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2009 DIGILAW 1315 (MP)

STATE BANK OF INDIA v. BANK OF IRELAND

2009-11-27

PRAKASH SHRIVASTAVA

body2009
Judgment Prakash Shrivastava, J. ( 1. ) THIS Misc. Appeal under Section 104 read with Order XLIII Rule 1A of the Code of Civil Procedure ["Code" hereafter] has been filed against the order dated 13th March, 2009 passed by the Court of Thirteenth Additional District Judge,Indore in Civil Suit No.1-A/2009 rejecting the application under Order XXXIX Rule 1 and 2 of the Code filed by the appellant. ( 2. ) The appellant has filed Civil Suit No. 1 -A/2009 for declaration and permanent injunction pleading that the appellant - State Bank of India at the request of Respondent No.2 -Soni Ispat Ltd. had opened a letter of credit(LC) in favour of Respondent No.3- M/s European Metal Recycling Ltd.,United Kingdom bearing No.09632081M0000201 on05.09.2008 with the date of expiry being 05.11.2008. The Respondent No. 1 - Bank of Ireland is negotiating and confirming Bank. The tenor of the letter of credit was specified as 180 days from the date of Bill of lading. The Respondent No. 1 - Bank negotiated the documents (three bills) under the subject letter of credit on 24.10.2008, 28.10.2008 and 31.10.2008 respectively. The total amount of the bills negotiated under the LC was Rs.2,30,47,711.50 (USD460957.23 @ Rs.50 per USD). The Respondent No.l under the said LC forwarded three sets of documents to the appellant and the appellant had found various discrepancies in the documents as they were not found in strict conformity with the conditions of LC. A protracted correspondence took place between the appellant and the Respondent No. 1 in which allegedly the Respondent No. 1 had admitted its mistake and the appellant returned the original documents to the Respondent No. 1 on 29.12.2008. The appellant apprehended that the Respondent No: 1 will file a suit in England, therefore, it filed the present suit before the Court of Additional District Judge,Indore seeking permanent injunction to restrain the Respondents No. 1 and 3 from initiating and/or prosecuting proceeding before the Court in England or in any other Foreign Court with regard to the issue in question and also further relief of declaration that the documents negotiated under the LC in question were discrepant and did not satisfy the test of complying presentation. ( 3. ( 3. ) The suit was opposed by the Respondent No. 1 by filing the written-statement and raising the plea that the Respondent No.l - Bank is involved in the case as "confirming bank" of an irrevocable LC which was issued by the appellant. The purpose of LC was to pay for goods shipped by the Respondent No.3(Seller) to Respondent No.2 (Buyer). The goods in question were shredded scrap iron and steel. Three shipments were made by the Respondent No.3 against which payment was sought from the Respondent No. 1 Bank as confirming bank. The Respondent No.1 received the documents required by LC from the Seller in relation to three shipments and found them to conform with the requirements of LC and made payment to the Seller in respect of three shipments. The Respondent No.l then sent the original documents to the appellants Branch at Indore on 24th October, 2008; 28th October, 2008;and 31st October, 2008 respectively to seek reimbursement of the amounts paid to the Seller but the appellant rejected the documents claiming that they were discrepant and refused to reimburse the Respondent No. 1. The Respondent No. 1 pleaded that Courts in UK have adequate jurisdiction in respect of the subject matter since the appellant is carrying on business in UK and subject matter of the dispute falls under the jurisdiction of the UK Courts. Respondent No. 1 also pleaded that nothing in the written-statement should be taken as a submission to jurisdiction by Respondent No. 1 and it reserves the right to challenge the jurisdiction of the Indian Courts. ( 4. ) The appellant had also filed an application under Order XXXIX Rule 1, 2 and 3 read with Section 151 of the Code seeking a temporary injunction to restrain the Respondents No. 1 and 3 from initiating or prosecuting proceedings in any manner before the Court at England or in any other Foreign Court in respect of the LC in question. The application was opposed by the Respondent No. 1 by raising the plea that neither the appellant has prima-facie case nor balance of convenience is in its favour and no irreparable injury will be caused and further that the UK Court has jurisdiction and the Respondent No. 1 has right to initiate proceedings in UK Court. ( 5. The application was opposed by the Respondent No. 1 by raising the plea that neither the appellant has prima-facie case nor balance of convenience is in its favour and no irreparable injury will be caused and further that the UK Court has jurisdiction and the Respondent No. 1 has right to initiate proceedings in UK Court. ( 5. ) The Trial Court by order dated 13th March, 2009 after appreciating the arguments advanced by counsel for both the parties rejected the application under Order XXXIX Rule 1 and 2 of the Code filed by the appellant, against which the present appeal has been filed. ( 6. ) Learned counsel appearing for the appellant submitted that by filing the written-statement the Respondent No. 1 has accepted the jurisdiction of the Indian Courts and that the appellant has prima-facie case in his favour since the discrepancies in the documents have been admitted. He further submitted that the Indian Court is the forum of conveniens to the appellant and the UK Court is a forum of non-conveniens and the proceedings if initiated before the UK Court will be oppressive and vexatious, therefore, interim injunction be granted to the appellant. He further submitted that the Trial Court committed an error in examining the issue of fraud while deciding the interim-injunction application. In support of his submission, learned counsel appearing for the appellant relied upon the decisions in the matter of Modi Entertainment Network and another v/s W.S.G. Cricket Pvt. Ltd., reported in (2003) 4 SCC341; in the matter of Air Bus Industries v/s Laura Howell Linton, reported in (1994)ILR Karnataka 1370; in the matter of United Commercial Bank v/s Bank of India and others, reported in (1981) 2 SCC766; in the matter of Himadri Chemicals Industries Ltd. v/s Coal Tar Refining Company, reported in AIR 2007 SC 2798 ; and in the matter of Shin-Etsu Chemical Co., Inc. v/s United Bank Limited, reported in Law Report Files January 2004 Supreme Court of the State of New York. ( 7. ) As against this, learned counsel appearing for the Respondent No.1 submitted that in terms of the clauses of the letter of credit and the Uniform Customs and Practice(UCP 600),the Respondent No.1 has right to file suit in UK. v/s United Bank Limited, reported in Law Report Files January 2004 Supreme Court of the State of New York. ( 7. ) As against this, learned counsel appearing for the Respondent No.1 submitted that in terms of the clauses of the letter of credit and the Uniform Customs and Practice(UCP 600),the Respondent No.1 has right to file suit in UK. He submitted that no error has been committed by the Trial court in rejecting the application under Order XXXIX Rule 1 and 2 of the Code as the appellant could not establish prima-facie case; balance of convenience or irreparable injury. He further submitted that the Trial Court has examined the issue of fraud since it was argued by the appellant. In support of his submissions, he placed reliance upon the decision of the Supreme Court in the matter of Modi Entertainment Network and another v/s W.S.G. Cricket Pvt. Ltd., reported in (2003) 4 SCC 341 ; in the matter of Shree Precoated Steels Limited v/s Macsteel International Far East Ltd. and another, reported in 2008 (2) Bom. C.R. 681; and in the matter of The Bank of Baroda v/s The Vysya Bank Ltd., reported in (1994) Vol.2 Q.B. (Com. Ct.)87. ( 8. ) I have heard learned counsel for the parties at length and perused the record. ( 9. ) It is the settled position in law that the Courts in India have power to issue anti-suit injunction to a party over whom it has personal jurisdiction, in an appropriate case and the principles governing grant of injunction apply in respect of grant of anti-suit injunction since it is a species of injunction. The anti-suit injunction though directed against a person, in effect causes interference in the exercise of jurisdiction by another Court, therefore, this power should be exercised sparingly with due regard to the rule of comity i.e. respect for the other Courts jurisdiction. ( 10. ) The Supreme Court in the matter of Modi Entertainment Network and another (Supra), after considering the earlier judgments of the Supreme Court has formulated the following principles required to be followed while exercising discretion to grant anti-suit injunction: "24. ( 10. ) The Supreme Court in the matter of Modi Entertainment Network and another (Supra), after considering the earlier judgments of the Supreme Court has formulated the following principles required to be followed while exercising discretion to grant anti-suit injunction: "24. From the above discussion, the following principles emerges :- (1) In exercising discretion to grant an anti-suit injunction the court must be satisfied of the following aspects :- (a) the defendant, against whom injunction is sought, is amenable to the personal jurisdiction of the court; (b)if the injunction is declined, the ends of justice will be defeated and injustice will be perpetuated; and (c) the principle of comity - respect for the court in which the commencement or continuance of action/ proceeding is sought to be restrained - must be borne in mind. (2) In a case where more forums than one are available, the court in exercise of its discretion to grant anti-suit injunction will examine as to which is the appropriate forum (forum conveniens) having regard to the convenience of the parties and may grant anti-suit injunction in regard to proceedings which are oppressive or vexatious or in a forum non-conveniens. (3) xxx xxx xxx (4) xxx xxx xxx (5) xxx xxx xxx (6) xxx xxx xxx (7) The burden of establishing that the forum of choice is a forum non-conveniens or the proceedings therein are oppressive or vexatious would be on the party so contending to aver and prove the same." ( 11. ) The principles Nos.(3),(4),(5) and (6) formulated by the Supreme Court are not relevant for the present purpose since they relate to the contract having the jurisdiction clause or agreed jurisdiction which is not there in the present case. ( 12. ) The present case needs to be examined in the light of the principles which have been laid down in Modi Entertainment Network and another (Supra). ( 13. ) The Respondent No.1 while filing the written-statement in the suit has reserved its right to challenge the jurisdiction of the Indian Court. The said issue will be examined on merit by the Trial Court if raised and contested by the parties. Therefore, presently I proceed on the basis that the Respondent No. 1 is amenable to personal jurisdiction of Indian Courts. But that alone is not enough to grant anti-suit injunction. ( 14. The said issue will be examined on merit by the Trial Court if raised and contested by the parties. Therefore, presently I proceed on the basis that the Respondent No. 1 is amenable to personal jurisdiction of Indian Courts. But that alone is not enough to grant anti-suit injunction. ( 14. ) For obtaining anti-suit injunction, the appellant is also required to establish that for the ends of justice it is necessary to grant injunction. As per the pleading Contained in the written-statement, the Respondent No.1 has made payment to Respondent No.2 on the basis of documents as required by LC and submitted by Respondent No.2. Suit, if any, will be filed by the Respondent No.1 inter alia, seeking reimbursement of amount from the appellant. ( 15. ) A perusal of the letter of credit in question shows that the letter of credit was issued by the State Bank of India, Commercial Branch,Indore and the receivers address was shown as State Bank of India London. The Respondent No.2 is the applicant and Respondent No.3 is the beneficiary. The UK address of the Respondent. No.3 is given in the letter of credit. In terms of clause 4ID, the LC could be negotiated by beneficiary with any Bank in UK. According to the appellant the discrepancies in the documents were of such a nature that the amount under the LC could not be disbursed; whereas according to the Respondent No. 1 the discrepancies were not of such a nature which could prevent the appellant from disbursing the amount. Article 7 (c) of UCP-600 provides for an undertaking of an issuing bank to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. An issuing banks undertaking to reimburse a nominated bank is independent of the issuing banks undertaking to the beneficiary. Article 8 mentions confirming bank undertaking to honour the LC and Article 14 (d) provides that data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit. ( 16. Article 8 mentions confirming bank undertaking to honour the LC and Article 14 (d) provides that data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit. ( 16. ) The burden was on the appellant, who is seeking anti-suit injunction, to establish that if injunction is declined, the ends of justice will be defeated and injustice will be perpetuated but the appellant has failed to discharge the burden and has not been able to establish the aforementioned requirement. ( 17. ) It is worth noting that in the present case, the parties have not agreed to submit to the exclusive jurisdiction of any Court, therefore, the parties are entitled to approach the Court of available or natural jurisdiction in normal course. If both the Courts are Courts of natural jurisdiction, it is the choice of the party to approach a particular Court seeking the relief. The LC was issued by the appellant from India but the negotiating and confirming bank is in Northern Ireland. As per pleading contained in the written-statement, the original documents have been returned to Belfast in Northern Ireland. The factors connecting the case to Northern Ireland have been disclosed in the written-statement. ( 18. ) The appellant in the present case has failed to establish that the Court in UK is a forum of non-convenience to the appellant or if the proceedings are initiated in UK they will be oppressive or vexatious. Such a burden to aver and prove the same was on the appellant. ( 19. ) It is also worth noting that principles of comity i.e. respect for the Court in which commencement of proceedings is sought to be restrained, is also a relevant factor which is required to be borne in mind while considering the question of grant of anti-suit injunction. If the UK Court also has the jurisdiction, then the anti-suit injunction cannot be granted merely on asking. It is not a case falling in such rare category of cases where anti-suit injunction is required to be issued restraining the Respondent No. 1 from initiating or continuing the proceedings in UK Court. ( 20. If the UK Court also has the jurisdiction, then the anti-suit injunction cannot be granted merely on asking. It is not a case falling in such rare category of cases where anti-suit injunction is required to be issued restraining the Respondent No. 1 from initiating or continuing the proceedings in UK Court. ( 20. ) The Trial Court has appreciated the argument which was advanced by the appellant that the Respondent No.1 fraudulently did not send the correct documents as required by LC and has found such an allegation to be prima-facie incorrect. It has also noted the submission of the Respondent No. 1 that in the meanwhile the price of the steel in the international marker had fallen, therefore, the Respondent No.2 did not want to receive the steel in terms of the agreement and by pointing out the discrepancies in the documents, he filed the present suit in collusion with and through the appellant Bank. The plea of fraudulently preparing the documents was raised by the appellant, therefore, the Trial court has rightly examined the said plea and found that the appellant could not prove that deliberately incorrect documents were prepared to commit fraud. As per condition 53-A of LC, the payment was to be made in State Bank of India New York (USA). It also noted the appellants admission that the appellant has its Bank, both in London and US. ( 21. ) It is also worth noting that the Trial Court has considered all the three relevant factors, i.e. prima-facie case, balance of convenience and irreparable injury which are required to be examined while granting or refusing temporary injunction and has reached to the conclusion that the appellant has failed to establish either of them. ( 22. ) The Trial Court while considering the issue of balance of convenience has found that the Respondent No. 1 has to recover the amount of LC and grant of anti-suit injunction will affect the recovery and indirectly an injunction will be issued restraining the recovery. Therefore, balance of convenience is not in favour of the appellant. I do not find any flaw in such a reasoning of the Trial Court. ( 23. Therefore, balance of convenience is not in favour of the appellant. I do not find any flaw in such a reasoning of the Trial Court. ( 23. ) The Supreme court in the matter of Wander Ltd. and another v/s Antox India P. Ltd., reported in 1990(Supp) SCC 727, while exercising the issue of interference by the appellate Court in the order relating to grant of or refusal of temporary injunction by the Trial Court has held that the appellant Court should not substitute its own discretion when the discretion is not shown to have been exercised arbitrarily, capriciously, perversely or where the Court has not ignored the settled principles of law regulating grant or refusal of interlocutory injunction. ( 24. ) Learned counsel for the appellant has relied upon a judgment of Karnataka High Court in the matter of Air Bus Industries (Supra) but in that case since the strict product liability of Texas was different from concept of negligence and the action in India was beneficial to all concerned, therefore, the Karnataka High Court on the facts of that case had found that action in Texas to be not in natural forum and oppressive leading to injustice. But that is not the present case. ( 25. ) The appellant has also relied upon the judgment of the Supreme Court in the matter of United Commercial Bank (Supra), which relates to strict adherence to the terms of the credit letter. But such an issue will be considered at the time of the trial of the suit on merit. On the basis of the said judgment, it cannot be held that the appellant has proved the prima-facie case in his favour on the basis of the alleged plea of discrepancy in the documents. The appellant has also relied upon the judgment of the Supreme Court in the matter of Himadri Chemicals Industries Ltd. (Supra). This judgment relates to the principles which are required to be followed in the matter of injunction to restrain the encashment of a Bank Guarantee or a Letter of Credit. Fraud of an egregious nature and an irretrievable harm or injustice to one of the parties are the two exceptions when the Courts can grant an order of injunction in favour of an aggrieved party. But on the facts of the present case, the appellant has failed to prima-facie establish the two exceptions mentioned therein. Fraud of an egregious nature and an irretrievable harm or injustice to one of the parties are the two exceptions when the Courts can grant an order of injunction in favour of an aggrieved party. But on the facts of the present case, the appellant has failed to prima-facie establish the two exceptions mentioned therein. ( 26. ) The reliance of the appellant in the matter of Shin-Etsu Chemical Co., Inc. (Supra) also does not help the appellant because the Supreme Court of the State of New York in that matter on the facts of that case held that the action should be adjudicated in Singapore, but the facts of the present case are different. ( 27. ) As against this, the Respondent No. 1 has placed reliance upon the judgment of the Bombay High Court in the matter of Shree Precoated Steels Limited (Supra), in which it is held that the proper course in such a case is to adhere to the. principle of comity and to allow the proceedings in each country to take their own course leaving the final decision in one country to have its effect on the proceedings in the other. ( 28. ) Learned counsel for the Respondent No.1 has also placed reliance upon the Queens Bench Division (Commercial Court) judgment in the matter of The Bank of Baroda(Supra), wherein the Queens Bench referring to the Articles of Rome Convention took the view that the English letter will be applicable to the contract between the parties and LC will be governed by the English letter but the counsel for the Respondent No.l could not point out that the present contract is also governed by the Rome Convention. ( 29. ) The appellant could not establish the requirement of grant of anti-suit injunction which have been noted by the Supreme Court in the matter of Modi Entertainment Network and another (Supra), therefore, at this stage no anti-suit temporary injunction can be granted. ( 30. ) In view of the aforesaid analysis, I do not find any reason to interfere in the conclusion which has been arrived at by the Trial Court. The impugned order of the Trial Court refusing to grant anti-suit temporary injunction to the appellant and rejecting the application under Order XXXIX Rule 1 and 2 of the Code does not suffer from any error. 31.The appeal is accordingly dismissed. The impugned order of the Trial Court refusing to grant anti-suit temporary injunction to the appellant and rejecting the application under Order XXXIX Rule 1 and 2 of the Code does not suffer from any error. 31.The appeal is accordingly dismissed. However, looking to the controversy involved, the Trial Court is directed to expedite the suit and decide it as expeditiously as possible, preferably within a period of nine months. No order as to costs. Appeal dismissed.