1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. Suit No.2005 of 1980 The Vyasya Bank Ltd. .. .. Plaintiff v/s. M/s.Navbharat Trading Corporation & ors. .. Defendants Mr.Sharan Jagtiani with Ms.Rodrigues i/by M/s.Desai & Diwanji for Plaintiff. Defendant No.1 and Advocate absent. Mr.Nitin M. Parekh for Defendant Nos.2 to 7. ------- CORAM : SMT.ROSHAN DALVI, J. Dated : 6 th January 2009 ORAL JUDGMENT : 1. The Plaintiff has sued for declaration that it has the first and paramount charge over 59.74 R.B.D. Palm oil (the suit goods) which was lying with Defendant No.1 at the time of the filing of the Suit as security for realization of the amount under the Indenture dated 25 th May 1978 between the Plaintiff and Defendant Nos.2 to 7. The Suit is also for declaration that the Plaintiff is entitled to enforce the said charge in priority over the claim of Defendant No.1 and to sell the suit goods and appropriate the sale- proceeds towards the amount due and payable by Defendant Nos.2 to 2 7 to the Plaintiff. The Suit is also for mandatory order to hand over and deliver the suit goods themselves to the Plaintiff. 2. Defendant Nos.2 to 7 are the importers of the suit goods amongst other similar goods being R.B.D. Palm oil. The Plaintiff issued Letters of Credit in respect of those goods amongst others. There is a running account of Defendant Nos.2 to 7 maintained in the Plaintiff's books for the suit goods as well as other goods. There is also another litigation between the parties in that regard in the Debts Recovery Tribunal as well as in this Court. 3. Defendant No.1 claims the lien on the suit goods under a certain contract entered into by and between Defendant No.1 and Defendant Nos.2 to 7. Defendant No.1 had stored the goods of Defendant Nos.2 to 7. Defendant No.1, however, does not claim lien over the suit goods as an unpaid seller's lien under Section 47 of the Sale of Goods Act. The Plaintiff claims a prior right in respect of the suit goods in view of the first charge created by Defendant Nos.2 to 7 in their favour. 4. Consequently, the Plaintiff's Suit is to claim the first charge upon the suit goods or its value. The claim of Defendant No.1 is the claim on contractual lien. Defendant Nos.2 to 7 3 admit and acknowledge the Plaintiff's first charge. Defendant No.1 has not sued separately to enforce its claim. Defendant No.1 has not also defended this Suit at the stage of hearing. The pleadings have been filed by all the parties. Based upon the the pleadings, Justice A.B. Palkar, (as he then was) raised the following issues which are answered as follows:- ISSUES (1) Whether the Plaintiff Bank proves that there is any privity of contract between the Plaintiff and the Defendant. - NOT REQUIRED TO BE ANSWERED. (2) Whether the Plaintiff Bank proves that Defendant Nos.2 to 7 or any of them obtained Letters of Credit fraudulently or unauthorisedly from the said Bank as stated in paras 5 and 7 of the Plaint. - NOT PRESSED BY THE PLAINTIFF. (3) Whether the Plaintiff Bank and Defendant Nos.2 to 7 alongwith others created false and anti dated documents in order to circumvent the notification of the Central Government in respect of import of edible oil. - NOT PRESSED BY THE PLAINTIFF. (4) Is the Plaintiff alone entitled to maintain the Suit ? When it claims to be the agent of Asian Bank ? - NOT PRESSED BY THE PLAINTIFF. (5) Whether the Plaintiff-Bank proves that it was not liable to pay the storage charges etc. to Defendant No.1. - YES 4 (6) Whether the Plaintiff-Bank proves that it has charge on the 59.740 M. Tons of oil which is the subject matter of the Suit. - YES (7) Whether the Defendant No.1 was bound to deliver 59.740 M. Tons of oil to the Plaintiff Bank without the payment of storage charges etc. by Defendant No.1. - YES (8) Whether Defendant No.1 proves that he has lien on the said 59.740 M. Tons of oil and the sale- proceeds thereof. If yes, what is its effect ? - NO. (9) What order ? - AS PER FINAL ORDER. 5. Consequent upon the agreement between the Plaintiff and Defendant Nos.2 to 7, as per the Indenture dated 25th May 1978, which is admittedly executed between the parties, Defendant Nos.2 to 7 authorised the Plaintiff to collect the suit goods from the Customs Authorities and the Port Authorities upon payment of fines, penalties, etc. as would be levied by the Customs Authorities, obtain possession of the suit goods, sell the suit goods either by public auction or private treaty and appropriate the proceeds towards the satisfaction of the amounts due and payable by it to the Plaintiff-Bank. Under certain Consent Terms executed, inter alia, by and between the Plaintiff and Defendant Nos.2 to 7 in a Suit filed by a third party, the Shipping Company being 5 Suit No.855 of 1979 in this Court in respect, inter alia, of the consignment of the suit goods the Plaintiffs were authorised by Defendant Nos.2 to 7 to sell the suit goods and appropriate the sale- proceeds in the account of Defendant Nos.2 to 7. The Plaintiff has relied upon essentially the admittedly executed the Indenture dated 25 th May 1978 and the Consent Terms dated 1st June 1979 filed in Suit No.855 of 1979. Though the Plaintiff has relied upon a number of other documents and led oral evidence, Mr. Jagtiani on behalf of the Plaintiff fairly conceded that the ultimate right of the Plaintiff is only upon the aforesaid two documents which are not denied and which cannot be denied by any party. 6. The Plaintiff has led oral evidence of two witnesses but which the Plaintiff's Advocate has fairly not even referred to. Defendant Nos.2 to 7 have also led evidence of one witness which is not required to be considered. 7. Defendant No.1 has not appeared at the stage of recording evidence. Defendant No.1 has not led any evidence. It has not cross- examined the witnesses of the Plaintiff and/or Defendant Nos.2 to 7. Its claim of contractual lien under its agreement with Defendant Nos.2 to 7 is, therefore, not proved. 6 8. The dispute in the Suit is, therefore, extremely narrow. The claim of the Plaintiff upon the Indenture dated 25 th May 1978 is not disputed. The rights of the Plaintiff under the said indenture have already been granted under the Consent Terms dated 1st June 1989 between the parties. A look at the contents of these admitted documents is, therefore, enough to grant the Plaintiff's claim in the Suit. 9. The main dispute is whether the Plaintiff would be entitled to the suit goods or its value upon sale in preference to the lien claimed by Defendant No.1 or whether the lien of Defendant No.1 would disentitle the Plaintiff from claiming its first charge. It would be important to note that Defendant No.1 has not sued for any declaration with regard to its lien, aside from not even defending the Plaintiff's claim. After the filing of the Suit, inter alia, an order came to be passed by Justice Lentin (as he then was) on 14.1.1982. Since the suit goods is a perishable item, it was ordered to be sold jointly by the Plaintiff and Defendant No.1 to the highest purchaser within 3 weeks from the date of that order. The net sale- proceeds were to be deposited with the then Attorneys of Defendant No.1. These were allowed to be withdrawn by Defendant No.1 upon furnishing a Bank Guarantee in the amount of the net sale- proceeds and interest thereon at 17% per 7 annum. The Bank Guarantee was to be kept alive until the disposal of the Suit by Defendant No.1 as per its undertaking from the Court under the said order. That was of course without prejudice to the rights and contentions of the parties. Those rights and contentions would be decided in the Suit. 10. Defendant No.1 gave the Bank Guarantee as per the said order. That Bank Guarantee remained in force until 22.12.2000, after which the Bank Guarantee has not been renewed. Hence Defendant No.1 failed to honour its undertaking to the Court. The Advocate for Defendant Nos.2 to 7 makes a statement on instructions that the Bank is still agreeable to allow the Plaintiff to encash the Bank Guarantee. 11. The main dispute is whether the Plaintiff or whether Defendant No.1 would be entitled to the amounts of the sale upon their claim of the first charge and their claim of the enforcement of lien for payment and the storage of the goods. That dispute has not been agitated since Defendant No.1 has not contested the Suit. It can be seen that initial part of prayer- (c) and prayer (d) has been granted by the interim order in the Suit itself. 8 12. There are no issues left to be decided between the Plaintiff and Defendant Nos.2 to 7 in view of the admission of the execution of the Indenture dated 25 th May 1978 giving the Plaintiff's first charge on the suit goods, by virtue of which prayer (a) must be granted upon admission. Similarly by virtue of the admission contained in Clause- 5 of the Consent Terms dated 1 st June 1979, the appropriation to be made by the Plaintiff towards the amount due and payable by the Defendant Nos.2 to 7 to the Plaintiff is also admitted and hence the latter part of prayer- (c) also requires to be granted upon such admission. 13. The main dispute, which would otherwise remain, would be under prayer (d) to declare whether the Plaintiff was entitled to enforce its charge in priority to the claim of Defendant No.1. Defendant No.1 not having contested the Suit, the Plaintiff would be entitled to an ex-parte order and decree in terms of prayer (b). On such a position, the aforesaid issues require to be considered. 14. Issue No.(1) : The claim of the Plaintiff is not under any contract with Defendant No.1. It is for a declaration under the Indenture executed only between the Plaintiff and Defendant Nos.2 to 7. The Plaintiff claims a prior right over 9 the independent claim of Defendant No.1. Hence there is indeed no privity of contract between the parties, though it does not matter in view of the rights claimed by the Plaintiff, not contested by Defendant No.1 and the absence of any action in law filed by Defendant No.1 to claim priority in right over the Plaintiff by virtue of its lien. Hence Issue No. (1) is required to be answered. 15. Issue Nos.(2), (3) & (4) : They are matters relating to the Plaintiff's officers in certain criminal proceedings against them. The Plaintiff has honoured the execution of the Letters of Credit. Hence these Issues do not come up for consideration between the parties to this Suit. Hence these Issues are not pressed and need not be answered. 16. Issue No.(5) : Defendant No.1 has not proved its agreement with Defendant Nos.2 to 7. The claim of lien under that agreement, therefore, remains unproved. Defendant No.1 has not sued separately to enforce the lien. There is no contract between the Plaintiff and Defendant No.1 under which there is any liability of the Plaintiff for payment of storage charges shown by Defendant No.1. In the absence of any claim made by Defendant No.1 at the hearing of the Suit, this Issue must be answered in the affirmative. 10 17. Issue No.(6) : The Plaintiff-Bank has a charge being the first charge on the suit goods under the Indenture dated 25th May 1978. Clause- 1 of the Indenture shows that the Plaintiff-Bank had executed an Indemnity Bond undertaking the obligations thereunder at the request of Defendant Nos.2 to 7 to indemnify against loss, damage, costs, charges and expenses which the Bank may incur thereunder. Defendant No.7 has been shown as the guarantor under the said Indenture. Defendant No.7, as the guarantor, had agreed and undertaken to pay the Plaintiff-Bank on demand whatever the Bank may be required to pay under the Indemnity Bond, including interest, costs, charges and expenses incurred by the Plaintiff-Bank in connection with the said Indemnity Bond. The said guarantee was a continuing guarantee. The Plaintiff-Bank was to have a lien on all the monies of Defendant Nos.2 to 7 as the importers for the amounts to be claimed by them under the said indenture. Defendant Nos.2 to 7 were to issue a guarantee in favour of the Customs Authorities in a sum of Rs.12.65 Lakhs, which includes the guarantee to be given in respect of the suit goods. The goods to be imported by Defendant Nos.2 to 7 was to be in the possession of the Plaintiff-Bank and the Plaintiff-Bank was to have a first charge on the proceeds thereof for all its dues. 11 18. Consequently, the Plaintiff claims the first charge on the suit goods. The execution of this document is admitted. The Plaintiff's charge is, therefore, proved. 19. In a Suit filed by the Shipping Company, inter alia, against the Plaintiff and Defendant Nos.2 to 7, in view of the admitted first charge on the suit goods as also other imported goods of Defendant Nos.2 to 7, the Consent Terms came to be executed, inter alia, between the Plaintiff and Defendant Nos.2 to 7 on 1st June 1979 in Suit No.855 of 1979. Under Clause- 3 of the said Consent Terms, the Plaintiff was to be handed over possession and delivery of the imported goods, including the suit goods upon the payment of any fines and penalties payable otherwise by Defendant Nos.2 to 7 as the importers to the Customs Authorities. The Plaintiff paid the required fines and penalties and took possession and delivery of the goods. The Plaintiff also incurred demurrage charges which were incurred for keeping the goods in the Docks until the Plaintiff cleared the goods. Under Clause- 5 of the said Consent Terms, it was agreed and declared that the Plaintiff-Bank was entitled to obtain possession of the imported goods, including the suit goods and to sell the same by public auction or private treaty. Further under the said Clause- 5, the Plaintiff-Bank was entitled to appropriate the sale- proceeds towards the 12 satisfaction of the amounts due and payable by Defendant Nos.2 to 7 to the Plaintiff which Defendant Nos.2 to 7 admitted and acknowledged. Hence Issue No.(6) is answered in the affirmative. 20. Issue No.(7) : The aforesaid effectuation of the entitlement of the Plaintiff under the Indenture dated 25 th May 1978 by and under the Consent Terms dated 1st June 1979 would have brought to an end the rights and liabilities between the Plaintiff-Bank and Defendant Nos.2 to 7, but for the claim of Defendant No.1 for the amount claimed for storage of the goods and for default of payment of which Defendant No.1 claimed lien over the said goods. 21. Defendant No.1 has its rights essentially against Defendant Nos.2 to 7 under whatever be their contract. Defendant No.1 has not initiated any action in law for that right. In fact Defendant No.1 has not even defended this Suit and got proved the agreement under which it claims its rights against Defendant Nos.2 to 7. Hence Issue No.(7) is required to be answered in the affirmative. 22. Issue No.(8) : Defendant No.1 has not proved its written agreement between itself and Defendant Nos.2 to 9. Hence Issue No.(8) is answered in the negative. 13 23. Issue No.(9) : The Plaintiff has a first and paramount charge over and in respect of the suit goods being 59.74 R.B.D. Palm oil which has been sold pursuant to the interim order passed in this Suit dated 14.1.1982. The Plaintiff is, therefore, entitled to invoke the Bank Guarantee given by Defendant No.1, which Defendant No.1 agreed and undertook to keep alive until the disposal of the Suit. 24. Since the Court is informed that the Bank Guarantee was kept alive until 22.12.2000, the Plaintiff would be entitled to claim the extent of the amount under the Bank Guarantee together with interest at the rate of 17% per annum from the date of the sale of the suit goods which the Plaintiff is now held entitled to at the rate of 17% per annum granted in that interim order. The Plaintiff would further be entitled to appropriate the said amount recovered by the Plaintiff under the Bank Guarantee or upon execution of the order and decree in this Suit towards the amount due and payable by Defendant Nos.2 to 7 to the Plaintiff. This is upon a running account of Defendant Nos.2 to 7 being maintained in the Plaintiff's books. Hence the following order:- ORDER (a) The Suit is decreed to the extent of the sale- proceeds 14 of the suit goods with interest thereon at the rate of 17% per annum from the date of the sale of the suit goods. (b) The Plaintiff shall be entitled to invoke and encash the Bank Guarantee to the extent of Rs.4,09,500/- with interest at the rate of 17% per annum from the date of the execution of the initial Bank Guarantee being 23.12.1982. (c) If for whatever reason the Bank does not allow the Plaintiff to invoke and encash the Bank Guarantee as per Clause (a), the Plaintiff would be entitled to execute the decree against Defendant No.1. (d) The Plaintiff shall appropriate the extent of the amount recovered by the Plaintiff upon execution of the decree towards the amount due and payable by Defendant Nos.2 to 7 to the Plaintiff for the suit goods as well as other goods under the running account of Defendant Nos.2 to 7 maintained by the Plaintiff. (e) No order as to costs. [SMT.ROSHAN DALVI, J.]