Bombay High Court
Sporting India Limited vs Hdfc Bank Limited on 6 July, 2012
Author: Anoop V. Mohta
Bench: Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 1443 OF 2010
WITH
NOTICE OF MOTION NO. 1483 OF 2011
IN
ARBITRATION PETITION NO. 1443 OF 2010
Sporting India Limited,
A Company registered under the
Indian Companies Act, 1956, having it's
registered Office at Village Kanech,
Near Sahnewal, G.T. Road,
Ludhiana. ......Petitioner.
Vs.
HDFC Bank Limited,
(formerly Centurion Bank of
Punjab Ltd.,) a banking Company,
incorporated Under the laws of India,
having its registered office at HDFC
Bank House, Senapati Bapat Marg,
Lower Parel (West),
Mumbai-400 013. ......Respondent.
Mr. Sanjiv Bhansal with Mr. Vaibhav Bajpai i/by Mr. R.R. Mishra for
the Petitioner.
Mr. Zubin Behram Kamdin with Ms. Shaneen Parikh i/by M/s.
Amarchand & Mangaldas and S.A. Shroff & Co. for the Respondent.
CORAM :- ANOOP V. MOHTA, J.
JUDGMENT RESERVED ON :- 19 JUNE 2012.
JUDGMENT PRONOUNCED ON :- 6 JULY 2012.
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JUDGMENT:-
The Petitioner is under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, "Arbitration Act"). The Petitioner has challenged the Arbitral Award dated 30 September 2010 passed by the sole Arbitrator Hon'ble Mr. Justice A.M. Ahmadi (Retired Chief Justice of India).
2 The operative part of the Arbitral Award is as under:-
"The Respondent do pay to the Claimant-HDFC the Principal sum of Rs.5,93,53,892 together with interest of Rs.1,23,37,967 and cost of Rs.2,31,364.58 (if not already paid) on or before 31st December 2010 failing which it will pay interest on the Principal sum of Rs.5,93,53,892 at the rate of 8% per annum from 21st July 2010 until payment/recovery. Having regard to the total number of sittings held I award the claimant cost of the arbitration at Rs.10,00,000 (ten lacs only). The Respondent is given three months time to satisfy the Award, failing which it will pay interest from 21st July 2010 until payment/recovery at the rate of 8% p.a. Award accordingly.
This award is typed on computer and is printed on stamp paper provided by each party and the original so printed is given to each party and I have retained a typed copy thereof for my record.
I am deeply grateful to the learned Counsel and the team of solicitors of both parties for their valuable assistance ::: Downloaded on - 09/06/2013 18:44:46 ::: 3 arbp1443.10.sxw ssm throughout the hearing."
3 After due negotiations in January-February 2007 and considering the commercial objects, the Respondent Bank sanctioned a credit limit on 13 March 2007 of Rs.1 Crore for trading in foreign exchange derivative products. The same was enhanced by letter dated 28 August 2007 upto Rs.5 Crores. For the same, alleged undated/blank and unfilled "International Swap Dealers' Association Master Agreement" (for short, "ISDA") and the schedule annexed to the same, the commercial documents were signed by the Petitioner's Managing Director, at Ludhiyana.
4 On 2 July 2000, the Petitioner company under the advice and instructions of the Bank entered into a one touch option trade/transaction in USD/CHF for imports to the tune of USD 5 million with knock in/knock out levels, for tenure of about one year.
Another similar transaction was entered on 6 September 2007. On 20 December 2007, declarations dated 2 July 2007 and 6 September 2007 were also submitted. The Petitioner alleged that because of undue influence he singed the anti dated declarations.
::: Downloaded on - 09/06/2013 18:44:46 :::4 arbp1443.10.sxw ssm 5 The Petitioner received a letter from the Bank on 25 November 2011, whereby it was informed to the Petitioner that there was breach of knock in level of 1.10 on 23 November 2007 and the obligation of the Petitioner to buy the foreign currency at the specified levels on due date.
6 On 29 February 2008, the Respondent Bank conveyed to the Petitioner that the total credit exposure for the two transactions, in question, as on 29 February 2008 was INR 6.63 Crores as against the limit of INR 5 Crores sanctioned to the Petitioner. The Petitioner was accordingly called upon to arrange a fixed deposit of INR 2.88 Crores.
7 The relevant Arbitration Clause 13(b) of the ISDA Master Agreement in question is as under:
"In the event of disputes, differences, claims and questions between the parties hereto arising out of this Agreement or the Schedule hereto, the same shall be referred to the arbitration of a sole arbitrator to be appointed by the Chairman/Managing Director of Party A [the Claimant]. The arbitration shall be held in accordance with the Arbitration and Conciliation Act, 1996, or any statutory modification or re-enactment thereof for the time being in force, and shall be held in Mumbai and shall be conducted in the English Language.::: Downloaded on - 09/06/2013 18:44:46 :::
5 arbp1443.10.sxw ssm The award of the arbitrator shall be final, conclusive and binding upon the parties."
8 Admittedly, the Petitioner invoked Section 9 of the Arbitration Act and Respondent Bank got ex-parte injunction order dated 12 April 2008. By letter dated 21 May 2008, the Respondent addressed a letter to sole Arbitrator for Arbitration. The willingness was communicated on 4 June 2008. The said Petition was returned for want of jurisdiction. The Arbitrator fixed the meeting for Arbitration on 24 December 2008. It is to be noted that by letter dated 21 August 2008, the Petitioner intimated to the Arbitrator about the Application under Section 11 of the Act, but it was rejected and the same was refiled.
9 The Arbitrator issued direction on 24 December 2008 without prejudice to their respective rights. The parties proceeded accordingly. In the facts and circumstances, filing of Section 11 Petition in no way sufficient to dislodge the case of the Bank to continue with the Arbitration Proceedings. The parties, in fact, proceeded accordingly. It appears that, there was no order obtained and/or passed on Section 11 Petition filed by the Petitioner. The parties therefore, proceeded before the Arbitral Tribunal.
::: Downloaded on - 09/06/2013 18:44:46 :::6 arbp1443.10.sxw ssm 10 On 21 May 2008, the Petitioner received a communication on 26 May 2008 that the Bank had already referred the matter to the Sole Arbitrator.
11 On 15 January 2009, the Bank filed its statement of claim before the learned Arbitrator accompanied by the documents. On 14 March 2009, the Petitioner filed reply to the claim Petition and raised the issue of the unexecuted and unenforceable agreement. The parties lead evidence based upon the issues framed, before the Tribunal. The learned Arbitrator passed the impugned award.
12 The learned Arbitrator, after considering the pleadings, evidence led by the respective parties and the undisputed facts and banking documents on record and considering the nature of commercial documents rightly held that there exists signed enforceable agreement between the parties and therefore, the appointment of the Arbitrator was in accordance with the provisions of the Arbitration agreement between the parties; and has jurisdiction to decide the dispute arising out of the contracts and the admitted transactions between the parties.
::: Downloaded on - 09/06/2013 18:44:46 :::7 arbp1443.10.sxw ssm 13 It is not the case that there was no signature of the Petitioner and/or his authorized officer and/or Managing Director on the banking documents. The basic objection is that it was not counter signed by the other party on some of the documents. In the present case, it is unacceptable that the alleged agreement was a draft agreement and, therefore, unenforceable. Some unclear clause of the agreement as referred and pointed out just cannot be read in isolation.
The nature of commercial transactions/banking documents read with other connected documents and discussion between the parties which are part of record just cannot be overlooked to accept the case of the Petitioner revolving around Section 7 of the Arbitration Act.
14 Having once agreed, signed and acted upon the same for so many years, such person cannot now be allowed to raise the objection and to deny the claim of the Respondent solely on the ground of unilateral signed banking documents basically at the instance of the Petitioner or such party. The learned Arbitrator in fact by relying on the documents, evidence and the material on record observed as under :
"This is evident from the cross-examination of ::: Downloaded on - 09/06/2013 18:44:46 ::: 8 arbp1443.10.sxw ssm Respondent's witness Parveen Gupta, vide paragraphs 4, 5 & 17. It needs to be noted that in respect of the said three similar transactions the Respondent has not raised any dispute. In the course of submissions it was offered that the Respondent would be willing to refund the amount paid under said transactions upon a submission made by counsel for HDFC that the validity of those transactions which yielded profit, was never questioned but where loss was incurred such objections were raised to avoid payment and in fact section 9 application was also filed to no purpose."
"Even otherwise the Guidelines for control over Foreign Business of December 1996 as amended by RBI notification No. FE.CO.FMD 8788/02,03 137/2006-07 dated 27-10-2006 provides that in the case of derivatives executed by the Bank with the customer (other than an individual/Retailer), the parties need to enter into an ISDA Master Agreement. In the present case such an Agreement as also the confirmations (Exh D&F to SoC) with all details have, in fact, been entered into duly signed by the officials of the Respondent. This requirement is thus satisfied. Individual confirmation contract notes for these transactions of 2-7-2007 and 6- 9-2007 have also been signed and filed, vide (Exh E&G to SoC). Thus all requirements stand satisfied."
"It is a settled rule of law that a party claiming to have a transaction set aside on the plea of deceit/fraud and/or undue influence, coercion or misrepresentation or the like is obliged to set out the particulars with details as to dates and events and persons involved in support of such a plea. This is also an element of the rule of natural justice to give the opposite party an adequate opportunity to defend itself against such serious charges. In the present case such allegations are bald, devoid of particulars, and even Mr. Parveen Gupta is silent in this behalf in his affidavit evidence."
"These averments even in cross-examination seem ::: Downloaded on - 09/06/2013 18:44:46 ::: 9 arbp1443.10.sxw ssm to be after-thoughts. When the Board Resolution (Exh. C-2/R-1) was passed on 11-3-2003 authorizing amongst others Mr. Parveen Gupta to enter into derivative transactions with various Banks, including the claimant, the Respondent must have named only those officials familiar with derivative transactions. The claimants did obtain the ISDA Master Agreement (Exh. C-2/R-1), the Deal Confirmations (C-3 & 4), and the Underlying Declarations (C-21&22, R-28). Admittedly, all these documents were executed by the Respondent's Managing Director Munish Awasthi and Mr. Parveen Gupta, after due verification. Counsel for HDFC therefore argued that the Respondent is bound by these documents and is estopped from contending otherwise. Not only that they had entered into three other similar transactions with HDFC whereunder they earned profits of USD 125,000 from HDFC and received payments. To overcome this fact placed against them the Respondent belatedly offered that they were prepared to return the profit to HDFC. Such a belated offer can have no evidentiary value."
"On the issue of Risk Management Policy, vide RBI Master Circular at para A7 obliges the AD Bank to ensure that the Respondent has drawn up a Risk Management Policy. Mr. Parveen Gupta has cited this as a breach on the part of the claimant. However he has been cross-
examined at length, vide para 23 page 29. Counsel for the Claimant pointed out that the Respondent had confirmed to the officials of the Claimant that it had a risk management policy in place, vide item 6 of the Annual Report Exh. R-30 at page 7, which says that the audit committee regularly reviews the risk assessment and control process. Mr. Parveen Gupta admits that the risk management aspect at item 6 page 194 of the said Annual Report covers the risk in relation to derivatives as well." ....... "The Declarations Exh. C-21&22 clearly were for hedging purposes. Indisputably there was considerable exchange of e-mails/letters between Ms. Uma Ramchandran from Mumbai and Mr Parveen Gupta from Ludhiana as listed at serial Nos. 7 to 22 & 25 to 33, ::: Downloaded on - 09/06/2013 18:44:46 ::: 10 arbp1443.10.sxw ssm 35 & 38 set out in the Claimant's statement of 23-6- 2009. I therefore answer issue No.8 in the affirmative."
"For the above reasons I do not see any merit in the submission that the transactions of 2-7-2007 and 6-9- 2007 were void abinitio or voidable at the instance of the Respondent. I therefore answer issue No. 4 & 8 in the affirmative and issues No. 5, 6 & 7 in the negative. In view of finding touching on jurisdiction having been given up as not pressed Issue No.8 does not really survive and was neither pressed nor argued."
15 The signature of two officers on ISDA on 2.7.2007, in the background, therefore, itself is not sufficient to overlook the admitted documents as well as facts on record. The finding arrived at by the learned Arbitrator just cannot be interfered solely on this ground and also on the ground that some other witnesses and/or signatory of the documents were not examined. It is necessary to note that the question of examining other witnesses and/or signatories of the documents is required and/or necessary when there is dispute with regard to the existence of those documents at the relevant time and basically by the parties and/or at the instance of the parties who, admittedly sign those documents and other party in the present case, the Bank never disputed those signatures and so also the contents of the said documents. The fact that the Petitioner has signed the documents and never disputed the same and in fact acted upon ::: Downloaded on - 09/06/2013 18:44:46 ::: 11 arbp1443.10.sxw ssm further shows that the contents of the documents also stand proved.
The submission that the Bank failed to sign the document itself in no way therefore, in the present facts and circumstances, sufficient to accept the case of the Petitioner to set aside the well reasoned arbitral award.
16 The Petitioner having once proceeded and as was doing any other similarly situated transactions, regularly, cannot be permitted to raise such technical objections for want of confirmation, even if any, from the Bank. The derivative deals or such transactions, apart from basic signature of the Petitioner required on other Bank documents as per the RBI Guidelines. No one has raised such objections at any point of time. It is difficult to accept the case that there was no confirmation at any point of time. Ultimately, the Petitioner agreed and consented and confirmed, though delayed, which goes to the root of the dates of the transactions/documents. Therefore, to say that the transactions were invalid at the instance of the Petitioner, is impermissible.
17 It is relevant to note, assuming for a moment, that those declarations were signed belatedly, the fact apart from underlying ::: Downloaded on - 09/06/2013 18:44:46 ::: 12 arbp1443.10.sxw ssm declaration, the Petitioner making numerous representation read with the discussion, emails and documents referring to the Master Agreement and as the Respondent accepted and relied upon the same and permitted the Petitioner to enter into the transactions, such grievance and submission at the instance of the Petitioner, is just unacceptable.
18 There is no force in the contention also that the Bank unilaterally sanctioned the limit, basically when having once enjoyed and utilized and used those higher sanctioned limit without any objection, the raising of such plea itself shows the intention was just to avoid the liabilities. The non-completion of formalities, even if any, by the Bank in no way sufficient to overlook the conduct of the Petitioner specifically when the submissions are made that they never enter into any transactions after the enhancement of the derivative limit. If the Petitioner, nowhere affected by this enhancement of derivative limit as contended, that itself therefore, no reason to overlook the execution of the binding documents and the related documents.
19 Apart from request and communication to increase the derivative limits by sanctioned letter dated 25 October 2007, it was ::: Downloaded on - 09/06/2013 18:44:46 ::: 13 arbp1443.10.sxw ssm not denied even by the witnesses of the Petitioner. The transactions were actually acted upon after the increase in the sanctioned limit, which ran into the losses.
20 Mere allegations that the contracts/agreements are void ab-
initio, now cannot be permitted to be agitated first time when the question is of liability, specifically when the Petitioner admittedly had signed those documents and exchanged emails and participated in the discussion apart from actual implementation of the same. The default, even if any, as alleged but not proved, on the side of the Bank in such matters based upon the RBI guidelines and/or the statutory provisions, they will suffer the consequences. But, so far as the Petitioner is concerned, in the present facts and circumstances, in no way sufficient to interfere with the reasoned award passed by the learned Arbitrator.
21 The reliance and reference of Section 13 of the General Clauses Act in no way sufficient to disturb the finding recorded by the learned Arbitrator, once it is noted that there exists a valid and biding agreement between the parties. The citation in no way deals with similar situation as discussed above. The Arbitrator has rightly ::: Downloaded on - 09/06/2013 18:44:47 ::: 14 arbp1443.10.sxw ssm considered all the documents, em-mails and the evidence placed on record, specially when admittedly the transactions itself required number of documents to be signed in support of the main agreement which was signed by the Petitioner's authorized person. When transaction itself is not in dispute nor the existence of the documents signed by the Petitioner, the Petitioner just cannot rely on one document to show and submit the case that they entered into the transactions without signing the documents. The statutory requirement, as recorded by the Arbitrator if fulfilled which definitely requires the Petitioner's signature and all other documents support the same to show that both the parties have acted upon legally by signing various corresponding and relevant documents. The missing signature of the Bank on one of the documents just cannot be treated as an unilateral agreement. It nowhere sufficient to discard and/or deny the case of existence of valid and binding agreement between the parties in the present facts and circumstances of the case and to say that the transaction entered into on July 2, 2007 is beyond the purview of arbitration.
22 Once the parties have agreed to refer the matter to arbitration and accordingly appointed the Arbitrator, all the parties have ::: Downloaded on - 09/06/2013 18:44:47 ::: 15 arbp1443.10.sxw ssm participated before the Arbitrator, therefore also, apart from the conduct, in view of the decision so given by the learned Arbitrator, just cannot be stated to be perverse and/or illegal and/or contrary, basically when the Petitioner themselves have invoked Section 9 Petition on the foundation of the existence of the said agreement.
23 The Respondent based upon the various documents, declarations and representations permitted the Petitioner to enter into those transactions. Therefore, he could not be permitted now, to say that there was no underlying exposure and/or transactions were not entered into for hedging purposes. The learned Arbitrator has specifically observed that Exhibit C-21 and C-22 were clearly for hedging purposes.
24 It is relevant to note that the Petitioner has not pressed the point Nos. 1,2 and 3 in the Arbitration as recorded by the learned Arbitrator as under:-
"I may point out that at the hearing on 4 th November 2009, the learned counsel for Sportking on instructions, stated that he does not press the contentions raised in points 1, 2 and 3. Therefore the said three contentions must be answered as "not pressed". I may also point out that during the oral submissions Mr. Kapadia for the Claimant invited my attention to section 13(b)of the ISDA ::: Downloaded on - 09/06/2013 18:44:47 ::: 16 arbp1443.10.sxw ssm Master Agreement to support the validity of my appointment as Sole Arbitrator. I do not consider it necessary to dwell on these issues as the learned Advocate for the Respondent has orally stated that he does not press the contentions reflected in these three issues. Not only that the learned Advocate has by his email dated 12-4- 2010 confirmed the same and has also forwarded a scanned copy of the Court's order dated 23 rd March 2010 which goes to show that the Respondent informed the P & H High Court that since the Arbitration had almost concluded he did not desire to proceed with the matter and hence the same was dismissed as anfructuous (sic). Be that as it may, the fact remains that the said three issues do not survive for a decision as they are not pressed by Counsel for the Respondent."
25 It is relevant to note that having once not pressed the points of determination nos. 1 to 3, which includes the appointment and jurisdiction of the learned Arbitrator and the Petitioner's duly authorized officer based upon the resolutions as recorded and averred, signed and executed the ISDA Master Agreement and in the absence of any specific material on record to show that on which date it was signed and/or executed and the question was only with regard to the appointment of sole Arbitrator with reference to the arbitration agreement and the Act itself means there exists valid and binding arbitration agreement between the parties. The Petitioner's contradictory and inconsistent stand/pleas so raised and as recorded above, further shows that the defences so raised are frivolous and with ::: Downloaded on - 09/06/2013 18:44:47 ::: 17 arbp1443.10.sxw ssm intention to avoid the liabilities.
26 Once it is held that the Petitioner knowingly the nature of business and the transactions entered into such valid and binding agreements and in fact acted upon and was doing such derivative transactions with numerous Banks to hedge their risk regularly, and as it was well within the purview of policy and the RBI guidelines.
The Respondent, after financing is entitled to recover the same in accordance with law. The position as it stands today, the whole transactions, as recorded, were well within the frame work of law and the record and as it binds definitely the Petitioner being admitted signatories to the valid and binding documents.
27 The discrepancies, even if any, as argued by referring to file Nos.
12 and 14 in no way sufficient to overlook the admitted position on record as recorded by the learned Arbitrator on every aspect. There is no case that the Petitioner and/or its officers never acted upon these documents at any point of time. Such submissions have no force basically when all these documents and transactions and e-mails and the discussion revolving around the same as recorded by the learned Arbitrator, are not disputed. Such party may raise an objection to ::: Downloaded on - 09/06/2013 18:44:47 ::: 18 arbp1443.10.sxw ssm avoid the liability. The Arbitrator, in the present case, has considered the conduct and rightly rejected their contentions of "unsigned documents", "unacceptable and/or unenforceable and non-binding documents". Mere bald allegation of fraud, coercion and/or undue influence have been rightly rejected as there was no material placed to support the same. On the contrary, there are apparent and sufficient material to award the amount.
28 The Petitioner and/or its officer admittedly signed the documents and never denied its existence. Such person cannot be permitted to raise objection with regard to the validity of such documents for want of signature of other party, when the Bank never disputed the agreement and/or the documents and/or e-mail and/or further discussions. The dispute so raised first time for want of Bank officer's signature specifically when the Petitioner failed to prove that the documents were signed under coercion of any kind. Having once acted upon and availed benefits, based upon the policy in question, the submissions and the defence so raised, as recorded above, itself subvert the Petitioner's case in all respects. Such destructive and contradictory defence itself shows that the intention was just to avoid the liability and/or to delay the proceedings on such technical ground.
::: Downloaded on - 09/06/2013 18:44:47 :::19 arbp1443.10.sxw ssm 29 The reliance on Indo wind Energy Limited v. Westcare (India) Limited and Another,1 is therefore of no assistance in view of above reasoning given by the learned Arbitrator. The facts and circumstances are totally distinct and distinguishable. The reliance on (1) Nasir Husain Films v. Saregama India Pvt. Limited 2 and Hindalco Industries v. Esse Dee Aluminium Limited, 3is also of no assistance in view of admitted facts in the present case. It is not only the case of settlement of draft. The Arbitrator has rightly observed that there exists the valid and binding agreement by recording and taking note of other similarly situated transactions entered into by the parties and specifically by the Petitioner and the connected documents, apart from actual implementation of the same, undisputedly for the long time. The reliance, therefore, on Pramod Chimanbai Patel v. Lalit Constructions and anr. , 4 is also of no assistance basically at the instance of the Petitioner.
30 As the learned Arbitrator has dealt with the aspect and passed the Award with regard to the costs, this also in my view, need no 1 2010 (5) SCC 306 2 2007 (5) Bom. C.R. 192 3 Arbitration Petition No.620 of 2009 decided on 10-12-2009. 4 2006 (6) Bom C.R. 72 ::: Downloaded on - 09/06/2013 18:44:47 ::: 20 arbp1443.10.sxw ssm interference.
31 So far as the rate of interest is concerned, the learned Arbitrator, after considering the submissions so made by the parties and considering the nature of transactions, restricted the rate of interest at 8% per annum and as the same remained unchallenged, I see there is no reason to interfere even with the same. The grant of future interest at the same rate is within the purview of law.
32 Resultantly, taking overall view of the matter, I see there is no reason to interfere with the Award so passed. The Petition is dismissed. There shall be no order as to costs.
33 In view of dismissal of Arbitration Petition, Notice of Motion No.1483/2011 does not survive and is disposed of accordingly.
(ANOOP V. MOHTA, J.) ::: Downloaded on - 09/06/2013 18:44:47 :::