Full Text
JUDGMENT
M/S ANIL TIMBER PRIVATE LIMITED .... Appellant
Advocates who appeared in this case:
For the Appellant : Mr Ajit Dayal with Mr Lohit Bimal, Advocates.
For the Respondents : Mr Gurmeet Bindra, Advocate for respondent No.1
Mr S.L. Gupta with Mr P. Gowtham, Advocates for respondent No.6/SBI.
HON’BLE MR JUSTICE SANJEEV SACHDEVA
CM No.12426/2015, CM No.9798/2015 & FAO(OS) 283/2015
1. CM 12426/2015 has been filed on behalf of the State Bank of India, Chicago Branch, USA for vacation of the stay order which was passed by this Court on 22.05.2015, whereby the operation of the order dated 14.05.2015 passed by the learned Single Judge of this Court in IA 2015:DHC:6145-DB No.7054/2015, was stayed. The earlier order dated 29.12.2012 passed by the learned Single Judge which had been in operation prior to the order dated 14.05.2015 was revived for the time being.
2. The appeal is directed against the order dated 14.05.2015 passed by the learned Single Judge in the said IA 7054/2015 which was an application under Order XXXIX Rules 1 & 2 of the Code of Civil Procedure, 1908 („CPC‟). We had issued notice in the appeal on 22.05.2015 and the returnable date was to be 09.10.2015. However, in view of the fact that the respondent No.6 has filed CM No.12426/2015 for vacation of the stay, we have taken up the hearing of the stay application CM No.9798/2015 filed by the appellant as also the appeal.
3. The facts of the case are that the appellant (an Indian Company) had entered into an agreement with the respondent No.2 (based in USA) for the purchase of timber. The appellant had, therefore, opened a letter of credit (documentary credit No.503 FLC002413/14). The said letter of credit was for an amount of US $58950. The respondent No.1 was the issuing bank and the respondent No.6 was the advising and negotiating bank.
4. The said letter of credit, inter alia, stipulated the conditions with regard to the documents required. The documents required were as under:- “46A: Documents Required
1. SIGNED COMMERCIAL INVOICES IN 1 ORIGINAL AND 1 COPY CERTIFIFIYG THAT THE GOODS ARE AS PER SALES CONTRACT NOAT/2014-001 DATED 14-JUN-2014
2. CERTIFICATE OF ORIGIN IN DUPLICATE
3. FULL SET OF ORIGINAL CLEAN „ON BOARD‟ OCEAN BILLS OF LADING MADE OUT TO ORDER OF ING VYSYA BANK LTD, TRADE FINANCE UNIT, 23 BARAKHAMBA ROAD, NARAINMANZIL, NEW DELHI- 110 001, INDIA MARKED „FREIGHT PREPAID‟ NOTIFY APPLICANT WITH APPLICANT‟S FULL NAME AND ADDRESS.
SHORT FORM BILL OF LADING NOT ACCEPTABLE.BL TO MENTION.”
5. The case of the appellant is that the respondent No.2 has committed a fraud upon the appellant by (a) not shipping the full quantity of the goods; and (b) by shipping sub-standard goods. For this reason, the appellant had sought an injunction restraining the respondent No.1 from releasing any payment under the said letter of credit to the respondent No.6 (the negotiating bank). It may be pointed out that the documents were presented by the respondent No.2 (beneficiary) to the respondent No.6 (negotiating bank), in the first instance, on 18.07.2014, in respect of one shipment for an amount of US $38,502.77. The documents which were presented to the respondent No.6 on 18.07.2014 were verified against the conditions stipulated in the letter of credit and were found to be in order by the respondent No.6 and the beneficiary (respondent No.2) was paid the said amount by the respondent No.6 on 21.07.2014. The documents in respect of the second shipment for the value of US $18941 were presented to the respondent No.6 on 30.07.2014 and after the respondent No.6 found the said documents to be in order, the payment was released on 31.07.2014.
6. The suit was filed by the appellant in December 2014 and, as pointed out above, an order was passed on 29.12.2014, whereby the respondent No.1 was injuncted from making the payment under the letter of credit to the respondent No.6. That order was vacated by the impugned order dated 14.05.2015, against which, the appellant is in appeal before us.
7. The law with regard to letters of credit is quite well settled. The bank negotiating the documents is not concerned with the underlying contract between the seller and the purchaser nor is it concerned with the goods. The bank only has to see whether the documents presented to it are in terms of the letters of credit or not. Once the bank finds that the documents are not discrepant, it is bound to release the payment to the beneficiary.
8. The Supreme Court, in a recent decision in the case of National Bank Ltd. V. Ghanshaym Das Agarwal: (2015) 4 SCC 228 held as under:-
9. In Tarapore & Co. v. V.O. Tractors Export: (1969) 1 SCC 233, the Supreme Court noted scope of an irrevocable letter of credit as explained in Halsbury‟s Laws of England and Chalmers on Bills of Exchange as follows:- “12. The scope of an irrevocable letter of credit is explained thus in Halsbury's Laws of England (Vol. 34), para 319 at p.185): "It is often made a condition of a mercantile contract that the buyer shall pay for the goods by means of a confirmed credit, and it is then the duty of the buyer to procure his bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to the seller, either directly or through another bank in the seller's country known as the correspondent or negotiating bank, to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents. The contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued; and as between the seller and the bank, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents. The contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller, which is absolute. Thus the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might permit the buyer to reject the goods and to refuse payment therefor; and, conversely the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective." “13. Chalmers on "Bills of Exchange" explains the legal position in these words: "The modern commercial credit serves to interpose between a buyer and seller a third person of unquestioned solvency, almost invariably a banker of international repute; the banker on the instructions of the buyer issues the letter of credit and thereby undertakes to act as paymaster upon the seller performing the conditions set out in it. A letter of credit may be in any one of a number of specified forms and contains the undertaking of the banker to honour all bills of exchange drawn thereunder. It can hardly be overemphasised that the banker is not bound or entitled to honour such bills of exchange unless they, and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit. Such documents must be scrutinised with meticulous care, the maxim de minimis non curat lex cannot be invoked where payment is made by letter of credit. If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not.”
10. The Supreme Court in Tarapore & Co. (supra) further observed that:- “There is this to be remembered, too. A vendor of goods selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. That is of no mean advantage when goods manufactured in one country are being sold in another. It is, further more, to be observed that vendors are often reselling goods brought from third parties. When they are doing that, and when they are being paid by a confirmed letter of credit, their practice is – and I think it was followed by the defendants in this case – to finance the payments necessary to be made to their suppliers against the letter of credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have effect of “freezing”, if I may use that expression, the sum in respect of which the letter of credit was opened."
11. In United Commercial Bank v. Bank of India: (1981) 2 SCC 766, the Supreme Court observed as under:-
12. In United Commercial Bank (supra), it was also held as under:-
13. The Supreme Court, in the case of Federal Bank Ltd. v. V.M. Jog. Engg. Ltd., (2001) 1 SCC 663 held that:-
14. Again in Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co.: (2007) 8 SCC 110, the Supreme Court held as under:-
15. In the present case, we find, prima facie, that the documents which were presented to the respondent No.6 on both occasions were not discrepant and were in conformity with the letters of credit. Therefore, our prima facie view is that the respondent No.6 was not wrong in releasing the payment to the beneficiary. That being the case, the appellant is not in a position, in law, to seek an order restraining the payment by the respondent No.1 to the respondent No.6 and thereby reimbursing the respondent No.6 for the payment made under the letter of credit issued at the instance of the appellant by the respondent No.1. The learned counsel for the respondent No.1 also has no objection to the release of the payment to the respondent No.6 and she states that the only reason why the payment has not been made is because of the injunction order. According to the respondent No.1 Bank also the documents are in order. The banks have no concern with the disputes between the purchaser (the appellant) and the seller (respondent No.2.). The alleged non-supply of the full quantity contracted or the alleged sub-standard quality of goods do not fall within the exception of fraud of an egregious nature and irretrievable injustice.
16. In these circumstances, we not only vacate the order dated 22.05.2015 passed by us in CM No.9798/2015 but also dismiss the appeal preferred by the appellant. The result is that CM No.12426/2015 is allowed, the order dated 22.05.2015 stands vacated and FAO(OS) 283/2015 and CM No.9798/2015 are dismissed.
17. The next date (i.e., 09.10.2015), which was fixed in the appeal, stands cancelled. There shall be no order as to costs.
BADAR DURREZ AHMED, J SANJEEV SACHDEVA, J AUGUST 03, 2015 st