RFA(OS)34.2008 Page 1 of 47 * IN THE HIGH COURT OF DELHI AT NEW DELHI + RFA(OS) No.34/2008 Bhandari Engineers & Builders Pvt. Ltd. …..Appellant through Mr. Raju Ramachandran, Sr. Adv. with Mr. S.S. Jauhar & Ms. Prabhjot Jauhar, Advs. versus Vijaya Bank & Ors. …..Respondent through Mr. Ashwini K. Mata, Sr. Adv. with Mr. Raja Balal & Ms. Manmeet Sethi, Advs. for Respondent No.1 % Date of Hearing: January 12, 2010 Date of Decision: January 20, 2010 CORAM: * HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE MR. JUSTICE MANMOHAN SINGH 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 the Digest? Yes VIKRAMAJIT SEN, J. 1. The Appellant, namely, Bhandari Engineers & Builders Pvt. Ltd. (hereinafter compendiously referred as ‗BEBP‘ or Plaintiff/Appellant) assails the Judgment dated 8.5.2008 of the learned Single Judge whereby its Suit for Declaration and Permanent Injunction came to be dismissed. The Plaintiff/Appellant had arrayed Vijaya Bank as Defendant No.1; RFA(OS)34.2008 Page 2 of 47 Saudi Hollandi Bank as Defendant No.2 and Civil Works Company Limited, Saudi Arabia (CWC Saudi Arabia) as Defendant No.3. There has been no representation on behalf of Defendants No.2 and 3 before the learned Single Judge. It appears that notice has not been issued to Defendants No.2 and 3 in this Appeal. However, since the matter has been argued at great length, and keeping in perspective the conclusion that we have arrived at, we think it unnecessary to delay the disposal of the Appeal by insisting on service of notice on Defendant Nos.2 and 3. 2. It is evident from the impugned Judgment that the learned Single Judge was of the opinion that the Plaintiff had made serious misrepresentations to the Court. After a detailed discussion on the facts of the case it was found that the Plaintiff was not entitled for any interim relief. Secondly, the learned Single Judge has returned the finding that Courts in India do not possess territorial jurisdiction to adjudicate upon the said case. Hence, the Suit was also dismissed as not maintainable. 3. We shall first deal with the question whether this Court possesses territorial jurisdiction to adjudicate over the dispute. Order VII Rule 10 of the Code of Civil Procedure, 1908 (‗CPC‘ for short) immediately becomes relevant. It stipulates that if the Court is of the opinion that it does not possess territorial RFA(OS)34.2008 Page 3 of 47 jurisdiction, it must return the plaint for filing in the appropriate Court. It does not postulate the dismissal of the suit. Since it is clear that the dismissal of the suit was not predicated only on the absence of territorial jurisdiction, we shall desist from making any further observations. This is for the reason that a suit can also be dismissed under Rule 11 of the said Order VII of the CPC which, inter alia, states that a plaint can be rejected where it does not disclose a cause of action or appears, from the statement in the Plaint, to be barred by any law. 4. The Prayers made in the Plaint read thus:- 43. (a) pass a decree of Declaration in favour of the Plaintiff and against the Defendant No.1 declaring that the counter guarantee No.FBG/RFC/01/105 in favour of Saudi Hollandi Bank, Riyadh, Saudi Arabia,the Defendant No.2 is void; (b) pass a decree of declaration in favour of the Plaintiff and against the Defendants declaring that the performance guarantee No.050119IS721CA dated 19th January, 2005 issued by Saudi Hollandi Bank, Defendant No.2 herein in favour of Defendant No.3 for a sum of Rs.SAR 12.50 million valid for a period of 45 months beginning 18th January, 2005 and ending on 18th October, 2008, is void; (c) a Decree Permanent Injunction in favour of the Plaintiff and against the Defendant No.3 restraining the said Defendant, its representatives, officers, representatives or assigns from encashing the RFA(OS)34.2008 Page 4 of 47 performance bank guarantee No. 050119IS721CA dated 19th January, 2005 issued by Saudi Hollandi Bank, Defendant No.2 herein in favour of Defendant No.3 for a sum of Rs.SAR 12.50 million valid for a period of 45 months beginning 18th January, 2005 and ending on 18th October, 2008; (d) Decree of Permanent injunction in favour of Plaintiff and against the Defendant No.1 and 2 restraining Defendant No.1, its representatives, officers, representatives or assigns from making any payment against the counter guarantee No.FBG/RFC/01/05 in favour of the Saudi Hollandi Bank, Riyadh, Saudi Arabia and Defendant No.2 from demanding any sum against the said counter guarantee.; (e) A decree of permanent injunction restraining the Defendant No.2 from making any payment to Defendant No.3 against performance bank guarantee No. 050119IS721CA dated 19th January, 2005 issued by Saudi Hollandi Bank, Defendant No.2 herein in favour of Defendant No.3 for a sum of Rs.SAR 12.50 million valid for a period of 45 months beginning 18th January, 2005 and ending on 18th October, 2008; (f) Award the costs of the suit in favour of the Plaintiff and against the Defendant No.3; (g) Pass such other and further orders as this Hon‘ble Court may deem fit and proper in the facts and circumstances of the present case. RFA(OS)34.2008 Page 5 of 47 5. In the present case, so far as relief of injunction is concerned, the Plaintiff seeks a restraint order against the Defendant from encashing the subject Performance Bank Guarantee. There can be no gainsaying that in the event that an interim or temporary injunction is declined, the suit, so far as this relief is concerned, would be rendered infructuous. Where the injunction is for interdicting the encashment of a Bank Guarantee as soon as payment against the Bank Guarantee is made the suit ceases to have any relevance or efficacy. Secondly, an injunctory relief is essentially discretionary and equitable in nature. It is trite that if a material misrepresentation has been made by the Plaintiff, it disentitles itself from the grant of relief since it has transgressed equity while seeking it; having approached the Court with unclean hands it is not entitled to an injunction. Accordingly, once a Court arrives at the conclusion that a deliberate and significant misrepresentation has occurred, it is within its powers to dismiss the suit itself. 6. In fairness to Mr. Mata, learned Senior Counsel for Vijaya Bank, he does not support the finding that this Court does not possess territorial jurisdiction. In ABC Laminart –vs- A.P. Agencies Ltd., AIR 1989 SC 1239 the Supreme Court has clarified that exclusion of jurisdiction should never be lightly RFA(OS)34.2008 Page 6 of 47 inferred. It should be manifestly and unequivocally clear that the parties had excluded the jurisdiction of a particular Court, and only then should that Court decline to exercise jurisdiction. At the instance and request of the Appellant made in New Delhi to Vijaya Bank, Saudi Hollandi Bank had furnished a Performance Guarantee to CWC, one of the terms of which is that ―any dispute with respect to this Guarantee shall be resolved by the competent authorities in the Kingdom of Saudi Arabia and according to the Regulations, Decisions and Instructions‖. Keeping in perspective the ratio of ABC Laminart, we are unable to subscribe to the view that this Clause categorically stipulates that disputes between the parties must only be adjudicated in Saudi Arabia, to the exclusion of all other Courts which, by virtue of the CPC, have been empowered to decide disputes. A reference to the recent case of Laxman Prasad –vs- Prodigy Electronics Ltd.,(2008) 1 SCC 618, which relied on ABC Laminart will be apposite for our discussion on this issue of Jurisdiction. In this case, there was a similar Clause in the Agreement between the parties which stipulated interpretation of the terms and conditions of the Contract in accordance to the laws of the Hong Kong Special Administrative Region. The Hon‘ble Court after considering this Clause held thus: RFA(OS)34.2008 Page 7 of 47 29. According to the appellant, since the terms and conditions in the agreement have to be interpreted in accordance with the laws of Hong Kong, no court in any country other than a court in Hong Kong shall have jurisdiction to entertain a suit, petition, application or any other proceeding. The submission of the respondent Company, on the other hand, is that what was agreed upon was not territorial jurisdiction of a court but applicability of laws. Clause 18 deals with the second eventuality and declares that terms and conditions of the agreement would be interpreted in accordance with the laws of Hong Kong. 30. We find considerable force in the submission of the learned counsel for the respondent Company. In our view, ―cause of action‖ and ―applicability of law‖ are two distinct, different and independent things and one cannot be confused with the other. The expression ―cause of action‖ has not been defined in the Code. It is, however, settled law that every suit presupposes the existence of a cause of action. If there is no cause of action, the plaint has to be rejected [Rule 11(a) of Order 7]. Stated simply, ―cause of action‖ means a right to sue. It consists of material facts which are imperative for the plaintiff to allege and prove to succeed in the suit. The classic definition of the expression (―cause of action‖) is found in the observations of Lord Brett in Cooke v. Gill. His Lordship stated: RFA(OS)34.2008 Page 8 of 47 ―Cause of action means every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court.‖ 31. In A.B.C. Laminart (P) Ltd. v. A.P. Agencies this Court said: (SCC p. 170, para 12) ―12. A cause of action means every fact, which if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the court. In other words, it is a bundle of facts which taken with the law applicable to them gives the plaintiff a right to relief against the defendant. It must include some act done by the defendant since in the absence of such an act no cause of action can possibly accrue. It is not limited to the actual infringement of the right sued on but includes all the material facts on which it is founded. It does not comprise evidence necessary to prove such facts, but every fact necessary for the plaintiff to prove to enable him to obtain a decree. Everything which if not proved would give the defendant a right to immediate judgment must be part of the cause of action. But it has no relation whatever to the defence which may be set up by the defendant nor does it depend upon the character of the relief prayed for by the plaintiff.‖ (emphasis supplied) 32. Now, Sections 16 to 20 of the Code deal with territorial jurisdiction of a court (place of suing). Whereas Sections 16 to 18 relate to immovable property, suits for compensation for wrongs to persons or movables have been dealt with under Section 19. RFA(OS)34.2008 Page 9 of 47 Section 20 of the Code is a residuary provision and covers all cases not falling under Sections 16 to 19. 33. The relevant part of Section 20 reads thus: ―20. Other suits to be instituted where defendants reside or cause of action arises.—Subject to the limitations aforesaid, every suit shall be instituted in a court within the local limits of whose jurisdiction— (a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or (c) the cause of action, wholly or in part, arises.‖ 34. Bare reading of Clause (c) leaves no room for doubt that a suit would lie in a court within the local limits of whose jurisdiction the cause of action has arisen, wholly or partly. 35. Section 20 has been designed to secure that justice might be brought as near as possible to every man‘s hearthstone and that the defendant should not be put to the trouble and expense of travelling long distances in order to defend himself. RFA(OS)34.2008 Page 10 of 47 36. According to the plaintiff Company, a suit instituted on the Original Side of the High Court of Delhi is maintainable since a part of cause of action had accrued within the territorial jurisdiction of the Delhi court (breach of agreement by the defendant). 37. The argument of the defendant that the agreement was executed in Hong Kong and hence suit could have been instituted only in that country is, in our opinion, not well founded. It is no doubt true that the suit could have been instituted in Hong Kong as well. That, however, does not take away the jurisdiction of the Delhi court where a part of cause of action has arisen. In the plaint, it was specifically alleged by the plaintiff Company that the defendant committed breach of terms and conditions of agreement during the trade fair in February 2005 held in Pragati Maidan, Delhi. It was, therefore, open to the plaintiff Company to institute a suit in a competent court within the jurisdiction of Delhi and that is how the suit is filed in the High Court on its Original Side. 38. In our considered opinion, therefore, the contention of the appellant-defendant that the agreement was executed in a foreign country or the defendant was a resident of Ghaziabad (Uttar Pradesh) cannot take away, exclude or oust the jurisdiction of the Delhi court in view of the averment made in the plaint that a part of cause of action had arisen within the local limits of Delhi. 7. The compact with regard to the Bank Guarantee originated at New Delhi. Consequent upon the Plaintiff RFA(OS)34.2008 Page 11 of 47 approaching Vijaya Bank in their Branch Office at New Delhi, and on the request of the Plaintiff, Vijaya Bank furnished the subject Bank Guarantee. The cause of action, therefore, had squarely and indubitably arisen in New Delhi. We are mindful of the fact that Defendant Nos.2 and 3 do not actually and voluntarily reside or carry on business in Delhi. Since the cause of action has arisen in Delhi and since the exclusion Clause in the Bank Guarantee (reproduced above) does not completely oust the jurisdiction of Courts at Delhi, we are unable to sustain this finding of the learned Single Judge. As we have recorded, Mr. Mata has not supported this aspect of the Judgment. We may observe that it causes avoidable confusion where the Court opines that it does not have jurisdiction and yet enters on the merits of the case. 8. Coming to the issue of grant of injunction against invocation of Bank Guarantee, the Hon'ble Supreme Court has crystalized the law regarding invocation/encashment of Letter of Credit and Bank Guarantee in its pronouncements such that it admits of no debate or doubt. As far back as in 1970, the Court had in Tarapore and Co., Madras –vs- V.O Tractors Export Moscow, AIR 1970 SC 891 elaborately and perspicuously explained the scope and ambit of judicial interference in matters RFA(OS)34.2008 Page 12 of 47 concerning Letters of Credit and Bank Guarantees in these words-- The scope of an irrevocable letter of credit is explained thus in Halsbury's Laws of England (Vol.34, Paragraph 319 at page 185): ―It is often made a condition of a mercantile contract that the buyer shall pay for the goods by means of a confirmed credit, and it is then the duty of the buyer to procure his bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to the seller, either directly or through another bank in the seller's country known as the correspondent or negotiating bank, to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents. The contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued; and as between the seller and the bank, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents. The contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the RFA(OS)34.2008 Page 13 of 47 seller, by reason of the bank's undertaking to the seller, which is absolute. Thus the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might permit the buyer to reject the goods and to refuse payment therefor; and, conversely, the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective.‖ Chalmers on ―Bills of Exchange‖ explains the legal position in these words ―The modern commercial credit serves to interpose between a buyer and seller a third person of un-questioned solvency, almost invariably a banker of international repute; the banker on the instructions of the buyer issues the letter of credit and thereby undertakes to act as paymaster upon the seller performing the conditions set out in it. A letter of credit may be in any one of a number of specialised forms and contains the undertaking of the banker to honour all bills of exchange drawn thereunder. It can hardly be over-emphasised that the banker is not bound or entitled to honour such bills of exchange unless they, and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit. Such documents must be scrutanised with meticulous care, the maxim de minimis non curat lex cannot be invoked where payment is made by the letter of credit. If the RFA(OS)34.2008 Page 14 of 47 seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not‖ Similar are the views expressed in `Practice and Law of Banking' by H.B. Sheldon, ―the Law of Bankers Commercial Credits‖ by H.C. Gutteridge,―the Law relating to Commercial Letters of Credit‖ by A.G. Devis' ―the Law Relating to Bankers' Letters of Credit‖ by B.C. Mitra and in several other text books read to us by Mr. Mohan Kumaramangalam, learned Counsel for the Russian Firm. The legal position as set out above was not controverted by Mr. M.C. Satalvad, learned Counsel for the Indian Firm. So far as the Bank of India is concerned it admitted its liability to honour the letter of credit and expressed its willingness to abide by its terms. It took the same position before the High Court. ........ 10. A case somewhat similar to the one before us came up for consideration before the Queens Bench Division in England in Hamzeh Walas and Sons v. British Imex Industries Ltd., 1958-2 QB 127. Therein the plaintiffs, a Jordanian firm contracted to purchase from the defendants, a British firm, a large quantity of reinforced steel rods, to be delivered in two instalments. Payment was to be effected by opening in favour of the RFA(OS)34.2008 Page 15 of 47 defendants of two confirmed letters of credit with the Midland Bank Ltd., in London, one in respect of each instalment. The letters of credit were duly opened and the first was realised by the defendants on the delivery of the first instalment. The plaintiffs complained that that instalment was defective and sought an injunction to bar the defendants from realizing the second letter of credit. Donovan, J., the Trial Judge refused the application. In appeal Jenkins, Sellers and Pearce L., JJ. Confirmed the decision of the Trial Judge. In the course of his judgment Jenkins, L.J., who spoke for the Court observed thus: ―We have been referred to a number of authorities, and it seems to be plain enough that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties as to whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers' confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice. There is this to be remembered, too. A vendor of goods selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. That is of RFA(OS)34.2008 Page 16 of 47 no mean advantage when goods manufactured in one country are being sold in another. It is, furthermore, to be observed that vendors are often reselling goods bought from third parties. When they are doing that, and when they are being paid by a confirmed letter of credit, their practice is - and I think it was followed by the defendants in this case--to finance the payments necessary to be made to their suppliers against the letter of credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have the effect of ―freezing‖ if I may use that expression the sum in respect of which the letter of credit was opened.‖ In Urquhart Lindsay and Co. Ltd. v. Eastern Bank Ltd., 1922-1 KB 318 the King's Bench held that the refusal of the defendants bank to take and pay for the particular bills on presentation of the proper documents constituted a repudiation of the contract as a whole and that the plaintiffs were entitled to damages arising from such a breach. It may be noted that in that case the price quoted in the invoices was objected to by the buyer and he had notified his objection to the bank. But under the terms of the letter of credit the bank was required to make payments on the basis of the invoices tendered by the seller. The court held that if the buyers had an enforceable claim that adjustment must be made by way of refund by the RFA(OS)34.2008 Page 17 of 47 seller and not by the way of retention by the buyer. 11. Similar opinions have been expressed by the American Courts. The leading American case on the subject is Dulien Steel Products Inc., of Washington v. Bankers Trust Co., Federal Reporter 2nd Series, 298 p.836. The facts of that case are as follows: The plaintiffs, Dulien Steel Products Inc., of Washington, contracted to sell steel scrap to the European Iron and Steel Company. The transaction was put through M/s. Marco Polo Group Project, Ltd. who were entitled to commission for arranging the transaction. For the payment of the the commission to Marco Polo, plaintiffs procured an irrevocable letter of credit from Seattle First National Bank. As desired by Marco Polo this letter of credit was opened in favour of one Sica.