JUDGMENT1 Notice was ordered in the Special Leave Petition (now Appeal) on 9th
July, 2007, but while doing so, this Court had specifically clarified that:
“Pending further orders the impugned order passed by the High Court shall
continue to operate”. The impugned Order decreed the suit filed by
Ghanshyam Das Agarwal, who is hereinafter referred to as ‘the Exporter’,
for a sum of USD 352,250 against the Appellant Bank (Defendant No.3
before the Trial Court/Single Judge) in favour of the Bank of India, which is
the Exporter’s Bank. The remaining claim has been relegated for Trial.
The impugned Order further clarifies that upon the payment of these
decreetal dues the injunction granted by the Debt Recovery Tribunal by its
Order dated April 10, 2002 shall stand vacated; and upon this payment the
Orders of injunction passed by the Calcutta High Court on 22nd December,
1999 and 14th January, 2000 shall also stand vacated. The impugned Order
goes further to state that the decreetal amount shall be satisfied from out of
the funds lying with the American Express Bank Limited, Defendant No.2.
To this extent the decreetal amount also stands satisfied. It also transpires
that the Defendant No.4, M/s. Sarumeah & Sons, a proprietorship concern,
has, consequent on the death of the sole proprietor, been struck off from the
array of parties. In any event, since claims are posited on a Letter of Credit furnished by the Appellant,JUDGMENTalbeit, on the instructions of its now non-existent constituent, namely, M/s. Sarumeah & Sons, (hereinafter nomenclatured as
the ‘Importer’) the latter is really a proforma or at best, a proper party, to the
extent that the claim pertains to the subject Letter of Credit (L.C.). The
decreetal amount stands satisfied and the Plaintiff/Exporter should be
pragmatic enough not to expect any further recovery owing to the legal
dissolution of the sole proprietorship concern, i.e., the Importer. In essence,
therefore, the question raised by the Appellant is reduced to an academic
one, which Courts normally abjure from answering. However, since Leave
has been granted, we feel curially compelled to briefly delve into the factual
matrix of the dispute.
2 On 20th April, 1999, on the request of the Importer, the Appellant had
opened a Letter of Credit for the aforementioned sum of USD 352,250 on
Bank of India, Calcutta (Negotiating Bank) in favour of the Plaintiff-
Exporter; the American Express Bank Ltd. Calcutta, is Defendant No.4 in
the said civil suit bearing CS No.678 of 1999, as the advising Bank of the
Appellant. The contract was placed on the Plaintiff/Exporter for a
consignment of non-basmati rice to be exported from India to the Importer
in Bangladesh by railroad. One of the terms of the Letter of Credit was that
one set of non-negotiable shipping documents would be couriered after the consignment was despatched to the opener of the LC, namely, the Appellant
before us. This was done on 11th May, 1999 and thereupon the Bill of
Exchange drawn by the Exporter was discounted by its banker, namely,
Bank of India, which thereupon drew another Bill of Exchange upon the
Importer. It is alleged that the Appellant received the documentation on 19th
May, 1999, and on that very day pointed out the existence of certain
discrepancies therein to the Negotiating Bank. The Appellant’s case is that
it received a letter from the Importer on 1st June, 1999, stating that the
documents were not acceptable and that the goods were damaged, and there
were also shortages therein. In its telex dated 24th June, 1999, the Appellant
suppressed the stand of the Importer and stated as follows:-
3 The Negotiating Bank, viz., Bank of India, thereafter, raised a demand
on the Appellant for the said sum of USD 352,250 by its telex dated 12th
July, 1999 in response to which the Appellant again, as we see it, evasively
and with mala fide intent, mentioned that the Importer was out of station and
that they would revert to the subject upon his arrival. On 18th July, 1999, the Appellant addressed a telex to Bank of India informing it that the consignment was located at Darshana Land Custom and that the Importer
and Exporter were in dialogue with each other. Eventually, by its telex
dated 26th August, 1999, the Appellant informed Bank of India that the
documents had not been accepted by the Importer. The Appellant has
admitted in its Written Statement that the documentation was received by it
on 19th May, 1999 and returned to the Bank of India as late as 10th October,
1999. It has also been admitted by the Appellant that in the interregnum,
without prior information to the Negotiating Bank or to the Exporter, it had
certified photocopies of the shipping documents to its constituent, i.e., the
Importer, ostensibly for customs purposes. These documents have not been
returned to the Appellant and, obviously on their strength, the Importer has
managed to clear the entire consignment from the Darshana Railway
Authority. The say of the Appellant is that this was achieved through the
C&F Agent of the Importer by producing a forged NOC and endorsement on
the reverse of the photocopies of the shipping documents, certified by the
Appellant. Any reasonably diligent Banker would be alive to the possibility
of the misuse of documents certified by it, even if we are to assume that it
was not privy to the fraud. We have earlier noted and we emphasise that the
Appellant had evaded mentioning that without the permission of or information to either the Exporter or the Bank of India, it had provided its certification to photocopies of the documentation which, in the event (and as
any prudent Banker would anticipate), were misused by the Importer to have
the rice consignment released to him. In trans-border or international
transactions, trade depends almost entirely on the faith reposed in banking
institutions to secure the price of the exported goods, commodities etc. The
Exporter can legally and reliably expect that the Bankers will watch its
interests by ensuring that the exported consignment shall be released to the
buyer only on the transmission of the price of the shipment as secured
through the Letter of Credit. Heavy and fiduciary responsibility, therefore,
rests on the Opening Bank which furnishes the Letter of Credit to ensure that
payment is secured unless the documentation is defective and/or the
invocation of the Letter of Credit is discrepant. In every legal system
spanning our globe, jural opinion is unanimous to the effect that the Opening
Bank cannot disregard, delay or dilute its responsibility to make payment
strictly and promptly as obligated by the terms of the Letter of Credit. This
Bank owes a duty to all concerned to ensure that any action taken by it
would not enable or conduce the frustration of the obligations contained in a
Letter of Credit, as recognised by International Banking norms or extant
Uniform Customs and Practice for Documentary Credits (UCP) 500. As we see it, therefore, keeping in perspective that the Importer’s Bank i.e., Appellant before us, should not have certified the documentation, reasonably
anticipating or being aware of the possibility that this certification could be
abused. Law assures the Exporter and its Bank to repose in the expectation,
nay, certainty, that the consignment, which is the subject-matter of the Letter
of Credit, is not usurped by the Importer/Consignee or its agents, without
remitting payment to the consignor’s Bank. This is a strict liability cast on
the bank which opens the Letter of Credit, since otherwise International
trade and commerce will virtually and indubitably come to a standstill.
4 It is only when irretrievable injury is bound to result and it is plainly
evident that there is egregious fraud strictly ascribable to the beneficiary of
the LC, that a reason to insulate a party before it against liability and that
too, comes about only through the prompt intervention and interdiction of a
Court of law. This Court has consistently adhered to this position of law
even through the passage of several decades. The LC has the effect of
creating a bargain between the banker and the vendor of goods, a deemed
nexus between the Seller and the Issuing Bank, rendering the latter liable to
the Seller to pay the purchase price or to accept a Bill of Exchange upon
tender of the documents envisaged and stipulated in the LC (See Tarapore
and Co. vs. V.O. Tractors Export, AIR 1970 SC 891 where Halsbury’s Law of England have been relied upon). These observations have been repeated
in United Commercial Bank vs. Bank of India [1981 (2) SCC 766], U.P.
Coop. Federation Ltd. vs. Singh Consultants & Engineers (P)Ltd. [1988 (1)
SCC 174], Federal Bank Ltd. vs. V.M. Jog Engineering Ltd. [2001 (1) SCC
663, Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Co. [2007 (8)
SCC 110]. The Opening Bank must only look to assure itself that the
invocation is in terms of the LC, and the completion of this exercise has
consistently been circumscribed to a short period, which in the case in hand
is one week as per Article 13 B of UCP 500.
5 It is quite evident to us that it is this reasoning which has persuaded
the Division Bench of the Calcutta High Court in the impugned Order to
comprehensively consider and construe the stand taken by the Appellant in
the Dhaka Suit as constituting a clear admission of the Appellant Bank’s
liability. We must immediately clarify that the Dhaka Suit had been filed
by the Importer praying for an injunction against the Appellant as well as the
Bank of America Ltd. restraining them from releasing any payment relating
to the subject consignment of rice exported to him in Bangladesh by the
Exporter from Calcutta. There was no impediment or embargo on the
Appellant stating in the pleadings in the Dhaka Suit those facts which it now
seeks to proffer, viz. that it had no liability whatsoever and that it did not take any action which enabled or conduced the release of the consignment
without first securing and remitting payment in terms of the LC opened by
it. Indeed, a holistic perusal of the Written Statement filed by the Appellant
in the Dhaka litigation discloses that it had correctly spelt out the factual
matrix, and the position it had adopted therein was in consonance with law
pertaining to legal obligations of the Opening Bank with regard to the Letter
of Credit furnished by it. It is also noteworthy that the Written Statement
was filed in the Dhaka litigation after the Appellant had complete knowledge
of the subject suit filed against the Appellant/Exporter in the Calcutta High
Court, which suit is the springboard of the present Appeal. It also needs
clarification that in the Dhaka Suit Defendants 1 and 2 correspond to the
Appellant, Defendant No. 3 therein is American Express Bank Ltd., i.e.,
Respondent No.3 herein, Defendant No. 4, i.e., Bank of India, is Respondent
No.2 herein, and Defendant No. 5 is Respondent No.1 in this Appeal, i.e.,
the Plaintiff in the Calcutta Suit. The following paragraphs from the said
Written Statement if the Appellant in the Dhaka Suit are worthy of
reproduction:
“13. That the statements made in paragraph No. 7 of the plaint
are matters of record and the matter of strict proof, the onus of
which lies on the Plaintiff. Moreover, it is stated that the
request of the Plaintiff, the Defendant No. 2 certified the
photocopy of Non-negotiable copies of the shipping documents and handed over the same alongwith customs purpose copy of
LCAF without NOC to the Plaintiff for customs assessment
purpose. But the Plaintiff never returned the said documents to
the Defendant No. 2 Bank. But the Plaintiff cleared the entire
consignment from the Daranana railway Authority through its
C & F Agent M/s Anwar Hossian by producing forged NOC
and endorsement on the back side of the photocopy of the
shipping documents.
…..
17. That the statements made in paragraph No. 11 of the plaint
are matters of record and as such the Defendant Nos. 1 and 2 do
not offer any comments with regard to them. However, it is
mentioned here that the Defendant No. 2 received the
discrepant shipping documents on 19.05.99 and communicated
with the negotiating bank i.e. Defendant No. 4 as well as the
Defendant No. 5 Importer for rectification of the discrepancies.
But on 10.10.99 the Defendant No. 5 returned the entire sets of
shipping documents to the negotiating bank i.e. Defendant No.
4 and mentioned here that the importer i.e. Plaintiff had taken
delivery of the imported goods against the said shipping
documents of letter of Credit No. 02-133-99 from Railway
Station, Darshana during the period from 16.05.99 to 01.06.99
through its C & F Agent M/s Anwar Hossian by forged
documents. So question of discrepancy in the documents is
immaterial and irrelevant and as such the application filed by
the Plaintiff/petitioner for temporary injunction is liable to be dismissed. JUDGMENT
18. That the statements made in paragraph No. 12, 13 and 14
of the application are false fabricated, mala fide, concocted and
hence denied by Defendant Nos.1 and 2 it is stated that
Defendant No.2 returned the shipping documents to the
beneficiary’s bank i.e. the Defendant No. 4 due to discrepancy
therein and requested to stop payment against the said shipping
documents of the L/C No. 02-133-99. The Defendant No. 4
communicated the same to the Defendant No. 5. But the
Defendant No. 5 i.e. supplier returned the entire shipping
documents and alleged that the Plaintiff has already taken
delivery of the goods against the said shipping documents of
the L/C No. 02-133-99. It may be mentioned here that the
Defendant No.5 i.e. the supplier a suit as Plaintiff in this matter
in Calcutta High Court being suit Nos. C.S. 678 of 1999
against (1) Bank of India (2) American Express Bank Calcutta
(3) National Bank Limited, Khatungonj all are Defendant Nos.
4,3,2 respectively in this suit and (4) M/s Saru Meah & Sons
Plaintiff in this suit. The supplier i.e. Defendant No.5 in this
case obtained temporary injuries from Calcutta High Court in
suit No. C.S. 678 of 1999 restraining American Express Bank
Limited, Calcutta i.e. Defendant Nos. 3 in this suit from
disturbing sums without leaving a sum of Rs.1.54 crore
equivalent to more or less US$ 3,52,250.00 in Nostro A/D
No.412800566 maintained with them by the National Bank
Limited. The Defendant No.1 of suit No. C.S. No.678 of 1999
i.e. Defendant No. 4 in this onus requested the National Bank Limited, to make immediate payment to the Plaintiff of Suit
No.678 of 1999 i.e. Defendant No.5 in this suit i.e. supplier
through its corresponding bank American Express Bank i.e.
Defendant No.3. The Defendant No.1 of the suit No. C.S.
No.678 of 1999 made such request to the Defendant No.1 of
this suit on the ground that the goods against the shipping
documents had already been delivered and consumed by the
Defendant No.4 i.e. Plaintiff in this suit. Now the Defendant
Nos. 1 and 2 are under deligation to reimburse the payments to
the supplier’s corresponding bank i.e. Defendant No.3. So the
application filed by the Plaintiff for temporary injunction is
liable to be dismissed.”
A perusal of paragraph 18 of the Written Statement filed by the Appellant in
the Dhaka litigation discloses that its position was that it was “under
obligation to reimburse the payments to the supplier’s corresponding bank
i.e., Defendant No.3” (Bank of America Ltd. therein). This admission of
fact is clear, and in consonance with the law pertaining to legal obligations
concerning Letters of Credit, obliges it to remit payments contemplated
therein. Assuming that the Appellant did not take any mala fide action so as
to enable the Importer to have the consignment released without authority, it
was in clear violation of its fiduciary responsibility as the Opener of a Letter
of Credit. Therefore, insofar as the factual matrix is concerned, the
Appellant had correctly made the statement pertaining to its liability in the Dhaka Suit, which can legitimately be taken as an admission in the Calcutta
Suit.
6 The interim Order, it may be recalled, did not restrain or interdict the
operation of the impugned Judgment and has in actuality, rendered the
Appeal infructuous, since the LC amounts have left the Appellant’s coffers.
In view of the admission of fact made by the Appellant, we think the Court
was correct in concluding in the impugned Judgment that a money decree
for the sum secured by the subject Letter of Credit (for USD 352,250)
should be passed. The Appeal is without merit and is dismissed with costs.
[ARUN MISHRA] New Delhi; January 14, 2015.