Case: Punjab &amp; Sind Bank Vs. M/s. C.S. Company &amp; Others

1. The appellantPunjab & Sind Bank (for short,) has challenged in this appeal, judgment and order dated 4/6/2003 passed by the Kerala High Court whereby the appeal filed by original defendants 1, 2, 4, 7 and 8 challenging the judgment and decree of the Ist AdditionalErnakulam, decreeing the plaintiffbanks suit for realization of money was allowed.2. The title of the proceedings underwent changes during the course of time on account of death of some of the partners and/or guarantors and also on account of orders passed by the courts. There are also certain typographical errors in the amended cause title of the appeal. It is not necessary for us to give details of various changes which were brought about in the title. Suffice it to say that respondent 1 herein is the partnership firm i.e. original defendant 1 and the other respondents are either its partners and/or heirs of the partners or guarantors and/or heirs of the guarantors. By order dated 29/1/2003, the High Court has added the Kerala State Electricity Board (for short,as respondent 6 and it is respondent 10 herein. We shall, however, for the sake of convenience refer to the parties as per their status in the trial court.3. At the outset, we must make it clear that we have reached a conclusion that the defendants have taken a dishonest stand to evade the liability to make payment to theAt the cost of making this judgment prolix, we need to make a detailed reference to the pleadings of the parties because our conclusion, to a large extent, is substantiated by the pleadings. The facts, as disclosed by thein the plaint, are as under:a) Defendant 1 is a partnership firm engaged in the business of engineering works and defendants 2, 3 and 4 are its partners, who undertook the execution of certain civil engineering works awarded to them by KSEB. As per the terms of the tender, defendants 1 to 4 had to furnish Bank Guarantees to KSEB. They approached thefor issuance of Bank Guarantee for an aggregate amount of Rs.20 lakhs on their behalf in favour of KSEB. Theagreed to do so on certain terms and conditions. Defendants 1 to 4 accepted the said conditions. Theon 11/5/1983 executed and offered a Bank Guarantee on behalf of defendant 1 to KSEB for Rs.1 lakh as and by way of security deposit as per the terms of the tender. Thereafter, theon 24/6/1983 further executed and offered on behalf of defendant 1 another Bank Guarantee of Rs.19 lakhs to enable defendants 1 to 4 to avail of the amount of Rs.19 lakhs as mobilization advance from KSEB for the purpose of execution of the work undertaken by defendant 1.b) According to the terms of the Bank Guarantee dated 11/5/1983, the amount of Bank Guarantee not exceeding Rs.1 lakh was payable to KSEB on demand at any time during its currency without any demur. In consideration of the aforementioned Bank Guarantee, defendant 1 by its partners i.e. defendants 2, 3 and 4 agreed and undertook to indemnify theby a Deed of Indemnity and Guarantee dated 11/5/1983 together with all costs and charges which may be incurred or become payable by thein connection with the Guarantee given to KSEB. As further security, defendants 2, 3, 4, 5, 6, 7 and 8 also undertook and agreed to indemnify thefrom and against all claims, demands, losses, charges and expenses which themay sustain in respect of any liability incurred by it and also guaranteed to make payment of the amount together with interest, costs, commission and charges payable thereon by theAs security for the aforementioned Bank Guarantee of Rs.1 lakh, defendant 2 deposited the title deeds of his property situated in Kottayam Village on 11/5/1983. He confirmed the deposit of title deeds by memorandum of deposit of title deeds. Defendant 5 as security for the aforementioned Bank Guarantee deposited the title deeds of her properties comprised in Survey No.10/6/2 situated in Kottayam Village with intent to create a security thereon by way of mortgage in favour of theon 11/5/1983, at the plaintiffbanks office at M.G. Road, Ernakulam in the City of Kochin. Defendant 5 also confirmed the deposit of title deeds by Memorandum of deposit of title deeds executed on 11/5/1983. Defendant 6 through his power of attorney holderdefendant 4, deposited the title deeds of his property comprised in Survey No.983/5 of Ernakulam Village with intent to create a security by way of mortgage in favour of theon behalf of defendant 1. He executed a Memorandum confirming the said deposit of title deeds through his agent and power of attorney holder. Defendants 7 and 8 also deposited with theon 11/5/1983 at their Branch at M.G. Road, Ernakulam the title deeds of their properties comprised in Survey No.51/9B of Vijayapuram Village in Kottayam Taluka with intent to create a security thereon by way of mortgage in favour of theDefendants 7 and 8 also confirmed the said deposit of title deeds of their properties by executing Memoranda of deposit of title deeds. Defendant 4 charged and assigned the fixed deposit receipt for the sum of Rs.25,000/in favour of theas per the security for the said amount of the Guarantee.c) In the trial court the plaintiff bank produced the Deed of Indemnity and Guarantee executed by defendants 2, 3 and 4 with a copy of the Bank Guarantee for Rs.1 lakh, the Deed of Indemnity and Guarantee executed by defendants 2, 3, 4, 5, 6, 7 and 8 as further security, title deeds deposited by defendant 2 as security by way of equitable mortgagein favour of thein respect of Bank Guarantee of Rs.1 lakh, Memorandum dated 11/5/1983 executed by defendant 2 confirming the deposit of the said title deeds, title deeds deposited by defendant 5, the Memorandum dated 11/5/1983 executed by defendant 5 confirming deposit of title deeds and Memoranda of deposit of title deeds executed by defendant 6 through his Power of Attorney holder defendant 4 and by defendants 7 & 8 confirming the deposit of title deeds of their properties.d) Defendant 1 wanted to avail of a mobilization advance of Rs.19 lakhs from KSEB. KSEB, as security for such payment of mobilization advance, required defendant 1 to furnish Bank Guarantee for the amount of Rs.19 lakhs. Defendant 1 requested theto furnish the Bank Guarantee in favour of KSEB for the amount of Rs.19 lakhs. Theagreed to furnish the said Bank Guarantee on certain conditions which defendant 1 accepted. Accordingly, theexecuted and offered the Bank Guarantee on behalf of defendant 1 to KSEB for the sum of Rs.19 lakhs. According to the said Bank Guarantee, the sum of Rs.19 lakhs was payable to KSEB on demand by the Chief Engineer (Civil) General at any time, during the currency including the period covered by its extension without any demur and on a mere demand. The Guarantor had agreed that such demand made on theshall be conclusive as regards the amounts due and payable under the Bank Guarantee and the Guarantor had to make the payment without any demur. As consideration for giving the said Bank Guarantee, defendant 1 by its partners viz. defendants 2, 3 and 4 undertook to indemnify theby a Deed of Indemnity and Guarantee from all claims, amounts, charges, damages and expenses which may be caused or sustained by theor for which it may become liable by reason of having given the said Bank Guarantee. It was also specifically agreed that in connection with the said Guarantee, thewithout going into the question whether the terms of the agreement or any obligations with the Chief Engineer (Civil) General or KSEB had been fulfilled or not on notice of demand from the beneficiary of the Guarantee, was entitled in its own absolute discretion to make payment of the whole or part of the amount of the Guarantee as may be called upon to do so by KSEB without any reference to the defendants and that the defendants shall not have any right to question in any way whatsoever the making of such payment by theAs further security, defendants 2 to 8 also undertook to indemnify thefrom and against all claims, demands, loss, charges and expenses which themay sustain or incur in respect of any liability incurred or might be incurred and guaranteed to make payment on demand of the amount of the Guarantee together with interest, commission, costs and charges payable thereon by theAs further security for the aforementioned Bank Guarantee of Rs.19 lakhs, defendants 2, 5, 6, 7 and 8 extended and created the mortgage by deposit of title deeds of their respective properties which were already charged and mortgagedin favour of thebank to cover and apply to the pecuniary liability in respect of the amount of Rs.19 lakhs together with costs, charges, interests, etc. to the plaintiffbank. The said defendants further declared at their personal visit to thebranch on 24/6/1983 that the mortgage by deposit of title deeds already created on their respective properties on 11/5/1983 shall also apply and stand extended to and cover the further Bank Guarantee of Rs.19 lakhs also. The said defendants confirmed by Memoranda dated 24/6/1983 the deposit of the title deeds creating the mortgage of their respective propertiesin favour of theand, thereafter, applying and extending the security by way of mortgage of deposit of title deeds for the Guarantee of Rs.19 lakhs. Defendant 1 charged and assigned the fixed deposits for the sum of Rs.4,75,000/which amount was deposited with theas security for the aforementioned facility or liability incurred by thenk produced in the trial court the Deed of Indemnity and Guarantee executed by defendants 2, 3 and 4 together with a copy of Bank Guarantee of Rs.19 Lakhs, the Deed of Indemnity and Guarantee executed by defendants 2, 3, 4, 5, 6, 7 & 8 as further security and the Memoranda dated 24/6/1983 of deposit of title deeds of various properties executed by the defendants confirming deposit of title deeds of their properties. Defendant 1 availed of Rs.19 lakhs as mobilization advance from the KSEB on the strength of the second Guarantee mentioned hereinabove.f) KSEB by its letter dated 19/6/1984 called upon theunder Clause 5 of Deed of Guarantee to pay a sum of Rs.19 lakhs being the full amount of the said Guarantee to KSEB. Theinformed defendant 1 by telephone, telegram and by letter about the invoking of the Bank Guarantee by KSEB and called upon defendant 1 to remit Rs.19 lakhs with interest at 18.5% per annum immediately in terms of counter Guarantee executed by them to enable theto make payment to KSEB. KSEB insisted upon compliance with its demand in accordance with Clause 5 of the Bank Guarantee. Thewas bound to pay the sum of Rs.19 lakhs being the amount of the second Bank Guarantee and accordingly thepaid the said amount by way of Demand Draft dated 23/6/1984 to KSEB.g) Thecalled upon the defendants to pay the amount of the Bank Guarantee of Rs.19 lakhs. The defendants gave assurances that the amount would be paid but did not make any payment. Thetherefore, appropriated a sum of Rs.4,56,962.80 being the balance amount of the fixed deposit after adjusting the over paid interest on the fixed deposit. After appropriating and adjusting the said amount, a sum of Rs.14,43,037.92 together with interest at 20% per annum remained due and payable by the defendants in respect of the second Bank Guarantee as on 24/5/1986 being the date on which the suit was filed by theDefendant 1 requested theto extend the Bank Guarantee in favour of KSEB for Rs.1 lakh executed on 11/5/1983 for a further period of one year from 11/5/1984 till 11/5/1985. Theaccordingly, extended the said Bank Guarantee upto 11/5/1985. It appears that the KSEB terminated the contract given to defendant 1 on account of breach of the terms and conditions of the contract. KSEB by its letter dated 15/10/1984 called upon theto pay a sum of Rs.1 lakh being the amount of the first Bank Guarantee executed by the plaintiffbank on behalf of defendant 1 to KSEB. Thein turn, intimated to defendant 1 and called upon them to remit the said amount. However, the defendants did not make the payment. Thehad to pay to KSEB a sum of Rs.1 lakh on 5/8/1985 by Demand Draft as per the terms of the Bank Guarantee. Thus, in all, thehad to pay Rs.20 lakhs in aggregate under two Bank Guarantees furnished on behalf of defendant 1 to KSEB. Since despite letters, notices and repeated requests, the defendants did not pay the balance amount, thefiled a suit in the Court of 1st Additionalat Ernakulam for an amount of Rs.21,54,464.20 with future interest from 1/5/1986 at 20% per annum.4. In their joint written statement, defendants 1, 2 and 4 did not deny the issuance of Bank Guarantees by thebut denied the dates thereof. They put theto proof regarding the dates of the said Guarantees as, according to them, the dates were within the knowledge of theonly. They admitted that for the purpose of Guarantees furnished by theon behalf of defendantrm deposited 25% of the amount in cash with theThey, however, denied that any mortgage was createdin favour of theby any one of the defendants. They denied the execution of documents referred to in the plaint. They did not admit the Deed of Indemnity and Guarantee dated 11/5/1983 but stated that the Managing Partner of defendant 1 had given a power of attorneyin favour of theank to adjust 5% of the bill amount due to defendant 1 from KSEB through theand, the amount so withheld was allowed to be held as security by defendant 1 in case KSEB invoked the Bank Guarantee. They denied that defendants 2 to 8 went to theon 11/5/1983 to deposit the title deeds of their properties. It was, however, admitted that defendant 4 had by his letter dated 4/4/1983 forwarded to thetitle deeds of the properties described in the Schedule for the purpose of scrutiny. They admitted that on the insistence of KSEB to furnish the Bank Guarantee, thewas requested to furnish Bank Guarantee of Rs.19 lakhs in favour of KSEB. They put theto proof regarding the terms and conditions of the said Bank Guarantee. Securities and Deed of Indemnities were not admitted. They denied that any of the defendants went to theon 24/6/1983 to make any declaration. They admitted the assignment of fixed deposit of a sum of Rs.They admitted that mobilization advance of Rs.19 lakhs was availed of by defendant 1. They, however, stated that it was not availed of on the strength of Bank Guarantee but the basis thereof was supplementary agreement executed between KSEB and defendant 1 in which, there was no stipulation to furnish any Bank Guarantee. They put theto proof regarding the amounts which are said to have been paid by it to KSEB. They denied their liability to pay the amount to KSEB since, according to them, the invocation of Bank Guarantee and the alleged payment made by the plaintiffbank was not done in terms of the Guarantee and also because according to them KSEB had illegally terminated the contract. They contended that the appropriation of Rs.4,56,962.80 is illegal and thehad no right to reduce the rate of interest to 5% on the amount deposited by defendant 1. They denied that the plaintiffbank had extended the Bank Guarantee of Rs.1 lakh for a further period of one year in favour of KSEB. They contended that defendant 1 had already filed a suit for recovery of an amount of Rs.19 lakhs and interest thereon against thefor illegal reversal / cancellation of entry of the amount which was already credited in the account of defendant 1. According to these defendants, the story regarding countermanding of the cheque was created for the purpose of escaping the liability to pay the amount to defendant 1.5. Defendants 6 to 8 filed joint written statement contending that they are not partners of defendantand they are not concerned with the Bank Guarantees. They denied that they had created equitable mortgage in respect of their propertiesin favour of theThey denied the execution of Deed of Indemnity and Guarantee dated 11/5/1983 and their alleged visit to theon 11/5/1983. They contended that defendant 4 had forwarded the title deeds of their properties to theonly for scrutiny. They contended that thehad taken blank signed papers from them on or about 11/5/1983 when the first Bank Guarantee for Rs.1 lakh was issued in favour of KSEB and these signed blank papers were utilized for creating equitable mortgage, indemnity, guarantee and other documents. According to these defendants, the said documents are not genuine but are fabricated subsequently on the blank signed papers obtained from them.6. Though initially, defendants 1, 2 and 4 did not allege that thehad fabricated any documents they subsequently amended their written statement and contended that thehad taken blank signed papers from them on 11/5/1983 when the first Bank Guarantee for a sum of Rs.1 lakh was issued in favour of KSEB. These papers were used for the purposes of creating documentsin favour of theThey contended that all the documents like counter guarantees, confirmation of deposit of title deeds, etc. more particularly described in paragraph 2 of the plaint were fabricated by the plaintiffbank by utilizing some of the said signed blank papers and, therefore, they are not binding on the defendants.7. By judgment and order dated 1/1/1991, the trial court decreed the suit. It directed the defendants to pay Rs.19,00,000/with interest at the rate of 18.5% per annum from 23/6/1984 till date of the suit with future interest on Rs.14,43,037.20 (Rs.19,00,000/minus Rs.4,56,962.80 adjusted by the

Reasoning: 14. The defendants case regarding blank signed papers is not substantiated by any evidence except their say so. The trial court has rightly rejected this story and we concur with the trial court. Apart from the fact that there is nothing on record to establish the case of the defendants that thewas party to such a fraud of creating fabricated documents after obtaining blank signed papers from the defendants, it also does not stand to reason that the defendants and its partners and other defendants are so gullible as to hand over to theseveral signed blank papers. Falsity of their case is seen from the documents on record.15. The title deeds are at5 to Ex54 andThe tax and revenue receipts relating to the properties are at5 andEncumbrances certificates upto April, 1983 are at, Ex6. Confirmation letters regarding deposit of title deeds are at34 and ExA72. We have carefully perused these letters. It is impossible to come to a conclusion that thehas fabricated these letters on the blank signed papers allegedly given to it by the defendants. There is no manner of doubt that they are genuine documents. There are Memoranda of deposit of title deeds duly signed by the defendants giving details of the properties. They are at Ex, Ex3. We have seen these exhibits also. We are convinced that they are genuine documents. The defendants have not been able to give any valid acceptable explanation as to how so many original title deeds came in the custody of thePertinently, the trial court has noted that defendant 1 has filed O.P. No.62 of 1986 in theat Ernakulam against thefor recovery of Rs.In the schedule of properties under the headingit is clearly stated that these properties are mortgaged to the Bank as security for Bank Guarantee of Rs.20 lakhs. The trial court has further noted that whenwas confronted with this fact, he had no reply. At the cost of repetition, it needs to be stated that it is the case of defendants 6 to 8 in their written statement that they are not partners of defendant 1; they have no connection with the Bank Guarantee and, hence, there is no question of there being any equitable mortgage; that the original title deeds were only given for scrutiny and that thehad taken blank signed papers from them when the first Bank Guarantee for Rs.1 lakh dated 11/5/1983 was taken. This explanation itself falsifies the case of defendants 6 to 8. They have admitted that the first Bank Guarantee of Rs.1 lakh dated 11/5/1983 was executed. Even assuming without admitting that some blank papers with their signatures were taken by thefrom them, unless they were concerned with the Bank Guarantee, such documents would not be demanded from them nor would they have given such documents to theTheir efforts to disassociate themselves from defendantand the Bank Guarantees cannot, therefore, be countenanced. It is equally impossible to accept that these documents were taken for scrutiny by theNone of the defendants have successfully explained why and for what purpose, the scrutiny of their documents was necessary. We concur with the trial court that all these documents cut at the very root of the defence regarding theof the equitable mortgage. The case of the defendants that there was no equitable mortgage will have to be, therefore, rejected.16. The defendants contention that theillegally encashed the Fixed Deposit Receipts in the sum of Rs.4,75,000/must also be rejected. It is the plaintiffbanks case that this amount was deposited as security for the Bank Guarantee of Rs.19 lakhs availed of by theand the liability incurred bydefendants contend that the said Fixed Deposit Receipts were given to thefor safe custody. Against the background of the aforementioned facts, the story that the Fixed Deposit Receipts were deposited with theSo far as invocation of Bank Guarantees is concerned, in our opinion, there is no infirmity in the case of plaintiffbank. It is true that in the plaint, there is a reference to Ex7, which indicates that the invocation is done by the Secretary of KSEB but when an objection was raised by the defendants that the invocation was not proper, theA82 andwhich show that the invocation was done by the Chief Engineer (Civil) General as per the terms of the Bank Guarantees. It is significant to note thatis subsequent toand relates to Bank Guarantee ofRs.19 lakhs ands subsequent tod relates to Bank Guarantee ofRs.1 lakh. The trial court has rightly held them to be genuine documents. The invocation of Bank Guarantees was also done when they were in force, in view of their extension.In this letter defendant 1 has accepted the case of theand undertaken to remit 10% of the amount of every bill from the running part payments receivable by it. Once defendant 1 admits execution of the Bank Guarantees and expresses its desire to repay the amount and when Counter Guarantees, number of title deeds, encumbrance certificates and confirmation letters are on record, in the facts of this case, decree must follow. In our opinion, the conduct of the defendants needs to be deprecated. After having taken the benefit of the Bank Guarantees, the defendants have tried to persuade the court to absolve them of the liability to repay the amount by taking up untenable and false contentions. In O.P. No.62 of 1986 in the schedule of properties under the headingdefendant 1 has categorically stated that the said properties are mortgaged to the Bank as security for Bank Guarantee of Rs.20 lakhs. It is surprising that to evade their liability to make payments, defendant took a contrary stand in this case and tried to mislead the court. The trial court was, therefore, right in decreeing the suit. In the circumstances, themust succeed. We must, however, express our extreme displeasure about the conduct of the officers of thenk is a nationalized bank. It is surprising how the originals of the Bank Guarantees could not be produced by it in the trial court. Such conduct is not expected from the officers of thewho deal with public money. They have dealt with this matter with extreme casualness