Delhi High Court
Varuna Overseas P. Ltd. & Ors. vs Al-Mustaneer Establishment & Ors on 2 March, 2012
Author: Pradeep Nandrajog
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on : February 22, 2012
Judgment Pronounced on: March 02, 2012
+ RFA(OS) 70/1998
VARUNA OVERSEAS P. LTD. & ORS. ..... Appellants
Represented by: Mr.Kailash Vasdev, Senior Advocate and
Mr.Harish Malhotra, Senior Advocate,
Instructed by Ms.Nandini Sahni,
Advocate.
versus
AL-MUSTANEER ESTABLISHMENT & ORS. ....Respondents
Represented by: Mr.Kirti Uppal, Senior Advocate
instructed by Mr.Ajit Dayal
and Mr.Rohit Madan, Advocates for R-1.
RFA(OS) 87/1998
SYNDICATE BANK ..... Appellant
Represented by: Mr.Anil Grover, Advocate.
versus
AL-MUSTANEER ESTABLISHMENT & ORS.....Respondents
Represented by: Mr.Kirti Uppal, Senior Advocate
instructed by Mr.Ajit Dayal and
Mr.Rohit Madan, Advocates for R-1.
Mr.Kailash Vasdev, Senior Advocate and
Mr.Harish Malhotra, Senior Advocate,
instructed by Ms.Nandini Sahni,
Advocate for R-2, 3, 4, 5, 6 and 17.
CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE PRATIBHA RANI
RFA (OS) 70/98 & 87/98 Page 1 of 41
PRADEEP NANDRAJOG, J.
1. We would be constrained to pen a slightly lengthy
judgment for the reason the impugned judgment dated
February 13, 1998, spanning 136 pages is wandering in the
woods and the exit route is not clearly discernible.
2. We begin by noting that the plaintiff, „M/s.Al
Mustaneer Establishment for Trade‟, a company registered in
Saudi Arabia, filed a suit in which 19 defendants were
impleaded; being, „Varuna Overseas Pvt. Ltd.‟ (formerly
known as Dhar General Overseas Pvt. Ltd.) as defendant No.1;
Ms.Suman Bansi Dhar, Mr.Ajay Shridhar Shriram,
Mr.B.P.Khandelwal and Mr.Prem Prakash, impleaded as
defendants No.2 to 4 and 19 respectively, statedly the
Directors of defendant No.1; Sh.Ravi Shankar Upadhaya, the
Export Executive of defendant No.1, impleaded as defendant
No.5; M/s.Kupal Material and Metals Pvt. Ltd., impleaded as
defendant No.6 and Sh.Kuldeep Singh Sahni, Sh.Tejinder
Singh Sahni, Sh.Kirti H.Shah, Ms.Surender Kaur, Ms.Ravinder
Kaur, Ms.Daljeet Kaur, Ms.Harbans Kaur and Mrs.Ram Kaur,
statedly the Directors of defendant No.6, and hence
impleaded as defendants No.7 to 14 respectively; Amphora
Marine Consultants Pvt. Ltd. as defendant No.15 and Captain
Bharve, the Principal Officer of defendant No.15 being
impleaded as defendant No.16. Syndicate Bank, Branch
Connaught Place and Syndicate Bank having its registered
office at Karnataka being impleaded as defendants No.17 and
18.
3. It was pleaded in the plaint that the description of
the defendants was as afore-noted in para 2 and that on
November 22, 1978 two orders bearing No.548/1978 and
549/1978 were placed by the plaintiff upon defendant No.1
through its agent in Saudi Arabia i.e. M/s.United Arab
Agencies for supply of 1000 Metric Tonnes (under each order)
of MS Rounds. The value of each indent was US$340000 and
the shipment was to be made within 90 days, to be delivered
at Hoddeidah Port, and for which payment was to be made
through a Letter of Credit to be opened by the plaintiff in the
name of defendant No.1. That vide telex dated November 21,
1978, through its agent United Arab Agencies, confirming the
orders, defendant No.1 requested the Letter of Credit to be
made transferable and accordingly the plaintiff caused a
transferable Letter of Credit to be opened on November 23,
1978 in favour of defendant No.1 through plaintiff‟s banker
„The Al Saudi Al Francis‟ Bank on the terms stated in the
Letter of Credit. The Letter of Credit was pleaded to be valid
till March 03, 1979 and goods not being dispatched, it was
pleaded that on behalf of defendant No.1, defendant No.5
approached the plaintiff and sent a telex that the Letter of
Credit should be amended to make it divisible; with assurance
that the shipment would be effected in February 1979. The
agent of defendant No.1 assured plaintiff that the goods were
at Bombay Port and on March 5, 1979, on behalf of defendant
No.1, defendant No.5 sent a telex that 500 MT of MS Round
Bars were being shipped on the same day. A few days later,
defendant No.5 arrived in Jeddah and requested that the
Letter of Credit be extended upon the assurance that the
goods were in the process of being loaded on a ship. Plaintiff
agreed to extend the Letter of Credit by three months upon
defendant No.1 furnishing performance guarantee from a
scheduled bank in value equivalent to 10% of the value of the
goods. The plaintiff received a bank guarantee issued by
defendant No.6, acceptance whereof was declined by the
plaintiff as it had no concern with defendant No.6, but upon
assurance from defendant No.5 and upon him swearing an
affidavit guaranteeing delivery of goods by defendant No.1,
the guarantee was accepted and at the asking of the plaintiff
the issuing bank extended the validity of the Letter of Credit
up to May 25, 1979.
4. Pleading as aforesaid up to paragraph 6 of the
plaint, further story narrated in the plaint, would be preferred
by us to be told through the mouth of the plaintiff, as pleaded
in paragraphs 7, 8, and two paragraphs numbered as 12, 13,
16 and 17 of the plaint which read as under:-
"7. That the plaintiff says that it appears that
without the knowledge and consent of plaintiff, and
even without the plaintiff being informed, it
appears that defendant No.1 on or about 1978
transferred the letter of credit in favour of
defendant No.6. This fact was not even mentioned
at any time by the defendant No.1 to the plaintiff
or to the said Shri Bharat Shah of Messrs. The
United Arab Agencies, the agents of the defendant
No.1. The extension of time to the letters of credit
was also transferred to defendant No.6. These
facts came to the knowledge of the plaintiff
subsequently when no goods at all were shipped
and received by the plaintiff. It further appears that
the defendant No.1 and their bankers i.e. Canara
Bank, while transferring the letter of credit,
imposed certain conditions with regard to the
further documents to be submitted at the time of
negotiation of the said letter of credit. The further
documents required to be submitted were (a)
certificate from the General Superintendence
Company, certifying in the docks that the said
M.S.Round Bars were as per the Indent dt.22 nd
November, 1978 and (b) a certificate from the said
defendant No.6 that the goods were shipped in
accordance with the Indent. A copy of the
instructions given by Canara Bank to defendant
No.17 at the time of the transfer of the said letter
of credit was duly received by the defendant No.17
on 16.4.1979. All the above said transactions took
place without the knowledge, consent or
information to the plaintiff.
8. That after the said letter of credit was made
transferable and extended, the plaintiff was
informed by their bankers in or about April,1979 or
in the beginning of May, 1979, that the said letter
of credit had been negotiated and to receive the
documents. The plaintiffs‟ representative took
delivery of the documents and awaited the arrival
of the ship at Hoddeidah Port. To the surprise of
the plaintiff, the ship (Nikkir‟) which was named in
the bills of lading never berthed at Hoddeidah Port
at all. Thereupon the plaintiff started making
enquiries as to how moneys under the letter of
credit had been cashed, when no goods had
arrived.
xxxx xxxx xxxx
12. That the plaintiff says that from the
investigation it has now been found that the
defendant No.6 to 14 fabricated and/or procured
the following four documents in order to enable
them to receive money under the letter of credit on
21.4.1979 before the defendants Nos.17 and 18.
(a) The defendants Nos. 6 to 14 got
defendants Nos.15 and 16 issued the
Bills of Lading, all dated 19.4.1979
purporting to record shipment of M.S.
Round Bars of the quantities mentioned
therein on board the vessel known as
NIKKIR said to have been loaded at the
port of Bombay Freight prepaid. The
said bills of lading were purported to be
signed by defendants No.15 & 16 for the
Masters of the Vessels, copies of the bills
of lading are annexed herewith as
ANNEXURES G, H & I.
purported to issue invoices also dated
19.4.1979 for diverse quantities of
M.S.Round Bars alleged to have been
shipped on board the said Vessel under
the bills of lading. Enclosed are the
copies of the said invoices raised by
defendant No.6.
12. That in relation to the fabrication and
procurement of the afore said documents, the
plaintiff says that the defendant No.1 to 5 appear
to be the party and had entered into a conspiracy
with the defendants no.6 to 16 as in borne out
from the facts that they even did not answer
directly to the letters and Telexes written by the
plaintiff and the said Shri Bharat Shah of M/s The
United Arab agencies, the agents of the defendant
no.1. The defendants 1 to 16 are also guilty of
fraud and cheating along with the - defendants
Nos.17 and 18, as it appears that they abetted the
commitment of the said offences.
13. That the plaintiff says that the defendant
no.17 & 18 before parting with the money failed to
scrutinize the documents and to check up them
carefully in accordance with the instructions and
the conditions mentioned in the letter of credit.
Defendants No.17 and 18 failed to observe that the
documents which were to be scrutinized before
payment, were not even tendered to the bank for
its perusal. Further defendants no.17 & 18 failed to
take into consideration that although the invoices,
bills of lading were dated 19.4.1979, the G.R.-I
form for the same were dated 18.1.1979 and were
thus prima facie stale. The defendants no.17 and
18 also failed to notice that the bills of lading did
not bear signatures of any authorized person of a
shipping company nor did the bills of lading
mentioned the owner of the ship. The plaintiff says
that under the amended letter of credit, the
documents which were required to accompany, the
bills of lading were inter-alia a certificate from the
General Superintendence certifying in the docks
that M.S.Bars are/were strictly as per Agents‟
Indent no.548/78 and 549/78 dt.22.11.1978 as
mentioned in the letter of credit in respect of the
sizes, quantities etc. and also a certificate from the
defendants nos.6 certifying that the goods shipped
are strictly in accordance with the agents‟ indent
No.548/78 and 549 of 1978 dt.22.11.1978 as
mentioned in the letter of credit and that any claim
received from the openers of the letters of credit
M/s Al Muestaner Establishment, Jeddeah, Saudia
Arabia, the plaintiff in this regard will be settled /
paid by M/s Kupal Material & Metal private Ltd.....
defendant No.6 on first demand.
None of these documents were tendered to
defendants nos.17 and 18 and yet the defendants
No.17 & 18 did not consider it necessary to call for
the said documents from the defendants. The
plaintiff says that the defendants Nos.17 and 18 in
not scrutinizing the documents tendered to it and
not calling the documents required to be tendered,
was grossly negligent in its duties as Bankers and
were not entitled to make the payment under the
said letter of credit to any person and/are liable to
the plaintiff for the amounts parted with by the
bank/defendants No.17 & 18 under the said letter
of credit.
xxxx xxxx xxxx
16. That in the circumstances explained above,
the plaintiff says and submits that the defendants
by their collusion and conspiracy and fraud, have
wrongfully withdrawn the sum of Rs.22,27,445.89
paise (Twenty two lacs twenty seven thousand four
hundred forty five and paise eight nine only) under
the said letter of credit Dated 23.11.1979 opened
by the plaintiff‟s bank in connection with the said
two orders dated 22nd November, 1978. The
plaintiff submits that the defendant no.1 as
supplier were bound and liable to insure delivery of
the said goods under the above said orders to the
plaintiff. The plaintiff further says that
notwithstanding the transfer of the letter of credit
at the request of defendant no.1, the defendant
no.1 agreed to be responsible for delivery of the
goods and it is, therefore, not open to defendant
no.1 to say or to plead that they had transferred
the letter of credit to defendant no.6. The plaintiff
says that the transfer of the said letter of credit by
defendant No.1 to defendant no.6 was only for the
purposes of enabling the defendant no.1 to
arrange for the supplies of the goods and the
plaintiff had at no point of time intended or ever
agreed to discharge the defendant no.1 from their
obligations towards the plaintiff. The plaintiff says
that by transfer of the letter of credit, the
defendant no.1, do not and cannot cease to be
liable to the plaintiff. In fact that it is the
defendant no.1 who is to discharge their
obligations under the said orders. Defendant no.1
is bound and liable to reimburse the plaintiff the
afore said amount of Rs.22,27,445.89 paise (Rs.
twenty two lacs twenty seven thousand four
hundred forty five and paise eight nine) to the
plaintiff on the failure of the consideration. The
defendants have conspired with each other and
have thus cheated the plaintiff and have received
the payments under the letter of credits without
shipment of any goods and have forged and
fabricated the documents and are therefore bound
and liable to refund the sum of Rs.22,27,445.89
paise (Rs.twenty two lacs twenty seven thousand
four hundred forty five and paise eight nine only).
The plaintiff says that the defendants have
received the amount under the letter of credit and
converted the amount to their own use. The
plaintiffs further submits that the defendants
Nos.15 and 16 have fraudulently issued false bills
of lading and the defendants no.17 and 18 in
breach of their obligations as Negotiating Bankers
have enabled the defendant No.6 to receive the
payment under the letter of credit. Defendants
Nos.15 and 16 have thus received an amount of
Rs.1,65,000/- (Rs.one lac Sixty five thousand) as
freight charges fully knowing that the vessel in
respect of which the bills of lading were issued,
were forged and the said vessel had not taken
birth at the Bombay port. The amount of freight
charges was received by defendants no.15 and 16
by issuing forged receipts and the defendants
no.17 and 18 in breach of their obligation as
Negotiating Banks, have enabled the defendant
no.6 to receive the payment under the said letter
of credit.
17. That the plaintiff says and submits that the
defendants Nos.17 and 18 are bound and liable to
reimburse the plaintiff the amount received by
them under the said Letter of Credit as agents of
defendant No.6 is not only by reasons of their
obligations as Bankers was also on the ground of
fraud, collusion, forgery and conspiracy between
them and the other defendants. In any event the
defendants No.17 and 18 are guilty of fraud,
negligence, in negotiating the said documents in
the paras stated above and are thus liable and
bound to refund the said amount of `22,27,445.89
paise (Rs.twenty two lacs twenty seven thousand
four hundred forty five and paise eighty nine only).
The plaintiff submits that it was incumbent upon
defendants No.17 and 18 to have examined the
documents thoroughly sought to be presented
under the letters of credit with due care and
diligence and caution and the documents in the
present case ought to have been rejected by the
defendants No.17 and 18 being vague, incomplete
and forged on the face of it."
5. It was accordingly prayed that decree in sum of
`22,27,445.89 together with pre-suit interest @18% per
annum in sum of `9,29,876.68 i.e. `31,57,322.57 be passed in
favour of the plaintiff and against the defendants with the
liability being joint and several; further decree in sum of
`3,08,440/- was sought against defendants No.17 and 18;
interest at the rate of 18% was prayed for till the amounts
were realized.
6. Pertaining to the decree in sum of `3,08,440/-
prayed for against defendants No.17 and 18, it may be
highlighted that in para 18.a of the plaint, it was admitted that
with respect to the performance guarantee the plaintiff
received payment for 1200 MT of MS Round Bars, towards
default in performance qua said quantity, and since the
contracted quantity was 2000 MT, the plaintiff was entitled to
the balance sum of the performance guarantee which came to
`2,17,600/- and pre-suit interest being 18% per annum, the
figure came to `90,840/- and thus the sum of `3,08,440/-.
7. In a nutshell, the case of the plaintiff was that
notwithstanding the plaintiff opening a transferable Letter of
Credit, the original beneficiary i.e. defendant No.1 had
assured the plaintiff, of goods being delivered notwithstanding
the Letter of Credit being transferred in favour of defendant
No.6 and for which pleas the affidavit filed by defendant No.5
on behalf of defendant No.1 and telex messages received on
behalf of defendant No.1 (after the Letter of Credit was
transferred) were relied upon to make good the plea and
alleging a complete fraud, in that, never dispatching any
goods and on the strength of fabricated document receiving
the sum assured under the Letter of Credit, fraud being
played was pleaded against all the defendants including the
bankers. Additionally, against defendants No.17 and 18, in
para 13 of the plaint, it was alleged that said defendants did
not scrutinize the documents to ensure that the same were in
accordance with the terms of the Letter of Credit. In other
words, qua said two defendants an additional ground was
urged of being negligent in making the payment while acting
as the negotiating bank. With respect to defendants No.15
and 16, it was the case of the plaintiff that by issuing the Bill
of Lading and other documents evidencing that the goods
were shipped, and the fact of the matter being that none were
shipped, liability was sought to be fastened on them qua said
plea.
8. In the written statement filed by the defendant
No.1 and its Directors and its Export Executive i.e. defendants
No.1 to 5 and 19, it was pleaded that the Letter of Credit
being a transferable Letter of Credit, was transferred by
defendant No.1 and when it did so, that was the end of the
liability of defendant No.1. Denying any fraud being played
by any Director or the Export Executive of defendant No.1, it
was pleaded that when at Jeddah, defendant No.5 was
coerced to sign the affidavit relied upon and was coerced to
send telegrams and telex messages. The circumstances
under which, as a virtual prisoner, defendant No.5 had to beg
for a performance guarantee to be got issued by defendant
No.6 in favour of the plaintiff were pleaded, to highlight that
the said documents were not voluntary and thus did not
support the case of the plaintiff that notwithstanding the
Letter of Credit being transferred, the defendant No.1 was
liable under the credit if it was fraudulently encashed. It was
specifically pleaded by defendants No.1 to 5 and 19, that
while endorsing the Letter of Credit in favour of defendant
No.6, conditions were imposed listing additional documents to
be furnished while negotiating the Letter of Credit. The
additional conditions were highlighted in the pleadings in
paragraph 6 of the reply on merits in the written statement. It
was specifically pleaded that fraud, if any, was committed by
defendant No.6 and its Directors.
9. Syndicate Bank, the concerned branch, being
impleaded as defendant No.17, and the bank as a juristic
entity being impleaded as defendant No.18, admitted having
received the conditions additionally imposed when Canara
Bank, acting on behalf of defendant No.1, transferred the
Letter of Credit in favour of defendant No.6 and admitted
making payment to defendant No.6 when the Bill of Exchange
was drawn and presented for being honoured under the Letter
of Credit, and in respect of being negligent, admitted in paras
21 and 22, under the caption „Additional Pleas‟ as under:-
"21. The letter of credit in question was
established by the bank, viz., Al Bank Al Saudi Al
Fransi. The said letter of credit was transferable
and not restricted to any bank in particular.
Originally, the period of validity of the letter of
credit was till 3.3.1979. The Banque Nationals de
Paris, Calcutta, confirmed the credit. The said
Banque Nationals de Paris by their letter dated
2.4.1979 advised M/s Dhar General Overseas
General Private Limited (who subsequently
changed their name to Varuna Overseas Private
Limited) that the validity of the letter of credit was
extended upto 25.5.1979. The said letter also
stated, "all other terms and conditions remain
unchanged". There was nothing o the face of the
letter to indicate that the extension was subject to
any additional conditions. The defendant No.7 as a
transferee of the L/C submitted a photo copy of the
abovesaid letter to two answering defendants on
23.4.1979 and sought to negotiate the documents.
Defendant No.6 was already having dealings with
the answering defendants and the answering
defendants without having any reason to suspect
the authenticity of the letter of the Banque
Nationals de Paris negotiated the documents in the
normal course. The said negotiation was accepted
as correct by the confirming bank., viz., Banque
Nationals de Paris, and also the opening bank.
Therefore, as far as the answering defendants are
concerned, the transaction had come to an end
long before the filing of the suit and the
immediate parties to the letter of credit viz., the
opening bank, the confirming bank and the
negotiating bank had no dispute whatsoever.
22. After the negotiations were complete, the
letter of the advising bank, namely, the Canara
Bank was brought to the notice of the answering
defendants along with a copy of the letter of the
confirming bank dated 2.4.1979 by which the
amendment to the L.C. was sought to be effected.
The said copy, however, was different from the
copy submitted by defendant No.7 inasmuch as the
copies sent by the Canara Bank had certain
conditions typed on the reverse of the letter. While
the copy submitted by defendant No.7 was only
that of the face of the letter. However, by the time,
there was nothing that the answering defendants
could do in view of the fact that the negotiation
was complete and irreversible. In any event, the
L.C. opening bank and the confirming bank could
have, if at all, raised objections regarding objection
as stated earlier and, accordingly, nothing
remained of the transaction as far as the
answering defendants are concerned."
10. In a cryptic written statement filed by defendants 6
to 8 and 10 i.e. M/s.Kupal Material & Metals Pvt. Ltd. and its
Directors, each and every averment made in the plaint was
denied. It was pleaded that there being no privity of contract
between the plaintiff and defendant No.6 or its Directors, the
suit was not maintainable. Being a plea of denial on all
aspects, defendant No.6 and its directors did not explain the
circumstances under which defendant No.6 obtained the
benefit of the letter of credit in question. The written
statement does not plead by way of a concise statement of
material facts as to how defendant No.6 procured the bill of
lading and other documents evidencing that it had shipped
the goods to the plaintiff.
11. Defendants No.15 and 16 did not enter appearance
upon being served and were proceeded against ex-parte.
Thus, as far as they are concerned, there is no defence on
record.
12. On the pleadings of the parties following issues
were settled:-
"1. Whether the plaint has been signed, verified
and the suit filed by a duly authorized person?
2. Whether Delhi Courts have jurisdiction to try
& entertain the suit?
3. Whether suit is bad for mis-joinder of parties?
4. Whether suit is bad for non-joinder of
necessary parties?
5. Whether there was privity of contract
between the plaintiff and defendants?
6. Whether defendant No.1 was bound & liable
to ensure delivery of the goods under orders
No.548 and 549 of 1978 to the plaintiff
notwithstanding the transfer of letter of credit in
favour of defendant No.6 and in spite of
performance guarantee issued by defendant No.6?
7. Whether defendant No.1 committed breach of
contract in not supplying to the plaintiff the
contracted goods?
8. Whether a fraud was committed by defendant
No.6 and its Directors defendants No.7 to 14 as
alleged in the plaint?
9. Whether the suit has abated on account of
the legal representatives of defendant No.14
having not been impleaded?
10. Whether plaintiff is entitled to recover
`2,17,600/- from defendants No.17 & 18 and if so,
is plaintiff entitled to interest on the said amount?
11. To what amount, if any, the plaintiff is
entitled and if so, from which of the defendants?
12. Whether there was novation of the original
contract as pleaded by defendants No.1 to 5 & 19?
13. Whether plaintiff is entitled to interest? If so,
on what amount and for which period?
14. Relief."
13. Various witnesses were examined and as regards
the documents filed by the plaintiff, 39 were proved and
exhibited as Ex.P-1 to Ex.P-39. As regards the documents filed
by the defendants, 31 were exhibited as Ex.D1W1/1 to
Ex.D1W1/17 and Ex.D1W3/1 to Ex.D1W3/14.
14. The impugned judgment simply notes the
pleadings of the parties, highlights the issues and copiously
notes some of the exhibits which the author has found
relevant; followed by more than a liberal verbatim
reproduction, by quoting paragraphs and paragraphs, from
the testimony of the witnesses. The endless voyage covers
the first 130 pages out of 136 pages of the impugned
decision, and thereafter in about 4 pages the issues have
been decided.
15. Relatable to issue No.1 and 2 i.e. pertaining to
whether the plaint was signed, verified and filed by a duly
authorized person and whether Courts at Delhi had
jurisdiction to entertain the plaint, and rightly returning a
finding in favour of the plaintiff, the decision has proceeded to
discuss the remainder issues in paragraphs 103 onwards, and
since the nub of the issues were issues No.4, 6, 7, 8 and 11,
we note the discussion in the impugned judgment before us,
in paragraphs 103 to 108, which pertains to the said issues.
They read as under:-
"103. On issue No.3 and 4, I find that the suit is not
bad for misjoinder or non joinder of necessary
parties.
104. On issue No.5, when we are on the question
of fraud committed by the defendants, in the light
of the facts the question whether there was any
privity of contract between the plaintiff and the
defendants would pale into any insignificance. The
fact that there was contract between the first
defendant and the plaintiff and the 6th defendant
had undertaken to supply can not at all be
disputed by the defendants. Therefore, the
argument on behalf of the 6th defendant that there
was no written contract between the 6th defendant
and the plaintiff and 6th defendant is not liable
cannot at all be sustained.
105. On issue No. 6 whether defendant No.1 was
bound and liable to ensure delivery of the goods
under orders No. 548 and 549 of 1978 to the
plaintiff notwithstanding the transfer of letter of
credit in favour of defendant No. 6 and inspite of
performance guarantee issued by defendant No. 6,
I find that defendants 1 to 5 and 19 and
defendants 6 to 16 are liable to pay the plaintiff.
The transfer of L/C in favour of 6th defendant was
only a link in the chain of frauds committed by the
defendants and having committed fraud the
defendants cannot be permitted to take advantage
of their own fraud. The Supreme court in S.P.
Chengal Varaya Naidu (Dead) by LRs. Vs.
Jagannath (Dead) by LRs and others, 1992 (1) SCC
1 had categorically laid down that those who had
committed fraud should be dealt with firmly. The
Supreme Court observed:-
"The courts of law are meant for
imparting justice between the parties.
One who comes to the court, must come
with clean hands. We are constrained
to say that more often than not, process
of the court is being abused. Property-
grabbers, tax-evaders, bank-loan-
dodgers and other unscrupulous
performs from all walks of life find the
court-process a convenient lever to
retain the illegal-gains indefinitely. We
have no hesitation to say that a person,
who‟s case is based on falsehood, has
no right to approach the court. He can
be summarily thrown out at any stage
of the litigation."
106. Following the dictum laid down by the
Supreme Court I have little doubt in holding that
the defendants are guilty of fraud and they are
bound to pay the money claimed by the plaintiff in
this case. The issue is answered in favour of the
plaintiff and against the defendants.
107. On issues No. 7, I find that the first defendant
is not only guilty of committing breach of contract,
is guilty of fraud. On issue No. 8 I find that fraud
was committed by 6th defendant and its directors
defendants 7 to 14. The 9th defendant Sh. Kirti H.
Shah, who was set ex parte on 2.8.1985, cannot
also escape liability on the basis of the letter which
he had written on 31.8.1979 (Ex. P.34). The letter
reads as under:-
"You are aware that Mr.Kuldip
Singh, Managing Director of Kupal
Materials & Metals Pvt. Ltd., and Mr.Atul
Sabharwal have under intimidation, and
duress taken away certain stock
material, cheques, pay slips and cash
from M/s Shah Brothers and they have
handed over the same to you. M/s Shah
Brothers have recorded the same by
their letter dated 13.7.1979 addressed
to you, and have also recorded that
they had requested to you to keep the
same in the name of M/s Shah Brothers
and not in the name of M/s. Kupal
Materials & Metals Pvt. Ltd.
You have sold away the stocks
lying in the godown of M/s. Shah
Brothers at Wadala and also sold away
material from Okha. According to the
market price prevalent at the time you
sold the material, you must have
realized Rs.9,60,000/- for the stock at
Wadala godown and Rs.3,70,000/- for
the Okha materials. Thus you have with
you, on behalf of M/s. Shah Brothers, a
sum of Rs.14 lakhs approx. inclusive of
the cash, cheques, pay slips etc.
amounting to Rs.1.24 lakhs approx.
Further, you have realized a sum of
Rs.50,000/- by encashing the cheque
issued by M/s. Karnataka Investment &
Traders Ltd., in favour of Shree Padma
Wire Products Pvt. Ltd., of which I am a
director.
Although I have resigned as a
director from M/s. Kupal Materials &
Metals Pvt. Ltd., I feel that I owe moral
obligation to the foreign buyer since I
was deemed to be a director at the
relevant time. You are hereby
instructed that out of the above amount
a sum of Rs.121 lakhs be remitted to
M/s. Al-Mustaneeer Establishment for
Trade, Jeddah through their banker, Al
Saudi, Al Franci, Jeddah on account of
documents negotiated against the L/C
No.2965 dtd. 23.11.78 by Kupal
Materials & Metals Pvt. Ltd., through
your New Delhi Foreign Exchange Dept.
Since there has been no shipment of
material against the said L/C.
I also enclose a letter authorizing
you to this effect from M/s. Shah
Brothers.
The above remittance may please
be made through your Foreign
Exchange Dept., Cannought Circus,
New Delhi within 14 days from receipt
of this letter / accompanying letter of
authorization, failing which, your bank
shall be liable for all losses, damages,
costs arising therefrom."
108. The issues are answered in favour of the
plaintiff and against the defendants."
16. Dealing with issue No.12, the learned Single Judge
has held in para 110 that the defendants had completed the
misconstrued concept of novation of a contract. It has been
held that there was no novation.
17. Since the learned Single Judge, has copied much
but without reflecting thereon, it would be difficult for us to
pen an appellate judgment in the manner in which an
appellate judgment is to be written. Law requires the
appellate judgment to run close to the original judgment and
after noting the grounds of challenge to the reasoning of the
original judgment, to re-look the points decided, in the
context of the reasoning of the Trial Judge. We do not find
any reasoning (expressly) emanating, but could somewhat
gather, that from the various telex messages sent before or
after the Letter of Credit was transferred by the defendant
No.1, the learned Single Judge has been coloured by the fact
that the defendant No.1 and its directors would be liable if it
was a case of fraud. On the issue of fraud, though there are
no reasons, the learned Single Judge is correct that evidence
establishes that defendant No.6 procured fraudulent
documents without delivering the goods to defendant No.15
and on the strength of those fraudulent documents was able
to encash a part sum under the Letter of Credit. Without
discussing as to how Syndicate Bank was a party to the fraud,
all defendants have been swept with the colour of the same
brush.
18. Let us briefly recap the evidence, both
documentary and oral.
19. It all commenced when vide Ex.P-5, dated
November 09, 1978, Dhar Overseas appointed M/s.United
Arab Agencies as its agent to procure business in Saudi
Arabia. Bharat Kumar J.Shah appears to be the sole proprietor
of M/s.United Arab Agencies. He procured one order for Dhar
Overseas for supply of 500 MT MS round bars, to be delivered
to M/s.Bin-Mahfouz. He also managed a supply order from
M/s.Al Mustaneer i.e. the plaintiff for supply of 2000 MT MS
rounds. On November 22, 1978, two orders, No.548/78, Ex.P-
2, and 549/78, Ex.P-3 were indented for by Al Mustaneer upon
M/s.Dhar Overseas through the United Arab Agencies. Each
was for supply of 1000 MT MS bars at a price of US$340 per
MT. The total value of each order was thus US$3,40,000.
Since payment had to be secured by Letter of Credit, on
November 23, 1978, a Letter of Credit Ex.P-1, was issued at
the instance of Al Mustaneer by Al Bank Al Saudi Al Fransi with
Dhar Overseas named as the beneficiary. Banque Nationale
De Paris at Calcutta was named as the advising bank. Issued
in sum of US$6,80,000, the Letter of Credit was valid March 3,
1979 and had to be honoured upon presenting the following
documents:-
"(1) Commercial invoice in triplicate
original certified by the Chamber of
Commerce.
(2) Certificate of origin in duplicate
showing the names of manufacturer &
shipper original certified by Chamber of
Commerce.
(3) Full set of „Clean‟ „on board‟ ocean Bill
of Lading stamped „Liner Terms‟ issued to the
order of shipper and endorsed to the order of
Al Bank Al Saudi Al Fransi Jeddah marked
„Freight Prepaid‟."
20. To the negotiating bank, the Letter of Credit clearly
indicated: „The amount of each draft must be endorsed on the
reverse of this credit by the negotiating bank.‟
21. Dhar General Overseas desired, vide Ex.P-6 on
December 02, 1978, that the Letter of Credit in question be
made divisible and under the signatures of Ravi Upadhyaya,
defendant No.5, the Export Executive of Dhar Overseas, wrote
a letter as under:-
"This has reference to your letter No.972/78 dated
25th November, 1978 and your letter 977/78 dated
25th November, 1978. I was glad to know you had
a pleasant stay in Delhi and I could make some
minor contribution towards making your stay a
happy one.
M/s.Bin-Mahfouz L/C of 500 tons is ready for
execution but is still awaiting the two L/C
amendments called for, but till date they have not
come through.
M/s.Al-Mustaneer L/C of 2000 tons is being
taken care of. I am awaiting the "divisible"
amendment which was agreed to be made by you.
With best wishes."
22. As pleaded in the plaint, the plaintiff, through the
issuing bank, got the letter of credit amended to make it
divisible and suffice would it be to state that the letter of
credit was a transferable letter of credit. Vide Ex.P-36 on
23.12.1978, through Canara Bank, Dhar Overseas got the
Letter of Credit transferred to M/s.Kupal Metals and Material
Pvt. Ltd. and simultaneously, acting on the strength of the
letter of credit being divisible, divided the same and
transferred half value i.e. US$3,40,000.
23. The period within which the goods had to be
supplied and for which the Letter of Credit was made valid up
to i.e. March 03, 1979 was approaching and M/s.Kupal Metals
& Material Pvt. Ltd. was not in a position to supply the goods.
24. Ravi Upadhyaya, the Export Executive of Dhar
Overseas reached Jeddah on March 01, 1979 and returned
therefrom on March 29, 1979 and during this period, various
telex messages were sent by him and a performance
guarantee in sum of US$68,000 i.e. 10% of the original
contract value was furnished by M/s.Kupal Metals & Material
Pvt. Ltd. Ravi Upadhyaya even swore an affidavit. Which
documents, as noted in paragraph 3 above while summarizing
the case of the plaintiff, were used by the plaintiff to build a
case that if Dhar Overseas had transferred the Letter of Credit
in part and had nothing to do with M/s.Kupal Metals & Material
Pvt. Ltd., where was the need for an employee of the
company to be meddling in the affair.
25. We thus note the exhibits which have a bearing on
the subject, but would first note that appearing as D1W2, Ravi
Upadhayaya, deposed that he had gone to Jeddah to procure
work and while at Jeddah the plaintiff illegally confined him in
the hotel room where he was residing and he was compelled
to sign certain documents and was compelled to send and
receive telex messages. He explained the circumstance
under which M/s.Kupal Metals & Material Pvt. Ltd. sent a
performance guarantee in sum of US$68,000; the guarantee
in question being issued by Syndicate Bank. In a nutshell, his
testimony would reveal that in Saudi Arabia, the poor man
(Ravi Upadhyaya) had no option but to do as he was dictated,
probably for the reason the system of law in said country is of
a kind where access to justice is not easy.
26. Sh.Kirti Uppal, learned senior counsel for the
plaintiff laughed at the testimony of Ravi Upadhyaya by
highlighting that inasmuch as Ravi Upadhyaya did not lodge
any complaint with any authority in India after he returned
from Jeddah on March 30, 1979, an act which a normal person
would have performed, the story narrated by Ravi Upadhyaya
during testimony was an alleged story.
27. Now, a person aggrieved would make a complaint
to a person in authority and pertaining to a wrong committed
by a citizen of a foreign sovereign country, where would there
be the authority in the government of the country where the
person is a domicile of?
28. But, the contemporary documents speak their own
story.
29. The affidavit relied upon by the plaintiff, Ex.P-13
(same as Ex.P-25) executed by Ravi Upadhyaya reads as
under:-
"AFFIDAVIT
I Ravi SHANKAR UPADHYAYA s/o Dr. B.S.
UPADHYAYA holder of Indian Passport No. L-
498670 dated 31.3.1977 Issued by NEW DELHI do
hereby solemnly sign the under-mentioned
guarantee:-
GUARANTEE
2000 TONS MS BARS BOOKED VIDE AGENT‟S
INDENT NO.548/78 AND 549/78 - L/C NO.2965 TO
M/S: AL-MUSTANEER-ESTABLISHMENT FOR
TRADE, JEDDAH
I, UNDERSIGNED RAVI SHANKAR UPADHYAYA OF
M/S: DHAR GENERAL OVERSEAS PVT. LTD., ON
BEHALF OF MY COMPANY AND ITS MG. DIRECTOR
DO HEREBY GUARANTEE THAT GOODS OF ABOVE
BOTH ORDERS WILL BE SHIPPED IN THEIR
ENTIRETY WITHIN EXTENDED PERIOD OF ABOVE
L/C AND IF THE GOODS ARE NOT SHIPPED IN
EXACT SIZES, CORRECT WEIGHT AND
SPECIFICATION AS PER L/C AND AGENT‟S
INDENTS WE SHALL BE LIABLE TO PAY
DIFFERENCE ACCORDING TO PREVAILING RATE
OF BENELEUX EXTRA SYSTEM FOR SIZES,
DIFFERENCES FOR SHORTAGE OF WEIGHT, IF
ANY, AT TIME OF LANDING AT HODEIDAH PORT
AGAINST SUBMISSION OF ANY INDEPENDENT
RECOGNIZED SURVEYOR‟S REPORT.
MY BEING A REPRESENTATIVE OF M/S DHAR
GENERAL OVERSEAS PVT. LTD., IS REFERRED TO
IN COMPANY‟S TELEX DATED 20/3/79 ADDRESS
TO MR.K. SHARMA, COUNSELLOR, INDIAN
EMBASSY, JEDDAH S.A.
Sd/-
(RAVI SHANKAR UPADHYAYA)
Sworn and signed before me this 27th March,
1979 at Jeddah.
Sd/-
(K.L. VEDI)
Attache (Counsular)
Embassy of India
JEDDAH"
30. As deposed to by Ravi Upadhyaya he was
compelled to depose to the affidavit a day prior to his
departing from Jeddah.
31. But before that we have a telex message dated
March 10, 1979, Ex.D1W1/3 sent by Ravi Upadhyaya from
Jeddah. It reads as under:-
"JEDDAH
MAR 10, 1979
TLX REF. 1554
ATTN: LALA BANSI DHAR MANAGING
DIRECTOR/GENERAL MANAGER
PLS TREAT THIS MSG MOST SERIOUS AND
IMPORT(.)
SINCE 2000 TONS SHIPMENT NOT EFFECTED
BUYER HAS HELD ME IN JEDDAH TILL HE GETS
10% PRICE DIFFERENCE TO BE SENT IN NAME OF
M/S: AL-MUSTANEER TRADING EST THRU BANK
AL SAUDI AL FARANSI (BANK DE INDOGHINE) IN
JEDDAH WITHIN 48 HOURS. TREAT THIS MOST
URGENT AS I AM BEING HELD TILL MONEY
COMES. ALSO MR. SHAH DETERMINED TAKE UP
THIS ISSUE AGAINST OUR COMPANY WITH SAUDI
CHAMBER OF COMMERCE BIJU PATNAIK, MOHAN
DHARIA (WITH WHOM HE HAS PERSONAL
ACQUAINTANCE) GEORGE FERNANDEZ, WORLD
CHAMBER OF COMMERCE AND ALSO PRESS IN
BOMBAY AND DELHI IF MATTER NOT SETTLED.
INDIAN EMBASSY HAS ASSURED MR.SHAH
FULLEST COPPERATION REPEAT ONCE AGAIN
MONEY SHOULD REACH HERE LATEST BY
MONDAY/TUESDAY. SAUDI AIRPORT HAS BEEN
INFORMED TO STOP MY DEPARTURE. BUYER
WANTED 18 0/0 BUT WITH HEARTFELT EFFORTS
MR. SHAH CONVINCED HIM TO ACCEPT 10 0/0
PLS RUSH.
MY PASSPORT HAS BEEN TAKEN AWAY.
RAVI UPADHYAYA"
32. The portion highlighted in bold i.e. „Buyer has held
me in Jeddah till he gets 10% price difference‟ are telling. The
further portion highlighted in bold i.e. „My passport has been
taken away‟, cannot be ignored.
33. The next day Ravi Upadhyaya sent a telex
Ex.D1W1/4 which reads as under:-
"YES I HAVE BUT THERE IS NO NEWS OF ANY
DISPATCH OF 500 TONS FROM BOMBAY ALSO PLS
TAKE THIS TO LALA BANSI DHAR JEE AND GET ME
OUT OF HERE CHAUDHARY IS HERE I AM IN TOUCH
WITH KIRTI WHO HAS COME TO DELHI AND HAS
ASSURED THAT B/L COPIES FOR 500 TONNS IS
REACHING DELHI THIS EVENING.
PLS CONFIRM IF THEY WILLING TO EXTEND L/C IF
500 TONS IS SHIPMENT IS CONFIRMED AND WILL
THEY RETURN US MOPLS ACCORDING TO BUYE HL
IS WILLING TO EXTEND L/C FOR 30 DAYS BUT IN 48
HRS AND UNCONDITIONAL 15 PERCENT BANK
GUARANTEE SHOULD BE TRANSMITTED TO THE
ABOVE BANK IN THE NAME OF THE ABOVE PARTY.
THIS BEING SATURDAY AND SUNDAY THE EARLIEST
ANY ACTION CAN BE TAKEN THROUGH BANK IS ON
MONDAY WHICH WLWL DO PLS TELL THE BUYER
WHO WAIT + TO WAIT TILL TUESDAY EVENING AND
WE WL DO NEE+ AND WE WL DO THE NEEDFUL
FOR L/C EXTENSION.
PLS SEND B/L PARTICULARS SEE PARTICULARS OF
500 TONS IMMEDIATELY BY THIS EVENING OR YOU
MUST DO IT BY TOMORROW
OK WE WL TRANSMIT THEM AS SOOON AS WE GET
THEM THIS EVENING OR EARLY IN THE MORNING+?
PLS INFORM KOTHI AND MY RESIDENCE
EXPECTING YR REPLY POSITIVELY
REGARDS
RAVI"
34. The words highlighted in bold i.e. „Get me out of
here‟ are telling.
35. On March 11, 1979, Ravi Upadhyaya sent another
telegram Ex.D1W1/5 which reads as under:-
"31 4115 GSPL IN
401174 BAHAJD SJ
ROOM NO.217, TEL 23511 AND 23851/2 TLX
NO.401174 BAHAJD SJ.
PLS ENSURE THAT ALL SETTLEMENT TLX‟S ARE SENT
ON SHAH‟SNTLY.
OTHER MESSAGE RE ACTION TAKEN CAN BE SENT
HERE OR CARE DR. MEHROTRA 661010 OTO SJ ON
HOTEL TLX PLS DO NOT MENTION THE PROBLEM
BUT SOLUTION.
RGDS
RAVI RM 2174
31 4115 GSPL IN
401174 BAHAJD SJ"
36. On March 18, 1979, Ravi Upadhyaya sent another
telex, Ex.D1W1/6 which reads as under:-
"MR. RAVI UPADHYAYA‟S TELEX TO D.G.O.P.L.
INCOMING TLX
19 MAR 1979.
31 4115 GSPL IN
661010 OOM SJ TTH
TLX NO.393 DT 18/3/1979
ATTN : BANSHIDHARJI/MRS. BANSIDHAR
BANK GUARANTEE NOT YET RECEIVED ON BANK I
FEAR PERSONAL REPERCUSSION. PLS SEND TLX TO
SHAH AUTHORIZING ME TO SIGN AGREEMENT IN
INDIAN EMBASSY.
72346
PLEASE ASK USE YOUR SOURCE WITH INDIAN
EMBASSY.
I AM RUNNING TEMPERATURE. PLEASE INFORM GEN.
CANDETH AT TEL. NO. 69177 (.)
KIND REGARDS
RAVI
31 4115 GSPL IN"
37. The words highlighted in bold i.e. „I fear personal
repercussions‟ are telling.
38. On the same day i.e. March 18, 1979, Ravi
Upadhyaya had sent another telegram, Ex.D1W1/7, which
reads as under:-
"31 4115 GSPL IN
401062 MOTSIM SJ
MARCH 18, 1979
TLX REF 1754
KIND ATTN LALA BANSIDHARJI/MRS. BANSIDHARJI
HAVE SENT NUMEROUS TELEXES NO CONCRETE
REPLY RECD.
I AM IN SERIOUS TROUBLE. THE BANK GUARANTEE
NOT RECD IN BRITISH BANK.
MR. SHAH VERY ANNOYED AS NO TLX RECD HERE
FROM DELHI OFFICE.
PLS REFER TLX SENT TO U BY ME FROM BOMBAY
AND SEND AUTHORIZATION ON TLX IMDTLY.
KINDLY TAKE PERSONAL INTEREST AS I AM IN A VERY
BAD STATE MENTALLY AND PHYSICALLY.
MR.SHAH‟S TLX NOS. ARE 401062 MOTSIM SJ,
401573 PETSTR SJ, 401790 ABARJD SJ - TELEPHONE
34318.
RAVI UPADHAYAYA"
39. The portion in bold highlighted would reveal the
extremely hostile situation in which Ravi Upadhyaya found
himself.
40. The next day i.e. March 20, 1979, Ravi Upadhyaya
sent another telegram Ex.D1W1/8 which reads as under:-
"FWG TLX MSG IS RECD FROM MR.RAVI UPADHYAYA
OF JEDDAH
ATTN. MRS.BANSIDHAR
_____
PSE SEND FLG TLX IMDTLY TO UNITED ARAB
AGENCIES (ATTN MR.SHAH) SIGNED BY MG.
DIRECTOR.
QUOTE
WE AUTHORIZE MR.RAVI UPADHYAYA TO SIGN ANY
AFFIDAVIT IN PRESENCE OF IND. EMBASSY OFFICE IN
CONNECTION WITH DISPUTE OF WEIGHT AND SIZES
AGAINST SHIPMENT MADE UNDER L/C NO. JGOIQITUE
ALSO AFFIDAVIT IN SAME MANNER THAT WEIGHT
AND SIZE OF SHIPMENT OF 2000 TONS TO BE
EFFECTED AGAINST ORDERS 548/78 AND 549/78
WILL EXACTLY AS PER REQUIREMENT IN AGENT‟S
INDENT NO.548/78 AND 549/78.
ALSO AFFIDAVIT THAT COMMISSION ON FOB ON
JEDDAH SHIPMENT WILL BE REMITTED TO AGENT
AND IF HODEIDAH SHIPMENT NOT EFFECTED ACTUAL
LX/CABLE EXPENSES INCURRED BY AGENT WILL BE
PAID BY US.
WE SHALL HONOUR MR.RAVI UPADHYAYA‟S
SIGNATURE (IN ABOVE MATTER ONLY) WHETHER HE
IS EMPLOYED WITH US OR NOT.
UNQUOTE
PLSE TREAT THIS MATTER MOST URGENT AND
SERIOUS.
RAVI UPADHYAYA"
41. On the same day i.e. March 20, 1979, M/s.Kupal
Metals & Material Pvt. Ltd. sent a telegram Ex.D1W1/10, which
reads as under:-
"31 4115 GSPL IN
31 2791 KMML IN
FROM KUPAL,
A
MSG NO.2492 DT. 20/3/79
ATTN. MR.BM+B.L. GUPTA
PERFORMANCE BOND OF USD 68000/- IS GIVEN
FAVOURING THE BUYER OF JEDDAH EXTENSION IN
L/C NOT RECD STILL NOW PLS EXPEDITE THE MATTER
AND ARRANGE TO GET AT THE EARLIEST THE
EXTENSION IN LETTER OF CREDIT. MATERIAL
ARRIVING+AWAITING SHIPMENT AT PORT.
REGARDS: KUPAL"
42. The same day on March 20, 1979, Dhar Overseas
sent a telegram to an officer of the Indian High Commission in
Jeddah Ex.D1W1/11, which reads as under:-
"401261 INDIA SJ
31 4115 GSPL IN
243 20/3/79
KIND ATTN: MR.KAMLESH SHARMA
OUR REPRESENTATIVE MR.RAVI UPADHYAYA HOLDING
PASSPORT NO.L498670 HAD REACHED JEDDAH
ABOUT 10 DAYS AGO ON NORMAL EXPORT TOUR(.)
WE HAD BN DEALING THERE WITH M/S ALMASTNIR
ESTABLISHMENT FOR TRADE, P.O. BOX.6503, JEDDAH
AND M/S DEN MAHFOUZ ESTABLISHMENT, P.O. 1642,
JEDDAH THROUGH M/S UNITR WHO R OUR AGENTS (.)
WE UNDERSTAND THAT DUE TO SOME PROBLEM
REGARDG SOME OF THE SUPPLIES THE ABOVE
PARTIES R NOT ALLOWING OUR REPRESENTATIVE TO
LEAVE JEDDAH(.)
RAVI UPADHYAYA CAN BE CONTACTED AT HIS HOTEL
TEL NO.23511/23851, ROOM NO.217(.) WE SHALL BE
GRATEFUL IF U KINDLY USE YR GOOD OFFICES TO
GET HIM RELEASED FROM ABOVE PARTIES SO THAT
HE CAN COME BACK TO INDIA(.) WE ARE READY TO
DISCUSS ALL OR ANY TRADE DISPUTE WITH THE
ABOVE PARTIES AS PER INTERNATIONAL TRADE
PRICE+ PRACTICES(.)
DHAR GENERAL OVERSEAS PRIVATE LIMITED
MSG OVER PLS ACK HOW RECD+?
401261 INDIA SJ
314115 GSPL IN"
43. Suffice would it be to state that the aforesaid telex
messages are self explanatory and clearly evidence that the
plaintiff took advantage of the authoritarian rule in Saudi
Arabia to hold Ravi Upadhyaya hostage and extract a
performance guarantee which was issued by M/s.Kupal Metals
& Material Pvt. Ltd. and the stand in the plaint that the
plaintiff would not have accepted the performance guarantee
except for the affidavit, Ex.P-13, deposed to by Ravi
Upadhyaya is incorrect.
44. Noting the facts further and somewhat fast-
tracking ourselves, we note that after Ravi Upadhyaya came
back to India on March 30, 1979 and in view of the documents
got extracted from him at Jeddah, the plaintiff advised its
bank to extend the validity period of the letter of credit and
since Banque Nationale De Paris was the advising bank, the
issuing bank Al Bank Al Saudi Al Fransi sent a wire message to
Banque Nationale De Paris, which vide Ex.P-26 dated April 02,
1979, extended the validity of the letter of credit up to May
25, 1979 and on April 12, 1979, Canara Bank, while endorsing
the extended letter of credit to M/s.Kupal Metals & Material
Pvt. Ltd. as also endorsing the same to Syndicate Bank
inserted the requirement of furnishing two further documents,
in addition to the three mentioned in the original letter of
credit, as documents to be presented while negotiating the
letter of credit, i.e. a certificate from the General
Superintendent, certifying that the goods are as per indent as
also a certificate from M/s.Kupal Metals & Material Pvt. Ltd.
certifying that the goods shipped are strictly in accordance
with the indent.
45. Playing a fraud, M/s.Kupal Metals & Material Pvt.
Ltd. drew out two commercial invoices Ex.P-9 and Ex.P-11 on
April 19, 1979, the former being for 599.450 MT of MS Bars
and the second for 99.910 MT MS Bars. Drawing up a Bill of
Exchange in sum of US$2,03,813 pertaining to the invoice
Ex.P-9 and another Bill of Exchange in sum of US$33,966
pertaining to the invoice Ex.P-11, the two Bills of Exchange
being Ex.P-14 and Ex.P-15, obtaining fraudulent certificates of
origins Ex.P-20 and Ex.P-21 pertaining to the goods relatable
to Ex.P-9 and Ex.P-11 and with the aid of an employee of
Amphora Marine Consultants Pvt. Ltd. i.e. defendant No.15,
M/s.Kupal Metals & Material Pvt. Ltd. obtained a contrived bill
of lading, submitting the Bills of Exchange with the fraudulent
Bill of Lading. In this manner M/s.Kupal Metals & Material Pvt.
Ltd. obtained payment in sum of US$2,71,748.4 by
negotiating the Letter of Credit in part and Syndicate Bank
obliged, ignoring that the documents required to be submitted
as noted in para 44 above had not been submitted.
46. We note that when the fraud surfaced, on
September 06, 1979, vide Ex.P-23, defendant No.16,
Capt.V.K.Bharve, the Principal Officer of Amphora Marine
Consultants Pvt. Ltd., admitted that the goods were never
delivered for shipment and he returned `60,000/- i.e. the
shipping charges pertaining to the Bill of Lading to Syndicate
Bank.
47. Pertaining to the Performance Guarantee furnished
by Syndicate Bank, the plaintiff received part amount.
48. It is in the aforesaid backdrop of documentary
evidence that the learned Single Judge was obliged to
consider the matter, and it was expected that the evidence
would be looked into, analyzed and reflected upon and not
brushed aside, as has been done by the learned Single Judge.
49. Further, the pleading by Syndicate Bank, as
extracted by us in para 9 above, had to be kept in view. The
testimony of the witness of the bank had also to be kept in
view, and for which we highlight that D17-18/W1 the Assistant
Manager of Syndicate Bank simply said that since the
confirming bank raised no issue, Syndicate Bank was justified
in what it did. On being cross-examined he stated that he was
not in a position to depose about the transaction and could
throw no light as to how Syndicate Bank, acting as the
negotiating bank, received the Bill of Exchange minus the
documents required as a condition when the Letter of Credit
was extended.
50. Though not exhibited, but since it was filed by
Syndicate Bank as a document from its record when their
officers appeared at the time of scrutiny, so that it could be
ascertained that the relevant record was available, as
recorded in the order dated September 28, 1989, Mr.Rakesh
Puri from Syndicate Bank placed on record a large number of
documents, and one of which was a letter under cover of
which M/s.Kupal Metals & Material Pvt. Ltd. presented the Bill
of Exchange while negotiating the Letter of Credit. It is dated
April 21, 1979 and there is an endorsement by an officer of
the bank in handwriting that the requisite documents have
not been submitted while presenting the Bill of Exchange.
51. Bharat Shah PW-2, the sole proprietor of United
Arab Agencies corroborated Ravi Upadhyaya being in Jeddah
in the month of March 1979.
52. The documentary evidence would establish that
there was a contract for supply of 500 MT MS Rounds to a
company Bin-Mahfouz and another contract for supply of 200
MT MS bars to Al Mustaneer.
53. The learned Single Judge has confused the
correspondence pertaining to a reference therein to Bin
Mahfouz, as if the same is a reference to Al Mustaneer. The
seed of the confusion is the pleading in para 6 of the plaint
that defendant No.5 had, on March 05, 1979 assured
shipment of 500 MT MS Rounds on the same day. The telex
message refers to the shipment pertaining to Bin Mahfouz and
not the plaintiff.
54. The documentary evidence establishes that on
November 23, 1978 the plaintiff opened, through Al Bank Al
Saudi Al Fransi, a divisible/transferable Letter of Credit Ex.P-1
in sum of US$6,80,000 in favour of Dhar Overseas which was
valid up to March 03, 1979. Banque Nationale De Paris was
the advising bank. On December 23, 1978, acting through
Canara Bank, Dhar Overseas not only divided the LC but even
transferred part thereof i.e. in the sum of US$3,40,000 in
favour of M/s.Kupal Metals & Material Pvt. Ltd. through
Syndicate Bank. Vide Ex.P-28, on April 02, 1979, Banque
Nationale De Paris extended the LC up to May 25, 1979 and
thereafter on April 12, 1979, Canara Bank, while conveying
extension of the letter of credit to M/s.Kupal Metals & Material
Pvt. Ltd. as also to Syndicate Bank inserted further conditions
of additional documents being required to be submitted by
M/s.Kupal Metals & Material Pvt. Ltd. while claiming under the
letter of credit; part assigned to it. The Directors of M/s.Kupal
Metals & Material Pvt. Ltd. played a fraud in which officers of
defendant No.15 rendered a helping hand i.e. issued
fraudulent shipping documents. There is just no evidence of
defendant No.1, its directors or chief export officer, being a
party to the fraud. The various telex messages pertaining to
Ravi Upadhayaya‟s stay at Jeddah bring out that he was held
a hostage and compelled to act under the dictates of the
plaintiff and thus it cannot be argued that having transferred
the letter of credit, what was defendant No.1, through its
officer, negotiating with the plaintiff on the subject.
55. Law pertaining to a Letter of Credit is clear. A
transferable letter of credit can be transferred without
recourse to the issuing bank. And thus the party at whose
instance a letter of credit is issued runs the risk of the letter of
credit being transferred. Thus, the plaintiff cannot make a
grievance of Dhar Overseas transferring the letter of credit.
Further, law clearly states that where a beneficiary transfers a
letter of credit, he/it must act through a bank and the said
bank is justified in putting further conditions on the letter of
credit. Canara Bank, acting as the banker of Dhar Overseas,
inserted conditions while transferring the divided part of the
letter of credit, which conditions became a part of the letter of
credit.
56. Everything is wrong about the impugned judgment
with reference to the liability of Dhar Overseas and its
directors and employees. But more fundamental than that is
the oversight by the learned Single Judge that the pleadings in
the suit and in respect whereof the issues were settled, vide
issue No.8, settled the issue of fraud only with respect to
defendant No.6 i.e. M/s.Kupal Metals & Material Pvt. Ltd. and
its directors and qua none else. There is a glaring error in the
impugned judgment, in that, with respect to the issue No.8,
pertaining to the fraud, all defendants have been brushed
with the same colour, ignoring that the issue of fraud
pertained to M/s.Kupal Metals & Material Pvt. Ltd. and its
directors and none else.
57. Faced with the aforesaid, Mr.Kirti Uppal, learned
senior counsel for the plaintiff, pleaded that the liability of
defendant No.1 was for committing breach of the contract in
not supplying the goods. Learned senior counsel urged that
the purchase orders Ex.P-2 and Ex.P-3 were placed upon Dhar
Overseas and by transferring the transferable Letter of Credit,
Dhar Overseas could not escape liability.
58. We need not discuss whether the contract was
assignable, for the reason the suit has been decreed with
respect to the fraudulent encashment under the letter of
credit and not on account of damages for breach of contract.
Assuming Dhar Overseas was in breach of the contract,
liability would be to pay damages for breach thereof, for
quantification thereof, there is no evidence.
59. We highlight that the suit has been decreed with
reference to the fraud played by M/s.Kupal Metals & Material
Pvt. Ltd. and its directors.
60. The impugned decree has thus to be set aside
insofar it embraces defendant No.1, defendants No.2 to 4 and
defendant No.19 respectively.
61. The decree has been correctly passed against
defendant No.5 i.e. M/s.Kupal Metals & Material Pvt. Ltd. and
its directors. The decree has been correctly passed against
defendant No.15, for it would be vicariously liable, as the
shipper, for the fraud committed by its employees, but not
against defendant No.16, Capt. Bharve as there is no
evidence of fraud having been committed by him. But since
he is not in appeal, we leave it at that.
62. With respect to Syndicate Bank, the evidence
clearly establishes negligence on the part of the officers of the
bank in ignoring the additional documents required to be
submitted as per the instructions dated 12.04.1979 issued by
Canara Bank while endorsing the extended letter of credit to
M/s.Kupal Metals & Material Pvt. Ltd. with copy thereof to
Syndicate Bank. When the Bill of Exchange was drawn and
presented by M/s.Kupal Metals & Materials Pvt. Ltd. to receive
the sum under the letter of credit, on the covering letter dated
April 21, 1979, the employee of the bank initially noted four
defects, and since the first defect was wrongly noted i.e. that
the letter of credit had expired on March 03, 1979, and
probably realizing that the letter of credit had been
subsequently extended, scored off the first note and retained
the other three i.e. at serial No.2, 3 and 4 of the note. The
said three are reflective of the fact that Syndicate Bank knew
that the requisite documents were not furnished. The second
note reads: „Transferee‟s name and address in documents not
as per transfer letter.‟ The note at serial No.4 records: „Liner
(illegible) not stamped in BI as per LC.‟ Thus, Syndicate Bank
would be liable to recompense the plaintiff, not by way of
liability as a party playing a fraud, but being negligent as a
negotiating bank, whose responsibility, as held in the decision
reported as 2001 (1) SCC 663 Federal Bank Ltd. vs. V.M.Jog
Engineering Ltd. & Ors., is to ensure, while receiving the
documents from the seller when the letter of credit is
negotiated, that the same are in order.
63. The argument of Sh.Anil Grover, learned counsel
for Syndicate Bank that issue No.4 i.e. non-joinder of a
necessary part made liable the plaint to be rejected, on the
strength of the evidence, that when Syndicate Bank sent the
documents to the advising bank i.e. Banque Nationale De
Paris, even said bank accepted the same and remitted the
money to Syndicate Bank, which had already credited the
account of M/s.Kupal Metals & Material Pvt. Ltd. when the bill
of exchange was presented, is attractive at the first blush for
the reason the proviso to Rule 9 Order 1 of the Code of Civil
Procedure clearly requires a suit to be defeated if there is a
non-joinder of a necessary party, but before that an
opportunity has to be given to the plaintiff to rectify.
64. The plea of Sh.Anil Grover, learned counsel for
Syndicate Bank, that qua the bank, the decree has to be set
aside and after impleading Banque Nationale De Paris and Al
Bank Al Saudi Al Fransi the matter is required to be retried is
rejected by us for the reason Syndicate Bank has led no
evidence that the additional conditions imposed by Canara
Bank, as a banker of the beneficiary of the Letter of Credit i.e.
Dhar Overseas, when the Letter of Credit was transferred and
when it was extended, were made known to either Banque
Nationale De Paris or Al Bank Al Saudi Al Fransi and thus it
appears to be a case where the said banks remitted the
money to Syndicate Bank on the strength of the documents to
be furnished as per the original Letter of Credit, which
documents were admittedly furnished. The fraud committed
by M/s.Kupal Metals & Material Pvt. Ltd. is by not submitting
the additional documents required to be submitted and
additionally procuring false shipping documents, the
fabrication whereof could not be detected even by Syndicate
Bank, (to be fair to the bank), for the reason an employee of
defendant No.15 had used authentic documents to show as if
the goods were shipped. But the negligence of Syndicate
Bank is in ignoring that the documents furnished were
deficient and the best proof thereof is the letter filed in Court
on September 28, 1989 by the witness of the bank, to which
we have made a reference above.
65. We accordingly allow RFA(OS) No.70/1998. The
impugned judgment and decree is set aside qua the
appellants therein and the plaint qua said appellants is
dismissed.
66. RFA(OS) No.87/1998 is to be partially allowed for
the reason we find the rate at which interest has been
awarded is excessive and the decree is not in conformity with
the prayer in the plaint.
67. As noted in paras 5 and 6 above, pertaining to the
fraudulent encashment of a part of the sum under the Letter
of Credit, decree claimed was in sum of `22,27,445.89 from
the date the fraudulent encashment took place and pertaining
to the performance guarantee issued by Syndicate Bank, the
sum claimed was `2,17,600/-.
68. The impugned judgment decrees `2,17,600/- and
also `3,08,440/-, which as noted herein above is the sum total
of `2,17,600/- and pre-suit interest in sum of `90,840/- and
thus correction is needed on said score.
69. RFA(OS) No.87/1998 is partially allowed and the
impugned decree is modified by decreeing the suit by passing
a decree in sum of `22,27,445.89 + `2,17,600/- i.e.
`24,45,045.89 together with interest @12% thereon from April
23, 1979, when the account of the plaintiff was debited after
the bank guarantee was fraudulently encashed due to
negligence of the bank and on which date liability to make
good the performance guarantee stood fastened; till
realization.
70. We leave the parties to bear their own costs in the
appeals.
(PRADEEP NANDRAJOG)
JUDGE
(PRATIBHA RANI)
JUDGE
March 02, 2012
dk
