Delhi High Court
Bank Of India And Anr. vs Madura Coats Ltd. on 19 December, 2008
Author: Manmohan Singh
Bench: A.K. Sikri, Manmohan Singh
. HIGH COURT OF DELHI : NEW DELHI
+ FAO (OS) No.227/2003
Judgment reserved on : 23rd July, 2008
Pronounced on : 19th December, 2008
BANK OF INDIA AND ANR. ...Appellants
Through : Mr. Y.P. Narula, Sr. Adv. with
Mr. Sanjay Gupta & Mr. Amit
Shukla, Advocates
Vs.
MADURA COATS LTD. ....Respondent
Through : Mr. Girdhar Govind, Adv. with
Ms. Noorun Nahar Firdausi, Adv.
Coram:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE MANMOHAN SINGH
1. Whether the Reporters of local papers may
be allowed to see the judgment?
2. To be referred to Reporter or not?
3. Whether the judgment should be reported
in the Digest? Yes
MANMOHAN SINGH, J
1. This appeal has been filed by the appellants ('defendants No.1
and 2' in the suit) against the order passed by the learned Single
Judge on 21st April, 2003 whereby the application of appellants
for leave to defend was dismissed and the suit was decreed in
favour of the respondent ('plaintiff' in the suit).
2. The Plaintiff filed the suit for recovery of Rs.87,99,121/- along
FAO (OS)No.227/2003 Page 1 of 21
with interest under Order 37 of Code of Civil Procedure against
the defendants (appellants herein) and M/s Hilton Rubbers Ltd.
i.e Defendant no. 3.
3. It was submitted that M/s Hilton Rubbers Ltd. i.e. Defendant no.
3 had placed orders with the Plaintiff for supply of Nylon and
Polyester based fabrics vide different Purchase Orders, details of
which are mentioned hereinbelow :-
(i) Purchase Order No. 165 dated 01.02.99
(ii) Purchase Order No. 168 dated 13.02.99
(iii) Purchase Order No. 169 dated 01.03.99
(iv) Purchase Order No. 170 dated 01.03.99
(v) Purchase Order No. 173 dated 22.03.99
(vi) Purchase Order No. 172 dated 04.03.99
(vii) Purchase Order No. 174 dated 11.03.99
4. M/s Hilton Rubbers Ltd. had arranged to open irrevocable Letters
of Credit through Plaintiff in his favour being the beneficiary for
the said irrevocable Letters of Credit.
5. The State Bank of India, Industrial Finance Branch, Madurai acted
as advising/negotiating bank for the payment of material
supplied against the aforesaid Purchase Orders. The details of
said irrevocable Letters of Credit opened by the defendants in
favour of Plaintiff are as follows:-
(i) LC No. NDCBB/6041/ILC/16/10
FAO (OS)No.227/2003 Page 2 of 21
dated 10.05.1999 for Rs. 53,54,000.00
(ii) LC No. NDCBB/6041/ILC/15/143
dated 23.03.1999 for Rs. 11,51,000.00
(iii) LC No. NDCBB/6041/ILC/16/28
dated 23.06.1999 for Rs. 19,50,000.00
(iv) LC No. NDCBB/6041/ILC/15/136
Dated 10.03.1999 for Rs. 10,00,000.00
(v) LC No. NDCBB/6041/ILC/15/144
dated 24.03.1999 for Rs. 10,46,000.00
6. It is averred in the plaint that despite repeated requests made by
the Plaintiff, the defendant did not make payment under the
respective irrevocable letters of credit. The plaintiff has also
submitted that the letters of discrepancies alleged to have been
issued by the defendants were never sent or issued by the
Defendants to the advising/negotiating Bank and the same were
fabricated by the Defendants after the Plaintiff and
advising/negotiating Bank repeatedly pressed for payment of bills
sent under the aforesaid Letters of Credit. Thus, the suit was filed
by the Plaintiff against the Defendant for non-payment of the
amounts under Letters of Credit.
7. The plaintiffs in the plaint has specifically pleaded the alleged
letters of discrepancies to him and SBI, Industrial Finance Branch,
Madurai (Negotiating Bank) with regard to the Letters of credit
and alleged them to be fabricated/manufactured/afterthought
FAO (OS)No.227/2003 Page 3 of 21
documents. Para 7, 8 and 10 in this regard reads as under:-
"7. The plaintiff submits that despite repeated requests
made, the defendant No.1 did not make payment under
the respective irrevocable LCs. On approaching the
defendant No.1 for payment the plaintiff was conveyed
in a very casual manner that there were certain
discrepancies in the LC's and that the defendants had
written some alleged letters to SBI Industrial Finance
Branch, Madurai. The copies of the alleged letters of
discrepancies alleged to have been issued by defendant
No.1 mentioning the alleged discrepancies and handed
over to the representatives of the plaintiff by the
defendant No.1 when the plaintiff's representatives
called uon the defendant at it's office are annexed as
Annexure D-1 to D-4 in the list of documents attached
with the plaint.
8. The plaintiff submits that the alleged letters of
discrepanicies said to have been issued by defendant
No.1 to advising/negotiating Bank mentioning the
discrepancies were nothing but an afterthought, anti-
dated and, completely fabricated documents and were
never sent or issued by the defendant No.1 to the
advising and negotiating bank and were created after
the plaintiff and advising and negotiating bank
repeatedly pressed for payments of bills sent under the
aforesaid LCs. The fabrication and manufacture of
alleged letters of discrepancies is further borne out from
the alleged letter dated 13.3.99 of defendant No.1
wherein the mention of LCs and bills of dates
subsequent to the dated of alleged letters i.e 23.3.99
and 24.3.99 has been made. How could the defendant
No.1 mention in the said alleged letter of discrepancy
dated 13.3.99 LCs of dated 23.3.99 and 24.3.99 and bills
of subsequent date. When the plaintiff brought the fact
of issue of alleged letters of discrepancies by defendant
No.1 to the knowledge of State Bank of India, Industrial
Finance Branch, the advising and negotiating Bank The
State Bank of India were surprised and taken aback that
defendant No.1 had chosen to refer to some alleged
letters of discrepancies which the State Bank of India did
not receive or was not even aware of. The State Bank of
India promptly wrote a letter dated 21.8.99 to defendant
No.1 pointing out that the plaintiff had brought to its
knowledge the 4 letters purported to have been written
FAO (OS)No.227/2003 Page 4 of 21
by defendant No.1 to them The State Bank of India in its
letter dated 21.8.1999 stated that they were surprised to
note that none of the 4 letters said to have been sent to
them on different dates ever reached them This
corroborates the connection of the plaintiff that the said
4 letters (Annexure D-1 to D-4) in the list of documents
were fabricated and manufactured documents, were an
afterthought to raise the objection in the LC which did
not exist so as to avoid their obligation of making
payment covered under the relevant irrevocable LCs.
The letter dated 21.8.99 of State Bank of India is
annexed as Annexure-F with list of documents of the
plaint. The said alleged letters of discrepancies have not
reached State Bank of India, Madurai, till date.
xxxxx xxxxx
10. The plaintiff submits that without prejudice to its
contention that defendant No.1 had fabricated alleged
letters of discrepancies (Annexure D-1 to D-4) several
meetings with plaintiff's representative, the defendant
No.1 released proceeds against LC No.
NDCBB/6041/LC/15/144 dated 24.3.99 to the extent of
Rs.10,45,612.00 to the collecting bank as recently as on
28.8.99. It is surprising as to how defendant No.1 could
release the payment of one LC despite alleged
discrepancy and withhold the payment of
Rs.83,54,273.00 covered under the other LCs on the
alleged ground of discrepancy, which are similar to that
of LC against which the payment has been made on
28.8.99."
8. Even in the other paragraphs of the plaint the plaintiff has urged
that the defendant bank has fabricated the documents of the
alleged discrepancies to deprive the plaintiff of its legitimate
dues. However, it was submitted that the discrepancies
mentioned by the bank are no discrepancies in the eyes of law or
otherwise.
9. The Plaintiff had also preferred Writ Petition No.5894/1999
FAO (OS)No.227/2003 Page 5 of 21
against the defendants and others on almost the similar grounds
as pleaded in the suit which was dismissed inter alia on the
ground that relief claimed in the suit as well as this petition
were same.
10. The Defendant filed an application bearing IA no.10691/2000
under Order XXXVII Rule 3(5) read with Section 151 of Code of
Civil Procedure seeking leave to defend the suit inter-alia, on the
grounds that there are allegations of false claims, fabrication of
documents, alleged not to have been issued, manufacturing of
letters of discrepancies; commission of criminal offences, which
needs trial and, hence, the suit under Order XXXVII is bad for this
ground and unconditional leave to defend the suit be granted on
this ground alone.
11. It was further alleged that the dispute is a pure dispute on
contract/commercial transaction and the conduct of Defendants
is in the discharge of their contractual duties in the matter of
establishment and payment under Letters of Credit. The refusal
to make payment is on the basis of the discrepancies as observed
in the documents received under letters of credit, hence the bank
has acted on its commercial judgment in accordance with its
contractual rights.
12. It is submitted that the payment of Rs.10,45,612/- under
discrepant Letter of Credit was made by the Defendant No.1 on
FAO (OS)No.227/2003 Page 6 of 21
28.8.1999, on specific instructions vide letter dated 27.08.1999
from the Defendant No.3, for which funds were also arranged by
them. Each Letters of Credit is a separate contract, and hence,
documents presented thereunder form the subject matter of
different contracts. Payment of a document under one Letter of
Credit, therefore, does not constitute any obligation to make
payments towards other discrepant documents presented under
the same or other Letters of Credit.
13. In the reply filed by the plaintiff to the application of the
defendant seeking leave to defend, it was submitted that the
liability of the defendants arises out of letters of credit issued by
the defendants and in terms thereof the liability stands admitted
by the defendants and as such, they are not entitled to leave to
defend. The defendants cannot absolve themselves of the liability
merely by stating that the transactions took place between
plaintiff and Defendant No.3. It was alleged that the letters of
credit were issued by the defendants on the basis of which the
material was supplied to Defendant No. 3 and the alleged letters
were forged, fabricated and created to defeat the claim of the
plaintiff.
14. Learned senior counsel for the defendants/appellants has
vehemently argued that the plaintiff himself has made allegations
of fraud and forgery against the defendant not only in the civil
FAO (OS)No.227/2003 Page 7 of 21
suit decided by the Ld. Single Judge but also in the writ petition
filed by plaintiff. He has argued that the Ld. Single Judge has
failed to consider the disputes existing and pending between the
parties. The Ld. Single Judge failed to appreciate that the defense
of the defendants raised "triable issues", warranting the grant of
leave to defend.
15. Learned counsel for the defendant has also submitted that the
Ld. Single Judge failed to appreciate the fact that the refusal to
make payment under Letters of Credit was on the basis of the
discrepancies as observed in the documents received under
Letters of Credit. The discrepancies on account of which
payment under Letter of Credit were declined, were duly
intimated by the defendant. The letters of intimation by the
defendant were disputed by the plaintiffs and that itself had
given rise to "triable issue". The allegation of fraud and forgery
of the documents could have only been decided by way of trial
and therefore the defendants were entitled to unconditional
leave to defend.
16. Learned counsel for the plaintiff/respondent, on the other hand
while countering the argument of the learned counsel for the
defendants has stated that there are discrepancies in the
documents and has disputed that no intimation was sent to the
negotiating Bank informing discrepancies and alleged letters
FAO (OS)No.227/2003 Page 8 of 21
produced and relied upon by the defendant are fabricated and
manipulated document and the entire defence of the defendants
are an afterthought.
17. We have considered the rival submissions of the parties and have
also gone through the relevant record. The learned Single Judge
while dismissing the suit against Defendants observed that since
Defendant no.3 is covered under the protection of SICA , the
plaintiff had no reason to look towards it, the liability of the bank
is dehors and not connected in any manner with Defendant no.3
and rejected the application of the defendant nos. 1 and
2/appellants seeking leave to defend vide his order dated 21st
April, 2003 and passed decree in favour of the plaintiff and
against the defendant nos. 1 and 2. It was further observed that
there is no allegation of any irregularity committed by the
plaintiff in so far as the invocation of the letters of credit is
concerned and leave to defend application is declined to the
bank..
18. It is settled law that in a summary suit, in order to entitle the
defendants for leave to defend, it would be incumbent upon
them to show that they have a substantial defence and triable
issue to raise and their defence is not frivolous or vexatious. AIR
1988 Delhi 308(310).
19. As a rule, where a valid defence or triable issue is disclosed and
FAO (OS)No.227/2003 Page 9 of 21
defence is bona fide, the leave should be granted
unconditionally. Following are the principles that are to be
followed by the Court while considering the question of granting
leave to defend:
(a) If the defendant satisfies the Court that he has a
good defence to the claim on its merits the plaintiff
is not entitled to leave to sign judgment and the
defendant is not entitled to leave to defend.
(b) If the defendant raises a triable issue indicating
that he has a fair or bona fide or reasonable
defence although not a positively good defence the
plaintiff is not entitled to sign judgment and the
defendant is entitled to unconditional leave to
defend.
(c) If the defendant discloses such facts as may be
deemed sufficient to entitle him to defend, that is
to say, although the affidavit does not positively
and immediately make it clear that he has a defence
yet shows such a state of facts as leads to the
inference that at the trial of the action he may be
able to establish a defence to the plaintiff's claim
the plaintiff is not entitled to judgment and the
defendant is entitled to leave but in such a case the
Court may in its discretion impose conditions as to
the time or mode of trial but not as to payment into
Court or furnishing security.
(d) If the defendant has no defence or the defence set
up is illusory or sham or practically moonshine then
ordinarily the plaintiff is entitled to leave to sign
judgment and the defendant is not entitled to leave
to defend.
(e) If the defendant has no defence or the defence is
illusory or sham or practically moonshine then
although ordinarily the plaintiff is entitled to leave
to sign judgment, the Court may protect the
plaintiff by only allowing the defence to proceed if
the amount claimed is paid into Court or otherwise
FAO (OS)No.227/2003 Page 10 of 21
secured and given to the defendant on such
condition, and thereby show mercy to the
defendant by enabling him to try to prove a
defence." AIR 1977 SC 577(580).
20. It is also well settled law that at the stage of granting leave to
defend, parties rely on affidavits in support of the rival
contentions. Assertions and counter-assertions made in
affidavits may not afford safe and acceptable evidence so as to
arrive at an affirmative conclusion one way or the other unless
there is a strong and prima facie material available to show that
the facts disclosed in the application filed by the applicant
seeking leave to defend were either frivolous, untenable or most
unreasonable. No hard and fast rule or straight jacket formula
can be laid down for judging this question.
21. The Bombay High Court in Defence Knitting Industries (P) Ltd. V.
Jay Arts, (2006) 8 SCC 25 reiterated the abovesaid position while
holding that:-
" While giving leave to defend in the suit the court
shall observe the following principles:
(a) "If the court is of the opinion that the case raises a
triable issue then leave to defend should ordinarily
be granted unconditionally. The question whether
the defence raises a triable issue or not has to be
ascertained by the court for the pleadings before it
and the affidavits of parties.
(b) If the court is satisfied that the facts disclosed by
the defendant do not indicate that he has a
substantial defnce to raise or that the defence
intended to be put up by the defendant is frivolous
or vexatious it may refuse leave to defend
FAO (OS)No.227/2003 Page 11 of 21
altogether.
(c) In cases where the court entertains a genuine doubt
on the question as to whether the defence is
genuine or sham or whether it raises a triable issue
or not, the court may impose conditions in granting
leave to defend."
22. In John Impex (P) Ltd. v. Surinder Singh and others, (2003) 9
Supreme Court Cases 176 it was held :-
"The submission on behalf of the respondent is that
the lease deed clearly confirms the title of the
respondent. But this again is a matter to be
considered at trial not at this stage i.e. leave to
defend application. At this stage neither evidence
is to be weighed nor looked into. The purpose of
introducing a provision like leave to defend, is only
to find out frivolous, uncontestable cases at the
initial stage, not to eliminate other class of cases
which require adjudication after contest. In other
words if there be no conceivable contest possible
the litigation has to be nipped in the bud. "
23. In Raj Duggal Vs Ramesh Kumar Ms. Prem Lata Bansal, Adv., AIR
1990 SC 2218; it was observed as follows:-
"Leave is declined where the Court is of the opinion that
the grant to leave would merely enable the defendant to
prolong the litigation by raising untenable and frivolous
defenses. The test is to see whether the defence raises a
real issue and not a sham one, in the sense that if the
facts alleged by the defendant are established there
would be a good or even a plausible defence on those
facts. If the court is satisfied about the leave it must be
given. If there is a triable issue in the sense that there is
a fair dispute to be tried as to the meaning of a
document on which the claim is based or uncertainty as
to the amount actually due or where the alleged facts
are of such a nature as to entitle the defendant to
interrogate the plaintiff or to cross examine his
witnesses leave should not be denied. Where also, the
defendant shows that even on a fair probability he has a
FAO (OS)No.227/2003 Page 12 of 21
bona fide defence, he ought to have leave. Summary
judgments under order 37 should not be granted where
serious conflict as to the matter of fact or where any
difficulty on issues as to law arises. The court should not
reject the defence of the defendant merely because of
its inherent implausibility or its inconsistency."
24. Learned counsel for the plaintiff has referred to the case of
Hira Lal & Sons & others v. Lakshmi Commercial Bank, 25 (1984) Delhi
Law Times (SN) 33 where the principles for granting or refusal leave to
defend are being laid down in the following words:-
"The principles on which courts should grant or refuse
leave to defend the suit are not in doubt. Thus:
(a) If the defendant raises a triable issue indicating
that he has a fair or bona fide or reasonable defence
although not a positively good defence the plaintiff is not
entitled to sign judgment and the defendant is entitled to
unconditional leave to defend.
(b) If the defendant discloses such facts as may be
deemed sufficient to entitle him to defend that is to say,
although the affidavit does not positively and immediately
make it clear that he has a defence, yet shows such a
state of facts as leads to the inference that at the trial of
the action he may be able to establish a defence to the
plaintiff's claim the plaintiff is not entitled to judgment
and the defendant is entitled to leave to defend but in
such a case the court may in its discretion impose
conditions as to the time or mode of 'trial but not as to
payment into court of furnishing security'."
25. From the above said discussion, it is clear as enunciated by Apex
Court in a plethora of Judgments, that wherever the defense
raises "triable issues", leave to defend must be granted and when
that is the case it must be given unconditionally.
26. Let us now deal with the averments/defences raised in the
FAO (OS)No.227/2003 Page 13 of 21
application filed by the defendant nos. 1 and 2 under Order 37
Rule 3(5) read with Section 151 of the Code of Civil Procedure,
1908.
27. The question before us is whether the defences raised by the
defendant are prima facie valid, fair and bona fide defences
which raise the real triable issue or whether those are simply
sham or practically moonshine. If valid defences are raised, then
ordinarily the plaintiff is entitled to a decree straightway. The
following are the main defences raised by the defendant :-
(a) There are allegations of false claims, fabrication of
documents, alleged not to have been issued;
manufacturing of letters of discrepancies; and allegation of
commission of criminal offences, which needs trial;
(b) The said letters were not sent by the Bank or that the same
were fabricated as an afterthought;
(c) The plaintiff who are themselves at fault for having
presented discrepant documents and cannot fault the
Defendant Nos.1 and 2 for declining the payment;
(d) That on the one hand, in para 7 of the writ petition, the
plaintiff have stated that alleged discrepancies in the letter
of credit were learnt by them from their bankers namely
Messrs. State Bank of India and in para 8 of the plaint, the
plaintiff have said that they had brought to the knowledge
of their bankers, i.e., Messrs. State Bank of India regarding
alleged discrepancies in the letters of credit, which State
Bank of India conveyed to the defendant No.1 through
their alleged letter dated 21.8.1999;
(e) That the plaintiff had produced the documents containing
the goods different than that specified in the Letter of
Credit and the plaintiff was seeking payment against those
goods, which were not covered under the Letters of
Credit;
FAO (OS)No.227/2003 Page 14 of 21
(f) That whereas under the terms and conditions of the
Letters of Credit, the State Bank of India, Madurai Branch
were not indicated as the Negotiating Bank, however,
from the correspondence exchanged amongst the parties,
they seemed to act as such, and hence, it was for this
reason that communications were sent to them and the
defendant No.1 on several occasions sought instructions
from them, which instructions never came;
(g) That the terms and conditions of the said Letters of Credit
are a matter of record. As and when discrepancies were
observed and found, in the documents presented, the
defendant No.1 accordingly under the terms of the Letters
of Credit/provisions of U.C.P. 500/contract, made
intimation, declining payments for the reasons indicating
therein. As per customary banking procedure, such
intimation were sent to the presenting banker. The refusal
to make payment is on the basis of the discrepancies as
observed in the documents received under Letters of
Credit, and hence, the bank has acted on its commercial
judgment in accordance with its contractual rights;
(h) The reasons for non-payment are contained in the letters
which are allegedly sent by the defendant No.1 to State
Bank of India, Madurai (Negotiating Bank) and the
defendant No.1 Bank was not obliged to make payment
where documents presented were not in conformity with
Letters of Credits.
28. What is relevant in the present case are the terms incorporated
in the guarantee executed by the bank. It is well settled law that
the bank guarantee is an independent contract between the bank
and the beneficiary thereof. We are of the view that since the
entire dispute is based on the allegations whether there is
fabrication of letters or not and whether the payment could be
stopped by the defendants No.1 and 2 on the alleged
discrepancies in the document, there certainly exists a 'triable
FAO (OS)No.227/2003 Page 15 of 21
issue' which needs trial and is a plausible issue which validly gives
the ground to the defendants for leave to defend.
29. The application to honour the letters of credit having been
conditional one, therefore, prima facie, the
defendants/appellants are absolved of their liability to honour
the letters of credit and to pay the value of the goods being the
letters of credit a conditional contract. (Ref: State Bank of India
& Ors. vs. Manganese Ore (India) Ltd. & Anr, (1996) 11 SCC 113).
30. We are conscious of the fact that if bank guarantee is in
unequivocal and unconditional terms, the bank undertakes to pay
the amount without any demur or objection and irrespective of
any dispute, court would refrain from issuing the injunction. But
if bank guarantee is conditional, the beneficiary cannot have
unfettered right to invoke the guarantee and court can issue
injunction against invocation of the guarantee in view of the facts
of the case.
31. Learned counsel for the plaintiff has referred to the
judgment of this court in Laxmi Commercial Bank v. Hiralal, 1981
Rajdhani Law Reporter (Note) 94; wherein leave to defend
application was dismissed and it was held that the plea of
defendant that there was discrepancy in the documents is hollow
as defendant was given 7 days to make the payment. If there was
any discrepancy in the documents, same should have
FAO (OS)No.227/2003 Page 16 of 21
been brought out within 7 days and on expiry of this, liability, of
defendant became absolute.
32. We feel that the said judgment does not help the case of the
plaintiff since in the present case, facts and circumstances are
that the defendant no. 1 allegedly written four letters dated
8.4.1999, 28.3.1999, 22.5.1999 and 31.5.1999 informing about
the discrepancies in the letters of credit well in time though the
plaintiff has denied about receiving of the said letters and made
the allegation against the defendants that the said letters are
false, fabricated, manufactured and afterthought. The defendants
on the other hand have denied the said allegations of the
plaintiff. Therefore facts in the present case are different as the
alleged letters of discrepancies are in dispute as contrary to the
stand taken by the plaintiff. This aspect is to be examined in the
trial.
33. The learned counsel for the defendants has pointed out and
made his submissions that under the letters of credit, a
conditional contract was entered into between the parties. Some
of the clauses relating to the letters of credit and the alleged
discrepancies raised by the defendant-bank in their four letters
are shown as under:-
Terms and conditions in the Discrepancies
letters of credit
(a) Invoices should certify (a) Description of goods
FAO (OS)No.227/2003 Page 17 of 21
that the goods are as per differ as per the details of
importer's purchase order the invoice/letter of
indent number. credits;
(b) Evidencing current (b) Shipment made from
shipment of the Madurai to Badhkhasla
undermentioned goods from instead of Madurai to
xxxxMadurai xxxxx to xxxx Badhkhasla via Delhi UP
Badkhalsa via Delhi UP Border
Border.
(c) Documents must be (c) Documents not
negotiated not later than 15 negotiated within the 15
days after the date of days after the date of
shipment/dispatch and in any shipment.
case, not later than the date
of expiry of the credit.
34. The learned Single Judge has referred various decisions in this
regard on the question of unconditional Bank Guarantee and we
are in agreement with the findings and principles laid down in the
said judgments but in the present case the Letters of Credits are
conditional, thus, the facts and circumstances differ in the
present case, and the defendants should not be debarred to put
up their defence and should be allowed to go for trial of the suit
against the allegation about the fabrication and manipulation of
the letters stated in the plaint.
35. In the judgment of the Apex Court in United Commercial Bank vs.
Bank of India & Ors. (1981) 2 SCC 766, it is held that where under
the letters of credit, description of goods differ from those
mentioned in any of the clauses, the paying bank may refuse
payment. Relevant portion is extracted below :
"....The description of the goods in the
relative bill of exchange must be the same
description in the letter of credit, that
it, the goods themselves must in each be
FAO (OS)No.227/2003 Page 18 of 21
described in identical terms, even though
the good differently described in the two
documents are, in fact, the same. It is the
description of the goods that is all
important and if the description is not
identical it is the paying bank's duty to
refuse payment."
36. We are of the view that the learned Single Judge wrongly refused
the application of the defendants for granting leave to defend as
prima facie it is disputed fact whether there exist discrepancies in
the documents, the details of which are mentioned in the four
letters allegedly written by the defendant No.1 to the negotiating
bank and allegations of fraud and forgery are raised in the plaint
by the plaintiff himself, leave to defend could not have been
refused to the appellants. The said allegations are still to be
looked into and require trial and thereby raises triable issues.
Further the defendant No.1 is a known bank and in case any
decree is passed against the said bank after trial, the said bank is
in a position to pay the decreed amount, on the other hand in
case, no chance is given to the defendants in facts and
circumstances of the present case, great injustice would be
caused to the defendants to suffer a decree without trial of the
suit. Therefore, we feel that the trial in the present circumstances
is required and the defendants No.1 and 2 are entitled to the
grant of leave to defend the suit on conditional basis.
37. In our considered view the defendants are entitled to leave to
FAO (OS)No.227/2003 Page 19 of 21
contest the suit subject to furnishing a bank guarantee for 50%
of the principle amount i.e. Rs.43,99,561/- alongwith interest @
9% p.a. The said amount of 50% has already been deposited by
the defendants by way of execution of bank guarantee in view of
order dated 30th May, 2003 while admitting the appeal. The said
bank guarantee was accepted by learned Registrar General vide
order dated 8th March, 2004 which is valid until disposal of the
present appeal i.e. FAO (OS) No.227/2003. Now the said bank
guarantee which is already accepted by the Registrar General will
continue as a condition of 50% till the disposal of the suit.
38. We, therefore, set aside the impugned order and allow the
application of the defendant nos. 1 and 2/appellants filed under
Order 37 Rule 3(5) of the Code of Civil Procedure, 1908 to grant
leave to defend the suit.
39. The defendant nos. 1 and 2 are granted four weeks' time to file
the written statement from the date of this order. The matter
shall be put up before the Joint Registrar on 30th January, 2009
for further directions.
40. We make it clear that any observation made herein shall be
treated as tentative in nature and shall not constitute any
expression of final opinion on the issues involved in Appellant's
FAO (OS)No.227/2003 Page 20 of 21
suit and shall have no bearing on the final merit of case and
submissions of the parties in the suit.
41. With these directions, the present appeal is disposed of. No
costs.
MANMOHAN SINGH, J.
A.K. SIKRI, J. December 19, 2008 sa/sd FAO (OS)No.227/2003 Page 21 of 21