JUDGMENT
A. Ramamurthi, J.
1. The unsuccessful defendant in both the Courts below is the appellant.
2. The case in brief is as follows: The plaintiff filed a suit for recovery of sum of Rs. 12,700/-from the defendant. The plaintiff is a merchant in Iron and Steel. The Tamil Nadu Water Supply and Drainage Board (hereinafter referred as ‘Board’) issued a tender notice inviting tenders for the supply and delivery of various types of materials. The stipulation in the tender notice was that the tenderers should provide a sum of Rs. 10,000/- as Earnest Money Deposit. The plaintiff tendered his offers. The Tender notice also stipulated that on intimation of acceptance of the offer, the tenderer should remit security deposit, a sum of Rs. 50,000/- including the Earnest Money Deposit amount demanded and enter into an agreement as specified by the Board and failure to comply with the above will result in the forfeiture of the Earnest Money Deposit of the tenderer. A further clause was also provided that if the contractor failed in the performance of the contract, the Earnest Money Deposit and or security deposit will be forfeited to the Board. The plaintiff sent a bank guarantee dated 25-3-1980 instead of deposit of Rs. 10,000/- and intimated the Board that plaintiffs guarantee will be valid only for 60 days from the date of opening the tender which according to the terms of the tender was to be on 25-3-1980. The plaintiff
further stated that if the tender is accepted as offered the guarantee would be converted into a cash deposit in favour of the Board. The Board made out further condition and the plaintiff was asked on 13-5-1980 to sign the supply order sent in duplicate to the plaintiff in taken of its agreement. The plaintiff was not amenable to this and wrote a letter to the Board on 1/-5-1980 seeking for further amendment. On 16-5-1980 the Board called upon the plaintiff by a letter to extend the validity of the bank guarantee by a further period of 6 months, as the bank guarantee already forwarded by the plaintiff was to expire on 25-5-1980. Such amendment proposed by the Board were not acceptable, the plaintiff did not enter into the contract with the Board,
3. The plaintiff wrote to the defendant that as the Bank guarantee had expired on 25-5-1980, the bank should not entertain any claim on the guarantee by the Board. The defendant Bank sent a reply directing the plaintiff to settle the disputes with the Board, On 2-6-1980 the plaintiff wrote to the defendant that it had no dispute with the Board and instructed the defendant-Bank not to concede to the Board if it invokes the guarantee as the guarantee had expired. On 15-11-1980, after the expiry of three months, the defendant Bank paid a sum of Rs. 10,000/- to the Board. The defendant informed the plaintiff that it had paid and reimbursed itself from the fixed deposit of the plaintiff with the defendant for Rs. 12,600/-and had credited the balance of Rs. 2624-25 to the plaintiff’s current account with the defendant. The defendant had acted in excess of its authority as a Banker and contrary to the instructions of the plaintiff and against the terms of the Bank-guarantee. The plaintiff is also entitled to claim interest at the rate of 18 per cent per annum, and hence, the suit.
4. The defendant Bank resisted the suit admitting that the bank has given a guarantee in favour of the Board agreeing to pay the amount guaranteed, namely, Rs. 10,000/- on demand by the Board. Under that guarantee as per the request of the plaintiff, the defendant has agreed that on demand by the Board the defendant will pay the said sum without any demur and irrespective of any dispute or difference of opinion between the plaintiff and the Board. The Bank having executed a guarantee as per the request of the plaintiff is bound to honour any valid demand made by the Board within the guarantee period as contemplated in the eye of law. The plaintiff is estopped from questioning the action of the defendant in making payment lo the beneficiaries under the guarantee. The guarantee has been validly invoked by the Board. The disputes if any is admittedly between the plaintiff and the Board is a matter to be settled between them. The suit is also bad for non-joinder of the Board. The plaintiff is not entitled lo claim any amount.
5. The trial Court framed two issues and two other additional issues and on behalf the plaintiff Exs. A1 to A-30 were marked and P.W.1 was examined. On the side of the defendant Exs. B. 1 to B.18 were marked and D.W.1 was examined. The trial Court decreed the suit and aggrieved against this the defendant preferred A.S.No. 57 of 1985 on the file of VIII Assistant City Civil Court, Madras who in turn dismissed the appeal Aggrieved against this the defendant has come forward with the present second Appeal.
6. At the time of admission of the second appeal, the following substantial question of law was framed ;
“Whether any letter of enforcement of guarantee enforcing the Bank guarantee posted before the date of expiry and received the next day and the last date contemplated for enforcement being a Sundry, is one valid in the eye of law?
7. The points that arise for consideration are :
(1) Whether the plaintiff is entitled to claim the amount from the defendant Bank?
(2) Whether the payment made by the defendant Bank to the Board is proper and correct?
(3) To what relief?
8. There is no dispute that the plaintiff company, dealing in Iron and Steel agreed to supply the materials to the Board on certain conditions. It is also admitted that the plaintiff sent a bank guarantee dated 25-3-1980 instead of deposit of Rs. 10,000/- and intimated the Board that the guarantee will be valid for 60 days, ending with 25-5-1980. The Board made out further condition and for which the plaintiff was not agreeable. On 16-5-1980 the Board called upon the plaintiff by a letter to extend the validity of the bank guarantee for a further period of six months. But on 26-5-1980 the plaintiff wrote a letter to the Bank that as the bank guarantee has expired on
25-5-1980 the bank should not entertain any claim on the guarantee by the Board, But, in spite of this, the defendant Bank is said to have paid the amount to the Board. According to the plaintiff, the Bank had paid the amount to the Board after the expiry of the guarantee period, the suit has been filed to recover the amount from the bank. Admittedly, the beneficiary, namely the Board has not been made as a party to the suit.
9. The short question that has to the decided is whether the demand had been made by the Board invoking the bank guarantee within the period or demand was made after the expiry of the period and as such, if the demand is made beyond the expiry period, the defendant Bank can be called upon to pay the amount to the plaintiff?
10. Learned counsel for the defendant-Bank contended that both the Courts below have failed to see that on 25-5-1980 is a Sunday and, therefore, notice of demand posted prior and received on 26-5-1980 is a valid demand made by the Board, Both the Courts below also failed to appreciate the various decisions cited by the defendant. The dispute between the plaintiff and the Board is a matter to be settled among themselves and the plaintiff cannot direct the defend ant-Bank not to enforce the Bank guarantee within the said period. The last dated 25-5-1980 even though a Sunday will not be a criteria, as admittedly the letter has been posted as early as 16-5-1980 and was received on 26-5-1980 as 25-5-1980 happened to be a holiday. The letter of enforcement of guarantee should relate back to the date on which it has been posted and not on the date it is received.
11. There is no dispute that the plaintiff gave a bank guarantee to the extent of Rs. 10,000/- and the same is marked as Ex. A-2 in the case. The main contention put forward by learned counsel for the appellant is that the invoking of Bank guarantee was made on 16-5-1980 that is long prior to the expiry date and as such, the bank has no other option except to pay the amount to the beneficiary, namely the Board. It is further stated that the Bank is not in any way connected with the dispute between the plaintiff and the Board. The relevant clause namely. Clause 2 under Ex. A-2 is extracted below for appreciating the contentions of the parties.
“We, Dena Bank, Sembudoss Street, Madras
600 001, do hereby undertake to pay the amounts due and payable under this guarantee without any demur, merely on a demand from the Board stating that the amount claimed is due by way of loss or damage caused to or suffered or would be caused to or suffered by the Board by reason of any breach of the said contractor(s) of any of the terms and conditions contained in the said agreement or by reasons of the contractor(s) failure to perform the said agreement.”
Any such payment made on the Bank shall be conclusive as regards the amount any payable by the Bank under this guarantee. However, our liability under the guarantee shall be restricted to the amount not exceeding Rs. 10,000/-.”
12. The aforesaid clause would go a long way to show that mere demand made by the Board is sufficient enough to enable the Bank to pay the amount and there is nothing in the agreement that the dispute between the plaintiff and the Board had to be settled and thereafter only the Bank has to pay the amount. Furthermore, the dispute between the plaintiff and the Board has to be solved among themselves and the Bank is not bound to wait till the dispute is solved. More over there is no dispute that the Board had sent letter dated 16-5-1980 long prior to the expiry of the Bank guarantee and called upon the bank authorities to pay the amount. No doubt this communication of demand was received by the bank only on 26-5-1980 since 25-5-1980 happened to be a holiday. Both the courts below negatived the contention of the defendant and accepted the plea of the plaintiff on the ground that payment has been made after the expiry of the period. I am of the view that both the Courts below have not properly appreciated the position of law. There was erroneous application of law so far as the payment is concerned. When the demand has been made by the Board as early as 16-5-1980 and if there is some delay in receiving the same by the bank it is not sufficient to reject the claim of the Board. Moreover the Court has to see as to whether the demand was made prior to the expiry of the period or thereafter. The available materials filed in the case only indicated that demand was made by the Board long prior to the expiry and because of delay in receiving the name by the Bank it cannot be said that payment made by the Bank to the beneficiary is improper.
13. Learned counsel for the appellant relied
on a Bench Decision of this Court reported in Arul Latha CLD A. (Minor) v. State of Tamil Nadu, (1994) 2 Mad LW 686 wherein it is observed that sending the application form by registered post by the candidate on 22nd June, is held sufficient compliance, though it reached the addressee on 29th June, — rejection of the application, as late, was improper and the post office acted as agent of respondents when it received the application of petitioner on 22-6-1994.
This analogy can be applicable to the facts of the case on hand because the Post Office acted as agent of the beneficiary and only the date of posting has to be taken into consideration in order to find out whether the invoking of the bank guarantee by the beneficiary is done within the period allowed under law or not.
14. Learned counsel for the appellant also relied upon another decision of the Apex Court in C.F. Angadi v. Y.S. Hirannayya, for the proposition that in a compromise decree if a particular person was to deposit certain amount in Court by certain date, and if the last date fixed by the decree being holiday, and a person deposited the amount on the next date, it was held that the deposit was in substance and in effect a deposit made in terms of the compromise decree and the acceptance of the deposit by the executing Court does not amount to variation of the terms of the decree. This principle is also applicable to the case on hands.
15. Reliance was also placed on another decision reported in Banerjee & Banerjee v. Hindustan Steel Works Construction Limited, wherein it is observed that bank guarantee was an independent transaction irrespective of other claims and disputes between the parties to the main contract pursuant to which the Bank guarantee was given. The counsel for the beneficiary further submitted that the learned trial Judge had exercised jurisdiction not vested in him by law in passing the impugned order of injunction inasmuch as there was no allegation of fraud against his client. This principle also can be applicable to the case on hand. It is further observed that if the guarantee is enforced by fraud, misrepresentation, deliberate suppression of material facts, or the like, that will give rise to a special equity in favour of the contractor who will then have the right to stop its enforcement by obtaining an order from Court.
But for obtaining an order from Court, a very strong prima facie arguable case in support of the contention that there is a fraud or special equity, must be made out. The Courts will not interfere with the enforcement of unconditional or conditional Bank guarantees or Letters of Credit on the mere allegation of fraud or special equity.
16. Reliance was also placed upon a decision in G.S. Atwal & Co. (Engineers) Private Limited v. N.P.C. Limited, for the proposition that for a bank guarantee is an independent contract and has to be worked out independently of disputes arising out of work agreement between the parties and the Courts will not interfere with enforcement of bank guarantee on mere allegation of fraud without any prima facie proof.
17. Reliance was placed in another decision of this Court reported in K. Soosalrathnam v. Divisional Engineers N.H.C. Thirunelveli, for the proposition that in a tender schedule last dale for obtaining the tender declared to be holiday, subsequently the last date gets extended to next working day in view of the general principles under Section 10 of the General Clauses Act.
18. The aforesaid principles enunciated in the decisions clearly indicated that if a particular day happened to be a holiday and if it was received on the next working day, it can be acted upon. However, in the present case is concerned, there is positive material to come to the conclusion that the Board had invoked the Bank guarantee and sent communication even on 16-4-1980 but there is some delay in receiving the same by the Bank. As adverted to receiving it is immaterial because the Bank guarantee was invoked even prior to the expiry date. Furthermore, no special equity has been alleged by the plaintiff in this case. Apart from that in accordance with Clause 2 of the agreement Ex. A-2, whenever a demand has been made, by the beneficiary, namely, the Board, the only course open to the Bank is to enforce the bank guarantee and pay the amount and it is not necessary for the bank to solve the dispute between the plaintiff and the Board. In the circumstances, I am of the view that the entire approach made by the Courts below that the letter was received by the respondent on 26-5-1980 and therefore, payment made is not proper and correct, is not a correct approach. Considering the aforesaid legal position, it is clear that there was erroneous application of law and because of this there was miscarriage of justice. The finding is also perverse and is liable to be set aside.
19. For the reasons stated above, the second appeal is allowed and the judgments and decrees of the Courts below are set aside. The suit is dismissed. However, in the peculiar circumstances of the case, there will be no order as to costs.
It is represented by the learned counsel for the appellant at the time of pronouncement of the order that in the stay application already an order was passed by this Court on 29-4-1987 and by which the appellant had deposited the entire amount, wherein the respondent was permitted the withdraw 50% of the amount without security and 50% on furnishing security. In view of the order, the appellant is entitled to withdraw the amount if the respondent has not withdrawn the same.