SOYA UDYOG LTD. vs STATE BANK OF INDIA

M /s. Soya Udyog Ltd. (for short the Company) as filed this complaint for the following claims in the alternative: (a) Business loss incurred due to non issuance of Duplicate D.D. (calculated as per Annexure-J annexued herewith =1,08,75,000.00 (b) Cost of Advertisement Published in News Paper =25,900.00 (c) Travelling and other expenses =1,10,000.00 =10,10,000.00 Alternatively to Claim (a) :-- (d) Loss of interest on Rs. 1,91,27,000/- from 28.1.93 to 4.5.93@ 22.25% per annum =11,30,982.00 (e) Loss of interest on Amount deposited in fixed deposit with S.B.I, for six months (22.25% � 10.5)11.75% on Rs. 47,81,750/- for six months. =2,80,982.00 =14,l 1,964.00

THE facts alleged in the complaint are that the Company received on 18th January, 1993 in the course of its business from M/s I.T.C. Ltd., Agri Business Division, Secunderabad two Demand Drafts, one for Rs. 27,98,500.00 dated 16th January, 1993 and the other for Rs. 1,63,28,500/- dated 18th January, 1993. These Drafts had been issued by the branch of State Bank of India, St. Marry Road, Secunderabad and were payable in favour of the Complainant at lndore. These Demand Drafts were crossed and were endorsed ''account payee''. While the representative of the Company was travelling from Secunderabad to lndore by train the aforesaid Drafts were lost and they could not be traced. A report was lodged with the Police at the Police Station, Bangana, lndore. The company also reported their loss to the drawee branch i.e. the State Bank of India, Main Branch, lndore on 19th January, 1993. The Complainant instructed the said Bank not to honour the aforesaid Demand Drafts if presented for payment. A telex was also sent to the State Bank of India, St. Marry Road, Secunderabad stating that the non-payment certificate for the aforesaid Drafts had been issued by the drawee Branch of the Bank. For issuing duplicate Bank Drafts the representative of the Company presented on 27th January, 1993 the following documents along with the request letter of M/s. I.T.C. Ltd., (who were the purchasers of the said two lost Demand Drafts) at the Branch of State Bank of India, St. Marry Road, Secunderabad : (a) Complainant''s letter dated 21.1.1993 requesting for issue of duplicate demand drafts in their favour. (b) Letter from State Bank of India, lndore, to State Bank of India, St. Mary''s Road, Secunderabad in a sealed cover, stating that the lost documents have not so far been encashed and that they have noted the loss. (c) Copy of a Board Resolution dt. 21.1.1993 passed by the Complainant authorising Mr. Paresh Agrawal, the Managing Director of Soya Udyog Limited, to furnish an Indemnity Bond in favour of State Bank of India, to enable them to issue duplicate Demand Drafts. (d) Two Indemnity Bonds on Stamp paper, duly authorised in favour of State Bank of India for the issue of duplicate Demand Drafts. (e) A letter of reference issued by the Complainant''s Bankers i.e. Bank of India, Santra Bazar, lndore (in sealed cover). (f) A copy of the Memorandum and Articles of Association of the complainant. (g) Annual Report and audited balance sheets of the Complainant for the last three years, i.e. for the years 1989-90 to 1991-92.

It is further the case of the Complainant Company that the Indemnity Bonds issued by the Complainant were legal and valid and were in accordance with the requirement of law relating to issue of Indemnity Bond and the drawer Bank was, therefore, bound to accept the same and issue the duplicate Demand Drafts immediately to prevent any business loss caused to the Complainant on account of its inability to utilise the large sum of money which was illegally withheld by the Bank. The said Drawer Branch refused the Complainant''s request for issue of the duplicate Demand Drafts and required it to execute an Indemnity Bond duly counter signed by the Complainant''s Bankers viz. Bank of India. The Bank of India refused to sign the Indemnity Bond as it would have been treated as a continued guarantee for an indefinite period of time which the Bank of India was not prepared to do. The Complainant informed the drawer Branch of the State Bank of India of the said difficulty. The said Branch demanded that a bank guarantee be issued in place of Indemnity Bond and also attached the proforma guarantee to be executed by the Bank of India on behalf of the Complainant. The Complainant approached the Bank of India to issue a guarantee on 100 percent margin but it did not agree to the proforma annexed by the State Bank of India. The Bank of India accordingly issued a guarantee bond and a senior official of the Bank even visited the State Bank of India at Hyderabad in the first week of March, 1993 to explain the changes made in the proforma guarantee bond. When the guarantee bond was discussed between the Bank Officials they found that the proforma devised by drawer Branch was defective and accordingly a new proforma was devised by the said branch of the drawer Bank and sent to the Complainant with letter dated 15th March, 1993. According to the Complainant the demand of guarantee was wholly illegal and not sanctioned by laws governing banking transaction and negotiable Instruments Act. It is the further case of the Complainant that the Bank of India agreed to issue a bank guarantee in the revised proforma. The Bank of India wished to change the clause "at the request of M/s. Soya Udyog Limited" to "at the request of the guarantor"). The Bank of India further clarified the change by mentioning in their letter ( Annexure G-l) as follows. "In this connection, we would like to mention that your company, as payee and holder in due course of the original DDs, have already requested SBI for the issuance of the duplicate DDs. Since we are neither payee nor holder in due course of the DDs under reference, we are not agreeable to join the request. We have, therefore, revised the format by substituting the words "Guarantor" with "SUL". We also seek to clarify that since we are "guaranteeing any loss that SBI might sustain incur by reasons of issuance of duplicate DDs" the fact that we are not joining your request for issuance of duplicate DD should be of no consequence to SBI."

However, the State Bank of India local Head Office, Hyderabad refused to accept that bank guarantee in the amended form. Being frustrated by the constant delays caused by the State Bank of India''s branches at Indore and Secunderabad the Complainant approached the Head Office of the State Bank of India at Bombay for its intervention in the matter. As per a fax message dated 15th April, 1993 (Annexure G-2), the Company was required to comply with the other formalities and in addition was asked to keep 25% of the amount of the two drafts as margin money with the State Bank of India by way of term deposit for six months to be held as collateral security.

BY letter dated 19th April, 1993 the State Bank of India (drawer branch) confirmed having received the required documents and agreed to issue the duplicate Demand Drafts on fulfillment of the following requiremens : 1. A suitable advertisement to be inserted in the leading national Dailies to the effect that the Drafts have been lost and all Banks/branches are cautioned against these being put to improper use. 2. Non-payment of the drafts in question to be obtained from the Drafts Reconciliation Department, Bombay 3. 25% of the two Drafts to be kept at the drawer branch as margin money by way of term deposit for six months to be held as collateral security. Stipulation No. 2 mentioned above had not been mentioned in any of the earlier letters sent by the State Bank of India. On 22nd April, 1993 the State Bank of India issued another letter stating that all documents should bear the pre-fix numbers of the original Demand Drafts. The said requirement invalidated all documents already submitted by the Complainant to the Opposite Party Bank and further caused delay of about five days which were consumed in the preparation of new set of documents. It may be mentioned here that as per the Fax message dated 15th April, 1993 the Complainant had got issued a notice in a National Daily advertisement regarding loss of drafts. However, vide letter dated 22nd April, 1993 the State Bank of India put a further requirement that an advertisement should also be issued in some local paper of Madhya Pradesh. For finalising the said advertisement the State Bank of India took unusually long time of 4-5 days. The Complainant deposited a sum of Rs. 47,81,750/-, being 25% margin money of the amount of the two Drafts as term deposits with the State Bank of India for a period of six months on 5.5.1993 and on the same date duplicate Demand Drafts were issued by the Bank. It may be mentioned here that from the correspondence it bears that the Demand Drafts were handed over not to the Complainants but to the Bank of India, Main Branch, Indore with a stipulation that the proceeds of the Drafts *be credited in the Company''s account with the Bank.

IT is the further case of the Complainant that the State Bank of India enjoyed and utilised a large sum of Rs. 1,91,27,000.00 from 28th January, 1993 to 4th May, 1993 which sum admittedly belonged to the complainant and therefore, the State Bank of India was liable to pay interest at the commercial rate i.e. 22.25%. It is further submitted by the Complainant that the demand of deposit of 25% amounting to Rs. 47,81,750/- as margin money of the amount Drafts as term deposit before issuing duplicate Drafts was wholly illegal and unreasonable and not authorised by any law or under the Negotiable Instruments Act and the Bank is, therefore, required to release /discharge the guarantee and to refund the fixed deposits of Rs. 47,81,750/- with interest at the rate of 22.25% per annum. It was also stated that as the validity of the Demand Drafts expired on 19th July, 1993 the demand of bank guarantee for a period of six months from 5.5.1993 and the requirement of fixed deposit for six months therefrom that is upto 4.11.1993 was wholly unreasonable and illegal and the complainant is entitled to be compensated for the loss caused by the aforesaid action of the Bank. According to the Complainant the Bank has been guilty of negligence and illegal acts while providing banking service. In support of the above allegations contained in the complaint Mr. Paresh Agrawal, Managing Director of the Company has filed his affidavit.

THE complaint was contested by the Opposite Parties who are State Bank of India and its concerned branches. Some preliminary objection have been raised in their written statement but we need not refer to them as those were not urged before us. It was not disputed by the Opposite Parties that two Drafts had been purchased by I.T.C. Ltd., Secunderabad for the aforesaid amounts in favour of M/s. Soya Udyog Ltd., one on 16th January, 1993 and the other one on 18th January, 1993 and on 21st January, 1993 the Complainant had informed the concerned Branch that the said Demand Drafts have been lost/misplaced in transit and sought the issuance of "stop payment" instructions and also requested for issue of duplicate Drafts. According to the Opposite Parties there has been no delay on the part of the Bank in issuing the duplicate Demand Drafts. A date wise narration of facts has been given in the statement of the Opposite Parties. According to the Opposite Parties on 17th March, 1993 the Complainant wrote to the Bank that the revised proforma of the guarantee bond had been received from the Bank and had been forwarded to their Bankers, namely, the Bank of India who conveyed that it might take some time to get the necessary clearance. The Complainant also intimated that they have approached another bank, the Federal Bank Ltd., for issue of necessary bank guarantee. On 20th March, 1993 the Complainant wrote to the Opposite Party Bank stating inter alia that they had proposed to give a Bank Guarantee from the Bank of India or the Federal Bank but because of delay at their end in furnishing the Bank Guarantee the Company proposed alternate terms including creating a pari pasu charge on the fixed assets of the Company in favour of the Bank and 25% margin money against the lost Demand Drafts to be deducted from the duplicate Bank Drafts. (It may be mentioned here that according to the Bank the Company had proposed to deposit 25% margin money against the lost Drafts but Annexure-2 attached to the counter on which the reliance has been placed by the Bank shows that the said proposal was at the insistence of the State Bank of India. The relevant words of that said annexure are "We bring to your kind notice that we have intended to provide you only pari pasu charge on the Fixed Assets of the company because Company has already suffered huge loss by way of interest. But we have been informed by the SBI that without providing 25% margin money duplicate DDs could not be issued. Thus Company has no other option but to accept 25% margin as stipulated by you. The amount of margin may please be deducted from the amount of duplicate DD. We are enclosing herewith Annual reports for 3 years and a copy of Memorandum and Articles of Association for your ready reference".

It may be mentioned here that the 25% margin was not deducted from the amount of the Drafts but the company was asked to deposit it in cash as appears from the subsequent correspondence (vide Annexure-10 appended to the counter). It is not necessary to mentioned the rest of the date-wise narration as it appears to be distorted. However, most of the facts narrated by the Bank are similar to that of Complainant Company and which are supported by the documents evidencing the correspondence between the parties which have been annexed with the complaint. It is not the case of the Bank that any of the facts narrated by the Complainant is wrong. According to the Opposite Party Bank the Complainant Company was unknown to then earlier and was not their customer at any of the branches at the material time and in accordance with the recognised banking practice and norms the Bank has to be fully satisfied about the bona fides of the loss of the original Drafts as also the credibility and creditworthiness of the Complainant Company who were to be given duplicate Demand Drafts. The Bank cannot be faulted for taking steps to safeguard public money. The blame if any lies squarely on the Complainant who had been haggling and prevaricating with the Bank since it was to able to fulfill the various conditions originally stipulated by the bank. Under the Bank''s procedure and instructions (no such instructions have been produced on the record), for issuing duplicate Drafts, generally the purchaser of the Draft should execute the stamped indemnity Bond on a particular form "COS 103" along with two sureties, each considered good for the amount. The Bank customer, I.T.C. Ltd., who was the purchase of the Drafts, for reasons known only to them, did not come forward to sign the indemnity Bond and rested themselves content with simply requesting the Bank to consider the issue of duplicate Demand Drafts on the strength of the indemnity signed by the complainant. As the Complainant Company was not known to the Bank its creditworthiness and financial standing etc., had therefore, to be established before the Bank could part with such a huge sum of public money. All necessary measures required by the Bank to satisfy itself

BOUT the genuineness of the claim and the creditworthiness of the claimant had to be undergone in order to safeguard the Bank''s interest. Under these circumstances, one of the stipulations made was that the Complainant''s Bankers i.e. Bank of India should also join in executing the indemnity. When the Bank of India did not agree with the Complainant for joining in the Indemnity, the Opposite Party Bank in order to speed up the process of issue of duplicate Drafts proposed an alt live that at least the Bank of India should give a guarantee. The Bank of India''s reluctance to give the bank guarantee in the proforma given by the Opposite Party-Bank is a matter to be actually sorted out between the Bank of India and its customer i.e. Complainant. The Bank of India was demanding 100% margin from the Complainant which speaks about the Company''s creditworthiness and financial standing qua the Bank of India. Without mention of the prefix number of Drafts, the number becomes incomplete as there is a danger of same number of a draft being taken as that of another similar number which could be differentiated only by the prefix number. On the aforesaid basis, the Opposite Parties tried to justify their action. We have heard the learned Counsel for the parties and have gone through the records of the case and carefully examined the various documents filed by the parties. We are clearly of the opinion that the Opposite Parties have been guilty of negligence in rendering banking service to the Complainant. The various formalities which the Complainant was required to comply with were unreasonably onerous in nature. The State Bank of India could have demanded the bank guarantee. Since the Complainant Company had submitted its balance-sheet for three years to the Bank and was prepared to create pari pasu charge on all its assets, and agreed also to keep 25% of the amount of the draft as margin money with the Opposite Party Bank. We consider that these fureguards should have ordinarily satisfied the Opposite parties that the Company was creditworthy. It is not the case of the Opposite Parties that the assets of the company as disclosed by the balance sheets were not sufficient to cover the amount of Demand Drafts in question.

AS noticed earlier the Complainant was first not told to give the prefix of the number of Drafts. After all the documents had been completed, the Complainant was asked to reprocess the documents and to issue fresh advertisements in the Newspapers.

HERE we may quote State Bank of India and Another, v. Jyoti Ranjan Mazumdar and Another, AIR 1970 Calcutta 503. In that case a sum of Rs. 26,790/- was due from the Government of West Bengal to the Plaintiff. To satisfy this claim the Principal Agricultural Officer purchased a Demand Draft for the amount payable to the Plaintiff of that case in his trade name from the State Bank of India, Barasat Branch, drawn on the State Bank of India, Head Office, at 1 Strand Road, Calcutta. The Draft was handed over to the plaintiff from whose custody it was subsequently lost. The Plaintiff immediately reported the loss to all concerned including State Bank of India, Barasat Branch and State Bank of India, Head Office and asked for a duplicate Draft conveying his readiness to execute an indemnity bond for that purpose. The State Bank of India informed the plaintiff that the Draft in question has not been paid and was still outstanding in their name assuring him that due caution will be exercised in the event of its presentation for payment but pleaded their inability to issue a duplicate Draft except on filing an indemnity bond executed by the purchaser of the original Draft. As the purchaser of the Draft was in no way responsible for the loss he declined to execute the bond but requested the Bank of issue duplicate Draft as asked for by the plaintiff. Ultimately, he failed to persuade the Bank to issue duplicate Draft. The plaintiff filed a suit for a decree for declaration that he was entitled to a duplicate Demand Draft for the above sum drawn on the Bank and for direction to the Bank to issue a duplicate Draft, if necessary on the plaintiff executing an indemnity bond and for permanent injunction restraining the defendants from making any payment on the original draft. The main defence of the Bank was based on a rule in the Bank''s book of Instructions which requires inter alia an indemnity bond to be executed by the purchaser of the draft before a duplicate could be issued. The Trial Court decreed the suit of the plaintiff and the Bank wa6 directed to issue a duplicate Draft on the plaintiff executing an indemnity bond. The State Bank of India appealed to the High Court. The State Bank of India did not plead before the High Court that Bank''s Books of Instructions had any statutory force. It was pleaded that as Draft m question was issued by a Branch of the State Bank of India, upon another Branch it was not a Bill of Exchange and thus Section 45-A of the Negotiable Instruments Act did not apply. The High Court held that the draft in question was a Bill of Exchange and the plaintiffs were entitled to the issue of a duplicate Draft in terms of Section 45 A of the Negotiable Instruments Act. The appeal was accordingly dismissed. Here it will be useful to reproduce Section 45A of the Negotiable Instruments Act: "Where a bill of exchange has been lost before it is overdue, the person who was the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the drawer, if required to indemnify him against all persons whatever in case the bill alleged to have been lost shall be found again. If the drawer on request as aforesaid refuses to give such duplicate bill, he may be compelled to do so."

Hence in the light of the above Provision the company was entitled to the issue of duplicate drafts from the bank on execution of an indemnity bond.

THE facts of the case and the relevant documents have already been referred to by us. After considering all the circumstances, we are of the opinion that the Opposite Parties have unreasonably delayed the issuance of Demand Drafts by imposing unreasonable conditions and by asking the changing of documentations time and again only with a view to protract and delay the issuance of the duplicate Drafts. The Bank also must unreasonably insisted on the Complainant depositing 25% of the amount of the Drafts as margin money in the form of a fixed deposit whose term extended about 6 months beyond the period of validity of the Drafts.

CONSIDERING the facts of the case, we are clearly of the opinion that the Bank has been negligent and deficient in the rendering of banking service to the Complainant. The next question that arises is about the compensation awardable for the loss to the Complainant. The company has given the details of loss suffered by it as well expenses incurred by it for getting the duplicate Demand Drafts. It cannot be disputed that a huge amount belonging to company amounting to Rs. 1,91,27,000/- had been blocked by the non-issuance of the duplicate Demand Drafts by the Opposite Parties for about four months. One can visualise the misfortunes and difficulties of a Company/businessman when such huge amount belonging to him is not at its/his disposal of course, the compensation for the business loss claimed by the Complainant appears to be on higher side. There is no evidence � to substantiate the question the of loss claimed. We think that the ends of justice will be reasonably met if the Complainant is allowed interest on the amount of Rs. 1,91,27,000/- at the rate of 15% per annum for the period from26.1.1993 to 4.5.1993 (the duplicate drafts were issued on 5.5.1993. We consider that one week''s time was sufficient for the Opposite Parties to issue the duplicate Drafts after necessary satisfaction). The Complainant has also claimed Rs. 25,900/- as expenses for publishing advertisements in newspapers and Rs. 1,10,000/- as travelling expenses. The details of expenses have not been given. However, we cannot expect a party to keep such details while he is worrying and running about to get duplicate drafts for the above amount. We think that these expenses can be quantified at Rs. 50,000/-. The above mentioned amounts are ordered to be paid, by -the Opposite Parties to the Complainant as compensation for the inconvenience and loss suffered by the Company due to the negligence of the Opposite Parties in the performance of their Banking service. These amounts shall be paid by the Opposite Parties within 2 months from the date of receipt of the order, failing which the amounts would carry future interest 815% p.a. from the date of order. The Complainant will also to be entitled to the cost of the present proceeding which we fix at Rs .7,500/-