Jain Exports Pvt. Ltd vs State Bank Of Saurashtra & Anr

No. 10619/2018 (Exemption)

1.Exemption allowed subject to just exceptions.

CM stands disposed of.

RFA No. 272/2018

This Regular First Appeal is filed under Section 96 of the Code of Civil Procedure, 1908 (CPC) by the plaintiff in the suit impugning the judgment of

the trial court dated 21.11.2017 by which the trial court has dismissed the suit for recovery of Rs. 33,80,316/-against respondent no. 1/defendant no.

1/State Bank of Saurashtra. It is noted that the suit was originally filed as an order XXXVII CPC suit and there were two defendants in the suit, with

the defendant no. 2 being Sh. R.P. Mathur, the sole proprietor of M/s. Radhika Leather Fashion who had issued the subject two cheques in favour of

the appellant/plaintiff. Since the defendant no. 2 did not file an application seeking leave to defend, the suit as against him was decreed in terms of the

order dated 1.4.1997 of the trial court for the suit amount along with interest. The issue to be decided in the present appeal therefore is only the

entitlement/claim of the appellant/plaintiff for the amount as against the respondent no. 1/defendant no. 1/State Bank of Saurashtra.

The facts of the case are that the respondent no. 2/defendant no. 2 was having his account with the respondent no. 1/defendant no. 1/State Bank of

Saurashtra. As per the plaint it is pleaded that respondent no. 2/defendant no.2 approached the appellant/plaintiff for a loan of Rs. 50 lacs and this loan

was advanced by the appellant/plaintiff to the respondent no. 2/defendant no. 2 for six months. In discharge of his liability the respondent no.

2/defendant no. 2 had given two cheques dated 1.9.1994 and 1.9.1995. In the plaint it is pleaded that the Manager of the respondent no. 1/defendant

no 1/State Bank of Saurashtra in terms of his two letters dated 3.3.1994 issued confirmation for honouring the cheques. Since respondent no.

2/defendant no. 2 committed default in payment of the loan amount because only part of amount of Rs. 26 lacs was paid, therefore the subject suit

was filed.

4.(i) The only issue to be decided, and as argued on behalf of the appellant/plaintiff before this Court is that whether the respondent no. 1/defendant

no. 1/State Bank of Saurashtra is liable on account of the fact that the two subject cheques which were dishonoured were assured for payment in

terms of two letters dated 3.3.1994 issued by the Manager of the respondent no. 1/defendant no. 1/State Bank of Saurashtra. This issue is issue no. 3

which was framed by the trial court and trial court has decided this issue in favour of the respondent no. 1/defendant no. 1/State Bank of Saurashtra

by firstly holding that the two letters were not authorized to be issued by the respondent no. 1/defendant no. 1/State Bank of Saurashtra through its

Chief Manager and that these letters were issued without any authority becomes clear as it is seen that the letters do not bear any reference number.

Trial court has further held that such letters issued by the Manager of the Bank can only make the respondent no. 1/defendant no.1/State Bank of

Saurashtra liable if the respondent no. 1/defendant no. 1/State Bank of Saurashtra had become a guarantor for payment of the amount of the cheques,

but these two letters dated 3.3.1994 cannot be construed as letters of guarantee issued by the respondent no. 1/defendant no. 1/State Bank of

Saurashtra.

(ii)To the aforesaid conclusions of the trial court I would like to add that even assuming the two letters both dated 3.3.1994 were authorized to be

issued by the Manager of the respondent no. 1/defendant no. 1/State Bank of Saurashtra, yet these letters would only require the respondent no.

1/defendant no. 1/State Bank of Saurashtra to pay the cheques as if presented in and around the dates of the cheques. These letters dated 3.3.1994

cannot be construed as fastening the liability upon the bank for all times to come even if the cheques are not presented in and around the dates of the

cheques but many months later.

The relevant observations of the trial court to dismiss the suit by holding the issue no. 3 against the appellant/plaintiff iscontained in paras 12 to 22 of

the impugned judgment and these paras read as under:-

“Issue no. 3:    Whether defendant no. 1 has nothing to do with the subject money transaction?

12.It is the case of the plaintiff that he had advanced the amount of Rs. 50,00,000/- to the defendant no. 2 on the basis of a guarantee/assurance given

by the defendant no. 1. In this regard, ld. Counsel for the defendant heavily relied on two letters dated 03.03.1994 (Ex. PW1/4 & Ex. PW1/5).Â

The said two letters are very crucial and accordingly their contents are reproduced as under:- Letter no. 2 (Ex.PW1/5)

“This  is  to  confirm  that  cheque  no.  784052  dated 01.06.1994  for  Rs.  4,50,000/- Â

(Rupees  Four  Lac  Fifty Thousand only) issued by M/s Radhika Leather Fashion in your favour will be honoured when presented at our

Bank on due date.†Letter no. 2 (Ex. PW 1/5) “This is to confirm that cheque no. 784052 dated 01.06.1994 for Rs. 4,50,000/- (Rupees Four Lac

Fifty Thousand only) issued by M/s. Radhika Leather Fashion in your favour will be honoured when presented at out Bank on due date.â€​

13.In the instant case, the plaintiff has impleaded the State Bank of

Saurashtra as the defendant no. 1 by claiming that two aforesaid  letters  Ex.  PW1/4  and  Ex.  PW1/5  were Â

issued  by defendant no. 1 through its Chief Manager. The defendant no. 1 denied the execution of the said letters and it is alleged that the said

letters were forged and fabricated by the plaintiff in collusion with defendant no.2. It is also argued that the said letter do not bear any official

reference number. 14. On the other hand, the plaintiff has placed on record the said  documents  and  the  PW-1  Sh. Â

Raj  Kumar  Jain  deposed repeatedly in his examination, cross-examination and in rebuttal that the said letters were issued by the then

Chief Manager in his presence. Although the execution of the said letters were denied by the defendant no. 1 in the written statement but the said

denial is not forceful assertion. Defendant no. 1 has also not produced any relevant record of the relevant time despite demanding the same in the

cross-examination of the DW-1. It is however, argued on behalf of defendant no. 1 that said letters did not bear any reference number.Â

15.When  evidence has been led by the PW-1 proving the execution of the said documents, it was upon the defendants to rebut  the Â

said  evidence  but  no  such  rebuttal  has  been  done. Accordingly, I hold that the plaintiff proved execution of

the said two letters issued by the then

Chief Manager of the defendant no.1 but at the same time a further crucial

question aroses as to whether the said letters were executed by the then Chief Manager on behalf of his bank/defendant no. 1 or not. The argument

of the Ld. Counsel for the defendant no.1 on the point of having no reference number on the said letters becomes important on this score.Â

16.In this  context, ld. Counsel for the defendant no. 1 also relied on the judgment of Hon'ble High Court of Delhi in case of 'M/s Â

SRP  Industries  Ltd.  vs.  Kay  Bee  &  Co.  &  Ors.'  dated 12.09.2012, wherein it was held by

Hon'ble Justice Valmiki J. Mehta as under: “The  defendant  no.  4  bank  has  further  pleaded  that  it

could not have co-accepted the bill, because guarantees, pay orders, drafts, bills, etc. of the value of more than Rs.10,000/-Â are necessarily to be

signed by two officers of the bank, whereas the Bill of Exchange dated 30.03.1994 is signed  only  by  one  person.  In Â

para  -6  of  the  written statement, defendant no. 4- bank has pleaded that similar suits have been filed by one M/s  Jain Export

Pvt. Ltd. being  CS(OS)  No.  1433/1995  and  another  by  one  Mr. Madan Mohan Lal being CS(OS) No.

1845/1997 showing that frauds were perpetrated by defendant nos. 1 to 3. The defendant no. 4 has also pleaded that there was no reason why Â

the  bank  would  co-accept  the  Bill  of  Exchange inasmuch  as  if  the  bank  wanted Â

to  give  loan,  the  bank would  have  itself  given  the  loan  and  earned  from  this

commercial transaction.Â

Let me for the sake of arguments assume that Ex. PW1/1 to Ex. PW1/9  have been  proved  on behalf  of  theÂ

plaintiff. However, even if, we look at the documents, the case of the plaintiff is not proved. The letters dated 24.03.1994 and 30.03.1994 alleged to be

issued by the defendant no. 4-bank do not contain reference numbers and serial numbers and which aspect are found normally on the authorised

letters of the banks. The plaintiff should have immediately been put to caution when these letters dated 24.03.1994Â Â and 30.03.1994 were given to

it. In fact, the plaintiff has been a victim of its own lack of prudence inasmuch as once the defendant nos. 1 to 3 are said to have financial limits with

the defendant no. 4Â the plaintiff bank ought to have taken the letter showing the sanction of the financial limits by the defendant no. 4-bank to the

defendant no. 2 and 3. Plaintiff however failed to do the needful.â€​ Â

17.The aforesaid observations squarely apply to the present case also. Accordingly, I hold that the said two letters were not executed on behalf of the

defendant no.1 as the defendant no. 2 was not authorized to perform such unofficial act.Â

18.Apart from the execution of the said letters, a further issue arose  on  the  point  whether  the  said  two Â

letters  constitute  a 'guarantee' for repayment of loan of defendant no. 2 or not. As per Section 126 of the Indian Contract Act, aÂ

‘contract of guarantee’ is a contract to perform the promise, or discharge the liability of a third person in case of his default.

The person who gives the guarantee is called the ‘surety’; the person in respect of whose  default  the  guarantee  is Â

given  is  called  the Â

‘principal debtor’, and the person to whom the guarantee is given is called the ‘creditor’.Â

19.From the said definition, it is clear that before constituting liability of the guarantor/surety, there should be a valid contract of guarantee to perform

the promise or discharge the liability of third person. In the said two letters, there is no stipulation that the Chief  Manager  of  the Â

Bank  had  promised  to  discharge  the liability of third person/defendant.  Secondly, a contract can be entered into by a

competent person personally or through agent. The Chief Manager of the defendant no. 1 was a agent of his employer/master  and Â

therefore  it  is  also  required  to  be  seen whether he was authorized as an agent of the defendant no. 1 to enterÂ

into a contract of guarantee which may bind the defendant no. 1 or not.Â

20.As per  the  Section  2(h)  of  the  Indian  Contract  Act,  an agreement enforceable by law is a

contract. In other words, as per Section  2(g)  of  Indian  Contract  Act,  an  agreement  not enforceable by law

is said to be void. Accordingly, it is required to be seen whether the said two letters constitute a valid contract in  the  eyes  of Â

law  or  not.  The  Ld.  Counsel  for  the  plaintiff vehemently contended that the defendant no.1 did not prove on

record any document of the relevant time or the guidelines or the statue, regulation etc. to show that the then Chief Manager of the defendant no. 1

was not competent or/authorized to issue said two letters. No doubt there is no said evidence produced on record by the defendant no. 1 but the DW-1

Sh. Bharat Dubey, General Manager of the Central Bank of India categorically deposed in his  examination  in  chief  that Â

it  is  not  the  business  of  the defendant no. 1 to issue such letters and that commitments of the bank  by way of

bank guarantee  are issued on the  approved format of the requisite stamp paper. I find substance in the said deposition of DW-1 since letters

Ex. PW1/4 & Ex. PW1/5 have not  been  issued    like  a  guarantee/contract  and  rather  their terminology

only refers to a statement about honoring of cheques on there presentation on the due date.Â

21.In the ordinary course of business, it is the duty of the bank to honor cheques drawn on from it on their presentation on the due date and only said

process had been confirmed in the said two letters and nothing else. There is no stipulation which can be said  to  be  aÂ

guarantee/promise  to  discharge  the  liability  of defendant no. 1.Â

22.Most importantly it is also seen that the said cheques were not issued by the defendant no. 1 or by its Chief Manager as a drawer  of Â

the  cheques  and  therefore  their  assurance  about honoring of the said

cheques has nothing to do with respect to liability of the defendant no.2.â€​

22.Most importantly it is also seen that the said cheques were not issued by the defendant no. 1 or by its Chief Manager as a drawer of the cheques

and therefore their assurance about honoring of the said cheques has nothing to do with respect to liability of the defendant no.2.â€​

I do not find any illegality whatsoever in the aforesaid discussion, findings and conclusions of the trial court because the Manager of the respondent

no.1/defendant no.1/bank who issued the letters obviously did so without authority and appellant/plaintiff should have been straightway put to notice on

account of there being no reference numbers in the two letters. The appellant/plaintiff is not a layman but a commercial entity being a Private Limited

Company and would therefore be otherwise aware as to how letters are issued by the bank. Also, a bank only makes payment of monies in its hands

of the customers and the bank incurs no liability if the cheque of customer is dishonoured. Liability of a bank is only if the bank issues a bank draft/pay

order or the bank stands as a guarantor. Trial court has rightly discussed and held the respondent no.1/defendant no.1/bank not to be a guarantor with

respect to the transaction and the two instruments are admittedly only cheques issued by the respondent no.2/defendant no.2 from his account and

these instruments are not pay orders/bank drafts. Also, additional reasoning is given by this Court that the letters issued by the bank on 3.3.1994 will

only at best make the bank liable in case the cheque was presented in and around 3.3.1994 when the letter was issued by the manager of the

respondent no.1/defendant no.1/bank whereas in the present case the cheque dated 1.9.1994 was dishonoured on 7.12.1994.

In view of the above discussion, I do not find any merit in the appeal. Dismissed.