Delhi High Court
Multitex Filteration Engineers ... vs Idbi Bank Limited & Others on 15 September, 2022
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on : 8th September, 2022
Judgment Delivered on : 15th September, 2022
+ CS(OS) 2944/2015
MULTITEX FILTERATION
ENGINEERS LIMITED ..... Plaintiff
Through: Mr. Arun Kumar Varma, Senior
Advocate with Mr. Abhay Raj
Varma, Ms. Vidhi Jain and Mr.
Arjun, Advocates
versus
IDBI BANK LIMITED & OTHERS ..... Defendants
Through: Mr. Sanjay Bajaj, Mr. Urwick Hansa,
Advocates for defendants No.1 and 2
CORAM:
HON'BLE MR. JUSTICE AMIT BANSAL
JUDGMENT
AMIT BANSAL, J.
I.A. 4310/2016 (by the defendants no.1 and 2 for leave to defend)
1. By way of the present judgment, I propose to decide the application
filed on behalf of the defendants no.1 and 2 for grant of leave to defend the
suit.
2. The present suit has been filed under the provisions of Order XXXVII
of the Code of Civil Procedure, 1908 (CPC) as a summary suit seeking
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recovery of Rs.1,08,59,472/- along with interest at the rate of 24% per
annum.
3. In the plaint, it has been pleaded that:
(i) Plaintiff is a small-scale industry registered with National Small
Industries Corporation (NSIC).
(ii) Plaintiff is a service provider of all type of design, engineering and
manufacturing services to the filtration and separation industry and is
a supplier of filtration equipment for oil, gas and power projects.
(iii) Plaintiff entered into an agreement with the defendant no.3 for
supplying Fuel Gas Conditioning Systems and Water Bath Heaters.
(iv) Pursuant to the aforesaid agreement, upon the request of the
defendant no.3, an irrevocable Letter of Credit (L/C) bearing
no.110379ILCU00048 was issued in favour of the plaintiff by the
defendant no.2 on 17th October, 2011 for a sum of Rs.2,91,89,198/-.
(v) In the said L/C, the advising bank was Canara Bank, New Delhi.
(vi) Pursuant to a purchase order from the defendant no.3, the plaintiff
dispatched certain materials to the defendant no.3 under two separate
invoices dated 4th February, 2012. The material was duly received by
the defendant no.3 and the amount payable against the said invoices
was Rs.1,02,75,660/-.
(vii) Plaintiff submitted relevant documents for collection of payment
against the aforesaid L/C to its banker, Canara Bank, on 8th February,
2012.
(viii) On 13th February, 2012, the said documents were submitted by
Canara Bank to the defendant no.2.
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(ix) Defendant no.2 vide its communication dated 25th February, 2012 to
Canara Bank refused to accept the aforesaid documents.
(x) The defendant no.3 wrote a letter dated 28th February, 2012 to the
defendant no.2, referencing the letter dated 25th February, 2012 and
accepting the documents sent to the defendant no.2 and confirming
the debit of Rs.1,08,59,472/-.
(xi) Despite the letter from the defendant no.3 waiving the discrepancy in
the documents, the defendant no.2 failed to make payment under the
L/C.
(xii) Plaintiff filed a complaint against the defendants no. 1 and 2 under the
Reserve Bank of India Banking Ombudsman Scheme, 2006 on 20th
September, 2013. However, the said complaint was rejected on 8th
October, 2013.
(xiii) Legal Notice dated 27th August, 2015 was sent by the plaintiff, calling
upon the defendants to pay the amount of Rs.1,08,59,472/- along with
interest whereagainst no response was received by the plaintiff.
(xiv) Upon the failure of the defendants to pay the amounts under the L/C,
the present summary suit under Order XXXII of the CPC was filed
for recovery of the aforesaid amount.
4. Summons in the suit were issued on 12th October, 2015. Thereafter,
the defendants no.1 and 2 entered appearance and filed the present leave to
defend application under Order XXXVII Rule 3(5) of the CPC. Reply to the
application has been filed on behalf of the plaintiff and rejoinder thereto,
filed by the plaintiff, is also on record.
5. The main grounds for seeking leave to defend taken in the application
are as follows:
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(i) This Court lacks the territorial jurisdiction to try the present suit. The
L/C was issued by the defendant no.2, IDBI Bank branch in
Bhubaneswar, and all communications between the plaintiff and the
defendant no.2 with regard to the L/C were between the plaintiff and
the defendant no.2. Therefore, no cause of action has arisen within
the territorial jurisdiction of this Court.
(ii) The present suit is barred by limitation. In the present case, the L/C
in terms of which recovery is sought expired on 16th March, 2012 and
the present suit has been filed only on 7th September, 2015. Therefore,
the present suit is barred under Article 31 of the Schedule to the
Limitation Act, 1963. Further, the original of the documents were
returned on behalf of the defendant no.2 on 29th August, 2012.
Taking into the said date also, the present suit is barred by limitation.
(iii) The plaintiff failed to submit the requisite documents in accordance
with the L/C and therefore, the defendant no.2 validly rejected the
documents and did not make the payment under the L/C. The waiver
from the defendant no.3 was received belatedly by the defendant no.2.
Further, the defendant no.2 was not under an obligation to accept the
documents under the L/C even if there was a waiver by the defendant
no.3. Reliance in this regard is placed on the terms of Article 16 of
the Uniform Customs and Practice for Documentary Credits 600
(UCP 600).
(iv) The present suit is bad for non-joinder of necessary party. The
plaintiff has failed to make Canara Bank, which was advising bank, as
a party in the present suit.
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6. The leave to defend application has been opposed by the plaintiff and
the following submissions have been made in this regard:
(i) This Court has the jurisdiction to try the present suit. In this regard,
reliance is placed on the L/C document, which shows that the place of
expiry of the L/C is the place of the negotiating bank i.e., the Canara
Bank, New Delhi. Further, various discussions were held between the
plaintiff and the officials of the defendant no.2 at its office in New
Delhi. Reliance in this regard is made to the letter dated 11 th
September, 2012 (page 47 of the documents filed by the plaintiff) and
the response dated 24th September, 2012 by the Delhi office of the
defendant bank (page 51 of the documents filed by the plaintiff). In
support of his submission, reliance is placed of this Court in IUP
Jindal Metals & Alloys Ltd. v. M/s. Conee Chains Private Ltd., 2013
SCC OnLine Del 1454.
(ii) The present suit has been filed within the prescribed period of
limitation. In the present case, the limitation would commence from
6th September, 2012, the date on which Canara Bank received the
letter dated 29th August, 2012 from the defendant no.2, refusing to
honour the documents and returning the original documents. If the
limitation is calculated from the aforesaid date, the suit is within the
period of limitation.
(iii) Defendant no.2 was bound to accept the documents and make the
payments under the L/C in view of the waiver given by the defendant
no.3 vide its letter dated 28th February, 2012 (page 39 of the
documents filed by the plaintiff). In its letter dated 25th February,
2012 (page 37 of the documents filed by the plaintiff) of the
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documents filed by the plaintiff), the defendant no.2, while point out
the discrepancies in the documents, had accepted that if a waiver is
received from the defendant no.3, the defendant no.2 would make the
payment under the L/C. It has wrongly been stated in the
communication dated 25th August, 2012 (page 41 of the documents
filed by the plaintiff) by the defendant no.2 that they did not receive
the waiver from the defendant no.3. In the leave to defend
application, it has been specifically admitted that the waiver was
received from the defendant no.3.
(iv) The defendant no.2 completely changed its stand in its
communication dated 28th August, 2012, wherein it is stated that they
will make the payment only upon funds being arranged by the
defendant no.3 into their account. The aforesaid submission
completely defeats the purpose of an L/C. The defendant no.2 was
bound to accept the waiver given by the defendant no.3 and pursuant
thereto, make payments under the L/C. Reliance in this regard is
placed on the judgment of a Division Bench of this Court in State
Trading Corporation of India Ltd. v. M/s. Millennium Wires (P)
Ltd., (2014) 206 DLT 430 (DB).
7. Counsel for the defendants no.1 and 2 reiterates the submissions made
in the leave to defend application. In addition, he made the following
submissions:
(i) Plaintiff has nowhere denied that there was a discrepancy in the
documents submitted to the defendant no.2. The said deficiencies
were duly pointed out by the defendant no.2 in its communication of
29th February, 2012.
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(ii) Even if there is a waiver given by the defendant no.3, it is not
obligatory upon the bank to accept the documents and make the
payment. In any case, the waiver of the defendant no.3 was received
after a period of five days, the period within which the bank had to
convey its stand with regard to the acceptance of the documents under
the L/C. Reliance in this regard is placed on Article 16 of the UCP
600.
(iii) Reference is also made to the judgment dated 23rd July, 2008 by a
Division Bench of this Court in FAO(OS) 227/2003 titled Bank of
India and Anr. v. Madura Coats Ltd. to submit that it is well within
the right of the bank to refuse payment under the L/C, if the
description of goods differs from those mentioned in any of the
clauses.
8. I have heard the counsels for the parties.
9. First, I will deal with the issue with regard to territorial jurisdiction.
In IUP Jindal Metals & Alloys Ltd. (supra), a Coordinate Bench of this
Court, relying on the various judgments, rejected the plea of territorial
jurisdiction taken by the defendant while applying the principle of 'debtor
must seek creditor'. Noting that the registered office of the plaintiff was in
Delhi and that the plaintiff had caused the legal notice to be issued from
Delhi, it was held that the court in Delhi would have the jurisdiction to
entertain the suit. In the present case also, the registered office of the
plaintiff is in Delhi and the legal notice was issued from Delhi. Further, the
L/C notes that the place of expiry is the place of the negotiating bank, which
is the New Delhi branch of Canara Bank. Therefore, at this stage, it cannot
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be said that this Court does not have the territorial jurisdiction to entertain
the present suit.
10. Now, I refer to the payment terms of the L/C detailing the documents
to be submitted in support of the claim:
"(II) 80% OF INVOICE VALUE ALONG WITH INTEREST AS
APPLICABLE SHALL BE PAID ON 180TH DAY FROM THE
DATE OF SUBMISSION OF BELOW DOCUMENTS:
A) COMMERCIAL INVOICE - 2 COPIES
B) PACKING LIST
C) LORRY RECEIPT CERTIFIED BY MULTITEX.
D) COPY OF MUTUALLY AGREED BILLING BREAKUP
DOCUMENT.
E) INSURANCE COPIES
F) BILL OF EXCHANGE SHOWING BREAKUP OF
INTEREST DULY SIGNED BY AUTHORIZED SIGNATORY
OF SOMA ENTERPRISE LIMITED
...
4. ALL DOCUMENTS MUST MENTION LC NUMBER AND
DATE."
11. The documents were refused by the defendant no.2 by its letter dated
25th February, 2012, pointing out the following discrepancies in the
documents:
"1. Description of goods is not as per LC terms.
2. Stamp duty is not paid for Rs.2,610/-.
3. Proof of submission of non negotiable documents to the
applicant is not enclosed alongwith set of documents.
4. Delivery Challan duly certified by the LC applicant is not
submitted along with set of documents.
5. LC no. and date is not mentioned in all documents except
Bill of Exchange."
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12. The plaintiff has not contested the aforesaid discrepancies in the
documents pointed out by the defendant no.2. Reliance is placed by the
counsel for the plaintiff on the letter issued by the defendant no.3 on 28th
February, 2012, whereby the defendant no.3 accepted the documents with
the noted discrepancies and confirmed to debit the amount claimed under
the suit. In response, counsel for the defendants no.1 and 2 has relied upon
the terms of Article 16 of UCP 600, which governs the present L/C. The
relevant parts of Article 16 are set out hereinafter:
"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:
i. that the bank is refusing to honour or negotiate; and
ii. each discrepancy in respect of which the bank refuses to honour
or negotiate; and
iii.
a) that the bank is holding the documents pending further
instructions from the presenter; or
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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
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."
13. A perusal of clause (c)(iii)(b) above would show that even if the bank
receives a waiver from the applicant, the bank is not bound to accept it.
This is clear from the words "it receives the waiver from the applicant and
agrees to accept". Therefore, even if the waiver is received from the
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applicant, the same is not binding on the bank and said bank still has the
discretion to reject it. Ultimately, it is the bank which is making the
payment under the L/C and not the applicant. Therefore, the decision has to
be of the bank, whether to accept the documents submitted on behalf of the
beneficiary.
14. Counsel for the plaintiff has placed reliance on the judgment in M/s.
Millennium Wires (P) Ltd. (supra). Paragraph 20 of the said judgment is
set out hereinafter:
"20. 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 close of
the fifth banking day following the day of presentation."
15. The aforesaid paragraph does not support the case of the plaintiff that
the defendant no.2 was bound to honour the L/C after receiving the waiver
from the defendant no.3. On the contrary, this judgment notes that the
responsibility is cast on the issuing and confirming bank to be diligent while
scrutinizing the documents before releasing payments under the L/C, with
or without the waiver from the buyer. It goes on to state that the decision
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on whether the documents are compliant to the terms of L/C is solely that of
the issuing bank. Therefore, this judgment is of no assistance to the plaintiff.
16. Counsel for the defendant has placed reliance on the judgment in
Madura Coats Ltd. (supra). Paragraphs 35 and 36 of the said judgment are
set out below:
"35. In the judgment of the Apex Court in United Commercial
Bank vs. Bank of India & Ors. (1981) 2 SCC 766, it is held that
where under the letters of credit, description of goods differ from
those mentioned in any of the clauses, the paying bank may refuse
payment. Relevant portion is extracted below :
"....The description of the goods in the relative bill of
exchange must be the same description in the letter of credit,
that it, the goods themselves must in each be described in
identical terms, even though the good differently described in
the two documents are, in fact, the same. It is the description
of the goods that is all important and if the description is
not identical it is the paying bank's duty to refuse
payment."
36. We are of the view that the learned Single Judge wrongly
refused the application of the defendants for granting leave to
defend as prima facie it is disputed fact whether there exist
discrepancies in the documents, the details of which are
mentioned in the four letters allegedly written by the defendant
No.1 to the negotiating bank and allegations of fraud and forgery
are raised in the plaint by the plaintiff himself, leave to defend
could not have been refused to the appellants. The said
allegations are still to be looked into and require trial and thereby
raises triable issues. Further the defendant No.1 is a known bank
and in case any decree is passed against the said bank after trial,
the said bank is in a position to pay the decreed amount, on the
other hand in case, no chance is given to the defendants in facts
and circumstances of the present case, great injustice would be
caused to the defendants to suffer a decree without trial of the
suit. Therefore, we feel that the trial in the present circumstances is
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required and the defendants No.1 and 2 are entitled to the grant of
leave to defend the suit on conditional basis."
17. The dicta of the aforesaid judgment is fully applicable in the facts of
the present case. The paying bank has the right to refuse payments under
the L/C when the description of the goods differs from that mentioned in
any of the clauses of the L/C. In the present case, the discrepancy in the
documents was duly pointed out by the defendant no.2 in its communication
dated 25th February, 2012. Whether there was actually any discrepancy in
the documents submitted by the plaintiff is a matter of trial.
18. Further, the question of limitation raised on behalf of the defendant
no.2 is a mixed question of fact and law and has to be decided in trial.
19. The Supreme Court in IDBI Trusteeship Services Limited v.
Hubtown Limited, (2017) 1 SCC 568 has laid down the following principles
with respect to grant of leave to defend application. Paragraph 17 of the
said judgment is set out below:
"17. Accordingly, the principles stated in para 8 of Mechelec
case [Mechelec Engineers & Manufacturers v. Basic Equipment
Corpn., (1976) 4 SCC 687] will now stand superseded, given the
amendment of Order 37 Rule 3 and the binding decision of four
Judges in Milkhiram case [Milkhiram (India) (P) Ltd. v. Chamanlal
Bros., AIR 1965 SC 1698 : (1966) 68 Bom LR 36] , as follows:
17.1. If the defendant satisfies the court that he has a substantial
defence, that is, a defence that is likely to succeed, the plaintiff is
not entitled to leave to sign judgment, and the defendant is
entitled to unconditional leave to defend the suit.
17.2. If the defendant raises triable issues indicating that he has
a fair or reasonable defence, although not a positively good
defence, the plaintiff is not entitled to sign judgment, and the
defendant is ordinarily entitled to unconditional leave to defend.
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17.3. Even if the defendant raises triable issues, if a doubt is left
with the trial Judge about the defendant's good faith, or the
genuineness of the triable issues, the trial Judge may impose
conditions both as to time or mode of trial, as well as payment into
court or furnishing security. Care must be taken to see that the
object of the provisions to assist expeditious disposal of commercial
causes is not defeated. Care must also be taken to see that such
triable issues are not shut out by unduly severe orders as to deposit
or security.
17.4. If the defendant raises a defence which is plausible but
improbable, the trial Judge may impose conditions as to time or
mode of trial, as well as payment into court, or furnishing security.
As such a defence does not raise triable issues, conditions as to
deposit or security or both can extend to the entire principal sum
together with such interest as the court feels the justice of the case
requires.
17.5. If the defendant has no substantial defence and/or raises no
genuine triable issues, and the court finds such defence to be
frivolous or vexatious, then leave to defend the suit shall be refused,
and the plaintiff is entitled to judgment forthwith.
17.6. If any part of the amount claimed by the plaintiff is admitted
by the defendant to be due from him, leave to defend the suit, (even
if triable issues or a substantial defence is raised), shall not be
granted unless the amount so admitted to be due is deposited by the
defendant in court."
20. In the present case, the defendants no.1 and 2 have raised triable
issues indicating that they have a reasonable defence. Therefore, in terms of
paragraphs 17.1 and 17.2 of IDBI Trusteeship (supra), the defendants no.1
and 2 shall be entitled to unconditional leave to defend. Grave injustice
would be caused to the said defendants if a decree is passed against the said
defendants in a summary manner. Like in the case before the Division
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Bench in Madura Coats Ltd. (supra), in the present case also, the
defendants no.1 and 2 are a well-known bank and therefore, in the event a
decree is passed against the bank after trial, the bank would be in a position
to pay the amount.
21. Accordingly, the present application is allowed and unconditional
leave is granted to the defendants no.1 and 2 to defend the suit.
22. It is made clear that any observations made hereinabove shall be
treated as tentative and shall not constitute any expression on the final
adjudication of the suit.
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23. Written statement(s) be filed within thirty days from today. Along
with the written statement(s), the defendants shall also file affidavit of
admission/denial of the documents of the plaintiff.
24. Liberty is given to the plaintiff to file replication(s), if any, within
thirty days from the receipt of the written statement(s). Along with the
replications filed by the plaintiff, affidavit of admission/denial of the
documents of the defendants be filed by the plaintiff.
25. List before the Joint Registrar on 23rd November, 2022 for completion
of service and pleadings.
26. List before the Court on 27th February, 2023.
AMIT BANSAL, J.
SEPTEMBER 15, 2022
dk
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