Skip to content


State Bank of India Vs. Regional General Manager, the - Court Judgment

LegalCrystal Citation
CourtDRAT Madras
Decided On
Judge
Reported inIV(2005)BC244
AppellantState Bank of India
RespondentRegional General Manager, the
Excerpt:
.....1st respondent was not at all diligent in verifying the supplier.3. further, on going through the bank guarantee furnished by the appellant, it is in unequivocal term that, "in case the buyer fails to pay as aforesaid, we undertake that we shall on the first demand for nsic without any demur, protest or contestation and without any reference to the buyer (emphasis supplied) to pay to nsic against all their bills a sum not exceeding rs. 15,00.000/-." as such, the guarantee is unconditional. the duty of the bank under a performance of a guarantee is created by the document itself. once the documents are in order, the bank giving guarantee must honour the same and make payment without any demur. the guarantee is an autonomous contract and imposes an absolute obligation on the bank in its.....
Judgment:
1. This Appeal is directed against the Order dated 19 11.2003 passed by the DRT, Hyderabad, in OA 283/2001.

2. The only grievance of the appellant is that the 1st respondent/4th defendant without verifying the supplier had made the payments and had invoked the guarantee against the appellant and it turned out that the supplier was a fictitious person and if the 1st respondent had taken diligent care in verifying this would not have happened and the appellant Bank would not have run into loss. The argument of the appellant cannot be countenanced for the reason that there is nothing on record to show that the 1st respondent made payments to a person who is fictitious and in the absence of the same, it cannot be said that the 1st respondent was not at all diligent in verifying the supplier.

3. Further, on going through the Bank Guarantee furnished by the appellant, it is in unequivocal term that, "In case the Buyer fails to pay as aforesaid, we undertake that we shall on the first demand for NSIC without any demur, protest or contestation and without any reference to the Buyer (Emphasis supplied) to pay to NSIC against all their bills a sum not exceeding Rs. 15,00.000/-." As such, the guarantee is unconditional. The duty of the Bank under a performance of a guarantee is created by the document itself. Once the documents are in order, the Bank giving guarantee must honour the same and make payment without any demur. The guarantee is an autonomous contract and imposes an absolute obligation on the Bank in its terms and the Bank is bound to pay when called upon to do so as long as the terms are complied with except in case of obvious fraud of which the Bank has notice. The existence of dispute between the parties and the primary contract or the possibility of a reference of these disputes to arbitration or the pendency of proceedings on such a reference have absolutely no relevance to the obligation of the Bank under the guarantee. The principle of audi alteram partem (principles of natural justice) has no application to contractual relationship particularly where the parties have themselves entered into the arrangement in terms or which the Banker of a party is bound to pay without demur to the other on mere demand. In fact, the Courts should refrain from probing into the nature of the transactions between the Bank and the customer which led to the furnishing of the Bank guarantee: Syndicate Bank v.Vijaya Kumar and Ors., I 4. It is a well recognised principle of civil jurisprudence that a contract of guarantee by a Bank in favour of the beneficiary is an independent contract in between the Bank and the said beneficiary and the said contract can always be enforced by the beneficiary by invoking the Bank guarantee at any time during the subsistence of the contract of guarantee, whenever the beneficiary thinks it proper to do so. In case the guarantee is a conditional one, then the said conditions and stipulations must be fulfilled before the contract of guarantee is given effect to. In our case, the guarantee is unconditional and as a matter of fact, the Bank had undertaken to honour the contract without any reference to the buyer. The solemn undertaking given by the Bank cannot be breached. Hence, I am unable to agree with the arguments advanced on behalf of the appellant that the 1st respondent has not taken necessary care in paying the amount to the supplier. In the light of what have been stated above, I do not find any error in the Order dated 19.11.2003 passed by the DRT, Hyderabad, which requires interference by this Tribunal.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //