Delhi High Court
Madan Kukreja vs Banque Scalbert Dupont S.A. & Anr. on 26 August, 2009
Author: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
CS (OS) 2198 of 2003
Reserved on: 28th July 2009
Decision on: 26th August 2009
MADAN KUKREJA ..... Plaintiff
Through Mr. Ashok Gurnani, Advocate
versus
BANQUE SCALBERT DUPONT S.A. & ANR. ..... Defendants
Through Mr. Peeyoosh Kalra with
Mr. Vikram Grover and
Mr. Kamal Sharma, Advocates
CORAM:
HON'BLE DR. JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the judgment? No
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported
in Digest? Yes
JUDGMENT
26.08.2009
S. Muralidhar, J.
1. This suit seeks a decree against the Defendant No.1 for a sum of
Euro 49,842/- along with pendente lite and future interest at 16.5%
annum together with costs.
The case of the Plaintiff
2. The Plaintiff describes himself as the Proprietor of a concern under
the name and style of M/s Super Fashion, which is an exporter of
garments. Its export destinations are claimed to be the United States of
America (USA), Canada and Europe. The Plaintiff claims that the
concern has acquired the status of a government recognized export
house. Defendant No.1 is a bank headquartered in France, having an
office in Delhi. It is stated to be fully owned by the Credit Industriel et
Commercial (CIC), a joint stock company incorporated under the laws
of France and having its head office at Paris. CIC has a representative
office in New Delhi established under permission of the Reserve Bank
of India (RBI) by a letter dated 18th February 1997. Defendant No.2 is
the Syndicate Bank with which the Plaintiff has an account. It is stated
that the Defendant No.2 is only a proforma party.
3. According to the Plaintiff, in and around the second week of January
2003, M/s Li & Fung (India) Pvt. Ltd. („Li & Fung India‟), having its
registered office at New Delhi, the principal of which was Li & Fung,
Hong Kong, held out as an agent of M/s Promod S.A. located in France
and approached the Plaintiff at his office in Delhi. They evinced
interest in purchasing woven ladies dresses and ladies blouses required
by M/s Promod S.A. Consequent upon negotiations and discussions,
M/s Li & Fung India, acting as an agent of M/s Promod S.A., placed
on the Plaintiff purchase order Nos. 86302101 dated 21st January 2003,
86302102 dated 22nd January 2003 and 86305001 dated 19th February
2003 for a supply of total number of 8300 pieces of woven ladies
dresses and ladies blouses. The payment was to be effected through an
irrevocable letter of credit (LC) No. DCLCK 409960 dated 8th
November 2002 already established by Li & Fung Hong Kong through
Hong Kong & Shanghai Banking Corporation (HSBC) at Hong Kong
in favour of the Plaintiff. In terms of the said LC, the goods were
required to be shipped to France to Defendant No.1 Bank as consignee
and to notify M/s Promod S.A. upon arrival of the goods in France. It
is stated that the goods were inspected by the representatives of M/s Li
& Fung India at various stages of production. Shipping Agreements
dated 22nd April 2003, 29th April 2003 and 7th May 2003 were received
by the Plaintiff from Promod S.A. through Li & Fung India. A final
inspection was also carried out by the representatives of the Li & Fung
India and a certificate of inspection was issued to the Plaintiff,
approving the goods for shipment.
4. Thereafter the goods were shipped by the Plaintiff under House
Airway Bills (HAWB) Nos. 022288 dated 7th May 2003 and 022294
dated 9th May 2003. The total value of the shipment was Euro 45390.
In the HAWB, the consignee was shown as the Defendant No.1 Bank
with Promod S.A. being shown the party to be notified upon the arrival
of the goods at the destination. The dispatch of the goods, however,
took place after the LC dated 8th November 2002 had expired on 4th
May 2003. According to the Plaintiff, Li & Fung India assured the
Plaintiff that notwithstanding the expiry of the LC, the documents on
presentation would be honoured. Accordingly after the shipment of the
goods, the Plaintiff prepared the necessary documents relating to the
said shipment such as invoices, packing list, certificate of origin etc.
Along with the said HAWB, these documents were presented by the
Plaintiff to Defendant No.2 with the request that they should be sent to
the Defendant No.1 Bank on collection basis. This procedure had to be
resorted to since the LC, which expired on 4th May 2003 was not
extended despite requests by the Plaintiff.
5. Acting on the request of the Plaintiff, Defendant No.2 by a letter
dated 29th May 2003 forwarded the documents to Defendant No.1 on
collection basis with instructions that the documents should be released
upon payment (DP). Among the documents sent were Invoice No. 232
dated 16th April 2003 for Euro 24,000/-, Invoice No.235 dated 16th
April 2003 for Euro 13,590/- and Invoice No. 268 dated 6th May 2003
for Euro 7,800/-, the packing list, the weight list, GSP Certificate of
Origin issued by the Textile Committee, the purchase orders and the
two HAWBs. Copies of the invoices, the originals of the packing list,
GSP Certificate, weight list, Certificate of Origin, HWAB etc. were
also handed over to the representatives of Li & Fung India.
6. It is stated that even before the dispatch of the aforementioned
documents to Defendant No.1, it issued release orders on 19th May
2003 and 21st May 2003 in respect of the entire shipment of the goods
in favour of the Promod S.A. According to the Plaintiff, the Defendant
No.1 did this without instructions from the Plaintiff or Defendant No.2.
This was stated to be contrary to the international norms of banking. It
is stated that since Li & Fung had handed over the original export
certificate to Promod S.A., the latter was able to take delivery of the
goods against release orders. The Plaintiff alleges that the actions of
Defendant No.1 Bank were in breach of its contractual obligations and
duties as a banker. Defendant No.1 is also alleged to have breached the
trust and faith reposed upon it by the Plaintiff. In particular it is stated
that in the forwarding letter dated 29th May 2003 it was specifically
indicated that the documents were being forwarded for collection
"subject to Uniform Rules for Collection (1995 Revision) International
Chamber of Commerce, Publication No.522 read along with ICC
Document No.470/822 Rev of April 6, 1998". It is stated that while
forwarding the documents to the Defendant No.1, the Defendant No.2
had instructed the Defendant No.1 to remit the proceeds in respect of
the invoices by DD/TT on Mumbai in India in equivalent US Dollars
or credit the account of Defendant No.2 Bank with Dresdner Bank, A
G, D 60301, Frankfurt AM Main.
7. By a letter dated 7th June 2003, the Defendant No.1 returned the
documents to Defendant No.2 because "Promod refused to pay it".
Consequently, it was stated that "this collection is a documentary one
and you must know that the law tells a bank is never obliged to pay
such a remittance." However, the Defendant No.2 informed the
Defendant No.1 as under:
"Your refusal to pay and act of returning the documents is
not understandable when the goods covered by the said
documents consigned to you have been released on
19.5.2003 and 21.5.2003 against your release order. Since
the documents stand utilized so you are under definite
obligation to pay the same. Please remit the proceeds along
with the up to date interest from the date of release of
goods.
Regards.
Syndicate Bank, Nehru Place, New Delhi."
8. The documents which were again presented on 21st June 2003 by the
Defendant No.2 to the Defendant No.1 were returned on 4th July 2003.
A third presentation was made on 8th August 2003 which again was
refused and returned by the Defendant No.1 to Defendant No.2 on 19th
August 2003.
9. The case of the Plaintiff is that under no circumstances should
Defendant No.1 have issued the aforementioned release orders in
favour of M/s Promod S.A. without receiving the payments especially
when the instructions were release only on DP basis. In response to the
legal notice sent to it, it was contended by the Defendant No.1 in its
reply dated 30th October 2003 that it had acted on the basis of the LC
No.181-01-0032057-1 issued by it in the account of M/s Promod S.A.
favouring Li & Fung Hong Kong. That had been advised through
HSBC, Hongkong on 3rd April 2003. It was stated that the set of
documents covered by HAWB No.022288 dated 7th May 2003 and
HAWB No.022294 dated 9th May 2003 were presented by Standard
Chartered Bank, Hong Kong under the said LC on behalf of the Li &
Fung Hong Kong. Since payment was to be effected out of the said
LC, Defendant No.1 closed the file. On the above basis, the Plaintiff
filed the present suit against Defendant No.1 for recovery of the sum as
noticed earlier.
The case of the Defendant No.1
10. The case of the Defendant No.1 in its written statement is that the
suit is bad for non-joinder of Promod S.A. in France, Li & Fung, Hong
Kong and Li & Fung India as parties to the suit. It is maintained that
there is no privity of contract between the Plaintiff and Defendant No.1
in relation to the transaction in question. It is accordingly prayed that
the Defendant No.1 is not a proper party to the suit and should be
deleted as such. It is then contended that this Court has no territorial
jurisdiction to try the suit. Defendant No.1 carries on its business at
France. The suit could not be filed without the Plaintiff seeking leave
to sue the Defendant No.1. It is stated that Promod S.A. was bound to
remit payment to Li & Fung Hong Kong in terms of the LC issued by
the Defendant No.1. It is stated that the decision of Defendant No.1 not
to handle the collection forwarded to Defendant No.2 was in
accordance with URC 522. In any event, banks were under no
obligation to handle either a collection or any collection instruction or
subsequent related instruction in terms of URC 522.
11. Elaborating on the objection as to the territorial jurisdiction, it is
pointed out by Defendant No.1 that it is permitted by RBI by a letter
dated 18th February 1997 to open an office in New Delhi purely as a
liaison office without transacting any type of banking business.
Further, RBI had prohibited the representative office from negotiating
any commercial activity.
12. A reference is made to the LC dated 3rd April 2003 opened by
Defendant No.1 in favour of Li & Fung, Hong Kong. This LC was
opened under instructions of Promod S.A. The above LC was freely
negotiable by any bank in Hong Kong. It is maintained that the
Defendant No.1 was concerned only with the instruction received from
Promod S.A. for opening a suitable documentary credit and to ensure
that the terms and conditions governing payment to Li & Fung Hong
Kong were incorporated in the LC.
13. It is stated that the documents sent for collection by the Defendant
No.1 Bank was received much after on 5th June 2003. It is maintained
that the Defendant No.1 could not be held responsible for the
callousness of the Plaintiff. The Plaintiff, if at all, could have turned to
Li & Fung, Hong Kong for payment.
Issues:
14. After the replication was filed, this Court framed the following
issues on 18th October 2005:
"1. Whether the Courts of Delhi have no territorial
jurisdiction to entertain the present suit in which no relief
is claimed against the other Defendant (Syndicate bank)
and no leave under Section 20 of the CPC has been
obtained against Defendant No.1 which has no presence
in India? OPD1
2. Whether the suit is bad for non-joinder of proper and
necessary parties as stated in the written statement?
OPD1
3. Whether the Plaintiff is entitled to enforce any
obligation against the Defendant No.1 either directly or
through Defendant No.2? OPP
4. Whether the Plaintiff is entitled to claim any sum
arising out of any liability from the transaction in
question and if so, to what amount it is entitled? OPP
5. If Issue No. 4 is held in favour of Plaintiff, whether the
Plaintiff is entitled to claim interest @ 16.5% or at all and
if so, for what period and on what amount? OPP
6. If issues No.4 and 5 are held in favour of Plaintiff;
who is/are the entity(es) against whom such claim is
enforceable? OPP
7. Relief."
15. The Plaintiff examined himself as PW1. He was cross-examined by
the learned counsel for the Defendant No.1 An affidavit of Mr. Vijay
Chopra was also filed on behalf of the Plaintiff. He was, however, not
cross-examined. The Defendant did not choose to lead any evidence.
The arguments of Mr. Ashok Gurnani, the learned Advocate for the
Plaintiff and Mr. Peeyoosh Kalra, the learned Advocate for the
Defendant No.1 have been heard.
16. Issue No.1:
Whether the Courts of Delhi have no territorial jurisdiction to
entertain the present suit in which no relief is claimed against the
other Defendant (Syndicate bank) and no leave under Section 20 of the
CPC has been obtained against Defendant No.1 which has no presence
in India?
The preliminary objection of the Defendant No.1 is that since it only
has a liaison office in New Delhi, this Court lacks territorial
jurisdiction to try this suit in terms of Section 20 (a) CPC. A reference
is made to the letter dated 18th February 1997 of the RBI to point out
that the Defendant No.1 was in fact not permitted to carry on any
commercial activity or banking business in India. The only stage at
which Defendant No.1 came into picture was when the documents in
question were forwarded to it for collection by Defendant No.2 These
documents were received by it in France. It is accordingly contended
that even for the purposes of Section 20 (c) CPC, no part of the cause
of action arose in New Delhi. Reference is made to the judgment of the
Supreme Court in Federal Bank v. V.M. Jog Engineering Ltd. AIR
2000 SC 3166.
17. It is further submitted by the learned counsel for the Defendant
No.1 that in another set of transactions involving the Plaintiff and
Defendant No.1, the dispute has been referred to arbitration. That
dispute involves the Li & Fung Hong Kong as well as Li & Fung India,
HSBC, Promod S.A. and the Defendant No.1. That was the suit filed
by the Plaintiff herein in which an application was filed by the
Defendant No.1 under Section 45 of the Arbitration and Conciliation
Act, 1996. By an order dated 14th December 2004, the learned
Additional District Judge (ADJ) allowed the said application and
directed the Plaintiff herein to refer the matter to arbitration in terms of
the arbitration clause contained in the placement memorandum dated
29th October 2002. It is submitted that the similar placement
memorandum has been issued in the present case and therefore on this
ground also this Court has no jurisdiction to entertain the suit. It is
submitted that in view of the arbitration clause and the fact that in the
said suit the Plaintiff has chosen to implead apart from the Defendants
1 and 2 Promod S.A., Li & Fung Trading India and Li & Fung Hong
Kong, obviously they were proper and necessary parties even as far as
the present suit is concerned. It is accordingly contended that the suit is
bad for non-joinder of necessary parties. A reference is also made to
the judgment of this Court in Jaspal Singh Sahni v. Kuwait
International Finance Co. S.A.K. 71 (1998) DLT 740 where it is held
that a Corporation cannot be sued at a place where it has a subordinate
office except where the cause of action arises therein and that merely
having a branch office will not give the Court jurisdiction to entertain a
suit. A reference is also made to the decision in Kensoft Infotech Ltd.
v. R.S. Krishnaswami 146 (2008) DLT 657, State of Rajasthan v.
Swaika Properties (1985) 3 SCC 217, Frank Finn Management
Consultants v. Subhash Motwani 154 (2008) DLT 95; Corporation
Bank v. Bahri Exports ILR (1991) Delhi I 627, Jai Narain N. Sadh
Shadwara v. Pan American World Airways 30 (1986) DLT 497.
18. In reply to the preliminary objection, counsel for the Plaintiff while
referring to the decisions in South India Shipping Corp. Ltd. v.
Export-Import Bank of Korea [1985] 2 All ER 219; Re Oriel Ltd.
[1985] 3 All ER 216; Actiesselskabet Dampskib "Hercules" v. Grand
Trank Pacific Railway Company [1912] 1 KB 222, contended that
where the Defendant is a foreign company, the test is whether it can be
served notices within the jurisdiction of the court. The expression
"carries on business" in Section 20(a) CPC would include a liaison
office. The expression "business" according to Mr. Gurnani need not
be the very business which is the subject matter of the suit. Jurisdiction
is also to be determined with reference to the place where the effect of
the wrong is felt. The Plaintiff, being located within the jurisdiction of
the court, has suffered the loss and therefore this Court has jurisdiction
to entertain the suit. Reference is made to certain observations of this
Court in Frank Finn Management Consultants v. Subhash Motwani.
A reference is made to the communication of the RBI to emphasize
that as long as the Defendant has an office within the jurisdiction of
this Court and could be served there, it cannot be said that this Court
has no jurisdiction. A reference is made to the correspondence between
the Plaintiff and the Defendant No.1 where letters were addressed to
the office of the Defendant No.1 in New Delhi.
19. Section 20(a) CPC envisages that every suit shall be instituted in a
court within the local limits of whose jurisdiction the Defendant
"actually and voluntarily resides, or carries on business, or personally
works for gain". In the context of the present case, the Plaintiff has to
show that the Defendant No.1 "carries on business" within the local
limits of this Court‟s jurisdiction. The letter dated 18th February 1997
of the RBI which has been referred to by both the parties reads as
under:
"February 18, 1997
Mr. H. Dexant,
Director,
Representative Offices &
International Products,
Campagnie Financiere de CICet de 1 Union Europeenne
4 rue Gaillon 75107 Paris Cedex 02
Dear Sir,
Permission to open a Representative Office in New Delhi
Please refer to your application dated 2nd September 1996
requesting for your permission to establish a Representative
Office in New Delhi. We are pleased to convey our
approval to your bank for opening a Representative Office
in New Delhi on the following terms and conditions.
a) The Representative Office should function purely as
a liaison office without transacting any type of
banking business.
b) The Representative Office should not undertake any
commercial activity.
c) The Authorisation to open a Representative Office
would not in any way confer a right on the bank for
setting up a branch later.
d) The bank should comply with all local
laws/regulations while operating the Representative
Office in India.
e) All the expenses of the Representative Office should
be met out of inward remittances in free foreign
exchange from the bank‟s Head Office.
f) The Representative Office should furnish to us on a
yearly basis:-
(i) certificate from auditor to the effect that
during the year no income was earned
by/accrued to the office in India.
(ii) of remittances received from abroad
duly supported by bank certificates.
(iii) Certified copy of the audited final
accounts of the office in India, and
(iv) annual report of the work done by the
office in India stating therein the details
of the major activities undertaken
including trade financing for which the
office has rendered liaison services.
2. The bank shall apply to the Government of India in the
usual course for the VISA requirement of expatriate
official for posting at the Representative office.
3. Please inform us the date of opening of the
Representative Office with its full address telephone, fax
numbers and the name of the local representative when
the office is opened.
4. The receipt of this letter may please be acknowledged."
20. There is merit in the contention of the Plaintiff that although the
permission was granted only to operate as liaison office, the
requirement that the Defendant No.1 should furnish on an yearly basis
an Annual Report stating "the details of the major activities undertaken
including trade financing for which the office has rendered liaison
services" shows that it was envisaged that a liaison office was not
merely meant to be a post office and was meant to transact some
business. In Scottish and Newcastle International Ltd. v. Othon
Ghalanos Ltd. [2008] 2 All ER 768, the Defendant was a company
established in Cyprus. The Plaintiffs Scottish & Newcastle established
in England, sued the Defendant company for recovery of the price of
the goods sold by it to the Defendant in the English Court. A reference
is made to Article 5(1)(b) of Council Regulation (European Council)
44/2001 "on jurisdiction and the recognition and enforcement of
judgments in civil and commercial matters". In terms of the said
Regulation, a person domiciled in a Member State may be sued in
another Member State in the case of sale of goods "where under the
contract, the goods were delivered or should have been delivered".
The question whether Section 32 of the Sale of Goods Act 1979 "of
England" applied was answered in the affirmative. That provision
envisaged that "where, in pursuance of a contract, of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the
goods to a carrier (whether named by the buyer or not) for the purpose
of transmission to the buyer is prima facie deemed to be a delivery of
the goods to the buyer". It was held that since the goods were
entrusted to the carrier for being delivered to the buyer in Cyprus, the
place of shipment would be also the place of delivery for the purpose
of Article 5(1)(b) of the Regulations in all types of FoB contracts.
Accordingly, it was held that Section 32 of the Sale of Goods Act
applied despite express reference to Limassol Cyprus as the place of
delivery in the contract. The fact that the buyer would not in practice
inspect the goods until after their arrival in Cyprus counted for nothing,
as it was commonplace in international sales.
21. In South India Shipping Corp. Ltd. v. Export-Import Bank of
Korea, a question that arose was whether the Defendants had an
established place of business within Great Britain. It was held that
since the Defendant bank "had both premises and staff within the
jurisdiction, and was carrying on business activities which included
conducting external relations with other banks and financial
institutions, carrying out preliminary work in relation to granting or
obtaining loans and giving publicity to the foreign bank, it had
established a place of business within Great Britain and it was
irrelevant that the bank did not conclude any banking transactions at
the London office or having banking dealings with the general public".
In arriving at the conclusion, the court followed an older decision in
Actiesselskabet Dampskib "Hercules" v. Grand Trank Pacific
Railway Company. There the Plaintiffs were a company registered in
accordance with the laws of Norway. The Defendants were Railway
Company incorporated in Canada. The action was brought to recover
demurrage upon the Plaintiffs‟ ship "Hercules" alleged to have become
due under the terms of a charterparty entered into between the
Plaintiffs and the Defendants, was a question. The ship carrying a
cargo of steel rails for use in the construction of the Defendants‟
railway. The office of the Defendants was in Montreal. Four of the
Directors, however, were residents in Great Britain and formed a
London Committee, which under the powers conferred by the
company‟s by-laws, dealt with the issue of its capital for construction
of railway. The whole of the loan capital was raised by the London
Committee and remitted to the Canada. The money raised by the
Committee was paid into an account at a London bank and remittances
were made to Canada. The Plaintiff then sued the Canadian
Corporation in the Court in London. It was held by Lawrence J. that
the action was maintainable in London. The Defendant then appealed.
The Court of Appeal dismissed the Defendant‟s appeal. Vaughan
Williams L.J. held that "doing what it did the London board was
carrying on the business of the company, and that it makes no
difference that they pay no rent for the office in which they carry it on.
The office is the office of the company; the business is advertised in
every way as being carried on at the office. The appeal must therefore
be dismissed". Concurring with that opinion Buckley L.J. observed:
"We have only to see whether the corporation is "here"; if it is, it can
be served. There are authorities as to the circumstances in which a
foreign corporation can and cannot be said to be "here"; that best test is
to ascertain whether the business is carried on here and at a defined
place". On the facts of that case, it was stated that "the Defendant
company is a resident here and is carrying on business here so as to be
capable of being served with a writ".
22. In Re Oriel Ltd., the question was whether the Defendant company
had an established place of business in England. The company had
been registered in Isle of Man and therefore was not registered in
England. The Directors, of course, were the residents in Lancashire. It
was held that "in order to prove that the company had an established
place of business in England for the purpose of Section 106 (of the
Companies Act 1948) at the relevant date it had to be shown that at
that date there was an apparently permanent and specific location in
England associated with the company from which it habitually or
regularly carried on business, although it was not necessary for the
company to own or lease such premises". A reference was made to the
Scottish case of Lord Advocate v. Huron and Erie Loan and Savings
Co 1911 SC 612 and it was observed that "when the word `established‟
is used adjectively, as it is in Section 106, it connotes not only the
setting up of a place of business at a specific location, but a degree of
permanence of recognisability as being a location of the company‟s
business. If, for instance, agents of an overseas company conduct
business from time to time by meeting clients or potential customers in
the public rooms of a hotel in London, they have no doubt, carried on
business in England, but I would for my part find it very difficult to
persuade myself that the hotel lounge was an established place of
business. The concept, as it seems to me, is of some more or less
permanent location, not necessarily owned or even leased by the
company, but at least associated with the company and from which
habitually or with some degree of regularity business is conducted".
23. As far as the decisions of our courts are concerned, in Kensoft
Infotech Ltd. v. R.S. Krishnaswami 146 (2008) DLT 657, the
principal office of the Defendant company was in Mumbai. It was
found on facts that none of the Defendants resided or carried on
business or personally worked for gain within the jurisdiction of the
court at Delhi. Defendant No.3 had a branch office at New Delhi along
with twenty-three other branch offices all over the country. A reference
was made to the judgments in Oil & Natural Gas Commission v.
Utpal Kumar Basu (1994) 4 SCC 711 and State of Rajasthan v.
Swaika Properties where it was held that the expression "cause of
action" connotes a bundle of facts which gives the Plaintiff a right to
relief against the Defendant, and mere service of notice at the
registered office of a company does not give rise to a cause of action
within that territory unless service of such notice was an integral part
of the cause of action. It was noticed that the cause of action means
every fact which, if traversed, it would be necessary for the Plaintiff to
prove in order to support his right to a judgment of the court. It was
held that the location of the subordinate office of the Defendant No.3
at Delhi ipso facto cannot vest the court with territorial jurisdiction to
decide the suit. Even the leave of the court to sue the Defendants at
New Delhi as envisaged by Section 20(b) CPC had not been sought.
Section 62 of the Copyright Act provided an additional forum to the
Plaintiff at Mumbai. Moreover, there was not a whisper in the plaint
that the infringement of the copyright by Defendants 1 to 3 were within
the jurisdiction of the court in Delhi. The location of the subordinate
office of one of the Defendants per se would not vest jurisdiction in
this court.
24. In Frank Finn Management Consultants v. Subhash Motwani, it
was held that the magazine allegedly containing the defamatory article
though edited, printed and published in Mumbai did not contain any
limitation that it was for circulation in Mumbai only. The Plaintiff had
registered office in Delhi and the magazine had its circulation in Delhi.
It was also placed on the website of the Defendants. In the
circumstances, it was held that this Court had a jurisdiction to try the
suit. The court pointed out by reference to decided cases that the
phrase "wrong done" in Section 19 CPC would clearly take in not only
the initial action complained of but its result and effect as well. Section
19 was wide enough to take in those places where the Plaintiff actually
suffered the loss because of the alleged wrongful act.
25. None of the above cases decided by our courts provides an answer
to the issue that arises in this case in relation to Section 20(a) CPC.
The question really is whether in view of RBI‟s letter dated 18th
February 1997 Defendant No.1 can be said to be carrying on business
within the jurisdiction of the court. The said letter no doubt restrains
Defendant No.1 "from negotiating any commercial activity and
functioning purely as a liaison office without transacting any type of
banking business". However, in terms of the law explained in Re Oriel
Ltd. and South India Shipping Corp. Ltd., it cannot be said that
Defendant No.1 does not carry on business within the jurisdiction of
this Court. The question whether service could be effected on
Defendant No.1 by serving notice upon it at its office in New Delhi
should, in the considered view of this Court, be answered in the
affirmative. As pointed out in Re Oriel Ltd., one test is about the
physical location of a business at a specific place also "a degree of
permanence or recognisability as being a location in the office
business". On that parameter, it is safe to assume that there would
certainly be a name board outside the representative office of
Defendant No.1 at New Delhi and business enquiries are not precluded
from being made at the said office. It cannot, therefore, be said that the
Defendant No.1 does not carry on a business activity within the
jurisdiction of this Court. Jurisdiction for the purposes of Section 20
(a) CPC is certainly attracted.
26. It is not in dispute that the goods were handed over to the carrier
within the jurisdiction of this Court for being sent to France. The cause
of action being a bundle of facts and goods having been entrusted for
delivery and dispatched from New Delhi, the contention of the Plaintiff
that a part of cause of action arose within the jurisdiction of this Court
is found acceptable. The net result is that this Court has jurisdiction to
entertain the suit. The issue is, therefore, answered in favour of the
Plaintiff and against Defendant No.1.
27. Issue No.2:
Whether the suit is bad for non-joinder of proper and necessary parties
as stated in the written statement?
The arguments of Defendant No.1 may be briefly recapitulated. In
Federal Bank v. V.M. Jog Engineering, it was observed by the
Supreme Court in para 56 that "the contract of the Bank guarantee or
the Letter of Credit is independent of the main contract between the
seller and the buyer". Relying on this observation, it is sought to be
contended that there is no privity of contract between the Defendant
No.1 and the Plaintiff since the claim was being made against the
Defendant No.1 in relation to a contract that the Plaintiff had with
Defendant No.2 and Promod S.A., which is not even a party to the suit.
Accordingly it is contended that Defendant No.1 is not a proper party
to this suit. A reference has been made to the arbitration proceedings
arising out of a suit filed by the Plaintiff in which the Plaintiff chose to
make all the other parties as co-Defendants. It is contended that the
present transaction is no different from that which forms the subject
matter of the said suit where the dispute has ultimately been referred to
arbitration. Therefore the suit is bad for non-joinder of those parties.
28. In order to appreciate the above contention, the sequence of the
transactions requires to be appreciated. The first stage of the
transaction is the placing of purchase orders on the plaintiff on behalf
of Promod S.A. by Li & Fung India Pvt. Ltd. on 21st January 2003,
22nd January 2003 and 19th February 2003. Li & Fung India Pvt. Ltd.
acted as agents of Promod SA. The second stage of the transaction is
that Li & Fung, Hong Kong issued three placement memoranda on the
Plaintiff, two of which were undated and one of which was dated 4th
April 2003. The LC for this transaction was established by HSBC
Hong Kong in favour of Li & Fung Hong Kong which is dated 8 th
November 2002. The third limb of the transaction was that under
HAWBs dated 7th May 2003 and 9th May 2003 goods were shipped to
France. It requires to be noted that the said two HAWBs were prepared
and the goods despatched after 4th May 2003 the date of expiry of the
LC dated 8th November 2002 opened by HSBC Bank in favour of Li &
Fung, Hong Kong.
29. In the meanwhile on 3rd April 2003 Defendant No.1 opened an
irrevocable and transferable LC (No.181-01-0032057-1) for Euro
77,190 in favour of Li & Fung, Hong Kong under instructions from
Promod S.A. The said LC was advised to Li & Fung Hong Kong
through HSBC Hong Kong and was freely negotiable by any bank in
Hong Kong. It is stated that Promod S.A. had sourced certain items
from Li & Fung Hong Kong for which payment had to be made under
the LC. In order to meet the requirement of Promod S.A. Li & Fung
Hong Kong arranged the supply of the requisite goods through its
subsidiary in India, i.e. Li & Fung India. It is claimed by Defendant
No.1 that it had no privity of contract with the Plaintiff, and that the
goods were to be consigned to it with notifying instructions to Promod
S.A. so as to provide for a mechanism of obtaining confirmation of
delivery.
30. The next stage was that the goods on arrival in France were
released by the Defendant No.1 to Promod S.A. on 19th and 21st May
2003. This is really the bone of the controversy. According to the
Defendant No.1 it was still acting on the instructions of Promod S.A.
and was assured that the transaction was covered by the LC in favour
of Li & Fung, Hong Kong. The documents forwarded by Defendant
No.2 to Defendant No.1 on 29th May 2003 had not yet reached
Defendant No.1. This is where the Defendant No.1 first came into the
picture. The question really is whether it can be said that there is a
privity of contract between the Defendant No.1 and the Plaintiff.
31. As far as the Plaintiff is concerned, it instructed the Defendant
No.2 to forward the documents to Defendant No.1. The fact that the
Defendant No.1 received the said instructions only on 5th June 2003
much after the goods had been released to Promod S.A. does not
entirely disconnect Defendant No.1 from the series of transactions
since the claim in the suit is based on those transactions. Whether
Defendant No.1 can be made liable or not is a different issue, which
will be dealt with later. However, for the purposes of the present issue
it cannot be said that in the context of the claim made by the Plaintiff,
Defendant No.1 is not even a proper party to the present suit.
32. There however does appear merit in contention of Defendant No.1
that that there is no plausible explanation given by the Plaintiff for not
proceeding against any of the other parties, viz., Li & Fung Hong
Kong, Li & Fung India, and mainly Promod S.A. In the considered
view of this Court, these were necessary and proper parties to the suit.
While it could be argued that it is entirely up to the Plaintiff to limit its
claim against one or more Defendants, given the case set up by the
Plaintiff, it appears inconceivable why the Plaintiff would choose not
to proceed against the other parties. This is particularly intriguing
given that in another set of transactions involving the Plaintiff and
Defendant No.1, the Plaintiff had initially filed a suit impleading Li &
Fung Hong Kong, Li & Fung India, HSBC, Promod S.A. and the
Defendant No.1. That dispute was thereafter referred to arbitration.
33. Interestingly during the cross-examination of the Plaintiff, he was
asked whether he was "aware that the original documents which were
handed over by you to Li & Fung India were presented to Defendant
No.1 bank by Standard Chartered Bank for payment on June 14 th
2003?" His answer was: "It is correct. (vol.) HSBC Bank, Li & Fung
Hong Kong in connivance with each other tried to obtain payments
from defendant No.1 and they attempted to recover the amount
from defendant No.1 through Standard Chartered Bank after
dropping HSBC Bank. Standard Chartered Bank later had to
withdraw the said document." (emphasis supplied) In reply to a
further question whether defendant No.1 was aware of the "malafide
intentions of Li & Fung Hong Kong" he replied: "I cannot say whether
defendant No.1 was aware or not." It is indeed strange that despite
claiming to know of the role of Li & Fung Hog Kong and HSBC Bank,
the Plaintiff made only Defendant No.1 a party to this suit.
34. The suit, therefore, must be held to be bad for non-joinder of
necessary and proper parties. The issue is answered in favour of
Defendant No.1 and against the Plaintiff.
35. Issue Nos.3 and 4:
3. Whether the Plaintiff is entitled to enforce any obligation
against the Defendant No.1 either directly or through Defendant
No.2?
4. Whether the Plaintiff is entitled to claim any sum arising out of
any liability from the transaction in question and if so, to what
amount it is entitled?
The case of the Plaintiff is that a copy each of the HAWBs
accompanied the consignment. From the release order in relation to the
goods released by the Defendant No.1, it is apparent that there is a
reference therein to the HAWB. It is accordingly contended by the
Plaintiff that Defendant No.1 used the said document for effecting
release of the goods to Promod S.A. The payment in relation to the
goods were remitted to Li & Fung Hong Kong in terms of a LC which
is not the LC which was mentioned in the HAWB that accompanied
the consignment. According to the Plaintiff, the Defendant No.1 was
under a duty of care to ensure that the seller (in this case the Plaintiff)
whose name is clearly mentioned in the HAWB receives the money.
Reference has been made to the various provisions of the text of the
ICC Uniform Rules for Collection (ICC Publication No.522)
[hereinafter referred to as URC 522] to emphasise that the Defendant
No.1 was under an obligation to act in good faith and with reasonable
care and that any release of goods without receipt of payment (which
would then be remitted to the seller), would constitute a breach of that
obligation.
36. The other specific case set up by the Plaintiff is that the Defendant
No.1 is guilty of the tort of conversion. It is submitted that in the facts
and circumstances of the case, whether the goods have been allowed to
be taken by the consignee without payment being received therefor by
the buyer, the definition of the tort of conversion as understood in local
parlance stands satisfied. Counsel for the Plaintiff relies upon the
definition of "conversion" contained in Thomson‟s Dictionary of
Banking (12th Edition), Pitman Publication and decisions in Bloom
Dekor Ltd. v. Subhash Himatlal Desai (1994) 6 SCC 322; Dhian
Singh Sobha Singh v. Union of India 1958 SCR 781; Mulliner v.
Florence V-III QBD 484; Bute (Marquess) v. Barclays Bank Ltd. V-
III QBD 365; A.L. Underwood Ltd. v. Bank of Liverpool & Martins
24 1 K.B. 775; Trustees of the Port of Bombay v. Premier
Automobiles Ltd. (1981) 1 SCC 228 and State of Gujarat v. Memon
Mahomed Hazi Hasam (Dead) AIR 1967 SC 1885.
37. Reference is made to the following averment in the written
statement of Defendant No.1:
"The Plaintiff should have pursued Li & Fung, Hong Kong
or its bankers HSBC, Hong Kong for repayment since, by
his own admission, the documentary credit under which the
Plaintiff should have been paid expired before he consigned
the goods. The documentary collection drawn by the
Plaintiff on Promod SA which was forwarded by the
Defendant No.2 was received by the Defendant No.1 on
June 5, 2003, after the goods had already been released to
Promod SA on May 19 & May 21, 2003. Therefore, the
question of the Defendant No.1 not having acted in good
faith or with reasonable care does not arise."
It is submitted with reference to the above statement, that if it is true
that the documents were received by Defendant No.1 only on 5th June
2003, then the HAWB number could not have been mentioned in the
release documents dated 19th and 21st May 2003. Further, there is no
reference to the precautions taken by Defendant No.1 before it released
the goods. A reference is made to Articles 4, 9 and 10 of the URC 522
in this regard. Reference is also made to the 2nd Schedule to the
Carriage by Air Act, 1972. A reference is also made to para 33 of the
written statement where it has been stated that "Defendant No.1 issued
the release orders on instructions of Promod SA under its LC. The
Defendant No.1 will rely on the statements of facts made in paragraph
nos. 19 and 21 hereinbefore in this regard. It was not for the Defendant
No.1 to ascertain whether payment in respect of the said goods had
been made and released to the Defendant No.2 bank as this Defendant
was acting within its LC and conforming to the international banking
practices including the provisions of UCP 500."
38. A reference is also made to para 6 of the written statement where it
is mentioned that "the freight forwarder as per the instructions in the
house airway bill had notified Promod SA regarding arrival of the
shipments in France. This notification indicated Li & Fung as the
shipper and included the invoices raised by the Plaintiff which referred
to the documentary credit no. DCLCK 409960. Upon receiving the
notification, Promod SA instructed the Defendant No.1 on May 19 &
May 21, 2003 to issue release orders to the freight forwarder. The
Defendant No.1 complied with Promod SA‟s instructions and issued
release orders on the basis of which the freight forwarder released
goods to Promod SA on the aforesaid dates."
39. In reply, it is submitted by the learned counsel for the Defendant
No.1 that there are two separate and distinct transactions. One is the
actual shipment of the goods from India to France by the Plaintiff
through a carrier for being delivered to the entity in France. The
second is the transaction concerning the payment for the goods against
documents. Reference is made to the decision of the Supreme Court in
Federal Bank v. V.M. Jog Engineering Ltd. (supra). In the event of
the seller not receiving the payment for the goods supplied he should
proceed against the buyer or the agent of the buyer, which in the
instant case the seller has chosen not to do.
40. It is submitted that there is no obligation on the Defendant No.1 at
all to act as a collecting bank. This much is clear according to the
Defendant No.1 from Article 4 of URC 522. According to the
Defendant No.1, the LC opened by Li & Fung Hong Kong in favour of
the Plaintiff expired on 4th May 2003. The attempts by the Plaintiff to
have the LC renewed failed. Thereafter, the seller decided to opt for
the URC 522 route and requested its banker, i.e., the Defendant No.2
to forward the documents to the Defendant No.1 for collection.
However, by the time the documents were received by Defendant
No.1, the goods were already been released as the LC opened by
Promod SA in favour of Li & Fung. Since the Defendant No.1 was
assured that the goods were covered by the LC, there was no obligation
on it to ensure that the seller receives the money.
41. It is also pointed out by learned counsel for Defendant No.1 that in
the instant case, there are two invoices for the same transaction. One
copy of the invoice shows the consignee to be Promod SA and the
other to be Defendant No.1. It is submitted that PW1 when cross-
examined, was unable to explain this discrepancy satisfactorily. A
reference is made to the request for release of the goods to Promod SA
which according to the Defendant No.1 was the most crucial
document. An indemnity was given in the request for release whereby
Defendant No.1 stood indemnified against any claims that could be
made against it on account of the goods being released to Promod SA.
It is stated that in so far as this letter in the format mentioned was
obtained from Promod SA, no greater duty of care could be expected
from Defendant No.1. It is submitted that the duties have been
specified in Article 4 sub-clause 1(b) and (c) URC 522. According to
the Defendant No.1, there was no prior agreement with the bank. A
reference is made to the proviso to Article 10 URC 522 in this regard.
It is submitted that the Defendant No.1 never came into picture till it
received a letter from the Defendant No.2 forwarding the documents
requesting it to make collection. Without prior consent of the
Defendant No.1, its name was simply included in the HAWB as
consignee. The Defendant No.1 only received a small commission for
collection. In any event, it could have never undertaken that task where
the goods already stood released before the request for collection was
received by it. In the above circumstances, there was no obligation at
all on Defendant No.1 to get back to the Plaintiff before releasing the
goods to Promod SA.
42. The above submissions have been considered. Both parties have
relied upon the provisions contained in URC 522. Article 1 thereof
reads as under:
"1 Application of URC 522
a The Uniform Rules for Collections, 1995 Revision, ICC
Publication No.522, shall apply to all collections as
defined in Article 2 where such rules are
incorporated into the text of the "collection
instruction" referred to in Article 4 and are binding
on all parties thereto unless otherwise expressly
agreed or contrary to the provisions of a national,
state or local law and/or regulation which cannot be
departed from.
b Banks shall have no obligation to handle either a
collection or any collection instruction or
subsequent related instructions.
c If a bank elects, for any reason, not to handle a
collection or any related instructions received by it,
it must advise the party from whom it received the
collection or the instructions by telecommunication
or, if that is not possible, by other expeditious
means, without delay."
43. The above provisions envisage a remitting bank and the collecting
bank which in this case would be Defendants 2 and 1 respectively.
Collection means the handling by banks of documents as defined in
2(b) which could be the following kinds of documents, i.e., financial
documents including bills of exchange, promissory notes, cheques and
similar instruments used for obtaining the payment of money.
Commercial documents are invoices, transport documents, documents
of title or other similar documents. In the present case, the LC would
be part of the financial documents whereas the HAWB would be the
part of the commercial documents.
44. Article 4 of URC 522 talks of collection instructions. Article 4(a)(i)
states that all documents sent for collection must be accompanied by a
collection instruction indicating that the collection is subject to URC
522 and giving complete and precise instructions. It further adds that
banks will not examine documents in order to obtain instructions.
Article 4(c) (ii) says that "the collecting bank will not be liable or
responsible for any ensuing delay as a result of an incomplete/incorrect
address being provided." Although Article 9 requires the banks to act
"in good faith and exercise reasonable care", Article 10 maintains that
"goods should not be dispatched directly to the address of a bank or
consigned to or to the order of a bank without prior agreement on the
part of that bank".
45. The proviso to Article 10 envisages a situation, as in the present
case, where goods are dispatched directly or consigned to the
collecting Bank for release against payment without prior agreement.
The said proviso reads as under:
"a Goods should not be dispatched directly to the address of
a bank or consigned to or to the order of a bank without
prior agreement on the part of that bank.
Nevertheless, in the event that goods are dispatched directly
to the address of a bank or consigned to or to the order of a
bank for release to a drawee against payment or acceptance
or upon other terms and conditions without prior agreement
on the part of that bank, such bank shall have no obligation
to take delivery of the goods, which remain at the risk and
responsibility of the party dispatching the goods."
46. In the instant case, the LC opened by Li & Fung Hong Kong in
favour of the Plaintiff expired on 4th May 2003. Admittedly the said
LC could not be renewed. Therefore by the time the goods were
despatched accompanied by copies of two HAWBs on 7th May 2003
and 9th May 2003 it was clear to the Plaintiff that the said transaction
of collection of payment on the instruction of Plaintiff could not be
gone through. Therefore the Plaintiff on the strength of these
documents opted for the URC 522 route which is that the Defendant
No.2 could forward the documents for collection to the Defendant
No.1. The Plaintiff has not been able to produce any evidence to show
that the prior consent of the Defendant No.1 was obtained before its
name was indicated as the consignee. No satisfactory explanation is
also forthcoming as to how in the invoice the change to this effect was
made by the Plaintiff and in what circumstances. Be that as it may, it
appears to this Court in terms of the proviso to Article 10 of URC 522
which is heavily relied upon by the Plaintiff itself that no liability can
attach to the Defendant No.1 bank since the documents were
dispatched directly to it showing it as a consignee without prior
agreement with it. It is clearly mentioned in the proviso to Article
10(a) that "such bank shall have no obligation to take delivery of the
goods, which remain at the risk and responsibility of the party
dispatching the goods". The cross-examination of the Plaintiff has
revealed that admittedly there was delay on the part of the Plaintiff in
getting Defendant No.2 to send the documents for collection on DP
basis to Defendant No.1. It appears that in the first place Li & Fung
India delayed the process of inspection and thereafter the Plaintiff kept
waiting for the LC to be extended by Li & Fung Hong Kong. If in the
meanwhile on the instructions of Promod S.A. Defendant No.1
released the goods on the basis of the separate LC dated 3rd April 2003,
and the request letter of Promod S.A. incorporating an indemnity
clause, it could not be faulted for doing so without seeking instructions
from the Plaintiff.
47. This Court also finds the submission that Defendant No.1
committed the tort of conversion to be without substance. The
definition of conversion as contained in Thomson‟s Dictionary of
Banking is where there is wrongful interference with another person‟s
property, "inconsistent with the owner‟s right of possession." A banker
would be liable for conversion "if he delivers to an unauthorised
person articles left with him by a customer for safe custody". In the
light of the URC 522 and provisions concerning dispatch of goods to
the address of a bank with whom there is no prior agreement it is not
possible to accept the contention of the Plaintiff that in the facts and
circumstances of the instant case, Defendant No.1 bank should be held
liable for conversion.
48. It is also not possible to accept the contention of the learned
counsel for the Plaintiff that in dispatching the goods to France by
indicating the Defendant No.1 to be the consignee, the transaction was
one of the bailment in terms of Section 148 of the Contract Act. The
definition of "bailment" under Section 148 of the Contract Act
envisages delivery of goods to Defendant No.1. In this case, according
to the Defendant No.1, however it never came into picture as far as
taking delivery of the goods was concerned. The explanation that it has
offered to the effect that it had no occasion to examine the HAWBs
that accompanied the consignment is plausible. Upon the arrival of
goods in France, the buyer Promod SA was notified by the freight
forwarder. Promod SA then made a request to Defendant No.1 for
release of the goods by mentioning the HAWB number in the letter of
request. There was no occasion for the Defendant No.1 to examine
what the HAWB stated. In any event, since the payment for the said
transaction was covered by the LC opened in favour of Li & Fung
Hong Kong and since the request for release itself indemnified
Defendant No.1, the goods were released by it to the buyer, i.e.,
Promod SA. In the circumstances, the basic ingredient of bailment vis-
à-vis Defendant No.1 is non-existent. While it is true that in State of
Gujarat v. Memon Mahomed Hazi Hasam, it was held that there can
be bailment and the relationship of a bailor and a bailee in respect of a
property without there being an enforceable contract, on the facts of
the present case, the said principle will not apply. None of the other
judgments relied upon by the learned counsel for the Plaintiff can
apply to the facts of the present case.
49. There is also merit in the contention of learned counsel for
Defendant No. 1 that there is no satisfactory explanation given by the
Plaintiff for the discrepancy in the two invoices for the same
transaction. One copy of the invoice shows the consignee to be Promod
SA and the other to be Defendant No.1. The Plaintiff‟s answer in the
cross examination was that for re-import the documents are made in
the name of the buyer and for bank documents "as per the letter of
credit." This answer is vague and does not explain how the name of the
consignee in the original invoice (Ex. P 48) (Promod S.A.) could be
changed to the Defendant No.1 in the other invoice (Ex.P 38).
50. In view of the above findings, this Court answers issue Nos. 3 and
4 in the negative, i.e. in favour of the Defendant No.1 and against the
Plaintiff.
51. Issue No.5:
If Issue No. 4 is held in favour of Plaintiff, whether the Plaintiff is
entitled to claim interest @ 16.5% or at all and if so, for what period
and on what amount?
In view of the findings in relation to issue Nos. 3 and 4, the question of
the Plaintiff being entitled to claim interest does not arise.
Accordingly, this Court answers issue No.5 in the negative, i.e. in
favour of the Defendant No.1 and against the Plaintiff.
52. Issue No.6:
If issues No. 4 and 5 are held in favour of Plaintiff; who is/are the
entity(es) against whom such claim is enforceable?
Since issues Nos. 4 and 5 have been answered in favour of Defendant
No.1, this issue also does not arise for consideration and is answered as
such.
53. In view of the above findings, this suit is dismissed with costs.
S. MURALIDHAR, J.
AUGUST 26, 2009
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