Delhi High Court
Malayan Banking Berhad vs Allahabad Bank on 20 January, 2017
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 22.12.2016
% Decided on: 20.01.2017
+ CS(OS) 745/2015
MALAYAN BANKING BERHAD ..... Plaintiff
Through: Mr. Sandeep Sethi, Sr. Adv. with Mr.
Kanishk Ahuja, Advocate.
versus
ALLAHABAD BANK ..... Defendant
Through: Mr. Sugam Seth, Advocate along
with Ms. Renukha Iyer, Advocate.
CORAM:
HON'BLE MS. JUSTICE DEEPA SHARMA
JUDGMENT
I.A. 22985/2015 (application on behalf of defendant under Order 37
read with Section 151 CPC for leave to defend)
1. Vide this application the defendant (hereinafter called as "AB") has
sought the leave to defend the case.
2. The present suit has been filed by the plaintiff under Order XXXVII
of the Code of Civil Procedure (CPC) for the recovery of USD
1,505,267.81 equivalent to `11,00,04,972.03p. along with pendente lite and
future interest at the rate of 12 % per annum from the date of institution of
the present suit till its actual realization.
CS(OS) 745/2015 Page 1
3. The brief facts of the case are that the plaintiff Malayan Banking
Berhad (hereinafter called as "MBB") is a foreign bank of Malaysia. AB is
a nationalized bank functioning in India and has one of its branches at Delhi
and is working under the supervision of the Reserve Bank of India
(hereinafter called as 'RBI') and therefore is bound to adhere to all the
norms and international standards for banking practices in its operations. It
is submitted that M/s Millennium Wires Pvt. Ltd („buyer‟) through State
Trading Corporation of India Ltd. (STC) had placed an order for purchase
of copper wire rods through one M/s Synergic Industrial Materials and
Services Pte Ltd, a company in Singapore („seller‟). There was a contract
between the buyer, STC and the seller. At the instance of STC, AB had
issued four irrevocable Letters of Credit (LCs), the details of which are as
under:
LC No. Date Amount Beneficiary
In USD
0189111FLU000150 07.12.2011 371,750 Synergic Industrial
+ 3% Materials and
Services Pte Ltd
0189111FLU000151 07.12.2011 371,750 Synergic Industrial
+ 3% Materials and
Services Pte Ltd
0189111FLS000154 17.12.2011 371,750 Synergic Industrial
+ 3% Materials and
Services Pte Ltd
CS(OS) 745/2015 Page 2
0189112FLU000159 02.01.2012 371,750 Synergic Industrial
+ 3% Materials and
Services Pte Ltd
4. It is submitted that the said LCs were available for negotiation with
any bank in Malaysia and were governed by the rules framed by the
International Chamber of Commerce (ICC) being the rules contained in
Uniform Customs and Practice for Documentary Credits (UCP-600). By
virtue of these LCs which were irrevocable in nature, the plaintiff and the
defendant entered into a separate and independent contract wherein the
defendant i.e. AB had agreed to reimburse the Negotiating Bank i.e. the
Plaintiff/MBB the amount due at the maturity of the LCs subject to the
presentation of the documents in accordance with the terms of the LCs.
The seller submitted the documents to the plaintiff and the negotiating bank
i.e plaintiff/MBB forwarded them to AB and AB vide its Swift Message
dated 23.12.2011 for LC No. 0189111FLU000150 (hereinafter called as
'LC-50') and 16.01.2012 for LC No. 0189112FLU000159 (hereinafter
called as 'LC-59') confirmed the acceptance of the documents and
undertook to reimburse the said amount on the maturity dates i.e.
07.03.2012 and 06.04.2012 respectively. In respect of LC No.
0189111FLU000151 and LC No. 0189111FLS000154 (hereinafter called as
CS(OS) 745/2015 Page 3
'LC-51' and 'LC-54' respectively), AB did not point out any discrepancy in
the documents sent to them by MBB on receipt from seller, within five
banking days following the day of the presentation as required by Article
16 (d) of the UCP-600 and thus MBB considered it a deemed acceptance of
the documents in respect of these two LCs and released the payment under
these LCs. It was only vide message dated 31.01.2012 that AB informed
MBB that the buyer had informed them that he had not received the goods
dispatched as per the documents and had apprehended that the shipping
documents were fabricated. This message was duly replied. It is submitted
that MBB was not concerned with any dispute between the buyer and the
seller and they had to resolve it among themselves in view of the provisions
of UCP-600. The buyer i.e. M/s Millennium Wires Pvt. Ltd. along with
STC filed a suit CS (OS) 545 of 2012 before this court against AB and
others including MBB seeking injunction restraining the defendants from
making payment under LCs in question, on the plea that the goods were
never shipped by the seller and therefore MBB was not entitled to be
reimbursed in terms of LCs. An interim order of stay dated 02.03.2012 was
passed. MBB appeared and filed its written statement claiming vacation of
stay along with an application for rejection of the plaint and the court vide
CS(OS) 745/2015 Page 4
order dated 25.10.2013 dismissed the suit. The defendant AB in its written
statement in the said suit admitted its liability to reimburse the LCs amount
to MBB, the negotiating bank. The order dated 25.10.2013 was challenged
before the Division Bench separately vide RFA (OS) No.139/2013 &
142/2013 by M/s Millennium Wires Pvt. Ltd. and STC. The said two
appeals were also dismissed vide order dated 10.12.2013 and 17.12.2013.
M/s Millennium Wires Pvt. Ltd and STC filed their respective Special
Leave Petition No.9689/2014 and 11848/2014 wherein no stay was granted
by the Supreme Court.
5. It is contended that despite the stand taken by AB in the said suit, it
had failed to reimburse amount even despite several reminders. The
plaintiff again served a notice upon AB asking for the reimbursement. Vide
letter dated 16.01.2014, AB informed MBB that STC had approached the
RBI vide a representation and requested MBB to defer their action till the
RBI decides the representation. It is submitted that once a LC is issued by a
issuing bank, the issuing bank irrevocably undertake to honor the payment
if the documents presented on the face of them are in compliance with the
terms of LC irrespective of any dispute that may exist in relation to goods
or otherwise between buyer and the seller and the banks are not concerned
CS(OS) 745/2015 Page 5
with such dispute. Also AB had accepted the documents and undertook to
honor the payment on maturity and they cannot retract from their position.
On these facts, the plaintiff had alleged that AB is under irrevocable
obligation to reimburse the amount under LC-51, LC-50, LC-54 and LC-59
to the plaintiff. It was on these facts that the plaintiff has asked for a decree
for a sum of `11,00,04,972.03p. along with future and pendente lite interest
at the rate of 12 % per annum.
6. The case of AB in its application seeking leave to defend is that
MBB had concealed and suppressed the material facts and there exist
several triable issues. It is submitted that MBB is guilty of fraud committed
by it in connivance with seller i.e. Synergic Material Services PTE Limited,
Singapore and Synergic Industrial Material Services, Malaysia (collectively
referred to as "Synergy"). It is submitted that the copper wire had in fact
never been shipped and the compliance documents such as bill of lading,
survey reports etc. were forged and fabricated and so AB is not liable to
reimburse the LCs. It is submitted that AB is not bound by UCP-600. It is
however admitted by AB that four LCs No.0189111FLU000150,
0189111FLU000151, 0189111FLS000154 & 0189112FLU000159 were
issued by it at the instance of STC. It is submitted that STC received the
CS(OS) 745/2015 Page 6
documents of first shipment on 17.12.2011 for acceptance of the goods
which were shipped on 08.12.2011. These documents were presented by
the seller to MBB for payment who sent it to AB. STC conveyed its
acceptance on receiving the acceptance from M/s Millennium Wires Pvt.
Ltd and AB thereafter forwarded the acceptance to MBB, the actual
payment however was to be made after 07.03.2012. As regards the other
shipment STC also gave its acceptance for two more shipments after
receiving the acceptance from M/s Millennium Wires Pvt. Ltd. (the buyer).
However, the payment had to be made after 90 days i.e. on 30.03.2012 and
06.04.2012. The three shipment orders were made on 08.12.2011,
31.12.2011 and 07.01.2012 and goods had to reach India within 25 to 30
days after the date of shipment. When the goods did not reach India in time
enquiries were made by STC from the shipping company‟s local agent
namely M/s. Expo Freight Pvt. Ltd. having their local office at Ludhiana
and he advised STC to enquire from the exporter as they had not been able
to trace any container as per the shipment documents in India. The buyer
M/s Millennium Wires Pvt. Ltd vide letter dated 23.01.2012 intimated STC
that the exporter/seller i.e. Synergy had played fraud upon STC. STC on
enquiry from shipping company‟s agent in Malaysia namely Diffreight
CS(OS) 745/2015 Page 7
Agencies (M) Sdn. Bhd came to know that an FIR dated 27.02.2012 had
been filed in Malaysia against seller and that the documents submitted by
seller were forged and the containers through which the said shipment were
allegedly sent were not available at the port on the said dates. STC then
informed AB and also rejected the shipment documents in respect of LC-
54. AB then immediately contacted MBB asking them to stop the payments
against LC but learned that MBB had, in violation of the terms of LC
released the money before the expiry of 90 days and made the payment to
Mr. Rajeev Singh of Synergy (seller) against the same loan facility under
Offshore Foreign Currency Loan which was not part of LC transactions in
question. It is submitted that MBB even had released the payment towards
LC-54 despite the fact that documents were rejected by AB and these
conducts of MBB had showed that it is acting in active connivance with
Synergy (seller) and apparently played fraud and has cheated the buyer and
AB and STC and siphoned the money against the four LCs without
delivering the goods.
7. While it is not disputed that a suit CS (OS) 545/2012 was filed by
buyer and STC which was dismissed vide order dated 25.10.2013 as the
plaint was rejected, it is submitted that the plaint was rejected as there was
CS(OS) 745/2015 Page 8
no specific averment of fraud against MBB. It is admitted that the Division
Bench in appeals upheld the said order and the SLP filed before the
Supreme Court against the order of Division Bench of this Court was also
dismissed vide order dated 23.03.2015. It is, however, submitted that the
Supreme Court while dismissing SLP gave liberty to the petitioners therein
i.e. buyer and STC to pursue their remedies before appropriate forum which
has to decide such proceedings on merits without the said decision of the
Supreme Court standing in the way. It is submitted that the issue of fraud
cheating was thus left open to be adjudicated upon afresh. It is submitted
that the said decision of the Hon‟ble Supreme Court does not make the
defendant bank per se liable to make payment to the plaintiff. AB had also
vide its letter dated 23.05.2015 referred the matter to RBI, seeking specific
guidance with regard to the payment in question on the plea that such
payment would amount to violation of FEMA regulations and directions of
RBI are still awaited. A reference in this regard as also been made by STC
before RBI and the said reference is also pending before RBI. STC had
also filed a criminal complaint before the Director of Serious Fraud
Investigation Office (SFIO), Barakhamba Road Police Station against
Synergy and other persons and Mr.Rajeev Singh, MD of Synergy and
CS(OS) 745/2015 Page 9
complaint is registered under Diary No.24A dated 29.06.2015 and SFIO has
forwarded the complaint to Connaught Place Police Station. It is submitted
that Synergy, M/s Millennium Wires Pvt. Ltd and STC are necessary
parties and so suit is bad for non-joinder of necessary party. It is submitted
that the plaintiff has not acted with reasonable prudence and in a diligent
manner and thus not entitled to any money. It is submitted that following
triable issues arises in the present case:
(i) Whether the Civil Court has jurisdiction to entertain
the present suit considering the pendency of the
investigation before RBI and Police officials?
(ii) Whether the suit of the plaintiff is barred by law?
(iii) Whether the plaintiff has committed serious fraud
and irreparable injury would be caused to the parties if
the claims of the Plaintiff are allowed?
(iv) Whether the Plaintiff has acted against the mandate
of the Letters of Credit?
(v) Whether the Plaintiff has acted in an independent
capacity of a banker and not as an agent of the Defendant
bank?
(vi) Whether the Plaintiff ought to have acted in a prudent
manner and cannot take advantage of its own wrong?
(vii) Whether the defendant bank is liable to pay any
amount to the plaintiff?
CS(OS) 745/2015 Page 10
(viii) Whether the present suit is bad for concealment of
material facts from this Hon‟ble Court?
(ix) Whether the present suit is bad as the same cannot be
adjudicated without the impleadment and evidences of
necessary parties including STC, Synergy and
Millennium Wires?
(x) Any other relief?
The reliance is also placed on the findings in the cases of Standard
Chartered Bank (China) Limited Shenzhen Branch vs. State Bank of
Patiala & Ors 207 (2014) DLT 631 and Sunil Enterprises and Another vs.
SBI Commercial & International Bank Ltd. (1998) 5 SCC 354. On these
facts it is submitted that leave to defend be granted to the defendant.
8. MBB in its reply to the said application has reiterated its case in the
plaint. It is submitted that there is no triable issue in this case. It is
submitted that the stand/decision taken by AB in the present application is
contrary to position taken by AB in their written statement filed by them in
suit CS (OS) 545/2012 (hereinafter called as „the injunction suit‟) filed by
buyer and STC wherein AB had admitted its liability under LCs and
committed to reimburse the money to MBB. In written statement of the
injunction suit AB had admitted the acceptance of the documents and its
liability to make payment on the due date in terms of UCP-600. It is further
CS(OS) 745/2015 Page 11
submitted that the rejection by AB of the LC-54 is not in accordance with
Article 16 of the UCP-600 which fact is also noted by the learned Single
Judge in the said injunction suit. It is submitted that there is no FEMA
violation as far as MBB is concerned and AB has taken a false plea. It is
further submitted that the defendant‟s plea is moonshine and it has not been
able to raise any triable issue.
9. I have heard arguments and perused the relevant record.
10. The present suit has been filed by MBB under Order XXXVII of
CPC which provides a summary procedure. In a summary suit the
defendant is not entitled to defend the suit as in the ordinary suit except
with the permission of the court. It has to apply for leave to defend and
make out a substantial defence, based on which the court may grant
permission to defend the suit either unconditionally or on such terms as the
court deems just and proper. The principles for granting leave to defend
have been discussed extensively from time to time by the various courts
and the Supreme Court in the case of M/s Mechelec Engineers and Mfg.
vs. M/s Basic Equipment Corporation 1977 AIR 577 has enumerated the
principles governing the grant of leave in a summary suit as under:
"(a) If the Defendant satisfies the Court that he has a good
defence to the claim on its merits the plaintiff is not entitled
CS(OS) 745/2015 Page 12
to leave to sign judgment and the Defendant is entitled to
unconditional leave to defend.
(b) If the Defendant raises a triable issue indicating that he
has a fair or bona fide or reasonable defence although not a
positively good defence the plaintiff is not entitled to sign
judgment and the Defendant is entitled to unconditional
leave to defend.
(c) If the Defendant discloses such facts as may be deemed
sufficient to entitle him to defend, that is to say, although the
affidavit does not positively and immediately make it clear
that he has a defence, yet, shows such a state of facts as
leads to the inference that at the trial of the action he may
be able to establish a defence to the plaintiff's claim the
Plaintiff is not entitled to judgment and the Defendant is
entitled to leave to defend but in such a case the Court may
in its discretion impose conditions as to the time or mode of
trial but not as to payment into Court or furnishing security.
(d) If the Defendant has no defence or the defence set up is
illusory or sham or practically moonshine then ordinarily
the Plaintiff is entitled to leave to sign judgment and the
Defendant is not entitled to leave to defend.
(e) If the Defendant has no defence or the defence is illusory
or sham or practically moonshine then although ordinarily
the Plain- tiff is entitled to leave to sign judgment, the Court
may protect the Plaintiff by only allowing the defence to
proceed if the amount claimed is paid into Court or
otherwise se- cured and give leave to the Defendant on such
condition, and thereby show mercy to the Defendant by
enabling him to try to prove a defence".
11. Clearly the burden is upon the defendant to prima facie show to the
court that the defence taken by him is not illusory or shame or moonshine
but it has substantive defence which raises the triable issues.
CS(OS) 745/2015 Page 13
12. In this case the admitted facts are that four letters of credit i.e. LC-50,
LC-51, LC-54 and LC-59 were opened by STC through AB payable to
seller through MBB who is a negotiating bank. There exists a contract
between the parties to this suit under the four LCs. It is also an admitted
fact that MBB had forwarded the documents presented by the seller to AB
and AB had cleared the documents for LCs after consultation with STC and
the buyer. Though the documents in respect of one LC-54 were rejected but
the information of such rejection was not conveyed to MBB within the five
working banking days as contemplated under Article 16 (d) of UCP-600
and also in respect of LC-51 there was no information from AB within five
working days from the date of presentation of the documents. It is also an
admitted fact that MBB had made the payment against all the four LCs to
the beneficiary i.e. the seller. Admittedly, there was a prior litigation
between the parties i.e. M/s Millennium Wires Pvt. Ltd i.e. buyer and STC
on injunction filed CS (OS) 545/2012 against AB including MBB and
others i.e. the M/s Millennium Wires Pvt. Ltd. alleging that M/s
Millennium Wires Pvt. Ltd. was manufacturer of copper wire etc and that
STC an international trading house. The Shipping Agent/defendant no.5
who had issued Bill of lading, defendant no.6, the forwarder was the agent
CS(OS) 745/2015 Page 14
of defendant no.5. Defendants no.7 and 8 were the courier companies and
defendant no.9, the company in charge of carrying out the inspection of the
goods exported by seller and defendants no.10 and 11 were the marine
cargo insurance company and defendant no.12, the Government Port
authority monitoring inward and outward movement of the vessels. Buyer
and STC entered into an Associateship Agreement on 02.12.2011 for
import of cast copper wire rods. The LCs were opened by the STC through
defendant AB payable to the sellers through negotiating bank i.e. MBB. In
that case the buyer had alleged that it had received the documents showing
dispatch of the goods but the goods were not delivered by the seller and that
the seller had played fraud on them.
13. The buyer and STC admitted the receipt of the documents from seller
and its acceptance and conveyance of such acceptance to AB. In the said
suit an injunction was issued against AB from honoring said four LCs and
against MBB from making any payment under the said LCs. AB in its
written statement had taken the following stand:
(17)That in reply to para 17 of the plaint it is submitted that
after receiving from Plaintiff No.2 acceptance of the sets of
documents received from the Defendant No.4, the answering
Defendant No.1communicated the same to the Defendant
No.4 advising the due dates of payment in respect of the
following three LCs:
CS(OS) 745/2015 Page 15
a) 0189111FLU000150
b) 0189111FLS000154
c) 0189112FLU000159
(19) That in reply to para 19 of the plaint it is submitted that
consequent upon acceptance by the Plaintiff No.2. the
answering Defendant No.1, having advised acceptance of
the documents drawn under three of the aforesaid four
Letters of Credit, the answering Defendant No.1 is under
obligation to make payments on the due dates in terms of
the provisions of the Uniform Customs and Practice for
Documentary Credits (UCP-600). It is submitted that the
Plaintiff No.2 has to provide necessary funds to the
Defendant No.1 for making payments as aforesaid.
21. That in the contents of para 2 of the plaint needs
no reply from the answering Defendant No.1. It is submitted
that Banks deal only with documents and not goods
covered therein.
26.That in reply to para 26 of the plaint it is reiterated that
the answering Defendant No. 1 is under obligation, under
UCP -600 to make payment of the three sets of documents
accepted by the Plaintiff No.2 on their respective due
dates. It is submitted that the Plaintiff No. 2 is liable to
provide funds for the same. It is further submitted that the
Plaintiff No. 2, despite having not accepted, cannot refuse
payment of the Fourth LC on the ground of fraud when
there is no discrepancy in the documents and in such
circumstances the Plaintiff No.2 has to provide the funds
to the answering Defendant No.1 also for the Fourth LC.
The non-acceptance of documents by Plaintiff No.2 in such
circumstances is of no consequence. It is denied that in
such circumstances the answering Defendant No. 1 will be
solely liable, as alleged.
39. That para 39 of the Plaint does not relate to the
answering Defendant No.1 and such needs no reply from the
answering Defendant No.1. Further it is submitted that
CS(OS) 745/2015 Page 16
Banks assume no liability or responsibility arising out of
genuineness, falsification or legal effect etc. of any
document dealt with.
51. That in reply to para 51 of the Plaint it is denied that the
three LCs cannot be honoured by the answering Defendant
No.1. it is reiterated that the answering Defendant no. 1, is
under obligation under UCP-600 to make payment of the
documents on the respective due dates. Further it is
reiterated that under UCP -600 the Defendant No. 1 Bank
assumes no liability or responsibility arising out of
genuineness, falsification or legal effect etc. of any
document dealt with by it.
14. The Court in that suit has observed as under:
12. The LCs will be hereafter be referred to by the last three
digits of their respective numbers. The documents placed on
record reveal the following details in respect of each LC:
(i) LC No. 150, opened on 7th December 2011,
was negotiated by Defendant No. 4 with
Defendant No. 1 on 14th December 2011.
Acceptance of the same was conveyed by
Defendant No. 1 to Defendant No. 4 on 23rd
December 2011. The relevant bill of lading for
shipment of the goods was dated 8th December
2011. In respect of the said LC the payment has
been made by Defendant No. 4 to Defendant No.
(ii) As regards LC No. 151, it was opened on 7th
December 2011 and was negotiated by Defendant
No. 4 with Defendant No.1 on 12th December
2011. The relevant bill of lading is dated 9th
December 2011. Defendant No. 1 by its letter
dated 31st December 2011 conveyed to Defendant
No. 4 that it would not able to accept the LC In
respect of the said LC, the payment has already
CS(OS) 745/2015 Page 17
been made by Defendant No. 4 to Defendant No.
(iii) As regards LC No. 154, it was opened on
17th December 2011 and was negotiated by
Defendant No. 4 with Defendant No. 1` on 22nd
December 2011; the relevant bill of lading is
dated 31st December 2011; payment has already
against the said LC.
(iv) LC No. 159 was opened on 2nd January 2012
and negotiated by Defendant No. 4 with
Defendant No. 1 on 6th January 2012; acceptance
of the LC was conveyed by Defendant No. 1 on
16th January 2012 and the bill of lading is dated
7th January 2012.
13. It is stated that when the documents were received from
Defendant No. 1 with respect to LCs 150, 154 and 159, "the
Plaintiffs came to know that Defendant No. 2 company had
manufactured courier receipt to demonstrate export and
had falsely declared that fax message have been sent and
further fabricated other documents to prove exports." It is
further stated that documents received against LC No. 151
were rejected by Plaintiffs and duly communicated to
Defendant No. 1 on the basis of discrepancies. The
documents pertaining to LC No. 150 alleged to have been
sent by Defendant No. 2 to Plaintiff No. 2 on 8th December
2011 through courier and the documents pertaining to LC
No. 154 alleged to have been sent by courier on 31st
December 2011 were never received by Plaintiff No. 2 or by
Plaintiff No. 1. However, manufactured courier receipts
"pertaining to alleged dispatch were sent by Defendant No.
2 to Defendant No. 1 Bank." When Plaintiff No. 1 tried to
trace the said couriers through internet it found that no such
documents were in fact dispatched since the courier receipts
themselves were fabricated. It is stated that DHL informed
Plaintiff No. 2 that the shipment documents were in fact not
handed over to DHL Express, Malaysia. Likewise, in
respect of the documents pertaining to LC No. 159 the
CS(OS) 745/2015 Page 18
courier agency confirmed that the said documents did not
exist. On 23rd January 2012 Plaintiff No. 1 informed
Plaintiff No. 2 of the abovementioned fraud played by
Defendant No. 2.
15. There are numerous allegations of fraud against
Defendant No. 2. However, as regards Defendant No. 4 the
specific allegations are contained in para 17 wherein it is
averred that "the Plaintiffs apprehend that Defendant No. 4
Bank (which is the Negotiating/Beneficiary Bank) is in
active collusion with the Defendant Nos. 2 and 3".
30. The law in regard to the LCs can therefore, be
summarised as under:
(i) The Court should be slow in granting an order of
injunction restraining the realization of a bank
guarantee or a LC;
(ii) There are two exceptions to the above rule. The
first is that it must be clearly shown that fraud of an
egregious nature has been committed and to the
notice of the bank. The second is that injustice of the
kind which would make it impossible for the
guarantor to reimburse himself, or would result in
irretrievable harm or injustice to one of the parties
concerned, should have resulted.
(iii) It is not enough to allege fraud but there must
be clear evidence both as to the fact of fraud as well
as to the bank‟s knowledge of such fraud.
31. In the present case, as noted hereinbefore, the
allegations against Defendant No. 4 are in paras 17 and 47
of the plaint. The allegation in para 17 is only that the
Plaintiffs apprehend that Defendant No. 4 Bank "is in active
collusion with Defendant Nos. 2 and 3." In para 47, the
allegation is that Defendant No. 4 "has also wrongly
negotiated with the Defendant No. 2 without correctly
verifying the documents giving rise to suspicion, that it is
hands in glove with Defendant No. 2"
37. In the present case, it is seen that as regards LC No. 159
Defendant No. 1 confirmed the acceptance of the
documents. Therefore, Defendant No. 4 cannot be faulted
CS(OS) 745/2015 Page 19
for making payment against the said LCs to Defendant No.
2. It cannot be said that Defendant No. 4 had no prior
permission to make payment to Defendant No. 2. As regards
two of the LCs i.e., Nos. 151 and 154, there was no response
from Defendant No. 1 within a period of five days after the
said LCs were presented for payment by Defendant No. 4.
As already pointed out, the refusal to honour the LCs came
beyond the period of five days after negotiation. In terms of
UCP-600, Defendant No. 1 refuses payment when the non-
acceptance is communicated beyond the period of five days.
As regards LC No. 150, Defendant No.1 conveyed its
acceptance of the documents on 23rd December 2011. In
any event, since it was beyond the period of five days after
negotiation.
38. Viewed from any angle, there is nothing on record to
show that Defendant No. 4 had any knowledge of fraud
alleged to have been claimed by Defendant No. 2 on the
Plaintiffs before it made payment to it. As already pointed
out, the mere repetition of the allegation that Defendant
No.4 is in collusion with Defendant Nos. 2 and 3 is not
sufficient to give rise to a cause of action against Defendant
No.4 for the grant of injunction relief.
39. For the aforesaid reasons, the Court is satisfied that the
plaint does not disclose any cause of action for the grant of
reliefs as prayed for by the Plaintiffs and against Defendant
Nos. 1 and 4. As regards Defendants 2 and 3, Plaintiffs have
to pursue other remedies that are available to them in
accordance with law since in any event the issues (b) and
(c) have been rendered infructuous even prior to the filing
of the suit.
15. The STC and M/s Millennium Wires Pvt. Ltd approached the
division bench vide separate appeals. The division bench passed an order
dated 10.12.2013 in RFA (OS) No.139/2013 of STC. The relevant
paragraphs of the order in appeal are reproduced as under:
CS(OS) 745/2015 Page 20
10. Contrary to this, STC had argued that with respect to
LCs 150, 154 and 159, "the plaintiffs (i.e. STC and MWPL)
came to know that the Defendant No. 2 company had
manufactured courier receipt to demonstrate export and
had falsely declared that fax message have been sent and
further fabricated other documents to prove exports". With
respect to LC 151, STC had argued that the documents
received were duly rejected and this fact was communicated
to Allahabad Bank.
11. In this context, Allahabad Bank‟s stand was that "after
receiving from Plaintiff No. 2 acceptance of the sets of
documents received from the Defendant No.4, the answering
Defendant No.1 communicated the same to the Defendant
No. 4 advising the due dates of payment in respect of the
following three LCs: (a) 0189111FLU000150 (b)
0189111FLS000154 (c) 0189112FLU000159." Thus, the
Allahabad Bank confirms that with respect to these 3 LCs,
at the least, complying presentation was made, and that
acceptance from STC (and Millennium) was made.
12. The foreign bank contended that in terms of UCP-600
once the LC stands paid by the negotiating bank, it is an
irrevocable undertaking of the issuing bank to make the
payment especially when it has accepted the documents and
agreed to pay on the date of maturity. It is stated that there
is no allegation of fraud against Allahabad Bank, the
Synergic Companies and the foreign bank, the plaint had to
be rejected. The foreign bank also relied on the judgment of
the Supreme Court in United Commercial Bank v. Bank of
India, (1981) 2 SCC 766. It stated that payments were made
by it (the foreign bank) to Allahabad Bank without any
knowledge of fraud and therefore, Allahabad Bank was
obliged to honour its commitment under each of the LCs in
terms of UCP-600. As regards LCs 150, 154 and 159, the
foreign bank, in line with the stand of Allahabad Bank,
maintains that the documents were accepted by STC, and
thus, no dispute arises in that regard. As regards LC 151,
the foreign bank argues that, again, notice under Article 16
of UCP-600 was made, such that payment under the LC
CS(OS) 745/2015 Page 21
could be injuncted within the framework of UCP-600, which
is argued to regulate the entire LC transaction, as opposed
to the contractual relations between STC/Millennium and
the Synergic companies.
13. The foreign bank also sought vacation of the interim
stay granted by the order dated 2nd March 2012. Reliance
was placed upon Articles 4, 5, 15 and 16 of UCP-600 to
argue that the underlying contract is independent of the
letter of credit, which constitutes a distinct agreement to pay
upon complying presentation in terms of UCP-600.
Specifically, it was argued that once the documents required
to release the payment under the LC have been presented,
and are in compliance with the requirements under the
terms of the LC, then the bank is under an obligation to
make the payment irrespective of the views of the purchaser,
as any dispute that the latter may have against the seller is
to be raised inter se in alternate proceedings. Thus, it was
argued that "as there is no discrepancy in the documents ...
non acceptance of documents by Plaintiff No.2, in such
circumstances, is of no consequence."
19. The bank‟s obligation, in this case of the foreign bank, is
to honour the LC, and in the words of the Court,
"if the seller prima facie complies with the terms
of the Bank Guarantee or Letter or Credit,
namely, if the seller products the documents
enumerated in the Bank Guarantee or Letter of
Credit. If the Bank if satisfied on the face of the
documents that they are in conformity with the list
of documents mentioned in the Bank Guarantee or
Letter of Credit and there is no discrepancy, it is
bound to honour the demand of the seller for
encashment."
20. This obligation is not affected merely because the buyer
disputes the due performance of the contract. The obligation
is unaffected, as long as the documents presented are in
accordance with the terms of the LC. That is the essence of
the documentary autonomy of the LC. In this case, the
CS(OS) 745/2015 Page 22
documents presented for LCs 150, 154 and 156 were in
order, and this was never disputed by STC or Millennium.
Quite to the contrary, STC admitted to having conveyed its
acceptance with respect to these three LCs to Allahabad
Bank. As regards LC 151, the foreign bank‟s position is
that the documents complied with the requirements under
the LC, and, the obligation therefore, to pay was triggered.
Here, Article 16, UCP-600 is crucial, which reads as
follows:
"Discrepant Documents, Waiver and Notice:
(a) When a nominated bank acting on its
nomination, a confirming bank, if any, or the issuing
bank determines that a presentation does not
comply, it may refuse to honour or negotiate.
(b) When an issuing bank determines that a
presentation does not comply, it may in its sole
judgement approach the applicant for a waiver of
the discrepancies. This does not, however, extend
the period mentioned in sub-article 14 (b).
(c) When a nominated bank acting on its
nomination, a confirming bank, if any, or the issuing
bank decides to refuse to honour or negotiate, it
must give a single notice to that effect to the
presenter.
The notice must state:
(1) that the bank is refusing to honour or negotiate;
and
(2) each discrepancy in respect of which the bank
refuses to honour or negotiate; and
(3) (a) that the bank is holding the documents
pending further instructions from the presenter; or
(b) that the issuing bank is holding the documents
until it receives a waiver from the applicant and
agrees to accept it, or receives further instructions
from the presenter prior to agreeing to accept a
waiver; or
(c) that the bank is returning the documents; or
CS(OS) 745/2015 Page 23
(d) that the bank is acting in accordance with
instructions previously received from the presenter.
(d) The notice required in sub-article 16 (c) must be
given by telecommunication or, if that is not
possible, by other expeditious means no later than
the close of the fifth banking day following the day
of presentation.
(e) A nominated bank acting on its nomination, a
confirming bank, if any, or the issuing bank may,
after providing notice required by sub-article 16 (c)
(iii) (a) or (b), return the documents to the presenter
at any time.
(f) If an issuing bank or a confirming bank fails to
act in accordance with the provisions of this article,
it shall be precluded from claiming that the
documents do not constitute a complying
presentation.
(g) When an issuing bank refuses to honour or a
confirming bank refuses to honour or negotiate and
has given notice to that effect in accordance with
this article, it shall then be entitled to claim a
refund, with interest, of any reimbursement made."
21. Article 16(f), therefore, casts a responsibility on the
issuing and confirming banks to be diligent in following the
provisions of Article 16, failing which the documents would
be deemed to constitute complying performance for the
purpose of releasing payment under the LC, with or without
the waiver from the buyer. Crucially, the decision as to
whether the documents constitute complying presentation is
solely that of the issuing bank (i.e. its "sole judgment", in
terms of the sub-clause (b), in this case, Allahabad Bank),
which may, in case a discrepancy in the documents is found,
approach the buyer for a waiver. However, in a case where
the issuing bank does decide that the documents do not meet
the compliance requirements under the LC, in terms of
clause (c), such notice must be given "no later than the
CS(OS) 745/2015 Page 24
close of the fifth banking day following the day of
presentation."
22. Thus, in case the payment under the LC is to be
injuncted, a notice under Section 16 is mandatory, within
the terms of that article. In this case, as regards LCs 150,
154 and 159, the documents were accepted by Allahabad
Bank, and no notice was given under Section 16, thus
rendering payment under those LCs by the foreign bank
proper. As regards LC 151, the only LC as regards which
STC/Millennium claim to have rejected the documents, two
points are important: first, that under Article 16, UCP, it is
the sole judgment of Allahabad Bank to determine whether
the documents constitute a complying presentation, and if
that bank does so determine, the non-acceptance by the
buyer (STC/Millennium) is not determinative. However, if
Allahabad Bank were to determine that the documents do
not constitute complying presentation, the same could be
waived by STC/Millennium. In this case, however, as
regards LCs 150, 154 and 159, no such question arose;
whereas with regard to LC 151, the refusal to honour the
LC by Allahabad Bank (after receiving notice of non-
acceptance by STC) came after 5 days from presentation of
the LC by the foreign bank. In such a case, the terms of
Article 16(d), read with 16(f), are clear, in that payment
under the LC subsequently by the foreign bank cannot be
objected to.
16. The RFA (OS) No.139/2013 was also dismissed in terms of order
dated 10.12.2013 in RFA No. 142/2013. These orders were challenged by
STC and M/s Millennium Wires Pvt. Ltd, before the Supreme Court. The
Supreme Court vide its order dated 23.03.2015 dismissed the appeals. The
relevant paragraphs are extracted as under:
CS(OS) 745/2015 Page 25
8. The major contention of the appellants herein is that the
High Court has committed grave error in dismissing the suit
under Order VII Rule 11 as it acted against the settled
principles of procedure with respect to application under
Order VII Rule 11. According to the appellants, in such an
application, the Court ought to have looked into the
averments contained in the plaint only and it cannot look
into the written statement or any other evidence filed by the
Defendant. The Plaintiffs/appellants have, inter alia, relied
on Saleem Bhai v. State of Maharashtra, (2003) 1 SCC 557,
Popat Kotecha Property v. State Bank of India Association,
(2005) 7 SCC 510, and Sopan Sukhdeo Sable v. Asst.
Charity Commissioner, (2004) 3 SCC 137.
10. Nothing in the plaint except the above two extracts even
come close to being an allegation against the Negotiating
Banks. In the above two extracts, there is expression of mere
apprehension of the Plaintiffs that Negotiating Banks were
in active collusion with the Synergic Companies. No
explanation or justification has been made in the plaint as
to how this active collusion came about or what makes the
plaintiff suspect so. It is true that in the plaint not all the
evidence with respect to allegations is to be adduced
however, a comprehensive narration of facts that constitute
cause of action has to be given in the plaint. It is plain and
clear that no cause of action, whatsoever, may be deduced
against the Negotiating Bank from the above two extracts
which form part of the plaint.
14. Furthermore, it appears that the Malayn Bank had
forwarded the documents presented by the Synergic
Companies to the Allahabad Bank. Out of four Letters of
Credit, Allahabad Bank had accepted the presentation of
documents in two Letters of Credit with the consultation of
the STC. Only one of the presentation was rejected while
there is no information with respect to the response of the
Allahabad Bank on presentation of documents of the fourth
Letter of Credit. Even on the Letter of Credit for which the
presentation was rejected, the response was made after 19
days while UPC-600 provides that rejection or any
CS(OS) 745/2015 Page 26
objection against the presentation must be communicated to
the negotiating bank of the beneficiary within 5 days.
15. In the circumstances as narrated above and in light of
the settled law on the point of injunction against the banks
to honour their guarantees, we are of the view that these
appeals are to be dismissed and accordingly appeals are
dismissed.
16. Before we part with, it would be most appropriate for us
to point out that the appellants can pursue their remedies
against the Synergic Companies in appropriate forum by
instituting appropriate proceedings, if so advised. However,
we make it clear that the opinion expressed by us in this
judgment shall not stand in the way of deciding such
proceedings on merits.
17. In view of the above facts, it is apparent that in the earlier suit AB
had clearly admitted its liability to make the payment under four LCs
honouring the terms and conditions of those four LCs and following the
procedure laid down in UCP-600. It is apparent that fraud by the seller was
the plea raised in the earlier suit by the buyer and the STC and based on
this plea the injunction was sought qua these four LCs whereby MBB and
AB were sought to be injuncted from releasing the money under the four
LCs. The court, however, rejected the claim of the buyers i.e. Millennium
Wires Pvt. Ltd and STC and the injunction was refused and this order was
confirmed by the Supreme Court in SLP. It is argued on behalf of AB that
the Apex court had given permission to pursue the remedies in appropriate
forum by instituting appropriate proceedings on the plea of fraud being
CS(OS) 745/2015 Page 27
played by the buyer upon the seller and so this court should grant them
leave to defend the suit. It is however argued by the learned counsel for
MBB that the permission to institute a fresh suit on the plea of fraud was in
fact given by the Supreme Court to the plaintiffs in that suit i.e. Millennium
Wires Pvt. Ltd and STC and no permission was given to AB. It is
submitted that AB cannot come before this court taking the plea of fraud
allegedly played by buyer upon the seller because the contract between AB
and MBB is an independent contract and at no stage AB had taken the
stand that MBB had violated any terms and conditions of the said contract.
Learned counsel for MBB has argued that the law relating to letters of
credit is founded on principles of autonomy of the credit and doctrine of
strict compliance and has also relied on the findings of the Supreme Court
in UBS AG vs. State Bank of Patiala (2006) 5 SCC 416 and has
particularly referred to paragraphs 22 & 35 of the said order which are
reproduced as under:
"22. The main contention raised on behalf of the appellant
Bank is that since it had no knowledge of any fraud
perpetrated by the constituent of the respondent Bank before
making payment under the letter of credit in question, the
respondent Bank could not refuse to reimburse the appellant
Bank of payments already made to the beneficiary under the
letter of credit before such intimation was received. It was
also the case of the appellant Bank that since it had no
CS(OS) 745/2015 Page 28
knowledge of the fraud said to have been committed with
regard to the bills of lading and the letter of credit itself, it
negotiated documents presented before it by the beneficiary
and made payment accordingly as per the instructions of the
respondent Bank.
35. The facts of these three appeals are clear and simple.
The letters of credit were issued by the issuing bank to the
confirming bank with a request to inform the beneficiary
that an irrevocable letter of credit had been established for
the sum indicated therein to be paid by the appellant Bank
on negotiation of documents to be presented by the
beneficiary. Such documents having been presented by the
beneficiary to the appellant Bank, it made payment under
the letter of credit to the beneficiary and was entitled to
receive reimbursement for the same from the respondent
Bank. If the fraud had been detected earlier and the
appellant Bank had been informed of such fraud and put on
caution prior to making payment, the respondent Bank may
have had a triable issue to go to trial. That is not so in these
three cases. In these cases, the fraud was detected after the
letters of credit had been negotiated and hence such fraud
alleged to have been committed by the constituent of the
respondent Bank cannot be set up even as a plausible
defence in the suit filed by the appellant Bank."
18. The Supreme Court has clearly held in UBS AG's case (supra) that
when a bank makes the payment following the contract between the
negotiating bank and the beneficiary bank and any fraud subsequently
detected cannot be set up as a defence in a suit filed for reimbursement of
such payment by negotiating bank. In the averment in written statement of
in suit No.545/2012, AB had clearly admitted the fact that it had cleared the
CS(OS) 745/2015 Page 29
documents received from MBB after obtaining the green signal from STC
and it was based on this clearance by AB that MBB had made the payment.
In its written statement AB had claimed reimbursement from STC as it was
STC who had opened the LC with AB. The Supreme Court had also in the
case of United Commercial Bank vs. Bank of India and Others (1981) 2
SSC 766 clearly held that the paying bank must strictly adhere to the terms
of credit letter and it is not concerned with the sale contract. It is a settled
preposition of law that the obligation of the bank is absolute. In the case of
I.T.C. Limited vs. Debt Recovery Appellate Tribunal & Others (1998) 2
SCC 70, the court has clearly held as under:
"15. The principles regarding the payment of amounts
covered by bank guarantees or irrevocable Letters of Credit
are fairly well settled. They have been discussed in detail in
several cases and there is an exhaustive discussion of the
principles in U.P. Coop. Federation Ltd. v. Singh
Consultants & Engineers (P) Ltd. [(1988) 1 SCC 174]
Reference was also made by the learned counsel before us
to the judgment of the Calcutta High Court in United
Commercial Bank v. Hanuman Synthetics Ltd. [AIR 1985
Cal 96] (to which one of us, Suhas C. Sen, J. was a party). It
will be noticed that the above cases do say that the bank has
to honour the bank guarantee or Letter of Credit subject of
course to the cases of two exceptions where there was fraud
or irretrievable injury. In the present case, the contention
for the Bank is based on fraud or misrepresentation by the
appellant. That is stated to be the cause of action in the
plaint.
CS(OS) 745/2015 Page 30
17. It is now well settled that the question whether goods
were supplied by the appellant or not is not for the Bank.
This point has already been decided by the decision of this
Court in U.P. Coop. Federation case [(1988) 1 SCC 174]
referred to above. In that case it was stated (at p. 193) by
Jagannatha Shetty, J. as follows: (SCC para 45)
"The bank must pay if the documents are in order and
the terms of credit are satisfied. The bank, however, was not
allowed to determine whether the seller had actually
shipped the goods or whether the goods conformed to the
requirements of the contract. Any dispute between the buyer
and the seller must be settled between themselves. The
courts, however, carved out an exception to this rule of
absolute independence. The courts held that if there has
been „fraud in the transaction‟ the bank could dishonour
beneficiary's demand for payment. The courts have
generally permitted dishonour only on the fraud of the
beneficiary, not the fraud of somebody else."
(emphasis supplied)
It will be noticed from the italicised underlined portion in
the above passage that there will be no cause of action in
favour of the bank in cases where the seller has not shipped
the goods or where the goods have not conformed to the
requirements of the contract. The Bank, in the present case
before us, could not, by merely stating that there was non-
supply of goods by the appellant, use the words "fraud or
misrepresentation" for purposes of coming under the
exception. The dispute as to non-supply of goods was a
matter between the seller and buyer and did not, as stated in
the above decision, provide any cause of action for the Bank
against the seller.
23. In the result we hold that an allegation of non-supply of
goods by the sellers to the buyers did not by itself amount,
in law, to a plea of "fraud" as understood in this branch of
the law and hence by merely characterising alleged non-
movement of goods as "fraud", the Bank cannot claim that
there was a cause of action based on fraud or
CS(OS) 745/2015 Page 31
misrepresentation. Nor is the case before us one where
there is an allegation of presentation of forged or fraudulent
documents."
19. The Supreme Court in the case Federal Bank Limited vs. V. M. Jog
Engineering Ltd. and Others 2001 (1) SCC 663 has clearly held that the
court should not issue injunctions restraining encashment of the bank
guarantee or letter of credit on the ground of breach of the main contract
between the buyer and the seller as the contract of the bank guarantee or
letter of credit is independent of the main contract and the only exception is
fraud. As regards the fraud it is necessary to prove that the bank had
knowledge about it. The court has categorically stated as under:
"65. Summarising, we hold that when the plaintiff buyer has
no case that the appellant Negotiating Bank had any
knowledge of fraud, and when it took precaution in getting
clearance for the document from the Issuing Bank on 20-3-
1998 and such clearance was given on 23-3-1998 by the
latter, it was not open to the Issuing Bank to contend that on
fresh scrutiny in May 1998 it found that the documents were
not in conformity with the letters of credit or that the buyer
had so informed them. Prima facie, the appellant was in the
position of a holder in due course. Points 2 and 3 are
decided in favour of the appellant."
20. In this case AB had at no stage before filing of the application for
leave to defend had raised the plea that MBB was having the knowledge of
fraud allegedly played by the seller at the time when the money was
CS(OS) 745/2015 Page 32
released under the LC to the seller. Mere allegation in the application for
leave to defend that MBB had acted in connivance with the seller without
disclosing any facts to infer such conspiracy or fraud, is not sufficient for
grant of leave to defend. AB had admitted that MBB released the money in
respect of two LCs only after the nod to do that, was given by AB. As soon
as the documents were confirmed by AB, MBB was under obligation to
clear the payment and accordingly it did. Contention of AB that the time
for payment was 90 days under the LC has no bearing because the liability
to pay was crystallized on the day AB conveyed the acceptance of the
document to MBB and the period of 90 days was only that MBB had to
make the payment within 90 days. The covenant does not say that payment
was to be made only on expiry of 90 days. AB had failed to convince the
court that MBB was to clear the payment only on expiry of 90 days period
from the date the documents were accepted. It is also admitted fact that the
rejection of documents qua LC-54 was conveyed to MBB only after expiry
of five working days as contemplated in UCP-600. Also no communication
was sent to MBB by AB regarding acceptance or rejection of the
documents relating to LC-51 within the stipulated period under Article 16
(d) of UCP-600. The rejection of the documents must be conveyed no later
CS(OS) 745/2015 Page 33
than the close of the five working days of bank following the day of
presentation of the documents. MBB had acted as per the terms of LC and
there is nothing on record to show that it had acted dishonestly or
fraudulently.
21. Learned counsel for AB has relied on Standard Chartered Bank
(supra) and has submitted that in the said case on the same facts, the court
had granted leave to defend. The facts in this case are however different
from the facts in the present case. The suit was filed by Standard Chartered
Bank against defendants no.1, 2 and 3 i.e. State Bank of Patiala who had
issued the standby letter of credit (in short SBLC) in favour of plaintiff
bank and defendant no. 3 was the seller of the goods to defendant no.2 who
was the buyer. This SBLC was issued at the instance of defendant no.2 and
which was also extended twice. It was when defendant no.3 did not pay for
the banking facility extended by Standard Chartered Bank that the Standard
Chartered Bank invoked the SBLC and submitted the bill of exchange.
State Bank of Patiala defendant no.1 although by one swift message agreed
to pay to the plaintiff, however subsequently it refused to make the
payment on the ground that the claim of the Standard Chartered Bank was
incomplete as per SBLC terms. Defendant no.3 therein admitted the breach
CS(OS) 745/2015 Page 34
of contract with defendant no.2 and in view thereof the defendant no.1 had
stopped the payment to be made pursuant to SBLC. Defendant no.2, the
seller instituted a suit for mandatory injunction against State Bank of
Patiala wherein the State Bank of Patiala made a statement that they were
not going to make any payments to the plaintiff. The said suit was
dismissed. In that case the contentions of defendants no.1 and 2 i.e. State
Bank of Patiala and the seller that fraud had been played on defendant no.2
since defendant no.3 did not deliver the goods, the SBLC in favour of
plaintiff is not required to be honoured. It was on these facts that the court
observed as under:
8. The principal contention of Defendant Nos. 1 and 2 is
that fraud has been played on Defendant No. 2 and since
Defendant No. 3 did not deliver the goods to Defendant No.
2 the SBLC in favour of the Plaintiff is not required to be
honored. There is no doubt that normally a letter of credit is
an independent contract from the contract between the
parties. However, if the contract between the parties itself is
vitiated by fraud, the same would vitiate the entire
transaction. The exception for fraud on the part of the
beneficiary seeking to avail the credit is a clear application
to the maxim "ex trupi cause non oriture", that is, "fraud
unravels all', and the courts will not be party to the fraud
played by a dishonest person. The system of confirmed
irrevocable documentary credits that has developed in
international trade, was to give the seller of goods an
assurance of payment before he parts with the goods.
However, the bank's duty to the seller is only vitiated if
there is fraud on the part of the seller and not if there is a
CS(OS) 745/2015 Page 35
discrepancy in goods supplied. In U.P. Cooperative
Federation Ltd. vs. Singh Consultants and Engineer (P)
Ltd., : 1988 (1) SCC 174 their Lordships held:
24. I may notice that in India, the trend of law is on the
same line. In the case of Texmaco Ltd. v. State Bank of
India: AIR 1979 Cal 44] one of us (Sabyasachi
Mukharji, J.) held that in the absence of special
equities arising from a particular situation which
might entitle the party on whose behalf guarantee is
given to an injunction restraining the bank in
performance of bank guarantee and in the absence of
any clear fraud, the bank must pay to the party in
whose favour guarantee is given on demand, if so
stipulated, and whether the terms are such have to be
found out from the performance guarantee as such.
There the court held that where though the guarantee
was given for the performance by the party on whose
behalf guarantee was given, in an orderly manner its
contractual obligation, the obligation was undertaken
by the bank to repay the amount on "first demand" and
"without contestation, demur or protest and without
reference to such party and without questioning the
legal relationship subsisting between the party in
whose favour guarantee was given and the party on
whose behalf guarantee was given", and the guarantee
also stipulated that the bank should forthwith pay the
amount due "notwithstanding any dispute between the
parties", it must be deemed that the moment a demand
was made without protest and contestation, the bank
had obliged itself to pay irrespective of any dispute as
to whether there had been performance in an orderly
manner of the contractual obligation by the party.
Consequently, in such a case, the party on whose
behalf guarantee was given was not entitled to an
injunction restraining the bank in performance of its
guarantee. It appears that special equities mentioned
therein may be a situation where the injunction was
sought for to prevent injustice which was irretrievable
CS(OS) 745/2015 Page 36
in the words of Lord Justice Danckwerts [Vide
Corrigendum No. F.3/Ed BJ/43 dated 8-9-88] in Elian
and Rabbath v. Matsas and Matsas [(1966) 2 LLLR
495].
9. This Court in National Highways Authority of India Vs.
Elsamex-TWS-SNC Joint Venture,: 150 (2008) DLT 215
held that if prima face case is made out that an element of
fraud exists on the part of the beneficiary or if there exists a
special equity in the form of preventing irretrievable
injustice then alone an injunction may be issued. Further,
fraud has to be of an egregious nature and not a dispute
that goods supplied are not as per contract. Considering the
fact that the Defendants have clearly made out a case of
fraud of an egregious nature wherein no goods have been
supplied at all, I am of the considered opinion that it is a fit
case where leave to defend is required to be granted to
Defendants No. 1 and 2.
In that case following the said principle the court had observed that
the defendants had clearly made out a case of egregious nature wherein no
goods have been supplied at all. In this case however MBB had already
released the money under the LC in the circumstances mentioned above. In
the present case however it is apparent that MBB had acted bonafidely. In
the earlier suit AB had clearly in its written statement admitted his liability
of payment under four LCs in terms of provisions UCP-600. Also in para
21 of its written statement AB had clearly stated "that the banks only deal
with the documents and not goods covered therein". Also there is a finding
in the judgment dated 28.10.2013 where this court in the earlier litigation
CS(OS) 745/2015 Page 37
has clearly held in para 38 as reproduced above that viewing from any
angle there is nothing on record to show that defendant no. 4 (MBB) had
any knowledge about the fraud and further held that the allegations were
not sufficient to give rise to a cause of action against defendant no. 4
(MBB).
22. The findings in Sunil Enterprises's case (Supra) are on different
facts. In that case, on the facts of the case the Court was satisfied that there
was an element of fraud and so the leave to defend was granted. However,
in this case, the issue of fraud being played by MBB already stands
determined by order of this Court dated 28.10.2013 which was confirmed
by Supreme Court as discussed above. Therefore, even if there was any
fraud being played by the seller, it stands finally determined that MBB had
no knowledge of it. It seems that AB is contesting the case of the buyer and
the STC whose claim for injunction had failed in the earlier suit against AB
as well as MBB on the plea of fraud being played by the seller in
connivance with MBB. The defendant AB is bound to honour the terms
and conditions of the LC which is an independent to the agreement
between the buyer and the seller. In this regard, the following observation
CS(OS) 745/2015 Page 38
of the Court in R.D.Harbottle (Mercantile) Ltd. vs. National Westminster
Bank, (1977) 3 WLR 752 is sufficient to resolve the controversy:
"Banks must be allowed to honour their guarantees
without interference except in clear cases of notice of fraud
to the bank. The merchants take risk which are not to be
imposed on the banks. Such interference will deter trust in
international commerce."
23. From the above, it is apparent that the allegation of fraud on the part
of MBB is merely a bald allegation not supported by any facts on record.
The defendant AB has failed to bring on record any triable issue or any
issue which needs enquiry and investigation. The application for leave to
defend is, therefore, rejected and the present suit of the plaintiff/MBB is
hereby decreed for a sum of `11,00,04,972.03p. along with pendente lite
and future simple interest till its realization at the rate of 9% per annum in
terms of Section 34 of the Code of Civil Procedure. Decree sheet be
prepared. No orders as to cost.
DEEPA SHARMA
(JUDGE)
JANUARY 20, 2017
rb
CS(OS) 745/2015 Page 39
