The Motor General Finance Ltd. vs Manager, Central Bank of India and Others

B. Sudershan Reddy, J.—The petitioner in the instant writ petition prays for an appropriate writ particularly one in the nature of Mandamus declaring the action of the 2nd respondent in proceeding No. 3639/90/S-4, dated 23-12-1995 and also Telegraphic Message dated 21-1-1996 in insisting the payment of Rs. 96,491/- from the 1st respondent towards the encashment of Bank guarantee, as wholly arbitrary, highly illegal, unjust and unconstitutional, and contrary to the orders passed by this Court in W.P. No. 26317 of 1995 dated 22-11-1995 and 19-12-1995 and also the provisions of the A.P. Forest Act.

The lorry bearing No. AP-16T6368 which was financed by the petitioner''s company to one M.V. Satish Babu was seized by the Forest Range Officer on 18-8-1990 on the allegation that the said vehicle was involved in a forest offence. The said Satish Babu and the petitioner herein participated in the proceedings before the Authorised Officer and submitted the explanation stating that the cleaner was illiterate and due to the negligence of the driver, the illegal loading of timber into the said vehicle had occurred unfortunately.

The said vehicle was released on production of Bank guarantee by the petitioner for a sum of Rs. 2.25 lakhs. However, on the representation made by the said M.V. Satish Babu, the registered owner of the vehicle, the offence was compounded by the 2nd respondent by fixing the compensation of Rs. 96,491 /- together with confiscation of the timber seized. The vehicle was to be confiscated if the compensation amount was not paid. The appeal preferred by the petitioner herein in F.A. No. 2/92 on the file of the District Judge, Khammam was also dismissed on 14-7-1995 and the same is now confirmed by this Court by the Judgment dated 13-11-1996 in W.P. No. 26317/95.

The 2nd respondent by notice dated 16-9-1995 directed the petitioner- company to produce the vehicle within 15 days in the light of the Judgment of the District Judge, Khammam in F.A. No. 2/92. The same is followed by notice dated 23-12-1995 to the 1st respondent calling upon him to send an amount of Rs. 96,491 /-on the ground of dismissal of the appeal preferred by the petitioner. This writ petition is mainly filed questioning the proceedings of the 2nd respondent in proposing to encash the Bank guarantee on the ground of pendency of W.P. No. 26317/1995.

This writ petition does not require any further adjudication as W.P. No. 26317/1995 questioning the order passed by the appellate authority itself is dismissed. The order passed by the Authorised Officer compounding the offence and fixing the amount of compensation in lieu of confiscation is upheld. In such view of the matter, the 2nd respondent is entitled to invoke the Bank guarantee and no relief could be granted to the petitioner in this writ petition.

However, Sri Tulasi Reddy, learned Govt Pleader for Forests submits that even otherwise the Bank guarantee furnished by the petitioner is liable to be invoked by the 2nd respondent herein as such encashment of the Bank guarantee does not depend upon the result of the decision in the dispute between the parties. It is submitted that the Bank guarantee is an independent and distinct contract between the Bank and the 2nd respondent and the same is not qualified by a restrictive covenant. The learned Counsel placed reliance upon the decision of the Apex Court in Ansal Engineering Projects Ltd. Vs. Tehri Hydro Development Corporation Ltd. and Another, in which the Apex Court held that:

"It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity (exists), is pleaded and prima facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the bank, had arisen in performance of the contract or execution of the works undertaken in furtherance thereof. The bank unconditionally and irrevocably promised to pay, on demand, the amount of liability undertaken in the guarantee without any demur or dispute in terms of the bank guarantee. The object behind is to inculcate respect for free flow of commerce and trade and faith in the commercial banking transactions unhedged by pending disputes between the beneficiary and the contractor.

It is equally settled law that in terms of the bank quarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the amount specified in the bank guarantee. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. The Court exercising its power cannot interfere with enforcement of bank guarantee/letters of credit except only in cases where fraud or special equity is prima facie made out in the case as triable issue by strong evidence so as to prevent irretrievable injustice to the parties. The trading operation would not be jettisoned and faith of the people in the efficacy of banking transactions would not be eroded or brought to disbelief."

In view of the authoritative pronouncement of the Apex Court, nothing further survives for adjudication by this Court in this Writ Petition. The writ petition is accordingly dismissed. No costs.