Back
High Court of Karnataka
JAWAD RAHIM, J.
Gokuldas Images Pvt. Ltd. Bangalore rep. by its Managing Director Sumir Hinduja
Versus
M/s. Axis Bank Limited
R.F.A. No. 1508 of 2012
Decided On : 04-12-2012
Quantification of a debt may be an issue within the jurisdiction of the Tribunal, but not to decide existence of the debt. Had there been any indication in Section 19 of the Act as to who else could file the application other than bank, financial institution or consortium of banks it was possible to take view that for any dispute relating to financial transactions, the person aggrieved may apply to the Tribunal. But as, except the bank, financial institution or consortium of banks, no other person is indicated in Section 19, High Court cannot confer jurisdiction by its own interpretation.
In the instant case the appellant had sought adjudication by civil Court a dispute raised by it basically relating to genesis of liability created by bank. While the respondent bank described the appellant as the borrower in terms of the loan which it has documented, the appellant refuted said plea, contending that it had entered only into derivative contract with bank which was of a special nature and was to provide the appellant derivative contracts as a convenient alternate to the forward covers in foreign exchange dealings. The option contracts offered by the bank were to hedge underlying risks to which the appellant was being exposed to on account of fluctuating foreign exchange rates. The currency options offered by the bank were hedging of exchange rate fluctuation and interest rates to a limited extent by entering into derivative contracts which takes the form of forwards, futures, swaps and options. There was no literal loan transaction, that is, lending or borrowing of money by the respondent bank to the appellant. Any liability under the contract was notional and was subject to other contingencies stipulated in the agreement. The liability of rupees forty five crores raised by respondent bank was described as a unilateral determination without actuals being taken into consideration. The appellant in this context had sought a declaration regarding the nature of transaction between it and the respondent bank. Such the suit seeking for declaratory relief to determine what is the nature of transaction would lie only in the civil Court of competent jurisdiction under the provisions of Section 9, C.P.C., and Tribunal constituted under the Act would not have jurisdiction.
CODE OF CIVIL PROCEDURE, 1908 - Order 7, Rule 11 (d):[Jawad Rahim, J] Rejection of plaint - Trial Judge sat in judgment over merits of plaintiffs case and defence of respondent bank against its claim while rejecting plaint - Held, At the time of considering application under Order 7, Rule 11 (d) Court has only to see statement in plaint and not any other material which may be available to defendant as defence. The approach of trial judge is nothing but pre-judging the issue. Rejection of plaint is not proper.
1. Plaintiff is in appeal against rejection of its plaint by the trial court applying the provision of Order VII Rule 11(d), C.P.C., by the impugned order.
2. In response to notice regarding admission, the respondent bank is duly represented. It has also filed in the form of a short paper book certain material reflecting the factual position.
3. I have heard the learned counsel on both sides, viz., Sri Dhananjay Joshi for the appellant and Sri B.S. Shashibhushan for the respondent, and examined the records in supplementation thereto.
4. Before I advert to the contentious issues raised by tree learned counsel on both sides, a brief reference to the factual matrix is necessary. It is:
(a) The appellant, a company incorporated under the Companies Act, is engaged in the business involving export of products and merchandise. Among several bankers with whom it is operating, it had transacted with the respondent bank.
(b) The appellant company claims to be one of the largest corporations with 15 automated factories across India having with it 7,000 machines. Being involved in export of garments and apparels, the receivables had to be calculated in foreign currency, namely United States Dollars (USD, for short) which was susceptible to fluctuations in rate. The Reserve Bank of India (RBI, for short) had permitted hedging of exchange rate fluctuation and interest rates to a limited extent by entering into derivative contracts which may take the form of forwards, futures, swaps and options. The appellant used to have appropriate standardized forward covers through its recovery bankers.
(c) The respondent bank approached the appellant offering to advise it on derivative contracts with currency options and represented to it that these would be more appropriate hedging tools to the appellant. These option/ contracts were aggressively marketed by the bank as a convenient alternative to the forward covers taken by the appellant. The respondent bank also represented to it that the said option contracts would hedge the underlying risk that the appellant would be exposed to in the course of its trade, on account of fluctuating foreign exchange rates. It also assured the appellant that the Indian Rupee (INR) was bound to appreciate vis-à-vis the USD.
(d) Acting on such positive assurances of the respondent bank, appellant entered into four currency option contracts for the fiscal year 2007-08 which are particularized as under:
(a) Transaction Reference No.OPTIO13,
(b) Transaction Reference No.OPTIO15,
(c) Transaction Reference No.OPTIO60 and
(d) Transaction Reference Na.OPTIO61
Besides, in relation to the aforesaid currency option contracts, respondent bank executed an agreement called International Swaps and Derivatives Association Master Agreement (ISDA Master Agreement, fur short) as coverage for the appellant. It also extended Loan Equivalent Risk (LER) facility to the tune of rupees forty crores to the appellant. It was for the sole purpose of translating off-balance sheet commitments of the appellant under the derivative contracts into a credit equivalent loan.
(e) The appellant assertively contends it had not received any sum whatsoever from the respondent bank under the LER facility and it was only notional loan documentation.
(f) The main grievance of the appellant is, despite such risk management and assurance by the respondent that it would minimize its risks, to its shock and surprise, it learnt from the respondent bank in July 2008 that it has suffered staggering losses under the derivative contracts and the options had reached the peak risk. When, the appellant questioned how such staggering losses could occur, when the contracts were intended only to hedge and consequently minimize its risk profile, the bank assured the appellant this was only a temporary setback and would be set right. It also assured the appellant all these risk factors would be sorted out at the bank’s senior management level.
(g) Subsequently, the respondent bank a
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
