Calcutta High Court
Krishna Traders vs Dutch Bangla Bank Ltd on 5 February, 2024
Author: Sugato Majumdar
Bench: Sugato Majumdar
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
COMMERCIAL DIVISION
Present:
The Hon'ble Justice Sugato Majumdar
CS/114/2000
KRISHNA TRADERS
VS
DUTCH BANGLA BANK LTD.
For the Plaintiff : Mr. Rupak Ghosh, Adv.
Mr. Subir Banerjee, Adv.
Mr. Ayan Kr. Dutta, Adv.
Mr. Saudull Abedin, Adv.
Ms. Pooja Singh, Adv.
For the Defendant No. 1 : Mr. Asim Kr. Dutta, Adv.
Mr. Aniruddha Mahanty, Adv.
Ms. Tina Biswas, Adv.
Hearing concluded on : 17/01/2024
Judgment on : 05/02/2024
Sugato Majumdar, J.:
The instant suit is filed by the Plaintiff firm praying for decree of declaration
that the Plaintiff is entitled to encash the Letter of Credit bearing number
DBBL/105990071 dated 1st November, 1999 issued by the Defendant No.1;
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injunction restraining the defendants and each of them whether by themselves or
their subordinates, agents, men or otherwise howsoever from in any way withholding
any payment due to the Plaintiff under the Letter of Credit bearing number
DBBL/105990071 dated 1st November, 1999 valued at $99,600 US dollar together
with interest thereon at a rate of 24% per annum; decree for a sum of $103431 US
dollar against the defendants jointly; perpetual injunction restraining the Defendant
No.1 from giving any effect or further effect to or acting in terms of or pursuant to or
in furtherance of its communications being Annexures "C-1" and "C-2" to the plaint;
interim interest along with ancillary prayers.
The plaint case in nutshell is that the Plaintiff is a partnership firm duly
registered under the Indian Partnership Act, 1932 exporting various products, having
its office at 20, Hara Chandra Mullick Street, Kolkata - 700005 within jurisdiction of
this Court. The Defendant No.1 is a banking company having registered office at 55,
Motijheel C/A, Dhaka Bangladesh and is the issuing bank of the Letter of Credit
bearing number DBBL/105990071 dated 1st November, 1999 valued at $99,600 US
dollar (in short "the said Letter of Credit"). The Defendant No.2 is an importer based
in Peoples' Republic of Bangladesh, importing products into that country. The
Plaintiff and the Defendant No.2 entered into an agreement at the office of the
Plaintiff for sale, supply and export by the Plaintiff to the Defendant No.2 of 200
metric ton Indian red pulse (Indian Moosur Dal) at a rate of $498 US dollar per
metric ton. This was in the month of October, 1999. In terms of the agreement the
Defendant No.2 was to open a Letter of Credit with the Defendant No.1 bank in
favour of one Shiva Shakti Enterprises at New Delhi bearing number
DBBL/105990071 dated 01/11/1999 for $99, 600 US dollar towards price of 200
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metric ton Indian red pulse (Indian Moosur Dal). The said Letter of Credit was
amended from time to time. By an amendment dated 21/12/1999, the said Letter of
Credit was transferred in the name of the Plaintiff. Part shipment was allowed under
the said Letter of Credit. Number of amendments were made and finally by
amendment dated 03/02/2000 shipment and expiry date were extended upto
15/02/2000 and 29/02/2000 respectively. There would be two shipments.
Between 29/01/2000 and 07/02/2000, the Plaintiff sold, delivered and/or
exported 200 metric ton Indian red pulse (Indian Moosur Dal) in two consignments,
in terms of the agreement, through a common carrier M/s Amit Road Carrier
complying with all the export and customs related and other formalities. The
Plaintiff submitted bills of exports for dutiable goods and export documents before
the customs authorities and the later authorities allowed export of goods.
After export, the Plaintiff produced all the documents to the negotiating bank
namely Bank of India, Calcutta Overseas Branch, Export Department at 23B, Netaji
Subhas Road, Kolkata - 700001 within jurisdiction of this Court. The negotiating
bank is not a party to the suit. The negotiating bank duly negotiated the documents
and forwarded the same to the Defendant No.1 on 01/02/2000 and 09/02/2000 in
respect of two consignments of 100 metric ton each valued at $49,800 US dollar
each. The Defendant No.1 alleged discrepancies in the documents in terms of two
letters dated 10/02/2000 and 19/02/2000 in respect of the first consignment and in
terms of the letters dated 22/02/2000, 24/02/2000 and 01/03/2000 in respect of
the second consignment. The negotiating bank refuted the alleged discrepancies but
the Defendant No.1 turned deaf ear and instructed the reimbursing bank namely
Arab Bangladesh Bank Ltd. to stop payment. The reimbursing bank passed the
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instruction to the negotiating bank and expressed its inability to pay. In the
meantime, the Defendant No.2 accepted the documents by its' letter dated
12/02/2000 and 07/03/2000 and requested the Defendant No.1 to honour the said
Letter of Credit. Yet the Defendant No.1 refused to honour the said Letter of Credit.
According to the Plaintiff the act of the Defendant No.1 is contrary to Uniform
Customs & Practice for Documentary Credit 1999 (in short UCP 500). On being so
constrained, the Plaintiff instituted the present suit with prayers as aforesaid.
The Defendant No.1 contested the suit by filing written statement along with
counterclaim. Defendant No.2 did not appear to contest the suit.
It is averred in the written statement filed by the Defendant No.1 that no part
of cause of action arose within jurisdiction of this Court and leave granted under
Clause 12 of Letters Patent should be revoked. It is further stated that amendments
of the said Letter of Credit did not arise within jurisdiction of this Court. As such,
this Court has no jurisdiction to entertain the instant suit.
Another contention of the written statement is that Clause (O) of the said
Letter of Credit requires the truck carrying the goods must be a member of the
Indian Truck Owners Association and a certificate issued by the Association to this
effect must accompany the goods. Bank of India, the negotiating bank, negotiated
the first set of shipping/transport documents on 01/02/2000 for $49800 US dollar
and dispatched the same on 04/02/2000 for payment of the said Letter of Credit.
After receipt of the first set of shipping/export document from the Bank of India on
07/02/2000 the Defendant No.2 refused the documents and informed the Bank of
India of such refusal on 10/02/2000. Discrepancy pointed out by the Defendant
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No.1 is that Clause (O) of the said Letter of Credit was not complied with as there was
no certificate issued by the Indian Truck Owner Association. It is admitted that
Letter of Credit was amended from time to time and the name of the beneficiary was
changed from Shiv Shakti Enterprise to Krishna Traders. But this Clause (O) was not
changed. It is further contended that the Defendant No. 1 had no direct
correspondence with the Plaintiff for the purpose of the Letter of Credit. The
Plaintiff's banker was Bank of India, Calcutta and all negotiations in relation to the
said Letter of Credit were between the Defendant No.1 and Bank of India. The
Defendant No. 1 received a second set of documents from Bank of India for $49,800
US dollar on 22nd February, 2000 for payment of the Letter of Credit. This time the
Defendant No.1 found that the second set of documents were discrepant and
intimated to refusal of payment on the same date. Discrepancies were (i) gross
weight in invoice differs with the packing list; (ii) the number and kind of packing on
the invoice differ with the packing list and other documents. According to the
Defendant No.1, Bank of India wrongfully denied existence of discrepancies in the
documents. The Defendant No. 2 admitted that the documents were discrepant but
expressed that the later was willing to pick up discrepant documents and requested
the answering Defendant to hold the documents. Then the Defendant No. 1, by telex
dated 09/03/2000, informed the Bank of India that the Defendant No. 2 was willing
to pick up discrepant documents. For compliance with Bangladesh Foreign
Exchange Regulations, consent of Bank of India was necessary for setting the claims
under Letter of Credit to the effect that the Defendant No. 2 would have to submit
necessary Bill of Entry for clearance of the goods into Bangladesh and the Defendant
No. 2 would have to make full payment of the amount to the Defendant No.1 to
enable the later to make payment to the Bank of India of the amount covered under
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the Letter of Credit. This is necessary in view of extant provisions of Bangladesh
Foreign Exchange Regulations. But Bank of India did not agree to the terms and
conditions of payment as suggested by the answering Defendant. As a result, the
answering Defendant returned the discrepant documents which were being held on
"collection basis".
Bank of India complained to Bangladesh bank, the Central Bank of Bangladesh
and Bangladesh Bank asked for information about the transactions. The answering
Defendant informed Bangladesh Bank and explained the matter. It was explained
that the Defendant No. 2 agreed to accept the discrepant documents on certain terms
of the Letter of Credit and the Defendant No.1 informed Bank of India that if the later
agreed to those terms and conditions then only the Defendant No.1 would make full
payment to Bank of India. The Defendant No.1 sought permission of the Bank of
India to release the documents against full payment from the Defendant No. 2 and to
settle the Bank of India's claim, in the Asian Clearance Union Dollars only after
presentation of documentary evidence for clearance of goods into Bangladesh,
specially under Article 23 Section II Chapter XV of the guidelines for Foreign
Exchange Regulations Volume I issued by the Bangladesh Bank. But Bank of India
did not agree to such arrangement. In nutshell, the answering Defendant justified
his refusal to pay under the Letter of Credit.
It is further contended it is clarified that refusal by the Defendant No.1 to
honour the Letter of Credit was done within the three (3) days in case of the first
consignment and on the same date in respect of the second consignment in terms of
the Article 14 of UCP-500. The Defendant No.1 also referred to Article 23 Section-2
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Chapter XV of the Guidelines Foreign Exchange Regulation Volume 1 issued by the
Bangladesh Bank to justify their actions.
The Defendant No.1 also made counter-claim against the Plaintiff for a decree
of rupees ten crores, interests at a rate of 4% per annum along with other prayers for
loss and damages sustained by the Defendant No.1 on account of defamatory
allegations. Basis of the allegation of defamation is that the Plaintiff wrongfully
alleged collusion and conspiracy between the Defendant No.1 and the Defendant No.
2 and had informed several persons about such allegations which caused damage to
the reputation of the Defendant No.1 in the banking circles, as well as before the
customers of the Defendant No.1. This caused damage to the reputation of the
Defendant No.1.
Another contention is that the transactions were between the Defendant No.1,
Bank of India, and Arab Bangladesh Bank Limited. The last two banks were not
parties to the suit for which the instant suit suffers a serious defect.
In reply to counter-claim made by the Defendant No.1, additional written
statement was filed on behalf of the Plaintiff, refuting the allegations. It is contended
that purported discrepancies were sought to be raised by Defendant No.1 after
prescribed period of seven days. The Defendant No.2 waived such alleged
discrepancies and requested the Defendant No.1 to pay. According to the Plaintiff
there was no discrepancy within the meaning of Article 14 (C) of the UCP-500.
Chapter XV of the Guidelines of Bangladesh Bank was not applicable as the same are
not binding of the Plaintiff. The Plaintiff stated that counter-claim is not
maintainable, does not disclose any cause of action for defamation and barred under
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the law. According to the Plaintiff, defence of the Defendant No.1 as well as the
counter-claim is not tenable.
On the basis of the pleadings of the parties following issued were framed:
1. Is the suit maintainable?
2. Has this Court jurisdiction to entertain any try the suit?
3. Were the shipping/export documents submitted by the Bank of
India to Defendant No. 1 for payment under the Letter of Credit
discrepant and not in accordance with the terms and conditions
of the Letter of Credit, as alleged? If so, can Defendant No. 1
refuse payment when Defendant No. 2 accepted the alleged
discrepant documents?
4. Could Defendant No. 1 legally refuse to make payment of the
Letter of Credit on the plea that the goods did not enter
Bangladesh?
5. Were, the cancellation of Reimbursement Instructions by
Defendant No. 1 lawful?
6. Did Defendant No. 2 take delivery of the goods in collusion with
Defendant No. 1? If so, are both the defendants liable to pay for
the same?
7. Is the plaintiff entitled to get a decree, as prayed for?
8. To what relief/reliefs the plaintiff is entitled?
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9. Is Defendant No. 1 entitled to a decree for counter-claim, as
made?
Both the parties adduced oral as well as documentary evidences. Documentary
evidences were exhibited and marked.
Issue No.1:
Although this point was not canvassed in the written statement, after adducing
evidence by the Plaintiff, Mr. Dutta, the Learned Counsel for the Defendant No.1
argued that Ext.A which is a photocopy, indicated that the Plaintiff firm was
registered after institution of the suit. Ext.A is a memorandum issued by the
Registrar of Firms bearing date 04/04/2011 showing acceptance of receipt of
application for registration of the Plaintiff firm. According to Mr. Dutta, since the
suit is based on contract with a third party and at the time of the institution of the
suit, the firm was not registered, the suit is hit by provision of section 69 of the
Indian Partnership Act, 1932. Consequently, the suit is barred and not maintainable.
Since the point was not raised earlier, the Plaintiff prayed for leave to adduce further
evidence. Leave was granted. P.W.1 was recalled. The P.W.1 produced information
provided by S.P.I.O & Addl. Registrar of Firms, Societies & Non-Trading
Corporations, West Bengal dated 21/11/2022 and also produced original application
form signed by then partners dated 16/08/1996. These documents were exhibited
and marked as Ext.AN (collectively) and Ext.I (collectively). P.W.1 stated in evidence
on recall that the Plaintiff firm was registered on 30/04/1996 when his father was
one of the partners. On demise of his father on 23/07/1996 the firm was
reconstituted and application for registration was filed. Ext.AN containing
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information provided by S.P.I.O & Addl. Registrar of Firms, Societies & Non-Trading
Corporations, West Bengal dated 21/11/2022 corroborates the statement of P.W.1
that the Plaintiff firm was registered on 30/04/1996 originally when the father of
P.W.1, late Netai Mohan Saha was one of the partners. Documentary as well as oral
evidence, maintaining primacy of primary original documentary evidences, it is
established that the Plaintiff firm was registered on 30/04/1996, prior to the
institution of the suit. Therefore, the present suit is not hit by section 69 of the
Indian Partnership act, 1932 and the suit is maintainable in this regard.
Issue No.1 is decided in favour of the Plaintiff.
Issue No.2:
Plea is taken in the written statement that no part of cause of action arose
within jurisdiction of this Court. Amendments of the Letter of Credit did not take
place within jurisdiction of this Court. Therefore, this Court has no jurisdiction to
entertain the instant suit.
Mr. Ghosh, the Learned Counsel appearing for the Plaintiff argued that all
negotiations between the Plaintiff and the Defendant No.2 took place in the office of
the Plaintiff, within jurisdiction of this Court. The Letter of Credit was delivered to
the office of the Plaintiff within jurisdiction of this Court. Hence the said Letter of
Credit was accepted within jurisdiction of this Court. The agreement between the
Plaintiff and the Defendant No.2 also took place in the office of the Plaintiff, within
jurisdiction of this Court. Therefore, part of cause of action, on being so arisen
within jurisdiction of this Court, confers this Court jurisdiction to entertain the suit
as leave was granted under Clause 12 of the Letters Patent.
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Per contra, Mr. Dutta, the Learned Counsel for the Defendant No.1 argued that
leave under Clause 12 was obtained by the Plaintiff by suppression of material facts
that transactions were between the Defendant No.1 and Bank of India and Arab
Bangladesh Bank Ltd, Mumbai which were not made parties to the suit. Moreover,
referring to cross-examination of the P.W.1, as Mr. Dutta argued, it is not established
that negotiations or agreement between the Plaintiff and the Defendant No.2 took
place within jurisdiction of this Court. Therefore, according to Mr. Dutta, this Court
has no jurisdiction to entertain the suit.
This is a suit for enforcement of letter of credit. Behind every documentary
credit there is an underlying transaction of contract which had earlier been entered
into between the seller and the buyer or in other words between the applicant and
the beneficiary. This is a common contract of sale. One of the terms of the said
contract is to open a revocable or irrevocable letter of credit. The original agreement,
therefore, is the genesis of the letter of credit so issued by the issuing bank at the
instance of the applicant. A bank is also identified to be a negotiating bank. In
United City Merchants (Investments) Ltd. vs Royal Bank of Canada
[(1983) 1 AC 168 at page 182] Lord Diplock observed and explained:
"It is trite law that there are four autonomous though
interconnected contractual relationships involved. (1) The
underlying contract for the sale of goods, to which the only parties
are the buyer and the seller; (2) the contract between the buyer
and the issuing bank under which the latter agrees to issue the
credit and either itself or through a confirming bank to notify the
credit to the seller and to make payments to or to the order of the
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seller (or to pay, accept or negotiate bills of exchange drawn by the
seller) against presentation of stipulated documents; and the buyer
agrees to reimburse the issuing bank for payments made under the
credit. For such reimbursement the stipulated documents, if they
include a document of title such as a bill of lading, constitute a
security available to the issuing bank; (3) if payment is to be made
through a confirming bank the contract between the issuing bank
and the confirming bank authorising and requiring the latter to
make such payments and to remit the stipulated documents to the
issuing bank when they are received, the issuing bank in turn
agreeing to reimburse the confirming bank for payments made
under the credit; (4) the contract between the confirming bank
and the seller under which the confirming bank undertakes to pay
to the seller (or to accept or negotiate without recourse to drawer
bills of exchange drawn by him) up to the amount of the credit
against presentation of the stipulated documents."
The "underlying contract" was made in this case between the Plaintiff and the
Defendant No.2. The later did not contest the suit by filling written statement. It is
averred in the plaint that agreement took place in the office of the Plaintiff between
itself and the Defendant No.2. Since the Defendant No.2 did not appear and contest
the suit, there remains no denial of these averments of the plaint and it would be
deemed to be admitted that agreement between the Plaintiff and the Defendant
No.2 was concluded in the office of the Plaintiff, within jurisdiction of this Court.
Mr. Dutta referred to Question No.149 to 156 asked in course of cross examination
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of P.W.1 to argue that the Plaintiff had no negotiation with the Defendant No.1
during the process of issuance of the Letter of Credit. That is not very material. No
question was asked challenging the statement that agreement between the Plaintiff
and the Defendant No.2 took place within jurisdiction of this Court. The other
contracts may not have their origin within jurisdiction of the Court. But that is not a
decisive factor. The underlying contract, being the genesis of the Letter of Credit
was concluded within jurisdiction of this Court. The Defendant is a party here and
part of cause of action, therefore, arose within jurisdiction. This apart, as appears
from evidence of P.W.1, documents were submitted by the Plaintiff to the
negotiating bank, Bank of India, within jurisdiction of this Court. Submission of
documents to the issuing bank for payment which was refused by the Defendant
No.1 constitute a part of cause of action arising within jurisdiction of this Court. The
Plaintiff, accordingly, sought for and obtained leave under Clause 12 of the Letters
Patent. Therefore, the plea that this Court has no jurisdiction, is not correct.
Issue No.2 is decided in favour of the Plaintiff.
Issue No.3, 4, 5, 6, 7 & 8:
Since all these issues are connected with each other, all are taken up together.
The first limb of argument of Mr. Ghosh, the Learned Lawyer for the Plaintiff
is that the Defendant No.1 did not raise any objection on discrepancies. Mr. Ghosh
submitted that two sets of documents were submitted by the Plaintiff with the
negotiating bank, Bank of India on 01/02/1999 and 09/02/1999. Objections
pointing out discrepancies were made by the Defendant No.1 on 10/02/1999 and on
22/02/1999 beyond the period of seven days. Referring to Rule 13(b) of UCP-500,
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Mr. Ghosh argued that the Defendant No.1 is not at all entitled to raise any dispute
regarding the documents and their objection are liable to be refuted.
The second limb of argument of Mr. Ghosh is that the provisions of Article 14
of UCP-500 postulates eventuality of waiver of discrepancy by the applicant of the
letter of credit. In terms of the aforesaid provisions, the issuing bank can approach
the applicant for waiver of discrepancy. In case, discrepancies are waived by the
applicant, it is duty of the issuing bank to honour a letter of credit. In this case, the
Defendant No.1 approached the Defendant No.2, the applicant who waived the
discrepancies. Therefore, there remained no alternative to the Defendant No.1 than
to honour the said Letter of Credit.
The third limb of argument of Mr. Ghosh is that the issuing bank is only
required to consider the documents placed before it for negotiation on its face value
to decide on whether to accept or reject the same. The issuing bank has nothing to
investigate into. That is opposed to the scope of Article 14 of UCP-500. It is further
submitted that when the applicant, namely the Defendant No.2 waived
discrepancies in clear terms and where the negotiating bank also stated that the
documents are in order, the Defendant No.2 infringed and acted opposed to the
express provisions of Article 14 of UCP-500.
The fourth limb of argument of Mr. Ghosh is that the Defendant No.1
proceeded to rely upon the provisions of the foreign exchange rules, extant in People
Republic of Bangladesh at that material point of time, to justify their action.
According to Mr. Ghosh, the Letter of Credit clearly contained that the parties would
abide by UCP-500. Hence, the Foreign Exchange Rule, as relied upon by the
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Defendant No.1, has no relevance and the Defendant No.1 cannot be resorted to
such rules going beyond the scope of the contract. According to Mr. Ghosh, the
Defendant No.1 is bound to honour the Letter of Credit and is liable to pay money as
prayed for.
Mr. Ghosh relied upon:
United Commercial Bank vs Bank of India & Ors. [(1981)2 SCC
766]; Federal Bank Ltd. vs V.M. Jog Engineering Ltd. [(2001)1 SCC
663]; Himadri Chemicals & Industries Ltd. vs Coal Tar Refining
Ltd. [(2007)8 SCC 110].
Per contra, Mr. Dutta, the Learned Lawyer for the Defendant No.1 argued
first that The Defendant No.1 received two set of documents, submitted to the
negotiating bank by the Plaintiff, on 07/02/2000 and 22/02/2000 respectively and
the Defendant No.1 pointed out and communicated the discrepancies within seven
banking days, within time frame fixed by UCP-500. There was no delay in
communicating the discrepancies. Therefore, on that score, discrepancies cannot be
brushed away.
The second limb of argument of Mr. Dutta is that since there were
discrepancies in the documents, as pointed out by them and the discrepancies were
not rectified within time, the Defendant No.1 is well within the ambit of UCP-500 to
dishonour the said Letter of Credit.
It was next argued by Mr. Dutta that the Defendant No.2 waived the
discrepancies in the documents. The Defendant No.1 was willing to allow payment
against such discrepant documents if the negotiating bank namely, Bank of India
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agreed to the terms in compliance with the laws prevalent in Peoples' Republic of
Bangladesh and guidelines of the Central Bank of Bangladesh. However, Bank of
India did not agree to such terms for making payment against discrepant document
under the said Letter of Credit. The Defendant No.1 cannot make payment going
against the laws and rules framed by the Central Bank of Bangladesh. Mr. Dutta
also referred to the ICC Banking Commission Recommendation dated 09/04/2002
issued by International Chambers of Commerce where it was observed that the mere
fact that an applicant waives the discrepancies does not obligate the issuing bank to
waive the discrepancies, whether or not the issuing bank requested such waiver.
Local laws may have bearing where an issuing bank has requested a waiver from the
applicant and having received the same, declined to act in accordance therewith.
Mr. Dutta also referred to Clause 23 of the Guideline for Foreign Exchange
Transaction issued by the Bangladesh Bank which states:
"ADs may allow remittance against discrepant document/
documents received directly by the importers after goods have
been cleared from the customs, on the basis of relative LCAF, the
exchange control copy of the customs bill of entry for consumption
or customs certified invoice in the case of import by post and the
relative invoices."
Despite applicant's willingness to accept and pick up, some documents were
needed to settle payments. As submitted by Mr. Dutta, it was communicated to
Bank of India that to meet local exchange regulation, the applicant will have to
submit bill of entry of clearance of goods to Bangladesh. On receipt of acceptance of
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the terms, the Defendant No.1 would release full payment. Since Bank of India did
not agree, payment was refused.
Mr. Dutta also referred to the report of Superintendent, Sona Masjid L.C.
Station where it was stated that the goods did not enter into Bangladesh. Since the
goods did not enter into Bangladesh, the Defendant No.1 asked for bill of entry from
the Defendant No.2 which was not provided with. Mr. Dutta referred to the
observations made in disposing G.A.1388 of 2000 dated 22/05/2003 by Pinaki
Chandra Ghosh, J. (as His Lordship then was). Mr. Dutta also referred to an
unreported judgement of this Court in R.K. Mishra & Co. vs Al-Arafah-Islami
Bank Ltd.
I have heard rival submissions.
Ext.T is a letter issued by the Bank of India, addressed to Arab Bangladesh
Bank Ltd. dated 01/02/2000, in respect of the said Letter of Credit wherein Para.2
states: "We confirm that the documents have been disposed of in terms of the Credit
and all the terms and conditions have been complied with." Ext.U is a copy of telex
message dated 03/02/2000 from Bank of India to the Defendant No.1 wherein it is
stated that on 01/02/2000 Bank of India received negotiated documents against the
said Letter of Credit and requested the Defendant No.1 to instruct the Mumbai
Branch to honour the claim urgently. Ext.X is a copy of telex message sent by the
Defendant No.1 to Bank of India dated 10/02/2000 pointing out discrepancy that
certificate of Truck Owners Association was not presented. In his oral testimony
D.W.1 stated that the Defendant No.1 received the first set of documents on
07/02/2000. In cross examination this was confirmed again. Ext.V is another letter
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issued by Bank of India dated 09/02/2000 addressed to Arab Bangladesh Bank Ltd.
to the same effect as Ext.T in respect of the second set of documents submitted by the
Plaintiff. No documentary evidence is there to show when these second set of
documents were sent by Bank of India to the Defendant No.1. In oral testimony,
D.W.1 stated that the second set of documents were received on 22/02/2000. This is
confirmed in cross-examination. Ext. AE is communication made by the Defendant
No.1 pointing out discrepancies in respect of the second set of documents.
The first set of documents were sent to the Defendant No.1 on 03/02/2000 by
Bank of India. Evidence adduced by D.W.1 is that the first set was received on
07/02/2000. There is no evidence to the contrary. Reply was made communicating
discrepancy on 10/02/2000. In either case reply was made well within seven days,
the time line framed by UCP-500. So far as the second set of documents are
concerned, evidences proved that the said second set of documents were received by
the Defendant No.1 on 22/02/2000. Reply was made on the same day. Therefore, in
this case also there was no transgression of time limit of seven days framed by UCP-
500. Objections raised by the Defendant No.1 cannot be discarded on this ground of
delay, as canvassed by Mr. Ghosh.
Ext. B is the original Letter of Credit, issued by the Defendant No.1 in favour of
Siva Sakti Enterprise. It was irrevocable letter of credit. It is payable "AT SIGHT
FOR NEGOTIATION IN INDIA DRAWN ON US" to be accompanied by listed
documents and on conditions mentioned. Subsequent amendment (Ext.P)
transferred the same in the name of the Plaintiff without changing other terms and
conditions. Clause (O) of the said Letter of Credit (Ext.B) stipulates that the truck
carrying the L/C goods must be a member of Indian Truck Owners Association for
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exporting goods and a certificate issued by the Association to this effect is to
accompany the documents. Discrepancy pointed out in the first set of documents is
that the said certificate was missing. Ext.W is a letter dated 09/02/2000 written by
the Plaintiff pointing out that there is no such association named Indian Truck
Owners' Association. In lieu of that the Plaintiff submitted a certificated issued by
Bongaon Motor Owners Association. Ext. AD is a letter dated 21/02/2000 sent by
Bank of India to the Defendant No.1 stating therein that no such association named
"Truck Owners association" existed at the place. What is required is a certification
from Indian Bank Association that the concerned transport operator was on their
approved list. That certification was attached to the documents. Therein, it was
clarified, that the discrepancy pointed out by the Defendant No.1 is not tenable.
P.W.1 in course of cross examination stated that there was no existence of Indian
Truck Owners Association. The carrier namely M/S Amit Roadways was member of
Indian Bank Association.
Mr. Dutta argued that in spite of repeated amendments in the said Letter of
Credit, none pointed out that there was no existence of Indian Truck Owners
Association. Clause (O) was allowed to be there. Now neither the Plaintiff nor the
Bank of India should sing a different tune. The Plaintiff is bound by Clause (O).
The said Letter of Credit is unilateral document. Possibly it was a standard
form. There is no evidence to establish or indicate that the parties discussed terms of
the Letter of Credit, settled the same before giving a final form incorporating in the
same. In fact, the Letter of Credit shows that it was issued by the Defendant No.1
containing terms and conditions, one of which was Clause (O). The said Letter of
Credit was sent to Arab Bangladesh Bank Ltd. by the Defendant No.1. Before,
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incorporating that Clause (O) the Defendant No.1 should have verified whether such
association existed or not. Definitely that was not done. Now the Defendant No.1
insisted on a certificate to be issued by a non-existent entity which is impossible to
produce. This is unilateral mistake of fact on the part of the Defendant No.1. A
contract cannot be avoided, under section 22 of the Indian Contract Act, 1872, for
mistake of fact of the one party. The Defendant No.1 cannot ask the Plaintiff to
perform in such way which is not possible. The Defendant No.1 cannot shield them
with their own mistake. The object behind introduction of Clause (O) must have
been to rule out any possibility of fraud which might have been practiced by any
unrecognized transporter. Clause (O) must have been incorporated to ascertain that
a genuine and approved transporter is involved in carriage of goods. That purpose is
definitely served and that object is definitely fulfilled with certificate issued by Indian
Bankers Association in favour of the transporter. This is substantial performance of
contract. The Defendant No.1 cannot shrug off their contractual liability to honour
the Letter of Credit insisting on to perform an impossible act whereas the contract
has been substantially performed on furnishing certificate of Indian Bankers'
Association. The Defendant No.1 is obliged and bound to pay and honour the said
Letter of Credit, in respect of the first set of consignment.
So far as the second set of documents are concerned, the Defendant No.1
pointed out discrepancies within time and also intimated the discrepancies to the
Defendant No.2. The Defendant No.2 waived the discrepancies (Ext.AB and Ext.AI).
The Defendant No.2 undertook to make payments too. Invoice (Ext.J) bears date
30/01/2000 and it is mentioned that the goods were to be sent to Sona Masjid port
of discharge. When discrepancies were pointed out, the negotiating bank sent
21 | P a g e
documents to establish that goods entered into Bangladesh to rule out any foul-play
or fraud. Thereafter, the Defendant No. 1 made an enquiry and obtained a report
that the consignment did not reach Sona Mosjid L.C. Station, concluding thereby
that goods were never dispatched. On receiving communication on this issue, the
Bank of India made an enquiry and intimated the Defendant No. 1 along with a
report of the authority that the consignment entered into Bangladesh. These
statements were supported by the documentary evidence but the Defendant No. 1
invoked the extant the foreign exchange rules of Bangladesh and made an offer
proposing solution to the Bank of India for honouring the Letter of Credit. The Bank
of India refused that. There is no reference that parties shall also comply with or that
there are obligations of parties under the contract to comply with the local foreign
exchange regulations. Even no notice was given of applicability of local regulations.
Compliance with local foreign exchange regulation was not part of the said Letter of
Credit. Mr. Dutta argued that local foreign exchange regulations framed by
Bangladesh Bank are to be complied with but never such stipulations or conditions
or obligations was ever communicated to the either Bank of India or to the Plaintiff.
It is axiomatic that UCP-500 cannot override the legislated local land; in case of
contradictions the local law shall prevail. But this is not a case of contradictions
where UCP-500 is at variance with a local law. What Mr. Dutta submitted is that
even though the Defendant No. 2 waived discrepancies foreign exchange regulations
issued by the Bangladesh Bank demands production of bill of entry by the applicant,
herein the Defendant No. 2, even though, discrepancies are waived. This is an
additional provision. Bank of India provided documents showing entry of the
consignment into Bangladesh, to Defendant No.1 evidencing thereby entry of goods
to Bangladesh. More so, the Defendant No. 2 stated in his letter to Defendant No.1
22 | P a g e
that he is received goods evidencing delivery of article and ruling out any practice or
fraud. The Defendant No.1 cannot invoke a new condition, namely, compliance with
the local laws in addition to compliance with UCP-500 which was neither stipulated
nor contemplated by the parties at the time of issue of Letter of Credit. A new offer
may or may not be accepted by the Bank such refusal would not discharge the
Defendant from performing his function under the existing contract. There was no
novation of contract substituting the pre-existing terms of the Letter of Credit
impinging upon the parties to perform and comply with a new term, hitherto being
absent. Parties are, therefore, bound by the terms of the original letter of credit.
The said Letter of Credit clearly stipulates that parties shall abide by UCP-500.
As stated above, it is payable "AT SIGHT FOR NEGOTIATION IN INDIA DRAWN
ON US". "A credit may provide for payment on presentation of documents-after
allowing time, of course, for them to be examined for compliance with the credit.
Then it can be called a sight payment or sight credit" [Jack: Documentary
Credits. 4th Edition] (underlines provided). "A sight credit is one under which the
beneficiary is entitled to payment immediately on acceptance of the documents and
the issuing or confirming bank will make an immediate transfer of fund." [Paget's
Law of Banking; 16th Edn. Indian reprint; Page 1073] (underlines provided).
It is also apt now to look at necessary provisions of UCP-500.
Article 10 refers to the duty of the bank to honour the commitment.
"An irretrievable credit constitutes a definite undertaking of the
issuing bank, provided that the stipulated documents are presented
and that the terms and conditions of the credit are complied with:
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(i) if the credit provides for sight payment -- to pay, or that
payment will be made;
(ii) if the credit provides for deferred payment -- to pay or that
payment will be made on the date(s) determinable in accordance
with the stipulations of the creditor;
(iii) if the credit provides for acceptance -- to accept drafts
drawn by the beneficiaries if the credit stipulates that they are to be
drawn on the issuing bank, or to be responsible for that acceptance
and payment at maturity if the credit stipulates that they are to be
drawn on the applicant for the credit or any other drawee stipulated
in the credit;
(iv) if the credit provides for negotiation -- to pay without
recourse to drawer and/or bona fide holders, drafts drawn by the
beneficiary, at sight or at a tenor, on the applicant for the credit or
on any other drawee stipulated in the credit other than the issuing
bank itself, or to provide for negotiation by another bank and to
pay as above, if such negotiation is not affected by (b) .... (c) .... (d)
...."
Article 11(a) stipulates that:
"All credits must clearly indicate whether they are available by
sight payment, by deferred payment, by acceptance or by
negotiation...."
Clause (b) states that:
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"All credits must nominate the bank (nominated bank) which is
authorised to pay (paying bank), or to accept drafts (accepting
bank), or to negotiate (negotiating bank) unless the credit allows
negotiation by any bank (negotiating bank)."
Article 11(a) stipulates that:
"All credits must clearly indicate whether they are available by
sight payment, by deferred payment, by acceptance or by
negotiation...."
Clause (b) states that:
"All credits must nominate the bank (nominated bank) which is
authorised to pay (paying bank), or to accept drafts (accepting
bank), or to negotiate (negotiating bank) unless the credit allows
negotiation by any bank (negotiating bank)." (c) ...
Clause (d) of Article 11 is relevant and it reads:
"11. (d) By nominating a bank other than itself or by allowing for
negotiation by any bank or by authorising or requesting a bank to
add its confirmation, the issuing bank authorises such bank to pay,
accept or negotiate, as the case may be, against documents
which appear on their face to be in accordance with the terms and
conditions of the credit and undertakes to reimburse such bank in
accordance with the provisions of these Articles."
Article 14 states:
a. A nominated bank acting on its nomination, a
confirming bank, if any, and the issuing bank must
25 | P a g e
examine a presentation to determine on the basis of
documents alone, whether or not the documents appear
on their face to constitute a complying presentation."
Article 15 states:
"15. Bank must examine all documents with reasonable care to
ascertain that they appear on their face to be in accordance with
the terms and conditions of the credit. Documents which appear
on their face to be inconsistent with one another will be considered
as not appearing on their face to be in accordance with the terms
and conditions of the credit."
Article 16 of UCP-500 provides:
a. "When a nominated bank acting on its nomination, a confirming
bank, if any, or issuing bank determines that a presentation does
not comply, it may refuse to honour or negotiate.
b. When an issuing bank determines that a presentation does not
comply, it may in its sole judgement approach the applicant for a
waiver of the discrepancies. This does not, however, extend the
period mentioned in sub-article 14(b)."
Paget's Law of Banking (16th Edn; Indian reprint) observes that if the
applicant gives an immediate waiver, the issuing bank will usually take up the
documents-it has no interest in the matter beyond acting within its mandate, unless
the applicant's ability to discharge its reimbursement obligation is in doubt. It is
further commented:
26 | P a g e
"Three points should be noted about this provision:
1. The decision whether to approach the applicant is in the issuing
bank's sole discretion. Accordingly, neither the applicant nor
the beneficiary has a legal remedy against the issuing bank if it
rejects the documents without having made such approach.
2. The only purpose for which art 16(b) permits an approach to the
applicant is for waiver of discrepancies i.e a waiver of the
discrepancies identified by the issuing bank. Article 16(b) does
not permit a re-examination of the documents by the applicant
with a view to his finding additional discrepancies. On this
question, art 16(b) reflects the Court of Appeal's decision in
Bankers Trust Co v State Bank of India.
3. The operation of art 16(b) does not extend the time period for
determining compliance, as defined in art 14(b) and art 16(b)."
In Tarapore & Co. v. V.O. Tractors Export, [(1969) 1 SCC 233] it was
observed by the Supreme Court of India:
"A vendor of goods selling against a confirmed letter of credit is
selling under the assurance that nothing will prevent him from
receiving the price. That is of no mean advantage when goods
manufactured in one country are being sold in another. It is,
furthermore, to be observed that vendors are often reselling
goods brought from third parties. When they are doing that, and
when they are being paid by a confirmed letter of credit, their
27 | P a g e
practice is -- and I think it was followed by the defendants in
this case -- to finance the payments necessary to be made to
their suppliers against the letter of credit. That system of
financing these operations, as I see it, would break down
completely if a dispute as between the vendor and the purchaser
was to have the effect of "freezing", if I may use that expression,
the sum in respect of which the letter of credit was opened."
In Federal Bank Ltd. vs. V.M. Jog Engg. Ltd., [(2001) 1 SCC 663] the
Supreme Court of India observed with reference Article 10 and 11 of UCP-500:
"It is, therefore, clear that under Article 11(d), it is sufficient if the
negotiating bank is satisfied that the documents which appear on
their face to be in accordance with the terms and conditions of the
credit. If the negotiating bank then pays, the issuing bank is bound
to reimburse the negotiating bank."
It was further elaborated by the Supreme Court of India in this case that once
the bank takes such reasonable care as above stated, Article 16 states that the bank
will have to be reimbursed by the party giving such authority. Clause (b) of Article 16
states that refusal by the issuing bank to pay must be "on the documents alone" as
appear on their face to be inconsistent with the terms and conditions of the credit.
Reference may be made to a decision of the Supreme Court of India, expounding the
underlying principle of law, in National Bank Ltd. v. Ghanshyam Das
Agarwal, [(2015) 4 SCC 228] :
"7. As we see it, therefore, keeping in perspective that the
importer's Bank i.e. the appellant before us, should not have
28 | P a g e
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. 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. v. V.O. Tractors Export [(1969) 1 SCC 233: AIR 1970 SC 891]
where Halsbury's Law of England have been relied upon). These
observations have been repeated in United Commercial
Bank v. Bank of India [(1981) 2 SCC 766], U.P. Coop. Federation
Ltd. v. Singh Consultants & Engineers (P) Ltd. [(1988) 1 SCC
29 | P a g e
174], Federal Bank Ltd. v. V.M. Jog Engg. Ltd. [(2001) 1 SCC
663], Himadri Chemicals Industries Ltd. v. 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."
In United City Merchants (Investments) Ltd. vs Royal Bank of
Canada [(1983) 1 AC 168 at 1830] Lord Diplock stated:
"If, on their face, the documents presented to the confirming
bank by the seller conform with the requirements of the credit
as notified to him by the confirming bank, that bank is under a
contractual obligation to the seller to honour the credit,
notwithstanding that the bank has knowledge that the seller at
the time of presentation of the conforming documents is alleged
by the buyer to have, and in fact has already, committed a
breach of his contract with the buyer for the sale of the goods to
which the documents appear on their face to relate, that would
have entitled the buyer to treat the contract of sale as rescinded
and to reject the goods and refuse to pay the seller the purchase
price. The whole commercial purpose for which the system of
confirmed irrevocable documentary credits has been developed
in international trade is to give to the seller an assured right to
be paid before he parts with control of the goods that does not
30 | P a g e
permit of any dispute with the buyer as to the performance of
the contract of sale being used as a ground for non-payment or
reduction or deferment of payment."
Nowhere, UCP-500 contemplates investigation by the issuing bank, as is
done here. This is beyond the pale of UCP-500. It is very clear that the Defendant
No.1 went beyond the scope of the stipulations of UCP-500 in denying honouring
the said Letter of Credit which the Defendant No.1 is not entitled to do. The
negotiating bank in exercise of reasonable care examined the documents
submitted by the Plaintiff, rules out exercise any fraud, clarified discrepancies and
the applicant, namely the Defendant No.2 waived discrepancies. The Defendant
No.1 cannot step out the scope and terms of the said Letter of Credit relying upon
extraneous and alien terms to avoid its obligation. Therefore, the Defendant No.1
is liable to pay the Plaintiff the claimed amount with interest.
These issues are decided in favour of the Plaintiff.
Issue No.9:
The Defendant No.1 claimed damages of rupees ten crores for defamation
and consequent damages suffered due to wrongful and mala fide defamatory
allegations against the Defendant No.1 by publication thereof to different persons.
No evidence of publication was produced. D.W.1 stated in evidence that the bank is
partly affected by the allegation as the Plaintiff made several communications to
different authorities for non-payment of money under the said Letter of Credit.
This is a bald statement without adducing or furnishing any particulars of such
31 | P a g e
communications. There is no evidence of malice. Therefore, alleged defamation is
not proved and the counter claim fails.
This issue is decided against the Defendant No.1.
In nutshell, the Plaintiff's case is allowed and the counter-claim of the
Defendant No. 1 is dismissed.
It is ordered that the Plaintiff do get a sum of $99, 600 US dollar. Since the
Plaintiff is deprived of money value of the price of goods for last twenty-four years,
$99, 600 US dollar shall be payable in Indian currency at an exchange rate
prevailing in India today. The amount of money, so converted, shall bear simple
interest at a rate of 10% per annum from 1st March, 2000 till recovery. The
Defendant No.1 shall also liable to pay Rs.2,00,000/- as cost of litigation.
The instant suit is disposed of along with pending applications, if any.
Let decree be drawn up.
(Sugato Majumdar, J.)
