TaxTMI 
TaxTMI 
2022 (12) TMI 1199
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "English Court") under Section 44-A of the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e letter dated 3rd September 1997 from the Reserve Bank of India (RBI) to the JD giving permission for the DH to guarantee 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 D....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the DH was seeking some tax advantage under the enforceable judgment. The evidence on record refuted any such suggestion. (viii) Another defence of the JD 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rded and not enforceable. (d) The judgment dated 7th February 2006 was against the principles of natural justice and, therefore, could not be enforced in India. (e) The modification/variation of the default judgment 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 Pu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent/DH in the Board of Directors of appellant/JD, and it no-where mentioned any loan either towards Citi Bank or respondent/DH. It was next submitted that even in the meeting held on 27.05.2002 for approval of the Balance Sheet, the limited objection raised by Mr. Winfrid 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 appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nequivocally evince that the jurisdiction of the 'District Court' in terms of Section 44A of the Code of Civil Procedure, 1908 can be invoked by a holder of a decree of a Superior Court of reciprocating territory, unhindered by the lack of jurisdictional competence of the said Court while 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecree(in excess of Rs.20 lakhs) of a foreign Court which is notified as a superior Court of reciprocating territory under Section 44A of the Code. 23. It is not disputed that so far as the expression "superior Court of any reciprocating territory" as defined under Section 44A of the Code is concerned, the judgment and decree 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 l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o execute a foreign decree under Section 44A of the Code and it goes without saying that execution always is in continuation of the proceedings. XXXXXX 31. Consequently, the appeal succeeds and accordingly allowed. The judgment of the Division Bench of the High Court dated 10th July 2014 is hereby quashed and set aside........" 13. Relevantly, by virtue of afore-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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw applicable in India. Also submitted that the learned Single Judge failed to appreciate that the decree of foreign court is contrary to the provisions of and law in force in India, as it is against the statutory conditions imposed by the RBI vide its letter dated 03.09.2017 and in breach of provisions of FERA. In addition, it was submitted that the repeal of FERA does not affect the binding 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9.1997, recovery proceedings could not be initiated. Further, it was submitted by learned senior counsel that the finding of the Single Bench that prior permission of RBI under Section 47(3) (b) is not required to be obtained for filing the execution petition, is erroneous as the present case does not come under Section 47(3) (b) of FERA, where-under RBI permission is required for sending the 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 l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was not granted leave to defend the case through a trial by cross-examining the witnesses. Learned senior counsel submitted that the statement of witnesses under the Civil Procedure Rules of UK are pleadings and akin to supporting Affidavit in support of pleadings/applications and are not Affidavits of Evidence and a case cannot be decided on the basis of pleadings. A case has to be decided on the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e minutes. Also submitted that no fraud has been placed by the respondent/DH upon the Court and had there been any grievance relating to any finding of fact was committed, the appellant/JD should have brought it to the notice of the English Court. However, appellant/JD did not choose to file its own communication dated 20.02.2003 before the English Court and the plea of the appellant/JD that it has always disputed 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... required to be obtained before filing the execution petition. Further submitted that respondent/DH is wrong to rely upon RBI circular dated 01.07.2013 to submit that in principal general permission was granted to the principal debtor for making a payment to a person residing outside India. Moreover, the twin conditions stipulated by the RBI had become part of Loan Agreement dated 30.06.1997, which was ignored by the English 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant/JD and respondent/DH, an addendum dated 07.11.1996 was further executed between the parties. For the loan obtained under the External Commercial Borrowing (ECB) under the provisions of Foreign Exchange Regulation Act, 1973 from Citi Bank, London, the DH stood Guarantor for the ECB and applied for its approval from RBI. The final approval of the loan was received from the RBI on 12.08.1997 with the condition that (i) there shall 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld not have recourse against the shareholders of JD or JD. 42. The plea of the appellant/JD is that for execution of Share Purchase and Cooperation Agreement dated 07.11.1996, conditional permission was granted by the RBI on 03.09.1997 stipulating that (1) there is no outgo of foreign exchange by way of any fee, direct or indirect, for the proposed guarantee and (2) In case of invocation of guarantee, no liability whatsoever will extend 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 outsta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cs against Messer for the loss suffered by the Company on account of breach of certain clauses of Share Purchase and Cooperation Agreement dt. 12.05.1995." Further, Para-2 thereof reads as under:- "CONTINGENT LIABILITIES NOT PROVIDED FOR: "(a) Guarantees given and letters of credit issued by bank on behalf of company Rs.287.94 lacs (Previous year 163.36 lacs) (b) Contrary to the understanding with the Company, Messer Greishiem, GrnbH, had made a demand on 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the provisions of Sections 211 and 215 of the Companies Act provide that every balance sheet and profit and loss account shall give true and fair view of the company pertaining to a financial year. 49. Pertinently, in the judgment and decree passed by the UK Court, it has been noted in Para-32 that on 19th February, (19.02.2003) Mr. Schmidt sent an email to Mr. Goyal and Mr.Bagri dissenting to the note in the minutes of meeting dated 27.05.2002, and held that there is no response to it on the papers; whereas response of appellant/ JD 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dated 01.07.2013, where-under a general permission has been granted to the principal debtor to make a payment to a person residing outside India, who has made the liability under guarantee. In this regard, we find that the observations of the learned Single Judge that guidelines of the RBI circular dated 01.07.2013 grant a general permission for making payment to a person, who has rendered a guarantee and is residing outside India, does not apply to the facts of the present case. In the present case, the loan was taken in the year 1997 and since under 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 cond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing nature of statutory conditions imposed by the RBI. It has been averred that the learned Single Judge has not correctly interpreted the provisions of 47 of FERA to enforce the decree and repatriate funds; as in terms of statutory conditions imposed by the RBI by its letter dated 03.09.1997, recovery proceedings could not be initiated. To the contrary, the respondent/DH has pleaded that the impugned judgment and decree was passed by the Foreign Court under the appropriate provisions of law, which 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, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut a judgment can be reviewed by the same Court but cannot be set aside by the same court. It is an admitted case of respondent /DH that its representative Mr. Schmidt did not know until April, 2003 that a default judgment was unenforceable in India and therefore, a Summary Judgment was sought. 56. During the course of hearing, this Court had raised a specific query to the learned senior counsel representing both the sides on the procedure adopted by the UK for passing a default judgment and summary judgment. Relevantly, the Court at UK in the impugned judgment and decree 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 (defaul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 judgment is handed down if they cannot be agreed beforehand." 57. We have also gone through the Witness Statement of Mr.Kuldeep Kumar Dhar, Deputy General Manager of appellant/JD, filed before the court in UK. Herein below we note a few extracts of his statement, coupled with the observations made by the UK court on those counts. (i) This witness in Para-27 of his statement has stated that Clause 11 (c) of the second schedule to the Loan Agreement read as under:- "(c) approval of the Government of India, Ministry of 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2005 it got to know that the default judgment was not executable in India. The UK Court in Para-42 has observed that Mr. Foxton, learned counsel for respondent/DH assumes that Goyal would not comply with the judgment, had no assets against which it could be enforced and Messers may lose the claim in an unenforceable judgment. Whereas the appellant's witness in Para-60 has stated that at the time of obtaining the default judgment, respondent/DH was represented by renowned law firm in the City of England as well as India and it was difficult to believe that respondent/DH would not have been advised that a default judgment was unenforceable in India. Moreover, the default judgment was entered after 15 months of balance paid 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 suppor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s provisions of Indian Law, RBI guidelines, balance sheets have not been taken into consideration by the foreign Court while passing the Summary Judgment. 63. On this aspect we find that the decree dated 07.02.2006 arises out Loan Agreement dated 20.06.1997 which was governed by the English Law and in terms of Clause 31.2 of the Loan Agreement and further in terms of Clause 31.3, all the objections were to be submitted to the jurisdiction of the English Court and appellant/ JD was fully aware of these clauses, and therefore, only it had applied for leave to defend before the English High Court. However, the leave to defend preferred by the appellant/JD was not considered by the English Court while passing the Summary Judgment 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 ....