Delhi District Court
Nirlon Ltd vs M/S Union Bank Of India on 27 November, 2025
IN THE COURT OF SH. MANOJ KUMAR SHARMA :
DISTRICT JUDGE-07, TIS HAZARI COURTS (WEST), DELHI.
CS No. 613612/2016
CNR NO. DLWT010078762016
IN THE MATTER OF :
NIRLON LIMITED
A Public Limited Company
Having its registered office
At Pahadi Village, Goregaon (E),
Mumbai-400063. ......Plaintiff
Versus
1.M/S UNION BANK OF INDIA A Public Sector Bank constituted under Banking Company's Acquisition & Transfer of Undertaking Act (40 of 1980) and having its Branch at Branch at B.S. Marg, Fort, Mumbai-400023.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 1/45
2. M/s BANK OF INDIA A Public Sector Bank constituted under Banking Company's Acquisition & Transfer of Undertaking Act (40 of 1980) and having its New Delhi Corporate Banking Branch, 37, Shaheed Bhagat Singh Marg, New Shivaji Stadium, New Delhi-110001, through its Assistant General Manager.
3. M/S HILTON RUBBERS LTD., 14, Rani Jhansi Marg, Karol Bagh, New Delhi-110065, ......Defendants SUIT UNDER ORDER XXXVII THE CODE OF CIVIL PROCEDURE, 1908 FOR RECOVERY OF Rs.20,92,802.40P (RUPEES TWENTY LAKHS NINETY TWO THOUSAND EIGHT HUNDRED AND TWO AND FOURTY PAISA ONLY) ALONGWITH PENDENTE LITE AND FUTURE INTEREST THEREON AT THE RATE OF 18% PER ANNUM.
Date of institution of the Suit : 19.10.2001 Date of Judgment was reserved : 24.07.2025 Date of Judgment : 27.11.2025
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 2/45 ::- J U D G M E N T -::
1. The present suit has been filed by the plaintiff against the defendants seeking recovery of Rs.20,92,802.40P alongwith pendente lite and future interest @ 18% per annum.
1.1. It is to be noted that in the prayer clause, the plaintiff has sought the recovery of entire suit amount from defendant no.2 only.
2. CASE OF THE PLAINTIFF AS PER PLAINT The necessary facts for the adjudication of the present suit, as stated in the plaint, are as under :
2.1. The plaintiff is a public limited company registered under the Companies Act, 1956 having its registered office at Pahadi Village, Goregaon (E), Mumbai-400063 and branch office at 306, New Delhi House, 27, Barakhamba Road, New Delhi and engaged in the manufacture and sale of various kinds of conveyor Belts, Nylon Tyre Cord Fabric, Nylon Industrial Fabric (dipped Nylon Belting Fabric) etc. and has filed the present suit through its Duty General Manager (Deputy General Manager) Sh. P.N. Sharma.
2.2. The defendant no.1 and 2 are Public Sector Banks constituted under Banking Companies Acquisition and Transfer of Undertaking Act (40 of 1980) and are being sued through their respective Branch Heads and Principal Officers.
2.3. Defendant no.3 is a Private Limited Company constituted under the Companies Act, 1956 engaged in manufacture of rubber products Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 3/45 and is a pro forma party and no relief has been sought against the same. Defendant no.3 has approached the Board for Industrial and Financial Reconstruction (BIFR) for being declared a Sick Company under the Sick Industrial (Provisions) Act, 1985 and same has been registered by BIFR and the plaintiff reserves its right to approach BIFR to seek liberty to institute appropriate proceedings against defendant no.3 with respect to the transaction in question.
2.4. Defendant no.3 company for consumption at their factory placed an order with the plaintiff for supply of conveyor belting fabric etc vide its letter / purchase order dated 19.12.1998 and the invoices raised in respect of the goods under the purchase order were :
S.No. No. Date Amount
1. 3081550 19.03.1999 77,969.84
2. 3081549 19.03.1999 7,06,829.76p
3. 3081598 31.03.1999 7,66,003.68p
4. 5890321 15.06.1999 20,92,802.40p
2.5. It was agreed between the plaintiff and defendant no.3 that the payment in respect of goods supplied would be made by means of documentary letter of credit and the said fact was also mentioned in the purchase order and in pursuance thereof, defendant no.3 directed its Banker M/s Bank of India / defendant no.2 to open inter alia the following letters of credit (L/C) in favour of plaintiff:
Invoice No. Invoice dt. Amount Dt. of L/C Dt.of expiry L/C No. 3081550 19.03.99 77,969.84 22.03.99 18.06.99 15/141 3081549 19.03.99 7,006,829.76 22.03.99 18.06.99 15/141 3081598 31.03.99 7,66,003.68 22.03.99 18.06.99 15/141 5890321 15.06.99 20,92,802.40 12.06.99 05.09.99 16/24 2.6. The present suit is in respect of Letter of Credit No.16/24, which Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 4/45 was opened by Bank of India and forwarded to Union Bank of India / defendant no.1.
2.7. The plaintiff drew Bill of Exchange in respect of invoice and sent the same to defendant no.1 with a request to discount and credit the amount in its account as per the following details:
B/E No.Invoice Nos. Amount Dt. drawn Due dt. L/C No. D/149 5890321 20,92,802.40 18.06.99 13.09.99 16/24 2.8. The plaintiff delivered all the requisite documents under the letter of credit bearing No.16/24 including invoices, bill of exchange, delivery challan, excise invoice, MTR, test certificates etc to Union Bank of India for discounting and the said documents after being duly verified were forwarded by defendant no.1 to LC opening Bank / defendant no.2 i.e. M/s Bank of India.
2.9. But, defendant no.2 neither encashed the LC nor pointed out or notified the discrepancies in the documents submitted by plaintiff through defendant no.1 seeking encashment of the LC bearing No. 16/24.
2.10. Thereafter, vide letter dated 21.06.1999, the plaintiff requested defendant no.3 for directing its banker to release the payment under LC No.16/24, but defendant no.2 did not honour its obligation.
2.11. The goods supplied by the plaintiff under the bill of exchange bearing no. D/149 qua which LC No.16/24 was established by Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 5/45 defendant no.2, have been accepted and utilized by defendant no.3 without raising any objections towards their quality, quantity and standard.
2.12. Defendant no.2 is under an unambiguous and unequivocal obligation to pay the suit amount of Rs.20,92,802.40p to the plaintiff, under the LC No.16/24.
2.13. Defendant no.2 in violation of not only the spirit and terms of the aforesaid letter of credit but also in violation of Uniform Custom and Practice for Documentary Credits (1993 Revised)(International Chamber of Commerce Publication No.500), failed to return the documents within the period prescribed of seven banking days under UCP 500.
2.14. Defendant no.2 and 3 in collusion with each other are depriving the plaintiff from its rightful claim under LC 16/24.
3. Written statement was filed on behalf of defendant no.2 on 20.12.2013.
4. CASE OF DEFENDANT NO.2.
4.1. The present suit filed on behalf of plaintiff company is not maintainable and liable to be dismissed as the same has not been signed, verified, instituted or presented by a duly authorized person and the plaintiff has not placed on record any power of attorney Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 6/45 authorising Sh. P.N. Sharma to sign, verify, institute and present the suit. The plaintiff has not even placed on record any document to substantiate its averment that it is a private limited company.
4.2. LC bearing no.16/24 was never established by defendant no.2 on the request of defendant no.3 for making payment to plaintiff under the transaction in question.
4.3. The present suit has been filed by the plaintiff in collusion and connivance with defendant no.3 and deliberately no relief has been sought against the latter despite the fact that the goods in question were delivered by the plaintiff's transporter to defendant no.3 without showing any MTR as the same alongwith all the remaining documents was in the possession and custody of defendant no.2 till 06.12.1999.
4.4. The plaintiff has made a false statement on oath that defendant no.2 did not return the original MTR to defendant no.1 and due to which defendant no.3 took the delivery of the goods.
4.5. On account of discrepancies in the documents presented by the plaintiff for encashment of LC No.16/24 through defendant no.1, defendant no.2 acted within its rights in refusing to accept the said documents.
4.6. Defendant no.2 did not commit violation of any UCP 500 guidelines as it is a settled proposition of law that unless the documents submitted under the letter of credit are strictly in Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 7/45 compliance with the terms and conditions of the letter of credit, the issuing bank has no obligation to make payment by encashing the LC.
4.7. Defendant no.2 in strict compliance of the terms and conditions of LC 16/24 and UCP 500 guidelines, responded to the documents submitted by plaintiff through defendant no.1 seeking encashment of letter of credit within the prescribed period of seven banking days vide refusal letter No.NDCBB/SKJS/1555 dated 02.07.1999 and also intimated Union Bank of India / defendant no.1 about holding the documents at their risk and responsibility and disowned every responsibility for the safe-keep of the goods.
5. REPLICATION 5.1. The averments made by defendant no.2 in written statement are false, vague and emphatically denied.
5.2. The assertion of defendant no.2 regarding lack of authorisation in favour of Sh. P.N. Sharma is utterly unfounded and the true copy of the board resolution authorising him to institute all proceedings on behalf of the plaintiff company is filed herewith.
5.3. The plaintiff has nowhere stated in the plaint that defendant no.2 did not return the original MTR to defendant no.1.
5.4. Defendant no.2 has violated the terms and conditions of UCP 500 and no refusal letter dated 02.07.1999 was issued by defendant no.2 thereby intimating defendant no.1 regarding rejection of the Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 8/45 documents presented seeking encashment of LC No.16/24.
5.5. Defendant no.2 returned the documents to defendant no.1 on 30.11.1999 / 06.12.1999, beyond the prescribed period of seven banking days, which is a gross violation of UCP 500 guidelines.
5.6. Defendant no.2 has an absolute liability under LC No.16/24 towards plaintiff to make payment of the suit amount for the goods supplied under the said LC to defendant no.3.
6. EVIDENCE 6.1. The record of the present case reflects that vide order dated 05.12.2013 passed in RFA (OS) 109/2013, while setting aside the order rejecting defendant no.2 leave to defend application, Hon'ble Division Bench directed that the matter would be heard for final disposal on the basis of the documentary evidence available on record sans any oral testimony of witnesses.
6.2. Thereafter, defendant no.2 and plaintiff filed their respective written statement and replication alongwith annexed documents and based upon the pleadings, the following issues were framed on 31.03.2014:--
(1) Whether the suit has been signed, verified and instituted by the authorized person? OPP.
(2) Whether the refusal to accept the documents under the L/C No. 16/24 by the defendant no.2 is not on legal and valid grounds?
Onus on parties.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 9/45 (3) Whether the plaintiff is entitled to the suit amount? OPP. (4) Whether the plaintiff is entitled to interest on the suit amount, if any, at what rate? OPP.
(5) Relief.
6.3. After framing of issues, Hon'ble Court reiterated the direction of Hon'ble Division Bench and made it clear that all the documents available on record would be read in evidence without any formal proof and the suit would be disposed of on the basis of pleadings and the documents already filed by the parties.
6.4. In compliance of the aforesaid directions, the matter was heard and disposed of as decreed vide judgment / decree dated 31.05.2018, which was challenged before Hon'ble High Court in RFA No. 648/2018 titled as Bank of India Vs. Nirlon Limited and Ors., wherein at the time of remanding back the matter for fresh adjudication, both the parties were granted liberty to lead additional evidence and the Trial Court was also directed to frame additional issues, if so required.
6.5. Thereafter, an application under Order XIV Rule 5 CPC was filed by defendant no.2 seeking framing of additional issue, which was allowed vide order dated 29.02.2024 and the following additional issue was framed :
"Issue No.(iii)A Whether the present suit is bad in law as the plaintiff filed the same in collusion and connivance with defendant no.3? OPD2".
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 10/45 6.6. Defendant no.2 examined Sh. Chitranshu Gangal, Senior Manager as DW-2A, who tendered his evidence affidavit Ex.DW-2A/X in his examination-in-chief.
6.7. DW-2A reiterated the averments of the written statement and deposed that he is working as the Senior Manager at New Delhi Overseas Branch, Bank of India and the rejection notice dated 02.07.1999 Ex.DW-2A/3 was sent to defendant no.1 through fax on 05.07.1999, within seven banking days of receiving the letter dated 24.06.1999 sent by defendant no.1 seeking encashment of LC No.16/24 Ex.DW-2A/2, which could have earliest received by them on 28.06.1999, 27.06.1999 being Sunday.
6.8. In his evidence, DW-2A has relied upon the following documents:
A. Authority letter issued by defendant no.2 bank as Ex.DW-2A/1; B. Letter of credit dated 12.06.1999 as Ex.DW-2A/2; C. Letter dated 02.07.1999 issued by defendant no.2 thereby intimating defendant no.1 regarding the documents presented seeking encashment as Ex.DW-2A/3;
D. Proof of fax as Ex.DW-2A/4;
E. Letter dated 30.11.1999 / 06.12.1999 as Ex.DW-2A/5; and F. Letter dated 15.09.1999 as Ex.DW-2A/6.
7. I have heard Ld. Counsels for the plaintiff and defendant no.2 and perused the record.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
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8. My issue-wise finding is as under:--
9. ISSUE NO.1.
Whether the suit has been signed, verified and instituted by the authorized person? OPP.
9.1. The onus to prove this issue is upon the plaintiff.
9.2. In the plaint, the plaintiff has pleaded that the present suit is instituted by the plaintiff company through Sh.P.N. Sharma, Duty General Manager (Deputy General Manager) and he is well conversant with the facts and circumstances of the case and fully competent to sign, verify the plaint, applications and other pleadings and depose on behalf of the plaintiff company.
9.3. In rebuttal, the authorisation of Sh.P.N. Sharma to institute the present suit on behalf of the plaintiff company has been seriously disputed by defendant no.2 by pleading that he is not duly authorised by the plaintiff company to institute the present suit.
9.4. Ld. Counsel for defendant no.2 has relied upon the judgment passed by Hon'ble Delhi High Court in Nibro Limited Vs. National Insurance Co. Limited, MANU/DU/0138/1999 for advancing the argument that the lack of authority of a person to institute a suit on behalf of a company is not a mere technicality / formality and it goes to very root of a matter and legally non-suit the plaintiff.
9.5. Before getting into the legal aspect of the authorisation of Sh.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 12/45 P.N. Sharma to institute the present suit on behalf of the plaintiff company, it is expedient to make a reference to the chequered history / background of the present case.
9.6. The record of the present case reveals that vide order dated 13.01.2014, liberty was granted to file replication and on 18.02.2014, the plaintiff filed its replication alongwith three following documents :
(a) Copy of board resolution authorising Sh. P.N. Sharma, Office Incharge of the company office at Delhi to act on behalf of the company;
(b) Memorandum of Association of plaintiff company; and
(c) Articles of Association of plaintiff company.
9.7. This Court has referred to the aforesaid conspectus of the proceedings as it shows that the aforesaid documents, which are available on record needs to be looked into / considered for deciding the authorisation of Sh. P.N. Sharma for filing the present suit.
9.8. In Krishan Kumar Vs. Shanti Devi and Anr., CM(M) 1694/2019, dated 29.11.2019, Hon'ble Delhi High Court observed that if the replication and documents annexed therewith are filed with the prior permission of the Court, the same become part of the record.
9.9. At this stage, it is also important to make reference to the order dated 13.03.2014, after filing of the replication and the accompanying documents on 18.02.2014, wherein it was observed that the suit in hand would be finally decided on the basis of docuentary evidence Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 13/45 available on record.
9.10. Hence, it is clear that the plea of defendant no.2 regarding complete absence of any authorisation at all on behalf of plaintiff company in favour of Sh. P.N. Sharma to file the present suit is factually incorrect.
9.11. A bare perusal of the Memorandum of Association, Articles of Association and Board Resolution of plaintiff company reflects that Sh. P.N. Sharma was authorised to sign documents, plaint, written statement, petitions, affidavit, declarations, vakalatnamas and other necessary documents and also to lead evidence on behalf of the plaintiff company.
9.12. Moreover, it is trite to mention that the endeavour of a Court should always be to extract the substance of the document, the intent of the executant.
9.13. In view thereof, it is plain that there was a clear mandate / due authorisation of plaintiff company in favour of Sh. P.N. Sharma to file the claim in hand against defendant no.2.
9.14. Moreover, the documents filed alongwith the replication clearly reflects that an authority was given to Sh. P.N. Sharma to sign vakalatnamas on behalf of the plaintiff company and in M/s Amco Vinyl Limited Vs. M/s Classic Industries, RFA No. 523/2024 dated 25.05.2012, while dealing with an identical issue, Hon'ble Delhi High Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 14/45 Court observed that the Board Resolution authorising the authorised representative to appoint a lawyer and sign documents on behalf of the company is a sufficient authorisation for the valid institution of the suit by the said AR.
9.15. In furtherance of the aforesaid discussion regarding authorisation of Sh. P.N. Sharma to institute the present suit, it is important to make reference to the judgment passed by Hon'ble Delhi High Court in Inder Pal Bhatia Vs. NDMC, RFA No. 193/2017 dated 05.09.2024, wherein it was observed that the authorisation to sign the plaint includes the power to institute the suit and verify the pleadings.
9.16. In view thereof, it is clear that in the light of the documents filed by the plaintiff alongwith the replication, there is no scope for doubting the authorisation of Sh. P.N. Sharma to institute the present suit.
9.17. Besides the aforesaid discussion, Order XXIX CPC is also relevant for adjudicating the issue of authorisation in favour of Sh. P.N. Sharma to institute the present suit.
9.18. Order XXIX CPC clearly provides that in cases filed on behalf of a company, the plaint can be signed and verified by the Secretary, Director or other principal officer of the company, who is able to depose to the facts of the case, even in the absence of any formal letter or authority or power of attorney.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 15/45 9.19. In the present case, the pleadings and the documents available on record makes it abundantly clear that Sh.P.N. Sharma was working as Deputy General Manager of the plaintiff company at the relevant time. Hence, this Court is of the opinion that the mandate of Order XXIX CPC dispel every doubt raised by defendant no.2 on the competence of Sh. P.N. Sharma to institute the present suit. Reference can be made to the judgment passed by Hon'ble Delhi High Court in HCL Comnet Systems and Services Limited Vs. Ashok Kumar Arora, RFA No.43/2010 dated 12.10.2011, wherein Hon'ble High Court upheld the right of the Company Secretary to institute a suit on behalf of the company, even in the absence of any Board Resolution, Letter of Authority or Power of Attorney.
9.20. The competence of a Deputy General Manager to institute a civil suit on behalf of a company was also upheld by Hon'ble Delhi High Court in J.K. Synthetics Limited Vs. M/s Dyanamic Cement Traders, CS(OS) No.782 of 1998, dated 13.09.2012.
9.21. Finally, it is also worthwhile to make a reference to the authoritative judgment passed by Hon'ble Delhi High Court in M/s Sangat Printers Private Limited Vs. M/s Wimpy Internationala Limited, RFA No.657/2003 dated 17.01.2012, wherein Hon'ble High Court after making reference to the judgment passed by Hon'ble Apex Court in United Bank of India Vs. Naresh Kumar, AIR 1997 SC 3 held that a suit filed by a company should not be dismissed at the final stage on technical ground of validity of the institution.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 16/45 9.22. In light of the foregoing discussion, this Court is of the opinion that there is no defect in the signing, verification and institution of the present suit by Deputy General Manager, Sh. P.N. Sharma on behalf of the plaintiff company and it has been signed, verified and instituted by a competent person.
9.23. Accordingly, this issue is decided in favour of the plaintiff and against the defendant no.2.
10. ISSUE NO.3.
Whether the plaintiff is entitled to the suit amount? OPP. 10.1. The onus to prove this issue is upon the plaintiff.
10.2. The plaintiff has primarily premised its claim for the suit amount on the ground of violation of UCP 500 guidelines by defendant no.2 in the conduct of transaction in question.
10.3. So far as the factual matrix of the present case is concerned, it involves the following four characters / parties :
(a) Plaintiff / the beneficiary;
(b) Defendant no.1 / the nominated Bank;
(c) Defendant no.2 / the opening bank / issuing bank; and
(d) Defendant no.3 / the applicant.
10.4. In the present case, it is an admitted position of fact that defendant no.2 established letter of credit bearing no.16/24 Ex.DW-2A/2 on the request of defendant no.3 for facilitating a Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 17/45 business transaction with the plaintiff and after the delivery of goods, when plaintiff approached defendant no.2 through defendant no.1 and presented the requisite documents for the encashment of LC, the same were not accepted.
10.5. The plaintiff has alleged that it did not receive any communication from defendant no.2 pointing out discrepancies in the documents presented seeking encashment of LC no.16/24.
10.6. It is important to underline that there is no disagreement amongst the parties to the present suit regarding the applicability of UCP 500 guidelines upon the transaction in question.
10.7. So the central issue which needs to be discussed and adjudged by this Court would be regarding the compliance of UCP 500 guidelines on the part of defendant no.2 while dealing with the documents presented by the plaintiff for the encashment of LC Ex.DW-2A/2 as Article 14(e) categorically provides that if the issuing bank fails to act in accordance with the provisions of the said Article, it would be precluded from rejecting the documents upon the premise of same not being in compliance with the terms and conditions of the documentary credit and becomes obligated to encash the LC.
10.8. So far as the claim of plaintiff is concerned, a bare perusal of the plaint and replication averments clearly show that the following grounds have been pleaded for demonstrating the liability of defendant no.2 for the suit amount under the LC no.16/24 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 18/45 Ex.DW-2A/2:
(i) Firstly, defendant no.2 was obligated to encash the LC Ex.DW-2A/2 as defendant no.3 waived off all the highlighted discrepancies;
(ii) Secondly, defendant no.2 is liable to make payment for the goods supplied by plaintiff under LC 16/24 Ex.DW-2A/2 as the same have been accepted and utilized by defendant no.3 without raising any objection;
(iii) Thirdly, defendant no.2 was bound to encash the LC Ex.DW-2A/2 as it failed to return the documents presented for encashment within the period of seven banking days prescribed under UCP 500; and
(iv) Fourthly, defendant no.2 violated UCP 500 guidelines in the conduct of its business as the decision taken regarding the fate of documents presented for the encashment of LC was never communicated to the plaintiff, which constituted a deemed acceptance of the aforesaid documents and consequently, defendant no.2 was left with no option but to encash the LC.
10.9. In rebuttal, defendant no.2 has disputed the authorisation of Sh. P.N. Sharma to institute the suit on behalf of plaintiff company and has taken a very categorical stand that it was the plaintiff who was at fault for having presented discrepant documents, which were not in conformity with the terms and conditions of LC Ex.DW-2A/2.
10.10. Defendant no.2 has further pleaded that all the UCP 500 guidelines were complied with on its part in the conduct of business Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 19/45 and as per the Customary Banking Procedure, the information regarding rejection of documents was sent to the presenting bank i.e. defendant no.1 within the prescribed period and it was not bound to encash the LC just because defendant no.3 waived off the discrepancies. Defendant no.2 has also alleged collusion and connivance between plaintiff and defendant no.3 in the conduct of their business.
10.11. As it is explicit from the respective cases set up by plaintiff and defendant no.2 that the controversy involved in the present case revolves around the legal principles of letter of credit and UCP 500, it is expedient to give a brief overview of the same.
10.12. So far as letter of credit is concerned, it is a contract between the beneficiary / seller and the issuing bank, which operates as a guarantee that the beneficiary would be paid for the supply of goods and services subject to the fulfillment of the conditions outlined in the LC, established on the request of the buyer and it is a secured payment method, intended to mitigate the risk of non-payment by the buyer to the seller.
10.13. Basically, an LC is a contract by which a bank agrees to pay the beneficiary upon the happening of a specific event / delivery of goods and it is a stand-alone contract, distinct from the sale contract, and the banks are concerned only with the compliance of LC conditions and not with the underlying contract between the applicant and the beneficiary.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 20/45 10.14. Succinctly stating, the beneficiary is entitled for the encashment of the LC provided he has submitted all the documents required under the LC / complied with its conditions. However, if there is any discrepancy in the documents presented by the beneficiary, the bank can refuse to make payment under the LC and not even bound by the waiver of discrepancy granted by the applicant / buyer.
10.15. While on the other hand, Uniform Customs and Practice for Documentary Credits (UCP) 500 is a set of rules developed by the International Chamber of Commerce (ICC) for governing the mercantile transactions, which are applicable on documentary credit / LC as a form of payment, prescribing the steps to be followed upon presentation of documents seeking encashment of LC and the actions to be taken thereafter by the issuing bank.
10.16. The procedure prescribed under UCP 500 provides that the issuing bank has to examine the documents and determine whether to take up or refuse and inform the party from which it received the same within a reasonable time, not to exceed seven banking days following the date of receipt of the documents and if upon examination, the documents appears on their face not to be in compliance with the terms and conditions of the credit, the bank may either refuse to take up the documents or may in its sole judgment approach the applicant for the waiver of the discrepancies, however, the aforesaid exercise would not extend the time period of seven days mentioned in Article 13 (b). But, if the issuing bank fails to comply with the provisions of Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 21/45 UCP 500, it shall be estopped from claiming that the documents are not in compliance with the terms and conditions of the documentary credit and becomes obligated to encash the LC.
10.17. It is also expedient to underline that UCP guidelines are part of Non-State Law, which exists and operate outside the formal legal structure of a State but widely followed in mercantile transactions and are only applicable when expressly incorporated into a letter of credit.
10.18. Now coming to the analysis / adjudication of the pleas taken by plaintiff and defendant no.2 in support of their respective versions.
10.19. Firstly, so far as the argument of plaintiff that defendant no.2 was obligated to encash the LC Ex.DW-2A/2 after waiver of discrepancies by defendant no.3 is concerned, it is a well settled position of law that under UCP 500, the waiver of discrepancies granted by the applicant is not binding and does not obligate the issuing bank to encash the LC and the decision to accept or reject the documents with discrepancies lies entirely within the sole discretion of the issuing bank.
10.20. Secondly, the plea of plaintiff that defendant no.2 was duty bound to credit the LC amount in its account as the goods supplied to the applicant were accepted and utilised without any protest also lacks merit as it is equally well settled position of law that a letter of credit is a separate contract independent of the underlying sale agreement and the issuing bank is primarily and exclusively concerned with Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 22/45 examination of the presented documents on their face to ensure strict compliance of the terms and conditions stipulated in the LC and the act of applicant consuming the supplied goods is of no significance in the process of encashment of LC as in documentary form of credit, only the documents / invoices presented by the beneficiary are relevant.
10.21. Thirdly, the plaintiff has claimed that defendant no.2 is liable to encash the LC on the account of its failure to return the presented documents within the prescribed period of seven banking days as the same is violation of UCP 500. However, this Court is of the view that UCP 500 does not put an obligation on the issuing bank to return the documents alongwith the rejection notice and Article 14 (d) only talks about a refusal notice while Article 14 (e) gives an option either to hold the documents at the disposal of, or return them to the presenter. Hence, the plea regarding liability of defendant no.2 to encash the LC owing to the omission on its part in returning the documents within seven banking days stands rejected.
10.22. Fourthly, the plaintiff has taken the plea that the failure on the part of defendant no.2 in communicating / conveying its decision of rejection of documents is a gross violation of UCP 500 guidelines and the same constitute a deemed acceptance of the aforesaid documents and as a necessary corollary, defendant no.2 is obligated to encash the LC.
10.23. The plaintiff has pleaded in para 11 of the plaint that defendant Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 23/45 no.2 never pointed out or notified any discrepancy in the documents submitted through defendant no.1 seeking encashment of LC No. 16/24.
10.24. During the course of his arguments, Ld. Counsel for the plaintiff submitted that under UCP 500, defendant no.2 bank was supposed to give intimation regarding refusal or taking up the documents which were presented through defendant no.1 for the encashment of LC No. 16/24 within seven banking days following the day of receipt of the said documents but no such intimation was ever conveyed by defendant no.2, which is a gross violation of UCP 500.
10.25. The aforesaid plea is material as under Article 13(d), 14(c) read with 14(d) / (e), the issuing bank / defendant no.2 is obligated to give notice of refusal to the presenter within seven banking days following the day of the receipt of the documents, failing which, it shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the documentary credit.
10.26. In defence, defendant no.2 has relied upon the letter dated 02.07.1999 Ex.DW-2A/3 and has claimed that the rejection of the documents presented by the plaintiff seeking encashment of LC No.16/24 was duly communicated to the presenter / defendant no.1 within seven banking days in compliance of the timeline provided under Article 13(b).
10.27. Defendant no.2 has pleaded that defendant no.1 was duly Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 24/45 intimated regarding rejection of aforesaid documents vide the letter DW-2A/3 within the prescribed period of seven banking days in strict compliance of UCP 500 guidelines.
10.28. In a nutshell, this Court is required to examine / analyse the material available on record for arriving at the conclusion as to whether defendant no.2 intimated defendant no.1 regarding rejection of documents vide letter dated 02.07.1999 Ex.DW-2A/3 within the prescribed period of seven banking days or not.
10.29. It is a matter of record that defendant no.2 has examined DW-2A Sh. Chitranshu Gangal for substantiating its defence and a bare perusal of his deposition / testimony reflects that there is no dispute on part of defendant no.2 regarding the receipt of documents sent by plaintiff through defendant no.1 vide letter dated 24.06.1999 seeking encashment of the LC No.16/24.
10.30. However, DW-2A has deposed that the letter dated 24.06.1999 sent by defendant no.1 seeking encashment of LC no.16/24 was duly responded vide letter dated 02.07.1999 Ex.DW-2A/3, which was sent through fax on 05.07.1999 within seven banking days as the letter dated 24.06.1999 sent by defendant no.1 could have reached defendant no.2 earliest by 28.06.1999, 27.06.1999 being Sunday.
10.31. In light of the plea taken by the plaintiff regarding non-service / non-communication of the rejection notice dated 02.07.1999 Ex.DW-2A/3 and in rebuttal, the stand taken by defendant no.2 about Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 25/45 the delivery / communication of Ex.DW-2A/3 within seven banking days, this Court is of the opinion that the onus of proof has shifted upon defendant no.2 for establishing service of rejection notice upon defendant no.1, especially in view of the fact that defendant no.2 being the sender is expected to have custody of all the relevant documents / material which could establish the communication of notice Ex.DW-2A/3.
10.32. So far as the legal position is concerned, Section 106 Indian Evidence Act, 1872 provides that when any fact is specially within the knowledge of any person, the burden of proving that fact is upon him and Section 103 provides that the burden of proof as to any particular fact lies on that person who wishes the Court to believe in its existence, unless it is provided by law that the proof of that fact shall lie on any particular person.
10.33. In the present case, it is clear from the factual matrix that the factum of the rejection notice Ex.DW-2A/3 being communicated to defendant no.1 within seven banking days following the day of receipt of documents is within the exclusive knowledge of defendant no.2. So in light of the aforesaid legal position, the onus of proof lies upon defendant no.2 to establish timely communication of rejection notice to defendant no.1.
10.34. Now coming to the evidence brought on record by defendant no.2 for establishing the transmission of rejection notice dated 02.07.1999 Ex.DW-2A/3 to defendant no.1.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 26/45 10.35. The record reflects that defendant no.2 has relied upon Ex.DW-2A/4 for establishing the plea of communication of letter dated 02.07.1999 claiming that the same is the proof of fax transmission whereby the notice of rejection was delivered / transmitted to defendant no.1.
10.36. However, a mere glance at the document Ex.DW-2A/4 shows that it is completely illegible and no information regarding the transmission of the rejection notice dated 02.07.1999 Ex.DW-2A/3 on 05.07.1999 could be drawn out of that.
10.37. Briefly stating, the only document i.e. Ex.DW-2A/4 brought on record by defendant no.2, which allegedly reflects the proof of fax transmission to defendant no.1 is of no significance as the same is completely illegible and cannot be read in evidence in support of the contention of defendant no.2.
10.38. Furthermore, the plea of transmission of rejection notice to defendant no.1 appears improbable and an improvement made by defendant no.2 as no such plea of communication through fax has been taken in the written statement.
10.39. In a nutshell, the plea of defendant no.2 regarding transmission of rejection notice dated 02.07.1999 to defendant no.1 on 05.07.1999 through fax prima facie appears hollow and meritless.
10.40. The record also reflects that defendant no.2 has annexed Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 27/45 photocopy of a page out of its postage book for establishing communication of rejection notice Ex.DW-2A/3 to defendant no.1.
10.41. However, a bare perusal of the said extract out of the postage book reveals that it contains information regarding postal dispatches of 10.07.1999, which has nothing to do with the claim of defendant no.2 regarding dispatch of rejection letter dated 02.07.1999 to defendant no.1 on 05.07.1999.
10.42. An another important aspect of the present case which highlights the inconsistency / unreliability in the version of defendant no.2 regarding communication of rejection notice Ex.DW-2A/3 to defendant no.1 is reflected from the legal notice dated 11.03.2000 issued by defendant no.2 in response to the legal notice of plaintiff, wherein it is specifically recorded that the letter dated 02.07.1999 whereby the rejection of set of documents presented seeking encashment of LC no.16/24 was communicated to the presenter through fax on 09.07.1999 and the ordinary post intimating rejection was dispatched on 10.07.1999.
10.43. This Court has highlighted the aforesaid plea taken by defendant no.2 regarding sending information through fax on 09.07.1999 and through ordinary post on 10.07.1999 as the same is in direct contradiction with the plea taken by it that the rejection notice qua the documents presented under LC No.16/24 was sent of on 05.07.1999 through fax.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 28/45 10.44. At the cost of repetition, the aforesaid discussion reveals that the plea of defendant no.2 regarding communication of rejection notice Ex.DW-2A/2 to defendant no.1 on 05.07.1999 through fax is completely meritless.
10.45. Moreover, this Court has failed to understand as to why no steps or efforts were undertaken on the part of defendant no.2 for preserving the relevant record / documents which could have easily established its claim of communication whereby defendant no.1 was allegedly intimated about rejection of documents vide letter Ex.DW-2A/3, despite the fact that defendant no.2 is not a layman rather a Nationalised Bank who deals with such kind of litigations / claims in its business day in, day out.
10.46. The aforesaid unexplained omission on the part of defendant no.2 becomes more significant / blatant in view of the fact that soon after exchange of a number of letters between the parties to the suit regarding encashment of LC No.16/24, plaintiff and defendant no.2 started sending legal notices to each other with respect to the transaction in question, which clearly indicated / signalled a future lawsuit / litigation concerning the same.
10.47. Before concluding the discussion qua non-service of rejection notice upon plaintiff at the instance of defendant no.2, it is pertinent to make a brief reference to the testimony of DW-2A, which clearly establishes that defendant no.2 is not even certain about the date of receipt of letter dated 24.06.1999 recevied by it from defendant no.1 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 29/45 for the presentation of documents seeking encashment of LC No.16/24.
10.48. A plain reading of para 8 of evidence affidavit Ex.DW-2A/X reveals that defendant no.2 witness has deposed that the letter dated 24.06.1999 could have been earliest received by defendant no.2 on 28.06.1999.
10.49. The employment of expression 'could have been' by the witness makes it plain that defendant no.2 is not confident / certain about the most material fact of the transaction in question i.e. the date of receipt of letter dated 24.06.1999 sent by defendant no.1, which is extremely crucial / determinative for the computation of seven banking days prescribed under 13(b) UPC 500 for the communication of the rejection notice.
10.50. Hence, the testimony of DW-2A puts a question mark upon the entire defence set up by defendant no.2 whereunder the plea of timely intimation of rejection notice has been pleaded because unless defendant no.2 is not aware / sure about the exact date of receipt of documents from defendant no.1, how can a claim be made on its behalf regarding communication of rejection notice qua those documents within the prescribed period of seven banking days.
10.51. Hence, it is clear from the aforesaid discussion that defendant no.2 has failed to discharge its onus of proof of establishing the timely communication of the rejection notice Ex.DW-2A/3 to defendant no.1 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 30/45 on 05.07.1999 and by applicability of Article 14(e) stands precluded from claiming that the documents presented by defendant no.1 for the encashment of LC were not in compliance of the terms and conditions of the credit.
10.52. However, for the sake of completion, this Court would also examine the legality / sufficiency of the rejection notice Ex.DW-2A/3.
10.53. At this stage, it is pertinent to mention that the LC No.16/24 Ex.DW-2A/2 specifically contains a clause that this documentary credit is subject to UCP 500 and it is manifest from the pleadings / record of the present case as well that the controversy involved herein would be governed by the aforesaid guidelines.
10.54. So this Court would now discuss the relevant Articles for adjudging the plea of plaintiff regarding violation of UCP 500 guidelines by defendant no.2 in the conduct of transaction in question.
10.55. Article 13 and 14 of UCP 500 deal with the process of examination of documents and determining if there is any discrepancy in the documents presented for encashment of LC and also provides the option to the issuing bank to seek waiver of the discrepancies, if any, from the applicant and also prescribes the process of providing notice of refusal of the documents.
10.56. The entire procedure of examination of documents and thereafter taking up or refusing the same by the issuing bank Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 31/45 prescribed under UCP 500 can be summarised in the following terms:
(i) Firstly, when the documents are presented before the issuing / negotiating bank, it would be having a reasonable time not to exceed seven banking days following the day of receipt of documents for determining whether to take up or refuse and inform the party from which it received the documents.
(ii) Secondly, if the issuing bank comes to the conclusion that the documents filed by the beneficiary are in compliance with the terms and conditions of the credit, it is obligated to make the payment under the credit.
(iii) Thirdly, in cases where the documents are not found in compliance with the conditions of credit, the issuing bank would have two options either to refuse the documents and provide notice of refusal within the prescribed period of seven banking days or seek waiver of discrepancies from the applicant and the notice sent to the presenter must also mention as to whether the bank is holding the documents at the disposal of or, returning them to the presenter.
(iv) Fourthly, issuing bank would not be bound by the waiver of discrepancies by the applicant and it could still refuse to encash the LC in favour of the beneficiary.
(v) Fifthly, the time period of seven banking days starting from the following day of receipt of the document would not be extended in any circumstance even in case when the negotiating bank has approached the applicant for the waiver of the discrepancies.
(vi) And sixthly, if the issuing bank fails to abide by the provisions of Article 14 UCP 500, the bank would be precluded from claiming Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 32/45 that the documents are not in compliance with the terms and conditions of the credit and refusing encashment of the LC.
10.57. Now, this Court would now adjudicate as to whether the letter dated 02.07.1999 Ex.DW-2A/3, which is projected as rejection notice by defendant no.2, was in compliance with UCP 500 guidelines or not.
10.58. For better appreciation, the relevant text of the aforesaid letter Ex.DW-2A/3 is reproduced herein below:-
"Please refer to your letter Nos. dated 24.06.1999 and 24.06.1999 enclosing bills pertaining to M/s.Hilton Rubber Ltd. for Rs.20,92,802.40.
2. Documents have not been accepted due to the following discrepancies:-
(a) DESCRIPTION OF GOODS DETAILS DIFFER AS PER THE INVOICE / LETTER OF CREDIT:
(b) SHIPMENT OF GOODS MADE FROM TARAPUR to SONEPAT INSTEAD OF TARAPUR (DISTT. THANE) to BADHKALSA (DISTT. SONEPAT).
3. We have presented the documents to the applicant for their acceptance. In the meantime, we hold the documents at your risk and responsibility. Please also note that we disown any responsibility for Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 33/45 the goods or its condition and we are unable to store, insure the goods. However, we will deliver the documents to the applicant if finally accepted prior to your instruction otherwise."
10.59. A plain reading of Ex. DW-2A/3 shows that it was a communication sent by defendant no.2 to defendant no.1 informing the rejection of presented documents by citing discrepancies mentioned therein.
10.60. However, through Ex. DW-2A/3, defendant no.2 also conveyed / communicated to defendant no.1 about the presentation of the aforesaid rejected documents to the applicant / defendant no.3 for acceptance / waiver of discrepancies.
10.61. Hence, it is clear that Ex. DW-2A/3 was a composite notice issued by defendant no.2 thereby informing defendant no.1 that although the presented documents were not accepted due to cited discrepancies, the same had been sent to the applicant for the waiver of discrepancies.
10.62. This Court is of the view that the notice Ex. DW-2A/3 was anomalous / atypical, conveying conflicting and incompatible information, which was violation of UCP 500, wherein every step which is supposed to be taken by a party is clearly demarcated / distinctly marked off leaving no scope for overlapping.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 34/45 10.63. In other words, under UCP 500, two distinct individual options have been provided to the issuing bank i.e. either to reject the discrepant document under Article 14(b) and send the intimation to the presenter within seven banking days or present the documents before the applicant for the waiver of discrepancies under Article 14(c) and then decide whether to accept or refuse.
10.64. Furthermore, under UCP 500, the bank can issue only one notice within the prescribed period of seven banking days thereby either taking up the documents or refusing / rejecting them.
10.65. While the process of seeking waiver of discrepancies is an independent course of action provided for those cases in which the issuing bank instead of straightaway rejecting the defective / discrepant documents first approach the applicant for seeking waiver of discrepancies and then decide whether to take up or to refuse the documents subject to the condition incorporated in Article 14(c) that the process of seeking waiver of discrepancies does not extend the period of seven banking days prescribed in Article 13(b).
10.66. So, this Court is not ready to accept the argument of Ld. Counsel for defendant no.2 that Ex. DW-2A/3 was a valid rejection notice issued in due compliance of UCP 500 Guidelines as by virtue of Ex.DW-2A/3, the issuing bank kept the option of accepting the documents through a second notice opened, which is impermissible.
10.67. In other words, the notice Ex. DW-2A/3 cannot be treated as a Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 35/45 rejection / refusal notice since it was inconclusive and the option to accept the documents and encash the LC was left open.
10.68. Succinctly stating, there is a blatant violation of UCP 500 guidelines on the part of defendant no.2 as Article 13(b) clearly stipulates that the issuing bank should intimate the presenter about its decision whether to take up or refuse the documents within seven banking days. While Article 14(c) provides that even in case of discrepant documents when the issuing bank decides to approach the applicant for waiver of discrepancies, that would also not extend the prescribed period of seven banking days as provided under Article 13
(b) and importantly, Article 14(e) finally states that if the issuing bank fails to act in accordance with the provisions of Article 14, it would be precluded from claiming that the LC could not be encashed as the documents were not in compliance of the terms and conditions of credit.
10.69. Briefly stating, in the light of the failure on the part of defendant no.2 in informing defendant no.1 about rejection of documents, it is precluded from rejecting the documents by citing discrepancies and bound to encash the LC Ex.DW-2A/2.
10.70. For more clarity and better understanding, a flow chart incorporated in an educational document created by ICC Banking Commission to help users and document checkers while dealing with Article 13 and 14 of UCP 500, which is relevant and have bearing upon the issue involved herein is reproduced hereinbelow:
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 36/45 Examination of Documents, Waiver of Discrepancies and Notice Under UCP 500 Step 1 Examine Documents Article 13(a) & (b) Step 2 Document Comply or do not Comply Document Comply Pay, accept or incur a Documents Do not Comply deferred payment undertaking Article 14(b) Article 14(a) (i) & (ii) Step 3 Decide to Refuse or Seek Waiver Seek Waiver Decided to Refuse Article 14(c) Article 14(b), (d) (i) & (ii) Step 4 Give Notice of Refusal Article (Depending on Receipt of Waiver) 14(d) (i) & (ii) Take up or Refuse and Give Notice Applicant Waiver Received Applicant Waiver Not Received Step 5 Give Notice of Refusal Issuing Bank Waives If Waiver Received Bank Determines Article 14(d) (i) & (ii) Article 14(a) (i) & (ii) Whether or not it will accept the Applicant Waiver Issuing Bank Waives Article Bank Determines that it will not Accept the Pay Accept or incur a Bank Determines that it will Accept the deferred payment 14(a) (I) & (ii) Applicant Waiver Applicant Waiver undertaking Article 14(a) (i) & (ii) Pay, accept or incur Pay, accept or incur a deferred payment undertaking a deferred payment undertaking Give Notice of Refusal Article 14(a) (i) & (ii) Article 14(a) (i) & (ii) Article 14(d) (i) & (ii) Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 37/45 10.71. A bare perusal of the aforesaid chart reflects that in the case where the documents do not comply with the letter of credit, the issuing bank can either give notice of refusal or seek waiver under Article 14(c) and both of them are two independent courses of action and there is no overlapping / ambiguity.
10.72. In light of the entire foregoing discussion, this Court is of the considered opinion that Ex. DW-2A/3 was not a valid rejection notice and defendant no.2 failed to adhere with the procedure prescribed in UCP 500 and consequently, estopped from questioning the validity of documents presented for encashment of the LC by the plaintiff through defendant no.1 and obligated to encash the LC No.16/24.
10.73. Accordingly, the plaintiff is held entitled to the recovery of suit amount from defendant no.2.
10.74. Hence, this issue is decided in favour of the plaintiff and against defendant no.2.
11. ISSUE NO.2.
Whether the refusal to accept the documents under the L/C No. 16/24 by the defendant no.2 is not on legal and valid grounds? Onus on parties.
11.1. The onus to prove this issue is upon the parties.
11.2. The issue pertains to the legality of decision of defendant no.2 in Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 38/45 rejecting the documents presented by the plaintiff through defendant no.1 for encashment of LC No. 16/24 Ex.DW-2A/2.
11.3. So far as the issue of documents in question being in compliance with the terms and conditions of LC No.16/24 is concerned, the plaintiff itself has pleaded in the plaint that the defendant no.2 failed to make the payment under the LC No.16/24 despite the waiver of discrepancies in the documents by defendant no.3. Hence, it is obvious that the documents presented for encashment of LC were not strictly in compliance of terms and conditions of LC No.16/24.
11.4. However, it is pertinent to mention that the issue in hand does not pertain to the discrepancy in documents presented for the encashment of LC No.16/24 rather it is regarding the legality / justifiability of the act of defendant no.2 in refusing to accept those documents and encash the LC.
11.5. This Court has already arrived at the finding while adjudicating issue no.3 that defendant no.2 did not comply with the UCP 500 guidelines in the conduct of the business, especially Article 14 and 14(e), which specifically provides that if the issuing bank fails to act in accordance with the provisions of the said Article, it shall be precluded from claiming that the documents were not in compliance with the terms and conditions of the credit.
11.6. Hence, this Court is of the opinion that as by virtue of Article Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 39/45 14(e), defendant no.2 was precluded from questioning the suitability of documents, its decision of refusal to accept the documents presented under LC No. 16/24 cannot be termed as an act done on the basis of legal and valid grounds.
11.7. Accordingly, the present issue is decided in favour of plaintiff and against defendant no.2.
12. "Issue No.(iii)A Whether the present suit is bad in law as the plaintiff filed the same in collusion and connivance with defendant no.3? OPD2".
12.1. The onus to prove this issue upon defendant no.2.
12.2. During the course of their arguments, Ld. Counsel for defendant no.2 submitted that the transaction in question stands vitiated owing to the presence of element of fraud in the conduct of plaintiff and defendant no.3.
12.3. Defendant no.2 has pleaded that the plaintiff has played fraud upon it in connivance with defendant no.3 in the transaction in question and the same is reflected from the fact that goods in question were handed over to defendant no.3 by the plaintiff's transporter Shiv Shakti Transport Corporation despite the fact that all the original documents pertaining to the articles / goods including the MTR receipt was in its power Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 40/45 and possession.
12.4. Defendant no.2 has further pleaded that despite the aforesaid unauthorised delivery of goods, the plaintiff in connivance and collusion with defendant no.3 took no action against the transporter and moreover, did not implead it as one of the party to the present suit.
12.5. In a nutshell, defendant no.2 has pleaded that the element of fraud is manifest on the part of plaintiff in the conduct of the transaction in question from the fact that despite the unauthorised delivery of goods by its transporter to defendant no.3, plaintiff choose not to file any claim either against the transporter or defendant no.3.
12.6. However, this Court does not find any merit in the aforesaid plea of defendant no.2 that the omission on the part of plaintiff in not initiating any action against its transporter Shiv Shakti Transport Corporation for handing over the goods in question to defendant no.3 in the absence of MTR receipt indicates any kind of fraud.
12.7. Firstly, even if it is presumed that the transporter was not authorised to deliver the goods in question to defendant no.3 in the absence of MTR receipt, at the most, it would amount to breach of contract or breach of trust on the part of the transporter, giving rise to a cause of action in favour of Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 41/45 defendant no. 2 or plaintiff to seek damages either from the transporter or defendant no.3, but the same would not affect the distinct liability of defendant no.2 under the LC No.16/24 towards the plaintiff.
12.8. Secondly, it is a matter of record that defendant no.2 has not pleaded any wrongdoing / overt act on the part of plaintiff in the conduct of the transaction in question which could be identified as a fraudulent act except the allegation that the plaintiff intentionally did not make any claim against its transporter and defendant no.3.
12.9. Thirdly, it is pertinent to highlight that the term 'fraud' is conspicuously missing from the pleadings of defendant no.2 and it is a well settled position of law that in terms of Order VI Rule 4 CPC, fraud must be specifically pleaded and its necessary particulars should be stated in the pleadings. Reference can be made to the judgment passed by Hon'ble Apex Court in Placido Francisco Pinto (D) by LRs and Anr. Vs. Jose Francisco Pinto and Anr., Civil Appeal No.1491 of 2007.
12.10. Fourthly, it is trite to mention that the issuing bank assumes a primary and distinct liability towards the beneficiary, which is separate from the underlying mercantile transaction / contract between the buyer and seller and the banks obligation to make payment under the documentary credit depends solely on the presentation of requisite Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 42/45 documents strictly in compliance with the terms and conditions of the LC.
12.11. In view thereof, this Court is of the opinion that the alleged unauthorised delivery of goods made by the plaintiff transporter to defendant no.3 has no bearing upon the present suit / claim, which is premised upon the liability of a issuing bank under a letter of credit towards the beneficiary.
12.12. Briefly stating, there is not an iota of allegation / evidence / material available on record which could even indicate that either plaintiff practised fraud or acted in collusion and connivance with defendant no.3 while dealing with defendant no.2 during the transaction in question.
12.13. At this stage, it is relevant to highlight the settled position of law that bald assertions of facts are of no use to the parties to the suit unless they are backed by the admissible evidence. Reference can be made to the judgment passed by Hon'ble Apex Court in A.B. Govardhan Vs. P. Ragothaman, Civil Appeal no.9975-76 of 2024.
12.14. Hence, the plea of defendant no.2 that the present suit is bad in law as the same has been filed in collusion and connivance with defendant no.3 stands rejected.
12.15. Accordingly, this issue is decided in favour of the plaintiff and against defendant no.2.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
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13. ISSUE NO.4.
Whether the plaintiff is entitled to interest on the suit amount, if any, at what rate? OPP.
13.1. The onus to prove this issue is upon the plaintiff.
13.2. The perusal of the record reflects that there was no agreed rate of interest between plaintiff and defendant no.2 with respect to the transaction in question, however, it is obvious that the case in hand is commercial in nature.
13.3. Accordingly, the plaintiff is held entitled to pendente lite and future interest @ 8% per annum upon the principal amount of amount of Rs.20,92,802.40P from the defendant till the actual realization of the decreetal amount.
13.4. Hence, this issue is decided in favour of the plaintiff and against the defendant no.2.
14. RELIEF.
14.1. In view of the aforesaid discussion, the plaintiff is held entitled to recover a sum of Rs.20,92,802.40P from defendant no.2 alongwith pendente lite and future interest at the rate of 8% per annum till the date of actual realization.
15. Parties are left to bear their own costs.
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16. Decree sheet be prepared accordingly.
17. File be consigned to record room. MANOJ Digitally by MANOJ signed KUMAR KUMAR SHARMA Date: 2025.11.27 SHARMA 16:26:34 +0530 Announced in the open court (MANOJ KUMAR SHARMA) th on 27 November, 2025. DJ-07/WEST/THC/DELHI.
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