SAKTHI FEEDS PVT.LTD vs South Indian Bank Ltd

THIS is a complaint under Section 17 read with Section 12 of the Consumer Protection Act.

THE complainant is a company incorporated under the Indian Companies Act and is engaged in the manufacture and sale of Poultry and Animal Feeds. M/s. Sri Balaji Poultry Feeds of Madanoor, North Arcot District approached the complainant for supply of Poultry and Animal Feeds and the complainant agreed on condition that M/s. Sri Balaji Poultry Feeds produced in favour of the complainant a Bank guarantee for a sum of Rs. 1 lakh. Accordingly, the said Sri Balaji Poultry Feeds furnished a. Bank guarantee dated 27.12.91 executed by the opposite party in favour of the complainant for a sum of Rs. 1 lakh valid from 27.12.91 to 26.12.92 and in case of any claim it should be made within a period of 50 days after the expiry of the Bank guarantee. On the strength of the aforesaid Bank guarantee, the complainant supplied feeds to the said Sri Balaji Poultry Feeds. THE said Sri Balaji Poultry feeds was very irregular in making payments and as on 9.1.93 there was a balance of Rs. 1,34,469-88 due to the complainant as per the accounts maintained by the complainant. As the payments by Sri Balaji Poultry Feeds were irregular the complainant decided to invoke the Bank guarantee and wrote a first letter dated 27.11.92 to the opposite party calling upon it to pay Rs. 1 lakh as guranteed. THEre was no response. THE complainant wrote another letter dated 30.12.92 which also evoked no response. THE complainant then finally gave a notice to the opposite party on 6.2.93. THE unexplained silence on the part of the opposite party led to the presumption that the opposite party was colluding with Sri Balaji Poultry Feeds in order to defeat the claims of the complainant. It amounted to gross deficiency in service and hence this complaint for recovery of the guranteed amount of Rs.1 lakh with damages in the sum of Rs.1 lakh, loss on interest in the sum of Rs. 8,000/- and incidental expenses in the sum of Rs. 3,000/- totalling in all Rs. 2,11,000/-. The claim is resisted by the opposite party. It is admitted that the opposite party had issued a Bank guarantee for a sum of Rs. 1 lakh on behalf of its customer Sri Balaji Poultry Feeds in favour of the complainant on 27.12.91 for the period of one year. It is also admitted that the opposite party received the letter dated 27. 11.92 from the complainant invoking the Bank guarantee. Immediately on receipt of the letter, the opposite party forwarded the letter to the Regional Office which in turn sent it to Trichur for necessary instructions. According to the opposite party, M/s. Sri Balaji Poultry Feeds sent a letter to the opposite party refuting the claim of the complainant in its letter dated 27.11.92 and the opposite party that it was taking necessary legal action in the matter against the complainant. Meanwhile, the complainant sent further letter dated 30.12.92 followed by another letter dated 6.2.93. Meanwhile the opposite party received a letter dated 14.12.92 from Sri Balaji Poultry Feeds that a suit has been filed against the complainant in the matter. It is contended by the opposite party that Sri Balaji Poultry Feeds has filed a case in O.S. 1478/92 on the file of the District Munsiff. Tirupathur against the complainant and the opposite party for an injunction restraining the complainant from invoking the Bank guarantee. It is therefore contended by the opposite party that the payment of the Bank guarantee will be considered only after the disposal of the suit. There is therefore no deficiency in service.

Exhs. A1 to A7 and B1 to B11 are marked by consent. Proof affidavits are filed. No oral evidence has been let in.

THE point for consideration is whether there has been any deficiency in service on the part of the opposite party and to what relief, if any, is the complainant entitled. Point: The complainant company is engaged in the manufacture and sale of poultry and animal feeds. It has agreed to make supply to Sri Balaji Poultry Feeds on condition that Sri Balaji Poultry Feeds produced a Bank guarantee. Accordingly, Sri Balaji Poultry Feeds has furnished a Bank guarantee from the opposite party Bank in favour of the complainant for a sum of Rs. 1 lakh for the period from 27.12.91 to 26.12.92. Exh. Al is the bank guarantee. The relevant terms and conditions of the guarantee are these: 1. The Bank hereby agrees and undertake to pay to the company at Vennandur, Salem District (complainant) the general balance due at any time from the party namely Sri Balaji Poultry Feeds in respect of the value of supplies as Poultry Feeds, Animal Feeds made by the company (complainant) to the party from time to time and interest and costs etc.

The aggregate amount due and payable by the Bank under the guarantee shall not exceed Rs. 1 lakh. 3. Unless a demand or claim under this guarantee is made on the Bank in writing on or before 24.2.93, 60 days after the expiry of the Bank guarantee, the Bank shall be discharged their liabilities under this guarantee. 4. The amount due from the party to the company (complainant) shall be on the basis of the documents of the company (complainant) and the Bank shall not be at liberty to call the same in question or dispute the correctness or otherwise of the claims made by the complainant (company) against the party.

A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in the case of his default. The person who gives the guarantee is called the "surety". The person in respect of whose default the guarantee is given as called "Principal debtor" and the person to whom the guarantee is given is called "Creditor" (vide Section 126 of the Contract Act). A contract of guarantee thus involves 3 parties, the creditor, the surety, and the principal debtor. It is in the nature of a tripartite agreement under which the surety gives an undertaking to the creditor to discharge the liability of the principal debtor. Under Exh. Al Bank guarantee given by the opposite party in favour of the complainant to discharge the liability of Sri Balaji Poultry Feeds clearly and categorically lays down that the complainant who is the creditor is entitled to invoke the guarantee to the extent of Rs. 1 lakh to recover the amounts due from the principal debtor namely Sri Balaji Poultry Feeds on the basis of the documents of the complainant and the opposite party surety has no right to call the account of the complainant in question or dispute the correctness or otherwise the claim made by the complainant against the opposite party. These Bank guarantees are commonly in vogue in commercial transactions and the banks which gives such guarantees and expected to comply with the demand of the creditor without raising any unnecessary objections either about its liability or about the amount demanded by the creditor. Exh. A2 is the letter dated 27.11.92 by and underwhich the complainant invoked the Bank guarantee. It is stated therein that the present outstanding due from the principal debtor M/s. Sri Balaji Poultry Feeds was Rs. 1,13,947-88 and the statement of account was also enclosed. The opposite party was called upon to pay the guarantee amount of Rs. 1 lakh. There was no response from the opposite party bank. The complainant has written another letter under Exh. A3 dated 30.12.92 to realise the Bank guaranteed amount of Rs. 1 lakh without further delay and this has been served upon the opposite party under Exh. A4 postal acknowledgement. Exh. A5 is the final notice sent by the complainant on 6.2.92 pointing out that a sum of Rs. 1,13,947-88 was due to it from the principal debtor Sri Balaji Poultry Feeds as on September 1992 and calling upon the opposite party to release the guaranteed sum of Rs. 1 lakh. This has been duly served on the opposite party under Exh. A6 postal acknowledgement. Exh. A7 is the statement of account from which it is seen that as on the date of Exh. A2 a sum of Rs. 1,13,947-88 was due from Sri Balaji Poultry Feeds to the complainant, and that as on 9.1.93 a sum of Rs. 1,34,469-88 was due. As already pointed out that it is not open to the opposite party surety to deny or dispute the correctness or otherwise a the claims made by the complainant. The Bank had simply to honour the claim and release the guaranteed amount of Rs. 1 lakh. But it has failed to do so. The case of the opposite party is that as soon as it received Exh. A2 dated 27.11.92 letter from the complainant invoking the Bank guarantee, it forwarded it to the Regional Office which in turn sent it to the Head Office at Trichur. It is admitted that the complainant has subsequently written Exh. A3 letter dated 30.12.92 and Exh. A5 letter dated 6.2.93. According to the opposite party the principal debtor Sri Balaji Poultry Feeds wrote to it Exh. B5 letter dated 14.12.92 that a suit has been filed against the complainant. Exh. B 10 dated 21.12.92 is the copy of the plaint filed by the principal debtor Sri Balaji Poultry Feeds in O.S. 1478/92 on the file of District Munsiff, Tiruppathur against the complainant as first defendant and the first opposite party as second defendant restraining the first defendant from invoking the Bank guarantee. An application has been filed in the said suit in I. A. 1868/92 for an order of interim injunction restraining the complainant herein from enforcing the Bank guarantee against this opposite party but no injunction has been granted by the District Munsiff. It is pleaded on behalf of the opposite party that since a suit has been filed by the principal debtor Sri Balaji Poultry Feeds the payment of the Bank guarantee can be considered only after the disposal of the suit. This contention of the opposite party is malicious and mischievious. Under Exh. A1 agreement of guarantee the opposite party surety has given an unconditional undertaking to pay to the complainant the sum demanded by it due from the principal debtor not exceeding Rs. 1 lakh. This guarantee has been invoked by the complainant on 27.11.92 itself in Exh. A2. But the opposite party Bank has not chosen to honour the guarantee and pay the amount. It has been dragging its feet on the pretext that the matter has been referred to the Head Office, while enabling the Sri Balaji Poultry Feeds to file the aforesaid suit. If needs no shrewdness to discern that the suit has been filed by Sri Balaji Poultry Feeds on O.S. 1478/92 on the file of the District Munsiff, Tiruppathur for an injunction restraining the complainant herein from enforcing the bank guarantee is a collusive action between the principal debtor Sri Balaji Poultry Feeds and the opposite party surety. We may also point out that the District Munsiff of Tiruppathur has not granted any interim injunction restraining the complainant from enforcing the Bank guarantee and the pendency of the suit is no bar to the opposite party complying with the demand of the complainant and releasing the guaranteed amount of Rs. 1 lakh. The contention that the question of releasing the Bank guarantee can be only after disposing of the suit comes with ill-grace. This is not what is happening expected of a Bank. Such an attitude on the part of the Bank will completely paralysed commercial transactions. There has been, in our view, gross deficiency in service and negligence on the part of the opposite party.

THE complainant is entitled to the payment of the guaranteed amount of Rs. 1 lakh. THE complainant would certainly have been put to much hardship and loss on account of the failure of the opposite party to honour the guarantee in accordance with Exh. A2 letter dated 27.11.92 of the complainant for invoking the guarantee. We are inclined to award a sum of Rs. 25,000/- as compensation on this score. THE other claims of the complainant are negatived.

IN the result, we order as follows : (1) The first opposite party shall pay to the complainant within 15 days from the date of this order the guaranteed amount of Rs. 1 lakh with interest thereon at 18% from the date of demand viz. 27.11.92 till payment. (2) The opposite party shall also pay a sum of Rs. 25,000/- as compensation to the complainant. (3) The opposite party shall also pay costs of Rs. 3,000/- to the complainant.

Complaint allowed.