Engineering Projects(India) Limited vs Mizoram Rural Bank

Mukta Gupta, J

I.A. No. 16511/2009 (under Order XXXVII Rule 3 (5) CPC)

The plaintiff has filed the present suit under Order XXXVII CPC seeking a decree against the defendant bank for a sum oRf s. 1,18,37,396/-which

included the principal amount of Rs. 1,05,69,102/- along with interest @18% per annum w.e.f. 1st January, 2009 to 31st August, 2009 amounting to

Rs. 12,68,293/- based on the four bank guarantees issued by the defendant bank.

The claim of the plaintiff in the suit is that the plaintiff is a Government of India enterprise and a company incorporated under the Companies Act

engaged in the business of carrying out large scale contracts of construction. The plaintiff company had awarded and issued work order vide PO No.

NRO/CON/496/0264 dated 24th January, 2006 in favour of one M/s R.H. Construction through its proprietor Mr. Rohmingliana for construction of

border road and fencing along Indo-Bangladesh border in Mizoram State. In terms of Clause 2 of the work order dated 24th January, 2009 the

contractor was required to submit security deposit bank guarantee equal to 5% of the contract value. Accordingly the defendant bank issued one

irrevocable and unconditional bank guarantee dated 13th January, 2006 for an amount of Rs. 46,40,000/- in favour of the Chairman and Managing

Director of the plaintiff company. Further in terms of Clause 8 of the work order dated 24th January, 2006 three more irrevocable unconditional bank

guarantees were issued. Thus by the four unconditional and irrevocable bank guarantees defendant bank had undertaken to indemnify the plaintiff

company. A letter of confirmation bearing No. VVK/BN/68 dated 20th January, 2006 was issued to the plaintiff confirming the issuance of the first

two bank guarantees followed by another letter dated 6th June, 2008 confirming the issuance of another two bank guarantees. However, defendant

bank issued a letter dated 12th January, 2009 informing the plaintiff that they would not further extend the bank guarantee unless the contractor

deposits 100% security money with the defendant bank. Based on the four bank guarantees, the plaintiff filed the present suit.

In the leave to defend application two stands have been taken by the defendant bank, firstly that the four bank guarantees were executed by a

person not duly authorised hence the bank guarantees were neither valid nor enforceable and further executed with malafide intention by the officials

of the defendant bank in collusion and in connivance with the plaintiff and the contractor. In the affidavit and the additional affidavit filed the defendant

bank also claims that the four bank guarantees were forged and fabricated as the inquiries revealed that no official record in respect of these four

bank guarantees was maintained.

The law in respect of grant of leave to defend has been settled by the Hon’ble Supreme Court in the decision reported as 2017(1) SCC 568

IDBI Trusteeship Services Ltd. vs. Hubtown Ltd. as under:

Accordingly, the principles stated in para 8 of Mechelec case [Mechelec Engineers & Manufacturers v. Basic Equipment Corpn.,

(1976) 4 SCC 687] will now stand superseded, given the amendment of Order 37 Rule 3 and the binding decision of four Judges in

Milkhiram case [Milkhiram (India) (P) Ltd. v. Chamanlal Bros., AIR 1965 SC 1698: (1966) 68 Bom LR 36] , as follows:

17.1. If the defendant satisfies the court that he has a substantial defence, that is, a defence that is likely to succeed, the plaintiff is not

entitled to leave to sign judgment, and the defendant is entitled to unconditional leave to defend the suit.

17.2. If the defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the

plaintiff is not entitled to sign judgment, and the defendant is ordinarily entitled to unconditional leave to defend.

17.3. Even if the defendant raises triable issues, if a doubt is left with the trial Judge about the defendant's good faith, or the genuineness of

the triable issues, the trial Judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security.

Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must

also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security.

17.4. If the defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial,

as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or

both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires.

17.5. If the defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or

vexatious, then leave to defend the suit shall be refused, and the plaintiff is entitled to judgment forthwith.

17.6. If any part of the amount claimed by the plaintiff is admitted by the defendant to be due from him, leave to defend the suit, (even if

triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the defendant

in court.

As noted above two stands have been taken by the defendant bank, firstly, that though the four bank guarantees were issued but they were not by

the duly authorised and competent officer and were issued in connivance and collusion with the plaintiff and contractor and secondly, that the four

bank guarantees were forged and fabricated for the reason no corresponding records of the four bank guarantees were available with the bank.

Plaintiff has placed on record not only the four bank guarantees but also letter dated 13th February, 2009 sent by the Chairman of the defendant

bank noting that the four bank guarantees in question were issued by their Vaivakawn Branch, jointly by the Branch Manager and the second officer,

however, they were not vested with the power to issue bank guarantees.

Considering the material placed on record, it is a fit case where leave to defend is required to be granted in view of the law laid down by the

Supreme Court in IDBI Trusteeship Services (supra). However, the fact remains that the plaintiff proceeded with the work based on the four bank

guarantees and hence it is a case for grant of conditional leave to defend to the defendant bank in view of its two contrary stands. The defendant bank

is thus granted leave to defendant subject to its depositing a sum of Rs. 1,18,37,396/- the amount due on the date of filing of the suit with the Registrar

General of this Court within eight weeks from today. The amount so deposited would be kept in a fixed deposit.

Application is disposed of.

CS(OS) 2038/2009

Since the dispute in the present suit is a commercial dispute, Registry will re-number the suit as a Commercial Suit.

Written statement be filed within 30 days.

Replication be filed within three weeks thereafter.

Admission/denial of documents has already been concluded.

List the suit for settling the issues on 8th December, 2017.

Order dasti.