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1988 DIGILAW 152 (CAL)

TRIPURA JUTE MILLS LTD v. STANDARD CHARTERED BANK

1988-04-12

MONORANJAN MALLICK

body1988
MONORANJAN MALLICK, J. ( 1 ) TRIPURA Jute Mills Ltd. has filed the Suit against the Standard Chartered Bank, the defendant for recovery of a sum of Rs. 10,38,440 on the following allegations : ( 2 ) BY a Tender Notice published in August 1974 the plaintiff invited tenders from the manufacturers of machinery for the supply and delivery of plant and equipment required for a Jute Mills to be set up at Agartala in the State of Tripura. By the letter, dated 28th September, 1974 addressed to the plaintiff, M/s. Bird and Co. Ltd. (hereinafter referred to as the said sellers) offered to manufacture and sell the machinery required by the plaintiff. Thereafter the negotiations started between the plaintiff and the sellers regarding the terms and conditions of the proposed contract and in course of such negotiation it was agreed that the plaintiff would pay the sellers a total sum of Rs. 40,63,844 by way of advance, in instalments provided the sellers furnished a Bank Guarantee or Guarantees in favour of the plaintiff for the sums to be advanced. Thereafter at the request of the sellers and in consideration of the premises, the defendant executed in favour of and delivered to the plaintiff a Bank Guarantee, dated April 28, 1976, bearing No. Sec. l0/75/27 for the sum of Rs. 10,38,440 being the first instalment, the aforesaid advance payment. The terms and conditions of the said Bank Guarantee have been set out by the plaintiff in paragraph 4 of the plaint. Such Bank Guarantee would remain in force and be valid upto April 24, 1976. A copy of the said Bank guarantee is annexed herewith as Annexure' A ' to the plaint. On 8th May, 1975 a formal contract in respect of the manufacture and supply of the said machinery was executed by the plaintiff and the sellers and in terms thereof on 8th May, 1975 the plaintiff made an advance payment of Rs. 10,38,440 to the sellers. On or about March 30, 1976, the period of the aforesaid Bank Guarantee was extended by the defendant till 24th April, 1977. 10,38,440 to the sellers. On or about March 30, 1976, the period of the aforesaid Bank Guarantee was extended by the defendant till 24th April, 1977. The sellers committed various breaches of the said contract dated 8th May, 1975 and became liable to refund or repay to the plaintiff the amount advanced as aforesaid and consequently by the letter, dated 12th April, 1976 addressed to the sellers, the plaintiff demanded repayment of the said advance of Rs. 10,38,. 440. But the sellers wrongfully failed and/or neglected to pay the said sum or any part thereof and committed default in repayment of the said advance. Then by a letter dated 16th April, 1976 the plaintiff called upon the defendant Bank to pay the said sum of Rs. 10,38,440 but notwithstanding such demand the defendant and wrongfully failed and neglected to pay to the plaintiff the said sum or any part thereof. On 27th September, 1976 the sellers instituted, a Suit in the Ordinary Original Civil Jurisdiction in this High Court being Suit No. 559 of 1976 against the plaintiff and the defendant, inter alia, for cancellation of the Bank guarantee, dated 28th April, 1975 and for a perpetual injunction restraining the plaintiff from realising any sum under the said Bank Guarantee and also restraining the defendant from making any payment under the said Bank Guarantee. On the same date, the sellers applied for and obtained an ad interim Order of injunction. By an Order, dated November 4, 1976, the said Order of injunction was directed to continue till the disposal of the said application. But on March 10, 1977 the injunction application was dismissed and the ad interim Order was vacated. However, the operation of the said Order, dated March 10, 1977 was stayed for a week. On March 17, 1977 the sellers preferred an appeal against the said Order, dated March 10, 1977 being Appeal No. 84 of 1977 and obtained ad interim Order of injunction which continued till the disposal of the appeal. On June 8, 1978 when the appeal No. 84 of 1977 was dismissed the said Order of injunction was, vacated and the operation of the Order was ordered to be stayed for a fortnight. On June 8, 1978 when the appeal No. 84 of 1977 was dismissed the said Order of injunction was, vacated and the operation of the Order was ordered to be stayed for a fortnight. During the pendency of the said proceeding the defendant by its letter, dated April 18, 1977, October 13, 1977 and April 10, 1978 successively extended the period of said Guarantee till 23rd October, 1977, 22nd April, 1978 and finally upto 31st October, 1978. By reasons of the extensions of the period of the aforesaid guarantee, the provision therein requiring the plaintiff to file a Suit or action to enforce its claim under the said Bank Guarantee before April 24, 1976 was waived by the defendant and/or the same became impossible of performance and to have any effect. In the alternative as the said Orders of injunction were continuously operative between September 27, 1966 and June 22, 1978 plaintiff was prevented during that period from filing any Suit or Action to enforce its claim under the said Guarantee. The plaintiff is, therefore, entitled to exemption of the time of continuance of the said Orders of injunction in computing the time within which such Suit or Action is to be instituted under the said Guarantee extended as aforesaid and such a term is to be necessarily implied in the contract between the parties. By the Advocate's letter, dated 27th July 1978, the plaintiff again called upon the defendant to pay the said sum of Rs. 10,38,440 due to the plaintiff under the said Guarantee. The defendant refused, however, to pay the said sum of the ground that the sellers objected to such payment being made. Such refusal on the part of the defendant is wrongful and in breach of the express provisions of the said Guarantee. The defendant was and is bound to pay the amount claimed by the plaintiff as aforesaid. In the circumstances, the plaintiff has filed this Suit for recovery of the above amount from the defendant Bank. ( 3 ) THE defendant Bank in the written statement has denied the plaintiff's claim. The defendant was and is bound to pay the amount claimed by the plaintiff as aforesaid. In the circumstances, the plaintiff has filed this Suit for recovery of the above amount from the defendant Bank. ( 3 ) THE defendant Bank in the written statement has denied the plaintiff's claim. It is contended that as the Bank Guarantee was not enforced by filing a Suit for recovery of the amount prior to the date of expiry of the Bank Guarantee the right has been forfeited that the Bank Guarantee was extended upto 31st October, 1978 but the plaintiff having failed to file any Suit to enforce the Bank Guarantee on or before 31st October 1978 and he having filed the Suit only on 16th April, 1979 the Bank Guarantee has become unenforceable in view of the specific provisions contained in paragraph 9 of the Bank Guarantee Copy of which is annexed as Annexure 'a' to the plaint. The plea has also been raised that the Clause 9 has become of unenforceable because the original date of performance has become impossible of performance. ( 4 ) AT the time of hearing the following issues have been framed: issues:1. Is the Suit maintainable as alleged by the defendant in the written statement ? 2. To what relief, if any, is the plaintiff entitled ?issue No. 1: ( 5 ) AS the question involved in the Suit is the interpretation the Bank Guarantee, Annexure' A ' to the plaint, the parties have not adduced any oral evidence and has submitted oral as well as written arguments in support of the respective contentions. ( 6 ) THE following facts are admitted by the parties : (A) The Bank Guarantee was executed by the defendant Bank; copy of which is annexed as Annexure (A) to the plaint, dated 28th April, 1975 and in terms of the Bank Guarantee the defendant Bank undertook to indemnify the plaintiff and keep the plaintiff indemnified to the extent of a sum of Rs. 10,38,440 from and against all such losses, damages, costs, charges or expenses that might be used to or suffered by the plaintiff in relation to the advance payment to be made by the plaintiff to the contractor namely Bird and Co. 10,38,440 from and against all such losses, damages, costs, charges or expenses that might be used to or suffered by the plaintiff in relation to the advance payment to be made by the plaintiff to the contractor namely Bird and Co. , by reasons of any default or defaults on the part of the contractor in repayment of the said advance as aforesaid and the defendant Bank undertook to pay to the plaintiff forthwith on demand and without any demur any sum or sums not exceeding in total the said sum of Rs. 10,38,440 as may be claimed by the plaintiff to be due from the contractor to the plaintiff by way of fund of such advance or any portion thereof by reasons of such defaults on the part of the contractor in such payment. (B) As the contractor namely, Bird and Co. made default the plaintiff called upon the Bird and Co. to pay the amount of advance being Rs. 10,38,440 and when Bird and Co. did not response the plaintiff issued a demand notice, dated 16th April, 1976 calling upon the defendant Bank to pay the said sum of Rs. 10,38,440. (C) Bird and Co. instituted the Suit No. 559 of 1976 against the plaintiff and the defendant for cancelling the Bank Guarantee and for permanent injunction so that the Bank Guarantee cannot be enforced. The interim injunction was obtained which remained in operation till the Appeal No. 84 of 1977 was dismissed on June 8, 1978 and it remained operative for a period of fortnight thereafter. Thereafter the injunction ceased to have any effect. (D) During the pendency of the proceedings the defendant Bank by its letters, dated April 18, 1971, October 13, 1977, and April 10, 1978 successively extended the period of the said Guarantee till October 3, 1977, 22nd April, 1978 and finally upto 31st October, 1978. (E) The plaintiff by its Advocate's letter, dated 27th July 1978, again called upon the defendant to pay the said sum of Rs. 10,38,440 due to the plaintiff under the said Bank Guarantee and the defendant refused to pay the said amount on the ground that the sellers objected to such payment being made. (F) The plaintiff has thereafter filed the Suit for recovery of the amount of Bank Guarantee on 16th April, 1979. On behalf of the plaintiff Mr. 10,38,440 due to the plaintiff under the said Bank Guarantee and the defendant refused to pay the said amount on the ground that the sellers objected to such payment being made. (F) The plaintiff has thereafter filed the Suit for recovery of the amount of Bank Guarantee on 16th April, 1979. On behalf of the plaintiff Mr. Sudipta Sarkar, Learned Advocate has urged two points, viz. , the Bank Guarantee by virtue of several extensions remained enforceable till 31st October, 1978 and the plaintiff has by serving the Advocate's letter, dated 27th July, 1978 has served a Demand notice and initiated the action to enforce the Bank Guarantee and consequently his Suit which has become necessitated because of the refusal of the defendant Bank to honour the terms of the Bank Guarantee even if filed on 16th April, 1979 does not contravene clause 9 of the Bank Guarantee and the expression "action" in clause 9 of the Guarantee Bond Annexure 'a' includes a Demand Notice to enforce the Bank Guarantee being a part of the legal steps taken to enforce the Bank Guarantee and consequently it must be held that the plaintiff has enforced the Bank Guarantee within the extended period of Bank Guarantee, viz, 31st October, 1978. It is also submitted alternatively that by successive extensions of time the period of validity only of the Guarantee was extended and all other terms including clause 9 remained unaltered and that the original clause 19 providing that the Suit or action was to be commenced within 24th April, 1976 otherwise the right of the plaintiff would be extinguished became impossible of performance and must be deemed to have been waived. ( 7 ) BOTH the contentions of the learned Advocate plaintiff have been challenged by Mr. Mazumdar, the Advocate appearing for the defendant Bank. ( 8 ) I would first take up the alternative submissions made by the learned Advocate for the plaintiff namely, that the clause 9 having become impossible of performance must be deemed to have been waived. In order to facilitate the plaintiff to enforce its rights against the contractor, viz. Mazumdar, the Advocate appearing for the defendant Bank. ( 8 ) I would first take up the alternative submissions made by the learned Advocate for the plaintiff namely, that the clause 9 having become impossible of performance must be deemed to have been waived. In order to facilitate the plaintiff to enforce its rights against the contractor, viz. , Bird and Co, the defendant Bank from time to time extended the period of validity of the Bank Guarantee and last such extension was made to make the Bank Guarantee effective till 31st October, 1978, There is nothing to indicate that the forfeiture clause mentioned in Clause 9 of the Bank Guarantee has been waived. When the period has been extended finally upto 31st October, 1978 then in view of such extension 31st October, 1978 shall be read in place of 24th April, 1976 in all relevant clauses of the Bank Guarantee including Clause Nos. 8 and 9. Therefore, I find no merit in the alternative submission made by the learned Advocate for the plaintiff that the original date of enforcement namely, 24th April, 1976 having become impossible of performance the forfeiture clause must be deemed to have been waived. ( 9 ) NEXT I come the main contentions raised by the parties regarding the enforceability of the Bank Guarantee. ( 10 ) THE defendant has submitted that the Bank Guarantee as extended finally upto 31st October, 1978 was to be enforced by filing a Suit or Action against the defendant Bank on or before 31st October, 1978 and the plaintiff not having filed the present suit for enforcement of Bank Guarantee on or before 31st October 1978, then in view of the clear provision of Clause 9 of the Bank Guarantee, the plaintiff has forfeited the right of enforce the Bank Guarantee. ( 11 ) IT is contended on behalf of the plaintiff that the provisions of Bank Guarantee have to be harmoniously constructed and if such harmonious construction be made, then there can be no escape the conclusion that issuing the Demand Notice through Advocate by the Advocate's letter, dated 27th July, 1978 and by the Original letter of demand, dated 16th April, 1976 action had already been taken by the plaintiff to enforce the Bank Guarantee and that filing of the suit before the expiry of the Bank Guarantee is not the only mode for enforcing the Bank Guarantee and consequently even if the suit has been filed after the date of expiry of the Bank Guarantee, the right of the plaintiff under Bank Guarantee has not been forfeited and still remains enforceable so that plaintiff can recover the amount of Bank Guarantee by filing the suit when within the period of the validity of the Bank Guarantee, demand was made upon the Bank to enforce the Bank Guarantee but that has been refused. ( 12 ) IT is necessary at this stage to state the relevant terms of the Bank Guarantee, namely, Clauses 8 and 9. They read thus "clause 8 : This guarantee shall remain in force and be valid upto 24th April, 1976 and unless a claim or demand is made by the purchaser on the Bank within the said date the Bank will stand discharged of all its liabilities hereunder. Clause 9 : Notwithstanding anything hereinbefore contained our liability under this Guarantee is restricted to Rs. 10,38,440 (Rupees ten lakhs thirty eight thousand four hundred and forty only) our Guarantee shall remain in force until 24th April, 1976. Unless a Suit or Action to enforce a claim under the Guarantee is filed against us before that date, all your rights under the said guarantee shall be forfeited and we shall be relieved and discharged from all liability thereunder. ( 13 ) FROM a perusal of the above two Clauses of the Bank Guarantee it is clear that Clause 8 provided for issuing a Notice of demand before the expiry of the Bank Guarantee, Clause 9 which is a non-obstante Clause specifically provides that the Guarantee is restricted to Rs. ( 13 ) FROM a perusal of the above two Clauses of the Bank Guarantee it is clear that Clause 8 provided for issuing a Notice of demand before the expiry of the Bank Guarantee, Clause 9 which is a non-obstante Clause specifically provides that the Guarantee is restricted to Rs. 10,38,440, that it would remain in force until 24th April, 1976 and that unless a Suit or Action to enforce a claim under the Bank Guarantee is filed against the bank before that date all the rights of the plaintiff under the guarantee would be forfeited and the Bank would be relieved and discharged of all liability thereunder. ( 14 ) I have already indicated that Clause 9 shall in view of the extension made shall deem to remain in force till 31st October, 1978. In view of this non-obstante Clause the plaintiff's rightly, under the Bank Guarantee would be forfeited unless a Suit or action to enforce the Bank Guarantee was filed on or before 31st October, 1978. Admittedly, no Suit has been. filed on or before 31st October, 1978. Clause 9 uses the expression 'suit or Action'. The interpretation of the word 'action' would be crucial for determining the fate of this Suit. On behalf of the defendant it is submitted that the word 'action' contemplates a judicial action and issuing of Demand Notice along would not amount to a judicial action and that the plaintiff had to serve Demand Notice as well as to file Suit before the expiry of the Guarantee. My attention has also been drawn to the words namely "unless a Suit or Action to enforce a claim under the Guarantee is filed against us before that date. " It has been pointed out that this expression clearly contemplates the filing of a judicial action and not merely issuing an Advocate's letter of demand. It is also submitted that in Halsbury's Laws of England, Vol-I, Page 2 action' has been defined as follows :" An action according to the legal meaning of the terms is defined as a proceeding by which one party seeks in a Court of justice to enforce some right against, or to restrain the commission of some wrong by another party. " ( 15 ) THE Division Bench decision reported in ILR 33 Bombay page 509 (Dinsha vs. Jamsedji) has also been cited. " ( 15 ) THE Division Bench decision reported in ILR 33 Bombay page 509 (Dinsha vs. Jamsedji) has also been cited. The following observations in that judgment at page 524 has been referred, namely, "an action is a legal proceeding whereby a person demand his rights which might be denied or infringed or threatened to be infringed and claims to have those rights enforced and to have his rights redressed" Mr. Mazumdar has also cited before me a Division Bench judgment of Kerala High Court reported in AIR 1980 Kerala, page 151 (Kerala. Electrical and Allied Engineering Co. vs. Canara Bank) in which the similar expression , "suit or Action" was used in a Bank Guarantee and it was held that the suit not having been filed within the period upto which the Bank Guarantee remained in force the rights under the Bank Guarantee were forfeited or extinguished. The Supreme Court decision in AIR 1967 SC Page 1634 (State of Maharastra vs. M. L. Kaul) has been cited which lays down the well settled principle that a guarantor cannot be made liable for more than the undertook and when the demand of such enforcement of the Bank Guarantee was made beyond the period of validity of the Bank Guarantee, the Bank Guarantee ceased to be enforceable. ( 16 ) I have carefully persued the above decisions cited before me. I have also consulted Stroud's Judicial Dictionary, 4th Edition. The expression "action" has been defined as follows: "this is a generic term, and means a litigation in a Civil Court for the recovery of individual right or redress of individual wrong, inclusive, in its proper legal sense of Suit by the Crown. " ( 17 ) IT is also a fact that in Halsbury's Laws of England 'action' is defined as a judicial proceeding. The Division Bench Judgment of Bombay High Court also holds the view that action is a judicial action. The Division Bench of Kerala High Court, so expressed the view that Suit to enforce the Bank Guarantee now having been filed within the period of enforceability of Bank Guarantee, the rights have been extinguished. But their Lordships did not direct their attention to the interpretation of the word action used in the Bank Guarantee under consideration because the Bank Guarantee which was the subject matter of that Suit contained the similar expression "suit or Action". But their Lordships did not direct their attention to the interpretation of the word action used in the Bank Guarantee under consideration because the Bank Guarantee which was the subject matter of that Suit contained the similar expression "suit or Action". It appears that their Lordships of the Division Bench of Kerala High Court in AIR 1980 Kerala 151 treated "suit or Action" to be synonymous terms and held that the right under the Bank Guarantee had been extinguished because of the failure to file the Suit before the date of expiry of the Bank Guarantee. ( 18 ) ON the other hand, the learned Advocate for the plaintiff has relied on the decision rendered by Hon'ble Mrs. Justice Padma Khastagir in Suit No. 1733 of 1965 dated 23rd September, 1982 in which the learned Judge interpreted the word 'action' in an earnest money bond executed by the plaintiff of that Suit in favour of the Punjab National Bank and the State of Uttar Pradesh and held that the word 'action' would include a demand made by the State of U. P. on the Punjab National Bank Calling upon the said Bank to make payment of the amount of the bond to the State of U. P. because the plaintiff of that Suit in violation of that terms of the bond did not execute any performance bond. The learned Judge dismissed the plaintiff's Suit for cancellation of the bond in question sought for on various grounds including the ground that the bond not having been enforced by the State of U. P. by filing any suit as required by the bond prior to the expiry of the validity of the bond, the bond in question was rendered invalid in view of the forfeiture Clause of the bond. It is needless to mention that the facts of that case are entirely different from the facts and circumstances of the present case. This is a Suit for enforcement of Bank Guarantee filed against Bank in which the Bank has raised the specific plea that the rights under the Bank Guarantee had been forfeited on failure of the plaintiff to file a Suit or any judicial proceeding before a Court of Law before expiry of the period of Bank Guarantee as specified in Clause 9 of the Bank Guarantee. Mr. Mr. Mazumdar, the learned Advocate for the defendant Bank has also submitted that the judgment of the learned Judge being under Appeal should not be relied upon by this Court as a precedent. On pursuing the judgment of learned Judge, I am of the view that the learned Judge interpreted the word 'action' on the bond under different facts and circumstances. In the facts of the suit tried by the learned Judge the State of U. P. could recover from the Bank by issuing Demand Notice if the Bank did not raise any objection. Therefore, by issuing demand letter to the Bank the State of U. P. could recover the amount of the bond from the Bank itself without taking recourse to any Civil Suit. But in this Suit the plaintiff has no other mode to recover the Guarantee money from the bank save by filing any Suit in a Court of Law when the defendant Bank has refused to honour the Bank Guarantee. Therefore filing of the Suit in this particular case is the only mode of recovery of the amount of Guarantee money. Moreover, I have carefully perused the definition of the word 'action' given in Jowitt's Dictionary of English Law, 2nd Edition. At pages 39-40 the legal definition of the word " Action" has been given in detail. Jowitt defines at first the word 'action' as follows: "conduct something done; also the form prescribed by law for the recovery of one's due; or the lawful demand of one's right", then he states that the Bracton defines the word 'action' as follows: "an action is nothing also than the right of suing in a Court of justice for that which is due to some one. " Jowitt has, thereafter, indicated that the term "action" is now applied to all proceedings in the Supreme Court which would have been commenced by writ in the Superior Courts of Common Law, the Court of Common Pleas at Lancaster, and the Court of Pleas at Durham; and all Suits formerly commenced by bill or information in the Court of Chancery or by a cause in the Court of Admiralty, or in the Court of Probate. " ( 19 ) THEREFORE, it is clear that English Law defines the word 'action' as a judicial action of proceeding in a Court of Law. " ( 19 ) THEREFORE, it is clear that English Law defines the word 'action' as a judicial action of proceeding in a Court of Law. So far as Indian High Courts are concerned even though decisions are very few yet the Division Bench of Bombay High Court has interpreted it is a judicial proceeding. The Division Bench of Kerala High Court has also treated Suit or Action to be synonymous. Mrs. Justice Padma Khastgir has applied the extended meaning of the word 'action' namely, the legal demand of one's dues, in the circumstances of that particular case because in that can the State of U. P. could enforce the bond through the Punjab National Bank without filing any Suit. I have already indicated that in this case there is no other mode of recovery of Bank Guarantee money than by filing a Civil Suit. ( 20 ) IN the result, the conclusion is irresistible that the action as mentioned in Clause 9 would only mean a judicial action in a Court of Law which cannot but be a Civil Suit in a Competent Court of Law. According to the decision of Punjab High Court in AIR 1951 Punjab 97 (Bharat Bank Ltd. vs. Ruby Insurance Co. Ltd.) the word "action" wou1d include not only a suit but also a proceeding in a Court of Law u/s. 20 of the Arbitration Act. In this case no such alternative mode of judicial action is contemplated. So in this case a Civil Suit in a Competent Civil Court is the only action contemplated. Therefore I agree with the defendant's learned Advocate that the Advocate's Notice issued by the plaintiff would not come within the purview of "action" contemplated in Clause 9 of the Bank Guarantee, which is Annexure "a" to the plaint. ( 21 ) ADMITTEDLY, the plaintiff has not filed any Civil Suit for recovery of the amount of the Bank Guarantee prior to the date of expiry of the said Guarantee, namely, 31st October 1978. So, the contention of the defendant that the plaintiff has forfeited its right to enforce the Bank Guarantee is quite correct and must be accepted. Suit which has been filed on 16th April, 1979 is clearly not maintainable. Therefore, the issue No. 1 is answered in the negative. So, the contention of the defendant that the plaintiff has forfeited its right to enforce the Bank Guarantee is quite correct and must be accepted. Suit which has been filed on 16th April, 1979 is clearly not maintainable. Therefore, the issue No. 1 is answered in the negative. Issue No. 2: In the circumstances, the plaintiff is not entitled to get any relief in the Suit. The Suit is, therefore, dismissed. Appeal dismissed. .