Gujarat High Court
Bank Of America vs Bank Of Baroda on 19 September, 2018
Author: Harsha Devani
Bench: Harsha Devani, A.S. Supehia
C/SCA/20598/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 20598 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS.JUSTICE HARSHA DEVANI
and
HONOURABLE MR.JUSTICE A.S. SUPEHIA
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1 Whether Reporters of Local Papers may be allowed to No
see the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law No
as to the interpretation of the Constitution of India or any
order made thereunder ?
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BANK OF AMERICA
Versus
BANK OF BARODA
==========================================================
Appearance:
MR AJAY MONGA with MR ADITYA A GUPTA(7875) for the PETITIONER(s)
No. 1
MOHIT A GUPTA(8967) for the PETITIONER(s) No. 1
MR AR GUPTA(1262) for the PETITIONER(s) No. 1
MR BHARAT T RAO(697) for the RESPONDENT(s) No. 1
RULE NOT RECD BACK(63) for the RESPONDENT(s) No. 2,3,4,5
SERVED BY PUBLICATION IN NEWS(75) for the RESPONDENT(s) No.
2,3,4,5
==========================================================
CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI
and
HONOURABLE MR.JUSTICE A.S. SUPEHIA
Page 1 of 34
C/SCA/20598/2017 JUDGMENT
Date : 19/09/2018
ORAL JUDGMENT
(PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)
1. This petition under Articles 226 and 227 of the Constitution of India is directed against the order dated 30.6.2017 passed by the Debts Recovery Appellate Tribunal at Mumbai in Appeal No.344 of 2006 as well as against the order dated 29.5.2006 passed by the Debts Recovery Tribunal at Ahmedabad in O.A. No.124 of 1995.
2. The facts, as averred in the petition, are that the petitioner Bank of America is a banking company incorporated under the relevant laws of U.S.A. and carries on the business of banking. The second respondent M/s. Gujarat Indo Lube Limited came out with a public issue of shares which got oversubscribed, that is, the number of shares applied for was more than the total number of shares issued. Therefore, the second respondent was required to refund the un-allotted share application money to various applicants. In this regard, the petitioner Bank appointed the first respondent Bank of Baroda as its refund banker and a refund account was opened with the petitioner. As per the process, the Bank of Baroda was to issue refund warrants with a validity period to the unsuccessful applicants of the public issue and the petitioner was to honour the said warrants within its validity period. Thereafter, the petitioner was to reconcile the accounts and return the balance amount lying in the refund account to the second respondent company.
Page 2 of 34C/SCA/20598/2017 JUDGMENT
3. To extend the facilities of refund to small cities and centres, the petitioner availed the services of the first respondent bank as it had a wide presence across the country. It, therefore, entered into an arrangement with the first respondent under which the petitioner appointed the first respondent as a correspondent bank. The arrangement was that the refund warrants issued by the second respondent were to be honoured by the first respondent on its presentment thereof. Accordingly, the refund warrants were stated to be payable at par across the branches of the first respondent. The aforesaid arrangement was recorded in a letter dated 9.4.1992 of the petitioner and the same was communicated to the first respondent. The relevant terms of the said letter are contained in clauses (iv) and (v) which reads thus:-
"(iv) Within 45 days of the expiry of the payment instrument, Bank of Baroda will close the account and remit proceeds to Bank of America. All paid instruments along with listing will also be provided to Bank of America. By June 30th, 1992, this would be reduced to 30 days.
(v) Bank of Baroda will not honour any instrument after 45 days of expiry of validity."
4. It is the case of the petitioner that the aforesaid arrangement was confirmed by the first respondent vide letter dated 6.5.1992 and thus, the clear understanding was that the arrangement would cease to exist after 45 days of the expiry of the payment instruments/warrants and in case any refund warrants are received by the first respondent after the 45th day, the same shall be presented to the petitioner for obtaining payment from the second respondent on collection basis only.
Page 3 of 34C/SCA/20598/2017 JUDGMENT It was further agreed that after closure of the account, the first respondent was not to accept any refund warrant presented to it for payment. It is the case of the petitioner that in terms of the arrangement, after the 45th day of expiry of the validity of the refund warrants, the petitioner was not under any contractual obligation to make reimbursement to the first respondent.
5. It is further the case of the petitioner Bank that the validity of the period of the refund warrants expired on 4.8.1992 and after 45 days of expiry of the validity of the refund warrants, in terms of the contract between the petitioner and the first respondent, the first respondent closed the refund account and the balance amount lying in the refund account was returned to the petitioner, thus bringing an end to the contract. The first respondent fully reimbursed itself in respect of the refund warrants before transferring the amount to the petitioner. Vide letter dated 26.11.1992, the petitioner recorded the closure of the account which was followed by a letter dated 21.1.1993, wherein it was categorically informed to the first respondent that for all future claims, the first respondent may claim reimbursement directly from the second respondent company.
6. The aforesaid communication dated 21.1.1993 of the petitioner was acknowledged by the first respondent vide its letter dated 25.1.1993. The first respondent also requested for providing complete address of the second respondent and categorically stated that they would obtain reimbursement for delayed claims directly from the second respondent. Thereafter, by a letter dated 30.1.1993, the petitioner provided Page 4 of 34 C/SCA/20598/2017 JUDGMENT the address in terms of the request to the first respondent.
7. It appears that certain delayed claims were received by the first respondent, and by letter dated 13.2.1993, a fresh request was made by it to the petitioner to handle these delayed claims on collection basis. Thereafter, by its letter dated 5.8.1993 the first respondent acknowledged the assistance provided by the petitioner for delayed claims, and categorically stated that they will revert directly to the second respondent company for further claims. By a letter dated 8.2.1994, the first respondent informed the petitioner about their independent interactions with the second respondent and requested to provide photocopies of warrants paid after the closure date to enable the first respondent to take up the matter with the second respondent for early settlement. Thereafter, the first respondent started communicating directly with the second respondent company. Since the second respondent company had not paid the amounts to the first respondent, the first respondent issued a demand notice dated 18.2.1995 through its advocate to the petitioner and claimed an amount of Rs.98,68,385/- which, according to the petitioner, was otherwise the liability of the second respondent company. The said notice was duly replied by the petitioner. It is further the case of the petitioner that out of sheer good faith and with an intention to help the first respondent, the petitioner at the request of the first respondent, addressed a letter dated 30.8.1995 to the second respondent, inter-alia, urging the second respondent to refund and/or reimburse the claim of the first respondent without further delay.
8. In or about 1995, the first respondent Bank of Baroda Page 5 of 34 C/SCA/20598/2017 JUDGMENT filed an original application before the Debts Recovery Tribunal, Ahmedabad being O.A. No.124 of 1995 against the petitioner and the other respondents. By a judgment and order dated 29.5.2006 the Debts Recovery Tribunal allowed the original application and held the petitioner to be jointly and severally liable to pay to the first respondent Bank of Baroda an amount of Rs.1,42,52,381/- with simple interest at the rate of 6% per annum from 16.10.1995 until realisation and ordered that a recovery certificate be issued under section 19(22) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the RDDB Act"). The petitioner carried the matter in appeal before the Debts Recovery Appellate Tribunal at Mumbai vide Appeal No.344 of 2006 which was dismissed by the impugned order dated 30.6.2017. Being aggrieved, the petitioner has filed the present petition.
9. In this matter by an order dated 5.4.2018, interim relief was granted in favour of the petitioner after hearing the learned counsel for the respective parties. On 24.7.2018, the learned counsel for the first respondent Bank prayed for time to file affidavit-in-reply. Thereafter by an order dated 13.8.2018, further time was granted to file affidavit-in-reply; despite which no affidavit has been filed on behalf of the first respondent bank nor has any further time been sought for in this regard. Therefore, it appears that the first respondent Bank does not intend to file any affidavit-in-reply in response to the averments made in the petition, and consequently, the averments made in the memorandum of petition stand uncontroverted.
Page 6 of 34C/SCA/20598/2017 JUDGMENT
10. Mr. Ajay Monga, learned counsel for the petitioner, took the court through the correspondence between the petitioner Bank and the first respondent Bank of Baroda in detail to point out the terms of agreement between the parties. The attention of the court was invited to the original application filed by the first respondent Bank of Baroda to point out that no cause of action has been stated against the petitioner Bank and that all the averments made in the application as regards liability to pay the outstanding amount are against the second respondent company and its Directors. It was submitted that it is only in the relief paragraph that the petitioner is sought to be made liable together with the respondents No.2 to 5 to pay the outstanding amount with interest. It was submitted that in the absence of any foundational facts having been stated in the original application, no relief could have been claimed against the petitioner Bank, inasmuch as, no case has been made out against the petitioner in the averments made in the memorandum of application. It was submitted that the Debts Recovery Tribunal has merely placed reliance upon two letters dated 9.4.1992 and 6.5.1992 and has based its conclusion thereon while holding the petitioner to be liable to pay the outstanding amount to the first respondent bank. However, while doing so, the Debts Recovery Tribunal has failed to consider the subsequent correspondences being letters dated 21.3.1993, 25.1.1993, 13.2.1993 and 5.8.1993. It was submitted that both the Tribunals below have failed to appreciate and analyse the factual matrix and evidence of the matter and without application of mind have held the petitioner to be jointly and severally liable to pay the outstanding amount to the first respondent bank. It was submitted that the petition deserves to be allowed by setting Page 7 of 34 C/SCA/20598/2017 JUDGMENT aside the impugned orders passed by the Tribunals.
11. Opposing the petition, Mr. B. T. Rao, learned advocate for the first respondent Bank of Baroda, emphatically argued that the present petition is not a bona fide litigation. The attention of the court was invited to the letter dated 9th April, 1992 of the petitioner Bank of America wherein it has been stated that "(iv) Within 45 days of the expiry of the payment instrument, Bank of Baroda will close the account and remit the proceeds to the Bank of America. All paid instruments along with a listing will also be provided to Bank of America. By June 30, 1992, this would be reduced to 30 days. (v) Bank of Baroda will not honour any instrument after 45 days of expiry of validity." to submit that the same was in the nature of an offer. It was further pointed out that in terms of clause (vi) of the letter it was provided that "These arrangements will be paid for a period of one year from April 10, 1992 and are in supersession of all earlier arrangements". It was submitted that this letter was in the nature of an offer of the petitioner Bank of America and that in response thereto, the first respondent Bank of Baroda had addressed a letter dated 6.5.1992 wherein it has put a condition that in case instruments are received by Bank of Baroda branches after 45 days, the same may be presented to Bank of America who may obtain payment from the company and reimburse the Bank of Baroda. It was pointed out that the terms of arrangement mentioned in the said letter were inclusive of those conveyed by the petitioner in the letter dated 9.4.1992. It was submitted that the additional condition inserted by the Bank of Baroda was duly accepted by the petitioner and in view of condition
(vi) of the letter dated 9.4.1992, the petitioner was liable to Page 8 of 34 C/SCA/20598/2017 JUDGMENT pay the amount for a period of one year from 10th April 1992. It was submitted that it was, therefore, the duty of the petitioner Bank to collect the funds from the second respondent company and reimburse the Bank of Baroda to the extent of the amount paid by it towards refund of the warrants.
11.1 Next it was submitted that the subsequent correspondence between the first respondent Bank of Baroda with the second respondent company does not amend the contract which was accepted by the petitioner. It was submitted that once the proposal given by the first respondent bank was accepted by the petitioner it became a contract and that the petitioner was duty bound to collect the amount from the company and pay the same to Bank of Baroda within one year from the date of the agreement. It was urged that the petitioner Bank of America cannot taken advantage of any subsequent action taken by the officers of the bank by issuing letters and communicating directly with the second respondent company, inasmuch as, it is duly bound by the conditions of the contract to obtain payment from the company and reimburse the Bank of Baroda. It was submitted that the petitioner Bank of America is not absolved of its obligations under the contract and that the first respondent Bank of Baroda has no privity of contract with the company.
11.2 It was urged that the Debts Recovery Appellate Tribunal as well as the Debts Recovery Tribunal have acted within the four corners of law and that neither of the Tribunals have exceeded their jurisdiction under section 19 of the RDDB Act. It was pointed out that in the absence of any error of jurisdiction on the part of the Tribunals; no case is made out Page 9 of 34 C/SCA/20598/2017 JUDGMENT for exercise of powers under Articles 226 and 227 of the Constitution of India to interfere with the impugned orders. It was submitted that the Tribunal has rightly based its order on the two letters dated 9.4.1992 and 6.5.1992 which form the contract between the parties and that the subsequent letters do not absolve the petitioner Bank of its responsibility and that the claim of the first respondent Bank of Baroda against the petitioner bank subsists for a period of one year from 10th April, 1992. Referring to the impugned order passed by the Debts Recovery Tribunal, it was pointed out that the Tribunal has given a specific finding holding the petitioner to be liable. It was urged that there being no jurisdictional error on the part of the Tribunals, this court may not interfere in exercise of powers under Article 227 of the Constitution of India.
12. In rejoinder, Mr. Ajay Monga, learned counsel for the petitioner invited the attention of the court to the correspondence entered into between the petitioner and the first respondent Bank of Baroda as well as the first respondent Bank of Baroda and the second respondent company. It was submitted that when the first respondent Bank of Baroda entered into correspondence directly with the company, the contract between the petitioner and the first respondent came to an end. It was submitted that the claim made before the Debts Recovery Tribunal against the petitioner is not in respect of claims which were made within 45 days of the expiry of the payment instrument as agreed between the parties, and hence, there is no liability on the part of the petitioner Bank of America to reimburse such amount to the first respondent bank. It was submitted that after the contract expired there was no privity between the petitioner and the first respondent;
Page 10 of 34C/SCA/20598/2017 JUDGMENT moreover, in the original application no liability is sought to be cast upon the petitioner and that relief has merely been prayed for without any foundation being laid for grant of such relief. It was, accordingly, urged that the petition deserves to be allowed in terms of the relief prayed for therein.
13. In the backdrop of the facts and contentions noted hereinabove, it may be germane to first refer to the contents of the original application filed by the first respondent Bank of Baroda. The original application has been made by the first respondent Bank of Baroda against, in all, five respondents, wherein the first respondent is the company viz. M/s. Gujarat Indo Lube Limited and the respondents No.2 to 4 are its Managing Director, Chairman and Director respectively, whereas the petitioner Bank of America is the respondent No.5.
(a) In the cause-title, at item No.4 against the column of limitation, it is stated that the causes of action arose on 30.12.92 when the applicant arranged for the refund of amount through its various branches and thereafter arose on 26.4.94, 27.4.94, 3.6.94, 23.6.94, 17.8.94 and 24.10.94 when the respondent No.1 gave assurances to the applicant for repaying the dues. In the first paragraph it is, inter-alia stated that the respondent No.1 is a public limited company and respondents No.2, 3 and 4 are the Managing Director, Chairman and Director of the company and are by virtue of section 72 read with section 5 of the Companies Act treated as officers in default for refund of the amount claimed in the petition. Respondent No.5 was acting as Principal Bankers to Page 11 of 34 C/SCA/20598/2017 JUDGMENT respondent No.1 and the said respondent had an arrangement with the applicant Bank regarding refund of share application money.
(b) Paragraph (ii) relates to respondent No.1, wherein it is stated that in 1992 the respondent No.1 came out with a public issue of shares and invited subscriptions from the public and accordingly the share application forms and amounts were collected through various branches of the applicant bank being bankers to the issue along with Bank of America respondent No.5.
(c)In paragraph (iii) it is stated that Bank of America was acting as principal bankers of respondent No.1. They had entered into an arrangement with the applicant bank under which refund orders of excess application amounts issued by respondent No.1 were made payable at par only at designated branches of the applicant bank.
(d) In paragraph (iv) it is stated that under this arrangement which is finalised through the letters exchanged between the applicant Bank and Bank of America, Bank of America will provide 50% of the amount on the day of mailing of the instrument and balance 50% on the seventh day after mailing, to the applicant bank. Instruments honoured by the branches of the applicant bank are to be debited to the current account of the respondent No.1 Company with the applicant bank. The applicant bank within 45 days of expiry of payment will close the account and remit the proceeds to the Bank of America the respondent No.5.
Page 12 of 34C/SCA/20598/2017 JUDGMENT (e) Paragraph (v) refers to the statutory obligations of
the respondent No.1 Company in respect of issue, allotment, subscription and refund of shares. It is further stated therein that the respondent No.1 is "bound by law" to pay the refund amount and the applicant bank being a refund banker to the issue was and is interested in repayment of excess moneys. Thus, the respondent No.1 is liable to reimburse the amounts paid by applicant bank on such refund orders under section 69 of the Indian Contract Act read with other applicable provisions of law. It is further stated that the applicant bank by virtue of the valid refund orders issued by the respondent No.1 and payable to all branches of the bank was "immediately bound" by law to honour the payment thereof on presentation by the allottees for which respondent No.1 was "ultimately bound" by law to do so.
(f) In paragraphs (vi) and (vii), it has been stated thus:
(vi) The Applicant Bank submits that on the basis of the arrangement between Applicant Bank and Bank of America the Respondent No.5 (who in turn was having an arrangement with Respondent No.1) in case the instruments are received by the applicant bank's branches after 45th day the same may be presented by the applicant's bank to Bank of America who may obtain payment from the Company and reimburse the applicant Bank. Under the arrangements the applicant Bank has during 8.6.92 to 22.6.92 received an amount of Rs.5,10,00,000/- from Bank of America towards reimbursement of refund orders paid by branches of applicant Bank. The Applicant Bank debited the current account of the Respondent No.1 company with them for an aggregate sum of Rs.88,44,060/- from 22.6.92 to 30.10.92 in reimbursement of refund orders paid by branches of applicant Bank. The Applicant Bank closed Page 13 of 34 C/SCA/20598/2017 JUDGMENT the current account on 30.10.92 and refunded the balance in the said current account amounting to Rs.4,21,55,940/- to Bank of America."
(vii) As submitted above the refund orders issued by respondent No.1 drawn on the applicant Bank were "payable at par"at all branches of applicant Bank and various branches were designated for this purpose. Upon collection of information from such branches the applicant Bank submitted their claim to Bank of America on various dates from November 1992 to 8th March, 1993 for an aggregate sum of Rs.5,30,93,220/- and received an amount of Rs.4,32,24,935/- from Bank of America in part reimbursement of the claim of the applicant bank and leaving a balance of Rs.98,68,385/- still due to be received from Respondent No.1 to Respondent No.4. The applicant Bank had accordingly taken up the matters with the Respondents for making payment with 15% interest. Bank of America also is understood to have given a notice to Respondent No.1 and Respondent No.1 also made reference to such notice in correspondence with the applicant.
(g) In paragraph (viii) it is stated that the respondents No.1 to 4 have been contacted from time to time for making payment and the respondent No.1 gave several assurances for such payment. The gist of such assurances which creates an estoppel against the Respondent No.1 to 4 is summarized therein with reference to letters dated (a) 20.4.94, (b) 26.4.94, (c) 27.4.94, (d) 3.6.1994 and two cheques Rs.4,00,000/- each totally amounting to of Rs.8,00,000/- in repayment of part of their total liability towards applicant Bank on account of refund order amounts paid by the applicant bank. (e) reference is made to the request of the Respondent No.1 Company to postpone the presentation of the cheques and to the fact that the cheques were Page 14 of 34 C/SCA/20598/2017 JUDGMENT dishonoured upon being presented pursuant to which a complaint was filed under section 138 of the NI Act. Reference is made to (f) letter dated 23.6.94, (g) letter dated 17.8.94, and (i) letter dated 24.10.94, all of which are in the nature of correspondence between the Bank of Baroda and the respondent company. Reference is also made to a demand notice dated 19.11.1994 sent by the applicant's advocate to the respondent No.1 for the amount payable under the dishonoured cheques.
(h) In Paragraph (ix) it has been asserted that under the statutory provisions, as narrated above, the respondents No.1 to 4 are liable to make payment of the aforesaid amount due to the applicant bank. The respondent No.1 has also confirmed, acknowledged and admitted their responsibility to make the aforesaid payment as is evident from various correspondences. In paragraph (x) it has inter alia been stated that by virtue of the provisions of section 73 of the Companies Act, the respondents No.1 to 4 are jointly liable to make payment to the applicant bank and to make full provision for the refund orders issued by them which sum being in the nature of the money of the investors, there is a statutory constraint which prevents the respondent No.1 company from utilizing such money for any other purpose. In paragraph
(xi) it is stated that the application for recovery of Rs.14,252,381/- is comprised of Rs.98,68,385/- being the money payable under section 69 of the Contract Act and various admissions made by the Respondents in correspondence; and Rs.43,83,996/- being 15% interest per annum from 30.10.92 till the date when the amount Page 15 of 34 C/SCA/20598/2017 JUDGMENT due was ascertained and demanded to 15.10.95. In the relief paragraph, the applicant has prayed that the respondents No.1, 2, 3, 4, and 5 be ordered jointly and severally be decreed to pay a total sum of Rs. 1,42,52,381/- with further interest thereon at 15% per annum etc.
14. In response to the application, the petitioner Bank of America has submitted a written statement wherein it is inter alia stated that the application discloses no cause of action against Bank of America and is therefore liable to be dismissed with costs. That there is no allegation or basis laid or set out in the application as to how and on what basis the applicant is entitled to make any claim or seek any relief against the respondent No.5 Bank of America. It is alleged that the Bank of Baroda has suppressed facts by not producing material and relevant documents and facts. In the written statement, reference is made to the letter dated 9.4.1992 addressed by the petitioner to the Bank of Baroda regarding the terms of the arrangement to be entered into between them as well as to the letter dated 6.5.1992 of the Bank of Baroda accepting its appointment as a correspondent bank in connection with the refund of excess share application monies on the terms contained in the letter dated 9.4.1992 read with the terms set out in the letter dated 6.5.1992. In paragraph (b) of the written statement, it is stated thus:
"(b) of particular relevant and importance is clause 3 in the letter dated 6th May 1992 which provides that within 45 days on expiry of payment instructions (sic.
instruments) the Applicant will close the account in Page 16 of 34 C/SCA/20598/2017 JUDGMENT respect of each issue and remit the proceeds to the 5th Respondent and further that in case the payment instruments received by the Applicant's branches after the 45th day the same may be presented to the 5th Respondent who may obtain payment from the 1st Respondent Company and reimburse the same to the Applicant. The 5th Respondent states that the said clause:3 therefor provided that within 45 days after the expiry of the validity of payment instrument the Applicant was to close the account and remit any amount lying with the Applicant in the refund account to the 6th Respondent and that any payment instrument presented to the Applicant after the 45th day, the same were to be dealt with by Applicant only on collection basis i.e. to forward the same to the 5th Respondent and only if the payment was received by the 5th Respondent from the 1st respondent and in turn forwarded by the 5th Respondent to the Applicant, was the Applicant to make payment against such instruments and no otherwise. In such cases, these instruments, were received by the Applicant after the 45th day and the 5th Respondent was not to incur or did not incur any personal liability or under obligation to make payment at all. The 5th Respondent states that the aforesaid arrangement was not restricted to the public issue of the Respondent Company but was in relation to the issues of several companies as well and was thus a general arrangement filtered (sic. entered) into between the Applicant on the one hand and the 5th Respondent on the other. The Applicant has not deliberately referred to the aforesaid arrangement and terms thereof in the Applications."
Page 17 of 34C/SCA/20598/2017 JUDGMENT 14.1 In paragraph 4(e) it is stated thus:
"(e) After the date of expiry of the refund warrants the Applicants has closed its refund account which closure was effected after having debited the amount in respect of all refund instrument which had been presented to the Applicant for payment upto the date of closure of the account by the Applicant. Upon such closure by eh Applicant the Applicant voluntarily forwarded to the 5th Respondent the balance in the account. This balance was forwarded after the Applicant fully reimbursed itself in respect of reimbursement instruments presented to the Applicant for payment upto the date of closure of the account. This balance was forwarded after the Applicant fully reimbursed itself in respect of reimbursement of instruments presented to the Applicant for repayment upto the date of closure of the account. After the closure of the account, the Applicant was not required to make any payment against any refund instrument that might be presented to it. The Applicant was not required to forward the same on collection basis to the 5th Respondent or to the 1st Respondent Company. The 5th Respondent says that thus the arrangement between the applicant and the 5th Respondent in relation to the public issue of the 1st Respondent was fully worked out and nothing remained outstanding as between the Applicant and the 5th Respondent.
14.2 Reference is thereafter made to the letter dated 26 th November of the Bank of America as well as its letter dated 21st January, 1993. Various other facts including the Page 18 of 34 C/SCA/20598/2017 JUDGMENT correspondence between the parties are set out in the written statement and the relevant documents are annexed thereto. It is categorically stated therein that the Bank of America did not hold any amounts whatsoever of the first respondent company and in connection with the refund of amounts the entire arrangement had been completed, concluded and come to an end. It is also averred that the Bank of Baroda accepted the position that they were not entitled to make any claim against the Bank of America or to look to the Bank of America for any payment thereafter; however, it appears that the Bank of Baroda had some claim outstanding against the respondent company and had demands on the first respondent company for such payments. It is also stated that the applicant Bank of Baroda had voluntarily and on its own closed the account and handed over the balance in the account to the fifth respondent Bank of America. It was presumed that before handing over the amount to the Bank of America, Bank of Baroda had reimbursed itself in respect of all the amounts to which it is entitled. This is in fact set out by the Bank of America in the correspondence in that behalf i.e. letters dated 26.11.1992 and 21.1.1993 which position has been confirmed by the Bank of Baroda. It is, accordingly contended that any outstanding claim of the applicant Bank of Baroda can only be against the respondent company and not against the Bank of America. It further averred that all the correspondence referred to in the application is between the applicant Bank of Baroda and the respondent company which clearly shows that the applicant was making a claim only against the respondent company.
15. A perusal of the impugned order passed by the Debts Recovery Tribunal shows that it had framed the following Page 19 of 34 C/SCA/20598/2017 JUDGMENT issues:-
1. Whether the Applicant proves the privity of contract between it and Defendant Nos. 1 to 4?
2. Whether Applicant proves that it had made the payments of refund orders issued by Defendant No.1?
3. Whether the Applicant has a right to claim the reimbursement against the Defendants?
4. Whether the interest charged is legal and proper?
5. Whether the Application is within limitation?
6. What order?
16. In paragraph 11 of the impugned order dated 29.5.2006 of the Debts Recovery Tribunal , it has been recorded that it is the case of the defendant No.1 (company) that there was no privity of contract between it and, therefore, would not be liable for any liability. The Tribunal, after considering the letters which have been placed on record by Bank of Baroda, has observed that if these letters are minutely perused, it would go to show that the applicant was assigned the work of payment on the basis of refund orders. It has also come on record that the defendant No.1 had issued some cheques in favour of the applicant which came to be dishonoured. All these factors/circumstances go to show that there was a commercial relationship established between the applicant and defendant No.1. Now, defendant No.1 cannot deny the liability.
Page 20 of 34C/SCA/20598/2017 JUDGMENT Accordingly, the Tribunal has discarded the plea taken by the defendant No.1 regarding lack of privity.
16.1 In paragraph 12 of the impugned order, the Tribunal has held thus:-
"12. It is the case of the Applicant that it had acted as a Correspondent Bank in view of the arrangement between it and Defendant No.5. Defendant No.5 had tried to disown the contractual liability but there appears to be no force and substance. The letter dated 09.04.1992 addressed to the Applicant by Defendant No.5 is relevant. The letter shows that Defendant No.5 had requested the Applicant to act as a Correspondent Bank.
Applicant was to make payment of refund /interest/dividend warrants. The Applicant by letter dated 09.05.1992 had accepted the offer made by defendant No.5. The above exchange of letters between the Applicant and Defendant no.5 show that Applicant had agreed to act as a Correspondent Bank. It would not be out of place to refer to the reply dated 24.02.1995 given by Defendant No.5 to the notice dated 18.02.1995 issued by Applicant. In the said reply Defendant No.5 has admitted in invocal terms that Applicant had acted on its behalf for the purpose of repayment as per the refund orders. It is stated that the Applicant should approach Defendant No.1 for the claim of reimbursement. Ld. Advocate representing Defendant no.5 could not point out any document to show that Defendant no.5 was wrongly impleaded as a Defendant. It can be said that by raising conflicting pleas Defendant No.5 is guilty of SUPPRESSIO VERI, SUGGESTIO FALSI. I, therefore, hold that there was a contract between the Applicant and Defendant no.5 whereby the Applicant had agreed to act on behalf of Defendant no.5 as far as the refund payments to the unsuccessful investors of the issue were concerned."
16.2 Thus, the Tribunal has held that there was a contract between the applicant (Bank of Baroda) and defendant No.5 (Bank of America) whereby the applicant had Page 21 of 34 C/SCA/20598/2017 JUDGMENT agreed to act on behalf of the defendant No.5 as far as refund payments to the unsuccessful investors to the issue were concerned.
16.3 A perusal of the issues framed by the Tribunal reveals that no such issue regarding the nature of the contract between the petitioner Bank and Bank of Baroda has been framed by it nor does such issue arise from the pleadings. Under the circumstances, it was not permissible to for the Tribunal to decide such issue which was not framed by it. Moreover, before the Tribunal, the defendant No.1 Company had raised a plea regarding mis-appropriation of funds by the applicant Bank of Baroda and had further contended that the applicant had failed to submit the reconciliation statement and statement of refund orders. The Tribunal, however, has brushed aside the argument by observing that there is no inkling of any fraud/irregularity on the part of the appellant in the payment to the investors. From the record of the case, there is no material whatsoever to show that as to on what basis the Tribunal has arrived at such conclusion.
16.4 In paragraph 14, the Tribunal has recorded thus:
"14. Defendant no.5 has washed off hands of the matter by shifting the liability on Defendant no.1. It has to be kept in mind that the Applicant was appointed as a Correspondent Bank by Defendant No.5. It was the duty of Defendant no.5 to reimburse the Applicant. It would not lie in the mouth of Defendant no.5 to say that as the account had been closed, the Applicant should approach Defendant no.1. There is no foundation to the plea set up by defendant no.5. According to me, Defendant no.5 is liable to reimburse the Applicant for all the legitimate payments made by it. There is nothing on record to show Page 22 of 34 C/SCA/20598/2017 JUDGMENT that the claim made by the Applicant is inflated. Section 69 of the Contract Act is relied upon by the Ld. Advocate for the Applicant. According to me, the above Section would not strictly apply to the present case. The fact remains that the Applicant had made payment as per the direction of Defendant no.5 and therefore entitled to be reimbursed. The liability would arise, EX CONTRACTU."
16.5 Thus, the Tribunal has observed that there is no foundation to the plea set up by the defendant No.5 namely the petitioner Bank. While doing so the Tribunal has remained completely oblivious to the fact that no foundational facts have been pleaded by the Bank of Baroda against the petitioner Bank in the original application and that even the two letters which form the basis of the order of the Tribunal have been produced on record by the petitioner Bank and not by the Bank of Baroda which was the applicant before it. It has also ignored the extensive documentary evidence in the nature of correspondence between the petitioner Bank and Bank of Baroda which has been brought on record by the petitioner Bank. In the opinion of this court, the finding that the applicant, namely, Bank of Baroda had made payment as per the direction of the defendant No.5 (the petitioner Bank) forty five days after expiry of the validity of the warrants is without any basis whatsoever, inasmuch as there is no material on record to support such a finding.
16.6 Reading the impugned order of the Tribunal in its entirety, it is manifest that the Tribunal has made a short shrift of the matter and without applying its mind to the pleadings and the case put forth before it, merely on the basis of two letters, which too, have come on record at the instance of the petitioner and which find no reference in the O.A. has held the Page 23 of 34 C/SCA/20598/2017 JUDGMENT petitioner Bank liable without so much adverting to the other correspondence on record. Besides, when no foundation for a claim against the petitioner Bank had been laid in the pleadings, no relief could have been claimed or granted against the petitioner.
17. It may be noted that in the body of the application, there is no reference to the two letters between the petitioner Bank of America and the applicant Bank of Baroda which form the basis of the order of the Tribunal insofar as holding the petitioner Bank to be liable is concerned. Moreover, though a legal notice dated 18.2.1995 was issued to the petitioner, which was duly replied by the petitioner vide its reply dated 24.2.1995; there is no reference to the same in the application.
18. In the above backdrop, this court is of the considered view that the Tribunal could not have granted any relief against the petitioner Bank when no factual foundation existed or was laid in the pleadings of the parties. In this regard, reference may be made to the decision of the Supreme Court in SBI v. S.N. Goyal, (2008) 8 SCC 92, wherein the Supreme Court has held thus:
"19. The plaint did not contain any plea that the order of removal by the appointing authority (Chief General Manager) was vitiated on account of his consulting and acting on the advice of the Chief Vigilance Officer of the Bank. Nor did it contain any allegation that the appointing authority acted on extraneous material in passing the order of removal. In the plaint, the challenge to the order of removal was on the ground that the enquiry by the enquiry officer was opposed to principles of natural justice that is: (i) the charge was vague and not established; (ii) he was not given Page 24 of 34 C/SCA/20598/2017 JUDGMENT reasonable opportunity to defend himself; (iii) material witnesses were not examined; (iv) documents relied on were not formally proved; (v) burden of proof was wrongly placed on him; (vi) findings in the enquiry report were based on surmises and conjectures; and
(vii) the enquiry officer was prejudiced. The respondent had also averred that the appointing authority had approved the recommendation made by the disciplinary authority for imposition of penalty of removal without application of mind and without giving him a hearing. He alternatively contended that the punishment imposed was severe and disproportionate to the gravity of the proved charge. But there was absolutely no plea with reference to the advice/recommendation of the Chief Vigilance Officer of the Bank. However, during the examination of the Bank's witness DW 1 (T.S. Negi, Deputy Manager) it was elicited that on 18-1-1995, the disciplinary authority had put up a recommendation to impose the penalty of reduction of pay by four stages by taking a lenient view; that the appointing authority had by its note dated 18-1-1995 accepted the said recommendation; that subsequently, on 2-2-1995, the appointing authority had informed the Chief Vigilance Officer of the Bank about the enquiry and proposed punishment; and that after receiving the comments of the Chief Vigilance Officer, the appointing authority on the recommendations of the disciplinary authority had reconsidered the question of punishment and imposed the penalty of removal. The respondent-plaintiff did not amend the plaint to include the averments and grounds to challenge the order of removal on the said additional ground. No issue was framed in that behalf. No amount of evidence on a plea that was not put forward in the pleadings can be looked into. In the absence of necessary pleading and issue, neither the trial court nor the appellate court could have considered the contention and recorded a finding thereon.
21. In the absence of appropriate pleading on a particular issue, there can be no adjudication of such issue. Adjudication of a dispute by a civil court is significantly different from the exercise of power of judicial review in a writ proceedings by the High Court.
Page 25 of 34C/SCA/20598/2017 JUDGMENT In a writ proceedings, the High Court can call for the record of the order challenged, examine the same and pass appropriate orders after giving an opportunity to the State or the statutory authority to explain any particular act or omission. In a civil suit parties are governed by rules of pleadings and there can be no adjudication of an issue in the absence of necessary pleadings."
[Emphasis supplied]
19. Reference was also made to the decision of the Supreme Court in the case of Arulmigu Chokkanatha Swamy Koil Trust v. Chandran, (2017) 3 SCC 702, wherein the Supreme Court held thus :
"22. The learned counsel for the respondent has laid much emphasis on the deed dated 29-7-1974 executed by Sundara Rajan in favour of Padmanabhan which has been brought on the record of paper book at p. 104. The learned counsel submits that the said sale deed clearly proves the title of Padmanabhan over 2.79 acres of Survey No. 188. The said deed has been filed by the respondent-plaintiff as Ext. A-14. The deed dated 29-7-1974 has been specifically considered by the trial court in para 9 of the judgment. The trial court has in its judgment noticed that the plaintiff came with the case in the plaint that suit property was inherited by Padmanabhan, however, he relied on Exts. A-12 to A-14 with regard to which there was no pleading in the plaint. In his deposition, PW 1 admitted that "it is correct to say that without disclosing this deed in the plaint I filed Exts. A-12 to A-15". When there was no pleading in the plaint regarding title of Padmanabhan by any other earlier deed except the claim of inheritance the trial court rightly discarded the deed dated 29-7-1974. It is further relevant to note that plaintiff's application made for amendment of the plaint in the appellate court was considered and rejected by the appellate court. The evidence, with regard of which there is no pleading, has rightly been discarded by the trial court. Unless there is a pleading especially with regard to the source of title, the defendant of a suit has no opportunity to rebut such Page 26 of 34 C/SCA/20598/2017 JUDGMENT pleading thus an evidence with regard to which there is no pleading cannot be relied upon by the plaintiff for setting up his title in a suit. Secondly, the deed dated 29-7-1974 referred to part of Survey No. 188, whereas the suit was filed in 2007 by the plaintiff by which date Survey No. 188 was sub-divided as 188/1, 188/2, 188/3. The deeds through which plaintiff claims title i.e. 28-8-1982, general power of attorney dated 31-10- 2007 and sale deed dated 5-11-2007 do not refer to any sub-division. The plaintiff although amended the schedule property from part of Plot No. 188 as Survey No. 188/3 but he failed to prove his title over Plot No. 188/3. We, thus, do find that the trial court after considering the document dated 29-7-1974 held that the plaintiff had failed to prove his title."
20. It may be noted that insofar as the letters dated 9.4.1992 and 6.5.1992, are concerned, there are no pleadings in respect thereof in the original application. The said letters have been referred to in the written statement/reply of the petitioner to explain the nature of the agreement between the parties. Since there are no pleadings in respect thereof, no issue has been framed in that regard. No issue has been framed with regard to the contract between the petitioner and the first respondent Bank of Baroda, and hence, the Tribunal could not have recorded any finding to the effect that there was a contract between Bank of Baroda and Bank of America whereby Bank of Baroda had agreed to act on behalf of Bank of America as far as the refund payments to the unsuccessful investors of the issue were concerned.
21. The finding with regard to suppressio veri and suggestio falsi against the petitioner is also without any basis, inasmuch as, on the contrary, it is the petitioner Bank which has brought on record the agreement with the respondent No.1 Bank and all other correspondence, whereas the first respondent Bank in Page 27 of 34 C/SCA/20598/2017 JUDGMENT the entire memorandum of application has not referred to any such documents. Despite the fact that the letters dated 9.4.1992 and 6.5.1992 do not find mention in the application, the Tribunal has based its order thereon while granting relief to the first respondent bank against the petitioner without any foundational facts having been laid in that regard.
22. The petitioner in the written statement has not only brought all the relevant documents on record but has clearly explained its stand. The Tribunal, however, has failed to consider the facts pleaded by the petitioner and without reference to the subsequent letters which have been placed on record as well as the correspondence of the applicant Bank of Baroda with the respondent company has, in a perfunctory manner on the basis of two letters brought on record by the petitioner, who was the fifth respondent therein, held the petitioner jointly liable with the defendants no. 1 to 4 for the amount claimed by Bank of Baroda. When there were no foundational facts pleaded in the application, the Tribunal had no basis to hold the petitioner liable. If the applicant Bank of Baroda wanted to make the petitioner liable, the foundational facts ought to have been set out in the application for the petitioner to be able to deal with the same. Under the circumstances, the conclusion arrived at by the Tribunal, insofar as the petitioner is concerned, having been arrived at without any basis, the impugned order passed by the Debts Recovery Tribunal cannot be sustained to that extent.
23. Insofar as the impugned order passed by the Debts Recovery Appellate Tribunal is concerned, on a plain reading of the order, it is evident that the Appellate Tribunal too has, Page 28 of 34 C/SCA/20598/2017 JUDGMENT without considering the pleadings and the facts and circumstances of the case in proper perspective, in a perfunctory manner upheld the order passed by the Debts Recovery Tribunal and dismissed the appeal. The Appellate Tribunal has upheld that order passed by the Debt Recovery Tribunal by referring to the two letters dated 9.4.1992 and 9.5.1992 on which reliance has been placed by the Debt Recovery Tribunal for holding the petitioner Bank to be liable. It, however, has failed to consider the plea that no foundational facts had been laid against the petitioner Bank by the applicant Bank of Baroda in the original application and that the two letters which form the basis of the impugned orders do not find reference in the original application but were brought on record by the petitioner Bank together with all the other correspondence between the petitioner Bank and the applicant Bank of Baroda. However, like the Debt Recovery Tribunal, the Appellate Tribunal too has failed to consider the other documentary evidence brought on record by the petitioner Bank.
24. At this juncture reference may be made to the relevant correspondence between the parties before the Tribunal. By a letter dated 26th November, 1992. the petitioner Bank has informed the first respondent Bank that the issue account opened with its branch had been closed on 30.10.92 and the balance of Rs.42,155,940/- had been returned to it. The respondent Bank has been called upon to let the petitioner Bank know if any debits are pending at its branch so that the funds can be reimbursed to it. It is further requested that the first respondent Bank should ensure that this is done by 10 th December, 1992 and after that date for all further debts it may Page 29 of 34 C/SCA/20598/2017 JUDGMENT get in touch with the company. Thereafter by a letter dated 21st January, 1993 the petitioner Bank inter alia informed the first respondent Bank that the issues of the second respondent company have expired and the accounts closed and returned to them. It is further stated that they have since reconciled the accounts and the balance funds have been returned as per the company's instruction. Hence, in future, for any debts the respondent Bank may claim reimbursement directly from the concerned companies. The first respondent Bank was also requested to return the duplicate of the letter duly signed as a mark of its confirmation. In response thereto, the first respondent Bank addressed a letter dated 25.1.93 to the petitioner Bank requesting it to give the full and complete address of the company wherefrom they would be able to obtain reimbursements for the delayed claims. Pursuant thereto, the petitioner Bank, by a letter dated 30th January, 1993 furnished the address of the company for the purpose of obtaining reimbursements of delayed claims. Thereafter the first respondent Bank addressed a letter dated 13.2.93 to the petitioner Bank stating thus:
"This refers to our discussions relating to payment of refunds/dividend instruments. As per the terms of our agreement all paid instruments were to be debited to the issue account within 45 days of the expiry or validity period, the accounts closed and funds transferred to Bank of America.
We, however, have received delayed claims from out up country branches to cover payments made by them. While we shall write to the concerned Companies for claiming reimbursement directly, in view of our long and fruitful relationship, we request you to handle these claims on a collection basis on our behalf. You may kindly write to each of these Companies on our behalf and attempt to Page 30 of 34 C/SCA/20598/2017 JUDGMENT obtain reimbursement of these claims.
A detailed list of such claims is enclosed for your action."
24.1 Thereafter, the first respondent Bank addressed a communication dated 5.8.93 to the petitioner Bank, inter alia, stating thus:
"From time to time, we have forwarded to you at our risk an responsibility, paid refund orders/dividend/interest warrants beyond 45 days of closure of the related issue for reimbursement. These requests were made in respect of the following Companies:
7. Gujarat Indo Lube We thank you for obtaining these payments from customers and forwarding the same to us. As of now, the following are to be received by us from the respective Companies:
2. Gujarat Indo Lube : Rs.10,997,385/-
We confirm that no further principal or interest on those funds is due to us on the above. For any further claims, we shall revert directly to the respectively companies as communicated to you earlier."
24.2 Thereafter, there is correspondence between the second respondent Company and the first respondent Bank dated 20th April, 1994, 3rd June, 1994, 17th August, 1994, 24th October, 1994 which reveals that the Company and the first respondent Bank had directly communicated with each other and tried to resolve the matter amicably. Thereafter, the first respondent Bank issued a demand notice dated 18.2.1995 to the petitioner Bank in response to which the petitioner Bank gave its reply dated 24th February, 1995. Subsequently, the petitioner Bank by a letter dated 30th August, 1995 requested Page 31 of 34 C/SCA/20598/2017 JUDGMENT the first respondent Company to verify its record and thereafter reimburse Bank of Baroda directly at the earliest in order to close their long outstanding matter.
24.3 Thereafter the first respondent Bank of Baroda made the above Original Application No.124 of 1995 wherein it is stated that the causes of action arose on 31.12.1992 when the applicant arranged for the refund of amount thorough its various branches and thereafter arose on 26.4.94, 27.4.94, 3.6.94, 23.6.94, 17.8.94 and 24.10.94 when the Respondent No.1 (the Company) gave assurances to the applicant for repaying the dues.
25. Thus, it is evident that after the closure of accounts and return of funds, the first respondent Bank had agreed that in future, for any debits, it would claim reimbursement directly from the company and had accordingly, directly communicated with the company for reimbursement of payments after 45 days of issue expiry. Even, the cause of action is stated to have arisen when the second respondent Company gave assurances to the first respondent Bank for repaying the dues. In the entire memorandum of application, there are no averments with regard to the correspondence between the petitioner Bank and the first respondent Bank so as to point out the nature of the agreement between the parties and there are no pleadings in this regard. However, in the relief paragraph the petitioner Bank is sought to be made jointly liable. Thus, in the absence of any cause of action having been stated against the petitioner Bank and without any foundation having been laid in the pleadings as regards the liability of the petitioner Bank, it was not legally permissible for the Debt Page 32 of 34 C/SCA/20598/2017 JUDGMENT Recovery Tribunal to hold that the liability of the petitioner would arise, ex contractu. The Appellate Tribunal has also erred in not considering that in the absence of any foundational facts and pleadings, the petitioner Bank could not have been held to be jointly liable to make payment of the decretal amount to the first respondent Bank. Both the impugned orders suffer from various legal infirmities as discussed hereinabove, and, therefore, cannot be sustained.
26. In the light of the above discussion, the petition succeeds and is, accordingly, allowed The impugned order dated 30.6.2017 passed by the Debts Recovery Appellate Tribunal at Mumbai in Appeal No.344 of 2006 as well as the order dated 29.5.2006 passed by the Debts Recovery Tribunal at Ahmedabad in O.A. No.124 of 1995 to the extent the same hold the petitioner Bank to be jointly and severally liable along with the respondents No.2 to 5 herein for payment of the decretal amount to the first respondent Bank, are hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.
27. At this stage, the learned counsel for the petitioner has submitted that pursuant to an order passed by the Debts Recovery Appellate Tribunal, the petitioner had deposited a sum of Rs.50,00,000/- with the Debts Recovery Tribunal. Having regard to the fact that the petitioner has succeeded in the present petition, the amount of Rs.50,00,000/- so deposited by it, shall be forthwith refunded to the petitioner along with the interest that may have accrued thereon.
28. At this stage, the learned counsel for the respondent No.1 Page 33 of 34 C/SCA/20598/2017 JUDGMENT Bank has requested to stay the operation of this order for a period of eight weeks to enable the said respondent to approach the higher forum. Having regard to the facts and circumstances of the case, the request is declined.
(HARSHA DEVANI, J) (A. S. SUPEHIA, J) Z.G. SHAIKH Page 34 of 34