Bombay High Court
Kotak Mahindra Bank Ltd vs Alps Industries Limited on 18 November, 2019
Equivalent citations: AIRONLINE 2019 BOM 2838
Author: Pradeep Nandrajog
Bench: Pradeep Nandrajog, Bharati Dangre
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pdp
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1583 OF 2010
Kotak Mahindra Bank Limited
a Banking Company, within the
meaning of the Banking Regulation
Act, 1949 and registered under the
Companies Act, 1956, having its
Registered Office at 36038A,
Nariman Bhavan, 227,
Nariman Point, Mumbai 400 021. .. Petitioner
Versus
Alps Industries Limited
Having its registered office at
B-2, Loni Road Area, Opposite
Mohan Nagar, Ghaziabad 201007
Uttar Pradesh. .. Respondent
Mr. Sachin Chandarana a/w Mr. Vijayendra Purohit i/by Manilal
Kher Ambalal & Co. for Petitioner.
Mr. Dinesh Jadhwani a/w Sowmya Dubey i/by Dhir & Dhir
Associates for Respondent.
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CORAM: PRADEEP NANDRAJOG, CJ. &
SMT. BHARATI DANGRE, J.
NOVEMBER 18, 2019.
ORAL JUDGMENT [Per Pradeep Nandrajog, CJ.] :
1. The Writ Petition has reached for hearing.
2. The Writ Petitioner invoked remedy by filing an Application under Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.
3. Decree in sum of ₹ 6,01,11,346.54 being amount due and payable as on 28.02.2010 with further default interest @ applicable under ISDA Agreement with effect from 01.03.2010 till realization was prayed for. It was prayed that such additional amounts as may become due and payable in respect of derivative transactions entered, be also decreed. It was stated in the claim that Defendant-Company had made profits out of derivative transactions executed with the writ petitioner to the tune of ₹ 4,94,76,370/-.
4. The bundle of facts constituted the cause of action in paras 5.1.4 to 5.1.15 read as under :-
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"5.1.4 Pursuant to various discussions between the Applicant and the Defendant Company and at the request of the Defendant Company, the Applicant issued a Sanction Letter dated 27th October, 2005 in favour of the Defendant Company inter alia setting out derivative/ forward contract limits to the Defendant Company by the Applicant on the terms and conditions in relation thereto as set out in the said Sanction Letter. The said limits at the request of the Defendant Company were further revised and enhanced by the Sanction Letters dated 29th December 2006 and 22nd October 2007 respectively (hereinafter collectively known as "Sanction Letters"). Hereto annexed and marked as Exhibit 'A-1 A-2 and A3' (colly) are copies of the Sanction Letters dated 27th October 2005, 29th December 2006 and 22nd October 2007 respectively.
5.1.5 Pursuant to the Sanction Letters, the Defendant Company executed the ISDA Agreement with the Applicant for entering into derivative transactions. The ISDA Agreement was executed by the Defendant Company through its Chairman, Mr. K. K. Agarwal, pursuant board resolution dated 12 th November 2005 whereby the Board of Directors of the Defendant Company duly authorized severally its Chairman and Managing Director to enter into ISDA Agreement for the purpose of executing derivative transactions for and on behalf of the Defendant Company with the Applicant. The Defendant Company later on also furnished Board Resolutions dated 29th December 2006 and 31st October 2007 for and on behalf of the Defendant Company whereby the authorised signatories mentioned therein were permitted to deal in derivative transactions at the 4/14 202-wp-1583-10.doc enhanced limits sanctioned and as set out in the respective Sanction Letters of the Applicant. The board resolutions dated 12th November 2005, 29th December, 2006 and 31st October 2007 are collectively referred to as the 'Board Resolutions'. Hereto annexed and marked as Exhibit 'B-1 and B-2' (colly) are copies of the said ISDA Master Agreements dated as of 14th November, 2005 and executed on 18th November 2005 and 25th July 2006 respectively and hereto annexed and marked as Exhibit 'C-1', C-2 and C-3 (colly) are copies of the aforementioned Board Resolutions dated 12 th November 2005, 29th December 2006 and 31st October 2007 respectively.
5.1.6 Along with the ISDA Agreements, the Defendant Company also executed two separate Risk Disclosure Statement for Derivative Transactions dated 18th November 2005 and 19th November 2006 whereby Defendant Company, accepted and acknowledged that it not only understood the nature of and risks involved in derivative transactions but also was capable of assuming and assume the risks arising out of the derivative transactions. Hereto annexed and marked as Annexure 'D-1 and 'D-2" (colly) are copies of the Risk Disclosure Statement for Derivative Transactions dated 18th November 2005 and 19th November 2006.
5.1.7 Further the Defendant Company also executed a Forward Contract declarations dated 18 th November 2005 and 29th December 2006. The Applicant craves leave to refer to and rely upon the said Forward Contract Declaration if and when produced before this Hon'ble Tribunal.
5.1.8 The ISDA Agreement sets out that each party 5/14 202-wp-1583-10.doc would make payment or delivery specified in each confirmation to be made by it, subject to the other provisions of the ISDA Agreement. There are also detailed provisions in the ISDA Agreement as to the manner and time at which payment should be made by the Defendant Company. Clause 2(e) of the ISDA Agreement made provision for default interest in the event of a party defaulting in performance of any of its payment obligation. Through Clause 3(a)(ii) of the ISDA Agreement, the Defendant Company represented that it had the power to execute and deliver the agreement and other documents and had taken all necessary actions to authorize such execution, delivery and performance. The Defendant Company has under Clause 3(g) of the ISDA Agreement, as amended and supplemented by the Schedule represented that it has taken an independent decision to enter into the ISDA Agreement and Transactions thereto without placing reliance on any communication, whether written or oral, by the Applicant and that it is acting on a principal-to-principal basis. Under the clause 3(h) of the ISDA Agreement, as amended and supplemented by the Schedule, the Defendant Company also represented that it was capable of assessing and understanding the Transactions whether on its own or through its independent advisers. Clause 5 of the said ISDA Agreement set out the Events of Default and the Termination Events. Failure to make payment in accordance with the ISDA Agreement or breach of the terms of the ISDA Agreement as provided under Clause 5 was expressly stated to be an Event of Default.
5.1.9 Pursuant to the ISDA Agreement and Sanction Letters, Mr. Sandeep Agarwal, the Managing Director and Mr. K. K. Agarwal, the Chairman of the Defendant 6/14 202-wp-1583-10.doc Company jointly executed Deeds of Guarantees, more particularly personal guarantee dated 18th November 2005 pursuant to Sanction Letter dated 27 th October 2005 and personal guarantee dated 2nd January 2007 pursuant to Sanction Letter dated 29 th December 2006. Further Mr. Sandeep Agarwal and Mr. K. K. Agarwal also executed a Guarantee Confirmation dated 19 th November, 2007 whereby they extended the personal guarantee dated 1st August 2006 issued by them in respect of the revised and enhanced derivative limits sanctioned to the Defendant Company vide Sanction Letter dated 22nd October 2007 (collectively referred to as the "said Personal Guarantees").
5.1.10 Vide the said Personal Guarantees, Mr. Sandeep Agarwal and Mr. K. K. Agarwal severally, unconditionally, absolutely and irrevocably undertook and guaranteed to the Applicant due and punctual payment of the amounts payable by the Defendant Company to the Applicant in case of default by the Defendant Company.
5.1.11 Thereafter, the Defendant Company entered into derivative transactions with the Applicant, more particularly enlisted below:
1) Option Transaction No.CIRS 7103, FXOPT 15756, 15760 dated 21st May 2007 (the "1st Transaction"); and
2) Option Transaction No.CIRS 5395, FXOPT 11302/11307, Digital 11311/11316/11320- dated 24th January 2007 and amended by deal confirmation dated 13th March 2008 (the "2nd Transaction") (hereinafter collectively referred to as "Transactions"). The Transactions undertaken by the Defendant Company 7/14 202-wp-1583-10.doc were in the nature of INR/JPY currency swaps with the Applicant where the underlying exposure was term loans denominated in INR. The Defendant Company swapped the rupee loans into JPY with an endeavour to reduce the cost of its borrowings on its INR terms loans.
5.1.12 The Transactions in question were evidenced by duly executed confirmations which contained the terms of the said Transactions and included a declaration of risks whereby the Defendant Company stated that they had understood the risks involved in the Transactions and were assuming the risks arising out of the Transactions at their own accord.
5.1.13 The 1st Transaction was executed by the Defendant Company on 21st May 2007 and an amount of Rs.39,63,872/- first became due and payable on 23 rd May, 2008 towards coupon settlement under the said Transactions, which amount was debited from the Defendant Company's current account on the same date. Thereafter an amount of Rs.1,02,58,346/- became due and payable under the said Transaction towards the yearly swap settlement on 26th May 2009. The Applicant adjusted an amount of Rs.4,96,948/- being the proceeds of the Fixed Deposit which was placed by the Defendant Company with the Applicant on 30th October 2009, against the liability of Defendant Company in respect of the 1st Transaction. Post the appropriation of the proceeds of the Fixed Deposit, an amount of Rs.1,05,21,247/- inclusive of the default interest as per ISDA Agreement remained due and payable as on 30 th October, 2009. Hereto annexed and marked as Exhibit 'E' is a copy of the Deal Confirmation dated 21 st May 2007 in respect of the 1st Transaction.
8/14202-wp-1583-10.doc 5.1.14 The 2nd Transaction was executed by the Defendant Company on 24th January, 2007 which was amended by Deal Confirmation dated 13th March, 2008. Towards the 2nd Transaction, the Defendant made a profit of an amount of Rs.60,93,984/-, on 29 th January 2008 which amount was duly credited by the Applicant on the same date in the current account of the Defendant Company and the said profit amount was accepted by the Defendant Company without any objection or demur. Thereafter an amount of Rs.39,71,235.03/- became due and payable by Defendant Company to the Applicant in respect of the said 2nd Transaction on 29th January 2009, towards coupon settlement. The Defendant Company failed, neglected and defaulted in making the said payment on the due date and same was recovered by the Applicant by debiting the current account of the Defendant Company with an amount of Rs.40,94,866.27/- inclusive of the default rate of interest as per the ISDA Agreement on 8 th April, 2009. Further an amount of Rs.4,83,12,044.29/- became due and payable towards the final swap settlement of the 2nd Transaction on 29th January 2010, towards which the Applicant issued a letter dated 29th January, 2010 calling upon the Defendant Company to pay the same. Hereto annexed and marked as Exhibit 'F' is a copy of the Deal Confirmation dated 13th March 2008 and annexed and marked as Exhibit 'G' is the Letter dated 29th January 2010.
5.1.15 The Transactions in question were executed pursuant to the Sanction Letters broadly enlisting the terms and conditions and limits for doing the derivative 9/14 202-wp-1583-10.doc transactions. The Sanction Letters were duly executed and signed by the authorized representatives of the Applicant and authorised official of the Defendant Company. The Defendant Company till date of maturity was also required to settle negative MTM (Marked to Market) liability over and above Rupees Ten Crores every 15 days by deposit of cash margin. The negative MTM in respect of the Transactions as on 29th January 2010 was Rs.14,67,91,039/- and the Defendant Company was therefore obliged to place a cash margin with the Applicant of Rs.4,67,91,039/- (Rupees Four Crores Eighty Eight Lakh Eighty Eight Thousand Six Hundred Sixty One Only) in respect of the Transactions as on 29th January 2010."
5. On the issue of the jurisdiction of the Tribunal it was pleaded as under :-
"The Applicant is a banking company which extends various banking services and financial facilities to its customers as a scheduled commercial bank and authorised dealer. The Applicant is carrying on business from its office at Mumbai. The Defendant Company is a company registered under the Companies Act, 1956 and its registered office is situated in Uttar Pradesh. The ISDA (International Swaps & Derivative Association) Agreement dated as of 14 th November 2005 was executed on 18th November 2005 together with Schedule thereto and the subsequent ISDA Agreement together with Schedule dated as of 14th November 2005 was executed on 25th July 2006 (both the ISDA Agreements along with their respective 10/14 202-wp-1583-10.doc Schedules collectively referred to as the "ISDA Agreement/the said Agreement") between the Applicant and the Defendant Company at New Delhi. As per the terms of the ISDA Agreement, irrespective of the transactions being executed by either party through office other than its head or home office to the other party, notwithstanding the place of booking office or jurisdiction of incorporation of the organization, the transaction will be deemed to have been entered into through its head or home office which in the present case is Mumbai for the Applicant. The deal confirmations dated 21 May 2007 and 13th March st 2008 are both issued by the Applicant to the Defendant Company from Mumbai. Both the deal confirmations are duly signed, acknowledged and confirmed by the Defendant Company and returned to the Applicant and received by the Applicant at Mumbai. The transactions in question were executed and performed at Mumbai. The ISDA Agreement specifically provides for the exclusive jurisdiction of the Courts/Tribunals at Mumbai. Hence, this Ho'ble Tribunal jurisdiction to entertain, try and dispose off the present original application."
6. Suffice it to highlight that while pleading on the issue of jurisdiction, it was not only pleaded that under ISDA notwithstanding the same not being executed in Bombay, it was recorded that the transactions will be deemed to have been entered into through the head/home office of the Petitioner at Bombay. Apart from the deeming fiction concerning jurisdiction vested in 11/14 202-wp-1583-10.doc Bombay, as a matter of fact, it was pleaded that deal confirmations dated 21.05.2007 and 13.03.2018 were issued by the Petitioner to the Defendant-Company from Bombay.
7. The Company questioned the territorial jurisdiction of DRT at Bombay and vide order dated 19.03.2010, the learned DRT relying upon the agreement and in particular Clause 10(A) thereof held that the parties had agreed that notwithstanding the agreements not being executed at Bombay the obligations of such parties are the same as if it had entered into the transaction through its head or home office. This representation was held deemed to be repeated by such party on each date on which a transaction was entered into. The Tribunal thus held that a part of cause of action would accrue in the territorial jurisdiction of the Tribunal at Bombay. Additionally the learned DRT relied upon the transaction letters dated 21.05.2007 and 13.03.2008. Needless to state on aforesaid reason the Tribunal held that it had jurisdiction on account of part cause of action having accrued in Bombay.
8. The order was challenged by the Respondent in Appeal before the learned DRAT which held that if no part of cause of action accrued in Bombay, parties by consent could not 12/14 202-wp-1583-10.doc confer jurisdiction on the Tribunal at Bombay. The Appeal was allowed.
9. The Petitioner question the impugned order dated 06.05.2010 passed by the learned DRAT by filing the present Petition.
10. With respect to the letters dated 21.05.2007 and 13.03.2008 learned DRAT has given reason in paragraph 13 of the impugned decision, which reads as under :-
"13. The plea of the Respondent Bank is that deal transactions letter dated 21.05.2007 and 13.03.2008 were sent by the Applicant's Mumbai office and were confirmed by the Defendant. For this reason, it is pleaded by the Respondent Bank that the part of cause of action has arisen at Mumbai and the DRT-II, Mumbai has jurisdiction in the matter. I am unable to persuade myself to agree with this proposition. The entire contract was concluded and signed in Sahibabad (U.P.) and Delhi. Therefore, by no stretch of imagination it can be said that the part of cause of action has arisen at Mumbai. A plea regarding conclusion of the contract and jurisdiction of the Court has been detailed in para 6 of the reply of the Defendant Company to oppose the interim prayers. The plea contained in para 6 clearly establishes that the purported deed was concluded in Sahibabad (U.P.) and Delhi. Applicant Bank's letter dated 13/14 202-wp-1583-10.doc 22.10.2007 which is addressed to the Defendant Company is available at page 41-42 of the paper book. The concluding para of the letter provides as follows :
"In confirmation of your agreement to be bound by the conditions stipulated herein please return the duplicate copy of this letter duly signed by the authorized signatories of the borrower to KMBL's Credit Admission, at 7th Floor, Ambadeep, 14 K G Marg, New Delhi - 110 001 227 for the attention Mr.Arvind M. Vatsa within 7 days from the date of this letter, after which this offer will lapse."
11. A perusal of the reasoning of the learned DRAT shows that merely because the contract was concluded between the parties at Sahibabad, it has held that it could not be said that a part of action has accrued at Bombay.
12. The deal transactions letters dated 21.05.2007 and 13.03.2008 are a part of the cause of action, as pleaded. The view taken by the learned DRAT that merely because the contract was concluded at Sahibabad and thus complete cause of action would be outside Bombay is incorrect for the reason cause of action is the bundle of facts which requires to be proved if traversed by the opposite side and where parts of the bundle of facts are transacted 14/14 202-wp-1583-10.doc in different jurisdictions each court in territory whereof the fact took place would have the jurisdiction to entertain the claim.
13. The Writ Petition is disposed of setting aside the impugned order dated 06.05.2010 passed by the DRAT. It is held that O.A. filed by the Petitioner at Bombay was maintainable before the learned DRT at Bombay.
14. No costs.
Pravin D. Pandit Digitally signed by Pravin D. Pandit Date: 2019.11.20 10:08:55 +0530 SMT. BHARATI DANGRE, J. CHIEF JUSTICE