Calcutta High Court
Bangladesh Krishi Bank vs Navyug Enterprises (P) Ltd on 19 March, 2019
Author: Soumen Sen
Bench: Soumen Sen
APD No.577 of 2017
CS No.80 of 2013
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
ORIGINAL SIDE
BANGLADESH KRISHI BANK
-Versus-
NAVYUG ENTERPRISES (P) LTD.
Appearance:
Mr. Debdutt Mukherjee, Adv.
Mr. Debraj Mukherjee, Adv.
...for the appellant.
Mr. Rupak Ghosh, Adv.
Mr. Ayan Dutta, Adv.
Mr. N. Khanjoy, Adv.
Mr. M.A. Jabbar, Adv.
...for the respondent.
BEFORE:
The Hon'ble JUSTICE SOUMEN SEN The Hon'ble JUSTICE RAVI KRISHAN KAPUR Date : 19th March, 2019.
The Court : This appeal is directed against an order passed in an application under Chapter XIIIA of the Original Side of this Court. This order is a deemed decree and has disposed of the suit in its entirety. The said decree is assailed by the appellant on the ground that the appellant is not required to make payment under the letter of credit as the plaintiff has failed to substantiate that the goods have reached the destination and the defendant no.2 has received the said goods.2
In order to appreciate the nature of objection, it is necessary to briefly state the facts.
The plaintiff entered into an agreement to supply goods to the second defendant having its place of business in Bangladesh. The second defendant is a Bangladeshi importer. The second defendant requested the first defendant to issue an irrevocable letter of credit in respect of the transaction. The irrevocable letter of credit is expressly governed by the latest version of Uniform Customs and Practice (UCP) for documentary credit. The first defendant bank undertook to pay the specified amount upon specified document being furnished as detailed in the letter of credit by the plaintiff exporter. The plaintiff forwarded the document, on or before 9th December, 2010 without any letter addressed by the first defendant to its constituent. The first defendant claimed to have received such document only on 13th December, 2010. The first defendant bank did not immediately protest on the document being received or point any discrepancy or non-compliance with the terms of the documentary credit on the part of the plaintiff or the third defendant negotiating bank. It was only on 10th January, 2011 that the first defendant reached to the plaintiff's bankers. In this regard, the following lines which correctly described as "remarkable lines" by the learned Single Judge is noted :3
"Please refer to you export Bill under reference No.0480510BP0001241 Date 09.12.2010 drawn on our L/C No 049910010537 Date 10.11.2010 for USD.51,400.00. It is very regreated that your exporter M/S. Navyug Enterprises Pvt. Ltd. 3f, Trinity House, 226/1, AJC Bose Road, Kolkata-700020 have not shipped any goods against this documents and our customs authority of Port landing station i.e. Sonamasjid land customs Sibganj, Chapai Nababganj confirmed the same vide their letter no.5-Cus- 20(26) Bangladesh Bank/SO:M:/09/42 Date-06.01.2011 photocopy of which enclosed.
Though, Bank deals with documents not with goods. But how a bank can pay money against fake documents like this.
However, we returned herewith your documents without any risk and responsibilities on our part.
Please acknowledge receipt."
The first defendant refused to negotiate the said documents on the plea that the plaintiff had relied on fake documents of transactions and there is no proof that the goods have reached the Bangladeshi importer. The first defendant seeks to contend that of one of the documents that was required to be submitted for negotiation was a writing evidencing the shipment being made over to the Bangladeshi importer or a document demonstrating that the goods had crossed over to Bangladesh to be handed over to the importer, once the first defendant alleged that the plaintiff had relied on fake documents in such regard, no 4 decree can be passed in favour of the plaintiff without the plaintiff being required to prove the goods reaching its destination at Bangladesh or the delivery thereof to the Bangladeshi importer. It was further contended before the learned Single Judge that since the second defendant Bangladeshi importer had been impleaded, it would be open for the second defendant to file a counter-claim in this proceedings, whereupon the plaintiff would have to prove the supply of the goods to the second defendant upon such goods crossing over from the territory of India to the territory of Bangaldesh. What the first defendant seeks to assert is that the plaintiff would be disentitled from being granted a summary decree without the plaintiff affirmatively establishing its claim and the underlying claim of the plaintiff is that the goods did not transport to Bangladesh and make over to the second defendant.
The suit, plain and simple, is for invocation of the irrevocable letter of credit. It is trite law that the banks deal with the documents and not with goods. An irrevocable letter of credit is the life blood of international commerce. In M.A. Sassoon & Sons Ltd. v. International Banking corporation [1927] AC 711 at 724 Lord Sumner said: "It is not easy to see in what respect [the word "irrevocable"] would carry the matter further than the word "contract", used in its strict sense, would have 5 done, for .. the word "irrevocable" simply closes the door on any option or locus penitentiae, and makes the agreement definite and binding - in other words, creates a true contract, which will either be performed or be broken."
The Bank's responsibility is absolute, dependent only upon the presentation of the proper documents within the period of availability of the credit and upon compliance with any other condition precedent in the credit. As Rowlatt J said in Stein v. Hambros Bank of Northern Commerce [(1921)9 LL LR 433 at 507].
"The obligation of the bank is absolute, and is meant to be absolute, that when the documents are presented they have to accept the bill. That is the commercial meaning of it."
In United City Merchants (Investments) Ltd. v Royal Bank of Canada, speaking of the contract between the confirming bank and the seller but in terms appropriate to the contract between the issuing bank and the seller, Lord Diplock said :
"If, on their face, the documents presented to the confirming bank by the seller conform with the requirements of the credit as notified to him by the confirming bank, that bank is under a contractual obligation to the seller to honour the credit, notwithstanding that the bank has knowledge that the seller at the time of presentation of the conforming documents is alleged by the buyer to have, and in fact has already, committed a breach of his 6 contract with the buyer for the sale of the goods to which the documents appear on their face to relate, that would have entitled the buyer to treat the contract of sale as rescinded and to reject the goods and refuse to pay the seller the purchase price." The Courts have jealously protected the invocation of irrevocable letter of credit unless it is tained with fraud or irretrievable injustice is established. Fraud, which vitiates the contract must have a nexus with the acts of the parties prior to entering into contract. In case of irrevocable letter of credit the Court will not interfere with the same unless there is fraud and irretrievable damages are involved in the case and there has to be an established fraud. (see M/s. Reliance Salt Ltd. vs. M/s. Cosmos Enterprise & Anr. reported in 2006(13)SCC 599 and Hindustan Steel Workers Construction Ltd. vs. G.S. Atwal & Co. (Engineers) Pvt. Ltd. reported in 1995(6)SCC 76) The bank can refuse to honour a letter of credit provided the document to be negotiated under the letter of credit is discrepant. There is also a time limit stated by the different UCPs and in this case UCP 600 within which the opening bank has to raise objection with regard to the documents submitted for negotiation. The first defendant is not concerned with the delivery of the goods to the second defendant. The second defendant, for various reasons, may have refused to acknowledge supply of the goods, but by that act it does not 7 absolve the first defendant from discharging and/or fulfilling its obligation under the letter of credit. There is no doubt that UCP 600 applies to the transaction and the plaintiff and the first defendant accepted such position. The plaintiff forwarded the document on or about 9th December, 2010. Article 14(b) of the UCP provides, inter alia, that "the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying." Such provision follows Article 14(a) that mandates that the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.
Article 16 of UCP 600 permits discrepant documents to be brought to the notice of the beneficiary or the negotiating or the confirming bank. It also provides for the waiver of any discrepancy by or on behalf of the issuing bank. Article 16(a) of UCP 600 gives the issuing bank the right to refuse to honour or negotiate any presentation if the presentation does not comply with the requirements of the relevant documentary credit. Clauses
(d) and (f) of Article 16 of UCP 600 provide as follows:
"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.8
"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."
Article 16(c) of UCP 600 deals with the contents of a notice that is issued by a confirming or issuing bank when it refuses to honour or negotiate the documents presented under the documentary credit.
There is no doubt in the instant case that the documents were presented for negotiation by the plaintiff or by the third defendant bank on behalf of the plaintiff on December 9, 2010 and that such documents were received by the first defendant issuing bank on the same day or, latest by December 13, 2010.
Such provision follows Article 14(a) and as rightly pointed out by the learned Single Judge that in the event the issuing bank had any reservations, it had every right to refuse to honour or negotiate the documents on account of any discrepancy or other valid reason; provided that the notice of refusal ought to have been issued within five banking days after the date of receipt of the documents for negotiation. There was no notice by the first defendant to the third defendant at any time prior to 10th January, 2011. Further it is not the first defendant's case that the five working days between the date of receipt of the document and the issuance of the letter dated 10th January, 2011 9 fell on or after the date of issuance of the first defendant's reply.
It is apparent that the first defendant did not protest the documents or point out any discrepancy therein or issue any notice refusing to honour the documents or the presentation within the time stipulated under UCP 600. Since the effect of the failure of the issuing bank to give notice of dishonour within the stipulated time entails the undeniable liability of the issuing bank under the documentary credit, it is evident that the first defendant is liable to pay the amount covered by the documentary credit or as demanded by the covering letter under which the documents were presented.
We are in agreement with Justice Banerjee that there is no defence to the claim. There is no shred of merit in any of the grounds canvassed by the first defendant upon the bank being bound by Uniform Customs and Practice for documentary credit, the bank has to only deal with the documents and the documents alone and it is not the bank's concern even as to whether the goods covered by the documents exists or not.
We find that the plaintiff has followed the procedure prescribed under the UCP 600. According to us, once the documents are presented to the first defendant and the first defendant failed to issue notice of refusing to honour or negotiate the 10 documents within the time stipulated under Article 14(b) and Article 16(d) of UCP 600, the bank's obligation to pay the amount covered by the documentary credit is absolute and unquestionable and nothing else need to be seen while assessing the bank's liability under the relevant documentary credit.
We are also in agreement with the learned Single Judge as to what steps the other parties to the suit might take against the plaintiff or anybody else is of no concern of the first defendant and, certainly, not a defence that can be urged by the first defendant. On such consideration, we uphold the decree and dismiss the appeal. The subsisting order of attachment shall continue till the entire decretal debt is discharged by the first defendant.
(SOUMEN SEN, J.) (RAVI KRISHAN KAPUR, J.) A/s.