9911796707
TMI Blog2022 (12) TMI 1199X X X X Extracts X X X X X X X X Extracts X X X X ..... Code of Civil Procedure, 1908, have been dismissed. 2. The backcloth of this case, as noted in the impugned judgment dated 29.11.2013, is as under:- "3. The background to the execution petition is that the Judgment Debtor ('JD') entered into a loan agreement with the lender bank (Citibank International Plc) for a term loan of US $ 7 million on 30th June 1997 in order to finance the acquisition of capital equipment. The DH, a company incorporated in Germany, held 49% of the shares in the JD. In that capacity the DH agreed to irrevocably and unconditionally guarantee the loan. 4. Under Clause 16.12 of the loan agreement, the DH was to be subrogated the rights of the lender bank against the JD. The loan agreement was governed by English law. 5. With defaults committed by the JD, the DH as guarantor was obliged to pay US $4,794,762.98 to the lender bank. It paid the said amount to the lender bank. Thereafter, the DH raised the demand on the JD to clear the outstanding amount. The JD failed to make the payment. 6. On 17th January 2003, the DH initiated the proceedings against the JD before the High Court of England for recovery of the aforementioned sum. The JD did not enter a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee the loan to the JD was that if the guarantor i.e. the DH paid the lender bank then the JD would have no liability to the lender bank. In the circumstances, it was difficult to see why the RBI would be concerned that the same liabilities were owed by the JD to the DH as long as they ceased to be owed to the lender bank. In any event, the incidence of Indian Foreign Exchange law would invalidate a contractual obligation only if Indian law was the proper law of contract or the law of the place for its performance. In the present case, however, the parties had agreed to the application of the law of England. (iv) The second line of defence in Mr. Dhar's evidence was that there was another oral agreement entered into between the DH and the JD in August 2001 under which the DH agreed to pay the amount outstanding under the loan agreement and not for repayment from the JD. The agreement was undocumented. The letter written by the JD to the lender bank with a copy to the DH on 22nd September 2001 made no reference to any such agreement between the JD and the DH. It is simply alleged that the DH was in breach of its obligations and had failed to pay the JD Rs.5 billion. The docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that when in May 2004, the DH was acquired by another company which was the JD's competitor, the JD began proceedings in India in connection with the said acquisition and this provided a trigger for the DH to launch a counter-attack and as a result, the default judgment was resurrected. The said defence was held to be not supported by any evidence. 10. After elaborate discussion of the defences of the JD, the High Court of England gave a summary judgment as under: "I have already addressed such defences as Goyal has sought to raise. None, in my judgment, provide any real prospect of a defence to the claim succeeding. Messer is entitled to summary judgment. No issues have been raised on the amount of the claim. At 16 January 2006 the claim was for the principal sum of US$ 4,794,762.98 together with interest calculated in accordance with the loan agreement of US$ 996,842.94. A small further amount of interest will be due when this judgment is handed down. There is also a claim under clause 17.5 of the loan agreement to recover certain legal fees. If there are any points to be made on the precise amount of the Part 24 judgment to be entered they should be raised when this jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was in breach of the law of the land in India and, therefore, not enforceable under Indian law. (f) The suit filed by the DH was not under the summary procedure and there was no prayer for a summary judgment; there was no admission by the JD of any sum owed to the DH and, therefore, no summary judgment could have been passed without trial. (g) The London Court could not have passed any judgment contrary to any law of India, including the Foreign Exchange Regulation Act (FERA). 4. The learned Single Judge dismissed the afore-noted objections raised by the appellant/JD vide impugned judgment, which is under challenge in this appeal. 5. To confront the impugned judgment, the grounds raised by the appellant /JD in the present appeal are more or less similar, as were raised before the Executing Court. 6. During the course of hearing of the appeal, learned senior counsel appearing on behalf of appellant/JD submitted that a Share Purchase and Cooperation Agreement dated 12.05.1995 was executed between the appellant/JD and respondent/DH and thereafter, an addendum dated 07.11.1996 was also executed pursuant to which the DH had become 49% share holder of the JD company. Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrid Schmidt was that "The company is of the view that the contentions of Messer has no merits" appearing in clause 2(b) of "Contingent Liabilities not Provided for" and no objection to the treatment of loan was raised for and the balance was duly signed by him. 9. However, thereafter, the respondent/DH preferred a recovery suit against the appellant/JD on 17.01.2003; though in the meeting of the Board of Directors of appellant/JD held on 31.01.2003 for approval of balance sheet for the year ending 31.12.2002, no objection was raised by Mr.Winfrid Schmidt on behalf of the respondent/DH. According to appellant/ JD, the respondent/DH on 06.02.2003 obtained a Default Judgment against the appellant/JD. Thereafter, on 19.02.2003, an email was sent by Mr. Winfrid Schmidt to the appellant/JD objecting to the treatment of loan of Citi Bank in the balance sheet of the year ending 31.12.2002, which was replied by the appellant/JD vide e-mail dated 20.02.2003, however, the said letter was not brought on the record of English Court. Learned counsel submitted that any objection raised by Mr. Winfrid Schmidt after signing of the balance sheet is of no consequence. 10. Further submitted by lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le dealing with the execution of 'domestic decrees'. 85. For the reasons extensively highlighted by us we are of the considered view that the High Court of Delhi not being a 'District Court' in terms of Section 44A of the Code of Civil Procedure, 1908 is not vested with the jurisdiction to entertain the present Execution Petition. In view thereof, the same is liable to be transferred to the 'Court of District Judge? within whose jurisdiction the property sought to be attached is situated for being dealt with in accordance with law. 86. The appeal is allowed. The impugned order dated November 29, 2013 is set aside in so far it is held that the Delhi High Court would be the 'District Court' to execute the foreign decree. Needless to state decision on the objections on merits is also set aside being without jurisdiction. The executing Court shall decide the objections uninfluenced by any observation made by the learned Single Judge on merits. The Execution Applications filed by the appellants are restored save and except the application which challenged the jurisdiction of this Court, which application is allowed." 12. By virtue of aforesaid order dated 01.07.2014, the Coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cree dated 7th February,2006 has been passed by the notified superior Court of the reciprocating territory, namely, United Kingdom of Great Britain and Northern Ireland within the meaning of Section 44A of the Code vide notification dated 1st March, 1953 issued by the Ministry of Law, thus it leaves no doubt that the decree of the High Court of England would be considered to be a decree of superior Court of a reciprocating territory. XXXX 25. The expression 'District" is defined under Section 2(4) of the Code and the term "District Court" referred under Section 44A of the Code although not defined, but on conjoint reading of the provision makes it clear that it refers to the local limits of the jurisdiction of a principal civil Court of original jurisdiction (provisions of the Code called a "District Court") and it includes the local limits of the ordinary original civil jurisdiction of a High Court and it is not disputed that principal civil Court of original jurisdiction is normally a District Court (with whatever change in the nomenclature) and the High Courts in India exercising ordinary original civil jurisdiction are not too many, but where there is a split jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore-noted decision dated 28.01.2022 passed by the Supreme Court, the objection of appellant/JD with regard to territorial jurisdiction of this Court to entertain the present appeal seeking execution of the foreign decree, was put to rest and when the present appeal came up for hearing before us, we proceeded to hear the arguments on merits of the impugned judgment dated 29.11.2013. 14. Learned senior counsel for appellant/JD reiterated that the purpose of Share Purchase and Cooperation Agreement and the Technical Support and Services Agreement executed between the parties was to lend technical assistance to appellant/JD for projects in India and so, various loans were taken by appellant/JD, including the ECB from Citi Bank. The aforesaid loans were obtained subject to permissions from RBI and compliance of provisions of FERA, 1973. Under the Loan Agreement, an amount of USD 7 million was to be obtained by the appellant/JD, whereof the respondent/ DH stood Guarantor. The RBI on 03.09.1997 gave its conditional permission on the guarantee subject to the twin conditions that (1) There is no outgo of foreign exchange by way of any fee, direct or indirect, for the proposed guarantee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding nature of statutory conditions imposed by the RBI and that respondent/DH accepted the said conditions; and in compliance thereof the guarantee charges were paid from the beginning till the invocation of the bank guarantee. 18. Learned senior counsel once again emphasized that the balance sheet pertaining to the year 2001-02 was signed by all the Board of Directors, including Mr. Wilfried Schmidt, Representative of respondent/DH in the Board of Directors of appellant/JD; who had attended various meetings of the Board of Directors. Next submitted that nothing is due and payable by appellant/JD to the respondent/DH. Even the two company petitions, filed by the respondent/DH, challenging the veracity of the books of accounts of appellant/JD, including the balance sheets, were withdrawn without any order being passed qua the books of accounts. Learned senior counsel submitted that the learned Single Judge failed to appreciate the aforesaid facts and did not take notice of the fact that the balance sheet of the year 2001-02 noted that no amount was due and payable by the appellant /JD. 19. It was pointed out that reliance place by learned Single Judge upon RBI Circular No. 12/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decreetal amount abroad in the form of foreign currency; whereas in the instant case the loan facility is governed by conditional permission granted by RBI in the year 1997 to the extent that no liability would flow on the appellant/ JD if the guarantee is invoked qua respondent/ DH. Therefore, the decisions relied upon by the learned Single Bench are not applicable to the present case, as they do not deal with the provisions which are applicable in the present case. 21. It was submitted on behalf of appellant/JD that after passing of Default Judgment dated 06.02.2003, when appellant/JD reached the UK High Court seeking leave to defend; the respondent/DH filed application for setting aside for Default Judgment and prayed for passing of Summary Judgment, ignoring the defined and applicable laws in India. Also, respondent/DH sought execution of the decree passed by the English Court, who had no jurisdiction to determine the dispute. 22. It was strenuously submitted by learned senior counsel that the foreign court did not consider the balance sheets and minutes of respective board meetings, which constitute an admission that no amounts were payable by the appellant/JD to the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of evidence, essentially after cross-examination of the witnesses. In the present case, the due procedure has not been followed by the foreign Court before passing the summary judgment, even though there were certain admissions by the respondent/DH that no amount is payable by the appellant/JD and hence, for deciding the triable issues, leave to defendant ought to have been granted. 24. Further submitted that the UK Court did not take into consideration the various provisions of Indian Law, RBI guidelines, balance sheets and judgments while passing the Summary Judgment. 25. Learned senior counsel for appellant/JD vigorously submitted that under the Loan Agreement only the Lender or the Agent had the jurisdiction to raise the claims before the UK Court and disputes between the appellant and respondent arising out of Agreements in question were to be filed in India and, therefore, judgment passed by the Foreign Court, who had no jurisdiction, cannot be sustained and executed in India. Accordingly, the judgment and decree passed by the UK Court deserves to be set aside. 26. The learned senior counsel appearing on behalf of respondent/DH, on the other hand, submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted the contents of the balance sheet and placing reliance upon the said letter before this Court at this belated stage, is of no relevance. 29. Learned senior counsel submitted that the decree in question has been passed under the appropriate provisions of law and is enforceable in India. It was submitted that the FERA, 1973 was repealed in the year 1999 and under the Foreign Exchange Management Act, 1999 (FEMA) there is no provision akin to the erstwhile Section 47(3) (b) of FERA and so, the learned Single Judge has rightly held that for filing execution petition, prior permission from RBI was not required. Learned counsel submitted that the decree in question was obtained in the year 2006 and hence, no permission was required from RBI before filing of execution petition. 30. Learned senior counsel submitted that the purpose of Section 47(3) (b) FERA was to ensure honesty, so that any payment or sum under any judgment or order be not enforced without permission of RBI and if at all respondent/DH has to obtain a permission from RBI is only when the money is remitted outside India and such permission can be obtained at a later stage. 31. With regard to twin conditions imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nglish Court while passing the impugned decree. Learned senior counsel for respondent submitted that while passing the impugned judgment, the learned Single Judge did not consider the conditional permission given by the RBI, as the same had become the integral part of Loan Agreement. 34. Further submitted that in view of Section (5) of Section 49 FEMA, there is scope for obtaining ex post facto permission and in view of Section 8 read with Section 47(1) & (2) of FERA was a mandatory pre-requisite. Thereby, the learned Single Judge failed to notice the provisions of FERA and Section 49(5) of FEMA while holding that prior permission of RBI under Section 47(3) (b) is not required to be obtained prior to filing of the execution petition. It was submitted that in fact in the present case permission is required for the purpose of decreetal amount in the form of foreign currency being sent abroad, though the loan permission was conditionally granted by the RBI, under which no liability flows to appellant/ JD. 35. Leaned senior counsel for the appellant strongly submitted that the RBI's guidelines of the year 2013 and in specific Circular dated 01.07.2013 relied upon by the learned singl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be no outgo of foreign exchange by way of any fee, direct or indirect for the proposed guarantee and; (ii) in case of invocation of guarantee, no liability whatsoever will be extended to the Indian Company. The loan was disbursed by the Citi Bank to the appellant/JD on 28.10.1997. Two instalments of the JD loan were paid by the JD/appellant on 23.09.1999 and 30.09.2000. However, respondent/DH informed the appellant/JD about its disinvesting in India. According to appellant/DH, it had a claim of Rs.50,000/- lakhs against the respondent/DH and so, it was mutually agreed that the DH will pay off JD's loan to Citi Bank to partially compensate appellant/JD. Accordingly, the respondent/DH repaid the amount to the lender bank. The appellant /JD has claimed that the aforesaid understanding was incorporated in the balance sheet of the appellant/JD for the year ending 31.12.2001 and 31.12.2002 which was also signed by the Representative of Decree holder. 39. Though another objection as raised by respondent/DH is that Mr. Winfrid Schmidt, Chief Financial Officer and Representative of the DH in the Board of Directors of JD, had appended his signatures on the balance sheet of the year 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tend to the Indian Company; pursuant to which the loan was disbursed by the Citibank. Meaning thereby in the event of invocation of guarantee given by the respondent/DH to the Citibank, there shall be no liability of appellant/Judgment Debtor. Further pleaded that appellant had a claim of approximately 500 crores against the respondent/DH and so, by paying the loan, the respondent/DH had agreed to set off the claims of appellant/JD. Whereas, respondent/DH has pleaded that for the loan obtained by the appellant/ JD, the respondent/DH stood as guarantor and when respondent/DH informed the appellant/JD that they have decided to disinvest in India, that a communication dated 22.09.2001 was written by the appellant/JD to the Citibank to recover the outstanding ECB from respondent/DH and since, the respondent/DH was the guarantor of the ECB, it in all fairness paid the outstanding ECB loan to the Citibank on behalf of the appellant/JD and hence, has the right to recover it from appellant/JD. 43. The appellant/ JD stated that the balance sheet pertaining to the year 2001-02 was signed by all the Board of Directors, including Mr. Wilfried Schmidt, representative of respondent/DH in the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company to make payment of the amount of USD 4.78 Million (equivalent to Rs. 2236 Lacs) being the amount of ECB Loan paid by Messer to Citi Bank. The Company is of the view that contentions of Messer has no merits." 46. We have also gone through the minutes of Board of Meetings dated 27.05.2002 and 31.01.2003. In the minutes of meeting dated 27.05.2002, it has been noted as under:- "1. ADOPTION OF THE AUDITED BALANCE SHEET AS AT 31ST DEC. 2001 AND PROFIT & LOSS ACCOUNT FOR THE ENDED ON THAT DATE AND THE REPORTS OF THE DIRECTORS AND AUDITORS THEREON The Chairman stated that the Audited Balance Sheet of the Company as at 31st December,2001 and Profit &Loss Account for the year ended on that date together with schedules, annexures and attachments having already been circulated and lying with the Members for quite some time. The Chairman read the Auditor's Report/However, annexure to the Auditor s Report was taken as read with the permission of the Members present. After discussions on the Accounts the following Resolution was proposed as an ordinary Resolution by Mr. S.C.Goyal and seconded by Mr. Winfrid Schmidt. "RESOLVED THAT Audited Balance Sheet as at 31" De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D vide letter/ e-mail dated 20.02.2003, was not brought on record by the respondent/DH. Relevantly, in the e-mail dated 20.02.2003, it has been noted by appellant/JD that it was in reply to e-mail of 7.02.2003, however, at the bottom it noted as under:- "I have just received your e-mail of February 19, 2003, I am surprised to receive such a message from a top Corporate Treasurer. I totally disagree to what you have written and nothing can be changed from what has already been agreed and signed." 50. There is no dispute to the position that the aforesaid e-mail dated 20.02.2003 was not put before the English Court and hence not considered while passing the impugned Summary Judgment and decree. The balance sheet, statement of profit and loss account and minutes of meeting were not only signed by Mr. Winfrid Schmidt but also seconded by him in the presence of all the Board of Directors and thus, cannot be later on permitted to take an objection at a later stage. The UK Court as well as the learned Single Judge have in fact also failed to consider the statutory presumptions under Sections 194/210/211 and 215 of the Companies Act that placing of signatures by the representative of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Loan Agreement permission from RBI was obtained in the said year, the guidelines of RBI prevalent in the said year shall apply. Moreover, once the twin conditions imposed by the RBI while granting loan vide letter dated 03.09.1997, no doubt the said conditions will prevail and the same has not been superseded by circular issued in the year 2013. Moreover, the Circular dated 01.07.2013 grants permission to make payment where the lender is based in India, whereas in the present case the lender is Citibank, UK. 52. The appellant/JD has also contended that the UK Court while passing the Judgment and decree has ignored the twin conditions imposed by the RBI while holding that Indian Foreign Exchange Law would not apply and that these are standard conditions. On the other hand, the respondent/DH has averred that the conditions imposed by the RBI are 'Standard Conditions' only as these were imposed while approving foreign currency loans and do not restrict the right of respondent/DH contained in 16.2 of the Loan Agreement and as such, the respondent/DH was entitled to recover the principal, interest and other amounts from the appellant/JD after paying it to the lender bank. We n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealed in the year 1999 and under the Foreign Exchange Management Act, 1999 (FEMA) there is no provision akin to the erstwhile Section 47(3) (b) of FERA and so, it has been rightly held by the learned Single Judge that for filing execution petition, prior permission from RBI was not required. On this aspect we find that the present case does not come within the ambit of Section 47(3)(b) of FERA. These provisions are applicable in cases where permission is required to be obtained for the first time from RBI after final decree is passed so that foreign currency can be sent abroad. The learned Single Judge on this issue has relied upon Supreme Court's decision in Renusagar Power Co. Ltd. Vs. General Electric Co. 1994 Supp (1) SCC 644 to hold that ex post facto permission from RBI could be obtained by the DH for repatriating the funds deposited by the appellant/JD. Upon going through decision in Renusagar Power Co. Ltd. Vs. General Electric Co. and applying it to the facts of the present case, we find that no doubt in view of said decision ex post facto permission can be obtained from the RBI to remit the funds, however, when the decree itself is found to be vitiated, being against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cree while setting aside the default judgment and passing a summary judgment observed and held as under:- "Setting aside the default Judgment:- 46. CPR 31.3 provides that; "(1) ... the court may set-aside or vary a judgment entered (in default) if- (a) the defendant has a real prospect of defending the claim; or (b) it appears to the court that there is 9ome other good reason why- (i) the judgment should be set aside or varied; or, (ii) defendant should be allowed to defend the claim (2) In considering whether-to-'set aside or vary a (default) judgment ... the matters to 'Which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly' 47. There was-no agreement to-the effect that the default judgment would be obtained but not enforced. The question is whether or not, as a matter of discretion, the court should set aside a which is of commercial value to the Messer to enable the Messer to achieve its objective of obtaining a judgment which it believes it would be able to enforce in India. XXXXX 53. I do not think Goyal was at any time entitled to conduct its affairs on the basis it had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Department of Economic Affairs, New Delhi ("GOI") permitting the Borrower to avail the foreign currency loan of US$7,00,000 from or arranged by a named bank on the terms and conditions set out in this Agreement; and" (ii) Also, in Para-19 the witness has stated when the Loan Agreement was executed, foreign currency transactions in India were not permitted without prior permission of the relevant authorities in India, being the Department of Economic Affairs (DEA) of the Government of India and the Reserve Bank of India (RBI) and under the provisions of Indian Foreign Exchange Regulation Act, 1973, then in force. This witness in Para-20 has also stated when appellant/JD applied for approval for External Commercial Borrowings (ECB) based on Citibank's terms, the approval of the Loan Agreement was granted with certain conditions; and one of mentioned as under:- "(c). The approval of the Exchange Control Department of the RBI, through Goyal's bankers, under the Fer Act was to be obtained to ensure that the terms of the Government approval was complied with and that "no additional foreign exchange liability either express or implied, is being assumed under the arrangements" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the respondent/DH to the Citibank under the Loan Agreement. The UK Court in Para-27 noted the statement of Mr.Nash, counsel for appellant, that the agreement made in 2001 was merely for the purpose of crediting the loan amount and has further noted that the submission of Mr.Nash with regard to agreement as full settlement of the claims, was not consistent with Mr.Dhar's evidence. The UK Court in Para-38 & 40 has also observed that there is no evidence to support appellant's stand and also that the theories, extraordinary and unsupported by any evidence as they are, do not begin to stand up to examination. 59. A careful evaluation of afore-noted statements made on behalf of appellant/JD's witness as well observations of the UK court shows that the pleas raised by both the sides are on triable issues. However, without granting an opportunity to leave to defend to appellant/JD, the UK court has passed the Summary Judgment, enforcement of which is sought in India. 60. It is an admitted position that on one hand appellant/JD filed its leave to defend and on the other, respondent /DH sought passing of Summary Judgment by the Court. It is also not disputed that at the time of pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question. By not affording an opportunity to appellant/JD to defend its case, the English Court has not only deprived appellant/JD of its legitimate rights to defend itself but also it is against the interest of justice. Even if it is taken that the appellant's case was premised on weak foundation; at least an opportunity to stand before the Court should have been afforded to the appellant/JD. Hence, reliance placed by learned Single Judge upon decision in Navin Khilani Vs. Mashrequ Bank (2008) 146 DLT 134 (DB) rejecting the contention of appellant/JD that foreign judgment is not on merits; is liable to be set aside in view of the fact that in the said case, the suit filed before the UK Court under Order 14 RSC was considered akin to Section 37 Indian IPC by the Division Bench of this Court. The present case has not been filed under Order und 14 RSC and after passing of Default Judgment, respondent/DH sought Summary Judgment under Rule 24.2 of the UK Civil Procedure Rule, 1998, which is completely different than the other provisions of law and so, the decision in Navin Khilani (Supra) is not applicable to the facts of the present case. 64. We find that the setting aside of def ..... X X X X Extracts X X X X X X X X Extracts X X X X
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