Motilal Banarasidass Pub. Pvt. Ltd. vs Standard Chartered Bank

V.K. Jain, J.

IA No. 4706/2007 is an application for leave to contest the suit.

This suit is for recovery of Rs. 20,53,134/-, declaration, permanent injunction and mandatory injunction, filed under Order XXXVII of Code of Civil Procedure. It is alleged in the plaint that the plaintiff is engaged in business of publication, sales and export of Indological books and literature. The Defendant is a banking company incorporated in England and Wales by the Royal Charter 1853 and having branches all over the world including a branch at Arya Samaj Road, Karol Bagh, New Delhi. The Defendant is engaged in the business of banking including bank credit, charge card services and has been granted licence to use Master Card and Visa marks in connection with the services provided by it to the card holder. It is authorized to issue Master credit cards and Visa credit cards to its customers and appoint merchants for facilitating day to day transactions of sales of goods and services through credit cards issued to its customers. It is alleged that in September-October, 2000 the Defendant appointed plaintiff as a merchant bank for accepting Visa and Master credit cards issued by the Defendant and an agreement between the parties was executed in this regard on or about 8th June 2001.

It is alleged that the Defendant in an unlawful and arbitrary manner raised a demand of Rs. 22,64,298.52 on account of transactions through credit cards, on the ground that the transactions had been disputed by the credit holders or on the ground of fraudulent use of credit cards issued by the Defendant. The account of the plaintiff was frozen by the Defendant and the plaintiff was furnished a list of alleged fraudulent transactions aggregating to Rs. 44,81,884/-. The Defendant then unilaterally debited the account of the plaintiff for Rs. 16,08,971 on 10th December 2004 and subsequently another amount of Rs. 1,93,153/- was unilaterally withdrawn from the account of the plaintiff on 9th February 2005. The plaintiff has also claimed Rs. 2,51,010/- towards interest on this amount at the rate of 18% per annum. The plaintiff, therefore, is seeking recovery of the aforesaid amounts totaling to Rs. 20,53,134/-.

In its application for leave to contest, the first plea taken by the Defendant is that since the plaintiff has also claimed reliefs of declaration, permanent injunction and mandatory injunction, the suit under Order XXXVII of the CPC is not maintainable. On merits, it is admitted that the plaintiff was appointed as a merchant in terms of the agreement dated 8th June 2001 executed between the parties. A supplementary agreement is also alleged to have been executed on the same date with respect to transactions on telephone. It is alleged in the application that the plaintiff sought various authorization from the Defendant between March 2004 to October 2004 for a total sum of Rs. 87,67,280/-. There was no charge slip submitted with respect to these transactions basis since they were based on telephonic orders/e-mails orders. Accordingly, the account of the plaintiff was duly credited for the aforesaid amount after authorizations given from time to time. In the year 2004, the Defendant bank started receiving a lot of complaints from Master card and Visa card establishments, disputing most of the transactions carried out by the plaintiff during March 2004 to October 2004. On being contacted by the Defendant, to find out why so many transactions were being disputed, it was revealed that the plaintiff had not taken due caution as required to be taken by it under the agreement. It is also alleged that the plaintiff could not provide any written proof of the identity of the card holder nor could it furnish the actual proof of delivery of the goods to the purchasers. The Defendant bank, therefore, immediately froze the account of the plaintiff on 1st November 2004, when a sum of Rs. 8,26,285.17 was available in the account. Freezing of the account was duly communicated to the plaintiff. Later, when the credit balance in the account increased, the bank debited a sum of Rs. 16,08,971/- from the account of the plaintiff on account of charge-backs pertaining to the disputed transactions. A further sum of Rs. 1,93,153/- was recovered from the account of the plaintiff as per the terms of the agreement on 9th February 2005. Even after effecting this charge-back, a sum of Rs. 25,22,103/- stood recoverable by the bank from the plaintiff. Ultimately, the bank received a total charge back of Rs. 44,77,257/- from the plaintiff leaving a sum of Rs. 18,02,124/-, which was recovered by debiting the account of the Defendant in terms of the agreement. This is also the case of the Defendant that in order to dispute the charge-back it became necessary for the bank to obtain documents from the plaintiff so that the same could be forwarded to the issuer bank, for verification, in order to get reversal of charge-backs, but the plaintiff failed to provide the required documents and documents which it provided to the Defendants were incomplete.

The relevant clauses of the agreement executed between the parties on 8th June 2001 read as under:

6.3 Chargeback

Any charge transacted by the Merchant in any of the following circumstances shall be the final responsibility of the Merchant notwithstanding that the charge was accepted or paid by SCB and the Merchant agrees to be charging back of the following charges without any demur or protest:

6.3.5 the transaction is fraudulent, collusive, illegal or otherwise irregular in any manner whatsoever.

6.3.8 the charge has been incurred by forgery of the cardholder''s signature on the charge slip.

6.3.14 charges for undelivered merchandise or service.

6.3.16 when the cardholder asserts a claim for set-off or counter claim against the Merchant or disputes his liability for any reason whatsoever.

6.4 If SCB is entitled to chargeback any charge or if SCB is entitled to payment or reimbursement from the Merchant of any amount under this Agreement, SCB may at its discretion, give effect to such chargeback entitlement in any one or more of the following methods. 6.4.1 deduction of the relevant amount or any part thereof from any account whatsoever of the Merchant with any branch of SCB without prejudice or limitation to SCB''s right to set-ff, transfer, and application of funds in law.

The case of the Defendant is that the transactions in question, in respect of which it has debited money from the account of the plaintiff, have been disputed by the card holders and fraud is also alleged to have been committed in respect of these transactions. The Defendant has placed on record a large number of documents to show that the transactions have been disputed by the card holders alleging fraud and claiming that the transactions were not entered into by them. These documents are at pages 42 to 363 of the documents filed by the Defendant on 16th April 2007. Vide letter dated 6th November 2004, written to the plaintiff, the Defendant while conveying freezing of all its operations in the account of the plaintiff with the Defendant bank, in exercise of the power under Clause 6 of the Merchant Agreement dated 8th June 2001, sent to it, particulars of the transactions which had been disputed by the card holders. These particulars were contained in annexure 1 to the letter and indicate Card Number, City, Date of Transactions as well as the Transaction Amount.

Since the card holders had disputed their liability and had claimed that the transactions were fraudulent, prima facie, the bank was well within its rights in charging back the amount of these transactions, under Clause 6.3.5 and 6.3.16 of the agreement. Also, in exercise of its power under Clause 6.4 of the agreement, the Defendant bank was entitled to recover these amounts from the account of the plaintiff with the Defendant bank.

Whether the transactions disputed by the card holders were actually made by them or not is a matter which can be decided only during trial. At this stage, when the card holders themselves have disputed the transactions and have claimed the same to be fraudulent, it is difficult to say that the Defendant bank was not entitled to charge-back the amount of these transactions and recover the same from the account of the plaintiff with it.

In Mechelec Engineers and Manufacturers Vs. Basic Equipment Corporation, , the Supreme Court set out the following principles:

(a) If the Defendant satisfies the Court that he has a good defense to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.

(b) if the Defendant raises a friable issue indicating that he has a fair or bona fide or reasonable defense although not a positively good defense the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he had a defense, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defense to the plaintiff''s claim the plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the Defendant has no defense or the defense set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend.

(e) If the Defendant has no defense or the defense is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment, the Court may protect the plaintiff by only allowing the defense to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defense.

The following triable issues, therefore, definitely arise in the facts and circumstances of the case:

(i) Whether the transactions carried out by the plaintiff on authorization by the Defendant were fraudulent transactions or were disputed by the card holders?

(ii) Whether the plaintiff committed breach of the terms and conditions of the agreement dated 8th June 2001?

Though the plaintiff has also claimed reliefs of declaration, permanent injunction and mandatory injunction, which cannot be claimed in a suit under Order XXXVII of Code of Civil Procedure, the learned Counsel for the plaintiff at the very outset stated that the plaintiff was not pressing these reliefs and was confining the scope of this suit to recovery of Rs. 20,53,134/-. Since the Defendant has retained triable issues on merits of the case, I need not go into the question as to whether despite the plaintiff not pressing reliefs for declaration and injunction, the Defendant is entitled to grant of leave solely on the ground that the reliefs claimed by the plaintiff were not confined to the scope of Order XXXVII of the Code of Civil Procedure.

The learned Counsel for the plaintiff requests that the Defendant may be asked to deposit the suit amount while granting leave to contest. In my view, in the facts and circumstances of the case, and also taking into consideration the fact that the Defendant is a large bank and in the event of a decree being passed, there is no likelihood of the same remaining unexecuted, no useful purpose would be served by asking the Defendant to deposit the suit amount or to furnish a bank guarantee in the Court.

For the reasons given in the preceding paragraphs, the application for leave to contest is allowed. The written statement can be filed within 30 days. Replication, if any, can be filed within four weeks, thereafter. Additional documents can be filed by the parties within six weeks. The parties to appear before the Joint Registrar on 23rd February 2011 for admission denial of the documents. The mater be listed before Court for framing of issues on 4th April 2011. The observations made in this order being tentative and based on a prima facie view of the matter, will not affect the decision on merits.