Z.BAVELLONI SINGAPORE PVT. LTD. vs CENTRAL BANK OF INDIA

COMPLAINT was filed, inter alia, alleging that complainant is engaged in the business of glass working machines etc. and R. Subramanian, Sales, Manager in Indian Liasion office has been authorized to file complaint vide resolution passed by the Board of Directors of complainant dated 24.4.1998. On or about October 1996, Mayur Industrial and Marketing Private Ltd. placed a purchase order on the complainant for one bevelling machine alongwith accessories for US$ 85,000/- on the terms and conditions noted in proforma invoice no. 1023/96 dated 30.10.1996. Complainant agreed to supply the machine and accessories on deferred payment terms as under:-

TO secure payment of the said amount, Mayur Industrial and Marketing Private Ltd. provided an irrevocable bank guarantee being no. 23/01 dated 15.1.1997 in favour of the complainant through the opposite party- Bank. Machine and accessories as per purchase order were supplied, installed and commissioned at Noida Factory of the said company. Mayur Industrial and Marketing Private Ltd. failed to pay the first installment of US$ 16,566 becoming due on 8.7.1997. By the letter dated 11.3.1998, the complainant informed the opposite party regarding non-payment of first two installments by Mayur Industrial and Marketing Private Ltd. and it also formally lodged its claim for US$ 32,498 under the said bank guarantee. Alongwith letter dated 19.3.1998, the complainant forwarded to the opposite party set of documents required for proving its claim under the bank guarantee. Thereafter, complainant got a notice dated 3.4.1998 served through the counsel calling upon the opposite party to release amount of US$32,498 under the bank guarantee within two weeks. Though notice was served on the opposite party on or about 17.4.1998 but it failed to acknowledge receipt of the registered A.D. card. Non-honouring of bank guarantee by the opposite party was brought to the notice of the Chairman of opposite party by the complainant by the letter dated 23.4.1998. Vide letter dated 1.5.1998, opposite party intimated the complainant''s counsel that matter has been referred to Reserve Bank of India for consideration and opposite party is yet to receive permission from RBI for release of two installments. It was stated that under Section 26 of the Foreign Exchange Regulation Act, 1973, permission of RBI was to be obtained before furnishing bank guarantee by the opposite party. It was claimed that complainant is a consumer within the meaning of Section 2(l)(d)(ii) of Consumer Protection Act, 1986 (for short the Act). Prayers made in the complaint were as under: a) The opposite party - Bank be ordered and directed to pay the sum of US$ 47,797 (equivalent of INRs 20,07,474/- based on present rupee value of Rs. 42 per US$) and interest @ 18% p.a. for default from the respective due dates till realization; b) An amount of US$ 14,000 (equivalent of INRs 5,88,000/-) towards compensation for expenses incurred by the representative of the complainant-Company to travel to India from Singapore twice and the Indian representative to travel to Delhi thrice, additional borrowings to sustain regular operations at Singapore and for expenses incurred in correspondence and telephone calls with their Indian representatives, Mayur Industrial and Marketing Private Ltd. and lawyers fee involved; c) The opposite party - Bank and its staff be directed not to continue this mischief for the remaining installments as it is resulting in loss to the entire Nation and its foreign exchange reserves; d) The cost for this complaint be provided; and e) Any other grant or relief, the Hon''bie Commission may deem fit and proper in the circumstances.

Opposite party contested the complaint by filing written version. By way of preliminary objections, it was alleged that as is manifest from the resolution dated 24.4.1998, claim of complainant lies primarily against Mayur Industrial and Marketing Private Ltd. and complaint against opposite party alone is not maintainable. It was denied that complainant, is a consumer within the meaning of the Act. It was alleged that resolution dated 24.4.1998 is in respect of the installments of US$16,566 payable on 8.7.1997 and US$ 15,932 payable on 8.1.1998. Aggregate of both these installments comes to US$ 32,498 and its rupee equivalent would be less than Rs. 20 lakhs and, therefore, this Commission has no pecuniary jurisdiction to try the complaint. Though execution of bank guarantee dated 15.1.1997 was admitted but it was alleged that it is a conditional guarantee and without complying with the conditions stipulated therein, the complainant gets no right or locus standi or cause of action to file this complaint. On merits, it was denied that R. Subramanian was duly authorized to file the complaint. It was alleged that opposite party did not have any communication / evidence either from the complainant or from Mayur Industrial and Marketing Private Ltd in regard to the compliance of the condition stipulated in para no.4 of the bank guarantee. Receipt of notices dated 3.4.1998 and 23.4.1998 from the complainant were admitted. Issuance of the letter dated 1.5.1998 by the Opposite party to the complainant''s counsel was further admitted. It was denied that complainant is entitled to the amount claimed or the alleged expenses were incurred by its representative on travel to and from India, etc.

IN December 2001, te complainant filed amended complaint wherein amount as in aforesaid prayer clause (a) of the complaint filed on 28.7.1998, was increased to US$ 89,893 while in prayer (b) to US$ 27,000.

BY way of evidence the complainant filed the affidavit of Tan Siam Choong Freddy, Additional Director while opposite party that of P.V. Raveendran, Constituted attorney of the Bank. It will be profitable at this stage to reproduce the terms and conditions of said bank guarantee dated 15.1.1997 (copy at pages 12-14) admittedly executed by the opposite party in favour of complainant. Omitting immaterial portion, same reads thus - 2. Irrespective of the validity and legal effect of the above mentioned agreement, we irrevocably undertake to pay you on first demand the requested sum upto a maximum amount of US$89893/- (US Dollars Eighty nine thousand eight hundred and ninety three) only including principal, interest for the entire Credit duration; upon receipt of written request for payment and your written confirmation stating the Borrowers have not repaid the amount, the Bank shall pay the outstanding principal amount with interest at the rate of 6% per annum on that date claimed under this guarantee on the due dates, duly routed through your bankers. 3. This guarantee is valid until 08.01.2000 and expires in full automatically should your request and your confirmation in writing through your banker is not be in our possession by that date, irrespective of whether the present instrument is returned to us or not. 4. This guarantee will come into force only after the beneficiency (Lender) completing delivery and installation of the machinery along with all the spares and accessories stated in their said agreement with the Borrowers, not earlier. 5. The Lenders will claim only the amounts that the Borrowers have failed to pay on the dates due from time to time as per the schedule of payments stated in annexure ''A'' of this guarantee. The value of this guarantee and consequently our liability under it will progressively go on reducing to the extent of the monies instalments paid in full or in part by the Borrowers to the Lenders from time to time within the validity of this guarantee. 6. Repayment schedule of principal and interest amount to M/s. Z. Beveloni as agreed on 11.1.1997 as per Annexure '' A'' 7. Notwithstanding anything contained herein above, the Bank''s liability under this guarantee is restricted to a maximum amount of US$ 89893/- (KUS Dollars Eighty Nine thousand eight hundred and ninety three only) the guarantee shall remain in force till 8.1.2000 and if unpaid, suit or action to enforce such claim is filed against us on or before 8.1.2000 all the rights under this guarantee shall be forfeited and the bank shall be released and discharged from all the liabilities under this guarantee thereafter. Principal amount US$ 76,000/- Interest US$ 13893/-. This Guarantee is governed by Indian Law."

IN the written version, receipt of two legal notices dated 3.4.1998 (copy at p-25) and 23.4.1998 (copy at p-40) got issued by the complainant through counsel for the Chief General Manager and the Chairman of opposite party is admitted. In the former notice, reference is made to the letter dated 19.3.1998 (copy at p-24) sent by the complainant to the International Division of Parliament Street Branch of the opposite party. Letter dated 19.3.1998 was issued with reference to letter dated 11.3.1998 (copy at p-22) also sent to the said branch of opposite party by the complainant. Letter dated 11.3.1998 and two notices dated 3.4.1998 and 23.4.1998 unequivocally go to show that after invoking said bank guarantee dated 15.1.1997, the opposite party was called upon by the complainant to pay US$ 32,498 being the amount of first two installments which fall due on 8.7.1997 and 8.1.1998. Contention advanced by Shri Vijay Gupta for opposite party was that neither the complainant nor Mayur Industrial and Marketing Private Ltd. had intimated the compliance stipulated in para No.4 of the bank guarantee. To be only that said letter dated 19.3.1998 notices that invoices for the machine and accessories alongwith report no. 215/97 for machine installation and commissioning were forwarded therewith to the opposite party pursuant to the discussion in between P. Subramanian, representative of complainant and officials of opposite party-Bank. On enquiry, Shri Gupta admitted that opposite party did not receive any complaint from Mayur Industrial and Marketing Private Ltd. about machine and accessories having not been supplied/ installed / commissioned at their factory. In this backdrop, said submission of Shri Gupta. Adv. is repelled being without any substance. It was further argued by Shri Gupta that by the said letter dated 11.3.1998 and notices dated 3.4.1998 and 23.4.1998, the complainant had invoked the bank guarantee not for the total amount of US$89,893 for which bank guarantee was executed and the claim as made in complaint and the resolution dated 24.4.1998 are restricted to first two instatements. It was however, urged by Shri Santosh Paul for complainant that invocation made through the said letter and notices was for whole of the amount of bank guarantee dated 15.1.1997. In the alternative, it was contended that entire amount of US$ 89,893 was demanded by another letter dated 5.1.2000 (copy at p-57) and claim for that amount was made in the amended complaint filed in December 2001 by the complainant. On-the point that repudiation of claim by the Bank was bad in law, reliance was placed on the decisions in Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works (P) Ltd. and Another (1997) 6 SCC 450, Ansal Engineering Projects Ltd. vs. Tehri Hydro Development Corporation Ltd. and another, (1996) 5 SCC 450 and Daewoo Motors India Ltd. vs. Union of India and others (2002) 4 SCC 690. Ratio of these decisions is that a Bank can not in law avoid the payment in terms of bank guarantee except on two grounds - (i) if there is fraud in connection with the bank guarantee which would vitiate the very foundation of such a guarantee and (ii) where allowing encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned; that bank guarantee is an independent contract between the beneficiary and the bank. As may be seen from Annexure A to the bank guarantee the amount of US$89,890 of bank guarantee was to be paid in six installments commencing from 8.7.1997. Since the amount of bank guarantee was payable in six monthly installments, entire amount thereof could not be recovered on the basis of single invocation made through the said letter dated 11.3.1998 and notices dated 3.4.1998 and 23.4.1998 which pertain to first two installments. As regards argument advanced in alternative by Shri Paul, Adv., under para no. 7 of the bank guarantee, the liability of opposite party was to arise only on claim being made in writing and presented to the opposite party on or before 8.1.2000 and for unpaid amount suit or action being filed on or before the said date. To be only noted that amended complaint was filed sometime in December 2001 much beyond the stipulated date of 8.1.2000. Date of filing of initial complaint would not help the complainant as by that time only first three installments had become due. Invocation is to precede the filing of complaint. On the strength of said letter dated 5.1.2000, the complainant cannot recover the installments barring the first two.

OBJECTIONS taken in written version in regard to complainant not being a consumer, this Commission not having pecuniary jurisdiction and present complaint being not maintainable for non-joinder of Mayur Industrial and Marketing Private Ltd. as a party, are to be mentioned to be rejected. Refusal to make payment against bank guarantee give rise to a cause of action, even if there is no privity of contract between the bank and the persons to whom guarantee is given. Further, pecuniary jurisdiction is to be determined with reference to the prayers made in complaint and as the reliefs claimed therein exceeded Rs.20 lakhs, this Commission has the jurisdiction to entertain the complaint. Again, bank guarantee being an independent contract between the beneficiary and the Bank, in present complaint being based on bank guarantee dated 15.1.1997, it was not necessary to implead Mayur Industrial and Marketing Private Ltd. as a party. In the written version, it was not been even remotely pleaded that it was a case of fraud or irretrieveable injustice. Failure to honour bank guarantee as soon as demand is made, in deficiency in service. Complainant is entitled to partial relief as regards prayer (a). In support of prayer (b) as made in complaint amended complaint, the affidavit of Tan Siam Choong Freddy is conspicuously silent. ID. From the foregoing discussion, it must follow that repudiation in respect of claim of first two installments by the opposite party was totally unwarranted. Also taking note of the ratio of aforementioned three decisions, the complaint deserves to be partly allowed in regard to the amount of first two installments with interest @ 6% p.a. as stipulated in the bank guarantee with cost.

ACCORDINGLY , while partly allowing complaint, the opposite party-Bank is directed to pay in Indian rupee the amount of US$ 32,498/- based on rupee value as per US$ as obtaining today with 6% interest thereon from 11.3.1998 till date of realization with Rs.25,000/- as cost.