State Bank of India v. M/S. Malini Management and Consultancy Pvt. Ltd and Anr.

1. This Regular Second Appeal under Section 100 of the Code of Civil Procedure, 1908 (CPC) is filed by defendant no. 1/State Bank of Saurashtra against the concurrent Judgments of the courts below; of the Original Court/First Court dated 17.7.1999 and the First Appellate Court dated 15.12.2009; and by which judgments the courts below have dismissed the leave to defend application filed by appellant/defendant no. 1 in a suit for recovery of Rs.37,455.65/- under Order XXXVII CPC by respondent no.1/plaintiff.

2. The case of respondent no. 1/plaintiff was that it received export orders from M/s. Vestro of Italy, M/s. Indian Bazar of Rome and M/s. 2016:DHC:6162 Modevarsand Ritter International of Austria for readymade garments. Respondent no.1/plaintiff assigned/transfered this order to defendant no.2/respondent no.2/M/s. Inter-Sales subject to respondent no. 2 paying 10% commission charges and design and development charges to respondent NO. 1/plaintiff. This amount was agreed to be Rs.42,330/-. In order to secure this amount to be paid by defendant no.2/respondent no.2 to the respondent no.1/plaintiff, respondent no.1/plaintiff asked defendant no.2/respondent no.2 to issue instructions to its bankers (appellant/defendant no.1) for issuing of irrevocable liability for respondent no.1/plaintiff being paid an amount of Rs.42,330/- by the appellant/defendant no. 1. Accordingly, appellant/defendant no. 1 issued its Letter dated 27.4.1983 stating that irrevocable instructions have been received by it to pay to the respondent no.1/plaintiff an amount of Rs.42,330/- once the bills with respect to the exported garments are realised by the appellant/defendant no.1 for the defendant no.2/respondent no.2. This Letter dated 27.4.1983 reads as under:- “State Bank of Saurashtra (Subsidiary of the State Bank of India)

NEHRU PLACE

NEW DELHI Branch M/s. Inter Sales, C-232, Defence Colony, New Delhi. Our ref. AKD: BL: 293 Date 27/4/ 1983 Dear Sir, FOBC/DOC/4 to 6/83 FOR Rs. 25,000/- Rs.65,000/- AND Rs.74,520/- As per your irrevocable instructions to us, we shall remit total commission of Rs.42,330/- to M/s. Malini Management and consultancy Pvt. Ltd. directly on realization of the captioned three bills sent by us on collection on your behalf. Yours faithfully, MANAGER”

3. The case of the respondent no.1/plaintiff in the plaint was that in spite of realization of amounts of the bills, appellant/defendant no.1 did not make payment of the amount of Rs.42,330/- which the appellant/defendant no.1 had contracted by putting in writing by a Letter dated 27.4.1983, but the appellant/defendant no. 1 only paid an amount of Rs.8,189.35/- along with the appellant/defendant no.1’s Covering Letter dated 21.7.1983 on the ground that defendant no.2/respondent no.2 had withdrawn the instructions for payment given under the Letter dated 27.4.1983. The subject suit therefore came to be filed for recovery of the difference between Rs.42,330/- and Rs.8,189.35/- along with interest.

4. Appellant/defendant no.1 entered appearance and filed leave to defend application which has been dismissed by the impugned Judgment of the First Court dated 17.7.1999. In the leave to defend application two basis/grounds of defence were raised by the appellant/defendant no.1. First was that there was no privity of contract between the appellant/defendant no.1 and respondent no.1/plaintiff and therefore appellant/defendant no.1 was not liable to pay any amount to the respondent no.1/plaintiff. The second argument which was raised was that the Letter dated 27.4.1983 was not in the nature of any irrevocable letter of credit and therefore the instructions issued by the Letter dated 27.4.1983 could have been withdrawn by the appellant/defendant no.1.

5. Counsel for the appellant/defendant no.1 once again argues the same two grounds before this Court for setting aside the judgments of the courts below. In my opinion both the grounds do not have any merit.

6. Firstly, the issue in the present case is not of any privity of contract but of the appellant/defendant no.1 being estopped by issuing its Letter dated 27.4.1983 whereby it informed respondent no.2/defendant no.2 that irrevocable instructions were issued in favour of the respondent no.1/plaintiff for making payment of an amount of Rs.42,330/- and which letter was forwarded to respondent no.1/plaintiff and acted upon by the respondent no.1/plaintiff by issuing inspection certificate of goods to respondent no.2/defendant no.2. It is not the case of the appellant/defendant no. 1 in the leave to defend application that this Letter dated 27.4.1983 which was issued by the appellant/defendant NO. 1 was not forwarded by respondent no. 2/defendant no. 2 to the respondent no.1/plaintiff. Therefore, the appellant/defendant no.1 is estopped from acting against its Letter dated 27.4.1983 once the respondent no. 1/plaintiff received the Letter dated 27.4.1983, accordingly acted further on the contract and issued an inspection certificate and thereby export orders were executed by sale of the readymade garments to the foreign purchasers, and the bills issued with respect to the exported goods were realized and only then the respondent no. 1/plaintiff asked the appellant/defendant no. 1 and defendant no. 2/respondent no. 2 for making payment in terms of the Contract/Letter dated 27.4.1983 for Rs.42,330/and the respondent no. 1/plaintiff only received a lesser amount of Rs.8,189.35/.

7. Clearly therefore once irrevocable instructions were issued by the appellant/defendant no.1, and respondent no.1/plaintiff acted upon the same, there is a written contract by which appellant/defendant no.1 contracted itself liable to pay a liquidated amount and is therefore estopped from refusing the payment as per the Contract/Letter dated 27.4.1983. The issue of privity of contract is therefore immaterial in the facts of the present case because once the Contract/Letter dated 27.4.1983 was issued for the benefit of respondent no.1/plaintiff and respondent no.1/plaintiff acted on that basis, the same results in the appellant/defendant no.1 being estopped under Section 115 of the Indian Evidence Act, 1872 from denying payment under the Contract/Letter dated 27.4.1983.

8. So far as issue of the Contract/Letter dated 27.4.1983 not being in the nature of an irrevocable letter of credit is concerned, once again this argument holds no water because what is required under Order XXXVII CPC is a written contract containing liquidated amount and the Contract/Letter dated 27.4.1983 issued by the appellant/defendant no.1 is a written contract containing a liquidated liability to pay an amount of Rs.42,330/-. Comparison therefore drawn by the appellant/defendant no. 1 to the Contract/Letter dated 27.4.1983 and a letter of credit is misconceived because the Contract/Letter dated 27.4.1983 will stand on its own feet and will be covered under Order XXXVII CPC to fasten liability upon the appellant/defendant no.1.

9. On one aspect however counsel for the appellant/defendant no.1 is justified for reducing the amount of money decree passed in favour of the respondent no.1/plaintiff, and which is that the respondent no.1/plaintiff has claimed interest at the rate of 19.5% per annum as pre-suit interest whereby the suit amount from the difference of Rs.42,330/- minus Rs.8,189.35/- i.e Rs.34,140.65/-became Rs.37,455.65. Since there is no written contract for payment of pre-suit interest, in my opinion, the suit therefore will have to be decreed with respect to the pre-suit interest only at the banking rate. There is no document filed on record by the appellant/defendant no.1/Bank as to what is/was the banking rate and therefore I would take the pre-suit interest also at 12% per annum and which is the rate taken towards pendente lite and future interest by the impugned judgments. Therefore, the suit will stand decreed by dismissing the leave to defend application by passing a money decree for a sum of Rs.34,140.65/- with interest at the rate of 12% per annum from 19.7.1983 till the date of the filing of the suit on 14.2.1984. Pendente lite and future interest, however, remain at the same rate of 12% per annum simple.

10. In terms of the present judgment, and since appellant has deposited amount in this Court pursuant to the Order dated 13.7.2010, the respondent no.1/plaintiff on approaching the Registry will receive in appropriate satisfaction the amount as decreed today along with interest accrued thereon on the amount decreed today as the amount deposited in this Court by the appellant/defendant no.1 is found to be put in a fixed deposit in this Court.

11. At the time of admission of this Regular Second Appeal the following substantial question of law was framed: “Whether the letter dated 27.04.1983 issued by the appellant to respondent NO. 2 could be construed as a Bank Guarantee or does the same fulfill the basic characteristics of a Bank Guarantee?”

12. In view of the aforesaid discussion the substantial question of law is answered against the appellant/defendant no.1 and in favour of respondent no.1/defendant and accordingly the first appeal is dismissed, leaving the parties to bear their own costs. However, the money decree is modified by reducing the pre-suit interest to 12% per annum simple as already stated above.

AUGUST 31, 2016 VALMIKI J. MEHTA, J AK