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

2. The 1st Respondent herein was appointed as a Consignment Agent by an agreement dated 23.12.1993 in regard to the sale of products of the Appellant Company-plaintiff, namely, Salt and Tea in South and Central Bihar. In terms of the said agreement it was required to furnish a Bank Guarantee for a sum of Rs.5 lakhs. The transactions between the parties started in January, 1994. Some of the clauses in the said Bank Guarantee are as underreferred to as the Bank) do hereby agree to pay the Principal Co. an amount not exceeding Rs.6,00,000/- (Rupees Six Lacs only) against any loss or damage caused to or suffered or would be caused to or suffered by the Principal Co. by reason or any breach of contract by the consignment agent as their due performance of their duties as consignment agent for the Principal Co., the major term being settlement of the Principal Co.s bills by the consignment agent within 30 days from the date of receipt of material.(2) We......................(Bank) do .............. hereby undertake to pay the amounts due and payable under this guarantee without any demur merely on a demand from the Managing Director or any other director of the Principal Co. stating that the amount claimed is due by way of loss or damage caused to suffered by the Principal Co. by reason of any breach of contract for non payment of the Principal Companys bills within 30 days from the date of receipts of materials by the consignment agent of any of the terms and conditions agreed upon/to be agreed in performance of their duties of consignment agent on behalf of the Principal Co. Any such demand made on the ......... (Bank) shall be conclusive as regard the amount due and payable by the Bank under this guarantee.(3) We ....................... (Bank) further agree that the guarantee shall remain in full force and effect for a period of 12 (Twelve) months from the date of issue of this guarantee or till the period that would be taken by the consignment agent for the due performance of their duties as consignment agent on behalf of the Principal Company on the terms and conditions mutually agreed upon/to be agreed upon shall continue to be enforceable till all the dues of the Principal Company have been fully paid and its claims satisfied or discharged or till the Managing Director or any other director of the Principal Company certified that the due performance of their duties as consignment agent have been fully and properly carried by the consignment agent and accordingly discharge the Guarantee, which ever date is earlier.(4) We .................. (Bank), further agree with the Principal Company that the Principal Company have been fullest liberty without our consent and without AFFECTING IN ANY MANNER. Our OBLIGATIONS HEREUNDER to vary any of the terms and conditions agreed/to be agreed with the consignment agent in the due performance of their duties as consignment agent or to extent time of performance by the consignment agent from time to time any of the power exercisable by the Principal Company against the consignment agent and to forbear or enforce any of the terms and conditions agreed upon and we shall not be relieved from our liabilities by the reason for any such variation or extension being granted to the consignment or any forbearance act or omission on the part of the Principal Company or any indulgence by the Principal Company or any indulgence by the Principal Company to the Consignment Agent by any such manner or thing whatsoever which under the law relating to sureties would but for this provision have effect of so relieving us.Pursuant to or in furtherance of the agreement entered into by and between the parties herein, the 1st Respondent furnished a Bank Guarantee of Rs.5 lakhs issued by Respondent No.2, Bank of India, Muradpur, Chouhatta Branch, Patna on 12.1.1994.4. Indisputably, the business dealings between the parties continued upto July, 1994. Appellants bills allegedly remained unpaid for more than 30 days after the same had been raised amounting to Rs.5,04,739.92p. The said Bank Guarantee was invoked by letter dated 4.8.1994 whereabout Respondent No.2 intimated to 1st Respondent. A Title Suit No.316/94 was filed by 1st Respondent herein in the Court of Subordinate Judge at Patna, inter alia, for the following reliefsdeclaration that the petitioner is not entitled to invoke the Bank Guarantee for Rs.5 lakhs.(b) order of injunction restraining the respondent No.2 from encashing the Bank Guarantee at the instance of theIn the said suit, whereas Appellant filed a written statement, the Bank did not choose to file any. The suit was decreed on contest against Appellant and ex parte against Respondent No.2. An appeal taken therefrom by Appellant before the Patna High Court being First Appeal No.28/1997 was dismissed by a learned Single Judge by an order dated 31.7.2000. An intra-court appeal was filed as against by Appellant, which was found to be not maintainable, purported to be in view of the amended provisions of Section 100-A of the Code of Civil Procedure.

Court's reasoning:
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.