Guru Ispat Limited and Another vs The State Bank of India and Others

Jayanta Kumar Biswas, J.—The petitioners in this Article 226 petition dated July 2, 1999 are seeking a mandamus commanding the State Bank of India (in short SBI) "to forthwith release the fixed deposit amounts as mentioned at paragraph 2" of the petition.

Case of the petitioners stated in the para.2 of the petition is as follows:

Your petitioner No. 1 for its business purposes obtained a Bank Guarantee of the Respondent No. 1 at its Chowringhee Branch, for Rs. 10 lacs for a period of 1 years. As a condition thereof, your petitioners were asked to keep amounts of Rs. 10 lakhs in Fixed Deposit with the Respondent No. 1 at the said Branch, which your petitioner No. 1 did in 1993, such fixed deposit accounts bearing numbers 608991 and 608992 for 5 lakhs each. At any event, the said Bank Guarantee was not ultimately required and was allowed to lapse in 1994 and from that date, the Fixed Deposit Accounts, which amount to monies lent by the Writ Petitioners to the Bank till maturity, were free from any conditions whatsoever. The said Bank Guarantee was never renewed. Copies of documents substantiating the said transaction regarding Bank Guarantee are annexed herewith and marked collectively with the letter "A".

Case of SBI stated in para.6 of its affidavit-in-opposition dated July 27, 2001 is as follows:

With reference to paragraph 2 of the petition, I deny that the Fixed Deposit amounted to lending moneys to the first respondent. I say that the first respondent had a lien on the said Fixed Deposit Receipt for the loans and advances granted by the first respondent to the petitioners at the said Chowringhee Branch. In default of payment of the outstanding amount, in the account of the first petitioner, the first respondent in exercise of its rights of lien and set off, adjusted proceeds of the said Fixed Deposit Receipts against its claims.

One Tahir Traders of the United Arab Emirates (in short UAE) wanted to purchase steel products from the first petitioner (Guru Ispat) that is involved in export and import. Accordingly, at Tahir''s request, the United Bank Limited (in short UBL) of UAE established an irrevocable letter of credit dated October 6, 1993 in favour of Guru Ispat for "Abt US$ 100500 C&F Dubai". SBI executed the bank guarantee dated November 25, 1993 in connection with Guru Ispat''s likely liability to pay duty for certain exported goods. Guru Ispat negotiated the letter of credit with SBI and in the process produced the requisite shipping documents. On December 6, 2003 SBI credited Rs. 2,16,945 to Guru Ispat''s account. By a letter dated August 2, 1994, SBI called upon Guru Ispat to deposit Rs. 2,21,954 with interest at the rate of 24.25% p.a. till the date of deposit on the ground that UBL returned unpaid its bill concerned for US$ 7035. Since Guru Ispat did not deposit the amount, SBI withheld payment of the amounts that became payable on maturity of the fixed deposits.

The first question is whether in exercise of power under Article 226 the high court should adjudicate and determine the rights and contentions of the parties arising out of and in connection with the irrevocable letter of credit. While Mr. Bhattacharjee, Counsel for the petitioners, has argued that claiming payment in connection with the irrevocable letter of credit SBI cannot call upon Guru Ispat to pay any amount, for its right, if any, to recover the amount under the bill is only against UBL; Mr. Pal Chowdhury, Counsel for SBI, has argued that since UBL refused to pay under the letter of credit citing incomplete shipping documents submitted by Guru Ispat, SBI became entitled to recover the amount under the bill in question from Guru Ispat. He has said that in view of Guru Ispat''s liability indicated in SBI''s letter dated August 2, 1994, SBI lawfully exercised its statutory right available u/s 171 of the Indian Contract Act, 1872.

Mr. Bhattacharjee has argued that even if it is assumed that SBI was entitled to exercise its right u/s 171, it is beyond comprehension how it can withhold payment of the whole of the maturity value of the fixed deposits, especially when its claim was less than 2.5 lakh.

Mr. Pal Chowdhury has said on instructions that balance of the maturity value can be paid to Guru Ispat with accumulated interest. Under the circumstances, Mr. Bhattacharjee has invited me to dispose of the petition directing SBI to pay the balance of the maturity value of the fixed deposits with accumulated interest, and giving the petitioners liberty to question the validity of SBI''s Section 171 action and consequent recovery of the amount demanded by its letter dated August 2, 1994, before the appropriate civil court.

I am of the view that the question whether citing UBL''s refusal to pay the billed amount and thus honour the irrevocable letter of credit issued by it on October 6, 1993, SBI can call upon Guru Ispat to pay the amount demanded by its letter dated August 2, 1994 should not be examined by the high court in exercise of its power under Article 226, for nothing in the question involves enforcement of any public law right by Guru Ispat, or discharge of any public law obligation or duty by SBI that has claimed and asserted a pure private law contractual right. In my view, the petitioners, questioning the validity of SBI''s demand and consequential exercise of its right u/s 171 of the Indian Contract Act, 1872, should be relegated to the civil court for seeking adjudication and determination of all questions pertaining to SBI''s Section 171 action.

I am, however, unable to see how SBI, demanding payment only of the amount mentioned in its letter dated August 2, 1994, can withhold payment of the whole of the maturity value of the fixed deposits, even if it is assumed that it was entitled to recover the amount mentioned in the letter dated August 2, 1994 from the maturity value of the fixed deposits by exercising its right u/s 171. In my view, SBI wrongfully withheld payment of the whole of the maturity value of the fixed deposits, and hence it is liable to pay the amounts with interest. It is to be noted that Mr. Pal Chowdhury has said that according to the arrangements the parties agreed at the time the fixed deposit accounts were opened, accumulated interest was to be credited to Guru Ispat''s current account with the bank, and that interest has been duly credited. The position has been disputed by Mr. Bhattacharjee.

In view of the above-noted situation and for the foregoing reasons, I dispose of the petition ordering as follows. With respect to the amounts mentioned in SBI''s letter dated August 2, 1994, recovered by SBI in exercise of a right claimed u/s 171 of the Indian Contract Act, 1872, the petitioners will be free to approach the appropriate civil court in accordance with law. Within four weeks from the date of communication of this order SBI shall pay the petitioners balance of the maturity value of the fixed deposits with interest, at the rate specified in the receipts concerned, till the date of payment, after adjusting interest already credited, if any, to Guru Ispat''s account. SBI need not pay costs in terms of the last order. No costs. Certified xerox according to law.