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Sunday, January 18, 2015

CIVIL APPEAL No. 7513 OF 2009 NATIONAL BANK LIMITED ...... APPELLANT VERSUS GHANSHYAM DAS AGARWAL & ORS. ..... RESPONDENTS

                                                                  REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                       CIVIL APPEAL No. 7513  OF 2009


NATIONAL BANK LIMITED                               ...... APPELLANT

      VERSUS

GHANSHYAM DAS AGARWAL & ORS.        ..... RESPONDENTS



                               J U D G M E N T


VIKRAMAJIT SEN,J.


1     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, albeit, 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:-
"RE YR TLX MSG NO. 2288 DTD 24/6/99 CONCERNING PAYMENT OF YR BILL UNDER  OUR
L/C NO. 02-133-99.  PLS BE INFMD THAT THE DOCTS HV NOT BEEN ACCEPTED BY  THE
IMPORTER TILL DATE (.) MEANTIME WE HOLD YR DOCTS.  AT  YR  ENTIRE  RISK  AND
DISPOSAL (.)"


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.
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.



............................................J.
                                          [VIKRAMAJIT SEN]




............................................J.
                                          [ARUN MISHRA]
New Delhi;
January 14, 2015.
























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