Banque Nationale De Paris vs Globus Agronics Ltd & Anr.
1999 Latest Caselaw 564 Del

ORDER

S.K. Agarwal, J.

1. This appeal is directed against the order of the learned Single Judge passed on 6th May, 1999 dismissing the application moved by the appellant (defendant No. 2 in the suit) seeking rejection of the plaint and return of the same for presentation to the appropriate court on the ground that this court has no territorial jurisdiction to try and determine the suit.

2. The facts giving rise to this appeal are that the plaintiff (respondent No. 1 herein) filed a suit under Order 37 of the Code of Civil Procedure (hereinafter called the 'Code') for recovery of Rs. 3,50,84,500/- representing the letter of credit of US $ 7,66,622.60 along with interest thereon, on the allegation that vide agreement dated 29.9.97 it had contracted to sell "Fermentation Ethanol" to M/s. Kolmar PetroChemicals AG, Switzerland (hereinafter referred to as the buyer). The buyer was to provide Documentary Irrevocable Letter of Credit payable at sight at the counters of an Indian Bank against presentation of documents for payment of the price of goods under the said contract. On request of the buyer and in terms of the said agreement appellant (defendant No. 2) as a banker of the buyer issued a confirmed Letter of Credit, in favour of the respondent No. 1 (plaintiff envisaging payment through respondent No. 2 (defendant No. 1 bank at its counter in Delhi of the aforesaid value. The terms of the irrevocable Letter of Credit were stated to have been amended and its value was increased by issue of confirmation letters by both the defendants. Respondent No. 2 (defendant No. 1 ) is alleged to have confirmed its duties and obligations to the plaintiff in payment of amount under the Letter of Credit upon presentation of documents and recovered charges from the plaintiff in respect of the same.

3. The agreed quantity of Fermentation Ethanol were inspected in accordance with the contract by the notified agency, and was exported to the buyer and the documents were drawn in terms of the Letter of Credit and were tendered for payment at the counters of respondent 2. The documents were found to be in accordance with the Letter of Credit. However, no payment was credited to the account of respondent No. 1 during a reasonable time; on 26.12.1996 a notice was served upon the defendants, and in reply it was stated that the defendants by virtue of being the opening bank and the confirming bank assumed independent obligations to pay to the plaintiff the amount covered by the said Irrevocable Letter of Credit. As the amount was not paid, therefore, the said suit to recover the amount was instituted. On summons being issued the appellant (defendant No. 2) besides filing an application for leave to defend also filed an application under Order 7 Rules 10 and 11 read with Section 151 of the Code praying for rejection of the plant on the ground of lack of territorial jurisdiction, inter alia, pleading therein that the transaction between the parties was governed by the Uniform Customs and Practice for Documentary Credits, 1993 (for short UCP 500). The learned Single Judge on the basis of the above pleadings and the materials placed on record by the parties was pleased to dismiss the application of the appellant.

4. We have heard learned counsel for the parties and have been taken through the record.

5. It was argued by Mr. Valmiki Mehta, learned counsel for the appellant that respondent No. 2 (defendant No. 1 ) did not accept the designation/responsibility of a 'nominated bank' as requested by appellant and instead preferred to remain only an advising bank; that the documents to be paid under the Letter of Credit are not payable at New Delhi but had to be sent to the appellant at Basle, Switzerland for payment; that the execution of the Letter of Credit was at Basle. Switzerland, the performance and payment under the same was to be made there and that respondent No. 2 (defendant No. 1 ) has acted as an agent of respondent No. 1 (plaintiff) by accepting and sending the documents to the appellant and not vice a versa; the contractual liability is to be determined on the basis of two documents being Letter of Credit dated 25.9.1997 and letter dated 1.10.1997 of the respondent No. 2 to respondent No. 1. Thus it was argued that no part of cause of action accrued within the territorial jurisdiction of this court.

6. It was further contended that this advise clearly shows that there was no obligations on the part of defendant No. 1 to make payment of the amount under the letter of credit to the plaintiff as it was only acting as an advising bank, under article 7 of UCP 500, and the liability of the confirming/nominated bank to make payment under the letter of credit cannot be extended to it. Under Article 9 an irrevocable letter of credit constitutes a definite undertaking of issuing bank to pay at sight if the credit provides for sight payment. A confirmation of an irrevocable Letter of Credit by another bank upon the authorisation or request of issuing bank, constitutes a definite undertaking of the confirming bank, in addition to that of the issuing bank, provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and the terms and conditions of the credit are complied with.

7. Learned counsel for respondent No. 1 (plaintiff) supported the impugned order urging that the terms of Letter of Credit dated 25.9.1997 issued by the appellant provide "This documentary credit is available by payment at sight at the counters of Banque Nationale De Paris, New Delhi, India against presentation of the following credit-conforms documents in 1 original + 2 copies unless otherwise stated". The application of the appellant for leave to defend the suit has yet not been decided; trial is yet to begin and the application in question was thus not maintainable. He further argued that the appellant had issued irrecoverable documentary credit under Article 6 of UCP 500 in Delhi as per the terms mentioned therein, therefore it cannot plead that no cause of action had arisen in Delhi.

8. Having considered the respective submissions in the light of the pleadings we are unable to agree with the submissions of the learned counsel for the appellant.

9. Letters of credit are intended to facilitate the purchase and sale of goods by providing assurance to the seller of prompt payment upon compliance with the specified conditions and on presentation of stipulated documents without the seller having to rely upon the buyer in this regard. Articles 2 of UCP 500 defines Documentary Credit:

"Meaning of Credit

For the purposes of these Articles, the expressions "Documentary Credit(s)" and Standby Letter(s) of Credit" [hereinafter referred to as Credit(s)], mean any arrangement, however, named or described, whereby a bank (the "Issuing Bank") acting at the request and on the instructions of a customer (the "Applicant") or on its own behalf,

(i) is to make a payment to or to the order of a third party (the "Beneficiary"), or is to accept and pay bills of exchange [Draft(s)] drawn by the Beneficiary,

or

(ii) authorises another bank or to effect such payment, or to accept and pay such bills of exchange [draft(s)],

(iii) authorises another bank to negotiate, against stipulated document(s), provided that the terms and conditions of the Credit are complied with.

For the purposes of these Articles, branches of a bank in different countries are considered another bank."

10. Bare perusal of the Letter of Credit, which is the basis of the suit shows that the documentary credit was made available assuring payment at the counter of respondent No. 2 (defendant No. 1) at New Delhi on presentation of the documents. Admittedly, after exports were effected and the documents were presented by respondent No. 1 at Delhi which were found in accordance with the Letter of Credit. The amount was payable in Delhi. Under clause (c) of Section 20 of the Code suit can be instituted in a court within the local limits of whose jurisdiction the cause of action wholly or in part arises. In terms of the Letter of Credit the money was payable in Delhi though the Letter of Credit was executed outside the jurisdiction of this court. Consequent to the Letter of Credit, the seller exported the agreed quantity of "Fermentation Ethanol" to the seller. Therefore, a part of cause of action had arisen within the territorial jurisdiction of this court. The expressions to the "advising bank" and "confirming bank" under UCP 500 are not at all relevant to decided the issue of territorial jurisdiction of this court qua the appellant which is admittedly the 'issuing bank'. The reasons assigned by learned single Judge, while dismissing the appellant's application are perfectly in consonance with law and the terms of the Letter of Credit.

11. In view of the above, no case justifying interference with the impugned order is made out. The appeal is dismissed. The parties are left to bear their own costs.