Madras High Court
Suryadev Alloys And Power Private ... vs Indian Overseas Bank
Author: N.Sathish Kumar
Bench: N.Sathish Kumar
C.S.(Comm.Div.) No.1 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved On 28.11.2019
Delivered On 11.12.2019
CORAM:
THE HONOURABLE MR.JUSTICE N.SATHISH KUMAR
C.S.(Comm.Div.) No.1 of 2019
and
Original Application No.4 of 2019
Suryadev Alloys and Power Private Limited,
Represented by its Authorised Signatory
and Chief Financial Officer,
Mr.Muzaffer Ahmed : Plaintiff
Vs.
Indian Overseas Bank,
Royapuram Branch,
Represented by its Branch Manager,
62/153 and 63/155,
Mannarswamy Koil Street,
Royapuram,
Chennai-600 013. : Defendant
PRAYER: Civil Suit is filed under Order VII Rule 1 of the Code of
Civil Procedure read with Order IV Rule 1 of Original Side Rules
and Section 7 of the Commercial Courts, Commercial Division and
Commercial Appellate Division of High Courts Act No.4 of 2016,
praying to pass a judgment and decree,
(a) directing the defendant to pay a sum of
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http://www.judis.nic.in
C.S.(Comm.Div.) No.1 of 2019
Rs.46,49,60,910/- (Rupees Forty Six Crores Forty Nine Lakhs Sixty
Thousand Nine Hundred and Ten only) comprising of principal
amount of Rs.28,23,76,500/- (Rupees Twenty Eight Crores Twenty
Three Lakhs Seventy Six Thousand and Five Hundred Only) along
with accrued interest at the rate of 18% p.a. from the date of
default to till date 20.10.2018 which comes to Rs.18,25,84,410/-
(Rupees Eighteen Crores Twenty Five Lakhs Eighty Four Thousand
Four Hundred and Ten only) to the plaintiff by crediting the
account of the plaintiff and consequently, declare that no amount is
due and payable by the plaintiff to the defendant under CC-2354;
(b) directing the defendant to pay a further interest at
18% p.a. from date of plaint till the payment of the amount set out
in the prayer clause (a) and (b) to the plaintiff;
(c) cost of this suit to the plaintiff.
For Plaintiff : Mr.R.Sankaranarayanan,
Senior Counsel,
For Mr.M.Sricharan Rangarajan
For Defendant : Mr.Om Prakash,
Senior Counsel,
For Mr.Y.Jyothish Chander
********
JUDGMENT
*********** The Suit has been filed for a direction to the defendant to 2/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 pay a sum of Rs.46,49,60,910/- (Rupees Forty Six Crores Forty Nine Lakhs Sixty Thousand Nine Hundred and Ten only) comprising of the principal amount of Rs.28,23,76,500/- (Rupees Twenty Eight Crores Twenty Three Lakhs Seventy Six Thousand and Five Hundred Only) along with accrued interest at the rate of 18% per annum from the date of default to till date 20.10.2018, which comes to Rs.18,25,84,410/- (Rupees Eighteen Crores Twenty Five Lakhs Eighty Four Thousand Four Hundred and Ten only) to the plaintiff, by crediting the account of the plaintiff and consequently, declare that no amount is due and payable by the plaintiff to the defendant under CC-2354 and directing the defendant to pay further interest at 18% p.a. from the date of plaint till the payment of the amount set out in the prayer clause (a) and
(b) to the plaintiff.
2. The brief facts leading to the filing of the present Suit are as follows:
2.1. The plaintiff is a Company engaged in the business of manufacturing steel products, particularly, TMT bars and wire rod coils and also generation of power. The plaintiff Company has been banking with consortium of banks and with the defendant bank 3/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 assuming the role of consortium leader. The plaintiff has a running account with the defendant and had several transactions from time to time. Such transaction started from the year 2006 and continues till date.
2.2. In and around 2007, the plaintiff set up a steel plant popularly known as “Suryadev's Steel Plant” under Technical Collaboration with Hennigsdorfer Stahl Engineering GmbH Germany. In the year 2012, the plaintiff Company proposed a project for expansion of its production capacity, for which, it had approached several investors. One Enterprise Emerging Market Fund [hereinafter referred to as 'EEMF'], a Private Equity Investor, executed an agreement for investment with the plaintiff Company for investing an amount to the tune of USD 80 Million through a Special Purpose Vehicle (SPV) styled Coral Power Development Private Limited, Singapore. A letter of intent dated October 18, 2012 and an agreement for investment dated October 31, 2012, were duly executed between EEMF and the plaintiff Company. The investment commitment was designated entirely in US Dollars.
2.3. The infusion of equity capital into plaintiff Company by EEMF was tied to sanction of credit facilities by the Financing 4/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 Institutions. The plaintiff Company took several steps to arrange financial tie-up with different banks and financial institutions to meet the funding gap in the estimated project cost and fulfill the terms of equity infusion laid down by EEMF. Accordingly, the plaintiff Company submitted a detailed application for term loan and working capital facilities besides other non-fund based facilities, to the defendant as a leader of the consortium and other member banks of the consortium.
2.4. After such agreement with EEMF, in October and November, 2012, the plaintiff entered into several forward foreign exchange contracts with the defendant in order to hedge the potential equity investment against possible currency fluctuations.
Under these forward contracts, the plaintiff was expected to deliver realized foreign exchange between May, 2013 and November, 2013.
2.5. The plaintiff was negotiating with consortium of banks for debt funding for the project (which was a condition precedent for investment by the investor). However, as debt funding was not tied-up, investor did not invest. Consequently, the 5/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 plaintiff was forced to cancel the forward foreign exchange contracts. Upon cancellation, the plaintiff incurred loss of INR 24.69 Crores, which was duly paid to the defendant. The plaintiff continued its negotiation with consortium of banks. Since there was high volatility in exchange rates, it expected to tie-up debt funding in about one year. Hence, during August, 2013 and September, 2013, the plaintiff re-booked the forward contracts with a delivery period of one year.
2.6. The plaintiff was given to understand that some of the banks of the consortium, particularly, Punjab National Bank, State Bank of India and State Bank of Patiala did not sanction the proposed term loan, since they did not have any headroom in their exposure norms ceiling for financial year 2013-2014 for the steel industry. Consequently, the plaintiff was again forced to cancel the forward contracts. Pursuant to the said cancellation of the contracts, the plaintiff earned a surplus of INR 19.50 Crores during the financial year 2014-2015, which was paid to the plaintiff by the defendant. However, due to undue delay on the part of the defendant and on the part of the other consortium banks in processing and communicating the decision of the consortium, the 6/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 infusion of foreign equity got delayed and came in a staggered manner much to the detriment of the plaintiff. Due to the uncertainties in the exact timing of inflow of funds, the plaintiff was constrained to enter into forward exchange contract.
2.7. The defendant along with consortium banks had disbursed only Rs.106,48,00,000/- [Rupees One Hundred Six Crores Forty Eight Lakhs only], out of the total sanctioned amount of Rs.958 Crores and issued a letter to complete the project, within six months. The plaintiff had to abort the project after investing about Rs.386,47,10,785/-, which is lying as a dead investment shown as capital work in progress and other non-current assets.
2.8. The State Bank of India, one of the consortium members, vide letter dated 28.02.2018, reduced the non-fund based working capital letter of credit limit by Rs.36 Crores from Rs.106.50 Crores to Rs.70.50 Crores. This has caused an over all working capital crunch in the company. The plaintiff had also cancelled other re-booked forward exchange contracts (which two were entered into in anticipation of equity investment by EEMF) whose expected delivery was between February and June, 2015. 7/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 Cancellation of these contracts resulted in surplus of around INR 28.23 Crores. However, the defendant did not remit the surplus to the plaintiff.
2.9. The plaintiff entered into such hedging contracts to book, cancel, re-book forward foreign exchange contracts, in view of the condition of debt funding, which is a condition precedent to the agreement for foreign investment and uncertainties regarding the exact dates of funding and exact date of investment and the high volatility in exchange rates. Such forward foreign exchange contracts entered into by the plaintiff are of isolated nature for sole purpose of hedging against the risk of foreign exchange investment.
2.10. In the interim, the plaintiff approached the defendant for sanction of foreign exchange forward contract limits explicitly to hedge the contracted equity infusion from EEMF against rate volatility. With explicit sanction from the defendant, the plaintiff had from time to time entered into a series of forward exchange contracts with the defendant, being an authorised dealer under the Foreign Exchange Management Act, 1999. The decision 8/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 to enter into forward exchange contracts was done in the ordinary course of business, considering the exigencies at that time and an assessment of the business risk. Undue delay on the part of the defendant as a leader of the consortium and also as a financing bank in communicating sanction or otherwise of nearly three years certainly constitutes a gross deficiency of service causing serious damage to the plaintiff's business. Due to delay in sanction of credit facilities by the consortium banks, the anticipated foreign inward remittance of the equity share application money did not materialize which was in accordance with the agreement, resulting in the contracts being cancelled during its tenure or on maturity. Further, in accordance with the terms of the forward exchange contract and usage thereunder, the effects of cancellation were settled in cash without any deficiency or default on the part of the plaintiff. The plaintiff, accordingly, paid all the amounts that became due under the forward exchange contracts entered into with the defendant. The same has been paid by the plaintiff Company without any demur when demanded by the defendant. Whereas, the plaintiff was not paid the amount for the year 2014- 2015 and 2015-2016 to the tune of Rs.28,23,76,500/-. Hence, the Suit.
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3. It is the contention of the defendant that the suit is not maintainable and the plaintiff is not entitled to file any suit for recovery of the money in the account of the plaintiff before the Civil Court and the same is barred in law under Sections 17 and 18 of the Recovery of Debts and Bankruptcy Act, 1993. Similarly, the suit is bad for non-joinder of necessary parties. It is the case of the plaintiff that the expected foreign equity participation did not happen, as the members of the consortium had failed and delayed to sanction the required debt funding for their project. Therefore, other bankers are also necessary parties. Similarly, the suit is bad for joinder of cause of action.
4. It is the further contention of the defendant that the letter of intent dated October 18, 2012 and agreement for investment dated October 31, 2012, said to have been entered into by the plaintiff with Enterprise Emerging Market Fund [EEMF] are not the documents giving rise to realization of foreign exchange and are only preemptive documents to result in a share purchase agreement to be entered into, which would only result in foreign equity. The defendant never agreed for any financial tie-up for the 10/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 contract entered between EEMF and the plaintiff. The stipulation of such a term for foreign equity participation is resulting in the transaction being termed speculative, as the plaintiff tried to deal with a speculative situation without any firmed-up terms for equity participation.
5. It is the further contention of the defendant that the contract has been entered on the bona fide presumption that the underlying transactions are genuine and in compliance of various statutory regulations and directives of the Reserve Bank of India. It is the further contention that the Reserve Bank of India has now raised an issue that there is no underlying contract resulting in foreign exchange realizations and that the plaintiff is bound to produce such document. The documents on the basis of which the forward foreign exchange contracts were entered into only result and lead to entering into share purchase agreements and do not result in foreign exchange realization. As such, the said forward foreign exchange contracts entered into by the plaintiff and the defendant are termed as void ab initio by the Reserve Bank of India.
6. It is contended by the defendant that the plaintiff had 11/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 speculated on the happening of an event and went on booking, cancelling and re-booking forward contracts with delivery period of one year, when no such obligation arising for realizations of foreign exchange. It is also submitted that cancellation of forward contracts resulting in loss, booking and surplus, as averred in the plaint, are matters of record, but, subject to the guidelines of the Reserve Bank of India and other statutory regulations. As a transaction now being termed as 'void' by the Reserve Bank of India, the transactions are bound to be reversed and treated as such. The defendant, being a leader of the consortium, had diligently and prudently supported and facilitated the plaintiff's request and despite the economic slow down, particularly, in the Steel and Power Sectors, had sanctioned and allocated the required funds on time.
7. It is the further contention of the defendant that as per the sanction terms, the disbursement of total sanctioned amount of Rs.958 Crores by the consortium of banks shall be in a phased manner corresponding to the project progress and completion. The plaintiff could not progress with the project and had abandoned the same, which is due to the market conditions and the 12/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 project viability and not due to the account of adequate funding from the consortium of banks. At any event, the plaintiff had agreed the terms and conditions of the sanction and availed the required financial assistance and cannot now blame the defendant and other consortium banks for the project abandonment. The cancellation and re-booking of the forward foreign exchange contracts are governed by the statutory provisions under FEMA and regulatory guidelines of Reserve Bank of India. Such forward contract, as per the RBI Master Circular, is bound to be strictly in compliance of the statute and regulations. As per the circular, the forward contracts are to be based on the underlying contracts/documents which would categorically establish the transaction in foreign exchange. The master circular stipulates that cancelled contracts cannot be re-booked on the same underlying contract. As such, the said transactions are subject matter of scrutiny by the Reserve Bank of India. The amounts gained out of the cancelled forward contracts are not passed to the plaintiff due to their continuous cancellation and re-booking and inordinate delay in equity infusion. Further, when the matter has been referred to Reserve Bank of India, on preliminary investigation, it was observed by the Reserve Bank of India that the entire transaction is void ab initio. Hence, it is the 13/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 contention of the defendant that till the Reserve Bank of India takes a decision, the amounts claimed by the plaintiff cannot be termed as legal and the defendant cannot pay such amount, as Reserve Bank of India has held that the transactions are void ab initio.
8. It is the further contention of the defendant that the interest claimed by the plaintiff is also not maintainable. Till the Reserve Bank of India approves the transaction of the plaintiff, the defendant is not liable to pay the amount arising out of disputed cancelled foreign forward contracts. It is also submitted that the suit is barred by limitation. Thus, the defendant prayed for dismissal of the suit.
9. Reply statement is also filed by the plaintiff denying the written statement.
10. On the above pleadings, the following issues were framed:
"(1) Whether the plaintiff is entitled to 14/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 the sum of Rs.46,49,60,910/- comprising of principal amount and interest at the rate of 18% p.a. till 20.10.2018, as prayed in the plaint?
(2) Whether the plaintiff is entitled for any declaratory relief in relation to C.C.2354 as sought for in the plaint?
(3) Whether the plaintiff is entitled to a further interest at the rate of 18% p.a. from the date of the plaint till the payment of the amount claimed under clause (a) and (b) of the prayers in the plaint?
(4) Whether the suit is barred in law in view of the relief sought for which has to be adjudicated only the DRT in the case of recovery proceedings by the Bank, DRT only being entitled to adjudicate in terms of Sections 17 and 18 of Recovery of Debts and Bankruptcy Act?
(5) Whether the above suit is bad for non-
joinder of necessary parties as contended by the defendant since the pleadings refer to consortium lending?
15/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 (6) Whether the plaintiff's claim in the suit for set off as against the dues payable to the Bank is tenable in law and on facts? and (7) To what other reliefs are the parties entitled?"
11. After hearing the final arguments of both sides, the following additional issues were also framed:
"(i) Whether all transactions between the plaintiff and the defendant are not genuine and it is only a speculative and void? and
(ii) Whether the suit is barred by limitation?
12. It is the contention of the learned Senior Counsel appearing for the plaintiff that in October and November, 2012, the plaintiff has entered into several forward foreign exchange contracts with the defendant in order to hedge the potential equity investment against possible currency fluctuations. The defendant has not disputed the contract. The only contention of the defendant, at present, is that the underlying transactions are not 16/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 genuine and, therefore, they are not bound to pay the gain accrued to the plaintiff. It is the further contention that on earlier occasions, when the plaintiff has cancelled forward foreign exchange contracts, the plaintiff has incurred a loss of INR 24.69 Crores, which was duly paid to the defendant. In fact, the said amount has been debited from the plaintiff's account. In the year 2014-2015 and 2015-2016, when the forward exchange contracts dated 25.02.2014, 10.09.2013, 06.09.2013, 20.03.2014, 12.05.2014 and 09.06.2014 were cancelled, the above cancellations resulted in surplus of Rs.28,23,76,500/-. However, the defendant has not made the payments and written a communication to the Reserve Bank of India. Even, during the clarification is pending with the Reserve Bank of India, they debited other amount from the plaintiff, when the plaintiff has incurred loss in such cancellation. Hence, it is the contention that the conduct of the defendant clearly indicates that only to avoid the amount legally payable to the plaintiff, a defence has been set up as if the underlying transactions are not genuine.
13. The learned Senior Counsel has placed much reliance 17/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 on the referred various exhibits to show that the entire transactions are genuine and not a speculative one and the defendant themselves admitted that the transactions are genuine one. Such being a position, the defence set up by the defendant that the underlying transaction is not a genuine transaction and void ab initio cannot be countenanced. Even, in the reply sent to the Reserve Bank of India by the defendant under Ex.D.7, the defendant has admitted that the underlying transaction, based on which the forward contracts are booked, is genuine and D.W.1, in his evidence, also admitted the same. Even, in the forward contracts, the forward contract itself, the purpose for which the contract was entered, is only for the purpose of equity investment. D.W.1, in his evidence, has also admitted that the underlying transaction is only for equity investment. It is the further contention that Ex.D.32 - order passed by the Reserve Bank of India does not indicate that the entire transactions are void. The above document only indicates the bank's failure to follow the strict procedures. Therefore, it cannot be said that the entire underlying transaction is void, whereas, all the transactions between the plaintiff and the defendant were clearly admitted in the written statement.
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14. It is his further contention that this nature of transaction, at any stretch of imagination, could be classified as a speculative contract. Section 43(5) of the Income Tax Act, 1961 deals with "speculative transaction". The proviso (b) to Section 43(5) of the Income Tax Act, 1961, states that a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations shall not be deemed to be a speculative transaction. Hence, it is the contention that there is no violation either under Foreign Exchange Management Act, 1999, or RBI Circulars. Only the bank has not followed the circular strictly, which was found out by the letter of RBI. Merely such order has been passed, much after the transactions, now, the bank cannot take advantage of the same to contend that the entire transaction is a speculative nature and void ab initio.
15. It is the further contention that in the first tranche of cancellation of forward contracts, the plaintiff has incurred a loss of Rs.24.69 Crores. The same was immediately debited by the defendant in C.C.No.2354. Similarly, during the second tranche of 19/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 cancellation of forward contracts, the plaintiff has gained a profit of Rs.19.50 Crores, which was duly paid by the defendant. However, in the third tranche of cancellation of forward contracts, a profit of Rs.28.23 Crores was gained by the plaintiff. The above amount has not been paid to the plaintiff, which is the subject matter of the present Suit.
16. It is the further contention that even after the communication sent to the RBI by the defendant for alleged procedural lapses and violations of guidelines, the defendant has recovered a sum of Rs.27.99 Lakhs for the alleged loss sustained during cancellation of the forward contracts, subsequent to the investigation report. The above facts clearly proved the factum of transaction between the plaintiff and the defendant. Therefore, it is contended that the plaintiff is certainly entitled to decree and judgment.
17. It is also the submission of the learned Senior Counsel that the suit is not barred under Sections 17 and 18 of the Recovery of Debts and Bankruptcy Act, 1993 and it is not a suit for recovery from the bank to oust the jurisdiction of the Civil Court 20/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 and the suit is a result of the gain arising out of the derivative contract. Therefore, the Civil Court alone has got jurisdiction to decide the issue. Similarly, the suit claim is only in respect of forward contracts entered with the defendant. No such contracts entered into with any other members of the consortium. Therefore, the contention of the defendant is that the suit is bad for non- joinder of parties also cannot be countenanced.
18. It is the further contention that even though the delivery period for the last forward contract ended by 01.06.2015, the limitation period would commence only from 25.08.2018 when the defendant denied the plaintiff's claim for the principal amount vide legal notice dated 31.07.2018 and thus, filing of the suit also is well within the period of limitation. Hence, it is submitted that the plaintiff is entitled to claim the relief as such.
19. In support of the submissions, the learned Senior Counsel appearing for the plaintiff relied upon the following judgments:
(i) Major (Retd.) Inder Singh Rekhi v. DDA [1988(2) 21/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 SCC 338];
(ii) Nahar Industrial Enterprises Limited vs. Hong Kong and Shanghai Banking Corporation [2009(8) SCC 646];
(iii) Rajshree Sugars and Chemicals vs. Axis Bank Limited [2009(1) LW 209];
(iv) BOI Finance Limited vs. Custodian and Others [1997(10) SCC 488];
(v) Commissioner of Income Tax vs. Badridas Garudu [2003(261) ITR 256]; and
(vi) Commissioner of Income Tax vs. Sorajmul Nagarmul [1981(129) ITR 169].
20. Per contra, the learned Senior Counsel appearing for the defendant has mainly submitted that the suit is barred by law as per Sections 17 and 18 of the Recovery of Debts and Bankruptcy Act, 1993 and the suit is also bad for non-joinder of necessary parties and the claim is also barred by limitation and particularly, transaction is not genuine and it is a speculative. The suit is only preemptive action. It is the contention that the hedging contracts were booked with the defendant and with no other consortium bankers. However, the legality of booking the hedging contracts 22/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 was held as void ab initio by the RBI and particularly, the plaintiff also addressed a letter to RBI vide Ex.P.43 substantiating their right for payment of the surplus on account of the cancellation of forward contracts made with the defendant as bona fide hedge transactions of tangible contract exposures in the nature of equity participation expected out of an underlying contract for such transaction and as such, RBI is a proper and necessary party to the suit. It is also contended that the other consortium bankers are also not made as parties. It is the further contention that the delivery period of last contract is shown as 01.06.2015 to 09.06.2015, however, the suit is filed on 12.11.2018, which is beyond the period of three years. Thus, the suit is not maintainable.
21. It is further submitted that the forward exchange contracts were booked during October and November, 2012 for hedging the anticipated equity inflows from the overseas equity investor i.e. EEMF based on the documents in the form of letter of intent dated 18.10.2012 and the agreement for investment dated 31.10.2012. Whereas, the said agreement refers only to entering into share purchase agreement which would be the basis for the equity participation by way of foreign investment. Hence, his 23/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 contention is that such contract is void under Section 23 of the Indian Contract Act, 1872, since it is forbidden by law.
22. The learned Senior Counsel would also contend that Ex.D.3 indicates that there is no valid underlying document, which entitles to book forward sale contracts and the frequent cancellations are only for speculative purpose which are serious violations of FEMA and FEDAI Guidelines. It is also stated that Ex.D.1 indicates that the contracts were cancelled on due dates due to non-receipt of anticipated investments. Therefore, the entire transactions between the plaintiff and the defendant are observed as void ab initio by the Reserve Bank of India. Hence, it is the contention that the defendant entered into such contracts on bona fide presumption that the underlying transactions are genuine and in compliance of various statutory regulations and directives of the RBI. Since the Reserve Bank of India raised this issue and held that there is no underlying contract, the plaintiff cannot seek for recovery of money said to be profit in the hedging transactions. Hence, he prayed for dismissal of the suit.
23. On the side of the plaintiff, P.W.1 was examined and 24/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 Exs.P.1 to P.51 were marked. The list of documents is as follows:
Sl. Date Document Ex.No.
No.
1. 18.10.2012 Letter of Intent executed by the Exhibit P.1 Investor in favour of the plaintiff
2. 31.10.2012 Investment Agreement Exhibit P.2 between Plaintiff and EEMF
3. 01.10.2012 Approval Letter sent by the Exhibit P.3 Regional Office of the Defendant (Authorised Dealer)
4. 03.10.2012 Forward Exchange Contract for Exhibit P.4 a sum of USD $ 10 Million
5. 03.10.2012 Forward Exchange Contract for Exhibit P.5 a sum of USD $ 6 Million
6. 04.10.2012 Forward Exchange Contract for Exhibit P.6 a sum of USD $ 10 Million
7. 07.11.2012 Approval Letter sent by the Exhibit P.7 Regional Office of the Defendant (Authorised Dealer)
8. 29.06.2013 Memorandum filed before the Exhibit P.8 Management Committee of the Defendant Bank
9. 18.01.2019 Letter sent by the Defendant to Exhibit P.9 the Plaintiff confirming that they have the original Investment agreement dated 31.10.2012
10. 29.11.2012 Forward Exchange Contract for Exhibit P.10 a sum of USD $ 10 Million
11. 11.06.2013 Forward Exchange Contract for Exhibit P.11 a sum of USD $ 5 Million
12. 06.06.2013 Forward Exchange Contract for Exhibit P.12 a sum of USD $ 10 Million 25/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019
13. 20.06.2013 Forward Exchange Contract for Exhibit P.13 a sum of USD $ 5 Million
14. 20.06.2013 Forward Exchange Contract for Exhibit P.14 a sum of USD $ 5 Million
15. 22.01.2014 - Sanction letters received from Exhibit P.15 24.02.2015 consortium banks colly
16. 21.08.2013 Approval Letter sent by the Exhibit P.16 Regional Office of the Defendant (Authorised Dealer)
17. 22.08.2013 Forward Exchange Contract for Exhibit P.17 a sum of USD $ 2 Million
18. 21.08.2013 Forward Exchange Contract for Exhibit P.18 a sum of USD $ 2 Million
19. 07.11.2013 Forward Exchange Contract for Exhibit P.19 a sum of USD $ 5 Million
20. 09.06.2014 Forward Exchange Contract for Exhibit P.20 a sum of USD $ 5 Million
21. 10.06.2013 Forward Exchange Contract for Exhibit P.21 (wrongly a sum of USD $ 5 Million mentioned as '10.06.2014')
22. 22.08.2013 Forward Exchange Contract for Exhibit P.22 a sum of USD $ 2 Million
23. 25.02.2013 Forward Exchange Contract for Exhibit P.23 a sum of USD $ 5 Million
24. 10.09.2013 Forward Exchange Contract for Exhibit P.24 a sum of USD $ 10 Million
25. 06.09.2013 Forward Exchange Contract for Exhibit P.25 a sum of USD $ 15 Million
26. 22.08.2014 Forward Exchange Contract for Exhibit P.26 a sum of USD $ 6 Million
27. 25.08.2014 Forward Exchange Contract for Exhibit P.27 a sum of USD $ 15 Million
28. 25.11.2014 Forward Exchange Contract for Exhibit P.28 a sum of USD $ 10 Million 26/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019
29. 31.03.2018 Balance Sheet of the Plaintiff Exhibit P.29
30. June 2018 Statement of repayment of loan Exhibit P.30 by the plaintiff [Not Sure]
31. 08.09.2014 Letter sent by the Investor to Exhibit P.31 the Plaintiff
32. 18.06.2015 Letter sent by the Investor to Exhibit P.32 the Plaintiff
33. 17.08.2015 Shareholders agreement Exhibit P.33 between the Plaintiff and the Investors
34. 12.08.2019 Report filed by the Advocate of Exhibit P.34 the Defendant
35. 23.11.2015 - Copies of the relevant entries Exhibit P.35 of FIRC in the statement of the 24.03.2017 Defendant [Not Sure]
36. 02.09.2015- Forward Inward Remittance Exhibit P.36 19.09.2017 Certificates issued by the Defendant
37. 23.09.2015 - Share Certificates issued by Exhibit P.37 01.09.2017 the Plaintiff to the Investor colly
38. 25.04.2017 Form PAS 3 filed by the Exhibit P.38 Plaintiff with the Ministry of Corporate Affairs
39. 25.03.2015 Letter sent by Plaintiff to the Exhibit P.39 Defendant urging them to release the gains in relation to cancelled forward contracts
40. 21.05.2015 Letter sent by Plaintiff to the Exhibit P.40 Defendant urging them to release the gains in relation to cancelled forward contracts
41. 07.03.2016 Letter sent by Plaintiff to the Exhibit P.41 Defendant urging them to release the gains in relation to cancelled forward contracts
42. 24.03.2016 Letter sent by the Defendant to Exhibit P.42 27/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 the Plaintiff stating that they are awaiting approval from RBI
43. 03.11.2016 Email sent by the Plaintiff to Exhibit P.43 the Executive Director of the RBI
44. 21.06.2013 Joint Documentation between Exhibit P.44 the plaintiff and the consortium
45. 31.01.2015 - The summary of Interest Exhibit P.45 01.01.2019 charged by the banks and relevant pages from the statement of Cash Credit account maintained with the Defendant and SBI.
46. 01.04.2013 - Extracts of the Ledger account Exhibit P.46 31.03.2016 of the Defendant for CC 2354
47. 24.07.2018 Letter sent by the Defendant to Exhibit P.47 the Plaintiff stating that they are awaiting approval from RBI
48. 31.07.2018 Legal notice sent by the Exhibit P.48 Plaintiff to the Defendant
49. 25.08.2018 Reply notice sent by the Exhibit P.49 Defendant to the Plaintiff
50. 06.04.2019 - Confirmation letters sent by Exhibit P.50 05.06.2019 other consortium member colly banks
51. 17.11.2014 Minutes of the meeting held Ex.P.51 between the plaintiff and the consortium
24. On the side of the defendant, Chief Manager, IOB, Royapuram Branch, was examined as D.W.1 and Exs.D.1 to D.32 28/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 were marked. The list of documents is as follows:
Sl. Date Document Exhibit No.
No.
1. 14.03.2016 Letter from IOB to RBI Exhibit D.1
2. 19.05.2016 Email from IOB to RBI Exhibit D.2
3. 27.06.2015 Investigation Report Exhibit D.3
4. 06.07.2017 Email from RBI to IOB Exhibit D.4
5. 17.07.2017 Letter from IOB to RBI Exhibit D.5
6. 03.10.2018 Show Cause Notice from Exhibit D.6
RBI to IOB
7. 30.10.2018 Reply to Show Cause Exhibit D.7
Notice by IOB to RBI
8. 24.04.2019 Show Cause Notice from Exhibit D.8
RBI to IOB
9. 17.11.2014 Minutes of the Exhibit D.9
Consortium Meeting held
on 14.11.2014
10. 07.07.2014 Minutes of the Exhibit D.10
Consortium Meeting held
on 26.06.2014
11. 12.10.2013 Minutes of the Exhibit D.11
Consortium Meeting held
on 10.10.2013
12. 23.03.2013 Minutes of the Exhibit D.12
Consortium Meeting held
on 15.03.2013
13. 06.08.2012 Minutes of the Exhibit D.13
Consortium Meeting held
on 01.08.2012
14. 31.10.2012 Investment Agreement Exhibit D.14
15. 03.10.2012 Forward Exchange Exhibit D.15
Contract for USD $ 10
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16. 03.10.2012 Forward Exchange Exhibit D.16
Contract for USD $ 6
Million
17. 04.10.2012 Forward Exchange Exhibit D.17
Contract for USD $ 10
Million
18. 29.11.2012 Forward Exchange Exhibit D.18
Contract for USD $ 10
Million
19. 11.06.2013 Forward Exchange Exhibit D.19
Contract for USD $ 5
Million
20. 06.06.2013 Forward Exchange Exhibit D.20
Contract for USD $ 10
Million
21. 20.06.2013 Forward Exchange Exhibit D.21
Contract for USD $ 5
Million
22. 20.06.2013 Forward Exchange Exhibit D.22
Contract for USD $ 5
Million
23. 22.08.2013 Forward Exchange Exhibit D.23
Contract for USD $ 2
Million
24. 21.08.2013 Forward Exchange Exhibit D.24
Contract for USD $ 2
Million
25. 07.11.2013 Forward Exchange Exhibit D.25
Contract for USD $ 5
Million
26. 09.06.2014 Forward Exchange Exhibit D.26
Contract for USD $ 5
Million
27. 10.06.2013 Forward Exchange Exhibit D.27
Contract for USD $ 5
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28. 22.08.2013 Forward Exchange Exhibit D.28
Contract for USD $ 2
Million
29. 10.09.2013 Forward Exchange Exhibit D.29
Contract for USD $ 10
Million
30. 06.09.2013 Forward Exchange Exhibit D.30
Contract for USD $ 15
Million
31. 22.08.2014 Forward Exchange Exhibit D.31
Contract for USD $ 6
Million
32. 19.11.2019 Order of Reserve Bank of Exhibit D.32
India
25. This Court will first decide the Additional Issue No.1.
26. From the plaint, pleadings, written statement and the evidence of P.W.1 and D.W.1 and the documents adduced by both sides, the following are the admitted facts:
The plaintiff had banking transactions with the defendant since 2006 and had been availing different facilities from the defendant for the purpose of their business. The plaintiff proposed a project for expansion of their production capacity, which requires around Rs.1597 Crores proposed to be raised by debt and other equity participation. The plaintiff had made an arrangement with EEMF for equity participation and obtained a letter of intent Ex.P.1 31/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 dated 18.10.2012. The plaintiff has also entered into an investment agreement with EEMF dated 31.10.2012 [Ex.P.2]. This agreement is in continuation to the letter of intent issued by EEMF vide letter dated 18.10.2012 [Ex.P.1], wherein EEMF agreed to invest upto USD 80 Million Dollars into Suryadev Alloys and Power Private Limited [in short 'SAPPL']. Agreement also stipulates that the percentage of equity dilution will be decided upon the completion of financial and legal due diligence and the signing of the share purchase agreement would be carried out only after the financial tie-up is completed. It also stipulates that the fund house will invest funds soon after SAPPL satisfactorily completes the financial tie-up for the proposed expansion and documents pertaining to bank sanctions are placed before the Board of Directors of EEMF. Ex.P.3 is the approval letter sent by the Regional Office, Chennai, to the Royapuram Branch for an entry into forward contracts. Based on such authorisation, under Ex.P.4, dated 03.10.2012, for a sum of USD $ 10 Million, forward exchange contract was entered between the plaintiff and the defendant. Similarly, under Exs.P.5 and P.6 - contracts for a sum of USD $ 6 Million and USD $ 10 Million respectively were entered between the plaintiff and the defendant. Ex.P.7 is the approval letter sent by the Regional Officer of the 32/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 defendant bank dated 07.11.2012, wherein the Regional Officer of the defendant bank has permitted the defendant bank for booking forward contract for USD $ 20 Million with Nil margin towards expected equity from the foreign investors. Similarly, Exs.P.10 to P.14 are the foreign exchange contracts entered between the parties. These facts are not in dispute.
27. From the above documents, there is no doubt in the mind of the Court about the admitted transaction entered between the defendant and the plaintiff. In fact, the defendant with the approval of the Regional Office has entered into a contract. Now, the question arises whether such contracts are speculative nature or not genuine?, as contended by the defendant, which has to be seen.
28. The main contention of the defendant is that the contracts were entered and cancelled or re-booked for the same reason. Therefore, it is not genuine. Further, RBI has also raised certain questions. It is to be noted that the admitted facts are, in the first tranche of cancellation of forward contracts, the plaintiff has incurred a loss of Rs.24.69 Crores. The same was recovered from the plaintiff by debiting his account CC.2354. Similarly, it is 33/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 also admitted that the second tranche of cancellation of forward contracts, profit of Rs.19.50 Crores was gained by the plaintiff. The same was credited to them by the defendant and in the third tranche of transaction, the plaintiff has gained a sum of Rs.28.23 Crores. The delivery period of the contract is 01.06.2015 to 09.06.2015. Thereafter only, it appears that report has been sent to the RBI under Ex.D.3 dated 27.06.2015 contending that there are procedural lapses and violations of FEMA guidelines. Till such time, the defendant have never entertained any doubt with regard to the procedural lapses or violations of FEMA.
29. It is also to be noted that it is admitted by D.W.1, even after the matter is referred to the RBI, a sum of Rs.27.99 Lakhs was debited towards the loss sustained during cancellation of the forward contracts subsequent to the investigation report. Exs.P.17 to 28- various forward exchange contracts for the period from 2013-2014 entered between the plaintiff and the defendant, which is also approved by the Regional Office of the defendant under Ex.P.16. In fact, contracts were honoured by both sides. Only for the first time on 14.03.2016, under EX.D.1, the defendant wrote to the RBI on the ground that the contracts were cancelled on the due 34/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 dates due to non-receipt of anticipated investments, thereby booking gains without basis of underlying contracts. This communication is sent much after performance of the contract by both sides. Only after the demand, this letter has been sent to the RBI. Be that as it may, in Ex.D.7-the reply sent by the defendant to the show cause notice issued by the RBI, it is clearly stated by the defendant that after satisfying about the genuineness of the underlying exposure, they have entered such contracts which were genuine. Even to the query with regard to the large scale cancellations and the resultant gains, the bank has replied to the effect that equity infusion of USD 40.95 million from Coral Power Development PTE Limited, Singapore into SAPPL has taken place since August, 2015 post-establishment of financial tie-ups in June, 2015. It is evident from the flows that the underlying transaction is genuine, but, got delayed due to constraints faced by the company in getting the financial tie-ups in place. The above reply by the bank clearly indicates that a sum of USD 40.95 million has come as equity and the bank has, in fact, certified that the underlying transaction is genuine and the delay was only due to the constraints faced by the company in getting the financial tie-ups in place. Ex.P.33 also proves the fact that the plaintiff has entered into 35/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 a share holder agreement with the investors. Ex.P.34-legal opinion obtained by the bank with regard to the share holders agreement also indicates that the bank has obtained opinion to the effect that the contract is valid and enforceable within the Courts situated in Chennai. Exs.P.18, 24 and 25 - Forward Exchange Contracts, wherein it is clearly mentioned in the contract that the performance of the contract was relate to the equity investment. Ex.D.7 proves the fact that in fact equity has come in on the basis of such contract. Besides, as already discussed, in the first tranche of cancellation, amount has been debited from the plaintiff and in the second tranche of cancellation, amount was paid to the plaintiff and subsequent to the communication dated 27.06.2015, a sum of Rs.27.99 Lakhs is also debited from the plaintiff. Ex.D.7 clearly proves that only on the basis of the contract entered between the parties, the equity has come in to the bank. The bank is also aware of the fact that the cancellations were due to certain delays in getting financial tie-ups in place. Forward exchange contract was entered only by the defendant bank. The defendant has actually performed their part of contract also. Further, P.W.1, in his evidence, also clearly explained the reasons for delay in getting sanction from the bankers, which is also admitted by the bank in 36/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 their reply in Ex.D.7. Exs.D.9 to D.13 indicate that there were genuine attempts to get the financial tie-up with the other banks. Whereas, D.W.1, in his evidence, has clearly admitted, except defendant, other consortium bankers have not entered into exchange with the plaintiff in respect of the equity. Ex.P.50 is filed in this regard. D.W.1 has also admitted that a sum of 41 million US Dollars was invested by foreign investors through the defendant bank. D.W.1 has also admitted that when the foreign equity came in US dollars, the bank never raised any objection. D.W.1, in his evidence, has clearly admitted that on the basis of the representations and warranties mentioned in Ex.P.33, foreign investors agreed to bring in equity and brought the equity. D.W.1 has also admitted in his evidence that in Exs.P.18, 24 and 25, it is mentioned "only for the purpose of equity (namely foreign exchange contracts)". It is also admitted by D.W.1 that the bank was always aware that underlying transactions are investments in equity only. D.W.1 has also admitted that despite other consortium bankers had not agreed, the defendant bank has given their share and he has admitted that since there were lot of cancellations and re-booking for the same underlying transaction, their Treasury Department has initiated enquiry into the transactions and also 37/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 they have conducted internal enquiry. Therefore, they addressed the letter to RBI under Ex.D.1. D.W.1 has also admitted that they did not find anything wrong when about 40 bookings and certain cancellations were done by the plaintiff from 2012-2015 i.e., before Ex.D.1 and D.W.1 has also specifically admitted that they are not saying that the transactions are not genuine.
30. Much emphasis has been made on Ex.D.32 by the bank. The Reserve Bank of India, by its order dated 19 November, 2019, has held that as per the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, the authorized dealer of the defendant bank is required to satisfy itself about the genuineness of the underlying exposure through verification of documentary evidence. However, it was observed that verification of documentary evidence for establishing the genuineness of the underlying exposure was not carried out by IOB. Similarly, circular No.58, dated December 15, 2011 and Circular No.32, dated 28 December, 2010, have not been followed and held that although a legally binding agreement of investment was signed between SAPPL and EEMF on October, 31, 2012, the same was not definitive and was contingent upon financial tie-ups to be secured by SAPPL. Hence, it is the contention of the RBI that the forward 38/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 contracts were booked before any of the underlying documents were available and none of the underlying documents are definitive, thereby, rejected the contention of the IOB. Further, in Paragraph No.4 of its order, it has been opined that cancellation and re-booking of the forward contract was a rollover of the contracts and held that there is no contravention. Similarly, Paragraph No.5 speaks about the recovery of Rs.24.69 Crores towards the loss suffered by the plaintiff and gain of Rs.19.50 Crores was passed on to the plaintiff in the year 2014. The Empowered Committee did not find it appropriate to consider IOB to be in contravention of the same matter again and finally, in Paragraph No.8, it is held that the bank has not followed various directions of the RBI as regards foreign exchange derivative contracts entered into by the defendant with the plaintiff. Accordingly, a penalty was imposed on the bank for a sum of Rs.3,30,000/- for violations specified under paragraph.
31. The entire order of the Empowered Committee, when carefully seen, the RBI, in fact, has found so many procedural lapses on the part of the bank against the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 and Circulars of RBI. It is not the case of the RBI that the 39/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 underlying transaction is void ab initio. The main focus of the order indicates that there are some procedural lapses on the part of IOB while entering into such contracts. Therefore, merely because the RBI found fault with the bank in violating certain guidelines, it cannot be said that the entire contract is void ab initio or forbidden by law. In fact, various contracts entered between IOB are not in dispute. Ex.D.7 and the evidence of D.W.1 make it clear that IOB, in fact, verified the credentials and nature of the contract and share purchase agreement entered by the plaintiff and investment agreement with the investors has been thoroughly considered by the bank and they formed an opinion that underlying transactions are genuine. Therefore, merely because the bank was found with procedural lapses by the RBI, at a later point of time, it cannot be said that the entire contract is void ab initio and prohibited. Only when the contract is specifically forbidden by law, such contract is void ab initio.
32. The Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, as referred in the order of the Empowering Committee of the Reserve Bank of India, requires at least dealer to satisfy itself about the 40/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 genuineness of the underlying exposure through verification of documentary evidence. What is sought to be done, as per the Regulation, is the satisfaction of the authorised dealer about the genuineness of the underlying exposure through the verification of documentary evidence. Nowhere, such Regulation prohibits forward exchange contract per se and the only requirement is, proper satisfaction and verification of the document by the authorised dealer. Therefore, mere lapses on the part of the authorised dealer and failure to follow the Regulations strictly will not make the entire contract as void ab intio. When the contract entered by them is otherwise found to be genuine by various other documentary evidence and admitted to be genuine by themselves, such contract cannot be termed as void ab initio. Similarly, when the genuineness of the contract is not in dispute, merely, the bank has failed to follow certain circulars, such contract cannot be avoided on the ground of void in nature.
33. As far as the contention with regard to speculative nature of the contract is concerned, the Foreign Exchange Management Act, 1999, do not define speculative transaction. Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2000, deals with the power of Reserve Bank to compound 41/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 contravention, if any person contravenes any provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) except clause (a) of Section 3 of the Foreign Exchange Management Act, 1999. The RBI can compound any contravention except clause (a) of Section 3 of the Act. Sub-Clause (a) of Section 3 deals with a transfer of any foreign exchange or foreign security to any person not being an authorised person. Therefore, such situation is not arisen in this case. In fact, Regional Office of the defendant bank has given approval for entering into forward exchange contract and equity also come in to the bank. In such view of the factual matrix, merely because the RBI has found the bank guilty of certain contraventions of Rules and Circulars, the bank cannot avoid the entire contract on the ground that the contract is void ab initio. It is relevant to note that even assuming that the equity infusion or hedging transaction is akin to a speculative contract, it is not prohibited.
34. Section 43(5) of the Income Tax Act, 1961, defines "speculative transaction", which reads as follows:
"speculative transaction" means a
transaction in which a contract for the
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purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.
35. The proviso (b) to Section 43(5) is as follows:
"A contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations shall not be deemed to be a speculative transaction."
36. The above proviso makes it clear that entering into such contract is permitted in law. Similarly, the contract in respect of trading in derivatives is also permitted. Those transactions shall not be deemed to be speculative transactions. Therefore, the contention of the defendant, in this regard, cannot be countenanced.
37. In BOI Finance Limited vs. Custodian and Others 43/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 [1997(10) SCC 488], particularly, at Paragraph No.33, the Hon'ble Apex Court has held that non-compliance of the directions issued by the Reserve Bank may result in prosecution or levy of penalty, but, it cannot result in invalidation of any contract by the bank with the third party. Accordingly, the above issue is answered in favour of the plaintiff and as against the defendant. Issue No.5:
38. As regards the other contention of the defendant that the suit is bad for non-joinder of necessary parties, it is to be noted that the observation as discussed above in the previous issue, clearly indicates that other consortium banks were not entered into any contract and the plaintiff also could not make out any financial tie-up with them. Admittedly, the defendant alone entered into a contract with the plaintiff and equities also come to the defendant to the tune of more than 41 million USD. Such being a position, presence of other consortium banks, which never entered any such contract, is not at all necessary for the suit. Accordingly, this issue is answered against the defendant and in favour of the plaintiff. Issue No.4:
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39. It is the contention of the defendant that the Civil Court has no jurisdiction to try the suit and the suit is barred by Sections 17 and 18 of the Recovery of Debts and Bankruptcy Act, 1993. Section 17 of the Recovery of Debts and Bankruptcy Act, 1993, deals with the power of Tribunals to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. Section 18 deals with the bar of jurisdiction. The same clearly indicates that no Court or other authority shall have a power to deal with the matters specified in Section 17. A conjoint reading of Sections 17 and 18 makes it clear that only if the bank or financial institution files an application for recovery of debt, the Civil Court jurisdiction is ousted. Whereas, in this case, for recovery of money, the suit is filed for a direction to the defendant to pay the money due to the plaintiff in hedging contract transactions entered between them. Therefore, it cannot be said that the Civil Court jurisdiction is ousted.
40. In Nahar Industrial Enterprises Limited vs. Hong Kong and Shanghai Banking Corporation [2009(8) SCC 646], 45/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 the Apex Court has held that the jurisdiction of the Civil Court is not barred in relation to derivative contracts. Issue Nos.1 and 3:
41. Admittedly, it is not in dispute that in the third tranche of cancellation of forward contracts, a profit of Rs.28.23 Crores was gained by the plaintiff. Whereas, earlier cancellation loss incurred by the plaintiff was immediately debited and in the second tranche of cancellation, a profit of Rs.19.50 Crores was incurred and the same was credited by the defendant. Even thereafter, the defendant has debited a sum of Rs.27.99 Lakhs. Under Ex.D.1, on 14.03.2016, the defendant wrote to the RBI for the first time only. The Treasury Department of the bank has found that due to some lapses and procedural violations, the bank did not pay the amount. Thereafter, they sent a communication to the RBI. Having regard to the fact that the bank is also sought for clarification on the basis of some investigation report and they are awaiting the clarification with the RBI, though they found that the transaction is genuine, this Court is of the view that such clarification has been sent subsequently, only in order to safeguard the interest of some of the officials. Such being a position, the amount unnecessarily withheld 46/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 by the bank to the tune of Rs.28,23,76,500/- is to be returned by the bank with minimum interest at the rate of 7% per annum. Though the plaintiff has claimed 18% interest, this Court is of the view that taking note of the fact that the officials, in order to safeguard their interest, has sought clarification and awaiting the clarification all these days, interest claimed by the plaintiff cannot be ordered. Accordingly, interest is restricted only to 7% on the principal amount of Rs.28,23,76,500/- from the date of default till the date of realization. Accordingly, this issue is answered in favour of the plaintiff.
Additional Issue No.2:
42. With regard to the limitation aspect, it is the contention of the defendant that the last forward contract is dated 09.06.2014 and the delivery period is shown as 01.06.2015 to 09.06.2015. Therefore, the suit ought to have been filed within a period of three years i.e., before 08.06.2018, whereas the suit is filed only on 12.11.2018. Such contention cannot be countenanced for the simple reason that vide Ex.P.40 dated 21.05.2015, the plaintiff has requested the defendant to release the gains. Similarly, on 07.03.016, vide Ex.P.41, they claimed amount. Under Ex.P.42, 47/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 dated 24.03.2016, the defendant said that they are awaiting approval from RBI. Even, under Ex.P.47, dated 24.07.2018, the defendant has sent a letter stating that they are awaiting approval from the RBI. Ex.P.49 is only reply notice, wherein the defendant denied their liability. Right to sue arises only when the defendant actually denied liability. Therefore, the present suit has been filed immediately.
43. In Major (Retd.) Inder Singh Rekhi v. DDA [1988(2) SCC 338], the Apex Court has held that for the purpose of Article 137, right to apply accrues only, when the dispute between the parties arises, namely the dispute regarding the payment of bill in works contract arises, when the claim is made and denied or repudiation thereof. In the case at hand, it is not the case of the defendant that they are not liable to pay the amount.
Only for the first time by way of reply notice-Ex.P.49, they denied the liability. Therefore, right to sue accrues only on that day and the suit has been filed immediately. Such being a case, it cannot be said that the suit is barred by limitation.
Issue Nos.2 and 6:-
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44. It is relevant to note that it is the case of the plaintiff that the booking of foreign forward contract is a separate transaction for the purpose of hedging against the risk of foreign exchange currency. Such being a position, merely because profits or loss credited or debited to C.C.No.2354, it cannot be said that both are same transactions. In fact, C.C.No.2354 is a different transaction. The cash credit account and the outstanding thereon has nothing to do with the loss or gain accrued in the forward contract entered between the parties. Merely because hedging transactions done through the case credit account, it cannot be said that both are one and the same transaction. Therefore, this Court is of the view that the plaintiff cannot claim set off of the outstanding balance in their cash credit account. The cash credit facilities opened an independent contract. The parties are bound by that. In such view of the matter, the plaintiff's claim in the suit for declaration and set off against the dues payable to the bank cannot be ordered. Accordingly, these issues are answered.
45. In the result, the suit is decreed for the principal amount of Rs.28,23,76,500/- (Rupees Twenty Eight Crores Twenty 49/51 http://www.judis.nic.in C.S.(Comm.Div.) No.1 of 2019 Three Lakhs Seventy Six Thousand and Five Hundred Only) with interest at the rate of 7% per annum from the date of default till the date of realization with cost. The other relief of declaration that no amount is due and payable by the plaintiff to the defendant under C.C.No.2354 is dismissed.
46. In fine, the suit is decreed in part with cost.
Consequently, connected Original Application No.4 of 2019 is closed.
11.12.2019
Index : Yes/No
Internet : Yes/No
SML
N.SATHISH KUMAR, J
SML
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Judgment made in
C.S.(Comm.Div.) No.1 of 2019
and
Original Application No.4 of 2019
Delivered on:
11.12.2019
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