee may not be sufficient for the entire dues from the plaintiff; that there is no merit in the suit, and the same was to be dismissed. 4.On the above pleadings, 3 issues were framed by the trial Court. The parties went on trial. By consent documents were marked, and no oral evidence was adduced. The learned trial Judge has found that the plaintiff is not entitled for the declaration as prayed for with respect to Rs.4,74,203/- and decreed the suit only to that extent. The trial Court also held that the first defendant is entitled with respect to the balance ¾ of the amount namely Rs.14,22,608/-, and the second defendant was liable to pay interest on the amount covered by the bank guarantee from 18.11.1987 at the Reserve Bank of India rates. Aggrieved over that part of the decree directing the second defendant to pay interest on the amount covered by the bank guarantee from 18.11.1987 at the Reserve Bank of India rates, the second defendant bank has brought forth this appeal. 5.The only question that would arise for determination by this Court is whether the second defendant is liable to pay interest to the first defendant as ordered by the trial Court? 6.Advancing arguments on behalf of the appellant, the learned Counsel would submit that the trial Court has granted the relief beyond the pleadings; that it was a suit for declaration and consequential permanent injunction; but, the trial Court has granted a money decree; that the appellant is only a banker who issued a bank guarantee in favour of the first respondent/first defendant at the request of the second respondent/plaintiff; that as such the banker's liability was limited to the scope of the bank guarantee; that the bank guarantee in question did not provide for the payment of interest on delayed payments; that there was no agreement on rate of interest in the case of delayed payments; that the suit before the Court was filed by the second respondent against the first respondent and the appellant; but, the first respondent did not make any counter claim in respect of the suit claim; that the trial Court has granted a money decree in favour of the first respondent; that the relief that was sought for by the second respondent/plaintiff was only for a declaration that the first defendant is not entitled to claim any amount from the plaintiff as claimed in the letter No.SE/C1/ TTPP/OB/JE/F. Chimney ID 2204/91, dated 2.11.1991, and for a consequential permanent injunction; but, the trial Court has granted the relief in a case where neither of the respondents has made any plea for payment of any interest either in the suit or in the written statement; that no issue whatsoever regarding the https://hcservices.ecourts.gov.in/hcservices/ payment of any interest was also framed in the suit or any evidence was let in in that regard; and that the appellant did not contest the suit as it was bound to honour the commitments made under the bank guarantee without any demur or protest. 7.Added further the learned Counsel that the appellant could not make any payment under the bank guarantee on account of the ad-interim injunction granted in favour of the second respondent by the trial Court by its order dated 2.6.1992 made in O.A.No.437 of 1992 in the said suit; that in obedience to the orders of this Court dated 5.1.1993, made in O.A.No.437/92 and Application No.4292/92, the appellant made the payment of a sum of Rs.5,55,075/- and consequent to the same only, O.S.A.No.173 of 1994 filed by the second respondent was dismissed on 14.6.1994; that the suit was for a mere declaration and injunction and that too by the second respondent; that the court fee paid was only on that basis; that the trial Court was in error in holding that the amount of bank guarantee was still lying in the appellant bank when there was no such plea made by any of the parties or evidence in support thereof; that there was no plea or evidence regarding the interest rate chargeable from time to time by the Reserve Bank of India; that the trial Court was not correct in holding that the appellant was liable to pay interest on the amount lying with them as per the Reserve Bank of India rates from 18.11.1987 particularly when the guarantee issued on 18.11.1987 was invoked only after 2.11.1992; that in effect the trial Court has passed a money decree in favour of the plaintiff and the contesting first defendant in the suit for declaration and injunction even without payment of court fee; that apart from all the above, the decree that was passed was incapable of execution inasmuch as the executing Court cannot go beyond the decree to find out what is the money in deposit and what was the interest chargeable by the Reserve Bank of India from time to time, and under such circumstances, that part of the judgment issuing direction to the appellant/second defendant to make payment of interest to the first defendant has got to be set aside. 8.Contrary to the above contentions, it is contended by the learned Counsel for the respondents that it is not in controversy that the plaintiff has issued the security by way of furnishing bank guarantee to the extent of Rs.21 lakhs and odd; that the bank guarantee was actually issued on 18.11.1987; that the same was invoked only after 2.11.1992; that there was a complete delay that was caused by the second defendant bank since the amount was lying in the hands of the second defendant who is the appellant herein; that also the delay was caused by the second defendant; that the trial Court has considered all the factual circumstances attendant and has found that the second defendant was liable to make payment of interest at the Reserve Bank of India rates to the first defendant on the amount covered by the bank guarantee; and that under such circumstances, the appeal does not carry any merit, and it has got to be dismissed. https://hcservices.ecourts.gov.in/hcservices/ 9.The Court paid its anxious consideration on the submissions made and looked into the materials available. 10.As could be seen above, pursuant to the original tender and supplementary tender called for by the first defendant for the design and construction of a 220 metre high R.C.C. Chimney as well as a passenger lift for its 2 x 210 megawatt units at Tuticorin Thermal Power Project, the plaintiff quoted Rs.1,95,93,360/-, and the same was accepted by the first defendant and they confirmed the said lump sum price. Admittedly, the plaintiff paid Rs.1,00,000/- as earnest money deposit and for the balance of Rs.21,29,976/- towards the security deposit, the plaintiff was permitted to furnish bank guarantee. Accordingly, the plaintiff furnished a bank guarantee for Rs.21 lakhs and odd, which was issued by the second defendant. The same was originally in force till 30.4.1990. Then, it was extended till 30.4.1991 and thereafter till 30.4.1992. The first defendant unilaterally invoked the bank guarantee to the extent of Rs.21,30,000/- on the ground that there was breach of contract by the plaintiff by non-deployment of 4 expatriate staff (Tileman experts). On the invocation of the bank guarantee, the plaintiff was aggrieved. There was exchange of notices. Under such circumstances, the plaintiff has brought forth the suit for, (a) a declaration that the first defendant is not entitled to claim any amount from the plaintiff as claimed in the letter LR No.SE/C1/TTPP/OB/JE/F.Chimney ID 2204/91 dated 2.11.1991; and (b) a consequential permanent injunction restraining the first defendant from receiving and the second defendant from disbursing any amount towards the claim contained in the first defendant's letter dated 2.11.1991 pursuant to invoking of the bank guarantee No.37 BTPL/11/87 dated 18.11.1987 for Rs.21,30,000/- by the first defendant. 11.On trial, the trial Court has granted the relief which runs as follows: "17.Therefore, the plaintiff is not entitled for the declaration, as prayed for with respect to the entire amount of the bank guarantee invoked, but the plaintiff is entitled only for the declaration with respect to Rs.4,74,203/-; the suit is decreed only to that extent; the first defendant is entitled with respect to the balance ¾ of the amount, Rs.14,22,608/-. 18.The second defendant has given the bank guarantee which has already been invoked by the first defendant on 18.11.1987; this amount is still lying with the second defendant; therefore, the second defendant is liable to pay the same together with interest thereon from 18.11.1987, payable as per the Reserve Bank of India rates to the first defendant." 12.As could be seen above, the trial Court has not only https://hcservices.ecourts.gov.in/hcservices/ granted the relief in favour of the plaintiff in part, but also granted a money decree. While doing so, the trial Court has also held that the second defendant is liable to pay interest on the amount covered by the bank guarantee from 18.11.1987 at the Reserve Bank of India rates to the first defendant which is the subject matter of appeal. 13.After careful consideration of the materials available and the submissions made by the learned Counsel on either side, the Court has to necessarily record its disagreement with that part of the finding recorded by the trial Court whereby the second defendant was directed to pay interest. It was a suit filed by the plaintiff for a declaration and also for a consequential permanent injunction as stated supra. On trial, the learned trial Judge has granted the relief that the plaintiff is not entitled for the declaration as prayed for with respect to the entire amount of the bank guarantee invoked, but only entitled to declaration only to the extent of Rs.4,74,203/-. The trial Court has not stopped with the granting of the said relief, but has added that the first defendant is entitled with respect to the balance ¾ of the amount namely Rs.14,22,608/-. As rightly pointed out by the learned Counsel for the appellant, it was only a suit for declaration and injunction, and the first defendant has neither made a counter claim nor paid the court fee therefor. But, the learned trial Judge has granted the relief that the first defendant is entitled to ¾ of the sum namely Rs.14.22,608/-. Now, the appeal is brought forth by the second defendant who challenges that finding and also a decree directing the second defendant to make the payment of interest on the amount covered by the bank guarantee. This part of the judgment of the learned Single Judge has got to be set aside for more reasons than one. 14.It was a suit for declaration and consequential permanent injunction as referred to above. No relief was sought for against the second defendant. Insofar as the question of interest, there was no averment made either by the plaintiff in the plaint or by the first defendant in the written statement. It is pertinent to point out that no issues were also framed to the effect whether the second defendant was liable to pay interest. Apart from this, the parties were also not called upon to let in any evidence in that regard. But, curiously the trial Court without any pleadings, issues or evidence, has found that the second defendant was liable to pay interest on the amounts covered by the bank guarantee to the first defendant. It has also further directed the payment of interest from 18.11.1987 on the Reserve Bank of India rate. At this juncture, it remains to be stated that the bank guarantee was taken on 18.11.1987 and the same was also revoked after 2.11.1992. It is an admitted position that at the time of the initiation of the proceedings by the plaintiff, an ad-interim injunction was granted in favour of the second respondent/plaintiff by an order of this Court dated 2.6.1992 in O.A.No.437/92. An application in No.4292/92 was filed to vacate the said injunction. But, the https://hcservices.ecourts.gov.in/hcservices/ injunction was in force till 5.1.1993. Pursuant to the order made, the appellant has also paid a sum of Rs.5,55,075/- and as far as the remainder was concerned, the injunction was in force. Under such circumstances, the rest of the amount could not be paid, and thus, all would go to show that the order of the learned Single Judge could not be sustained either legally or factually. 15.It is pertinent to point out that a direction was given to the second defendant to make the payment of interest without necessary pleadings, issue thereon and evidence in that regard. Hence that finding cannot be sustained legally. Factually also, in view of the interim injunction which restrained the second defendant from making payment, it could not do so. At one point of time, pursuant to the order of the Court, a sum of Rs.5,55,075/- was actually paid by the second defendant to the first defendant and in respect of the remainder, the injunction order continued. Under the circumstances, practically the second defendant was restrained from making payment as per the bank guarantee, and hence the finding recorded by the learned trial Judge that the bank guarantee was lying in the hands of the second defendant cannot be correct for the reason that the amount in the hands of the second defendant covered by the bank guarantee, could not be released in view of the Court's order. It is not the fault of the second defendant, and nothing could be attributed to the act of the second defendant. In such circumstances, this Court feels that it is a fit case where that part of the decree directing the second defendant to make the payment of interest to the first defendant has got to be set aside. 16.In the result, this appeal is partly allowed setting aside that part of the judgment and decree of the learned Single Judge directing the second defendant to pay interest to the first defendant on the amount covered by the bank guarantee from 18.11.1987 as per the Reserve Bank of India rates. In all other regards, the judgment and decree of the trial Court would prevail. The parties shall bear their own costs. nsv/ Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar https://hcservices.ecourts.gov.in/hcservices/ To The Sub Asst Registrar, Original Side, High Court, Madras.104. + 2 ccs to Mr. N. Muthuswami, Advocate SR No. 42660 + 1 cc to Mr. T. S. Gopalan Advocate SR no. 42650 OSA No.333 of 2007 GV(CO) SR/12.8.2008 https://hcservices.ecourts.gov.in/hcservices/