TaxTMI 
TaxTMI 
TaxTMI 
2004 (11) TMI 606
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....ld be done free of cost. (iii) Cash would be remitted to plaintiffs office at their cost, and (iv) They invited proposal of Bank Guarantee, from the plaintiff for their consideration. 3. The plaintiff, in response to their letter dated 27.2.1992 informed the defendants, vide letter dated 28.2.1992, that in course of its business the plaintiff is required to furnish necessary Bank Guarantee against the advances received from its clients and the plaintiff being a public sector undertaking, its clients are mostly public sector undertakings and Government organizations except a few private parties, so a request was made to waive any commission if payable for issuance of such Bank guarantees. The plaintiff informed that necessary margin money for the Bank guarantee would be kept in deposit with defendants. Thereafter plaintiff submitted two applications dated 24.3.1992 and 30.3.1992 respectively for sanction of bank guarantee limit of ₹ 25.00 crores each totaling to ₹ 50.00 crores to the defendants as the plaintiff was expecting a big order from a public sector undertaking. The plaintiff, vide its letter dated 7.5.1992, informed the defendants that it had received a let....
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....sis of aforesaid sanction letter dated 14.7.1992 for granting bank guarantee, the plaintiff kept fixed deposits to the extent of ₹ 5.00 crores with the defendants for the purposes of using the same as margin money of 10% of the value of bank guarantee to be issued by the defendants from time to time upto the value of ₹ 50.00 crores. In view of the aforesaid contract, the transaction between both the parties commenced and on the request of the plaintiff the bank guarantee of different values were issued by the defendant No. 2 without charging any commission over the same as contemplated in their sanction letter dated 14.7.1992. The further case of the plaintiff-respondent is that after one and half years of the banking transaction, the defendant No. 2 suddenly by its letter dated 8.12.1993 informed the plaintiff about the unilateral decision of their higher authorities to charge commission @ 15% per month from the plaintiff on the three bank guarantees aggregating to ₹ 19.86 crores issued by them on behalf of the plaintiff without charging any commission. The defendant No. 2 requested the plaintiff to make available necessary fund to be realized by way of amount of....
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.... money of 10% without charging any bank commission did not in any way permit the defendants to charge bank commission at a later date. Three bank guarantees of ₹ 2,42,98,609/- issued by the defendants' Chowringhee Branch have been returned after being duly discharged by the beneficiary. The further case of the plaintiff is that in spite of the clear contractual posi- tion the plaintiff relied on the terms and conditions of sanction and disputed the right of the bank to charge commission on the amount of Bank guarantee. The defen- dants by the lawyer's letter dated 29.12.1994 demanded payment of commission on bank guarantee, which was replied to by the plaintiff by its lawyer's letter dated 11.1.1995. The plaintiff by its letter dated 22.1.1995 returned the bank guarantee Nos. 17/92 and 18/92 both dated 24.10.1992 to the defendant No. 2 for cancellation and requested them to return the fixed deposit receipts kept with them as margin money. The plaintiff had kept fixed deposit to the extent of ₹ 5.00 crores with the defendant Bank to use as margin money for availing the Bank guarantee. The plaintiff desired to encash some of its FDRs prematurely due to exigenc....
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....; 2.60 erores. The plaintiff by its letter dated 24.4.1995 requested the defendants to refund a sum of ₹ 85,79,834/-, which were illegally appropriated- towards Bank Commission out of the maturity proceeds of FDRs amounting to ₹ 2.40 crores and plaintiff also requested to pay interest over the matured amount of FDRs for the period from the date of maturity till the date of actual payment. The defendants by their letter dated 23.5.1995 declined to refund the commission already charged by them, however, they agreed to pay interest on the FDRs. 4. The defendants-appellants ap- peared and contested the suit. Besides taking ornamental defences such as suit is not maintainable and barred by principle of waiver and estoppel and barred by law of limitation, ' the defendants, stated that plaintiff has availed the bank facilities from the bank such as bank guarantee etc. for doing its business and said privileges were extended by the Bank on payment of commission and as such the plaintiff is liable to pay commission, but it failed to do so and hence the commission amount was deducted from the plaintiffs FDRs. It is stated that the plaintiff, on the basis of pleadings in the ....
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....is that the plaintiff itself by its letter requested the defendants to furnish the terms and conditions for waiving the bank guarantee and thereafter the Regional Manager of the Bank referred the matter to the Deputy General Manager (Zonal Office), vide letter dated 5.3.1992 with its recommendation that on 10% margin money Bank may issue bank guarantee free from any commission and prior to their formal proposal Bank may agree in principle to the same and in turn thereof bank expect to deposit a sum of ₹ 25.30 crores in term deposit or in any other form and their current account is being opened within a day or two, and a copy of the said letter was also sent to the General Manager, Finance of the plaintiff. Thereafter plaintiff-respondent through its Chairman-cum-Managing Director issued a letter dated 10.3.1992 and requested the Regional Manager of the defendants to open current account styled "Metallurgical and Engineering Consultants (India) Ltd. in following Branches : (a) Hinoo. Branch, Main Road, Ranchi. (b) Chowringhee Branch, 59-A, CD. Nehru Road, Calcutta-700020. (c) Balangir, Tikzapara, Balangir, District Balangir, Orissa. 6. The Regional Manager of the B....
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.....1992 according approval for obtaining bank guarantee from the defendant Bank upto limit of ₹ 25 crores and till date there was no assurance even written or oral for extending bank guarantee free of cost. But, bank guarantee of ₹ 50 crores was extended by the defendant Bank to * the plaintiff on the understanding that substantial deposit approximately to the tune of ₹ 40 crores will be given by the plaintiff to the defendants to meet the cost which was calculated by the Bank, which comes about ₹ 134.81 (in lakhs) per year. On the aforesaid understanding that the plaintiff will place deposit of ₹ 40 crores, the defendant No. 2 issued a letter to the Deputy General Manager on 4.7.1991 to issue direction with regard to bank guarantee to the plaintiff and Head Office of the defendant Bank sanctioned a limit of ₹ 50 crores for the purpose of bank guarantee to be availed by the plaintiff and defendant No. 2 accordingly issued a letter to the General Manager (F) on 14.7.1992 intimating the sanction of ₹ 50 crores for bank guarantee and in the said letter it was specifically mentioned that : "It may be mentioned that while submitting the cos....
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....f margin money. It was connected with the bank guarantee and since the plaintiff did not pay the commission towards the bank guarantee, the defendants rightly withheld the payment and until realization of the bank commission from the plaintiff. Hence a prayer has been made to dismiss the suit. 9. On the pleadings of the parties, the following issues were framed for their determination in the suit : (i) Is the suit as framed maintainable? (ii) Has the plaintiff valid cause of action for the suit? (iii) Whether the plaintiff is entitled to a decree as prayed for? (iv) To what other relief or reliefs the plaintiff is entitled to? 10. Issues were decided in favour of the plaintiff and against the defendant and suit was decreed. 11. While deciding issues framed, issue No. 3 was considered to be the main issue and this was decided in favour of the plaintiff, although other issues were also decided in favour of the plaintiff. Issue No. 3 was decided in the following words : "Having considered the entire facts and circumstances and evidence both oral and documentary and the submission made by the learned lawyer for the parties. I find and note that plaintiff is entitled to....
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.... contract furnished three Bank guarantee aggregating 19.86 crores free of commission. Therefore, I find and hold that the defendant have no right to claim any amount towards Bank Commission for establishing the Bank guarantee on behalf of the plaintiff. I further find and hold that defendants are not entitled to withhold the payment of matured fixed Deposits receipts after their maturity period, if the same are not under lien or charge. I further find and hold that plaintiff is entitled a decree for sum of ₹ 87,23,609/- with interest at the rate of 21.75% per annum at quarterly, rests from the date of release of FDRs till the billing of the suit, pendente lite and future till the date of realization. This issue is decided in favour of the plaintiff and against the defendant. 12. While assailing the judgment of the learned Court below, the learned Senior Counsel for the appellant submitted that issues have not been properly framed and vague issues have been framed. The facts of the case are so clear that there was no difficulty in framing proper issue but it was not framed in clear words whether there was any concluded contract or not but the issue was framed like this whethe....
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....s, but has decided the main issue as issue No. 3 and while assailing the judgment, the learned Senior Counsel for the appellants submitted that there was no contract which can be called as concluded contract between the parties by which appellants-defendants refused to waive the commission on issuance of bank guarantee and there is no such document before the learned Trial Court from which it can be gathered that the document has incorporated all the terms of contract for issuance of bank guarantee and waiving of commission on the same. The learned counsel referred to Section 101 of the Evidence Act and submitted that those, who allege existence of a contract, have to prove the same and for that onus lies on those persons, who allege such existence of contract. In this connection, learned counsel referred to Ext. 1 /A, which is a sanction letter dated 14.7.1992, which cannot be said to form a concluded contract between the parties. Besides Ext. B/9 was also referred, which proves that MECON had knowledge or MECON was aware of the fact that higher authority would rectify any proposal for issuance of bank guarantee and negotiation between the parties was made at the stage of proposal....
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....nt kept with the bank, as the FDRs were kept in the nature of margin money and this margin money amounted as a collateral security and when the respondent failed to perform its part of the promise, the appellant-defendant had no alternative but to deduct the bank commission from the FDRs. In this connection, learned Senior Counsel referred to. Section 171 of the Indian Contract Act, which is quoted hereinbelow : "171. General lien of bankers, factors, wharfingers, attorneys and policybrokers.-Bankers, factors, wharfingers, attorneys of High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them, but no other person have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect." 18. Learned Senior Counsel further submitted that provisions of Section 171 of the Indian Contract Act provides for general lien of bankers and on breach of promise by the respondent the appellant-defendant was justified in deducting the commission from the FDRs of the plaintiff-respondent and the appellant-defendant did not commi....
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.... the bank and the plaintiff-respondent has pleaded waiver/exception of the commission but from no where, either from oral evidence or from the documents of the parties, it will appear that plaintiff-respondent has proved waiver of commission on issuance of bank guarantee by the bank. Although plaintiff-respondent has argued that the letter dated 14.7.1992 (Ext. I/A) is same, which was received by MECON vide letter dated 27.7.1992 {Ext. 2/D), where they have themselves refused to accept the condition of letter dated 14.7.1992 and they have mentioned in that very reply that they cannot keep the deposit of the order mentioned in the letter dated 14.7.1992 to promise to keep the trade surplus with the bank from time to time and as such plain-' tiff-respondent has failed to make out a case of waiver of bank guarantee/commission by the appellant-defendant and bank has rightly charged bank guarantee as per norms and practice, and in that view of the matter the appeal is fit to be allowed. 19. On the other hand, learned Senior Counsel appearing for the plaintiff-respondent submitted that impugned judgment does not require any interference on the ground that learned trial Court has car....
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....992 (Ext. B) the Regional Manager of the appellant wrote to the Deputy General Manager (Zonal Office) regarding issuance of bank guarantee free of commission. It was mentioned therein that on 10% margin money the bank guarantee should be made available free of any commission and prior to any formal proposal from respondent the appellant may agree in principle to the same and in turn the bank may expect a deposit of ₹ 25 to 30 crores from respondent. Through letters dated 24.3.1992 (Ext. C) and 30.3.1992 (Ext. 3) respondent filed applications for issuance of bank guarantees of the value of ₹ 25 cores each and on 10.4.1992 (Ext. B/9) Finance Manager of the respondent wrote to the Branch Manager of the appellant for issuance of bank guarantee to various clients of respondent and vide letter dated 7.5.1992 (Ext. 2/B) the Finance Manager of the respondent wrote to the Regional Manager of the appellant that respondent has received letter of intent from Steel Authority of India Ltd. Rourkela Steel Plant for a project of the value of ₹ 360 crores, for which bank guarantee is required to be furnished aggregating to ₹ 50 crores and for that the necessary approval for ....
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....% margin money to be deposited by the plaintiff-respondent with the appellant and the terms to be complied with by MECON was that it would keep trade surplus from time to time with the bank and it would route the transaction with regard to the contract with Reourkela Steel Plaint through the appellant-bank. In this connection, learned Senior Counsel further referred to Section 8 of the Indian Contract Act, which has already been quoted earlier and submitted that on application of Section 8 of the Indian Contract Act to the facts and circumstances of the case, it will become clear that the appellant bank performed the condition of the proposal of the respondent by issuing commission free bank guarantee and at the same time appellant bank did not reply to the Ext. 2/D and issued bank guarantee at a latter date on the request of the respondent and it is enough to show that the bank entered into a concluded contract with the respondent. It was further pointed out that the appellant bank would be estopped from claiming that they did not enter into any agreement with the respondent, as because they performing the condition of the proposal given by the plaintiff-respondent by issuing comm....
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....ellant by lending it to various customers as per the normal banking practice and the difference between the deposit rate and the lending rate is the amount earned as profit by the bank and, therefore, it cannot be said that there was no consideration for the bank in entering into a contract with the respondent. It was also pointed out that prospect of future business is also a key consideration and consideration can be past, present as well as future. In this connection he placed reliance upon a case law reported in, AIR 1997 Bombay 225, Central Bank of India v. Tarseema Compress Wood Manufacturing Company and others, whereby Hon'ble single Judge of the Bombay High Court, while interpreting Section 25 of the Indian Contract Act, held that consideration can either be past, present or future and, therefore, it was submitted that consideration aspect was also present in the concluded contract between the parties and the same does not suffer for want of consideration. 22. The learned Senior Counsel, in course of submission, submitted that if defendant-appellant felt that plaintiffrespondent has committed breach of contract then instead of deducting any amount from FDRs should have....
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....sion on bank guarantee has been charged as per norms and practice of the banking system and it was for the ap- pellant-defendant to prove that the commission was charged as per the norms and practice of the banking system and if this was a case then plaintiff-respondent would have not received commission free bank guarantee or on a negligible commis- sion bank guarantee from other banks and, therefore, the claim that as per norms and practice bank guarantees are issued on commission does not hold good and, there- fore, learned Senior Counsel pointed out that (a) a concluded contract was reached between the parties; (b) terms and condi- tions of the concluded contract can be derived from the correspondences between the parties; (c) having regard to the above, it is clear that the bank issued bank guarantees free of any commission; (d) the concluded contract routed between the parties did not suffer any illegality or ir- regularity for want of commission; (e) the bank illegality, unilaterally and arbitrarily deducted bank commission on the guaran- tees ignoring the provisions of Section 73 of the Indian Contract Act; (f) bank guarantee commission cannot be charged by the ap- pellant ....
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.... routed through the bank as Steel Authority of India Ltd. had requested the plaintiff-respondent to keep the said amount deposited with them and as such, plaintiff-respondent had no control over the said transaction because Steel Authority of India Ltd., being a principal party to the contract between the plaintiff-respondent and Rourkela Steel Plant, the plaintiff respondent had no other option but to keep the initial advance with Steel Authority of India Ltd. and the same fetched a higher rate of interest and it is also admitted by the parties that plaintiff-respondent had opened a current account with the appellant-bank through which regular transaction was taking place and, therefore, the contention that the plaintiff-respondent did not route the transaction through the defendant bank or did not do any transaction whatsoever with the appellant-bank is completely falsified. 29. The learned Senior Counsel for the respondent further submitted that rate of interest @ 21.75% with quarterly rests is justified rate of interest, which has been awarded by the learned Court below. The learned counsel further pointed out that the interest was awarded by the learned trial Court after prop....
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....ch emerge on perusal of oral as well as documentary evidence and after hearing the submissions of the parties, are that the appellant-bank requested the plaintiff-respondent by its letter dated 20.2.1992 (Ext. 1/G) for opening of a bank account with them and thereafter on 26.2.1992 discussions were held between the parties and on 27.2.1992 the appellant-Bank again sent a letter to the plaintiff-respondent intimating about the banking facilities to be provided to the plaintiff-respondent and on 28.2.1992 plaintiff-respondent sent a letter to the appellant-Bank requesting therein that bank guarantee commission, if any, chargeable on the bank guarantee may be waived since clients of the plaintiff-respondent are mostly of public sector undertakings and of Government's Units and on 5.3.1992 (Ext. B) appellant-bank sent another letter to the plaintiff-respondent regarding issuance of bank guarantee free of commission. It was also mentioned in the same letter that on 10% margin money the appellant-Bank may issue bank guarantee free of any commission and prior to its formal proposal the appellant-bank may agree in principle to the same. It was also mentioned therein that in turn thereo....
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.....7.1992 (Ext. 2/D). plaintiff- respondent intimated the Branch Manager of Allahabad Bank that it was not possible for the respondent to keep the deposit of the order mentioned in the sanction letter dated 14.7.1992 but ft would keep its trade surplus from time to time with the bank. Even after receipt of this letter the appellant-bank did not respond to the letter and on the other hand bank guarantees were issued on 23-24.10.1992 without rebutting the offer or without countering the proposal of the plaintiff-respondent and, therefore, if correspondences, entered into between the parties, are read as a whole, it will be crystal clear that the appellant bank agreed to issue bank guarantee to the limit of ₹ 50 crores without any commission on the same with 10% margin money to be deposited with it and the terms to be complied with by the plaintiff-respondent was to keep its trade surplus from time to time with the bank and it would route the transaction with regard to the contract with Rourkela Steel Plant through the appellant Bank. The letters of communication between the parties make it clear that there was a concluded contract between the parties because even after letter dat....
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....tain conditions and those conditions, as per case of the appellant-Bank, were not performed and thereby plaintiff-respondent committed breach of contract, but it appears that appellant-Bank resorted to Section 171 of the Contract Act where there is a provision of general lien of bankers, factors, wharfingers, attorneys and policy brokers and taking recourse to that very section commission at a particular rate on the FDRs deposited with the appellantbank was deducted from the FDRs and rest of the amount was returned to the plaintiffrespondent because in the instant case the contract was terminated by the appellantsdefendants and appellants-defendants had no right to exercise lien over the FDRs of the plaintiff-respondent and the plaintiffrespondent has succeeded in establishing the fact that appellant-bank had waived the commission on bank guarantee by issuing letter dated 14.7.1992 (Ext. 1/A). 36. Hence, in the facts ad circumstances of the case, all the issues that have been framed, such as issue Nos. 1, 2 and 3 ae decided against the defendantsappellants and in favour of the plaintiffrespondent. 37. Issue No. 4 : Challenging the impugned judgment on the findings of the learned ....