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Issues: (i) whether the correspondence and conduct of the parties constituted a concluded contract for issuance of bank guarantee free of commission; (ii) whether the bank was entitled to deduct commission or retain the fixed deposit receipts by invoking lien or set-off; (iii) whether the interest awarded by the trial court required modification.
Issue (i): whether the correspondence and conduct of the parties constituted a concluded contract for issuance of bank guarantee free of commission
Analysis: The exchange of letters, the sanction letter, the margin-money arrangement, and the subsequent issuance of bank guarantees without commission showed that the parties had moved beyond a mere proposal. The bank's silence on the borrower's inability to maintain the expected deposit, followed by performance of the guarantee facility, supported the inference that the essential terms had been accepted. The arrangement also involved reciprocal obligations in the form of margin money, trade surplus, and routing of transactions through the bank.
Conclusion: The existence of a concluded contract was affirmed in favour of the respondent.
Issue (ii): whether the bank was entitled to deduct commission or retain the fixed deposit receipts by invoking lien or set-off
Analysis: Since the bank had agreed to issue the guarantees without commission, unilateral levy of commission was not justified. The respondent had furnished margin money and the bank's remedy, if any breach had occurred, lay in claiming compensation for breach of contract rather than appropriating the fixed deposits as commission. In the circumstances, the asserted general lien did not authorise retention of the deposits for recovery of the disputed commission.
Conclusion: The bank was held not entitled to charge the commission or withhold the matured fixed deposits on that basis.
Issue (iii): whether the interest awarded by the trial court required modification
Analysis: Interest was payable because the matured fixed deposits had been withheld unlawfully. However, the rate granted by the trial court was considered excessive and unsupported by any proved contractual rate. The proper course was to allow interest at the prevailing rate applicable to fixed deposits on the date of maturity, without quarterly rests.
Conclusion: The interest award was modified accordingly in favour of the respondent.
Final Conclusion: The appeal was rejected on the merits of liability, with only the interest component being altered to a lesser rate in accordance with Section 34 of the Code of Civil Procedure, 1908.
Ratio Decidendi: A concluded commercial arrangement may arise from exchanged correspondence and subsequent performance, and where a bank has agreed to issue guarantees without commission, it cannot unilaterally recover that commission by withholding fixed deposits; the proper remedy for any alleged breach is a claim for compensation, not self-help appropriation.
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