Allahabad Bank v. Malayan Banking Limited

16. It is further submitted that the Single Judge arbitrarily decreed the suit without ascertaining the amount and the period of interest to which, the respondent would be entitled to. He submitted that the amount decreed is more than the value of the LCs. Further, the conversion rate of Rs.63 per US $ is incorrect. It was finally contended that the interest has also been granted from 26.10.2013, i.e. the dismissal of the previous suit, for no cogent reason.

17. Per contra, Mr. Sethi, learned senior counsel for the respondent has submitted that the documents presented by the respondent to the appellant were not forged and in fact they were in consonance with the terms of the LCs. The same were also duly accepted by the appellant, STC and the buyer. Mr. Sethi has further submitted that the alleged fraud by the seller is not attributable to the establishment of the LC, and it is for the buyer to take action against the seller. Additionally, mere non-supply of goods from the seller to the buyer does not necessarily mean ‘fraud’. Reliance is placed on ITC v. Debt Recovery Appellate Tribunal, (1998) 2 SCC 70 (paras 22 and 35). Mr.Sethi, while relying on Article 16(f) of the UCP-600, has further submitted that even if fraud is detected by the buyer at a later stage, the appellant cannot halt the reimbursement of the LCs since there existed an independent contract between the appellant and the respondent. Reliance is placed on the judgments in the cases of Federal Bank Ltd. v. V.M. Jog Engineering Ltd., (2001) 1 SCC 663 (paras 42, 48 and

65) and United Commercial Bank v. Bank of India, (1981) 2 SCC

766.

18. Mr.Sethi, in response to the submission made by the appellant that the payment could not have been made prior to 90 days, submits that the period of 90 days is meant for reimbursement and not for negotiation. It is further submitted that the said submission is completely misplaced as if the said argument is to be accepted then there was no question of accepting the document. Reliance is placed on the judgment of the Bombay High Court in the case of Malayan Banking Berhad v. IndusInd Bank Ltd., Summary Suit No.405/2015 (paras 8, 17 and 18).

19. Mr.Sethi has further submitted that the appellant has in its written statement admitted its liability to honour the payments to be made under the LCs in an earlier suit. The said admissions are binding on the party that makes them and amounts to waiver of proof. Reliance is placed on the judgments in the cases of Nagindas Ramdas v. Dalpatram Ichharam, (1974) 1 SCC 242 (para 27) and Seema Thakur v. Union of India, 223 (2015) DLT 132 (para 16).

20. Mr.Sethi has further submitted that the contention of the appellant that the negotiation has not taken place due to the payment being made under a different loan facility is not tenable, in the light of the judgment in the case of UBS AG v. State Bank of Patiala, (2006) 5 SCC 416 (paras 22 and 34 to 36) wherein the Supreme Court has held the definition of ‘negotiation’ as contained in Article 2 to mean advance of funds. Additionally, the said ground was never raised at any earlier point in time.

21. Mr.Sethi has further submitted that the fraud as alleged by the appellant on the part of the seller is not attributable to the establishment of LC and it is for the buyer to take action against the seller. Therefore, the appellant cannot shy away from its obligation to release the payment in favour of the respondent.

22. Mr.Sethi, while relying on Article 7 of the UCP-600, has further submitted that the submission of the appellant that the respondent released the payment to the seller without taking acceptance from the appellant is misconceived. As per the said article, if the documents are negotiated and further forwarded, the issuing bank must reimburse the amount.

23. We have heard learned counsels for the parties, perused the relevant documents and have considered their rival submissions.

24. The first contention of Mr.Sengh is that the appellant is not bound by UCP-600. However, a perusal of the written statement filed by the appellant in CS (OS) 545/2012, clearly shows that the appellant admitted that it has an obligation, under the terms of UCP-600, to make payments to the respondent on the respective due dates for the three set of documents as accepted by STC. The appellant also admitted that the payment as regards the fourth LC also cannot be withheld on the ground of fraud as there was no discrepancy in the documents; though the said documents were not accepted by STC. The appellant further admitted that it was not concerned with the goods covered in the documents but just the documents. In our view, having admitted the genuineness of the documents with respect to all the four LCs, the appellant now cannot be permitted to retract from its admission and take a contrary stand. We may note that the Supreme Court in Nagindas Ramdas (Supra) has held that admissions in pleadings are fully binding on the party that makes them and it constitutes a waiver of proof. Thus, it is not open to the appellant to contend that UCP-600 is not applicable to them.

25. Having held the UCP-600 to be applicable to the transaction between the appellant and the respondent, two clauses of the Rules are of significance to the present case. Clause (d) of Article 16 of the Rules, obligates the appellant to intimate any discrepancy in the documents no later than the close of the fifth banking day following the day of communication of documents. The consequence of failing to do so is categorically provided under Clause (f) as being “precluded from claiming that the documents do not constitute a complying presentation.” Further, Article 7 clearly stipulates that the obligation of the issuing bank for reimbursing the nominated bank is independent of the issuing bank’s undertaking to the beneficiary.

26. Learned senior counsel for the appellant had also strongly urged before us that the goods under the LCs were never shipped and the compliance documents such as the bills of lading and invoices were forged, thus, making the appellant not liable to make the payment under the LCs. In our view, the substratum of such a contention is that the respondent had knowledge of the fraud either by being informed of it or being a party thereto. The same is clear from the decision of the Supreme Court in UBS AG v. State Bank of Patiala, (2006) 5 SCC 416 wherein it was held that if knowledge of fraud had been communicated to the respondent bank before the negotiation, only then the defence of fraud can be taken up as a triable issue. The relevant portions read as under:

27. At this stage, it is appropriate to mention that there were four LCs in question, three dated 07.12.2011 and last one dated 02.01.2012. Referring the LCs by their last three digits, the LCs were LC-150, LC-151, LC-154 and LC-159. As required, the documents presented were forwarded by respondent to the appellant. As regards LC-150, the documents were first accepted by the appellant and thereafter, after expiry of five days rejected the same. The documents pertaining to LC-151 and LC-154 were never rejected within 5 days and were only rejected after a long delay. The documents of final LC- 159 were first accepted and then rejected, both being after 5 days. Thus, it is clear that as far as the appellant is concerned, it had not communicated any discrepancy within 5 days for any of the LCs.

28. In order to overcome the lapse, learned senior counsel for the appellant contended that the respondent was not only privy to the fraud, but also, a party thereto. The first fact, according to Mr.Sengh, that shows the collusion of the respondent, is that payments were released prior to the receipt of documents or expiry of the 5 days’ period as mentioned under Article 16 of UCP-600. We are unable to accept the submission. The funds were released under a different credit facility and the same shall not desist the obligation of the appellant to reimburse the respondent. The liability of the appellant would crystalize once there was valid presentation and the appellant failed to communicate its rejection within 5 days. The same would also run contrary to the mandate of Article 7 of the UCP-600.

29. The second contention of the appellant was that there are other pending cases involving respondent as a party and hence, the respondent was well aware of the discrepant documents. According to us, the same does not make out fraud by the respondent in the present case. Mr.Sengh had primarily relied upon the case in CS (OS) 2035/2014 to contend that on 08.12.2011, the issuing bank therein had informed the respondent herein of discrepancies in the documents. According to him, as such, the respondent was well aware of the fraud and ought not have released the payment; and that the releasing of the payment clearly shows that the respondent was hand in glove with the seller.

30. We are unable to accept the aforestated contention as the informing of discrepancies regarding the documents presented in another transaction will not have a bearing on the present case. Every LC is an independent contract to be honoured on valid presentment. Merely because discrepancies in other LCs had been highlighted would not affect the obligation of the respondent to honour other LCs where no discrepancies are highlighted within time. In fact, the appellant would be obligated to reimburse the respondent for the same.

31. As far as the submission of the appellant with respect to the payment made before the expiration of 90 days is concerned, we find no force in the said submission. We have perused the LCs, the relevant clause states that the payment is to be made “90 DAYS FROM B/L DATE.” We are unable to accept the interpretation ascribed by the learned senior counsel for the appellant. The term “from” cannot mean only the after the expiry of the said period. On the contrary, the same denotes that the payment is to be made within the said period. Similar view has been taken by a Single Judge of the Bombay High Court in Malayan Bank Berhad (Supra), the relevant paragraph of which reads as under:

32. Even otherwise, we are also in agreement with the reasoning adopted by the Single Judge that the liability of appellant to pay was crystalized on the day it conveyed its acceptance of the documents to the respondent or failed to do so in accordance with Article 16.

33. Additionally, in the previous round of litigation [CS (OS) 545/2012], the Single Judge, had after analyzing the facts of the case and evidence on record, concluded that the fraud was not made out. The said decision was challenged by STC before a Division Bench of this Court in RFA (OS) 139/2013 wherein the Division Bench dismissed the appeal and held that as long as the documents presented by the seller are in accordance with the terms and conditions of the LC the bank has to honour the obligation to make the payment under the LC. The relevant portion of the judgment of the Division Bench read as under:

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 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

(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 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 nonacceptance 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.” (Emphasis Supplied)

34. The said decision was impugned before the Supreme Court, which vide order dated 23.03.2015, upheld the above decision of the Division Bench and further held that the appellant admitted to be bound by the provisions of UCP-600. It was further held that LC-154, for which the presentation was rejected by the appellant was made after 19 days while under the terms of UCP-600, the said rejection has to be made to the negotiating bank within five days. Hence, the Supreme Court also permitted the buyer and seller to avail of the appropriate remedies to decide the question of fraud.

35. The Single Judge in the judgment impugned before us has, while relying on the decision of the Supreme Court, held that the allegation of fraud against the respondent was never raised in the earlier litigation and the respondent released the payments after getting due acceptance from the appellant. In view of the above facts, the Single Judge has rightly held that the submission of the appellant regarding fraud cannot be accepted.

36. The law in respect of granting leave to defend is well settled that leave to defend in a summary suit is granted only when the triable issues are raised and the same are not sham, frivolous or moonshine IDBI Trusteeship Services Ltd. (Supra) (paragraphs 17 to 17.6). As an alternate argument, learned senior counsel for the appellant had also tried to contend that even if this Court comes to the conclusion that the amount is admitted, the leave may be granted subject to deposit. He relied upon the following paragraphs of IDBI Trusteeship Services Ltd. (Supra): “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.”

37. The submissions of the appellant raised above are ill-founded. We have already held that nothing urged by the appellant raises any triable issues as such. The leave was correctly rejected by the Single Judge and there is no reason to prolong the litigation. We take cue from the object of the provisions of Order XXXVII as observed by the Supreme Court in Santosh Kumar v. Bhai Mool Singh, 1958 SCR 1211 (paragraph 8) that “the defendant does not unnecessarily prolong the litigation and prevent the plaintiff from obtaining an early decree by raising untenable and frivolous defences in a class of cases where speedy decisions are desirable in the interests of trade and commerce.” Thus, the contention of the appellant is rejected.

38. Thus, the appellant has failed to show that the respondent had knowledge of the fraud prior to the disbursement of payment or the expiry of the 5 days period from presentment of documents. As such, in view of the decision in UBS AG (Supra), the appellant has failed to raise any triable issue. The contention regarding the respondent bank being a perpetrator of the fraud is clearly sham and moonshine.

39. Mr.Sengh, had also tried to impugn the calculation of the decretal amount before. He had submitted that the appellant cannot be held liable for an amount of Rs.11,00,04,972.03 as decreed by the Single Judge. The submissions of the learned senior counsel are threefold: firstly, the amount of recovery is more than the amounts of LCs; secondly, interest has been calculated from 26.10.2013, i.e. the date of vacation of the stay in the previous suit; and thirdly, the rate of conversion of Rs.63/- per US $ is incorrect as on the date of the institution of the suit, the rate was Rs.61.8343 per UD $.

40. We proceed to deal with the contentions one by one. The first is liable to be rejected. The LCs issued clearly state that the tolerance percentage is plus or minus 3%. The amount financed and claimed by the respondent is within the tolerance amount. It is not disputed that in fact the amounts were released to the seller. We are also unable to subscribe to the second contention as once the interim order in the previous suit stood vacated, it was incumbent upon the appellant to honour its liability. Having failed to do so, it would be liable to pay the interest from the said date.

41. The final contention pertains to the rate of conversion. It has been settled by the Supreme Court in the case of Forasol v. ONGC, 1984 Supp SCC 263 and Meenakshi Saxena v. ECGC Limited, (2018) 7 SCC 479 that when the plaintiff sues for the sum of money, due in a foreign currency, after converting it into Indian Rupees, then, in the absence of any express contractual rate, he may do so at the conversion rate prevailing on the date when the amount became payable or on the date of the filing of the suit. After going through the plaint, we are unable to find any basis of the conversion rate being taken at Rs.63/- per US $. Accordingly, the rate of conversion on the date of filing of the suit may be taken. The submission of the appellant is accepted. The respondent would be entitled to convert the due amount at Rs.61.8343 and not at Rs.63/- per US $.

42. The amount claimed by the appellant was US $ 1,746,110.46 and converting the amount at Rs.61.8343 per dollar comes to Rs.10,79,69,518.02.

43. Accordingly, the decree is modified to the extent that the respondent would be entitled to a sum of Rs.10,79,69,518.02 with the pedente lite and future interest remaining the same. With the said modification, the appeal is disposed of. C.M. No. 15211/2017 (stay)

44. In view of the order passed in the appeal, the applications have been rendered infructuous and as such, are disposed of. G.S.SISTANI, J. SANGITA DHINGRA SEHGAL, J. NOVEMBER 25, 2019 //