1989 (12) TMI 271 - HC - Companies Law

Certain provisions as to guarantee in respect of debt or other obligation Contracts in evasion of Act

Summary

Issues Involved:

1. Execution of a foreign decree in India.
2. Violation of natural justice principles.
3. Judgment on merits.
4. Compliance with the Foreign Exchange Regulation Act, 1973.

Detailed Analysis:

1. Execution of a Foreign Decree in India:

The plaintiff-bank sought to execute a decree from the Supreme Court of Hong Kong against the defendant in Bombay under Order 21, Rule 22 of the Code of Civil Procedure (CPC). The decree was filed under Section 44A of the CPC, which allows execution of decrees from superior courts of reciprocating territories as if they were passed by a District Court in India. Hong Kong is recognized as a reciprocating territory under Section 44A by a notification dated November 18, 1968.

2. Violation of Natural Justice Principles:

The defendant argued that the decree violated Section 13(b) of the CPC, claiming that the proceedings in Hong Kong were opposed to natural justice as he was denied an opportunity to defend the suit on merits. However, the court found no substance in this contention. The defendant had engaged solicitors, obtained unconditional leave to defend, and actively participated in the proceedings. The court noted that the defendant had ample opportunity to defend the suit but chose not to appear at the final hearing. Therefore, the court concluded that there was no violation of natural justice principles.

3. Judgment on Merits:

The defendant contended that the foreign judgment was not given on the merits of the case, violating Section 13(b) of the CPC. The court examined whether the Hong Kong judgment was on merits. It referred to several precedents, including D.T. Keymer v. P. Visvanathan Reddi, AIR 1916 PC 121, which held that a judgment given without investigating the merits is not considered a judgment on merits. The court observed that the Hong Kong court's judgment did not indicate any examination of the defendant's contentions or evidence. The judgment was based on the defendant's failure to appear and the plaintiff's pleadings. Therefore, the court concluded that the Hong Kong judgment was not on merits and refused leave to execute the decree under Order 21, Rule 22 of the CPC.

4. Compliance with the Foreign Exchange Regulation Act, 1973:

The defendant argued that the judgment sustained a claim founded on a breach of the Foreign Exchange Regulation Act, 1973, specifically Section 26(6), which prohibits residents in India from giving guarantees for debts of persons resident outside India without permission from the Reserve Bank of India (RBI) or the Central Government. The court referred to Section 47(3) of the Act, which allows legal proceedings for such guarantees but requires permission from the RBI or the Central Government for enforcing any judgment. The court held that an application under Order 21, Rule 22 is a step in enforcing a judgment, and prior permission from the RBI or the Central Government is necessary. Since the plaintiff-bank did not obtain such permission, the application was not maintainable.

Conclusion:

The court refused the leave to execute the decree under Order 21, Rule 22 of the CPC and discharged the notice. There was no order as to costs.