STATE BANK OF MYSORE Vs. PUKHRAJMAL SUGARMAL LUNKAD

JUDGEMENT

(1.) THE present appeal is filed by the first defendant against the judgment and decree of the learned single Judge in C. S. No. 260 of 1988 dated 5. 5. 1999 decreeing the suit for a sum of Rs. 10,27,500/- jointly and severally against the two defendants.

(2.) THE plaintiff (Respondent No. 1 in the present apeal) is a financier. Defendant No. 2 (Respondent No. 2 in the present appeal) is the Proprietor of Suriya Movie Unit and Appellant/defendant No. 1 is a Nationalised Bank. The suit has been filed through the power agent. According to the averments in the plaint, the plaintiff was carrying business under the name and style of "lunkad Finance". First defendant, which is one of the subsidiary branches of State Bank of Mysore, had one Branch Office in Madras. Defendant No. 2 approached the plaintiff to advance a sum of Rs. 10 lakhs for the business of Defendant No. 2 as a film producer. "the plaintiff agreed to provide finance subject to the first defendant furnishing a bank guarantee guaranteeing repayment of the amount of Rs. 10 lakhs with interest". Accordingly the bank guarantee dated 4. 4. 1986 was executed by Defendant No. 1 agreeing to pay Rs. 10 lakhs with 16 % interest by invocation of bank guarantee to the plaintiff in the event the Defendant No. 2 failed and neglected to pay the amount. The bank guarantee dated 4. 4. 1986 was to remain in force for one year with effect from the date of the plaintiff extending the loan to Defendant No. 2. On the basis of such bank guarantee, the plaintiff advanced a sum of Rs. 10 lakhs to Defendant No. 2 by cheque dated 4. 4. 1986. Such cheque was realised through Defendant No. 1 bank and credited to the account of Defendant No. 2 in the same bank. The plaintiff intimated to Defendant No. 1 by letter dated 4. 4. 1986 that cheque for Rs. 10 lakhs had been issued in favour of Defendant No. 2 and the Defendant No. 1 by letter dated 11. 4. 1986 specifically confirmed the guarantee. "since the defendant failed to pay the amount, the plaintiff by letter dated 17. 6. 1986 called upon the first defendant to pay the amount due under the Bank guarantee" and reminded Defendant No. 1 by letter dated 21. 6. 1986. However, on 26. 6. 2006, the plaintiff received letter dated 16. 6. 1986 written by the Advocate of Defendant No. 1 intimating that the Manager of the Bank M. Sundaraganapathy had issued bank guarantee dated 4. 4. 1986, which was not evidenced in any of the bank books of accounts maintained at Abrihamapuram Branch, and such Branch Manager had no power or controlling authority and therefore the bank was not liable to pay any amount and the bank guarantee had been brought about fraudulently and in gross violation of the norms and procedure. Thereafter, the plaintiff issued notice dated 17. 7. 1986 indicating that bank guarantee had been confirmed by letter dated 11. 4. 1986, issued by Defendant No. 1, and the bank was not justified in refusing to honour the said bank guarantee. Thereafter, there was further correspondence between the plaintiff and Defendant No. 1 Bank and ultimately the suit was filed directing the defendants jointly and severally to pay Rs. 10,27,500/- and further directing the defendants to pay interest at the rate of 16 % on the sum of Rs. 10 lakhs and for other ancillary reliefs.

(3.) A written statement was filed on behalf of Defendant No. 1. While denying generally the various allegations made, Defendant No. 1 specifically pleaded that the records at Abhiramapuram Branch did not disclose issuance of bank guarantee dated 4. 4. 1986 and ordinarily the bank does not issue financial guarantee in respect of loan transactions between two individuals. There was no application from Defendant No. 2 for furnishing bank guarantee on his behalf. The Manager of the Abhiramapuram Branch had no power or authority to enter into a transaction of bank guarantee for a sum of Rs. 10 lakhs without submitting such proposal and without obtaining sanction of the Board of Directors. It was further indicated:-