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State Bank of India, Padmaraonagar Branch, Represented By Its Chief Manager, Secunderabad, Andhra Pradesh v/s (1) Regional General Manager, National Small Industries Corporation Limited, Represented By Its Managing Director, Kamala Nagar, Hyderabad; (2) Messrs DMK Excavations and Constructions Private Limited, Represented By Its Managing Director, D.M. Kishore Naidu, Hyderabad; (3) A. Kameeswari; (4) Sabhapathi Krishna Murthy Sharma

    Ra-1/2004, Oa-283/2001

    Decided On, 08 September 2005

    At, Debt Recovery Appellate Tribunal At Chennai

    By, K. GNANAPRAKASAM (CHAIRPERSON)

    K.S. Sundar, H.M. Abul Kalam



Judgment Text


The Order of the Court was as follows :

Heard the Learned Advocate for the Appellant and the 1st Respondent.

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 and as aforesaid, we undertake that we shall on the first demand of NSIC without any demur, protest or contestation and without any reference to the Buyer (Emphasis supplied) 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 of 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 Vs. Vijaya Kumar & Others -1992 AIR(SC) 1006.

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.

5. In the result, the Appeal is dismissed.