Bank Kreiss Ag vs Ashok K. Chauhan And Ors.
2003 Latest Caselaw 256 Del

JUDGMENT

J.D. Kapoor, J.

1. This is an application under Order 6 Rule 17 of Code of Civil Procedure seeking amendment in respect of paras 6A and 17 of the plaint. Relevant facts lie in moderate compass.

2. The plaintiff is a body incorporated under the laws of Germany and its registered office is situated at Mainzer Landstrasse 46, 60325 Frankfurt. In the course of its business transactions the plaintiff granted a credit line facility based on the financial state of the said company. The credit line extended to the aforesaid company, the plaintiff accepted a surety-ship Bond up to an amount of DM 12,3030. The surety - ship bond was executed by defendant No. 1 in early 1994. The said company projected a loss of DM 53,500,000.00 instead of surplus. As a result, the plaintiff was forced to face consequences with the said company and took recourse to the guarantee executed by defendant No. 1 by instituting a legal action in the nature of civil suit for the recovery of money. Recourse to the aforesaid guarantee was first invoked on 13th July, 1994 and subsequently by instituting civil suit for recovery of money against defendant No. 1 on 23rd September, 1994 in the said Frankfurt Court, a foreign Court.

3. The suit was decreed vide judgment dated 17.1.1995 by holding that the total liability of defendant No. 1 on the date of judgment was to the tune of DM 4,450,110.77 and US dollar 3,276,49859.00. Since defendant No. 1 did not discharge its liability, the interest amount continued mounting. Plaintiff has filed the instant suit with the prayer that plaintiff is entitled to a decree for recovery of money for the claimed amount from this Court on the basis of foreign decree-cum- judgment passed by the said court of Frankfurt. As it was alleged by the plaintiff that defendant No. 1 in order to defraud his creditors including the plaintiff transmitted a huge amount of its assets to India, the details of which were provided in the list annexed with the suit. It was also alleged that in order to defraud the creditors, defendant No. 1 constituted certain trusts namely defendants 5 to 8 which own huge property in India and these properties were procured by the assets transferred to India by defendant No. 1. Since decree remained un-satisfied, the plaintiff's suit was in substance in the nature for implementation of a foreign decree in view of the fact that there is no reciprocal arrangement for execution of decree in India in view of the provisions of 44 of CPC. Thus, according to the plaintiff, these proceedings are de facto in the nature of execution proceedings. The plaintiff also took the plea that it is entitled to a decree of recovery of money for the claimed amount from this Court on the basis of the decree- cum- judgment passed by the said court of Frankfurt and also reserved its right to claim the remaining amount at the subsequent stage for which leave was prayed.

4. The plaintiff now seeks amendment to the plaint through an application under Order 6 Rule 17 CPC by incorporating para 6-A and by substituting para 17. To gauge the import of para 6A, para 6 needs to be referred. Para 6 reads as under:-

"That in respect of the credit line extended to the aforesaid company Kunsto Plast Chemie Gmbh in Oberursel, the plaintiff had accepted an absolute maximum suretyship up to an amount of DM 12,000,000 vide Suretyship Bond dated 10th May, 1993. Copy of the Suretyship Bond duly executed by the Defendant No. 1 in favor of the plaintiff is being filed herewith."

5. Para 6A reads as under:-

" That in terms of Clause 9 Sub- clause (iv) of the Surety Bond dated 10th May, 1993, the Defendant No. 1 is liable to make the payment to the extent of surety amount till all the liabilities of the Principal Debtor are cleared."

6. Para 17 of the original plaint reads as under:-

"That the plaintiff is entitled to a decree of recovery of money for the claimed amount from this Hon'ble Court on the basis of the decree- cum- judgment passed by the State Court, Frankfurt am Main in file No. 2/18 O 343/94.

7. The substituted para No. 17 reads as under:-

"That the plaintiff is entitled to a decree of recovery of money for the claimed amount also on the basis of surety bond dated 10th May, 1993 which have been proved on the basis of Decree- cum- Judgment and the defendant No. 1 is liable to pay the amount till the liability is discharged."

8. There are multifarious objections to this application. First that the suit which is based on foreign judgment has to be filed within three years from the date of the foreign judgment and as such the instant suit is barred by limitation and secondly that unless plaintiffs invoke the cause of action for a suit based on foreign judgment, the same is different and distinct than that in a suit based on an original cause of action i.e. the alleged guarantee in this case which arose from the alleged surety-ship bond dated 10th May, 1993 and its invocation by letter dated 13th July, 1994. Third, once the plaintiff chooses to sue upon a foreign judgment, he cannot found jurisdiction on the basis of the original cause of action which ceases to have relevance. Fourth, the claim on the original cause of action being time- barred, the amendment becomes mala fide and can not be allowed.

9. Pitted against the above legal objections raised by learned counsel for the defendant while resisting the amendment, the learned counsel for the plaintiff has raised following contentions:-

(i) That in para 16 of the original plaint, the plaintiff has reserved its right to claim its remaining amount on a subsequent stage and this plea confers a right upon the plaintiff to file fresh suit on the original cause of action and in order to avoid the multiplicity of proceedings, the amendment has been sought.

(ii) That there is no merger of original cause of action as the same has not merged in the decree- cum- judgment by the State Court of Frankfurt on the basis of surety- ship bond as it is not inconsistent nor is in the nature of a new plea or new cause of action as in para 6, the plaintiff has referred to the surety- ship bond and also placed reliance thereupon by filing the instant suit.

(iii) That where the amendment is resisted on the plea that suit is barred by limitation, the same point is arguable in the circumstances of the case and, therefore, the amendment cannot be disallowed merely on the plea that claim of the plaintiff is time- barred.

(iv) Surety-ship bond is a continuing guarantee and as per terms of the guarantee, it will remain invoked in terms of clause 9 and 10 of the surety- ship bond and it will remain in operation till the liability is finally discharged by defendant No. 1. Clauses 9 and 10 read as under:-

9. Right of the surety to cancel the suretyship

(1) The surety may cancel the suretyship in writing one year after providing the same. The cancellation will become effective after three months upon receipt by the bank.

(2) This right of cancellation shall not apply to temporary suretyships and for suretyships for credits with fixed term. In case of an account current credit with fixed term the surety may cancel the suretyship in case of extension of the credit with a term of three months to the end of the respective credit term.

(3) The right of cancellation for good cause shall not be affected.

(4) The liability of the surety shall continue to exist after effectiveness of a cancellation, shall however be limited to the claims secured by the suretyship at the time of effectiveness of such cancellation. The provisions of this suretyship shall remain in force up to the complete settlement of all liabilities of the principal debtor under the suretyship. Any payment of whatever kind received in favor of the principal debtor after effectiveness of the cancellation will be credited to that part of the claims which is not secured by the suretyship upon effectiveness of the cancellation. Any payment in excess of this shall be credit to the amount under the suretyship.

(5) If the credit under the suretyship applies to current-account (current account credit) the credit lines granted before receipt of the cancellation may be used by the principal debtor up to effectiveness of the cancellation.

 (6) The surety shall also be liable after effectiveness of the cancellation for any claims of the bank against the principal debtor which are created by the fact that the bank undertakes obligations towards third parties on behalf of the principal debtor - e.g by providing a suretyship or guarantee.    This shall only apply if the credit under the suretyship can be utilized by the principal debtor in this manner.  
 

 10. Applicable law  
 

 The suretyship relation shall be governed by German law."   
 

 10. It is pertinent to mention at the threshold that application under Order 7 Rule 11 CPC as filed by the defendant setting up a plea of limitation but this plea did not find favor with the Court and was ultimately rejected by this Court as well as by the appellate court and therefore, this plea is no more available to the defendant particularly for the purpose of resistance to the application under Order 6 Rule 17 CPC.
 

 11. In support of the aforesaid contention, Mr. Lovkesh Sawhney, learned counsel for the plaintiff placed reliance upon Baijnath Karnani Vs. Vallabhdas Damani AIR 1933 Madras 511.    In this case,  Madras High Court was confronted with the proposition  that where in a foreign court there is a suit and in that suit a judgment is given and from that judgment appeal is made, which appeal is dismissed, is the "judgment in that suit" the judgment of the Court of first instance on the judgment of the Appellate Court for the purpose of the Limitation Act.    The Madras High Court  took the following view:- 

"A foreign judgment cannot be executed and it is merely a cause of action and the judgment is regarded as creating a debt between the parties to it and it is said that the debt so created is a simple contract debt, the liability of the defendant arising on an implied contract to pay the amount of the foreign judgment. There is no merger of the original cause of action and it is therefore open to the plaintiff to sue either on the foreign judgment or on the original cause of action on which it is based."

12. However the plea raised by the defendants that as a foreign judgment plaintiff has mere cause of action or a right gained by the plaintiff by reason of his decree, the starting point of limitation is the date upon which he obtains that right and that this cannot be affected by reason of the pendency either of an appeal or the supervention of a decree of an appellate Court confirming the lower Court's decree; and in aid of this argument, amongst other things, it is pointed out that when a decree has been obtained steps to execute the decree may be taken and unless those steps are stayed during the pendency of an appeal. This contention was dealt with and decided by the Madras High Court like this:-

"The latter test, although there is a great deal to be said for the argument which adopts it, is not the real test. What has got to be found is, what is the final decree which has been obtained by the plaintiff in the suit; and it is quite clear that in order to enforce the judgment of a foreign Court that judgment must be a final one."

13. In nutshell the view taken by the High Court is that limitation starts from the date of appeal court decree and not from first court decree. Admittedly no appeal was filed against the judgment of State Court Frankfurt and it therefore it has become final and conclusive. Thus it is contended by learned counsel for the plaintiff that original cause of action remains distinctly available to the plaintiff apart from the foreign judgment unless and until the liabilities are discharged as per surety bond dated 10.5.1993.

14. Mr. Sawhney has also placed reliance upon the decision of the Supreme Court in Badat and Co. Bombay Vs. East India Trading Co. wherein the proposition before the Supreme Court was whether the foreign judgment constitutes a simple contract debt only and if so, there is no merger of the original cause of action and whether it is open to the plaintiff to sue either on the foreign judgment or on the original cause of action on which it is based.

15. The facts giving rise to the above proposition culled out in brief are like this:- Appellant was a company which was carrying on business at Bombay. The respondents were a company incorporated under the laws of United States of America. The respondents instituted Suit No. 71 of 1954 against the appellant in the High Court of Judicature at Bombay, in its Ordinary Original Civil Jurisdiction, for the recovery of a sum of Rs.92,884/4/10 with the interest thereon. By correspondence, the appellants agreed to do business with the respondents on the terms of the American Spice Trade Association contract. Thereafter, by subsequent correspondence the parties entered into two different contracts whereunder the appellants agreed to sell to the respondents different quantities of Allepey Turmeric fingers on agreed terms. Though the respondents forwarded to the appellants in respect of the said transactions two contracts in duplicate on the standard form issued by the said Trade Association with a request to the appellants to send them after having duly signed, the appellants failed to do so. Under the terms and conditions of the said Trade Association Contract, all claims arising under the contract should be submitted to, and settled by, arbitration under the rules of the said Association. It was stated that pursuant to a relevant rule of the said Association, the dispute was referred to arbitration and two awards were made in due course i.e on July 12, 1949. Following the procedure prescribed for the enforcement of such awards in New York, the respondents initiated proceedings in the Supreme Court of the State of New York, to have the said awards confirmed and a judgment entered thereon in the said Court. In due course, the Court pronounced judgment confirming the said awards. On those allegations a suit was filed in the High Court of Bombay for recovery of the amounts payable under the said two awards by the appellants to the respondents. The view taken by the Supreme Court is as under:-

"Where the award is followed by a judgment in a proceeding which is not merely formal but which permits of objections being taken to the validity of the award by the party against whom judgment is sought, the judgment will be enforceable in England. Even in that case, however, the plaintiff will have right to sue on the original cause of action. The second principle is that even a foreign award will be enforced in England provided it satisfies mutates mutants the tests applicable for the enforcement of foreign judgments on the ground that it creates a contractual obligation arising out of submission to arbitration."

16. It is in the light of consistent view that if the plaintiff chooses to sue upon the foreign judgment, he cannot found jurisdiction for the institution of the suit on the basis of the original cause of action because once he chooses to rest on the judgment obtained in a foreign court, the original cause of action will have no relevance whatsoever even though it may not have merged in that judgment. Moreover the instant application for amendment of the suit by invoking cause of action based upon original surety bond or otherwise, plaintiff would be debarred from suing on the strength of terms of the surety bond. The very fact that in para 6, the plaintiff had accepted suretyship bond and filed documents and in para 16, reserved its right to claim the remaining amount at a subsequent stage for the future liabilities of defendant No. 1 accruing thereto, the plaintiff cannot be allowed to set up alternative plea of suretyship bond an original cause of action as in such a case it would be held that the case set up under the amendment is such a new case that would completely alter the structure or frame of the suit.

17. While convassing the proposition that plaintiff has a choice to adopt as many roots as it deems proper to seek relief Mr. Sawhneyt relied upon Dhanapal Chettiar and others Vs. Govindaraja Chetty and others wherein the provisions of Order 6 Rule 17 CPC were dealt with. Madras High Court held that "It is permissible for the plaintiffs to set up as many roots of title as possible and sometimes they may even be mutually conflicting and inconsistent. Amendment setting up an alternative root of title to suit properties, can therefore, be allowed, inasmuch as it cannot be said in such a case that the case set up by the plaintiffs under the amendment was such a new case as would completely alter the structure and frame of the suit."

18. Mr. Sawhney also contended that the substance of para 17 goes to show that plaintiff is basing its claim not only to the effect that the surety bond has been duly proved in the foreign judgment but also that suit for decree is maintainable on the basis of said surety bond and that liabilities have not been discharged till date and the terms of the suretyship bond are such that permit recourse to recovery by way of civil suit without invoking the same as clauses 9 and 10 of the suretyship bond specifically provided that defendant No. 1 shall remain liable till liabilities are cleared and moreover the said amendment was sought when defendants had not filed written statement.

19. Again Mr. Sawhney vehemently contended that amendment needs to be allowed as its main object is to minimise the litigation and tried to draw strength from Ragu Thilak D. John Vs. S. Rayappan and others (2001) 2 SCC 472 wherein Supreme Court observed that the dominant purpose of allowing the amendment is to minimise the litigation and the plea that the relief sought by way of amendment was barred by time is arguable in the circumstances of the case. The plea of limitation being disputed could be made a subject-matter of the issue after allowing the amendment prayed for. However, reliance was also placed upon decision of the Supreme Court in B.K. Narayana Pillai Vs. Parameswaran Pillai wherein it was held that:-

"The purpose and object of Order 6 Rule 17 CPC is to allow either party to alter or amend his pleadings in such manner and on such terms as may be just. The power to allow the amendment is wide and can be exercised at any stage of the proceedings in the interests of justice on the basis of guidelines laid down by various High Courts and this Court. It is true that the amendment cannot be claimed as a matter of right and under all circumstances. But is equally true that the courts while deciding such prayers should not adopt a hyper technical approach. Liberal approach should be the general rule particularly in cases where the other side can be compensated with the costs. Technicalities of law should not be permitted to hamper the courts in the administration of justice between the parties. Amendments are allowed in the pleadings to avoid uncalled-for multiplicity of litigation."

20. On the contrary, in the perception of Mr. Arun Mohan, learned senior counsel for defendants 2 to 13, suit based upon foreign judgment is a different cause of action than the suit based on guarantee bond and latter cannot be substituted for another cause of action. In support of this proposition, Mr. Mohan placed reliance upon a decision of the Division Bench of this Court in Chitralekha Bukshi Vs. Abhay Sapru & anr in FAO(OS) 187/2002 wherein it was held that "One distinct cause of action can't be substituted for another, nor the subject matter of the suit can be allowed to be changed by amendment." These observations were made where the suit was based on the alleged nomination by deceased owner in favor of the plaintiff. He sought amendment to set up his claim on the basis of Will alleged to have been executed by previous owner of the property and on the basis of the alleged Will he was claiming right over the property to the exclusion of others. The substance of cause of action was distinct from additional cause of action and therefore the aforesaid ratio is not applicable in the instant case.

21. He also placed reliance upon Badat' case(supra) that When plaintiff sues upon the original cause of action, no doubt, the court within whose jurisdiction the cause of action arose would be entitled to entertain the suit. But, if on the other hand, he chooses to sue upon the judgment, he cannot found jurisdiction for the institution of the suit on the basis of the original cause of action because once he chooses to rest himself on the judgment obtained by him in a foreign court, the original cause of action will have no relevance whatsoever even though it may not have merged in that judgment. Thus, it is the choice of the plaintiff either to sue on the basis of foreign judgment or to sue independently on the basis of suretyship bond and he cannot sue the defendants on both on the strength of foreign judgment as well as suretyship bond which gave rise to original cause of action. It is further contended by Mr. Mohan that once plaintiff chooses to sue on the basis of foreign judgment, he cannot be allowed to amend the suit by incorporating the alternative or additional cause of action by suing the defendant on the strength of suretyship bond which itself gave rise to the original cause of action resulting in foreign judgment.

22. As regards the contention that question of limitation need not be gone into at this stage, being an arguable case, in Pronoy Kumar Sanyal Vs. Beni Madhav Sanyal JT 2000 (10) SC 366 wherein the view High Court while allowing the amendment of the Plaint that at this stage question of limitation need not be gone into and at the time of disposal of the suit, such question may be raised by the petitioner was not accepted by the Supreme Court. The Supreme Court held "The High Court should have considered at this stage whether the amendment of the plaint that was sought, was barred by time. It is therefore, necessary to set aside the order under challenge and to restore to the High Court the civil revision application to be heard and disposed of afresh."

23. In Ram Nagappa Shetty Vs. Syndicate Bank decided on June 9, 1986, the Bombay High Court took the view that "A demand that must be made is for the amount covered by the particular guarantee. Where the same amount is covered by more than one guarantee, though given by the same guarantor, each such guarantee must be invoked in the demand. Until each guarantee is invoked, the bar of limitation there against does not begin to run. Only after a demand has been made on a guarantor can there be refusal; only upon refusal is there a breach and limitation begins to run."

24. Mr. Rajiv Nayar, learned counsel for defendant No. 1 developed the argument further that being faced with the dilemma whether the instant suit is barred by limitation or not as under Article 101 of the Limitation Act, foreign judgments are liable to be implem ented within three years, the plaintiff has moved this application for filling the lacunae by setting up the plea that he should be allowed to incorporate additional cause of action also based upon same document on which foreign judgment was based. It is further contended by Mr. Nayar that suit is barred by limitation as Suretyship bond was invoked on 13.7.1994 whereas suit was instituted in 1999. In support of this contention, Mr. Nayar placed strong reliance upon a decision of the Supreme Court in Mrs. Margaret Lalita Samuel Vs. The Indo Commercial Bank Ltd wherein it was held that:-

"The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach under Article 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation, J.C. Shah, J speaking for the Court said:-

On the plain words of the letters of guarantee it is clear that the defendant undertook to pay an amount which may be due by the Company at the foot of the general balance of its account or any other account whatever......We are not concerned in this case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation for enforcing the liability of the defendant under the surety bond......We hold that the suit to enforce the liability is governed by Article 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run."

25. Another plea set up by Mr. Nayar is that the document resorted by the plaintiff does not provide for continuing bank guarantee because of the stipulation that it shall continue till the liabilities are discharged as sub-clause (4) of clause 9 specifically provides that the liability of the surety shall continue to exist after effectiveness of a cancellation, shall however be limited to the claims secured by the suretyship at the time of effectiveness of such cancellation. Thus obligation is pre-cancellation and not post cancellation.

26. We are confronted with the proposition whether the additional plea raised by the plaintiff by basing the cause of action on the suretyship bond by way of amendment be permitted or not because the plaintiff in such a situation has a choice either to sue on the basis of foreign judgment or on the basis of document which was cause for original cause of action. In other words, whether the plaintiff has to choose either of the two courses being distinct cause of action. By incorporating para 6A, the cause of action would not only be inconsistent but would make the confusion worst confounded inasmuch as the plaintiff shall be using the document namely surety bond that has already been proved by way of foreign judgment while he will have to prove it again in this court if he seeks assistance from Badat's judgment for the cause of action and the reliefs being sought by way of substituting para 17. This is evident from the fact that plaintiff has not chosen to amend paras 25 and 26 wherein it is pleaded that cause of action for filing the present suit firstly arose on 17.1.1995 when the debt payable by the defendants culminated in passing off the decree and the amount becomes payable for 12 years w.e.f. 17.1.1995 and the cause of action is arising continuously as the decree remains unsatisfied. Similarly prayer (i) of para 28 has not been sought to be amended as the decree of recovery of money is sought to the tune of decree passed by the foreign judgment and not on the basis of invocation and calculation of the suretyship bond. Thus, in this manner the entire suit would sound self-contradictory as to what amount of decree the plaintiff is seeking, whether the decree is for implementation of foreign judgment or fresh decree based upon suretyship bond which was the soul of the decree of foreign judgment. Application is completely devoid of merit and is dismissed.