state bank of india vs madhumita construction (pvt.) ... on 16 july, 2002

7/31/2019 State Bank of India vs Madhumita Construction (Pvt.) ... on 16 July, 2002

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Calcutta High Court

Calcutta High Court

State Bank Of India vs Madhumita Construction (Pvt.) ... on 16 July, 2002

Equivalent citations: AIR 2003 Cal 7, II (2003) BC 610

Author: D Seth

Bench: D Seth

ORDER

D.K. Seth, J.

1. Plaintiff has made this application for : (i) appointment of receiver in respect of the assets and properties,

books of accounts and records of the respondents No. 1 to 52 including movable assets with appropriate

directions; (ii) injunction restraining the respondents No. 1 to 52 from disposing of or parting with possession,

transfer, encumbering or dealing with their assets, profits including those mentioned in Annexure "G" to the

plaint without making the payments due to the plaintiff/petitioner; (iii) decree on admission against the

respective respondents mentioned in prayer (d) and for consequential reliefs; (iv) filing of affidavits, directing

disclosure of the amount received by the said respondents from different branches; (v) injunction restraining

the respondents No. 53 to 57 from demanding any money from the petitioner in relation to the alleged void

Letters of Credits (LCs) purported to have been negotiated by them through unjustified and fraudulenttransactions; or (vi) to demand any money or in any way dealing with or to exercise any right, title or interest

in respect of any of the LCs issued by the petitioner's branches including Bag Bazar Branch; (vii) injunction

restraining the respondents No. 53 to 57 from utilizing the money received under any such LCs including

those mentioned in Annexure "C-2" of the plaint; (viii) direction upon the respondents No. 53 to 57 to deliver

all the invalid LCs including those mentioned in Annexure "C-2" of the plaint, (ix) direction to furnish

security of Rs. 117 Crore; (x) injunction restraining them from receiving, crediting or withdrawing or dealing

with any of their accounts maintained with and/or fund lying to their credit so far as the respondents No. 1 to

52 are concerned with the respondents No. 53 to 57; and (xi) the respondents No. 53 to 57 be directed to

refund and pay the petitioner all amounts realized by way of proceeds of the Bills unauthorizedly collected by

them.

Facts :

2. The case made out in the plaint on the basis whereof the above prayers are made are that one Madhumita

Group of Industries and their respective Directors (Respondents Nos. 1 to 44) referred to as MG 1, who are

interrelated with each other, had been maintaining accounts with the State Bank of India (SBI). particularly) in

Bag Bazar Branch. In connivance and collusion with some of the employees of SBI, particularly, of Bag

Bazar Branch (Respondents Nos. 45 to 52), MG1 got LCs opened in their favour. Those LCs were alleged to

have been issued in obsolete forms. The officers, who had issued the LCs, were not authorized to Issue those

LCs. Those LCs were opened simply by manipulation or jugglery of accounts, in fact, without putting in any

fund by those, Madhumita Group of Industries, in connivance with the employees of SBI, amounting to

forgery, as spelt out in detail in the application. These LCs were negotiated with the respondents No. 53 to 57,

who purported to have obtained confirmation of the LCs from the same officers, who had Issued the same,

without taking proper care, which they are required to take before negotiating the respective LCs. Fraud has

been alleged in respect of these transactions. According to SBI, all these LCs are void. These transactions

were kept secret and could not be detected by the Bank. It was quite for some time these transactions

continued. Some of the LCs were honoured by SBI, particularly, by Bag Bazar Branch.

2.1. The respondents No. 53 to 57 had approached the Debt Recovery Tribunal (DRT) and had initiated

proceedings for recovery of the dues under such LCs as against SBI. By virtue of an interim order granted in

this case, the said proceedings before the DRT have since been stayed. Receiver has been appointed.


Indian Kanoon - http://indiankanoon.org/doc/976238/ 1


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2.2. On 26th November, 1998 on the present interlocutory application filed by the plaintiff, the learned single

Judge passed an interim order directing the respondents No. 53 to 57 to maintain status quo with regard to the

impugned LCs. A special officer was also appointed to make inventory of the assets of the defendants No. 1 to

44, namely, Madhumita Group. The defendants No. 54 and 56 preferred an appeal before the Hon'ble Division

Bench, which was pleased to set aside the order of status quo. The plaintiff challenged the order of the

Division Bench by way of special leave petition before the Apex Court. By an order dated 12th July, 1999, the

Apex Court disposed of the said appeal after hearing the plaintiff and the defendants No. 53 to 57, dispensing

with service upon the other defendants, excepting the said five banks, setting aside the order of the DivisionBench, remitting the matter to the learned single Judge for disposing of the interlocutory application on merit.

The proceedings before the DRT initiated by the said five banks (defendants No. 53 to 57), were stayed

pending, disposal of the interlocutory application.

Submission on behalf of the plaintiff/petitioners :

3. Mr. Depankar Ghosh, learned counsel for the plaintiff/petitioner, made elaborate submission pointing out

the manner in which the fraud was perpetuated. It is alleged that one of the signatories was computer

personnel, who had nothing to do with banking operation. The other officers though functioning in the

operation sector of SBI, but none of them were authorized signatories for opening LCs, which is apparent

from the bank's register of books, which can be verified by any of the banks. But none of the respondents No.53 to 57 had attempted to verify the same for which there was a hint of collusion as against these respondents

as well, only to the extent that they did not take care to ascertain and find out, in normal course of business, as

to the validity of LCs negotiated by them. He has elaborated that the entries as made in one account, then it is

transacted through series of accounts on the same date in order to make the same untraceable. That apart, with

regard to these LCs, no accounts are available, It is alleged that with the help of computer personnel, the entire

accounts have since been wiped out. Therefore, all those LCs are void ab initio on account of its' being

fraudulently issued. In order to prove his allegation, he had led the Court through various documents annexed

with the petition. He had taken many other points and argued in detail. It is not necessary to record those

submissions, which mainly related to the merit of the case, at this stage. Admittedly, the merit of the case may

be a relevant factor for determining the prima facie case for grant of interim orders. However, those parts of

Mr. Ghosh's argument, which would be relevant for our present purpose would be noted in the body of thedecision, as and when the relevant points would be considered.

3.1. Mr. Ghosh elaborated on the actual authority and ostensible authority with a view to contend that the

basis of issue of the LCs being without authority, the question does not come within the scope and ambit of

the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act), particularly, in view of

the forgery, as spelt out by him. The LCs being result of forgeries, are nullities. It does not confer any right in

favour of other banks and no obligation is imposed on the plaintiff by reason thereof. Forgery excludes Rules

of Indoor Management. He relied on Ruben & Ladenburg v. Great Fingall Consolidated, 1906 AC 439 :

1904-1907 All ER (Rep) 461; Credit Bank Cassel Gmbu v. Schenkers Limited (1927) 1 KB 826 at 830 : 1927

All ER (Reprint) 421; South London Greyhound Race Course v. Wake, (1931) 1 Ch 496 and Secretary,

Naguneri Peace Memorial Co-operative Urban Bank Limited v. Alamelu Ammal, . According to him, those

LCs are not LCs at all and as such outside the banking business. He further contended that the said five banks

being negligent in their own sphere of performance, they cannot claim the amount out of the LCs as result of

banking transaction. These LCs do not constitute debt, which can be recovered through the Debt Recovery

Tribunal. Inasmuch as, no money is payable under the said LCs by the plaintiff. Since, in this case, it is the

validity of the LCs itself, which is being challenged. It does not fall within the scope and ambit of the decision

cited on behalf of the respondents, which are related to the transaction underlying the issue. He seeks to

distinguish those decisions on the ground that a debt must arise out of business activities undertaken by bank.

Such business activity, if falsified and forged into existence, is not legitimate banking activity undertaken by

the bank.




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3.2. The question whether it is a debt or not is not required to be definitively decided in the present application

since it is a question on merit which should be left open to be decided at the hearing. Therefore, any attempt to

recover any money out of such LCs is not a suit for recovery of debt within the meaning of DRT Act. He has

pointed out that the expression "debt", which is said to have wide amplitude to include un-liquidated damages,

as held by the Apex Court, does not specify as to what kind of suit would be a suit for recovery of debt. He

pointed out that the present suit is not a counterclaim or a defence against the suit pending in DRT. Inasmuch

as, the forgery and fraud alleged against the defendants No. 1 to 44 and 45 to 53, who are employees of the

plaintiff, could not be brought in the suit before the DRT. Therefore, it is this Court, which can try all thesecomprehensive questions raised in this suit.

3.3. He has also taken the point of convenience in the trial by the High Court instead of by DRT. Since it

involves detailed investigation of disputed facts and consideration of massive oral and documentary evidence

and examination and cross-examination of witness, which might consume enormous time. Having regard to

the inadequacy of infrastructure, procedure or requirement, insufficient space, staffs before the DRT, a

pragmatic approach is to be taken so that the basic object of expedition, for which the DRT was set up, would

not be defeated. According to him, this suit could not be conveniently heard by DRT along with the suits of

the other banks. The DRT is incompetent to try a declaratory suit and grant no monetary relief, which includes

delivery of the LCs and cancellation thereof, declaring those to be fraudulent and forged and without effect.

All these questions cannot be gone into at this interlocutory stage.

Submission on behalf of South Indian Bank & Global Trust Bank :

4. Mr. M. Raja Sekhar, learned counsel appeared on behalf of the respondents No. 54 and 55 (South Indian

Bank and Global Trust Bank Limited), submitted that so far as his clients are concerned, the transactions were

going on for three years since 1995. The transactions related to sale of CTD Rods. So far as Global Trust

Bank is concerned, it had negotiated 78 Bills, out of which 77 have been paid and one is outstanding. He took

a preliminary objection as to the jurisdiction of this Court. According to him, unless this Court has jurisdiction

with regard to the subject-matter of the suit, it cannot grant an interim order. He referred to Section 9 of the

Code of Civil Procedure and various provisions of the Recovery of Debts due to Bank and Financial

Institutions Act, 1997 (DRT Act). According to him, Section 17 creates an exclusive jurisdiction in respect ofdebts due to banks and financial institutions, as defined in Section 2(g) of the said Act, in favour of the

Tribunal constituted thereunder. Section 18 excludes the jurisdiction of all other Courts in respect of such

matters excepting the jurisdiction exercised by High Courts under Articles 226 and 227 of the Constitution of

India. By reason of Section 34 of the said Act, the provisions of the Act has been given overriding effect

against all other law for the time being in force. This is reinforced by the incorporation of Section 31, whereby

all matters pending in any Court excepting appeals stood transferred to the Tribunal as soon it is constituted

and the records thereof are to be transmitted forthwith. He had elaborated the scope and manner of the

expression "debt" relying upon Black's Law Dictionary, 6th Edition, page 4003. According to him, a

fraudulent debt is also included in debt. In support, he had relied on Athmanathaswami Devasthanam v.

Gopalaswami, . He

has also relied on the decision in ONGC v. Collector, Central Excise, 1992 (Suppl (2) SCC 432; United Bank

of India v. Abhijit Tea Co. ; Morgan Stanley Mutual Fund v. Kartick Das,

and Allahabad Bank v. Canara Bank, AIR 2000 SC 1535; Hindustan Laminators Private Limited v. Central

Bank of India, AIR 1998 Calcutta 300 : 1998 (2) Cal HN 473; All India Tea and Trading Co. Ltd. v. United

Bank of India, 2001 (2) Bank CLR 430 (Cal); United Bank of India v. Abhijit Tea , ONGC v. Collector,

Central

Excise 1992 Suppl (2) SCC 432, ONGC v. Collector, Central Excise, 1995 Suppl (4) SCC 541; South London

Greyhound Race Course v. Wake, 1930 All ER (Rep.) 496 at page 502; Virgo Steels v. Bank of Rajasthan

Ltd. AIR 1998 Bombay 82, Federal Bank Limited v. V. M. Jog Engineering Limited , and State Bank of India




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v. Smt. Shyama Devi

.

4.1. According to him, ostensible authority of employees, if disputed, the same would not affect third party

liability. The test and consideration for granting of injunction are not satisfied in this case since the injury that

has been alleged is not an irreparable injury being a money claim, which can be quantified. The balance of

convenience and inconvenience are not in favour of the plaintiff. The delay and acquiescene stares on the faceof the plaintiff. The Court is not supposed to spend money over unnecessary disputes between different State

organs. According to him, SBI had knowledge of the fraud.

4.2. He contended further that the suit is primarily for recovery of sums of money from Madhumita Group of

Industries, the first set of defendants. It is further contended that the defendants No. 1 to 52 in collusion with

each other, have fraudulently increased the limit of the facility. Therefore, admittedly, the claim arises out of

regular loan transactions that were subsequently dealt with fraudulently by the defendants No. 1 to 44.

Relying upon United Bank of India v. Debt Recovery Tribunal, . he contended that the definition of debt deem

to include all cases of debts including those which arises as a consequence of fraud. He referred to J. U.

Mansukhani & Co. v. Presiding Officer, and contended that the Delhi High Court, following the decision of

the Supreme Court in United Bank of India, (supra), had held, in a case involving Demand Draft issuedfraudulently, that the use of the words 'any liability' under the definition of debt is wide enough to cover fraud.

Referring to Allahabad Bank (supra), he contended that the

jurisdiction to recover debts is exclusive to the Tribunal. He cited ITC Ltd. v. Debts Recovery Appellate

Tribunal, to

contend that the Supreme Court had sounded caution regarding clever drafting. Creating illusion of cause of

action, which are impermissible in law. Court has to find out the real basis, on which the cause of action is

founded. Upon a true and fair reading of the plaint, in this case, it is crystal clear that the suit is primarily for

recovery of debts.

Submission on behalf of UTI Bank. Respondent No. 53 :

5. Mr. Gautam Chakrabarty, learned counsel appeared on behalf of the UTI Bank, respondent No. 53. Mr.

Chakrabarty had led this Court through various documents and pointed out on the merit as well as various

other matters. He relied on various articles of the said book. His argument may be summarized on the question

of jurisdiction of DRT, fraud, ostensible authority and the meaning of the expression 'in course of

employment'. He also relied on All India Tea and Trading Co. Ltd. v. United Bank of India, 2001 (2) Bank

CLR 430 (Cal) and Vyasya Bank Ltd. v. Shankarlal Exports Private Limited, (DB).

According to him, the plaintiffs case is really a case of negligence. The story of fraud was not alleged in the

plaint, it was made out for the first time in the reply. The UTI had approached the DRT relying on State Bank

of India Act, 1955, (Sections 39, 40 and 41). He pointed out that ignorance couldn't be pleaded by SBI even

before audit. There is an internal audit. He had also referred to the Reserve Bank Regulations. It appears that

the fraud was detected after the plaint was filed. The audit must have been completed. He had also relied on

State Bank of India General Regulation 55 and pointed out that nothing has been shown that the said officers

did not have authority to sign the LCs. He further relied on The Law of Bankers Commercial Credit, H.C,

Gutteridge & Mourice Megrah, 7th Edition, Appendix-B and relied on various Articles therein, particularly,

articles 1, 15 and 22. His submission can be summarized to the following points viz., jurisdiction of DRT,

fraud, ostensible authority and meaning of the expression 'in course of employment'. He relied upon counter

of exchequer, Easter term XXX VICT 259 and pointed out that UTI has never been alleged to be a party to the

fraud.




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5.1. He further contended that no case of fraud was made out as against the UTI Bank in the plaint. The case

between UTI Bank and SBI arises out of normal banking transaction between the parties, in which the

plaintiff SBI has rediscovered some fraudulent activities on the part of its employees and its constituents, with

which UTI Bank had nothing to do. He relied on the notification issued under Regulation 76(1) of SBI

General Regulation empowering delegation of power to some officers for signing accounts, receipts and

documents on behalf of SBI. Regulation 75 expressly provided that any contract entered into with SBI under

expressed or implied authority would bind SBI. The said notification authorizes Branch Manager; Manager of

Divisions in Grade MMGS3-MMGS2-JMG1, to sign all documents. The said notification does not mentionthat the document has to be signed jointly by two of such officers when at least one of the officer in each

document was MMGS2, who signed it (State Bank of India v. Smt. Shyama Devi, ). Relying on Virgo Steels

v. Bank of Rajasthan Ltd., AIR 1998 Bombay 82 (para 9) and Barwick v. England Joint Stock Bank, (1867)

LR 2 Exch 259 (pp. 265-6), he contended that fraud having been alleged against the employees of SBI to have

been committed in usual course of employment, the SBI cannot escape its liability. He also relied on the

Instruction of Reserve Bank of India for banks and banking operations (Clause 13A, V-7 page 274) to support

his contention.

5.2. In support of his contention, Mr. Chakrabarty had relied upon the decisions in United Bank of India v.

Debts Rccovety Tribunal, ; State Bank of Bikaner and Jaipur v. Ballabh Das &

Company, ; J. U. Mansukhani & Co. v. Presiding

Officer, , Vijaya Bank v. A.N. Tiwari, 1996 (1) Comp. LJ 64 (Del); Allahabad Bank v. Canara Bank, ; Vijaya

Bank v. Smt. Sulochana Devi Jalan, 2000 (2) Cal LJ 586 (paras 2 & 3); Vyasya Bank Limited v. Shankarlal

Exports Limited, ; United Bank of India, Calcutta v. Abhijit Tea Company Pvt. Ltd. and Union of India v.

Delhi High Court Bar

Association .

Submission on behalf of Centurion Bank, Respondent No. 57 :

6. Mr. Sudipto Sarkar, learned counsel, appeared on behalf of the respondent No. 57, Centurion Bank Limited.

He pointed out that the Bank Guarantees were signed by four signatories. There would be a verification for

the first time. It is not necessary to verify subsequently. In any event, each LC was verified and confirmed.

His client had taken proper care. Out of 34 LCs, 17 have since been honoured. He also contended that

negotiating bankers cannot be prevented from realising out of pocket fund. No allegation of fraud has been

alleged against respondent No. 57. In any event the claim being a claim, which can be compensated in money,

injunction does not lie. He relied upon Allahabad Bank v. Canara Bank (AIR 2000 SC 1535) (supra); All

India Tea Trading Company Limited v. United Bank of India, ALP 65/97 disposed of on 17th of January,

2001 (reported in 2001 (2) Bank CLR 430). The Circulars of SBI are not binding on respondent No. 57.

Employer is bound by the action of its employee having ostensible authority. He relied on Freeman &

Lockyer v. Buckhurst Park Properties (Mangal) Limited, (1964) 1 Al ER 630. He also relied on Egyptian

International Foreign Company v. Soplex Wholesale Suppliers & PS. Refson & Company. (1985) 2 Loyds

Rep 36, Uxbridge Permanent Benefit Building Society v. Pickard, (1939) 2 All ER 344. He also relied on

Raymond Jack Documentary Credits, 2nd Edition, page 136, Paragraph 7-8 and Article 11(d) UCP 10(b)(i).

He also relied on Law of Bankers Commercial Credit by Richard King, 8th Edition, Article 14(a), 10(b) with

regard to payment and acceptance by draft. He has also elaborated his submission with reference to the

pleadings as well as State Bank Circulars.

6.1. He has also taken the ground of maintainability of the suit in view of filing of a proceeding before the

DRT for recovering the same amount since been sought to be injuncted. The claim made in the suit can very

well be pleaded as counter claim before the DRT.




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Submission of behalf of Federal Bank, Respondent No. 56 :

7. Mr. Pratik Prakash Banerjee, learned counsel appeared on behalf of the respondent No. 56, Federal Bank

Limited. He contended that his client had dealing with Sundarban Seafood Products, against whom there is no

allegation of fraud. He has also made his submission as was made by Mr. Rao. He relied on Hindustan

Laminators Private Limited v. Central Bank of India, AIR 1998 Calcutta 300 : 1998 (2) Cal HN 473;

Hindustan Laminators Private Limited v. Central Bank of India, ; United Bank of India v. Abhijit Tea

Company,

. He also relied on ONGC v. Collector, Central Excise, 1992 Supp (2) SCC 432 and ONGC v. Collector of

Central Excise, 1995 Supp (4) SCC 541. He had also referred to Section 41 of the Specific Relief Act.

According to him, defence in the nature of counter claim is also a subject matter to DRT. Ostensible authority

of employee, if disputed, will not affect third party liability. (Morgan Stanley, (supra)).

Submission on behalf of Respondents No. 46, 47 and 48 :

8. Mr. Sil, representing the respondents No. 46, 47 and 48, supported the other Counsel for the defendants and

adopted their submission. However, he confined himself with regard to the alleged fraud and sought to defend

the respondent Nos. 46, 47 and 48. It would not be necessary now to deal with the same again, since it wouldbe an exercise of unnecessary repetition.

Submission on behalf of Madhumita Group of Companies :

9. Mr. Aninda Mitra, learned counsel appearing on behalf of Madhumita Group of Industries, had addressed

the Court on merit, particularly, with regard to the alleged fraud as against his clients. We are not concerned

with the same at this stage. He had also dealt with the question of maintainability of the suit before this Court.

He contended that the judgment on admission is asked for in respect of an amount against LCs, which the

plaintiff SBI has not paid. He relied on various documents disclosed in the plaint and the petition to

substantiate his contention that the suit is a suit primarily for recovery of money, which can be maintained

only before the DRT. He had also cited some decisions and had elaborated his submission, which are virtuallyrepetition of the submissions made by Mr. Raja Sekhar and Mr. Chakrabarty. However, his eloquence had put

a different dimension in the same submission, which need no repetition.

Reply on behalf of the plaintiff/petitioners :

10. Mr. Depankar Ghosh relied on Ruben & Ladenburg v. Great Fingal Consolidated, 1906 AC 439:

(1904-1907) All ER (Rep.) 461. He has also relied on Jowitts Dictionary of English Law, 2nd Edition,

Volume 1, page 817-818 where forgery was defined. He relied on Sections 463, 464, IPC Mr. Ghosh further

relied on Credit Bank Cassel Gmbh v. Schenkers Limited (1927) 1 KB 826. He further relied upon The

Secretary, Nagunery Peace Memorial Co-operative Urban Bank Limited v. Alamedu Animal, , Ellerman &

Bucknull Steamship Company v. Sha

Misrimal Banerjce, . According to him, LCs are not LCs in the eye of law. He further referred to Section 2(2)

of Sale of Goods Act and Section 2(4) as well as Polluck & Mullah, 5th Edition by R.K. Abichandani.

According to him, there are four grounds why the LCs cannot be recognized. (1) It does not mention in the LC

about shipping document. It is Calcutta to Calcutta and there was no transshipment. Accompanying

documents are not documents of title, (2) It relates to transaction prior to LC, it does not specify any shipping

document. Different persons signing as Chief Manager. There was no endorsement on bill of exchange. There

was no original document. LCs payable by issuing bank when presented with the original document. (3) The

LC is not on a proper format, which is to be strictly construed, no wider or liberal construction can be made.

SBI has cancelled all LCs which did become payable. (4) Bank has a duty to scrutinize the LC. The scrutiny is

not confined to the apparent character. Discounting back has a duty to enquire whether the document was




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genuine. He relied on The Law of Bankers Commercial Credits, 6th Edition, Page 138-9 by H.C. Gutteridge

Mourice Megrah and Tannan's Banking Law and Practice in India, Volume,

1. 20th Edition, page 716 relating to precaution by banker negotiating a bill under a Letter of Credit. He also

relied on 27 LLLR 50 (52-53) (LLoyd's List Law Reports). He also relied on United Commercial Bank v.

Bank of India, , which followed LLoyd's properttes.

According to him, bank is under a duty to scrutinize the document. It has to satisfy about the requirements. Healso addressed the Court on the extent of liability under an invalid LC. In support, he relied on Thomas

Walker v. Auber George Janes, 1865 AC LR (1) PC 50. On the question of decree on admission, Mr. H. Mitra

assisting Mr. Ghosh had relied on Uttam Singh Duggal v. UBI, , Order 8 Rule

5(1) CPC, Order 12 Rule 6, CPC.

10.1. Mr. Ghosh has contended that when fraud is involved, Civil Court is the only forum. It cannot be

decided by DRT. So is the case, if it is a question of nullity. The negotiating bank did not acquire any right

under a fraudulent document. LC is issued against shipping documents. But, in this case there was no shipping

document. He sought to distinguish the submission of Mr. M. Raja Sekhar relating to the absence of

jurisdiction of this Court by expanding Section 2(g), 17, 18, 31 and 34 of the DRT Act. According to him, inthis case it was not in course of business activity and as such it cannot go to DRT. He relied upon Keshoram

Industries & Cotton Mills Limited v. Wealth Tax Commissioner (Central), . Having regard to the

complicated questions involved and also having regard to the fact that some of the questions cannot be the

subject matter of DRT and as such a part of the cause of action cannot be shifted to DRT and the other part

cannot be tried in the Civil Court. There cannot be a bifurcation of a suit or relief. A party cannot be

compelled to seek remedies in part before one forum and the other part before any forum arising out of the

same transaction covering identical question. He sought to distinguish all the decisions cited by respective

Counsel and had further relied on UBI v. DRT, , further distinguished the provision of Specific Relief Act and

had relied on Section 31. He pointed out that the decisions with regard to LCs cited by the Counsel for the

respondents does not cover the question, which is involved in this case. Inasmuch as, in none of those casesthe validity of the LC itself was in dispute. According to him, the bank is seeking to recover money obtained

by fraud and not a debt. He relied on Bank of India v. Bijay Ramniklal Kapadia, . He has also relied upon SBI

v.

Arjun Kundnani, 2000 (1) Banking Cases 4 (Bom) (DRT). He also relied upon Section 19(6) and (1) of DRT

Act and Hallsbury Law of England, 4th Edition, Volume 42, Paragraph 409. It is a case where all the

respondents may not be parties to the DRT and it is the question of fraud, which is to be ascertained.

Therefore, DRT is not the proper forum. Mr. Ghosh pointed out that the counter claim must have some nexus

with the claim. Therefore, in the present case, the counter claim having no nexus with the claim, it cannot be

conveniently tried before the DRT and as such it cannot be transmitted therein. The question is so

complicated; it should be tried as a regular suit in a regular Court not under a summary procedure under the

DRT Act having regard to the complex nature of the case.

The scope :

11. The matter was argued in detail and all the learned Counsel had consumed much time to push through

their respective contentions. In fact, elaborate argument was advanced by the respective Counsel with regard

to the maintainability of this proceeding before this Court viz. jurisdiction of this Court. It is the primary

ground on which the said five banks have banked upon to get this application dismissed. At the same time.

Mr. Ghosh had insisted upon this point and attempted to establish that this suit is maintainable before the

Court, viz. this Court has jurisdiction. Counsel for the respective parties addressed the Court on the question

of maintainability/jurisdiction for the purpose of success of their respective contention.




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11.1. If this question is not gone into, it would not be possible to decide, as to whether the reliefs claimed in

this application could be granted or not. Since this question has been elaborately argued, there is no difficulty

in deciding this question in this application. That apart, it is the basic foundation on which the relief could be

had by the plaintiff, even on this application. Therefore, without deciding this question, this application cannot

be decided. Therefore, by consent of the parties, I propose to deal with this question first before I proceed to

decide the other question raised by Mr. Ghosh.

11.2. The other questions raised and argued elaborately on merit relating to the reliefs claimed in thisapplication, need not be gone into at this stage. Inasmuch as, if the maintainability jurisdiction is upheld, then

those questions can very well be deci ded. Let us , therefore, now examine t he question of

maintainability/jurisdiction without referring to the question of merit, except as would be necessary for the

purpose of determining this question.

The reliefs claimed :

12. In order to appreciate this situation, we may refer to the reliefs prayed for in the plaint itself and the

subject matter involved in the suit. It appears that it had claimed decree for various amounts against respective

defendants No. 1 to 57 and interest as well as for damages. It had also prayed for decree of declaration, sale as

well as a declaration that the LCs are void and a nullity and the respondent no 53 to 57 did not acquire anyright under the said LCs and a decree for delivering up and cancellation of the LCs as well as for injunction

and further declaration that the respondent No. 53 to 57 are not entitled to any payment. The cause of action

that has been alleged is limited to the series of transactions relating to issuing of LCs and its negotiation. In

fact, the entire cause of action revolves round the said LCs, which were alleged to have been void and nullity

on account of the grounds mentioned in the plaint.

Whether injunction permissible : Section 41(b) and 38(3)(b)(c) of Special Relief Act : Subordinate of Courts :

13. In aid of the above relief, the interim reliefs are being claimed. This application G.A. No. 4160 of 1998

has been made in aid of the relief prayed in the plaint. The test for granting an interim order is the question of

finding out a prima facie case. After a prima facie case is found out, the balance of convenience andinconvenience is required to be weighed with and it is to be found out as to in whose favour it tilts. Section

41(b) of the Specific Relief Act provides that there cannot be any injunction restraining a person from

instituting or prosecuting any proceeding in a Court not subordinate to that from which the injunction is

sought. But, here it is not a case, which falls under Section 41(b). The injunction restraining the respondent

Nos. 53 to 57 from proceeding with the case before the DRT, does not fall within the scope of Section 41(b)

as claimed herein. On the other hand, it is a question as to whether this Court had jurisdiction or not. If the

DRT has exclusive jurisdiction and this Court ceases to have jurisdiction, in that event, it is not a question of

granting injunction restraining the respondent Nos. 53 to 57 from proceeding with the same. But it is a case

whether this Court has jurisdiction to proceed with or not. if it has jurisdiction, in that event, it can very much

grant the injunction. If it has no jurisdiction, it cannot do so. Even if it is assumed that Section 41(b) applies,

still then DRT as such is not a Court subordinate to this Court. It does not fall within the hierarchy of the

Courts as provided in the Bengal, Agra and Assam Civil Courts Act, 1887. The Tribunal constituted under the

DRT Act is not a Court. It is a Tribunal having the trappings of a Court. A Tribunal with trappings of Court

cannot be equated with a Court as is understood from the expression "Court". A Court is a body established by

law for the administration of justice by Judges or Magistrates. This definition may include a Tribunal as well.

Inasmuch as, it is also a body constituted or established by law for administration of justice. But, when it

comes to the distinction between Court and Tribunal, then the Court as it understood is different from a

Tribunal. The word "Court", however, has not been defined anywhere in any law. Different kinds of Courts

have since been established under different laws. The hierarchy of the Court as established under Bengal,

Agra and Assam Civil Court Act are Courts in respect of which the Code of Civil Procedure is applicable and

the jurisdiction is open. Section 4 and 5 CPC also spells out Courts in the context of applicability of CPC.

Under Section 9 of CPC. all suits of civil nature are triable by a Court unless cognizance of a particular kind




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57. Similarly, the claim with regard to other defendants namely defendant No. 1 to 57 are also related to the

same transaction of LCs. The only exception that could have been pleaded and which has since been

ascertained with all vigor is that those were fraudulent and that there is a prayer that the LCs be delivered of

and be cancelled. This is also a relief with regard to the LC, which is the pivot or foundation on which the

entire relief rests.

14.1. It is contended on behalf of the plaintiff that unless it is a debt, it cannot come within the purview of the

DRT Act. According to Mt. Ghosh, the Relief sought for is not a debt within the meaning of Section 2(g) ofthe DRT Act.

14.2. Admittedly, proceedings before the DRT in respect of self-same cause of action have been initiated by

the respondent No. 53 to 57. It is not in dispute that the subject matter of the said proceedings before the DRT

is the subject matter before this Court in the present proceedings. Let us now, therefore, examine the meaning

and extent of the expression "debt" used in Section 2(g) as amended and as to what extent the said expression

would cover the subject matter of this suit. We may also examine even if it is contended that the subject

matter of this suit is a counter claim to that of the claim made by the defendant No. 53 to 57 before the DRT,

still then it is a subject matter over which DRT has exclusive jurisdiction and this Court ceases to have

jurisdiction as was held in United Bank of India v. Abhijit Tea Company . Mr. Ghosh had not disputed this

proposition. He had sought to distinguish this case on the ground that the relief sought for in the present suit,does not confirm to the distinction of counter claim, which could be conveniently tried by the DRT. He sought

to distinguish on the ground that the counter claim must have nexus with the claim involved in the suit.

According to him, the relief sought for in this suit, has no nexus with that pending before DRT, particularly, in

respect of the declarations sought for. In Aninda Saha v. Amal Saha, 2001 AIHC 2956, such a question

cropped up. In the said decision I have taken the view that the counter claim must have some relation or nexus

with the claim of plaintiff, it cannot be something completely foreign to the claim of the plaintiff, having no

nexus with the subject matter involved in the suit. Counter claim is a claim counter to the claim of the plaintiff

related to the suit in between the parties and the subject matter involved. Counter claim cannot travel beyond

the scope and limit of the suit with which it is concerned. It cannot bring about something, which is

completely foreign to the suit. Similar view was taken in Ram Prayare Singh v. 1st Additional District Judge,

Gorakhpur, (1997) 3 All WC 781 : 1997 (30) All LR 279 and Sudhir Kumar Awadhawi v. Fourth AdditionalDistrict Judge, Sajahanpur, (1996) 28 All LR 209.

14.3. Let us now examine, having regard to the facts and circumstances of this case, as to how far the

contention raised by Mr. Ghosh can be acceded to as discussed above. The claims and reliefs sought for in the

suit relates to the same LCs. On the basis of such LCs, the respondent No. 53 to 57 are seeking the relief

against the SBI, SBI is also seeking the relief against respondents 53 to 57 in respect of the same LCs.

denying its liability thereunder. In fact, it appears that the respondents No. 53 to 57 are seeking to enforce the

liability of SBI under the LCs. Such liability is being sought to be denied by SBI in the present suit and seeks

to prevent the respondent No. 53 to 57 from enforcing such liability. Thus, it appears that both the parties have

based or founded their respective claims on the basis of self-same series of cause of action arising out of the

different LCs, subject matter of this suit. While the defendants No. 53 to 57 are ascertaining their right on the

basis of the LCs and seeks to enforce it against the SBI, the SBI is seeking to deny its liability and prevent the

defendant No. 53 to 57 from enforcing the same. It is not in dispute that one or two other reliefs may not be

similar, but all the reliefs are based on the same cause of action. Therefore, even if the claim in this suit cannot

be treated as a country claim, still then it cannot be overlooked that is has definitely nexus with the claim of

the Defendant No. 53 to 57 and runs counter to the claim of the defendant Nos. 53 to 57 in the respective

proceedings before the DRT and it is a very close nexus. In fact, the reliefs claimed before the DRT by the

defendant No. 53 to 57 by their respective proceedings against SBI and those claimed by SBI in this suit

against the defendant Nos. 53 to 57 arises out of the same cause of action and are so inter-wined and

interrelated that there is no scope of segregating them and discuss the same as having no nexus with the claim

of each other. Therefore, this proposition cannot be acceded to.




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14.4. In United Bank of India v. Debts Recovery Tribunal. , it was held that the debt has to be given the

widest amplitude to mean any liability which is alleged as due from any person by a bank during the course of

any business activity undertaken by the bank whether payable under a decree or order of any Court, whether

secured or unsecured either in cash or otherwise and legally recoverable on the date of the application. In

Keshoram Industries & Cotton Mills Limited v. Commissioner of Wealth Tax (Central), , it was held that the

liability to pay income-tax and super tax on the income of the accounting year was held to be a debt within the

meaning of Section 2(m) of the Wealth Tax Act. However, this would not be of much help since Section 2(g)

of DRT Act defines debt in a different manner, though, it might have a persuading value for interpreting theword debt in general terms. On the face of the pleadings, it appears that it is a debt and legally recoverable. If

it is disputed by the plaintiff that has to be decided by the Tribunal, which is within its scope on the simple

distinction that It is not legally recoverable. If any dispute is so raised, the provisions made in the DRT Act

cannot be made redundant. In the garb of such a distinction, the Court can assume jurisdiction, when its

jurisdiction is specifically and expressly barred by reason of Section 18 of the DRT Act and exclusive

conferment of jurisdiction on the DRT with regard thereto.

Can allegation of fraud make a distinction? :

15. Mr. Ghosh has claimed that the debt alleged is a fraudulent one. As such it cannot come within the

definition of debt. He had also contended that SBI is not responsible or liable for the LC signed by itsemployees, who were not authorised to do so, if such LCs have been issued by persons without authority, it

cannot be enforced. He relied on Ruben & Ladenburg v. Great Flngal Consolidated 1906 AC 439 (HL) :

1904-1907 All ER (Rep.) 461; Credit Bank Cassel Gmbu v. Schenkers Limited (1927) 1 KB 826-1927 All;

ER (Rep) 421 at page 429-430; South London Greyhound Race Course Limited v. Wake, 1930 All ER (Rep)

496; The Secretary, Nagunery Peace Memorial Co-operative Urban Bank Limited v. Alamedu Ammal, and

Ellorman & Bucknull Steamship Company v. Sha Misrimal Bherajee, in support of his contentions.

15.1. Before we enter into other questions, we may now examine whether a fraudulent debt can be enforced.

In Black's Law Dictionary, 6th Edition page 403, fraudulent debt has been described. This was held to be

equally a debt in Athmanathaswami Devasthanam v. K. Gopalaswami Ayyangar, , Mr. Raja Sekhar Rao had

addressed the

Court to show no fraud has been pleaded and the transaction cannot be said to be outcome of fraud. It is not

necessary to go into those questions. In Allahabad Bank v. Canara Bank. AIR 2000 SC 1535, 20-23, it was

held that this Court has no jurisdiction to entertain a suit in relation to a debt and such debt includes fraudulent

debt.

15.2. In Athmanathaswami Devasthanam (supra), the

Apex Court had held where the Civil Court does not have jurisdiction over the subject matter of the suit, it

cannot decide any question on merits. It can simply decide question of jurisdiction and return the plaint for

presentation before the proper Court if it comes to the conclusion that it has no jurisdiction. Therefore, the

preliminary duty of this Court is first to decide whether it has Jurisdiction to enter into the merits of the case.

In Virgo Steel v. Bank of Rajasthan Limited, AIR 1998 Bom 82 on identical points, it was held that in a case

where LC has been negotiated and negotiating bank obtained confirmation before accepting the same, the

liability of the issuing bank cannot be denied on the ground that such confirmation and issuing of the LC was

a outcome of fraud by some officers of the issuing bank. This decision was discussed in Federal Bank Limited

v. V. M. Jog Engineering by the Apex Court, which was in

respectful agreement with the said judgment. However, whether the liability can be denied or not need not be

gone into this case since it relates to the merit of the case between the parties.




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before DRT. Admittedly, each of these respondent No. 53 to 57 and SBI are either banks or financial

institutions. The LCs were issued during the course of business activity undertaken by the SBI, Even if it is

said that the LCs were issued fraudulently and SBI may not have undertaken this exercise during the course of

its business, but it cannot be denied that the responds No. 53 to 57 had undertaken this exercise during the

course of its business activities. Admittedly, such business activities are permissible by virtue of the

respective law in force, governing the respective business activities of the respective banks and financial

institutions. Therefore, the ground that the LCs were fraudulent and were not issued during the course of

business activities of SBI, cannot be sustained to oust the jurisdiction of DRT and create jurisdiction of thisCourt when it had none by reason of Section 18. The dues or liabilities is definitely payable in cash. The

decree is also asked for in terms of money either liquidated or un-liquidated as the ease may be, the debt

includes cash or otherwise. Expression "cash" includes both liquidated and un-liquidated cash. The expression

"cash or otherwise" is of wide amplitude. It is immaterial whether it is secured or unsecured. The liability is

legally recoverable when it is not barred by limitation. Nowhere limitation is being pleaded. Even if it is to be

pleaded, it is to be pleaded before the DRT, since this Court is not supposed to enter into the merits of the

case, until it comes to a finding that it has jurisdiction. A finding with regard to limitation is also a finding

with regard to merits of the case, which cannot be undertaken, unless the Court has jurisdiction over the

subject-matter.

15.9 SBI had been carrying on business with Madhumita Group of Industries. It had issued the LCs during thecourse of its business activities. It is alleged that the officers, who had issued the LCs were not authorized

under the Rules and Regulations of SBI to sign the LCs. This does not take the issuing of the LCs out of the

course of its business activities. Whether such LCs are legally enforceable or not is a question dependant on

facts, according to the principles of law as enunciated in Cotton Corporation (supra), Smt. Shyama Devi

(supra), V. M. Jog Engineering Limited

(supra). Virgo Steel (AIR 1998 Bom 82) (supra). These are matters on merit, which cannot be gone into until

it is found that this Court has jurisdiction.

15.10 The definition of debt was amended by Recovery of Debts Due to Banks and Financial Institutions

(Amendment) Act, 2000 (Act 1 of 2000). By reason of such amendment, the opening sentence is modified tothe extent that it means a liability (inclusive of interest), which is claimed as due from any person by a bank

etc. At the end, it had included an award of arbitration or under a mortgage. Thus, it had widened the scope in

case of a mortgage. It is open to plead that there was no mortgage and that the mortgage was fraudulent or

otherwise it might also include a defence by way of counter clam that the deed of mortgage may be delivered

of and be cancelled. Therefore, none of the prayers made in this suit, can be said to be outside the scope of the

said DRT Act.

Whether this Court has jurisdiction :--

16. Mr. Ghosh has also referred to the provisions of Section 2(2) of the Sale of Goods Act, to point out what

constitute a document of title. He has also referred to Section 2(4) of the said Act as well as page 13 of

Pollock & Mullah, 5th Edition by R. K, Abichandani. He has also pointed out to various grounds as to when a

LC cannot be recognized and that before making payment or negotiating the LC, the negotiating bank has a

responsibility to scrutinize the appearances and the character of the LC and has to take reasonable care. He

has raised various other questions and contentions with regard to the validity of the LCs on various grounds

citing various decisions. But all these questions are not necessary to be gone into within the scope and ambit

of this case until it is found out that this suit is maintainable before this Court. This question may be necessary

to be gone into for the purpose of finding out a prima facie case. But before we find out a prima facie case, we

are to find out whether this Court can go into all these questions at all. In other words, whether this Court has

jurisdiction over the subject-matter. It is only if the Court has jurisdiction, then only it can examine whether

there is a prima facie or not and then to grant injunction, If the Court has no jurisdiction, it cannot entertain

the suit. In such a case it is also equally incompetent to grant an interim order. In these circumstances, let us




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now address ourselves to the question of jurisdiction of this Court having regard to the provisions contained in

the DRT Act.

16.1 The statement and object and reasons for DRT Act clearly expresses that the matters, which were being

sought to be enforced through original Courts are now to be decided and adjudicated upon by the Tribunal

constituted under the said Act, it has not made any reservation. It has neither limited the jurisdiction of the

Tribunal Section 17, which has created exclusive jurisdiction, in no way limits the jurisdiction or power in

relation to the matters in respect of which jurisdiction is conferred on the Tribunal constituted under DRT Act.It expressly provides the Jurisdiction, powers and authority to entertain and decide application by banks and

financial institutions for recovery of debts due to such banks and financial institutions. Section 17 has to be

read inconsonance with Section 2(g) defining debt, as has been held in United Bank, (supra). This

decision was given at a point of time when the definition was not amended by Act 1 of 2000. Even on the

basis of the un-amended definition, if widest amplitude could be conceived of, then there is no scope of

narrowing the amplitude after the amendment was brought about. The decree of the amplitude which was

widest, has been added to and further winded to remove the doubts, which as expressed in this case by Mr.

Ghosh, that the relief with regard to delivery of LCs and cancellation thereof can also be brought within the

scope of the determination/adjudication contemplated under Section 17 DRT Act, since it is also a liability

claimed in respect of a debt.

16.2 The legislature was conscious while conferring jurisdiction under Section 17 DRT Act on the Tribunal

that it covers all kinds of jurisdiction that was or used to be exercised by any Court or other authority

including the High Court except under Article 226 and 227 of the Constitution of India. It is apparent from the

bar of jurisdiction created by the legislature, immediately following Section 17. In order to make the

jurisdiction exclusive. Section 17 and 18 have been incorporated. The jurisdiction conferred on the Tribunal is

exclusive and the jurisdiction barred under Section 18 is equally exclusive, as it appears from the text of the

two Sections. There is no scope of any ambiguity or second meaning so far as these two Sections when read

together, are 'concerned. Section 18 excludes the jurisdiction with effect from the appointed day of all Courts

or other authorities including the High Court and the Supreme Court, saving the jurisdiction under Article 226

and 227 of the Constitution of India in relation to matters specified in Section 17. Thus, the jurisdiction of theHigh Court in respect of matter covered under Section 17 namely the Original and the Appellate Jurisdiction

of the High Court are exclusively barred by Section 18 as already observed.

16.3 In this case the High Court would be exercising the jurisdiction of the Tribunal if it proceeds to

adjudicate the claim of SBI and as such it cannot do so. We may also refer to Section 31 DRT Act, which

provides for transfer of suits and other proceedings pending before any Court immediately before the date of

establishment of a Tribunal under the Act in respect of cause of action, which, otherwise would have been

triable by Tribunal, if it had arisen after the establishment of the tribunal within the jurisdiction of such

Tribunal, however, it had excepted the appeals pending before any Court. The provisions of transfer are

statutory in nature. It is a statutory transfer. Inasmuch as, it does not require any order by the Court or any

overt action. The transfer was complete by reason of Section 31. Upon such transfer being effective, the

responsibility of the Court before which the suit or proceedings are pending was to forward the records or the

suit of other proceedings to the Tribunal, Upon receipt of such records, the Tribunal is to proceed with the suit

or proceeding in the same manner as provided in Section 19. Section 31 includes suits or proceedings without

creating any distinction with regard to declaration or otherwise and as such it cannot exclude a suit of the

nature of the present one.

16.4 Section 34 DRT Act provides for an overriding effect. The provisions of DRT Act shall have effect

notwithstanding anything inconsistent contained in any law for the time being in force. Mr. Ghosh has sought

to contend that there was nothing inconsistent with the DRT Act and as such there is no scope for DRT Act to

prevail over the jurisdiction of this Court, Such a contention is devoid of any merit. He has sought to deal with

he expression "notwithstanding" and contended that it had different implications in different context. Having




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regard to the facts and circumstances of the present case, we are not required to determine the same. The

overriding effect is irrespective of inconsistent provisions contained in any other law. If there is consistency,

then there is no conflict and as such the overriding effect is complete. Only in case of inconsistency, the

question may arise as to which one will prevail.

16.5 It might be determined having regard to Article 254 of the Constitution of India. But when an Act is

given overriding effect, Article 254 has no manner of application. Even if the case does not come within the

scope and ambit of Article 254, still then when a special statute dealing with special subject in a special fieldprevails over the general statute. When the legislature incorporates an overriding effect, it intends that the

provisions of such special statute shall be effective even though it might be in conflict with any other statute.

Virtually, by reason of Section 34 DRT Act, the curtailment of jurisdiction provided under Section 9 of CPC

and Clause 12 of the Letters Patent has been taken care of. The legislature did not stop in enacting Section 17

and 18 DRT Act respectively, creating exclusive jurisdiction and barring jurisdiction, but had proceeded to

incorporate Section 31 for transferring all cases pending and Section 34 giving overriding effect to all these

provisions under the DRT Act. Thus, the intention is clear and unambiguous. Therefore, it has to be respected

and given its due weight tat it deserves. If we read Section 17 and 18 in the light of Section 2(g) along with

Section 31 and 34 together, then the position becomes absolutely clear. The legislature had not only once but

had repeatedly, in a guarded manner, expressed its intention in clear and unequivocal language providing a

protective umbrella to make its intention explicit, that such matters are to be adjudicated upon by the Tribunaland not by Courts and that such intention of the legislature would be supreme and that the DRT Act would

govern the field in relation to the subject-matter with which DRT Act deals and all other law has to yield to it.

16.6 In Allahabad Bank v. Canara Bank, AIR 2000 SC 1535, the Apex Court had held that the jurisdiction of

the Tribunal in regard to adjudication is exclusive, the Act requires the Tribunal alone to decide applications

for recovery of debts due to banks or financial institutions. The provisions of Section 17 and 18 of DRT Act.

are exclusive so far as the question of adjudication of the liability within the scope of the Act. It had held that

while the liabilities adjudicated under Section 17. the banks and financial institutions are not supposed to go

to the Civil Court or the Company Court or some other authority outside the Act for the same relief, which

could be had under Section 17. It had further held that the overriding provision provided in Section 34 is to

the extent of consistent with other laws. But the prescription of an exclusive Tribunal both for adjudicationand execution is a procedure clearly inconsistent with realization of the debt in any other manner. The

adjudication of liability is within the exclusive jurisdiction of the Tribunal. No other Court or authority much

less the Civil Court or the Company Court can go into the said question relating to such liability except as

provided in DRT Act.

Application of the principle in the present context :

17. Having regard to the discussion made above, we may now examine the scope of the plaint, so as to apply

the principle in the present context. The frame of the suit is capable of being segregated in three parts. The

first part relates to the decree asked for by the bank against the borrower and its associates, the defendants No.

1 to 44. The second part is related to the bank's claim as against its own officers, defendants No. 45 to 52. The

third part relates to the transaction between the plaintiff and the negotiating banks, defendants No. 53 to 57.

All these three parts are alleged to be interrelated. We may now examine whether any of these parts is capable

of being segregated and forming independent cause of action.

17.1 The claim as against defendants No. 1 to 44 and 45 to 52 are alleged to be on the basis of fraud and

collusion perpetrated in between the defendants No. 1 to 44 on the one hand and the plaintiff's officials,

defendants No. 45 to 52 on the other, So far as the case related to the second part, definitely is not part of the

business activity of the plaintiffs. The second part cannot be brought within the purview of the jurisdiction of

DRT. The first part is closely inter-wined and interrelated with the activities perpetrated through the

transaction based on, the fraud and collusion in between the defendants No. 45 to 52 and the defendants No. 1

to 44. These two parts cannot be segregated to form independent cause of action.




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17.2 In Allahabad Bank, AIR 2000 SC 1535 (supra), the Apex Court had pointed out that one part of the suit

cannot be maintained in one forum and the other part cannot be sent to another forum. Since the second part

cannot be brought within the purview of the DRT Act and it is so interrelated with the first part that these two

parts cannot be segregated. As such the action in relation to these two parts can be maintained in a Court

where the Court has jurisdiction to entertain both the parts, namely, the Civil Court.

17.3 Such a question has since been dealt with in an unreported decision in A.P.O. No. 57 and 58 of 2001,

Indian Dank v. ABS Marine Products Pvt. Ltd., disposed of on 10th May, 2002 by Their Lordships theHon'ble Samaresh Banerjea and Ms. Indira Banerjee, JJ. This decision was cited and brought t the notice of

the Court, after the judgment was reserved, by Mr. Hirak, Mitra for the plaintiff upon notice. In the said

decision, a distinction has been made in respect of a sit filed before this Court prior to the date of institution of

the proceeding before the DRT by the bank in which the borrower had claimed damages. According to Mr.

Mitra, the relief prayed for was something else than a debt and has been held not to be a counter claim as in

the present case. Relying on the facts of this case, he points out that here also it is not a debt, which is being

sought to be recovered by SBI. On the other hand, it is seeking to enforce some other rights and is seeking

some reliefs, which are outside the purview of the DRT Act, as in the case cited (unreported) by him. Mr. Raja

Sekhar, however, points out that so far as the defendants No. 53 to 57 are concerned, there are distinctive

features, which make it clear from the fact of the case cited (unreported) and as such the ratio cannot be

attracted.

17.4 The plaint hereof contains different kinds of prayers. In the first group, decree for respective liquidated

sum been asked for in prayers (a) to (r), against the defendants No. 1 to 44 jointly and severely or

respectively, as the case may be being the constituents or the borrower of SBI. Prayer (s) is asked for against

the defendant No. 45 to 52, who are the officers of the bank itself. This part of the decree would not come

within the purview of the DRT Act. Prayers made in (1) to (y) are related to the LCs in between SBI and the

negotiating banks being defendant No. 53 to 57 respectively, jointly and severely. Whereas prayer (z) is for

interest on the respective claims, while prayer (aa) relates to loss or damages and (bb) relates to ascertainment

of respective liability. Prayer (cc) is for enforcement of the security and prayer (dd) is for sale and realization

out of such securities. These can be maintained as against the prayer (a) to (s) independent of prayers (t) to

(y). Prayer (ee) is for declaration that the LCs were void and prayer (ff) was for delivering up and cancellationof the LCs. Prayer (hh) is for declaration that the defendants NO. 53 to 57 were not entitled to payment under

the LCs, and (ii) for realization of amounts collected by the defendants No. 53 to 57 pursuant to such LCs,

Prayer (gg) seeks to restrain the defendants No. 53 to 57 from claiming any money on account of the LCs. ;

17.5 The distincting features may be enumerated thus : (1) the suit was filed by a borrower against the bank

claiming damages on the ground that the bank had failed to advance the money It had agreed to; (2) that the

claim in the said suit could not be a counter-claim in the suit before the DRT; (3) the claim of the borrower

was held not to come within the definition of debt. Whereas, in the present case, so far as the defendants No.

53 to 57 (third part) are concerned, (1) it is between two banks on the basis of the same cause of action in

respect of transaction arising during the course of the business activity undertaken by the banks; (2) as

discussed above, the subject-matter has close nexus between the two respective claims and can form a

counter-claim as discussed hereafter in each other's case: (3) it appears to be a debt within the definition

defined in Section 2(g) of the DRT Act. In these circumstances, the said ratio decided in the said decision

(unreported) cannot be attracted in the present case, so far as the third part is concerned.

17.6 Thus, it appears that so far as the defendant No. 1 to 52 are concerned, it is alleged to have been

fraudulently transacted by the borrowers. So far as the amount claimed against the employees of SBI are

concerned, those were alleged to be fradulently transacted. This may not be said to have been done during the

business activity of the bank by those employees out of which the borrowers had taken advantage. Whereas

the negotiating banks are not alleged to be parties to the fraud. However, it is alleged that they should have

taken proper care. But they had been claiming their interest in respect of debts arising out of transaction

during business activity of the bank. The incorporation of the reliefs relating to damages or certain




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declarations or delivering up and cancellation of LCs do not eclipse the jurisdiction of DRT in respect of the

third part. Thus, the prayers (t) to (y) and (ee) to (ii) do not distinguish the suit from one that can be

entertained by DRT. The distinction that is being made in the decision cited (unreported) may apply to the

reliefs made in prayer (a) to (s) and (z) to (dd) and (jj) to (oo), claimed in this suit.

17.7 The distinctive feature as noted in the said decision squarely fits in the second part, namely, in respect of

the cause of action as against the defendants No. 45 to 52. Similarly, the first part is inseparable, inter-wined

and interrelated and dependent on the alleged fraud and collusion in between these two groups of defendants,the suit cannot be tried without the other. The action of the respondents No. 45 to 53 cannot be said to have

been undertaken during the course of business activity by the bank. The fraudulent action undertaken by the

defendants No. 45 to 53 are completely different from banking activities. The collusion and fraud alleged in

between these two groups of defendants, therefore, are distinct and separate from the third part of the suit.

These first and second parts cannot be tried without the other and the second part being completely outside the

scope of the jurisdiction of the DRT Act, these two parts cannot be brought within the purview of the DRT.

That apart, the claim against the defendants No. 1 to 44 is based on an activity which is something the

plaintiff had never intended to undertake during the course of business and which was brought about by some

activities which are not permissible within the banking activities. However, the observations with regard to

the first and second part are tentative for the purpose of determining this question. Inasmuch as, such a

decision can be had only upon an issue framed as to the maintainability/jurisdiction of the Court and isdetermined and a full-fledged hearing. Such issue can either be determined as preliminary or as a main issue

or as an issue in the suit itself or simultaneously or one after the other or at the same time as the Court may

deem fit and proper.

17.8 But, so far as the third part is concerned, there cannot be any iota of doubt. It is apparent on the face of

the averment made in the plaint for which no other material is necessary to be looked into. Neither any

evidence is required to arrive at the necessary conclusion. On the face of the averment made in the plaint, the

reliefs claimed in prayers (t) to (y) and (ee) to (ii) ex facie come within the definition of debt and jurisdiction

of DRT. These claims are also overlapping the claims as against the defendants No. 1 to 44. Even if the

plaintiff is unsuccessful in respect of these prayers, still then the plaintiff may get its relief from borrower or

its officers. Be that as it may, it is not a question to be looked into by this Court when the jurisdiction isotherwise barred expressly,

17.9 In the plaint and the application, fraud, corruption, deceitful action has been pleaded, but the same related

to the defendants No. 1 to 44, which may not be debt within the meaning of Section 2(g) of the DRT Act. It is

not an exclusive act of the employees of SBI. It has been alleged to be in connivance with the defendants No.

1 to 44, who are, admittedly, the borrowers or constituents of SBI.

17.10 Thus, the recovery sought to be made as against the defendants No. 53 to 57 is debt within the meaning

of Section 2(g) of the DRT Act. This Court cannot assume jurisdiction in respect of the third part of the suit.

Whether there was fraud or not is not necessary to be gone into within the scope of this application. In order to

decide this application, the only question that is to be found out is the existence of prima facie case. The

question of jurisdiction is one of the questions, which weighs with the Court to maintain a prayer for

injunction, as against a particular party. If the Court cannot assume jurisdiction, it cannot grant interim order.

17.11 In the present case, there are distinctive prayers against different defendants. Having regard to the facts

and circumstances of the case, the injunction relating to the proceedings before the DRT and that, which

affects the defendant No. 53 to 57 therefore, cannot be sustained.

18. Mr. Ghosh pointed out relying on Section 19(6) and (9) of the DRT Act and Order 8, Rule 6 that a counter

claim cannot be brought within the purview of the suit unless it can be conveniently decided. In fact, a counter

claim is a defence to a suit. If the counter claim is maintainable, in that event, it has to be decided in the suit

itself. Simple assertion that it is an independent suit will not take it away from being a counter claim. The test




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and creates a special forum for settlement of such matters, in such cases it is in its wisdom the legislature has

provided for such bar. Such wisdom cannot be questioned by Courts. Neither the Court is concerned to find

out the consequences. It has to leave the matter at that. It is not for the Court to determine the liability or

incapacity of the DRT. Neither the Court is concerned with the same. Nor the Court can presume incapacity or

inability. Such a view was taken by us in Smt. Sisir Kana Guha v. The Ayakar Grihanirman Samabaya Samity

Limited, F.M.A.T. No. 3724 of 1999 disposed of on 9th July, 2002 (reported in AIR 2002 Cal 247), relying on

Anjan Choudhury v. Anandaneer Co-operative Registered Housing Society, .

19.2 However, prima facie, so far as the reliefs claimed against defendants No. 1 to 52 as discussed above,

cannot be decided in a summary procedure and the second part being incapable of segregation from the first

part and the first part being incapable of determination without the second part, this may not come within the

purview of the DRT Act and at the present moment, there was no such proceedings as against these

defendants brought by the plaintiff in the DRT. Therefore, it can be proceeded with before this Court but that

too subject to the decision of the issue as to maintainability and jurisdiction as discussed above.

Conclusion :

20. In view of the discussion above, it appears that this Court has no jurisdiction to entertain the suit in

relation to the third part, namely, as against the defendants No. 53 to 57. If there is no jurisdiction to entertainthe suit, the Court cannot assume jurisdiction to entertain the prayer for interim relief. Therefore, none of the

reliefs claimed in this application as against the defendants No. 53 to 57 can be granted by this Court.

Therefore, the interim order staying the proceeding before the DRT initiated by the defendants No. 53 to 57

cannot be sustained.

20.1 Until the question of maintainability of jurisdiction so far as the suit relates to the first and second part is

concerned, is decided, prima facie, in my view that the suit is maintainable to the extent before this Court,

subject, however, to the decision on the issue of maintainability and jurisdiction in relation to the first and

second part of the suit. Therefore, prima facie it appears that the reliefs sought for as against the defendants

No. 1 to 44 can very much be maintained.

20.2 Admittedly, the defendants No. 1 to 44 are borrowers. Prima facie, it appears that they had taken

advantage of the action of the respondents NO. 45 to 52. It further appears that the defendants No. 45 to 52 is

as apparent from the records had acted beyond their official capacity and in infraction of their duties and

responsibilities. Prima facie, it appears that the action undertaken by those defendants No. 45 to 52 are

fraudulent and collusive with which connivance of the defendants No. 1 to 44 cannot be ruled out. When a

party takes advantage of some fraudulent activities, collusion between each other is presumed. On the basis of

the materials as placed before this Court, it appears to be clear that there were some nexus in between the

defendants No. 45 to 52 at the one hand and the defendants No. 1 to 44 on the other. Thus, the reliefs claimed

in this application as against these defendants related to the first and second part can very well be maintained.

Order :

21. In the result, this application succeeds in part. The order in terms of prayers (a) (b) and (c) granted is

hereby confirmed. Let there be an order in terms of prayers (e), (j) and (k) so far s the defendants No. 1 to 52

are concerned. The prayers (f), (g), (h), (i) and (j) are hereby rejected. The interim order granting stay of

further proceeding before the DRT initiated by the defendants No. 53 to 57 is hereby vacated. The said

defendants shall be entitled to proceed with the same. The plaintiff may file its written statement or

counter-claim in the respective suits before the; DRT as it may be advised within two months from this date.

21.1 So far as prayer (d) is concerned, the same to be placed before the appropriate Court for appropriate

orders. Inasmuch as, during the course of hearing none of the Counsel, in fact, had stressed on this prayer. The

attention of the Court was not drawn to the materials on which the relief under prayer 9(d) could be decided.




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This application with regard to this relief, however, remains open. The rest of the reliefs claimed in this

application are, thus, disposed of.

21.2 The question with regard to jurisdiction of this Court and maintainability of the suit as against the

defendants No. 53 to 57 is concerned, is decided finally. The discussion made hereinabove in relation to

defendants No. 1 to 52 are tentative and for the purpose of deciding this application. The question of

jur isdiction and maintainability of the suit as against the defendants No. 1 to 52 is kept, open for being

decided as an issue in the suit itself. Such issue may be decided either as preliminary issue or along with allother issues or simultaneously or one after the other, as the case may be, according to the discretion of the

Court.

21.3 The learned Presiding Officer of DRT shall be free to proceed with the proceeding before it according to

its own wisdom and discretion without being influenced by any observation made in this order, except those

with regard to the question of jurisdiction so far as the proceedings before the DRT by the defendants No. 53

to 57 are concerned.

21.4 With this observation, this application is disposed of in respect of all the reliefs claimed excepting prayer

(d), which may be set down before the appropriate Court. This matter shall not be treated as heard-in-part by

this Court any further.


state bank of india vs madhumita construction (pvt.) ... on 16 july, 2002

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