Societe Generale vs National Small Industries ...
1997 Latest Caselaw 50 Del

JUDGMENT

S.N. Kapoor, J.

(1) This Fao is directed against an order granting injunction against encashment of confirmed Irrevocable Letter of Credit No. 71/95 dated 23rd June 1995 issued by Punjab National Bank (PNB for short).

(2) The respondent No.3 M/s Khaleel Enterprises entered into an agreement under Raw Material Procurement Scheme with National Small Industries Corporation Limited (NSIC for short) for supply of 500 Mt of Crca sheets. These sheets of the value of Rs.96,23,750 were to be supplied to M/s Shree Laxminarayana Metal Rolling Private Limited (SLMR for short) on Cif basis from Bombay to Bangalore. In pursuance of the said arrangement between respondents No. 1, 2 and 3, Ilc No.71/95 was established by Pnb on the request of Nsic along with M/s Khalil Enterprises on 23.6.1995. The respondent No.2, Slmr are the beneficiaries under the confirmed ILC.

(3) This confirmed Ilc (Annexure B) provides certain relevant conditions which are as under:

"CREDIT available by the beneficiary's draft drawn on the Applicant and marked Drawn under Ilc No. 71/95 dt. 23.6.95 for 100% of the invoice at - 90 days acceptance from the date of transport documents, accompanied by the following documents quoting this credit number."

"RR/MTR dated not later than 31.8.95 marked "Freight paid at showing goods consigned to Pnb Okhla bank notify APPLICANT. The transport document should indicate the name and address of the applicant and ourselves. The Mtr should be issued by a transport operator on the approved list of the bank."

"PLEASESEE Special Instructions Attached Forming An Integral Part Of This CREDIT. We hereby engage with drawers, endorsers and/or bonafide holders that draft(s) drawn under and negotiated in conformity with the terms of this credit will be duly honoured on presentation and that draft(s) accepted within the terms of this credit will be duly honoured at maturity. Except as otherwise expressly stated, this credit is subject to uniform Customs and Practice for Documentary Credits (1983) Revision) International Chamber of Commerce, Publication No.400."

(4) The Ilc was handed over to Slmr, Bombay. On the basis of Ilc a Bill of Exchange dated 3rd July 1991 was drawn in favour of Society General. The respondent M/s Khalil Enterprises accepted the Bill of Exchange on the basis of Ilc No.71/95 after perusing the documents on 6th July 1995. The Nsic followed the suit. The appellant, a Scheduled French Bank having a branch at New Delhi, in conformity with the irrevocable undertaking dated 8th July 1995 (Annexure-1 at p.97) given by Pnb in good faith and on the basis of the documents submitted by respondent No.2, the beneficiary, parted with funds amounting to Rs.92,23,826 through cheque Annexure-2 (at p.98) on 10th July 1995 and paid it to SLMR. The appellant claimed the amount of the confirmed Ilc and the Bill of Exchange from PNB.

(5) The goods under the consignment note dated 24th/26th June 1995, which formed basis of Ilc, were never received. Nsic made enquiries through its letter dated 14th August 1995 from Slmr as well as M/s Dayal Express Line. By a letter dated 22nd August 1995, Slmr claimed that they had supplied goods worth Rs.16 lakhs to M/s Khalil Enterprises directly and have requested them to deposit the sale proceeds with Nsic and thus admitted not to have supplied the material in question and regretting the delay in dispatch due to unavoidable circumstances. Then the plaintiff-NSIC came to know that they have been duped and M/s Dayal Express Line had forged and submitted the said consignment notes at the behest of Slmr to defraud the NSIC. The Nsic threatened to cancel the ILC. It also transpired that M/s Dayal Express Line was not an approved transporter on the list of defendant No.4-PNB. Thereafter, apprehending that at the instance of the appellant, Pnb was about to make payment, the suit was filed on 4th November 1995 seeking permanent injunction and restraining defendant No.2 Slmr from claiming or receiving any amount from defendant No.4-PNB on 29th October 1995 under the said Ilc and restraining the Pnb from making any payment to the appellant.

(6) Having heard the parties' counsel, it appears that in this appeal following points arise for consideration: (A)Whether the term of the transporter being on the approved list of the Pnb was modified by making the said contract mentioned in Annexure A subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chambers of Commerce, Publication No.400, or/and by conduct of the plaintiff and M/s Khalil Enterprises by accepting Bill of Exchange, with raising objection in this regard? (b) If point (a) is decided in affirmative, whether there would be any adverse effect on the encashment of Ilc confirmed by accepting Bill of Exchange in favour of the Appellant-Bank who were neither party to the fraud nor aware of the fraud?

(7) Learned counsel for both the parties obviously supported their own respective cases by making various submissions.

(8) A conjoint reading of the terms of the Ilc read with the Icc Uniform Customs and Practice for Documentary Credits (1983 Revision) (UCPDC for short) as well as Negotiable Instruments Act should provide the clue to answer the aforesaid points.

(9) From the perusal of Ilc, it is apparent that the parties to Ilc had engaged themselves with drawers, endorses and/or bona fide holders that draft(s) drawn under and negotiated in conformity with the terms of this credit would be duly honoured on presentation and the draft(s) accepted within the terms of this credit were to be honoured at maturity. It also provided that "Except as otherwise expressly stated, this Ilc was made subject to Ucpdc (1993 Revision) Icc Publication NO.400. The conditions are binding on all parties unless otherwise expressly stipulated in the said letter of credit". The express stipulation in the credit as well as the said practice itself does not clarify the situation. The present letter of credit is confirmed ILC. As such Article 8 is of no assistance. Article 9 which relates to the Ilc provides for the liability of issuing and confirming banks and according to it, an Ilc constitutes definite undertaking of the issuing bank provided that the stipulated documents are presented with the nominated bank or to the issuing bank and that the terms and conditions of the credit are complied with and if the credit provides for deferred payment to pay on the maturity date(s) determinable in accordance with the stipulations of the credit. In the present case, it is cash payment after 90 days. Obviously, the terms and conditions relating to requirement of transporter being on approved list of the Pnb has not been complied with in the present case.

(10) According to Article 12, the issuing bank was supposed to advise, confirm or amend the credit only when complete and clear instructions have been received and if the advising bank is then prepared to act on the instructions. So, in case there was any defect in documents as has now been found out, the Pnb was neither supposed to advise nor confirm the said ILC. In terms of Article 12, it was a duty cast on Pnb to examine the documents carefully. How the documents are to be examined? and the standard of careful examination of documents, is provided in Article 13. According to Article 13, the Pnb should have examined all the documents stipulated in the letter of credit with reasonable care to ascertain whether or not they appeared, on their face, to be in compliance with the terms and conditions of the credit. Documents which appeared on the face to be inconsistent with one another should have been considered as not appearing on their face to be in compliance with the terms and conditions of the credit. Besides, the documents not stipulated in the credit were not required to be examined by the bank. If they received such documents, they should have returned them to the presenter or pass them on without responsibility in terms of Article 13. It is apparent that the Pnb has not discharged these functions with due care and caution. At least they could have seen and verified whether Saroop Vahan or M/s Dayal Express Line were on the approved list of the bank or not. If they were not on the approved list of the bank then they should neither have advised nor confirmed the ILC. If they would have just seen the list, they might have found that M/s Dayal Express Line were not on their approved list and they might have refused to take their documents. Clause (e) of Article 14 further clarifies that if the issuing bank and/or confirming bank fail(s) to act in accordance with the provisions of Article 14 and fail(s) to hold documents at the disposal of or return them to the presenter, the issuing bank and/or confirming bank, if any, shall be precluded from claiming that documents were not in compliance with the terms and conditions of the credit. Here in the present case, in view of clause (e) of Article 14, the Pnb is precluded from claiming that the documents were not in compliance with the terms and conditions of the credit.

(11) Now coming to the responsibility of the plaintiff and M/s Khalil Enterprises as well as to the question of waiver as has been mentioned hereinabove, the documents were accepted by Khalil Enterprises and it is an admitted case that they were seen by Nsic also before accepting the Bill of Exchange. There cannot be any doubt that in terms of Article 14(c) of Ucpdc (1993 Revision) Icc Publication 400, Pnb did not determine that the documents appeared on their face not to be in conformity with the terms and conditions of the credit. Nor is it anybody's case that the Pnb approached the applicant for waiver of the discrepancies. However, this is also a fact that the defective documents were seen by M/s Khalil Enterprises and according to clause (e) it is also apparent that the Pnb failed to act in accordance with the provisions of Article 14 and failed to return the documents represented. Consequently, the Pnb as well as the applicants the Nsic and M/s Khalil Enterprises should stand precluded from claiming now that the documents were not in compliance with the terms and conditions of the credit. On account of their failure to point out the defect in the documents, they have virtually laid a trap for an innocent person like the appellant. The appellant-Bank paid a sum of Rs. 92,23,826 in view of the acceptance of Bill of Exchange also. In such circumstances, it has to be deemed that the plaintiff-respondent Nsic and M/s Khalil Enterprises are precluded from now questioning the documents so far as the appellant-Bank is concerned.

(12) We do agree with the observations of the learned Single Judge that this is a clear case of fraud at the behest of beneficiary Slmr in view of the forged bill dated 28th June 1995 and forged goods receipts issued by M/s Dayal Express Lines dated 24/26th June 1995 and the letters sent subsequently on 24th August 1995, 28th August 1995 and 28th September 1995. These letters sent by Slmr, the beneficiary definitely indicate an admission of fraud, when, the letters dated 28th September 1995 disclosed expressly that the material could not be transported against the Gr as the buyer preferred to sort out the material at site and lifted by its own carrier. The reason given was "the delay is owing to market adverse conditions". These facts accompanied by endorsement on the bill dated 28th June 1995 indicates that the beneficiary Slmr, Dayal Express Lines and probably M/s Khalil Enterprises also conspired to cheat Nsic, Pnb and the appellant.

(13) According to Section 9 of Negotiable Instruments Act, in order to secure a better title to recover the amount of Ilc coupled with Bill of Exchange drawn by the appellants, appellant-Bank is required to show prima facie that the appellant-Bank (i) has acquired title for consideration, (ii) is either possessor of any negotiable instrument payable to bearer or payee or endorsee of a negotiable instrument if payable to order, (iii) has acquired title in the instrument, before it became payable, and (iv) if any defect existed in the title, the appellant bank, at the time of acquiring such title did not have sufficient or reasonable cause to believe that beneficiary of such Ilc, Slmr was acting fraudulently or were having defective title. The appellant-Bank fulfillls all these conditions. Payment was made by bankers' cheque dated 10th July 1995 after Bill of Exchange was accepted by the plaintiff/respondent as well as by M/s Khalil Enterprises. Title was acquired for consideration and before the Bill of Exchange and Ilc became payable.

(14) One may also take note of presumptions under Section 118(a), (c) and (g) of Negotiable Instruments Act which read as under: "118.PRESUMPTIONSas to negotiable instruments.--Until the contrary is proved, the following presumptions shall be made: (a) of consideration: that every negotiable instrument was made or drawn for consideration, and that every such instrument when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration; (c) as to time of acceptance: that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity; (g) that holder is a holder in due course: that the holder of a negotiable instrument is a holder in due course: Provided that, where the instrument has been obtained from its lawful owner, or from a any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him."

(15) In view of these presumptions and afore-mentioned facts, the appellant is entitled to get the amount of Bill of Exchange drawn on Pnb and accepted by the plaintiff/respondent.

(16) Now, coming to the question of "waiver" and "estoppel" in general law, waiver and estoppel are sometimes used inter-changeably and sometimes meaning the same thing in law of contracts. Where waiver if found would have to be constructed or implied from conduct of party to be charged, the elements of estoppel are introduced. It is largely a question of intent and must be supported by either sufficient agreement or acts constituting an estoppel. However, there is a subtle difference between waiver and estoppel which is required to be taken note of. While waiver is a voluntary and intentional act, based on actual intent to give up a right, estoppel is an inhibition to assert a right and negating an intent to assert on a particular term or condition of a contract; the conduct being based on actual or constructive fraudulent conduct and the principles of equity as the conduct has resulted in injury or detriment to another.

(17) Here in the present case, there is implied waiver when the letter dated 6th July 1995 (at p.44 of the document file of the Trial Court Record) written by M/s Khalil Enterprises was sent to NSIC. That letter reads as under:    "It is to inform you that we find the documents (Lorry receipt-30 Nos. 1951-1980, Invoices 4 Nos. along with insurance policy cover No.312220/350800 dt. 21.6.95) raised by M/s Shree Laxminarayana Metal Rolling for negotiations with Societe Generate, New Delhi and shown to me by you are acceptable and also I have received the photocopies of the same."  

(18) Another letter written on 6th July 1995 by Deputy Manager and Additional Manager of Nsic was sent on 6th July 1995 itself, which reads as under:    "SUB:Acceptance of bill of exchange and other documents of Ilc No. 71/95 dt. 23.6.95 for Rs.96,23,750.00 A/c. M/s. Khaleel Enterprises, Bangalore. Dear Sir, We hereby accept the bill of exchange of Ilc No.71/95 dt. 23.6.95 established for Rs.96,23,750.00 in the account of above said unit. Please debit our Marketing Accounts A/c. No. 399 on due date and hand over the documents to us."
 

(19) These documents definitely indicate that invoice numbers and the documents and the bill for acceptance had reached and had been seen by not only M/s Khalil Enterprises but by Mr. K.L. Shah and Rameshwar Dutta, Deputy Manager (Marketing & Accounts) and Additional Manager (Marketing & Accounts) of NSIC. Consequently, the plaintiff/respondent could not say that they were not aware of the documents and they had no opportunity to question the goods receipt issued by Saroop Vahan at that stage. 
 

(20) The Nsic had not awakened even on receipt of letter dated 7th July 1995 when a rectification of error was sought by changing the name of the transporters from Saroop Vahan to M/s Dayal Express Lines. This is a document filed by the plaintiff/respondent accompanied by a fax message of M/s Dayal Express Lines. This letter dated 6th July 1995 is signed by the Director of M/s Shree Laxminarayana Metal Rolling Private Limited. 
 

(21) Now let us appreciate as to whether the aforesaid conduct of the plaintiff/respondent Nsic and M/s Khalil Enterprises would amount to waiver or estoppel or not in view of the altered position of the Society Generale - the appellant. The meaning of the term "waiver" has been given in "Words and Phrases legally defined Volume 4, Third edition" as under:     

"WAIVER is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted, and is either express or implied from conduct. It may sometimes resemble a form of election, and sometimes be based on ordinary principles of estoppel, although, unlike estoppel, waiver must always be an intentional act with knowledge. A person who is entitled to rely on a stipulation, existing for his benefit alone, in a contract or of a statutory provision may waive it, and allow the contract or transaction to proceed as though the stipulation or provision did not exist. Waiver of this kind depends upon consent, and the fact that the other party has acted upon it is sufficient consideration. Where the waiver is not express it may be implied from conduct which is inconsistent with the continuance of the right, without need for writing or for consideration moving from, or detriment to, the party who benefits by the waiver; but mere acts of indulgence will not amount to waiver; nor can a party benefit from the waiver unless he has altered his position in reliance on it. The waiver may be terminated by reasonable but not necessarily formal notice unless the party who benefits by the waiver cannot resume his position, or termination would cause injustice to him."

"IT seems that, in general, where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, so as to alter his position, the party who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relationship as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he has himself so introduced, even though it is not supported in point of law by any consideration. (16 Halsbury's Laws (4th edn) para 1471)"

"WAIVER is the abandonment of a right, and thus is a defense against its subsequent enforcement. Waiver may be express or, where there is knowledge of the right, may be implied from conduct which is inconsistent with the continuance of the right. A mere statement of an intention not to insist on a right does not suffice in the absence of consideration; but a deliberate election not to insist on full rights, although made without first obtaining full disclosure of material facts, and to come to a settlement on that basis will be binding. (45 Halsbury's Laws (4th edn) para 1269)"

"THE word "waiver" is a vague term used in many senses. It is always necessary to ascertain in what sense and with what restrictions it is used in any particular case. It is sometimes used in the sense of election as where a person decides between two mutually exclusive rights. Thus, in the old phrase, he claims in assumes it and waives the tort. It is also used where a party expressly or impliedly gives up a right to enforce a condition or rely on a right to rescind a contract, or prevents performance, or announces that he will refuse performance, or loses an equitable right by laches.' Smyth (Ross T) & Co. Ltd. v. Bailey, Son & Co [1940] 3 All Er 60 at 70, per Lord Wright

"WAIVER"is a word which is sometimes used loosely to describe a number of different legal grounds on which a person may be debarred from asserting a substantive right which he once possessed or from raising a particular defense to a claim against him which would otherwise be available to him. We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which gave rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did. He is sometimes said to have "waived" the alternative right, as for instance a right to forfeit a lease or to rescind a contract of sale for wrongful repudiation or breach of condition; but this is better categorised as "election" rather than a "waiver"....The second type of waiver which debars a person from raising a particular defense to a claim against him, arises when he either agrees with the claimant not to raise that particular defense or so conducts himself as to be stopped from raising it.' Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1970] 2 All Er 871 at 894, Hl, per Lord Diplock

THE principle of waiver is simply this: if one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted on, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so. There may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on it. There may be nothing in writing. Nevertheless, the one who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended so long as the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will thereafter insist on them. But there are cases where no withdrawal is possible. It may be too late to withdraw; or it cannot be done without injustice to the other party. In that event he is bound by his waiver. He ill not be allowed to revert to his strict legal rights. He can only enforce them subject to the waiver he has made.' Wj Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 All Er 127 at 140, Ca, per Lord Denning MR

"IN my view, the primary meaning of the word "waiver" in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted.' Banning v Wright (Inspector of Taxes) [1972] 2 All Er 987 at 998, Hl, per Lord Hailsham LC.

(22) Now coming to the precedents, we are referring hereafter to the precedent referred by counsel for parties. In Cooperative Centrale Raiffeisen-Boereleenbank B.A. ("Rabobank Nederland") Vs. The Sumitomo Bank Ltd., (1987) Vol.1 Lloyd's Law Reports 345, Queen's Bench Division Commercial Court, in a similar situation regarding non-conformity with the specifications of the goods and shipments, observed:

"...WHEREdiscrepant documents were in the end accepted it must be the position that the discrepancies were waived and the position was just as if there had been no discrepancies in the first place and payment must therefore be made by the issuing bank to the confirming bank so as to reimburse them for the payment they had made".

"ALTHOUGH the original presentation of the non-conforming documents stated the chain of events, the loss suffered by the defendants was not within the plaintiffs' undertaking to be fully responsible for the discrepancies, it arose from the issuing bank's breach of its obligations to the defendants and the defendants' breach of their obligations to the plaintiffs...".

(23) In United City Merchants (Investments) Ltd and ors. Vs. Royal Bank of Canada and ors., (1982) 2 All Er 720, Lord Diplock observed about the documentary credits as under:

"MYLords, for the proposition on the documentary credit point, both in the broad form for which counsel for the confirming bank have strenuously argued at all stages of this appeal and in the narrower form or 'halfway house' that commended itself to the Court of Appeal, there is no direct authority to be found either in English or Privy Council cases or among the numerous decisions of courts in the United States of America to which reference was made in the judgments of the Court of Appeal in the instant case. So the point falls to be decided by reference to first principles as to the legal nature of the contractual obligations assumed by the various parties to a transaction consisting of an international sale of goods to be financed by means of a confirmed irrevocable documentary credit. 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 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 reimbursements the stipulated documents, if they included 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."

"AGAIN,it is trite law that in contract (4), with which alone the instant appeal is directly concerned, the parties to it, the seller and the confirming bank, 'deal in documents and not in goods', as art 8 of the Uniform Customs puts it. If, on their face, the documents and 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 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 and that does not 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."

"TO this general statement of principle as to the contractual obligations of the confirming bank to the seller, there is one established exception: that is, where the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by impliation, material representations of fact that to his knowledge are untrue. Although there does not appear among he English authorities any case in which this exception has been applied, it is well established in the American case, of which the leading or 'landmark' case is Szteinv J Henry Schroder Banking Corp (1941) 31 Nys 2d 631. This judgment of the New York Court of Appeals was referred to with approval by the English Court of Appeal in Edward Owen Engineering Ltd. v. Barclays Bank International Ltd [1978] 1 All Er 979, [1978] Qb 159, though this was actually a case about a performance bond under which a bank assumes obligations to a buyer analogous to those assumed by a confirming bank to the seller under a documentary credit. The exception for fraud on the part of the beneficiary seeking to avail himself of the credit is a clear application of the maxim ex turpi causa non oritur actio or, if plain English is to be preferred, 'fraud unravels all'. The courts will no allow their process to be used by a dishonest person to carry out a fraud."

(24) Fraudulently inflated invoice, formed the basis of the documentary credit in Cooperative Centrale Raiffeisen-Boereleenbank B.A. ("Rabobank Nederland") Vs. The Sumitomo Bank Ltd.. The sellers' original quotation for the sale price of the plant was half the figure that ultimately became the invoice price for the purpose of documentary credit. 50% amount so drawn was to be credited to the dollar account in Miami, Florida, of an American Corporation controlled by the buyer, in order to convert Peruvian Currency into U.S. Dollars. Now, let us see following observations of Lord Diplock in this respect.

"THE instant case, however, does not fall within the fraud exception. Mocatta J found the seller to have been unaware of the inaccuracy of Mr. Baker's notation of the date at which the goods were actually on board the American Accord. It believed that it was true and that the goods had actually been loaded on or before 15 December 1976, as required by the documentary credit."

"IThas, so far as I know, never been disputed that as between confirming bank and issuing bank and as between issuing bank and the buyer the contractual duty of each bank under a confirmed irrevocable credit is to examine with reasonable care all documents presented in order to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit, and, if they do so appear, to pay to the seller/beneficiary by whom the documents have been presented the sum stipulated by the credit, or to accept or negotiate without recourse to drawer drafts drawn by the seller/beneficiary by whom the documents have been presented the sum stipulated by the seller/beneficiary if the credit so provides. It is so stated in the latest edition of the Uniform Customs. It is equally clear law, and is so provided by art 9 of the Uniform Customs, that confirming banks and issuing bank assume no liability or responsibility to one another or to the buyer 'for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents.' This is well illustrated by the Privy Council case of Gian Singh & Co. Ltd. v. Banque de l'Indochine (1974) 2 All Er 754(1974) Wlr 1234, where the customer was held liable to reimburse the issuing bank for honouring a documentary credit on presentation of an apparently conforming document which was an ingenious forgery, a fact that the bank had not been negligent in failing to detect on examination of the document."

"I would not wish to be taken as accepting that the premise as to forged documents is correct, even where the fact that the document is forged deprives it of all legal effect and makes it a nullity, and so worthless to the confirming bank as security for its advances to the buyer. This is certainly not so under the Uniform Commercial Code as against a person who has taken a draft drawn under the credit in circumstances that would make him a holder in due course, and I see no reason why, and there is nothing in the Uniform Commercial Code to suggest that, a seller/beneficiary who is ignorant of the forgery should be in any worse position because he has not negotiated the draft before presentation. I would prefer to leave open the question of the rights of an innocent seller/beneficiary against the confirming bank when a document presented by him is a nullity because unknown to him it was forged by some third party, for that question does not arise in the instant case. The bill of lading with the wrong date of loading placed on it by the carrier's agents was far from being a nullity. It was a valid transferable receipt for the goods giving the holder a right to claim them at their destination, Callao, and was evidence of the terms of the contract under which they were being carried."

(25) In Ningawwa Vs. Byrappa Shiddappa Hireknrabar & ors., , in para 4 of the judgment, considered a situation where the third party without notice of the fraud could acquire rights and interest in the property and observed as under: "...IT is well established that a contract or other transaction induced or tainted by fraud is not void, but only voidable at the option of the party till it is avoided, the transaction is valid, so that third parties without notice of the fraud may in the meantime acquire rights and interests in the matter which they may enforce against the party defrauded".

(26) In Svenska Handelsbanken Vs. M/s Indian Charge Chrome & ors., (1994) 1 Scc 502, the "fraud exception" was considered. In that case, despite non-fulfilment of the condition by the seller, the plaintiff had not repudiated the contract as in the present case at the time when they could have done it. Rather, the power plant of less than 108 Mw capacity was accepted. In that case, it was held that the contract between the lenders and the borrowers was not vitiated by any fraud much less the established fraud and there was no question of irretrievable injury of the type of the injury contemplated in Itek Corporation Vs. The First National Bank of Boston etc, 566 Fed Supp 1210.

(27) However, in United Commercial Bank Vs. Bank of India, , except the waiver and estoppel part, the facts were similar to the facts obtained in the case in hand to a certain extent. In that case, instead of "Sujola Brand Pure Mustard Oil", the seller supplied "Sujola Brand Pure Mustard Oil Unrefined". The consignment was not accepted by the Bihar Corporation not only on the ground that it was not of the quality which was sought but it was unfit for human consumption also. It was also a case between two bankers. Appellant-Bank was buryer's bank and the respondent-Bank was seller's Bank. The buyer's bank refused to make payment "except under reserve" pointing to the discrepancy in description of goods in Railway receipt. And payment was made "under reserve". The seller filed the suit in High Court. The appellant buyer's bank served a notice of demand on the seller's bank, the respondent for refund of amount paid "under reserve". Respondent in turn wrote to the seller to refund the whole amount. The High court granted the stay on the ground that the plaintiff had a prima facie case. The Bank of India was left free to decide whether or not the conditions under the latter had been satisfied so as to justify the making of the payment to the appellant and the appellant was not restrained from making a claim upon the Bank of India payable in terms of letter of indemnity nor was the Bank of India restrained from making the payment thereunder. The appellant-Bank preferred an appeal but the Division Bench of the High Court summarily dismissed the same. The result of all this has been that the plaintiff, that is the supplier M/s Godrej Soaps Limited, have not only received Rs.85,84,456 towards the price of one lakh metric tonne of 'Sujola Brand Pure Mustard Oil' but also have the mustard oil in question on payment of Rs.18,53,000. After considering numerous Indian and English cases, the Supreme Court laid down the following propositions of law: "A)The rule is well-established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and the seller. b) The duties of a Bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of appropriate provisions in the Letter of Credit. c) The courts usually refrain from graning injunction to restrain the performance of contractual obligation arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be granted in transaction between two or more banks by restraining a bank from recalling the amount due when payment is made "under reserve" to another bank or in terms of letter of guarantee or credit executed by it, the whole banking system in the country would fail. d) In view of the banker's obligation under an irrevocable letter to pay his buyer - customer cannot instruct him not to pay. e) The bank guarantee is very much like a letter of credit but courts will do their utmost to enforce it according to its terms. They will not in ordinary course of things, interfere by the way of injunction to prevent its implemenation...But that is not an absolute rule. Circumstances may arise such as to warrant interference by way of injunction. A bank which gives performance guarantee is to honour that guarantee ac- cording to its terms."

(28) In that case, the appeal of the buyer's bank was allowed. But it seems that in that case, the Bihar Corporation could not be compelled to make payment particularly when the description in the documents did not tally with that in the letter of credit and consequently, the appeal of the buyers bank was allowed and the injunction granted in favour of the seller/plaintiff was vacated. In the said case, question of waiver and estoppel did not arise, as is in the present case. The suit was filed by the seller. In the present case the suit has been filed by the buyer who had themselves by their conduct waived the condition while accepting the Bill of Exchange. They were stopped also when on the basis of the Bill of Exchange, the appellant-Bank has made payment of over Rs.92 lakhs. There the injunction was operating in favour of the seller. It does not appear from the judgment that any payment was made in advance to the seller before the amount was received "under reserve". So, the facts of that case were totally different. Thus, the equities were not in favour of the Bank of India, the seller's bank. This fact may make a vital difference.

(29) Thus, in view of the foregoing discussion, it is clear that the term of the transporter being on the approved list of the Pnb was modified by making the said contract mentiond in Annexure A subject to Uniform Customs and Practice for Documentary Credits, 1993 Revision, International Chambers of Commerce Publication No.400 as well as by the principles of waiver and estoppel in view of conduct of Nsic and M/s Khalil Enterprises in accepting the Bill of Exchange after seeing the goods of receipts issued by Swaroop Vahan.

(30) Now, coming to the second point, foregoing discussion also prima facie establishes that the appellant was not the party to the fraud nor aware of the fraud having been committed. Consequently, on the general principles of estoppel, as referred to in Ningawwa Vs. Byrappa Shiddappa Hireknrabar & ors. (supra), and the appellant-bank being a party without notice of the fraud could certainly acquire better rights and interest in the matter and they may enforce the rights acquired under such title against the party defrauded. The appellant-bank were holder for value and holder in due course of the Bill of Exchange. In the light of Gian Singh and Company Limited Vs. Bank De Indo China, (1974) 2 All Er 754 where the customer was held liable to reimburse the issuing bank a documentary credit on presentation of an apparently conforming document which was an ingenious forgery, a fact that a bank had not been negligent in failing to detect in examination of the document. Here in this case, neither the customers Nsic nor M/s Khalil Enterprises nor Pnb, being negligent, could have any valid defense against a holder for value and holder in due course. So, the present case stands on a better footing than the case of Gian Singh and Company Limited Vs. Bank De Indo China, (supra).

(31) Moreover, Lord Diplock though had not decided the point in question, yet did not accept the premise as to forged documents is correct even where the fact that document is forged, deprives it of all legal effects and makes it a nullity and so worthless to the conforming bank as security for its advances to the buyer. Lord Diplock has categorically observed that this was certainly not so in the Uniform Commercial Code as against a person who had taken a draft drawn under the credit in circumstances that would make him a holder in due course. If a fraud by a third party could not affect the seller, the fraud committed by the seller could obviously not affect the rights of a bona fide banker who advanced money on the basis of Bill of Exchange drawn on the basis of Irrevocable Letter of Credit. In Svenska Handelsbanken Vs. M/s Indian Charge Chrome & ors. (supra), despite the fact that the specified articles were not supplied, the payment was ordered to be made under the Ilc, as is the matter in the present case. There the only difference being that in the present case goods worth around Rs.16 lakhs were allegedly sent to M/s Khalil Enterprises instead of Rs.96 lakhs.

(32) In United City Merchants (Investments) Ltd and ors. Vs. Royal Bank of Canada and ors. (supra), the fact that forgery to the extent of 50% amount inflated in the invoice price and incorrect date in the Bill of Lading by the third party, Lord Diplock observed to say that "this leads to confusion that fraud by third party who does not render the document a nullity as a same consequence appears to me with respect to the ...and I am persuaded by any of the judgments appealed that it is not on the documentary credit point, I think that was right in deciding it in favour of the sellers and the court of appeal was wrong in referring him on this point".

(33) Seeing in the light of the above, it becomes very much apparent that in matters relating to documentary credit, fraud exception could be a very useful defense only in those cases where the person who has committed fraud wished to reap the harvest of his own fraud. The rights acquired by holders for value and holders in due course would having a Negotiable Instrument, based on Ilc would not be adversely affected unless and until it is prima facie established that such a holder for value or holder in due course know or had reasons to know about the fraud committed by the seller or the transporter or buyer like M/s Khalil Enterprises. This appears to be the legal position, in respect of the Letter of Credit in the light of the Uniform Customs for Documentary Credits, under General Law and under Negotiable Instruments Act.

(34) Seeing that there is a prima facie case of innocence in favour of the appellant and of negligence on the part of Pnb, Nsic and M/s Khalil Enterprises and an apparent and virtual case of fraud by M/s Laxminarayan Metal Rolling Private Limited and M/s Dayal Express Line like, "Who is to be protected?" is the question. Whether an innocent person like Society Generale should be allowed to suffer on account of negligence of Pnb and Nsic or on account the fraud of M/s Dayal Express Line and M/s Laxminarayan Metal Rolling Private Limited. It is notable that the Pnb was willing to pay the amount in terms of Ilc and the Bill of Exchange, the Pnb could not be interdicted at the instance of Nsic, the plaintiff/respondent in view of waiver and estoppel on their part and special equities having been created on account of estoppel, in favour of the appellant-Bank by altering its own position on the basis of the representation made by making payment of over Rs.92 lakhs. We feel that for smooth functioning of the banking business in our country, it is essential that the innocent bank should be protected and should not be made to suffer at the hands of the negligent and the crooks. In the case of Indian Bank Vs. Satyam Fibre, Jt 1990 (7) Sc 135, Supreme Court protected just an innocent French Bank where a fraud was noticed. It may also be mentioned that so far as the Bill of Exchange is concerned, the appellant is a holder for value as well as holder in due course and was not aware of the defects in documents. Consequently, the appellant has special equities in his favour and thus a prima facie better case.

(35) Learned counsel for the appellant referred to Indian Bank Vs. M/s Satyam Fibres Limited, (supra). In that case, the concerned French Bank did not accept the Bill of Exchange while a forged letter was placed to indicate that the French Bank did not accept such a Bill of Exchange in view of the prevailing practice in France. The facts of that were different. The matter was being contested in Consumer Forum and the Apex Court could finally decide since the evidence of the parties was already on record and the matter was disposed of in view of the facts and circumstances of that case, otherwise the Lordships might have either remanded the case to the Commission or directed the respondent to approach the civil court. Therefore, this case is not of much assistance.

(36) In such like matters, the plaintiff/respondent cannot succeed merely on the basis of prima facie case, it is further required to be established that he was likely to suffer irretrievable injustice. In this regard, it may also be mentioned that so far as the balance of convenience is concerned that is certainly in favour of Society Generale, the appellant for they had paid the money out of their funds, through a cheque on 10th July 1995. So far as the Pnb is concerned, they have not discharged their duties and the conduct of the Nsic in accepting the Bill of Exchange also appears to be negligent. Thus, it is virtually a matter of recovery of amount between M/s Khalil Enterprises, Nsic and Pnb, for all the three were negligent. The amount is virtually required to be recovered from Slmr, either by receiving goods in lieu of the amount received from the Slmr and M/s Dayal Express Line or by payment from either of them. In order to recover the amount from Slmr, the appellant, if so advised, may seek an order of attachment of the bank account of SLMR. But in absence of any allegation of fraud on the part of the appellant or about their knowledge about the fraud, the appellant does not come into picture at all. Therefore there is no irretrievable loss in case this Ilc accompanied by Bill of Exchange is allowed to be encashed.

(37) It is apparent that in view of the above, the balance of convenience lies in favour of the appellant.

(38) For the foregoing reasons, we accept this appeal and set aside the impugned injunction order. Parties are left to bear their own costs.