Case: M/S. Reliance Salt Ltd Vs. M/S. Cosmos Enterprises

No.1 is guilty of misconduct, irregularity, deception, misrepresentation and fraud etc. and under the circumstances, the defendant has no right to invoke the bank guarantee." Paragraphs 11, 16 and 19 of the pleadings and the evidences adduced on behalf of 1st Respondent, thus, were confined to the issue of inferior quality of supply, late supply and short supply of consignments. "Fraud" is defined in Section 17 of the Indian Contract Act, 1872 in the following terms : "S.17. "Fraud" defined. "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract :(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;(2) the active concealment of a fact by one having knowledge or belief of the fact;(3) a promise made without any intention of performing it;(4) any other act fitted to deceive;(5) any such act or omission as the law specifically declares to be fraudulent.Explanation. Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech." 17. A bare perusal of the contents of the Bank Guarantee, as noticed hereinbefore, shows that there is no escape from arriving at a conclusion that the guarantee furnished was an unconditional one. It not only provided for loss or damage in case of breach of contract, but also loss or damage by reason of non-settlement of bills. Such bills under the agreement of consignment were to be settled within a period of 30 days. In the event the bills are not settled within the period stipulated in the agreement, the parties intended, as it appears from the tenor of the Bank Guarantee, that the same would constitute a breach of contract. It is not in dispute that some amount was due to the Appellant from the Respondent. The suit was not a suit for settlement of accounts. The suit was, inter alia, only for a decree for injunction restraining Appellant from invoking the Bank Guarantee. Respondent No.2-Bank, indisputably, did not controvert allegations contained in the demand of the appellant. It did not contest the suit. It even did not support Plaintiff-Respondent No.1 before the learned Trial Judge or before the High Court.18. A claim which is denied or disputed, in the event of necessity for determination of the lis, may not be found to be correct. If Appellant was to allege a breach of contract in a properly framed suit, Respondent No.1 could also allege the breach of contract on the part of Appellant herein. Breach of contract by reason of supply of inferior quality of tea or salt or delay in supply or a short supply may render a party responsible for damages for commission of breach of contract, but, breach of contract alone does not lead to the conclusion that a fraud had been committed thereby. It is contended that commission of fraud would include any act to deceive but then such act must be confined to acts committed by a party to a contract with intention to deceive another party or his agent or to induce him to enter into a contract. Fraud, which vitiates the contract, must have a nexus with the acts of the parties prior to entering into the contract. Subsequent breach of contract on the part of a party would not vitiate the contract itself. 19. "Contract of guarantee" is defined under Section 126 of the Indian Contract Act in the following terms : "126. Contract of guarantee, surety, principal debtor and creditor A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the surety; the person in respect of whose default the guarantee is given is called the principal debtor and the person to whom the guarantee is given is called the creditor. A guarantee may be either oral or written." 20. Bank Guarantee constitutes an agreement between the Banker and the Principal, albeit, at the instance of the promisor. When a contract of guarantee is sought to be invoked, it was primarily for the bank to plead a case of fraud and not for a promisor to set up a case of breach of contract. 21. The discrepancies in the bills or non-submission of the detailed account in respect of business cannot be a ground for denial of encashment of Bank Guarantee if it is otherwise invokable. 22. Although, the learned Trial Judge as also the High Court observed that the Bank Guarantee was invokable after lapse of 30 days from date of the bill, as stipulated therein, on its own terms the Bank was bound to pay the amount in question on its invokation, subject of course to the fulfillment of the other conditions laid down therein. It could not have refused to honour its commitment only because the purported accounts were not settled between the parties or the accounts furnished to the Court were wrong ones. The other reasons assigned by the learned Trial Judge as also the High Court that the conduct of Appellant was not clean or it had tried to defraud other customers in other parts of the State, in our considered opinion, are of not much significance in view of the nature of the guarantee furnished by the Bank.23. Submission of Mr. Ranjit Kumar that after the judgment of the High Court the 1st Respondent has got all documents released, cannot be a ground to refuse invokation of Bank Guarantee by Appellant, if it was otherwise entitled thereto.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]17. A bare perusal of the contents of the Bank Guarantee, as noticed hereinbefore, shows that there is no escape from arriving at a conclusion that the guarantee furnished was an unconditional one. It not only provided for loss or damage in case of breach of contract, but also loss or damage by reason of non-settlement of bills. Such bills under the agreement of consignment were to be settled within a period of 30 days. In the event the bills are not settled within the period stipulated in the agreement, the parties intended, as it appears from the tenor of the Bank Guarantee, that the same would constitute a breach of contract. It is not in dispute that some amount was due to the Appellant from the Respondent. The suit was not a suit for settlement of accounts. The suit was, inter alia, only for a decree for injunction restraining Appellant from invoking the Bank Guarantee. Respondent No.2-Bank, indisputably, did not controvert allegations contained in the demand of the appellant. It did not contest the suit. It even did not support Plaintiff-Respondent No.1 before the learned Trial Judge or before the High Court.18. A claim which is denied or disputed, in the event of necessity for determination of the lis, may not be found to be correct. If Appellant was to allege a breach of contract in a properly framed suit, Respondent No.1 could also allege the breach of contract on the part of Appellant herein. Breach of contract by reason of supply of inferior quality of tea or salt or delay in supply or a short supply may render a party responsible for damages for commission of breach of contract, but, breach of contract alone does not lead to the conclusion that a fraud had been committed thereby. It is contended that commission of fraud would include any act to deceive but then such act must be confined to acts committed by a party to a contract with intention to deceive another party or his agent or to induce him to enter into a contract. Fraud, which vitiates the contract, must have a nexus with the acts of the parties prior to entering into the contract. Subsequent breach of contract on the part of a party would not vitiate the contract itself.Although, the learned Trial Judge as also the High Court observed that the Bank Guarantee was invokable after lapse of 30 days from date of the bill, as stipulated therein, on its own terms the Bank was bound to pay the amount in question on its invokation, subject of course to the fulfillment of the other conditions laid down therein. It could not have refused to honour its commitment only because the purported accounts were not settled between the parties or the accounts furnished to the Court were wrong ones. The other reasons assigned by the learned Trial Judge as also the High Court that the conduct of Appellant was not clean or it had tried to defraud other customers in other parts of the State, in our considered opinion, are of not much significance in view of the nature of the guarantee furnished by the Bank.23. Submission of Mr. Ranjit Kumar that after the judgment of the High Court the 1st Respondent has got all documents released, cannot be a ground to refuse invokation of Bank Guarantee by Appellant, if it was otherwise entitled thereto.