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2018 Supreme(Mad) 2389
IN THE HIGH COURT OF JUDICATURE AT MADRAS
S. MANIKUMAR, SUBRAMONIUM PRASAD, JJ.
M/S. Blue Star Limited - Petitioners
Versus
Andhra Bank, Adayar Branch & Ors. - Respondents
W.P.No.9643 of 2018 and W.M.P.No.11563 of 2018
Decided On : 20-07-2018
For the Petitioner: Mr. L. Prabahar.
For the Respondent: Mr. P. Veeraragharan.
The main legal point established in the judgment is that liability can be established based on the conduct of the parties, even in the absence of a written contract, under Section 62 of the Indian Contract Act 1872.
Headnote:
Guarantee - Liability for Bills Discounting Facility - The Recovery of Debts and Bankruptcy Act, 1993 - Section 62 of the Indian Contract Act 1872
Fact of the Case:
The petitioner, a distributor of television sets, entered into an agreement with a manufacturer for marketing television sets. The manufacturer defaulted on payments to a bank, and the bank sought recovery from the petitioner for the bills discounted by the bank for supplies made by the manufacturer.
Finding of the Court:
The court found that the petitioner had agreed to honor the bills discounted by the bank for the supplies made by the manufacturer, based on the letters and conduct of the petitioner. The court rejected the petitioner's argument of absence of privity of contract and held the petitioner liable.
Issues: The main issue was whether the petitioner was liable to pay the bank for the bills discounted by the bank for supplies made by the manufacturer, despite the absence of a direct contract between the petitioner and the bank.
Ratio Decidendi: The court held that the conduct of the petitioner, as evidenced by the letters and correspondences, indicated an agreement to pay the bank for the bills discounted, thereby establishing liability under Section 62 of the Indian Contract Act 1872.
Final Decision: The court upheld the decision of the Debts Recovery Appellate Tribunal, holding the petitioner liable to pay a sum of Rs.3,59,997/- to the bank with interest at the rate of 9% per annum.
SUBRAMONIUM PRASAD, J.
1. The present Writ Petition is directed against the order dated 22.03.2017 by the Debt Recovery Appellate Tribunal at Chennai in RA 78 of 2014.
2. The petitioner is a distributor of Television sets. One M/s. Mustaang Electronics Pvt. Ltd.,/second respondent herein is a manufacturer of Black and White Colour Television sets. The petitioner/appellant and M/s. Mustaang Electronics Pvt. Ltd. (respondent No.2 herein), entered into an agreement on 06.02.1985 for marketing Television sets manufactured by the second respondent. For this purpose, a sum of Rs.10 lakhs was given as advance by the appellant and this amount was to be utilized by Respondent No.2 for providing bank guarantee. Bank guarantee was not provided and therefore, it was agreed between the petitioner/appellant and the second respondent and that this sum was to be adjusted towards supply of television sets manufactured by the second respondent to the petitioner/appellant. The second respondent wanted some credit facilities from the banks. For this purpose, there were joint discussions between the officer of the bank (first respondent) the appellant and respondent No.2 on 22nd & 23rd May 1985.
3. A letter dated 24.05.1985 was sent by the appellant to respondent No.2 copy marked to respondent No.1 as to what transpired in the meeting held on May 22nd and 23rd, 1985. The relevant portion of the letter reads as under:
“We write this further the joint discussions our Mr. S.D. Malgonkar, and Mr. Gautam Bose had along with Mr. Pasad, Mr. Viswanath and Mr. Sumumaran of Andhar Bank at your office on may 22nd and 23rd 1985. This was specifically on the subject of your financing proposal consisting of Rs.10 lakhs bill discounting facility and Rs.10 lakhs cash credit facility pending with M/s. Andhra Bank, which we understand is likely to be approved by May 31, 1985.
It was suggested by the representatives of Andhra Bank that in order to assist you in your cash flow requirements and commencement of production, we should not adjust the advance of Rs.10 lakhs given to you under cover of our letter dated February 7, 1985 for a period of one month from date.
With a view to co-operate with you even beyond the normal terms agreed, we confirm having acceded to the above suggestion of the bank. Kindly ensure that all formalities are completed expeditiously and that your bank finances are available by end May as promised.
You may also forward to us details of bills and receipted challans pertaining to Blue Star Colour Televisions already supplied for that whatever finances are available to you will be utilised only for production of Televisions for Blue Star and for expenses only directly related to supplies to us.
Please however, note that our relaxation of earlier agreed terms is strictly subject to your improved performance and that you will deliver at least 8 Nos Blue Star CTVs per day for the balance period of May and atleast 300 sets during June 1985.
It has also been agreed that the advance of Rs.10 lakhs will attract interest at the rate of 18% per annum with immediate effect.”
4. This was followed by another letter on 31.05.1985 from the petitioner/appellant to first respondent/bank confirming receipt of 13 colour television sets. The letter reads as under:
We write this further to our earlier letter dated May 30, 1985 enclosing the accepted Power of Attorney executed by Mustanng Electronics Private Limited in your favour.
We wish to clarify that the list of various authorised singantories detailed in our earlier letter will be effective for all supplies made by Mustaang Electronics Private Limited to us henceforth. However, over the past couple of months, we have received a total of 13 Nos Colour Television sets from Mustanng Electronics Private Limited at our various locations as per statement below:-
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