PUNJAB AND SINGH BANK Vs. SINGH UNITED ENGINEERING

JUDGEMENT

(1.) Punjab and Sindh Bank, hereinafter described as the plaintiff, has preferred the present suit against the defendants for the recovery of Rs.8,12,727/-.

(2.) The facts alleged are that defendant no.1 (M/s Singh United Engineering) through M S Bakshi approached the plaintiff and requested for credit facility (bank guarantee) to the tune of Rs. 5 lakhs. He agreed to provide margin money for issuing of bank guarantee on their behalf. Plaintiff bank considered the request of defendant no.l and allowed the bank guarantee facility. The bank guarantee facility was enhanced at the request of defendant no.1 from Rs. 5 lakh to Rs. 10 lakhs. As security of hypothecation as aforesaid and guarantee of defendant no.4 continued to subsist. Defendants 2 and 3 (S S Bakshi and B M Mehta) besides M S Bakshi personally also guaranteed repayment by a letter of guarantee. Subsequently, defendant no.1 was converted into a partnership firm with M S Bakshi and defendants 2 and 3 as its partners. The partners of defendant no.1 requested that bank should guarantee the earlier facility. The plaintiff bank acceded to the said request.

(3.) The plaintiff bank issued at the instance of defendant no.1 and its partners the said facility and accordingly defendant no.1 through its partners opened a current account with the plaintiff bank. On 5/01/1987 the said current account showed a credit balance of Rs.902.17. The bank guarantee had been invoked and encashed by the beneficiaries and payment was made to the beneficiaries by debiting the above current account. The defendant no.1 and the partners undertook to place funds at the disposal of the plaintiff bank in case any of the bank guarantees were invoked by the beneficiaries and encashment thereof was sought. However, defendants failed to place funds at the disposal of the bank and payments with respect to bank guarantees detailed in Annexure P1 were made after appropriating or adjusting margin money and by debiting the current account maintained in the name of defendant no.1. It resulted in overdraft.