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Viswapriya Financial Services & Securities Ltd. v/s Andhra Bank & Another

    O.P.No. 201 of 1994

    Decided On, 06 January 1995

    At, Tamil Nadu State Consumer Disputes Redressal Commission Chennai

    By, THE HONOURABLE MR. JUSTICE S.A. KADER
    By, PRESIDENT & THE HONOURABLE DR. MRS. RAMANI MATHURANAYAGAM
    By, MEMBER

    For the Complainant: S. Soundararajan, Advocate. For the Opposite Parties: C. Hanumantha Rao, Advocate.



Judgment Text

S.A. Kader, President

1. This is a complaint under Section 17 read with Section 12 of the Consumer Protection Act, 1986.

2. The complainant is a Company incorporated under the Indian Companies Act and it is carrying on business in financial management and bill discounting. M/s. Shree Ganesh, Madras, approached the complainant in March 1993 for discounting bills of exchange raised by it on M/s. S.T.R. Laboratories, Hyderabad and produced a Bank Guarantee issued by the 1st opposite party Andhra Bank, Juntapally Branch for a sum of Rs. 5.5. lakhs. A letter from the 1st opposite party dated 8.3.93 was also produced confirming the issue of Bank Guarantee. The said letter from the 1st opposite party confirmed Invoice No. XVII 316, dated 4.3.93, Delivery Note No. XVII317, dated 1.3.93, bill of exchange dated 2.3.93 drawn by M/s. Shree Ganesh, Madras. The complainant honoured the aforesaid bill of exchange for Rs. 5.5. lakhs drawn by M/s. Shree Ganesh and accepted by M/ s. S.T.R. Laboratories, Hyderabad. The bills were presented to M/s. S.T.R. Laboratories on the due date for payment but the acceptor of the bill was not available. The complainant sent its special representative to Hyderabad for presentation of the bill in person but no one was found. Consequently, the complainant invoked the Bank Guarantee given by the 1st opposite party by its letter dated 30.8.93. The 1st opposite party asked for particulars, which were furnished by the complainant with all relevant documents. On 1.9.93, the 1st opposite party wrote to the complainant stating that as per the records maintained in its branch, the letter of guarantee was not noted and the matter would be referred to the higher authorities. By letter dated 6.9.93, the 1st opposite party informed the complainant that the Bank Guarantee referred to was not issued by its Branch. A detailed reply was sent by the complainant to the 1st opposite party. A Nationalised Bank like the opposite parties, Andhra Bank, should not disown its responsibilities but honor its commitments under the Bank Guarantee having confirmed the same by several letters. The complainant referred the matter to Reserve Bank of India. There is no progress and the complainant is put to heavy loss on account of non-payment of the guaranteed amount. Hence this complaint for recovery of the guaranteed amount of Rs. 5,50,000/- with interest at 24% from 13.8.93 till date of payment, Rs. 5 lakhs towards loss of profit and Rs. 15,000/- towards expenses and compensation.

3. The opposite parties have filed a joint counter raising the following contentions : -

The complaint is not maintainable. This Commission has no territorial jurisdiction to entertain the complaint as the Bank guarantee has been executed atjuntapalli branch in Andhra Pradesh. The truth and genuineness of the letter of guarantee and the letter dated 8.3.93 are denied and disputed. No such guarantee or letter was issued by the 1st opposite party. It is also denied that the complainant discounted the bill issued by M/s. Shree Ganesh or the Bill of Exchange drawn by Shree Ganesh on M/s. S. T. R. Laboratories, Hyderabad or that the complainant presented the bill to M/s. S.T.R. Laboratories for payment. It is also contended that the complainant can invoke the Bank Guarantee only after exhausting all the remedies available to it against the drawer and the drake of the bill. The opposite parties, on receipt of guarantee from the complainant, made inquiries and found that the above transaction was a result of collusion and fraud of the concerned parties and the then Manager of the 1st opposite party Branch, Mr. Radha Krishna Murthy. The matter was immediately referred to the Superintendent of Police, Central Bureau of Investigations, Hyderabad and it is pending enquiry. The opposite parties are not liable to pay the amount as the investigation is pending. The claim for loss of profit at Rs. 5 lakhs and the claim of expenses and compensation at Rs. 15,000/- are denied and disputed.

4. Ext Al to A23 and Bl and BIO are not by consent. Proof affidavits are filed on both sides. No oral evidence has been let in.

5. The points that arose for determination are : -

(1) whether the complaint is not maintainable ?

(2) whether this Commission has no territorial jurisdiction to entertain this complaint ?

(3) Whether there has been any deficiency in service on the part of the opposite parties ? and

(4) to what relief, if any, is the complainant entitled ?

6. Point No. 1 : The complainant is a company incorporated under the Indian Companies Act, carrying on financial business. It is the case of the complainant that in March 1993, M/s. Shree Ganesh of Madras approached the complainant for discounting its Bill of Exchange raised on M/s. S.T.R. Laboratories, Hyderabad in respect of sale of paracetomal and produced a letter of guarantee issued by the 1st opposite party Andhra Bank, Juntapally Branch. Exh. A9 is the letter of guarantee dated 2.3.93 issued by the 1st opposite party unconditionally guaranteeing that the usance bills issued by M/s. Shree Ganesh shall be duly retired by M/s. S.T.R. Laboratories, Hyderabad and in case M/s. S.T.R. Laboratories acceptor, failed to retire the bill, undertaking to pay to the complainant without demur on demand in writing the amount of all such unasked bills as shall have remained unpaid with all costs charges and expenses. Exh. A-6, dated 8.3.93 is a letter from the 1st opposite party in its printed letter-head addressed to the complainant confirming the issue of the aforesaid Bank guarantee. Exit A 7 is another letter by the first opposite party in its printed letter-head addressed to M/s. Shree Ganesh. On the basis of Ex. A9, letter of guarantee and Ex. A 6 covering letter, the complainant has discounted Ex. A 2 Invoice and Ex. A 4 Bill of Exchange drawn by M/s. Shree Ganesh on M/s. S.T.R. Laboratories, Hyderabad for the sale of 3437.5 kgs of paracitamol of the total value of Rs. 5,50,000/-. According to the complainant, it sent the bills to M/s. S.T.R. Laboratories, Hyderabad, for payment but there was no one to accept the same. A personal representative was then sent to Hyderabad but he could not find any person in the premises. A notice of dishonour was therefore obtained from a Notary Public under Ex. A- 15. Thereafter, the complainant invoked the Bank Guarantee given by the 1st opposite party under Ex. A-10 letter dated 13.8.93. The 1st opposite party, by its letter under Ex. A-12 dated 1.9.93, informed the complainant that its letter of guarantee was not noted down in the records of the 1st opposite party’s branch and the matter has been referred to higher authorities. Subsequently, under Ex. A-13, dated 6.9.93 the 1st opposite party informed the complainant that this Bank Guarantee had not been issued by the 1st opposite party branch. The complainant has then issued notice to the 1st opposite party’s Central Office at Hyderabad, which is the 2nd opposite party and under Ex. A-19 it has repudiated the claim. Hence this complaint.

7. The first question is whether the complainant is a consumer entitled to maintain this complaint on the letter of guarantee. The point is covered by a direct decision of the National Commission in Bank of India v. HCL Ltd. & Another III (1993) CPJ 305 (NC)=1993 (3) CPR 30. It was held therein that the complainantcompany in whose favour the Bank Guarantee was issued by the Bank guaranteeing to the company payment of moneys due to it by the purchaser of computer system is clearly a beneficiary and is, therefore, a consumer within the meaning of Section 2(1)(d) of the Consumer Protection Act. In Executive Engineer, Upper Ganga Canal Modernisation Unit Divisional, U.P. v. Punjab & Sind Bank Ltd., III (1993) CPJ 413 (NC)=1994 (1) CPR 27, the National Commission has again held that the complainant-Executive Engineer was entitled to file the complaint against a Bank for not honouring the Bank Guarantee as soon as the demand of encouragement was made by the complainant unless restrained by some Competent Court from doing so. In the light of these two decisions, we have little hesitation in holding that the complainant is a consumer and is entitled to maintain this complaint against the Bank.

8. Point No. 2 : It is then contended by the opposite parties that the Bank Guarantee has been executed at Juntapally Branch of Andhra Bank, in Andhra Pradesh and the State Consumer Disputes Redressa) Commission, Tamil Nadu has no jurisdiction. Under Section 11 of Consumer Protection Act, a complaint can be instituted in a Forum within the local limits of whose jurisdiction, the cause of action wholly or in part, arises. The discounting of the bills raised by M/s. Shree Ganesh on M/s. S.T.R. Laboratories, Hyderabad has been done by the complainant at Madras and this discounting of the bills is part of the cause of action for this claim and as part of the cause of action has arisen in Madras, this Commission has jurisdiction to entertain this claim. The point is also found against the opposite parties.

9. Point No. 3 : The main defence put forward by the opposite parties under Ex. A 9 letter of guarantee dated 2.3.93 is that neither Ex. A 9 letter of guarantee nor Ex. A 6, A 7, A 8 and A 8A letters of the 1st opposite party, Andhra Bank Branch at Juntapally in its printed letterhead are true and that they have been brought into existence by the then Branch Manager of the Andhra Bank Juntapally Branch by name Mr. Radha Krishna Murthy in collusion with M/s. Shree Ganesh, M/s. S.T.R. Laboratories, Hyderabad and the complainant and hence the complainant is not entitled to any claim under this letter of guarantee. It is further contended that a complaint has been preferred before the Central Bureau of Investigation, Hyderabad and the matter in pending enquiry. The complainant is not entitled to claim the amount during the Tendency of the police enquiry. As we shall show presently, there is nothing to point out the needle of suspicion against the complainant. The complainant is an incorporated Company carrying on business in financial management and discounting of bills. M/s. Shree Ganesh has approached the complainant for discounting its bill raised on M/s. S.T.R. Laboratories, Hyderabad for the supply of paracetamol and produced Ex. A9 letter of guarantee issued by the 1st opposite party-Andhra Bank branch at Juntapally along with Ex. A6 covering letter in the printed letter-head of the 1 st opposite party. Ex. A7 is also another letter from the 1 st opposite party in the printed letter-head addressed to M/s. Shree Ganesh Ex. A8 and A8A are also letters from the 1st opposite party in its printed letter head. The complainant has, therefore, acted bonafidely on these records and discounted Ex. A2 and Ex. A4bills for Rs. 5,50,000/-. Ex. B-4, B5 and B6 police reports show that the complainant had discounted the bills and paid the amount to M/s. Shree Ganesh by cheque. These reports do not also cast any doubt on the bona fides of the complainant. Ex. B10 is the First Information Report in which the former Manager of the 1st opposite party Branch Mr. Radha Krishna Murthy, Mr. C.G.K. Nair, Proprietor of M/s. S.T.R. Laboratories, Hyderabad and Mr. V. Raveendran Proprietor of M/s. Shree Ganesh have been arraigned as accused. Neither the complainant nor any of its Directors has been shown as accused. It is, therefore, clear that the complainant has not played any part in the alleged conspiracy the creation of the letter of guarantee and the letters under Ex. A6, A7, A8 and A8A of the 1st opposite party, Andhra Bank Juntapally Branch. We are convinced that the complainant has acted with the best of intention on Exh. A9 letter of guarantee and Exh. A6, A7, A8 and A8A letters from the 1st opposite party-Bank and parted with its money in discounting the bills drawn by M/s. Shree Ganesh on M/s. S.T.R. Laboratories, Hyderabad. The complainant cannot be accused of any involvement in this alleged conspiracy in the creation of the letter of guarantee.

10. Point No. 3 : It is then contended that the then Branch Manager of the 1st opposite party Bank Mr. Radha Krishna Murthy has played fraud on the Bank and the Bank is not liable therefor. There is no substance in this contention. It has been repeatedly held by Courts in this country that a principal is liable for the fraud of his agent acting within the scope of his authority whether the fraud is committed for the benefit of the principal or that of the agent (Dina Bandhu v. Abdul Latif, 50 Cal. 258). It is immaterial whether the agent is acting within the scope of his express authority or implied authority (Bansilal v. Kabul Chand, ILR (1945) Nagpur 204). Although the particular act which gives the cause of action may not be authorised still, if the act is done in the course of employment which is authorised, then the master is liable for the act of his servant (Citizen’s Life Assurance Company v. Brown, 1904 AC. 423). The former Manager of the 1st opposite party-Bank has issued Exh. A 9 letter of Guarantee in the course of his employment and within the scope of his authority as agent of the Bank and the Bank is therefore liable therefor. It is equally well settled that the principal is liable to the third parties for the fraud, misrepresentation and other misfeasances of his agent in the course of his employment though the principal may not have authorised or known of such misconduct, and he had even expressly forbidden it (Sherjan v. Alimuddin 432 Cal. 511). Where a transaction with an incorporate banking association properly pertains to the business of such an association, neither the abuse or disregard of his authority by its managing officer or agent, nor his fraud or bad faith will be permitted to be shown in defence of such Bank in an action against it by an innocent party, growing out of such transaction. The complainant, who is an innocent party, has acted on the letter of guarantee given by the 1st opposite parties accompanied by Exh. A6 letter and it is not open to the opposite parties to plead in defence that the former agent of the 1st opposite party has played fraud in issuing the said letter of guarantee.

11. It is then urged that the complainant cannot invoke the guarantee without exhausting all the remedies against the drawer and the drawee of the bill of exchange and the complaint is, therefore not maintainable. A contract of guarantee is a contract to perform the promises or discharge liabilities of a third person in She case of its default. The person who gives the guarantee is called 'Surety' and the persons in respect of whose default the guarantee is given is called 'principal debtor' and the person to whom the guarantee is given is called 'creditor'. The 1st opposite party Bank is 'surety', M/s. S.T.R. Laboratories, Hyderabad is the 'principal debtor' and the complainant is the 'creditor'. The legal position is well settled that the liability of the 'surety' arose immediately on the failure of the 'principal debtor' to perform his obligation and there is no condition imposed upon the 'creditor' that he should first proceed and exhaus this remedies against the 'principal debtor' before proceeding against the 'surety'. The liability arises forthwith on the default of the 'principal debtor' and even notice of default is not necessar

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y before the action against the 'surety'. There is, therefore, no warrant for the proposition that the 'surety' can be proceeded against only after exhausting the remedies against the 'principal debtor'. On the other hand, it is firmly established that the creditor is not bound to sue or exhaust his remedies against the principal debtor before suing the surety and a suit is maintainable against the surety though the principal has not been sued. Hence, this complaint filed against the surety Bank is perfectly in order. 12. The failure of the opposite parties to honour the letter of guarantee amounts to grave deficiency in service. This point is fotand in favour of the complainant. 13. Point No. 4 : The complainant is undoubtedly entitled to the guaranteed amount of Rs. 5,50,000/-with interest thereon from 13.8.93. The complaints the as claimed interest at 24%. But we are inclined to grant interest of only 18%. The complainant has claimed a sum of Rs. 5,00,000/- as loss of profit and further a sum of Rs. 15,000/- towards expenses. No evidence has been let in support of the claim for expenses. The complainant must certainly have suffered loss of profit and subjected to much mental pain and agony. We are inclined to grant a sum of Rs. 25,000/- on that score. 5. In the result, we order as follows : - (1) The opposite parties shall pay to the complainant a sum of Rs. 5,50,000/- with interest thereon at 18% from 13.8.93 till payment; (2) The opposite parties shall also pay compensation in the sum of Rs. 25,000/- to the complainant; and (3) The opposite parties shall pay cost of Rs. 2000/- to the complainant. Complaint allowed.
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