Court affirms that Canara Bank failed to prove its claim over disputed Forward Purchase Contracts, emphasizing the importance of adherence to banking regulations.
In a significant ruling, the Karnataka High Court has upheld the decision of the Debt Recovery Tribunal (DRT) to dismiss Canara Bank's claim against Texport Overseas Pvt. Ltd. regarding 48 Forward Purchase Contracts (FPCs). The High Court, in a detailed judgment, emphasized the bank's failure to establish a valid and concluded contract, noting significant lapses in evidence presentation.
The dispute arose from Canara Bank's allegation that Texport Overseas Pvt. Ltd. and its sister concern, M/s Nisha Designs, had failed to honor 48 FPCs booked during 2008. Canara Bank claimed damages amounting to over Rs. 19 crores, asserting that the contracts were neither utilized nor cancelled in time, in breach of banking regulations.
However, the DRT had previously dismissed the bank's claim, highlighting the absence of crucial evidence such as authorization documents, and the non-examination of key witnesses, including Mrs. Vijaya Kamath, who managed the relevant transactions. The DRT also drew adverse inferences from the bank's failure to provide necessary documentation, as required under Section 114 of the Indian Evidence Act.
The Debt Recovery Appellate Tribunal (DRAT) had initially overturned the DRT's decision, attributing the failure to procedural lapses by bank officials. It imposed a reverse burden on Texport Overseas Pvt. Ltd. to prove that Mr. Dinesh Singh, allegedly an employee of the company, was not involved in the transactions. However, the Karnataka High Court criticized this approach, stating that the initial burden of proof lies with the claimant, in this case, Canara Bank.
Justice T.M. Nadaf, delivering the judgment, highlighted that the bank, dealing with public funds, must adhere to the stringent guidelines issued by the Reserve Bank of India and its internal circulars. The judgment underscored the importance of transparent and rule-based financial dealings, noting that any deviation could have severe implications for the financial ecosystem.
The court reiterated that the DRAT's reversal of the DRT's well-reasoned order was unsupported by evidence and suffered from a lack of reasoned decision-making. Consequently, the High Court set aside the DRAT's order, reinstating the DRT's findings, and dismissed the claims made by Canara Bank.
This ruling serves as a reminder to financial institutions to maintain rigorous standards of proof and adherence to regulatory guidelines, ensuring that public money is safeguarded through responsible banking practices.
Bottom line:-
Burden of proof lies on the claimant to establish the existence of a valid and concluded contract, and adverse inference under Section 114 of the Indian Evidence Act can be drawn if material evidence is withheld.
Statutory provision(s):
Section 114 of the Indian Evidence Act, Sections 101 and 102 of the Indian Evidence Act, RBI guidelines on FPCs
Texport Overseas Pvt., Ltd., v. Canara Bank, (Karnataka)(DB) : Law Finder Doc id # 2922937
