HI5015 Legal Aspects of International Trade: Bank of India Case

This case study examines the Bank of India v. Gobindram Naraindas Sadhwani case, focusing on a dispute involving a guarantee for debts of Sadhwanis (Japan) Ltd. The case explores the complexities of international contract law, particularly the 'proper law of contract' and the determination of which legal system should govern the agreement. The background covers the involvement of multiple Sadhwani brothers operating businesses across different countries, the extension of credit facilities by the Bank of India, and subsequent disputes leading to insolvency. Key legal issues include determining whether Indian or Japanese law should apply to the guarantee, considering the locations of the parties and transactions. Arguments presented involve contentions regarding the applicable law and allegations of fraudulent activities. The tribunal's decision favored Japanese law, discharging Mr. Gobindram and his wife from the guarantee. This case highlights the importance of clearly defining the governing law in international contracts and considering the closest connection to the transactions in the absence of explicit choice.

Running head: INTERNATIONAL TRADE
International Trade
Name of the Student
Name of the University
Author Note

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Executive Summary
The present case involves the Bank of India as the plaintiffs, Gobindram Naraindas
Sadhwani and his wife as the defendant. The case involves Govindram and his wife to have
acted as guarantors with respect to the debts of the Sadhwanis (Japan) Ltd towards the Bank
of India. The bank has its incorporation affected in India. The bank further has a branch
located in in Osaka, Japan as well as regional office located in Tokyo. The tribunal dismissed
the plaintiff’s claim of holding Mr Gobindram and his wife liable. This case has uplifted the
proper law of contract. This points towards the parties intention to be bound by a particular
law while entering into a contract. In this regard it can be said that while entering into a
contract the parties restore a motives to comply with a particular set of laws. This needs to be
given recognition while settling disputes arising from such a contract. Where there is an
absence of express choice relating to laws to be followed, those set of laws which has been
most proximate relation with the case will required to be applied with.

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Table of Contents
Bank Of India V. Gobindram Naraindas Sadhwani And Others HCA004939/1982.................3
Background............................................................................................................................3
Facts.......................................................................................................................................4
Legal Issues............................................................................................................................5
Arguments..............................................................................................................................6
Decision of the Tribunal.........................................................................................................7
Significance............................................................................................................................8

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Bank Of India V. Gobindram Naraindas Sadhwani And Others
HCA004939/1982
Background
The present case involves the Bank of India as the plaintiffs, Gobindram Naraindas
Sadhwani and his wife as the defendant. The case involves Govindram and his wife to have
acted as guarantors with respect to the debts of the Sadhwanis (Japan) Ltd towards the Bank
of India. The bank has its incorporation affected in India. The bank further has a branch
located in in Osaka, Japan as well as regional office located in Tokyo. Mr Kishinchand
Naraindas Sadhwani was the brother of Mr Gobindram who was the manager of the
Sadhwani Ltd. The place of residence of Mr Kishinchand as well as his wife was at Osaka
and they have been operating your business in the same area. The business has been availing
credit facilities from the branch of the bank located in Osaka. On the year 1978 the credit
facilities limit escalated to ¥230. In such an escalation of credit facilities a contract of
guarantee has been extended by Mr Gobindram and his wife.
There were four other brothers belonging to the Sadhwani family operating businesses in
Sri Lanka Nigeria and Hong Kong. The company in Japan has been initiated as a sole
proprietorship by Mr Kishinchand but has later on incorporated with 60% shareholding
allotted to Kishinchand and his wife and the other 40% to Gobindram and his wife. Again the
management of the company has been lying with Kishinchand only.However the branch of
the company in Hong Kong has been managed by Mr Gobindram and four other brothers
were representing in the board of directors. Owing to certain disputes arising between the
Sadhwani brothers, Mr Kishan Chand has made an application to the bank in Osaka to

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discharge Mr Gobindram and his wife from being the guarantor of the credit facilities
extended by the bank to the company.
There has been certain dishonoured payments made by the company branch owned and
managed by Mr Kishinchand. All these had further escalated the disputes among the parties
resulting in the proceedings owing to the insolvency faced by the company of Kishan Chand.
Facts
The facts of the case involves to Sadhwani brothers namely Mr Gobindram residing in
Hong Kong as well as Mr Kishinchand residing in Japan. The facts of the case has also
involved Bank of India who were having their headquarters in Mumbai and has been
extending credit facilities to the Sadhwani (Japan) Ltd. The bank has their regional offices
situated both in Osaka as well as in Tokyo. The company in Japan has been initiated as a sole
proprietorship by Mr Kishinchand but has later on incorporated with 60% shareholding
allotted to Kishinchand and his wife and the other 40% to Gobindram and his wife. Again the
management of the company has been lying with Kishinchand only. There were four other
brothers belonging to the Sadhwani family operating businesses in Sri Lanka, Nigeria and
Hong Kong.
This companies running in Sri Lanka and Nigeria were conferred with the responsibility of
making payment for the bills of exchange that has been created by Mr Kishinchand's
company. After the disputes arising between the brothers Mr and Mrs Gobindram has been
discharge from the liability of the guarantee to the Bank of India. In this situation Mr
Kishinchand has initiated a guarantee under his own name and escalated the limit of credit
facility to ¥330. Afterwards the company has major default in repayment of the amount and
the bills of exchange drawn were dishonoured. There has been a considerable amount of
anomalies and ambiguities arising from the situation as to whom exactly to be held liable and

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impose with penalties as contended by the bank as well as the courts. Finally, the Bank of
India resolved to bring a proceeding in the Hong Kong court, where the actual business of the
Sadhwanis has been running. The bank has preferred the Hong Kong law to be applied in the
given case as the company has been it’s actually running through their office in Hong Kong.
Legal Issues
The main concern in this case is the law which needs to be applied while dealing with
guarantee. Whether the Indian laws for the Japanese laws needs to be complied with while
dealing with this case and settling the disputes arising from the guarantee. This dispute has
further aggravated with the contention that both the Sadhwani brothers nationals belonging to
India and the bank has agreed to the amount of guarantee as considered by their branch in
India. Again there has been another contention that claims the Japanese law relating to
guarantee to be applied. This is because all the agreements as well as the arrangements has
been effected and all the transactions has been carried out in Osaka. Although the contract of
guarantee is separate to that of contract of loan but the same comes under the purview of a
single arrangement (Podlas 2000).
The court has the affinity to apply the governing law of the state. The law needs to be
applied from the state which has the highest involvement in all the transactions effected under
the present arrangement. The contention of the Bank of India was to apply the law prevailing
in India as well as in Hong Kong relating to breach of guarantee. There has been another
contention brought by Mr Gobindram that he cannot be held liable for all the disputes, as the
dispute has been created by Mr Kishinchand who was in a quest to defraud both Mr
Gobindram as well as the Bank of India. They also contended that the proceeding was
required to be brought against Mr Kishinchand and his wife as they have been the chief
imposters in this case. 3 issues can be discussed in this context. Firstly the place of residence
of the parties involved needs to be taken into account. Secondly the nature of the guarantee

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needs to be discussed. And lastly the residence of the guarantor needs to be considered (Singh
2012).
Arguments
There has been a contention that claims the Japanese law relating to guarantee to be
applied. This is because all the agreements as well as the arrangements has been effected and
all the transactions has been carried out in Osaka. Although the contract of guarantee is
separate to that of contract of loan but the same comes under the purview of a single
arrangement. The court has the affinity to apply the governing law of the state. The law needs
to be applied from the state which has the highest involvement in all the transactions effected
under the present arrangement. The contention of the Bank of India was to apply the law
prevailing in India as well as in Hong Kong relating to breach of guarantee. There has been
another contention brought by Mr Gobindram that he cannot be held liable for all the
disputes, as the dispute has been created by Mr Kishinchand who was in a quest to defraud
both Mr Gobindram as well as the Bank of India. They also contended that the proceeding
was required to be brought against Mr Kishinchand and his wife as they have been the chief
imposters in this case. The major issue involved in this case is whether the Japanese low
needs to be applied to assess the contract of guarantee (Fletcher 2005).
The first rule that needs to be discussed in this respect was the rule that provides for a
proper law of contract. This points towards the parties intention to be bound by a particular
law while entering into a contract. In this regard it can be said that while entering into a
contract the parties restore a motives to comply with a particular set of laws. This needs to be
given recognition while settling disputes arising from such a contract. Where there is an
absence of express choice relating to laws to be followed, those set of laws which has been
most proximate relation with the case will required to be applied with. In this context the case
of Rex v. International Trustee for the Protection of Bondholders Aktiengesellschaft [1937]

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A.C. 500 can be referred which suggests that in case there is an ambiguity being presented as
to the laws to be followed, the court needs to follow the motives that has been expressed by
the parties while entering into the contract. Such a motive will be conclusive in arriving at a
decision regarding the law to be followed. In case of any absence of structure motive the
most proximate law with the situation needs to be considered.
As the agreement and all the arrangements under the same has been carried out in India
the Bank of India was under a contention to abide by the laws in India. The origin of both the
bank as well as the parties being in India contention.
Again the contract as well as the transactions has been carried out in in Japan, hence the
Japanese laws can also be applied. Moreover the transactions involved Yen to be the chief
currency, which implies towards the Japanese laws to be applied (Int'L Business Publications,
U. 2015).
However there are other contentions regarding the bankruptcy being happened in Sri
Lanka and Nigeria and the main business running in Hong Kong demanding the laws of such
countries to be applied. But there has been a proximity of the Japanese and Indian law with
that of all the transactions relating to the present arrangement (Bouwers 2014).
Moreover discharge of the guarantee provided by Mr Gobindram and his wife has been
need under article 448 of the Japanese Civil Code. This points towards the Japanese laws to
be applied. A reference has also been made to the case of Kornatzki v. Oppenheimer (1937) 4
A11 E.R. in this context.
Decision of the Tribunal
All these contentions have made the tribunal to arrive at certain conclusions. Firstly the
Japanese laws were rendered to be the most appropriate on the given set of circumstances as
intended by the court.

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Mr Gobindram and his wife has been discharged from the guarantee and under the Japanese
law there will not be rendered liable under the guarantee further. This is because the set of
circumstances has more proximity with the Japanese laws as that of other laws (Wolff 2010).
Moreover, the dispute has been created by Mr Kishinchand who was in a quest to defraud
both Mr Gobindram as well as the Bank of India. They also contended that the proceeding
was required to be brought against Mr Kishinchand and his wife as they have been the chief
imposters in this case. This requires the preceding against the plaintiff to be dismissed as in
this case the mean culprit was Mr Kishinchand and his wife and not Mr Gobindram and his
wife. Again Mr Gobindram and his wife were discharged from the liability of a guarantor
Bank and the escalation of the credit facility ¥330 has been effected after the release of the
contract of guarantee provided by Mr Gobindram and his wife.
Hence, the tribunal dismissed the plaintiff’s claim of holding Mr Gobindram and his wife
liable.
Significance
This case has uplifted the proper law of contract. This points towards the parties intention
to be bound by a particular law while entering into a contract. In this regard it can be said that
while entering into a contract the parties restore a motives to comply with a particular set of
laws. This needs to be given recognition while settling disputes arising from such a contract.
Where there is an absence of express choice relating to laws to be followed, those set of laws
which has been most proximate relation with the case will required to be applied with. This
has made the settlement of the disputes arising from the transaction of international nature to
be more appropriate.

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Reference
Bouwers, G.J., 2014. The law applicable to an international contract of sale in the absence of
a choice of law–a comparative study of Brazilian, Russian, Indian, Chinese and South
African private international law (Doctoral dissertation, University of Johannesburg).
Fletcher, I, 2005. Insolvency in Private International Law (2nd ed.). UK: Oxford University
Press
Int'L Business Publications, U. (2015). Japan business law handbook. [Place of publication
not identified]: Intl Business Pubns Usa.
Podlas, K., 2000. Global commerce or global liability? How e-commerce can lead to suit in
foreign courts or under foreign law. The Mid-Atlantic Journal of Business, 36(2/3), p.89.
Singh, G., 2012. Conflict of laws in copyright in cyberspace: a comparative study of USA,
European countries, Japan and Indian law.
Wolff, L.C., 2010. Hong Kong's Conflict of Contract Laws: Quo Vadis?. Journal of Private
International Law, 6(2), pp.465-498.