Partly allowed

Icici Bank Ltd. v. M/S Garg Acrylics Ltd. and Ors.

Punjab & Haryana HC9 Oct 2009CR/2590/2009

Case brief

AI extract

What is this about?

In revision, the Punjab and Haryana High Court addressed the jurisdiction to entertain a suit declaring an ISDA Master Agreement illegal filed by Garg Acrylics against ICICI Bank. The court set aside the trial court's adverse observations regarding the DRT's power to declare contracts void and affirmed the suit's maintainability in both Ludhiana and Mumbai.

What did the court decide?

The adverse observations of the trial court were set aside; the suit was held maintainable in Ludhiana and Mumbai; and the finding that the DRT lacks power to declare the contract void was set aside.

Icici Bank Ltd. Vs M/S Garg… — Contract and Commercial Disputes | Punjab & Haryana HC (2009)

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IN^{THEHIGHCOURTOFPUNJABANDHARYANAAT} CHANDIGARH

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CR2590 of 2009 Decided^onl Octobero9²⁰⁰⁹⁰

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ICICIBank Limited

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Petitioner
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Mls GargAcrylics Limited and others
Respondents
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CORAM HONBLE MRJUSTICE MMBEDI
At
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08 PRESENT Mr KiratAshokNagrAgg a Advocaterwal Senior Advocate with
e for the petitioner
e
Z MrArun Palli Senior Advocate with
MrAkshay Bhan Advocate
for the respondents

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MMS BEDI J

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The has preferred^thisreviSion

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petition^under Anicle^{227oftheConstitution ofIndia} aggrievedby the order dated 271009 lnexure Pll passedby^theCivil Judge Divn Ludhiana dismissing^the appiication^of the defendantoetitioner under Order 7 Rules 10 S 11 CPC n a suit filed bythe

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Brief which is necessary for the JOYTI RANI Batra Amit2012.12.15 2016.03.28 16:22 11: 08True ScannendCopy Of Original of the present^revISIon petition^ISthatthe plaintif I attest to the accuracy andintegrity of this document PHHC,Chandigarh

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Mls GargAcrylicsLimited and others have filed^a suit for declaration that the International Swabs and Derivatives Association for short ISDAI Master dated l072006 and Ol 92007 executed between the and the Bank are illegal^{violativeofReserveBankofIndia} RBl1 notification and not bindingor enforceable againstthe plaintiff and for relief of permanent to restrain the defendantoetitioner e its directors^or officers or agents^from acting^{inpursuanceoforin} furtherance ofthe said contract orfor any amount from the the or from the personalguaranteefrom No2 andlor 3

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The bank filed an under Order 7 Rules 10 S 11 CPC prayingthat it is the HighCourt of Bombaywhich has got to consider the claim of the and that the suit from the statement in the 1

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plaint^isbarred by provisions^ofSections38 8⁴¹ of the SpeciOc Relief Act and that the plaintshould be rejectedor returned to be presentedⁱⁿ appropriate^Court at BombayThe^trial Coun vide impugned^order 64nnexurePl l has dismissed the applicationfiled by^the inter alia on the followinggroundsl

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11 The plaintiffbank as Corporationhas got^a subordinate office at Ludhiana where the cause of action has ansen and^thatthe also carries^on business at Ludhiana

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JOYTI RANI 2016.03.28 16:22 21 It is not the Mumbai Court has^the I attest to the accuracy and integrity of this document

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Batra Amit 2012.12.15 11: 08 True Scannend Copy Of Original PHHC,Chandigarh

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territorial to enteItain the suit filed bythe the plaintiffespondentsand^the partiescannot confer jurisdictionon a Court where has its principaloffice

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31 In view of the provisionsof Section 17 of the Recoveryof Debts Due to Banks and Financial InstitutionsAct 1993 or shott the ActI providing that onlyDebt RecoveryTribunal DRT1 will have the jurisdictionand Section 18 debarring^the jurisdictionof the Civil Court the defendanta petitioner^{bankwillbedebarredto} go^tocivilCourt and not the the

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41 DRT has got no power to declare the contracts as illegalnull and void as claimed by the the

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51 l Iit is not properlyvalued for the purpose^ofaffixation of stamp The real value of^the suit would be decided on the basis of the evidence

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6 It is not the Mumbai Courts but the Ludhiana court which will have the jurisdictionto entertain the suit and in the circumstances of the case partiescannot on^a Court where the Corporationhas its principaloffice

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ShAshok AggarwalSenior Advocate appearing

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on behalf of the bank has

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urged^hatthe petitioner^bank

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beingBatra Amit^a financial institution has entered into ISDA Master JOYTI RANI 2012.12.15 2016.03.28 16:22 11: 08True ScannendCopy Of Original I attest to the accuracy andintegrity of this document PHHC,Chandigarh

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with the the plaintiffespondentsand Clause 13ol of

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the Master Agreementreads^as follow

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13Iol With respect to any suit action or proceeding relating to this agreement ProceedingsI^each pattyirrevocablyl

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il submits to thejurisdictionof the Higt Court of Mumbai in India and

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iil waives any objectionwhich it may have at any^timeto the Iayingof the venue of any proceedingsbroughtin^any such^Court and waives the right^to object^with respect^to such proceedings^that such court does not have jurisdictionover such party

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Nothing^inthis agreementprecludespartyB other Court from bringingproceedingsin any tribunal^or appropriate^forum in India nor will bringing^of proceedingsⁱⁿ any one or more jurisdictionspreclude^the bringingofproceedingsin Il any

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He has drawn my attention to the ISDA Master I lll ovdl 0 agreement^dated247006 4 tL WA highlightthat the Corporateoffice of the petitioneris situatedⁱⁿ Mumbai^within the jurisdictionof HighCouit of transactions executed^inter se the partiesexpresslynote that the oHice of the petitioner^was to

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be inBatra Amitthe office iM Mumbai and that service of all the notices and JOYTI RANI 2012.12.15 2016.03.28 16:22 11: 08True ScannendCopy Of Original I attest to the accuracy andintegrity of this document PHHC,Chandigarh

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other correspondencewere to be effected on the petitionerthroughl its Mumbai office ISDA Master Agreementswere executed by the at Mumbai office all paymentsdue to the from the petitionerunder the transactions andlor the ISDA Master Agreementswere made to the respondentsfrom the petitioneroffice 1Q in Mumba all orders of to the petitionerwith regardto 0 transactions were executed in Mumbai all C I pertaining^to the transactions^was exchanged I between the petitionerand the respondentsfrom the petitioners office at Mumba and that the cause of action for the suit arose in Z Mumbai He argued^{thatintermsofSection20CPC} 0 and the specifictransfer clause in ISDA Master Agreementthe Civil Court at Ludhiana does not have to entertain or trythe 08 was urgedbyMrAggarwalthat it is clear from the terms and Z77 conditionsof ISDA Master Agreementthat paitiesto the agreement 1 have agreedto oust the jurisdictionof other places and have rJ irrevocablyagreed^to submit to the jurisdictionof High Coun of Mumbai each partyhas waived any objectionto the jurisdictionof courts at was highlightedthat controversy to the jurisdictionclause in the agreementreserves the rightof the ICICI Bank referred to^as partyBl to bringany proceedingsin any other Court Tribunal^or appropriate^forumto stipulate^thatincase of bringingany in anyone of more such the same would not preclude^ICICI Bank from bringingthe proceedings adsIIll Batra Amitany JOYTI RANI 2012.12.15 the main grievanceof MrAggarwalis that 2016.03.28 16:22 11: 08True ScannendCopy Of Original I attest to the accuracy andintegrity of this document PHHC,Chandigarh

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the trial Court had granted^an ex parteinjunction^order dated 2032008 directingthe to maintain status quo regarding transactions^{tillfurtherorders without} giving^any to the which had caused great Ioss to the petitionerbank he argued^{thatthetrialCourt} has wrongly^heldthat panies cannot confer of a Court where the Corporationhas its office MrAggarwat urged^thattheCivil Court at Ludhiana Iacks territorial as^cause of action for filing^{thesuitdidnotariseatLudhian} Existence of subordinate office of petitionerⁱⁿ Ludhiana^was immaterialand irrelevant He placed^{relianceonHakam} Sinqh^Vs Gammon Ilndial Ltd 119711 1 SCC 2861BCaminarPl Ltd VslPAqencies 1198912 SCC 163 Anqile Insulations^V Davv Ashmore India Ltd 119951 4 SCC 153 to contend that there may be two or more Courts competent^to entertain^a suit consequenton a pai1of^cause of action havingansen therein Ifthe paniesto the contract agree to vest in any^one of such Coults to try the disputewhich might^arise 1Wbetween themselves such agreementwould be valid and bindingand would be contraryto either the principle of publicpolicy^or provisionsof Section 28 of the Indian Contract Act

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Counsel for the petitionerals6 urgedthat the Iower Coutt has not appreciatedthe fact that amount has become due and payableby the respondentto the petitionerThe transaction constitute^a debt under the provisionsof Section 2 of the Batra Amit2012.12.15of Debts Due to Banks and Financial InstitutionAct 1993 JOYTI RANI2016.03.28 16:22 Recovery11: 08True ScannendCopy Of Original I attest to the accuracy andintegrity of this document PHHC,Chandigarh

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Ite^{submittedthatifseen} in context to the Section 4511of ReseTve Bank of^India Act Amendmentl2006 derivative transactions^are j Derivativecontract^means an instrumentto be settled at a futuredate whose value is derivedfrom the changein interest rate foreignexchange^rateetc transaction with respondentbeing derivativethe petitionerbank is within its rightunder Iaw^to initiate IegaIproceeding s o^as to recover the said debt from the by filing application^{underSection19 of} the Recoveryof Debts Due to Banks and Financial InstitutionAct 1993

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MrArun Palli Senior Advocate for the the has argued^that it is on Iy the civil Court at Ludhianawhich will have the in the matter and that prima facie the Master Agreementdated 24072006 entered into between the the and defendantoetitioner IS null and void He relied upon Hanil Era Textiles Ltd Vs

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Puromatic Filters^IPI Ltd l200414 SCC 671

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LeSrned counsel for the the

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submitted in the Iightof Section 90f Civil Procedure Code CPCI that Iaw confers on an every person inherent rightto bring^a suit of Oⁿ⁵ 0 41p civil nature on e8ee choice od once peril claim may be unless it is barred by a statute In supportof his contention he relied upon Abdul Gafur and another VState of Uttrakhand and

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others 12008110 SCC 97

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JOYTI RANI 2016.03.28 16:22 have heard the Iearned counsel for the paniesand I attest to the accuracy and integrity of this document

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Batra Amit 2012.12.15 11: 08 True Scannend Copy Of Original PHHC,Chandigarh

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gone throughthe facts and circumstances of the case

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So far as the rightof the petitionerbank under Section¹⁹ of the Act is concerned it is alwaysopen^to the bank^to file^a petitionunder Section 19 of the Act before the DRT to seek the recovery with interestpnyamount which it claims to be due to the Bank In Nahar Industrial Enterprises Ltd Vs Honq Konq S Shanqhai Bankinq Corporation 120091¹⁰ SCALE 360 in which the provisions^ofthe Recovery^{ofDebts DuetoBanksandFinancial} InstitutionAct 1^{993cameupforconsideration beforethe} Honble Apex^{Courtinamatter wherethe} question^arose was if HighCouit or SupremeCourt has got power to transfer a suit pendingin a Civil CouIt situated in^one State to^a Debt RecoveryTribunal situated^In GLl1 In the questioninvolved therein it was held that the of the civil Coutl will be barred under the Banks and Financial Institution Act 1993 It^was held in the said^case that High Coutt cOlnot transfer^a suit from the CiviI Coun to DRT as by said transfer jurisdictionof the civil Court cannot be taken away or tke 1othetwiseconferred

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Taking^{intoconsideration} the various provisionsof the Act it was held that DRT is not a civil Court In said Nahar

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Industrial Enterprises Ltd Case Isupral it was held that provisions^ofseteoffof counter^claim by^defendants inan application filed by banklfinancial institutions the Tribunal^was permittedby

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Amendment Act N1 of 2000 in another case Indian Bank Il Batra Amit VsA4arten2012.12.1511: 08 ProductsIPILtd1200615 SCC 72 True Scannend Copy Of Original PHHC,Chandigarh

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JOYTI RANI 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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Taking^{intoconsiderationthe} provisionsof 1961^and 19111^as introduced by Act N1 of²⁰⁰⁰ it was observed that these^are enablingprovisionsIt was observed that Sections 17 8 18 have not been amendecJrisdiction has not been conferred^on the Tribunal even after amendment to tryand entertain suits or proceedings^initiated by borrowers or others against bankslofficialinstitutions^nor the of Civil Courts barred^Itl regard^{tosuchsuitsor} proceedingsThe onlychange^thathadbeen made^was to enable the defendants to claim set off or make^a counter claim as providedunder^Sections 1961^to 19 in the applicationsalready^filed by the^{banksorfinancialinstitutionsfor} recoveryof the amounts due^to them^In Indian Bank Case Isupral the respondenthad filed a suit for damagesagainstthe bank priorto the bank filed^an applicationbefore the DRT againstthe Companyit was held^as followsl

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1 7 Making a counterclaim in the bank application^{beforetheTribunalISnot} the only remedy^butan option^{availabletothedefendant} borrower He can also file a separate suit or proceedingbefore^a civil Court^or other appropriate forum in respectof his claim againstthe bank and pursue^the same Even the bank in whose application^the counterclaim IS made has the option^to apply^totheTnbunal to exclude the counterclaim of the defendant while consideringits applicatior^Whensuch application by^the JOYTI RANI bank the Tribunalmay either refuse or exclude the 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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counterclaim^and proceed^{toconsiderthebanks} and the counterclaim together^or exclude^{thecounterclaimas} prayed^and proceed only^withthebanks application^{inwhicheventthe} counterclaim becomes an independentclaim againsta banklfinancial institution The defendant will then have to approachthe civil Coun in respect of such excluded counterclaim as the Tribunal does not have to try any independent claim against a banklfinancial institution A defendant in^an applicationhaving^an independent claim againstthe bank cannot be compelledto make his claim againstthe bank onlyby way of^a counterclain Nor can his claim by way of independent^suitin a Court havingjurisdictionbe transferredto a tribunal againsthis wishes 1

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18 In this^case the first respondentdoes not wish his case to be transferred to the TribunaI It is therefore clear^thatthe suit filed by^thefirst respondentagainst^theBank in^the High^Couttfor recoveryof damagesbeing^an independentsuit Ill and not^a counterclaim made ltheapplicationfiled by^theBank the Banks applicationfor transfer of the said suit to the TribunaI^was misconceived and not maintainable The High Court where the suit for damageswas filed by the Companyagainstthe Bank Iongprior^totheBank filing^an application before the Tribunal against^the Company continues to have jurisdictionin regardto the suit and its jurisdictionis not excluded or barred under Section 18 or any other provisionsof the Debts JOYTI RANI Recovery^Act

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JOYTI RANI 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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the above said judgmentit is thus

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thatthe right^of the^bankto file^{aclaimunder Section19oftheAct} will not debarthe other partyto file an claim againstthe bank byfiling^a separatesuit An additional righthas been givento the said partyalso to raise the counter claim in banks application beforethe Tribunal In United Bank ofIndia Calcutta VsAbhiiit Tea Co Pvt Ltd S Ors 1200017 SCC 357 it was observed^that an independentsuit of a defendant n the banks applicationlcould be deemed to be a counter claim and could be transferred to the Tribunal will applyonlyif the followingconditions^were satisfied

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i The subjectmatterof the banks suit and the suit of the defendant againstthe bank should be inextricably^connected in the sense that the decision in one would affect the decision in^the other

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iil Both parties he plaintiffin the suit against the bank and the bankl should agree for the independent^suit being considered as a counterclaim in^the banks applicationbefore^the Tribunal^So that both could be heard and disposed of by the Tribunal

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Taking^{into consideration} the^ratio of the above said

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judgmentsthe petitionerbank^has got^an independentright^tofile applicationunder Section¹⁹ of the Act^{before the} DRT or any other

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Batra Amit suit or2012.12.15proceedingsbefore the HighCourt of Mumbai on the basis of 11: 08 True Scannend Copy Of Original PHHC,Chandigarh

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JOYTI RANI 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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the Master entered into between the panies At the time the plaintiffsespondentshave also got a Iegalrightto bring^a suit of^civilnature on its own choice at^itsown peril^howsoever frivolousthe claim may be unless it is barred by a statute There is no of^{Iawwhichdebars the} the to Ole a suit for declaration and injunctionas per the provisionsunder Sections 34 8 38 of the SpecificRelief Act In^case the suit for is Iiableto be dismissed under Section 41ol the said suit will be dismissed on merits at the time of final Whether the plaintiffsespondentscan be granted^an injunctionrestraining the defendantoetitioner from or any in accordance with Iaw^on the basis of their civil rights accruingⁱⁿ pursuant^totheMaster agreementcannot^{be determined} at this stage by this Couit or by^a Coutt while decidingthe under Order7eRules¹⁰ 8 11 CPC Since it has been held by^{thisCourtthat thethe} have got a Iegal right^{tofileacivilSuitata} place^whereitis running^businessor where there exists a branch of the petitionerbank at the same time it is held that the observations of the trial Coun that the Mumbai Courts do not have jurisdiction^to entertain the suit is not sustainable The suit filed by the the IS maintainable at Ludhiana as well as at Mumbai but it has wrongly been held by the trial Court that DRT has got no power to declare the contract^as illegaland void The trial Coutt has wronglyheld that

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JOYTI RANI 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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it is Batra Amit2012.12.15onlythe civil Court which can declare the contracts in question 11: 08 True Scannend Copy Of Original PHHC,Chandigarh

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as and voicl The findingof the^trial court that the subject matter can be upon onlyV bythe Courts at Ludhiana and that it is onlyLudhiana Court which will have to entenain the suit is herebyset aside and it is held that the pleas raised bythe can also be upon by DRT in case any under Section 90f the Act is filed before the DRT^or before^aCourt at^Mumbaiasper the^Master Agreement^It is^funher held that the order^dated 271 2009 will not prejudicethe rights^ofthe bank to avail the Iegalremedy available^toitin accordance with Iaw either by DRT or byfiling

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a petitionbefore the Mumbai Courts as per the agreement So far^as the order of the^trial Court dismissing^the applicationunder Order 7 Rules 10 8 11 CPC is concerned no fault can be found in the order dismissingthe The applicationhas been rightly dismissed but the two adverse observations made againstthe in the order mentioned hereinbeforeare hereby set aside It will be open to the the plaintiffsespondentsto raise the pleasⁱⁿ their^defenceoras counter claim^incase any proceedings

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are initiated by the the before the DRT or at Mumbai Coutt which Courts will certainlyhave Whether the suit of the couldleefbe transferred is dependiehtt

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on the circumstances existingIll or^toany other Court^Z has not been adjudicatedupon at this stage^as it will be premature to express any opinionin that respect

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JOYTI RANI In view of the above ci rcumstances the revision 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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petition^IS paltly^allowedand partly^{dismissedandtheadverse} observations^as mentioned hereinabove against^{thedefendante} petitionerpertainingto territorialjurisdictionare herebyset aside

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Paies through^counsel are directed to appear before^the trial Court^on 31 l^o e240

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J JOYTI RANI 2016.03.28 16:22 I attest to the accuracy and integrity of this document

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Batra Amit 2012.12.15 11: 08 True Scannend Copy Of Original PHHC,Chandigarh

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