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In Re: Tripura Jute Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Judge
Reported in[1974]44CompCas460(Bom)
ActsArbitration Act - Sections 20
AppellantIn Re: Tripura Jute Mills Ltd.
Excerpt:
arbitration - bank guarantee - section 20 of arbitration act - clause 9 of bank guarantee agreement provides suits or 'action' under bank guarantee to be commenced within 24.04.1976 - 'action' contemplated under clause 9 means judicial action in court of law including proceedings in court under section 20 of arbitration act - plaintiff failed to file civil suit for recovery before date of expiry of agreement as contemplated under clause 9 - plaintiff not entitled to relief. - - 10,38,440. but the sellers wrongfully failed and/or neglected to pay the said sum of any part thereof and committed default in repayment of the said advance. 10,38,440 but notwithstanding such demand, the defendant wrongfully failed and neglected to pay to the plaintiff the said sum or any part thereof. it is..........a total sum of rs. 40,63,844 by way of advance, in instalments provided the sellers furnished a bank guarantee or guarantees in favour of the plaintiff for the sum to be advanced. thereafter, at the request of the sellers and in consideration of the premises, the defendant executed in favour of and delivered to the plaintiff a bank guarantee, dated april 28, 1976, bearing no. sect. 840/75/27 for the sum of rs. 10,38,440 being the first instalments of the aforesaid advance payment. the terms and conditions of the said bank guarantee have been set out by the plaintiff in paragraph 4 of the plaint. such bank guarantee would remain in force and be valid up to april 24,1976. a copy of the said bank guarantee is annexed herewith as annexure 'a' to the plaint. on may 8, 1975, a formal.....
Judgment:

Monoranjan Mallick, J.

1. Tripura Jute Mills Ltd. has filed the suit against the Standard Chartered Bank, the defendant, for recovery of a sum of Rs. 10,38,440 on the following allegations :

2. By a tender notice published in August, 1974, the plaintiff invited tender from the manufacturers of machinery for the supply and delivery of plant and equipment required for a jute mill to be set up at Agartala in the State of Tripura. By the letter dated September 28, 1974, addressed to the plaintiff, M/s. Bird and Co. Ltd. (hereinafter referred to as 'the said sellers') offered to manufacture and sell the machinery required by the plaintiff. Thereafter, negotiations started between the plaintiff and the sellers regarding the terms and conditions of the proposed contract and in the course of such negotiations, it was agreed that the plaintiff would pay the sellers a total sum of Rs. 40,63,844 by way of advance, in instalments provided the sellers furnished a bank guarantee or guarantees in favour of the plaintiff for the sum to be advanced. Thereafter, at the request of the sellers and in consideration of the premises, the defendant executed in favour of and delivered to the plaintiff a bank guarantee, dated April 28, 1976, bearing No. Sect. 840/75/27 for the sum of Rs. 10,38,440 being the first instalments of the aforesaid advance payment. The terms and conditions of the said bank guarantee have been set out by the plaintiff in paragraph 4 of the plaint. Such bank guarantee would remain in force and be valid up to April 24,1976. A copy of the said bank guarantee is annexed herewith as annexure 'A' to the plaint. On May 8, 1975, a formal contract in respect of the manufacture and supply of the said machinery was executed by the plaintiff and the sellers and in terms thereof on May 8, 1975, the plaintiff made an advance payment of Rs. 10,38,440 to the sellers. On or about March 30, 1976, the period of the aforesaid bank guarantee was extended by the defendant till April 24, 1977. The sellers committed various breaches of the said contract dated May 8, 1975, and became liable to refund or repay to the plaintiff the amount advanced as aforesaid and consequently by letter dated April 12, 1976, addressed to the sellers, the plaintiff demanded repayment of the said advance of Rs. 10,38,440. But the sellers wrongfully failed and/or neglected to pay the said sum of any part thereof and committed default in repayment of the said advance. Then, by a letter dated April 16, 1976, the plaintiff called upon the defendant-bank to pay the said sum of Rs. 10,38,440 but notwithstanding such demand, the defendant wrongfully failed and neglected to pay to the plaintiff the said sum or any part thereof. On September 27, 1976, the sellers instituted a suit in the Ordinary Original Civil Jurisdiction in this High Court, being Suit No. 559 of 1976. against the plaintiff and defendant, interalia, for cancellation of the bank guarantee dated April 28, 1975, and for a perpetual injunction restraining the plaintiff from realising any sum under the said bank guarantee and also restraining the defendant from making any payment under the said bank guarantee. On the same date, the sellers applied the obtained an ad interim order of injunction. By an order, dated November 4, 1976, the said order of injunction was directed to continue till the disposal of the said application. But on March 10, 1977, the injunction was dismissed and the ad interim order was vacated. However, the operation of the said order dated March 10, 1977, was stayed for a week. On March 17, 1977, the sellers preferred an Appeal No. 84 of 1977 and obtained ad interim order of injunction which continued till the disposal of the appeal. On June 8, 1978, when Appeal No. 84 of 1977 was dismissed the said order of injunction was vacated and the operation of the order was ordered to be stayed for a fortnight During the pendency of the said proceeding. the defendant by its letters dated April 18, 1977. October 13, 1977, and April 10, 1978, successively extended the period of the said guarantee till October 23, 1977, April 22, 1978, and finally up to October 31, 1978. By reason of the extensions of the period of the aforesaid guarantee, the provision therein requiring the plaintiff to file a suit or action to enforce its claim under the said bank guarantee before April 24, 1976, was waived by the defendant and/or the same became impossible of performance and to have any effect. In the alternative, as the said orders of injunction were continuously operative between September 27, 1966, and June 22, 1978, the plaintiff was prevented during that period from filing any suit or action to enforce its claim under the said guarantee. The plaintiff is, therefor, entitled to exclusion of the time of continuance of the said orders of injunction in computing the time within which such suit or action is to be instituted under the said guarantee extended as aforesaid and such a term is to be necessarily implied in the contract between the parties. By the advocate's letter, dated July, 27, 1978, the plaintiff again called upon the defendant to ay the said sum of Rs. 10,38,440 due to the plaintiff under the said guarantee. The defendant refused, however, to pay the said sum on the ground that the sellers objected to such payment being made. Such refusal on the part of the defendant is wrongful and in breach of the express provisions of the said guarantee. The defendant was and is bound to pay the amount claimed by the plaintiff as aforesaid. In the circumstances, the plaintiff has filed this suit for recovery of the above amount from the defendant- bank.

3. The defendant-bank, in the written statement, has denied the plaintiff's claim. It is contended that as the bank guarantee was enforced by filing a suit for recovery of the amount prior to the date of expiry of the bank guarantee, the right has been forfeited, that the bank guarantee was extended up to October, 31, 1978, but the plaintiff's having failed to file any suit to enforce the bank guarantee on or before October 31, 1978, and he having filed the suit only on April 16, 1979, the bank guarantee has become unenforceable in view of the specific provisions contained in paragraph 9 of the bank guarantee copy of which is annexed as annexure 'A' to the plait. A plea has also been raised that clause 9 has become unenforceable, because the original date of performance has become impossible of performance.

4. At the time of hearing, the following issues have been framed :

Issues :

1. Is the suit maintainable as alleged by the defendant in the written statement

2. To what relief, if any, is the plaintiff entitled

Issue No. 1 : As the question involved in the suit is the interpretation of the bank guarantee, annexure 'A' to the plaint, the parties have not adduced any oral evidence and have submitted oral as well as written arguments in support of their respective contentions.

The following facts are admitted by the parties :

(a) the bank guarantee was executed by the defendant bank, a copy of which is annexed as annexure (A) to the plaint, dated April 28, 1975, and in terms of the bank guarantee, the defendant bank undertook to indemnify the plaintiff and keep the plaintiff indemnified to the extent of a sum of Rs. 10,38,440 from and against all such losses, damages, costs, charges or expenses that might be caused to or suffered by the plaintiff in relation to the advance payment to be made by the plaintiff to the contractor, namely, Bird & Co., by reasons of any default or defaults on the part of the contractor in repayment of the said advance aas aforesaid and the defendant bank undertook to pay to the plaintiff forthwith on demand and without any demur any sum or sums not exceeding in total the said sum of Rs. 10, 38,440 as may be claimed by the plaintiff to be due from the contractor to the plaintiff by way of refund of such advance or any portion thereof by reason of such defaults on the part of contractor in such payment.

(b) As the contractor, namely, Bairdd and Co. made default, the plaintiff called upon Bird and Co. to pay the amount of advance being Rs. 10,38,440 and when Bird and Co. did not respond, the plaintiff issued a demand notice, dated April 16, 1976, calling upon the defendant-bank to pay the said sum of Rs. 10,38,440.

(c) Bird and Co. instituted Suit No. 559 of 1976, against the plaintiff and the defendant for canceling the bank guarantee and for a permanent injunction so that the bank guarantee cannot be enforced. An interim injunction was obtained which remained in operation till Appeal No. 84 of 1977 was dismissed on June 8, 1978, and it remained operative for a period of a fortnight thereafter. Thereafter, the injunction ceased to have any effect.

(d) During the pendency of the proceedings, the defendant-bank by its letters dated April 18, 1977, October 13, 1977, and April 10, 1978, successively extended the period of the said guarantee till October 3, 1977, April 22, 1978, and finally up to October 31, 1978.

(e) The plaintiff, by the advocate's letter dated July 27, 1978, again called upon the defendant to pay the said sum of Rs. 10,38,440 due to the plaintiff under the said bank guarantee and the defendant refused to pay the said amount on the ground that the sellers objected to such payment being made.

(f) The plaintiff has, thereafter, filed the suit for recovery of the amount of bank guarantee on April 16, 1979. On behalf of the plaintiff, Ms. Sudipta Sarkar, learned advocate has urged two points, viz., the bank guarantee, by virtue of several extensions, remained enforceable till October 31, 1978, and the plaintiff has by serving the advocate's letter dated July 27, 1978, served a demand notice and initiated action to enforce the bank guarantee and consequently his suit which has become necessitated because of the refusal of the defendant bank to honor the terms of the bank guarantee even if filed on April 16, 1979, does not contravene clause 9 of the bank guarantee and the expression 'action' in clause 9 of the guarantee bond annexure 'A' includes a demand notice to enforce the bank guarantee being a part of the legal steps taken to enforce the bank guarantee and consequently it must be held that the plaintiff has enforced the bank guarantee within the extended period of the bank guarantee, viz., October 31, 1978. It is also submitted alternatively that, by successive extended and all other terms including clause 9 remained unaltered and that the original clause 19 providing that the suit or action was to be commenced within April 24, 1976, otherwise the right of the plaintiff would be extinguished became impossible of performance and must be deemed to have been waived.

Both the contentions of learned advocate for the plaintiff have been challenged by Mr. Mazumdar, learned advocate appearing for the defendant bank.

5. I would first take up the alternative submissions made by the learned advocate for the plaintiff, namely, that clause 9 having become impossible of performance must be deemed to have been waived. In order to facilitate the plaintiff to enforce its rights against the contractor, viz., Bird and Co., the defendant bank, from time to time, extended the period of validity of the bank guarantee and the last of such extensions was made to make the bank guarantee effective till October 31, 1978. There is nothing to indicate that the forfeiture clause mentioned in clause 9 of the bank guarantee has been waived. When the period had been extended finally up to October 31, 1978, then in view of such extension October 31, 1978, shall be read in place of April 24, 1976, in all relevant clauses of the bank guarantee including clauses Nos. 8 and 9. Therefore, I find no merit in the alternative submission made by the learned advocate for the plaintiff that the original date of enforcement, namely, April 24, 1976, having become impossible of performance, the forfeiture clause must be deemed to have been waived.

6. Next, I come to the main contentions raised by the parties regarding the enforceability of the bank guarantee.

7. The defendant has submitted that the bank guarantee as extended finally up to October 31, 1978, was to be enforced by filing a suit or action against the defendant bank on or before October 31, 1978, and the plaintiff not having filed the present suit for enforcement of the bank guarantee on or before October 31, 1978, then, in view of the clear provision of clause 9 of the bank guarantee, the plaintiff has forfeited the right to enforce the bank guarantee.

8. It is contended on behalf of the plaintiff that the provisions of a bank guarantee have to be harmoniously construed and if such a harmonious construction be made, then there can be no escape from the conclusion that issuing the demand notice through an advocate;s letter, dated july 27, 1978, and by the original letter of demand, dated April 16, 1976, action had already been taken by the plaintiff to enforce the bank guarantee and that filing of the suit before the expiry of the bank guarantee is not the only mode for enforcing the bank guarantee and,consequently, even if the suit has been filed after the date of expiry of the bank guarantee, the right of the plaintiff under the bank guarantee has not been forfeited and still remains enforceable so that the plaintiff can recover the amount of bank guarantee by filing the suit we within the period of the validity of the bank guarantee, demand was made upon the bank to enforce the bank guarantee but that has been refused (sic).

9. It is necessary at this stage to state the relevant terms of the bank guarantee, namely, clauses 8 and 9. They read thus 'Clause 8 : This guarantee shall remain in force and be valid up to april 24, 1976, and unless a claim or demand is made by the purchaser on the bank within the said date, the bank will stand discharged of all its liabilities hereunder. Clause 9 : Notwithstanding anything hereinbefore contained, our liability under this guarantee is restricted to Rs. 10,38,440 (rupees ten lakhs thirty-eight thousand four hundred and forty only) and our guarantee shall remain in force until April 24, 1976. Unless a suit or action to enforce a claim under the guarantee is filed against us before that date, all your rights under the said guarantee shall be forfeited and we shall be relieved and discharged from all liability thereunder.'

10. From a perusal of the above two clauses of the bank guarantee, it is clear that clauses of the bank guarantee, it is clear that clause 8 provided for issuing a notice of demand before the expiry of the bank guarantee. Clause 9, which is non-obstante clause, specifically provides that the guarantee is restricted to Rs. 10,38,440, that it would remain in force until April 24, 1976, and that unless a suit or action to enforce a claim under the bank guarantee is filed against the bank before that date, all the rights of the plaintiff under the guarantee would be forfeited and the bank would be relieved and discharged of all liability thereunder.

11. I have already indicated that clause 9 shall, in view of the extension made, be deemed to remain in force till October 31, 1978. In view of this non obstante clause, the plaintiff's right, under the bank guarantee, would be forfeited unless a suit or action to enforce the bank guarantee was filed on or before October 31, 1978. Admittedly, no suit has been filed on or before October 31, 1978. Clause 9 was uses the expression 'suit or action'. The interpretation of the word 'action' would be crucial for determining the fate of this suit. On behalf of the defendant, it is submitted that the word 'action' contemplates a judicial action and issuing of a demand notice alone would not amount to a judicial action and that the plaintiff had to serve a demand notice as well as to file a suit before the plaintiff had to serve a demand notice as well as to file a suit before the expiry of the guarantee. My attention has also been drawn to the words namely, 'unless a suit or action to enforce a claim under the guarantee is filed against us before that date.' It has been pointed out that this expression clearly contemplates the initiating of judicial action and not merely issuing an advocate's letter of demand. It is also submitted that in Halsbury's Laws of England, volume I, page 2, 'action' has been defined as follows '

'An action according to the legal meaning of the terms is defined as a proceeding by which one party seeks in a court of justice to enforce some right against, or to restrain the commission of some wrong by, another party.'

12. The division Bench decision Sir Dinshaw Manekji Petit v. Sir Jamsetji Jijibhai ILR [1908] 33 Bom 509, has also been cited. The following observations in that judgment at page 524 has been referred to, namely, 'An action is a legal proceeding whereby a person demands his rights which might be denied or infringed or threatened to be infringed and claims to have those rights enforced and to have his wrongs redressed'. Mr. Mazumdar has also cited before me a Division Bench judgment of the Kerala High Court in Kerala Electrical and Allied Engineering Co. Ltd. v. Canara Bank, : AIR1980Ker151 , in which a similar expression 'suit or action' was used in a bank guarantee and it was held that the suit not having been filed within the period up to which the bank guarantee remained in force the rights under the bank guarantee were forfeited or extinguished. The Supreme Court decision in State of Maharashtra v. Dr. M. N. Kaul, : AIR1967SC1634 , has been cited which lays down the well-settled principle that a guarantor cannot be made liable for more than he undertook and when the demand of such enforcement of the bank guarantee was made beyond the period of validity of the bank guarantee, it ceased to enforceable.

13. I have fully and carefully perused the above decisions cited before me. I have also consulted Stroud's Judicial Dictionary, 4th edition. The expression 'action' has been defined as follows : 'This is a generic term, and means a litigation in a civil court for the recovery of individual right or redress of individual wrong, inclusive, in its proper legal sense, of suit by the Crown.'

14. It is also a fact that in Halsbury's Laws of England , 'action' is defined as a judicial proceeding. The division Bench 'judgment of the Bombay High Court also holds the view that action is a judicial proceeding. The Division Bench of the Kerala High Court has also expressed the view that a suit to enforce the bank guarantee not having been filed within the period of enforceability of the bank guarantee, the rights have been extinguished. But their Lordships did not direct their attention to the interpretation of the word 'action' used in the bank guarantee under consideration, because the bank guarantee which was the subject-matter of that suit contained a similar expression 'suit or action'. It appears that their Lordships of the Division Bench of the Kerala High Court in Kerala Electrical and Allied Engineering Co. Ltd. v. Canara Bank, : AIR1980Ker151 , treated 'suit' and 'action' to be synonymous terms and held that the right under the bank guarantee had been extinguished because of the failure to file the suit before the date of expiry of the bank guarantee.

15. On the other hand, the learned advocate for the plaintiff has relied on the decision rendered by Hon'ble Mrs. Justice Padma Khastgir in Suit o. 1733 of 1965 dated September 23, 1982, in which the learned judge interpreted the word 'action' in an earnest money bond executed by the plaintiff of that suit in favour of the Punjab National Bank and the State of Uttar Pradesh and held that the word 'action' would include a demand made by the State of U.P. on the Punjab National Bank calling upon the said bank to make payment of the amount of the bond to the State of U.P. because the plaintiff in that suit in violation of the terms of the bond did not execute any performance bond. The learned judge dismissed the plaintiff suit for cancellation of the bond in question which was sought for on various grounds including the ground that the bond not having been enforced by the State of U.P. by filing any suit as required by the bond prior to the expiry of the validity of the bond, the bond in question was rendered invalid in view of the forfeiture clause of the bond. It is needless to mention that the facts of that case are entirely different from the facts and circumstances of the present case. This is a suit for enforcement of a bank guarantee filed against a bank in which the bank has raised the specific plea that the rights under the bank guarantee had been forfeited on failure of the plaintiff to file a suit or any judicial proceeding before a court of law before expiry of the period of the bank guarantee as specified in clause 9 of the bank guarantee. Mr. Mazumdar, learned advocate for the defendant- bank, has also submitted that the judgment of the learned judge being under appeal should not be relied upon by this court as a precedent. On persuing the judgment of the learned judge, I am of the view that the learned judge interpreted the word 'action' in the bond under different facts and circumstances. In the facts of the suit tried by the learned judge, the State of U.P. could recover from the bank by issuing a demand notice, if the bank did not raise any objection. Therefore, by issuing a demand letter to the bank, the State of U.P. could recover the amount of the bond from the bank itself without taking recourse to any civil suit. But, in this suit, the plaintiff has no other mode to recover the guarantee money from the bank save by filing a suit in a court of law when the defendant bank has refused to honour the bank guarantee. Therefore, filing of the suit, in this particular case, is the only mode of recovery of the amount of guarantee money. Moreover, I have carefully perused the definition of the word 'action' given in Jowitt's Dictionary of English Law, second edition, at pages 39 to 40, where a legal definition of the word 'action' has been given in detail. Jowitt defines at first the word 'action' as follows : 'Conduct something done ; also the form prescribed by law for the recovery of one's due, or the lawful demand of one's right', then he states that Bracton defines the word 'action' as follows : 'An action is nothing else than the right of suing in a court of justice for that which is due to some one.' Jowitt has, thereafter, indicated that the term 'action' is now applied to all proceedings in the Supreme Court which would have been commenced by a writ in the Superior Courts of Common law, the Court of Common Pleas at Lancaster and the Court of Pleas at Durham ; and all suits formally commenced by bill or information in the Court Chancery or by a cause in the Court of Admiralty, or in the Court of Probate.'

16. Therefore, it is clear that the English law defines the word 'action' as a judicial action or proceeding in a court of law. So far as the India High Courts are concerned, even though decisions are very few, yet the Division Bench of the Bombay High Court has interpreted it as a judicial proceeding. The Division Bench of the Kerala High Court has also treated 'suit' and 'action' to be synonymous. Mrs. Justice Padma Khastgir has applied the extended meaning of the word 'action', namely, the legal demand of one's dues, in the circumstances of that particular case because in that case, the State of U.P. could enforce the bond through the Punjab National Bank without filing any suit. I have already indicated that in this case, there is no other mode of recovery of the bank guarantee money than by filing civil suit.

17. In the result, the conclusion is irresistible that the action as mentioned in clause 9 would only mean a judicial action in a court of law which cannot but be a civil suit in a competent court of law. According to the decision of the Punjab High Court in Bharat Bank Ltd. v. Ruby General Insurance Co.LTd. [1951] 21 Com Cas 40: AIR 1951 Pun 97, the word 'action' would include not only a suit but also a proceeding in a court of law under section 20 of the Arbitration Act. In this case, no such alternative mode of judicial action is contemplated. So, in this case, a civil suit in a competent civil court is the only action contemplated. Therefore, I agree with the defendant's learned advocate that the advocate's notice issued by the plaintiff would not come within the purview of 'action' contemplated in clause 9 of the bank guarantee, which is annexure 'A' to the plaint.

18. Admittedly, the plaintiff has not filed any civil suit for recovery of the amount of the bank guarantee prior to the date of expiry of the said guarantee, namely, October 31, 1978. So, the contention of the defendant that the plaintiff has forfeited its right to enforce the bank guarantee is quite correct and must be accepted. The suit which has been filed on April 16, 1979, is clearly not maintainable. Therefore, issue No.1 is answered in the negative.

19. Issue No.2 : In the circumstances, the plaintiff is not entitled to get any relief in the suit. The suit is, therefore, dismissed.


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