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2000 DIGILAW 748 (BOM)

Murablack India Limited v. UBS AG & others

2000-10-10

B.N.SRIKRISHNA, RANJANA DESAI

body2000
JUDGMENT - P.C.:---This appeal is directed against an order of the learned Single Judge (F.I. Rebello, J.) dated 7th/8th September, 2000. When this appeal came up for admission, we heard Counsel for the appellant as well as the first and the fifth respondents at great length as we would have liked to dispose of the appeal finally after admitting it. However, we are unable to do so we are hampered for the reason that the second, third and fourth respondents, who are parties residing abroad, did not appear at the stage of admission. Hence, we propose to dispose of this appeal at the admission stage itself. 2. The appellant (original plaintiff) filed a suit on the Original Side of this Court in which it sought a declaration that certain guarantees issued by the fifth respondent in favour of the first respondent bank guaranting loans advanced by the first respondent to the appellant be discharged. The appellant also sought a permanent injunction restraining the first respondent from invoking the guarantees against the fifth respondent. Pending the hearing and disposal of the suit, a Notice of Motion was taken out by the appellant seeking to restrain the first and the fifth respondents from recovering any amount under the Loan Agreement dated 20th September, 1991 and restraining the fifth respondent from paying to the first respondent any amounts under the guarantee of the fifth respondent dated 10th October, 1991. This Notice of Motion was opposed by the respondents and, after hearing the contesting parties, the learned Single Judge by his order dated 7th/8th September, 2000 dismissed the Notice of Motion. The appeal is directed against the said order. 3. When the Notice of Motion was moved, an ad interim order was made in terms of prayer Clause (a)(ii) on 15th January, 1997. On 17th January, 1997, ad interim relief was granted in terms of prayer Clause (a)(ii). Both these prayers continued to operate till the learned Single Judge by his judgment and order dated 7th/8th September, 2000 dismissed the Notice of Motion itself after final hearing of the Notice of Motion. 4. Broadly stated, the facts are thus: On 22nd June, 1989 an agreement was entered into between the appellant and the second and the third respondents under which the second respondent agreed to supply and deliver to the appellant a plant to manufacture "SUPER AND ELECTRO CONDUCTIVE CARBON BLACK". 4. Broadly stated, the facts are thus: On 22nd June, 1989 an agreement was entered into between the appellant and the second and the third respondents under which the second respondent agreed to supply and deliver to the appellant a plant to manufacture "SUPER AND ELECTRO CONDUCTIVE CARBON BLACK". Certain negotiations took place for arranging of finances. Finally, on 30th September, 1991, a loan agreement was entered into between the appellant and the first respondent under which the first respondent agreed to finance 85 per cent of the contract value of the said plant upto Swiss Fr. 14,679.500 on the terms and conditions set out in the agreement. One of the stipulations in the agreement was that the appellant would procure guarantee from an acceptable bank in India for repayment of the sums. This is where the fifth respondent came into the picture as the acceptable bank. The fifth respondent guaranteed the aforesaid amounts. Between 29th June, 1992 and 30th November, 1993, the plant, equipment and machineries as agreed arrived in India in different consignments. 5. Under the loan agreement between the first respondent and the appellant, the repayment schedule was to start on 30th September, 1994. On account of difficulties on its part, the appellant requested for a revised repayment schedule. The repayment schedule was revised to start in 1995 and thereafter in 1996. In the meanwhile, the first respondent called upon the fifth respondent as guaranteeing bank to pay certain amounts of interest which had become due. Those were also paid by the fifth respondent upto a certain limit. The fifth respondent, by its letter dated 1st October, 1996, informed the first respondent that under the guarantee there was a maximum amount of interest payable and, this already having been crossed, no further payments of interest would be made. Since there was neither payment of interest, nor repayment of instalments against the capital, under Clause XI of the loan agreement dated 30th September, 1995, the first respondent exercised its option of accelerating the liability and declared that the entire amount under the loan agreement had become due and payable forthwith. It called upon the fifth respondent to make payment of the amounts due and payable under the guarantee. Before the fifth respondent could make payments, the plaintiff filed the suit and obtained an ad interim injunction which has since continued. 6. It called upon the fifth respondent to make payment of the amounts due and payable under the guarantee. Before the fifth respondent could make payments, the plaintiff filed the suit and obtained an ad interim injunction which has since continued. 6. The learned Single Judge hearing the Notice of Motion came to the conclusion that the guarantee was not a conditional guarantee and, therefore, under the law as laid down by the Supreme Court in a series of judgments, the courts ought not be interfere with the agreements of guarantee which are independent contracts, irrespective of the disputes between the borrower and the lender as otherwise commercial transactions would come to a standstill. The learned Single Judge considered the express language used in the guarantee, and reading it against the clauses of the agreement of loan, the learned Judge was of the view that the guarantee was an unconditional irrevocable letter of guarantee not liable to be interfered with by the Court. 7. Mr. Thakkar, learned Counsel for the appellant, attempted to persuade us that payment under the guarantee was liable to be restrained for two reasons. First, he contends that the terms of the guarantee make it clear that the guarantee is a conditional guarantee and the condition has not been fulfilled. In our view, this, contention is unsound. The guarantee, as finally executed by the fifth respondent, is in the following terms:--- "In consideration of the premises and subject to what is stated in the succeeding paragraph and irrespective of the validity and the legal effect of the AGREEMENT, we irrevocably undertake to pay to you on first demand and waiving all rights of objection and defence arising from the AGREEMENT any sum up to a maximum amount of SFr. 16,147,450 (Swiss Francs Sixteen million one hundred and forty seven thousand four hundred and fifty) including principal, interest (for the entire credit duration) and all other charges. It is hereby agreed by and between the GUARANTOR AND LENDER that this guarantee would be effective only on receipt of the SFr. 409,500/- by the BORROWER in India, from the LENDER. Notwithstanding anything contained in this guarantee, it is hereby further agreed between the GUARANTOR and the LENDER that this guarantee would be effective in two tranches. The first trance would be for an amount of SFr. 10,275,650 (i.e. SFr. 409,500/- by the BORROWER in India, from the LENDER. Notwithstanding anything contained in this guarantee, it is hereby further agreed between the GUARANTOR and the LENDER that this guarantee would be effective in two tranches. The first trance would be for an amount of SFr. 10,275,650 (i.e. SFr. 8,807,700 towards 50% of the plant value (including E.R.G. commission) plus SFr. 1,467,950 towards interest and other charges) against the delivery of the plant and machinery in India by the EXPORTER. The second tranche of guarantee would be for an amount of SFr. 5,871,800 (i.e. 34% of the plant value) and would become effective only after the plant performance is proved in India by the EXPORTER to the satisfaction of the BORROWER and the GUARANTOR." It is true that originally the terms suggested by the first respondent were somewhat different and it is at the instance of the fifth respondent that the terms of the guarantee were reduced to what we have reproduced hereinabove. In our judgment, a fair reading of the guarantee would suggest that, notwithstanding the change made in the phraseology by the fifth respondent, it continued to be an unconditional guarantee. We say so because under the guarantee the fifth respondent said "......we irrevocably undertake to pay to you on first demand and waiving all rights of objection and defence arising from the AGREEMENT, any sum up to a maximum amount of SFr. 16,147,450 (Swiss Francs Sixteen million one hundred and forty seven thousand four hundred and fifty) including principal, interest (for the entire credit duration) and all other charges....". Following the non obstante clause, all that has been done is that the guarantee is made effective in two tranches. The first tranche is for the amount of SFr. 10,275,650 (i.e. SFr. 8,807,700 towards 51% of the plant value including Export Risk Guarantee commission plus SFr. 1,467,950 towards interest and other charges "against the delivery of the plant and machinery in India by the EXPORTER". Mr. Thakkar contends that, unless the plant and machinery was delivered in India, the guarantee was not enforceable. We are unable to accept this contention. In our view, this is a mere matter of assigning the head against which the guarantee was being given. Mr. Thakkar contends that, unless the plant and machinery was delivered in India, the guarantee was not enforceable. We are unable to accept this contention. In our view, this is a mere matter of assigning the head against which the guarantee was being given. If there is any doubt whatsoever on the interpretation of this tranche of the guarantee, the terms in which the second tranche of the guarantee has been given, makes it explicit. When it comes to the second tranche of the guarantee for the sum of SFr. 5,871,800, the guarantors' says in express terms ".........would become effective only after the plant performance is proved in India by the EXPORTER to the satisfaction of the BORROWER and the GUARANTOR" (Emphasis ours). The distinction in the phraseology of the guarantee as to two tranches is marked and unmistakable. The first tranche of the guarantee only talks of the head for which the guarantee is being given, namely, against delivery of plant and machinery, but the second tranche would become effective "only after the plant performance in India is proved by the EXPORTER to the satisfaction of the BORROWER and the GUARANTOR" (Emphasis added). Parties are agreed that the second tranche is a conditional guarantee. There is no dispute about the second tranche because there is no attempt to encash the guarantee under the second tranche. 8. Even if we assume that Mr. Thakkar is right in his contention that the first tranche of the guarantee is also a conditional one, the condition was delivery of plant and machinery in India. In paragraph 14 of the plaint, the appellant clearly stated that between 29th June, 1992 and 30th November, 1993 "the equipment/machinery of the said plant arrived in India in 8 different consignments except the spare parts and the application laboratory equipment". We would have thought that the matter was beyond cavil on this admission of the appellant Mr. Thakkar, however, referred to the agreements and contended that 'plant' was understood under the agreement to be inclusive of spare parts and, therefore, as long as spare parts had not arrived in India, the condition had not been fulfilled and the guarantee was not encashable. We regret we cannot accept this argument also. The basic agreement is the agreement dated 22nd June, 1989. We regret we cannot accept this argument also. The basic agreement is the agreement dated 22nd June, 1989. The agreement is for selling of the plant owned by the second respondent to the appellant "after dismantling the machinery and equipments......." (hereinafter called "the plant"). Article 1.3 of this agreement defines the expression "PLANT" to mean "...the entire existing production plant of MURA situated at Aigle, Switzerland, which is proposed to be dismantled and set up at SITE and a brief description of which is set out in Annexure 2." Annexure 2 of this agreement is styled as "EQUIPMENT LISTS OF THE PLANT". It contains several charts which give the EQUIPMENT LIST, EQUIPMENT LIST (ELECTRICAL AND INSTRUMENTS), EQUIPMENT LIST (PILOT PLANT), EQUIPMENT LIST (MAINTENANCE), EQUIPMENT LIST (LABORATORY QUALITY ASSURANCE EQUIPMENT), EQUIPMENT LIST (APPLICATION LAB.), OFFICE EQUIPMENT LIST and then comes SPARE PARTS LISTS including a number of items. A fair reading of this agreement does not suggest to us that the expression "PLANT" used in Article 1.3 was all that was set out in Annexure 2 to the agreement. On the other hand, we are inclined to read the definition of the expression "PLANT" used in Article 1.3 to mean that a brief description of the plant is set out in Annexure 2; Annexure 2 contains description of the 'Plant within the meaning of Article 1.3 and several other things, such as spare parts. 9. Mr. Thakkar then drew our attention to the two amendments to the original agreement. The first amendment to the agreement was signed on 22nd June, 1989. A reference to this amendment does not carry us anywhere for the definition of the word "PLANT" does not appear to have been changed in any manner by this amendment. Then we come to the second amendment dated 30th September, 1991. Even in this, Article 4.1 in terms says "In consideration of the sale and supply of the PLANT, SERG commission and the spare parts", the appellant would pay certain amount to the second respondent. In our view, if 'plant' included spare parts, there was no need to enumerate the two separately. Again, in Article 4.1.6.1. it is provided that the consideration would cover the delivery of the "PLANT" in accordance with the AGREEMENT and its first amendment both dated June 22, 1989 and its second amendment dated September 30, 1991. In our view, if 'plant' included spare parts, there was no need to enumerate the two separately. Again, in Article 4.1.6.1. it is provided that the consideration would cover the delivery of the "PLANT" in accordance with the AGREEMENT and its first amendment both dated June 22, 1989 and its second amendment dated September 30, 1991. Here again, the expression "AGREEMENT" and reference is to the basic agreement of 22nd June 1989 and "PLANT" is in accordance with the said agrement. We have already referred to it. Again in Article 4.2, it is provided that the price payable for the 'PLANT" "and the spare parts" was firm and not subject to ascalation for whatsoever reason. If 'PLANT' included spare parts, there was no need for separately enumerating them. Finally, in Article 4.4, it is provided that the 'PLANT' shall be deemed to have been delivered by MURA to MIL when MURA along with the documents referred to in Article 4.1.7 deliver the Bill(s) of Lading endorsed in blank to the order of MIL if so required. Though we were taken through the basic agreement as amended by the subsequent amendments, we are not persuaded that the expression "PLANT" included "spare parts". It is not in doubt-nay it is expressly admitted in paragraph 14 of the plaint-that plant, machinery and equipment had been received in eight different consignments. Thus, even if we were to go along with Mr. Thakkar's contention that the first tranche of the guarantee given by the fifth respondent was a conditional guarantee, the guarantee has been fulfilled on the appellant's own admission and there is no reason to restrain the fifth respondent from honouring its commitment under the guarantee. 10. There is also another reason why it is not possible to accept the contention of Mr. Thakkar, on 30th September, 1991, i.e. on the same date on which the loan agreement was executed between the first respondent and the appellant, the appellant addressed a letter to the second respondent in which it agreed that the third respondent would be free to deliver the spares and application laboratory equipment set out in the list attached to the letter of the aggregate value of SFr. 700,000 "within six months from the date of issue of acceptance certificate" and that a bank guarantee from a first class Swiss Bank for performance of this was to be furnished. 700,000 "within six months from the date of issue of acceptance certificate" and that a bank guarantee from a first class Swiss Bank for performance of this was to be furnished. We may note one fact here that it is admitted in the plaint that the second respondent is the largest shareholder of the appellant company and one of its directors is a director on the board of the appellant company. By a collateral agreement between the second respondent-supplier and the appellant, they agreed that the spare parts could be supplied at any time after six months from the date of issue of acceptance certificate. If Mr. Thakkar's contention is right, then the PLANT would never be delivered unless the spare parts are given and the giving of the spare parts is very much within the control of the appellant and the second respondent. In other words, the guarantee given by the fifth respondent would be incapable of enforcement until the certificate of performance is issued under the second tranche. The first tranche would virtually lose its meaning. In these circumstances, we are unable to accept the contention of Mr. Thakkar. Even if the first tranche in the bank guarantee issued by the fifth respondent were to be considered as conditional, we are of the view that in the facts and circumstances of the case, the condition has been fulfilled and the guarantee was very much encashable at the instance of the first respondent. 11. Mr. Thakkar raises a further contention that there is a fraud committed by the first respondent inasmuch as the first respondent has recovered certain monies under the Swiss Export Risk Guarantee and the guarantees given by the second and the fourth defendants and, therefore, insurance guarantee is concerned, that was an insurance amount received from a third party to which the appellant was not a party. (There is dispute as to whether this is in the nature of insurance payment or not). Here again, the appellant was not a party to the transaction. In these circumstances, we are of the view that the learned Single Judge has rightly rejected the contention based on the doctrine or unjust enrichment. (There is dispute as to whether this is in the nature of insurance payment or not). Here again, the appellant was not a party to the transaction. In these circumstances, we are of the view that the learned Single Judge has rightly rejected the contention based on the doctrine or unjust enrichment. We are also not satisfied that by reason of the encashment of the non-SERG guarantees from the second and the fourth respondents, the appellant's debts stands discharged, assuming that such is the case and such guarantees have been encashed. 12. We notice that the learned Single Judge has answered this contention of Mr. Thakkar on the footing that what was received from the SERG was insurance guarantee amount. Even in that case, the learned Single Judge is right for that does not discharge the liability of the appellant. 13. Finally, we come to the big question. We have an appellant, who admittedly being unable to pay, asked for rescheduling of debt twice, specifically instructed the guarantor (fifth respondent) to pay the interest amounts. Now, when the first respondent bank exercised its option under the loan agreement of accelerating the liability and wants to encash the guarantee for the full amount, the appellant wants this Court to injunct the fifth respondent from paying by raising all these technical defences. Normally, at the stage of admission, we would have disposed of the matter by a short speaking order. But, since the appeal was argued at length, we have dealt with the contentions that were urged before us. Even on equity the appeal must be given short shrift. 14. We do not find the present case any different from other cases where, after having persuaded a party abroad to grant loan at the instance of a bank in India, an attempt is made to block encashment of the guarantee. We do not find any situation of fraud on the part of the fifth respondent to vitiate the transaction, nor do we find a situation of irretrievable inequity so that the Court should, act in its equitable jurisdiction to injunct payment under the guarantee. In this connection, Mr. Thakkar referred to the judgments of the Supreme Court in (Larsen Toubro Limited v. Maharashtra State Electricity Board and others)1, 1996 Bank.J. (S.C.)139 and (Hindustan Construction Co. In this connection, Mr. Thakkar referred to the judgments of the Supreme Court in (Larsen Toubro Limited v. Maharashtra State Electricity Board and others)1, 1996 Bank.J. (S.C.)139 and (Hindustan Construction Co. Ltd. v. State of Bihar and others)2, 2000 Bank.J. (S.C.)314, which have been dealt with by the learned Single Judge and we agree with his reading of the judgments. 15. Rule 148 of the Original Side Rules of the High Court at Bombay reads as under:--- "148. A party to whom interim relief has been granted shall, before the order is issued, unless the Court otherwise directs, give an undertaking in writing, or through his Advocate to pay such sum by way of damages as the Court may Award as compensation in the event of a party affected sustaining prejudice by such order." 16. Our reading of the Rule is that this rule would apply in all cases where inter relief ad interim or interim is granted and the Prothonotary Senior Master should not issue the injunction order under the seal of this Court unless the undertaking stipulated in Rule 148 has been given. In the present case, admittedly such undertaking has not been given. Mr. Thakkar contends that because at the time when the Notice of Motion was moved for ex parte orders, there is an order made saying that leave under Rules 147/148 had been granted by the Court, it should be presumed that the Court has exempted the appellant (original defendant No. 1) from giving the undertaking contemplated by Rule 148. In our view, this is a very unsatisfactory way of doing things. That the undertaking contemplated by Rule 148 applies to all interim reliefs, ex parte or otherwise, is settled law in this Court. (See in this connection the judgment of the learned Single Judge in (Bank of Maharashtra v. M.V. River Ogbese)3, 1989(3) Bom.C.R. 452 , with which we fully agree). 17. We are informed that a practice has developed on the Original Side as a result of which no specific prayers are made for exempting the undertaking under Rule 148 and the learned Single Judge, while granting ad interim/interim reliefs, merely order that leave is granted under Rules 147/148. We will assume that such a practice has developed and exists. A practice, however, hallowed cannot detract from an express provision of law. We will assume that such a practice has developed and exists. A practice, however, hallowed cannot detract from an express provision of law. In our view, the right practice to adopt would be to take out an application in which a specific prayer is made by the concerned party for exemption from the undertaking contemplated by Rule 148. Preferably, such a prayer should be in the Notice of Motion itself. If such a prayer is made, the learned Single Judge who is persuaded to grant interim relief, would no able to focus his mind on this prayer and decide whether the exemption from the undertaking contemplated by Rule 148 should or should not be granted. In either event, there should be a speaking order granting or refusing such exemption from the undertaking contemplated by Rule 148. The word "leave" does not even appear in Rule 148. As far as the appellant's case is concerned, admittedly, no exemption from the undertaking was given. Since the appellant may have been mislead by the prevailing erroneous practice, we give the appellant the benefit of doubt. In our view, it is necessary to comply with the requirements of Rule 148 and no injunction order should be issued unless the undertaking contemplated by Rule 148 is granted, unless the Court has otherwise directed which direction should be by a specific order. 18. Mr. Cooper, learned Counsel appearing for the first respondent made a serious grievance that though in the agreement of loan it has been specifically provided that in the event of any litigation being commenced by the appellant-borrower against the first respondent-lender, the Swiss Courts, alone would have jurisdiction, the suit has been brought in this Court, that despite a serious objection as to the maintainability of the suit, the learned Single Judge has brushed it aside by saying that leaving having been ordered under Clause 12 of the Letters Patent Act, this Court would have jurisdiction. We have to observe in this connection that Clause 12 of the Letters Patent Act and the leave thereunder would come into play only if no part of the cause of action has arisen within the jurisdictional limits on the Original Side of this Court. It is only in such a contingency that leave under Clause 12 of the Letters Patent Act is asked for. It is only in such a contingency that leave under Clause 12 of the Letters Patent Act is asked for. Once the leave under Clause 12 is granted, it only means that, despite no part of the cause of action having arisen within the territorial limits of the jurisdiction of this Court on the Original Side, this Court would be competent to entertain the suit and would have jurisdiction to do so. In our judgment, it is only where two courts are equally competent and have jurisdiction to entertain the cause of action that parties by agreement can say that only one of them shall exclusively entertain disputes between them. Therefore, we have our doubts as to whether the learned Single Judge was right in giving a short shift to the contention urged on behalf of the first respondent. However, since the first respondent succeeded before the trial Court and the present appeal is not at the instance of the first respondent, we need not go into the issue. We give liberty to the first respondent to take out appropriate proceedings and have the suit itself dismissed on this ground. We need say no more on this issue. 19. Mr. Thakkar prays for continuation of the ad interim order upto 20th November, 2000 to carry the matter to the Supreme Court. Request granted. Now, at least, Rule 148 should be enforced and the stay shall become operative from the time such undertaking is filed in this Court, the undertaking to be filed not later than Friday, the 20th October, 2000. 20. In the result, appeal fails and is hereby dismissed. No order as to costs. 21. Issuance of certified copy expedited. 22. Parties to act on an ordinary copy of the order duly authenticated by the Associate of this Court. Appeal dismissed. -----