Shree Digvijay Cement Co. Ltd. vs Jammu And Kashmir Bank Ltd.
2006 Latest Caselaw 431 Del

JUDGMENT

1. A.K. Sikri, J.-In the suit filed by the plaintiff under Order 37 of the Code of Civil Procedure, Jammu and Kashmir Bank Ltd, the defendant in the suit has filed this application seeking leave to contest the said suit unconditionally. Before coming to the averments made in the application on the basis of which leave is sought, it would be apposite to take note of the averments made in the plaint on which the relief is founded. Suit is filed for recovery of Rs. 1,19,36,136/- as per the following details:

  Principal Amount                          Rs.   77,84.808.00

Simple Interest @ 24% on the above 
Principal Amount for 811 days from 
11.10.94 to 31.12.97 @Rs. 5118.78 
per day                                   Rs.   41,51,328.00
                                          __________________
                                          Rs. 1,19,36,136.00
                                          __________________
 

2. The case of the plaintiff as stated in the plaint is that the plaintiff had entered into a contract dated 4.7.1994 with one M/s. Impression International India, 110-111, Pragati Tower, Rajendra Place, New Delhi (hereinafter referred to as 'M/s. Impression' (for short). By this contract the plaintiff agreed to sell a quantity of 12500 metric tonnes of ordinary Portland Cement clinker with the price being Rs. 1171 per metric tonne F.O.B. Okha port for export purposes and the shipment had to be effected in the month of July, 1994. The terms of the contract required the buyer to provide an irrevocable letter of credit in favor of the plaintiff for 100% payment through the bank of the plaintiff, namely, M/s. State Bank of Saurashtra. For opening the letter of credit in favor of the plaintiff, a message dated 4.7.94 was conveyed by M/s. Impression stating that a foreign letter of credit had already been established on M/s. Impression and the payment to the plaintiff would be made through a back to back letter of credit payable in Indian Rupees. In fact M/s. Impression wanted to sell the cargo to a buyer in Bangladesh on C&F terms. The name of the said buyer was M/s. Chittagong Cement Clinker Grinding Company Ltd., South Halishahar, Post Box No. 372, Chittagong, Bangladesh. It, therefore, had to first buy the cargo from the plaintiff and thereafter sell the same to the foreign buyer.

3. The defendant opened a letter of credit dated 15.6.1994 in favor of the plaintiff for the transaction between the plaintiff and M/s. Impression only on receipt by defendant of a foreign letter of credit in favor of M/s. Impression. A letter of credit was opened by the ultimate buyer in Bangladesh in favor of one M/s. Aravalli International Ltd., UCO Bank Building, Parliament Street, New Delhi. By an amendment dated 22.6.1994 this letter of credit was made transferable and it was transferred in favor of M/s. Impression. Pursuant to the said letter of credit in favor of M/s. Impression, the defendant Bank opened an irrevocable letter of credit dated 12.7.1994 bearing letter of credit No. LM/LC/05/94 for an amount of Rs. 1,46,37,500/-. The plaintiff was mentioned as the beneficiary of the said letter of credit. In terms of this letter of credit, plaintiff had to negotiate the letter of credit through its bankers i.e. State Bank of Saurashtra. One of the documents required for this purpose was mentioned at Serial No. l, namely, Full set of original clean Mate Receipts made out to the order of the Jammu Kashmir Bank Ltd., Lajpat Nagar, New Delhi notifying M/s. Impression. It is not in dispute that the plaintiff delivered the goods and when the cargo was put on board a ship, the shipping company issued 'Mates Receipts which were made to the order of the Jammu-Kashmir Bank Ltd, Lajpat Nagar, New Delhi i.e. defendant. By an amendment No. l, Clause 11 was substituted in the following terms:

Reimbursement shall be made on due date of maturity by T.T. to State Bank of Saurashtra 11, S.A. Brevli Road, Fort, Bombay for credit of the account of the beneficiary. Bank charges shall be payable by the beneficiary latest by seventh day.

4. Clause 4 was also amended and was substituted with the following clause:

All bank charges, except issuing bank charges, arc for beneficiaries account.

5. By Amendment No. 2 dated 12.8.1994 the expiry date for negotiation was extended up to 30.8.94. The plaintiff discharged its obligation under the contract by loading 6648 metric tonnes of cement clinker in bulk on board the vessel M.V.K. ROSSI at Okha Port. Plaintiff was also issued Mates Receipts by the vessel owners made out to the order of the defendant. Equipped with these documents the plaintiff approached its bankers, namely, State Bank of Saurashtra. The documents included the invoices drawn on Impression International mentioning the letter of credit dated 12.7.94 for Rs. 77,84,808/-, the Mates Receipts, the certificates of the loadport surveyor, SGS, the test certificate, etc. Since part shipment was permitted vide Amendment No. 2, against 12500 metric tonnes mentioned in the letter of credit, part shipment of 6648 metric tonnes was effected.

6. State Bank of Saurashtra, the negotiating bank sent letter of credit along with other documents to the defendant bank. However, instead of making payment, on 6.9.94 the defendant bank pointed out that there were certain discrepancies in the documents submitted for negotiation. The plaintiff on coming to know of the same took up the matter with its buyers M/s. Impression. The buyer agreed to accept the documents with discrepancies. Letter dated 12.9.94 was accordingly written by the plaintiff to its negotiating bank which information was conveyed by State Bank of Saurashtra to defendant bank on 15.9.94. It is the case of the plaintiff that M/s. Impression also faxed a message dated 15.9.94 to the plaintiff that they were accepting the documents with all the discrepancies. Another message was received on 16.9.94 by the plaintiff that the discrepancies were acceptable and that M/s. Impression would instruct their bankers, namely, the defendant bank to make payment out of the final proceeds against the foreign letter of credit. Letter dated 16.9.94 was also written by M/s. Impression to the defendant requesting the defendant bank to make payment out of the complete final proceeds against the said letter of credit. In these circumstances, letter dated 22.9.94 was written by negotiating bank to the defendant requesting the defendant bank to retire the bills and send the proceeds thereof. The payment was, however, not made by the defendant bank. Some correspondence, details whereof are given in the plaint, was exchanged between the parties. It is also stated that even fright charges, vessel hire charges, etc. were paid by the plaintiff as M/s. Impression was in some financial difficulties by extending a loan to M/s. Impression. Since the letter of credit is not honoured by the defendant, present suit is filed for recovery of the amount stated above.

7. In the application for leave to defend preferred by the defendant bank, apart from taking objection that there is no privity of contract between the plaintiff and the defendant and also contending that the plaintiff had preferred a complaint No. 148 before the Banking Ombudsman, New Delhi against the defendant. The Banking Ombudsman disposed of the complaint vide order dated 8.5.1997 thereby giving specific finding against the plaintiff and M/s. Impression. The case of the defendant is that there were certain discrepancies in the letter of credit and these discrepancies were not removed. There was no question of making the payment against the invalid letter of credit. It is further explained that there were no instructions from M/s. Impression to make payment to the plaintiff even when there were discrepancies. Letter dated 22.9.94 written by M/s. Impression is referred to wherein the said buyer had categorically stated that they have not given any letter and authorisation to the defendant bank to accept discrepant documents presented by the plaintiff and that they had already rejected those documents.

8. Arguments were heard on this application on 13.2.2006. After hearing learned Counsel for the parties for some time and on pointing out by learned Counsel for the plaintiff that the defendant bank had in fact received the amount under the foreign letter of credit, the defendant was directed to file an affidavit confirming / denying this contention inasmuch as in the leave to defend application there is no categorical averment as to whether against foreign letter of credit the money was received by the defendant or not though there is a specific plea raised to this effect by the plaintiff. Affidavit of Mr. M.Y. Bhat, Branch Manager of the defendant bank is filed in which it is, inter alia, stated that there were two separate transactions with regard to letter of credits vis-a-vis M/s. Impression and the same were not back to back transactions as there is no mention of back to back in the letter of credit referred to in the original application. It is also alleged that there may be some internal arrangement/agreement between the plaintiff and M/s. Impression in order to cheat the bank inasmuch as the bank was not a party to any such agreement. It is reiterated that there were certain discrepancies in the letter of credit and, therefore, by not honouring the same defendant did not act unlawfully. It is alleged that dispute is between the plaintiff and M/s. Impression inter se and the defendant has nothing to do with the alleged claim made out in the suit. However, it is accepted that the amount was received in respect of the said letter of credit in view of the factual narration recorded above.

9. It is not in dispute that the plaintiff had made the shipment of the goods i.e. 6648 metric tonnes of cement clinker and discharged its obligation under the contract. It is also not in dispute that the foreign buyer had opened the letter of credit in favor of the M/s. Impression and on the basis thereof the defendant bank opened irrevocable letter of credit with the plaintiff as the beneficiary on the instruction of M/s. Impression. In view of the affidavit filed by the Branch Manager of the bank, bank also accepts that payment against the said foreign letter of credit has been received by the bank from the foreign buyer. Thus sale consideration in respect of goods supplied by the plaintiff to M/s. Impression, foreign buyer at the instance of M/s. Impression has been received. However, still this payment is not made to the plaintiff though letter of credit was also opened in favor of the plaintiff. Ostensible reason given is that there were certain discrepancies in the said letter of credit. The case of the plaintiff is that M/s. Impression had given categorical instructions to defendant bank to honour the said letter of credit notwithstanding those discrepancies. The only aspect, therefore, which needs to be determined as to whether the bank was given instructions by M/s. Impression to retire the documents and make payment.

10. As noted above, the defendant has referred to letter dated 22.9.94 whereby M/s. Impression had categorically stated that they have not given any letter and authorisation to the defendant bank to accept discrepant documents presented by the plaintiff and that they had already rejected those documents. It may be pointed out at this stage that earlier M/s. Impression had written letter dated 16.9.94 to the defendant bank confirming that all discrepancies pointed out by the bank were acceptable to M/s. Impression and request was made to release the payment against foreign letter of credit No. 00000/C/l 1/0070. This letter was written by Sandhya Bhasin, Partner of M/s. Impression. There is another letter of even date addressed by Suneil Verma, Vice-President of M/s. Impression to the plaintiff confirming that the discrepancies pointed out by the defendant bank were acceptable to the plaintiff and also intimating that M/s. Impression were informing their bankers to make through that payment is released to the plaintiff. It appears that the defendant bank asked for confirmation of such a letter dated 16.9.94 written by M/s. Impression to the bank as the letter was signed by Sandhya Bhasin though she was a partner but not the authorised signatory and the defendant wanted such an authorisation from Mr. Rajesh V.K. Bhasin in this behalf. Mr. Rajesh V.K. Bhasin initially wrote letter dated 22.9.1994 denying giving any such authorisation. However, thereafter presumably when plaintiff approached M/s. Impression in this behalf Rajesh V.K. Bhasin addressed another letter to the bank stating as under:

In supersession of all our earlier correspondence we irrevocably accept the discrepant documents against Letter of Credit No. LN/LC/05/94 dated 12.7.1994. You are therefore requested to accept the documents and release the payment in terms of your above L/C to the beneficiary.

11. No doubt it is an undated letter and because of this reason learned Counsel for the defendant submits that it cannot be argued that this letter was written after letter dated 22.9.1994. However, this contention of the defendant is misconceived for two reasons:

A. As mentioned above earlier letter dated 16.9.94 was written by Sandhya Bhasin and since Sandhya Bhasin was not authorised signatory, defendant bank wanted confirmation through the authorised signatory, namely, Rajesh V.K. Bhasin. Had this letter been of earlier date there was no question of defendant asking for such a clarification and defendant bank would have agreed on the basis of this letter even earlier.

B. There is a categorical averment made by the plaintiff in para 20 of the plaint clarifying that this letter was written after letter of 22.9.1994. In spite of this categorical averment this aspect is not at all denied or traversed in the application for leave to defend.

12. It is thus clear that even when this letter was given by the authorised signatory authorising the defendant bank to accept the discrepant documents/letter of credit and release the payment to the plaintiff, the defendant bank did not do so. Reason is obvious. M/s. Impression had to make certain payment to the bank and there were huge outstanding. The defendant bank wanted to appropriate the amount against those outstanding. In adopting such course of action by defendant bank, even M/s. Impression was the beneficiary as its liability was getting reduced. Therefore, in stead of making the payment to the plaintiff which was legitimately due to the plaintiff as the payment had been received by the defendant from the foreign bank against foreign letter of credit, it was adjusted by the defendant bank against dues payable by M/s. Impression on the specious plea that the documents were discrepant.

13. There is no force in the plea raised by the bank in the application for leave to defend that there is no privity of contract. Letter of credit is opened by the bank. Beneficiary is the plaintiff. If it is not honoured, the plaintiff has right to sue the bank. I, therefore, do not find any merit in the application. defense raised is moonshine and no friable issue arise in the matter. This application is accordingly dismissed.

CS (OS) No. 250/98

14. As a consequence, suit of the plaintiff warrants to be decreed. Decree in the principal sum of Rs. 77,84,808.00 is accordingly passed in favor of the plaintiff and against the defendant. However, plaintiff shall be entitled to interest @ 12% PA from 11.10.1994 to 31.12.1997 the date when the suit was filed. Pendente lite and future interest shall be payable @ 9% PA. Plaintiff shall also be entitled to cost. Decree be drawn accordingly.