CS (OS) No. 2198/2003 Page 1 of 36 IN THE HIGH COURT OF DELHI AT NEW DELHI CS (OS) 2198 of 2003 Reserved on: 28th July 2009 Decision on: 26th August 2009 MADAN KUKREJA ..... Plaintiff Through Mr. Ashok Gurnani, Advocate versus BANQUE SCALBERT DUPONT S.A. & ANR. ..... Defendants Through Mr. Peeyoosh Kalra with Mr. Vikram Grover and Mr. Kamal Sharma, Advocates CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR 1. Whether Reporters of local papers may be allowed to see the judgment? No 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in Digest? Yes JUDGMENT 26.08.2009 S. Muralidhar, J. 1. This suit seeks a decree against the Defendant No.1 for a sum of Euro 49,842/- along with pendente lite and future interest at 16.5% annum together with costs. The case of the Plaintiff 2. The Plaintiff describes himself as the Proprietor of a concern under the name and style of M/s Super Fashion, which is an exporter of garments. Its export destinations are claimed to be the United States of America (USA), Canada and Europe. The Plaintiff claims that the CS (OS) No. 2198/2003 Page 2 of 36 concern has acquired the status of a government recognized export house. Defendant No.1 is a bank headquartered in France, having an office in Delhi. It is stated to be fully owned by the Credit Industriel et Commercial (CIC), a joint stock company incorporated under the laws of France and having its head office at Paris. CIC has a representative office in New Delhi established under permission of the Reserve Bank of India (RBI) by a letter dated 18th February 1997. Defendant No.2 is the Syndicate Bank with which the Plaintiff has an account. It is stated that the Defendant No.2 is only a proforma party. 3. According to the Plaintiff, in and around the second week of January 2003, M/s Li & Fung (India) Pvt. Ltd. („Li & Fung India‟), having its registered office at New Delhi, the principal of which was Li & Fung, Hong Kong, held out as an agent of M/s Promod S.A. located in France and approached the Plaintiff at his office in Delhi. They evinced interest in purchasing woven ladies dresses and ladies blouses required by M/s Promod S.A. Consequent upon negotiations and discussions, M/s Li & Fung India, acting as an agent of M/s Promod S.A., placed on the Plaintiff purchase order Nos. 86302101 dated 21st January 2003, 86302102 dated 22nd January 2003 and 86305001 dated 19th February 2003 for a supply of total number of 8300 pieces of woven ladies dresses and ladies blouses. The payment was to be effected through an irrevocable letter of credit (LC) No. DCLCK 409960 dated 8th November 2002 already established by Li & Fung Hong Kong through Hong Kong & Shanghai Banking Corporation (HSBC) at Hong Kong in favour of the Plaintiff. In terms of the said LC, the goods were CS (OS) No. 2198/2003 Page 3 of 36 required to be shipped to France to Defendant No.1 Bank as consignee and to notify M/s Promod S.A. upon arrival of the goods in France. It is stated that the goods were inspected by the representatives of M/s Li & Fung India at various stages of production. Shipping Agreements dated 22nd April 2003, 29th April 2003 and 7th May 2003 were received by the Plaintiff from Promod S.A. through Li & Fung India. A final inspection was also carried out by the representatives of the Li & Fung India and a certificate of inspection was issued to the Plaintiff, approving the goods for shipment. 4. Thereafter the goods were shipped by the Plaintiff under House Airway Bills (HAWB) Nos. 022288 dated 7th May 2003 and 022294 dated 9th May 2003. The total value of the shipment was Euro 45390. In the HAWB, the consignee was shown as the Defendant No.1 Bank with Promod S.A. being shown the party to be notified upon the arrival of the goods at the destination. The dispatch of the goods, however, took place after the LC dated 8th November 2002 had expired on 4th May 2003. According to the Plaintiff, Li & Fung India assured the Plaintiff that notwithstanding the expiry of the LC, the documents on presentation would be honoured. Accordingly after the shipment of the goods, the Plaintiff prepared the necessary documents relating to the said shipment such as invoices, packing list, certificate of origin etc. Along with the said HAWB, these documents were presented by the Plaintiff to Defendant No.2 with the request that they should be sent to the Defendant No.1 Bank on collection basis. This procedure had to be resorted to since the LC, which expired on 4th May 2003 was not CS (OS) No. 2198/2003 Page 4 of 36 extended despite requests by the Plaintiff. 5. Acting on the request of the Plaintiff, Defendant No.2 by a letter dated 29th May 2003 forwarded the documents to Defendant No.1 on collection basis with instructions that the documents should be released upon payment (DP). Among the documents sent were Invoice No. 232 dated 16th April 2003 for Euro 24,000/-, Invoice No.235 dated 16th April 2003 for Euro 13,590/- and Invoice No. 268 dated 6th May 2003 for Euro 7,800/-, the packing list, the weight list, GSP Certificate of Origin issued by the Textile Committee, the purchase orders and the two HAWBs. Copies of the invoices, the originals of the packing list, GSP Certificate, weight list, Certificate of Origin, HWAB etc. were also handed over to the representatives of Li & Fung India. 6. It is stated that even before the dispatch of the aforementioned documents to Defendant No.1, it issued release orders on 19th May 2003 and 21st May 2003 in respect of the entire shipment of the goods in favour of the Promod S.A. According to the Plaintiff, the Defendant No.1 did this without instructions from the Plaintiff or Defendant No.2. This was stated to be contrary to the international norms of banking. It is stated that since Li & Fung had handed over the original export certificate to Promod S.A., the latter was able to take delivery of the goods against release orders. The Plaintiff alleges that the actions of Defendant No.1 Bank were in breach of its contractual obligations and duties as a banker. Defendant No.1 is also alleged to have breached the trust and faith reposed upon it by the Plaintiff. In particular it is stated CS (OS) No. 2198/2003 Page 5 of 36 that in the forwarding letter dated 29th May 2003 it was specifically indicated that the documents were being forwarded for collection “subject to Uniform Rules for Collection (1995 Revision) International Chamber of Commerce, Publication No.522 read along with ICC Document No.470/822 Rev of April 6, 1998”. It is stated that while forwarding the documents to the Defendant No.1, the Defendant No.2 had instructed the Defendant No.1 to remit the proceeds in respect of the invoices by DD/TT on Mumbai in India in equivalent US Dollars or credit the account of Defendant No.2 Bank with Dresdner Bank, A G, D 60301, Frankfurt AM Main. 7. By a letter dated 7th June 2003, the Defendant No.1 returned the documents to Defendant No.2 because “Promod refused to pay it”. Consequently, it was stated that “this collection is a documentary one and you must know that the law tells a bank is never obliged to pay such a remittance.” However, the Defendant No.2 informed the Defendant No.1 as under: “Your refusal to pay and act of returning the documents is not understandable when the goods covered by the said documents consigned to you have been released on 19.5.2003 and 21.5.2003 against your release order. Since the documents stand utilized so you are under definite obligation to pay the same. Please remit the proceeds along with the up to date interest from the date of release of goods. Regards. Syndicate Bank, Nehru Place, New Delhi.” 8. The documents which were again presented on 21st June 2003 by the CS (OS) No. 2198/2003 Page 6 of 36 Defendant No.2 to the Defendant No.1 were returned on 4th July 2003. A third presentation was made on 8th August 2003 which again was refused and returned by the Defendant No.1 to Defendant No.2 on 19th August 2003. 9. The case of the Plaintiff is that under no circumstances should Defendant No.1 have issued the aforementioned release orders in favour of M/s Promod S.A. without receiving the payments especially when the instructions were release only on DP basis. In response to the legal notice sent to it, it was contended by the Defendant No.1 in its reply dated 30th October 2003 that it had acted on the basis of the LC No.181-01-0032057-1 issued by it in the account of M/s Promod S.A. favouring Li & Fung Hong Kong. That had been advised through HSBC, Hongkong on 3rd April 2003. It was stated that the set of documents covered by HAWB No.022288 dated 7th May 2003 and HAWB No.022294 dated 9th May 2003 were presented by Standard Chartered Bank, Hong Kong under the said LC on behalf of the Li & Fung Hong Kong. Since payment was to be effected out of the said LC, Defendant No.1 closed the file. On the above basis, the Plaintiff filed the present suit against Defendant No.1 for recovery of the sum as noticed earlier. The case of the Defendant No.1 10. The case of the Defendant No.1 in its written statement is that the suit is bad for non-joinder of Promod S.A. in France, Li & Fung, Hong Kong and Li & Fung India as parties to the suit. It is maintained that CS (OS) No. 2198/2003 Page 7 of 36 there is no privity of contract between the Plaintiff and Defendant No.1 in relation to the transaction in question. It is accordingly prayed that the Defendant No.1 is not a proper party to the suit and should be deleted as such. It is then contended that this Court has no territorial jurisdiction to try the suit. Defendant No.1 carries on its business at France. The suit could not be filed without the Plaintiff seeking leave to sue the Defendant No.1. It is stated that Promod S.A. was bound to remit payment to Li & Fung Hong Kong in terms of the LC issued by the Defendant No.1. It is stated that the decision of Defendant No.1 not to handle the collection forwarded to Defendant No.2 was in accordance with URC 522. In any event, banks were under no obligation to handle either a collection or any collection instruction or subsequent related instruction in terms of URC 522. 11. Elaborating on the objection as to the territorial jurisdiction, it is pointed out by Defendant No.1 that it is permitted by RBI by a letter dated 18th February 1997 to open an office in New Delhi purely as a liaison office without transacting any type of banking business. Further, RBI had prohibited the representative office from negotiating any commercial activity. 12. A reference is made to the LC dated 3rd April 2003 opened by Defendant No.1 in favour of Li & Fung, Hong Kong. This LC was opened under instructions of Promod S.A. The above LC was freely negotiable by any bank in Hong Kong. It is maintained that the Defendant No.1 was concerned only with the instruction received from CS (OS) No. 2198/2003 Page 8 of 36 Promod S.A. for opening a suitable documentary credit and to ensure that the terms and conditions governing payment to Li & Fung Hong Kong were incorporated in the LC. 13. It is stated that the documents sent for collection by the Defendant No.1 Bank was received much after on 5th June 2003. It is maintained that the Defendant No.1 could not be held responsible for the callousness of the Plaintiff. The Plaintiff, if at all, could have turned to Li & Fung, Hong Kong for payment. Issues: 14. After the replication was filed, this Court framed the following issues on 18th October 2005: “1. Whether the Courts of Delhi have no territorial jurisdiction to entertain the present suit in which no relief is claimed against the other Defendant (Syndicate bank) and no leave under Section 20 of the CPC has been obtained against Defendant No.1 which has no presence in India? OPD1 2. Whether the suit is bad for non-joinder of proper and necessary parties as stated in the written statement? OPD1 3. Whether the Plaintiff is entitled to enforce any obligation against the Defendant No.1 either directly or through Defendant No.2? OPP 4. Whether the Plaintiff is entitled to claim any sum arising out of any liability from the transaction in question and if so, to what amount it is entitled? OPP 5. If Issue No. 4 is held in favour of Plaintiff, whether the Plaintiff is entitled to claim interest @ 16.5% or at all and if so, for what period and on what amount? OPP 6. If issues No.4 and 5 are held in favour of Plaintiff; who is/are the entity(es) against whom such claim is CS (OS) No. 2198/2003 Page 9 of 36 enforceable? OPP 7. Relief.” 15. The Plaintiff examined himself as PW1. He was cross-examined by the learned counsel for the Defendant No.1 An affidavit of Mr. Vijay Chopra was also filed on behalf of the Plaintiff. He was, however, not cross-examined. The Defendant did not choose to lead any evidence. The arguments of Mr. Ashok Gurnani, the learned Advocate for the Plaintiff and Mr. Peeyoosh Kalra, the learned Advocate for the Defendant No.1 have been heard. 16. Issue No.1: Whether the Courts of Delhi have no territorial jurisdiction to entertain the present suit in which no relief is claimed against the other Defendant (Syndicate bank) and no leave under Section 20 of the CPC has been obtained against Defendant No.1 which has no presence in India? The preliminary objection of the Defendant No.1 is that since it only has a liaison office in New Delhi, this Court lacks territorial jurisdiction to try this suit in terms of Section 20 (a) CPC. A reference is made to the letter dated 18th February 1997 of the RBI to point out that the Defendant No.1 was in fact not permitted to carry on any commercial activity or banking business in India. The only stage at which Defendant No.1 came into picture was when the documents in question were forwarded to it for collection by Defendant No.2 These documents were received by it in France. It is accordingly contended that even for the purposes of Section 20 (c) CPC, no part of the cause of action arose in New Delhi. Reference is made to the judgment of the CS (OS) No. 2198/2003 Page 10 of 36 Supreme Court in Federal Bank v. V.M. Jog Engineering Ltd. AIR 2000 SC 3166. 17. It is further submitted by the learned counsel for the Defendant No.1 that in another set of transactions involving the Plaintiff and Defendant No.1, the dispute has been referred to arbitration. That dispute involves the Li & Fung Hong Kong as well as Li & Fung India, HSBC, Promod S.A. and the Defendant No.1. That was the suit filed by the Plaintiff herein in which an application was filed by the Defendant No.1 under Section 45 of the Arbitration and Conciliation Act, 1996. By an order dated 14th December 2004, the learned Additional District Judge (ADJ) allowed the said application and directed the Plaintiff herein to refer the matter to arbitration in terms of the arbitration clause contained in the placement memorandum dated 29th October 2002. It is submitted that the similar placement memorandum has been issued in the present case and therefore on this ground also this Court has no jurisdiction to entertain the suit. It is submitted that in view of the arbitration clause and the fact that in the said suit the Plaintiff has chosen to implead apart from the Defendants 1 and 2 Promod S.A., Li & Fung Trading India and Li & Fung Hong Kong, obviously they were proper and necessary parties even as far as the present suit is concerned. It is accordingly contended that the suit is bad for non-joinder of necessary parties. A reference is also made to the judgment of this Court in Jaspal Singh Sahni v. Kuwait International Finance Co. S.A.K. 71 (1998) DLT 740 where it is held that a Corporation cannot be sued at a place where it has a subordinate CS (OS) No. 2198/2003 Page 11 of 36 office except where the cause of action arises therein and that merely having a branch office will not give the Court jurisdiction to entertain a suit. A reference is also made to the decision in Kensoft Infotech Ltd. v. R.S. Krishnaswami 146 (2008) DLT 657, State of Rajasthan v. Swaika Properties (1985) 3 SCC 217, Frank Finn Management Consultants v. Subhash Motwani 154 (2008) DLT 95; Corporation Bank v. Bahri Exports ILR (1991) Delhi I 627, Jai Narain N. Sadh Shadwara v. Pan American World Airways 30 (1986) DLT 497. 18. In reply to the preliminary objection, counsel for the Plaintiff while referring to the decisions in South India Shipping Corp. Ltd. v. Export-Import Bank of Korea [1985] 2 All ER 219; Re Oriel Ltd. [1985] 3 All ER 216; Actiesselskabet Dampskib “Hercules” v. Grand Trank Pacific Railway Company [1912] 1 KB 222, contended that where the Defendant is a foreign company, the test is whether it can be served notices within the jurisdiction of the court. The expression “carries on business” in Section 20(a) CPC would include a liaison office. The expression “business” according to Mr. Gurnani need not be the very business which is the subject matter of the suit. Jurisdiction is also to be determined with reference to the place where the effect of the wrong is felt. The Plaintiff, being located within the jurisdiction of the court, has suffered the loss and therefore this Court has jurisdiction to entertain the suit. Reference is made to certain observations of this Court in Frank Finn Management Consultants v. Subhash Motwani. A reference is made to the communication of the RBI to emphasize that as long as the Defendant has an office within the jurisdiction of CS (OS) No. 2198/2003 Page 12 of 36 this Court and could be served there, it cannot be said that this Court has no jurisdiction. A reference is made to the correspondence between the Plaintiff and the Defendant No.1 where letters were addressed to the office of the Defendant No.1 in New Delhi. 19. Section 20(a) CPC envisages that every suit shall be instituted in a court within the local limits of whose jurisdiction the Defendant “actually and voluntarily resides, or carries on business, or personally works for gain”. In the context of the present case, the Plaintiff has to show that the Defendant No.1 “carries on business” within the local limits of this Court‟s jurisdiction. The letter dated 18th February 1997 of the RBI which has been referred to by both the parties reads as under: “February 18, 1997 Mr. H. Dexant, Director, Representative Offices & International Products, Campagnie Financiere de CICet de 1 Union Europeenne 4 rue Gaillon 75107 Paris Cedex 02 Dear Sir, Permission to open a Representative Office in New Delhi Please refer to your application dated 2nd September 1996 requesting for your permission to establish a Representative Office in New Delhi. We are pleased to convey our approval to your bank for opening a Representative Office in New Delhi on the following terms and conditions. a) The Representative Office should function purely as a liaison office without transacting any type of banking business. CS (OS) No. 2198/2003 Page 13 of 36 b) The Representative Office should not undertake any commercial activity. c) The Authorisation to open a Representative Office would not in any way confer a right on the bank for setting up a branch later. d) The bank should comply with all local laws/regulations while operating the Representative Office in India. e) All the expenses of the Representative Office should be met out of inward remittances in free foreign exchange from the bank‟s Head Office. f) The Representative Office should furnish to us on a yearly basis:- (i) certificate from auditor to the effect that during the year no income was earned by/accrued to the office in India. (ii) of remittances received from abroad duly supported by bank certificates. (iii) Certified copy of the audited final accounts of the office in India, and (iv) annual report of the work done by the office in India stating therein the details of the major activities undertaken including trade financing for which the office has rendered liaison services. 2. The bank shall apply to the Government of India in the usual course for the VISA requirement of expatriate official for posting at the Representative office. 3. Please inform us the date of opening of the Representative Office with its full address telephone, fax numbers and the name of the local representative when the office is opened. 4. The receipt of this letter may please be acknowledged.” CS (OS) No. 2198/2003 Page 14 of 36 20. There is merit in the contention of the Plaintiff that although the permission was granted only to operate as liaison office, the requirement that the Defendant No.1 should furnish on an yearly basis an Annual Report stating “the details of the major activities undertaken including trade financing for which the office has rendered liaison services” shows that it was envisaged that a liaison office was not merely meant to be a post office and was meant to transact some business. In Scottish and Newcastle International Ltd. v. Othon Ghalanos Ltd. [2008] 2 All ER 768, the Defendant was a company established in Cyprus. The Plaintiffs Scottish & Newcastle established in England, sued the Defendant company for recovery of the price of the goods sold by it to the Defendant in the English Court. A reference is made to Article 5(1)(b) of Council Regulation (European Council) 44/2001 “on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters”. In terms of the said Regulation, a person domiciled in a Member State may be sued in another Member State in the case of sale of goods “where under the contract, the goods were delivered or should have been delivered”. The question whether Section 32 of the Sale of Goods Act 1979 “of England” applied was answered in the affirmative. That provision envisaged that “where, in pursuance of a contract, of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer”. It was held that since the goods were entrusted to the carrier for being delivered to the buyer in Cyprus, the CS (OS) No. 2198/2003 Page 15 of 36 place of shipment would be also the place of delivery for the purpose of Article 5(1)(b) of the Regulations in all types of FoB contracts. Accordingly, it was held that Section 32 of the Sale of Goods Act applied despite express reference to Limassol Cyprus as the place of delivery in the contract. The fact that the buyer would not in practice inspect the goods until after their arrival in Cyprus counted for nothing, as it was commonplace in international sales. 21. In South India Shipping Corp. Ltd. v. Export-Import Bank of Korea, a question that arose was whether the Defendants had an established place of business within Great Britain. It was held that since the Defendant bank “had both premises and staff within the jurisdiction, and was carrying on business activities which included conducting external relations with other banks and financial institutions, carrying out preliminary work in relation to