1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.617 OF 2004 IN SUMMONS FOR JUDGMENT NO.76 OF 2003 IN SUMMARY SUIT NO.1055 OF 2000 Centurion Bank Ltd. ...Appellant vs. Klen and Marshalls Manufacturers and Exporters Ltd. ...Respondent --- Mr.Virag Tulzapurkar, Sr.Advocate with Ms.Alpana Ghone i/b. M/s.Kanga & Co., for Appellant. Mrs.Nalini Chidambaran i/b. Mr.Vipul Shukla, for Respondent. AND CROSS APPEAL (LODG) NO.8 OF 2004 IN APPEAL NO.617 OF 2004 IN SUMMONS FOR JUDGMENT NO.76 OF 2003 IN SUMMARY SUIT NO.1055 OF 2000 Klen and Marshalls Manufacturers and Exporters Ltd. ...Appellant Vs. 2 Centurion Bank Ltd. ...Respondent --- Mrs.Nalini Chidambaran i/b. Mr.Vipul Shukla, for Appellant. Mr.Virag Tulzapurkar, Sr.Advocate with Ms.Alpana Ghone i/b. M/s.Kanga & Co., for Respondent. --- CORAM: D.K.DESHMUKH & A.A.SAYED, JJ. DATED: 2nd March,2009. P.C.:- 1. Leave to amend as per the draft handed in. Amendment to be carried out within a period of two weeks from today. 2. The appeal is directed against the order dated 23.8.2004 passed by the learned Single Judge of this Court in Summons for Judgment no.76 of 2003. That summons for judgment was taken out in Summary Suit no.1055 of 2000. That suit was filed by the present respondent-Klen Marshalls Manufacturers and Exporters Ltd. The plaintiff is a public limited 3 company incorporated under the Companies Act. The defendant which is a appellant is a bank which has now been taken over by H.D.F.C. Bank. The plaintiff's case in the plaint is that the defendant gave a bank guarantee for Rs.1,00,00,000/- (Rupees One crores only) on 18.2.1997 which was valid upto 17.2.1998 in respect of the plaintiff's contract with M/s.Bhupendra Industries Ltd. It is the case of the plaintiff that the guarantee was unconditional and irrevocable. That guarantee was invoked by the plaintiff but the defendant did not make payment, hence, this suit was filed. The defence of the defendant was that the bank guarantee was not unconditional but was conditional bank guarantee. As per the contract between the plaintiff and the said M/s.Bhupendra Industries Ltd., the bank had agreed to secure the amount of 50% advance which the plaintiff was to pay to said M/s.Bhupendra Industries Ltd. According to the plaintiff, that term was included in the draft bank guarantee, but subsequently that term was deleted as per letter dated 20.2.1997 because the plaintiff has shown that the amount of advance that was to be paid to M/s.Bhupendra Industries Ltd. will 4 be released only to the branch of the defendant-bank. According to the defendant, when the defendant found from M/s.Bhupendra Industries Ltd. that the payment of advance has not been made, the defendant by letter dated 4.7.1997 withdrew the bank guarantee, stating in the letter that M/s.Bhupendra Industries Ltd. had informed the bank that payment of advance has not been received. That letter was replied by the plaintiff wherein the plaintiff asserted that payment of advance has actually been made earlier. It was the defence of the defendant that the documents preceding to the bank guarantee and subsequent to the bank guarantee show that the bank guarantee was not unconditional, and therefore, as the plaintiff has not proved that any payment of advance has been made to M/s.Bhupendra Industries Ltd., the bank guarantee has become void. The learned Single Judge has decided the summons for judgment by his order dated 23.8.2004. The learned Single Judge held that the defence raised as to the conditional nature of the bank guarantee is false. The learned Single Judge, however, held that the plaintiff was not entitled to claim interest on the amount before the 5 institution of the suit as there was no contract for payment of interest, and therefore, the learned Single Judge has directed the defendant to deposit an amount of Rs.1 crore as a condition to defend the suit. 3. We have heard the learned Counsel appearing for both the sides. The learned Counsel appearing for appellant relying on the judgment of the Supreme Court in the case “Mrs.Raj Duggal Vs. Ramesh Kumar Bansal, AIR 1990 Supreme Court 2218” submitted that the test, while examining the question 'whether leave to defend is to be granted in a summary suit', is to see whether the defence raises a real issue and not a sham one, in the sense that if the facts alleged by the defendant are established there would be a good or even a plausible defence on those facts. Therefore, we have to approach the defence put up by the defendant from that point of view. No doubt, if the terms of the bank guarantee are seen which have been considered by the learned Single Judge, they clearly shows that it was an unconditional bank guarantee. However, in our opinion, we cannot ignore 6 the letter dated 20.2.1997 where the plaintiff itself has stated that “Advance against supplies are made only to the issuing bank on behalf of the client and/ hence such payment will be released only to your branch of the bank.”, and according to the defendant this was the reason why the defendant agreed to modify the clause in the bank guarantee which contemplates payment of advance first. In our opinion, what is stated in the letter dated 4.7.1997 from the defendant to the plaintiff and what is stated in the reply from the plaintiff dated 12.7.1997 is relevant. Letter dated 4.7.1997 reads as under:- “M/s.Klen & Marshalls Manufactures & Exporters Limited. 496, 9th Cross, 3rd Main, Rajmahal Vilas Extension, Bangalore 560 080. Kind Attention: Mr.B.Muralidhar, Director – Finance. July 4, 1997 ------------ bng/kns/160 Dear Sir, Our Bank Guarantee No.73/97 dated 18/02/97 for Rs.1,00,000/- 7 Ref: Our letter BNG/SR/73 dated May 24, 1997. We invite your attention to our letter as also the subsequent personal discussions we had with you & other officials of your Company in the matter. We now understand from our customer that the purpose for which the subject Bank Guarantee was originally issued by us in your favour has not been served and that our customer has now made alternate arrangements to meet his working capital funds in the project. You may therefore, treat the subject guarantee as withdrawn and return to us the original guarantee (No.73/97 dated 18/02/97 for Rs.1,00,00,000/-) which was handed over to Mr.James Nova of your Company on the 19th May 1997. Yours faithfully, Sd/- MANAGER. “ --- The letter dated 12.7.1997 issued by the plaintiff to the defendant reads as under:- “DELIVERED TO YOU THROUGH XEE-MAIL KLEN & MARSHALLS MANUFACTURERS & EXPORTERS LIMITED, No.496, 9th Cross, 3rd Main, Rajmahal Vilas Extension, Bangalore – 568 880. 8 PH : 3311956, 3311959, Fax: 3348384 EMAIL:sysadmin@KLENBLRI.XEEBLR.XEEMAIL.ems.vsnl. net.in K&M-14/CBL/EM/97-1685 12TH JULY,1997. To, M/S.CENTURION BANK LIMITED, CUNNIGHAM ROAD, BANGALORE – 52. KIND ATTN: MRS.K.N.SUBHASHINI, MANAGER DEAR SIRS, SUB:- YOUR BANK GUARANTEE NO.73/97 DT.18/02/97 FOR RS.1 CRORE BEHEST M/S.BHUPENDRA INDUSTRIES LTD. REF:- YOUR LETTER NO.BNG/KNS/160 DT. JULY 4TH 1997. --- WITH REGARD TO THE ABOVE SUBJECT, AND THE TELECON YOU HAD WITH OUR MRS.RAMAN, PLEASE NOTE THAT THE PAYMENT OF THE SAME HAD BEEN MADE TO THEM EARLIER AND YOUR SAID GUARANTEE IS BEING HELD AGAINST THE SAME, WHICH MAY PLEASE BE NOTED AND TAKEN ON RECORD. THEREFORE, THE SUBJECT GUARANTEE CANNOT BE WITHDRAWN NOR RETURNED. IN VIEW OF THIS, YOU MAY PLEASE INTERACT WITH THE CONCERNED OFFICIALS OF M/S.BHUPENDRA INDUSTRIES LTD. AND CONFIRM THAT THE BANK GUARANTEE REMAINS ACTIVE FOR THE PURPOSE, AS WE CONTINUE THE TRANSACTION. THANKING YOU, YOURS FAITHFULLY, for KLEN & MARSHALLS MFRS.& EXPTRS.LTD 9 sd/- JAMES NOVA, A.G.M.(OPERATIONS) For INFORMATION OF MR.RAMAKRISHNA M.G. MR.ADLAKHA D.P.” Perusal of letter dated 4.7.1997 shows that the defendant-bank had cancelled the bank guarantee because, according to the bank, the payment of advance was not received by M/s.Bhupendra Industries Ltd. Had it been the case of the plaintiff that the Bank guarantee operates whether the advance amount is paid to M/s.Bhupendra Industries Ltd. or not, because the bank guarantee is unconditional, the plaintiff would have informed the Bank that the Bank cannot be concerned with the fact whether the advance is paid or not. But that is not the stand taken by the plaintiff. The plaintiff on the other hand asserts that the amount of advance has already been paid and therefore, the bank guarantee cannot be cancelled. In our opinion, therefore, if the plaintiff establishes that such a correspondence was exchanged between the parties, it is possible that the defendant may be able to establish its defence 10 that the bank guarantee is conditional, and therefore, in view of the law laid down by the Supreme Court in the case “Mrs.Raj Duggal Vs. Ramesh Kumar Bansal, AIR 1990 Supreme Court 2218” the defendant would be entitled to unconditional leave to defend the suit. The second aspect, in our opinion, which will be relevant is that even according to the learned Single Judge the plaintiff was not justified in claiming interest on the due amount from the date which is anterior to the institution of the suit, and therefore, in our opinion, the learned Single Judge should not have granted conditional leave to defend the suit. 4. Taking overall view of the matter therefore, the appeal succeeds and is allowed. The order passed by the learned Single Judge which is impugned in the appeal is set aside. The summons for judgment is disposed of accordingly. Unconditional leave to defend the suit is granted to the defendant. Written statement be filed within a period of Eight weeks from today. Cross appeal is also disposed of. The bank guarantee which has been furnished 11 by the appellant pursuant to the interim order passed in the appeal, be returned to the appellant. The learned Single Judge dealing with the suit is requested to hear and dispose of the suit as expeditiously as possible. (D.K.DESHMUKH, J.) (A.A.SAYED,J.) ---