PACKWELL PRINTERS vs Union Bank of India

THIS is a complaint under Section 17(a)(i) of the Consumer Protection Act, 1986 (for short the ''Act'') alleging deficiency in service by the opposite party in making the payment of Rs. 15 lacs under the Bank Guarantee B.G. No. 109/905 executed on 12.5.1995, by the opposite party in favour of the State of Madhya Pradesh through office of the Chief Electoral Officer, Madhya Pradesh. Admittedly, the complainant entered into agreements dated 5.5.1995, 6.5.1995, 8.5.1995, 8.5.1995, 10.5.1995 and 10.5.1995 for preparation of Identity Cards for the electors of the Districts Chhatarpur, Damoh, Datia, Panna, Satna and Tikamgarh. In terms of the said agreements a guarantee of Rs. 15 lacs for the fulfilment of the terms and conditions of the said agreements was executed by the complainant of the Union Bank of India the opposite party for a period of one year, which was extended at the request of the complainant for a further period of six months on 4.12.1996. The officer of the Chief Electoral Officer, Madhya Pradesh sent a fax/registered A.D. letter to the opposite party for non-release of the Bank guarantee B.G. No. 109/95 and for payment of Rs. 15 lacs in terms of the agreements entered with Government of Madhya Pradesh and the complainant, as the complainant has not carried out the terms and conditions of the contracts as a result of which the State of Madhya Pradesh had to suffer liquidated damages for lost time and additional cost for getting the work done through a new agency as provided in para 3 of the agreement. The opposite party having no alternative, in terms of the bank guarantee paid the proceeds on 12.3.1996, to the beneficiary the State of Madhya Pradesh and communicated the same to the complainant. The complainant made a complaint before the office of the Banking Ombudsman, Madhya Pradesh, Bhopal. The said complaint was rejected vide dated 30th July, 1997 stating that the security in terms of guarantee bond clearly indicated that for honouring the commitment under the guarantee, all that is required a letter of demand stating that the terms and conditions of the agreement stand violated demanding the payment as per the terms and conditions of the guarantee bond.

THE complaint alleged that in terms of condition No. 2 of the guarantee bond before making the payment of the opposite party ought to have satisfied/verified whether any loss or damage was suffered by the State Government due to failure on the part of the complainant in not complying the terms of the agreement. That having not been done, the opposite party was deficient in service, therefore, the complainant is entitled for restoration of fixed deposit receipt of Rs. 15 lacs given to the Bank for furnishing Bank Guarantee. The complaint is opposed stating that after the receipt of the letter dated 4.10.1996 from the office of the Chief Electoral Officer, Madhya Pradesh, the Bank had no option but to encash the Bank Guarantee which was in favour of the beneficiary without any demur as the invocation was within the validity period. It is also submitted that the State of Madhya Pradesh is a necessary party and that the appropriate remedy for the complainant was to sue State of Madhya Pradesh in the Civil Court of competent jurisdiction for realisation of the said amount, if according to the complainant no loss is caused by breach of agreements. The complaint is false and vexatious, therefore, the opposite party is entitled to be compensated by heavy costs.

Having heard Mr. Kamlesh Jain, Executive Director of the complainant and Mr. S.C. Dwivedi, learned Counsel for the opposite party and on going through the record, we are of the opinion that no deficiency in service can be found against the opposite party. The contention of the complainant is based on condition No. 2 which reads thus : "2. We Union Bank of India do hereby undertake to pay the amounts due and payable under this guarantee without any demur merely on a demand from the Government stating that the amount claimed is due by way of loss or damage caused to or suffered by the Government by reasons of any breach by said Contractor(s) of any of the terms or conditions contained in the said agreement or by reason of the contract(s) failure to perform the said agreement. Any such demand made on the Bank shall be conclusive as regards the amount due and payable by the Bank under this guarantee. However, our liability under this guarantee shall be restricted to an amount not exceeding Rs. 15 lacs.

THE State of Madhya Pradesh sent a letter which clearly stated that there was a breach of contract resulting in liquidated damages for the lost time and additional cost for getting the work done through a new agency as provided by para 3 of the agreement between the State of Madhya Pradesh and the complainant. In terms of the said letter, the opposite party could not have asked the State of Madhya Pradesh to produce the (sic.) the complainant and the State of Madhya Pradesh and not a dispute between the complainant and the State of Madhya Pradesh. It is well settled law that a Bank Guarantee which is payable on demand implies that the Bank is liable to pay as and when a demand is made upon the Bank by the beneficiary. The Bank is not concerned with any inter se disputes between the beneficiary and the person at whose instance the Bank had issued the Bank Guarantee. Where a Bank unconditionally agreed to pay to party to whom guarantee was given to pay on demand sums specified therein and amount specified was to be paid without demur and without requiring creditor, beneficiary, to invoke legal remedy as the beneficiary is the sole Judge as to whether party furnishing guarantee has committed breach of contract and as to extent of loss and damages and decision of the beneficiary as to amount was final and binding. It is only in a case of fraud or irretrievable injustice a Court or Courts may injuct the beneficiary for encashment of bank guarantee. See the decisions of the Supreme Court in General Electric Technical Services Company Inc. v. Punj Sons (P) Ltd. & Anr., II (1992) BC 1 (SC)=AIR 1991 SC 1994, Svenska Handlesbanken v. M/s. Indian Charge Chrome and Ors., I (1994) BC 215 (SC)=AIR 1994 SC 626; National Thermal Power Corporation Ltd. v. Flowmore Pvt. Ltd. & Anr., II (1995) BC 221 (SC)=AIR 1996 SC 445; Hindustan Steel Workers Construction Ltd. v. G.S. Atwal and Co. (Engineers) Pvt. Ltd., AIR 1996 SC 131; Larsen and Toubro Ltd. v. Maharashtra State Electricity Board & Ors., II (1996) BC 255 (SC)=AIR 1996 SC 334; U.P. State Sugar Corporation v. M/s. Sumac International Ltd., I (1997) CLT 195 (SC)= I (1997) BC 286 (SC)=AIR 1997 SC 1644; Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. & Anr., II (1997) CLT 468 (SC)=AIR 1997 SC 2477.

IN the circumstances, the appropriate remedy for the complainant is to take appropriate proceedings in accordance with law in the Court of competent jurisdiction against the State of Madhya Pradesh for the alleged illegal encashment of the bank guarantee by the beneficiary, that is the State of Madhya Pradesh. With the aforesaid liberty to the complainant to proceed against the State of Madhya Pradesh, the complaint is dismissed with no order as to costs. Complaint dismissed.