T.A. No.186 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. T.A. No.186 of 2008 Date of Decision: 15.9.2008 Hongkong and Shanghai Banking Corporation Ltd. .....Applicant Vs. Nahar Industrial Enterprises Ltd. ...Respondent .... CORAM : HON'BLE MR.JUSTICE RAJIVE BHALLA **** Present : Mr.Ashok Aggarwal Sr.Advocate with Mr.I.P.S. Doabia, Mr.H. Jayesh and Mr.Jusefa Nasikwala, Advocates for the applicant. Mr.S.Ganesh Sr.Advocate with Mr.Akshay Bhan, Advocate for the respondents. RAJIVE BHALLA, J The applicant prays for transfer of Civil Suit No.108/5.4.2008 of 2008 titled as M/s Nahar Industrial Enterprises Ltd. V. M/s H.S.B.C. Limited from the Court of Sh.Kanwaljit Singh, Civil Judge, Junior Division, Ludhiana to the Debt Recovery Tribunal, III, Mumbai, (hereinafter referred to as `the Tribunal') to be tried jointly and disposed of with O.A. No.122 of 2008 and O.A. (the number has not been disclosed) both titled as the Hongkong and Shanghai Banking Corporation Ltd. V. Nahar Industrial Enterprises Limited as suits. The applicant, a banking company entered into a market standard master agreement with the respondents on 1.11.2006 for undertaking derivative transactions for hedging or transformation of risk exposure. The master agreement governs all subsequent transactions referred to as confirmations. The respondents allegedly entered into ten T.A. No.186 of 2008 2 transactions with the applicant. Out of these transactions, four transactions were closed at the instance of the respondents, one transaction matured and one expired due to a contingent event. In these six transactions, the respondents allegedly received an aggregate sum of about 1,87,00,000/- (Rupees one crore eighty seven lakhs only) from the applicant. With respect to two transactions, both dated 13.7.2007, the respondents allegedly received Rs.13,00,000/- (Rupees thirteen lakhs only). On 2.4.2008, four foreign exchange derivative transactions were outstanding. The respondents by their letter dated 3.4.2008 purported to disclaim, repudiate and reject two of these transactions i.e. transactions with Trade Dates dated 26.7.2007 and 30.7.2007 and, thereafter, filed a civil suit, seeking a declaration and permanent injunction against two transactions confirmed on 30.7.2007 and 1.8.2007, on the following grounds :- a. contrary to the provisions of FEMA; b. contrary to the regulations issued by the Reserve Bank of India (“RBI”); c. are against the public policy; d. are voidable due to misrepresentation, fraud and undue influence; and e. are wagering contracts and therefore void under the Contract Act. It would be necessary to notice here that the Swap Ref: NCW072009996 Trade Date 13.7.2007 as confirmed by Confirmation dated 20.7.2007 and Swap Ref: NCW072009997 Trade date 13.7.2007 as confirmed by Confirmation dated 20.7.2007 and the Agreement are not subject matter of the suit. T.A. No.186 of 2008 3 The suit was accompanied by an application under Order 39 Rules 1 and 2 of the Civil Procedure Code, read with Section 151 thereof. The civil Court passed an ex-parte order of status quo on 7.4.2008, directing both parties to maintain status-quo regarding the contracts involved in the suit till 16.4.2008. As the letter dated 3.4.2008 and the suit filed by the respondents was construed as an event of default under the master agreement, the applicant terminated the outstanding transactions, other than the transactions, which were subject matter of the suit. The applicant, thereafter, issued two letters both dated 15.4.2008, setting out their claims and calling upon the respondents to pay the amounts due under the non- suit transactions only. As the respondents failed to honour this letter, the applicant filed an original application being O.A. No.122 of 2008, with respect to the non-suit transactions, for recovery of a sum of INR 2,25,00,758 (Indian Rupees two crores twenty five lakhs seven hundred fifty eight only). The applicant also filed an Interim Application bearing no.125 of 2008. The Tribunal, vide letter dated 22.4.2008, restrained the respondents from alienating or in any way creating third party interest in its fixed assets. On 16.4.2008, the suit came up for hearing before the civil Court at Ludhiana. The applicant filed an application under Order 39, Rule 4 of the CPC for vacation of the ex-parte order dated 7.4.2008. The respondents filed a reply thereto as did the applicant to the original application filed under Order 39 Rules 1 and 2 of the CPC. After hearing arguments addressed by counsel for the parties, the civil Court, passed the following order :- T.A. No.186 of 2008 4 “Present : Sh.Parveen Garg,Adv. Counsel for the plaintiff with Sh.Soni and Apar Gupta,Advocate. Sh.Inderpal Singh and Sh.Sarabdeep Singh Adv for defendant. Sh.Parveen Garg Adv. has filed power of attorney on the behalf of the plaintiff and Sh.Inderpal Singh and Sh.Sarabdeep Singh Adv. also filed power of attorney on behalf of defendant. Written statement/reply not filed. Rather an application u/o 39 R.4 CPC has been filed on behalf of defendant. Copy supplied. Reply to same be filed on 23.4.2008 and also for consideration. Status quo granted on 3.4.2008 (sic) till today is extended till 23.4.2008 except due course of law.” On 23.4.2008, the case was adjourned to 30.4.2008 and thereafter to 9.5.2008, 13.5.2008 and 17.5.2008 etc. for reply to various applications filed by the respondents and for arguments. Pursuant to order dated 16.4.2008, the order of status-quo was modified by adding the word “except due course of law”. The applicant, therefore, filed a second original application before the Tribunal, Mumbai, for recovery of INR Rs.7,39,88,035 (Indian Rupees seven crores thirty nine lakhs eight thousand and thirty five only) i.e. with respect to the transactions, subject matter of the civil suit. The respondents entered appearance before the Tribunal in O.A. No.122 of 2008 and were granted time to file reply. The Tribunal heard arguments on the question of interim relief, reserved orders but directed parties to maintain status-quo, with respect to the properties of the T.A. No.186 of 2008 5 respondents. On facts, narrated herein above, the applicant prays that the civil suit pending before the Court at Ludhiana be transferred to the Tribunal. This prayer is strenuously opposed by counsel for the respondents. Counsel for the applicant, in addition to asserting that the master contract and non suit transactions were signed at Mumbai, pray that the civil suit be transferred to the Tribunal, as the transactions impugned before the civil Court and the transactions subject matter of the applications filed before the Tribunal, arise from the same master contract. Any adjudication of these transactions, would necessarily entail an appraisal of the legality of the master contract. The suit filed by the respondents at Ludhiana, challenges the transactions as being contrary to law, opposed to public policy, voidable and void due to misrepresentation, fraud and undue influence.. The suit is, therefore, in the nature of a defence to the original applications, filed before the Tribunal. As a result, it is argued that both the Civil Court and the Tribunal would be called upon to adjudicate the same set of facts, documents and causes of action and render opinion with respect to their legality or otherwise, thus, giving rise to a possibility of the civil Court and the Tribunal recording conflicting opinions, with respect to the same set of facts. The interest of justice would, therefore, require that such a situation be avoided by transferring the matter from the Court at Ludhiana to the Tribunal at Mumbai. It is submitted that under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the 'D.R.T. Act'), the jurisdiction of civil Courts to entertain the applicant's claim, filed before the Tribunal, is specifically barred. The applicant, therefore, cannot file a suit for recovery T.A. No.186 of 2008 6 before a civil Court or a counter claim in the suit already filed by the respondents. Another argument pressed into service by counsel for the applicant is that the cause of action for filing the suit and the application filed before the Tribunal arise from the same bundle of facts, namely; the original agreement, the transactions, repudiation by the respondents and the by the applicant etc. The transactions, subject matter of these proceedings flow from the master agreement. It is, therefore, argued that as common questions of fact arise for adjudication and the applicant is statutorily barred from praying for recovery of the amount due, before a civil Court, the proceedings be transferred to the Tribunal. It is further submitted that challenge laid by the respondents to the agreement and the transactions before the civil suit, can be adjudicated by the Tribunal, which has all the trapping and powers of a civil Court under Sections 19 (17) and (25) of the D.R.T. Act , read with Rule 18 of the Debts Recovery Tribunal (Procedure) Rules, 1993 (hereinafter referred to as the 'Rules'). It is further submitted the the Tribunal is empowered in an appropriate case, to direct parties to lead evidence by way of affidavits or to depose orally. The Tribunal is also empowered to ensure compliance of its orders by punishing the defaulting party. The Tribunal, therefore, is endowed with statutory powers not only to decide the civil suit on merits, but also to decide the applications for interim injunction, clarification of the impugned order and the application filed by the respondents, alleging violation of the ad interim injunction. It is, therefore, argued that as there is no legal impediment to the transfer of the suit, interest of justice would require that the civil suit be transferred to the Tribunal, to be tried together T.A. No.186 of 2008 7 with the original applications filed by the applicant-bank. Reliance in support of these submissions relating to the powers conferred upon a Debt Recovery Tribunal are placed upon State Bank of India V. Ranjan Chemicals Limited and Anr. (2007) 1 SCC 97, United Bank of India V.Abhijit Tea Co.Pvt.Ltd. and others, (2000) 7SCC 357, Industrial Investment Bank of India Ltd. V. Marshall's Power & Telecom(I) Limited, (2007) 1 SCC 106 and Durga Hotel Complex V. Reserve Bank of India and others, (2007) 5 SCC 120 and for the proposition that a civil suit may, circumstances permitting be transferred to a Tribunal, reliance is placed upon ICICI Limited V. Grapco Industries Limited (1999) 4 SCC 710, Allahabad Bank V. Radha Krishna Maity, (1999) 6 SCC 755, Allahabad Bank V. Canara Bank and another, (2000) 4 SCC 406, Hira Lall and Sons and others V. Lakshmi Commercial Bank, (2002) 6 SCC 389 and State Bank of India V. Madhumita Constructions Pvt. Ltd., AIR 2003 Cal 7. Counsel for the respondents vehemently opposes the prayer for transfer and submits that the application is misconceived. Sections 22 and 23 of the Code, envisage transfer from one civil Court to another. The prayer, therefore, for transfer of the civil suit to the Tribunal is legally untenable. It is further submitted that the suit cannot be considered as a counter claim within the meaning assigned thereto under Section 19 of the Recovery of Debts Act. The transfer, therefore, if any, can only be made with the consent of parties and as the respondent does not consent to the transfer of the civil suit to the Tribunal at Mumbai, the present application be dismissed. It is further submitted that the power to transfer cannot be exercised in a routine or mechanical manner. Judicial discretion envisaged T.A. No.186 of 2008 8 by Sections 22 and 23 of the Code, must be exercised in accordance with well settled legal principles that guide the exercise of discretion to transfer matters from one Court to another, namely; that the interest of justice, requires such a transfer. The applicant has failed to place before this Court any such circumstance, as would necessarily warrant or justify the transfer of the suit, filed before a Court of competent jurisdiction to the Tribunal. It is further submitted that the applicant has levelled serious allegations of fraud, undue influence etc. These allegations can only be established by oral deposition. The witnesses, who would depose as to these allegations reside at Ludhiana. The respondents, in the eventuality of transfer, would be required to transport their witnesses to Mumbai, thus, causing serious inconvenience, unnecessary expenses and in essence, denial to the respondents of a just opportunity to establish its allegations. It is further submitted that the Tribunal is not a Court as it is not bound by the rules and principles laid down in The Evidence Act and the provisions of the Code of Civil Procedure. As a consequence, the applicant would not be able to establish its plea of fraud and coercion etc. before this quasi judicial Tribunal that is ill-equipped to decide complex issues of fraud and coercion, as they necessarily require a trained judicial mind to draw inference from the facts adduced in evidence. Tribunals do not, generally, permit oral depositions or cross examination and are ill-equipped to adjudicate such complicated issues. The Tribunal, therefore, is not a proper forum to decide the suit filed by the applicant. It is further submitted that the respondents have filed an application dated 30.4.2008 for clarification/modification of the order of status-quo dated 5.4.2008. The respondents have also filed an application under Order 39 Rule 2-A of the Code for contempt/punishment T.A. No.186 of 2008 9 of the applicant for violation of the order of status-quo. It is submitted that the Tribunal would be legally barred from adjudicating the application for clarification/modification and awarding punishment, in accordance with the provisions of Order 39 Rule 2-A of the Code, for reasons of jurisdictional constraints,inherent in a Tribunal. It is also submitted that in case, this Court arrives at a conclusion that the Tribunal would not have jurisdiction to decide the application, filed under Order 39 Rule 2-A and the application for clarification/modification, the present application be kept in abeyance and the civil Court be directed to decide these applications before any final order is passed on the present application. I have heard learned counsel for the parties and perused the paper book, as also the statutory provisions and the precedents pressed into service. Before proceeding to decide the controversy on merits, it would be necessary to set out the statutory basis for the power to transfer, as provided in the Code of Civil Procedure. Sections 22, 23 and 24 the Code of Civil Procedure confer power to transfer a suit and read as follows :- “22. Power to transfer suits which may be instituted in more than one Court – Where a suit may be instituted in any one of two or more Courts and is instituted in one of such Courts, any defendant, after notice to the other parties, may, at the earliest possible opportunity and in all cases where issues are settled at or before such settlement, apply to have the suit transferred to another Court, and the Court to which such application is made, T.A. No.186 of 2008 10 after considering the objections of the other parties (if any) shall determine in which of the several Courts having jurisdiction the suit shall proceed. 23. To what Court application lies – (1) Where the several Courts having jurisdiction are subordinate to the same Appellate Court, an application under Section 22 shall be made to the Appellate Court. (2) Where such Courts are subordinate to different Appellate Courts but to the same High Court, the application shall be made to the said High Court. (3) Where such Courts are subordinate to different High Courts, the application shall be made to the High Court within the local limits of whose jurisdiction the Court in which the suit is brought is situate. 24. General power of transfer and withdrawal – (1) On the application of any of the parties and after notice to the parties and after hearing such of them as desired to be heard, or of its own motion, without such notice, the High Court or the District Court may, at any stage - (a) transfer any suit, appeal or other proceeding pending before it for trial or disposal to any Court subordinate to it and competent to try or dispose of the same; or (b) withdraw any suit, appeal or other proceeding pending in any Court subordinate to it; and T.A. No.186 of 2008 11 (i) try or dispose of the same; or (ii) transfer the same for trial or disposal to any Court subordinate to it and competent to try or dispose of the same; or (iii) re-transfer the same for trial or disposal to the Court from which it was withdrawn. (2) Where any suit or proceeding has been transferred or withdrawn under sub-section(1), the Court which is thereafter to try or dispose of such suit or proceeding may, subject to any special directions in the case of an order of transfer, either retry it or proceed from the point at which it was transferred or withdrawn. (3) For the purposes of this section - (a) Courts of Additional and Assistant Judges shall be deemed to be subordinate to the District Court; (b) “proceeding” includes a proceeding for the execution of a decree or order. (4) The Court trying any suit transferred or withdrawn under this section from a Court of Small Causes shall, for the purposes of such suit, be deemed to be a Court of Small Causes. (5) A suit or proceeding may be transferred under this section from a Court which has no jurisdiction to try it.” T.A. No.186 of 2008 12 The plaintiff being the dominus lites of his cause has the right to file a suit in any forum, legally allowed. The general power of transfer, conferred upon a High Court emanates from the provisions of Section 24 of the Code of Civil Procedure and is primarily drawn from its endeavour to ensure that the primeval urge of civil society to a just and equitable adjudication of disputes is achieved. Thus, where the ends of justice require the transfer of a case to another Court or forum, the High Court, may at any stage, transfer a suit or a pending litigation to another Court or forum. As a general rule, the power to transfer should be exercised sparingly and then also to achieve the ends of justice. The expression “ends of justice” is no magic wand but an expression that calls upon every judicial forum to strive, in the discharge of its jurisdiction, to do justice to the feuding parties. Situations, in which cases may be transferred to another Court or forum are too numerous to enumerate but a principle that is generally invoked in the interest of justice is the need to avoid the possibility and hence the judicial embarrassment of different Courts/fora arriving at different conclusions, on the same set of facts or on the same questions of law arising between the same parties and from the same cause of action. Thus, where parties, claim relief, with respect to or arising out of the same transaction or series of transactions and institute proceedings before different Courts/fora, the possibility of different Courts arriving at different conclusions on the same set of facts, is a possibility more real than assumed. In order to avoid such an eventuality, “interest of justice” would require that such actions brought in different Courts or fora are heard before a single Court or forum, subject to the Court or forum being conferred with jurisdiction to decide the entire T.A. No.186 of 2008 13 dispute. Another principle that underlines the power to transfer is the endeavour to avoid multiplicity of proceedings in our already over burdened judicial system. The applicant has filed two separate applications before the Tribunal, praying for recovery of amounts due under separate transactions that in essence, emanate from the master agreement dated 1.11.2006. The respondents, on the other hand, have filed a civil suit before the Civil Judge (Junior Division), Ludhiana, impugning the legality of transactions dated 30.7.2007 and 1.8.2007 and, therefore, the legality of the master agreement dated 1.11.2006. In my considered opinion, adjudication of the legality of the master agreement dated 1.11.2006, the nature of the transactions impugned before the Civil Judge and the claim for recovery set up by the applicant would necessarily involve adjudication of common questions of fact and law. The basis for the suit and the applications filed before the Tribunal is the agreement dated 1.11.2006 and the cause of action is the respective repudiation of the subsequent contracts/transactions by both parties. The suit, filed by the respondents at Ludhiana, though prior in time, in essence, seeks to preempt the applications for recovery filed by the applicants before the Tribunal. The suit is, in essence, a counter claim to these applications. In my considered opinion, the rights of the parties, to be adjudicated by the civil Court and the Tribunal are so enmeshed that the decision by one would necessarily effect the decision by the other. The interest of justice would, therefore, require that the civil suit and the applications filed before the Tribunal are heard before a single adjudicatory forum, by way of a joint trial. The above conclusion, would avoid contradictory and conflicting judgements and also prevent multiplicity of T.A. No.186 of 2008 14 proceedings and unnecessary wastage of precious judicial time. Counsel for the respondents has vehemently urged that the power of the High Court to transfer suits is circumscribed by its jurisdiction to transfer a case “to a Court”. It is, therefore, sought to be urged that as the Tribunal is not a Court within the meaning of the Code of Civil Procedure, a High Court has no jurisdiction to transfer a suit filed before a Court for adjudication before the Tribunal. This argument disregards a fundamental fact that the jurisdiction of a High Court to transfer a pending suit flows from its primordial obligation to ensure the ends of justice and for that purpose, to ensure that cases pending before different Courts or fora, arising from the same set of facts and the same causes of action are heard and decided by a single forum, so as to avoid the possibility of conflicting judgements and to prevent the multiplicity of judicial proceedings. This principle, however, would not empower a High Court, to transfer a civil suit to a Tribunal, where the Tribunal does not possess jurisdiction or is legally incapable, on account of jurisdictional limitations, to adjudicate the disputes raised in the civil suit. Consequently, before an order is passed transferring a civil suit to a Tribunal, a High Court would necessarily be called upon to decide, whether the Court or the Tribunal has jurisdiction to decide the matter pending before the other. Debt Recovery Tribunals have been constituted under the D.R.T. Act, to enable banks or financial institutions, to file applications for recovery of amounts payable to them. The Debt Recovery Tribunal, though a Tribunal, has the trappings of a Court. Section 19 of the D.R.T. Act, provides for filing of an application before the Tribunal. Sub-section 6 of Section 19 empowers the Tribunal to make an interim order, whether by T.A. No.186 of 2008 15 way of injunction or stay. Section 22 of the Debt Recovery Tribunal Act, prescribes a procedure and sets out the powers of the Tribunal. Sub-section (1) thereof states that the Tribunal shall not be bound by the procedure laid down by the Code, but shall be guided by the principles of natural justice and shall have powers to regulate its own procedure. It is, therefore, apparent that, though the Tribunal is not bound to follow the procedure prescribed by the Code, it is not barred, in the exercise of its jurisdiction to invoke and rely upon principles of procedure set out in the Code. The Tribunal, therefore, can apply provisions of the Code and may in a given situation, travel beyond the provisions of the Code dependent, however, on observing the principles of natural justice. In this regard and so as to place the conclusions recorded herein above in their correct perspective, reference would have to be made to a judgement of the Hon’ble Supreme Court reported as ICICI Limited. V. Grapco Industries Limited (supra) and to reproduce para 11