NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO.4446 OF 2006

PUNJAB & SIND BANK … APPELLANT

Vs.

M/S. C.S. COMPANY & ORS.        … RESPONDENTS

JUDGMENT

(SMT.) RANJANA PRAKASH DESAI, J.

1. The appellant – Punjab & Sind Bank (for short,  “the  

plaintiff-bank”)  has  challenged  in  this  appeal,  judgment  

and order dated 4/6/2003 passed by the Kerala High Court  

whereby the appeal filed by original defendants 1, 2, 4, 7  

and  8  challenging  the  judgment  and  decree  of  the  Ist  

Additional  Sub-Judge,  Ernakulam,  decreeing  the  plaintiff-

bank’s suit for realization of money was allowed.  

2. The title of the proceedings underwent changes during  

the  course  of  time  on  account  of  death  of  some  of  the  

partners and/or guarantors and also on account of orders  

passed by the courts.  There are also certain typographical  

errors in the amended cause title of the appeal.  It is not  

necessary for us to give details  of  various changes which  

were  brought  about  in  the  title.    Suffice  it  to  say  that  

respondent  1  herein  is  the  partnership  firm  i.e.  original  

defendant  1  and  the  other  respondents  are  either  its  

partners and/or heirs of the partners or guarantors and/or  

heirs of the guarantors.  By order dated 29/1/2003, the High  

Court has added the Kerala State Electricity Board (for short,  

“KSEB”)  as respondent 6 and it  is  respondent 10 herein.  

We shall, however, for the sake of convenience refer to the  

parties as per their status in the trial court.

3. At  the  outset,  we  must  make  it  clear  that  we  have  

reached  a  conclusion  that  the  defendants  have  taken  a  

dishonest stand to evade the liability to make payment to  

2

the  plaintiff-bank.   At  the  cost  of  making  this  judgment  

prolix,  we  need  to  make  a  detailed  reference  to  the  

pleadings of the parties because our conclusion, to a large  

extent,  is  substantiated  by  the  pleadings.   The  facts,  as  

disclosed by the plaintiff-bank in the plaint, are as under:

a) Defendant 1 is a partnership firm engaged in the  

business of engineering works and defendants 2, 3  

and  4  are  its  partners,  who  undertook  the  

execution  of  certain  civil  engineering  works  

awarded to them by KSEB.   As per the terms of  

the tender, defendants 1 to 4 had to furnish Bank  

Guarantees  to  KSEB.   They  approached  the  

plaintiff-bank for issuance of Bank Guarantee for  

an  aggregate  amount  of  Rs.20  lakhs  on  their  

behalf in favour of KSEB. The plaintiff-bank agreed  

to  do  so  on  certain  terms  and  conditions.  

Defendants 1 to 4 accepted the said conditions.  

The  plaintiff-bank  on  11/5/1983  executed  and  

3

offered a Bank Guarantee on behalf of defendant 1  

to KSEB for Rs.1 lakh as and by way of security  

deposit  as  per  the  terms  of  the  tender.  

Thereafter,  the  plaintiff-bank  on  24/6/1983  

further  executed  and  offered  on  behalf  of  

defendant  1  another  Bank  Guarantee  of  Rs.19  

lakhs to enable defendants 1 to 4 to avail of the  

amount  of  Rs.19  lakhs  as  mobilization  advance  

from KSEB  for  the  purpose  of  execution  of  the  

work undertaken by defendant 1.  

b) According  to  the  terms  of  the  Bank  Guarantee  

dated 11/5/1983, the amount of Bank Guarantee  

not exceeding Rs.1 lakh was payable to KSEB on  

demand at any time during its currency without  

any  demur.   In  consideration  of  the  

aforementioned Bank Guarantee, defendant 1 by  

its partners i.e. defendants 2, 3 and 4 agreed and  

undertook  to  indemnify  the  plaintiff-bank  by  a  

4

Deed  of  Indemnity  and  Guarantee  dated  

11/5/1983  together  with  all  costs  and  charges  

which may be incurred or become payable by the  

plaintiff-bank  in  connection  with  the  Guarantee  

given to KSEB.  As further security, defendants 2,  

3, 4, 5, 6, 7 and 8 also undertook and agreed to  

indemnify the plaintiff-bank from and against all  

claims,  demands,  losses,  charges  and  expenses  

which the plaintiff-bank may sustain in respect of  

any liability incurred by it and also guaranteed to  

make  payment  of  the  amount  together  with  

interest,  costs,  commission and charges payable  

thereon by the plaintiff-bank.  As security for the  

aforementioned  Bank  Guarantee  of  Rs.1  lakh,  

defendant  2  deposited  the  title  deeds  of  his  

property  situated  in  Kottayam  Village  on  

11/5/1983.   He  confirmed  the  deposit  of  title  

deeds by memorandum of deposit of title deeds.  

Defendant  5  as  security  for  the  aforementioned  

5

Bank Guarantee deposited the title deeds of her  

properties comprised in Survey No.10/6/2 situated  

in  Kottayam  Village   with  intent  to  create  a  

security thereon by way of mortgage in favour of  

the plaintiff-bank on 11/5/1983,  at  the plaintiff-

bank’s office at M.G. Road, Ernakulam in the City  

of Kochin.  Defendant 5 also confirmed the deposit  

of title deeds by Memorandum of deposit of title  

deeds  executed  on  11/5/1983.   Defendant  6  

through his power of attorney holder - defendant  

4,  deposited  the  title  deeds  of  his  property  

comprised  in  Survey  No.983/5  of  Ernakulam  

Village with intent to create a security by way of  

mortgage in favour of the plaintiff-bank on behalf  

of  defendant  1.   He  executed  a  Memorandum  

confirming the said deposit of title deeds through  

his  agent  and  power  of  attorney  holder.  

Defendants  7  and  8  also  deposited  with  the  

plaintiff-bank  on  11/5/1983  at  their  Branch  at  

6

M.G.  Road,  Ernakulam  the  title  deeds  of  their  

properties  comprised  in  Survey  No.51/9B  of  

Vijayapuram  Village  in  Kottayam  Taluka  with  

intent  to  create  a  security  thereon  by  way  of  

mortgage  in  favour  of  the  plaintiff-bank.  

Defendants  7  and  8  also  confirmed  the  said  

deposit  of  title  deeds  of  their  properties  by  

executing  Memoranda  of  deposit  of  title  deeds.  

Defendant  4  charged  and  assigned  the  fixed  

deposit  receipt  for  the  sum  of  Rs.25,000/-  in  

favour of the plaintiff-bank as per the security for  

the said amount of the Guarantee.  

c) In the trial court the plaintiff bank produced the  

Deed  of  Indemnity  and  Guarantee  executed  by  

defendants 2, 3 and 4 with a copy of the Bank  

Guarantee for Rs.1 lakh, the Deed of Indemnity  

and Guarantee executed by defendants 2, 3, 4, 5,  

6,  7  and  8  as  further  security,  title  deeds  

7

deposited by defendant 2 as security by way of  

equitable mortgage in favour of the plantiff-bank  

in  respect  of  Bank  Guarantee  of  Rs.1  lakh,  

Memorandum  dated  11/5/1983  executed  by  

defendant 2 confirming the deposit of the said title  

deeds, title deeds deposited by defendant 5, the  

Memorandum   dated  11/5/1983  executed  by  

defendant 5 confirming deposit of title deeds and  

Memoranda of deposit of title deeds executed by  

defendant 6 through his Power of Attorney holder  

defendant 4 and by defendants 7 & 8 confirming  

the deposit of title deeds of their properties.

d) Defendant  1  wanted  to  avail  of  a  mobilization  

advance  of  Rs.19  lakhs  from  KSEB.   KSEB,  as  

security  for  such  payment  of  mobilization  

advance,  required  defendant  1  to  furnish  Bank  

Guarantee  for  the  amount  of  Rs.19  lakhs.  

Defendant  1  requested  the  plaintiff-bank  to  

8

furnish the Bank Guarantee in favour of KSEB for  

the  amount  of  Rs.19  lakhs.   The  plaintiff-bank  

agreed  to  furnish  the  said  Bank  Guarantee  on  

certain  conditions  which  defendant  1  accepted.  

Accordingly,  the  plaintiff-bank  executed  and  

offered  the  Bank  Guarantee  on  behalf  of  

defendant 1 to KSEB for the sum of Rs.19 lakhs.  

According to the said Bank Guarantee, the sum of  

Rs.19 lakhs was payable to KSEB on demand by  

the  Chief  Engineer  (Civil)  General  at  any  time,  

during the currency including the period covered  

by its extension without any demur and on a mere  

demand.   The  Guarantor  had  agreed  that  such  

demand  made  on  the  plaintiff-bank  shall  be  

conclusive  as  regards  the  amounts  due  and  

payable  under  the  Bank  Guarantee  and  the  

Guarantor had to make the payment without any  

demur.  As consideration for giving the said Bank  

Guarantee,  defendant  1  by  its  partners  viz.  

9

defendants 2, 3 and 4 undertook to indemnify the  

plaintiff-bank  by  a  Deed  of  Indemnity  and  

Guarantee  from  all  claims,  amounts,  charges,  

damages and expenses which may be caused or  

sustained by the plaintiff-bank or for which it may  

become liable by reason of having given the said  

Bank Guarantee.  It was also specifically agreed  

that  in  connection  with  the  said  Guarantee,  the  

plaintiff-bank  without  going  into  the  question  

whether  the  terms  of  the  agreement  or  any  

obligations with the Chief Engineer  (Civil) General  

or  KSEB  had  been  fulfilled  or  not  on  notice  of  

demand  from the  beneficiary  of  the  Guarantee,  

was entitled in its own absolute discretion to make  

payment of the whole or part of the amount of the  

Guarantee  as  may  be  called  upon  to  do  so  by  

KSEB without any reference to the defendants and  

that  the defendants  shall  not  have any right  to  

question  in  any  way  whatsoever  the  making  of  

10

such  payment  by  the  plaintiff-bank.   As  further  

security,  defendants  2  to  8  also  undertook  to  

indemnify the plaintiff-bank from and against all  

claims,  demands,  loss,  charges  and  expenses  

which  the  plaintiff-bank  may sustain  or  incur  in  

respect  of  any  liability  incurred  or  might  be  

incurred  and  guaranteed  to  make  payment  on  

demand of the amount of the Guarantee together  

with  interest,  commission,  costs  and  charges  

payable thereon by the plaintiff-bank.  As further  

security for the aforementioned Bank Guarantee of  

Rs.19 lakhs, defendants 2, 5, 6, 7 and 8 extended  

and created the mortgage by deposit of title deeds  

of their respective properties which were already  

charged and mortgaged in favour of the plaintiff-

bank to cover and apply to the pecuniary liability  

in respect of the amount of Rs.19 lakhs together  

with costs, charges, interests, etc. to the plaintiff-

bank.   The  said  defendants  further  declared  at  

11

their  personal  visit  to the plaintiff-bank’s  branch  

on 24/6/1983 that the mortgage by deposit of title  

deeds  already  created  on  their  respective  

properties  on  11/5/1983  shall  also  apply  and  

stand  extended  to  and  cover  the  further  Bank  

Guarantee  of  Rs.19  lakhs  also.   The  said  

defendants  confirmed  by  Memoranda  dated  

24/6/1983 the deposit of the title deeds creating  

the  mortgage  of  their  respective  properties  in  

favour  of  the  plaintiff-bank  and,  thereafter,  

applying  and  extending  the  security  by  way  of  

mortgage  of  deposit  of  title  deeds  for  the  

Guarantee of Rs.19 lakhs.  Defendant 1 charged  

and  assigned  the  fixed  deposits  for  the  sum of  

Rs.4,75,000/-  which amount  was deposited with  

the  plaintiff-bank  as  security  for  the  

aforementioned facility or liability incurred by the  

plaintiff-bank.   

12

e) The plaintiff-bank produced in the trial court the  

Deed  of  Indemnity  and  Guarantee  executed  by  

defendants  2,  3  and  4  together  with  a  copy of  

Bank  Guarantee  of  Rs.19  Lakhs,  the  Deed  of  

Indemnity and Guarantee executed by defendants  

2, 3, 4, 5, 6, 7 & 8 as further security and the  

Memoranda  dated  24/6/1983  of  deposit  of  title  

deeds  of  various  properties  executed  by  the  

defendants  confirming  deposit  of  title  deeds  of  

their  properties.  Defendant  1  availed  of  Rs.19  

lakhs as mobilization advance from the KSEB on  

the strength of the second Guarantee mentioned  

hereinabove.    

f) KSEB by its  letter  dated 19/6/1984 called  upon  

the  plaintiff-bank  under  Clause  5  of  Deed  of  

Guarantee to pay a sum of Rs.19 lakhs being the  

full amount of the said Guarantee to KSEB.  The  

plaintiff-bank informed defendant 1 by telephone,  

13

telegram and by letter about the invoking of the  

Bank  Guarantee  by  KSEB  and  called  upon  

defendant 1 to remit Rs.19 lakhs with interest at  

18.5% per annum immediately in terms of counter  

Guarantee  executed  by  them  to  enable  the  

plaintiff-bank to make payment to KSEB.  KSEB  

insisted  upon  compliance  with  its  demand  in  

accordance with Clause 5 of the Bank Guarantee.  

The plaintiff-bank was bound to pay the sum of  

Rs.19 lakhs being the amount of the second Bank  

Guarantee and accordingly the plaintiff-bank paid  

the said amount by way of Demand Draft dated  

23/6/1984 to KSEB.  

g) The plaintiff-bank called upon the defendants to  

pay the amount of the Bank Guarantee of Rs.19  

lakhs.  The defendants gave assurances that the  

amount  would  be  paid  but  did  not  make  any  

payment.   The  plaintiff-bank,  therefore,  

14

appropriated a sum of Rs.4,56,962.80 being the  

balance  amount  of  the  fixed  deposit  after  

adjusting  the  over  paid  interest  on  the  fixed  

deposit.   After  appropriating  and  adjusting  the  

said amount, a sum of Rs.14,43,037.92 together  

with interest at 20% per annum remained due and  

payable  by  the  defendants  in  respect  of  the  

second  Bank  Guarantee  as  on  24/5/1986  being  

the  date  on  which  the  suit  was  filed  by  the  

plaintiff-bank.   

h) Defendant 1 requested the plaintiff-bank to extend  

the Bank Guarantee  in  favour  of  KSEB for  Rs.1  

lakh executed on 11/5/1983 for a further period of  

one  year  from  11/5/1984  till  11/5/1985.   The  

plaintiff-bank, accordingly, extended the said Bank  

Guarantee upto 11/5/1985.  It  appears that the  

KSEB terminated the contract given to defendant  

1  on  account  of  breach  of  the  terms  and  

15

conditions  of  the  contract.   KSEB  by  its  letter  

dated 15/10/1984 called upon the plaintiff-bank to  

pay a sum of Rs.1 lakh being the amount of the  

first  Bank  Guarantee  executed  by  the  plaintiff-

bank  on  behalf  of  defendant  1  to  KSEB.   The  

plaintiff-bank,  in  turn,  intimated  to  defendant  1  

and called upon them to remit the said amount.  

However,  the  defendants  did  not  make  the  

payment.  The plaintiff-bank had to pay to KSEB a  

sum of Rs.1 lakh on 5/8/1985 by Demand Draft as  

per the terms of the Bank Guarantee.  Thus, in all,  

the  plaintiff-bank  had  to  pay  Rs.20  lakhs  in  

aggregate under two Bank Guarantees furnished  

on behalf of defendant 1 to KSEB.  Since despite  

letters,  notices  and  repeated  requests,  the  

defendants did not pay the balance amount, the  

plaintiff-bank  filed  a  suit  in  the  Court  of  1st  

Additional Sub-Judge at Ernakulam for an amount  

of  Rs.21,54,464.20  with  future  interest  from  

16

1/5/1986 at 20% per annum.   

4. In their joint written statement, defendants 1, 2 and 4  

did  not  deny  the  issuance  of  Bank  Guarantees  by  the  

plaintiff-bank, but denied the dates thereof.  They put the  

plaintiff-bank  to  proof  regarding  the  dates  of  the  said  

Guarantees as, according to them, the dates were within the  

knowledge of the plaintiff-bank only.  They admitted that for  

the purpose of Guarantees furnished by the plaintiff-bank on  

behalf of defendant 1-firm, defendant 1-firm deposited 25%  

of  the  amount  in  cash  with  the  plaintiff-bank.   They,  

however, denied that any mortgage was created in favour of  

the  plaintiff-bank  by  any  one  of  the  defendants.   They  

denied the execution of documents referred to in the plaint.  

They did not admit the Deed of Indemnity and Guarantee  

dated 11/5/1983 but stated that  the Managing Partner of  

defendant 1 had given a power of attorney in favour of the  

plaintiff-bank authorizing the plaintiff-bank to adjust 5% of  

the bill amount due to defendant 1 from KSEB through the  

17

plaintiff-bank and, the amount so withheld was allowed to be  

held as security by defendant 1 in case KSEB invoked the  

Bank Guarantee.  They denied that defendants 2 to 8 went  

to the plaintiff-bank on 11/5/1983 to deposit the title deeds  

of  their  properties.   It  was,  however,  admitted  that  

defendant 4 had by his letter dated 4/4/1983 forwarded to  

the plaintiff-bank title deeds of the properties described in  

the Schedule for the purpose of scrutiny.   They admitted  

that  on  the  insistence  of  KSEB  to  furnish  the  Bank  

Guarantee, the plaintiff-bank was requested to furnish Bank  

Guarantee of Rs.19 lakhs in favour of KSEB.  They put the  

plaintiff-bank to proof regarding the terms and conditions of  

the  said  Bank  Guarantee.   Securities  and  Deed  of  

Indemnities were not admitted. They denied that any of the  

defendants went to the plaintiff-bank on 24/6/1983 to make  

any  declaration.   They  admitted  the  assignment  of  fixed  

deposit  of  a  sum  of  Rs.4,75,000/-.   They  admitted  that  

mobilization  advance  of  Rs.19  lakhs  was  availed  of  by  

defendant 1.  They, however, stated that it was not availed  

18

of on the strength of Bank Guarantee but the basis thereof  

was supplementary agreement executed between KSEB and  

defendant 1 in which, there was no stipulation to furnish any  

Bank  Guarantee.   They  put  the  plaintiff-bank  to  proof  

regarding the amounts which are said to have been paid by  

it to KSEB.  They denied their liability to pay the amount to  

KSEB  since,  according  to  them,  the  invocation  of  Bank  

Guarantee and the alleged payment made by the plaintiff-

bank  was  not  done  in  terms  of  the  Guarantee  and  also  

because according to them KSEB had illegally terminated the  

contract.   They  contended  that  the  appropriation  of  

Rs.4,56,962.80 is illegal and the plaintiff-bank had no right  

to  reduce  the  rate  of  interest  to  5%  on  the  amount  

deposited by defendant 1.  They denied that the plaintiff-

bank had extended the Bank Guarantee of Rs.1 lakh for a  

further  period  of  one  year  in  favour  of  KSEB.   They  

contended  that  defendant  1  had  already  filed  a  suit  for  

recovery of an amount of Rs.19 lakhs and interest thereon  

against the plaintiff-bank for illegal reversal / cancellation of  

19

entry  of  the  amount  which  was  already  credited  in  the  

account of defendant 1.  According to these defendants, the  

story regarding countermanding of the cheque was created  

for the purpose of escaping the liability to pay the amount to  

defendant 1.  

5. Defendants  6  to  8  filed  joint  written  statement  

contending that they are not partners of defendant 1-firm  

and  they  are  not  concerned  with  the  Bank  Guarantees.  

They denied that  they had created equitable  mortgage in  

respect  of  their  properties  in  favour  of  the  plaintiff-bank.  

They  denied  the  execution  of  Deed  of  Indemnity  and  

Guarantee dated 11/5/1983 and their  alleged visit  to  the  

plaintiff-bank on 11/5/1983.  They contended that defendant  

4 had forwarded the title deeds of their  properties to the  

plaintiff-bank only  for  scrutiny.   They contended  that  the  

plaintiff-bank had taken blank signed papers from them on  

or about 11/5/1983 when the first Bank Guarantee for Rs.1  

lakh was issued in favour of KSEB and these signed blank  

20

papers  were  utilized  for  creating  equitable  mortgage,  

indemnity,  guarantee and other documents.   According to  

these defendants, the said documents are not genuine but  

are  fabricated  subsequently  on  the  blank  signed  papers  

obtained from them.  

6. Though initially, defendants 1, 2 and 4 did not allege  

that the plaintiff-bank had fabricated any documents they  

subsequently  amended  their  written  statement  and  

contended  that  the  plaintiff-bank  had  taken  blank  signed  

papers  from  them  on  11/5/1983  when  the  first  Bank  

Guarantee for a sum of Rs.1 lakh was issued in favour of  

KSEB.  These papers were used for the purposes of creating  

documents in favour of the plaintiff-bank.  They contended  

that all the documents like counter guarantees, confirmation  

of deposit of title deeds, etc. more particularly described in  

paragraph 2 of the plaint were fabricated by the plaintiff-

bank by utilizing some of the said signed blank papers and,  

therefore, they are not binding on the defendants.    

21

7. By judgment and order dated 1/1/1991, the trial court  

decreed  the  suit.   It  directed  the  defendants  to  pay  

Rs.19,00,000/- with interest at the rate of 18.5% per annum  

from 23/6/1984 till date of the suit with future interest on  

Rs.14,43,037.20  (Rs.19,00,000/-  minus  Rs.4,56,962.80  

adjusted  by  the  plaintiff-bank)  at  the  rate  of  18.5% per  

annum from the date of suit till realization.  The trial court  

further directed the defendants to pay to the plaintiff-bank  

Rs.1,00,000/- with interest at the rate of 18.5% per annum  

from 15/10/1984 till realization.    The trial court held that  

the plaintiff-bank is entitled to realize the above amounts  

and costs by sale of the properties shown in the Schedule to  

the plaint  and directed that,  in  case,  the plaintiff-bank is  

unable to realize the full amounts due to it by sale of the  

hypothecated  properties,  the  plaintiff-bank  will  have  the  

right to proceed against defendants 2 to 4 personally and  

against  the  assets  of  defendants  1  to  4  to  realize  the  

balance amounts due to it.  

22

8. Being aggrieved by the said decree, defendants 1, 2, 4,  

7  and  8  preferred  an  appeal  in  the  High  Court.   By  the  

impugned order,  the High Court allowed the appeal.   The  

High Court,  inter alia,  held that since the originals  of  the  

Bank Guarantees were not produced by the plaintiff-bank,  

the  plaintiff-bank  cannot  successfully  lay  its  claim on  the  

said  two  Bank  Guarantees.   The  plaintiff-bank  has  

challenged the said judgment and order in this appeal.   

9. We have heard learned counsel for the parties, at some  

length.   We  have  also  carefully  perused  the  written  

submissions filed  by them.  Counsel  for  the plaintiff-bank  

submitted that the High Court wrongly reversed the decree  

passed by the trial court because the originals of the Bank  

Guarantees were not produced.  The High Court overlooked  

several  mterial  documents  produced  by  the  plaintiff-bank  

and the evidence of PW-2 and PW-3, the officials of KSEB,  

who  have  deposed  about  the  Bank  Guarantees  and  their  

23

invocation.  Pertinently, there is no denial of the evidence  

given by these witnesses.  Counter Guarantees executed by  

the defendants and the Confirmation of deposit of title deeds  

by the defendants are a pointer to the genuineness of the  

case of the plaintiff-bank.  The story that the plaintiff-bank  

fabricated  documents  on  blank  papers  signed  by  the  

defendants is totally unpalatable. Counsel submitted that the  

High Court has misconstrued the provisions of the Evidence  

Act.   Counsel  submitted  that  in  the  circumstances,  the  

impugned judgment and order needs to be set aside and the  

decree of the trial court needs to be restored.  

10. Counsel for the defendants have reiterated the stand  

taken by their respective clients in their written statements,  

which we have extensively quoted hereinabove.  They have  

banked on the fact that the originals of the Bank Guarantees  

are not produced. Relying on  J. Yashoda  v.  K. Shobha  

Rani  1   and  Roman  Catholic  Mission   v.   State  of  

1 2007 (5) SCC 730

24

Madras  2  ,   it is contended that if the original of a document is  

not available, then secondary evidence must be led by laying  

down foundation for leading secondary evidence in terms of  

Section 65 of the Evidence Act which the plaintiff-bank has  

not done in this case. Counsel contended that in any case,  

even  the  photocopy  of  Bank  Guarantee  dated  11/5/1983  

(Ex-A19) and Bank Guarantee dated 24/6/1983 appended to  

the  Counter-Guarantee  of  the  same  date  (Ex-A16)  are  

incomplete  and,  therefore,  they  cannot  be  considered  as  

secondary evidence.  Drawing our attention to Section 91 of  

the  Evidence  Act,  counsel  submitted  that  in  the  

circumstances, no other evidence including the statement of  

witnesses  can  be used by the plaintiff-bank  to  prove  the  

execution of the Bank Guarantees.   Counsel submitted that  

it is not stated in the plaint in whose possession the original  

documents  were  and,  hence,  there  is  violation  of  the  

procedure prescribed under Order VII Rule 14 of the Code of  

Civil Procedure.  Relying on  Hindustan Construction Co.  

2 AIR 1966 SC 1457

25

Ltd.  v.  State of Bihar & Ors.  3  , counsel submitted that  

invocation of Bank Guarantees is illegal because the Bank  

Guarantees  can  be  invoked  only  by  the  person  named  

therein.  In this case, according to the defendants, the Bank  

Guarantees are invoked by the Secretary,  KSEB when,  in  

fact, they should have been invoked by the Chief Engineer  

(Civil),  General,  who  is  named  in  the  Bank  Guarantees.  

Counsel submitted that whereas in the plaint, it is submitted  

that the Bank Guarantees were invoked by Secretary, KSEB,  

reliance is  placed on Ex-A82 and Ex-A3 which are letters  

dated 14/11/1983 and 9/5/1984 respectively written by the  

Chief  Engineer  allegedly  invoking  the  Bank  Guarantees.  

Counsel submitted that since these letters are not referred  

to in  the plaint,  they cannot  be relied upon.   Relying on  

State  of  Maharashtra   v.   Dr.  M.N.  Kaul  4  ,  counsel  

submitted that Bank Guarantee (Ex-A19) dated 11/5/1983  

was not enforceable as it was invoked after it had expired.  

Counsel  relied  on  Delhi  Development  Authority  v.  

3 1999 (8) SCC 436 4 AIR 1967 SC 1634

26

Skipper Construction Co. (P) Ltd. & Anr.  5  ,   where in the  

context of issuance of Bank Guarantees, this court directed  

inquiry to ascertain loss suffered by the public sector banks  

on account of malfeasance and misfeasance of their officials.  

11. Counsel  submitted  that  the  Counter  Guarantees,  

Indemnity Bonds, Confirmation Letters and Memorandum of  

deposit of title deeds on which reliance is placed are of no  

use  to  the  plaintiff-bank  because  they  are  not  complete  

documents.   Therefore,  they  do  not  prove  creation  of  

equitable  mortgage  by  deposit  of  title  deeds.   Counsel  

submitted that it is alleged that defendant 9 had, through  

power of attorney holder - defendant 6, created equitable  

mortgage  of  his  property.   This  is,  however,  incorrect  

inasmuch as the power of attorney dated 21/4/1983 clearly  

shows that it was given for availing housing loan and not for  

depositing the title deeds in support of the Bank Guarantee.  

Relying on Syed Abdul Khader  v.  Rami Reddy  6  , it was  

5 2003 (1) SCC 547 6 1979 (2) SCC 601

27

submitted that the power of attorney has to be given strict  

interpretation.  In  short,  counsel  contended  that  no  

interference is necessary with the impugned order.   

12. The  High  Court  has  non-suited  the  plaintiff-bank  

primarily  on  the  ground  that  the  plaintiff-bank  has  not  

produced originals of the Bank Guarantees and it  has not  

adduced any secondary evidence after giving explanation as  

to  the  non-production  of  the  originals  (Roman  Catholic  

Mission).   The  High  Court  has  observed  that  the  Bank  

Guarantees produced by the plaintiff-bank are not complete  

and, therefore, the terms and conditions thereof and rights  

and  liabilities  of  the  parties  arising  therefrom  cannot  be  

ascertained. The High Court has also held that as per the  

copies  of  the  Bank  Guarantees  produced  on  record,  they  

could be invoked only by the Chief Engineer (Civil) General,  

however in this case, they were invoked by the Secretary,  

KSEB.    Therefore,  the  invocation  is  illegal  (Hindustan  

Construction Co. Ltd.  and  Dr. M.N. Kaul).   The High  

28

Court has not accepted the case of the plaintiff-bank that  

the  Bank  Guarantees  were  invoked  vide  plaintiff-bank’s  

letters  (Ex-A4  and  Ex-A82).   It  is  observed  that  these  

documents create suspicion about the manner in which the  

Bank  Guarantees  are  executed.   The  High  Court  has  

observed  that  the  Counter  Guarantees  produced  by  the  

plaintiff-bank  are  incomplete.   The  High  Court  was  

impressed by the case of the defendants that the title deeds  

were  forwarded  to  the  plaintiff-bank  for  scrutiny  and  it  

virtually come to the conclusion that there was no deposit of  

title  deeds  as  security  for  the  Bank  Guarantees.   It  was  

impressed  by  the  defendants’  case  that  the  plaintiff-bank  

had concocted the documents.  

13. We need to ascertain how far the defendants’ case is  

truthful.  They admit the plaintiff-bank’s basic case, but try  

to  evade  their  liability  to  pay  through  their  inconsistent,  

contradictory and evasive stand. From the narration of the  

written statements of the defendants, it is clear that so far  

29

as defendants 1, 2, 3 and 4 are concerned, they have clearly  

admitted  issuance  of  the  Bank  Guarantees.   They  have  

admitted that for the purpose of Bank Guarantees furnished  

by  the  plaintiff-bank  on  behalf  of  defendant  1-firm,  

defendant 1-firm has deposited 25% of the amount in cash  

with  the  plaintiff-bank.  Instead  of  coming  out  with  the  

correct facts surprisingly, they have put the plaintiff-bank to  

the proof regarding the dates and terms and conditions of  

the Bank Guarantees contending that the dates were within  

the knowledge of the plaintiff-bank only.  They have also put  

the plaintiff-bank to the proof regarding the amounts which  

have been paid to KSEB.  Their version about the execution  

of bank guarantees is hard to digest. They have denied that  

any mortgage was created in favour of  the plaintiff-bank  

and  they  contended  that  they  do  not  admit  the  Deed  of  

Indemnity  and  Counter  Guarantee  dated  11/5/1983  but  

stated  that  the  Managing  Partner  of defendant 1 had  

given  a  power  of  attorney  in  favour  of  the  plaintiff-bank  

authorizing the plaintiff-bank to adjust 5% of the bill amount  

30

due to  defendant  1  from KSEB through the plaintiff-bank  

and  the  amount  so  withheld  was  allowed  to  be  held  as  

security  by  defendant  1  in  case  KSEB  invoked  the  Bank  

Guarantee.  It is pertinent to note that though they have  

denied that defendants 2 to 8 went to the plaintiff-bank on  

11/5/1983 to deposit the title deeds of their properties, they  

have  admitted  that  defendant  4  had  by  his  letter  dated  

4/4/1983 forwarded the title deeds of his properties to the  

plaintiff-bank.  Their case, however, is that the title deeds  

were  sent  for  scrutiny.   It  is  not  understood  for  what  

purpose the scrutiny of the title deeds was necessary and  

done.    They  admitted  the  assignment  of  Fixed  Deposit  

Receipts  in  the  sum  of  Rs.4,75,000/-  and  availment  of  

mobilization  advance  of  Rs.19  lakhs  by  defendant  1,  but  

stated that it  was not availed of on the strength of Bank  

Guarantees  but  the  basis  thereof  was  supplementary  

agreement  executed  between  KSEB  and  defendant  1  in  

which,  there  was  no  stipulation  to  furnish  any  Bank  

Guarantee.  This case is not substantiated by them.  Though  

31

they initially did not come out with a case that the plaintiff-

bank fabricated any document, they subsequently amended  

the written statements and contended that the plaintiff-bank  

had  taken  blank  signed  papers  from them on  11/5/1983  

when the first Bank Guarantee was issued in favour of KSEB  

and these papers were used for fabricating the documents in  

favour  of  the  plaintiff-bank.   They contended that  all  the  

documents were fabricated by the plaintiff-bank by utilizing  

the signed blank papers taken from them by the plaintiff-

bank. Thus, they denied that any equitable mortgage was  

created  as  security  for  the  Bank  Guarantees.   Similarly,  

defendants 6 to 8 denied that any equitable mortgage was  

created.  They came out with the case that the Deeds of  

Indemnity,  Counter  Guarantees,  Memoranda of  deposit  of  

title deeds and Confirmation Letters were fabricated by the  

plaintiff-bank by using the blank signed papers taken from  

them on or about 11/5/1983 when the first Bank Guarantee  

for Rs.1 lakh was issued in favour of KSEB.  

32

14.   The defendants’ case regarding blank signed papers is  

not substantiated by any evidence except their say so.  The  

trial court has rightly rejected this story and we concur with  

the trial court.   Apart from the fact that there is nothing on  

record  to  establish  the  case  of  the  defendants  that  the  

plaintiff-bank  was  party  to  such  a  fraud  of  creating  

fabricated  documents  after  obtaining  blank  signed  papers  

from the defendants, it also does not stand to reason that  

the defendants and its partners and other defendants are so  

gullible as to hand over to the plaintiff-bank several signed  

blank  papers.   Falsity  of  their  case  is  seen  from  the  

documents on record.

15. The title deeds are at Ex-A39 to Ex-A43, Ex-A45 to Ex-

A48,  Ex-A53,  Ex-A54 and  Ex-A63.   The  tax  and  revenue  

receipts relating to the properties are at Ex-A57 to Ex-A62,  

Ex-A65 and Ex-A67.  Encumbrances certificates upto April,  

1983 are at Ex-A44, Ex-A49, Ex-A50, Ex-A51, Ex-A55, Ex-

A56,  Ex-A64  and  Ex-A66.   Confirmation  letters  regarding  

33

deposit of title deeds are at Ex-A24, Ex-A30, Ex-A34 and Ex-

A72.   We  have  carefully  perused  these  letters.   It  is  

impossible to come to a conclusion that the plaintiff-bank  

has  fabricated  these  letters  on  the  blank  signed  papers  

allegedly given to it by the defendants.  There is no manner  

of  doubt  that  they  are  genuine  documents.   There  are  

Memoranda  of  deposit  of  title  deeds  duly  signed  by  the  

defendants giving details of the properties.  They are at Ex-

A9 to Ex-A15, Ex-A22, Ex-A23, Ex-A25, Ex-A26, Ex-A28, Ex-

A29, Ex-A32 and Ex-A33.  We have seen these exhibits also.  

We are convinced that they are genuine documents.  The  

defendants have not been able to give any valid acceptable  

explanation as to how so many original title deeds came in  

the custody of the plaintiff-bank.  Pertinently, the trial court  

has noted that defendant 1 has filed O.P. No.62 of 1986 in  

the Sub-Court  at  Ernakulam against  the  plaintiff-bank for  

recovery of Rs.18,99,900/-.  In the schedule of properties  

under  the  heading  “assets  of  the  partners”,  it  is  clearly  

stated that these properties are mortgaged to the Bank as  

34

security for Bank Guarantee of Rs.20 lakhs.  The trial court  

has further noted that when DW-1 was confronted with this  

fact, he had no reply.  At the cost of repetition, it needs to  

be stated that it is the case of defendants 6 to 8 in their  

written statement that they are not partners of defendant 1;  

they  have  no  connection  with  the  Bank  Guarantee  and,  

hence,  there  is  no  question  of  there  being  any  equitable  

mortgage; that the original title deeds were only given for  

scrutiny and that the plaintiff-bank had taken blank signed  

papers from them when the first Bank Guarantee for Rs.1  

lakh dated 11/5/1983 was taken.   This explanation itself  

falsifies the case of defendants 6 to 8.  They have admitted  

that the first Bank Guarantee of Rs.1 lakh dated 11/5/1983  

was executed.  Even assuming without admitting that some  

blank  papers  with  their  signatures  were  taken  by  the  

plaintiff-bank from them, unless they were concerned with  

the  Bank  Guarantee,  such  documents  would  not  be  

demanded  from  them  nor  would  they  have  given  such  

documents to the plaintiff-bank.  Their efforts to disassociate  

35

themselves from defendant 1-firm and the Bank Guarantees  

cannot, therefore, be countenanced.  It is equally impossible  

to accept that these documents were taken for scrutiny by  

the plaintiff-bank.  None of the defendants have successfully  

explained why and for what purpose, the scrutiny of their  

documents was necessary.  We concur with the trial court  

that all these documents cut at the very root of the defence  

regarding the non-existence of the equitable mortgage.  The  

case  of  the  defendants  that  there  was  no  equitable  

mortgage will have to be, therefore, rejected.  

16. The defendants’ contention that the plaintiff-bank  

illegally encashed the Fixed Deposit Receipts in the sum of  

Rs.4,75,000/-  must  also  be  rejected.   It  is  the  plaintiff-

bank’s case that this amount was deposited as security for  

the  Bank  Guarantee  of  Rs.19  lakhs  availed  of  by  the  

plaintiff-bank and the liability incurred by it.  The defendants  

contend that the said Fixed Deposit Receipts were given to  

the plaintiff-bank for safe custody.  Against the background  

36

of the aforementioned facts, the story that the Fixed Deposit  

Receipts  were  deposited  with  the  plaintiff-bank  for  the  

purposes of safe custody, does not stand to reason.  Except  

for oral evidence, there is nothing on record to substantiate  

this case.  In the facts of this case, we have no hesitation in  

rejecting this case of the defendants.  In our opinion, the  

said Fixed Deposit Receipts have rightly been encashed by  

the plaintiff-bank.  

17. So far as invocation of Bank Guarantees is concerned,  

in our opinion, there is no infirmity in the case of plaintiff-

bank. It is true that in the plaint, there is a reference to Ex-

A4 and Ex-A7, which indicates that the invocation is done by  

the Secretary of KSEB but when an objection was raised by  

the  defendants  that  the  invocation  was  not  proper,  the  

plaintiff-bank has produced Ex-A82 and Ex-A3 which show  

that the invocation was done by the Chief Engineer (Civil)  

General  as  per  the terms of  the  Bank Guarantees.   It  is  

significant to note that Ex-A4 is subsequent to Ex-A82 and  

37

relates  to  Bank  Guarantee  of  Rs.19  lakhs  and  Ex-A7  is  

subsequent to Ex-A3 and relates to Bank Guarantee of Rs.1  

lakh.  The trial court has rightly held them to be genuine  

documents.   The invocation of  Bank Guarantees  was also  

done when they were in force, in view of their extension.  

18. Perhaps the most  significant piece of  evidence which  

has not been noticed by the trial court and though referred  

to by the High Court but not appreciated by it, is the letter  

dated 7/7/1984 (Ex-A6) in which the Managing Partner of  

defendant 1 has admitted execution of Bank Guarantees and  

expressed willingness to pay the amount.  This is a letter  

written by defendant 1 to the plaintiff-bank in response to  

the demand notice dated 23/6/1984 issued to defendant 1.  

DW-1 in his evidence has admitted  that  the  said letter  

(Ex-A6)  was  written  by  defendant  1.   We  deem  it  

appropriate to quote the said letter entirely.

“In response to the demand notice dated  23-6-1984  issued  to  me  and  after  prolong  

38

discussion  with  the  officials  concerned,  we  give you this reply placing certain conditions  and  suggestions  for  a  smooth  banking  transaction between us.  

A  bank  guarantee  for  a  sum  of  Rs.  19,00,000/-  was  arranged  by  you  for  a  contract  work  which  we  have  entered  into  with the K.S.E.Board (Kakkad Hydro Electric  Tunnel Project, costing Rs. 6.5 Crores).  The  work is going on in a full swing and for the  continuation of the work we have invested a  huge amount for the purchase of machineries  and other things.  It is relevant to state here  that  the  contract  is  for  a  sum  of  Rs.6.5  crores.   Unfortunately,  allegations  were  levelled  against  the  concerned  Minister  regarding  this  contract  and  this  matter  as  referred for  a finding before Justice Janaky  Amma Commission.  The Commission came  to the conclusion that all the charges levelled  against the Minister were false.  Not satisfied  with this finding, the opposition parties of the  Kerala Legislative Assembly have now raised  certain questions regarding this matter in the  Assembly.  All allegations levelled against the  Minister  was  regarding  allowing  a  sum  ofRs.19,00,000/-  as  mobilization  advance.  As per the agreement, we have entered into  with the K.S.E.Board, we are entitled to get a  sum of Rs.20 lakhs.  To be immune from the  allegations  the  Board  has  withdrawn  the  amount advanced to us without even issuing  a notice either to us or to the Bank.

We could have approached before a civil   court and obtained a stay, but we avoided it  

39

only  to  maintain  a  good  relationship  with  KSEB for a smooth execution of the contract.  

Now you have issued a notice asking us to  remit  the  outstanding  amount  of  Rs.  14,43,037.92.  Since  we  have  invested  a  huge amount and since we want to proceed  with the work and since we have not so far  as received any amount from the department  for the work we have done till the date, we  are now not in a position to remit the entire  amount.  As  per  the  conclusion  of  the  discussion  with  the  bank  officials  on  6-7- 1984, we hereby undertake to remit 10% of  the  amount  of  every  bill  from  our  coming  running part payments.  

To  face  the  financial  situation,  we  have  reconstituted  our  partnership  by  including  new partners who are substantially rich and  well experienced in the field of contract work  and by way of increasing the capital.  

Now we are approaching you for an clean  over-draft  for  a  sum  of  Rs.  20,00,000/-  (Rupees  Twenty  Lakhs  only)  and  for  sanctioning  it  we  are  prepared  to  give  sufficient  additional  securities  the  bank  requires.  Being  an  outstanding  contract,   without  this  much  of  amount  we  cannot  proceed with the work and only to face this  circumstance we make this request and it is  just from the part of the bank to sanction our  request.  

We hereby make a suggestion that we  would  make  arrangements  from  some  sources  to deposit  a  substantial  amount  to  

40

the bank. We make this arrangement to face  the financial condition, if any, of the bank.  

Hence,  it  is  prayed  that  in  the  circumstances  mentioned  above,  your  goodself may be pleased to make immediate  arrangements  to  sanction  the  request  we  have made above.”  

19.   In this letter defendant 1 has accepted the case of the  

plaintiff-bank and undertaken to remit 10% of the amount of  

every bill from the running part payments receivable by it.  

Once  defendant  1  admits   execution   of  the   Bank  

Guarantees and expresses its desire to repay the amount  

and  when  Counter  Guarantees,  number  of  title  deeds,  

encumbrance  certificates  and  confirmation  letters  are  on  

record, in the facts of this case, decree must follow.  In our  

opinion,  the  conduct  of  the  defendants  needs  to  be  

deprecated.   After  having  taken  the  benefit  of  the  Bank  

Guarantees, the defendants have tried to persuade the court  

to  absolve  them of  the  liability  to  repay  the  amount  by  

taking up untenable and false contentions.  In O.P. No.62 of  

41

1986 in the schedule of properties under the heading “assets  

of partners”, defendant 1 has categorically stated that the  

said properties are mortgaged to the Bank as security for  

Bank  Guarantee  of  Rs.20  lakhs.   It  is  surprising  that  to  

evade their  liability  to  make payments,  defendant  took a  

contrary stand in this case and tried to mislead the court.  

The trial court was, therefore, right in decreeing the suit. In  

the  circumstances,  the  plaintiff-bank  must  succeed.   We  

must, however, express our extreme displeasure about the  

conduct of the officers of the plaintiff-bank.  The plaintiff-

bank  is  a  nationalized  bank.   It  is  surprising  how  the  

originals of the Bank Guarantees could not be produced by it  

in the trial court.  Such conduct is not expected from the  

officers  of  the  plaintiff-bank  who deal  with  public  money.  

They have dealt with this matter with extreme casualness.    

20. In view of the above, we set aside the impugned order  

dated 4/6/2003.  We restore the judgment and decree of the  

trial  court  dated  1/1/1991.   We  direct  the  Registry  to  

42

forward  a  copy  of  this  judgment  to  the  Chairman  of  the  

Punjab and Sind Bank for information.  

21. The appeal is disposed of in the aforestated terms.  

……………………………………………..J. (SWATANTER KUMAR)

……………………………………………..J. (RANJANA PRAKASH DESAI)

NEW DELHI, JANUARY 13, 2012.

43