Neha International vs Bank Of America N.T. & S.A. And Ors.
1988 Latest Caselaw 152 Del

JUDGMENT

Jagdish Chandra, J.

(1) This order shall dispose of this application. moved under order 37 Rule 3(5) of the Code of Civil Procedure moved by defendant No. 1 Bank of America N.T & S.A. Hansalaya, 15, Barakhamba Road, New Delhi, for leave to defend the suit being Suit No. 203/87 brought by the plaintiff M/s. Neha International against defendant No. 1 as also against defendant No. 2 Canara Bank, 56 Janpath, New Delhi, and defendant No. 3 M/s. S. Kumar & Co. Inc, 3212 South Main Street, Los Angeles, California 90007, U.S.A., 'under Order 37 of the Code of Civil Procedure. defendant No. 3 M/s. S. Kumar & Co , the buyer in this suit, did not put up appearance in court within the statutory period of ten days from the date of its service and so in view provision of law contained in sub-rule (3) of rule 2 of Order 37 Civil Procedure Code a decree in favor of the plaintiff against defendant No. 3 was passed for the recovery of the suit amount i e. Rs. 177,731.60 paise with costs as also with future interest at the rate of 12% per annum from the date of the suit till realisation.

(2) The learned counsel for the plaintiff made a submission in court on 2nd September 1987 that did not press any claim against defendant No. 2.

(3) Thus, defendant No. I alone has remained in the arena and has sought leave of the court to defend the suit.

(4) The plaintiff is a registered partnership firm carrying on business of export of readymade garments having its registered partners (1) Champak Bagia and (2) Sushma Jain and the suit has been filed by Champak Bagia on behalf of the partnership. Defendant No. 3 M/s S. Kumar & Co. is doing business of import and export at 212, Sough Main Street, Los Angeles, U.S.A.

(5) The plaintiff was to supply and did not supply to defendant No. 3 M/s. S. Kumar & Co. 57 packages containing 2,849 pieces of cotton mill made ladies garments and the same were sent by air through M/s. Lemuir Air Express, agents of M/s. Air France, the carrier The international banking division of defendant No. 1 at Los Angeles, U.S.A. established on behalf of its clients M/s S. Kumar & Co. defendant No. 3, an irrevocable letter of credit for and amount of Rs. 7,00,000.00 being Credit No. La 1, 5529000 13th December 1984 in favor of M/s. Delhi State Industrial Development Corporation, Bombay Life Building, Conaaught Place. New Delhi, and this credit was established under and transferablethe Provisions of Uniform Customs and Practices of Documentary Credits (U.C.P) 1983 Revision (for short U.C.P.) and this credit was transferable and divisible. In terms of the Advice dated 10th May 1985, defendant No. 1 had. through its Delhi Office, intimated the plaintiff that Delhi State Industrial Development Corporation had requested defendant No. 1 to partially transfer the irrevocable credit in favor of the plaintiff of the account of S. Kumar & "Co. for an amount of Rs. 1,36,894.45 paise and it was complied.

(6) The plaintiff effected the shipment and presented on 21st May 1985 the documents to its Banker defendant No.2CanaraBankwitha request to negotiate with the Bank of America defendant No. I as per terms of the aforesaid Letter of Credit. Defendant No. 2 then presented the documents for negotiation to Bank of America, New Delhi on 27th May 1985.

(7) On 3rd June 1985 defendant No. I advised defendant No. 2, with a copy to the plaintiff, that it was unable to effect negotiation of the Letter of Credit for the following reasons :-    (A)Late shipment effected. (b) A.W.B. not signed by shipper/agent. (e) Insurance does not cover from the date of A.W.B.  

(8) Upon further representation defendant No. 1 refused payment saying : "Accounted do not authorise payment".   

(9) Defendant No. 2 intimated the plaintiff that defendant No . 1 had returned the documents, on representation, for the under-mentioned reasons :-    "RETURN unpaid reason; collecting Bank states shipment was late and not of good quality."  

(10) The aforesaid reasons were alleged to be flimsy and the result of collusion between the Bank defendant No. I and the buyer defendant No. 3. The plaintiff has also asserted that Lemuir Air Express, the agent of carrier Air France, has already intimated that the goods were in fact delivered to and accepted by defendant No. 3 on 31st May 1985. The plaintiff demanded from defendants I and 3 respectively on 21st April 1986 and 2nd July 1986 the price of Rs. 1,36,894.45 paise together with interest thereon at the rate of 18% per annum but these defendants failed and neglected to pay the same. The plaintiff has filed this suit against defendants I and 3 for the recovery of the sum of Rs. 1,77,731.68 paise which includes the principal amount of Rs. 1,36,894.45 paise representing the price of the goods sold and interest thereon at the rate of 18% per annum up to 10th December 1986. Future interest at the same rate is also claimed.

(11) . As already pointed out above, defendant No. 1 is the only contestant now remaining in the filed in this suit and the defenses made by it and urged by the learned counsel for defendant No. 1 are the following :

(A)Late shipment effected. (b) A.W.B. not signed by shipper/agent. (e) Insurance does not cover from the date of AWB.

The opening of a confirmed Letter of credit constitutes a bargain between the Banker and the seller of the goods which imposes on the Banker an absolute obligation to pay subject, however, to the condition that the Banker is not bound or entitled to honour the Bills of Exchange drawn by the seller unless they, and such accompanying documents as may be required there under, are in exact compliance with the terms of the credit and such documents may be scrutinised with meticulous care (vide , United Commercial Bank v. Bank of India and others). The learned counsel for the parties have no dispute with the aforesaid proposition of law and, consequently the learned counsel for defendant No. I has pressed into service the aforesaid three discrepancies, whereas on the other hand, the learned counsel for the plaintiff has contended that there is in fact no such discrepancies in existence.

(13) Dr. L.M. Singhvi learned counsel for the plaintiff contended that after pointing out the above mentioned three reasons on 3rd June 1985 defendant No. I had waived all those reasons when upon further representation of documents from time to time by the plaintiff, it took an altogether different stand that "Accounted do not authorise payment" and which in fact was no justifiable ground for defendant No. I to take in view of the fact that the Letter of Credit constitute an independent contract between the Banker and the Seller of goods under which the Banker's obligation to pay is absolute and this obligation by the banker is to be discharge without reference to the buyer or without recourse to the disputes between the seller and the buyer in respect of the goods sold, for which reason the stand of bank defendant No. I that "Accounted do not authorise payment" was not open to defendant No. 1. The contention of Dr. Singhvi cannot be accepted factually for the reason that the bank defendant No. I had taken three objections to honour the documents for making payment, but when the plaintiff further represented and persisted, defendant No. I appears to have taken consultation from the buyer defendant No. " M/s. S. Kumar & Co. for the waiver of those three objections who refused to waive those objections and thereby did not authorise the payment and this is borne out from para 14 of the affidavit deposed to by Sandeep Gupta, constituted attorney and officer of defendant No. 1 filed along with the application for leave to defend the suit. The course adopted by defendant No. I cannot be said to be tantamount to waiver on its part of the three reasons it had given for not honouring the documents. If the buyer defendant No. 3 were to authorise the payment of price to defendant No. 1, notwithstanding the three objections raised by defendant No. 1, payment could have been made by defendant No. I to the plaintiff regarding the price of the goods.

(14) Dr. Singhvi further contended that when ultimately the bank defendant No. 2 intimated the plaintiff that the bank defendant No. 1 had returned the documents, on representation, for the under-mentioned reasons :    "RETURN unpaid reason; collecting Bank states shipment was late and not of good quality",  

the bank defendant No. 1 waived the second and third reasons though stuck on the first one of late shipment, but was not entitled to raise the objection regarding the bad quality of the goods supplied because the Banker was to make payment only on the basis of the documents and was not to look to any grievance of the buyer whether the goods supplied were of good or bad quality. Chalmers on "Bills of Exchange" explains the legal position in these words :    "IF the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to payment irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not."  

(15) Dealing with the scope of an irrevocable letter of credit in Hallsbury's Law of Evidence (Vol. 34, paragraph 319 at page 185) the following observations appear:    "............THUS,the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might prompt the buyer to return the goods and to refuse payment thereof; and, conversely the buyer is not entitled to an injunction restraining the seller from dealing with the Letter of Credit if the goods are defective."  

(16) The autonomy of an irrevocable letter of credit is entitled to protection. The learned counsel for defendant No. 1 did not insist that the Bank defendant No. I was entitled to take up the ground for dishonouring the documents and for refusal of payment that the goods were not of good quality, but be again contested the argument of waiver in respect of the second and third reasons. There is no question of waiver of any ground on the part of defendant No. 1 for rejecting the documents and the grounds initially taken by it can be pressed into service even now if there is force in the same. So, the court has to consider the aforesaid three defenses pressed into service by defendant No. 1 for the purpose of leave of the court to defend the suit. Whether insurance does not cover from the date of Air Way Bill ?

(17) Initially the word "not" in this discrepancy was not there but has now been added by defendant No. 1. The omission of the word "not" was just accidental. This matter is admittedly covered by Article 36 of U.C.P., 1983 which reads as follows : "UNLESS otherwise stipulated in the credit, or unless it appears from the insurance document (s) that the cover is effective at the latest date of loading on board or dispatch or taking in charge of the goods, banks will refuse insurance documents presented which bear a date later than the date of loading on board or dispatch or taking in charge of the goods as indicated by the transport document (s)."

The letter of credit does not make stipulation to the contrary and consequently, Article 36 would govern the examination of the insurance documents.

(18) This provision of Article 36 goes to show that banks shall not refuse insurance documents as presented which bear a date earlier than the date of-

(1)loading on board, or (2) dispatch, or (3) taking in charge of the goods as

indicated by the transport documents. In the case in hand the insurance document dated 20th May 1985 disclosed the taking in charge of the goods by mentioning the details of the Air Way Bills dated 10th May 1985 as follows:

"057-7098-3355dt. 10.5.85. (HAW-11466)"

(19) The House Air Way Bills (HAWB) mentions the date of dispatch and/or loading on board as "Flight No. Af -1357 dated 21.5.85".

(20) It was contended by the learned counsel for the plaintiff that the insurance document dated 20th May 1985 covered the goods which were taken in charge of by the carrier on 10th May 1985. This contention is of no help to the plaintiff because the mention of the Air Way Bills 057-7098-3355 dated 10.5.85 is not tantamount to the insurance of these goods for a period prior since 10.5.85. The date 10.5.85 mentioned in the document of insurance is simply descriptive of the goods insured along with the number of the Air Way Bill and does not make the insurance document retrospective so as to cover the goods since 10th May 1985.

(21) However, the House Air Way Bill (HAWB)-11464 mentioned in the insurance document dated 20th May 1985 is significant from the point of view that this Have contains the date of actual flight as 21.5.85 which Is the date of loading on board or dispatch and which date is later than 20.5.85 which is the date of document of insurance and thereby the matter is brought within the ambit of Article 36 which, as already pointed out above, provides that banks shall not refuse insurance documents as presented which bear a date earliar than the date of loading on board or dispatch and it has been found that the insurance document bears the date 20th May 1985 which is earlier than the date of loading on board or dispatch which is 21st May 1985, and consequently, the bank defendant No. 1 was not justified to refuse the insurance document in this case and, so the contention of the learned counsel for defendant No. I that insurance not having been taken from 10.5.85, the date of shipment, the same was not valid and could nor be honoured for payment by the bank defendant No. I, cannot be accepted. Whether late shipment effected ?

(22) The Letter of Credit mentions the last date for shipment as 12th May 1985. The contention of the learned counsel for defendant No. 1 is that shipment had taken place after 12th May 1985 and on 1st May 1985 which is the date of the Flight and as such the actual dispatch and shipment was beyond the terms of the Letter of Credit. This question is governed by the provisions of Article 47(b)(ii) and Article 50(b) of U.C.P. 1983 and the learned counsel for the parties are not at variance with each other in respect of the applicability of these two Articles for determining the aforesaid contention of the learned counsel for defendant No. 1. Both these Articles are reproduced below : "ARTICLE50: (a) Xx Xx Xx (b) The date of issuance of the transport document determined in accordance with article 47(b) will be taken to be date of shipment. Xx Xx Xx Article 47 (a) Xx Xx Xx Xx (b) For the purpose of these articles, the date of issuance of a transport document (s) will be deemed to be : (i) Xx Xx Xx Xx (ii) in the case of a transport document evidencing carriage by air the date of issuance indicated on the transport document or, if the credit stipulates that the transport document shall indicate an actual flight date, the actual flight date as indicated the transport document. (iii) Xx Xx Xx (iv) Xx Xx Xx "

(23) So, according to Article 50(b) the date of shipment shall be deemed to be the date of issuance of the transport document determined in accordance with Article 47 (b)(ii) and as in the case in hand the transport is by air, sub-clause (ii) of Article 47 (b) shall be applicable and this provision of law provides for two dates in the alternative. But in the case before us as the credit makes no stipulation that the transport document shall indicate the actual flight date in which case the date of shipment would be the actual flight date as indicated on the transport document, the date of issuance indicated on the transport document shall be deemed to be the date of shipment, and thus, the contention of the learned counsel for defendant No. 1 that the shipment had taken place beyond the last day of shipment i.e. 12th May 1985 and having taken place on 21st May 1985 the date of actual flight, is not correct because, as already pointed out above, the date of actual flight is relevant as the date of shipment only if the letter of credit stipulates that the transport document shall indicate an actual flight date. In the case in hand it is the date of issuance indicated on the transport document which shall be taken to be the date of shipment. Reading together Article 50(b) and Article 47 (b)(ii), the transport document in this case indicates 10th May 1985 as the date of issuance and thus the date of shipment is also deemed to be 10th May 1985, and consequently, the contention that shipment was effected late beyond 12th May 1985, the last date for shipment, falls to the ground. It may be noted that goods delivered to the carrier may be actually dispatched by the carrier only subsequently depending on the availability of cargo space which is not always certain and it is under these circumstances that the U.C.P. 1983 Revision has specifically provided and defined the dates regarding the transport documents. Whether Air Way Bill not signed by shipper/agent ?

(24) This objection was not pressed by the learned counsel for defendant No.1 at the time of arguments as the Awb was found to be signed by the shipper/agent.

(25) The last point urged by the learned counsel for defendant No, 1 pertained to the territorial jurisdiction of this court. Defendant No. 1 is the branch of Bank of America and Hansalaya, 15 Bara Khamba Road, New Delhi. His contention was that the Letter of Credit had been opened with the Bank of America, Los Angeles Branch in America. The contention regarding want of jurisdiction is devoid offeree because the bank defendant No. 1 at New Delhi had issued the Letter of Credit, negotiated the documents, examined the documents and pointed out discrepancies in the documents and refused payment at New Delhi in its own right. The contention that defendant No. I at New Delhi was acting as the advising bank and agent of Los Angeles Branch, is not correct in view of letter of credit and Advice dated 3rd June 1985. The Advice dated 3rd June 1985 of defendant No. 1 at new Delhi to defendant No. 2 Canara Bank says : "We are unable to effect negotiations due to the following reason (s) :

(1)Late shipment effected. (2) Awb not signed by shipper/agent. (3) Insurance does cover from the date of AWB."

This Advice further reads as follows :- We can handle only on coellction."

(26) The aforesaid contents of the Advice do not, in any manner, spell out that defendant No. 1 at New Delhi was acting as agent of the Bank of America, Los Angeles Branch U.S.A.

(27) No other point was urged at the Bar and in view of the above discussion, defendant No. I has no valid or friable defense to offer in the suit and in fact the defenses raised are not at all tenable, and so, this application of defendant No. I for leave to defend the suit is dismissed with costs. Suit NO. 203 Of 1987 :

(28) As I.A. No. 8036 of 1987 of defendant No. 1 for leave to defend the suit has been dismissed with costs, the suit has to be decreed against defendant No. 1 also. Consequently, a decree, for the recovery of the suit amount of Rs. 1.77.731.60 paise is passed in favor of the plaintiff against defendant No. 1 also. with costs and future interest at the rate of 12% per annum for the period from 20th December 1986, the date of filing the suit, till payment/realisation.