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apex court reassessed the entire evidence on bank guarantee and set aside the High court judgement and restore the lower court judgment as correct= This is a letter written by defendant 1 to the plaintiff-bank in response to the demand notice dated 23/6/1984 issued to defendant 1. DW-1 in his evidence has admitted that the said letter (Ex-A6) was written by defendant 1.

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IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4446 OF 2006

 
PUNJAB & SIND BANK … APPELLANT
Vs.
M/S. C.S. COMPANY & ORS. … RESPONDENTS

 
JUDGMENT

 
(SMT.) RANJANA PRAKASH DESAI, J.

 
1. The appellant – Punjab & Sind Bank (for short, “the
plaintiff-bank”) has challenged in this appeal, judgment
and order dated 4/6/2003 passed by the Kerala High Court
whereby the appeal filed by original defendants 1, 2, 4, 7
and 8 challenging the judgment and decree of the Ist
Additional Sub-Judge, Ernakulam, decreeing the plaintiff-
bank’s suit for realization of money was allowed.
2

2. The title of the proceedings underwent changes during
the course of time on account of death of some of the
partners and/or guarantors and also on account of orders
passed by the courts. There are also certain typographical
errors in the amended cause title of the appeal. It is not
necessary for us to give details of various changes which
were brought about in the title. Suffice it to say that
respondent 1 herein is the partnership firm i.e. original
defendant 1 and the other respondents are either its
partners and/or heirs of the partners or guarantors and/or
heirs of the guarantors. By order dated 29/1/2003, the High
Court has added the Kerala State Electricity Board (for short,
“KSEB”) as respondent 6 and it is respondent 10 herein.
We shall, however, for the sake of convenience refer to the
parties as per their status in the trial court.

3. At the outset, we must make it clear that we have
reached a conclusion that the defendants have taken a
dishonest stand to evade the liability to make payment to
3

the plaintiff-bank. At the cost of making this judgment
prolix, we need to make a detailed reference to the
pleadings of the parties because our conclusion, to a large
extent, is substantiated by the pleadings. The facts, as
disclosed by the plaintiff-bank in the plaint, are as under:

a) Defendant 1 is a partnership firm engaged in the
business of engineering works and defendants 2, 3
and 4 are its partners, who undertook the
execution of certain civil engineering works
awarded to them by KSEB. As per the terms of
the tender, defendants 1 to 4 had to furnish Bank
Guarantees to KSEB. They approached the
plaintiff-bank for issuance of Bank Guarantee for
an aggregate amount of Rs.20 lakhs on their
behalf in favour of KSEB. The plaintiff-bank agreed
to do so on certain terms and conditions.
Defendants 1 to 4 accepted the said conditions.
The plaintiff-bank on 11/5/1983 executed and
4

offered a Bank Guarantee on behalf of defendant 1
to KSEB for Rs.1 lakh as and by way of security
deposit as per the terms of the tender.
Thereafter, the plaintiff-bank on 24/6/1983
further executed and offered on behalf of
defendant 1 another Bank Guarantee of Rs.19
lakhs to enable defendants 1 to 4 to avail of the
amount of Rs.19 lakhs as mobilization advance
from KSEB for the purpose of execution of the
work undertaken by defendant 1.

b) According to the terms of the Bank Guarantee
dated 11/5/1983, the amount of Bank Guarantee
not exceeding Rs.1 lakh was payable to KSEB on
demand at any time during its currency without
any demur. In consideration of the
aforementioned Bank Guarantee, defendant 1 by
its partners i.e. defendants 2, 3 and 4 agreed and
undertook to indemnify the plaintiff-bank by a
5

Deed of Indemnity and Guarantee dated
11/5/1983 together with all costs and charges
which may be incurred or become payable by the
plaintiff-bank in connection with the Guarantee
given to KSEB. As further security, defendants 2,
3, 4, 5, 6, 7 and 8 also undertook and agreed to
indemnify the plaintiff-bank from and against all
claims, demands, losses, charges and expenses
which the plaintiff-bank may sustain in respect of
any liability incurred by it and also guaranteed to
make payment of the amount together with
interest, costs, commission and charges payable
thereon by the plaintiff-bank. As security for the
aforementioned Bank Guarantee of Rs.1 lakh,
defendant 2 deposited the title deeds of his
property situated in Kottayam Village on
11/5/1983. He confirmed the deposit of title
deeds by memorandum of deposit of title deeds.
Defendant 5 as security for the aforementioned
6

Bank Guarantee deposited the title deeds of her
properties comprised in Survey No.10/6/2 situated
in Kottayam Village with intent to create a
security thereon by way of mortgage in favour of
the plaintiff-bank on 11/5/1983, at the plaintiff-
bank’s office at M.G. Road, Ernakulam in the City
of Kochin. Defendant 5 also confirmed the deposit
of title deeds by Memorandum of deposit of title
deeds executed on 11/5/1983. Defendant 6
through his power of attorney holder – defendant
4, deposited the title deeds of his property
comprised in Survey No.983/5 of Ernakulam
Village with intent to create a security by way of
mortgage in favour of the plaintiff-bank on behalf
of defendant 1. He executed a Memorandum
confirming the said deposit of title deeds through
his agent and power of attorney holder.
Defendants 7 and 8 also deposited with the
plaintiff-bank on 11/5/1983 at their Branch at
7

M.G. Road, Ernakulam the title deeds of their
properties comprised in Survey No.51/9B of
Vijayapuram Village in Kottayam Taluka with
intent to create a security thereon by way of
mortgage in favour of the plaintiff-bank.
Defendants 7 and 8 also confirmed the said
deposit of title deeds of their properties by
executing Memoranda of deposit of title deeds.
Defendant 4 charged and assigned the fixed
deposit receipt for the sum of Rs.25,000/- in
favour of the plaintiff-bank as per the security for
the said amount of the Guarantee.

c) In the trial court the plaintiff bank produced the
Deed of Indemnity and Guarantee executed by
defendants 2, 3 and 4 with a copy of the Bank
Guarantee for Rs.1 lakh, the Deed of Indemnity
and Guarantee executed by defendants 2, 3, 4, 5,
6, 7 and 8 as further security, title deeds
8

deposited by defendant 2 as security by way of
equitable mortgage in favour of the plantiff-bank
in respect of Bank Guarantee of Rs.1 lakh,
Memorandum dated 11/5/1983 executed by
defendant 2 confirming the deposit of the said title
deeds, title deeds deposited by defendant 5, the
Memorandum dated 11/5/1983 executed by
defendant 5 confirming deposit of title deeds and
Memoranda of deposit of title deeds executed by
defendant 6 through his Power of Attorney holder
defendant 4 and by defendants 7 & 8 confirming
the deposit of title deeds of their properties.

d) Defendant 1 wanted to avail of a mobilization
advance of Rs.19 lakhs from KSEB. KSEB, as
security for such payment of mobilization
advance, required defendant 1 to furnish Bank
Guarantee for the amount of Rs.19 lakhs.
Defendant 1 requested the plaintiff-bank to
9

furnish the Bank Guarantee in favour of KSEB for
the amount of Rs.19 lakhs. The plaintiff-bank
agreed to furnish the said Bank Guarantee on
certain conditions which defendant 1 accepted.
Accordingly, the plaintiff-bank executed and
offered the Bank Guarantee on behalf of
defendant 1 to KSEB for the sum of Rs.19 lakhs.
According to the said Bank Guarantee, the sum of
Rs.19 lakhs was payable to KSEB on demand by
the Chief Engineer (Civil) General at any time,
during the currency including the period covered
by its extension without any demur and on a mere
demand. The Guarantor had agreed that such
demand made on the plaintiff-bank shall be
conclusive as regards the amounts due and
payable under the Bank Guarantee and the
Guarantor had to make the payment without any
demur. As consideration for giving the said Bank
Guarantee, defendant 1 by its partners viz.
10

defendants 2, 3 and 4 undertook to indemnify the
plaintiff-bank by a Deed of Indemnity and
Guarantee from all claims, amounts, charges,
damages and expenses which may be caused or
sustained by the plaintiff-bank or for which it may
become liable by reason of having given the said
Bank Guarantee. It was also specifically agreed
that in connection with the said Guarantee, the
plaintiff-bank without going into the question
whether the terms of the agreement or any
obligations with the Chief Engineer (Civil) General
or KSEB had been fulfilled or not on notice of
demand from the beneficiary of the Guarantee,
was entitled in its own absolute discretion to make
payment of the whole or part of the amount of the
Guarantee as may be called upon to do so by
KSEB without any reference to the defendants and
that the defendants shall not have any right to
question in any way whatsoever the making of
11

such payment by the plaintiff-bank. As further
security, defendants 2 to 8 also undertook to
indemnify the plaintiff-bank from and against all
claims, demands, loss, charges and expenses
which the plaintiff-bank may sustain or incur in
respect of any liability incurred or might be
incurred and guaranteed to make payment on
demand of the amount of the Guarantee together
with interest, commission, costs and charges
payable thereon by the plaintiff-bank. As further
security for the aforementioned Bank Guarantee of
Rs.19 lakhs, defendants 2, 5, 6, 7 and 8 extended
and created the mortgage by deposit of title deeds
of their respective properties which were already
charged and mortgaged in favour of the plaintiff-
bank to cover and apply to the pecuniary liability
in respect of the amount of Rs.19 lakhs together
with costs, charges, interests, etc. to the plaintiff-
bank. The said defendants further declared at
12

their personal visit to the plaintiff-bank’s branch
on 24/6/1983 that the mortgage by deposit of title
deeds already created on their respective
properties on 11/5/1983 shall also apply and
stand extended to and cover the further Bank
Guarantee of Rs.19 lakhs also. The said
defendants confirmed by Memoranda dated
24/6/1983 the deposit of the title deeds creating
the mortgage of their respective properties in
favour of the plaintiff-bank and, thereafter,
applying and extending the security by way of
mortgage of deposit of title deeds for the
Guarantee of Rs.19 lakhs. Defendant 1 charged
and assigned the fixed deposits for the sum of
Rs.4,75,000/- which amount was deposited with
the plaintiff-bank as security for the
aforementioned facility or liability incurred by the
plaintiff-bank.
13

e) The plaintiff-bank produced in the trial court the
Deed of Indemnity and Guarantee executed by
defendants 2, 3 and 4 together with a copy of
Bank Guarantee of Rs.19 Lakhs, the Deed of
Indemnity and Guarantee executed by defendants
2, 3, 4, 5, 6, 7 & 8 as further security and the
Memoranda dated 24/6/1983 of deposit of title
deeds of various properties executed by the
defendants confirming deposit of title deeds of
their properties. Defendant 1 availed of Rs.19
lakhs as mobilization advance from the KSEB on
the strength of the second Guarantee mentioned
hereinabove.

f) KSEB by its letter dated 19/6/1984 called upon
the plaintiff-bank under Clause 5 of Deed of
Guarantee to pay a sum of Rs.19 lakhs being the
full amount of the said Guarantee to KSEB. The
plaintiff-bank informed defendant 1 by telephone,
14

telegram and by letter about the invoking of the
Bank Guarantee by KSEB and called upon
defendant 1 to remit Rs.19 lakhs with interest at
18.5% per annum immediately in terms of counter
Guarantee executed by them to enable the
plaintiff-bank to make payment to KSEB. KSEB
insisted upon compliance with its demand in
accordance with Clause 5 of the Bank Guarantee.
The plaintiff-bank was bound to pay the sum of
Rs.19 lakhs being the amount of the second Bank
Guarantee and accordingly the plaintiff-bank paid
the said amount by way of Demand Draft dated
23/6/1984 to KSEB.

g) The plaintiff-bank called upon the defendants to
pay the amount of the Bank Guarantee of Rs.19
lakhs. The defendants gave assurances that the
amount would be paid but did not make any
payment. The plaintiff-bank, therefore,
15

appropriated a sum of Rs.4,56,962.80 being the
balance amount of the fixed deposit after
adjusting the over paid interest on the fixed
deposit. After appropriating and adjusting the
said amount, a sum of Rs.14,43,037.92 together
with interest at 20% per annum remained due and
payable by the defendants in respect of the
second Bank Guarantee as on 24/5/1986 being
the date on which the suit was filed by the
plaintiff-bank.

h) Defendant 1 requested the plaintiff-bank to extend
the Bank Guarantee in favour of KSEB for Rs.1
lakh executed on 11/5/1983 for a further period of
one year from 11/5/1984 till 11/5/1985. The
plaintiff-bank, accordingly, extended the said Bank
Guarantee upto 11/5/1985. It appears that the
KSEB terminated the contract given to defendant
1 on account of breach of the terms and
16

conditions of the contract. KSEB by its letter
dated 15/10/1984 called upon the plaintiff-bank to
pay a sum of Rs.1 lakh being the amount of the
first Bank Guarantee executed by the plaintiff-
bank on behalf of defendant 1 to KSEB. The
plaintiff-bank, in turn, intimated to defendant 1
and called upon them to remit the said amount.
However, the defendants did not make the
payment. The plaintiff-bank had to pay to KSEB a
sum of Rs.1 lakh on 5/8/1985 by Demand Draft as
per the terms of the Bank Guarantee. Thus, in all,
the plaintiff-bank had to pay Rs.20 lakhs in
aggregate under two Bank Guarantees furnished
on behalf of defendant 1 to KSEB. Since despite
letters, notices and repeated requests, the
defendants did not pay the balance amount, the
plaintiff-bank filed a suit in the Court of 1st
Additional Sub-Judge at Ernakulam for an amount
of Rs.21,54,464.20 with future interest from
17

1/5/1986 at 20% per annum.

4. In their joint written statement, defendants 1, 2 and 4
did not deny the issuance of Bank Guarantees by the
plaintiff-bank, but denied the dates thereof. They put the
plaintiff-bank to proof regarding the dates of the said
Guarantees as, according to them, the dates were within the
knowledge of the plaintiff-bank only. They admitted that for
the purpose of Guarantees furnished by the plaintiff-bank on
behalf of defendant 1-firm, defendant 1-firm deposited 25%
of the amount in cash with the plaintiff-bank. They,
however, denied that any mortgage was created in favour of
the plaintiff-bank by any one of the defendants. They
denied the execution of documents referred to in the plaint.
They did not admit the Deed of Indemnity and Guarantee
dated 11/5/1983 but stated that the Managing Partner of
defendant 1 had given a power of attorney in favour of the
plaintiff-bank authorizing the plaintiff-bank to adjust 5% of
the bill amount due to defendant 1 from KSEB through the
18

plaintiff-bank and, the amount so withheld was allowed to be
held as security by defendant 1 in case KSEB invoked the
Bank Guarantee. They denied that defendants 2 to 8 went
to the plaintiff-bank on 11/5/1983 to deposit the title deeds
of their properties. It was, however, admitted that
defendant 4 had by his letter dated 4/4/1983 forwarded to
the plaintiff-bank title deeds of the properties described in
the Schedule for the purpose of scrutiny. They admitted
that on the insistence of KSEB to furnish the Bank
Guarantee, the plaintiff-bank was requested to furnish Bank
Guarantee of Rs.19 lakhs in favour of KSEB. They put the
plaintiff-bank to proof regarding the terms and conditions of
the said Bank Guarantee. Securities and Deed of
Indemnities were not admitted. They denied that any of the
defendants went to the plaintiff-bank on 24/6/1983 to make
any declaration. They admitted the assignment of fixed
deposit of a sum of Rs.4,75,000/-. They admitted that
mobilization advance of Rs.19 lakhs was availed of by
defendant 1. They, however, stated that it was not availed
19

of on the strength of Bank Guarantee but the basis thereof
was supplementary agreement executed between KSEB and
defendant 1 in which, there was no stipulation to furnish any
Bank Guarantee. They put the plaintiff-bank to proof
regarding the amounts which are said to have been paid by
it to KSEB. They denied their liability to pay the amount to
KSEB since, according to them, the invocation of Bank
Guarantee and the alleged payment made by the plaintiff-
bank was not done in terms of the Guarantee and also
because according to them KSEB had illegally terminated the
contract. They contended that the appropriation of
Rs.4,56,962.80 is illegal and the plaintiff-bank had no right
to reduce the rate of interest to 5% on the amount
deposited by defendant 1. They denied that the plaintiff-
bank had extended the Bank Guarantee of Rs.1 lakh for a
further period of one year in favour of KSEB. They
contended that defendant 1 had already filed a suit for
recovery of an amount of Rs.19 lakhs and interest thereon
against the plaintiff-bank for illegal reversal / cancellation of
20

entry of the amount which was already credited in the
account of defendant 1. According to these defendants, the
story regarding countermanding of the cheque was created
for the purpose of escaping the liability to pay the amount to
defendant 1.

5. Defendants 6 to 8 filed joint written statement
contending that they are not partners of defendant 1-firm
and they are not concerned with the Bank Guarantees.
They denied that they had created equitable mortgage in
respect of their properties in favour of the plaintiff-bank.
They denied the execution of Deed of Indemnity and
Guarantee dated 11/5/1983 and their alleged visit to the
plaintiff-bank on 11/5/1983. They contended that defendant
4 had forwarded the title deeds of their properties to the
plaintiff-bank only for scrutiny. They contended that the
plaintiff-bank had taken blank signed papers from them on
or about 11/5/1983 when the first Bank Guarantee for Rs.1
lakh was issued in favour of KSEB and these signed blank
21

papers were utilized for creating equitable mortgage,
indemnity, guarantee and other documents. According to
these defendants, the said documents are not genuine but
are fabricated subsequently on the blank signed papers
obtained from them.

6. Though initially, defendants 1, 2 and 4 did not allege
that the plaintiff-bank had fabricated any documents they
subsequently amended their written statement and
contended that the plaintiff-bank had taken blank signed
papers from them on 11/5/1983 when the first Bank
Guarantee for a sum of Rs.1 lakh was issued in favour of
KSEB. These papers were used for the purposes of creating
documents in favour of the plaintiff-bank. They contended
that all the documents like counter guarantees, confirmation
of deposit of title deeds, etc. more particularly described in
paragraph 2 of the plaint were fabricated by the plaintiff-
bank by utilizing some of the said signed blank papers and,
therefore, they are not binding on the defendants.
22

7. By judgment and order dated 1/1/1991, the trial court
decreed the suit. It directed the defendants to pay
Rs.19,00,000/- with interest at the rate of 18.5% per annum
from 23/6/1984 till date of the suit with future interest on
Rs.14,43,037.20 (Rs.19,00,000/- minus Rs.4,56,962.80
adjusted by the plaintiff-bank) at the rate of 18.5% per
annum from the date of suit till realization. The trial court
further directed the defendants to pay to the plaintiff-bank
Rs.1,00,000/- with interest at the rate of 18.5% per annum
from 15/10/1984 till realization. The trial court held that
the plaintiff-bank is entitled to realize the above amounts
and costs by sale of the properties shown in the Schedule to
the plaint and directed that, in case, the plaintiff-bank is
unable to realize the full amounts due to it by sale of the
hypothecated properties, the plaintiff-bank will have the
right to proceed against defendants 2 to 4 personally and
against the assets of defendants 1 to 4 to realize the
balance amounts due to it.
23

8. Being aggrieved by the said decree, defendants 1, 2, 4,
7 and 8 preferred an appeal in the High Court. By the
impugned order, the High Court allowed the appeal. The
High Court, inter alia, held that since the originals of the
Bank Guarantees were not produced by the plaintiff-bank,
the plaintiff-bank cannot successfully lay its claim on the
said two Bank Guarantees. The plaintiff-bank has
challenged the said judgment and order in this appeal.

9. We have heard learned counsel for the parties, at some
length. We have also carefully perused the written
submissions filed by them. Counsel for the plaintiff-bank
submitted that the High Court wrongly reversed the decree
passed by the trial court because the originals of the Bank
Guarantees were not produced. The High Court overlooked
several mterial documents produced by the plaintiff-bank
and the evidence of PW-2 and PW-3, the officials of KSEB,
who have deposed about the Bank Guarantees and their
24

invocation. Pertinently, there is no denial of the evidence
given by these witnesses. Counter Guarantees executed by
the defendants and the Confirmation of deposit of title deeds
by the defendants are a pointer to the genuineness of the
case of the plaintiff-bank. The story that the plaintiff-bank
fabricated documents on blank papers signed by the
defendants is totally unpalatable. Counsel submitted that the
High Court has misconstrued the provisions of the Evidence
Act. Counsel submitted that in the circumstances, the
impugned judgment and order needs to be set aside and the
decree of the trial court needs to be restored.

10. Counsel for the defendants have reiterated the stand
taken by their respective clients in their written statements,
which we have extensively quoted hereinabove. They have
banked on the fact that the originals of the Bank Guarantees
are not produced. Relying on J. Yashoda v. K. Shobha
Ra
ni1
and Roman Catholic Mission v. State of

 
1 2007 (5) SCC 730
25

Ma
dras2
, it is contended that if the original of a document is
not available, then secondary evidence must be led by laying
down foundation for leading secondary evidence in terms of
Section 65 of the Evidence Act which the plaintiff-bank has
not done in this case. Counsel contended that in any case,
even the photocopy of Bank Guarantee dated 11/5/1983
(Ex-A19) and Bank Guarantee dated 24/6/1983 appended to
the Counter-Guarantee of the same date (Ex-A16) are
incomplete and, therefore, they cannot be considered as
secondary evidence. Drawing our attention to Section 91 of
the Evidence Act, counsel submitted that in the
circumstances, no other evidence including the statement of
witnesses can be used by the plaintiff-bank to prove the
execution of the Bank Guarantees. Counsel submitted that
it is not stated in the plaint in whose possession the original
documents were and, hence, there is violation of the
procedure prescribed under Order VII Rule 14 of the Code of
Civil Procedure. Relying on Hindustan Construction Co.

 
2 AIR 1966 SC 1457
26

Ltd.
v. State of Bihar & Ors.3
, counsel submitted that
invocation of Bank Guarantees is illegal because the Bank
Guarantees can be invoked only by the person named
therein. In this case, according to the defendants, the Bank
Guarantees are invoked by the Secretary, KSEB when, in
fact, they should have been invoked by the Chief Engineer
(Civil), General, who is named in the Bank Guarantees.
Counsel submitted that whereas in the plaint, it is submitted
that the Bank Guarantees were invoked by Secretary, KSEB,
reliance is placed on Ex-A82 and Ex-A3 which are letters
dated 14/11/1983 and 9/5/1984 respectively written by the
Chief Engineer allegedly invoking the Bank Guarantees.
Counsel submitted that since these letters are not referred
to in the plaint, they cannot be relied upon. Relying on
State
of Maharashtra v. Dr. M.N. Kaul4
, counsel
submitted that Bank Guarantee (Ex-A19) dated 11/5/1983
was not enforceable as it was invoked after it had expired.
Counsel relied on Delhi Development Authority v.

3 1999 (8) SCC 436

4 AIR 1967 SC 1634
27

Skipper
Construction Co. (P) Ltd. & Anr.5
, where in the
context of issuance of Bank Guarantees, this court directed
inquiry to ascertain loss suffered by the public sector banks
on account of malfeasance and misfeasance of their officials.

11. Counsel submitted that the Counter Guarantees,
Indemnity Bonds, Confirmation Letters and Memorandum of
deposit of title deeds on which reliance is placed are of no
use to the plaintiff-bank because they are not complete
documents. Therefore, they do not prove creation of
equitable mortgage by deposit of title deeds. Counsel
submitted that it is alleged that defendant 9 had, through
power of attorney holder – defendant 6, created equitable
mortgage of his property. This is, however, incorrect
inasmuch as the power of attorney dated 21/4/1983 clearly
shows that it was given for availing housing loan and not for
depositing the title deeds in support of the Bank Guarantee.
Relying on Syed
Abdul Khader v. Rami Reddy6
, it was

5 2003 (1) SCC 547

6 1979 (2) SCC 601
28

submitted that the power of attorney has to be given strict
interpretation. In short, counsel contended that no
interference is necessary with the impugned order.

12. The High Court has non-suited the plaintiff-bank
primarily on the ground that the plaintiff-bank has not
produced originals of the Bank Guarantees and it has not
adduced any secondary evidence after giving explanation as
to the non-production of the originals (Roman Catholic
Mission). The High Court has observed that the Bank
Guarantees produced by the plaintiff-bank are not complete
and, therefore, the terms and conditions thereof and rights
and liabilities of the parties arising therefrom cannot be
ascertained. The High Court has also held that as per the
copies of the Bank Guarantees produced on record, they
could be invoked only by the Chief Engineer (Civil) General,
however in this case, they were invoked by the Secretary,
KSEB. Therefore, the invocation is illegal (Hindustan
Construction Co. Ltd. and Dr. M.N. Kaul). The High
29

Court has not accepted the case of the plaintiff-bank that
the Bank Guarantees were invoked vide plaintiff-bank’s
letters (Ex-A4 and Ex-A82). It is observed that these
documents create suspicion about the manner in which the
Bank Guarantees are executed. The High Court has
observed that the Counter Guarantees produced by the
plaintiff-bank are incomplete. The High Court was
impressed by the case of the defendants that the title deeds
were forwarded to the plaintiff-bank for scrutiny and it
virtually come to the conclusion that there was no deposit of
title deeds as security for the Bank Guarantees. It was
impressed by the defendants’ case that the plaintiff-bank
had concocted the documents.

13. We need to ascertain how far the defendants’ case is
truthful. They admit the plaintiff-bank’s basic case, but try
to evade their liability to pay through their inconsistent,
contradictory and evasive stand. From the narration of the
written statements of the defendants, it is clear that so far
30

as defendants 1, 2, 3 and 4 are concerned, they have clearly
admitted issuance of the Bank Guarantees. They have
admitted that for the purpose of Bank Guarantees furnished
by the plaintiff-bank on behalf of defendant 1-firm,
defendant 1-firm has deposited 25% of the amount in cash
with the plaintiff-bank. Instead of coming out with the
correct facts surprisingly, they have put the plaintiff-bank to
the proof regarding the dates and terms and conditions of
the Bank Guarantees contending that the dates were within
the knowledge of the plaintiff-bank only. They have also put
the plaintiff-bank to the proof regarding the amounts which
have been paid to KSEB. Their version about the execution
of bank guarantees is hard to digest. They have denied that
any mortgage was created in favour of the plaintiff-bank
and they contended that they do not admit the Deed of
Indemnity and Counter Guarantee dated 11/5/1983 but
stated that the Managing Partner of defendant 1 had
given a power of attorney in favour of the plaintiff-bank
authorizing the plaintiff-bank to adjust 5% of the bill amount
31

due to defendant 1 from KSEB through the plaintiff-bank
and the amount so withheld was allowed to be held as
security by defendant 1 in case KSEB invoked the Bank
Guarantee. It is pertinent to note that though they have
denied that defendants 2 to 8 went to the plaintiff-bank on
11/5/1983 to deposit the title deeds of their properties, they
have admitted that defendant 4 had by his letter dated
4/4/1983 forwarded the title deeds of his properties to the
plaintiff-bank. Their case, however, is that the title deeds
were sent for scrutiny. It is not understood for what
purpose the scrutiny of the title deeds was necessary and
done. They admitted the assignment of Fixed Deposit
Receipts in the sum of Rs.4,75,000/- and availment of
mobilization advance of Rs.19 lakhs by defendant 1, but
stated that it was not availed of on the strength of Bank
Guarantees but the basis thereof was supplementary
agreement executed between KSEB and defendant 1 in
which, there was no stipulation to furnish any Bank
Guarantee. This case is not substantiated by them. Though
32

they initially did not come out with a case that the plaintiff-
bank fabricated any document, they subsequently amended
the written statements and contended that the plaintiff-bank
had taken blank signed papers from them on 11/5/1983
when the first Bank Guarantee was issued in favour of KSEB
and these papers were used for fabricating the documents in
favour of the plaintiff-bank. They contended that all the
documents were fabricated by the plaintiff-bank by utilizing
the signed blank papers taken from them by the plaintiff-
bank. Thus, they denied that any equitable mortgage was
created as security for the Bank Guarantees. Similarly,
defendants 6 to 8 denied that any equitable mortgage was
created. They came out with the case that the Deeds of
Indemnity, Counter Guarantees, Memoranda of deposit of
title deeds and Confirmation Letters were fabricated by the
plaintiff-bank by using the blank signed papers taken from
them on or about 11/5/1983 when the first Bank Guarantee
for Rs.1 lakh was issued in favour of KSEB.
33

14. The defendants’ case regarding blank signed papers is
not substantiated by any evidence except their say so. The
trial court has rightly rejected this story and we concur with
the trial court. Apart from the fact that there is nothing on
record to establish the case of the defendants that the
plaintiff-bank was party to such a fraud of creating
fabricated documents after obtaining blank signed papers
from the defendants, it also does not stand to reason that
the defendants and its partners and other defendants are so
gullible as to hand over to the plaintiff-bank several signed
blank papers. Falsity of their case is seen from the
documents on record.

15. The title deeds are at Ex-A39 to Ex-A43, Ex-A45 to Ex-
A48, Ex-A53, Ex-A54 and Ex-A63. The tax and revenue
receipts relating to the properties are at Ex-A57 to Ex-A62,
Ex-A65 and Ex-A67. Encumbrances certificates upto April,
1983 are at Ex-A44, Ex-A49, Ex-A50, Ex-A51, Ex-A55, Ex-
A56, Ex-A64 and Ex-A66. Confirmation letters regarding
34

deposit of title deeds are at Ex-A24, Ex-A30, Ex-A34 and Ex-
A72. We have carefully perused these letters. It is
impossible to come to a conclusion that the plaintiff-bank
has fabricated these letters on the blank signed papers
allegedly given to it by the defendants. There is no manner
of doubt that they are genuine documents. There are
Memoranda of deposit of title deeds duly signed by the
defendants giving details of the properties. They are at Ex-
A9 to Ex-A15, Ex-A22, Ex-A23, Ex-A25, Ex-A26, Ex-A28, Ex-
A29, Ex-A32 and Ex-A33. We have seen these exhibits also.
We are convinced that they are genuine documents. The
defendants have not been able to give any valid acceptable
explanation as to how so many original title deeds came in
the custody of the plaintiff-bank. Pertinently, the trial court
has noted that defendant 1 has filed O.P. No.62 of 1986 in
the Sub-Court at Ernakulam against the plaintiff-bank for
recovery of Rs.18,99,900/-. In the schedule of properties
under the heading “assets of the partners”, it is clearly
stated that these properties are mortgaged to the Bank as
35

security for Bank Guarantee of Rs.20 lakhs. The trial court
has further noted that when DW-1 was confronted with this
fact, he had no reply. At the cost of repetition, it needs to
be stated that it is the case of defendants 6 to 8 in their
written statement that they are not partners of defendant 1;
they have no connection with the Bank Guarantee and,
hence, there is no question of there being any equitable
mortgage; that the original title deeds were only given for
scrutiny and that the plaintiff-bank had taken blank signed
papers from them when the first Bank Guarantee for Rs.1
lakh dated 11/5/1983 was taken. This explanation itself
falsifies the case of defendants 6 to 8. They have admitted
that the first Bank Guarantee of Rs.1 lakh dated 11/5/1983
was executed. Even assuming without admitting that some
blank papers with their signatures were taken by the
plaintiff-bank from them, unless they were concerned with
the Bank Guarantee, such documents would not be
demanded from them nor would they have given such
documents to the plaintiff-bank. Their efforts to disassociate
36

themselves from defendant 1-firm and the Bank Guarantees
cannot, therefore, be countenanced. It is equally impossible
to accept that these documents were taken for scrutiny by
the plaintiff-bank. None of the defendants have successfully
explained why and for what purpose, the scrutiny of their
documents was necessary. We concur with the trial court
that all these documents cut at the very root of the defence
regarding the non-existence of the equitable mortgage. The
case of the defendants that there was no equitable
mortgage will have to be, therefore, rejected.

16. The defendants’ contention that the plaintiff-bank
illegally encashed the Fixed Deposit Receipts in the sum of
Rs.4,75,000/- must also be rejected. It is the plaintiff-
bank’s case that this amount was deposited as security for
the Bank Guarantee of Rs.19 lakhs availed of by the
plaintiff-bank and the liability incurred by it. The defendants
contend that the said Fixed Deposit Receipts were given to
the plaintiff-bank for safe custody. Against the background
37

of the aforementioned facts, the story that the Fixed Deposit
Receipts were deposited with the plaintiff-bank for the
purposes of safe custody, does not stand to reason. Except
for oral evidence, there is nothing on record to substantiate
this case. In the facts of this case, we have no hesitation in
rejecting this case of the defendants. In our opinion, the
said Fixed Deposit Receipts have rightly been encashed by
the plaintiff-bank.

17. So far as invocation of Bank Guarantees is concerned,
in our opinion, there is no infirmity in the case of plaintiff-
bank. It is true that in the plaint, there is a reference to Ex-
A4 and Ex-A7, which indicates that the invocation is done by
the Secretary of KSEB but when an objection was raised by
the defendants that the invocation was not proper, the
plaintiff-bank has produced Ex-A82 and Ex-A3 which show
that the invocation was done by the Chief Engineer (Civil)
General as per the terms of the Bank Guarantees. It is
significant to note that Ex-A4 is subsequent to Ex-A82 and
38

relates to Bank Guarantee of Rs.19 lakhs and Ex-A7 is
subsequent to Ex-A3 and relates to Bank Guarantee of Rs.1
lakh. The trial court has rightly held them to be genuine
documents. The invocation of Bank Guarantees was also
done when they were in force, in view of their extension.

18. Perhaps the most significant piece of evidence which
has not been noticed by the trial court and though referred
to by the High Court but not appreciated by it, is the letter
dated 7/7/1984 (Ex-A6) in which the Managing Partner of
defendant 1 has admitted execution of Bank Guarantees and
expressed willingness to pay the amount. This is a letter
written by defendant 1 to the plaintiff-bank in response to
the demand notice dated 23/6/1984 issued to defendant 1.
DW-1 in his evidence has admitted that the said letter
(Ex-A6) was written by defendant 1. We deem it
appropriate to quote the said letter entirely.

 
“In response to the demand notice dated

23-6-1984 issued to me and after prolong
39

discussion with the officials concerned, we

give you this reply placing certain conditions

and suggestions for a smooth banking

transaction between us.
A bank guarantee for a sum of Rs.

19,00,000/- was arranged by you for a

contract work which we have entered into

with the K.S.E.Board (Kakkad Hydro Electric

Tunnel Project, costing Rs. 6.5 Crores). The

work is going on in a full swing and for the

continuation of the work we have invested a

huge amount for the purchase of machineries

and other things. It is relevant to state here

that the contract is for a sum of Rs.6.5

crores. Unfortunately, allegations were

levelled against the concerned Minister

regarding this contract and this matter as

referred for a finding before Justice Janaky

Amma Commission. The Commission came

to the conclusion that all the charges levelled

against the Minister were false. Not satisfied

with this finding, the opposition parties of the

Kerala Legislative Assembly have now raised

certain questions regarding this matter in the

Assembly. All allegations levelled against the

Minister was regarding allowing a sum

ofRs.19,00,000/- as mobilization advance.

As per the agreement, we have entered into

with the K.S.E.Board, we are entitled to get a

sum of Rs.20 lakhs. To be immune from the

allegations the Board has withdrawn the

amount advanced to us without even issuing

a notice either to us or to the Bank.
We could have approached before a civil

court and obtained a stay, but we avoided it
40

only to maintain a good relationship with

KSEB for a smooth execution of the contract.
Now you have issued a notice asking us to

remit the outstanding amount of Rs.

14,43,037.92. Since we have invested a

huge amount and since we want to proceed

with the work and since we have not so far

as received any amount from the department

for the work we have done till the date, we

are now not in a position to remit the entire

amount. As per the conclusion of the

discussion with the bank officials on 6-7-

1984, we hereby undertake to remit 10% of

the amount of every bill from our coming

running part payments.
To face the financial situation, we have

reconstituted our partnership by including

new partners who are substantially rich and

well experienced in the field of contract work

and by way of increasing the capital.
Now we are approaching you for an clean

over-draft for a sum of Rs. 20,00,000/-

(Rupees Twenty Lakhs only) and for

sanctioning it we are prepared to give

sufficient additional securities the bank

requires. Being an outstanding contract,

without this much of amount we cannot

proceed with the work and only to face this

circumstance we make this request and it is

just from the part of the bank to sanction our

request.
We hereby make a suggestion that we

would make arrangements from some

sources to deposit a substantial amount to
41

the bank. We make this arrangement to face

the financial condition, if any, of the bank.
Hence, it is prayed that in the

circumstances mentioned above, your

goodself may be pleased to make immediate

arrangements to sanction the request we

have made above.”

19. In this letter defendant 1 has accepted the case of the
plaintiff-bank and undertaken to remit 10% of the amount of
every bill from the running part payments receivable by it.
Once defendant 1 admits execution of the Bank
Guarantees and expresses its desire to repay the amount
and when Counter Guarantees, number of title deeds,
encumbrance certificates and confirmation letters are on
record, in the facts of this case, decree must follow. In our
opinion, the conduct of the defendants needs to be
deprecated. After having taken the benefit of the Bank
Guarantees, the defendants have tried to persuade the court
to absolve them of the liability to repay the amount by
taking up untenable and false contentions. In O.P. No.62 of
42

1986 in the schedule of properties under the heading “assets
of partners”, defendant 1 has categorically stated that the
said properties are mortgaged to the Bank as security for
Bank Guarantee of Rs.20 lakhs. It is surprising that to
evade their liability to make payments, defendant took a
contrary stand in this case and tried to mislead the court.
The trial court was, therefore, right in decreeing the suit. In
the circumstances, the plaintiff-bank must succeed. We
must, however, express our extreme displeasure about the
conduct of the officers of the plaintiff-bank. The plaintiff-
bank is a nationalized bank. It is surprising how the
originals of the Bank Guarantees could not be produced by it
in the trial court. Such conduct is not expected from the
officers of the plaintiff-bank who deal with public money.
They have dealt with this matter with extreme casualness.

20. In view of the above, we set aside the impugned order
dated 4/6/2003. We restore the judgment and decree of the
trial court dated 1/1/1991. We direct the Registry to
43

forward a copy of this judgment to the Chairman of the
Punjab and Sind Bank for information.

21. The appeal is disposed of in the aforestated terms.

……………………………………………..J.

(SWATANTER KUMAR)

 
……………………………………………..J.

(RANJANA PRAKASH DESAI)
NEW DELHI,

JANUARY 13, 2012.

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