- (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 plaintiffbank's suit for realization of money was allowed.
(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 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 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 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 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 plaintiffbank'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 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 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 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. 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 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 plaintiffbank 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 plaintiffbank. The said defendants further declared at 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. 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, 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, 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 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 plaintiffbank 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 1 st Additional Sub-Judge at Ernakulam for an amount of Rs.21,54,464.20 with future interest from 1/5/1986 at 20% per annum.;