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Judgment
K.L. Manjunath, J.—The legality and correctness of the order passed by the Debt Recovery Appellate Tribunal [DRAT], Chennai in RA No. 27 of 2006 dated 25-8-2006 is called in question in this petition.
The facts leading to filing of this writ petition are that: First respondent - Canara Bank - filed Original Application No. 1299 of 1997 before the Debts Recovery Tribunal [DRT], Bengaluru against Canara Krishi Agencies and seven others. The writ petitioner was the eighth respondent in the original application. According to the bank, the first defendant - Canara Krishi Agencies is a proprietorship concern engaged in agro-chemical business, defendants 2 and 3 stood as guarantors to the loan granted to first defendant by the bank, defendants 4 to 7 are the mortgagors and eighth defendant [writ petitioner] was a debtor to the first defendant, as per the supply bills. First defendant-respondent had approached the bank for sanctioning of guarantee limit of Rs. 15.00 lakh and open cash credit (OCC) limit of Rs. 15.00 lakh. The bank sanctioned OCC limit of Rs. 5.00 lakh and the same was enhanced to Rs. 10.00 lakh on 29-10-1994 and a guarantee in favour of one TCM Kalamserry was issued for Rs. 15.00 lakh and the same was guaranteed by the other defendants. Again, the bank sanctioned a further financial assistance by way of key-shut cash credit limit of Rs. 47.00 lakh on 31-1-1995 and supply limit of Rs. 30.00 lakh.
On the ground that the amount due to the bank was not paid by the first defendant and the same was also discharged by the guarantors and also on the ground that the petitioner herein, who is the eighth defendant in the original application had agreed to remit the sale proceedings of the supply made by the first defendant directly to the Canara bank, did not make payment and on the cheques drawn by the writ petitioner were discounted by the first defendant, therefore the case was filed against the writ petitioner also.
Prior to the filing of the original application, the bank had raised a dispute against the writ petitioner invoking the provisions of Section 70 of the Karnataka Cooperative Societies Act, 1959 [for short, the Act] before the joint registrar of cooperative societies. The said dispute came to be dismissed on the ground that the provisions of Section 70 of the Act has no application, since the bank cannot be considered as a cooperative society. Aggrieved by the dismissal of the dispute, the bank had filed WP No. 36289 of 1995 against the writ petitioner herein and others. This court disposed of the said writ petition granting liberty to the bank to proceed against the writ petitioner herein by initiating proceedings before the DRT. In those circumstances, the writ petitioner was arrayed as eighth defendant in the original application, based on the promise made by the petitioner to the bank and also on the ground that the petitioner had not sent the proceeds of the bill Nos. 806, 807 and 808.
The writ petitioner herein contested the matter before the DRT, on the ground that there is no privity of contract between the bank and the petitioner and the petition filed is not maintainable. According to the writ petitioner, it used to purchase copper sulphate from the second respondent herein to its branches and based on the acknowledgements produced by the second respondent, cheques in question were issued, which were discounted by second respondent and that a letter dated 2-2-1994 was issued to the bank, agreeing to send the proceedings of the Bill Nos. 807 on the presumption that second respondent had supplied the copper sulphate and it was learnt by the petitioner that the supplies were not made and cheques were obtained by the second respondent herein on misrepresentation of facts and therefore requested the DRT to dismiss the application against the writ petitioner.
The DRT, having examined the matter in detail, dismissed the case against the writ petitioner herein by its order dated 9-11-2004, on the ground that there is no privity of contract between bank and the writ petitioner. Aggrieved by the same, the original debtor and two guarantors filed appeal in RA No. 65 of 2005 and the bank filed RA No. 27 of 2006, challenging the dismissal of its claim against the writ petitioner herein.
The DRAT considering the arguments advanced by the parties and examining the material placed before it, came to the conclusion that the DRT had committed an error in dismissing the claim of the bank against the writ petitioner, in view of Annexure-51 and 52, holding that there is privity of contract between the bank and the writ petitioner herein. Accordingly, the appeal filed by the bank came to be allowed fixing the liability on the writ petitioner to an extent of Rs. 16,02,407.50 with simple interest at the rate of 9.5% p.a. Aggrieved by the same, the present writ petition is filed.
Sri A. Keshava Bhat, learned counsel for the petitioner submits that the DRAT has committed an error in reversing the findings of the DRT. According to him, there is no privity of contract between the bank and the petitioner. Merely because cheques were issued by the petitioner in favour of the original borrower and if such cheques were discounted by the original borrower and if the said cheques were dishonoured at the instance of the writ petitioner, the bank cannot proceed against the petitioner and the bank can only proceed against the person who discounted the cheques. According to him, DRAT has committed an error in granting a decree based on Annexure-51 and 52 - two letters written by the petitioner. In the circumstance, he requests the court to set aside the order passed by the DRAT against the petitioner.
Per contra, Sri Bhat, learned counsel for the first respondent-bank submits that the petitioner herein had agreed to send the proceeds of the bills dated 30-1-1995 and 2-2-1994 vide Bills Nos. 806 and 807 and based on the promise made by the petitioner, cheques issued by the petitioner were allowed to be discounted by the bank in favour of the original borrower. Therefore, he contends that there is a privity of contract between the bank and the writ petitioner in regard to the proceeds of bill Nos. 806 and 807 and if the DRAT appreciated these two exhibits and the conduct of the writ petitioner, it is justified in granting relief against the writ petitioner and in favour of the bank.
Having heard the learned counsel for the parties, what is to be considered by us in this petition is whether there exists a privity of contract between the first respondent-bank and whether the Bank can proceed against the petitioner before the DRT based on Annexure-51 and 52 - letters dated 31-1-1995 and 2-2-1994 - and also based on the cheques drawn by the petitioner in favour of the original borrower, which were discounted by it and later dishonoured at the instance of the petitioner?
It is not in dispute that on the application filed by the original borrower M/s. Canara Krishi Agencies various loans were sanctioned by the bank. It is also not in dispute that the writ petitioner used to purchase copper sulphate and other chemicals for its business from the original borrower M/s. Canara Krishi Agencies and after supply of materials by the original borrower, cheques were issued by the writ petitioner and before issuing cheques, a promise is made to the manager of the bank that it would send the proceeds of the bill Nos. 806 and 807 dated 31-1-1995 and 2-2-1994 respectively directly to the bank. These documents are marked as Annexure-51 and 52. Issuance of these letters is not in dispute. Petitioner is also not disputing the issuance of cheques in favour of the original borrower by the writ petitioner based on the supply made by the original borrower to the branches of the writ petitioner and the branch managers of the writ petitioner have issued acknowledgements for having taken delivery of the copper sulphate covered under bill Nos. 806 and 807.
Before issue of cheques by the writ petitioner, it has addressed letters to the bank stating that proceeds under the bill Nos. 806 and 807 would be sent to the bank directly and based on the same, the cheques were allowed to be discounted and if the cheques were dishonoured subsequently, the bank is justified in proceeding against the petitioner. Therefore, the writ petitioner cannot say that there is no privity of contract between the bank and it. We would have appreciated the contentions of the learned counsel for the petitioner if the petitioner had issued the cheques in favour of the original borrower, in the absence of Annexure-51 and 52 and even if said cheques were dishonoured, in such an event, it was for the bank to proceed against the original borrower and not against the petitioner.
Therefore, if DRAT having due regard to Annexure 51 and 52 and the cheques discounted by the original borrower, has allowed the claim of the bank, this court cannot find fault with the order of the appellate tribunal. The petitioner has not placed any material to show that second respondent had not supplied copper sulphate to the petitioner. According to us, DRT has committed an error in not considering the material evidence before dismissing the claim of the bank against the writ petitioner. The mistake committed by the DRT has been set at right by the DRAT. In the circumstance, we answer the point formulated by us in favour of the bank and against the petitioner. Consequently, the petition is dismissed.