Gujarat High Court
C/Sca/8918/2013 Judgment vs State Bank Of India (Sbi) & 2 on 8 October, 2014
Author: S.H.Vora
Bench: S.H.Vora
C/SCA/8918/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 8918 of 2013
With
SPECIAL CIVIL APPLICATION NO. 8924 of 2013
TO
SPECIAL CIVIL APPLICATION NO. 8926 of 2013
With
CIVIL APPLICATION NO. 9919 of 2014
In
SPECIAL CIVIL APPLICATION NO. 8926 of 2013
With
CIVIL APPLICATION NO. 9921 of 2014
In
SPECIAL CIVIL APPLICATION NO. 8924 of 2013
TO
CIVIL APPLICATION NO. 9923 of 2014
In
SPECIAL CIVIL APPLICATION NO. 8925 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE S.H.VORA
======================================
1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
======================================
PIPAVAV DEFENSE AND OFFSHORE ENGINEERING
Page 1 of 10
C/SCA/8918/2013 JUDGMENT
COMPANY LTD & 1....Petitioner(s)
Versus
STATE BANK OF INDIA (SBI) & 2....Respondent(s)
======================================
Appearance:
MR BHARGAV KARIA, ADVOCATE with MR NIRAG PATHAK,
ADVOCATE with MR SHACHI PUNANI, ADVOCATE with MR
ARJUN DOSHI, ADVOCATE for the Petitioners
MR KAMAL B. TRIVEDI, SR. ADVOCATE with MR NAGESH C
SOOD, ADVOCATE for the Respondent(s) No. 1
MS NALINI S LODHA, ADVOCATE for the Respondent(s) No.
2
NOTICE SERVED BY DS for the Respondent(s) No. 3
======================================
CORAM: HONOURABLE MR.JUSTICE S.H.VORA
Date : 08/10/2014
ORAL JUDGMENT
1. Since common questions of law and facts arise in this group of petitions, all the petitions are being disposed of by this common judgment.
2. By filing present petitions, the petitioners challenge impugned orders passed by learned Additional District Judge, Amreli in Civil Misc. Appeal Nos.10 of 2013, 12 of 2013, 13 of 2013 and 11 of 2013 and orders passed by the learned Principal Senior Civil Judge, Amreli below application Exh.5 filed under Order 39 Rule 1 and 2 of the Code of Civil Procedure, 1908 in Special Civil Suit Nos.33 of 2013, 35 of 2013, 36 of 2013 and 34 of 2013, whereby both the courts below issued show cause notice to the respondents (original defendants).
3. Since facts of all the petitions are same, facts of Special Page 2 of 10 C/SCA/8918/2013 JUDGMENT Civil Application No.8918 of 2013 is considered after filtering unnecessary details.
4. Parties to the proceedings would be referred to as per their original status in the proceedings.
5. The present petitioners singed a shipbuilding contract on 10.8.2007 with the defendant No.3 to design, build, launch, outfit, test and complete one 74,500 DWT Panamax Bulk Carrier designated as Hull No. PO 11. It is the case of the plaintiffs that the said contract was amended from time to time. It is the specific case of the plaintiffs that the said contract refers the date at all places as 6.12.2006 and not 10.8.2007 when the contract was actually inked by the parties to the suit. It is the further case of the plaintiffs that International Association of Classification Societies introduced new regulation relating to tank coating on the vessel, known as the Performance Standard for Protective Coatings so as to strengthen the vessels tanks and consequently, reduced the risks of maritime causalities. The said regulations were to be incorporated into Common Structure Rules to all shipbuilding contracts entered into after 8.12.2006. In other words, all Panamax vessels which were contracted to be built after 8.12.2006 had to compulsorily comply with these requirements. Thus, the vessels, which were contracted to be built prior to the date of 8.12.2006, were not required to comply with these requirements.
6. It is the case of the plaintiffs that defendant No.3 at the time when contract was being executed between them, it inquired the costs of implementing this PSPC Regulations for Page 3 of 10 C/SCA/8918/2013 JUDGMENT vessel. As defendant No.3 found expenses to be excessive, defendant No.3 sought to find a way to avoid the implementation of these regulations. It is the case of the plaintiffs that defendant No.3 then asked the plaintiffs to back date the contract to a date prior to 8.12.2006, so that the subject matter could be constructed without complying with the new PSPC regulations. It is specific case of the plaintiffs that defendant No.3 being important client of the plaintiffs, the plaintiffs agreed to such back dating of the contract. Thus, the contract which was inked between the parties on 10.8.2007 was predated to 6.12.2006 i.e. two days prior to the cut off date, after which, the compliance with the PSPC Regulations, would become mandatory only with the intent of evading the applicability of PSPC Regulations. It is further case of the plaintiffs that on 6.12.2006, defendant No.3 was not in existence and therefore, it was incapable of entering into any contract whatsoever, as defendant No.3 company incorporated only on 1.8.2007.
7. It is further case of the plaintiffs that defendant No.3 was to release advances in terms of the four installments on the signing of the contract which fell due. As a security for the refund of advances received from defendant No.3, the plaintiffs were contractually required to furnish Refund Guarantees which the plaintiffs arranged through defendant Nos.1 and 2. It is the case of the plaintiffs that these Bank Guarantees were provided in the contract, which is already tainted by fraud, deception and misrepresentation and clearly entered into with intent to deceive. It is the case of the plaintiffs that defendant No.3 had committed fraud on defendant Nos.1 and 2 as defendant No.3 was required to Page 4 of 10 C/SCA/8918/2013 JUDGMENT reveal to, but has actively concealed from defendant Nos.1 and 2 of the fact that the contract has been backdated and also the fact that defendant No.3 was not in existence at the purported time of execution of the contract, thereby nullifying the contract itself. It is the case of the plaintiffs that defendant Nos.1 and 2 had clear notice of the gross fraud perpetuated by defendant No.3 and for that, the plaintiffs representatives visited defendant Nos.1 and 2 and explained to the concerned officer the extent and nature of fraud, but since the Bank Guarantees were irrevocable, the officials of defendant Nos.1 and 2 expressed their inability to withhold payment if the Bank Guarantees are invoked and therefore, the plaintiffs approached the learned trial Judge by way of Special Civil Suit No.33 of 2013, inter alia, praying for declaration and permanent injunction with the following main prayers amongst other prayers.
"To restrain defendant No.3, their servants, employees, officers, agents lenders by an order and injunction from continuing to participate or appear in SIAC Arbitration No.174 of 2011 in Singapore and restrain defendant No.3 from encashing the Bank Guarantees issued by defendant Nos.1 and 2.
The Bank Guarantees issued by defendant Nos.1 and 2 be declared as cancelled and terminated as having been issued under a fraudulent contract and that defendant Nos.1 and 2 be restrained from making any payment to defendant No.3 or anyone claiming through defendant No.3 under the Bank Guarantee."Page 5 of 10
C/SCA/8918/2013 JUDGMENT
8. It appears that the learned Principal Senior Civil Judge at Amreli after hearing the advocate for the plaintiffs and considering the documentary evidence, issued show cause notice to the defendants and fixed the matter on 6.5.2013.
9. At the outset, it requires to be noted that learned advocate Mr. B.D. Karia appearing for the petitioners stated at bar that the relief to restrain the defendant No.3 from continuing to participate or appear in SIAC Arbitration No.174 of 2011 in Singapore has become infructuous, as the arbitration proceedings is at the verge of completion and therefore, the first relief as prayed for in the suit as well as injunction application Exh.5 becomes infructuous. Secondly, it is also stated at bar that present plaintiffs restrict the present petitions to the challenge qua issuance of show cause notice issued by the learned Principal Senior Civil Judge and so far as petitions challenging order of issuance of show cause notice by the learned Principal District Judge is not made subject matter of the present petitions, as the petitioners would withdraw Civil Misc. Appeal No.10 of 2013 and other cognate appeals before the learned Additional District Judge, Amreli. Thus, present petitions have been confined to the challenge of issuance of show cause notice by the learned Principal Civil Judge, Amreli. Accordingly, the above referred appeals preferred by the plaintiffs stand disposed of as withdrawn and the learned appellate Judge would pass appropriate formal order in this regard.
10. Learned advocate Mr. Karia took me through various terms and conditions of the contract incorporated both in the contract and also of Bank Guarantees issued by defendant Page 6 of 10 C/SCA/8918/2013 JUDGMENT Nos.1 and 2. It is mainly argued that the contract was back dated, but deceive the class, flag country, third party and financier of defendant No.3. It is vehemently argued that PSPC Regulations are in the interest of public policy in general and the contract unlawfully evading the application and the same is opposed to the public policy of India and therefore, in the event, the Bank Guarantees are allowed to be invoked, the same will lead to grave and substantial injustice to the plaintiffs considering that the vessel is at the completion stage and the plaintiffs had already incurred considerable amount of money for execution of the contract. While invoking supervisory nature of jurisdiction of this Court under Article 227 of the Constitution of India, learned advocate Mr. Karia has pressed into service decision rendered in case of Rameshchandra Sankla and others Vs. Vikram Cement and others reported in (2008) 14 SCC 58, in case of Shalini Shyam Shetty and another Vs. Rajendra Shankar Patil reported in (2010) 8 SCC 329 and in case of Jai Singh and others Vs. Municipal Corporation of Delhi and another reported in (2010) 9 SCC 385.
11. Per contra, learned Senior Counsel Mr. Kamal Trivedi appearing with learned advocate Mr. Nagesh Sood for defendant No.1 submits that the present plaintiffs are party to the fraud in question, as the same is evident on perusal of the averments made in the petitions itself and therefore, the learned trial Judge has rightly issued show cause notice in the case like such nature and therefore, it cannot be said that the Court has failed to exercise jurisdiction or there is failure of justice or grave injustice as occasioned thereby. It is further submitted that in view of the decision rendered in case of Page 7 of 10 C/SCA/8918/2013 JUDGMENT Himadri Chemicals Industries Ltd. Vs. Coal Tar Refining Co. reported in (2007) 8 SCC 110 and in case of Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works (P) Ltd. and another reported in (1997) 6 SCC 450, the Hon'ble Apex Court has held that the injunction ought not to be an instrument to be used in nullifying the terms of a contract, agreement or undertaking, which is lawfully enforceable. In the said decision, the Hon'ble -pex Court has laid down that except in cases of established fraud vitiating the very foundation of the Bank Guarantee or encashment resulting in irretrievable harm or injustice, which would make it impossible for the guarantor to reimburse himself, if ultimately succeeds, Court should not normally grant injunction. It is further held therein that the principle of undue enrichment not applicable to encashment of Bank Guarantee. After referring to the principles settled in the said cases, learned Senior Counsel Mr. Kamal Trivedi urged that no case is made out to exercise the power of this Court under Article 227 of the Constitution of India, as the learned trial Judge has rightly issued show cause notice in view of the facts and circumstances of the present case.
12. I have heard the submissions made at bar and examined various terms and conditions incorporated in the contract and Bank Guarantee and more particularly, averments made in the petitions itself. The clear and undisputed fact is such that the plaintiffs are party to the fraud, which is alleged to have been back dated so as to get rid of provisions of PSPC Regulations. So, meaning thereby, the plaintiffs are also party to the fraud in question. When a person, who is party to a fraud, cannot be permitted to invoke the discretionary power of the Court in Page 8 of 10 C/SCA/8918/2013 JUDGMENT the manner the plaintiffs intend to do. Thus, it is not a case where the Court has committed any error or apparent error on the face of the proceedings based on clear ignorance or utter disregard of provisions of law or it has caused any injustice or it can be termed as gross failure of justice, as occasioned thereby. On the contrary, in the matter of Bank Guarantee, the Hon'ble Apex Court has clearly ruled that the civil Court in exercise of power under Order 39 Rule 1 of the Code ought not to grant injunction except in cases of established fraud vitiating the very foundation of the Bank Guarantee. In case on hand, the plaintiffs, who have become victim of fraud but who are party to the fraud, are knocking the door of the Court to restrain the encashment of Bank Guarantee. A lot of hue and cry was made about conduct of defendant No.3 as to its non-appearance in the matter and addressing various letters to the petitioners and also to the banks, but avoiding to appear in the matter. The absence of defendant No.3 in the matter would not put the case of the plaintiffs on any better footing. Ultimately, the plaintiffs are required to prove their case as required under Order 39 Rule 1 and 2 of the Code so as to have interim relief in their favour in view of the peculiar facts and circumstances of the case. In the case on hand, the Court has not found any such facts which necessitate to protect the plaintiffs pending hearing of injunction application filed below Exh.5 in the trial Court. Therefore, this Court finds no substance in the petitions so as to invoking its supervisory power under Article 227 of the Constitution of India, as no jurisdictional error has been committed by the learned trial Judge while issuing show cause notice in view of the peculiar facts and circumstances of the present case, more particularly, when the plaintiffs are party Page 9 of 10 C/SCA/8918/2013 JUDGMENT to the alleged fraud in question. None of the case law cited at bar by learned advocate Mr. Karia is either helpful to the petitioners or applicable to the facts of the case. Thus, the Court is left with no option, but to reject the present petitions and accordingly present petitions stand rejected. Notice is discharged. Consequently, civil applications also stand disposed of as not survived.
13. At this stage, learned advocate Mr. B.D. Karia appearing for the petitioners pray to continue the interim relief as granted by this Court on 17.5.2013 so as to approach higher forum. Looking to the peculiar facts and circumstances of the case, no case is made out to extent the interim relief any further and therefore, said request is declined.
14. While parting, it is clarified that the learned trial Judge shall decide the injunction application Exh.5 on its merits and after hearing both the sides as expeditiously as possible, preferably within a period of one month from the date of receipt of this order uninfluenced by the observations recorded in the present order.
(S.H.VORA, J.) shekhar Page 10 of 10