Delhi High Court
M/S Ncubate Logistic & ... vs Union Of India & Ors on 8 February, 2021
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 8th February, 2021.
+ W.P.(C) 7302/2013 & CMs No.2673/2014 (for stay) & 17133/2017
(u/S 151 of the CPC)
NCUBATE LOGISTIC & WAREHOUSING PVT. LTD.
AND ANR ..... Petitioners
Through: Mr. Abhinav Vasisht, Sr. Adv. with
Mr. R. Jawahar Lal, Mr. Siddharth
Bawa, Mr. Shyamal Anand and Ms.
Priya Singh, Advs.
Versus
UNION OF INDIA & ORS ..... Respondents
Through: Mr. P.S. Singh, Adv. for R-1/UOI.
Mr. H.S. Parihar and Mr. Kuldeep S.
Parihar, Advs. for R-2/RBI.
Mr. Karan Khanna and Ms. Asmita
Kumar, Advs. for R-3 to 5/IOB.
AND
+ CS(COMM) 829/2016 & IA No.8202/2016 (u/O XXXIX R-1&2
of the CPC)
INDIAN OVERSEAS BANK ..... Plaintiff
Through: Mr. Karan Khanna and Ms. Asmita
Kumar, Advs.
Versus
NCUBATE INDIA SERVICES PVT LTD & ORS ..... Defendants
Through: Mr. Abhinav Vasisht, Sr. Adv. with
Mr. R. Jawahar Lal, Mr. Siddharth
Bawa, Mr. Shyamal Anand and Ms.
Priya Singh, Advs. for D-1(A),5&6.
Mr. H.S. Parihar and Mr. Kuldeep S.
Parihar, Advs. for RBI.
Mr. Pallav Saxena, Adv. for D-4.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Ncubate Logistic & Warehousing Pvt. Ltd. (Ncubate) and its Director
Alok Goswami filed W.P.(C) No.7302/2013 seeking mandamus, directing
the respondents Union of India (UOI), Reserve Bank of India (RBI) and
Indian Overseas Bank (IOB), to honour the following Bank Guarantees
(BGs):
Date Number Amount
14th February, 2013 1436/ILG/12/2013 Rs.2 crores
6th March, 2013 1436/LG/18/2013 Rs.2 crores
6th March, 2013 1436/LG/19/2013 Rs.1 crore
26th March, 2013 1436/LG/26/2013 Rs.2 crores
issued by IOB in favour of the Ncubate and to pay the amounts
thereof together with interest @ 18% per annum, from 1st June, 2013, being
the date of invocation of the BGs and till payment.
2. It was the case of Ncubate in the writ petition, (i) that Ncubate is a
part of "SAR Group of Companies"; (ii) that Ncubate was promoted by
Rakesh Malhotra and Navneet Kapoor, who have 85% and 15%
shareholding respectively in Ncubate; (iii) that Ncubate is engaged in import
sourcing, warehousing, logistic services and solutions, distribution to
different customers, of various goods and products such as telecom
consumer electronics, durables like water purifiers and air conditioners'
stabilizers etc.; (iv) that Global Brands Enterprise Solutions Pvt. Ltd.
(GBESPL), promoted by Pranay Dhabhai, Sidhant Dhingra, Sanchay
Dhingra and Ashok Arjan Vaswani, had the marketing and distribution
rights for India, of electronic consumer goods marketed under the name
"AKAI"; (v) that GBESPL was however not able to capitalize on the
business opportunity and was struggling to meet its existing obligations with
the lenders; (vi) that in or about the year 2012, GBESPL approached the
SAR Group, for collaboration, support and expansion of its business
operations, by using Ncubate's pan India network for selling and distribution
of products under the brand name 'AKAI'; (vii) GBESPL and Ncubate
entered into an Import and Sourcing Agreement dated 5th May, 2012
whereunder GBESPL engaged Ncubate as its supplier and Ncubate agreed
to source, import, warehouse, maintain inventory of and/or otherwise supply
the products to GBESPL, based on purchase orders placed and/or
instructions given by GBESPL from time to time, by issuance of Letter of
Credit (LC) to Ncubate's vendors; (viii) that the aforesaid agreement
entailed Ncubate incurring substantial financial exposure on account of
inventory procured and held by Ncubate on GBESPL's purchase orders and
monies recoverable from GBESPL against the goods sold; (ix) that to
safeguard Ncubate against the said exposure, GBESPL was required to
provide a security deposit of Rs.5 crores to Ncubate along with arranging for
issuance of an unconditional and irrevocable BG for an amount of Rs.20
crores in favour of Ncubate; (x) that an addendum dated 7th May, 2012 to
the agreement dated 5th May, 2012 was also executed by GBESPL and
Ncubate; (xi) that under the aforesaid agreements, GBESPL and its
shareholders Sanchay Dhingra, Sidhant Dhingra and Ravi Dhingra and their
company Fashion Clothing Pvt. Ltd. (FCPL) were obligated to arrange for
an unconditional and irrevocable BG for an amount of Rs.20 crores in
favour of Ncubate, on the personal guarantees of Pranay Dhabhai and Ravi
Dhingra along with corporate guarantee of FCPL, without creating any
charge on the assets of GBESPL; (xii) that GBESPL also entered into a
National Distribution Agreement dated 5th May, 2012 with Savoir Faire
Services Pvt. Ltd. (SFSPL), a group company of Ncubate, whose name was
subsequently changed to Global Brands Enterprise Solutions and
Distributions Pvt. Ltd. (GBESDPL), with no objection of GBESPL; the said
change of name was aimed at streamlining the distribution arrangements and
providing a wider distribution network for GBESPL's products and with the
same intent, Pranay Dhabhai, being a shareholder of GBESPL, was
appointed as one of the Directors of GBESDPL; Pranay Dhabhai however
did not own any shares in GBESDPL and was not drawing any remuneration
from GBESDPL; (xiii) that the relationship between GBESPL and
GBESDPL was that of a vendor and vendee and not that of a principal and
agent or principal and principal; (xiv) that the four BGs aforesaid in the total
sum of Rs.7 crores were issued by IOB, at the instance of GBESPL, in
favour of Ncubate, in pursuance to the aforesaid arrangement; (xv) that
Ncubate, for more than a year, in performance of its contractual obligations,
took significant exposure on account of GBESPL's business activities and as
on the date of filing of the writ petition, the financial liability of Ncubate
and its group companies for transacting and sourcing goods on behalf of
GBESPL was to the tune of Rs.21 crores; (xvi) that at the time of filing this
petition, a sum of Rs.10,25,17,000/- was outstanding from GBESPL to
Ncubate towards purchase of goods and Rs.6,23,41,000/- towards purchase
stock held in Ncubate's inventory and Rs.8,26,00,000/- had been incurred by
Ncubate on account of orders placed with foreign suppliers, to fulfill orders
placed by GBESPL; a further sum of Rs.2 crores was due to Ncubate from
GBESPL on account of subscription of debentures in GBESPL by SAR
Capital; (xvii) that thus, as of May, 2013, a total of Rs.26,74,58,000/- was
payable by GBESPL to Ncubate; (xviii) that GBESPL failed to clear its dues
inspite of opportunities; (xix) that in the circumstances, Ncubate, vide letter
dated 1st June, 2013, invoked the four BGs aforesaid for a total sum of Rs.7
crores, owing to GBESPL's inability to clear the dues of Ncubate; (xx)
however no response was received from IOB, compelling Ncubate to send a
reminder dated 3rd June, 2013; (xxi) that IOB, vide letter dated 3rd June,
2013 took a stand that the BGs were fraudulently issued in favour of
Ncubate and therefore IOB refused to remit the amounts of the BGs; (xxii)
that IOB, in refusing payment under the BGs, was relying upon an undated
letter of Mr. Ravi Dhingra; (xxiii) that the stand of IOB that GBESPL had
worked out a plot to cheat and commit a fraud on IOB, is contrary to the
settled principle of law that BGs are independent contracts and are
enforceable without reference to the underlying contract; (xxiv) that
Ncubate, vide letter dated 5th June, 2013 again called upon IOB to pay the
monies under the BGs; (xxv) that Pranay Dhabhai, the Managing Director of
GBESPL, also vide his letter dated 8th June, 2013 called upon IOB to make
payment to Ncubate; (xxvi) that IOB further informed Ncubate that it had
filed a case before the Court of Additional District Judge, on 24th June,
2013, for declaration of the BGs as null and void for the reason of having
been obtained fraudulently; and, (xxvii) that Ravi Dhingra, vide legal notice
dated 26th June, 2013 to IOB and GBESPL, made a false allegation that the
BGs were fraudulently issued in favour of Ncubate. Contending that the
refusal of IOB to honour the BGs issued in favour of Ncubate was wrong,
the writ petition was filed.
3. The writ petition came up before this Court first on 22nd November,
2013, when notice thereof was ordered to be issued and pleadings ordered to
be completed.
4. Though IOB filed a counter affidavit with annexures and to which
Ncubate filed a rejoinder but the need to detail the pleas therein at this stage
is not felt.
5. The name of Ncubate Logistic & Warehousing Pvt. Ltd. was
informed to have been changed to Ncubate India Services Pvt. Ltd.
(Ncubate) and vide order dated 3rd December, 2014 in W.P.(C)
No.7302/2013, on an application of Ncubate informing so, amended
Memorandum of Parties was permitted to be filed.
6. The orders dated 23rd April, 2015/21st March, 2016 in W.P.(C)
No.7302/2013 record that the plaint in the suit filed by IOB for declaration
of the subject BGs as bad had been rejected/returned vide order dated 2nd
September, 2014 of the Additional District Judge, on the ground of lack of
jurisdiction and IOB had taken recourse to the proceedings under the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT
Act), before the Debt Recovery Tribunal (DRT). Directing IOB to file
pleadings in the application filed before the DRT, the writ petition was
adjourned to 27th August, 2015. Vide subsequent order dated 21st March,
2016, the counsel for IOB was directed to take a stand, whether IOB was
intending to file a suit or not.
7. The order dated 28th January, 2016 in W.P.(C) No.7302/2013 records
the contention of the counsel for IOB, that Ncubate and GBESPL had/have
common Directors and offices at the same address and GBESPL and its
allied company owe a sum of more than Rs.14.54 crores to IOB and for
which the proceedings were pending before the DRT.
8. The subsequent order dated 19th May, 2016 in W.P.(C) No.7302/2013
records the statement of the counsel for IOB that IOB shall file the suit.
9. That is how CS(COMM) No.829/2016 came to be filed and came up
first before this Court on 18th July, 2016, when while issuing summons
thereof, the suit was directed to be listed along with the writ petition.
10. IOB, in the suit, (a) seeks declaration that the four BGs are
unenforceable; and, (b) seeks permanent injunction to restrain defendant
No.1(a) Ncubate India Services Pvt. Ltd. and defendant No.1(b) GBESDPL
from encashing the BGs. Besides them, GBESPL (through Liquidator),
Pranay Dhabhai, Ravi Dhingra, Anurag Aggarwal and Alok Goswami, are
also impleaded as defendants No.2 to 6.
11. It is the case of IOB, in the plaint in the suit (a) that prior to 9th
September, 2014, defendant No.1(a) Ncubate India Services Pvt. Ltd. was
known as Ncubate Logistic & Warehousing Pvt. Ltd.; Ncubate Logistic &
Warehousing Pvt. Ltd. and GBESDPL had been merged with Ncubate India
Services Pvt. Ltd. vide order dated 9th September, 2014 of this Court in Co.
Pet. No.334/2014; consequently, all the assets and liabilities of Ncubate
Logistic & Warehousing Pvt. Ltd. and GBESDPL have been transferred to
Ncubate India Services Pvt. Ltd.; (b) that the other defendants i.e. Global
Brands Enterprise Solution Pvt. Ltd. (in liquidation), Pranay Dhabhai, Ravi
Dhingra, Anurag Aggarwal and Alok Goswami, either as borrowers,
guarantors or as conspirators, along with Ncubate Logistic & Warehousing
Pvt. Ltd. and GBESPL, had cheated and defrauded IOB of a huge sum of
money; (c) that the fraud played, is egregious in nature; (d) that the cause of
action arose due to misrepresentation and non-disclosure of vital facts to
IOB, especially by Ncubate, being the beneficiary of the BGs; (e) that the
facts which were hidden, vitiate the entire transaction; (f) that in or about
March, 2010, GBESPL approached IOB for sanction of certain credit limits
and sought for cash credit limit of Rs.5 crores and LC limit of Rs.7 crores;
(g) that IOB, acting on the security and documents furnished, sanctioned the
said financial arrangement; (h) that thereafter, GBESPL requested for
change of LC limits to BG limit, informing that the need therefor had arisen,
to furnish BGs to suppliers/vendors, for timely procurement of 'AKAI'
branded goods; (i) that since the account of GBESPL was regular and
maintained in normal course, IOB allowed 100% inter-changeability and the
BGs aforesaid in the total sum of Rs.7 crores were issued by IOB; (j) that
the BGs were issued from 14th February, 2013 to 26th March, 2013 and were
invoked within a period of 60-75 days; (k) however just before the aforesaid
invocation, IOB received a letter from one of the Directors namely Ravi
Dhingra, informing IOB of the fraudulent transaction being carried on
between GBESPL, the borrower of IOB and Ncubate, being the beneficiary
of the BGs; (l) that it was not disclosed to IOB at the time of obtaining the
BGs that all the faces behind GBESPL and Ncubate were the same and their
interest was common; (m) that IOB started making inquiries and stopped
payment against the BGs on the basis of facts which came to its notice; (n)
that IOB discovered, (i) that GBESPL entered into agreement with Ncubate
and GBESDPL, for import and distribution of the electronics goods, though
all three were part of the same group; (ii) that the arrangement was, that
Ncubate was to import goods for GBESPL and thereafter the same were
handed over to GBESDPL for the purpose of distribution, and Pranay
Dhabhai, being a Managing Director and Chief Executive Officer (CEO) of
GBESPL was made the Director of GBESDPL; (iii) that it was only in the
end of 2013 that IOB came across the agreements dated 5th May, 2012
entered into between Ncubate, GBESDPL and GBESPL; (iv) that a minute
examination of the agreements shows that the importer of goods i.e. Ncubate
and the distributor of goods i.e. GBESDPL, were group companies; (v) that
the said importer, distributor and GBESPL had shared addresses and
common godowns and warehouses and it did not make a difference, whether
the goods were of GBESPL or of Ncubate or of GBESDPL; (vi) that under
the agreements, Ncubate could not have claimed the amount from GBESPL
which GBESPL was supposed to receive from GBESDPL for the goods
which were given for distribution; however Ncubate invoked the BGs,
despite the fact that GBESDPL was liable to pay GBESPL an amount of
more than Rs.17.37 crores, as evident from the debtor's statement submitted
by GBESPL to IOB along with its letter dated 20th May, 2013; (vii) that
Anurag Aggarwal, who was the authorised signatory of GBESPL, was an
employee of Navneet Kapoor, a Director of Ncubate and GBESDPL; (viii)
that the complete control of GBESPL was in the hands of Ncubate and
GBESDPL; (ix) that Ncubate has accepted the fact regarding Anurag
Aggarwal in the rejoinder filed in the writ petition; (x) that thus Ncubate
was having a total financial control over GBESPL through Anurag
Aggarwal; (xi) that the beneficiary of the BGs issued by IOB had the
complete financial control over the borrower of IOB; however on the day of
invocation of the BGs, the signatory was changed; (xii) that Alok Goswami,
Director of GBESDPL which was a debtor of GBESPL to the extent of
Rs.17.37 crores, resigned from GBESDPL because he was also a Director
with Ncubate, again to remove the link; (xiii) that though Ashok Arjan
Vaswani who was actively participating in the working of GBESPL,
claimed that he had resigned as Director of GBESPL in 2011 but is found to
have signed balance sheet for the year 2012-2013 of GBESPL as a Director;
(xiv) that the agreements dated 5th May, 2012 were provided to IOB, only
after 20th May, 2013, as admitted by Ncubate in its letter dated 5th June,
2013 to IOB; (xv) that a sham winding up petition of GBESPL was filed for
a meager amount of Rs.1.42 lacs and which was not even opposed by
GBESPL; (xvi) that the agreements, under the garb whereof the BGs were
obtained, also contained a provision for set off; (xvii) that in the balance
sheet for the year 2013 of GBESDPL, it owed a sum of Rs.14.50 crores to
GBESPL; GBESDPL and GBESPL, without paying anything, adjusted the
amount inter se; (xviii) that GBESDPL, in the amalgamation proceedings
claimed to have 'No Objection Certificate' (NOC) from all its unsecured
creditors; GBESDPL, on that day owed GBESPL a sum of Rs.14.50 crores
but still GBESPL, instead of recovering the same, suffered a winding up;
(xix) that all amounts owed by GBESDPL to GBESPL were adjusted in
expenses incurred for providing after sales service, when there was no need
to provide the same; (xx) that as per the agreements now disclosed, if any of
the stock was not taken by GBESPL from Ncubate, Ncubate could have sold
the same through GBESDPL; (xxi) that GBESPL, GBESDPL and Ncubate
and their Directors were acting in connivance with each other, to play a
fraud on IOB; they got unconditional guarantees issued, by suppressing
material facts and all the acts have been done by them as a part of well
planned strategy, with sole intention of obtaining payments under the
guarantees; and, (xxii) that but for the letter dated 20th May, 2013 of Ravi
Dhingra along with all the documents, IOB would never have been able to
understand the magnitude of the fraud played on IOB; (o) that the invocation
of the BGs is thus illegal, unjust and improper as the guarantees have been
obtained by fraud; and, (p) that in case the guarantees are paid, IOB, a
nationalised bank dealing in public money, would suffer irreparable injury
and would never be able to recover the said monies as GBESPL has gone
into winding up and the securities with the IOB do not even fully cover the
other credit limits granted by IOB to GBESPL and for which proceedings
before the DRT have been undertaken.
12. Ncubate, in its written statement in the suit, has pleaded (i) that IOB
has filed the suit to protect the interest of Ravi Dhingra whose personal
guarantees will be invoked, if the BGs are encashed; (ii) that the invocation
of BGs has not been challenged by GBESPL, at whose instance/on whose
behalf IOB has furnished the BGs; (iii) that IOB, instead of making payment
under the BGs and recovering the amount from GBESPL and its guarantors,
is failing in contractual and legal obligation under the BGs; (iv) that it is not
the case of IOB that the BGs were issued under coercion or have been
invoked without authority; (v) that it is the admitted case of IOB that it is
fully secured against the issuance of BGs; (vi) that the BGs are secured by
mortgage of plot of land at Udyog Vihar, Gurgaon, Haryana, personal
guarantees of Pranay Dhabhai and Ravi Dhingra and his sons Sidhant
Dhingra and Sanchay Dhingra as well as by corporate guarantee of FCPL
controlled by Pranay Dhabhai as well as by cash margin of 20% of the BGs
amount; (vii) that IOB has already initiated recovery proceedings against
GBESPL in respect of other facilities extended by IOB to it; (viii) that IOB,
in the proceedings in the DRT, has also pleaded that if the monies under the
BGs are paid, such amount would also be due from GBESPL and its
Directors; (ix) that GBESPL had agreed to furnish BGs to Ncubate, to
secure the goods to be imported by Ncubate and to be supplied to GBESPL;
(x) that GBESPL and GBESDPL do not have common shareholders; they
are distinct legal entities; (xi) that Ncubate imported the goods and sold the
same to GBESPL and for which GBESPL was to pay Ncubate and to secure
which amounts GBESPL agreed to furnish BGs to Ncubate; (xii) that the
entire case of IOB, of collusion, is on the basis of Ncubate and GBESDPL
having common Directors and having merged in Ncubate India Services Pvt.
Ltd.; (xiii) that there is no basis for IOB to resist payment under the BGs;
(xiv) that if IOB had made payments under the BGs on time, it could have,
before the winding up of GBESPL, taken steps for recovery of amounts paid
under the BGs to Ncubate and the delay on the part of IOB cannot be a
reason for seeking injunction; (xv) that IOB has no privity of contract with
Ncubate and has no cause of action against Ncubate and the plaint is liable
to be rejected; (xvi) that the transaction between GBESPL and Ncubate was
an arms-length transaction, on principal-to-principal basis; (xvii) that it is a
matter of record that Ncubate and GBESDPL were part of the same group;
(xviii) that based on the account statement as on 1st June, 2013, GBESPL
owes Rs.10.25 crores to Ncubate and in recovery of which, Ncubate invoked
the BGs for Rs.7 crores; (xix) that GBESPL, as on 30th June, 2014 also
owed Rs.2.49 crores to GBESDPL and the question of set off does not arise;
(xx) that the plea of IOB, of GBESDPL owing Rs.17.37 crores to GBESPL,
is false; the Official Liquidator (OL) of GBESPL has demanded only a sum
of Rs.4,15,32,890/- from GBESDPL; the said claim of OL of GBESPL
against GBESDPL has also been disputed by GBESDPL; (xxi) that Anurag
Aggarwal was not an employee of Navneet Kapoor; (xxii) that the
shareholders or Directors of Ncubate never had any role in GBESPL; (xxiii)
that though an amount of Rs.14.50 crores was due as on 31st March, 2013
from GBESDPL to GBESPL, the same was paid/adjusted during the
subsequent months (para 21&22 (k) in reply to para 24 of the plaint); (xxiv)
that though the goods were sold in the market by GBESDPL but the
obligation to provide after sales service and support was of GBESPL and on
failure of GBESPL to provide the after sales service, since GBESDPL
distributed the goods, consumers and retailers started harassing the retailers
who in turn started harassing GBESDPL and GBESDPL was forced to
provide the support and incur expenses therein and which were adjusted in
the amount owed to GBESPL; and, (xxv) that no fraud has been played on
IOB.
13. The defendant No.5 Anurag Aggarwal has also filed a short written
statement to the suit, supporting the stand of Ncubate and otherwise stating
that no relief in the suit having been claimed against him, he is not required
to give parawise reply.
14. Similarly, defendant No.6 Alok Goswami has also filed a written
statement supporting the written statement of Ncubate.
15. Though IOB has filed a replication to the written statements aforesaid
but need to refer thereto is not felt.
16. Vide order dated 26th September, 2016, defendants No.2 to 4 viz.
GBESPL through OL, Pranay Dhabhai and Ravi Dhingra were proceeded
against ex-parte; however Ravi Dhingra is found to have filed written
arguments.
17. The suit, on 17th November, 2016, was listed for framing of issues.
However, the counsel for IOB as well as the senior counsel for defendant
No.1(a)&(b) i.e. Ncubate and GBESDPL, since merged in Ncubate India
Services Pvt. Ltd. and defendants No.5&6 i.e. Anurag Aggarwal and Alok
Goswami, stated that no trial is required and the suit be disposed of on the
basis of arguments and documents. The consent of the counsels that the
record of the writ petition shall be read in the suit, is also recorded in the
order dated 17th November, 2016.
18. The hearing of the writ petition and the suit commenced on 14th
February, 2017 and continued till 14th January, 2020, when written
arguments were filed by the counsel for IOB and orders reserved.
19. Ncubate, neither in the suit nor in the writ petition had placed on
record any documents to show that the amount of the BGs was due from
GBESPL to Ncubate, for Ncubate to, in realisation of the said amount,
invoke the BGs. During the hearing on 14th February, 2017, it was so
enquired from the senior counsel for Ncubate and other defendants aforesaid
and on request of the senior counsel for Ncubate, Ncubate permitted to file
the said documents.
20. Ncubate filed an additional affidavit verified on 26th April, 2017 (in
Volume V of Part A file in the writ petition) along with documents, besides
in the said Volume V of Part A file in the writ petition, in as many as 59
additional Volumes. Ncubate along with the said additional affidavit, has
filed copies of (i) Trade Mark License and Technical Collaboration
Agreement between AKAI Sales Pte Ltd. Singapore and GBESPL,
whereunder GBESPL was free to sell products under the trade mark 'AKAI'
in India, Sri Lanka and Bangladesh, on payment of licence fee; (ii) Letter
dated 2nd March, 2012 issued by AKAI Sales Pte Ltd. to GBESPL,
authorising GBESPL to source or purchase products under the trade mark
'AKAI' from third parties and letter dated 24th May, 2012 whereby AKAI
Sales Pte Ltd. permitted Ncubate to import and source products under the
trade mark 'AKAI', for sale by GBESPL; (iii) Ledger Summary of Ncubate
showing transactions containing total billing, payment, outstanding etc. of
GBESPL; (iv) Month-wise billing done by Ncubate on GBESPL and month-
wise payments made by GBESPL to Ncubate; (v) Sample Documents
evidencing the manner in which goods were purchased by Ncubate for
GBESPL (in this regard it is pleaded that GBESPL used to identify the seller
from which product was to be procured by Ncubate; GBESPL used to
determine quantity, price and terms of payment and obtain proforma invoice
from the seller in the name of Ncubate and hand over the same to Ncubate to
procure the products from the identified seller; Ncubate thereafter used to
approach the identified seller for procuring the products, establish LC from
its bankers in favour of the seller; file bill of entry with the Customs
Authorities and get the duty assessed and paid and clear the goods and
warehouse the same) (it is also stated that the said goods were freely
importable under the open general licence, without need for obtaining
licence); (vi) Summary of Purchases made from the suppliers of the
products and Summary of Payments made to them; (vii) Summary of Total
Purchases made for GBESPL and Payments made by GBESPL to Ncubate;
(viii) Commercial Invoices of purchase of goods for GBESPL, Packing Lists
as well as Bills of Lading; (ix) Documents evidencing opening of LCs; (x)
Bank statements of Ncubate evidencing payments made to sellers from
whom the products were procured as well as the payments received from
GBESPL; (xi) Invoices raised by Ncubate on GBESPL (it is also pleaded
that the products, on being released from Customs, were brought into the
godown/warehouse of Ncubate and transferred to the several warehouses of
Ncubate and thereafter sold to GBESPL as per the requirement of the
GBESPL); (xii) Summary of Transactions between GBESPL and
GBESDPL as per which an amount of Rs.2.64 crores is due from GBESPL
to GBESDPL (it is also pleaded that qua Modern Trade Chains/Shops viz.
Reliance, Croma, Big Bazaar etc., the role of GBESDPL was limited to local
logistics and invoicing and the duty of sale, distribution and collection was
that of GBESPL and in consideration whereof GBESPL was to pay
GBESDPL 1.5% trade margin on the net selling price; else, GBESPL was to
pay GBESDPL 4.5%); (xiii) Month-wise purchases made by GBESDPL
from GBESPL; (xiv) Month-wise payments made by GBESDPL to
GBESPL; (xv) Banks Statements of GBESDPL (it is also pleaded that
GBESDPL was entitled to credit of Rs.1.21 crores for payments directly
received by GBESPL and to credit of Rs.1.23 crores towards sale scheme
under Clause 4.5 of the agreement between GBESPL and GBESDPL and to
credit of Rs.0.20 crore towards octroi duty reimbursement in terms of
Clause 4.9(c) of the agreement between GBESPL and GBESDPL); (xvi)
Debenture Subscription Agreement entered into by GBESPL and its
shareholders with SAR Capital Pvt. Ltd., a group company of Ncubate and
GBESDPL, whereunder SAR Capital Pvt. Ltd. had advanced Rs.2 crores to
GBESPL for allotment of optionally convertible debentures and
notices/letters sent by SAR Capital Pvt. Ltd. calling upon GBESDPL to pay
Rs.2 crores with interest in terms of Clause 7 of Schedule B of Debenture
Subscription Agreement; (xvii) Documents evidencing payment of Rs.2.43
crores by GBESDPL to SAR Capital Pvt. Ltd.; and, (xviii) Service Vouchers
to show after sale service rendered by GBESDPL on failure of GBESPL to
provide so.
21. The senior counsel for Ncubate argued, (a) that as per the statement
made by counsels and recorded in the common order dated 17th November,
2016 in the suit and the writ petition, no trial is required and the writ petition
and the suit have to be decided on the basis of arguments and documents; (b)
that Ncubate has filed all the documents to show the genuineness of the
transactions and which documents show that no fraud was practiced on IOB;
(c) that IOB did not choose to lead any evidence and has also not filed any
documents in response to the documents filed by Ncubate along with its
additional affidavit; (d) that GBESPL was having financial facilities from
IOB, of Rs.12 crores, since prior to the agreement of GBESPL with
GBESDPL and it is not as if, financial facilities from IOB were obtained
only when GBESDPL came into picture; (e) that in fact GBESPL was
having financial difficulties inspite of having a valuable agreement with
AKAI and GBESDPL stepped in only to enable GBESPL to reap the
benefits of the said agreement with AKAI; (f) that GBESPL had agreed to
furnish unconditional BGs for Rs.7 crores in favour of Ncubate in
consideration of Ncubate agreeing to provide credit to GBESPL for a period
of 45 days from the date of receipt of consignment in the first warehouse
upon importation of goods in India or upon domestic purchase from vendor;
attention was invited to Clauses 2.4, 2.5 and 2.9 of the agreement between
GBESPL and GBESDPL; (g) that it is not as if, IOB did not have any
security for the BGs furnished by it; if IOB has lost the securities, it has
itself to blame; (h) that the documents filed by Ncubate show transactions of
over Rs.100 crores and transactions of such volume cannot be called
collusive; (i) that the tests of fraud are to be seen in the context of Section 17
of the Indian Contract Act, 1872 and merely by shouting fraud, IOB cannot
claim to have been defrauded; (j) that IOB is presumed to have done due
diligence before giving the BGs; (k) that attention was drawn to Annexure C
to the additional affidavit, being the ledger summary of Ncubate qua
transactions with GBESPL; and, (l) that the shareholders of GBESPL and
Ncubate were different and it was only one person of GBESPL, who was
appointed on the Board of GBESDPL, that too for proper functioning.
22. The counsel for IOB, besides reiterating the facts as pleaded in the
counter affidavit to the writ petition and in the plaint, argued (i) that the
claim of IOB is that there has been an egregious fraud by parties involved,
thereby vitiating the whole transaction and it is for this reason only that the
BGs have not been paid; needless to state that if the BGs are paid,
irreparable loss will be caused to IOB; (ii) that entities under the garb of
corporate veil cannot be permitted to play fraud and swindle away public
money; (iii) that all the securities and monies that IOB had reserved to
secure its interest and monies lent to GBESPL including in the form of BGs,
have been removed and swindled away; (iv) that it is the case of Ncubate
that monies have become due to Ncubate in terms of the agreement with
GBESPL, because GBESPL did not pay its dues under the purchase orders
and the same were outstanding for more than 55 days; (v) however Ncubate,
after invoking the BGs on 1st June, 2013 has made adjustments worth
Rs.4.73 crores; (vi) that writ jurisdiction cannot be invoked where the Bank
is claiming fraud on the part of the beneficiary; (vii) that adjudication of
serious question of fraud requires examination of documents and which
cannot be done in writ jurisdiction; reliance is placed on Edward Owen
Engineering Ltd. Vs. Barclays Bank International Ltd. (1978) 1 All ER
976 (CA), U.P. Cooperative Federation Ltd. Vs. Singh Consultants and
Engineers (P) Ltd. AIR 1988 SC 2239, U.P. State Sugar Corporation Vs.
Sumac International Ltd. (1997) 1 SCC 568 and National Building
Construction Corporation Vs. Punjab National Bank 98 (2002) DLT 53;
(viii) that Ncubate, in its writ petition has not made GBESPL or its
shareholders and Directors a party; (ix) that examination of fraud cannot be
undertaken and adjudicated under Article 226 of the Constitution of India;
(x) that GBESPL was availing credit facility from IOB, of Rs.5 crores for
CC limit and Rs.7 crores for LC, since the year 2010; (xi) that vide letter
dated 30th January, 2013, Anurag Aggarwal requested IOB to allow
interchangeability of LC limits into BG limits stating that the necessity of
the same was to cover up purchase orders being raised by GBESPL on
Ncubate; (xii) that IOB subsequently discovered that Ncubate was the
importer of the goods and was further stocking, warehousing and
maintaining inventory of the goods and also distributing the goods; (xiii)
that as far as GBESPL was concerned, it was just a paper based transaction
because GBESPL was the licence holder of AKAI; (xiv) that there was
active concealment of facts and documents; (xv) that certain acts were
staged, only to have the monetary gains of encashment of BG; (xvi) that
IOB, was not told that Ncubate and GBESDPL were part of the same group
and associate concern; (xvii) that it was also concealed that Anurag
Aggarwal of GBESDPL and Ncubate was made to serve in GBESPL; (xviii)
that IOB further learnt that AKAI Sales Pte Ltd. was into winding up in
Singapore, on 1st March, 2013; (xix) that all the goods were under the
control of Ncubate but still the goods were hypothecated by GBESPL in
favour of IOB; (xx) that GBESPL was maintaining several bank accounts
with other Banks and was transacting with Ncubate and GBESDPL through
these accounts; (xxi) that both the agreements entered into by GBESPL,
with Ncubate and GBESDPL, were one sided; (xxii) that IOB further learnt
that Anurag Aggarwal who was an Officer of GBESPL was actually an
employee of Navitas Grain Power Limited, a shareholder of Ncubate as well
as GBESDPL; (xxiii) that thus, Ncubate only was controlling the financial
operations of GBESPL also; (xxiv) that Ncubate had 40% share of GBESPL
pledged with it; (xxv) that Anurag Aggarwal was subsequently removed
from GBESPL, to remove the link between GBESPL and Ncubate; (xxvi)
that as per the agreement between GBESPL and Ncubate, on GBESPL not
lifting the goods within 55 days of import, Ncubate could sell the same
through GBESDPL, in realisation of its dues; (xxvii) that the purchase
orders placed by GBESPL on Ncubate, which are the basis of the BGs, have
not been placed on record; (xxviii) that the purchase orders placed by
GBESDPL on GBESPL, have also not been placed on record; (xxix) that
under the agreement between GBESPL and GBESDPL, GBESDPL was to
pay the monies to GBESPL, as and when received; (xxx) that GBESDPL
owed Rs.17.37 crores to GBESPL on 30th April, 2013 and there was no need
for Ncubate to invoke the BGs on 1st June, 2013; (xxxi) that GBESDPL was
intentionally named like GBESPL, to carry out distribution of AKAI goods,
for which GBESPL had a licence; and, (xxxii) that GBESPL, as a licence
holder of AKAI, instead of charging monies from Ncubate or GBESDPL for
use of the said licence, gave total control of GBESPL to the group of
companies to which Ncubate and GBESDPL belonged; importing, sourcing,
warehousing, inventory maintaining, distribution, after sale service,
collections etc., in relation to AKAI products, were all being done by the
group of companies to which Ncubate and GBESDPL belonged; the day
Ncubate came to know of winding up of AKAI Sales Pte Ltd., the BGs were
got issued, to siphon off the monies.
23. I have perused the voluminous records, besides going through the
pleadings and have considered the contentions of the counsels.
24. The suit, though for declaration of the BGs as null and void and
unenforceable and for permanent injunction restraining Ncubate from
encashing the BGs, unlike most of the other suits for similar reliefs, with
which the Courts are inundated, has been filed not by the creditor of the
beneficiary of the BG, at whose instance the BG is issued/furnished by the
Bank, but by the Bank itself. Unlike other suits, where the person at whose
instance/on whose behalf the BG has been furnished, claims the BG to have
been fraudulently obtained by the beneficiary, here it is the Bank which has
furnished the BGs, which is claiming the beneficiary to have practiced fraud
in the matter of issuance of the BGs. Again, unlike other suits where the
Bank which has issued the BG is a neutral party and but for the injunction
granted by the Court, is willing to pay under the BG, here it is the Bank
itself which is the contesting party and is denying the liability to pay and the
client of the Bank at whose instance the Bank has issued the BG, is the
neutral party and though impleaded as a defendant in the suit, has chosen not
to contest.
25. Owing to the aforesaid differences, in my opinion, the plethora of
judgments of the Supreme Court and the High Courts, on suits for injunction
against invoking/encashment of BGs, filed by the customers of the Bank at
whose instance the BG has been issued, laying down that the Courts will not
interfere in an unconditional, unequivocal BG having effect as per its terms
save on the ground of established fraud of an egregious nature to the
knowledge of the Bank or on the ground of irretrievable injustice, would not
have any application.
26. The claim of IOB for injunction against encashment of BGs and the
claim of Ncubate for payment under the BGs, in my opinion, has to be
adjudicated applying the law relating to contracts of guarantee as contained
in the Contract Act.
27. Ordinarily, if the guarantor, inspite of demand, does not pay under the
guarantee, the remedy of the beneficiary of the guarantee, which per Section
126 of the Contract Act, is called the "creditor", is to institute a suit for
recovery of the amount of the guarantee. As per said Section 126, the
person in respect of whose default the guarantee is given i.e. GBESPL here,
is called the "principal debtor". Ncubate as the creditor, while so instituting
a suit for recovery of the guaranteed amount, would have a choice, to so
institute the suit either jointly or severally against the guarantor i.e. IOB and
GBESPL or if entitled under the guarantee to recover from IOB as
guarantor, without first having recourse against GBESPL as the principal
debtor, to institute the suit for recovery against IOB alone.
28. Ncubate however, taking advantage of IOB being a nationalised bank
and a writ petition under Article 226 of the Constitution of India lying
thereagainst, instead of filing a suit, choose to file the instant writ petition.
Though a writ petition seeking recovery jointly and/or severally from IOB
and GBESPL, the principal debtor of Ncubate, would not have been
maintainable but Ncubate could have added GBESPL as a proforma
respondent, but it did not. IOB, in its counter affidavit to the writ petition
pleaded fraud, giving particulars thereof.
29. Ordinarily, when disputed questions of fact are found to arise and
which require examination and cross-examination of witnesses and which
cannot be done in writ jurisdiction, the parties are relegated to a remedy
where the witnesses can be examined and no relief in writ jurisdiction
granted. Again, ordinarily writ petitions do not lie in contractual matters or
in enforcement of contract, as Ncubate has filed the instant writ petition, in
enforcement of the contract of guarantee with IOB. However, the occasion
to consider all this did not arise in the writ petition because of it being
informed that IOB had instituted a suit for permanent injunction restraining
encashment of subject BGs and for declaration of the same as null, void and
unenforceable and plaint wherein had been returned for filing in the Court of
appropriate pecuniary jurisdiction and IOB taking a stand that it would re-
file the suit in this Court. This is how, the writ petition was kept pending
awaiting the suit and the two being taken up together for consideration.
However, the parties in the suit also have taken a stand that they do not want
to lead evidence. We have thus returned to the same position in which we
were in the writ petition.
30. In the circumstances, I have wondered the course of adjudication, on
the anvil of, (a) whether the defence of IOB in the writ petition and which is
the same as in its plaint in the suit, of the BGs having been fraudulently and
collusively obtained, is established on the basis of documents on record; (b)
even if it is not so conclusively established, whether such claim of IOB is
plausible enough to raise disputed questions of fact which cannot be decided
without examination and cross-examination of witnesses; and, (c) on whom
does the onus lie, of proving that the monies are due under the BG and/or of
proving that the BGs were fraudulently obtained and if the said questions
cannot be decided without examination and cross-examination of witnesses,
who should suffer i.e. IOB or Ncubate, for not leading any verbal evidence.
31. I have first perused the voluminous records to gauge, what the
documents tell.
32. All the four BGs subject matter of these proceedings, are identically
worded and the material terms thereof are as under:
"Bank Guarantee
As per the conditions mentioned in the purchase orders being
raised for procurement of branded consumer electronic goods
from Global Brands Enterprise Solutions Private Limited
("GBES") to Ncubate Logistic & Warehousing Private Limited
("NLWPL"), GBES is required to arrange for issuance of
unconditional and irrevocable, bank guarantee in favour of
NLWPL for performance of the terms and conditions mentioned
therein. The Indian Overseas Bank, DLF Qutub Enclave
Branch, DLF Phase II, Gurgaon (the "Guarantor Bank")
hereby agrees unequivocally, irrevocably and unconditionally
to pay to NLWPL forthwith on demand in writing from NLWPL
or any Officer authorized by NLWPL in this behalf, any amount
up to and not exceeding Rs.2,00,00,0000/- (Rupees Two Crores
Only) on behalf of GBES.
.....
The Guarantor Bank hereby agrees and acknowledges that
NLWPL shall have a right to invoke this bank guarantee in part
or in full, as it may deem fit.
The Guarantor Bank hereby expressly agrees that it shall not
require any proof in addition to the written demand by NLWPL,
made in any format, raised at the above mentioned address of
the Guarantor Bank, in order to make the said payment to
NLWPL.
The Guarantor Bank shall make payment hereunder on first
demand without restriction or conditions and notwithstanding
any objection by GBES and/or any other person. The Guarantor
Bank shall not require NLWPL to justify the invocation of this
bank guarantee, nor shall the Guarantor Bank have any
recourse against NLWPL in respect of any payment made
hereunder."
33. Per Section 126 of the Contract Act, a contract of guarantee is a
contract to perform the promise or discharge the liability of a third person in
case of his default. Section 127 titled "Consideration for Guarantee"
provides that anything done or any promise made, for the benefit of the
principal debtor i.e. GBESPL, may be a sufficient consideration to the surety
i.e. IOB here, for giving the guarantee. The consideration for the BGs
issued by IOB in favour of Ncubate, on the face of and as per the language
of the BGs, was "conditions mentioned in the purchase orders being raised
for procurement of branded consumer electronic goods from Global Brands
Enterprise Solutions Private Limited ("GBES") to Ncubate Logistic &
Warehousing Private Limited ("NLWPL"), GBES is required to arrange for
issuance of unconditional and irrevocable, bank guarantee in favour of
NLWPL for performance of the terms and conditions mentioned therein".
34. Ncubate invoked all the four BGs, as aforesaid, vide its letter dated 1st
June, 2013 to IOB, merely stating "We hereby invoke these guarantees and
demand payment of the said amount of Rs.7,00,00,000/- (Rupees Seven
Crores only) to us forthwith as per the terms of guarantees issued".
35. As would be evident from the BGs and the letter of invocation
thereof, they have been issued "as per the conditions mentioned in the
purchase orders raised for procurement of branded consumer electronic
goods from Global Brands Enterprises Solutions Pvt. Ltd. to Ncubate
Logistic & Warehousing Pvt. Ltd.". It being the case of IOB, that it is not
liable under the BGs and the BGs were obtained owing to collusion between
GBESPL and Ncubate, I have in the plethora of documents searched for
purchase orders placed by GBESPL on Ncubate and to secure Ncubate qua
performance of terms and conditions whereof, the BGs were given.
Surprisingly, Ncubate had not filed the said purchase orders, neither with its
writ petition or with the rejoinder to the counter affidavit of IOB therein nor
with its written statement in the suit. However, Ncubate in its additional
affidavit filed in pursuance to the order dated 14th February, 2017 supra, in
paragraph 8 has deposed "sample copy of documents evidencing the manner
in which goods were purchased by petitioner No.1 for Global Brands are
annexed herewith and marked as Annexure F". Annexure F runs from
internal pages 141 to 191 of the said additional affidavit but has only two
purchase orders placed by GBESPL on Ncubate i.e. Purchase Order
No.GBES/1MP/2012-13/14 dated 4th July, 2012 of Rs.4,85,95,200/- and
Purchase Order No.GBES/1MP/2012-13/14 dated 29th November, 2012 of
Rs.2,83,82,520/-. The other documents in Annexure F, though relating to
procurement of goods by Ncubate, are not purchase orders placed by
GBESPL on Ncubate. The "Terms and Conditions" printed on both the
purchase orders are as under:
"1. Payment terms: as per the terms of the Agreement.
2. Price terms: as per the terms of the Agreement.
3. VAT/CST: extra as applicable.
4. Local Delivery Charges: extra."
The purchase orders do not require GBESPL to furnish any BG in
favour of Ncubate, in consideration whereof the BGs record IOB to have
furnished the guarantee. Neither the BGs nor the invocation letter have any
reference to any agreement or to the agreement dated 5th May, 2012 between
GBESPL and Ncubate and in pursuance whereto the purchase orders were
being placed by GBESPL on Ncubate. The plea of IOB that the said
agreements were suppressed from IOB and came to its knowledge only
subsequently, is thus a plausible plea.
36. The said agreement dated 5th May, 2012 between GBESPL and
Ncubate, is titled "Import and Sourcing Agreement". A perusal of the said
agreement shows, (a) that GBESPL thereunder engaged Ncubate to import,
warehouse and/or supply the products to GBESPL that were required by
GBESPL from time to time; (b) that Ncubate was to source the products
from vendors, whether in India or overseas, as were to be designated by
GBESPL and to sell the same to GBESPL; (c) that Ncubate thereunder also
agreed to extend working capital support to GBESPL; (d) that under the said
agreement, GBESPL was to, from time to time, place specific and confirmed
purchase orders on Ncubate giving specific quantities with model
references, shipment period etc. and Ncubate, on receipt of the said purchase
orders from GBESPL, was to raise requisite purchase orders on the vendors,
by opening the necessary LC; (e) that the price at which the products were to
be supplied by Ncubate to GBESPL was to be based on the foreign
exchange rate prevalent at the time of payment; (f) that Ncubate agreed to
provide credit in respect of consignment of products to GBESPL for a
period of 45 days from the date of receipt of consignment in the warehouse,
upon importation of goods in India; and, (g) that in case of delay beyond the
time of 55 days from the date of receipt of consignment in the warehouse
upon importation to India, Ncubate was entitled to suspend further imports
and was also entitled to sell the products directly or through other channels,
as it may consider appropriate, in order to liquidate the inventory and
recover the dues and to receive the balance, if any from GBESPL.
37. On a reading of the aforesaid agreement, what transpires is that on
GBESPL placing purchase orders on Ncubate, Ncubate was to import the
subject goods and to retain custody thereof in its warehouse and GBESPL
was required to purchase the said goods from Ncubate within 45 days, with
the grace period of 10 days, of the goods so reaching the warehouse and on
failure of GBESPL to purchase the said goods within 55 days from Ncubate,
Ncubate was entitled to sell the same to realize the amounts incurred by it in
import thereof and to recover from GBESPL only the shortfall, if any. It
will thus be seen that under the agreement between them, at no point of
time, the goods purchased/imported by Ncubate, even though at the
asking/behest of GBESPL, were to go out of the charge or custody or title of
Ncubate, without Ncubate receiving payment thereof from GBESPL and on
failure of GBESPL to so purchase the goods within 55 days, Ncubate was
entitled to sell the same. The risk thus of Ncubate, under the agreement
aforesaid with GBESPL, on GBESPL defaulting in purchasing the said
goods from Ncubate and paying price thereof to Ncubate, was confined to,
the loss if any suffered in sale of the said goods to others or being not able to
sell the same in India. However, it is not the case of Ncubate, neither in the
writ petition filed by it nor in its written statement in the suit, that the goods
were not sellable or could not be sold or in such sale fetched less price than
what GBESPL had agreed to pay. The said goods, as aforesaid, were of
'AKAI' and which had a large market in India at the relevant time.
38. Notwithstanding the risk of Ncubate being limited as aforesaid, the
Import and Sourcing Agreement aforesaid between GBESPL and Ncubate,
in Clause 4 thereof provided for GBESPL to arrange for issuance of an
unconditional and irrevocable BG in favour of Ncubate, of the value of the
goods for which purchase orders were placed on Ncubate.
39. However, the BGs issued and whereunder payment is claimed, are not
with reference to any specific purchase order and it is inexplicable why BGs
for Rs.7 crores only were deemed apposite when the transactions claimed
under the agreement are of much more.
40. Not only so, even after GBESPL had so purchased the goods
imported by Ncubate, from Ncubate, under another "National Distribution
Agreement" dated 5th May, 2012 between GBESPL and Savoir Faire
Services Pvt. Ltd. (whose name was subsequently changed to GBESDPL)
and which was/is admittedly a sister concern of Ncubate, GBESPL
appointed GBESDPL as the distributor of the goods. Under the said
agreement, GBESDPL was responsible for handling of invoicing and local
logistics of the goods purchased by GBESPL from Ncubate.
41. What thus emerges is, that even after the title in the goods imported
by Ncubate on asking of GBESPL had passed from Ncubate to GBESPL,
the custody of the goods was with GBESDPL, a sister concern of Ncubate.
In such manner, the goods remained in the custody, control and charge of
the Ncubate and GBESDPL and were never in the custody or charge of
GBESPL, for whose default in payment to Ncubate, IOB furnished the BGs.
42. On a reading of the aforesaid documents, which are the only relevant
documents to the controversy, in a commercial sense, the occasion for
Ncubate to invoke the BGs could have arisen only on failure of GBESPL
within the prescribed time of 55 days purchasing the goods from Ncubate
and Ncubate either being unable to sell the said goods to others, which it
was entitled to under the agreements or on suffering loss on such sale.
Neither is the pleaded case of Ncubate. On the contrary, Ncubate filed the
writ petition on the premise that since it is the holder of an unconditional
BG, it is entitled to encash the same. The same is the defence of Ncubate to
the suit. However the law does not entitle the beneficiary of a BG to monies
thereunder, merely because it can. Similarly, the law does not compel the
guarantor to pay, merely because the guarantor has secured itself with the
securities furnished by the principal debtor. When the consideration for the
BG, as set out in the BG, is the terms and conditions of the purchase orders
and which in turn refer to the agreements, for the beneficiary to be entitled
to payment under the BGs, when disputed by the guarantor Bank, has to
plead and at least prima facie show that monies are due. It is not the case of
Ncubate, that GBESPL did not purchase the goods for which it had placed
the purchase orders or that on such default by GBESPL, Ncubate suffered
any loss. Rather, Ncubate is claiming overall deficit of GBESPL in its
ledger and claiming the amount to be due under the BGs. However, the BGs
are not for such deficit but for default of GBESPL in compliance with the
terms and conditions of the purchase orders. No other monies even if due
from GBESPL to Ncubate, can be recovered by Ncubate under the BGs.
Moreover, none of the documents filed show any acknowledgement of
GBESPL of liability under the purchase orders towards Ncubate or
unequivocally establish any amounts to be due from GBESPL to Ncubate
under the purchase orders. IOB, as aforesaid, since after invocation of the
BGs, is denying liability under the BGs.
43. Even if it is assumed that Ncubate, after importing the goods,
delivered the same to GBESPL without realising the price thereof, the goods
still remained in the custody and charge of Ncubate through its sister
concern GBESDPL, again showing that there was no risk for which the BGs
in question were required to be issued. BGs are issued only to secure risk
and/or payment of which there would else be no security in the hands of the
beneficiary. Here, under the agreements aforesaid, Ncubate was not at any
risk inasmuch as it was not required to part with the goods imported by it,
without receipt of payment thereof and even if so parted with custody of the
goods, the goods remained with its sister concern i.e. GBESDPL and
Ncubate thus remained entitled to sell the same in the event of non-payment
by GBESPL and to realise its dues. In other words, Ncubate was not at risk
at any single moment in the entire transaction and I fail to gauge the need
for BG and the action of GBESPL of arranging BGs in favour of Ncubate,
from IOB, is suspect.
44. Though undoubtedly IOB as the issuer of unconditional unequivocal
BGs was/is liable to honour the same but IOB has succeeded in raising a
doubt as to the entitlement of Ncubate to the monies claimed under the BGs.
Once it is so, the onus to prove in the positive that monies are due under the
BGs, shifted to Ncubate and which Ncubate has failed to discharge.
Ncubate neither choose to file a suit for recovery of monies nor choose to
conclusively prove by leading evidence that monies claimed are due under
the BGs.
45. Section 133 of the Contract Act provides that "Any variance, made
without the surety's consent, in the terms of the contract between the
principal debtor and the creditor, discharges the surety as to transactions
subsequent to the variance". Section 134 provides that the surety is
discharged by any contract between the creditor and the principal debtor by
which the principal debtor is released, or by any act or omission of the
creditor, the legal consequence of which is the discharge of the principal
debtor. Section 142 provides that any guarantee which has been obtained by
means of misrepresentation by the creditor concerning a material part of the
transaction, is invalid. Section 143 makes any guarantee obtained by means
of keeping silence as to any material circumstance, invalid.
46. As aforesaid, the subject BGs do not refer to the agreement dated 5th
May, 2012 between GBESPL and Ncubate and whereunder the purchase
orders referred to in the BGs were to be placed by GBESPL on Ncubate.
The parties have also not placed any other document on record to show that
IOB was aware of the said agreement at the time of issuing the BGs. Even
if it was not so, since the BGs have not been issued referring to or in
consideration of the said agreement, the only inference is that the BGs have
been issued only in terms of the purchase orders. However, neither counsel
during the hearing has drawn attention to any purchase order or to any of the
terms thereof under which the BGs may have been issued. Since the parties
did not choose to lead any verbal evidence, the question of the same
surfacing during the examination and cross-examination did not arise. Thus,
today it cannot be said with certainty, whether the agreement dated 5th May,
2012 between GBESPL and Ncubate was in the knowledge of IOB before
issuing the BGs.
47. However there is a specific plea of IOB in its plaint in the suit and qua
which no document has been referred to in the written statement that the
agreements dated 5th May, 2012 between Ncubate and GBESPL and
between GBESPL and GBESDPL were not disclosed to IOB. From non-
disclosure of the said agreements to IOB, it can be said that the same was a
variance of the terms of the contract between GBESPL as the principal
debtor and Ncubate as the creditor and IOB as a guarantor thus stood
discharged. All the aforesaid facts and documents speak for themselves and
the aforesaid facts are enough for denying to Ncubate the relief sought in the
writ petition in exercise of powers under Article 226 of the Constitution of
India, of mandamus to IOB to encash the BGs. The counter affidavit filed
by IOB in the writ petition raised disputed questions of fact which if proved
could have resulted in discharge of IOB from its obligation under the BGs
and/or to the guarantee being invalid under Section 142 and 143 of the
Contract Act.
48. With reference to the course of adjudication in paragraph 30 above, in
my opinion, (a) on the basis of documents on record, it cannot be
conclusively established, whether monies under the BGs are due to Ncubate
or not or whether the BGs were obtained by misrepresentation or
concealment or whether IOB stands discharged from liability thereunder
owing to dealings between Ncubate and GBESDPL on the one part and
GBESPL on the other part and which discharge GBESPL from liability
under the purchase orders for the value thereof, with GBESPL remaining
responsible/liable only for the loss, if any suffered by Ncubate in sale of the
goods not purchased by GBESPL; (b) however, IOB has placed sufficient
material on record for suspicion to arise on all the aforesaid counts; the said
questions cannot be answered without examination and cross-examination of
witnesses; (c) though initial onus to prove that the BGs have been obtained
by fraud, collusion and concealment was on IOB as the plaintiff in the suit
but IOB has discharged the initial onus by raising questions which could
have been answered only by Ncubate and onus thus shifted on Ncubate, to
prove in the positive that liability covered by the BGs had accrued and
which Ncubate has failed to discharge; and, (d) thus, Ncubate has to suffer
for not leading evidence.
49. Even otherwise, once Ncubate is found to be not entitled to the relief
in the writ petition, the remedy of Ncubate, on failure of IOB to honour the
BGs, was/is by way of filing a suit against IOB, whether under Order
XXXVII of the Code of Civil Procedure, 1908 or otherwise. Ncubate did
not deem it appropriate to do so inspite of the writ petition having remained
pending for the last seven years, since the year 2013 and the limitation for
filing such a suit has expired.
50. Supreme Court recently in Punjab National Bank Vs. Atmanand
Singh (2020) 6 SCC 256 was concerned with consistent judgments of the
Single Judge and of the Division Bench of the High Court allowing a writ
petition seeking mandamus directing the Bank to pay the monies claimed to
be due. The High Court allowed the writ petition reasoning that the plethora
of documents brought by the writ petitioner before the Court, when read as a
whole, gave a feeling that the Bank was wanting to wriggle out of a ticklish
situation by raising technical objections with regard to the maintainability of
the writ application. Setting aside the consistent judgments of the Single
Judge and of the Division Bench of the High Court, the Supreme Court held
(a) that there was no unanimity between the writ petitioner and the Bank on
the relevant facts, on the basis of which the relief claimed in the writ petition
was founded; (b) that the Bank had denied the liability by relying upon the
affidavits of its personnel and some documents; (c) that the stand taken by
the Bank, on preponderance of probabilities, could not be out rightly
dismissed; (d) that the case set up by the writ petitioner was neither the
admitted position nor could be said to be indisputable; (e) that rather the
case set up by the writ petitioner involved scrutiny of complex matters and
issues, including the existence of the agreement and its genuineness; (f) that
such a matter could not be decided on the basis of inferences; (h) that the
High Court could not have assumed the documents produced by the writ
petitioner to be genuine and admissible, despite denial by the Bank; and, (i)
that from a very reading of the agreement, it was unfathomable how the
Bank would agree to such onerous terms; reliance was placed on Thansingh
Nathmal Vs. Superintendent of Taxes, Dhubri AIR 1964 SC 1419 and
Suganmal Vs. State of Madhya Pradesh AIR 1965 SC 1740 holding that
jurisdiction under Article 226 of the Constitution of India is not intended as
an alternate remedy for relief which may be obtained in a suit and that
ordinarily a petition under Article 226 of the Constitution of India would not
be entertained, when there is an alternate remedy and/or when elaborate
examination of evidence to establish the right sought to be enforced, is
required or for recovery of money.
51. The aforesaid judgment applies fully to the facts of this case and thus
the need to multiply precedents is not felt.
52. Resultantly, W.P.(C) No.7302/2013 is dismissed, as entailing
disputed questions of fact, not capable of decision in jurisdiction under
Article 226 of the Constitution of India and CS(COMM) No.829/2016 is
disposed of observing that Ncubate Logistic & Warehousing Pvt. Ltd. as the
beneficiary of the BGs having not sued for recovery of monies under the
BGs, is in any case not entitled to recovery thereof and on the basis of
documents on which the parties agreed for suit to be decided, there is
sufficient material before the Court to hold IOB to have stood discharged
from its obligations under the BGs owing to concealment and
misrepresentation and owing to the evident collusion and fraud practiced in
issuance of the BGs.
53. However the parties are left to bear their own costs.
54. Before closing, I must condole the sudden and sad demise, after
judgment in these proceedings was reserved, of Mr. Karan Khanna,
Advocate, who valiantly and to the best of his ability defended the interest
of IOB in these proceedings.
RAJIV SAHAI ENDLAW, J.
FEBRUARY 08, 2021
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