STATE BANK OF BIKANER AND JAIPUR vs CHAVAN RISHI INTERNATIONAL LIMITED.

THIS is an appeal filed by State Bank of Bikaner & Jaipur (for short the Bank), who was the Opposite Party in the complaint filed by the present respondent " M/s. Chavan Rishi International Limited " against the order dated 19th August, 1992 passed by the State Consumer Disputes Redressal Commission, Delhi in Case No. C-285/91. In this order the parties will be referred to as they were arrayed in the complaint.

BRIEFLY , the facts are that on 7th May, 1991, complainant (Respondent herein) paid a sum of Rs. 5 lakhs to Mr. K.K. Kohli, proprietor, M/s. Shanti International vide cheque No. 902370 drawn on the Punjab National Bank, Barakhamba Road, New Delhi. In lieu of the said payment, M/s. Shanti International through Mr. K.K. Kohli, proprietor, issued/executed a Hundi/Promissory Note in favour of the complainant for a sum of Rs. 5 lakhs which was to mature after 3 months from the date of its issue, i.e., on 6th August, 1991. For due payment of the Hundi/ Promissory Note, Mr. K.K. Kohli also handed over to the complainant a bank guarantee dated 7th May, J991 issued by the Appellant Bank. According to the terms of the bank guarantee, the Appellant Bank had undertaken to indemnify the complainant to the extent of Rs. 5 lakhs in case Mr. K.K. Kohli, proprietor M/s. Shanti International made default in the payment of Hundi/Promissorv Note. It was further provided that claim under the bank guarantee could be lodged till 14th August, 1991. The debtor did not make the payment on the due date. The complainant invoked the bank guarantee but the Bank also did not make the payment. Thereupon the complainant filed the complaint before the State Commission, Delhi against the Bank claiming Rs. 7,30,000/-. This amount consists of Rs. 5,00,000/- which is the amount due under the bank guarantee plus Rs. 30,000/- as interest at the rate of 21 per cent per annum from 6.8.91 till the date of filing the complaint. Rs. 2,00,000/-were claimed as loss as according to the complainant, in anticipation of the recovery of Rs. 5,00,000/- he had entered into another deal which fell through when they did not receive the amount and suffered the said loss. The complaint was contested by the Bank who stated that there was no deficiency, fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance of service. The Bank further stated thatno fee or commission has been charged from the complainant. The claim made by the complainant in the complaint is also not covered under ''service, as defined in the Consumer Protection Act. The complaint was bad for non-joinder of necessary parties. M/s. Shanti International, which is a proprietorship concern of Mr. K.K. Kohli, has not been impleaded and its presence is necessary for effectual adjudication of the complaint, since the primary liability was and is that of M/s. Shanti International. It was further stated that the complaint involves intricate and highly disputed questions of fact as well as of law, the disposal of which would necessarily require a lengthy trial and the recording of voluminous evidence of witnesses and the scrutiny of documents and the same cannot be decided on the basis of affidavits and the appropriate and convenient Forum in which all the issues can be satisfactorily agitated and decided in a Civil Court

ON merits it was stated that the complaint is correct to the extent that M/s. Shanti International, executed a Hundi and the due date was after three months i.e. on 6th of August, 1991. M/s. Shanti International is a constituent of the Bank and had approached the Bank stating that the complainant has agreed to advance a loan of Rs. 5,00,000/- to Mr. K.K. Kohli, Proprietor, M/s. Shanti International, but the complainant required the Bank to furnish Bank guarantee to the effect that if he failed to make the payment, the amount would be claimed from the Bank on or before 14.8.91. The bank acceded to the request of Mr. K.K. Kohli and furnished the guarantee. It is further alleged that the Hundi, so drawn, is also not properly stamped. On the due dated, i.e., on 6th of August, 1991, the said Hundi for payment was not presented upon M/s. Shanti International. The legal position is that because of non-presentation of the instrument the Bank stands discharged /absolved from the liability, and there was no legal and valid demand. The complainant-company sent a demand Notice dated 6th August, 1991 to the Bank, wherein it was stated that they have sent a notice to M/s. Shanti International on 1st August, 1991, when the amount, in fact was not due. The presentment of the Hundi/Promissory Mote for payment is to be made as would be sufficient to charge the endorsers and other persons collaterally liable on the instrument. In default of presentment, the other parties to the instrument are discharged from the liabilities to the holder. The liability of the Bank arises only when there has been a legal and valid demand upon M/s. Shanti International and in case of failure to pay, only then the complainant could have invoked the guarantee, that too within the stipulated period. In the instant case, the Bank is not liable as there was no legal and valid demand. When the complainant contacted the Bank, they were advised that since the demand raised by them upon M/s. Shanti International is no valid /legal and was premature, the Bank cannot be held liable. The loss said to have been suffered by the complainant was also denied on the ground that it was a concocted one, without any basis, and there is no proximity between the claim and the alleged loss.

, THE State Commission overruled the preliminary objections raised by the appellant Bank. On merits it was held that: (i) THE Hundi/Promissory Note was not properly presented to the drawer for payment. (ii) Reliance was placed upon Section 76 of the Negotiable Instruments Act and it was held that in the present case the drawer and the drawee of the Hundi/Promissory Note is the same person and it has not been shown that the drawer suffered any injury for non-presentation of the negotiable instrument to him and thus the non-presentation of the Hundi/Promissory Note will not make any difference. (iii) THE document in question is in fact a Promissory Note and not a Hundi and as such was properly stamped.

THE State Commission accordingly accepted the complaint and awarded to the complainant Rs. 5,15,800/- (Rs. 5,00,000/- which is the principal amount plus Rs. 15,800/- as interest from 6.8.91 to 11.11.91 on which date the complaint was filed, at the rate of 12% p.a. with future interest from 12th November, 1991 till payment and directed the Bank to pay that amount. Feeling aggrieved the Bank has come before this Commission by way of this appeal. THE findings of the State Commission that the document in question executed by Mr. K.K. Kohli is a Promissory Note and that there was no presentation of it to the drawer/drawee were not challenged before us.

HOWEVER , when the case was reposted for hearing on the point as to what is the effect of the non-presentation of the Promissory Note to the drawee on the claim of the complainant upon the Bank and what defences are open to the Bank to the claim of the complainant against the Bank, the Bank in the writ submissions has raised the point that the document in question is a Hundi and not a Promissory Note.

WE have heard the parties and gone through the records. We are of the opinion that in the present case it is not necessary to decide whether the document executed by Mr. K.K. Kohli in favour of the complainant for a sum of Rs. 5.00 lakhs on 7th May, 1991 is a Promissory Note or Hundi. It may be mentioned that in the bank guarantee in question the document executed by K.K. Kohli of M/s. Shanti International on 7th May, 1991 in favour of M/s. Chavan Rishi International Ltd. has been referred to as a Promissory Note. We also think it unnecessary to go into the question whether the presentation of the said document to the drawer/drawee was necessary or not. However, we may mention that the finding of the State Commission that the non-presentation of the document (which has been held to be Promissory Note by the State Commission) will not make any difference as the drawer and the drawee of the Hundi/Promissory Note is the same person and it has not been shown that the drawer suffered any injury by non-presentation of the negotiable instrument and thus the case was covered by Section 76 of the Negotiable Instrument Act cannot be upheld. Section 76(d) of the Negotiable Instrument Act does not apply to a Promissory Note. Therefore, the defect of non-presentation of a Promissory Note to the drawer/drawee will not be cured under Section 76(d) of the Negotiable Instrument Act. The learned Counsel for the Appellant argued that the Respondent is not a ''consumer'' as defined in the Consumer Protection Act, 1986 (for short the Act). This point was not raised before the State Commission. Otherwise also this argument has no force. Facilities in connection with Banking have been included in the definition of ''service'' as defined Under the Act in Clause (o) of Section 2(1) of the Act. In fact before the State Commission the Bank had itself pleaded that there was no fault or imperfection or shortcoming in the service of the Bank. The Bank Guarantee has been executed by the Bank at the instance of M/s. Shanti International who is a constituent of the Bank. The beneficiary under the guarantee is M/s. Chavan Rishi International Ltd* The term ''consumer'' under the Act includes beneficiary of service. Therefore, the Respondent herein is clearly a ''consumer''.

THE relevant terms of the Bank Guarantee ih question read as follows: "In case of default in payment of the above Promissory Note, a due notice from M/s. Chavan Rishi International Ltd., New Delhi, the Bank hereby undertake to indemnify them to the extent of Rs. 5,00,000/- (Rupees five lacs only) within 7 days of serving of notice on the State bank of Bikaner and Jaipur, G-72 Connaught Circus, New Delhi. Notwithstanding anything contained herein before our liability under this Guarantee is restricted to Rs. 5,00,000/- (Rupees five lacs only) and shall remain in force upto 6.8.91 unless a demand or claim is lodged with us on or before 14.8.91 all your rights under this guarantee shall be forfeited and we shall be relieved and discharged from all liabilities of this guarantee thereafter. This Guarantee will be valid only subject to encashment of your Cheque No. 708370 for Rs. 5,00,000/- dated 7.5.91 drawn on Punjab National Bank, Barakhamba Road, New Delhi."

IT is not in dispute that the cheque issued by M/s. Chavan Rishi International Ltd. on 7th May, 1991 has been encashed by M/s. Shanti International. The learned Counsel for the Appellant argued that as the drawer/drawee stands discharged on account of non-presentation of the Hundi /Promissory Note, therefore, the Bank''s liability to indemnify the Respondent herein has come to an end. This argument has no force. The liability of the Bank is not dependent upon the liability of M/s. Shanti International to pay the amount of the Promissory Note executed by the latter. The only condition of the guarantee is that in case of default of payment of the above Promissory Note by the drawer, after due notice from the present respondent, the Bank undertook to indemnify the Respondent to the extent of Rs. 5.00 lakhs within 7 days of serving the notice on the Bank. The liability of the Bank was to remain in force upto 6th August, 1991 unless a demand of claim was lodged with the Bank on or before 14th August, 1991. It is not in dispute that the Respondent invoked the Bank Guarantee on 6th August, 1991. Along with that letter the Respondent-complainant had enclosed original Bank Guarantee and Hundi/Promissory Note and requested the Bank to make the payment within the stipulated period. This demand upon the Bank was made after the complainant vide letter dated 1st August, 1991 had demanded from Mr. K.K. Kohli, Proprietor " M/s. Shanti International, repayment of Rs. 5.00 lakhs by 6th August, 1991. The argument of the learned Counsel for the Appellant that the said demand upon the debtor was premature has no effect upon the liability of the Bank. The liability of the Bank to indemnify the Respondent was not dependent upon the demand being made upon the debtor. The only pre-condition was that in case of default of payment of the Promissory Note executed by Mr. K.K. Kohli, the Bank was to indemnify the Respondent-complainant. Such default has been committed by Mr. K.K. Kohli.

IN the light of the above discussion we are clearly of the opinion that the Appellant-Bank is liable to indemnify the Respondent-Complainant in terms of the guarantee issued by them. Consequently, we uphold the order of the State Commission and dismiss this appeal with costs which we assess at Rs. 5,000/-.