Bank of Baroda vs Consortium of Exports for Fabric Exports

Arun Madan, J.

(1) The facts giving arise to the filing of the appeal, briefly stated, are as under :-

(2) The Appellant-Bank had filed a suit in this Court bearing Suit No .371/1971 for recovery of Rs. 55,944.46 plus interest thereon, on 2 2/12/1971 against the respondents.

(3) Respondent No. 1 is a partnership firm and was operating and carrying on business under the name and style of M/s. Consortium of Exporters for Fabric Exports. Respondents Nos. 2 and 3 were imp leaded as partners of respondent No. 1.

(4) As per the averments in the plaint, respondent No. 1 through its partner Shri Dewan Singh, respondent No. 3 approached the appellant-Bank at its said branch office at Connaught Circus, New Delhi on 9/12/1968 for making early arrangements for a forward sale of sterling pounds2,84,444 covering the export contract, hereinafter mentioned, the contract, equivalent to Rs. 51,20,000.00in Indian currency. The said branch office of the appellant made necessary arrangements for a forward sale of pounds2,84,444 equivalent to Rs. 51,20,000.00 and informed respondent No. 1 of the arrangements having been so made by their letter No. Fex 17/14907dated 18/12/1968. Thereafter, the appellant. Bank entered into a formal contract with respondent No. 2 through its duly authorised GeneralManager, Shri Jawahar Lal Jawahar (husband of respondent No. 2) whereby the said branch office confirmed having bought for respondent No. 1 the foreign exchange to the tune of pounds 2,84,444 by Forward Purchase Contract covering shipments of terry wool and woolen fabrics valued at Rs. 51,20,000.00 to be effected under the Export contract entered into by respondent No. 1 with their foreign buyers, subject to the Rules and Regulations of the Foreign Exchange Dealers Association of India (in short FEDA).The validity of the said contract was up to 13/06/1969. It was specifically agreed to by respondent No. 1 in the aforesaid contract that the said branch office of the appellant-bank would have the discretion to extend it or to refuse to extent it at its option. In the event of agreeing to extend the same, the said branch office of the appellant would charge the prevailing rates for extension and/or cancellation as per rules and regulations of the FEDA.

(5) In confirmation of the above, the appellant, bank vide letter(Ex. P-2), confirmed having sold to the respondents the foreign exchange amounting to pounds 2,84,444 by agreement dated 14/12/1968.The delivery period was specified in the said agreement as 14th May, 1969/ 13/06/1969. This contract was accepted and acted upon in its true letter and spirit by the respondents, who never objected to the same at any stage .

(6) As the date of expiry of the forward exchange contract was approaching fast and respondent No. 1 having not utilised the contract, the said branch office of the appellant-bank sought further instructions of the respondents as to whether they wanted further extension of the contract, whereupon respondent No. 1 through its General Manager, Shri Jawahar Lal Jawahar requested the said branch office of the appellant-bank for the extension of the above contract for a further period of six months. The said branch office vide their letter No. 18/2585 dated 18-6-1969informed respondent No. 1 that the duration of the said contract had been extended for a further period of six months on the request of respondent No. 1 and consequently the appellant requested respondent No. 1 to remit to the bank the extension charges for the contract as per the rules and regulations of the Foreign Exchange and claimed a sum of Rs. 18,333.26towards extension charges.

(7) In spite of above, since the appellant-bank did not receive any instructions from the respondents with regard, to the extension charges which were not remitted to the bank despite the appellant''s request, respondent No. 1 was again requested by the bank vide its letter dated 20-11-1969 to remit them the extension charges for the said contract and the bank further warned the respondent No. 1 that non payment of the extension charges constituted violation of the Foreign Exchange Rules and that the contract might have to be cancelled at the expiry of the extended term which was13-12-1969 and for which respondent No. 1 will be further liable to pay to the appellant a sum of Rs. 30.000.00 towards the cancellation charges. Despite this letter and the earlier demands, respondent No. 1 did not care to remit the aforesaid charges to the bank.

(8) On 20/11/1969, the appellant again requested the respondents to remit them the extension charges and further intimated respondent No. 1 that non-payment of the extension charges was a violation of the Rules of the Feda and in that eventuality, the contract might have to be cancelled at the expiry of the extended term, which was 13/12/1969 and on which the cancellation charges payable by respondent No. 1to the appellant would be Rs. 30,000.00. Despite this letter and earlier demands ,respondent No. 1 did not care to pay the extension charges nor did respondent No. 1 give any instructions to the bank about further extension or cancellation of the contract beyond 13/12/1969.

(9) That finally on 12/03/1970, the appellants were constrained to serve a legal notice on respondent No. 1 through their Counsel calling upon respondent No. 1 to pay a sum of Rs. 18,333.26 being the extension charges together with interest thereon and also a sum of Rs. 220.00 being the Counsel''s fee for insurance of the said legal notice. Respondent No. 1 was also intimated that the appellants were answerable to the Reserve Bank of India for having booked the foreign exchange on account of the respondents and since the contract was not extended the appellants had applied for, permission of the Reserve Bank of India for cancellation. In spite of this respondent No. 1 neither paid the said amounts nor cared to reply to the said notice. The Appellant Bank was left with no option, but to intimate the respondents on 20/11/1969 (Ex. P/16) that the respondents had committed violation of the Feda rules and which would have to be reported to the exchange control authorities and finally again made a request for payment of the outstanding amount immediately.

(10) The respondents failed to comply with the instructions either with the terms of the contract or with the request made by the appellant in this regard and it is in these circumstances that the Appellant-Bank filed the above noted suit.

(11) The defendants in their written statement raised various pleas and denied the validity and existence of the contract. They also pleaded that Jawahar Lal Jawahar had no right or authority to enter into any contract with the plaintiff. On the pleading of the parties, the following issues were framed :-

(1)Whether this Court has jurisdiction to hear the suit ? O.P.P.(2) Whether there was any contract between the parties as alleged by the plaintiff ? O.P.P.(3) If issue No. 2 is proved, whether definition were aware of the rules and regulations of the Foreign Exchange Dealer''s Association ? If so, what is its effect ? O.P.P.(4) Whether Mr. D.J. Sen Gupta is duly authorised to sign and verify the plaint to institute the suit ? O.P.P.(5) Whether the plaintiff did render any service to claim the amount in question ? O.P.P.(6) Relief.

(12) Issues Nos. 1 and 4 were decided in favor of the appellant Issues 2, 3 and 5 were decided against the applicant. On these issues the learned Judge returned the findings that the contract, was void and the defendant could not be held liable for the charges claimed in the suit. In view of this finding, the suit was dismissed. This is how the present Appeal has been preferred by the Appellant Bank.

(13) Mr. Aggarwal, learned Counsel appearing for the appellant contended that the finding of the learned Single Judge that the contract was void for the reason that when Jawahar Lal Jawahar entered into the contract with the appellant, he was not aware of the Feda rules and his mind did not go with the hands, is incorrect and is not legally sustainable. He contended that if the respondent was not aware of the Feda rules, it was their duty to have requested the Appellant-Bank to have apprised them of the implication of the Feda rules. The respondent did not at any time bring this fact to the notice of Appellant-Bank. Rather they asked the Bank for extension of contract. This clearly showed that the respondent was fully aware of the Feda rules and that is why they had sought extension of the contract. It was further contended that in fact, the conduct of the respondents was amply clear from the fact that their silence was equivalent to speech and their acceptance of the terms and condition of the agreement. The contract refers to the Feda rules and it is clear that the Feda rules formed part of the contract. The Bank had to charge according to the rules and the services were not to be rendered gratuitously .Assuming that the respondents were not aware of the implications of the Feda rules, nothing prevented them from seeking clarification and guidance from the Bank. This was not done. The respondent cannot now be permitted to urge that they were not aware of the Feda rules. On the other hand,Mr. Kumar learned Counsel appearing for the respondents canvassed that the finding of the learned Single Judge is correct and is based on appreciation of evidence which finding cannot be lightly interfered in this Appeal. He also contended that it was proved on record that the Feda rules were not disclosed to the respondents and there was no concluded contract. In support of his argument he has relied upon a judgment of Andhra Pradesh High Court, reported in The Special Secretary to Government of Rajasthan and Others Vs. Vedakantara Venkataramana Seshaiyer and Others, , wherein it was held, "That unless the terms of the contract were arrived at after due negotiations, they could not be held binding merely because a lottery ticket was later issued containing the said terms." We have given our thoughtful consideration to the contention advanced by the learned Counsels for the parties. In our opinion, the contentions raised by Mr. Aggarwal have force and are full of merit. By letter Exhibit P-2, the Bank informed the respondents that they had sold to the respondents foreign exchange subject to the Rules and Regulations of FEDA. If the respondents were not aware of the FEDA rules, they should have immediately asked the Bank to supply them the copy of the rules. This was not done. It implies that the Feda rules were with-in the knowledge of the respondents. Even otherwise, the respondents were dealing in exports and the presumption of awareness is not ruled out. The case of the respondents as pleaded was that the contract was entered by Jawahar Lal Jawahar on behalf of the respondents and he was not made aware of the Feda rules. Jawahar Lal Jawahar did appear as a witness on behalf of the respondents, but made no such statement in his examination in chief, however, in the cross-examination, he deposed that he was not shown the Feda rules at the time of entering into the contract. On the other hand, Mr. V.S. Pillai, Manager of the plaintiff-Bank, appearing asPW-1 stated that the charges were payable according to the Feda rules bythe respondents to the Appellant-Bank. These were payable only in respect of extension or cancellation and not for entering into the contract. The extension charges (sic) cancellation charges on account of exchange difference )according to these rules amounted to Rs. 30,074.49. In the crossexamination, he further deposed that these rules were meant for the public though these are not sold as such. The respondents asked for extension of the contract, which was extended at their request. By letter dated 1 8/06/1969 (Exhibit P-12), the Bank informed the respondents that the contract was extended up to 13/12/1969, as desired by them and requested the respondents to remit an amount of Rs. 18,333.26 being extension charges. Even at that point of time, the respondents could have written to the Bank as on what basis they were claiming extension charges but on the contrary they availed of the facility of extended period of the contract. They took no pains to know as to what was the amount they were required to pay in case of cancellation of the contract or for extension of the contract. Rather they availed of the said facilities. This is not the case of the respondents that the services provided by the Bank were gratuitous and they were not required to pay any amount to the Bank for the services rendered .The bank is claiming the amount on the" basis of the Feda rules. It is too late for the respondents now to urge that they did not know the FEDA. rules and were not liable to pay service charges in accordance with the Feda rules, are of the confirmed view that the respondents were aware of the these rules and lack of awareness cannot be pleaded as an excuse to escape the liability. Even assuming that the respondents were not aware of the Feda rules, they are bound to pay to the Bank for the services rendered by them The Bank is claiming the amount on the basis of the FEDA rules. The contention of the respondents that these rules were not made available to them. has no force. The rules were not secret, but were available with all the banks and the customer had a free access to the rules. In our opinion, the learned Single Judge was not right in holding that the FEDA rules were not made aware to the respondents and the contract was void and as such they were not liable to pay any amount to the Bank. On the contrary, we hold that there was a valid and binding contract between the parties or in any case the respondents were bound to compensate the appellant for the services rendered to the respondents. The next question is as to how much compensation the Appellant-Bank is entitled to claim from the respondents. The bank has claimed a sum of Rs. 18.333.26 on account of the extension of the contract from 13-6-1969 to 13-12-1969 and Rs. 30,074.49 on account of exchange difference due to the bank on, cancellation of the contract. According to the appellant-bank, these amounts have been calculated as per Feda rules. The contention is supported byMr. V.S. Pillai. Manager. PW-1 on behalf of the Appellant-Bank. He stated that the extension charges according to the Feda rules amounted to Rs. 18.333.26. He further deposed that the cancellation charges have also been calculated on the basis of the Feda rules and amounted tors. 30.074.49 according to the then prevalent rates. We rely upon the statement of this witness and hold that the plaintiff-bank is entitled to chargeRs. 41.407.75 (i.e. Rs. 18.333.26 as extension charge plus Rs. 30.074.49 as cancellation charges and this amount, the Bank is entitled to recover from the respondents The next question is whether the plaintiff is entitled to any interest or not ? In addition the above, the Appellant Bank is also entitled to interest @ 7% p.a. from 14-6-1969 to 8-1-1971 having accused on extension charges amounting to Rs. 2,024.72 and also interest @ 8% from9-1-1971 to 31-8-1971 on the extension charges amounting to Rs. 941.93.The bank is also entitled to interest @ 7% p.a. for the period from20-10-1969 to 8-1-1971 on account of exchange difference due to the Bank on cancellation of the contract, amounting to Rs, 2,584.85. Besides the Bank is also entitled to interest @ 8% p.a. from 9-1-1971 to 31-8-1971 on account of exchange difference due to the Bank on cancellation of the contract amounting to Rs, 1545.20 p. and also notice charges paid by the Bank to its Counsel amounting to Rs. 440.00.Thus the amount due to the Bank on account of interest of Counsel''s fee amounts to Rs. 7636.71 P. The appellant-bank is Therefore, entitled to recover a sum of Rs. 55,944.46 (Rs. 48,407.75 as extension and cancellations charges plus Rs. 7,536.71 as interest thereon and Counsel''s fee). However, we are not inclined to award any future interest to the Appellant-Bank at the rate of 8% p.a. as claimed in the plaint.

(14) In the result, we allow this Appeal, set aside the judgment of the learned Single Judge and decree the suit of the plaintiff/appellant for recovery of Rs. 55,944.46 with costs throughout. Appeal allowed.