Delhi High Court

M/S Motilal Banarasidass Pub. Pvt ... vs Standard Chartered Bank on 9 December, 2010

Author: V. K. Jain

         THE HIGH COURT OF DELHI AT NEW DELHI

%                       Judgment Pronounced on: 09.12.2010

+           IA No. 4706/2007 in CS(OS) No. 1429/2005

M/S MOTILAL BANARASIDASS PUB. PVT LTD.
                                   .....Plaintiff

                                  - versus -

STANDARD CHARTERED BANK                                   .....Defendant

Advocates who appeared in this case:
For the Plaintiff:      Mr Rajiv Tyagi, Adv.
For the Defendant:      Mr Ajay Monga, Adv.

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may
   be allowed to see the judgment?                                  No

2. To be referred to the Reporter or not?                           No

3. Whether the judgment should be reported                          No
   in Digest?

V.K. JAIN, J. (ORAL)

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

contest the suit.

1. This suit is for recovery of `20,53,134/-,

declaration, permanent injunction and mandatory

injunction, filed under Order XXXVII of Code of Civil

Procedure. It is alleged in the plaint that the plaintiff is

engaged in business of publication, sales and export of

Indological books and literature. The defendant is a

banking company incorporated in England and Wales by the

Royal Charter 1853 and having branches all over the world

including a branch at Arya Samaj Road, Karol Bagh, New

Delhi. The defendant is engaged in the business of banking

including bank credit, charge card services and has been

granted licence to use Master Card and Visa marks in

connection with the services provided by it to the card

holder. It is authorized to issue Master credit cards and

Visa credit cards to its customers and appoint merchants

for facilitating day to day transactions of sales of goods and

services through credit cards issued to its customers. It is

alleged that in September-October, 2000 the defendant

appointed plaintiff as a merchant bank for accepting Visa

and Master credit cards issued by the defendant and an

agreement between the parties was executed in this regard

on or about 8th June 2001.

2. It is alleged that the defendant in an unlawful and

arbitrary manner raised a demand of `22,64,298.52 on

account of transactions through credit cards, on the

ground that the transactions had been disputed by the

credit holders or on the ground of fraudulent use of credit

cards issued by the defendant. The account of the plaintiff

was frozen by the defendant and the plaintiff was furnished

a list of alleged fraudulent transactions aggregating to

`44,81,884/-. The defendant then unilaterally debited the

account of the plaintiff for `16,08,971 on 10th December

2004 and subsequently another amount of `1,93,153/- was

unilaterally withdrawn from the account of the plaintiff on

9th February 2005. The plaintiff has also claimed

`2,51,010/- towards interest on this amount at the rate of

18% per annum. The plaintiff, therefore, is seeking recovery

of the aforesaid amounts totaling to `20,53,134/-.

3. In its application for leave to contest, the first plea

taken by the defendant is that since the plaintiff has also

claimed reliefs of declaration, permanent injunction and

mandatory injunction, the suit under Order XXXVII of the

Code of Civil Procedure is not maintainable. On merits, it is

admitted that the plaintiff was appointed as a merchant in

terms of the agreement dated 8 th June 2001 executed

between the parties. A supplementary agreement is also

alleged to have been executed on the same date with respect

to transactions on telephone. It is alleged in the application

that the plaintiff sought various authorization from the

defendant between March 2004 to October 2004 for a total

sum of `87,67,280/-. There was no charge slip submitted

with respect to these transactions basis since they were

based on telephonic orders/e-mails orders. Accordingly, the

account of the plaintiff was duly credited for the aforesaid

amount after authorizations given from time to time. In the

year 2004, the defendant bank started receiving a lot of

complaints from Master card and Visa card establishments,

disputing most of the transactions carried out by the

plaintiff during March 2004 to October 2004. On being

contacted by the defendant, to find out why so many

transactions were being disputed, it was revealed that the

plaintiff had not taken due caution as required to be taken

by it under the agreement. It is also alleged that the

plaintiff could not provide any written proof of the identity of

the card holder nor could it furnish the actual proof of

delivery of the goods to the purchasers. The defendant

bank, therefore, immediately froze the account of the

plaintiff on 1st November 2004, when a sum of `8,26,285.17

was available in the account. Freezing of the account was

duly communicated to the plaintiff. Later, when the credit

balance in the account increased, the bank debited a sum of

`16,08,971/- from the account of the plaintiff on account of

charge-backs pertaining to the disputed transactions. A

further sum of `1,93,153/- was recovered from the account

of the plaintiff as per the terms of the agreement on 9th

February 2005. Even after effecting this charge-back, a

sum of `25,22,103/- stood recoverable by the bank from the

plaintiff. Ultimately, the bank received a total charge back

of `44,77,257/- from the plaintiff leaving a sum of

`18,02,124/-, which was recovered by debiting the account

of the defendant in terms of the agreement. This is also the

case of the defendant that in order to dispute the charge-

back it became necessary for the bank to obtain documents

from the plaintiff so that the same could be forwarded to the

issuer bank, for verification, in order to get reversal of

charge-backs, but the plaintiff failed to provide the required

documents and documents which it provided to the

defendants were incomplete.

4. The relevant clauses of the agreement executed

between the parties on 8th June 2001 read as under:-

6.3 Chargeback Any charge transacted by the Merchant in any of the following circumstances shall be

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

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

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

6.3.14 charges for undelivered merchandise or service.

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

6.4 If SCB is entitled to chargeback any charge or if SCB is entitled to payment or reimbursement from the Merchant of any amount under this Agreement, SCB may at its discretion, give effect to such chargeback entitlement in any one or more of the following methods.

6.4.1 deduction of the relevant amount or any part thereof from any account whatsoever of the Merchant with any branch of SCB without prejudice or limitation to SCB's right to set-ff, transfer, and application of funds in law.

5. The case of the defendant is that the transactions

in question, in respect of which it has debited money from

the account of the plaintiff, have been disputed by the card

holders and fraud is also alleged to have been committed in

respect of these transactions. The defendant has placed on

record a large number of documents to show that the

transactions have been disputed by the card holders

alleging fraud and claiming that the transactions were not

entered into by them. These documents are at pages 42 to

363 of the documents filed by the defendant on 16 th April

2007. Vide letter dated 6th November 2004, written to the

plaintiff, the defendant while conveying freezing of all its

operations in the account of the plaintiff with the defendant

bank, in exercise of the power under Clause 6 of the

Merchant Agreement dated 8th June 2001, sent to it,

particulars of the transactions which had been disputed by

the card holders. These particulars were contained in

annexure 1 to the letter and indicate Card Number, City,

Date of Transactions as well as the Transaction Amount.

6. Since the card holders had disputed their liability

and had claimed that the transactions were fraudulent,

prima facie, the bank was well within its rights in charging

back the amount of these transactions, under Clause 6.3.5

and 6.3.16 of the agreement. Also, in exercise of its power

under Clause 6.4 of the agreement, the defendant bank was

entitled to recover these amounts from the account of the

plaintiff with the defendant bank.

7. Whether the transactions disputed by the card

holders were actually made by them or not is a matter

which can be decided only during trial. At this stage, when

the card holders themselves have disputed the transactions

and have claimed the same to be fraudulent, it is difficult to

say that the defendant bank was not entitled to charge-back

the amount of these transactions and recover the same from

the account of the plaintiff with it.

8. In M/s Mechalec Engineers and Manufactures v.

M/s Basic Equipment Corporation (1977) 1 SCR 1060, the

Supreme Court set out the following principles:-

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

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

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

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

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

9. The following triable issues, therefore, definitely

arise in the facts and circumstances of the case:-

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