Delhi High Court
C.D.S. Money Exchange Bureau Pvt. Ltd. vs Thomas Cook And Ors. on 6 March, 2007
Equivalent citations: 2007(1)CTLJ239(DEL)
Author: Vipin Sanghi
Bench: Vipin Sanghi
JUDGMENT Vipin Sanghi, J.
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1. By the present order, I propose to dispose of the aforesaid two applications - one filed by the plaintiff being IA No. 3404/02 under Order 39, Rules 1 & 2 CPC seeking interim injunction, and the other being IA No. 7790/02 under Order 39, Rule 4 CPC filed by the defendant seeking vacation of ex parte order of ad interim injunction dated 08-04-02 passed in IA No. 3404/02.
2. The plaintiff company is engaged in the business of foreign exchange. It acts as a money changer and in the process it buys traveler cheques. Plaintiff was also, at the relevant time, acting as an agent of the defendant for the purpose of selling traveler cheques in foreign exchange issued by the defendant. The plaintiff got issued three bank guarantees through its banker, defendant No. 4 wherein beneficiaries were defendants No. 1 and 2. These bank guarantees were issued in relation to two agency agreements dated 27-06-98 and 30-04-99. The details of the bank guarantees are as follows:
a) BGNO-NDLS/BG/164/2001 for Rs. 11,75,750/- favoring defendant No. 1;
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b) NDLF/DF/2005-BG5/98/1383 For Rs. 21,27,500/- favoring defendant No. 2;
c) BGNO-NDLF/DF/2005/BG70/1999/1382/2001 for Rs. 10,73,500/- favoring defendant No. 1.
3. The purpose of issuance of the bank guarantees apparently was to secure the defendants in respect of the traveler cheques issued to the plaintiff for sale.
4. The plaintiff filed the present suit seeking declaration and perpetual injunction on the averments that the plaintiff was scrupulously adhering to the agency agreements and that there had been no violation of the terms and conditions thereof. It was further claimed that defendants No. 1-3 had never complained of any default on the part of the plaintiff in the performance of its obligations by the plaintiff under the agency agreements which were still in force at the time of filing of the suit. It was further averred that on 06-03-02 plaintiff had come to know that defendant No. 1 had lodged a claim with defendant No. 4 invoking the aforesaid three bank guarantees in respect of some alleged claims to the tune of US$ 33,000. Plaintiff further stated that the defendants had not supplied any traveler cheques of the amount of US$ 33,000 to the plaintiff under the agency agreements which remained unpaid.
5. It was further stated that there was one transaction worth US$ 33,000 whereunder one Ms. Kamlesh Kumari having an Indian passport had approached the plaintiff in May 1999 for exchange of traveler cheques worth US$ 33,000. The plaintiff had exchanged these traveler cheques for cash paid to Ms. Kamlesh Kumari, since the traveler cheques prima facie appeared to be genuine and issued by defendant No. 1. The plaintiff had lodged the said traveler cheques with defendant No. 1 for encashment and the defendants had reimbursed the amount of the said traveler cheques to the plaintiff, subject to the condition of indemnity.
6. From a reading of the plaint, it appears that the plaintiff while filing the suit, apprehended that invocation of the bank guarantees was to seek reimbursement of the amount of us$ 33,000 by the defendants. The plaintiff further stated that the transaction in relation to Ms. Kamlesh Kumari was not part of the agency agreements. The indemnity of the plaintiff could not be enforced through encashment of the bank guarantees, which were given to secure payments due to the defendants under the agency agreements.
7. Plaintiff also averred that invocation of the bank guarantees by the defendant was illegal, fraudulent and tantamounted to illegal enrichment at the cost of the plaintiff. It was further averred that invocation of the bank guarantees was beyond the scope of the agency agreements and the bank guarantees, and was bad in law.
8. On 08-04-02, when the matter came up at an ex parte stage, this Court directed defendant No. 4 to withhold payment against the bank guarantees in question. Subsequently, the defendants filed the aforesaid application being IA No. 7790/02 under Order 39, Rule 4 CPC for vacation of the said ex parte order of ad interim injunction.
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9. Defendants No. 1-3 filed their Written Statement. They stated that the issue relating to Ms. Kamlesh Kumari as set out by the plaintiff was wholly extraneous to the controversy which led to the invocation of the bank guarantees. The plaintiff wears two legal hats - first is of a money changer, i.e., buying and selling foreign exchange which includes buying of traveler cheques, and the second legal hat is of an agent selling traveler cheques issued by defendants No. 2 and 3 for which the plaintiff is remunerated under the agency agreements. The bank guarantees involved in the present case were issued at the instance of the plaintiff in order to secure the defendants in respect of value of the traveler cheques entrusted to the plaintiff for the purpose of sale on their behalf. After the plaintiff would sell the traveler cheques issued by the defendants the plaintiff was required to settle its accounts with them. The defendants, therefore, clearly stated that invocation of the bank guarantees was nowhere related to the transaction pertaining to Ms. Kamlesh Kumari.
10. In paras (IX), (X) and (XII) of the Written Statement, the defendants stated that the plaintiff started defaulting in making payment against traveler cheques sold by it, and the defendants sent several reminders to the plaintiff and also held discussions with him. On 20-08-01, defendant No. 1 on behalf of defendants No. 2 and 3, caused a notice to be sent and informed the plaintiff that the bank guarantees shall be invoked. The plaintiff was called upon to return the unsold stocks of traveler cheques since the agency agreements were sought to be terminated. It is further averred that the plaintiff vide letter dated 20-09-01 acknowledged receipt of the said notice dated 20-08-01 (wrongly typed as 20-09-01) and sought time to get back to defendant No. 1. On 08-10-01, defendant No. 1, on behalf of defendants No. 2 and 3, sent another notice calling upon the plaintiff to return the unsold traveler cheques and to provide statement of details of traveler cheques. The plaintiff was warned that the bank guarantees will be invoked for the total outstanding amount if there was no response from the plaintiff by 15.10.2001. It was further claimed that no reply was received by 15.10.2001, and finally defendant No. 1, on the written instructions from defendants No. 2 and 3, invoked the three bank guarantees to the extent of the outstanding amount due from the plaintiff to defendants No. 2 and 3 respectively.
11. Defendants also filed along with their Written Statement as Annexure-A and Annexure-B, the statements of various traveler cheques which, according to them, remained unpaid by the plaintiff. Annexure-A relates to M/s. Thomas Cook Master Card Traveler Cheques aggregating to US$ 31,000 apart from GBP 1500, while Annexure-B relates to Inter payment VISA Traveler Cheques worth US$ 35,000 apart from GBP 5000, both aggregating to US$ 66,000 and GBP 6500. I may note that the various correspondences referred to in the Written Statement have not been filed on record.
12. The plaintiff did not file any replication to meet the various averments in the Written Statement of the defendants. However, the plaintiff has sought to justify the same by relying upon the order passed on 07-04-03 whereby defendants were required to furnish the dates of issuance of the Page 0946 traveler cheques mentioned in Annexure-A and Annexure-B. Counsel for the plaintiff submits that he could not have dealt with the details given in Annexure A and B to the written statement in absence of the dates of issuance of the traveler cheques mentioned therein. This requirement was complied with in the rejoinder filed by the defendant in IA No. 7790/2002 on 20.1.2004.
13. Plaintiff filed its reply to the defendants' application being IA No. 7790/02 under Order 39, Rule 4 CPC. The endeavor of the plaintiff in its reply was to show that the particular traveler cheques mentioned in Annexure-A and Annexure-B to the Written Statement were, in fact, paid by the plaintiff punctually. The defendants while conducting admission/denial of documents, have denied all these documents on 29-10-04. The submission of the plaintiff was that the bank guarantees could not have been invoked since, in fact, there were no outstanding dues of the plaintiff under the agency agreements. It is also submitted that before invocation of the bank guarantees no demand had been made by the defendants in respect of any alleged dues tabulated in Annexure-A and Annexure-B to the Written Statement.
14. Learned Counsel for the plaintiff submitted that on 09-03-05 this Court had directed recording of the statement of the defendants representative under Order 10 CPC to clarify the pleadings of the defendants. Despite that order, the authorised representative did not appear with the relevant record and there has been avoidance on the part of the defendants to get their statements recorded under Order 10 CPC. An adverse inference should be drawn against the defendants on account of its aforesaid conduct.
15. On the other hand, counsel for the defendants submits that the defendants had filed their Written Statement as early as on 22-08-02 and the reply was filed by the plaintiff in IA No. 7790/02 only on 05-04-03. The plaintiff had sufficient time to make up its accounts so as to bolster its stand that the particular traveler cheques mentioned in Annexure-A and Annexure-B to the written statement had been paid. He further submits that the statement of accounts annexed to the reply to the aforesaid application are self-serving statements and could not be relied upon, since there were no supporting documents to substantiate the claims made in the said statement of accounts. It is further submitted that the present suit being a suit for claiming an injunction in respect of the bank guarantees issued by the defendant bank, the disputes relating to the settlement of accounts under the underlying contract could not be raised, and even if such disputes existed, the same could not legally justify an injunction against the encashment of the bank guarantees. Learned Counsel for the defendants, during the course of his arguments has, without prejudice to their contention that the courts should not go into this aspect, very fairly stated that the defendants would be satisfied if the defendant bank releases the amounts claimed in terms of Annexure-A and Annexure-B aggregating to US$ 66,000 and GBP 6500.
16. Learned Counsel for defendant further submits that even according to the plaintiff the documents filed along with reply to IA No. 7790/02, did not demonstrate the payment of all the traveler cheques mentioned in Annexure-A and Annexure-B. Page 0947
17. In my view, the application filed by the plaintiff seeking interim injunction deserves to be dismissed and the defendants application consequently deserves to be allowed.
18. The plaintiff has to stand on its own feet when it seeks relief in a Court. The case of the plaintiff made out in the plaint was that invocation of the three bank guarantees was, presumably, on account of the claim of the defendants arising out of the transaction relating to Ms. Kamlesh Kumari. It was further claimed that the transaction pertaining to Ms. Kamlesh Kumari was not part of the agency agreements and the bank guarantees which were given under the agency agreements could not be misused for settling that account. It was plaintiff's further claim that there were no outstandings against the agency agreements which could have been claimed under the bank guarantees.
19. In its defense, the defendants have clearly stated that the claims lodged under the bank guarantees do not pertain to the transaction relating to Ms. Kamlesh Kumari. Their defense is that the said claims pertained to the agency agreements. Defendants have also given details and particulars in Annexures-A and Annexure-B of the traveler cheques aggregating to US$ 66,000 and GBP 6500 against which the bank guarantees had been invoked.
20. In my view, it is not for this Court in these proceedings to go into the accounting details to ascertain whether the traveler cheques details whereof are contained in Annexure-A and Annexure-B, were in fact paid by the plaintiff or not. That is a dispute relating to the underlying contract and does not concern the defendant No. 4 bank. The bank guarantees are independent contracts between the defendant bank and the beneficiaries (Defendant Nos. 1 & 2) whereunder the bank has undertaken to pay to the beneficiaries the amounts covered by the guarantees, provided the invocations are in accordance with the terms of the bank guarantees.
21. The law with regard to grant or refusal of injunction on encashment of bank guarantees, at the instance of the party at whose behest the bank guarantees have been issued, is well settled. In Federal Bank Ltd. v. V.M. Jog Engineering Ltd. and Ors. (2001) 1 SCC 663 the Hon'ble Supreme Court, after reviewing the earlier decisions, observed that courts ought not to grant injunction to restrain encashment of bank guarantees or letters of credit. There are, however, two exceptions to this rule, viz, fraud and irretrievable damage. The contract of bank guarantee or letter of credit is independent of the main contract between the seller and the buyer. In case of an irrevocable bank guarantee or letter of credit, the buyer cannot obtain injunction against the final payment on the ground that there was a breach of the contract by the seller. The bank is to honour the demand for encashment if the seller prima facie complies with the terms of the bank guarantee or the letter of credit, namely, if the seller produces the documents enumerated in the bank guarantee or the letter of credit. If the bank is satisfied on the basis of the documents that they are in conformity with the list of documents mentioned in the bank guarantee or the letter of credit and there is no discrepancy, it is bound to honour the demand of the seller for encashment. It is not permissible Page 0948 for the bank to refuse the demand on the ground that the buyer is claiming that there is a breach of contract. This obligation of the bank under the documents has nothing to do with any dispute as to breach of contract between the seller and the buyer.
22. The Supreme Court also observed that in order to obtain injunction against the issuing bank, it is necessary to prove that the bank had knowledge of the fraud. Hon'ble Supreme Court relied on the observations of Kerr, J. in R.D. Harbottle (mercantile) Ltd. v. National Westminister Bank Ltd. (1978) QB 146 : (1977) 2 All ER 862 to state that irrevocable Letters of Credit are "the lifeblood of international commerce" and also observed:
Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration.... Otherwise, trust in international commerce could be irreparably damages.
Quoting from the several other English decisions, the Hon'ble Supreme Court observed:
Denning M.R. stated in Edward and Owen Engg. Ltd. v. Barclays Bank International Ltd. that "the only exception is where there is a clear fraud of which the bank had notice". Browne, L.J. said in the same case: "but it is certainly not enough to allege fraud, it must be established and in such circumstances, I should say, very clearly established". In Bolivinter Oil S.A. v. Chase Manhattan Bank AII ER at p. 352, it was said where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time 'before the injunction is vacated.
Thus, not only must "fraud" be clearly proved but so far as the bank is concerned, it must prove that it had knowledge of the fraud. In United Trading Corporation S.A. v. Allied Arab Bank it was stated that there must be proof of knowledge of fraud on the part of the bank at any time before payment."
23. In the present case, the grounds raised by the plaintiff in the suit as well as in its reply to IA No. 7790/02, do not make out a case of fraud of the defendant Nos. 1 to 3. Moreover, the so called fraud alleged by the plaintiff in any case, is not a fraud to the knowledge of the bank, and in relation to the guarantees given by the defendant bank.
24. The plaintiff has filed on record a copy of the legal notice issued to defendant No. 4 bank on 07-03-02. Apparently, this notice was sent when the plaintiff learnt of the invocation of the bank guarantees by the defendants. In this notice, the plaintiff did not allege commission of any fraud by the defendants either upon the plaintiff or the defendant bank. It was merely stated that the bank guarantees cannot be encashed without Page 0949 understanding "my client's situation". In para 10, it was stated that the bank guarantees cannot be encashed "without proper and fair written demand of the claim being served on my client under the guarantee as envisaged in Clause 2."
25. From the aforesaid decision of the Hon'ble Supreme Court, it is seen that "fraud" has to be an established fraud or at least a prima facie established fraud to the knowledge of the issuing bank. A dispute relating to settlement of accounts in relation to the underlying contract, to my mind, cannot normally be described as a 'fraud'.
26. The submission of the plaintiff that without there being a prior demand of an outstanding liability, sudden invocation of the bank guarantees would be wrongful cannot be accepted. If such view is accepted, in every case relating to invocation of bank guarantee, so as to obtain an injunction from the court the party who has got the bank guarantee or letter of credit issued would raise a dispute in relation to the underlying contract, and then seek an injunction against its being honoured by the issuing bank. Such a view would defeat the mechanism of securing payments through bank guarantees or letters of credits, and would seriously undermine the trust and confidence of the businessmen in the mechanism of Bank guarantees and letters of credit.
27. I may only refer to one more decision of the Hon'ble Supreme Court in the case of Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. and Anr. , the Hon'ble Supreme Court observed that it had been held that fraud alleged by the plaintiff in a suit seeking restraint of encashment of bank guarantee or letters of credit, has to be an established fraud. In para 24, the Hon'ble Supreme Court dealt with the second exception to the rule against granting an injunction, i.e., the resulting of irretrievable injury to the plaintiff. The Supreme Court held that injury has to be such, which would make it impossible for the guarantor to reimburse himself if he ultimately succeeds. Defendants No. 1 to 3 are established in the business of issuing traveler cheques and it is not the plaintiff's case that if the moneys under the bank guarantees are released to the defendants, the plaintiff would not be in a position to recover the same.
28. During the course of his arguments, learned Counsel for the plaintiff also submitted that the invocation of the bank guarantees was not in terms of the guarantees, inasmuch as, the three bank guarantees which are identical in their terms state that "any claim made by the issuer must be accompanied by its declaration stating that the amount claimed is due to the issuer by reason of the agent having confidence to fulfilll its obligation under the agreement in respect of the said traveler cheques" and that the invocation letters issued by defendants No. 1-3 to defendant No. 4 did not comply the aforesaid condition while invoking the three bank guarantees. He further submits that it is the inherent obligation of the bank to ensure that invocation is in accordance with the terms of the guarantee before making payments there under.
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29. It is argued by learned Counsel for the defendant, and rightly so, that this ground has not been taken by the plaintiff in the plaint and the defendants had no occasion to deal with the same. It is pointed out that this argument has been raised only now. I find that in the plaint no averment has been made by the plaintiff in this regard. I, therefore, need not go into this issue at all.
30. In view of my aforesaid discussion, I find no merit in the application filed by the plaintiff being IA No. 3404/2002 and the same is accordingly hereby dismissed. The interim order of injunction dated 8.4.2002 is vacated. The application filed by the defendant being IA No. 7790/2002 is allowed. Parties are left to bear their respective costs.
31. List the matter for further directions on 24-07-07.