J.M. Malik, Presiding Member
1. One of the benefits of Democracy is that, one Government Department can sue another Government Department. Non-payment of court fee, attracts so many litigants to try their luck, under the Consumer Protection Act, 1986. Can this Commission, arrogate to itself, those powers, which it does not enjoy? A commission of summary jurisdiction cannot make the position explicit to the half-backed case, in absence of solid and unflappable evidence.
2. This common judgment shall decide 36 original complaints, detailed above. These complaints are between the same parties. The questions of facts and law are similar. The amounts of the gold and jewellery differ. We will decide the Case No. 224 of 2010, connected with 35 other similar matters.
3. Export Credit Guarantee Corporation of India (ECGC, in short), the Opposite Party (hereinafter referred to as OP), was established by Government of India to strengthen the export promotion drive by covering the risk of exporting on credit, which provides the range of credit risk, insuring export, against loss of goods and services, including and not limited to protracted default by the foreign buyers. The complainant, MSTC Limited, is a Government of India Company, involved in trading activities.
4. Vide Resolution No.2/2007-08, it was resolved that the complainant would transact the business of export of gems, gold, jewellery and other products on the basis of collection without LC on post-shipment basis against coverage by OP. The complainant would be the exporter in the transaction and Associates would be engaged, who would be the suppliers as well as the shippers of the gold, jewellery. Accordingly, the complainant entered into a Memorandum of Understanding ( MOU) with all the Associates for the above said parties. The maximum liability provided in the policy was Rs. 300 crores. All the documents were sent through Banking channel to the Buyers Bank, Overseas. The antecedents of the Buyers were verified.
5. The ECGC/OP issued an Export Turnover Policy, dated 29.08.2007, covering transactions for the period 29.07.2007 to 31.08.2008, vide Annexure “ A. According to the policy, the OP was to cover the risk of the complainant upto 90% of the shipment value, which remained unrealized if a buyer fails to pay by reason of any of the insured perils. Then, MSTC, exported the same to Overseas Buyers who were approved by ECGC and each of whose credit limits were separately fixed by ECGC after due diligence. Prior to such exports, MSTC took insurance from ECGC that covered the risk of non-payment by Overseas Buyers after receipt of goods by the buyers and acknowledgment thereof obtained from buyers without any quantity/quality issues. Clause 8(i) of ECGC Policy, runs as follows :-
œ8. INSURED PERILS
(i) PROTRACTED DEFAULT
There is œPROTRACTED DEFAULT? when an
INSURED BUYER having accepted delivery of goods has failed to pay to you any part of an INSURED DEBT relating to such goods for a period of 120 days after the DUE DATE?.
6. On 24.04.2008, the OP enhanced the liability in respect of existing policy entered into between the parties from a sum of Rs.300 crores to Rs.600 crores in respect of exports which were to be made in respect of all contracts entered into between the complainant and the foreign buyers for the period 01.09.2008 to 31.08.2009, vide fresh agreement dated 01.09.2008. The amount of premium was also enhanced.
7. Under the terms of the policy, in the event, a buyer willfully defaults or in case of a protracted default, a claim is to be made in the prescribed format within two years from the due date of payment of the insured date. The complainant submitted an application under Form No.144 applying for an approval of the credit limit in respect of foreign buyer, which, in the instant case, is one, Noor Jahan General Trading LLC. The OP approved the credit limit for a sum of Rs.9.00 crores vide Annexure “B. Subsequently, OP enhanced the credit limit of Rs.20.00 crores and charged Rs.500/- for each such exercise. Prior to that, four purchase orders were issued by the said Noor Jahan General Trading LLC to Space Mercantile Co. Pvt. Ltd., the Associate of the complainant for supply of jewellery. Copies of the purchase orders were produced on the record, as Annexure “ D. Copies of Bills of Exchange and Invoices duly accepted by the foreign buyers have also been produced as Annexure “ E. The buyers, however, failed to make the payment within the prescribed period. It has admitted its liability vide correspondence, Annexure “ F.
8. In the meantime, no payment was made in respect of transactions with Noor Jahan General Trading LLC. The OP vide its letter dated 08.12.2008 advised the complainant on the course of action to be taken by it vide copy of letter, Annexure “ H. Ultimately, the complainant, on 31.03.2009, lodged its claim for recovery of insured sum under the contract with OP, which was ultimately repudiated, on 17.07.2010, vide letter-Annexure “ K. During the arguments, learned counsel for the complainant explained that they have filed suits against the 35 buyers. Their suits stand decreed. Their execution petitions are pending and they are likely to get money from the buyers situated at UAE. It is mentioned in the complaint that efforts were made with Indian Consulate in Dubai and Dubai Chamber of Commerce for the possibility of amicable recovery of outstanding amounts. Full premium was paid in the sum of Rs.2.70 crores, the minimum premium being Rs.2.40 crores covering a turnover of Rs.800.00 crores. The total turnover under all insurance policies covering the aforesaid period, came to be Rs.310.00 crores.
9. The instant complaint was filed with the prayer to pay the complainant a sum of Rs.18,18,36,322/-, as the insured sum, as per the terms of the policy; 18% interest from 31st March, 2009, till realization, rupees One Crore compensation and rupees Ten Lakhs as costs of legal expenses. In the remaining cases, similar prayer was made, with different insured sums.
DEFENCE OF OP:
10. The OP has listed the following defences in its written statement. The complainant is not a œconsumer?. It has a large business house carrying on business with profit motive. The complainant claimed that it is an Exporter. However, as per Financing Agreement, with other companies, the term Associates?, mentioned therein, is in fact, œthird-parties?. As per the Financing Agreement, the complainant was found to be only financing export transactions, which facilitate exports and these fact were not brought to the notice of the OP, at the time of issuance of the insurance policy. The complainant having executed financing agreements for this purpose only, or material fact having bearing on the risk insured, as under the financing agreement, the complainant was going to perform the obligations of an insured/exporter like, exercising due care and prudence in granting credit to an overseas Buyer, taking practical measures to prevent loss arising. As the terms of the contract of insurance are governed by the provisions of statute, non-disclosure of such material facts would render the policy repudiateable.
11. Again, the complainant is not an Exporter. In the year 2007, the complainant, disclosed itself as an Exporter of goods, i.e., jewelry and ornaments. However, the Purchase Orders, Shipping Bills and Bills of Lading which were issued in the name of third-parties, Annexure-D, who were responsible for all the obligations involved in an export transaction, vis., procuring/manufacturing goods for export preparation of export documents, dispatch of goods and procuring of export proceeds from overseas buyers. The complainant got the security to the tune of 80% of the invoice value from the third-parties. The complainant was charging interest from the post-shipment credit, from the date of presentation of documents to the due date of payment, from the overseas buyers. The complainant was authorized to engage the post-dated cheques deposited by the third-parties with them. It is evident that the risk of non-payment by the overseas buyers laid upon the third-parties and not on the complainant. The complainant, had the risk of non-payment of shipment credit from the third-parties and not from the overseas buyers. Consequently, the non-payment of post-shipment credit from the third-parties was not an insurance peril, under the insurance cover, issued to the complainant. Copy of the Financing Agreements were withheld. Liability of the case rests upon the third-parties. The complainant itself has filed the complaints against the overseas buyers, with whom the OP has no connection.
12. In the Financing Agreement executed between the complainant and the Space Mercantile Co. Pvt. Ltd., copy of which is annexed as Annexure-A. Clause 11 (d) of the Agreement is quoted, as follows :-
œClause 11 (d) : The THIRD PARTIES hereby declares and undertakes that by virtue of this MOA, although MSTC has been officially declared as the œEXPORTER? but facts remain that the œTHIRD PARTIES? has negotiated and finalized the export order/s with the overseas buyer and procured/ manufactured/supplied and sent the materials to the overseas buyer. Thus, for obvious reasons, the œTHIRD PARTIES? shall remain responsible and liable for all sorts of statutory obligations/penalty, if any, for non-receipt or non-realisation of the designated foreign exchange against such export. It is clearly understood that MSTC is no way liable for any such non-receipt or non-realisation of the designated foreign exchange against such export?.
13. It was further objected that the complainant, while working in cahoots with third-partis, has œundertaken fraudulent? transactions. Letter dated 22.03.2010 clearly reveals that the overseas buyers were induced only to lend their names purportedly by the representative of the supplier/third-parties of the complainant/the agent of the complainant /consultant and thus on this ground, the overseas buyer disowned their liability towards third-parties, copy of said letter is Annexure-B. It is averred that some buyers have informed that their names were used by some other person, who promised to pay a fixed commission for the purpose. It is also surprising to note that all the 36 buyers from UAE, covered under the policy, have defaulted at the same time, thereby creating default , amounting to Rs.448.81 crores. An inquiry by CBI is pending against fraudulent transactions of the complainant. Vide letter dated 12.04.2010, the Ministry of Steel has directed the complainant to undertake necessary steps and comply with the agreement with the OP.
14. The complainant was to declare in a particular prescribed format, the Gross Invoice Value of total export turnover, for each of the declaration period, specified in the Schedule. As per clause 11(b) of the policy, it was mandatory on the behalf of the complainant to submit Declaration, giving full details of all the shipments, but it has withheld this information and did not disclose the shipments worth Rs.187 crores. The complainant revealed that it had business with fourteen Overseas buyers, under factoring, but had obtained credit limit/exposure for only seven buyers, which resulted in over-exposure of the respective buyers. The OP did not take steps to minimize loss. The complainant failed to perform its obligations under the policy as is evident from letters dated 05.01.2010, 11.01.2010 and 25.03.2010, respectively. There was absence of good faith on the part of the complainant. As per the agreements, entered between the Complainant and the Associates, the complainant was to advance upto 80% of the foreign bills representing exports, affected by third-parties. However, it so turned out that the complainant had no insurable credit risk at all, on the goods that were being reported, as exported. But the risk of loss was on the failure of third-parties to repay the amounts that were being advanced by the complainant on the security of their export bills.
15. On 21.03.2009, the total claim of Rs.728.91 crores was made before OP, out of which, the complainant has received Rs.275.00 crores from various buyers. The balance amount was Rs.450.00 crores. The OP sent a number of letters during the period, from 29.05.2009 to 17.07.2010 including a detailed letter on 14.05.2010, but it did not ring the bell. The failure of the third-parties to repay the complainant was not a risk insured under the policy issued to the complainant. Clauses 11 and 5 of the policy were not complied with. The credit limit regarding Noor Jahan Trading LLC was enhanced basing on the details furnished and representation made by the complainant to the OP. It was Noor Jahan Trading LLC which issued orders to its third-parties, M/s. Space Mercantile and Package Export Private Ltd., who were the actual exporter and the complainant was only a Financier in the transaction. Several buyers disowned their liability. The payment was made to the third-parties and not to the complainant. Vide letter dated 29.05.2009, the complainant admitted that no prudent steps were taken for realization of dues. As per Clause 11 of the policy, all the shipments were to be declared to the OP, but the needful was not done.
CBI CHARGE-SHEET
16. The key controversy swirls around the question, œWhether, this Commission has the jurisdiction to entertain this case??. Before adverting to the oral/arguments and written synopses, we would like to refer to CBI Charge-sheet, which overshadows the rest.
17. The CBI filed a charge-sheet against the complainant and others. Its relevant para from the very start, runs as follows:-
œCBI ACB Mumbai has registered case RC38(A)2010-Mum on 26.10.2010 on the basis of source information against Shri Shishir Dharkar, Ex-Director of M/s Space Mercantile Co. Pvt. Ltd. and Chairman of the Pen Cooperative Urban Bank Ltd. (Pvt. Person), Shri Vivek Champaklal Vaidya, Managing Director of M/s Ushma Jewellery and Packaging Exports Pvt. Ltd., Mrs. Gulraihna Omer, Ex. Director of M/s Space Mercantile Co. Pvt. Ltd. and Director of Carats and Ounces Co. Pvt. Ltd., Asif Sayeed Ali, Director of M/s Space Mercantile Co. Pvt. Ltd. and Proprietor of M/s Dream Land Constructions, Shri Radheshyam Bhomavat, CMD in M/s K. A. Malle Pharmaceuticals Ltd., Shri Rakesh Kumar Gupta, Director of M/s Space Mercantile Co. Pvt. Ltd., Shri Rahul Bhomavat, Director of M/s Space Mercantile Co. Pvt. Ltd., Mrs. Shanu Pramod Podar, Director of M/s. K.A. Malle Pharmaceutical Pvt. Ltd., Shri Jayesh Desai, Director of M/s Joshi Bullion and Gems Jewellery Pvt. Ltd., Shri Vinod Motwani, President of M/s Bonito Impex Pvt. Ltd., Shri D. K. Jain, Managing of M/s Apollo Trading and unknown officials of MSTC and Pen Cooperative Urban Bank Ltd. and M/s Ushma Jewellery and Packaging Exports Pvt. Ltd., M/s Space Mercantile Co. Pvt. Ltd., M/s KA Malle Pharmaceuticals Ltd., M/s Joshi Bullion and Gems Pvt. Ltd., M/s Bond Gems Pvt. Ltd. and M/s Bonito Impex Pvt. Ltd. for commission of offences U/s 120 B r/w 420, 467, 468 and 471 of IPC and Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988 on the allegation that the aforesaid accused persons entered into a criminal conspiracy with the unknown officials of the MSTC and Pen Urban Cooperative Bank during the period 2007 and submitted fake documents which were accepted by the officials of MSTC who released 80% of the invoice value, by discounting the export bills, as advance to the exporters and caused loss to MSTC to the tune of Rs.500 crores and thereby cheated MSTC?.
18. This charge-sheet, running into 47 pages, is supported by 59 witnesses and the CBI has placed reliance on 1812 documents.
COMPLAINANTS SUBMISSIONS :
19. Coming to the charge-sheet filed by CBI, it was argued by the counsel for the complainant that there was no evidence against the complainant. The appropriate court will decide the correctness or otherwise of the charges in the charge-sheet, as was held by the Honble Apex Court in Standard Chartered Bank Vs. Andhra Bank, 2006 (6) SCC 94. The charges are yet to be proved. Consequently, MSTC does propose to deal with the various allegations made in the charge-sheet. However, it is a fact that some Overseas buyers had paid a sum of Rs.281 crores against exports made and later defaults, negates any allegation of fraud. Collusion and fraud must be established from the inception and the payments made by the overseas buyers negate any allegation of collusion. Again, the Special CBI at Mumbai by its order dated 11.06.2012 has absolved MSTC of any criminalities regarding the transactions in question and the Court has, inter alia, held that the matters were of œcivil nature?.
20. It was further submitted that the OP has relied upon certain statements made by certain witnesses under Section 161 of Cr.P.C. which are inadmissible in evidence. The statements of Mr.R.K.Chaudhary, Mr.S.S.Chadha, Mr.R.K.Singh and Mr.D.K.Munda, have not yet been œduly proved?. Consequently, the admission of this fact comes out from the horses mount itself. They are the senior officers of MSTC itself. The counsel for the complainant argued that the oral evidence of the above said senior officers, is yet to be recorded in the Court.
21. Again, it is settled law that finding of facts recorded by civil court will not have any bearing so far as criminal case is concerned and vice versa, as was held in Kishan Singh Vs.Gurpal Singh, 2010 (8) SCC 775. Moreover, in Rajinder Singh Vs. State of U.P., 2007 (7) SCC 378, in para 11, it was held :-
œ11. The learned Sessions Judge trying the case of co-accused Daya Singh seems to have been swayed by the fact that the High Court had not only set aside the order passed by the learned Sessions Judge under Section 319 Cr.P.C. by which the respondent No. 2 Kapil Dev Singh was summoned to face trial but had also recorded a finding in his favour that he was present in a meeting in Nagar Nigam, Allahabad. Since we are setting aside the order of the High Court, the aforesaid finding of the learned Sessions Judge would automatically go and cannot stand?.
22. Our attention was invited towards the fact that, a statement made under section 161 of Cr.P.C. is not a substantive piece of evidence. The same can be used for the purpose of contradicting thereof, in the manner laid down in the proviso, appended with Section 162 of Cr.PC. The counsel for the complainant has referred to another authority, reported in Pebam Ningol MIkol Devi Vs. State of Manipur and Ors., 2010 (9) SCC 618. The authority relied upon by OP reported in Khatri and Ors. Vs. State of Bihar, 1983 (2) SCC 493, deals with an exceptional case of violation of Article 21 of the Constitution of India. In that case, it was held that since the police report in question was relevant under Section 35 of the Indian Evidence Act as a public document, the report was admissible in evidence. That reasoning is not applicable to this case. The statements recorded by the witnesses are not public documents. The said evidence could be produced. The said statements could have been proved before this Commission by producing the necessary witnesses to prove the said evidence, but the ECGC, having not done so, the statements have no evidentiary value in the proceedings.
23. It was brought to our notice that for a considerable period of time, since the commencement of exports , there was no default by the Overseas buyers and an amount Rs.281 crores was duly realized. There was no default at all. During the Financial Year, 01.04.2007 to 31.03.2008, there was no default on the part of any of the buyers and the MSTC successfully exported to the extent of 260 crores and earned foreign exchange. However, in the subsequent Financial Year, towards the third quarter, there was a worldwide recession and there were a series of defaults from the very same buyers who had earlier made payments, as also from other buyers. It was submitted that out of 36 buyers who defaulted, 28 had successfully performed earlier and made full payments. However, the MSTC took all necessary steps for recovery and stopped exports to the defaulters. All the defaulters admitted their liabilities, and to pay, but failed to make payments citing reasons of recession. It is also pointed out that recovery proceedings were filed in the foreign court against the defaulting buyers and obtained decrees, against all the 36 foreign buyers coming under the ECGC policies.
24. Moreover, MSTC is a canalizing agency as is known to the commercial world. MSTC through œAssociates?, idenfified buyers abroad. The buyers placed Purchase Orders, in the name of MSTC who, exported the goods to the various buyers. There was initially, a first sale/supply to the MSTC by the Associate. Invoice clearly mentions exporter MSTC Ltd and under the caption Buyer, if other than Consignee :- Notify buyers : Noor Jahan General Trading (LLC), Zarooni Building, Near Family Supermarket, Shop No.4, Deira, Dubai, UAE, dated 14.01.2008. Thereafter, a second sale was made by MSTC to foreign buyers. In practice, on receipt of confirmation that the buyers have accepted the documents and goods, MSTC paid to the concerned suppliers, around 80% of the value of the invoice, towards cost of goods supplied by the concerned suppliers, to be adjusted against the sale price.
25. The complainant has contested the case on merits, tooth and nail. All these arguments are contained in the written submissions, but we are of the considered view that these submissions are not germane to the present controversy. Those arguments must be raised before the Civil Court. Succinctly stated, the complainant had submitted that it is an Exporter, there was protracted default by the foreign buyers and that is why the claim was made. Various documents go to prove that MSTC is an Exporter and not an Associate. All the necessary details were furnished to the OP. There is no suppression of any fact. The proposal form did not require any details of suppliers or Associates. MSTC was under no duty/obligation to disclose any part of its dealings with its suppliers, whether, regarding payment or shipment, or otherwise. The foreign buyers had made payments, admittedly, to the extent of Rs.260 crores, which alone, makes it clear that MSTC has direct recourse. The foreign courts have upheld the pleas of the complainant. No violation of Clause 11(b) of the policy was made. The entire policy is to be read holistically. It was not required that the factoring mode of transaction should be disclosed. Again, there were two separate contracts, so on and so forth.
SUBMISSIONS MADE BY THE OP:
26. It was alleged that a criminal conspiracy was held by Pen Bank, M/s. Space Mercantile and M/s. Ushma Packaging in concert with others, including, three officers of MSTC, besides Shishir Dharkar and Jayesh Desai, to set off the Non-Performing Assets (NPAs) of Associates and others and regularize it. This was supported by the statements made by Gaurang Tripathi, D.K.Jain, Pradeep Mhatredt, Samira Shaikh Safdar and so many other officers. Prashant Abhyankar, was a clerk of Ushma, who was made its Director, according to his own admission. D.K. Jain was an acquaintance of Rahul Bhumavat, Director of Space and K.A. Malle Associates. He was made the Manager of Space and, later on, was made the owner/44% shareholder of Apollo Trading LLC (Foreign Buyer), as per the statement of Sh.D.K.Jain. The ARS Consultant was appointed by MSTC against the procedure and fraudulently, with an intention to cheat, which is supported by the evidence of various witnesses. Again, no due diligence, was taken, despite MSTC entering into credit risk business for the first time, which fact is supported by evidence.
27. Credentials of Associate (Ushma) were not even verified despite report called from the Bank. According to the charge-sheet, the purported foreign buyers accepted investment on 2% commission. As per the statements made by the witnesses, the foreign buyers were put up and not genuine. The relationship between foreign buyers and associates was not disclosed to ECGC. Foreign buyers were not traceable. The MSTCs letter dated 17.02.2010 was enclosed with the Dubai Chamber of Commerces letter and ECGCs reply. Noor Jahan Glamour Diamond and Jewellery, Halya General Trading, ASB 121 Hardware Trading, ECGCs inquiry and the Dubai Chamber of Commerces letter, which runs as follows :-
œSub : Complaint against M/s. Glamour Diamond and Jewellery LLC, Dubai?.
With reference to your Mediation Request Form dated 27.11.2009 in relation to the above mentioned subject, we regretfully inform you that in spite of our several attempts, we could not trace the above mentioned respondents. We advise you to seek other alternatives such as filing a case against the respondents before the competent court, if you have any justification for it.
Yours faithfully,
Sd/-
Jehad Abdulrazzaq Kazim
Director, Legal Services?.
28. The membership of M/s. Leo Diamonds LLC, was acknowledged vide order dated 28.02.2010 to M/s. Noor Jahan, could not be traced out vide letter posted by the Dubai Chamber of Commerce on 17.02.2010, 22.02.2010, 15.02.2010, 25.01.2010, 02.02.2010, so on and so forth, in respect of the fact that other foreign buyers were also not traceable.
29. It also transpired that the goods received by consignee, RMK General Trading, were owned and controlled by Jayesh Desai, who utilized/sold/diverted the goods. He melted the exported gold/ jewellery, before selling, in open market. He diverted the goods and the funds realized were siphoned off, in conspiracy with MSTC officials, as per the charge sheet.
30. Again, there was collusion between the Associates as well, as per the statements made by many witnesses. Memorandum of Agreement dated 16.08.2008, executed between MSTC and Associates, was not disclosed before issuance of ETP Policy. MoA shows that only nine point modalities were informed by MSTC to ECGC. However, MoA contained various clauses and terms, beyond the nine point modalities. The terms of MoA required express disclosure, before the issuance of the policy. ECGC learnt about existence of MoA between MSTC and the Associates, for the first time, when Mr.Sanjay Singh of ECGC visited the office of Mr.R.K.Singh of MSTC, in November, 2008. There was role of Associates, as per the statements made by the officials of the complainant. 31. According to the OP, there was fraud during the export of goods. They have placed reliance on the statements recorded under œSection 161 Cr.PC?. MSTC was not an Exporter as per Hardware Bill, Airway Bill, Shipping Bill, Exchange control declaration, invoice issued by Associates. Again, MSTC did not declare all the shipments, which is an express term of the policy. The policy itself prescribes that the policy is meant to cover all shipments that may be made by you, except those specifically, excluded in Schedule-I of the policy, during the policy period.
32.There is fraud in realization of sale proceeds. In some cases, the foreign buyers were planning to directly pay the Associates, instead of to MSTC. An account of telephone conversation dated 15.02.2010 between Miacomm General Trading (Foreign buyer) and SCB reveals that Miacomm would pay the Associates directly instead of MSTC. Funds of MSTC were diverted and credited in the account of Associates with Pen Co-op. Bank. Again, the MSTC did not take effective immediate steps for recovery of amount, particularly, against the Associates. In respect of Fraud, in lodging claim, under the policy, i.e., 31.03.2009, till date, the Invocation letter dated 31.07.2009 of MSTC, gave an undertaking that œexcept as already/disclosed, we hold no sums, credits, security or indemnity against this account and that we have no claim against our agents in respect of declared risks assumed by them?. The allegation of OP is that they did not disclose full and complete facts including the securities like PDCs, FDRs and Bank Guarantees furnished by Associates. MSTC did not disclose the details of recoveries already made by MSTC from the overseas buyers, to the tune of Rs.25.60 crores, and in fact, made claim for full amount, without giving any credit.
33. MSTC made a claim of 90% of invoice value, whereas, it had neither paid 90% invoice value nor was it obliged to pay any amount over and above 80% of the invoice value. It is conspicuously silent about the extent of payment, if any, made by MSTC to its Associates. Even in the statement of MSTC from 21st to 23rd January, 2014, there is no disclosure, either of receipt of the amount of Rs.25.60 crores from the overseas buyers or even the extent of finance disbursed by MSTC to the Associates. MSTC did not conduct due diligence of foreign buyers or that of the Associates. It did not take appropriate steps for mitigation of losses. Even after the defaults, the securities obtained by MSTC were not disclosed to ECGC, as per the statement of Pradeep Mhatredt and Divya Shah.
FINDINGS:
34. First of all, we advert to the Bail Order. The Bail applications were moved by Malay Sengupta, Tapas Basu and Utpal Sarkar, the senior employees of MSTC, and the relevant paras, of the Bail Order, 11.06.2012, are reproduced, as follows:-
œ29. Going by the prosecution version itself, it was the responsibility of the exporters to find buyers who were approved by ECGC; Exports were duly insured with ECGC. As stated earlier, basic purpose for which MSTC has been created is promotion of exports. If in that respect and after due diligence, MSTC paid 80% of the invoice value to the exports, no fault can be found with it. Matter is already pending with National Consumer Forum. Dispute is more of civil nature. 30. Basic allegations against the applicants are that they conspired with exporters. They accepted forged documents. They made undeserved payments to the exporters and they have received kickbacks to the tune of Rs.75 lacs, Rs.25 lacs and Rs.25 lacs. When the payments itself were to the tune of Rs.480 crores, kickback amounts of Rs.75 lacs, 25 lacs and 25 lacs seem absurd. Moreover, since 2010, IO has not been able to recover anything from these applicants. There is no grievance that the applicants have pressurized the witnesses or have not co-operated in investigation. They were top level officers and must have been taking policy decisions. They were required to deal with whole of the business of the MSTC which covers not only export of gold jewellery but also of export of other items. If at all the applicants were actively involved in the present transactions, it was for the IO to establish nexus. Moreover, main beneficiaries have already been released on bail and the present applicants have also suffered enough custody. In fact, no prayer was made for interrogation of the accused persons, while in custody. Therefore, if the applicants are made to cooperate in investigation, in my opinion, they can be released on bail?.
Thereafter, they were granted the bail.
35. The said bail order is not the final decision of the court. A prima facie view has been taken by the CBI, because, as per its orders, all the three senior officers of the MSTC had already undergone judicial custody for a considerable time. Other accused persons were already granted bail. We find force in the observations, made by the CBI Court, in a measure, that œthe matter is already pending with the National Consumer Disputes Redressal Commission. Dispute is more of civil nature?. This is the prima facie view of the CBI Court. The matter is yet to be decided on merits. This is not the acquittal order, in favour of the accused. Even if it is a matter of civil nature, simplicitor, the complainant must knock at the doors of the civil court.
36. The excuse given by the complainant that they have taken all the actions and the foreign buyers are likely to pay back the decretal amount, is a feckless argument. They have obtained decrees against them. However, the evidence on record clearly goes to show that the foreign buyers are not traceable. The foreign buyers have no previous record. Are those, fake companies?. They have been certified by none else than the Dubai Chamber of Commerce. What is the use of decrees, which cannot be executed?. This appears to be an eye wash. The complainant has invented a device to pull the wool in the eyes of law and the OP. The story propounded by the complainant does not just stack up.
37. This must be borne in mind that in a summary procedure, this Commission is not required to record the statements of the witnesses. The OP cannot be permitted to produce a number of witnesses in the Dock. It is a duty cast on the Civil Court to record the evidence exclusively and extensively. The position does not begin to jell. Dallops of mystery surround this case. It would have been much better if all these witnesses were examined by the Civil Court, as per law. It is too early to speak our piece, on these complicated and contentious issues. It requires full probe by a competent court.
38. There are statements of the witnesses recorded under Section 161 Cr.PC. This Commission cannot place reliance on this kind of evidence. They are yet to be produced in the Court and their statements would be subject to the cross-examination. It is pertinent to know that cross examination of the witnesses is the life-blood of our legal system. It is the only way, a Judge can decide whom to trust and answer, during cross-examination, which may wreck ones case. It is painfully apparent that it is impossible to gauge the real issue. This Commission is unable to winnow truth from falsehood. This Commission can go into the subject, only skin deep.
It cannot be said at this stage, at which way the wind will blow.
39. The legal maxim, Ex dolo malo non oritur action (A right of action cannot arise out of fraud), reads as under:
œThe word dolus, when used in its more comprehensive sense, was understood by the Roman jurists to include œevery intentional misrepresentation of the truth made to induce another to perform an act, which he would not else have undertaken?, and a marked distinction accordingly existed in the civil law between dolus bonus and dolus malus: the former signifying that degree of artifice or dexterity which a person might lawfully employ to advance his own interest, in self-defence against an enemy or for some other justifiable purpose; and the latter including every kind of graft, guile or machination, intentionally employed for the purpose of deception, cheating or circumvention. As to the latter species of dolus (concerned), it was a fundamental rule, to be observed by everyone in a judicial position, that dolo malo pactum se non servaturum; and, in our own law, it is a familiar principle that an action brought upon a supposed contract, which is shown to have arisen from fraud, may be successfully resisted?.
40. The facts of the case reported in Joshi Bullion Gem and Jewellery P. Ltd., Vs. K.A. Malle Pharmaceuticals Ltd. and Ors., [2014] 182 Comp Cas 555 (Bom) neatly dovetail with the facts of the present case. The facts of the cited case are these.
œThe company claims that it is the victim of systematic fraud perpetrated by a director of the petitioner, one Jayesh Desai, in collusion with some officers of the Maharashtra State Trading Corporation (MSTC) and of the Pen Co-operative Urban Bank Limited (Pen Bank). The companys version is this : It claims that in September, 2008, it started a business relationship with MSTC. The business model or procedure was that the company would purchase the gold jewelry locally. It would, in turn, sell these goods to MSTC, in India. MSTC would then, export the goods to buyers overseas, especially in UAE and Kuwait. However, the transshipment of these goods was the responsibility of the company. As a result, the company paid all shipping expenses, including insurance. All shipping documents stood in the name of the company, œon account of MSTC?. However, export invoices and bills of exchange were in MSTCs name. MSTC directly negotiated these documents with the foreign buyers banks. MSTC did business in a similar manner with other entities as well, six in all. All these entities were described as œassociates? of MSTC. Two of these entities were owned or controlled by Jayesh Desai, the petitioners director. One of them is the petitioner itself. Another is named Bond Gems P. Ltd. There are today arbitration pending between MSTC and these associates?.
It was further held :
œThe company contends that Jayesh Desai in fact melted down the gold and sold it in the local markets in Dubai. The allegation is that Jayesh Desai received the proceeds of this illicit sale. The companys case is that the money due to MSTC and therefore to the company, has thus been diverted to Jayesh Desai or his group, including the petitioner?.
Again, it further held :-
œThe courts jurisdiction under sections 433 and 434 of the Companies Act, 1956, is a summary jurisdiction. It does not lend itself to the minute scrutiny and examination of evidence that is possible in a regular civil proceeding. The companys defence shows that its alleged liability to the petitioner is very seriously disputed. It claims to have been made the victim of a vast conspiracy and fraud. There is, in my view, considerable merit in this. The petitioner itself is, through one of its principal officers (Jayesh Desai), involved in these murky and illicit transactions. This is not a simple case of goods sold and delivered, their price unpaid without just cause. This is a story, yet unraveling of tangled webs of fraud, deceit, illegality, diversion of funds and exports. The Government officials are involved. Criminal investigations continue. It is impossible to hold that the company has neglected to pay the petitioners claim without just cause. If the company is correct in its submission, then it is very clearly the victim of a very well thought out fraud and conspiracy?.
41. In view of this discussion, we have to come to the conclusion that we cannot poach into the jurisdiction of the civil court or other appropriate forum. Thus, all the 36 cases, go in a tizzy. The cases are dismissed, with no order as to costs. However, liberty is granted to the complainant to approach the civil court or any other forum, having the jurisdiction, to get redressal of its grievances and can seek help on the limitation point, from the Honble Apex Courts authority reported in Laxmi Engginering Works Vs. P.S.G. Industrial Institute, (1995) 3 SCC 583.