Bombay High Court
Bank Of India vs Laffans India Exports Private Ltd. And ... on 25 February, 1988
Equivalent citations: 1994(1)BOMCR419
Author: Sujata Manohar
Bench: Sujata Manohar
JUDGMENT Sujata Manohar, J.
1. The appellant-Bank is the original plaintiff while respondents 1 and 2 are the original defendants 1 and 2. On or about 10th July, 1974 Mellon Bank International, New York, opened an irrevocable letter of credit for U.S. $1,63,755.00 equivalent to Rs.12,77,496 at the instance of Messrs Loosin International, New York in favour of Messrs Mixmum Export Import Pvt. Ltd. The letter of credit was in respect of readymade garments to be shipped by M/s. Mixmum Export Import Pvt. Ltd. to New York on or before 5th September, 1974. Under the letter of credit drafts had to be drawn by the beneficiary "at 90 days sight" on Mellon Bank International. The appellant-Bank as advisory bank informed M/s. Nirman Export Import Pvt. Ltd. about the opening of this letter of credit.
2. In or about July, 1974 a part of the credit under this letter of credit amounting to U.S. $42,600 (Rs.3,31,517.50) was transferred to Laffans India Exports Pvt. Ltd., the 1st respondent herein.
3. Under this letter of credit the 1st respondent drew on Mellon Bank International six Bills of Exchange in favour of The New Bank of India Ltd., who are the 2nd respondent herein. Of these Bills of Exchange 5 Bills of Exchange are dated 5th September, 1971. They are for U.S. $17,721.60, U.S. $3,578.40, U.S. $3,578.40, U.S. $3,578.40 and U.S. $4,430.40. The 6th Bill of Exchange is dated 24th September, 1974 and it is for U.S. $8,172.10. These Bills of Exchange are payable "90 days sight". These Bills of Exchange were negotiated and endorsed by the 2nd respondent-Bank in favour of the appellant-Bank for valuable consideration. The appellant-Bank, however, while forwarding to the 2nd respondent-Bank their cheques for the Bills negotiated informed the 2nd respondent :
"....... the payment is made to you under reserve owing to the following discrepancies noticed by us :
1. Gross weight on custom invoices differs from that of Bill of Lading.
2. Signature of Mike Fieman not known to the Bank not verified by the beneficiaries.
3. Please note that this payment is made to you subject to repayment on demand of the bill amount, without loss of exchange to ourselves, plus interest and/or any other charges incurred by us and/or by our principals if the documents are not acceptable to the openers for all or any of the above mentioned discrepancies, or any other discrepancies whatsoever."
A similar intimation was sent to the 1st respondent.
4. The appellant-Bank in its turn forwarded these 6 Bills of Exchange to Mellon Bank International for acceptance and realisation. These Bills were so forwarded along with a covering schedule. Out of 5 Bills of Exchange dated 5th September, 1974, 2 were accepted by Mellon Bank International on 25th September, 1974 while 3 others were accepted on 3rd October, 1974. The 6th Bill dated 24th September, 1974 was not accepted by Mellon Bank International. The appellant-Bank received a Telex from Mellon Bank International dated 24th December, 1974 informing the appellant-Bank that due to legal action initiated by their clients M/s. Loosin International - in New York, they have been restrained by an order of the Court from making payments under the Bills of Exchange to the appellant-Bank on due dates.
5. The appellant-Bank informed the 2nd respondent-Bank of this non-payment. The 2nd respondent-Bank in turn informed the 1st respondent of non-payment. The appellant-Bank has filed the present suit on 17th December, 1977 for recovery of amounts under these 6 Bills of Exchange.
6. The respondents contend that the suit in respect of 5 Bills of Exchange, all dated 5th September, 1974 is barred by limitation. There is no dispute that the suit on the 6th Bill of Exchange which is dated 24th September, 1974 is within the period of limitation. The dispute turns on the meaning of the phrase "90 days sight". According to the respondents, the due date for payment of the Bills of Exchange was 90 days from the date of each Bill of Exchange plus 3 days of grace. They contend that the period of limitation, which is 3 years, expired on 9th December, 1977. Should this contention by accepted?
7. Section 21 of the Negotiable Instruments Act, 1881 defines the expression "at sight" and "after sight". In a bill of exchange the expression "at sight" means `on demand' while `after sight' means `after acceptance' or `noting for non-acceptance' or `protest for non-acceptance'. The Bills of Exchange have been made payable `90 days sight'. This can only mean 90 days after sight because the Bills are clearly made payable on the expiry of 90 days after a specific point of time. To read the expression `90 days sight' as `90 days at sight' would convey no meaning because if the Bills of Exchange are payable at sight, there is no question of their becoming payable 90 days thereafter. Plain grammar demands that the expression should be read as 90 days after sight. According to the respondents, the Bills are payable 90 days after date. The expression used in the Bills, however, is not `after date' but `sight'. The term `sight' coupled with `90 days' clearly indicates that payment is to be made 90 days after sight. The Bills of Exchange, therefore, become payable 90 days after acceptance of the bills. In the present case, the date of acceptance in respect of 2 Bills was 25th September, 1974 while the date of acceptance in respect of 3 other Bills was 3rd October, 1974. The due dates of payment would be 90 days after these dates of acceptance viz., 24th December, 1974 and 1st January, 1975 respectively. Under Article 34 of the Limitation Act, 1963 on a Bill of Exchange payable at a fixed time after sight the period of limitation is 3 years from the date when the fixed time expires. Since the period of limitation is 3 years from the above due dates (when the fixed time of 90 days expires), the suit, which is filed on 17th December, 1977, is within the period of limitation.
8. It is next contended by the respondents that the appellant-Bank is not entitled to sue on the Bills of Exchange because the appellant-Bank is not the holder of these Bills of Exchange. The Bills of Exchange were in favour of the 2nd respondent-Bank. The 2nd respondent-Bank negotiated these bills and endorsed them in favour of the appellant-Bank. The bills were endorsed by the appellant-Bank in favour of Mellon Bank International and forwarded to Mellon Bank International for acceptance and payment. There is no re-endorsement of these bills by Mellon Bank International in favour of the appellant-Bank. The respondents contend that in the absence of any re-endorsement the appellant-Bank is not the holder of these Bills of Exchange.
9. To examine this contention it is necessary to look at section 8 of the Negotiable Instruments Act, 1881. It says :
"The `holder' of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.
Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction."
10. Mellon Bank is not the holder of these Bills. It is the drawee and acceptor of these Bills. It is not entitled to possession of these Bills without payment. In fact Mellon Bank has returned the bills to the appellants.
11. Do appellants cease to be the holders of the Bills? They endorsed the Bills in favour of Mellon Bank for realisation. Mellon Bank returned the Bills to the appellants without making payment. Is a re-endorsement by Mellon Bank in favour of the appellants necessary? We think not.
12. In the case of Nilgiri Trading Co. v. K. Simrathmull, , the Madras High Court held : "The prima facie presumption is that if a person who endorses a bill of exchange to another, whether for value or for purposes of collection, shall come to the possession thereof again, he shall be regarded, unless the contrary appears in evidence, as the bona fide holder and proprietor of such bill and shall be entitled to recover, notwithstanding there may be on it one or more endorsements in full subsequent to the one to him, without producing any receipt or endorsement back from either of such endorsees whose names he may strike from the bill or not as he may think proper". The Madras High Court held that the mere absence of re-endorsement did not disentitle a previous endorsee who came in possession of the bill of exchange from being a holder of the bill of exchange and sue on it.
13. The Court relied upon an earlier decision of that Court in the case of Muthar Sahib Maraikayar v. Kadir Sahib Maraikayar, reported in I.L.R. 28 Madras 544. The Division Bench of the Madras High Court in that case had observed that negotiable instruments are chooses in action and the rules in regard to them prior to the passing of the Negotiable Instruments Act continue to apply to them, to the extent that they are not expressly or impliedly affected by any provisions of the Act. In that case the endorser of promissory note had paid off his immediate endorsee and obtained possession of the note. There was however no re-endorsement in favour of the endorser. The Court held that the endorser was entitled to sue and recover on the note. The Court observed in that case : "... when a prior indorser, in the technical language of the law, `takes up a note' (see Ellsworth v. Brower), on payment to his immediate endorsee and discharges his liability under the contract arising by the indorsement, there is no provision either in the Negotiable Instruments Act or elsewhere prescribing the mode in which such `taking up' of the notes is to be established." The judgment relied upon the observation of Story on `Promissory Notes' to the effect that the possession of a note by the maker or by the payee or by any subsequent indorser is prima facie evidence that he is the true and lawful owner thereof and that he has acquired the full title thereto. A fortiorari, this will apply when the endorser obtains possession of bill of exchange from an endorsee who was merely an endorsee for collection and payment. The appellants, being endorsees who have obtained possession of the Bills are entitled to sue on them.
14. In Bhagayyanagar Cloth Stores v. Pessumal Harbhagvandas, reported in A.I.R. 1958 A.P. 33, the Andhra Pradesh High Court has also held that when the negotiable instrument is dishonoured and the endorser gets it back after satisfying the claim of the endorsee, he is remitted to his original right and falls again within the definition of a holder and the endorsee ceases to have any right under the bill. It is not essential that there should be any re-endorsement. Therefore, the holder of a negotiable instrument who has endorsed it to a third party could maintain a suit on the basis of it without its being re-endorsed to him if it appears that the bill was dishonoured when presented on maturity by the endorsee and the holder pays back the amount to the endorsee and comes into the possession of the document, as the property in the note has reversed in him.
15. The question of payment to the endorsee does not arise in the case like the present when the endorsement was not by way of negotiation but was for the purpose of collection or realisation. Therefore, the appellant-Bank is the holder of these Bills of Exchange entitled to sue on them. See also in this connection the case of Hazarimal v. Sonraj, .
16. The respondents contend that the appellant-Bank's suit must fail because on the date when the suit was filed, the appellant-Bank was not in possession of the Bills of Exchange. The Bills of Exchanges were returned to the appellant-Bank by Mellon Bank International some time after the suit was filed but long prior to the hearing and final disposal of the suit. In our view, this is not a fatal defect. The appellants were entitled to possession of the Bills when the suit was filed and in fact obtained possession much before the suit was heard. Under section 3 of the Negotiable Instruments Act the holder of a bill of exchange means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. The section goes on to say that where the bill is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction. So actual physical possession is not essential to constitute a person a holder. He must be entitled to possession. At the date when the suit was filed, the appellant-Bank was entitled to possession of the Bills of Exchange in its own right and to recover the amounts due thereon. The appellant-Bank, therefore, was holder of these Bills of Exchange at all material times.
17. The respondents have disputed the endorsement in favour of Mellon Bank International as being for collection or realization. The documents on record, however, clearly negative any other interpretation. In the first place, Mellon Bank International has clearly not made any payment to the appellant-Bank on these Bills of Exchange either at the time of, prior to or at any time after the endorsement. In fact, the documents on record show that they have declined to make any payment on the ground of an injunction against them by the New York Court. Secondly the covering schedule from the appellant-Bank which accompanied each of these Bills of Exchange when they were forwarded by the appellant-Bank to Mellon Bank International stated "we enclose the following bill for collection". Under the head `Disposal of Proceeds' in the covering schedule the instructions were to Mellon Bank International to credit the appellant-Bank's account with "Manufacturers Hanover, St. Co., 350 Park Avenue, New York". This would show that the bills were sent for collection and realization. They were not negotiated in favour of Mellon Bank for consideration.
18. What is negotiation of a bill of exchange by endorsement? Under section 15 of the Negotiable Instruments Act when the holder of a negotiable instrument signs the same for the purpose of negotiation on the back or face thereof, he is said to indorse the same and is called the `indorser'. Under section 14 when a bill of exchange in transferred to any person so as to constitute that person the holder thereof, the instrument is said to be negotiated. In the present case, when the appellant-Bank signed the bills of Exchange on the back, it was not for the purpose of constituting Mellon Bank International as the holder of these Bills of Exchange. Mellon Bank International was the drawer of the Bills of Exchange and there could have been no question of drawer becoming the holder of the negotiable instrument. Therefore, the Bills of Exchange were not negotiated by the appellant-Bank in favour of Mellon Bank International by indorsement.
19. The respondents now raise a new contention. They say that the appellant-Bank cannot sue the 1st respondents who are the drawers of Bills of Exchange because the appellant-Bank did not give a notice of dishonour to the 1st respondent. This plea was not raised before the trial Court. It is raised in appeal for the first time. Since there is material on record to negative this contention, we will go into it. The appellant received on 24th December, 1974 a telex from Mellon Bank International refusing to honour the Bills of Exchange. The contents of this telex were communicated to the 2nd respondent by the appellant-Bank on 26th December, 1974. The 2nd respondent in turn addressed a letter to the 1st respondent dated 3rd January, 1975 setting out the cables exchanged. A copy of this letter was forwarded to the appellants. The appellant-bank addressed letters dated 6-1-1975 and 22-1-1975 to the 2nd respondent calling upon the 2nd respondent to pay the amounts under the bills on account of the failure of Mellon Bank International to pay. The 2nd respondent have addressed a letter dated 29th January, 1975 in turn to the 1st respondent in this connection. Again a copy of this letter is sent to the appellants.
20. Under section 93 of the Negotiable Instruments Act when a bill of exchange is dishonoured by non-acceptance or non-payment, the holder thereof or some party thereto who remains liable thereon, must give notice that the instrument has been so dishonoured to all other parties whom the holder seeks to make liable thereon. It is not necessary that notice should be given only by the holder. It can be given by a party thereto who remains liable on the bill of exchange. The 1st respondents have received notice of dishonour form the 2nd respondent. Moreover, under section 98, sub-section (c) no notice of dishonour is necessary when the party charged could not suffer damage for want of notice. Such is the present case.
21. There is also no substance in the contention of the respondents that since non-payment on due date is on account of New York Court's order, the bills cannot be said to have been dishonoured by the drawee or acceptor. Non-payment constitutes dishonour, whatever be the reason for non-payment.
22. Lastly, when the appellant-bank negotiated these Bills of Exchange by making payment to the 2nd respondent-Bank, they clearly made payment to the 2nd respondent under reserve. The payment under reserve was also communicated to the drawers, namely the 1st respondent. Letter dated 30th September, 1974 in this connection addressed by the appellant-Bank to the 2nd respondent clearly sets out that payment is under reserve and is made on condition that the amount would be returned on demand if there is non-acceptance on account of any discrepancies. It is true that non-acceptance is by virtue of an order of injunction. But the fact remains that payment was made under reserve. The payment was accepted on this basis. In the case of United Commercial Bank v. Bank of India, the Supreme Court was required to construe the phrase payment `under reserve'. It said : "A payment `under reserve' is understood in banking transactions to mean that the recipient of money may not deem it as his own but must be prepared to return it on demand". The respondents are liable to pay under this count also.
23. The appellant-Bank is, therefore, entitled to succeed.
24. Appeal is allowed. The judgment and decree of the trial Court are set aside. There will be a decree as prayed in terms of prayer (a) and (b) in favour of the appellants-original plaintiffs and against the respondents-original defendants.
25. In the suit the 2nd respondent-original 2nd defendant had taken out a third party notice against respondent No. 1- original defendant No. 1 for payment to respondent No. 2 by respondent No. 1 of the decretal amount in the event of a decree being passed in favour of the appellants-plaintiffs and against the 2nd respondent in the suit. Since the suit was dismissed, the learned trial Judge did not consider it necessary to determine the claim made by respondent No. 2 under the third party notice against respondent No. 1. Now that the suit has been decreed against respondent No. 2 the third party notice will have to be determined. The third party notice is, therefore, remanded to the trial Court for consideration on merits.
26. Respondents to pay to the appellants the costs of the appeal.