HI5015 Legal Aspects: Bank of India v. Gobindram Case Study Analysis

This case study analyzes the Bank of India v. Gobindram Naraindas Sadhwani case, focusing on a dispute involving credit facilities extended to Sadhwani (Japan) Ltd. The case examines the legal issues surrounding a contract of guarantee, specifically which law (Indian or Japanese) should apply given the various international connections of the parties and transactions. The arguments presented by both the Bank of India and Gobindram are explored, leading to the tribunal's decision to apply Japanese law, discharging Gobindram from the guarantee. The significance of the case lies in its upholding of the proper law of contract, emphasizing the parties' intention and the most proximate legal system in resolving international disputes. The tribunal ultimately dismissed the plaintiff’s claim, citing Kishinchand as the primary instigator of the dispute.

BANK OF INDIA
V. GOBINDRAM
NARAINDAS
SADHWANI AND
OTHERS
HCA004939/198
2
Case Study

BACKGROUND
 The present case involves the Bank of India as the
plaintiffs, Gobindram Naraindas Sadhwani and his
wife as the defendant.
 The Sadhwani Ltd 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.
 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.

BACKGROUND
 Owing to certain disputes arising between the
Sadhwani brothers, Mr Kishan Chand has
made an application to the bank in Osaka to
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.

FACTS
 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
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.

BACKGROUND
 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 needs to be discussed.
 And lastly the residence of the guarantor needs to be considered

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] 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.

ARGUMENTS
 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.
 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.