Note: Mohan, for the purposes of trade, opened two short term loan facilities of US$ 6.5 million and US$ 18.5 million with Moscow Naroding Bank ("MNB"). When the facilities were due to expire, Mohan could not repay the total of the second facility because of a mistake by a subsidiary of MNB involving the late presentation of a letter of credit held by Mixasset, one of Mohan's companies. The facility was extended, and Mohan reduced the facility to approximately $2.9 million.

Mohan then began a trade with the objective of repaying the balance of the loan and clearing the facility. In the trade, Mohan would sub-sell US$ 2.8 million worth of Indian goods to Delson, a Gibraltarbased company, through a letter of credit for 88 million rupees. To finance the trade, Mohan arranged a loan of $2 million to be extended to Delson by Degtiarev, who was an acquaintance of Mohan. An LC was opened, which required the presentation of an on-board bill of lading within 45 days of the original contract. Payment on the LC was to be available for 60 days against the presentation of the "usual documents." The amount of the LC was 85,541,516 INR. Documents were timely presented, and after the documents were confirmed, the LC was paid, but the loan to Degtiarev was never paid.

Degtiarev then sued Mohan to collect repayment of the loan made to facilitate the trade and the LC. He alleged that Mohan "fraudulently misrepresented the identity of the owner of the borrowing company and its nationality and, thereby induced the loan" and claimed US$ 2 million plus interest in damages. According to Degtiarev, Mohan had led Degtiarev to believe that Delson was an English company, because Degtiarev would only make loans to English companies. Degtiarev did not want to give a loan to a foreign company because such loans were not protected to the same extent under English law. In his defense, Mohan claimed that he did not misrepresent Delson as an English company. Mohan further claimed that he was merely an intermediary that arranged the loan, for which he was not liable for any aspect of the loan.

In rejecting Mohan's argument, the Queen's Bench, Thornton QC, J., concluded that Mohan had fraudulently misrepresented the nationality and beneficial ownership of Delson in an attempt to minimize his own liability. The court therefore awarded Degtiarev US$ 2 million and interest.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.