1 nms1528-11 vai IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.1528 OF 2011 IN SUIT NO.1118 OF 2011 Jindal Saw Limited ....Plaintiff V/s. Karnataka Bank Limited ....Defendant Mr.Arvind Datar, Senior Counsel with Mr.Zubin Behram Kamdin and Ms.Anuradha Agnihotri i/b Bharucha & Partners for the Plaintiff. Mr.Virag Tulzapurkar, Senior Counsel i/b Juris Corp for the Defendant. CORAM : S.J. VAZIFDAR, J. DATE : 27TH JUNE, 2011. P.C. :- 1. The plaintiff seeks inter-alia a declaration that a JPY Interest Rate Swap transaction entered into between the parties is void and unenforceable and a decree for a refund of the amounts paid by it to the defendant under the transaction. Although various interlocutory reliefs are sought in this notice of motion, the ad-interim application is restricted to an order restraining the defendant from declaring or otherwise writing to or reporting or informing the Reserve Bank of India or any other bank or financial institution that the plaintiff is a defaulter in respect of or under the said transaction and from taking any steps against the plaintiff on the basis that it is a defaulter or that any amount is due by it to the defendant thereunder. 2. Mr.Tulzapurkar, the learned senior counsel appearing on behalf 2 nms1528-11 of the defendant made a statement that the defendant would not declare the plaintiff to be a willful defaulter in terms of the R.B.I. Willful Defaulter Circular without following the procedure described thereunder. The circular inter-alia requires the defendant to issue a show cause notice. The plaintiff has an opportunity of approaching the Grievance Redressal Committee constituted by the circular. The committee is required to issue a final declaration after a view is taken by the committee on the representation and after advising the borrower suitably. 3. In the facts of this case, I am satisfied that this statement made on behalf of the defendant adequately safeguards the plaintiff’s rights and interests. The plaintiff will have an opportunity of making its representations, including those contained in the plaint, before the Committee. The Committee is empowered to consider the same. 4. I do not intend expressing any view on the merits of the plaintiff’s case, least it prejudices either party at the hearing before the Committee. 5. Suffice it to state that this is not so open and shut a case, as far the Court to form an opinion that there is nothing significant to be considered by the Committee. 6. For instance, it was contended that the plaintiff was not aware of the nature of its exposure and that the defendant misrepresented the details of the transaction thereby inducing the plaintiff to enter into the same. 7. In view of the fluctuation in Japane’s Yen the plaintiff is likely to incur a substantial loss during the sixty months tenure of the agreement. 3 nms1528-11 That by itself however, cannot possibly indicate an open and shut case in the plaintiff’s favour in respect of this allegation. Nor does the reliance upon the loss scenarios communicated by the defendant to the plaintiff prior to the transaction being entered into do so. 8. While these are factors, the plaintiff may well rely upon in respect of its claim there are others which militate against it. (A). For instance, in the documents and the information exchanged prior to the conclusion of the transaction, the defendant expressly stated that the documents were prepared at the plaintiff’s request ; that the same should not be construed as and did not form part of an offer, nor an invitation to offer, nor a solicitation or recommendation to enter into any transaction and that the proposed transaction was being discussed on the basis of the plaintiff’s representation that it was considering the investment for its own account and that it is a professional investor with sufficient knowledge, experience and professional advice to make its own evaluation of merits and risks of making an investment of this type. The defendant also stated that it was not acting as the plaintiff’s financial advisor nor in a fiduciary capacity in respect of the proposed transaction and that it assumed that the plaintiff would take whatever financial, tax, accounting, legal and other advice it considered appropriate in connection with the investment decision. The defendant also informed the plaintiff in writing to take steps to ensure that it understood the transaction and made an independent assessment of the appropriateness thereof including as to the possible risks and benefits of such a transaction before entering into it. (B). The terms and conditions of the transaction and in particular 4 nms1528-11 the plaintiff’s representations contained therein are also significant. The plaintiff represented that it acted on its own account and had made its own independent decisions to enter into the transaction, including as to its appropriateness, upon its own judgment and advice from its advisors. The plaintiff represented that it was not relying upon any communication written or oral from the plaintiff as investment advice. It was agreed that no communication received would be deemed to be an assurance or guarantee as to the expected results of the transaction and that neither party acted in a fiduciary capacity qua the other. The plaintiff represented that it was capable of assessing the merits of the transaction and understanding the same on its own behalf or through an independent professional advice. (C). Similar representations have been made in other documents executed by the parties. It is also significant to note that the plaintiff issued a declaration inter-alia to the effect that it has a robust risk management policy ; that it undertakes derivative transactions only to hedge risks arising in its book during the course of its normal business and does not undertake any speculative activity whatsoever. (D). The plaintiff also took the benefit of the transaction including on account of the exchange fluctuation. 9. I see no reason to disregard the representations made by the plaintiff, who is obviously not an ordinary investor or participant in financial transactions. The least that must be said in the defendant’s favour qua this allegation is that it cannot be answered in the plaintiff’s favour without anything more. In other words, there is much to be considered by the 5 nms1528-11 Committee before accepting the case. Similarly the other contentions regarding the validity of the transaction as well as the nature thereof also fall for the consideration of the Committee. This would include the contention based on clause 4.27. 10. I see no reason to permit the plaintiff to bye-pass the procedure and seek interim orders of this nature. 11. Mr.Datar, the learned senior counsel appearing on behalf of the plaintiff relied upon a judgment of the Calcutta High Court in the case of Hindusthan National Glass and Industries Limited and another v. Reserve Bank of India and others in Writ Petition No.7729 (W) of 2009 decided on 01.09.2009 to contend that the circular does not apply in the present case. He submitted that in view thereof, it is not even open to the Committee to consider the case. I was informed that the matter has been carried in appeal. 12. It is always open to the plaintiff to raise even this point before the Committee and to adopt appropriate proceedings in the event of it being aggrieved by any order that may be passed. The present suit questions the validity of the transaction. There is no warrant to interfere with the procedure prescribed under the circular especially when the plaintiff is not without the remedy. 13. It must also be noted that the present suit challenges the validity of the transaction and seeks consequential reliefs. The applicability of the Master Circular on Willful Defaulters has not been questioned/challenged. Thus in the event of the master circular being applied, the plaintiff must take appropriate steps to challenge any orders 6 nms1528-11 that may be passed in any proceedings that may be adopted thereunder. Further in that event, it may well be necessary for the plaintiff to implead, among others the Reserve Bank of India in such proceeding. In Hindusthan National Glass and Industries Limited and another v. Reserve Bank of India and others in Writ Petition No.7729 (W) of 2009 decided on 01.09.2009, the Reserve Bank of India was a party. 14. Mr.Tulzapurkar rightly clarified that his statement, recorded above, would not apply to any other communication or steps that the defendant may take to wit steps otherwise than under the Master Circular on Willful Defaulters. For instance, the statement would not apply to any steps that the defendant may take under the circulars dated 19.9.2008 and 8.12.2008. Under these circulars, the defendant is bound to furnish the details regarding the transaction to the Reserve Bank of India and to consortion banks. I see no reason to restrain the defendant from exchanging such information. There is nothing in law that prevents them from doing so despite the validity of the transaction being challenged. Such an order would have grave consequences on the banking industry. If the plaintiff is aggrieved by any steps that the defendant takes to recover its dues, the plaintiff always has a right to defend the same. 15. In the circumstances, the application for ad-interim reliefs is rejected. In the event of the plaintiff being aggrieved by any decision of the Grievance Redressal Committee, it is always open to it to make an appropriate application to the Grievance Redressal Committee for a stay thereof to enable it to challenge the same. The notice of motion to be heard in normal course.