Corporation Bank vs Mehta Gems and Others

S.C. Dharmadhikari, J.—By this suit, the Plaintiffs pray for a decree in the sum of Rs. 2,53,000/- as per particulars, annexure ''F'' to the plaint with further interest thereon @ 17.5% p.a. with quarterly rests from the date of the Suit till payment or realisation. The Plaintiffs pray that the Defendants be ordered and decreed to pay to the Plaintiffs this sum, so also further sum of Rs. 1,37,900.99 as per particulars of claim annexure ''G'' to the plaint with further interest @22% thereon in the same terms. These are the reliefs prayed in prayer Clauses (a) and (b) and vide prayer Clause (c) a declaration is claimed that the aforementioned amounts are validly secured by hypothecation and charge of the goods more particularly described in annexure ''D'' to the plaint.

It is the case of the Plaintiffs that it is a body corporate duly constituted under the Banking Companies [Acquisition and Transfer of Undertakings] Act, 1980. The Plaintiffs have their head office at Mangalore, in the State of Karnataka and one of the branch office at Nariman Point, Mumbai. The Plaintiffs are carrying on banking business.

The first Defendant is a partnership firm and Defendant Nos. 2 and 3 are the partners of the same. They carry on business at Bombay. It is the case of the Plaintiffs that in or about September 1978 the first Defendant applied for pre-shipment and post-shipment credit facilities. After duly considering this request, the Plaintiffs granted to the first Defendant Packing Credit Loan-cum-Foreign Documentary Bill Discounting Facility up to the limit of Rs. 3,00,000/-. A copy of the letter of sanction is annexed as annexure ''A'' to the plaint.

It is stated in paragraph 5 of the plaint that in consideration of this agreement to grant and advance the packing credit loan of Rs. 3,00,000/-,the Defendants executed a Demand Promissory Note dated 27.9.1978. They promised to pay to the Plaintiffs a sum of Rs. 3,00,000/- with interest thereon @11% per annum with quarterly rests. A copy of the letter dated 27.9.1978 and Demand Promissory Note are annexed as annexures ''B'' and ''C'' to the plaint.

Thereafter, an export credit agreement dated 27.9.1978 is referred to and it is alleged that the Defendants agreed to apply the amounts lent and advanced by the Plaintiffs only for the purpose of purchasing, processing, packing, insuring and/or sending out of India the goods to be exported. In paragraph 6 of the plaint the terms and conditions of this agreement are referred to and some of them are even reproduced.

A copy of the agreement is annexed as annexure ''D'' to the plaint. It is stated that pursuant to the above, the Plaintiffs lent and advanced to the first Defendant diverse amounts under the pre-shipment (packing credit loan) which amounts were duly received and utilized by the first Defendant. It is also alleged that first Defendant availed the Bill Discounting Facility. It is alleged that the interest is chargeable at the concessional rate prescribed in accordance with the Interest subsidy scheme framed by the Reserve Bank of India. However, upon failure to export the goods and fulfilling the requirements of the scheme, the concession rate in the interest is not available. It is alleged that the first Defendant failed and neglected to export the goods and submit the documents pertaining to the said export beyond the period specified in the scheme and therefore, the Plaintiffs are entitled to charge interest at 17.5% per annum.

In paragraph 9 of the plaint this is what is alleged:

At the request of the Defendants the Plaintiffs also opened in the name of the first Defendant current A/c No. 566 which has been maintained in the regular and normal course of business. In the said current account the Plaintiffs have from time to time debited diverse amounts of interest and other charges and expenses payable by the 1st Defendant to the Plaintiffs in respect of packing credit loan and bills discounted and/or purchased from the first Defendant. The quarterly interest accrued and other charges in connection therewith have been debited from time to time to the said interest receivable account/suspense debtors account and the said current account of 1st Defendant maintained by the Plaintiffs in the ordinary course of business. The amounts outstanding in the interest receivable account/suspense debtors account have been transferred to current account of the first Defendant. In the said current account the Plaintiffs have duly credited the 1st Defendant from time to time with the payments made by the 1st Defendants to the Plaintiffs.

It is stated that the Plaintiffs repeatedly called upon the Defendants to pay to the Plaintiffs the amounts due to them with further interest. However, the Defendants failed and neglected to pay the same or any part thereof or any interest. Ultimately, a letter dated 8.7.1982 was addressed by which the Defendants were called upon to pay to the Plaintiffs the sum of Rs. 3,60,427.16. Despite receipt of this letter, the amount was not paid and therefore, the Plaintiffs are entitled to recover the same together with interest as stated in the foregoing paragraphs. It is in such circumstances that the present suit has been filed. It is stated that the Defendants have acknowledged their liability in writing vide letter dated 1.9.1981 and therefore, the claim of the Plaintiffs is within limitation.

On receipt of suit summons, the Defendants filed their written statement in which their stand is that the Plaintiff-Bank granted loan facilities. It is Defendants'' case that the loan facility was granted on the terms and conditions of the sanction letter, copy of which is annexed as annexure ''A'' to the plaint. It is stated that the sanction letter inter alia provides that the post-shipment advances are to be recovered under the Export Credit Guarantee Corporation (in short ''ECGC'') whole turnover post-shipment guarantee. Such a guarantee was required to be issued by the ECGC. It is further case of the Defendants'' that the documents including the purported demand promissory note dated 27.9.1978 has been obtained in blank. After such documents were obtained by the Plaintiffs, prior to filing of the suit, the Plaintiff-Bank has filled in the details. At no point of time the interest rate of 11% was agreed to. The Defendants were informed about the terms and conditions of the sanction of the Term Loan but there is no Term or condition as far as penal rate of interest or interest at quarterly rests.

Thus, with reference to paragraphs 4 to 6 of the plaint, the Defendants though admit the sanction of the loan they state that the amounts which were lent and advanced were fully covered by the guarantee given by the ECGC. The Plaintiff-Bank had claimed the amount from ECGC and recovered it. The present suit against the Defendants is not maintainable and there is no cause of action for the said suit. The Plaintiff-Bank is not entitled to recover the amount twice over.

The Defendants have set out in their Written Statement as to how the amount was secured by the ECGC guarantee. They reiterate their stand that even the Export Credit Agreement annexure ''D'' to the plaint was in a standard form, but in blank and without any material particulars. They state that the signature on such blank document is not valid and binding. The Defendants have explained that though the loan was disbursed and utilised for the purpose of export of goods under the scheme and policy of the ECGC, the Plaintiffs have recovered the amount from the ECGC and therefore they cannot recover it again from the Defendants. The rest of the Written Statement contains the denials of the case set out in the plaint. In addition, the Defendants urge that the suit suffers from non joinder of necessary party namely Export Credit Guarantee Corporation.

On these pleadings this Court framed the following issues on 30th November, 2001 (Coram: D.K. Deshmukh, J.):

Whether the Plaintiffs prove that they are entitled to a decree in the sum of Rs. 2,53,000/- as per the particulars of claim annexed as Exhibit ''F'' to the plaint with further interest thereon at the rate of 17.5% per annum?

Whether the Plaintiffs prove that they are entitled to a decree in the sum of Rs. 1,37,909.99 as per Particulars of Claim annexed as Exhibit ''G'' to the Plaint with further interest thereon at the rate of 22% per annum?

Whether the Defendants prove that the suit as filed is not maintainable as alleged in para 1 of the Written Statement?

Whether the Defendants prove that the Plaintiffs have no cause of action to continue the present suit as they have recovered the suit claim from ECGC as alleged in para 2 of the Written Statement?

Whether the Defendants prove that the suit suffers from non-joinder of necessary party i.e. ECGC as alleged in para 3 of the Written Statement?

Whether the Defendants prove that the documents annexed as Exhibit ''B'' and ''C'' to the plaint were signed by the Defendants in blank as alleged in para 8 of the Written Statement?

Whether the Defendants prove that the Agreement annexed as Exhibit ''D'' to the plaint was signed in blank as alleged in para 9 of the Written Statement?

Whether the Defendants prove that the Plaintiffs are not entitled to charge interest at the rate of 17 1/2% per annum as alleged in para 12 of the Written Statement?

Whether the Plaintiffs prove that this Hon''ble Court has jurisdiction to try and entertain this suit?

Whether the Plaintiffs prove that the suit is properly valued?

Whether the Plaintiffs prove that Current Account was properly maintained and intimated to the Defendants?

The Court issued necessary directions for filing of affidavit of documents and accordingly an affidavit of documents came to be filed by the Plaintiffs on 8.12.2006.

The Plaintiffs also filed the affidavit in lieu of examination-in- chief of their Chief Manager one Shri T. Munivelu. He has stated that he is familiar with the case on the basis of the records. He reiterates the case set out in the plaint and states that the Current A/c bearing No. 566 is maintained by the Plaintiffs in their ordinary and regular course of 10 business. Therefore, he submits that the Plaintiffs are entitled to a decree as prayed. He seeks to produce the copy of sanction letter, the Demand Promissory Note, the Export Credit Agreement and copies of Demand letters addressed to the Defendants. Further, he produces the extract of the Current A/c.

The Defendants on receipt of affidavit of documents, and a copy of the affidavit in lieu of examination- in-chief proceeded to cross examine the witness.

In paragraphs 2 and 3 of his cross examination this is what is stated:

I am the Chief Manager of Overseas Branch of the Plaintiff Corporation Bank. For last three and half years I have been working as the Chief Manager. It is true that the Overseas branch deals with export related finance. I am aware about the procedure to be followed relating to export relating finance. I am aware about the Export Credit Guarantee Corporation of India Ltd. (ECGC). It is true that the transactions relating to export finance are guaranteed by the ECGC. It is true that I have gone through the entire proceedings including the written statement filed by the defendant. It is true that the transaction subject matter of the suit was also guaranteed by ECGC. It is true that the plaintiff bank was entitled to recover the suit claim from ECGC. (The witness volunteers that the plaintiff could have claimed only 60% of the amount from the ECGC). It is true that the guarantee issued by the ECGC and the scheme is not placed on record.

Q.: I put it to you that the plaintiff bank has received the entire amount from the ECGC? Ans.: The plaintiff bank has received 60% of the amount.

Q.: Why have you not disclosed in the plaint or the statement of account that the plaintiff has received 60% of the amount from ECGC?

Ans.: Notwithstanding the recovery of the said amount, the plaintiff bank is required to prosecute the recovery proceedings against the borrowers and the amount received from the ECGC is required to be refunded.

It is true that there are pre-printed blank forms available to the plaintiff which are got executed from the borrower at the time of granting finance. I say that the preprinted forms are filled in and thereafter the signature of the borrower is obtained. It is not true to say that the plaintiff has no claim against the defendant. It is not true to say that the plaintiff is not entitled to recover any amount from the defendant as the plaintiff has already received the entire amount from ECGC.

The Plaintiffs thereafter examined one Shri Radhakrishna Kamath, Deputy General Manager of the Plaintiffs who also filed his affidavit in lieu of examination-in-chief which contains identical statements to that of the earlier witness Shri T. Munivelu. Further, the PW-2 filed a list of additional documents being particulars of claim as per Current A/c No. 566.

After copies of the affidavit in evidence of PW-2 and additional documents were furnished to the Defendants'' Advocate, they proceeded to cross examine him. The PW-2 states that he has gone through the affidavit-in-chief of PW-1 Shri T. Munivelu. He admits that the affidavit repeats whatever has been deposed by PW-1. However, he states that he is producing further documents. He states that it is not correct to state that the documents produced by the Bank are not genuine. The PW-2 admits that some amount is recovered from ECGC but he will not be able to tell the exact figure or percentage. He admits that he had read the plaint but this fact is not set out in the plaint. He explains that it is not relevant but at the same time admits that the amount recovered by the Plaintiffs from ECGC is in respect of transaction covered by the Suit. He admits that he has personally not handled the transactions and denies the suggestion that Bank obtains signature of the customer on some forms which are blank and particulars are filled in later. This is cross examination of PW-2. The Plaintiffs did not examine any other witness.

On behalf of Defendant No. 3, Shri Dilip M. Mehta stepped into the witness box. In his examination in chief this is what is stated:

I say that I am conversant with the facts of the present case. I say that the Defendants availed of financial assistance from the Plaintiff-Bank for exports related business of Defendants.

I say that the financial assistance and repayment thereof was guaranteed by Export Credit Guarantee Corporation of India Limited. I say that the Plaintiff Bank was entitled to recover the defaulted amount from ECGC. I say that the Plaintiff-Bank has recovered the amount from ECGC. I say that it is not correct that the Plaintiff Bank is required to recover the money from the Borrower and pay the same back to ECGC.

I say that the Bank has intentionally not disclosed the receipt of payment from ECGC and not joined the ECGC as party to the present suit. I say that ECGC has not taken any action against the Defendants for recovery of the defaulted amount or amount paid to the Plaintiff Bank.

I say that Defendants have not agreed to the so called terms of finance. I say that the Defendants have not agreed to pay the interest as claimed. I say that Plaintiff Bank is not entitled to recover any amount from the Defendants. I do not admit any document referred by the Plaintiff either in the Plaint or in evidence.

As far as cross examination of DW-1 is concerned, he states that the first Defendant was maintaining Current A/c in the year 1978. He admits that the Defendants approached the Plaintiffs for pre-shipment facility but states that he is not aware as to whether any documents have been executed by the Defendants while availing of this facility. In response to a question as to whether the Defendants executed any security document with regard to pre-shipment facility an objection was raised by the Defendants. They objected to this question on the ground that none of the documents which are referred to in the affidavit in lieu examination-in-chief of PW-1 and PW-2 are exhibited. There is no documentary evidence on record. In such circumstances, this question should not be allowed.

The Plaintiffs'' Advocate argued that two witnesses have been examined who deposed about the transactions and documents relied upon by the Bank, therefore, the question be permitted.

On this objection I ruled that a perusal of affidavit of evidence of PW-1 and PW-2 reveals that they did not depose about contents of the documents. The documents though referred to were never marked as Exhibits. The documents were merely produced with list. In such circumstances, I ruled that the Plaintiffs cannot seek any answer from DW-1 with regard to execution of the documents. I proceeded to disallow this question. On a specific suggestion that the Plaintiffs are entitled to recover from the Defendants the amount, DW-1 denied and stated that the Defendants are not liable to pay any amount under the pre-shipment facility. He states that he will not be able to produce any account for the relevant period to support his statement that there is no liability.

This is the oral evidence on record. On this material I have heard the oral arguments. I have heard Shri Acharya appearing on behalf of the Plaintiffs and Shri Chotani appearing on behalf of the Defendants. Both also tendered written arguments which were duly taken on record.

Shri Acharya appearing on behalf of the Plaintiffs submits that the claim of the Plaintiffs stands duly proved because in answer to the averments in the plaint, the Defendants admit the transactions, execution of documents but falsely deny their liability on the ground that the facility was covered under the ECGC Insurance Policy. Shri Acharya submits that the Insurance cover under the ECGC Policy was provided to the Bank for covering loss on account of default committed by genuine Exporters who suffer loss in the process of export of the goods or due to the exigency specified in the Policy. This Insurance cover is not available when Defendants have not exported any goods. They have not forwarded any export documents for negotiation yet they rely upon the ECGC scheme and Policy. Shri Acharya submits that the defence based on ECGC Policy is therefore not available. Shri Acharya submits that the statement of account was duly filed so also original documents. Initially, the statement of account was not certified as per Bankers Books Evidence Act. Therefore a separate set of original statement of account relating to Packing Credit Facility and Current A/c of Defendant No. 1 were filed along with affidavit of additional documents dated 8.12.2008. In such circumstances and when there is clear acknowledgment of the liability, so also the suit claim is within limitation that a decree be passed in favour of the Plaintiffs.

Shri Acharya also contended that in the light of the fact that in the Written Statement the Defendants have acknowledged their liability by admitting the transaction and further stating that they have availed of the loan, then, a decree on the basis of Order XII Rule 6 of the Code of Civil Procedure, 1908 can also be passed. Shri Acharya relies upon the decision of the Division Bench of Delhi High Court reported in Col. (Retd.) Dalip Singh Sachar Vs. Major General (Retd.), Prabodh Chander Puri, . Hence, Shri Acharya submits that a decree should be passed as prayed.

On the other hand Shri Chotani appearing on behalf of Defendants submits that the Plaintiffs have suppressed relevant and material facts. He submits that in the Written Statement the Defendants raised a specific plea about want of cause of action. He submits that the amount claimed by the Plaintiffs is fully secured and insured by Export Credit Guarantee Corporation (ECGC) guarantee. Further, the stand of the Defendants is that blank documents were obtained and details are filled in later. Thus, amount has not been admitted as falsely stated. Further, there is no acknowledgment of liability as urged. On the other hand, contents of each of the documents were denied by the Defendants.

Shri Chotani submits that this Court has passed a specific order dated 8.12.2008 wherein it has been observed that none of the documents produced by the Plaintiffs along with their list and affidavit in lieu of examination-in-chief are marked as exhibits in the suit. None of the documents which are referred to in the list have been exhibited. Thus, when the contents of the documents which are relied upon have not been proved, then, there is no base for the claim in the suit. Further, the Plaintiffs'' witnesses have admitted in the cross examination that the Plaintiffs have recovered some amounts from ECGC. Both witnesses have not denied this fact. Further, they do not deny the fact that the ECGC paid to the Plaintiffs the sums in connection with the suit transactions. Thus, when the transaction relating to the export finances was guaranteed by the ECGC and the Plaintiffs lodged their claim with the ECGC and recovered the amounts, then, the instant suit is not maintainable and deserves to be dismissed. Shri Chotani submits that suppression of such material fact and non-joinder of Export Credit Guarantee Corporation (ECGC) to the suit is fatal. Further, none of the claims and particularly annexures ''F'' and ''G'' to the plaint are proved as the documents have not been marked as Exhibits. In such circumstances, the defence of the Defendants deserves to be accepted and the Suit must be dismissed.

In the light of the above, the only issue that is required to be answered is whether the Plaintiffs have proved that they are entitled to recover from the Defendants the sums mentioned in prayer Clauses (a) and (b) of the plaint. My answer to this question is in the negative. I hold that the Plaintiffs have not proved their claim and therefore the suit deserves to be dismissed.

The reasons for the aforesaid conclusion are these. The claim of the Plaintiffs arises out of a credit facility, namely, Packing Credit Loan. Though it is termed as Packing Credit Loan-cum-Foreign Documentary Bill Discounting Facility apart from the letter of sanction dated 12.9.1978 there are documents which would evidence any particular sum reaming to be paid under the said facility. Pertinently the Defendants admit the execution of the letter of sanction. If this document is admitted and the contents thereof can be considered, even then, far from supporting Plaintiffs'' case that would go contrary to the same. The letter of sanction refers to usual terms and conditions and stating that Packing credit limit of Diamond is to the tune of Rs. 3,00,000/- with ECGC cover. The other sum is mentioned as Rs. 5,00,000/- and pertaining to the Foreign Documentary Bills. The letter of sanction itself states that post-shipment advances to be covered under the ECGC whole turnover post-shipment guarantee. If this is the letter of sanction and the Plaintiffs themselves refer to ECGC cover therein as term and condition of this sanction of loan, then one fails to understand as to why in the plaint the Plaintiffs maintain complete silence with regard to the ECGC cover and the guarantee of ECGC. There is substance in the contentions of Shri Chotani that the Plaintiffs have suppressed material facts with regard to their claim in the Suit. The Plaintiffs ought to have come out clean with regard to the nature of the guarantee given by ECGC and whether any claim was lodged by the Plaintiffs with them. If the claim was lodged, what was the outcome of the same should have also been disclosed. The Plaintiffs do not set out such material facts. By suppressing them in the plaint, they approach the Court and claim a decree on the basis of the same facilities. However, their witnesses while maintaining silence about ECGC cover admit in their cross examination that the transaction relating to the export finance is guaranteed by the ECGC. They admit that the transaction which is subject matter of this Suit was guaranteed by ECGC. They admit that the Plaintiff-Bank was able to recover the suit claim from the ECGC but volunteers to state that they could have claimed only 60% from the ECGC. They admit that guarantee issued by ECGC and the claim is not placed on record.

On a specific question that the entire sum is received by the Plaintiff-Bank from ECGC, the witness answers that the Bank has received 60% of the amounts. On another specific question as to why such facts are not disclosed in the plaint or why the statement of account reflecting such payment from ECGC is not produced. the only answer is notwithstanding such recovery, the suit can be prosecuted as the amount received from ECGC is required to be refunded. This is an admission given by both witnesses.

If the deposition of the Plaintiffs'' witnesses itself is perused it is clear that the Plaintiffs have approached this Court by completely withholding material and relevant facts pertaining to the suit transactions. The Suit is filed by a Nationalised Bank. It was the duty of a Nationalised Bank who is seeking to recover public money to come clean and state all the facts pertaining to the suit transactions and facility. It was not proper on their part to withhold material and relevant facts from this Court. Public officials performing public duty and seeking to recover public money are expected to be honest and truthful in their dealings. The least that is expected from such Officials when they approach a Court of law is to set out complete facts. This minimal expectation has not been fulfilled in this case. The Plaintiff-Bank is clearly guilty of suppression of material facts and must therefore be denied the reliefs.

That apart, the manner in which the suit has been prosecuted by the Plaintiffs speaks volumes of its conduct in Court. After the Suit was filed and issues were framed and burden was clearly on the Plaintiffs in so far as issue Nos. 1 and 2 are concerned, all that the Plaintiffs have done is to file affidavit in lieu in examination-in-chief of their witnesses. They filed affidavit of documents and a list. They purported to produce original documents. However, when the Suit was placed for recording evidence on more than one occasion, no attempt is made to prove the contents of the documents. Further, mere reference to the documents is not enough. In the instant case if the affidavit in lieu of examination-in-chief is perused, it is nothing but reproduction of the plaint. In the affidavit in lieu of examination-in-chief of Shri T. Munivelu, it is clearly stated that office copy of the original sanction letter dated 12.9.1978 has been either lost or misplaced by the Plaintiffs. While reproducing the statements and averments in the plaint, the affidavit makes no attempt to prove the contents of the documents. Although the statement of account has been referred none of the entries therein are proved. There is not even an attempt made to do so. On the other hand, it is admitted that even office copy of the letter of demand dated 8.7.1982 is lost. Merely stating that the Current A/c of Defendant No. 1 maintained by the Plaintiffs in the ordinary and regular course of business is not enough in the peculiar facts of this case. When the earlier affidavit of evidence (PW-1) was filed the statement of account was not produced. This lacuna was tried to be filled in by filing affidavit of PW-2. However, even PW-2 in the examination-in-chief does not prove the Account and the Entries therein. He merely reproduces and repeats the version of PW-1. Thus, neither of the witnesses have deposed about the contents of the documents. They have not even stated that the documents are maintained in the course of Banking business. They have not proved their contents at all. That the Plaintiffs were all throughout aware that the documents which are filed along with the list have not been marked as Exhibits is clear from what transpired in Court on 2.9.2009. That is the day on which the Plaintiffs produced the affidavit in lieu of examination of PW-2 Radhakrishna Kamath and made him available for cross examination. They concluded his examination in chief by not asking him a single question with regard to the documents annexed to the list. Even when the affidavit of PW-1 was taken on record no attempt was made to have the documents proved. The manner in which the suit is prosecuted raises doubt about the bonafides of the Plaintiffs'' claim. Therefore, when none of the documents are proved, no decree can be passed in favour of the Plaintiffs. The case of the Plaintiffs as set out in the plaint is not proved at all. It is just their version and no decree can be passed merely on their version. More, so when same is contested.

That the Plaintiffs are aware of this fact is clear from the cross examination of DW-1. In their cross examination, they seek to rely upon the documents which were filed along with the Plaintiffs'' list, by putting a question to DW-1 on their contents. When such course was objected and the question was disallowed, the Plaintiffs did not pursue the cross examination. In such circumstances, merely because the Defendants are unable to produce any document so as to support their version that there is no liability will not enable the Plaintiffs to have a decree in their favour. The Plaintiffs must independently prove their claim and having failed to do so I am left with no alternative but to conclude that the Plaintiffs have failed to prove issue Nos. 1 and 2. These issues cast the burden on the Plaintiffs which have miserably failed to discharge.

In the result, the issues are answered as under:

Issue No. 1- Negative;

Issue No. 2- Negative;

Issue Nos. 3,4 and 5- Affirmative;

Issue Nos. 6,7 and 8 do not survive.

Issue Nos. 9 and 10 not pressed.

Issue No. 1- Negative.

Resultantly the Suit is dismissed with costs.