M.P.MINERALS LTD. vs Bank of India

THE present complaint has been filed by the complainant against the respondent Bank alleging deficiency in service in not paying the amount of the Bank Guarantee on a demand being on the Bank requiring it to pay under the Bank Guarantee. THE Bank took the plea that the demand in the manner it has been made is not in accordance with the terms of the guarantee and as such it is not obliged to pay. After the pleadings were completed, both the parties relied upon the documents on record and said that no oral evidence is necessary.

THE facts of this case lie in a very narrow compass. THE respondent Bank executed a Bank Guarantee No. 93-94/28 on 6.7.1993 on behalf of its customer, M/s. Searsole Chemicals Ltd. in favour of the complainant. In the guarantee the respondent Bank had undertaken to pay to the complainant an amount not exceeding Rs. 20 lakhs by reason of any breach by the said M/s. Searsole Chemicals Ltd. of any of the conditions contained in the agreement dated 7.6.1993, between the complainant and M/s. Searsole Chemicals Ltd. THE said guarantee is alleged to have been extended by the respondent Bank vide its letter dated 5th September, 1994 for one year, i.e. from 20th May, 1994 to 19th May, 1995. THE complainant had served on the Bank a letter calling upon the respondent Bank to pay under the said guarantee which reads as under : "Chief Manager, Bank of India, Dehradun. Dear Sir, Ref : Your Bank Guarantee No. 93/94/20 dated 6.7.1993 subsequently extended vide your letter ref. No. DHD/PRN dated 6.9.1994 for Rs. 20.00 lacs in our favour. THE above mentioned Bank Guarantee is valid up to 19th May, 1995. Consequent upon breach of the terms and conditions contained in the agreement dated 7.6.1993 we, hereby, invoke the said Bank Guarantee for Rs. 20 lakhs. In support of our claim, we are attaching hereto the following : 1. Original Bank Guarantee along with its extension letter. 2. Original statement of accounts as on 22.8.1994 duly confirmed by M/s. Searsole Chemicals Ltd. 3. Statement of accounts as on 30.4.1995 showing Rs. 21,95,781.34 to the debit of M/s. Searsole Chemicals Ltd. You are requested to please make payment by account payee demand draft. This demand draft may kindly be handed over to Mr. Lalit Mittal whose signature is given below duly attested by the banker also. Thanking your Yours faithfully, For M.P. Minerals Ltd. Sd/xxxx Director, Mr. Lalit Mittal signs thus : Sd/xxxx ............................. For M.P. Minerals Ltd. Sd/xxxxx Director. Encl : As stated above."

THE Bank Guarantee provides, inter alia, that : "Unless a demand or claim under this guarantee is made on us in writing on or before the 20.5.1994 certifying that breach of the terms and conditions of the said agreement has occurred supported by proof of supply of the material and acceptance of the same by the Company and non-payment of the value for material supplied, we shall be discharged from all liability under this guarantee, thereafter."

(Emphasis supplied) When the amount was not paid, in response to the aforesaid demand and subsequent to correspondence, the complainant filed the present complaint. Notice thereof was served on the respondent Bank who took several pleas including one of limitation in terms of the guarantee which provided that all rights stood forfeited under the guarantee as it was not invoked within the prescribed time and have referred to the last clause of Bank Guarantee. "Notwithstanding anything contained hereinabove our liability under this guarantee is restricted to Rs. 20 lakhs (Rupees twenty lakhs only) and will remain in force upto 20.5.1994 unless a suit to enforce any claim under the guarantee is filed against us on or before 20.6.1994, all your rights under the said guarantee shall be forfeited and we shall be relieved and discharged from all liabilities thereunder."

This objection need not detain us because, Section 28 of the Contract Act has since been amended and any contract which tries to provide a limitation shorter than the one provided under the Limitation Act or in any statute will be void to that extent. The amended Section 28 of the Contract Act reads as under : "28. Agreements in restraint of legal proceedings void- Every agreement, by which any party thereto is restricted absolutely from his rights under or in respect of any contract, by the usual legal proceedings in the ordinary Tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent."

No suit, prosecution of other legal proceedings shall lie against the members of the District Forum, the State Commission or the National Commission. For that reason, there is no merit in this objection.

WE have heard the parties on the merits of demand and also examined letter of demand, with a view to assess whether the demand has been made in accordance with the terms of guarantee. It is a condition of the Bank Guarantee that demand certifying that breach of terms of agreement has occurred supported by proof of supply of material and acceptance of the same by the Company and non-payment therefor, no payment could be made. WE find that the complainant had sent the original Bank Guarantee along with two statements of account. There are two statements only one of which is signed on behalf of M/s. Searsole Chemicals Ltd. also. The requisite documents proving the delivery of the consignments in respect whereof the money is being claimed were never sent to the Bank. While considering the claim under such guarantees the guarantee document relating to such claims has to be strictly construed. It is not a Bank guarantee which provides that demand would be conclusive proof of the amount being due and payable by the customer of the Bank and that the Bank will pay without demur in response to such demand. In the present case, we find that certain conditions are provided in the Guarantee itself which have to be fulfilled before the Bank can make payment under the guarantee. As already noticed above, we find that those conditions were never fulfilled. At best, Counsel was showing the statement of account. It would not be the same thing as evidence of delivery, as required under the Bank Guarantee. Statement of account also to be acceptable to the Bank should have been signed by the person duly authorised by the customer of the Bank. In Hindustan Construction Co. Ltd. v. State of Bihar & Ors., reported as in VII (1999) SLT 546=(1999) 8 SCC 436, the law has been laid down by the Hon''ble Supreme Court, it is clear that if the Bank Guarantee is conditional, the beneficiary cannot have unfettered right to invoke the guarantee and Court can issue injunction against invocation of the guarantee in view of the facts of the case. As already observed, this is not a case of unequivocal or unconditional guarantee, but was a conditional guarantee and the conditions had to be fulfilled as envisaged in the documents of guarantee. As noticed above, the documents which were required to accompany the demand were not sent. Therefore, the Bank was within its right to not to honour such demand under the guarantee. The complainant has not impleaded M/s. Searsole Chemicals Ltd. As such, no order can be made against that Company by this Commission. The complainant however, will be free to pursue its remedy against the said Company. In the light of the above discussion, this complaint is without any merit and is dismissed without any order as to costs. Complaint dismissed.