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Claim No. CFI 041/2022

THE DUBAI INTERNATIONAL FINANCIAL CENTRE

IN THE COURT OF FIRST INSTANCE

BETWEEN

KIRTANLAL INTERNATIONAL DMCC

Claimant

and

(1) STATE BANK OF INDIA (DIFC BRANCH)
(2) JINGJIANG SPECIAL STEEL CO. LTD
(3) HUBEI XINYEGANG STEEL CO. LTD
(4) CITIC PACIFIC SPECIAL STEEL GROUP CO. LTD

Defendants

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JUDGMENT OF JUSTICE SIR JEREMY COOKE

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UPON the Part 7 Claim Form dated 13 June 2022 (the “Claim”)

AND UPON hearing Counsel for the Claimant and Counsel for the Defendant at the Trial held before me on 18 to 22 September 2023 (the “Trial”)

AND UPON reviewing all relevant material added onto the Court file

AND UPON reviewing the Rules of the DIFC Courts (the “RDC”)

IT IS HEREBY ORDERED THAT:

1. The Claimant’s claims are dismissed.

2. The Claimant shall pay the Defendant the costs of these proceedings, to be assessed if not agreed upon.

3. Should the parties fail to agree on the basis of costs, each shall file written submissions of no more than 5 pages and the Court will determine that issue. If there is disagreement on the quantum of costs, but not the basis on which they are to be determined, the costs shall be assessed by the Registrar who will give directions for the determination of that issue.

Issued By:
Delvin Sumo
Assistant Registrar
Date of issue: 11 October 2023
At: 2pm

SCHEDULE OF REASONS

Introduction

1. The Claimant (“Kirtanlal”) claimed damages, now quantified at USD 18.51 million as at 1 July 2023, plus interest, from the Defendant (the “SBI”) for breach of contract, breach of a duty of care, breach of fiduciary duty and breach of regulatory duties in relation to the suspension of its use of, and later termination of, a Facility Agreement which had been executed on 26 July 2020 (the “FA”) but which was effective from 7 January 2020, following a facility renewal letter of 3 February 2020. Kirtanlal and SBI had an established relationship which went back to 2009 and on 8 September 2015 had concluded an earlier Facility Agreement, which was renewed year on year following a review process undertaken by SBI. Contrary to Kirtanlal’s suggestion, renewal was not a formality, as it is clear that there was consideration by a Credit Committee in the DIFC branch (the “Branch”) of SBI and consideration on review at SBI’s Regional Head Office. It is common ground that, following the discovery of an attempted fraud perpetrated by two Chinese sellers, the Second and Third Defendants, who, by their agents, the Fourth Defendant, presented backdated Bills of Lading to SBI under two letters of credit opened on Kirtanlal’s application in their favour, SBI suspended further use of the Facility Agreement on 6 October 2020 and gave notice of termination either orally at a meeting on 22 October 2020 or by handing over a letter dated 3 November 2020 at a meeting on 4 November 2020.

2. There is a factual dispute as to such termination both as to when notice was given and possibly as to its effect, although it seems clear enough that Kirtanlal was given time to repay sums due on facilities already extended to it, and that bank guarantees issued by SBI on behalf of Kirtanlal would run to extinction unless replaced in some way, but that no new loans would be made or commitments entered into, whether under the FA or after its date of expiry, on 6 January 2021.

3. Under the express terms of the FA, SBI had no obligation to renew the facilities given thereunder on expiry on 6 January 2021. Kirtanlal alleged that the termination was wrongful and that SBI has advanced different and inconsistent explanations for its decisions which demonstrates that it was in breach of its various obligations. The essential obligations in question are said to be a duty to act in good faith imposed by Article 57 of the Contract Law, alternatively an implied term of good faith, fair dealing and co-operation said to arise out of Articles 57 and 58. As originally pleaded (and at the third attempt), SBI was accused of dishonesty and malice in the decisions taken. 4 of 52 When it came to the written opening of the case, the obligation of good faith was said to mean that contract rights to suspend or terminate could not be exercised arbitrarily, capriciously, irrationally and without reasonable and proper cause and that a Wednesbury test should be applied with the result that irrelevant matters should not be taken into account and relevant matters (here said to the innocence of Kirtanlal in relation to the fraudulent B/Ls) had to be the subject of proper consideration. It was then submitted that where one party has a discretion in making a decision which affects the rights of another party, that discretion is limited, as a matter of necessary implication by concepts of honesty, good faith and genuineness and the need for absence of arbitrariness, capriciousness, perversity and irrationality. The discretion is not to be abused. This was a considerable shift in the case as put, which had been previously full of accusations of bad faith in the sense of dishonesty.

4. It was not argued that SBI had to act reasonably in exercising rights under the Facility Agreement, but it was said that it had to act rationally both during the pendency of the Facility Agreement and in its post termination behaviour. The complaint was that SBI should not have suspended the facility, terminated the Facility Agreement, refused a temporary extension of the facility for 3-6 months to enable Kirtanlal to find replacement bank facilities or misled the DFSA in relation to any of those matters. In oral argument, it was maintained that SBI was not entitled to refuse to renew the facilities under the FA on expiry, for the same or similar reasons.

5. Kirtanlal says that there was no Event of Default within the meaning of clause 14.1 of the FA which would justify termination but even if there was, if SBI terminated “without proper reason” that would constitute a breach of obligations owed in tort, obligations as a fiduciary and regulatory obligations, particularly where it offered reasons which were not valid. In reality, these different ways of putting the case added nothing to the claim in contract.

6. Kirtanlal brought claims against the Second to Fourth Defendants also for the same losses on the basis that it was their fraud (the Fourth Defendant, as the parent company of the other two Defendants had allegedly acted for them in the transaction) which had caused SBI to act as it did with resultant loss of profits in business that it was unable to effect. Although Kirtanlal wanted to pursue the claim against all Defendants at the same time in these proceedings, it became clear early on in the proceedings that there was an issue as to whether the Second to Fourth Defendants had been served and whether, even if served, they were likely to participate in any litigation in this jurisdiction. There is now a dispute which has to be resolved as a result 5 of 52 of those Defendants contesting the jurisdiction of the Court. The nature of the allegations made against SBI, which included strong assertions by Kirtanlal of fraud and dishonesty on the part of individuals engaged by SBI, together with the uncertainty surrounding any participation by the other Defendants, led the Court to decide that the trial against SBI, which was sufficiently distinct from the claims brought against the other Defendants, should proceed against it separately.

7. In opening oral submissions, Leading Counsel for Kirtanlal specifically abandoned any contention that there was fraud or dishonesty on the part of SBI but did allege that it, and the Branch CEO, Mr Shenoy acted out of malice or was negligent. In closing oral submissions, the allegation of malice was maintained but the case previously advanced in tort, fiduciary duty and regulatory duty was abandoned as taking the matter no further than the claim in contract.

The Facility Agreement (the “FA”)

8. The FA contains the following terms:

9. In the Definitions & Interpretation section of the FA:

10. On 29 April 2020, the Branch completed its 9 monthly review of the AML Risk rating of Kirtanlal. This gave rise to a score of 67.86% after analysis of the various factors which fell to be taken into account. That meant that, in line with the preceding rating on 31 July 2019, which had arrived at an identical score, Kirtenlal was again classified as Medium Risk, with the differentiation between that and High Risk specified at 75. The Rating assessment, which was on a template form, had nine different sections where a numerical assessment had to be completed in order to arrive at a total score which was then “normalized” to become a percentage. Each nine-month rating assessment was signed off by the Branch Manager in the Credit Department, the Money Laundering Reporting Officer (the “MLRO”), the Vice President of Credit and the CEO at the material time. The 29 April 2020 assessment was signed by Mr Kaushal, Mr Madwhani, Mr Raj and Mr Shenoy, all of whom gave evidence at the trial. Following the events which are described below, in a rating assessment signed by the same persons and dated 31 January 2021 by Mr Madwhani, at a time when the only facilities being extended by SBI to Kirtanlal were the run -off on existing guarantees following the suspension, termination or exit from the facilities previously granted by SBI, although a score of 66 was recorded, the AML Risk Rating was “High (on account of 10 of 52 STR filed)“ as the result of the events mentioned below, as recorded in a note on the document by Mr Madwhani.

11. On 25 July 2020, Kirtanlal placed two purchase orders for the supply of steel pipes with the Second and Third Defendants in China. 10% of the purchase price was payable in advance directly to each supplier with the balance to be paid by way of a 90 day letter of credit (the “L/C”). At the request of Kirtanlal of 4 August 2020, SBI issued two materially identical irrevocable L/Cs on 6 and 12 August to the Second and Third Defendants in relation to the purchase orders. Kirtanlal’s requests for the L/Cs included express confirmations by Kirtanlal that “as of the date hereof the representations and warranties set out in Clause 12” of the original 2015 Facilities Agreement, which was in identical terms to the FA, “are true and correct and that no default has occurred”. In Kirtanlal’s undertaking to SBI, it also made the following declaration: “we hereby declare that the transaction (s) the details of which are specifically mentioned in the schedule hereunder does not involve and is not designed for the purpose of any contravention or evasion of the provisions of the rules and regulations applicable to International trade and any rule, regulation, notification, direction or order made thereunder.”

12. On 20 July 2020 SBI DIFC branch (the “Branch”) received a remittance of USD 29,965 for Kirtanlal’s account but on 26 July 2020 it received a fund recall request from the remitting bank, which was Mashreq Bank. In accordance with the Central Bank of UAE’s circular on Fraudulent Transactions with Fund Recall Requests, the Branch placed a hold on the funds immediately and investigated the matter to ascertain whether this evidenced suspicious or fraudulent activity. Enquiries were made which revealed that the remittance was made from Kirtanlal’s own account at Mashreq Bank and that the remittance had been made in order ensure sufficient funds were in the Branch account to meet a need, but that remittance was not in fact required and so the request for recall had been made. The process of investigation concluded when Kirtanlal gave instructions to cancel the request for recall of the funds which led to Mashreq Bank withdrawing the request on 16 August 2020. The Branch was therefore satisfied that there was no evidence of fraud or suspicion of fraud and the hold placed on the amount in question was released in accordance with a Note on the following day which had to be made in accordance with SBI’s AML and Compliance Policies explaining why no SAR or STR was filed. The Note concluded with these words: “In light of the AML module of the DFSA Rule book, the above assessment and relevant documents pertaining to the same are held on record.”

13. On 8 September 2020, Kirtanlal emailed SBI to ask SBI to include some new areas of business in the working capital facility. The attached letter said that over the previous 5 years there had been diversification from trading of pipes mainly for the energy and construction sector to more value-added services, into manufacturing (Oil &Gas)/automobile components in India) and a service business (rental of scaffolding and formworks) within GCC.

14. The latest date for shipment under the L/Cs for the steel pipes was 15 September 2020 and the documentation required under the L/Cs included a complete set of Bills of Lading (the “B/Ls”) made out to the order of SBI, with “house B/Ls and charter party B/Ls are not acceptable”. The Second and Third Defendants, apparently through the agency of the Fourth Defendants presented B/Ls numbered HSSHAMU12 and HSSHAMU13 through their bank, the Bank of Communications, Jiangzhou Branch, to SBI on 29 September 2020, but the standard checks then carried out by representatives of the trade Department at SBI with the IMB revealed that no bills of lading had been issued by the owners of the vessel in question and that the bills presented were therefore thought to be fraudulent. They were returned to the negotiating bank with the statement that the documents could not be processed “due to our internal compliance reasons”. The IMB reported that they had been advised by “related party” that the original bill presented under one L/C had not been issued but that it needed more time to ascertain the position on the other. The IMB advised on 5 October that the vessel Hong Fa Shang Hai was reported as having sailed from Shanghai on 20 September, having only arrived there on 15 September, the last date for shipment under the L/Cs. The IMB reports issued then and thereafter stated that:

15. SBI’s Anti Money Laundering (the “AML”) Policy was relied on by SBI in relation to the actions it took and in particular section 9 which commences with these words:

16. In accordance with its AML Policy, an internal Suspicious Activity Report (the “SAR”) was issued on 6 October 2020 by the Branch Trade Department to the Branch’s Money Laundering Reporting Officer (the “MLRO”), Mr Madwhwani. The SAR identified the 13 of 52 source of suspicion as “Adverse IMB check report for BL” and enclosed the IMB reports for both of the B/Ls received under the respective L/Cs and copies of the complete set of documents presented under the L/Cs. The B/Ls named SBI as consignee, were on their face signed by Faith Link Shipping Co Limited as agents for the carrier Shanghai Hongfa Shipping Co Ltd and were dated 15 September 2020.

17. On the same day, October 6, Kirtanlal issued a request to SBI for a short-term loan of USD 500,000 for 150 days in order to pay “routine business expenses”.

18. On or around 7 October 2020, according to the evidence of Mr Trivedi, the finance manager of the Kirtanlal Group, he was told over the telephone by his suppliers that the shipping documents presented under the L/C’s had been returned to the negotiating bank as the result of a major compliance issue. Mr Roongta (Kirtanlal’s CFO), in his witness statement said that he was informed by Mr Trivedi on or around 7 October that the SBI Facility was suspended due to a compliance issue in the documents negotiated by the Second and Third Defendants.

19. This led to an enquiry of the Second and Third Defendants by Kirtanlal and a request by Mr Trivedi to his team to get the copies of the Bills of Lading in question from the destination port agent. Upon receipt of them on 14 October, in his witness statement he said that “my team and I found that the Bills of Lading negotiated by the Second and Third Defendants under the LC documents were not the Original Bills of Lading but were unauthorised or Fraudulent Bills of Lading. In particular, I found out that the “Consignee” and “On Board/Issue candidate” on the Fraudulent Bills of Lading were different from the Bills of Lading received from the destination port agent.” Thus, Kirtenlal became aware, on this evidence, that not only were the B/L’s presented to SBI backdated but the consignee had been changed from the original B/Ls because the latter had named Kirtanlal and not SBI, which was also a requirement for payment under the L/Cs and a requirement of the FA and Trust Receipt documentation. In the meantime, Mr Trivedi had, on 11 October, made separate arrangements for the shipping documents to be sent to Mashreq Bank, with whom Kirtanlal had a facility, for acceptance without a L/C but with payment to follow 90 days from acceptance. The documents were accepted by Kirtanlal and sent to Kirtanlal’s purchasers who took delivery of the cargoes in Mumbai. On the evidence of Mr Trivedi, Kirtenlal’s on sale documents had originally also required shipment by 15 September in order to obtain payment under letter of credit. Kirtanlal’s purchase and sale could thus have gone through on the basis of the fraudulent B/Ls had SBI accepted the documents presented under the L/Cs.

20. From this point onwards, Kirtanlal sought reinstatement of the facilities on the basis that they had not been involved in the fraud, but were met with the response from SBI employees that there were compliance issues.

21. Under section 9 of SBI’s Money Laundering Policy, the MLRO was bound to take action on receipt of a SAR. The FIU referred to below is the Financial Intelligence Unit of the Central Bank of the UAE.

“Once an internal SAR / STR is filed with MLRO or an alert with potential money laundering risk is generated, the MLRO will then be required to review the report (Internal SAR / STR) / alert and investigate the matter to determine whether in accordance with Federal AML legislation a Suspicious Activity / Transaction Report is required be made to the FIU and documents such determination. The matter may be discussed with the Senior Management (CEO/VP) of the Branch; however, the decision to file an SAR / STR needs to be independently taken by the MLRO. If the MLRO concludes that suspicion is certain, the MLRO will file an SAR / STR with the FIU through the Go AML software. The MLRO is also required to notify the DFSA of the making of such Suspicious Activity / Transaction Report immediately following its submission to the FIU through DFSA e-portal. A Suspicious Activity / Transaction Report (“SAR / STR”) will be lodged with the FIU by the MLRO when he knows, suspects, or has reasonable grounds for knowing or suspecting:

22. On 14 October 2020 the MLRO issued his MLRO Investigation Report in which he set out the results of the IMB’s investigations, stating that, with the IMB latest report of 9 October 2020 to hand, it was clear that both the B/Ls presented to SBI were not genuine “and purportedly not carrying the underlying goods as per L/C “. The MLRO Report stated that:

23. In the context of dealing with the client, the MLRO Investigation Report stated: “Since an SAR is being filed, and the Branch not processing any further transactions for the client may amount to tip-off the client/exporter, Branch is classifying the client as having High AML risk and would require the approval of Senior Management & MLRO for any further transaction for this client. The Branch would be conducting Enhanced Due Diligence in this matter. Further, the following future course of action would be taken in respect of the client…… .”

24. On the evidence of Mr Madwhani, which was not in any way challenged, the course of action set out was one which was discussed by him with Mr Shenoy, the CEO of the DIFC branch of the SBI. On 15 October he filed a Suspicious Transaction Report (the “STR”) with the FIU in similar terms to his Investigation Report, by uploading it on to the FIU website, in which the above events were set out. It was stated that the goods involved in the transactions were in line with the business profile of the customer and that the named beneficiaries of the L/C’s were also in the relevant line of business according to the Dunn & Bradstreet report which SBI had obtained. The STR set out the same conclusions as appeared in the MLRO Investigation Report, referred to the limit of USD 10 million in the FA and the actions which had been taken and those which were not being taken in order to avoid any tip-off. Again, it was said that, since the B/Ls came from the exporter’s bank, it could not be said that the customer was privy to the fraud. The STR referred to the amounts currently outstanding of USD 1 million on the Short-Term Facility, USD 1.03 million on the Bank Guarantee facility and USD 0.58 million on the two L/Cs in respect of the cargoes referred to in the BLS in question. It set out the intended course of action of not extending any further credit in any way and sought guidance from the FIU.

25. On 15 October 2022, the FIU confirmed receipt of the MLRO Investigation Report in what Mr Madwhani understood to be a template form automated response, which stated that it had been added to the FIU’s database. The response stated that the 17 of 52 report would be investigated and any instructions or additional information required would be the subject of further communication, if necessary. The response concluded by stating: “You should always abide by Article Number 17 of Federal Law No. 20 of 2018 regarding Combating Money Laundering, financing of Terrorism and Illegal Organisations. Please consider this message as a final response.” As it transpired, the FIU never gave any further instructions nor requested additional information, thus neither endorsing nor rejecting the course of action that SBI had proposed. It left the Branch to take whatever decisions it considered appropriate in the light of its report to Head Office, but there was no evidence that this stance was ever communicated to SBI, other than by continued silence on the part of the FIU. Mr Madwhani had expected a response to follow after a period of time during which such an investigation would take place, but nothing further was heard, although two way and three way correspondence between Kirtanlal, SBI and the DFSA took place from October 22 onwards and continued into the middle of 2001.

26. SBI thus adopted the position that it would not call in the existing facilities granted by the FA but would not extend any further credit to Kirtanlal, telling it only that compliance issues had arisen. This was first stated on 7 October 2020 when SBI representatives told the finance team at Kirtanlal that the negotiable documents submitted by the Second and Third Defendants had been returned to the negotiating bank in China due to “a compliance issue” in the documents. On the evidence of Mr Shah of Kirtanlal, it was apparent by 16 October 2020 that further requests under the FA would not be processed by SBI and that the facilities were therefore effectively suspended, save for fulfilment of existing obligations on both sides in relation to outstanding loans and guarantees.

27. This issue had led to an investigation by Kirtanlal’s finance team which resulted in their conclusion by 14 October that the Second and Third Defendants had actually shipped the contracted goods but submitted fraudulent bills of lading with the intention of presenting documents which complied with the terms of the L/Cs and which had therefore been back- dated to show shipment by 15 September 2020. Kirtanlal almost immediately claimed USD 10 million from the Fourth Defendant which was said to have acted as agent for the Second/ Third Defendants because of the problems that this was causing it in respect of its relationship to SBI and its inability to open new letters of credit or borrow more money. In due course, on 23 October 2020, the Fourth Defendant wrote a letter of apology to Kirtanlal, stating that “in order to save time for our valued customer and meet the LC requirement, after approval by the shipper 18 of 52 owner”, it had issued BLs with the date when the vessel berthed as opposed to its sailing date.” It also sent a letter, purportedly from the agents which had issued the B/Ls in question, which Kirtenlal immediately rejected as a fake letter. From the terms of the Fourth Defendant’s apology, the existence of an original set of B/Ls was acknowledged, which named Kirtanlal as the consignee, not SBI, which was said to be the result of a “local agent personal error operation” where the local agent had no right to issue an original BL or even a draft B/L. Whilst denying any fraudulent intention and saying that the situation would never recur, it was apparent from that letter that the B/Ls had been deliberately backdated, although it was not clear who was responsible for issuing them and who else might be complicit.

28. On 22 October 2020, a meeting took place at SBI’s offices in the DIFC which was attended by Mr Roongta and Mr Trivedi to discuss the suspension of the facilities with Mr Maneesh Raj (VP of Credit at SBI) and Mr Kaushal (Manager of Credit at SBI) at SBI ‘s DIFC branch. There is a dispute as to what was said at that meeting. In Kirtanlal’s witness statements, it was said that SBI told them that SBI had taken a decision to terminate the facility permanently due to compliance issues and that a formal letter would be forthcoming, Mr Raj of SBI, in his witness statement, said that all that could be said, in circumstances where operation of the Facilities for any new business was suspended, and all that was actually said, was that the matter was under “compliance” and an update would be given “once we were given the all clear by our compliance team.”

29. Whatever was actually said at that meeting, the evidence of Mr Shah (the Chairman, founder and 100% UBO of Kirtanlal) was that he instructed Mr Roongta to escalate the matter by filing a complaint with the DFSA, copied to the Chairman of SBI, which was done on 22 October 2020, in an email addressed to both the DFSA and the Chairman/Directors of SBI’s parent company in India, IBG, later in the day after the meeting. This referred to the suspension of the Facility on 6 October 2020 as taking place at the same time as the return of the documents to the negotiating bank in China. It maintained that Kirtanlal had no knowledge or involvement in the fraud and relied on its prior good record with SBI. The email maintained that the suspension of the facility by SBI was uncalled for and harsh and that SBI had failed to consider all the circumstances and that its sole consideration had been the political relationship between India and China, despite the fact that SBI was a DFSA regulated bank and Kirtanlal was a UAE entity. The email concluded with a “request for your kind 19 of 52 intervention in directing SBI that the Facility may be re—instated until alternative facility is negotiated and finalised by KI with another bank at same or better terms.”

30. No mention was made of any termination of the facilities in this complaint, the request being for reinstatement in the context of a suspension of the FA. The email was followed up by further emails of 24 October and 26 October which attached the apology from the Fourth Defendant and stated that delivery of the cargoes had taken place to Kirtanlal’s purchasers and there were no quality/quantity claims in respect of the shipments. The complaint was made that despite seeking official communications from SBI in relation to suspension of the Facility, SBI’s local officers had pleaded helplessness due to “compliance”. The later email concluded thus: “We remain confident of negotiating an alternative credit facility with another bank at similar or better terms, and therefore, plead for SBI to stay put with the Facility until alternative arrangements are in place. We undertake to provide SBI with a counter guarantee from alternative bank for the value drawn under the Facility has on the date of the closure.”

31. The receipt of the email of 22 October by the senior management at the parent company in India, IBG, including the Chairman, led to a telephone call from the Chief General Manager who requested that a report be sent immediately by SBI to IBG explaining the position. Mr Shenoy, the CEO of the DIFC branch sent an email of 23 October 2020, in which he described the actions taken, stating that “we have kept credit facilities in abeyance and allow the customer to repay outstanding loans/TRs/BGs on respective maturities and limits will be either reinstated or withdrawn based on the advice of FIU”. It was said that further advice would follow once the DIFC branch had heard from the FIU at the Central Bank.

32. On 27 October 2020, a Memorandum was penned by Mr Ravi, the Deputy General Manager of Credit at the Head Office in India, directed to the General Manager of Credit and to the Chief General Manager and Deputy Managing Director of IBG, referring to the complaining emails of 22 October and 26 October from Kirtanlal. The essence of the 23 October email and the October report from the DIFC branch was set out by reference to the SAR and STR, with the action taken by the Branch to reclassify Kirtanlal as High AML risk because of the fraudulent B/Ls, to suspend further transactions in the account until the matter was resolved by the FIU, with limits either to be reinstated or withdrawn based on that advice. The crucial parts of the 27 October Memorandum penned by Mr Ravi, the Deputy General Manager of Credit -II at Head Office followed word for word the 23 October email report from Mr Shenoy in relation to the history of the matter and the actions taken by the Branch.

33. The 27 October Memo included the following, under the heading “Action taken”:

34. The Memorandum concluded with Mr Ravi’s recommendation, which was subsequently endorsed by two further senior bank officials, before approval was given by the Chief General Manager of IBG on 28 October and the Deputy Managing Director of IBG on 30 October 2020. 21 of 52 “Based on the aforesaid, the company has changed its licence allowing them to enter into non-core areas, submitting faulty documents attracting the attention of the regulators puts the company’s transaction under High risk. We therefore recommend that our DIFC Dubai may explore exiting from the captioned unit’s exposure. On your approval, we would advise DIFC branch to discuss with the borrower and exit-the relationship at an early date.”

35. The actual reasons put forward by the Head Office for its recommendation to the Branch were therefore the change in the nature of the business that Kirtenlal was conducting, as reflected in the change of trading licence, and the submission of the fraudulent B/Ls by its supplier which had led to the need for involvement of the regulators, which made Kirtanlal a High Risk from an AML perspective.

36. On the audit log relating to this recommendation from the Deputy General Manager of Credit at the head office, it can be seen that other members of senior management in India joined in the recommendation on 28 October and on 30 October 2020, the Deputy Managing Director accepted the proposals and decided that the DIFC Branch would be advised to “comply with our instructions” and exit the relationship as an early date.

37. A KYC Triggering Event Review was completed by the Branch on 1 November 2020 which recorded its decision in the light of that recommendation/ instruction. This referred to the SAR and STR, the change in Kirtanlal’s risk categorization due to the changes in Kirtanlal’s activities in foraying into general trading activities (non-core areas) and the change in its licence enabling it to do so; to an unusual transaction in the remittance recall received from Mashreq Bank in August 2020 and to the reasons for exiting the relationship. Three reasons were given namely: “1. The Branch was presented with two BLs as part of the trade transactions and after conducting the independent checks (IMB) it was found out that the original BLs were not issued; 2. Entry into non-core areas; 3. In August 2020, a remittance received from Mashreq Bank for Kirtenlal was called back. As per the policy, the amount was blocked for three weeks till enquiries were conducted and response received from remitting bank.” Under the steps taken for Enhanced Customer Due Diligence, it was said that there was to be no fresh disbursement under the credit limit, no further trade transactions and that the existing facility should run until maturity. A fresh AML Risk rating was assigned as “High”. This was signed off by four representatives as being recommended by the Manager, approved by the Vice President, with the concurrence of the Senior AVP (compliance) & MLRO, Mr Madwhani, and reviewed by the Chief Executive Officer, Mr Shenoy.

38. A meeting took place on 4 November 2020, attended by Mr Shah and Mr Roongta for Kirtanlal and by Mr Shenoy (CEO), Mr Raj and Mr Debnath (VP Operations). At that meeting a letter dated 3 November 2020 was handed over to Kirtanlal’s representatives which was headed in the same way as the 27 October Head Office Memorandum: “M/s Kirtanlal International DMCC. Complaint regarding suspension of working capital facility.” It stated:

39. There is, once again, a dispute as to what was said at the meeting and Kirtanlal have produced minutes of the meeting which were drafted by Mr Shah with Mr Roongta’s cooperation, but which were never sent to SBI, although sent to the DFSA as part of the continuing efforts by Kirtanlal to persuade the DFSA to authorize or instruct SBI to reinstate the facilities. The Minutes stated that:

40. By contrast, Mr Shenoy and Mr Raj, in their witness statements maintained that the meeting was short with the 3 November letter handed over and Mr Shah and Mr Roongta saying that the exit was abrupt and they needed more time. Mr Shah recalled making a request for continuation of the facility for at least 3 to 6 months so that Kirtenlal could approach other lenders for a similar facility, to which Mr Shenoy had responded that the existing amounts outstanding would continue until maturity. His evidence was that he had said categorically that the Facility could not be continued and extending it was not in their hands because the Bank did not have any discretion to give further time and that the Facility would lapse in January 2021. In referring to the letter dated 3 November which had been prepared prior to the meeting and signed by him, he said that this was based on the approval for exit of the Facility given by the Deputy Managing Director of the parent company, to which the reference to “competent authorities” in the letter related.

41. In an email of 5 November, Mr Shenoy reported to Head Office on the meeting saying that the reasons for exiting the Facility were explained, which Mr Shenoy said in evidence was a reiteration of what had been repeatedly said before, namely that there were compliance reasons, without descending into any more detail. Everyone knew what this meant as the cross reference in the “Exit Letter” to the emails of complaint from Kirtanlal in October all referred to the issues surrounding the fraudulent Bills of Lading, where Kirtanlal was protesting its own lack of involvement. All were aware of what Kirtanlal had said in complaining to IBG in maintaining its innocence in relation to the fraudulent B/Ls and that it was these B/Ls which represented the compliance issue. The effect of the exit would be the continuation of the suspension of facilities until the natural expiry of existing facilities on January 6 with commitments already concluded remaining outstanding with the request to repay as soon as possible. The exit inevitably meant that there would be no renewal, as Kirtenlal recognized.

42. On 17 November 2020 and 8 December 2020, Kirtanlal again requested SBI to continue the facilities for 3 to 6 months. Kirtenlal accepted that these continued requests constituted requests under clause 7.3.1 of the FA. On 24 January 2021, Kirtenlal again sought restoration of the Facility until alternative arrangements could be finalised by it for banking facilities elsewhere. No written response was forthcoming from SBI and the term of the FA expired on 6 January 2021.

43. On 22 December, at the end of the 90 day period, Kirtanlal informed the Second and Third Defendants that it would not pay for the goods against the documents negotiated through Mashreq Bank because of the losses suffered by it as a result of the negotiation of fraudulent B/Ls. It has not paid for the two cargoes and it appears from Kirtanlal’s evidence that the Second and Third Defendants have claimed on their Chinese insurers which have blacklisted Kirtanlal with resultant effect on its Chinese business. Kirtenlal no longer does business with the Fourth Defendant which had been one of its major Chinese suppliers, and which it described as its Number One supplier, but it maintains that it has found other suppliers, with whom it trades, albeit on less favourable terms.

44. Between 27 October 2020 and 2 September 2021, Kirtanlal corresponded with the DFSA in an attempt to obtain some form of redress in relation to SBI’s decisions and to complain about the inaction of the DFSA in relation to its complaints against the DFSA itself for not requiring SBI to reinstate its facilities. Kirtanlal was seeking to gain the aid of the DFSA in reinstatement of the facilities with SBI but the DFSA refused to assist, stating that it was a matter between SBI and Kirtanlal, whilst giving no further guidance or instructions to SBI beyond what had been said in its response of 15 October to the original STR.

45. At all material times, Kirtanlal had banking facilities with Mashreq Bank and following the decisions of SBI obtained increased facilities and sought to obtain additional facilities from other banks. It did obtain such alternative facilities but the extent and adequacy of them, and the exact dates when they were obtained are the subject of dispute in the context of the loss that is claimed by Kirtanlal and is discussed elsewhere in this judgement.

46. Putting to one side the issues of fact relating to losses and exactly what was said at the meetings on 22 October 2020 and 4 November 2020 and the issues which arise in relation to Kirtanlal’s claims that SBI did not act honestly and in good faith and/or acted capriciously, arbitrarily, irrationally, perversely, maliciously and vindictively (all of which have been maintained at one time or another and which lie at the heart of its claim) there would appear to be no other material issues of fact in relation to issues of liability and duty in relation to Kirtanlal’s claim that SBI is liable to it. For the purposes of this action, SBI does not say that Kirtanlal was privy to the presentation of fraudulent bills of lading but does maintain that it was entitled to be suspicious about that at the time. SBI maintains that it was entitled, as a matter of contract, first to suspend the facility 25 of 52 and then to exit the FA and refuse to renew it on its expiry on 6 January 2021 and that, in any event it acted entirely rationally, responsibly and reasonably in doing so.

The Course of the Action and the Witnesses

47. The pleadings served by Kirtanlal were confused, prolix and obscure and it was hard to ascertain exactly what causes of action were being pursued and on what grounds. I ordered it to serve a revised Schedule making plain what it was claiming and it did so on 7 February 2023, with a reply from SBI on 14 February 2023, followed by further particularization by Kirtenlal of its case, as required by the Court, which has brought a measure of clarity to the proceedings, as has the instruction of Counsel, for which I am grateful. It is now apparent that the areas of factual dispute are limited and the witness statements were therefore reasonably brief.

48. Witness statements were served by Kirtanlal in respect of Mr Shah, Mr Roongta and Mr Trivedi, whilst SBI adduced evidence from the Branch CEO, Mr Shenoy and from two members of its Credit Department, namely Mr Raj and Mr Kaushal. Two exemployees of SBI were the subject of a witness summons (subpoenaed) by Kirtanlal, namely Mr Debnath who was present at the meeting of 4 November 2020 and Mr Madhwani, the author of the MLRO Report and filer of the STR with the FIU on 15 October 2020. Each of the subpoenaed witnesses provided a witness statement, after being subpoenaed, it being agreed that both parties could cross examine them. Each of these witnesses duly gave evidence and was cross examined. Additionally, Kirtanlal relied on a forensic accountant as an expert, Mr Puri, in relation to the loss and damage claimed and SBI relied on its appointed expert Mr Girard.

49. Mr Shah was the first witness. He felt strongly that Kirtenlal had been hard done by, as he maintained that it was innocent in relation to the fraudulent B/Ls. The strength of his feelings had led him in prior correspondence to cast some wild allegations against representatives of SBI of dishonesty and vindictiveness and to approve pleadings to the same effect. Having originally stated that the reasons for SBI’s attitude as of October 22 was hostility against China, Kirtanlal, under his aegis and that of its CFO, Mr Roongta, switched to say that the decision was motivated by bad faith in the sense of dishonesty and malice.

50. The same comment applies to the evidence of Mr Roongta, Kirtanlal’s CFO, who was not prepared, in cross examination, to accept matters which the documents plainly showed. I found him an unreliable witness whose evidence I would only accept if it was corroborated by documents which were not drafted by him. He was particularly partisan in his evidence as to the losses allegedly suffered by Kirtanlal as the result of the loss of the banking facilities with SBI, after suspension on October 6 and then termination on 4 November. Despite saying in his own witness statement at paragraph 15, that Kirtenlal became aware of termination only after the complaint was made to the DFSA, which occurred following the meeting of October 22, he still maintained that he had been told of termination at that October meeting and not on 4 November. His witness statement said that he discovered at the 4 November meeting that the reason for termination by SBI was that Kirtanlal had complained to the DFSA, but he appeared to base that on the heading to the letter of 3 November which was handed over, whilst equivocating in oral evidence as to what exactly was said as the reason for termination. The idea that SBI personnel would ever say that the reason for termination was a complaint to the DFSA appeared to me to be fanciful, even if it had been the reason and at one point in his evidence, Mr Roongta appeared to accept that. I could also not accept his evidence in relation to Kirtanlal’s difficulties in attempting to obtain substitute bank facilities following the termination of the FA facilities and the reason he advanced, namely that SBI had impeded Kirtanlal in its pursuit of them, by impugning its integrity in conversations with potential lenders.

51. Mr Trevedi was perhaps a little more prepared than Kirtanlal’s other witnesses to accept what the documents showed but he too lied about the meeting of 22 October in saying that the facilities were terminated then, when his correspondence thereafter referred expressly to a suspension. He also would not accept that Kirtanlal appreciated how serious the issue relating to the fraudulent B/Ls was, when the documents showed that he was telling the Fourth Defendant that it was jeopardizing the whole relationship with SBI and was leading and could lead to substantial losses. He knew full well what the consequences of such fraud might be for the facilities extended to Kirtanlal and 28 of 52 could not have been surprised either at the suspension or termination. He was reluctant to accept that the existence of fraudulent B/Ls would impact on the security that SBI should have had in relation to any payment made under L/Cs in respect of cargoes purportedly carried thereunder. Despite being paid by its own purchasers under fresh arrangements made in respect of a third set of B/Ls on a collection basis, through Mashreq Bank, he agreed that payment had not been made to the Fourth Defendant because of the losses they were alleged to have caused. He did, however, accept that Mashreq Bank had offered continuous financial support to Kirtanlal from December 2021, as stated in its letter referred to elsewhere in this judgment.

52. He was loath to accept the obvious conclusion to be drawn from the documents that Kirtanlal had sought to move into new areas of business around the time that COVID first reared its head. It was plain both that Kirtenlal looked for opportunities in the provision of scaffolding then automobile components, mobile phones and polymers which required the obtaining of a General Trading Licence in the DIFC and that Kirtanlal considered that it needed the permission of SBI for financing such trade under the terms of the FA. That permission was requested from 8 September onwards, which was never given and constituted one of the reasons for SBI not wanting to continue with the FA, when it came to consider the position following the discovery of the fraudulent B/Ls.

53. I regret to say that none of the fact witnesses whose evidence was adduced by Kirtenlal proved to be credible on any issue that was material to the matters which I have to decide. All three were to a greater or lesser extent dishonest in their evidence and sought to argue Kirtanlal’s case. Their evidence could not be relied on whether in the context of issues of fact relating to liability or issues of fact relating to loss and damage, whether in the context of other bank facilities or the business of the company after October 2020. As part of that, all three sought to minimize the effect of Covid on Kirtanlal’s business despite the comments in the audited financial statements which illustrated its serious impact on the business

54. There were two witnesses who attended as a result of witness summonses served on them by Kirtenlal. I allowed Kirtenlal to cross examine Mr Madwhani, who was now employed elsewhere by another bank. I found his evidence to be objective and compelling as to the course of events at SBI, which was entirely consistent with the documents as referred to earlier in this judgement. No suggestion was made that he had not fulfilled his functions as MLRO as he should.

55. Mr Debnath had limited evidence of relevance to give, having no real recollection of the contents of the meeting on 4 November which he had attended in part. He recalled being present and a letter being handed over, whose contents were not known to him.

56. It became apparent from his evidence and that of Mr Shenoy, Raj and Kaushal that the general practice at the DIFC branch (where there were only about 20-25 people who worked in close proximity to each other on one floor) was, unlike many banks, not generally to take notes of meetings where a formal record or the result appeared in a letter, report or email which followed. Discussions took place between members of management which were not recorded which led to the production of the documents which are referred to in the preceding section of this judgment. Care was taken to observe the Money Laundering and compliance issues as to what could be discussed with whom, so as not to interfere with the independent enquiries of the MLRO but the course of action to be followed in the light of the SAR, Investigation Report and STR filed with the FIU, had necessarily to be the decision of senior management in the light of the responsibilities incumbent on the branch as the result of the MLRO’s investigations and such was discussed between Mr Madwhani and Mr Shenoy. Much criticism was directed at the absence of documentation of discussions between employees at the Branch and even Head Office, but I did not see how this could advance Kirtanlal’s case when it was not being said that materials were being hidden from view, and the basis of decision making was revealed in the documents to which I have already referred.

57. Mr Shenoy was attacked in cross examination on the basis that he had breached compliance rules by copying himself in, on his personal email address, to an email dated 31 December 2020, with its accompanying chain of emails, all of which he forwarded to the DFSA on 3 January 2021. It clearly came as a surprise to Mr Shenoy that he had done so and it seems that this was an inadvertent error on his part and could not seriously be taken as a signal of general unreliability in relation to his evidence as a whole. The fact that he sent an email to the DFSA which showed him being copied in on his personal email account illustrates the inadvertence and the absence of any intent to be covert. He was also criticized on the basis of lack of documentary records of meetings with other members of his management team and the absence of drafts of the report he made of 23 October 2020 to the Head Office in India. None of this, in my judgment affected his reliability as a witness.

58. Despite the allegation that Mr Shenoy acted out of malice in writing his email of 23 October to Head Office and terminating the facility, it was never put to him in cross 30 of 52 examination that this was the case. He maintained that he had not felt strongly about the complaints made by Kirtanlal on 22 October and thereafter to Head Office and the DFSA, complaints against a bank being an occupational hazard for bankers. He plainly felt strongly about the accusations of bad faith and dishonesty that had been made against him, but that was unsurprising and I had no reason to doubt his honesty and integrity on that basis.

59. He was scrupulous in following bank procedures other than the one lapse referred to in the paragraph 56, and because he operated at a fairly high level with documents drafted for him, his knowledge of the details lying behind the contents of his 23 October email to Head Office was limited. He thought that had been drafted for him, although he did not know by whom, and neither Mr Kaushal or Mr Raj said that they had been involved. He did not know to what the “transactions with suspicious nature” referred to, if they did not relate to the Mashreq Bank recall request or the non-core activities, but I reject any suggestion that he was “gilding the lily” when referring to such matters, as the ensuing paragraph played down their effect, as compared with the fraudulent B/Ls issue, where he expressed doubt as to the professed innocence of Kirtanlal because they had found a way to get the goods other than by using the letters of credit that SBI had issued. Whilst it matters not, it seems most likely that this reference to “transactions of a suspicious nature” was a reference to Kirtanlal branching out into trade in automobile and mobile phone components which SBI’s compliance policy considered risky from an AML perspective. No banker at Head Office would have considered that this was a reference to suspicious transactions which justified an SAR or STR since that would obviously have been mentioned, if it was the case and, contrary to suggestions made by Counsel for Kirtanlal, it would also have been obvious that the fund recall request had come to nothing with the funds being unblocked, without that being expressly stated. There was nothing in the 23 October email from which I could conclude that he was doing anything other than responding appropriately to the Head Office request for information in relation to the complaint about suspension of the facilities for compliance reasons. He did not recommend termination and his email concluded by saying that the Branch was awaiting the response of the FIU.

60. It is clear from the documents that, although the Head Office made a “recommendation” to the Branch about termination, it was in reality the Head Office which made the decision and that the KYC Triggering Event Review was merely the Branch putting into effect the decision of Head Office. The decision therefore did not lie with Mr Shenoy and there is no basis for the allegation that he made a decision to terminate in bad faith 31 of 52 or in malice as pleaded. He did not recommend termination and the decision made, as recorded in the KYC Review was one which the Branch was effectively instructed to make by Head Office.

61. As to Mr Raj and Mr Kaushal, their evidence was essentially unchallenged save for their testimony in relation to the October and November meetings. In closing Counsel for Kirtanlal described both as credible and sincere witnesses. Whilst Mr Raj, in hindsight, said it would have been better to have made minutes of the meeting of 4 November 2020, because it became the subject of dispute, it did not strike him as odd at the time, when a letter was being handed over which spoke for itself against the background of which everyone was aware in relation to the fraudulent B/Ls.

Conclusions of Fact

The Meetings of 22 October and 4 November 2020

62. Having heard the witnesses and examined the contemporaneous documents, I am left in no doubt that what was said to the representatives of Kirtanlal at the meetings on 22 October 2020 and 4 November is exactly what the SBI witnesses have testified was said, both in their witness statements and in cross examination.

63. It follows that the part of the Minutes of 4 November, drafted by Mr Shah and/or Roongta relating to what they alleged was said at the meeting of 22 October was inaccurate and, worse than that, can only be seen as deliberately so.

64. Whilst of course, the documentary evidence surrounding the 4 November meeting is not so clear cut because of the minutes of the meeting of 4 November drafted by Mr Shah and/or Mr Roongta, the letter of 3 November which was handed over speaks for itself in speaking of exit from the credit facilities. It is of no help to Kirtanlal to place reliance on the heading to that letter which refers to the “Complaint regarding suspension of working capital facilities” nor to the opening line which referred to Kirtenlal’s emails sent of 22, 24 and 26 October and the advice of the “competent authorities” to exit “accordingly”. What those emails referred to was the situation brought about by the presentation of fraudulent B/Ls (described by Mr Roongta as “an indisputably unpardonable act” on the part of the Fourth Defendant). As was the position on 22 October, everyone knew about the circumstance which had led to the suspension of the facilities on the grounds of “compliance”, but because of the fear of opening itself up to liability for tipping off, a criminal offence, SBI could not expressly refer to the fraudulent bills as the reason for refusing any further loans or facilities and 33 of 52 exiting the existing relationship. Because the letter went on to request Kirtanlal to arrange for repayment of outstandings at an early date to facilitate complete exit, this was a termination of the facilities, albeit with time given to repay, rather than insistence on immediate repayment.

The Reasons for Exit/Termination

65. I also conclude, having heard SBI’s witnesses and read the documents which passed between Mr Shenoy and the Head Office of SBI, his email report of 23 October 2020, the Memorandum of 27 October from Mr Ravi, the Deputy General Manager of Credit at Head Office and the endorsement of his recommendation by other senior staff, including, in particular the Deputy Managing Director on 30 October 2020, the KYC Triggering Event Review of 1 November 2020, that the decision taken to exit/ terminate was not perverse, arbitrary, capricious or irrational in any way, but was based on a process of thought revealed by those documents. This allegation and any suggestion that irrelevant matters were taken into account and relevant matters not properly considered which first emerged in the written opening at the trial were departures from the pleaded case and meant that SBI had not had the opportunity to adduce any evidence to rebut such a case, as opposed to the case of dishonesty/malice. It cannot stand, however, both as a matter of fact, and as appears below as a matter of law.

66. Although different factors were put before the Head Office personnel for consideration, it is clear from the 27 October Memorandum that the recommendation was made because of Kirtanlal’s change of license to that of a General Trader, to its movement and potential movement to non -core areas of business from its historic patterns of trade and the submission of faulty documents under the L/Cs attracting the attention of the regulators (meaning the need to submit an STR to the DFSA and FIU) which put the Kirtanlal transactions into the area of High Risk, from SBI’s perspective. That is made clear by the last three sentences of the Head Office Memorandum set out at paragraph 34 of this judgment. Similarly, the DIFC Branch KYC Triggering Event Review set out three reasons for exiting the relationship, namely the fraudulent B/Ls, the entry into non- core areas of business and the remittance recall, which led to a blocking of the account for 3 weeks before its removal.

67. Whilst criticism was advanced by Counsel for Kirtanlal, in respect of any reliance on the last mentioned remittance recall in July/August 2020, because it was shown to be an innocent recall of a transfer from Kirtanlal’s account with Mashreq Bank to its account with SBI, as the result of a mistaken need for crediting the latter with the sum 34 of 52 of just over USD 29,000, the fact remains that it was something which had to be recorded on Kirtenlal’s record, despite the removal of any suspicion on cancellation of the request for recall and the establishment of the underlying position. It would not itself be reasonably seen as something which would, on its own, create a problem for SBI, but questions of reasonableness do not arise here. It was a “red flag” but that was all.

68. Further criticism was directed at the reference in Mr Shenoy’s report of 23 October, repeated in the Head Office Memorandum of 27 October to “transactions with suspicious nature was also observed in few transactions” in the last year as another red flag in addition to the remittance recall of August 2020. Mr Shenoy could not recall what this referred to, but when seen in context it appears to be a reference to movement away from the historic patterns of trade into areas such as mobile telephones and automotive parts which were seen as vulnerable trades in the context of money laundering. This element did not appear as an independent reason in the reasons advanced either by Head Office in the Memorandum or by the Branch in the KYC Triggering Event Review for the decision to terminate.

69. As to the criticism that SBI failed properly to take into account the innocence of Kirtanlal in relation to the fraudulent B/Ls, it is obvious that this was a fundamental matter considered by Head Office since that was the whole basis of the complaint sent to it by Kirtanlal which they were considering alongside the Branch email of 23 October which still expressed doubts as to whether or not Kirtanlal was actually privy to the fraud. It cannot be said that suspicion was irrational or that there was any irrationality, perversity or Wednesbury unreasonableness in the decision that SBI took, since the Kirtanlal account was seriously affected by its dealing with counterparties in China who were prepared to manufacture B/Ls to obtain payment under L/Cs opened by SBI on Kirtanlal’s application. Both the 27 October Head Office Memorandum and the KYC Triggering Event Review show that SBI now regarded Kirtanlal as High Risk in its AML Risk Rating, which was a movement from Medium Risk in the previous annual Rating Reviews of 31 July 2019 and 29 April 2020.

70. I conclude that the decision made by Head Office and by the Branch to refuse to allow further extension of facilities under the FA and not to renew them, by exiting from them and allowing a certain degree of latitude in repayment was not only rational but also reasonable, when seen from the bank’s perspective in protection of its own interests.

The Credit references/ Letters of Good Standing

71. This was another area where Kirtanlal’s case suffered from an inability to face the facts. SBI cleared the position with the DFSA in January 2021, proposing that it should be able to give credit references to other banks and told Kirtanlal that it would do so. It would give credit references in relation to the conduct of the account by Kirtanlal, if asked, regardless of the presentation of fraudulent B/Ls by its number one supplier. So far as SBI was concerned, there was no such thing as a Letter of Good Standingonly credit references which referred to the creditworthiness of a customer, which in the case of Kirtanlal was good as it had always paid on time.

72. Kirtanlal alleged that despite giving such a reference to Sharjah Islamic Bank in January 2021, SBI was responsible for Kirtanlal’s difficulties in obtaining substitute facilities. Mr Roongta’s evidence was that Kirtanlal approached 13 different banks between November 2020 and February 2023 and succeeded in obtaining facilities from two of them, Emirates Islamic Bank and National Bank of Fujairah in February 2023. Mr Roongta said that what he described as a letter of good standing from a current lender, was a standard document requested by a bank approached by a borrower seeking facilities from it. He said that he recalled requests from the Sharjah Islamic Bank, the Bank of Baroda and Commercial Bank International. He maintained that SBI was inconsistent on this, having told him and Mr Trivedi that they would provide a good reference. He accepted that in January such a reference had been provided to Sharjah Islamic Bank but that Bank of Baroda and RAK Bank were provided with negative references by SBI. The finger was pointed at Mr Shenoy but despite his express denial in his witness statement, he was never cross examined in relation to this allegation.

73. On the documents, Kirtanlal’s case cannot succeed.

74. The evidence of SBI’s witnesses was that the only enquiries that they ever received were from Sharjah Islamic Bank, by phone and email, and they pointed to an email from SBI thanking SBI for giving due confirmation of Kirtanlal’s satisfactory conduct to “some of the banks we have been negotiating with”. Thus, it appeared that facilities had been obtained from Emirates Islamic Bank and National Bank of Fujairah without any credit references from SBI at all and in relation to the vast majority of the 13 banks which Kirtanlal said it had approached, no reference was sought either.

75. In these circumstances, it is not possible to conclude that anything said by SBI was untrue, that it failed to say that Kirtanlal had conducted its account satisfactorily from a credit standpoint and had always paid on time, or that any failure to obtain alternative facilities from other banks was because of anything said by SBI employees. There must have been other reasons for the failure by Kirtanlal to reach agreement on other facilities with these banks, which had nothing to do with SBI. As Kirtanlal’s credit worthiness was good, the likelihood must be that the failure to reach agreement on facilities to be provided by such banks was the result of Kirtanlal’s unwillingness to proceed on the basis of the terms offered or to provide security of the kind the banks wanted.

Issues of Law and the effect of the FA and its terms

76. No issues arise in relation to the requirements of Federal Decree-Law No. 20 of 2018 in relation to money-laundering and SBI’s obligations to report to the FIU/DFSA on transactions or activities which it suspected were connected to criminal activity. No complaint was or could be made as to the internal SAR, the MLRO Investigation Report or the STR.

77. The case now pursued by Kirtanlal is confined to a claim in contract founded on an implied term of good faith and fair dealing which is said to require SBI to act rationally when terminating or declining to renew the FA. It is said that it must not act with what amounts to Wednesbury unreasonableness and a public law test is said to apply to SBI’s decisions to suspend and terminate. No criticism was made, nor could be made, of the decision to suspend to investigate the issue of presentation of the fraudulent B/Ls, but the decision to terminate was the subject of challenge on this basis. I reject those submissions as being in conflict with principle and decided authority. There is no room for any implied term which restricts the termination rights expressly given under the FA to SBI and there is no room for some implied term which amounts to an agreement to agree in respect of a decision whether or not to renew facilities. Whether or not the FA could or does include an implied term of good faith and fair dealing, that cannot trammel the rights of SBI not to conclude a fresh contract or to terminate an existing contract in accordance with its terms.

78. The first and most obvious point which arises in relation to the FA is the period to which it applies, which is defined as “the Availability Period” and means “the period during which the Facilities may be availed by the Borrower under the terms of the Facility Letter”. The Facility Letter expressly stated that the renewal of the facility of USD 10 million was to be for a period of one year with effect from 7 January 2020. In the terms and conditions annexed to the letter, alongside the heading “Tenor of the Facility”, it was said that “working capital facilities shall have a tenor up to 6 January 2021 and may be renewed every year, subject to sanction by competent authority of the Bank”

79. Clause 2.4 of the FA then provided specifically that “the Facilities shall have a tenor of up to 6 January 2021, which shall be subject to renewal every year, provided such renewal is sanctioned by competent authorities of the Lender”. At clause 7.3.1, set out earlier in this judgment, there was provision for SBI to carry out an earlier review and renewal, if Kirtanlal so requested, before the Review Date which was defined as a day falling about one year from the date of sanction of the Facilities or such other date as 38 of 52 SBI might decide on, at its sole and absolute discretion, subject to SBI’s overriding right of suspension, withdrawal and repayment on demand.

80. The terms of the FA are therefore clear in showing that the facilities granted by the FA were set to expire on 6 January 2021 and that SBI was not bound to extend facilities thereafter but could decide to do so after a review. Any fetter on this right would amount to an agreement to agree. Whilst the provisions of Clause 22 allowed for continuation of utilization of facilities beyond the Availability Period on the terms of the FA, this does not affect the fixed period of the FA nor the fact that it was terminated on 4 November for future use and, despite the express requests for an extension of 3- 6 months to enable alternative facilities to be found, no extension or renewal was given, with the result that the FA came to an end on 6 January 2021, although SBI did not insist on immediate repayment of outstanding advances or cancel guarantees given to third parties.

81. Whether or not SBI was entitled to suspend the operation of the FA on 6 October 2020 or to give notice of exit or terminate the facility on 4 November 2020, Kirtanlal had no plausible argument of any right to a renewal of the facilities on 6 January 2021. Any claim by it could at most relate to the suspension of the operation of the Facility on 6 October and/or the notice of “exit” on 4 November, which had the effect that no new commitment would be entered into by SBI in the period between those dates and the expiry date of 6 January 2021. The arguments put forward by Kirtanlal, which are discussed below require a re-writing of the FA.

82. The relevant terms of the FA are set out above. In my judgment, on discovery of the events surrounding the fraudulent presentation of B/Ls by the Fourth Defendant, SBI was entitled to take the steps it did under the FA.

83. The movement of the classification of the business of Kirtanlal from that of medium AML Risk to High Risk was a deterioration of the loan accounts, which therefore entitled immediate cancellation without prior notice to Kirtanlal. The account was 39 of 52 impacted by the fraud of Kirtantal’s counterparties which created risk for SBI in establishing L/Cs.

84. Furthermore, under clause 14.1 (q) a “change in circumstances” constituted an Event of Default and such a change was defined as “an event which occurs or circumstances which arise which has or is likely to have in the opinion of SBI a Material Adverse Change”. “A Material Adverse Change” was in turn defined as “ a material adverse effect or a material adverse change in (a) the business, operations, condition ( financial or otherwise) or prospects of the Obligors; (b) the ability of Obligors to perform or comply with its obligations under the Finance documents; and (c) the validity or enforceability of the Finance Documents or the rights or remedies of SBI under the Finance Documents”.

85. Other provisions of the FA were relied on by SBI which it is unnecessary to consider in any detail.

86. Whether some or all of these additional provisions were applicable, it is not necessary to decide, but it is clear to me that SBI was entitled as a matter of contract, in accordance with the express terms of the FA to cancel the facilities under clauses 2.1.5 and 13.5.1 and to declare any unutilized portion of the facilities to be cancelled under Clause 14.2(c) for an Event of Default under Clause 14 .1 (q).

87. In these circumstances, the suspension of the facilities on 6 October, followed by the termination of them on 4 November, without demanding immediate repayment was 41 of 52 justified by the terms of the FA, unless Kirtenlal can find some way round the express wording of the FA.

88. This Kirtenlal bravely sought to do. In opening Counsel for Kirtanlal made it clear that he was not alleging dishonesty on the part of SBI, which had previously been suggested. Such an allegation was unfounded and should never have been made. What was alleged in the opening was that, in the context of a long-standing banking relationship which had commenced in 2009, SBI had to make a rational decision to cancel, terminate or not to renew and that it had to give reasons for what it did. That was said to be based on the decision in Braganza v BP Shipping Ltd [2015] 1 WLR 1661 and the two limbed Wednesbury test, but neither of these authorities, nor any of the others cited by Kirtanlal in relation to the exercise of contractual discretions have any bearing on contract rights of termination which are specifically prescribed as arising in given situations. Decisions as to “relational” contracts do not assist; nor does reference to the DIFC Contract law in seeking to imply terms relating to termination rights or renewal.

89. A contracting party which is given the right to terminate does not have to exercise that right reasonably, whether objectively or in a Wednesbury sense of rationality or absence of perversity, nor is there any duty to take into account only certain factors and not take into account other factors in deciding whether to exercise a private contract right. A terminating party is entitled to act in its own best interests, as it sees them and its motivation for exercising its rights is irrelevant. Any obligation of good faith, implied into the contract, cannot impact on that. The decision of Lord Glennie in Union Bank of India (DIFC Branch) v Velocity Industries and others [2020] DIFC 025 is recent DIFC authority to that effect at [115] and [116], whether obiter or not, and repeats the principle established in English authorities such as TAQA Bratani Ltd v Rockrose [2020] 2 Lloyd’s Rep 64 at [44]-[53], citing Court of Appeal authority, and Lombard North Central plc v European Skyjets Limited ( in Liquidation) [2022] EWHC 728 at [152].

90. As already mentioned, Kirtanlal also argued that SBI owed it a duty to act in good faith, imposed by Article 57 of the Contract Law, alternatively an implied term of good faith, fair dealing and co-operation said to arise out of Articles 57 and 58 which mean that contract rights to suspend or terminate should not be exercised arbitrarily, capriciously, irrationally and without reasonable and proper cause; or other than honestly. It was submitted that where one party has a discretion in making a decision which affects the rights of another party, that discretion is limited, as a matter of necessary implication, 42 of 52 by concepts of honesty, good faith and genuineness and the need for absence of arbitrariness, capriciousness, perversity and irrationality. Any discretion is not to be abused.

91. None of these points carry any weight at all in the face of sophisticated banking documentation which spelt out the rights of SBI in the manner already outlined. Cases involving the exercise of discretion are inapplicable to express rights of termination, where motive is irrelevant. There is no room for implied terms under Article 17 of the Contract Law as to the exercise of rights of cancellation or termination and motivation has no relevance if the contract creates an entitlement to cancel or terminate in prescribed circumstances. Implied duties of care and skill in the carrying out of services have no relevance to rights of cancellation and termination either and, although featuring in the pleadings were not pursued at trial. All of this applies a fortiori to any decision whether or not to enter into a new contract on the expiry of the FA. There can be no agreement to agree.

92. Articles 57 and 58 of the Contract Law do not assist Kirtanlal either because they do not set out an obligation of good faith and fair dealing in the context of express rights of cancellation/ termination in given circumstances. Article 57 states that implied obligations can arise from the nature and purpose of the contract, from practices established between the parties and usages, and from good faith, fair dealing and reasonableness, whilst Article 58 does nothing more than apply the common law rule in Mackay v Dick in relation to the need to co-operate where performance depends on co-operation (see McCabe v Scottish Courage Ltd [2006] EWHC 538 at [17]. In Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC [2022] DIFC CA 016, the Court of Appeal held that those Articles could not operate to alter the clear rights given by the contract. Moreover, it is trite law in the DIFC that good faith cannot operate to prevent the exercise of an express contractual right to terminate (see eg: TSG Building Services plc v South Anglia Housing Limited [2013] EWHC 1151 (TCC) at [51] and Hana Al Herz v DIFCA [2013] DIFC CA 004 at [119]).

93. Whether or not a contract can be described as a “relational contract” does not assist because even if such a contract may give rise to an implied term of good faith, the content of that implied term cannot result in a restriction on the right to terminate. Here however, there is no basis for the suggestion that the FA is a relational contract. This was a banker customer relationship under the FA which was not a long term contract, being for one year only. It was not in the nature of a joint venture where duties of cooperation or loyalty arose. It is nothing like a contract of agency or, partnership or 43 of 52 any contract where a fiduciary duty arises. No special facts arise as in Bates v Post Office [2019] EWHC 606 and the decision in Yam Seng v International Trade Corp [2013] 1 AER (Comm) 1321, on which Kirtanlal relied, does not assist. Ultimately whether or not implied terms arise depend on the usual tests, enunciated by the English Supreme Court, including necessity and business efficacy and there is no need of such an implied term in the face of express terms as to duration and termination. (see Candey v Bosheh [2022] 4 WLR 84 at [31]-[32]).

94. I have already found, as a matter of fact, that SBI did not act irrationally, arbitrarily, perversely or capriciously in any event. The factors taken into account appear from the Head Office Memorandum of 27 October and the Branch KYC Triggering Event Review, all of which were relevant and material and the basis of the decisions made, as appears from those documents cannot possibly be said to be irrational nor unreasonable. It cannot properly be said that SBI acted in bad faith in any sense of the word, whether in the sense of dishonesty, knowing wrongdoing, or even malice. It was not suggested to Mr Shenoy that he or the Head Office did something which he or they considered that he or they were not entitled to do. Although it had been suggested that the reason that SBI decided to terminate was because Kirtanlal had complained to the DFSA, there was no basis for that, despite efforts to build a case on the basis of the wording in the 3 November letter. The actual reasons were set out in the Head Office Memorandum of 27 October and the Branch KYC Review as appears above.

95. There are three further elements in Kirtenlal’s case that I should mention, if only to dismiss them.

Conclusion on Liability

96. Kirtenlal’s claim must therefore fail both as a matter of contract and, even on its own case, on the facts.

97. There is therefore no need for me to make any determination in relation to issues of causation or quantum of loss and damage, but I do so briefly for the sake of completeness.

Causation of Loss- the witness and expert evidence

98. Kirtanlal’s witness evidence in relation to causation of loss was limited. In essence it amounted to evidence of the difficulties it had in relation to the replacement of the SBI facilities with equivalent facilities from other banks, which was said to result in lost business, without descending into any detail of actual lost contracts which might otherwise have been won, had additional facilities been available to it. Broad assertions 45 of 52 were made that without SBI facilities some types of contract were unobtainable or more difficult to obtain but no tenders were identified which were not pursued or which were lost in consequence of the absence of SBI finance. No effort was made to correlate any volume of business with the extent or form of facilities available or to identify any contracts lost as the result of its absence. Mr Roongta’s evidence on the point was superficial and inconsistent with what was shown by the documents. Moreover, in its correspondence with the Fourth Defendant, Kirtanlal blamed it for the loss of banking facilities with SBI, thereby acknowledging the logic of SBI’s position in the light of the presentation of the fraudulent B/Ls from a major trading counterparty of Kirtenlal and the inevitable impact on the view that SBI would take of Kirtenlal’s account with it.

99. The history relating to the acquisition of other substitute facilities appears in part earlier in this judgment and also below, but it was said that even in March 2023, when facilities in a greater amount had been obtained from a combination of three banks, they were not as favourable to Kirtenlal at the SBI facilities and that they presented difficulties in the provision of the kind of tailor-made bank guarantees that Indian banks would supply and which Indian state organisations and similar entities required. The evidence was entirely generic and unspecific in relation to any contracts or figures for losses and its own expert proceeded on the basis that by March 2023, Kirtanlal had replaced the SBI facilities with equivalent or better facilities which enable him to assume that in projecting the rate of growth from that point onwards for the purpose of calculating loss, it would be identical to that achieved when the SBI facilities were available to it.

100. Kirtanlal’s case failed to grapple with two essential points:

101. Kirtanlal did not attempt to identify any specific loss resulting from the suspension or alleged termination of facilities in the period 6 October 2020 to 6 January 2021 and its case on loss and damage would have failed on that basis alone.

102. The expert evidence adduced by Kirtanlal in the person of Mr Puri proceeded on the basis of a number of unfounded assumptions in seeking to assess the difference between the actual profits achieved prior to April 2023, together with the assumed profits it would make thereafter (“the Actual Scenario”, as so called) and the profits it would have made if SBI had not suspended and terminated the Facilities in October/November 2020 (“the But For Scenario”). Those assumptions include the following, none of which could be justified in assessment of loss and damage, which under Article 11 of the Damages law requires certainty of harm, which means loss that is established with a reasonable degree of certainty. He assumed that:

103. Both the expert initially instructed by Kirtanlal and Mr Girard, the expert instructed by SBI, set out in their reports the kind of data and information that would be needed to establish lost profits as the result of loss of bank facilities. Very little of that material was made available and no effort was made to show loss of any specific contracts or business of any kind. Moreover, when attention is directed to the bank facilities that were made available to Kirtanlal, its case on loss and damage is shown to be fallacious.

104. No case has been advanced by Kirtanlal which descends to any analysis of causation of the reasons for historical growth in the years 2015-2020 nor the factors which could explain reduction in growth prior to the end of 2023-2024, let alone any analysis of its use of the bank facilities available to it. By September 2021, Kirtanlal had effectively replaced the banking facilities which had been available from SBI and Mashreq Bank at the time of suspension and termination. It has chosen not to adduce evidence of any single contract which was lost as the result of unavailability of finance. Had Kirtanlal really been suffering losses of the size claimed as a result of the termination of the SBI facilities, it would undoubtedly have sought and obtained the facilities it needed elsewhere, even at greater expense, in order to mitigate its loss. The fact that it did not take up facilities earlier than it did belies its professed need for them, even allowing for some period of time which would be required to set them up. As appears below, however, it had an existing relationship with Mashreq Bank which was prepared to lend to it and no evidence was forthcoming as to any approaches made for financing before the grant of additional facilities by it, as set out below.

105. Historically, Kirtanlal’s use of its available bank facilities had fluctuated since October 2015. At that stage it had USD 10 million of facilities available from SBI under the 2015 Facility Agreement. In 2018 Kirtanlal also had USD 7.7m available from Mashreq Bank, which was reduced to USD 4.4m in July 2019 which was what remained available to it at the time of suspension of the SBI facilities in October 2020. Its average utilization of the USD 14.4m available to it at that time was 55% (USD 8m). Following the 50 of 52 suspension, its average usage of the Mashreq facility between October 2020 and January 2021 was 80% whilst it continued to make use of the commitments that SBI had already made in respect to it. From February 2021 onwards until September 2021 it did use the Mashreq facility extensively. In September 2021 the Mashreq limit was increased to USD9.9m but Mashreq was willing to grant ad hoc facilities in excess of that, because it did so from December 2021 onwards and on 9 March 2022, Mashreq Bank said in correspondence that since December 2021, it had supported the business for all its requests and requirements to approximately double the sanctioned limits. It appears therefore that Kirtanlal had only to ask Mashreq Bank for additional financing to get it.

106. In March 2023 Mashreq Bank increased its limit to USD 19.4m and Kirtanlal also obtained facilities from National Bank of Fujairah of USD 6.1m and from Emirates Islamic Bank of USD 6.5m, making a total of USD 32m available to it. Whilst it still complains that those facilities do not provide the same freedom as the SBI facilities did, they are not only well in excess of the USD 14.4m available to it at the time of suspension of the SBI facility and termination thereafter but have provided the basis for Mr Puri’s calculations which treat them as full replacement. Before March 2023 however, the figures show that in about July 2022 Mashreq was making some USD 19.9m available to Kirtanlal and that for the rest of that year, it was making use of facilities in excess of the USD 14.4m which had been available to it prior to the suspension of facilities by SBI on 6 October 2020.

107. Between 1 October 2020 and 31 March 2021, Kirtanlal repaid a loan to its shareholder of USD 1.8m, which would otherwise have been available for use as working capital. A subsidiary charged and was paid a consultancy fee for the financial year ending in March 2021 of a further USD 1.8 m, which was followed by another such payment in the following financial year of USD 2.2m, with Kirtanlal paying a dividend of USD 2m in that 2021-2022 year also. Thus, in the very period between October 2020 and April 2022 when it is said that Kirtanlal was limited by the absence of banking facilities, it is known to have paid out USD 7.8m that was otherwise capable of use for working capital. It was also said by Kirtanlal that additional equity to the tune of USD6.262m was put into it by its shareholder and at one time a claim was pursued for the distressed sale of assets by its shareholder in order to fund the company’s working capital. However these matters are perceived, they do not show a company that is prevented from doing business by a lack of liquidity or working capital consequent on the termination of the SBI facilities. Cash was available to it from other sources, which 51 of 52 doubtless could have been used directly to finance trade or to deposit with banks to secure the provision of bank guarantees if needed for trade purposes. None of this featured in any way in Mr Puri’s opinions which should obviously have taken these matters into account.

108. Kirtanlal’s complaint that other banks did not provide facilities with similar terms for doing business is not borne out by a comparison of the letter of credit terms that they were prepared to offer nor does there appear to be anything in the point that they could not provide the bank and performance guarantees that SBI did. In June 2022, Mashreq Bank stated that the Bank Guarantee facility it had provided had not been utilized in the preceding three years in enquiring as to its need for the future.

109. The reality is therefore that, from July 2022 onwards Kirtanlal had broadly equivalent facilities available to it as it had prior to SBI’s suspension of the FA on 6 October 2020, and that Kirtanlal is not able to show that it had lost any business through the absence of working capital after that date in that period in circumstances where, although making full use of the Mashreq facility between January and September 2021, it was paying out significant cash sums to its shareholder and subsidiary companies. There is thus no good evidence that it lost business as a result of the suspension and termination of the SBI facilities at all, and no basis for any suggestion that any business could be lost after September 2021 as a result of insufficient banking finance, when the sums available to Kirtanlal from other banks, look to be more than those available at the time of that suspension and termination. Mr Puri worked on the basis that from March 2023 onwards, Kirtanlal would return to the same basis of historical growth as between 2015 and 2020 because of the replacement facilities available at that point in time, but the reality is that it had broadly equivalent facilities available to it from September 2021, even if not identical in all respects, and it had other cash available to it in the interim period prior to that , which it chose to use for other purposes. Once those facilities were available to it, there is no reason to think that it could not have done all the business that it would have been able to do with the SBI facilities, had they continued to that point. The use of CAGR is an arithmetical exercise which bears no relationship to the realities of trading post Covid with essentially equivalent facilities from September 2021 onwards.

110. There are a number of other areas where the figures advanced by Mr Puri fall well short of establishing any basis for the claim which Kirtanlal pursues, but which it is not necessary to examine in detail. Suffice it to say that I considered that Mr Girard’s approach to WACC and the constituent elements used to arrive at the requisite figure, 52 of 52 whether the Equity Risk Premium, the Beta or the Debt to Capital Ratio, was to be preferred to that of Mr Puri. Furthermore, the figures used by Mr Puri when setting the benchmark for October 2020 to March 2021 (2H 2020-2021) by reference not to the 2H 2019-2020 figures, but by reference to the annual figures for 2019-2020 which he divided by half, had the effect of including a huge spike in July 2019, attributable essentially to one transaction, which fell outside the 2 H financial year figures and had the effect of distorting the benchmark with substantial benefit to Kirtanlal.

111. Of further significance is the absence of any entry in the audited accounts for the financial year ending March 2021 of any reference to the lack of banking facilities as a factor inhibiting Kirtanlal’s trading. If it were to have had a substantial effect of the kind alleged by Kirtanlal it would have been recorded as a continuing significant event that would had a material effect in that year and was anticipated as having such an effect in the forthcoming financial year.

112. There is thus no basis on which it can properly be said that Kirtanlal suffered any loss at all from the suspension or termination of the SBI facilities, let alone any evidence of any such loss and damage which the Court could regard as established with a reasonable degree of certainty on the balance of probabilities for the purposes of Article 11 of the Damages Law.

Conclusion

113. Kirtanlal’s claim must fail and be dismissed. There will be a judgment for the Defendant, SBI with costs to be assessed, if not agreed. Should the parties fail to agree on the basis of costs, each shall file written submissions of no more than 5 pages and the Court will determine that issue. If there is disagreement on the quantum of costs, but not the basis on which they are to be determined, the costs shall be assessed by the Registrar who will give directions for the determination of that issue.