Delhi High Court
Goyal Mg Gases Private Ltd vs Messer Griesheim Gmbh on 21 December, 2022
Neutral Citation Number: 2022/DHC/005704
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: October 14, 2022
Pronounced on: December 21, 2022
+ EFA(OS) 3/2014, CM APPL. 17219/2022, 17220/2022,
18009-10/2022, 18687/2022, 19319/2022, 35930/2022 &
44503/2022
GOYAL MG GASES PRIVATE LTD. ..... Appellant
Through: Mr. Rakesh Khanna, Senior
Advocate with Mr.Abhishek Puri,
Mr.Simran Mehta, Ms. Surbhi
Gupta, Mr.Anuj Malhotra,
Mr.Adatya Achae & Mr.V.
Siddharth, Advocates
Versus
MESSER GRIESHEIM GMBH ..... Respondent
Through: Mr.Parag P. Tripathi, Senior
Advocate with Mr. Mohna M. Lal,
Ms. Geetali Hazarika &
Mr.Srinivasan Ramaswamy,
Advocates
CORAM:
HON'BLE MR. JUSTICE SURESH KUMAR KAIT
HON'BLE MR. JUSTICE SUDHIR KUMAR JAIN
JUDGMENT
SURESH KUMAR KAIT, J
1. The present appeal is preferred against the judgment dated
29.11.2013 passed by the learned Single Judge vide which the objections
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By:ROSY MUNJAL
Signing Date:21.12.2022
15:23
Neutral Citation Number: 2022/DHC/005704
filed by the appellant/Judgment Debtor (JD) in Ex.P. 70/2006, titled as
MESSER GRIESHEIM GMBH Vs. Goyal MG Gases Pvt. Ltd., pertaining
to execution of decree dated 07.02.2006 of the High Court of Justice,
Queen‟s Bench Division, Commercial Court, United Kingdom
(hereinafter referred to as the "English Court") under Section 44-A of the
Code of Civil Procedure, 1908, have been dismissed.
2. The backcloth of this case, as noted in the impugned judgment
dated 29.11.2013, is as under:-
"3. The background to the execution petition is that
the Judgment Debtor („JD‟) entered into a loan
agreement with the lender bank (Citibank
International Plc) for a term loan of US $ 7 million
on 30th June 1997 in order to finance the acquisition
of capital equipment. The DH, a company
incorporated in Germany, held 49% of the shares in
the JD. In that capacity the DH agreed to
irrevocably and unconditionally guarantee the loan.
4. Under Clause 16.12 of the loan agreement, the
DH was to be subrogated the rights of the lender
bank against the JD. The loan agreement was
governed by English law.
5. With defaults committed by the JD, the DH as
guarantor was obliged to pay US $4,794,762.98 to
the lender bank. It paid the said amount to the lender
bank. Thereafter, the DH raised the demand on the
JD to clear the outstanding amount. The JD failed to
make the payment.
6. On 17th January 2003, the DH initiated the
proceedings against the JD before the High Court of
England for recovery of the aforementioned sum.
The JD did not enter appearance and accordingly a
default judgment dated 6th February 2003 was
passed by the High Court of England. On 25th March
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Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
2003, the DH issued a notice of demand to the JD
under Section 434 (1) (a) read with Section 433 (e)
of the Companies Act, 1956. The JD took a stand in
the reply to the notice that the said default judgment
dated 6th February 2003 was not enforceable in
India since it was not a judgment on merits and had
been passed in the absence of the JD.
7. On 6th July 2005, the DH applied to the High
Court of England to set aside the default judgment
and for a judgment on merits. The JD was served in
the said proceedings and appeared before the High
Court of England. The JD did not raise any
objection to the jurisdiction of the High Court of
England. The JD also filed the statements of its
witnesses.
8. One of the pleas raised by the JD before the High
Court of England was that although it was not
willing to comply with the default decree, the said
default decree should not be set aside.
9. The summary of the detailed reasons given in the
judgment dated 7th February 2006 of the High Court
of England is as under:
(i) There was no injustice to the JD in setting aside
the default judgment and in enabling the JD to put
forth the defences it might have on merits. The JD
could not both ignore due process and also rely on
it. Accordingly, the default judgment was set aside.
(ii) There was no merit in the defence raised by the
JD in the statement of its Deputy General Manager,
Mr. Dhar, that there was an agreement earlier
entered into on 13th June 1997, two weeks prior to
the execution of the loan agreement, at a meeting of
the Board of Directors (BoD) of the JD that in the
event the DH was called upon to pay under the
proposed guarantee to be given to it by the lender
bank, it would not have recourse to either the
shareholders in the JD or the JD itself. The said oral
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Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
agreement was not referred to in any document and
was in any event wholly inconsistent with the loan
agreement made thereafter and approved by the BoD
of the JD. The minutes of the Board meeting also
made no reference to any such oral agreement. They
only referred to the draft of the loan agreement and
approved its terms.
(iii) The purport of the two conditions in the letter
dated 3rd September 1997 from the Reserve Bank of
India (RBI) to the JD giving permission for the DH
to guarantee the loan to the JD was that if the
guarantor i.e. the DH paid the lender bank then the
JD would have no liability to the lender bank. In the
circumstances, it was difficult to see why the RBI
would be concerned that the same liabilities were
owed by the JD to the DH as long as they ceased to
be owed to the lender bank. In any event, the
incidence of Indian Foreign Exchange law would
invalidate a contractual obligation only if Indian law
was the proper law of contract or the law of the
place for its performance. In the present case,
however, the parties had agreed to the application of
the law of England.
(iv) The second line of defence in Mr. Dhar‟s
evidence was that there was another oral agreement
entered into between the DH and the JD in August
2001 under which the DH agreed to pay the amount
outstanding under the loan agreement and not for
repayment from the JD. The agreement was
undocumented. The letter written by the JD to the
lender bank with a copy to the DH on 22nd
September 2001 made no reference to any such
agreement between the JD and the DH. It is simply
alleged that the DH was in breach of its obligations
and had failed to pay the JD Rs.5 billion. The
document dated 23rd September 2001 produced by
Mr. Dhar bore no signature nor was it on any
printed or recognizable papers. It was not received
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by the JD.
(v) As regards the submission that the annual report
of the JD for the year ended 31st December 2001
recorded the understanding between the JD and the
DH and the payment made by the DH pursuant
thereto, there was a note entitled "Contingent
Liabilities not accounted for" which read as under:
"Contrary to the understanding with the
company, Messer...had made a demand
on the company to make payment of the
amount of USD 4.78 Million...being the
amount of ECB Loan paid by Messer to
Citi Bank. The company is of the view
that contentions of Messer has no
merits."
Mr. Schmidt, a Director appointed by the DH on the
BoD of the JD wanted to record his disagreement at
the Board meeting held on 27th May 2002 as
recorded in the minutes of that meeting. That the
2002 Annual Report also contained a Contingent
Liability Note which referred back to the 2001 note
on "Treatment of ECB Loan Repayment" adding
"the loan of US$ 4.8 millions as agreed by the DH
was not payable and, therefore not shown as a
contingent liability." However, on 19th October
2003 Mr. Schmidt sent an email to the Director and
Company Secretary of the JD pointing out his
decision which he had already expressed in the
earlier Board meeting.
(vi) The documents highlighted the untenability of
the JD‟s assertions. The JD could not rely on the so-
called oral agreements of August and September
2001. As a result the DH was entitled to rely upon
the clause in the loan agreement which entitled it to
recover from the JD the amount paid by the DH to
the lender bank.
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Signing Date:21.12.2022
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(vii) The third line of defence was that there was a
further oral agreement between the parties in
December 2002, prior to the commencement of the
proceedings in the High Court of England and that
the proceedings brought before it were for the DH‟s
own internal purposes. The contention of the JD was
that it was understood that while the proceedings
would culminate in a default judgment, that
judgment in fact would not be enforced. There was
no documenting of any such oral agreement. There
was no evidence to support the suggestion of the JD
that the DH was seeking some tax advantage under
the enforceable judgment. The evidence on record
refuted any such suggestion.
(viii) Another defence of the JD was that when in
May 2004, the DH was acquired by another
company which was the JD‟s competitor, the JD
began proceedings in India in connection with the
said acquisition and this provided a trigger for the
DH to launch a counter-attack and as a result, the
default judgment was resurrected. The said defence
was held to be not supported by any evidence.
10. After elaborate discussion of the defences of the
JD, the High Court of England gave a summary
judgment as under:
"I have already addressed such
defences as Goyal has sought to raise.
None, in my judgment, provide any real
prospect of a defence to the claim
succeeding. Messer is entitled to
summary judgment. No issues have been
raised on the amount of the claim. At 16
January 2006 the claim was for the
principal sum of US$ 4,794,762.98
together with interest calculated in
accordance with the loan agreement of
US$ 996,842.94. A small further amount
of interest will be due when this
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Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
judgment is handed down. There is also
a claim under clause 17.5 of the loan
agreement to recover certain legal fees.
If there are any points to be made on the
precise amount of the Part 24 judgment
to be entered they should be raised
when this judgment is handed down if
they cannot be agreed beforehand."
11. In the order dated 7th May 2006, in para 7, it was
noted by the High Court of England that in response
to the summons, the written statements dated 25th
November 2005 and 12th January 2006 and the
witness statement of Ved Prakash Gupta dated 15th
January 2006 were filed by the JD. In para 18 the
Court concluded "that there is no real prospect of
the Defendant successfully defending the Claimant‟s
claim and that there is no reason why the Claimant‟s
claim against the Defendant should be disposed of at
trial." However in para 19 it is noted that there was
"no objection by the Defendant to the validity of the
Proceedings or the Application or the service of the
Witness Statement or the Further Evidence on the
Defendant".
12. The judgment awarded interest @ 8% per annum
calculated on the judgment debt and costs from the
date of the judgment till payment. The certificate
dated 13th March 2006 under Section 10 of the
FJREA noted that no appeal against the said
judgment or order had been brought within the time
prescribed and that enforcement of the judgment and
order was not, for the time being, stayed or
suspended, and that the time for their enforcement
had not expired. The certificate noted that the
judgment or order had not been satisfied in full or in
part by means of execution or otherwise within the
jurisdiction of the High Court of England."
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By:ROSY MUNJAL
Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
3. In the aforesaid backdrop of the case, the respondent/DH preferred
the afore-noted petition being Ex.P. 70/2006 for execution of the summary
judgment dated 07.02.2006, wherein the appellant/JD filed objections,
which as noted in the impugned judgment, are:-
"(a)There was no basis on which the default
judgment could have been set aside under Rule 13
of the English Civil Procedure Code.
(b)In any event, the London Court could not have
passed a decree exceeding the amount in the
default decree dated 6th February 2003.
(c) The judgment and decree dated 7th February
2006 was illegal, invalid and obtained in complete
disregard to the principles of natural justice. It
was in breach of the law of the land in India, was
liable to be disregarded and not enforceable.
(d) The judgment dated 7th February 2006 was
against the principles of natural justice and,
therefore, could not be enforced in India.
(e) The modification/variation of the default
judgment was in breach of the law of the land in
India and, therefore, not enforceable under Indian
law.
(f) The suit filed by the DH was not under the
summary procedure and there was no prayer for a
summary judgment; there was no admission by the
JD of any sum owed to the DH and, therefore, no
summary judgment could have been passed
without trial.
(g) The London Court could not have passed any
judgment contrary to any law of India, including
the Foreign Exchange Regulation Act (FERA).
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By:ROSY MUNJAL
Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
4. The learned Single Judge dismissed the afore-noted objections
raised by the appellant/JD vide impugned judgment, which is under
challenge in this appeal.
5. To confront the impugned judgment, the grounds raised by the
appellant /JD in the present appeal are more or less similar, as were raised
before the Executing Court.
6. During the course of hearing of the appeal, learned senior counsel
appearing on behalf of appellant/JD submitted that a Share Purchase and
Cooperation Agreement dated 12.05.1995 was executed between the
appellant/JD and respondent/DH and thereafter, an addendum dated
07.11.1996 was also executed pursuant to which the DH had become 49%
share holder of the JD company. Since the JD wished to avail External
Commercial Borrowing (ECB) under the provisions of Foreign Exchange
Regulation Act, 1973 („FERA‟) for a sum of USD 7 Million from Citi
Bank, London, it applied for permission from Reserve Bank of India
(RBI). The DH stood Guarantor for the ECB. The in-principal approval
from RBI was received on 28.05.1997, pursuant to which Loan agreement
dated 30.06.1997 was executed between the Lender (Citi bank), Borrower
(Judgment Debtor) and Guarantor (Decree Holder). The final approval of
the loan was received from RBI on 12.08.1997 and with regard to
furnishing of Guarantee by the DH, the RBI permitted it on the following
conditions:-
(i) There is no outgo of foreign exchange by way of any fee,
direct or indirect for the proposed guarantee;
(ii) In case of invocation of guarantee, no liability whatsoever
will extend to Indian Company.
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Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
7. According to appellant/JD, the ECB loan was disbursed by the Citi
Bank, London and since both the sides acknowledged that in view of
afore-noted RBI conditions, JD could not pay the guarantee charges, DH
paid the guarantee charges for more than three years. The appellant/JD
paid two instalments of ECB Loan on 23.09.1999 and 30.09.2000.
However, according to appellant/JD, a communication dated 25.04.2001
was received from respondent/DH informing that they shall be
disinvesting in India and also since according to appellant/JD, there were
other breaches, it was decided between the DH and JD that
respondent/DH will partially compensate the appellant/JD by repaying the
aforesaid loan of Citi Bank, London. After a chain of communications,
between appellant/JD, respondent/DH and Citi Bank, on 08.10.2001 the
respondent/DH repaid the loan of appellant/JD. Thereafter, vide letter
dated 15.10.2001 respondent/DH demanded repayment of the amount paid
to the Citi Bank from appellant/JD, which was refuted by the appellant/JD
vide letter dated 22.10.2001.
8. Learned counsel for appellant submitted that the balance sheet of
the appellant/JD for the year 31.12.2001 and 31.12.2002 was also signed
by Mr.Winfrid Schmidt, Authorized Representative of respondent/DH in
the Board of Directors of appellant/JD, and it no-where mentioned any
loan either towards Citi Bank or respondent/DH. It was next submitted
that even in the meeting held on 27.05.2002 for approval of the Balance
Sheet, the limited objection raised by Mr. Winfrid Schmidt was that "The
company is of the view that the contentions of Messer has no merits"
appearing in clause 2(b) of "Contingent Liabilities not Provided for" and
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no objection to the treatment of loan was raised for and the balance was
duly signed by him.
9. However, thereafter, the respondent/DH preferred a recovery suit
against the appellant/JD on 17.01.2003; though in the meeting of the
Board of Directors of appellant/JD held on 31.01.2003 for approval of
balance sheet for the year ending 31.12.2002, no objection was raised by
Mr.Winfrid Schmidt on behalf of the respondent/DH. According to
appellant/ JD, the respondent/DH on 06.02.2003 obtained a Default
Judgment against the appellant/JD. Thereafter, on 19.02.2003, an email
was sent by Mr. Winfrid Schmidt to the appellant/JD objecting to the
treatment of loan of Citi Bank in the balance sheet of the year ending
31.12.2002, which was replied by the appellant/JD vide e-mail dated
20.02.2003, however, the said letter was not brought on the record of
English Court. Learned counsel submitted that any objection raised by Mr.
Winfrid Schmidt after signing of the balance sheet is of no consequence.
10. Further submitted by learned senior counsel for appellant/ JD that
since the Default Judgment dated 06.02.2003 was not executable in India,
the respondent/DH filed an application dated 06.07.2005 praying for
setting aside the Default Judgment and passing a Summary Judgment. The
Summary Judgment was passed on 07.02.2006 whereof Para-19 noted that
it was in violation of Indian Law. However, when the respondent/DH
preferred execution of the said decree under Section 44 A of Code of Civil
Procedure before this Court, the appellant/ JD disputed the jurisdiction of
this Court to entertain the petition under Section 44A CPC.
11. It is pertinent to mention here that when this appeal came up for
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hearing before a Coordinate Bench of this Court, limited arguments on the
point whether this Court had jurisdiction to entertain the execution
petition of a foreign decree were heard and vide judgment dated
01.07.2014, it was observed and held as under:-
"83. The said observations of the Supreme Court
are a complete answer to the contention urged by
the respondent/decree holder. It is clear that the
legislature has consciously in its wisdom chosen
not to infuse the conception of „competent
jurisdiction‟ in Section 44A of the Code of Civil
Procedure, 1908 in contra-distinction to Section
39 which provides the mechanism for execution of
„domestic decrees‟. The requirements saddled on
the executing court under the scheme of Section
39 are alien to the „District Court‟; the
jurisdiction of which may be invoked by the holder
of a foreign decree in terms of Section 44A.
Rather it may be pertinently observed that the
legislature has vested such „District Court‟ the
power to execute the „foreign decree‟ as if it had
been passed by itself. The conception of
„competence of jurisdiction‟ of executing court
contained in Section 39 being wholly absent in the
language employed by the legislature in Section
44A of the Code, the same cannot be circuitously
injected by this Court as the same would
tantamount to legislative re-writing, which is
impermissible.
84. The authoritative observations of the Supreme
Court referred above unequivocally evince that
the jurisdiction of the „District Court‟ in terms of
Section 44A of the Code of Civil Procedure, 1908
can be invoked by a holder of a decree of a
Superior Court of reciprocating territory,
unhindered by the lack of jurisdictional
competence of the said Court while dealing with
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the execution of „domestic decrees‟.
85. For the reasons extensively highlighted by us
we are of the considered view that the High Court
of Delhi not being a „District Court‟ in terms of
Section 44A of the Code of Civil Procedure, 1908
is not vested with the jurisdiction to entertain the
present Execution Petition. In view thereof, the
same is liable to be transferred to the „Court of
District Judge‟ within whose jurisdiction the
property sought to be attached is situated for
being dealt with in accordance with law.
86. The appeal is allowed. The impugned order
dated November 29, 2013 is set aside in so far it is
held that the Delhi High Court would be the
„District Court‟ to execute the foreign decree.
Needless to state decision on the objections on
merits is also set aside being without jurisdiction.
The executing Court shall decide the objections
uninfluenced by any observation made by the
learned Single Judge on merits. The Execution
Applications filed by the appellants are restored
save and except the application which challenged
the jurisdiction of this Court, which application is
allowed."
12. By virtue of aforesaid order dated 01.07.2014, the Coordinate
Bench set aside the judgment dated 29.11.2013 passed by learned Single
Judge so far as it held that the Delhi High Court would be the "District
Court" to execute a foreign decree and restored the execution applications
filed by the appellant/JD. It also directed that the Executing Court shall
decide the objections raised by the appellant/JD uninfluenced by any
observation made on merits in judgment dated 29.11.2013. The aforesaid
judgment dated 01.07.2014 passed by the Coordinate Bench was
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challenged by the respondent/DH before the Hon‟ble Supreme Court in
CIVIL APPEAL NO(S). 521 of 2022 arising out of SLP(Civil) No(s).
22539 of 2014, wherein vide order dated 28.01.2022 it was observed and
held as under:-
"13. The Division Bench of the High Court, in
the facts and circumstances, considered it
appropriate to examine the singular issue confining
it to the jurisdiction of the High Court of Delhi in
executing the money decree dated 7th February,
2006 of the English Court, in exercise of its original
jurisdiction in terms of Section 44A of the Code and
after the parties being heard, arrived at the
conclusion that Section 44A is an independent right
conferred on a foreign decree holder for
enforcement of its decree in India. It is a fresh cause
of action and has no co-relation with jurisdictional
issues. The scheme of Section 44A of the Code is
alien to the scheme of domestic execution as
provided under Section 39(3) of the Code and finally
held that the High Court of Delhi, not being a
District Court, in terms of Section 44A of the Code,
is not vested with the jurisdiction to entertain
execution petition and directed to be transferred to
the Court of District Judge within whose jurisdiction
the property sought to be attached is situated for
being dealt with in accordance with law, which is a
subject matter of challenge in appeal before us.
XXXXX
22. The question that emerges for our
consideration is whether the High Court of Delhi in
exercise of its original jurisdiction is a competent
Court to entertain a petition for executing a money
decree(in excess of Rs.20 lakhs) of a foreign Court
which is notified as a superior Court of
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reciprocating territory under Section 44A of the
Code.
23. It is not disputed that so far as the expression
"superior Court of any reciprocating territory" as
defined under Section 44A of the Code is concerned,
the judgment and decree dated 7th February,2006
has been passed by the notified superior Court of the
reciprocating territory, namely, United Kingdom of
Great Britain and Northern Ireland within the
meaning of Section 44A of the Code vide notification
dated 1st March, 1953 issued by the Ministry of Law,
thus it leaves no doubt that the decree of the High
Court of England would be considered to be a
decree of superior Court of a reciprocating
territory.
XXXX
25. The expression 'District" is defined under
Section 2(4) of the Code and the term "District
Court" referred under Section 44A of the Code
although not defined, but on conjoint reading of the
provision makes it clear that it refers to the local
limits of the jurisdiction of a principal civil Court of
original jurisdiction (provisions of the Code called a
"District Court") and it includes the local limits of
the ordinary original civil jurisdiction of a High
Court and it is not disputed that principal civil Court
of original jurisdiction is normally a District Court
(with whatever change in the nomenclature) and the
High Courts in India exercising ordinary original
civil jurisdiction are not too many, but where there
is a split jurisdiction based on its pecuniary value,
notified from time to time, the District Court or the
High Court in its ordinary original civil jurisdiction
is competent to exercise power for execution of
decree, including money decree of the foreign Court
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of reciprocating jurisdiction, provided other
conditions are complied with as contemplated under
Section 44A of the Code.
26. Section 44A of the Code provides for execution
of decrees passed by the foreign Courts in
reciprocating territories. It, inter alia, stipulates that
where a certified copy of a decree of any of the
superior Court of any reciprocating territory has
been filed in a District Court, the decree may be
executed in India as if it had been passed by a
District Court. Together with the certified copy of
the decree, a certificate from such superior court is
to be filed stating the extent, if any, to which the
decree has been satisfied or adjusted. Such a
certificate is the conclusive proof of the extent of
such satisfaction or adjustment. Sub-section 3 of
Section 44A of the Code further lays down that
provisions of Section 47 of the Code shall apply to
such execution proceedings and the Court can refuse
execution of any such decree, if it is shown to the
satisfaction of the Court that the decree falls within
any of the exceptions specified in clauses (a) to (f) in
Section 13 of the Code.
XXXX
28. It leaves no manner of doubt that once the
pecuniary jurisdiction at the given point of time
exceeded Rs. 20 lakhs as notified by the High Court
under Section 5(2) of the Act 1966 (later vide
notification dated 10th August, 2015 (w.e.f. 26th
October, 2015) Court of Delhi which holds its
exclusive jurisdiction as ordinary original civil
jurisdiction to execute a foreign decree under
Section 44A of the Code and it goes without saying
that execution always is in continuation of the
proceedings. pecuniary limits has been revised to
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Neutral Citation Number: 2022/DHC/005704
Rs.2 crores), it is the High Court of Delhi which
holds its exclusive jurisdiction as ordinary original
civil jurisdiction to execute a foreign decree under
Section 44A of the Code and it goes without saying
that execution always is in continuation of the
proceedings.
XXXXXX
31. Consequently, the appeal succeeds and
accordingly allowed. The judgment of the Division
Bench of the High Court dated 10th July 2014 is
hereby quashed and set aside........"
13. Relevantly, by virtue of afore-noted decision dated 28.01.2022
passed by the Supreme Court, the objection of appellant/JD with regard to
territorial jurisdiction of this Court to entertain the present appeal seeking
execution of the foreign decree, was put to rest and when the present
appeal came up for hearing before us, we proceeded to hear the arguments
on merits of the impugned judgment dated 29.11.2013.
14. Learned senior counsel for appellant/JD reiterated that the purpose
of Share Purchase and Cooperation Agreement and the Technical Support
and Services Agreement executed between the parties was to lend
technical assistance to appellant/JD for projects in India and so, various
loans were taken by appellant/JD, including the ECB from Citi Bank. The
aforesaid loans were obtained subject to permissions from RBI and
compliance of provisions of FERA, 1973. Under the Loan Agreement, an
amount of USD 7 million was to be obtained by the appellant/JD, whereof
the respondent/ DH stood Guarantor. The RBI on 03.09.1997 gave its
conditional permission on the guarantee subject to the twin conditions that
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By:ROSY MUNJAL
Signing Date:21.12.2022
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(1) There is no outgo of foreign exchange by way of any fee, direct or
indirect, for the proposed guarantee and (2) In case of invocation of
guarantee, no liability whatsoever will extend to the Indian Company;
pursuant to which the loan was disbursed by the Citibank.
15. Learned senior counsel for appellant/JD submitted that the aforesaid
twin conditions stipulated that in the event of guarantee given by the
respondent/DH being invoked by the Citibank, there shall be no liability
on appellant/JD on account of such invocation by it. Since respondent/DH
sought to disinvest in India, dispute arose between the parties and for
settlement of those disputes, it was agreed that the respondent/DH shall
make payment of the outstanding loan amounts to Citibank, which shall
be set off against the claims of respondent/JD. Further submitted that in
order to settle the tax liabilities, it was agreed between both the sides that
respondent/DH shall seek a Default Judgment and it was on the
understanding that it was not enforceable in India.
16. According to appellant/JD, the UK Court while passing the
impugned decree has ignored the aforesaid conditions imposed by the RBI
while holding that Indian Foreign Exchange Law would not apply
whereas the Loan Agreement required prior permission of the RBI. Also
in the judgment, passed by the UK Court, it has been held that the
aforesaid clause is "standard condition". The learned Single Judge did not
appreciate the objection raised by appellant/JD filed under Section 13 (c )
(f) CPC while passing the impugned judgment. It was submitted that the
UK Court ignored the conditional permission granted by the RBI with
respect to the guarantee condition and held that the Indian Foreign
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Exchange Law would not apply and referred it to be a standard condition
and the learned Single Judge erroneously held that the FERA has been
now replaced by FEMA and therefore, the twin conditions imposed by the
RBI would no longer apply.
17. Learned senior counsel submitted that the effect of the statutory
conditions imposed by the RBI invalidates the claim of respondent/DH as
per law applicable in India. Also submitted that the learned Single Judge
failed to appreciate that the decree of foreign court is contrary to the
provisions of and law in force in India, as it is against the statutory
conditions imposed by the RBI vide its letter dated 03.09.2017 and in
breach of provisions of FERA. In addition, it was submitted that the repeal
of FERA does not affect the binding nature of statutory conditions
imposed by the RBI and that respondent/DH accepted the said conditions;
and in compliance thereof the guarantee charges were paid from the
beginning till the invocation of the bank guarantee.
18. Learned senior counsel once again emphasized that the balance
sheet pertaining to the year 2001-02 was signed by all the Board of
Directors, including Mr. Wilfried Schmidt, Representative of
respondent/DH in the Board of Directors of appellant/JD; who had
attended various meetings of the Board of Directors. Next submitted that
nothing is due and payable by appellant/JD to the respondent/DH. Even
the two company petitions, filed by the respondent/DH, challenging the
veracity of the books of accounts of appellant/JD, including the balance
sheets, were withdrawn without any order being passed qua the books of
accounts. Learned senior counsel submitted that the learned Single Judge
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failed to appreciate the aforesaid facts and did not take notice of the fact
that the balance sheet of the year 2001-02 noted that no amount was due
and payable by the appellant /JD.
19. It was pointed out that reliance place by learned Single Judge upon
RBI Circular No. 12/2013-14 dated 1.07.2013, which contains an abstract
of RBI Notification dated 26.09.2000, is erroneous as the Notification
dated 26.09.2000 is applicable for rupee based loans obtained from the
resident creditors; whereas in the present case, creditor is a foreign party
and currency of loan is dolloar. Learned senior counsel further advanced
the submission that since the loan was taken in the year 1997, the RBI
guidelines pertaining to the said year only would govern the loan
agreement; and reliance placed by learned Single Judge upon RBI
guidelines of the year 2013 is irrelevant. It was submitted that the learned
Single Judge has placed reliance upon RBI Circular dated 01.07.2013,
wherein guidelines introduced vide Notification dated 26.09.2000, have
been referred to; in terms whereof general condition has been granted to a
resident, being a principal debtor, to make payment to a person resident
outside India, who has met the liability under a guarantee. It was
contended that there is no guideline or rule issued by the RBI that any
permission earlier granted by the RBI under FERA, is superseded or is no
longer in force. The RBI guidelines are always prospective in nature and
so for a loan and permission pertaining to the year 1997 shall not be
governed by any guidelines or rules or notifications issued by the RBI in
the subsequent years. Moreover, the Circular dated 01.07.2013 dealt with
the cases where the lender is an Indian resident, whereas in the present
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case the lender is Citibank, UK. Also submitted that the learned Single
Judge has failed to appreciate that the RBI Notification dated 26.09.2000
cannot supersede the statutory conditions imposed by the RBI by its letter
dated 03.09.1997.
20. Learned senior counsel for appellant/JD further contended that the
learned Single Judge has not correctly interpreted the provisions of
Section 47 of FERA to enforce the decree and repatriate funds; as in terms
of statutory conditions imposed by the RBI by its letter dated 03.09.1997,
recovery proceedings could not be initiated. Further, it was submitted by
learned senior counsel that the finding of the Single Bench that prior
permission of RBI under Section 47(3) (b) is not required to be obtained
for filing the execution petition, is erroneous as the present case does not
come under Section 47(3) (b) of FERA, where-under RBI permission is
required for sending the decreetal amount abroad in the form of foreign
currency; whereas in the instant case the loan facility is governed by
conditional permission granted by RBI in the year 1997 to the extent that
no liability would flow on the appellant/ JD if the guarantee is invoked
qua respondent/ DH. Therefore, the decisions relied upon by the learned
Single Bench are not applicable to the present case, as they do not deal
with the provisions which are applicable in the present case.
21. It was submitted on behalf of appellant/JD that after passing of
Default Judgment dated 06.02.2003, when appellant/JD reached the UK
High Court seeking leave to defend; the respondent/DH filed application
for setting aside for Default Judgment and prayed for passing of Summary
Judgment, ignoring the defined and applicable laws in India. Also,
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respondent/DH sought execution of the decree passed by the English
Court, who had no jurisdiction to determine the dispute.
22. It was strenuously submitted by learned senior counsel that the
foreign court did not consider the balance sheets and minutes of respective
board meetings, which constitute an admission that no amounts were
payable by the appellant/JD to the respondent/DH and thereby, has also
refused to consider the applicable presumptions under Sections
194/210/211/215 of the Companies Act, 1956 as per Indian Law. It was
submitted that even the learned Single Judge has erroneously recorded the
finding that the presumptions under Sections 194/210/211/215 of the
Companies Act, 1956 is rebuttable and the challenge to the balance sheets
of the appellant/JD stood crystal clear after the company petitions filed by
the respondent/DH stood withdrawn and so, respondent/DH cannot claim
these balance sheets to be inaccurate. Also submitted that the learned
Single Judge while passing the impugned judgment erroneously premised
upon the fact that the books of accounts were under challenge, which
petitions were infact withdraw by the respondent/DH.
23. Learned senior counsel submitted that the procedure followed by
the Court at UK passing the decree in question is contrary to the
provisions of Indian law. Learned senior counsel submitted that despite
knowing that the Default Judgment is not executable in India, respondents
first obtained Default Judgment dated 06.02.2003 from the UK Court and
thereafter, sought Summary Judgment. It was submitted that as per Indian
Law once a Court has passed a judgment/ decree, the same cannot be set
aside by the same court at the instance of any party. However, the learned
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Single Judge has returned an erroneous finding that even in India, a Court
can review/modify/set aside a judgment, whereas only the procedure
which is contrary to the natural justice can only be reviewed and only
clerical errors can be corrected. Learned senior counsel submitted that the
respondent/DH did not disclose any ground calling for review or setting
aside of the judgment passed by the same Court and the only reason
putforth by respondent/DH is that it was only in the year 2005 they came
to know that the Default Judgment could not be enforced in India. It was
persistently submitted by learned senior counsel that appellant/JD was not
granted leave to defend the case through a trial by cross-examining the
witnesses. Learned senior counsel submitted that the statement of
witnesses under the Civil Procedure Rules of UK are pleadings and akin
to supporting Affidavit in support of pleadings/applications and are not
Affidavits of Evidence and a case cannot be decided on the basis of
pleadings. A case has to be decided on the basis of evidence, essentially
after cross-examination of the witnesses. In the present case, the due
procedure has not been followed by the foreign Court before passing the
summary judgment, even though there were certain admissions by the
respondent/DH that no amount is payable by the appellant/JD and hence,
for deciding the triable issues, leave to defendant ought to have been
granted.
24. Further submitted that the UK Court did not take into consideration
the various provisions of Indian Law, RBI guidelines, balance sheets and
judgments while passing the Summary Judgment.
25. Learned senior counsel for appellant/JD vigorously submitted that
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under the Loan Agreement only the Lender or the Agent had the
jurisdiction to raise the claims before the UK Court and disputes between
the appellant and respondent arising out of Agreements in question were
to be filed in India and, therefore, judgment passed by the Foreign Court,
who had no jurisdiction, cannot be sustained and executed in India.
Accordingly, the judgment and decree passed by the UK Court deserves to
be set aside.
26. The learned senior counsel appearing on behalf of respondent/DH,
on the other hand, submitted that the impugned judgment dated
29.11.2013 is well merited and calls for no interference by this Appellate
Court. It was submitted that the decree dated 07.02.2006 arises out of
Loan Agreement dated 20.06.1997 which was governed by the English
Law, wherein the respondent/DH was the Guarantor and subrogated to the
rights of the lender bank against the judgment debtor. It was submitted
that since the English High Court was governed by the English Law in
terms of Clause 31.2 of the Loan Agreement and further in terms of
Clause 31.3, all the objections were to be submitted to the jurisdiction of
the English Court. The appellant/JD had appeared before the English High
Court and had applied for leave to defend and cannot be permitted to now
raise objection regarding the competence of the English Court to pass the
decree in question. According to learned senior counsel, Section 21 CPC
gives the statutory recognition that a defect to the place of suing i.e. an
objection to the local jurisdiction of a court can be waived and also it is
the settled law that once an objection has been raised, the defendant is
precluded to subsequently raise an objection.
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27. Learned senior counsel next submitted that a decree which has been
pronounced after hearing the parties and examining the statement of
witnesses under a Summary Procedure is a decree on merits and is thus
enforceable on merits in India. Next submitted that the learned Single
Judge while passing the impugned order has rightly noted that a decree
can be modified, reviewed and set aside which passed the decree and by
the Appellate Court under various provisions of CPC and thus, the
objection of appellant/JD that the impugned decree is in breach of Indian
Law, deserves to be rejected.
28. Learned senior counsel for respondent/DH also submitted that if the
other petitions pertaining to the books of accounts of the appellant/JD
have been withdrawn, does not give presumption to the genuineness of the
books of accounts or the minutes. Also submitted that no fraud has been
placed by the respondent/DH upon the Court and had there been any
grievance relating to any finding of fact was committed, the appellant/JD
should have brought it to the notice of the English Court. However,
appellant/JD did not choose to file its own communication dated
20.02.2003 before the English Court and the plea of the appellant/JD that
it has always disputed the contents of the balance sheet and placing
reliance upon the said letter before this Court at this belated stage, is of no
relevance.
29. Learned senior counsel submitted that the decree in question has
been passed under the appropriate provisions of law and is enforceable in
India. It was submitted that the FERA, 1973 was repealed in the year 1999
and under the Foreign Exchange Management Act, 1999 (FEMA) there is
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no provision akin to the erstwhile Section 47(3) (b) of FERA and so, the
learned Single Judge has rightly held that for filing execution petition,
prior permission from RBI was not required. Learned counsel submitted
that the decree in question was obtained in the year 2006 and hence, no
permission was required from RBI before filing of execution petition.
30. Learned senior counsel submitted that the purpose of Section 47(3)
(b) FERA was to ensure honesty, so that any payment or sum under any
judgment or order be not enforced without permission of RBI and if at all
respondent/DH has to obtain a permission from RBI is only when the
money is remitted outside India and such permission can be obtained at a
later stage.
31. With regard to twin conditions imposed by the RBI vide its letter
dated 03.09.1997, learned senior counsel submitted that the condition "in
case of invocation of guarantee, no liability whatsoever will extend to the
Indian Company" is a standard condition which was then used to be
imposed while approving foreign currency loans and it does not restrict
the rights of the respondent/DH contained in Clause 16.2 of the loan
Agreement. It was submitted that by virtue of the aforesaid Clause 16.2,
the respondent/DH was entitled to recover the principal, interest and other
amounts from the appellant/JD after paying it to the lender bank and
discharging its obligation under the guarantee.
32. Learned senior counsel submitted that the decree in question has
been passed by the UK Court after examining the statement of witnesses
as prescribed under the summary procedure and so, it is enforceable in
India. Lastly, it was submitted that Judgment Debtor has lost to the
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jurisdiction of English Court after contesting the proceedings and cannot
oppose the decree just because cross-examination of witnesses did not
take place. The judgment debtor had opportunity to file an appeal but
chose not to file and only after the respondent/decree holder sought
execution of the decree, which was granted by the learned Single Judge,
has filed the present appeal, which deserves to be dismissed.
33. In rebuttal, learned senior counsel for appellant submitted that it has
been averred on behalf of the respondent/DH that in the other two
petitions its dissents were not recorded on the balance sheets of the year
2001 and 2002 and this does not tantamount to admission by the
respondent/DH, however, respondent/DH without citing any reason has
unconditionally withdrawn those petitions and has also not been able to
explain the acceptance signatures appended by its Representative. Further
submitted that respondent/DH is wrong to aver that after repeal of FERA,
1999, prior permission under Section 47(3) (b) thereof was not required to
be obtained before filing the execution petition. Further submitted that
respondent/DH is wrong to rely upon RBI circular dated 01.07.2013 to
submit that in principal general permission was granted to the principal
debtor for making a payment to a person residing outside India. Moreover,
the twin conditions stipulated by the RBI had become part of Loan
Agreement dated 30.06.1997, which was ignored by the English Court
while passing the impugned decree. Learned senior counsel for respondent
submitted that while passing the impugned judgment, the learned Single
Judge did not consider the conditional permission given by the RBI, as the
same had become the integral part of Loan Agreement.
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34. Further submitted that in view of Section (5) of Section 49 FEMA,
there is scope for obtaining ex post facto permission and in view of
Section 8 read with Section 47(1) & (2) of FERA was a mandatory pre-
requisite. Thereby, the learned Single Judge failed to notice the provisions
of FERA and Section 49(5) of FEMA while holding that prior permission
of RBI under Section 47(3) (b) is not required to be obtained prior to
filing of the execution petition. It was submitted that in fact in the present
case permission is required for the purpose of decreetal amount in the
form of foreign currency being sent abroad, though the loan permission
was conditionally granted by the RBI, under which no liability flows to
appellant/ JD.
35. Leaned senior counsel for the appellant strongly submitted that the
RBI‟s guidelines of the year 2013 and in specific Circular dated
01.07.2013 relied upon by the learned single judge to hold that there is a
general permission granted for making a payment to a person residing
outside India, who has a liability under a guarantee, is applicable to the
cases where the lender bank is in India, whereas in the present case the
lender Bank is in England. Furthermore, the guidelines issued by the RBI
are prospective in nature and there is no notification by the RBI stating
that the earlier notification/ guidelines issued by the RBI prior to coming
into force the Circular dated 01.07.2013, shall not be applicable.
36. It was submitted that the learned Single Judge has erroneously
relied upon decision in Navin Khilnani Vs. Mashreq Bank PSC 146
(2008) DLT 134 (DB) and has not considered the decision of Hon‟ble
Supreme Court in International Woolen Mills Vs. Standard Wool (IK)
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Ltd. (2001) 5 SCC 265; decision of Division Bench of Rajasthan High
Court in O P Verma Vs. Lala Gehrilal & Anr. 1960 SCC OnLine Raj 89
and decision of Madras High Court in K.M. Abdul Jabbar Vs. Indo-
Singapore Traders (P) Ltd. AIR 1981 Mad 118 wherein it has been held
that a summary judgment would not be a judgment on merits. Learned
senior counsel submitted that Navin Khilnani (Supra), the judgments
passed by the Rajasthan High Court and Madras High Court have been
noted and the principles laid down therein have not been disputed.
37. Lastly, it was submitted that the UK Court has denied consideration
of Leave to Defend of the appellant/JD and has passed the impugned
decree on the basis of decree holder‟s averments only, which the learned
Single Judge has failed to appreciate and, therefore, the appeal deserves to
be allowed and the impugned judgment and decree deserves to be set
aside.
38. The arguments advanced by learned senior counsel representing
both the sides were heard at length and after perusal of material placed on
record we find that pursuant to having executed Share Purchase and
Cooperation Agreement dated 12.05.1995 by the appellant/JD and
respondent/DH, an addendum dated 07.11.1996 was further executed
between the parties. For the loan obtained under the External Commercial
Borrowing (ECB) under the provisions of Foreign Exchange Regulation
Act, 1973 from Citi Bank, London, the DH stood Guarantor for the ECB
and applied for its approval from RBI. The final approval of the loan was
received from the RBI on 12.08.1997 with the condition that (i) there shall
be no outgo of foreign exchange by way of any fee, direct or indirect for
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the proposed guarantee and; (ii) in case of invocation of guarantee, no
liability whatsoever will be extended to the Indian Company. The loan
was disbursed by the Citi Bank to the appellant/JD on 28.10.1997. Two
instalments of the JD loan were paid by the JD/appellant on 23.09.1999
and 30.09.2000. However, respondent/DH informed the appellant/JD
about its disinvesting in India. According to appellant/DH, it had a claim
of Rs.50,000/- lakhs against the respondent/DH and so, it was mutually
agreed that the DH will pay off JD‟s loan to Citi Bank to partially
compensate appellant/JD. Accordingly, the respondent/DH repaid the
amount to the lender bank. The appellant /JD has claimed that the
aforesaid understanding was incorporated in the balance sheet of the
appellant/JD for the year ending 31.12.2001 and 31.12.2002 which was
also signed by the Representative of Decree holder.
39. Though another objection as raised by respondent/DH is that
Mr.Winfrid Schmidt, Chief Financial Officer and Representative of the
DH in the Board of Directors of JD, had appended his signatures on the
balance sheet of the year 2001-2002 of JD with the objection, but the plea
of the appellant/JD is that the limited objection to the words" The
Company is of the view that the contentions of Messer has no merits"
appearing in Clause 2(b) of "Contingent Liabilities not provided for" was
raised, however, no objection to the treatment of the loan in the balance
sheet was raised.
40. The root cause of the execution proceeding emanates from the letter
dated 22.10.2001 vide which respondent/DH demanded repayment from
the appellant/JD the amount paid to the lender - bank as Guarantor of the
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loan obtained by the appellant/JD; which was refuted by the appellant/JD
vide its letter dated 22.10.2001. According to appellant/ JD, the court at
UK did not consider the oral agreement entered between the parties that
prior to execution of Share Purchase and Cooperation Agreement dated
07.11.1996 that in the event respondent/ DH was called upon to pay under
the guarantee given to the lender bank, it would not have recourse against
the shareholders of JD or JD. Hence, it was submitted that the judgment of
English Court is inconclusive and cannot be enforced in terms of Sections
13(c) & (f) of the CPC.
41. According to appellant/JD, it had a claim of Rs.50,000/- lakhs
against the respondent/DH and so, it was mutually agreed that the DH will
pay off JD‟s loan to Citi Bank to partially compensate appellant/JD.
Accordingly, the respondent/DH repaid the amount to the lender bank.
The appellant /JD has claimed that the aforesaid understanding was
incorporated in the balance sheet of the appellant/JD for the year ending
31.12.2001 and 31.12.2002, which was also signed by the Representative
of Decree holder. However, the court at UK did not consider the oral
agreement entered between the parties that prior to execution of Share
Purchase and Cooperation Agreement dated 07.11.1996 that in the event
respondent/ DH was called upon to pay under the guarantee given to the
lender bank, it would not have recourse against the shareholders of JD or
JD.
42. The plea of the appellant/JD is that for execution of Share Purchase
and Cooperation Agreement dated 07.11.1996, conditional permission
was granted by the RBI on 03.09.1997 stipulating that (1) there is no
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outgo of foreign exchange by way of any fee, direct or indirect, for the
proposed guarantee and (2) In case of invocation of guarantee, no
liability whatsoever will extend to the Indian Company; pursuant to which
the loan was disbursed by the Citibank. Meaning thereby in the event of
invocation of guarantee given by the respondent/DH to the Citibank, there
shall be no liability of appellant/Judgment Debtor. Further pleaded that
appellant had a claim of approximately 500 crores against the
respondent/DH and so, by paying the loan, the respondent/DH had agreed
to set off the claims of appellant/JD. Whereas, respondent/DH has pleaded
that for the loan obtained by the appellant/ JD, the respondent/DH stood
as guarantor and when respondent/DH informed the appellant/JD that they
have decided to disinvest in India, that a communication dated 22.09.2001
was written by the appellant/JD to the Citibank to recover the outstanding
ECB from respondent/DH and since, the respondent/DH was the
guarantor of the ECB, it in all fairness paid the outstanding ECB loan to
the Citibank on behalf of the appellant/JD and hence, has the right to
recover it from appellant/JD.
43. The appellant/ JD stated that the balance sheet pertaining to the year
2001-02 was signed by all the Board of Directors, including Mr. Wilfried
Schmidt, representative of respondent/DH in the Board of Directors of
appellant/JD; who had attended various meetings of the Board of
Directors and it noted that no amount was due and payable by the
appellant /JD.
44. On this aspect, the learned Single Judge has opined that the English
Court had considered the balance sheet of the year 2001-2002 and also the
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minutes of meeting of Board of Directors and after considering the
objections and negativing them with detailed reasons also noted the
dissent given by the nominee Director of the DH on the Board of JD,
passed a Summary Judgment in favour of the DH.
45. We have perused the balance sheet pertaining to the year 2001-02
as well as minutes of Board of Meetings dated 27.05.2002 and 31.01.2003
placed on record. In the balance sheet for the year 2001-02, in Para-19 B
(II) it has been noted as under:-
"19. B (II) TREATMENT OF ECB LOAN
REPAYMENT
The Company had taken a term loan (in the form of
ECB) of 7Milhon US Dollars from Citibank
International plc, London that was guaranteed by
Messer Griesheim GmbH (Messer). During the year
Messer paid the entire outstanding amount of ECB
Loan & Interest amounting to UCB 4.78 million
4.78 Million (equivalent to Rs. 2236 lacs approx.)
i.e. principal USD 4.66 million and interest USD
0.12 Million to Citibank, plc London. Messer has
made this payment pursuant to understanding with
the Company to partially compensate the company
for the loss suffered by the company due to Messer‟s
non cooperation in implementing various projects
and breach of certain clauses, of Share Purchase
and Cooperation Agreement dt. 12-05-1995 between
the Company and Messer.
As per Mutual understanding with Messer, the
Company has adjusted Rs. 58 lacs in the Interest
Expenses and Rs. 2078 lacs towards loss suffered by
the Company in the value of its investment in Capital
Work in Progress and balance amount of Rs. 100
lacs has been adjusted towards the Company's claim
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of Rs. 50,000 lacs against Messer for the loss
suffered by the Company on account of breach of
certain clauses of Share Purchase and Cooperation
Agreement dt. 12.05.1995."
Further, Para-2 thereof reads as under:-
"CONTINGENT LIABILITIES NOT PROVIDED
FOR:
"(a) Guarantees given and letters of credit issued by
bank on behalf of company Rs.287.94 lacs (Previous
year 163.36 lacs)
(b) Contrary to the understanding with the
Company, Messer Greishiem, GrnbH, had made a
demand on the company to make payment of the
amount of USD 4.78 Million (equivalent to Rs. 2236
Lacs) being the amount of ECB Loan paid by Messer
to Citi Bank. The Company is of the view that
contentions of Messer has no merits."
46. We have also gone through the minutes of Board of Meetings dated
27.05.2002 and 31.01.2003. In the minutes of meeting dated 27.05.2002,
it has been noted as under:-
"1. ADOPTION OF THE AUDITED
BALANCE SHEET AS AT 31ST DEC. 2001 AND
PROFIT & LOSS ACCOUNT FOR THE ENDED
ON THAT DATE AND THE REPORTS OF THE
DIRECTORS AND AUDITORS THEREON
The Chairman stated that the Audited Balance Sheet
of the Company as at 31st December,2001 and Profit
&Loss Account for the year ended on that date
together with schedules, annexures and attachments
having already been circulated and lying with the
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Members for quite some time. The Chairman read
the Auditor's Report/However, annexure to the
Auditor s Report was taken as read with the
permission of the Members present.
After discussions on the Accounts the following
Resolution was proposed as an ordinary Resolution
by Mr. S.C.Goyal and seconded by Mr. Winfrid
Schmidt.
"RESOLVED THAT Audited Balance Sheet as at
31" December, 2001 and Profit &Loss Account for
the year ended on that date and the Reports of the
Directors and Auditors thereon as laid before the
Members of this Meeting be and
are hereby adopted."
The Chairman put the resolution on vote by show of
hands, which was carried unanimously."
47. Further, the minutes of meeting dated 31.01.2003 read as under:-
"(iii) "RESOLVED FURTHER that the Draft
Balance Sheet as at 31st December, 2002 and
profit & loss account of the Company together with
accounting policies, schedules and notes thereon,
for the year ended 31st December, 2002 together
with relevant attachments having placed before the
Board, be and are hereby approved and the same
be authenticated in terms of section 215 of the
Companies Act, 1956 by at least two Directors, one
of whom shall be Managing Director alongwith
Company Secretary of the Company and the same
may be submitted to the Statutory Auditors of the
Company for their Reports thereon".
Thereafter, Balance Sheet as at 31.12.2002 and
Profit& Loss Account for the year ending
Signature Not Verified
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By:ROSY MUNJAL
Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
31.12.2002 were signed by Mr. S.C. Goyal,
Managing Direcor, Mr. Winfrid Schmidt and
Mr.G.K. Balaya, Directors of the company along
with Mr.N.K. Bagri, Company Secretary of the
company and then these were forwarded to the
Statutory Auditors of the company for their report
thereon, who were present in the office......"
48. The aforesaid extracts of the balance sheet as well as minutes of
meeting make it apparently clear that it has been expressly noted therein
that Mr. Winfrid Schmidt, who was the representative of respondent/DH,
was present and had seconded the adoption of the balance sheet as well as
minutes of meeting. The balance sheet as well as minutes of meeting
clearly show that no liability was pending upon the appellant/ Judgment
Debtor towards the respondent/DH. Moreover, we find that the provisions
of Sections 211 and 215 of the Companies Act provide that every balance
sheet and profit and loss account shall give true and fair view of the
company pertaining to a financial year.
49. Pertinently, in the judgment and decree passed by the UK Court, it
has been noted in Para-32 that on 19th February, (19.02.2003) Mr.Schmidt
sent an email to Mr.Goyal and Mr.Bagri dissenting to the note in the
minutes of meeting dated 27.05.2002, and held that there is no response to
it on the papers; whereas response of appellant/ JD vide letter/ e-mail
dated 20.02.2003, was not brought on record by the respondent/DH.
Relevantly, in the e-mail dated 20.02.2003, it has been noted by
appellant/JD that it was in reply to e-mail of 7.02.2003, however, at the
bottom it noted as under:-
"I have just received your e-mail of February 19,
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By:ROSY MUNJAL
Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
2003, I am surprised to receive such a message from
a top Corporate Treasurer. I totally disagree
to what you have written and nothing can be
changed from what has already been agreed and
signed."
50. There is no dispute to the position that the aforesaid e-mail dated
20.02.2003 was not put before the English Court and hence not considered
while passing the impugned Summary Judgment and decree. The balance
sheet, statement of profit and loss account and minutes of meeting were
not only signed by Mr. Winfrid Schmidt but also seconded by him in the
presence of all the Board of Directors and thus, cannot be later on
permitted to take an objection at a later stage. The UK Court as well as the
learned Single Judge have in fact also failed to consider the statutory
presumptions under Sections 194/210/211 and 215 of the Companies Act
that placing of signatures by the representative of respondent/DH on the
balance sheet and minutes of meeting, constitute an admission on the part
of respondent/DH that no amount was payable by the appellant/DH. It is
the settled position of law that a balance sheet has to give true and fair
position of a company of its debts and credits and in the present case, the
balance sheet was approved by the Board of Directors in the presence of
the Representative of respondent/DH, which means that the entries were
acknowledged.
51. The appellant/ JD has pleaded before this Court that the effect of
statutory conditions imposed by the RBI invalidates the claim of
respondent/DH as per law applicable in India, however, the learned Single
Judge failed to appreciate that the decree of foreign court is contrary to the
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Signing Date:21.12.2022
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provisions of law in force in India. It was also pleaded by the appellant/JD
that repeal of FERA does not affect the binding nature of statutory
conditions imposed by the RBI (Para-17). Thus, the learned Single Judge
has not correctly interpreted the provisions of 47 of FERA to enforce the
decree and repatriate funds; as in terms of statutory conditions imposed by
the RBI by its letter dated 03.09.1997, recovery proceedings could not be
initiated. To the contrary, the respondent/DH has pleaded that the
impugned judgment and decree was passed by the Foreign Court under
the appropriate provisions of law, which is enforceable in India. It was
submitted that the FERA, 1973 was repealed in the year 1999 and under
the Foreign Exchange Management Act, 1999 (FEMA) there is no
provision akin to the erstwhile Section 47(3) (b) of FERA and so, it has
been rightly held by the learned Single Judge that for filing execution
petition, prior permission from RBI was not required. Accordingly, in the
impugned judgment, the learned Single Judge has placed reliance upon a
Master Circular dated 01.07.2013, where-under a general permission has
been granted to the principal debtor to make a payment to a person
residing outside India, who has made the liability under guarantee. In this
regard, we find that the observations of the learned Single Judge that
guidelines of the RBI circular dated 01.07.2013 grant a general permission
for making payment to a person, who has rendered a guarantee and is
residing outside India, does not apply to the facts of the present case. In
the present case, the loan was taken in the year 1997 and since under the
Loan Agreement permission from RBI was obtained in the said year, the
guidelines of RBI prevalent in the said year shall apply. Moreover, once
the twin conditions imposed by the RBI while granting loan vide letter
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Neutral Citation Number: 2022/DHC/005704
dated 03.09.1997, no doubt the said conditions will prevail and the same
has not been superseded by circular issued in the year 2013. Moreover, the
Circular dated 01.07.2013 grants permission to make payment where the
lender is based in India, whereas in the present case the lender is Citibank,
UK.
52. The appellant/JD has also contended that the UK Court while
passing the Judgment and decree has ignored the twin conditions imposed
by the RBI while holding that Indian Foreign Exchange Law would not
apply and that these are standard conditions. On the other hand, the
respondent/DH has averred that the conditions imposed by the RBI are
„Standard Conditions‟ only as these were imposed while approving
foreign currency loans and do not restrict the right of respondent/DH
contained in 16.2 of the Loan Agreement and as such, the respondent/DH
was entitled to recover the principal, interest and other amounts from the
appellant/JD after paying it to the lender bank. We note that in the
impugned judgment and decree passed by the English Court, it has been
observed that the condition imposed by the RBI that „if the guarantor paid
to the lendor, the borrower would have no liability to the lender‟, makes
sense. However, it further questioned as to why RBI had granted
permission to appellant/JD to use foreign exchange to meet its liabilities
under the loan agreement and recorded that the incidence of Foreign
Exchange Law would invalidate the contractual obligation as a
submission of learned counsel - Mr. Foxton, who represented
respondent/DH. On this aspect we find that while observing so, the UK
Court did not consider Clause -14.1 of the loan agreement, which reads as
under:-
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By:ROSY MUNJAL
Signing Date:21.12.2022
15:23
Neutral Citation Number: 2022/DHC/005704
"Maintenance of Legal Validity:
Each of the Obligors shall obtain, comply with the
terms of and do all that is necessary to maintain
in full force and effect ail authorizations,
approvals, licences and consents required in or by
the laws and regulations of its jurisdiction of
incorporation to enable it lawfully to enter
into and perform its obligations under this
agreement, and to ensure the legally, validity,
enforceability or admissibility in evidence in its
jurisdiction of incorporation of this Agreement."
53. The above apparently shows the respondent/DH was bounden to
take permission from RBI for implementation of the Loan Agreement and
the RBI, while granting the permission, had put the twin conditions.
54. The appellant/ JD has pleaded before this Court that the effect of
statutory conditions imposed by the RBI invalidates the claim of
respondent/DH as per law applicable in India and the learned Single Judge
failed to appreciate that the decree of foreign court is contrary to the
provisions of and law in force in India. It is also pleaded that repeal of
FERA does not affect the binding nature of statutory conditions imposed
by the RBI. It has been averred that the learned Single Judge has not
correctly interpreted the provisions of 47 of FERA to enforce the decree
and repatriate funds; as in terms of statutory conditions imposed by the
RBI by its letter dated 03.09.1997, recovery proceedings could not be
initiated. To the contrary, the respondent/DH has pleaded that the
impugned judgment and decree was passed by the Foreign Court under
the appropriate provisions of law, which is enforceable in India. It was
submitted that the FERA, 1973 was repealed in the year 1999 and under
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the Foreign Exchange Management Act, 1999 (FEMA) there is no
provision akin to the erstwhile Section 47(3) (b) of FERA and so, it has
been rightly held by the learned Single Judge that for filing execution
petition, prior permission from RBI was not required. On this aspect we
find that the present case does not come within the ambit of Section
47(3)(b) of FERA. These provisions are applicable in cases where
permission is required to be obtained for the first time from RBI after final
decree is passed so that foreign currency can be sent abroad. The learned
Single Judge on this issue has relied upon Supreme Court‟s decision in
Renusagar Power Co. Ltd. Vs. General Electric Co. 1994 Supp (1) SCC
644 to hold that ex post facto permission from RBI could be obtained by
the DH for repatriating the funds deposited by the appellant/JD. Upon
going through decision in Renusagar Power Co. Ltd. Vs. General
Electric Co. and applying it to the facts of the present case, we find that
no doubt in view of said decision ex post facto permission can be obtained
from the RBI to remit the funds, however, when the decree itself is found
to be vitiated, being against the prescribed procedure of law recognized in
India, the occasion for obtaining ex post facto permission from RBI by the
decree holder in respect of awarded amount, does not arise at all. We have
already observed that the decree passed by the Court in UK is without any
merit and abrogative. Also, in the present case the respondent/DH was the
Guarantor to the lender located in a foreign country. We also find that
once a conditional permission has been granted by the RBI, any claim
beyond the said conditions is contrary to law.
55. The plea of the appellant/JD is that when it reached the UK High
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Neutral Citation Number: 2022/DHC/005704
Court seeking leave to defend; the respondent/DH filed application for
setting aside of Default Judgment and prayed for passing of Summary
Judgment, ignoring the defined and applicable laws in India. The
appellant has submitted that the Court at UK has passed the impugned
Summary Judgment and decree, which is contrary to the provisions of
Indian law. According to appellant, the learned Single Judge has wrongly
held that a Court can review/modify/set aside a judgment, whereas the
procedure under the natural justice is that a court can only review and
correct the clerical errors in its order. A Court cannot set aside its own
judgment and then pass another judgment. Whereas, the respondent/DH
has pleaded that the Foreign Court has passed the impugned judgment and
decree after hearing the parties and examining the statement of witnesses
under a Summary Procedure and therefore, the decree is on merits and is
thus, enforceable on merits in India. Also pleaded that the learned Single
Judge has rightly observed that an order can be corrected, modified,
reviewed and set aside. On this count, we find that there is no doubt that a
court can set aside a judgment, review a judgment and correct the
typographical errors, but a judgment can be reviewed by the same Court
but cannot be set aside by the same court. It is an admitted case of
respondent /DH that its representative Mr. Schmidt did not know until
April, 2003 that a default judgment was unenforceable in India and
therefore, a Summary Judgment was sought.
56. During the course of hearing, this Court had raised a specific query
to the learned senior counsel representing both the sides on the procedure
adopted by the UK for passing a default judgment and summary
judgment. Relevantly, the Court at UK in the impugned judgment and
Signature Not Verified
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Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
decree while setting aside the default judgment and passing a summary
judgment observed and held as under:-
"Setting aside the default Judgment:-
46. CPR 31.3 provides that;
"(1) ... the court may set-aside or vary a
judgment entered (in default) if-
(a) the defendant has a real prospect of
defending the claim; or
(b) it appears to the court that there is
9ome other good reason why-
(i) the judgment should be set aside or varied;
or ,
(ii) defendant should be allowed to defend
the claim
(2) In considering whether-to-'set aside or
vary a (default) judgment ... the matters to
„Which the court must have regard include
whether the person seeking to set aside the
judgment made an application to do so
promptly‟
47. There was-no agreement to-the effect
that the default judgment would be obtained but
not enforced. The question is whether or not, as
a matter of discretion, the court should set
aside a which is of commercial value to the
Messer to enable the Messer to achieve its
objective of obtaining a judgment which it
believes it would be able to enforce in India.
XXXXX
53. I do not think Goyal was at any time
entitled to conduct its affairs on the basis it had
no liability to Messer on the claim. Messer had
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Signing Date:21.12.2022
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Neutral Citation Number: 2022/DHC/005704
made it clear it asserted and intended to pursue
the claim. It made no contrary representation.
There was a regular judgment on the claim
entered in the Courts of forum chosen by the
parties to resolve the claim. There is no
injustice to Goyal in setting aside the judgment
and so, in principle, enabling it to put forward
such defences as it might have on the merits. It
is not an attractive stand to maintain that a
valid court order will not be met but can be
relied upon as discharging the liability which
gave rise to it. Mr.Nash submitted that Goyal
was entitled to arrange its affairs on the basis
of its legal rights and liabilities and they have
been settled by due process. That is a more
elegant way of describing the stand Goyal seek
to take. But in my judgment Goyal is not
entitled both to ignore "due process" and to
rely on it. Nor is there any injustice in this case
in the court granting an application which
would provide an opportunity for an order to be
made which could not be ignored if it is
appropriate to do so. I will therefore set aside
the default judgment.
Summary Judgment
I have already addressed such defences as
Goyal has sought to raise. None, in my
judgment, provide any real prospect of a
defence to the claim succeeding. Messer is
entitled to summary judgment. No issues have
been raised on the amount of the claim. At 16
January 2006 the claim was for the principal
sum of US $ 4,794,762.98 together with interest
calculated in accordance with the loan
agreement of US $ 996,842.94. A small further
amount of interest will be due when this
judgment is handed down. There is also a
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claim under clause 17.5 of the loan agreement
to recover certain legal fees. If there are any
points to be made on the precise amount of the
Part 24 judgment to be entered, they should be
raised when this judgment is handed down if
they cannot be agreed beforehand."
57. We have also gone through the Witness Statement of Mr.Kuldeep
Kumar Dhar, Deputy General Manager of appellant/JD, filed before the
court in UK. Herein below we note a few extracts of his statement,
coupled with the observations made by the UK court on those counts.
(i) This witness in Para-27 of his statement has stated that Clause 11
(c) of the second schedule to the Loan Agreement read as under:-
"(c) approval of the Government of India, Ministry
of Finance Department of Economic Affairs, New
Delhi ("GOI") permitting the Borrower to avail
the foreign currency loan of US$7,00,000 from or
arranged by a named bank on the terms and
conditions set out in this Agreement; and"
(ii) Also, in Para-19 the witness has stated when the Loan Agreement
was executed, foreign currency transactions in India were not permitted
without prior permission of the relevant authorities in India, being the
Department of Economic Affairs (DEA) of the Government of India and
the Reserve Bank of India (RBI) and under the provisions of Indian
Foreign Exchange Regulation Act, 1973, then in force. This witness in
Para-20 has also stated when appellant/JD applied for approval for
External Commercial Borrowings (ECB) based on Citibank‟s terms, the
approval of the Loan Agreement was granted with certain conditions; and
one of mentioned as under:-
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Neutral Citation Number: 2022/DHC/005704
"(c). The approval of the Exchange Control
Department of the RBI, through Goyal‟s bankers,
under the Fer Act was to be obtained to ensure that
the terms of the Government approval was complied
with and that "no additional foreign exchange
liability either express or implied, is being assumed
under the arrangements".
(iii) The appellant‟s witness has also stated in Para-31 that appellant/JD
had informed the respondent/DH of the terms of conditions imposed by
the RBI for grant of sanction of the Loan Agreement. Whereas the UK
court in Para-19 has observed as under:-
"It is difficult to see why the RBI, having
permitted Goyal to use foreign exchange to meets
its liabilities under the loan agreement, should be
concerned that the same liabilities were owed to
Messer provided they ceased to be owed to
Citibank. In any event, the incidence of Indian
Foreign Exchange law would, as Mr. Fexton
submitted, only invalidate a contractual obligation
if Indian was to proper law of the contract of the
law of the place for its performance, neither
apply."
It is pertinent to mention here that the UK Court has noted the
submission of Mr. Foxton, representative of the incidence of Indian
Foreign Exchange Law would invalidate a contractual obligation only if
the India was the proper law of the contract or the law of the place for its
performance, which does not apply to the case. However, the UK Court
ignored the statements made by Mr.Kuldeep Kumar Dhar, as noted herein
above, in its judgment.
(iv) Furthermore, this witness in his statement has also stated in Para-38
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that Messer‟s announcement to the effect that "it was to pull out of India"
affected several major projects and caused appellant/JD financial loss and
impaired its reputation in market, as its technical strength depended upon
respondent‟s support; whereas no note of the loss suffered by the
appellant has been taken in the judgment by court at UK.
58. The stand of respondent/DH is that it was only in May, 2005 it got
to know that the default judgment was not executable in India. The UK
Court in Para-42 has observed that Mr. Foxton, learned counsel for
respondent/DH assumes that Goyal would not comply with the judgment,
had no assets against which it could be enforced and Messers may lose the
claim in an unenforceable judgment. Whereas the appellant‟s witness in
Para-60 has stated that at the time of obtaining the default judgment,
respondent/DH was represented by renowned law firm in the City of
England as well as India and it was difficult to believe that respondent/DH
would not have been advised that a default judgment was unenforceable in
India. Moreover, the default judgment was entered after 15 months of
balance paid by the respondent/DH to the Citibank under the Loan
Agreement. The UK Court in Para-27 noted the statement of Mr.Nash,
counsel for appellant, that the agreement made in 2001 was merely for the
purpose of crediting the loan amount and has further noted that the
submission of Mr.Nash with regard to agreement as full settlement of the
claims, was not consistent with Mr.Dhar‟s evidence. The UK Court in
Para-38 & 40 has also observed that there is no evidence to support
appellant‟s stand and also that the theories, extraordinary and unsupported
by any evidence as they are, do not begin to stand up to examination.
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Signing Date:21.12.2022
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59. A careful evaluation of afore-noted statements made on behalf of
appellant/JD‟s witness as well observations of the UK court shows that
the pleas raised by both the sides are on triable issues. However, without
granting an opportunity to leave to defend to appellant/JD, the UK court
has passed the Summary Judgment, enforcement of which is sought in
India.
60. It is an admitted position that on one hand appellant/JD filed its
leave to defend and on the other, respondent /DH sought passing of
Summary Judgment by the Court. It is also not disputed that at the time of
passing of the impugned judgment and decree, leave to defend filed by the
appellant/JD was not granted and it is on the basis of documents placed on
record the Summary Judgment was passed. In BL Kashyap v. JMS Steels
and Power Corporation, 2022 SCC OnLine SC 59 it has been held that
while dealing with the application seeking leave to defend, the Court has
not to proceed as if denying the leave is the rule and it is only to be
granted in meritorious cases, rather the Court has to ensure that where
triable issues are raised, leave to defend be granted and even the Court can
grant conditional leave to defend.
61. During the course of hearing this Court had specifically put a query
to appellant/ JD, why it did not file an appeal before the UK Court? The
learned senior counsel appearing on behalf of appellant replied that when
the respondent/DH sought a Summary Judgment from the Court at UK to
get the decree enforced in India, that too without affording an opportunity
to leave to defend to the appellant/JD, which is against the procedure
followed under Indian Law, there was no ground to file an appeal against
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the said judgment in UK or in India. We find that since the foreign decree
was not executable in India, in such circumstances there was no occasion
for appellant/JD to file an appeal against that and it is only when its
executions is sought in India, the appellant/JD has filed its objections.
62. It has been pleaded by the appellants that under the Loan
Agreement, only the lender and the agent had the jurisdiction to raise the
claims before UK Court and disputes between appellant and respondents
were triable in India. In addition, various provisions of Indian Law, RBI
guidelines, balance sheets have not been taken into consideration by the
foreign Court while passing the Summary Judgment.
63. On this aspect we find that the decree dated 07.02.2006 arises out
Loan Agreement dated 20.06.1997 which was governed by the English
Law and in terms of Clause 31.2 of the Loan Agreement and further in
terms of Clause 31.3, all the objections were to be submitted to the
jurisdiction of the English Court and appellant/ JD was fully aware of
these clauses, and therefore, only it had applied for leave to defend before
the English High Court. However, the leave to defend preferred by the
appellant/JD was not considered by the English Court while passing the
Summary Judgment in question. By not affording an opportunity to
appellant/JD to defend its case, the English Court has not only deprived
appellant/JD of its legitimate rights to defend itself but also it is against
the interest of justice. Even if it is taken that the appellant‟s case was
premised on weak foundation; at least an opportunity to stand before the
Court should have been afforded to the appellant/JD. Hence, reliance
placed by learned Single Judge upon decision in Navin Khilani Vs.
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Mashrequ Bank (2008) 146 DLT 134 (DB) rejecting the contention of
appellant/JD that foreign judgment is not on merits; is liable to be set
aside in view of the fact that in the said case, the suit filed before the UK
Court under Order 14 RSC was considered akin to Section 37 Indian IPC
by the Division Bench of this Court. The present case has not been filed
under Order und 14 RSC and after passing of Default Judgment,
respondent/DH sought Summary Judgment under Rule 24.2 of the UK
Civil Procedure Rule, 1998, which is completely different than the other
provisions of law and so, the decision in Navin Khilani (Supra) is not
applicable to the facts of the present case.
64. We find that the setting aside of default judgment and passing of
summary judgment by the same court at UK, is not recognized under the
prescribed procedure of law in this country. Moreover, the disputes
between the parties are triable issues and denial of leave to defend to the
appellant/JD is against the interest of justice.
65. In view of the afore-noted reasons, the present appeal seeking
setting aside of judgment dated 29.11.2013 passed by the learned Single
Judge is allowed and accordingly disposed of.
(SURESH KUMAR KAIT)
JUDGE
(SUDHIR KUMAR JAIN)
JUDGE
DECEMBER 21, 2022/r
Signature Not Verified
Digitally Signed
By:ROSY MUNJAL
Signing Date:21.12.2022
15:23
