Punjab & Sind Bank vs M/S. C.S. Company & Ors

PUNJAB & SIND BANK ... APPELLANT

Vs.

M/S. C.S. COMPANY & ORS. ... RESPONDENTS

JUDGMENT

(SMT.) RANJANA PRAKASH DESAI, J.

1. The appellant - Punjab & Sind Bank (for short, "the

plaintiff-bank") has challenged in this appeal, judgment

and order dated 4/6/2003 passed by the Kerala High Court

whereby the appeal filed by original defendants 1, 2, 4, 7

and 8 challenging the judgment and decree of the Ist

Additional Sub-Judge, Ernakulam, decreeing the plaintiff-

bank's suit for realization of money was allowed.

2 2. The title of the proceedings underwent changes during

the course of time on account of death of some of the

partners and/or guarantors and also on account of orders

passed by the courts. There are also certain typographical

errors in the amended cause title of the appeal. It is not

necessary for us to give details of various changes which

were brought about in the title. Suffice it to say that

respondent 1 herein is the partnership firm i.e. original

defendant 1 and the other respondents are either its

partners and/or heirs of the partners or guarantors and/or

heirs of the guarantors. By order dated 29/1/2003, the High

Court has added the Kerala State Electricity Board (for short,

"KSEB") as respondent 6 and it is respondent 10 herein.

We shall, however, for the sake of convenience refer to the

parties as per their status in the trial court.

3. At the outset, we must make it clear that we have

reached a conclusion that the defendants have taken a

dishonest stand to evade the liability to make payment to

3

the plaintiff-bank. At the cost of making this judgment

prolix, we need to make a detailed reference to the

pleadings of the parties because our conclusion, to a large

extent, is substantiated by the pleadings. The facts, as

disclosed by the plaintiff-bank in the plaint, are as under:

a) Defendant 1 is a partnership firm engaged in the

business of engineering works and defendants 2, 3

and 4 are its partners, who undertook the

execution of certain civil engineering works

awarded to them by KSEB. As per the terms of

the tender, defendants 1 to 4 had to furnish Bank

Guarantees to KSEB. They approached the

plaintiff-bank for issuance of Bank Guarantee for

an aggregate amount of Rs.20 lakhs on their

behalf in favour of KSEB. The plaintiff-bank agreed

to do so on certain terms and conditions.

Defendants 1 to 4 accepted the said conditions.

The plaintiff-bank on 11/5/1983 executed and

4

offered a Bank Guarantee on behalf of defendant 1

to KSEB for Rs.1 lakh as and by way of security

deposit as per the terms of the tender.

Thereafter, the plaintiff-bank on 24/6/1983

further executed and offered on behalf of

defendant 1 another Bank Guarantee of Rs.19

lakhs to enable defendants 1 to 4 to avail of the

amount of Rs.19 lakhs as mobilization advance

from KSEB for the purpose of execution of the

work undertaken by defendant 1.

b) According to the terms of the Bank Guarantee

dated 11/5/1983, the amount of Bank Guarantee

not exceeding Rs.1 lakh was payable to KSEB on

demand at any time during its currency without

any demur. In consideration of the

aforementioned Bank Guarantee, defendant 1 by

its partners i.e. defendants 2, 3 and 4 agreed and

undertook to indemnify the plaintiff-bank by a

5

Deed of Indemnity and Guarantee dated

11/5/1983 together with all costs and charges

which may be incurred or become payable by the

plaintiff-bank in connection with the Guarantee

given to KSEB. As further security, defendants 2,

3, 4, 5, 6, 7 and 8 also undertook and agreed to

indemnify the plaintiff-bank from and against all

claims, demands, losses, charges and expenses

which the plaintiff-bank may sustain in respect of

any liability incurred by it and also guaranteed to

make payment of the amount together with

interest, costs, commission and charges payable

thereon by the plaintiff-bank. As security for the

aforementioned Bank Guarantee of Rs.1 lakh,

defendant 2 deposited the title deeds of his

property situated in Kottayam Village on

11/5/1983. He confirmed the deposit of title

deeds by memorandum of deposit of title deeds.

Defendant 5 as security for the aforementioned

6

Bank Guarantee deposited the title deeds of her

properties comprised in Survey No.10/6/2 situated

in Kottayam Village with intent to create a

security thereon by way of mortgage in favour of

the plaintiff-bank on 11/5/1983, at the plaintiff-

bank's office at M.G. Road, Ernakulam in the City

of Kochin. Defendant 5 also confirmed the deposit

of title deeds by Memorandum of deposit of title

deeds executed on 11/5/1983. Defendant 6

through his power of attorney holder - defendant

4, deposited the title deeds of his property

comprised in Survey No.983/5 of Ernakulam

Village with intent to create a security by way of

mortgage in favour of the plaintiff-bank on behalf

of defendant 1. He executed a Memorandum

confirming the said deposit of title deeds through

his agent and power of attorney holder.

Defendants 7 and 8 also deposited with the

plaintiff-bank on 11/5/1983 at their Branch at

7

M.G. Road, Ernakulam the title deeds of their

properties comprised in Survey No.51/9B of

Vijayapuram Village in Kottayam Taluka with

intent to create a security thereon by way of

mortgage in favour of the plaintiff-bank.

Defendants 7 and 8 also confirmed the said

deposit of title deeds of their properties by

executing Memoranda of deposit of title deeds.

Defendant 4 charged and assigned the fixed

deposit receipt for the sum of Rs.25,000/- in

favour of the plaintiff-bank as per the security for

the said amount of the Guarantee.

c) In the trial court the plaintiff bank produced the

Deed of Indemnity and Guarantee executed by

defendants 2, 3 and 4 with a copy of the Bank

Guarantee for Rs.1 lakh, the Deed of Indemnity

and Guarantee executed by defendants 2, 3, 4, 5,

6, 7 and 8 as further security, title deeds

8

deposited by defendant 2 as security by way of

equitable mortgage in favour of the plantiff-bank

in respect of Bank Guarantee of Rs.1 lakh,

Memorandum dated 11/5/1983 executed by

defendant 2 confirming the deposit of the said title

deeds, title deeds deposited by defendant 5, the

Memorandum dated 11/5/1983 executed by

defendant 5 confirming deposit of title deeds and

Memoranda of deposit of title deeds executed by

defendant 6 through his Power of Attorney holder

defendant 4 and by defendants 7 & 8 confirming

the deposit of title deeds of their properties.

d) Defendant 1 wanted to avail of a mobilization

advance of Rs.19 lakhs from KSEB. KSEB, as

security for such payment of mobilization

advance, required defendant 1 to furnish Bank

Guarantee for the amount of Rs.19 lakhs.

Defendant 1 requested the plaintiff-bank to

9

furnish the Bank Guarantee in favour of KSEB for

the amount of Rs.19 lakhs. The plaintiff-bank

agreed to furnish the said Bank Guarantee on

certain conditions which defendant 1 accepted.

Accordingly, the plaintiff-bank executed and

offered the Bank Guarantee on behalf of

defendant 1 to KSEB for the sum of Rs.19 lakhs.

According to the said Bank Guarantee, the sum of

Rs.19 lakhs was payable to KSEB on demand by

the Chief Engineer (Civil) General at any time,

during the currency including the period covered

by its extension without any demur and on a mere

demand. The Guarantor had agreed that such

demand made on the plaintiff-bank shall be

conclusive as regards the amounts due and

payable under the Bank Guarantee and the

Guarantor had to make the payment without any

demur. As consideration for giving the said Bank

Guarantee, defendant 1 by its partners viz.

10 defendants 2, 3 and 4 undertook to indemnify the

plaintiff-bank by a Deed of Indemnity and

Guarantee from all claims, amounts, charges,

damages and expenses which may be caused or

sustained by the plaintiff-bank or for which it may

become liable by reason of having given the said

Bank Guarantee. It was also specifically agreed

that in connection with the said Guarantee, the

plaintiff-bank without going into the question

whether the terms of the agreement or any

obligations with the Chief Engineer (Civil) General

or KSEB had been fulfilled or not on notice of

demand from the beneficiary of the Guarantee,

was entitled in its own absolute discretion to make

payment of the whole or part of the amount of the

Guarantee as may be called upon to do so by

KSEB without any reference to the defendants and

that the defendants shall not have any right to

question in any way whatsoever the making of

11

such payment by the plaintiff-bank. As further

security, defendants 2 to 8 also undertook to

indemnify the plaintiff-bank from and against all

claims, demands, loss, charges and expenses

which the plaintiff-bank may sustain or incur in

respect of any liability incurred or might be

incurred and guaranteed to make payment on

demand of the amount of the Guarantee together

with interest, commission, costs and charges

payable thereon by the plaintiff-bank. As further

security for the aforementioned Bank Guarantee of

Rs.19 lakhs, defendants 2, 5, 6, 7 and 8 extended

and created the mortgage by deposit of title deeds

of their respective properties which were already

charged and mortgaged in favour of the plaintiff-

bank to cover and apply to the pecuniary liability

in respect of the amount of Rs.19 lakhs together

with costs, charges, interests, etc. to the plaintiff-

bank. The said defendants further declared at

12

their personal visit to the plaintiff-bank's branch

on 24/6/1983 that the mortgage by deposit of title

deeds already created on their respective

properties on 11/5/1983 shall also apply and

stand extended to and cover the further Bank

Guarantee of Rs.19 lakhs also. The said

defendants confirmed by Memoranda dated

24/6/1983 the deposit of the title deeds creating

the mortgage of their respective properties in

favour of the plaintiff-bank and, thereafter,

applying and extending the security by way of

mortgage of deposit of title deeds for the

Guarantee of Rs.19 lakhs. Defendant 1 charged

and assigned the fixed deposits for the sum of

Rs.4,75,000/- which amount was deposited with

the plaintiff-bank as security for the

aforementioned facility or liability incurred by the

plaintiff-bank.

13 e) The plaintiff-bank produced in the trial court the

Deed of Indemnity and Guarantee executed by

defendants 2, 3 and 4 together with a copy of

Bank Guarantee of Rs.19 Lakhs, the Deed of

Indemnity and Guarantee executed by defendants

2, 3, 4, 5, 6, 7 & 8 as further security and the

Memoranda dated 24/6/1983 of deposit of title

deeds of various properties executed by the

defendants confirming deposit of title deeds of

their properties. Defendant 1 availed of Rs.19

lakhs as mobilization advance from the KSEB on

the strength of the second Guarantee mentioned

hereinabove.

f) KSEB by its letter dated 19/6/1984 called upon

the plaintiff-bank under Clause 5 of Deed of

Guarantee to pay a sum of Rs.19 lakhs being the

full amount of the said Guarantee to KSEB. The

plaintiff-bank informed defendant 1 by telephone,

14

telegram and by letter about the invoking of the

Bank Guarantee by KSEB and called upon

defendant 1 to remit Rs.19 lakhs with interest at

18.5% per annum immediately in terms of counter

Guarantee executed by them to enable the

plaintiff-bank to make payment to KSEB. KSEB

insisted upon compliance with its demand in

accordance with Clause 5 of the Bank Guarantee.

The plaintiff-bank was bound to pay the sum of

Rs.19 lakhs being the amount of the second Bank

Guarantee and accordingly the plaintiff-bank paid

the said amount by way of Demand Draft dated

23/6/1984 to KSEB.

g) The plaintiff-bank called upon the defendants to

pay the amount of the Bank Guarantee of Rs.19

lakhs. The defendants gave assurances that the

amount would be paid but did not make any

payment. The plaintiff-bank, therefore,

15

appropriated a sum of Rs.4,56,962.80 being the

balance amount of the fixed deposit after

adjusting the over paid interest on the fixed

deposit. After appropriating and adjusting the

said amount, a sum of Rs.14,43,037.92 together

with interest at 20% per annum remained due and

payable by the defendants in respect of the

second Bank Guarantee as on 24/5/1986 being

the date on which the suit was filed by the

plaintiff-bank.

h) Defendant 1 requested the plaintiff-bank to extend

the Bank Guarantee in favour of KSEB for Rs.1

lakh executed on 11/5/1983 for a further period of

one year from 11/5/1984 till 11/5/1985. The

plaintiff-bank, accordingly, extended the said Bank

Guarantee upto 11/5/1985. It appears that the

KSEB terminated the contract given to defendant

1 on account of breach of the terms and

16

conditions of the contract. KSEB by its letter

dated 15/10/1984 called upon the plaintiff-bank to

pay a sum of Rs.1 lakh being the amount of the

first Bank Guarantee executed by the plaintiff-

bank on behalf of defendant 1 to KSEB. The

plaintiff-bank, in turn, intimated to defendant 1

and called upon them to remit the said amount.

However, the defendants did not make the

payment. The plaintiff-bank had to pay to KSEB a

sum of Rs.1 lakh on 5/8/1985 by Demand Draft as

per the terms of the Bank Guarantee. Thus, in all,

the plaintiff-bank had to pay Rs.20 lakhs in

aggregate under two Bank Guarantees furnished

on behalf of defendant 1 to KSEB. Since despite

letters, notices and repeated requests, the

defendants did not pay the balance amount, the

plaintiff-bank filed a suit in the Court of 1st

Additional Sub-Judge at Ernakulam for an amount

of Rs.21,54,464.20 with future interest from

17

1/5/1986 at 20% per annum.

4. In their joint written statement, defendants 1, 2 and 4

did not deny the issuance of Bank Guarantees by the

plaintiff-bank, but denied the dates thereof. They put the

plaintiff-bank to proof regarding the dates of the said

Guarantees as, according to them, the dates were within the

knowledge of the plaintiff-bank only. They admitted that for

the purpose of Guarantees furnished by the plaintiff-bank on

behalf of defendant 1-firm, defendant 1-firm deposited 25%

of the amount in cash with the plaintiff-bank. They,

however, denied that any mortgage was created in favour of

the plaintiff-bank by any one of the defendants. They

denied the execution of documents referred to in the plaint.

They did not admit the Deed of Indemnity and Guarantee

dated 11/5/1983 but stated that the Managing Partner of

defendant 1 had given a power of attorney in favour of the

plaintiff-bank authorizing the plaintiff-bank to adjust 5% of

the bill amount due to defendant 1 from KSEB through the

18

plaintiff-bank and, the amount so withheld was allowed to be

held as security by defendant 1 in case KSEB invoked the

Bank Guarantee. They denied that defendants 2 to 8 went

to the plaintiff-bank on 11/5/1983 to deposit the title deeds

of their properties. It was, however, admitted that

defendant 4 had by his letter dated 4/4/1983 forwarded to

the plaintiff-bank title deeds of the properties described in

the Schedule for the purpose of scrutiny. They admitted

that on the insistence of KSEB to furnish the Bank

Guarantee, the plaintiff-bank was requested to furnish Bank

Guarantee of Rs.19 lakhs in favour of KSEB. They put the

plaintiff-bank to proof regarding the terms and conditions of

the said Bank Guarantee. Securities and Deed of

Indemnities were not admitted. They denied that any of the

defendants went to the plaintiff-bank on 24/6/1983 to make

any declaration. They admitted the assignment of fixed

deposit of a sum of Rs.4,75,000/-. They admitted that

mobilization advance of Rs.19 lakhs was availed of by

defendant 1. They, however, stated that it was not availed

19

of on the strength of Bank Guarantee but the basis thereof

was supplementary agreement executed between KSEB and

defendant 1 in which, there was no stipulation to furnish any

Bank Guarantee. They put the plaintiff-bank to proof

regarding the amounts which are said to have been paid by

it to KSEB. They denied their liability to pay the amount to

KSEB since, according to them, the invocation of Bank

Guarantee and the alleged payment made by the plaintiff-

bank was not done in terms of the Guarantee and also

because according to them KSEB had illegally terminated the

contract. They contended that the appropriation of

Rs.4,56,962.80 is illegal and the plaintiff-bank had no right

to reduce the rate of interest to 5% on the amount

deposited by defendant 1. They denied that the plaintiff-

bank had extended the Bank Guarantee of Rs.1 lakh for a

further period of one year in favour of KSEB. They

contended that defendant 1 had already filed a suit for

recovery of an amount of Rs.19 lakhs and interest thereon

against the plaintiff-bank for illegal reversal / cancellation of

20

entry of the amount which was already credited in the

account of defendant 1. According to these defendants, the

story regarding countermanding of the cheque was created

for the purpose of escaping the liability to pay the amount to

defendant 1.

5. Defendants 6 to 8 filed joint written statement

contending that they are not partners of defendant 1-firm

and they are not concerned with the Bank Guarantees.

They denied that they had created equitable mortgage in

respect of their properties in favour of the plaintiff-bank.

They denied the execution of Deed of Indemnity and

Guarantee dated 11/5/1983 and their alleged visit to the

plaintiff-bank on 11/5/1983. They contended that defendant

4 had forwarded the title deeds of their properties to the

plaintiff-bank only for scrutiny. They contended that the

plaintiff-bank had taken blank signed papers from them on

or about 11/5/1983 when the first Bank Guarantee for Rs.1

lakh was issued in favour of KSEB and these signed blank

21

papers were utilized for creating equitable mortgage,

indemnity, guarantee and other documents. According to

these defendants, the said documents are not genuine but

are fabricated subsequently on the blank signed papers

obtained from them.

6. Though initially, defendants 1, 2 and 4 did not allege

that the plaintiff-bank had fabricated any documents they

subsequently amended their written statement and

contended that the plaintiff-bank had taken blank signed

papers from them on 11/5/1983 when the first Bank

Guarantee for a sum of Rs.1 lakh was issued in favour of

KSEB. These papers were used for the purposes of creating

documents in favour of the plaintiff-bank. They contended

that all the documents like counter guarantees, confirmation

of deposit of title deeds, etc. more particularly described in

paragraph 2 of the plaint were fabricated by the plaintiff-

bank by utilizing some of the said signed blank papers and,

therefore, they are not binding on the defendants.

22 7. By judgment and order dated 1/1/1991, the trial court

decreed the suit. It directed the defendants to pay

Rs.19,00,000/- with interest at the rate of 18.5% per annum

from 23/6/1984 till date of the suit with future interest on

Rs.14,43,037.20 (Rs.19,00,000/- minus Rs.4,56,962.80

adjusted by the plaintiff-bank) at the rate of 18.5% per

annum from the date of suit till realization. The trial court

further directed the defendants to pay to the plaintiff-bank

Rs.1,00,000/- with interest at the rate of 18.5% per annum

from 15/10/1984 till realization. The trial court held that

the plaintiff-bank is entitled to realize the above amounts

and costs by sale of the properties shown in the Schedule to

the plaint and directed that, in case, the plaintiff-bank is

unable to realize the full amounts due to it by sale of the

hypothecated properties, the plaintiff-bank will have the

right to proceed against defendants 2 to 4 personally and

against the assets of defendants 1 to 4 to realize the

balance amounts due to it.

23 8. Being aggrieved by the said decree, defendants 1, 2, 4,

7 and 8 preferred an appeal in the High Court. By the

impugned order, the High Court allowed the appeal. The

High Court, inter alia, held that since the originals of the

Bank Guarantees were not produced by the plaintiff-bank,

the plaintiff-bank cannot successfully lay its claim on the

said two Bank Guarantees. The plaintiff-bank has

challenged the said judgment and order in this appeal.

9. We have heard learned counsel for the parties, at some

length. We have also carefully perused the written

submissions filed by them. Counsel for the plaintiff-bank

submitted that the High Court wrongly reversed the decree

passed by the trial court because the originals of the Bank

Guarantees were not produced. The High Court overlooked

several mterial documents produced by the plaintiff-bank

and the evidence of PW-2 and PW-3, the officials of KSEB,

who have deposed about the Bank Guarantees and their

24

invocation. Pertinently, there is no denial of the evidence

given by these witnesses. Counter Guarantees executed by

the defendants and the Confirmation of deposit of title deeds

by the defendants are a pointer to the genuineness of the

case of the plaintiff-bank. The story that the plaintiff-bank

fabricated documents on blank papers signed by the

defendants is totally unpalatable. Counsel submitted that the

High Court has misconstrued the provisions of the Evidence

Act. Counsel submitted that in the circumstances, the

impugned judgment and order needs to be set aside and the

decree of the trial court needs to be restored.

10. Counsel for the defendants have reiterated the stand

taken by their respective clients in their written statements,

which we have extensively quoted hereinabove. They have

banked on the fact that the originals of the Bank Guarantees

are not produced. Relying on J. Yashoda v. K. Shobha

Ra ni1 and Roman Catholic Mission v. State of

1 2007 (5) SCC 730

25

Ma dras2 , it is contended that if the original of a document is

not available, then secondary evidence must be led by laying

down foundation for leading secondary evidence in terms of

Section 65 of the Evidence Act which the plaintiff-bank has

not done in this case. Counsel contended that in any case,

even the photocopy of Bank Guarantee dated 11/5/1983

(Ex-A19) and Bank Guarantee dated 24/6/1983 appended to

the Counter-Guarantee of the same date (Ex-A16) are

incomplete and, therefore, they cannot be considered as

secondary evidence. Drawing our attention to Section 91 of

the Evidence Act, counsel submitted that in the

circumstances, no other evidence including the statement of

witnesses can be used by the plaintiff-bank to prove the

execution of the Bank Guarantees. Counsel submitted that

it is not stated in the plaint in whose possession the original

documents were and, hence, there is violation of the

procedure prescribed under Order VII Rule 14 of the Code of

Civil Procedure. Relying on Hindustan Construction Co.

2 AIR 1966 SC 1457

26

Ltd.

v. State of Bihar & Ors.3 , counsel submitted that

invocation of Bank Guarantees is illegal because the Bank

Guarantees can be invoked only by the person named

therein. In this case, according to the defendants, the Bank

Guarantees are invoked by the Secretary, KSEB when, in

fact, they should have been invoked by the Chief Engineer

(Civil), General, who is named in the Bank Guarantees.

Counsel submitted that whereas in the plaint, it is submitted

that the Bank Guarantees were invoked by Secretary, KSEB,

reliance is placed on Ex-A82 and Ex-A3 which are letters

dated 14/11/1983 and 9/5/1984 respectively written by the

Chief Engineer allegedly invoking the Bank Guarantees.

Counsel submitted that since these letters are not referred

to in the plaint, they cannot be relied upon. Relying on

State of Maharashtra v. Dr. M.N. Kaul4 , counsel

submitted that Bank Guarantee (Ex-A19) dated 11/5/1983

was not enforceable as it was invoked after it had expired.

Counsel relied on Delhi Development Authority v.

3 1999 (8) SCC 436

4 AIR 1967 SC 1634

27

Skipper Construction Co. (P) Ltd. & Anr.5 , where in the

context of issuance of Bank Guarantees, this court directed

inquiry to ascertain loss suffered by the public sector banks

on account of malfeasance and misfeasance of their officials.

11. Counsel submitted that the Counter Guarantees,

Indemnity Bonds, Confirmation Letters and Memorandum of

deposit of title deeds on which reliance is placed are of no

use to the plaintiff-bank because they are not complete

documents. Therefore, they do not prove creation of

equitable mortgage by deposit of title deeds. Counsel

submitted that it is alleged that defendant 9 had, through

power of attorney holder - defendant 6, created equitable

mortgage of his property. This is, however, incorrect

inasmuch as the power of attorney dated 21/4/1983 clearly

shows that it was given for availing housing loan and not for

depositing the title deeds in support of the Bank Guarantee.

Relying on Syed Abdul Khader v. Rami Reddy6 , it was

5 2003 (1) SCC 547

6 1979 (2) SCC 601

28

submitted that the power of attorney has to be given strict

interpretation. In short, counsel contended that no

interference is necessary with the impugned order.

12. The High Court has non-suited the plaintiff-bank

primarily on the ground that the plaintiff-bank has not

produced originals of the Bank Guarantees and it has not

adduced any secondary evidence after giving explanation as

to the non-production of the originals (Roman Catholic

Mission). The High Court has observed that the Bank

Guarantees produced by the plaintiff-bank are not complete

and, therefore, the terms and conditions thereof and rights

and liabilities of the parties arising therefrom cannot be

ascertained. The High Court has also held that as per the

copies of the Bank Guarantees produced on record, they

could be invoked only by the Chief Engineer (Civil) General,

however in this case, they were invoked by the Secretary,

KSEB. Therefore, the invocation is illegal (Hindustan

Construction Co. Ltd. and Dr. M.N. Kaul). The High

29

Court has not accepted the case of the plaintiff-bank that

the Bank Guarantees were invoked vide plaintiff-bank's

letters (Ex-A4 and Ex-A82). It is observed that these

documents create suspicion about the manner in which the

Bank Guarantees are executed. The High Court has

observed that the Counter Guarantees produced by the

plaintiff-bank are incomplete. The High Court was

impressed by the case of the defendants that the title deeds

were forwarded to the plaintiff-bank for scrutiny and it

virtually come to the conclusion that there was no deposit of

title deeds as security for the Bank Guarantees. It was

impressed by the defendants' case that the plaintiff-bank

had concocted the documents.

13. We need to ascertain how far the defendants' case is

truthful. They admit the plaintiff-bank's basic case, but try

to evade their liability to pay through their inconsistent,

contradictory and evasive stand. From the narration of the

written statements of the defendants, it is clear that so far

30

as defendants 1, 2, 3 and 4 are concerned, they have clearly

admitted issuance of the Bank Guarantees. They have

admitted that for the purpose of Bank Guarantees furnished

by the plaintiff-bank on behalf of defendant 1-firm,

defendant 1-firm has deposited 25% of the amount in cash

with the plaintiff-bank. Instead of coming out with the

correct facts surprisingly, they have put the plaintiff-bank to

the proof regarding the dates and terms and conditions of

the Bank Guarantees contending that the dates were within

the knowledge of the plaintiff-bank only. They have also put

the plaintiff-bank to the proof regarding the amounts which

have been paid to KSEB. Their version about the execution

of bank guarantees is hard to digest. They have denied that

any mortgage was created in favour of the plaintiff-bank

and they contended that they do not admit the Deed of

Indemnity and Counter Guarantee dated 11/5/1983 but

stated that the Managing Partner of defendant 1 had

given a power of attorney in favour of the plaintiff-bank

authorizing the plaintiff-bank to adjust 5% of the bill amount

31

due to defendant 1 from KSEB through the plaintiff-bank

and the amount so withheld was allowed to be held as

security by defendant 1 in case KSEB invoked the Bank

Guarantee. It is pertinent to note that though they have

denied that defendants 2 to 8 went to the plaintiff-bank on

11/5/1983 to deposit the title deeds of their properties, they

have admitted that defendant 4 had by his letter dated

4/4/1983 forwarded the title deeds of his properties to the

plaintiff-bank. Their case, however, is that the title deeds

were sent for scrutiny. It is not understood for what

purpose the scrutiny of the title deeds was necessary and

done. They admitted the assignment of Fixed Deposit

Receipts in the sum of Rs.4,75,000/- and availment of

mobilization advance of Rs.19 lakhs by defendant 1, but

stated that it was not availed of on the strength of Bank

Guarantees but the basis thereof was supplementary

agreement executed between KSEB and defendant 1 in

which, there was no stipulation to furnish any Bank

Guarantee. This case is not substantiated by them. Though

32

they initially did not come out with a case that the plaintiff-

bank fabricated any document, they subsequently amended

the written statements and contended that the plaintiff-bank

had taken blank signed papers from them on 11/5/1983

when the first Bank Guarantee was issued in favour of KSEB

and these papers were used for fabricating the documents in

favour of the plaintiff-bank. They contended that all the

documents were fabricated by the plaintiff-bank by utilizing

the signed blank papers taken from them by the plaintiff-

bank. Thus, they denied that any equitable mortgage was

created as security for the Bank Guarantees. Similarly,

defendants 6 to 8 denied that any equitable mortgage was

created. They came out with the case that the Deeds of

Indemnity, Counter Guarantees, Memoranda of deposit of

title deeds and Confirmation Letters were fabricated by the

plaintiff-bank by using the blank signed papers taken from

them on or about 11/5/1983 when the first Bank Guarantee

for Rs.1 lakh was issued in favour of KSEB.

33 14. The defendants' case regarding blank signed papers is

not substantiated by any evidence except their say so. The

trial court has rightly rejected this story and we concur with

the trial court. Apart from the fact that there is nothing on

record to establish the case of the defendants that the

plaintiff-bank was party to such a fraud of creating

fabricated documents after obtaining blank signed papers

from the defendants, it also does not stand to reason that

the defendants and its partners and other defendants are so

gullible as to hand over to the plaintiff-bank several signed

blank papers. Falsity of their case is seen from the

documents on record.

15. The title deeds are at Ex-A39 to Ex-A43, Ex-A45 to Ex-

A48, Ex-A53, Ex-A54 and Ex-A63. The tax and revenue

receipts relating to the properties are at Ex-A57 to Ex-A62,

Ex-A65 and Ex-A67. Encumbrances certificates upto April,

1983 are at Ex-A44, Ex-A49, Ex-A50, Ex-A51, Ex-A55, Ex-

A56, Ex-A64 and Ex-A66. Confirmation letters regarding

34

deposit of title deeds are at Ex-A24, Ex-A30, Ex-A34 and Ex-

A72. We have carefully perused these letters. It is

impossible to come to a conclusion that the plaintiff-bank

has fabricated these letters on the blank signed papers

allegedly given to it by the defendants. There is no manner

of doubt that they are genuine documents. There are

Memoranda of deposit of title deeds duly signed by the

defendants giving details of the properties. They are at Ex-

A9 to Ex-A15, Ex-A22, Ex-A23, Ex-A25, Ex-A26, Ex-A28, Ex-

A29, Ex-A32 and Ex-A33. We have seen these exhibits also.

We are convinced that they are genuine documents. The

defendants have not been able to give any valid acceptable

explanation as to how so many original title deeds came in

the custody of the plaintiff-bank. Pertinently, the trial court

has noted that defendant 1 has filed O.P. No.62 of 1986 in

the Sub-Court at Ernakulam against the plaintiff-bank for

recovery of Rs.18,99,900/-. In the schedule of properties

under the heading "assets of the partners", it is clearly

stated that these properties are mortgaged to the Bank as

35

security for Bank Guarantee of Rs.20 lakhs. The trial court

has further noted that when DW-1 was confronted with this

fact, he had no reply. At the cost of repetition, it needs to

be stated that it is the case of defendants 6 to 8 in their

written statement that they are not partners of defendant 1;

they have no connection with the Bank Guarantee and,

hence, there is no question of there being any equitable

mortgage; that the original title deeds were only given for

scrutiny and that the plaintiff-bank had taken blank signed

papers from them when the first Bank Guarantee for Rs.1

lakh dated 11/5/1983 was taken. This explanation itself

falsifies the case of defendants 6 to 8. They have admitted

that the first Bank Guarantee of Rs.1 lakh dated 11/5/1983

was executed. Even assuming without admitting that some

blank papers with their signatures were taken by the

plaintiff-bank from them, unless they were concerned with

the Bank Guarantee, such documents would not be

demanded from them nor would they have given such

documents to the plaintiff-bank. Their efforts to disassociate

36

themselves from defendant 1-firm and the Bank Guarantees

cannot, therefore, be countenanced. It is equally impossible

to accept that these documents were taken for scrutiny by

the plaintiff-bank. None of the defendants have successfully

explained why and for what purpose, the scrutiny of their

documents was necessary. We concur with the trial court

that all these documents cut at the very root of the defence

regarding the non-existence of the equitable mortgage. The

case of the defendants that there was no equitable

mortgage will have to be, therefore, rejected.

16. The defendants' contention that the plaintiff-bank

illegally encashed the Fixed Deposit Receipts in the sum of

Rs.4,75,000/- must also be rejected. It is the plaintiff-

bank's case that this amount was deposited as security for

the Bank Guarantee of Rs.19 lakhs availed of by the

plaintiff-bank and the liability incurred by it. The defendants

contend that the said Fixed Deposit Receipts were given to

the plaintiff-bank for safe custody. Against the background

37

of the aforementioned facts, the story that the Fixed Deposit

Receipts were deposited with the plaintiff-bank for the

purposes of safe custody, does not stand to reason. Except

for oral evidence, there is nothing on record to substantiate

this case. In the facts of this case, we have no hesitation in

rejecting this case of the defendants. In our opinion, the

said Fixed Deposit Receipts have rightly been encashed by

the plaintiff-bank.

17. So far as invocation of Bank Guarantees is concerned,

in our opinion, there is no infirmity in the case of plaintiff-

bank. It is true that in the plaint, there is a reference to Ex-

A4 and Ex-A7, which indicates that the invocation is done by

the Secretary of KSEB but when an objection was raised by

the defendants that the invocation was not proper, the

plaintiff-bank has produced Ex-A82 and Ex-A3 which show

that the invocation was done by the Chief Engineer (Civil)

General as per the terms of the Bank Guarantees. It is

significant to note that Ex-A4 is subsequent to Ex-A82 and

38

relates to Bank Guarantee of Rs.19 lakhs and Ex-A7 is

subsequent to Ex-A3 and relates to Bank Guarantee of Rs.1

lakh. The trial court has rightly held them to be genuine

documents. The invocation of Bank Guarantees was also

done when they were in force, in view of their extension.

18. Perhaps the most significant piece of evidence which

has not been noticed by the trial court and though referred

to by the High Court but not appreciated by it, is the letter

dated 7/7/1984 (Ex-A6) in which the Managing Partner of

defendant 1 has admitted execution of Bank Guarantees and

expressed willingness to pay the amount. This is a letter

written by defendant 1 to the plaintiff-bank in response to

the demand notice dated 23/6/1984 issued to defendant 1.

DW-1 in his evidence has admitted that the said letter

(Ex-A6) was written by defendant 1. We deem it

appropriate to quote the said letter entirely.

"In response to the demand notice dated

23-6-1984 issued to me and after prolong

39

discussion with the officials concerned, we

give you this reply placing certain conditions

and suggestions for a smooth banking

transaction between us.

A bank guarantee for a sum of Rs.

19,00,000/- was arranged by you for a

contract work which we have entered into

with the K.S.E.Board (Kakkad Hydro Electric

Tunnel Project, costing Rs. 6.5 Crores). The

work is going on in a full swing and for the

continuation of the work we have invested a

huge amount for the purchase of machineries

and other things. It is relevant to state here

that the contract is for a sum of Rs.6.5

crores. Unfortunately, allegations were

levelled against the concerned Minister

regarding this contract and this matter as

referred for a finding before Justice Janaky

Amma Commission. The Commission came

to the conclusion that all the charges levelled

against the Minister were false. Not satisfied

with this finding, the opposition parties of the

Kerala Legislative Assembly have now raised

certain questions regarding this matter in the

Assembly. All allegations levelled against the

Minister was regarding allowing a sum

ofRs.19,00,000/- as mobilization advance.

As per the agreement, we have entered into

with the K.S.E.Board, we are entitled to get a

sum of Rs.20 lakhs. To be immune from the

allegations the Board has withdrawn the

amount advanced to us without even issuing

a notice either to us or to the Bank.

We could have approached before a civil

court and obtained a stay, but we avoided it

40

only to maintain a good relationship with

KSEB for a smooth execution of the contract.

Now you have issued a notice asking us to

remit the outstanding amount of Rs.

14,43,037.92. Since we have invested a

huge amount and since we want to proceed

with the work and since we have not so far

as received any amount from the department

for the work we have done till the date, we

are now not in a position to remit the entire

amount. As per the conclusion of the

discussion with the bank officials on 6-7-

1984, we hereby undertake to remit 10% of

the amount of every bill from our coming

running part payments.

To face the financial situation, we have

reconstituted our partnership by including

new partners who are substantially rich and

well experienced in the field of contract work

and by way of increasing the capital.

Now we are approaching you for an clean

over-draft for a sum of Rs. 20,00,000/-

(Rupees Twenty Lakhs only) and for

sanctioning it we are prepared to give

sufficient additional securities the bank

requires. Being an outstanding contract,

without this much of amount we cannot

proceed with the work and only to face this

circumstance we make this request and it is

just from the part of the bank to sanction our

request.

We hereby make a suggestion that we

would make arrangements from some

sources to deposit a substantial amount to

41

the bank. We make this arrangement to face

the financial condition, if any, of the bank.

Hence, it is prayed that in the

circumstances mentioned above, your

goodself may be pleased to make immediate

arrangements to sanction the request we

have made above."

19. In this letter defendant 1 has accepted the case of the

plaintiff-bank and undertaken to remit 10% of the amount of

every bill from the running part payments receivable by it.

Once defendant 1 admits execution of the Bank

Guarantees and expresses its desire to repay the amount

and when Counter Guarantees, number of title deeds,

encumbrance certificates and confirmation letters are on

record, in the facts of this case, decree must follow. In our

opinion, the conduct of the defendants needs to be

deprecated. After having taken the benefit of the Bank

Guarantees, the defendants have tried to persuade the court

to absolve them of the liability to repay the amount by

taking up untenable and false contentions. In O.P. No.62 of

42

1986 in the schedule of properties under the heading "assets

of partners", defendant 1 has categorically stated that the

said properties are mortgaged to the Bank as security for

Bank Guarantee of Rs.20 lakhs. It is surprising that to

evade their liability to make payments, defendant took a

contrary stand in this case and tried to mislead the court.

The trial court was, therefore, right in decreeing the suit. In

the circumstances, the plaintiff-bank must succeed. We

must, however, express our extreme displeasure about the

conduct of the officers of the plaintiff-bank. The plaintiff-

bank is a nationalized bank. It is surprising how the

originals of the Bank Guarantees could not be produced by it

in the trial court. Such conduct is not expected from the

officers of the plaintiff-bank who deal with public money.

They have dealt with this matter with extreme casualness.

20. In view of the above, we set aside the impugned order

dated 4/6/2003. We restore the judgment and decree of the

trial court dated 1/1/1991. We direct the Registry to

43

forward a copy of this judgment to the Chairman of the

Punjab and Sind Bank for information.

21. The appeal is disposed of in the aforestated terms.

.....................................................J.

(SWATANTER KUMAR)

.....................................................J.

(RANJANA PRAKASH DESAI)

NEW DELHI,

JANUARY 13, 2012.