Lennarts Equipment Pvt. Ltd. vs Punjab National Bank & Ors.
1999 Latest Caselaw 770 Del

ORDER

Vikramajit Sen, J.

1. A permanent injunction has been sought for restraining Defendant No. 1, Punjab National Bank (P.N.B.) from making any payment to Defendant No. 3 (M/s. Elconmet Ltd.) under the L.C. The reason for seeking these injunctions is to be found in the prayer clause itself, inasmuch as it is prayed that restraint orders should be effective "till such time as the defective material supplied by them (Elconmet) to the Plaintiff under the purchase order dated 15.11.1997" is not replaced. The prayer itself, therefore, succinctly sets out the facts on which the suit is predicated. By way of further adumbration, the Plaint sets out that the Plaintiff had purchased material from Defendant No. 3 for supplying it to the Plaintiff's various customers. In para 8 of the Plaint, it has been averred that "Defendant No. 3 wrongly mentioned the Lennarts India to be the consignee in respect of the said goods in the G.R. The Defendant No. 3 sent the original G.R. directly to the Plaintiff which, otherwise should have been negotiated through Bank. In spite of this, the Plaintiff accepted the hundi which proves a point on the nature of trust the Plaintiff had on Defendant No. 3."

2. An ex parte Ad Interim Injunctions was granted in I.A. No. 5539/98 on 13.7.1998 directing P.N.B. not to make payment to Defendant No. 2 State Bank of India (S.B.I.) under the L.C. Consequently, whereas in the Plaint the restraint order has been directed against P.N.B. from making any payment to S.B.I., in the application the Injunction prayed for is against Defendant No. 1 from making any payment of Lanyards. It was for this reason that the Ex parte Ad Interim Injunction has been passed.

3. Consequent upon receipt of notice, S.B.I. filed an application under Order XXXIX, Rule 4, being I.A. No. 353/1999, seeking vacation of the ex parte Orders dated 13.7.1998. Shortly stated its case is that the Bank has acted entirely in terms of the Letter of Credit and, therefore, that it cannot be affected by any disputes inter se the Plaintiff (Lennarts) and Elconmet Ltd. (Defendant No. 3). P.N.B. has supported the stand taken by S.B.I. stated that it shall make payment against a L.C. as and when the ex parte ad interim Injunction in set aside or varied.

4. Significantly, all the parties have relied on the decisions of the Apex Court in United Commercial Bank Vs. Bank of India, , In addition Shri S.N. Gupta learned counsel for Defendant No. 2 relied on a decision of this Court in H.N.B. Vs. F.C.I.

5. Mr. Rajiv Nayyar, learned Senior Counsel appearing for the Plaintiff relied on the following clause of L.C.:

Air consignment Note/PR/MTR dated not later than 30.11.97 marked "Freight paid/Freight payable at destination" showing goods consigned to M/s. Lennarts Equipment Pvt. Ltd. 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.

6. He vehemently reiterated the averments in the Plaint to the effect that the G.R. had been sent by Elconmet directly to the Plaintiff, which otherwise should have been negotiated through bank. He further argued that the Invoice dated 15th November, 1997 (Annexure C to the Plaint), was part and parcel of the L.C. and, therefore, it was incumbent on the Bank issuing the L.C. to ensure that the goods dispatched were in consonance with the specification contained in the invoice (Annexure C). If this was found not to be so, he argued, a breach of the fundamental terms of the L.C. had occurred and, accordingly the Injunction prayed for deserved to be granted. However, it is not the Plaintiff's case, nor was it argued before me, that the goods dispatched were not of the description mentioned in the Letter of Credit, namely, Metalised Poly Propylene Film as per copy of the Purchased Order dated 15.11.1997. It was further argued that Defendant No. 3 had not received payment and thus there was no justification for honouring the L.C. My attention was drawn to "Annexure E" which is a letter dated 17.6.1998 addressed by the Plaintiff to Lennarts wherein it was stated that materials valued at Rs. 3,79,600/- (Rs. Three Lakh Seventy nine thousand six hundred only) had been returned. Reliance was also placed on "Annexure G" which is the Plaintiff's letter dated 6.3.1998 addressed to M/s. Elconmet Ltd. with a copy to P.N.B. which recorded that Rs. 2.5 lakhs of material had been rejected and has been returned. In "Annexure E" a Credit Note for a sum of Rs. 83,924/- was demanded. Finally, Mr. Nayyar argued that special equities exist in his favour since Elconmet Ltd. had surrendered its fortunes before the BIFR and hence, there was no likelihood of the Plaintiff making any recovery from Elconmet Ltd.

7. As stated above, both adversaries had relied on UCO Bank's case (supra). The Plaintiff presumably rests its case on the following observations:

The relevant authorities uniformly lay down in dealing with commercial letters of credit that the documents tendered by the seller must comply with the terms of the letter of credit, and that the banker owes a duty to the buyer to ensure that the buyer's instructions relative to the documents against which the letter of credit is to be honoured are complied with. The rights of a banker are described in Halsbury's Laws of England, 4th Edn. Vol. 3, para 141 at p. 106:

Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the promise of the paying or negotiating banker, the beneficiary cannot claim against the paying banker, and it is the paying banker's duty to refuse payment. The documents must be those called for, and not documents which are almost the same or which will do just as well. The banker is not called upon to know or interpret trade customs and terms. It has been held that where a mandate is ambiguous and a paying banker acts in a reasonable way in pursuance of it, he may be protected. But this general rule cannot be stretched so far as to protect a banker who pays against documents describing goods in terms which are similar to, but not exactly the same as those stipulated in the credit. The description of the goods in the relative bill of lading must be the same as the description in the letter of credit, that is, the goods themselves must in each case be described in identical terms, even though the goods differently described in the two documents are, in fact, the same. It is the description of the goods that is all important. The reason for this requirement is stated in Davis' Law relating to Commercial Letters of Credit, 2nd Edn. p. 76:

It is not only the buyer who faces the risk of dishonesty or sharp practice on the part of the seller. For, in many instances, the banker looks to the goods for reimbursement of the whole or part of the amount he pays under the letter of credit. It is equally to his interests to ensure that such documents are called for by the letter of credit as will result in goods of the contract description being ultimately delivered. The buyer is not compelled to enter into the sales contract nor is the banker compelled to issue the letter of credit. If either of these contracts is entered into then it is for the buyer and the banker respectively to safeguard themselves by the terms of the contract. Otherwise they must be prepared to bear any ensuing loss.

But the liability thus imposed on the issuing banker carries with it a corresponding right that the seller shall, on his part, comply with the terms of the letter of credit and the seller's obligations have been construed as strictly as those of the banker. We have already referred to the statement of law in Halsbury's Laws of England which found a place in Paget's Law of Banking, 8th Edn. at p. 648 and we may at the risk of repetition reproduce the same to the effect:

Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the promise of the intermediary or issuing banker the beneficiary cannot claim against him; and it is the banker's duty to refuse payment. The documents must be those called for and not documents which are almost the same or which seem to do just as well.

8. Applying this ratio to the facts of the present case it will be relevant to mention that the Plaintiff does not' complain that although the Letters of Credit enjoined the dispatch of Metalised Poly Propylene Film (described in the so called invoice dated 15.11.1997, "Annexure C" as Metalised Poly Propylene Film), the material actually dispatched did not correspond thereto. The Plaintiff's grievance is that the material despatched to it by Elconmet was defective.

9. Letters of Credit are meant to facilitate commerce and trade and not to cast onerous obligations on the bank. To lay responsibility on the Bank to ensure the quality of the product would be, in my view, wholly counterproductive Bankers are not expected to possess the knowledge required for ensuring the quality of the goods involved in the transaction, unless specifically and clearly spelt out in the document itself. As has been set down in the United Commercial Bank's case "it is only in exceptional case that the Court will interfere with the machinery of irrevocable application assumed by banks".

10. Learned counsel for the Bank countered the argument or the Plaintiff by relying on the following clause in the L.C. which immediately follows the clause relied upon by the plaintiff:

Signed delivery orders made out in favour of Lennart Equipment Pvt. Ltd. A/c. P.N.B. Bank or order, in Two copies.

11. It was argued, and in my view correctly so, that the material having been delivered to Lennarts, payment was required and obliged to be made under the Letter of Credit. Further, I cannot appreciate how the Plaintiff was prejudicial by the fact that the original G.R. had been directly sent to it and not negotiated through the Bank. If any party could have been aggrieved by this, (which in any case is in adherence with the compact of the parties as contained in the L.C.), it would be Defendant No. 3; Elconmet Ltd. The Plaint itself narrates that the "Plaintiff accepted the hundi which proves a point on the nature of address the Plaintiff had on Defendant No. 3". A third party, i.e. the Bank which issued the L.C., should not be made to suffer for an alleged breach committed inter se the Purchaser and Supplier, and especially so where one is dealing with a Letter of Credit. If the Plaintiff's trust on Elconmet Ltd., was so misplaced, it has only itself to blame for it. S.B.I. had made requisite compliance with the terms contained in the Letter of Credit, and even if this had been perfunctorily made, the equitable relief of the issuance of an injunction as the encashment of the Letter of Credit would not be called for.

12. The contention of the learned counsel for the Plaintiff that no payment has been made to Elconmet Ltd. appears to be palpably incorrect since S.B.I. has filed the Bank statement showing that a sum of Rs. 5,16,635/- (Rs. Five lakh Sixteen thousand Six hundred Thirty five only) had been duly transferred on 19.12.1997 itself. The credit voucher in favour of Defendant No. 3, of even date is also available on file. Defendant No. 2 had performed all its obligations under the L.C. and is fully entitled to receive payment from P.N.B. The fact that the Plaintiff cannot make any recovery from Defendant No. 3 could not make any difference.

13. Having carefully considered the facts placed before me, I am of the opinion that there is no justification in law or in equity for the continuance of the ex parte ad interim injunction passed on 13.7.1998. Plaintiff's I.A. No. 5539/1998 is accordingly, dismissed with costs of Rs. 5000/-. the application of Defendant No. 2 under Order XXXIX, Rule 4 is simultaneously allowed. Defendant No. 1 is directed to make the payment in terms of the Letters of Credit to Defendant No. 2 immediately.