Transport Corporation Of India ... vs Reserve Bank Of India & Anr.
2014 Latest Caselaw 4847 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                             Judgment reserved on: 14th August, 2014
%                       Judgment pronounced on: 26th September, 2014

+                     I.A. No.10987/2012 in CS(OS) No. 361/2012

       TRANSPORT CORPORATION OF INDIA LTD        .....Plaintiff
                   Through Ms.Diya Kapur, Adv. with
                           Ms.Tejaswi Shetty & Ms.Himanie
                           Katoch, Advs.

                           versus

       RESERVE BANK OF INDIA & ANR              .....Defendants
                   Through Mr. H.S. Parihar, Adv. for D-1.
                             Mr. Rajiv Nayar, Sr. Adv. with Mr. Anuj
                             Berry and Mr. Tanuj Bhushan, Advs.
                             for D-2.

       CORAM:
       HON'BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The plaintiff has filed a suit seeking for declaration , mandatory injunction and recovery of Rs.6,92,55,342/- in respect of a foreign exchange derivative transaction being a USD-CHF transaction dated 20th September, 2007 entered into between the plaintiff and defendant No.2.

2. Brief facts of the case are that the plaintiff company which is engaged in the business of multi modal transport and logistics including supply chain solutions requires terms loans and working capital loan facilities from various banks from time to time. In 2006, the plaintiff company had loans of approximately Rs.226 crores

outstanding on which it was paying interest at the rate of approximately 6.50% to 11% p.a. In 2006, defendant No.2 induced the plaintiff to enter into Foreign Exchange derivative transactions which was represented as transaction that saved the plaintiff interest costs of 2% on its loan, but in fact was a transaction designed to make profits for defendant No.2 bank. The defendant No.2 bank induced the plaintiff to "notionally" convert its Rupee loan into a Swiss Franc (CHF) loan on the representation that interest costs were much lower in CHF and therefore the plaintiff would save interest costs. It was further represented that there was no forex risk of such notional conversion, the CHF being an extremely stable currency and that any limited forex risk of this notional conversion was protected by way of an "option protection".

3. On 23rd October, 2006, the plaintiff passed a resolution authorizing certain officials of the company to accept the terms and conditions of offers of the banks in relation to derivative transactions which are in the best interests of the company. On 20th September, 2007 the plaintiff entered into an interest saving transaction with the defendant No.2 wherein Rs.15,00,00,000/- was notionally swapped into CHF 44,43,467/-; the maturity date was set forth 24th September, 2009; the plaintiff was to receive 2% of Rs.15,00,00,000/- which purported to be an interest saving on account of the swap into Swiss Francs (CHF).

4. It is stated by the plaintiff that the defendant No.2 bank, either directly or acting through its agents, did not advise the plaintiff and actively concealed from the plaintiff, that the transaction not only

exposed the plaintiff to a huge risk of loss but also that the said loss would be a corresponding gain for defendant No.2 Bank. The defendant No.2 bank was obliged to adequately disclose the risks inherent in the said transaction and the profits that the defendant bank would make under such a transaction and while acting as an adviser was also a counter party to the transaction thus having a gross conflict of interest.

5. It is stated that the transaction was in fact, extremely risky, heavily weighted against the plaintiff and that the plaintiff had been deceived into entering into a transaction which it believed was designed to save interest costs of Rs. 30 lakhs but which in fact was designed to make profits of crores of rupees for the bank. The plaintiff first discovered that it had been fraudulently induced to enter into a transaction which was for the benefit of defendant No.2 bank and to the detriment of the plaintiff, when despite repeated assurances that although MTM loses were being incurred corrective steps would be taken, the defendant No.2 on 22nd May, 2009 advised the plaintiff to restructure the transaction and make a payment of Rs.1,94,50,000/-.

6. It is stated that the plaintiff also came across a copy of a communication by defendant No.1 to the Chief General Manager, State Bank Of India dated 20th March, 2006 bearing reference number FE.CO.FMD 20198/02/03.75/2005-2006 stating that INR/CHF swaps with embedded options were not permissible under the regulations since the options are hedges for a derived exposure, arrived at through a principal only swap. Thereafter, the defendant No.2 Bank threatened the plaintiff that if it does not pay

Rs.4,98,05,340/-, it would declare the plaintiff a willful defaulter which would bring the plaintiff's entire business to a standstill as the plaintiff being heavily dependent on working capital facilities and loans from various banks. The plaintiff therefore paid the defendant Bank Rs.4,98,05,340/- on 22nd October, 2009.

7. It is further stated that on 26th April, 2011, the defendant No.1 came out with a circular imposing a penalty on several banks in relation to foreign exchange derivative transactions of the nature entered into with the plaintiff company on grounds of "contravention of various instructions issued by the defendant No.1 in respect of derivatives, such as failure to carry out due diligence in regard to suitability of products, selling derivative products to users not having risk management policies and not verifying the underlying/adequacy of underlying and eligible limits under past performance route".

8. It is alleged that the transactions are illegal, prohibited and are vitiated by fraud, misrepresentation, undue influence and breach of fiduciary duty and their considerations and objects are unlawful and contrary to RBI regulations and public policy and hence are void under Section 23 of the Indian Contract Act. It is further alleged that the defendant bank fraudulently induced the plaintiff company to enter into the said transaction by making false representations, omissions, material inducements and by dominating the will of the plaintiff company.

9. The plaintiff has invoked the territorial jurisdiction of this court in view of statement made in para 47 of the plaint which reads as under:

"47. Jurisdiction

The cause of action for the present suit has arisen in Delhi, The ISDA Master Agreement and all the transactions have been executed at Delhi and hence this Hon'ble Court has jurisdiction."

10. During the pendency of suit an application being I.A. No. 10987/2012 under Order VII Rule 10 and 11 read with Section 151 CPC has been filed by defendant No.2 inter alia seeking return/rejection of the plaint, as filed, in so far as this court lacks territorial jurisdiction to entertain the suit and in any case the plaint, as filed, is not maintainable in law, being inter alia barred by delay and laches and also does not disclose a maintainable cause of action. It is stated in the application that as per vide Section 20 of CPC, the plaintiff may institute a suit only in a Court within the local limits of which the defendant actually carries on business and/or the whole or part of the cause of action arises. It is further stated that the entire purported cause of action as pleaded in the plaint has arisen in Mumbai in as much the defendant No.2 is situated in Mumbai and has transacted the purported transaction under challenge herein from Mumbai alone.

11. It is stated that the derivative transaction dated 20th September, 2007 which is purportedly challenged by way of the suit, arises from and under the ISDA Master Agreement dated 6th September, 2007, which Master Agreement has not been assailed by the plaintiff and only the derivative transaction dated 20th September, 2007 transacted in pursuance of the Master Agreement has been assailed. Therefore, the suit does not disclose any cause of action, at all, meriting adjudication by this Court.

On merit, it is stated that the plaint as filed is further barred in law in as much as derivative transactions, as purportedly sought to be challenged by the plaintiff have been ratified and validated by the Parliament vide Reserve Bank of India (Amendment) Act, 2006 whereby the Reserve Bank of India Act, 1934 was duly amended. Defendant No.2 made reference to Section 45-U, 45-V and 45-W of the Act and in the light of these provisions, the plaint is barred in law. It is stated that the plaintiff have purposely and with an ulterior motive withheld and suppressed these provisions and not disclosed the same in the plaint. Further the plaintiff has suppressed and not disclosed the fact that it has made profits under the said Agreement and has been paid a sum of Rs.44,95,890/- which amounts have not even been sought to be disgorged by the plaintiff while assailing the said transactions which is ex-facie exhibitive of their malafide intent. The plaintiff has also purposely suppressed the fact that they have executed and transacted substantially similar, if not identical derivative transactions with several other banks thus belying the entire tenor of their submissions in the plaint.

12. Reply to the application has been filed by the plaintiff wherein it was stated that it is a settled law that a plaint can be rejected/returned only on the basis of what is contained in the plaint and cannot be returned/rejected on the basis of the allegations made by the defendant in his written statement or in an application for rejection of the plaint. It is further stated that defendant No.2 bank should have pointed out the deficiencies in the plaint which would merit its return/rejection which it has failed to do and it is stated that

no pleadings or grounds taken by defendant No.2 bank outside the plaint can be considered at this stage. The defendant No.2 bank has failed to point out any infirmities or defects with the plaint of the plaintiff. It is stated that the plaint cogently and coherently states all the material facts for claiming the reliefs sought through this suit and has made out a clear cause of action. The balance of convenience would clearly be in favour of the plaintiff as it has been deceived by the defendant No.2 bank which fraudulently induced to enter into the transaction under the challenge by misrepresentation when acting in its fiduciary capacity and the plaintiff is merely seeking the recovery of the amount illegally appropriated by the defendant No.2 bank.

It is further stated that the only reliefs that this suit has been filed for is to ensure that the amount which rightfully belongs to plaintiff be allowed to be recovered and that the license of the defendant No. 2 bank to carry out banking operations or to carry out derivative transactions be cancelled so as to prevent other persons from being in a predicament similar to the plaintiff.

13. The defendant No.2 in the rejoinder has denied the assertions of the plaintiff and has reiterated the contents of the application.

14. It is stated by the defendant No.2 in its application for return of the plaint that its Northern Regional Office based in Delhi had no nexus with the transaction or privity with the plaintiff vis-à-vis the contracts and transactions under challenge.

15. The submission of the plaintiff's counsel is that the said assertion of the defendant No.2 is entirely false in view of reasons given in the plaint.

16. The Supreme Court in Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success, (2004) 9 SCC 512, while dealing with the law relating to rejection of plaint under Order VII Rule 11 CPC, observed as follows:

"Whether a plaint discloses a cause of action or not is essentially a question of fact. But whether it does or does not must be found out from reading the plaint itself. For the said purpose the averments made in the plaint in their entirety must be held to be correct. The test is as to whether if the averments made in the plaint are taken to be correct in their entirety, a decree would be passed.

In ascertaining whether the plaint shows a cause of action, the court is not required to make an elaborate enquiry into doubtful or complicated questions of law or fact.

So long as the claim discloses some cause of action or raises some questions fit to be decided by a judge, the mere fact that the case is weak and not likely to succeed is no ground for striking it out. The purported failure of the pleadings to disclose a cause of action is distinct from the absence of full particulars."

17. The law has been settled by this Court in various decisions that while considering an application under Order 7 Rule 11 CPC, the court has to examine the averments in the plaint and the pleas taken by the defendants in its written statement would be irrelevant. [vide C. Natrajan v. Ashim Bai, (2007) 14 SCC 183, Ram Prakash Gupta v. Rajiv Kumar Gupta, (2007) 10 SCC 59, Hardesh Ores (P) Ltd. v. Hede and Co., (2007) 5 SCC 614, Mayar (H.K.) Ltd. v. Vessel M.V. Fortune Express, (2006) 3 SCC 100, Sopan Sukhdeo Sable v. Asstt. Charity Commr., (2004) 3 SCC 137 and Saleem Bhai v.

State of Maharashtra, (2003) 1 SCC 557]. The above view has been once again reiterated in the recent decision of this Court in Church of Christ Charitable Trust & Educational Charitable Society v. Ponniamman Educational Trust, (2012) 8 SCC 706.

18. It is settled law that while considering the application for rejection or return of the plaint, the court has to read the entire plaint in a meaningful manner and documents filed along with the plaint. In the present case, if the same is read, the facts are available that the plaintiff interacted with employees of defendant No.2 located in Delhi. Specifically, plaintiff interacted with Swati Dakalia and Parminder Singh who advised them regarding the transaction at all stages were based in Delhi. It is borne out of the documents filed by the plaintiff. The plaintiff has given the name of the officer i.e. Swati Dakalia who is based in Delhi. The said details are available in the documents.

19. In the case of Exphar SA and Another vs. Eupharma Laboratories Ltd. and Another, AIR 2004 SC 1682, it was held in para 9 and 15 as under :

"9. Besides when an objection to jurisdiction is raised by way of demurrer and not at the trial, the objection must proceed on the basis that the facts as pleaded by the initiator of the impugned proceedings are true. The submission in order to succeed must show that granted those facts the Court does not have jurisdiction as a matter of law. In rejecting a plaint on the ground of jurisdiction, the Division Bench should have taken the allegations contained in the plaint to be correct. However, the Division Bench examined the written statement filed by the respondents in which it was claimed that the goods were not at all sold within the territorial jurisdiction of the Delhi

High Court and also that the respondent No. 2 did not carry on business within the jurisdiction of the Delhi High Court.

15. Furthermore, the appellants' plaint said that the 'cease and desist' notice was sent to the appellant No. 2 at its office in New Delhi and in that notice it was alleged that the appellant No. 2 had infringed the copyright of the respondent No. 2 to the trademark 'Maloxine'. Now a cease and desist notice means that the recipient is alleged to have infringed the rights of the sender of the notice to the copyright and as a result of such alleged infringement the recipient is liable to institution of civil and/or criminal proceedings. It is a threat. The plaint says that this threat was received within the jurisdiction of the High Court a fact which was sufficient to invoke the jurisdiction of that Court. The respondents' reliance on the decision of this Court in Oil and Natural Gas Commission v. Utpal Kumar Basu and Ors. 1994 (1) Supp SCR 252 and Union of India and Ors. v. Advani Exports Ltd. and Anr. 2002 (1) SCC 567 is inapposite. Those decisions held that the service of a mere notice may not be sufficient to found jurisdiction unless such notice formed an integral part of the cause of action. But a 'cease and desist' notice in a copyright action cannot, particularly in view of Section 60 of the Act, be termed to be a 'mere' notice. Such a threat may give rise to the right to institute a suit to counter such threat and to ask for relief on the ground that the alleged infringement to which the threat related was not in fact an infringement of any legal right of the person making such threat."

20. It also appears from the plaint and the documents that the demand for payments was made by Swati Dakalia from Delhi; the payments were made from Citibank N.A, Delhi; the cheque was presented for encashment in Delhi; all these documents filed by the plaintiff are admitted documents.

21. It is settled law that in any event part of the cause of action has arisen in Delhi and therefore this Court has jurisdiction. Specifically,

the inducement to enter into the said transactions took place by the employees located at Delhi as per averment made in the plaint. Hence, prima facie at this stage it appears to the court that the cause of action has partly arisen in Delhi. Also the cause of action having arisen upon demand for payments by defendant No.2 and upon making of the payments by the plaintiff, both events having taken place in Delhi, the cause of action has arisen in Delhi. Even as per contract executed between the parties, wherein it was stated that this statement is false as the clause specifically states "non exclusive jurisdiction of the Courts in Mumbai, India".

22. In view of the above facts and circumstances of the case, the question of territorial jurisdiction, if any, needs to be examined at the time of trial. At the relevant time, issue about territorial jurisdiction would be framed in view of objection raised by the defendant No.2. At this stage, the relief sought by defendant No.2 cannot be granted in the light of averments made in the plaint and the documents filed along with the plaint. Thus, the present application is rejected. However, the objection of jurisdiction would remain intact which would be decided along with other issues at the time of final disposal of the suit.

CS(OS) No.361/2012

List on 10th December, 2014 for framing of issues.

(MANMOHAN SINGH) JUDGE SEPTEMBER 26, 2014