Caution on injunctions against banks

A weekly selection of key court orders

Injunctions against banks for making payments to the beneficiary must be given cautiously, as judicial interference in the normal practices of the market can have disastrous consequences. It would affect the trustworthiness of Indian banks and markets, the Supreme Court stated in its judgment last week in the case, Millenium Wires vs State Trading Corporation. The two firms entered into an agreement for importing copper wire from Singapore and Malaysian companies. STC opened four letters of credit with Allahabad Bank, the issuing bank, and Malayn Banking BHD, the confirming bank. The latter bank released payments on presentation of letter of credit, which was opposed by Millenium Wires. It sought injunction from the Delhi High Court. It was rejected, leading to the appeal in the Supreme Court. On injunctions, the court emphasised that courts must be slow in granting injunctions restraining the realisation of a bank guarantee or letter of credit. Business persons take risks which are not to be imposed on the banks, lest the interference should deter trust in international commerce. However, there are two exceptions to the rule. First, when there is clear evidence to show that there was fraud of a grievous nature and the bank was aware of it. The second is that injustice of the kind which would make it impossible for the guarantor to reimburse himself, or would result in irretrievable harm or injustice to one of the parties, should have resulted.

Film Division documentaries not compulsory
The Supreme last week set aside the order of the Bengaluru district magistrate to M/s PVR Cinemas that before screening the regular movies in its theatres it should exhibit documentary films produced by the Films Division only. The film exhibiting company was required to obtain compulsory certificates from Films Division under the Karnataka Cinemas Regulation Act and rules. The firm challenged the order before the Karnataka High Court, which at first allowed it and quashed the magistrate's order. But two days later, the court reconsidered its own decision and reversed its earlier order. Therefore, the exhibitors moved the Supreme Court. It restored the first order of the high court, setting aside the latter.

Cheque trial should not be stopped

A high court cannot go into the factual aspects of a dispute over stop-payment of cheques and they should be tested during the trial, the Supreme Court stated in the judgment, HMT Watches Ltd vs M A Abida. The latter was a re-distribution stockist of the firm and she issued 57 cheques which bounced. The company filed complaints under the Negotiable Instruments Act. She argued that the cheques were given as security and therefore there was no liability, the main ingredient in Section 138 of the Act. Moreover, the cheques were stopped not because of insufficiency of fund. The Kerala High Court accepted her arguments and quashed the complaints. The firm appealed to the Supreme Court which stated that the high court had exceeded its jurisdiction by analysing disputed facts. It asked the trial court to proceed with the criminal complaint.

Housing bank bullied to 'settle' dispute
Though lending institutions are normally accused of high-handedness, the Supreme Court has condemned the conduct of a borrower who harassed PNB Housing Finance Ltd with criminal and civil complaints repeatedly, forcing it to "settle" the non-performing asset (NPA). P K Bajaj and his wife took a housing loan and later defaulted. The firm declared the loan as NPA and the Securitisation Act was invoked. Then the borrower started filing writ petitions, criminal and civil cases in different legal forums making top executives parties. Some courts responded to his "unwarranted enthusiasm to move courts". The Allahabad High Court, in this case, Priyanka Srivastava vs State of UP, also did not save the executives. The present vice-president of the company, who had nothing to do with the loan, was a victim of the 'devilish design of harassment.' This series of legal complaints forced the bank officials to agree to enter into a one-time settlement. He moved the Supreme Court. It quashed the prosecution. It said that magistrates should insist on affidavits of complainants in such cases to avoid frivolous complaints. The court also ordered that a copy of the judgment be sent to all courts below to avoid such litigation, and the magistrates should take extra care to avoid such situations in commercial sphere.

ESI beneficiaries cannot claim damages
The Supreme Court has ruled that those employees getting the benefit of the Employees State Insurance Act are not entitled to compensation invoking the Workmen's Compensation Act. In this case, Dhropadabai vs M/s Technocraft Toolings, the employee suffered chest pain at the work place and he was taken to a hospital where he died. His widow and children demanded compensation under the Workmen's Compensation Act, as he had died in the course of employment. The employer denied this and in addition argued that those who are covered by the ESI Act are not entitled to compensation. The labour court rejected this argument and awarded Rs 4 lakh to the widow. On appeal, the Bombay High Court denied compensation, as he was an insured person. That view was upheld by the Supreme Court. The court had earlier asked the employer to deposit Rs 4 lakh in the registry and the widow had withdrawn it. The court stated that the amount should not be recovered from the widow now as she had fought the case for a decade.

Diagnostic centre ordered to shut down
Speaking out against regularisation of illegal constructions in cities, the Supreme Court termed the inaction of the Delhi pollution control committee and the municipal corporation as "highly deplorable" by allowing a diagnostic centre to function in a residential colony amid protests from residents. The Supreme Court, in the judgment Anirudh Kumar vs MCD, quashed the regularisation certificate and ordered the closure of the centre, though the high court had allowed it.