Exportos Apparel Group Ltd. vs Vedevel Sizing & Weaving Mills (P) ...
1993 Latest Caselaw 416 Del

JUDGMENT

Mahinder Narain, J.

(1) Suit No. 1304 of 1993 has been filed by M/s. Exportos Apparel Group Ltd. against Vedevel Sizing & Weaving Mills (P) Ltd., defendant No. 1, and Canara Bank, defendant No. 2. By this suit, the plaintiff seeks perpetual injunction against defendant No.2, restraining it from encashing two Letters of Credit being No. 214/92/EXP dated 27.01.1993 and 242/92-93/EXP dated 05.03.1993, copies whereof are annexed with the Ia 5630/93 in S.I 304/93 plaint. Both these Letters of Credit are Inland Irrevocable Documentary Credit.

(2) Both these Letters of Credit are for paying for goods purchased. Each were for purchase of 30,000 meters of 100% cotton gray sheeting 20x20/52x5298" on table. The price agreed is as per purchase order.

(3) It is the case of the plaintiff that Exportos Apparel Ltd., 1, Paras Cinema Building, Nehru Place, New Delhi, had entered into an arrangement with M/s. Vedevel Sizing & Weaving Mills (P) Ltd., Arulpuram, Veerapandi (Via) Tirupur, for the supply of 30000 meters of 100% cotton gray sheeting 20x20/52x52 98 "on table as per purchase orders. As per purchase Order No. 19204 dated 04.03.1993 price was @Rs.22.35 per sq. mtrs.

(4) The plaintiff says that a representation made by defendant No. 1 that it did not have a folding machine, and that consequently it could not arrange textile committee inspection, that the inspectors attached to the textile committee inspect 10% of the total lot offered for inspection, the open fabric was difficult to re-roll, the plaintiff had no altemative, but to accept the quantity in roll form and without textile committee inspection. According to the plaintiff, defendant represented to the plaintiff that the material was of the specification, as contracted for by the plaintiff.

(5) It is to be noted that the plaintiff is Exportos Apparel Limited, having its registered office at 1, Paras Cinema Building, Nehru Place, New Delhi, whereas the applicant for the Letters of Credit is Exportos India, Paras Cinema Building, I, Nehru Place, New Delhi- two distinct names, one a limited company and the other a firm.

(6) The plaintiff further says that it exported the goods, the aforesaid 100% cotton gray sheeting to France without any further investigation; that it is only around 10.05.1993 that it got a complaint from French Importer that the supplier had used 24s count instead of 20s count, thereby obtaining more length and less width due to said infirmity. It is asserted that this amounts to a fraud on the part of the supplier of the goods, and on account of the said fraud, the plaintiff can be restrained from encashment of the Letter of Credit, despite the same having been accepted.

(7) The suit was filed on 29.05.1993, which came up for admission on 31.05.1993 before the Vacation Judge (C.M. Nayar, J.). who directed the suit to be registered, and summons in the suit and notice in the application to be issued to the defendants for 03.06.1993. On 03.06.1993,timewassought to file written statement by defendant No.2. Counsel for defendant No.2 stated that written statement will be filed within two days, and counsel for defendant No.2 stated that payment has already been made with respect to one Letter of Credit, and that the due date of payment of the other Letter of Credit is 10.06.1993. It is further stated that payment in respect of the same shall only be made on 10th, and not earlier than that date subject to further orders of the Court. The case was renotified for 09.06.1993.

(8) On 09.06.1993, defendant No. 1 also appeared, and said that written statement was ready and will be filed within two days. The Court ordered that the written statement be filed within two days, and replication and rejoinder be filed within one week thereafter, and directed the matter to be listed on 21.06.1993. The Court also passed a restraint order on that date. in the following terms:- "LET the money in respect of the second Letter of Credit be not remitted till the next date. This is without prejudice to the contentions of the counsel for the parties. dusty."

(9) Thereafter the matter was listed before Vijender Jain, J. on 21.06.1993. On that date he gave a direction that the matter be listed before Dalveer Bhandari, J. on 28.06.1993. No order was passed regarding continuance of the restraint order. On 28.06.1993, the matter was apparently partly argued, and it was directed that for further arguments, the matter will come up on 30.06.1993. No order was passed on that date regarding the restraint order made on 09.06.1993. The matter came up again on 30.06.1993, on which date the case was adjourned to 06.07.1993. No order was passed regarding the restraint order passed on 09.06.1993. On 06.07.1993 the matter was heard in part, and adjourned to 08.07.1993. On 08.07.1993 again, the matter was heard in part, and adjourned to 12.07.1993, and on 12.07.1993, on a contention being raised by Mr. R.P. Bansal, I passed the following order:- I have perused the order-sheet. The order passed on 09.06.1993 is, inter alia, as under:- "LET the money in respect of the second Letter of Credit be not remitted till the next date. This is without prejudice to the contentions of the counsel for the parties. dusty."

The matter thereafter came up on 21.06.1993 before Vijender Jain, J., who directed that the matter be listed before Dalveer Bhandari, J. on 28.06.1993. No order regarding non-remitting of money was passed on that date. The matter thereafter came up before Bhandari, J. on 28.06.1993, when the matter appears to have been partly argued and the case was adjourned 1030.06.1993. No order like the one passed on 09.06.1993 was passed on that date. On 30.06.1993 nobody was present for the plaintiff, and the matter was directed to be listed on 06.07.1993. On that date no order like the one passed on 09.06.1993 regarding non-remitting.of money was passed. In view of the fact that there is no restraint order, Mr. Bansal says that the money of the second Letter of Credit has already been credited by the banker of defendant No.1 to him. In any case, now the matter is between Corporation Bank, banker of the defendant No. 1, and Canara Bank, banker of the plaintiff. On record, there appears to be no restraint order in operation today. To come upon 13.07.1993.

(10) On 13.07.1993, the matter was argued in part, and was adjourned to 14.07.1993.

(11) It is stated in Order Vi Rule 4 of the Code of Civil Procedure that when fraud is pleaded, particulars thereof must be specifically mentioned in the plaint. The said provision reads as under:- "IN all cases in which the party pleading relies on any misrepresentation, fraud, breach of trust, willful default, or undue influence, and in all other cases in which particulars may be necessary b.eyond such as are exemplified in the forms aforesaid, particulars (with dates and items if necessary) shall be stated in the pleading."

(12) The plaint contains the following assertions regarding the fraud:-

(A)The defendant No. 1 did not offer the material for inspection and nor was any textile committee inspection sought for and received with the clear intention of deceiving the plaintiff.

(B)The defendant No. 1 had promised and/or represented that it was supplying 20s count and instead it has supplied goods not even contracted for being 24s count thereby mala fide and fraudulently obtaining more length and making lighter cloth.

(C)The defendant No. 1 actively concealed from the plaintiff that the goods shipped were not in accordance with the contract and were in fact a totally different class of products altogether which had nothing to do with the contractual goods.

(D)The defendant No. 1 otherwise acted in a manner fitted to deceive.

(13) There is no dispute regarding the legal position between the counsel for the plaintiff on the one hand, and counsel for defendant No. 1 on the other. Both rely upon (United Commercial Bank v. Bank of India and others), in which case it has been laid down that in case of Letter of Credit, the bankers are concerned only with documents, as the bankers deal only in documents, and not in goods. The aforesaid case related to a matter in which there was a discrepancy between the documents mentioned in the Letter of Credit and the documents which were offered, inasmuch as in the Letter of Credit, mention was made of mustard oil 'unrefined". Because of this discrepancy, the Supreme Court observed in that judgment that the bankers do not deal in goods, they deal in documents, and inasmuch as there was a variation of what was mentioned in the Letter of Credit and what was mentioned in the documents tendered, it was the duty of the bank to refuse payment, inasmuch as the bankers only dealt in documents.

(14) Mr. V.P. Singh on behalf of the plaintiff contends that this rule has an exception in case of fraud. He further goes on to state that not only there are allegations of fraud in the plaint, but there is also prima facie evidence of fraud. He has referred to (1982) 2 All Er 720 (House of Lords) and 1984 All Er 355. He has also referred to the observations made in para 21 of the judgment reported as (M/s. Tarapore & Co., Madras v. M/s. V.O. Tractors Export, Moscow and another), which he calls in aid for the proposition that in case of Letter of Credit, there is exception in case of fraud.

(15) Before me, Mr. V.P. Singh has tried to establish identity of the goods sent by the defendant to Bombay under the Inland Letter of Credit, and the goods that were received by the buyers of the plaintiff in France, and also relies upon a communication received from a French that the goods supplied are not 20x20/52x52 98", but are 24x24 instead.

(16) I find from the plaint that there is no explanation in the plaint as to what 20x20/52x52 mean in either the Letter of Credit or in any other document. An attempt has been made to explain it, but that is oral.

(17) In my view, inasmuch as the assertions are connected with the alleged fraud in connection with an Inland Letter of Credit, they ought to have been made in the plaint itself. An explanation as to what the figures 20x20/52x52 mean, should have been made in the plaint itself if the allegations of fraud were to be substantiated.

(18) Apart from this, I think that in case of Inland\Letter of Credit, as stated by the Supreme Court in the judgment reported as (1981)2 Scc 767, the bank deals only in documents, "it is not the duty of the bank to go out and find whether the goods answer the description mentioned in the Letter of Credit". If the documents tendered in connection with the Letter of Credit are identical, the banker is required to pay in terms of the Letter of Credit. If the documents tendered are not identical with the documents mentioned in the Letter of Credit, "the bankers owes a duty to refuse payment."

(19) In my view the Courts would be wary of interfering in the Letters of Credit. In case the documents tendered are identical with the Inland Letter of Credit, then the bank shall have to pay. In case the documents tendered are not identical with the documents mentioned in the Letter of Credit, as held by the Supreme Court, bankers owe a duty to refuse payment.

(20) To the above proposition of law, there can be only one exception in case of Letter of Credit when there is an allegation of fraud. In case of allegations of fraud in the plaint, seeking an injunction against a bank, restraining it from making payment on the Inland Letter of Credit, the allegations of fraud have to be full and complete. The allegations of fraud should also be provable on a prima facie basis before a Court, and I am of the view that in cases of Inland Letter of Credit, even in case where prima facie allegations of fraud are complete unless the goods are within the jurisdiction of the Court from which injunction is sought, the Court ought not to restrain payment on the Letter of Credit as proof of fraud would be practically impossible if the goods are not within the jurisdiction of the Court.

(21) It is to be noted that even in the case reported as ( 1969) 2 Scc 233, the Supreme Court was dealing with the international Letter of Credit, and in that connection referred to the observations made by Queens Bench Division in Hamzeh Malas and Sons v. British lmex Industries Ltd., to the effect that the banker has absolute obligation to pay irrespective of any dispute that may be between the parties as to whether the goods are up to the contract or not. The Supreme Court observed, "that is of no mean advantage when goods manufactured in one country are being sold in another"

(22) In the case before me the goods are admittedly not in India any more. The goods admittedly are not covered by an international Letter of Credit. In other words, the goods were not covered under the Letter of Credit which related to International trade between two different countries. In the case before me, the Inland Irrevocable Letter of Credit relates to sale and purchase by a domestic manufacturer and a domestic purchaser of goods. The manufacturer being in Tirupur, purchaser being in New Delhi. The purchaser required that the documents be delivered to the Corporation Bank, 192. Mangalam Road, Tirupur, with evidence of dispatch of goods to Bombay. The documents were tendered at Tirupur, and were accepted at Tirupur. The goods reached Bombay from where the purchaser or his agent shipped, wherever the goods were to be shipped.

(23) The plaintiff now says that the goods were shipped to France from where a complaint has been received about the quality of the goods.

(24) From what is stated in Tarapore's case, in which the Supreme Court approved the observations of the appellate Bench in Hamzeh Malas and sons v. British Imex Industries Ltd., it matters not whether the goods were up to contractor not.

(25) The allegations of fraud are with respect to the goods which are admittedly no more within the territory of India.

(26) Another objection of Mr. Bansal, however, goes to the root of the matter. He says that the plaintiff has no locus stands to bring the suit. He says that the Letters of Credit which were opened, were opened by Ex-portos India, whereas the suit has been filed by a public limited company. The said limited company is a distinct legal entity and a different legal person from Ex-portos India.

(27) Mr. Bansal also says that arrangement for payment on the basis of Letters of Credit was between Exportos India and defendant No. 1, and not between Exportos Apparel Group Ltd. and defendant No.1. There is no privity of contract for the supply of goods between the plaintiff and defendant No. 1 in the instant case. That being (he case, the stranger to the contract for supply of goods in connection with which the Letters of Credit were issued, cannot seek a restraint order with respect to those Letters of Credit

(28) As regards the contention of Mr. Bansal of the locus standi of the plaintiff to bring the suit, the matter will be dealt with at an appropriate stage.

(29) His already noticed that the Letter of Credit No.214/92/EXP has already been paid when the matter came up for consideration before Hon'ble Vacation Judge. The restraint order was not extended thereafter by any of the Judges who dealt with the matter.

(30) In the facts and circumstances noted above, I am not inclined to grant any injunction with regard to the Letters of Credit in this suit being No.214/92/EXP dated 27.01.1993 and No.242/92-93/EXP dated 05.03.1993, restraining payment. Injunction order dated09.06.1993, is of no effect any more. I.A. is accordingly disposed of.