G.D. Goenka Private Limited vs Standard Chartered Bank

Sanjiv Khanna, J.

CM No.10628/2014

Exemption allowed, subject to all just exceptions.

Application stands disposed of.

Cav. 703/2014

Since the counsel as above appears for the caveator, no further order is required. Caveator shall be heard, as per law. Caveat is disposed of.

W.P.(C) 5341/2014 & CM No. 10627/2014

This writ petition is directed against the order dated 02.04.2014, passed by the Debt Recovery Appellate Tribunal, Delhi (''DRAT'' for short), in Miscellaneous Appeal No.314/2013, titled M/s G.D. Goenka Pvt. Ltd. vs. Standard Chartered Bank.

The respondent/bank has filed an Original Application for recovery of Rs.15.2 Crores approx. on account of derivative transactions. The petitioner herein had filed counter-claim which is also pending before the Debt Recovery Tribunal (''DRT'', for short).

The petitioner herein had filed an application, seeking discovery and production of documents, IA No.345/2010 in O.A No.218/2009. Thereupon, Presiding Officer, DRT-II disposed of the said application vide its order dated 14.03.2011. Unfortunately, page 7 of the said order has not been filed and enclosed with the said order (Annexure P-8 in the present petition). However, what was directed to be furnished in the said order, stands reproduced in the order dated 18.06.2013, passed by DRT-II, and is as under:

(a) Approval/Consent/Permission of the defendant/counter claimant for increasing the amount of the derivative transactions (underlying) from Rs. 30 crore to RS. 86 crore.

(b) The details and rates at which the alleged Transaction No.1 was unwound by the applicant bank and on what basis, the applicant bank handed over the alleged amount of 40,000/- USD to the defendant/claimant at the time of unwinding to the defendant/claimant at the time of unwinding the alleged transaction No.1.

(c) The details and rates at which the transaction No.4 was partially cancelled as alleged by the applicant bank in the aforesaid OA No.218/09 filed before the Tribunal and under what circumstances the transaction No.4 had provided an alleged return of 1,00,000/- USD.

(d) The details of Aggarwal Investments and details of the bank where Pay Order No.628080 dated 19.7.2007 issued by the applicant bank to the Aggarwal Investments for an amount of RS. 22,00,534/- had been deposited on account of partial cancellation of the alleged transaction No.4.

(e) The monthly statements and ledger of the accounts of the defendant/counter claimant by the applicant bank with respect to all the 4 alleged derivative transactions and forward contracts.

In the order dated 14.03.2011, in paragraph 8, it was directed that the respondent bank herein would produce the above-stated documents. Regarding other documents, DRT observed that their production was not relevant for the purpose of effective adjudication of the case. The aforesaid order does not record that the same was passed in exercise of power under Order XI, Rule 12 of the Code of Civil Procedure, 1908 (Code for short). The case was thereafter adjourned to 19.04.2011. Order dated 19.04.2011 has not been placed on record.

In compliance of the above stated directions, the respondent bank, filed an affidavit dated 1.8.2011 and produced one document i.e. Conformation of Cancellation of Transaction No.4 dated 19th July 2007. In their affidavit, respondent bank pleaded that they cannot produce other documents/information as no such record of document/information was maintained by them. Justification and reasons were stated and given in the affidavit. It was averred that transaction No.1 was squared up on 02.07.2007 and the account of the petitioner was duly credited. The bank had not been able to locate any direct records relating to cancellation of transaction and it was not possible to provide the rate at which transaction was unwound, as the transaction was conducted on live market rates, which constantly change and were not recorded. It was possible to determine the final amount returned to the petitioner, US$ 40,000, on basis of the amount credited to the petitioner''s account on 02.07.2007. With regard to transaction No.4, which was unwound on 17.07.2007, Rs.18 lacs was credited in the account of the petitioner and another pay order of Rs.22,00,634/- in favour of Aggarwal Investments was issued on 19.07.2007 towards the benefit of US$ 1,00,000, as per instructions of the petitioner. It was not possible to provide the rate at which transaction was unwound, as the transaction was conducted on live market rates which were constantly in flux and not recorded. Copy of the cancellation advice as noticed above was annexed as Annexure A-1. Profits generated, on cancellation of transaction No.1 and transaction No.4, were received by the petitioner and at that time no dispute of any nature whatsoever with regard to authority to cancel, the rate at which cancellation was done, etc. was raised. In so far as monthly statement and ledger accounts were concerned, no separate accounts were maintained for derivative and forward cover transactions, and as and when the transactions matured, the resultant profit/loss was credited or debited in the account nominated, which was maintained by the petitioner with the respondent bank. On the question of approval/consent/permission for increasing the amount of derivative transaction from Rs.30 Crores to Rs.86 Crores, the respondent bank, in the affidavit had stated that no subsequent documents were executed between them and at the initial stage itself, the term sheets containing description of transaction, purpose of transaction, risk disclosure and other details of the transaction, which were counter- signed, were executed. Signed term sheets were sufficient authority and the relevant term sheets and confirmations were filed as Annexure-H to Annexure-O to the original application. Other than the term sheets and aforesaid documents, there was no approval/consent or permission available with the respondent bank.

The petitioner herein, thereafter filed an application, under sections 19(25), 22, 22(2)(b) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 read Rule 18 of the Rules framed thereunder, read with the Order XI, Rule 21 of the Code for passing an order against the respondent bank for non- compliance of the order of discovery and production of documents.

The respondent bank filed a reply to the application and reiterated the averments made in the affidavit.

Keeping in view the aforesaid affidavit and the submission made, DRT by order dated 18.06.2013 held that Order XI, Rule 12 of the Code was not applicable and therefore the application under Order XI, Rule 21 would not be maintainable. The earlier directions in order dated 14.03.2011 issued were under Order XI, Rule 14 of the Code. This finding has been affirmed by DRAT. There is considerable authority for the proposition that directions issued under Order XI, Rule 14 of the Code cannot and should not be made subject matter of an Order XI, Rule 21 of the Code. (See Chinnappan Vs. Ramachandran, ) and judgments quoted therein and M/s. Gur Prasad Shyam Babu and others Vs. State Bank of India and another,

In fact, learned counsel for the petitioner has submitted that the application originally was filed by them under Order XI, Rule 12 and 14 of the Code but the order dated 14.03.2011 was passed only under Order XI, Rule 14 of the Code. In view of the said statement, we need not examine the question of applicability of Order XI, Rules 12 and 21 of the Code.

Learned counsel for the petitioner has however drawn our attention to a decision of a Single Judge of this Court in S.M.S. Udyog Ltd. Vs. Flistex Magnetics Ltd., , wherein this interstice in the legal provisions was noticed by the Court and reference was made to the inherent power of the Court u/s 151 of the Code. He would draw our attention to the decision of another Single Judge of this Court in Vestergaard Frandsen A/s and Others Vs. M. Sivasamy and Others, .

Learned counsel for the respondent bank, however, submits that the decision of the Single Judge, inVestergaard Frandsen A/S ( supra), stands over-ruled by judgment reported in Mr. M. Sivasamy Vs. Vestergaard Frandsen A/S and Others, . This is, however, disputed by learned counsel for the petitioner on the stand that the question decided was different.

In the present context, we do not think this question is required to be decided in this writ petition. We are inclined to agree with the second issue recorded by the DRT and DRAT in the impugned orders. Both of them have held that the conduct of the respondent bank is not such that an order under Order XI, Rule 21 or similar order should be passed. The said order entails dismissal of the claim/suit or striking out of the defence, is a stringent and penal provision having a grave consequence on the litigation inter-se parties. An order of dismissal of a suit or striking out of the defence ought not to be passed unless the Court/Tribunal is satisfied that the party concerned is wilfully or deliberately withholding information by refusing to answer the interrogatories or withholding document sought to be discovered. There should be obstinacy or contumacy on the part of the said party or wilful attempt to disregard the order of the Court ( Babbar Sewing Machine Company Vs. Trilok Nath Mahajan, ; M/s Sawhney Brothers Vs. Hong Kong and Shanghai Banking Corporation and others, ).

Both DRT and DRAT have held in favour of the respondent bank on the said aspect. There is nothing to show and establish that the respondent bank had documents, but they are being withheld. Whether or not the claim of the respondent bank has merit or should be dismissed or whether the counter-claim of the petitioner has merit or should be dismissed is a matter for determination and adjudication. The legal and factual effect of the reply given by the respondent bank as an answer to the documents sought, is an aspect or fact which will be examined by the DRT and the appellate authority under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Whether or not any adverse inference could or should be or should not be drawn etc. is again the matter of merit and not an issue which can be prematurely decided at this interim stage and that too in a writ petition under Article 226 of the Constitution. We refrain and do not comment and observe on the said aspects. Lastly, we may note that the petitioner has invoked writ jurisdiction of this Court and the said jurisdiction is normally exercised only when injustice has been caused or legally unsustainable order has been passed. In the present case, interim orders have been passed and the petitioner herein seeks rejection and dismissal of the original claim and striking out of the defence. The authorities have held that this penal and punitive order/direction, in view of the facts on record is not required and justified. We do not see any good ground or reason to interfere and reverse the said finding.

The petition is, accordingly, dismissed. No costs.