State Consumer Disputes Redressal Commission
Indian Overseas Bank vs M/S Paper Packaging Pvt.Ltd., & Another on 27 January, 2004
= , ~%i%jx'j§f§RE THE KARMATAKA sure COMBUMER Dl$PUTE$ REDRESSAL CGMMISSSON, BANGALORE. EIATED was THE 27*" JANUARY good" PRESENT THE HGWBLE MRJUSTICE LJAYARAMA CHOUTA: PRESIDENT SMT. RAMA ANANTH : MEMBER SR!.J.N.SRiNNASA MURTHY : MEMBER APPEAL N031-4512002 lndian Gvesseas Bank, Hosur industriai Complex Branch. HOSUR4335 126. fl DHARMAPURE DiST'. Appel!anti2"" OP (By Sri.H.Srin§vas,, Adv) L V3. 1. M/s.Paper Packaging Pvt. Ltd., KIADB, industrial Area, P.B.No.124, Mandii, V Si-HMOGA-5?? 201, Rep. by its Accounts afficer, H.S.Sathyanarayana. 15' Respondent/Complt. (By Sri.G.Lakshmish Rae, Adv) 2. M.*'s.Sri Shiva Shakthi Packages, No.1-B, 3"' Grass, Kamaraj Qoiony, HGSUR-635 '£89, DHARMAPUPJ 9:51". «. .. 2"" Re5pondentl0P2 (By Sri.M.H.Man§unath, Adv) iririr ORDER
SRLJ.N.SRlNlVA$A MURTHY, MEMBER:
This appeaé .isps"efer:"ed by Sndian Overseas Bank, Hosur, Dharmapufi, against the ofder dt.31.5.2002 in Compiaint Na.1091'2000 cf the 17353:. Fdrum, Sihimbga, praying for setting aside the same and to gm;
n fix.) 1 grant such sthsr rsflisf as dssmsd fitln the circumstances of the case along with the costs.
2. The brief facts of the csss are that lWs.Paper Packaging Private Ltd, sf Shimoga, respondent No.'l(complalrrarrt) is a Private Limited Company witlr the registered office in the Bangalore in the branch 9f'€3W Mi'/~B"!°""'i;'lr\(.'4'J\€/'7m'lf"l'(¢5r/*@~:» " V Shimega, is engaged in the éxcréfifi papers and Mfs.Shiva Shakthl Packages (first respcmclerrt) manufacturers,(corrogatsrl boxes, boards and Rells), Shiva Shalrtl Packages is the customer of the appellant, lndian Overseas Bank, having banking transaction since 1994. The first respondent suppliscl the Kraft paper to the second respondsnt unssr the bill Ne.-432' dt.23.6.98 far Rs.'l,46,304l-, for which the appellant bank issued a lsttsrof credit on 2.6.98 in favour of the first respondent. Under bill Ns.429 dt.2?.6.98 it also supplied Kraft papers to the second respondent letter dt.19.6.98 was issued in favour of the respondent. The appellant opened letter sf credit at the request of the I firs! rsspcncienr far Rs.3,40,G0O/- fer supply 0f 14 tons of Kraft paper at Rsfl 500!» per ton and 10 tens cf Rs.'l3,D00i- per ton with shipment and negotiation valid upto 15.8.98 and 30.6.98 respectively. The lstlsr of credit was advises through Shimoga branch of Canara Bank and on the request of the first respondent it was smendscl on 16.6.98 so as to extend the dates for shipment and negotiation upto 25.638 and 162.93 respectively. Csnara Bank, Shimoga, sent 2 bills Le.
75Rs.1,46,304:'- and Rs} ,45,8'38I- \s.§l%;the appellant and it was received on 30.6.98 and 'l$.?.33 respectively. There was a huge discrepancy noticed in the said hiils, whlch was unable to be cured. This fact was s lnformsd ts (Sahara Bank, Shlmcgalfrbm 2.7.98 to 22.7.98) and the '3.és:;
.3- said Bank is iicaidirig the said itaiiis Taif its risk and respeneibiiities by the letters dt.2.?.98, 28198,2G.8.98ie2.9.88, 18.9.98, and a teiegram on 14.9.98. The appeiiani iriformeri the Canara Bank, Shimoga, that no acceptance was ierihceming by the second respondent, cirawee, and the said bank is heiding the said biiis at its responsibilities. instead of pointing" out these defects in the said biiie by the appeliant, Canara Bank, did net repiy ta them. Even the respondent No.1 was aiee infermeci about the discrepancies éygziwe said biiis. in the meanwhile, the respondent N03 flied a complaint before the Diet. Forum, Shimegmjn the vereien ei QP2, i.e. appeiiant admitted the facts abeut the compigainant arid QP1, i.e. Shiva Shakthi Packages about its status and manufacture and aiso the status of the appeiiant. It is also ' admitted that the eeppiy ei' the Kraft papers as contended in the cempiairit. it denied that these irensactiens are covered under the ietier cf credit dt.'i3.$.98 as gzer the ietter dt.30.5.99. it contended that OP1, M15 Shiva Shektiii Packages is the customer cf the appeilant enjoying the credit faciiitiee upto the limit of R85 iakiiss as per the sanction ietier dt.7.3;93 fer fiurchase cf raw materiais like kraft papersi At the requesief OP? the appeiiant bank opened ietter at credit under Ne.OLC!699li7f88-S9 di.2.5i95 for Re.3,40,000i--(iers;i:efl@>euppiy of 14 tens csi' kreit papers at Re.14,500/-- per ton and 10 Sins of Kraft papers at Re.13,00BI- per ion with shipment negotiation vaiid upte 1510.98 and 13896.98. They were negotiated 'ihrough Advise bank, i.e. Canare Bank, Eihimoga. The Canara Bank sent this 2 biiie to the C452 agzrpeiiarit ier Ref! ,43,3Q4;'-» which is received on 30.6.98 having a reference Oi..C»~2i98 another biii fer R33! ,45,833!- which is received an 18.7.38 having reference Ne.OB¢~3'i93. So, the appeiiant on 2.7.98 R4,.
.4.
him.
informed the Canara Bank, Shimege, that it teok thenanci held it at Canara Banks risk and reeponeibiiity. Further, the OP2 informed to the Canara Bank, Shimega, in respect of hill No.C)BC- 3198. There were discrepancies in the aeici bills. Ne acceptance is received from OP1, M/e. Sri Shiva Shekthi packages. 30, the appellant on 13.9.98 sent back both the hiiis ta the CanaraBani< which was acknowledged on 23.8.98. it aetee as per the terms «at LG. The Canara bank, Shimoga, has net given reply. it is a necessary party and in the absence 01' it the eemplaint is bad for noh~j<>inder of necessary' party. it is barred by time, and eempiaihant is hot a consumer. There are material defects in both the hiiisl The transport operator who transported the goods is hot in the approved list of indie Bank fivseeciation. The LR eught to have been issued in favour of appellant bank. The cemplairrant cannot enforce the iettersref credit. The OP2 has rret recehreett any 'No ebjectierr' from the OP1. The disputeweuld be within the ambit of jurisdictional Civil Court. The cempleinaht fabricate} the fact to suit his eemplaint. There is no cause of action. The Diet. Ferum err cehsicierirag the material available before it, and after hearing both sides, has passed the impugned order allowing the complaint anfi eiireetihg the appellantiOP2 Bank to pay Re.2,92,t42/~ to the complainant together with interest at 12% p.a. from 13.98 till payment within reasonable period of 3 months from the date of V communication of the order, faiiihg which it is liable to pay the increase rate of interest at 14% pa. and eise pay the cost of the preceedihgs of Rs.2,000f--. i-ierrce, this aepeel.
,.5..
3. 'The Lcfcir the appellant has ccahtended in the course at the arguments ihai: Cahata Bank, Shimcga, Le. the advihory hankfia as necessary ffiaififi to the proceedings and not lmpleaded in the compiaiht. The entire case is based upon the ietter of credit. it is further contehcleci that there shciuid be a strict compliance of all the terms and mnditians menticmed therein (letter of credit). The paymahtt to: the beneficiary is subiect to exact compiiance of documents with the terms of latter Gf credit, and in the absence of it, the beneficiary cannot' ciaim against the payihg bank and it is the paying banks ciuty to refuge payment. if the letter at credit car any documents are preaehtecl with thedlscrepahcies that": the issuing bank is under tit) obligatich tcs effect paymeht even tha appiicaht at the ietter of credit agrehss to accept the ttccuments. issuing bank is only obliged to pay on the receipt of ccsnfirming dahuments. its iiahility seize when documents precsehteci are net in cohfcrmity with the tems and ccmditicns of the letter of credit. The issuing thank Le. the appellant cmiy deals" with the documents canfirms to the terms and conditions niehticmed in the letter cf credit. ' Lorry receipt was made: hut in the name of the consignee Le. respcmdent No.2 instead of the bank as per the terms arid ccinditiohs of the letter of credit. issuing bank need not infcsrm the haneiiciary abaut the discrepancy but it is the duty of the advisory bank Lei. the Canara Bank through whom the documents are to thh appeiiaht in intimate di3:::repah§:y*in document to their custhgneg which i3 not atone. if the applicant him in tha ietter of credit the issuing hank nameiy the appeliaht will pass on the crecziit to the czoiiactihg hank ifi. Sahara Bank. The appellant bank cannat he held iiabih iii: i"iC2i't payment at the amount covered under the said letter :
T L 43- of credit when there are discrepancies in the documents. Thsra will be 3 parties in the letter of credit. Buyer is this applicant, seller will be the beneficiary and the bank will he the third pang which undarmkes to pay.
}J'ixr,~:w ts the benaficiary;wtri;§h>hs submits documents as per the terms and {.
conditions at the ietter at credit. Thai issuing bank cisais not with the gccdsbut cniy documents. The discrepancies in the documents are I not rectified. The issuing bank is in no way connected with and has nothing to dc with the disputes between the buyer and scller. it deals cniy with the valid and proper documents. in the case of letter of credit selier asks buyer to char: aiatter of credit in his favour when he is not confident of receiving paymentfrom the buyer and therefore wants tn safeguard his interest against nan payment. The seller, who strictiy abide by the terms and ccmciitions cf tits istter of craciit and submits documents accordingly. The first rsspondant to follow up only with the second respondent fcr payment and not with the ietter cf credit issuing bank i.a. the appeilant. This important deviation is the lorry receipt consigning in favcur of the second respondent btrysr) instead of the bank.
4. The LG for the rsspondant has argued that page W ta 2Q of the aw?
impugned crcisr haida that there is no material discrepancy in the R dccuments. No fraud is alleged. in the absence of it, the impugned order. which is wait considarschdoes not call for any interference. Further it is contended that the Vapcsilant bank has issued 2 letters cf credit. EXPS on 2.5.83 and Ex.P8 on 19.6.98 in favour of the respondent N62 Shiva Shakthi Packages, which. means that the appsilant hank stand guarantee far and on behalf of the respondcnt No.2 to the resparrdent No.1 in respect of the trade transactions.
. Responfierrt No.1 'sent both the wnsignments to respondant No.2 under the irwoica M0402 at Ex.P2 and invoice No.429 at Ex.P6. Even the respandent N62 Shiva Shakthfi Packages as per E.x.P10, the letter' A dt.15.?.98 has acknowiedged the receipt of the goods and has no cabjection to accept by the appeiiant bank and to make paymarrt accordingiy to respondent No.1. The appeflant bank in EXD8 has agreed tn pay the ameunt as per the letters of credit and there is no serious dispute abraur it. It has admitted that 'rt has received the necessary documents. iorry receipts and invoice E><.P2 and P8 fmm the respcmdent Nam through the advisary Bank, Canara Bank, Shimoga. The appeflant bank was under ebligation to pay the amount of the cansignrrrenr as per the terms at' the ta-tters of cradit, E>r.F'6, and P8 is the beneficiary respondenf N31 withén 60 days, the stipulated period, but faised its dr: 3:?» even to this day. There are no discrepancies in the documents. Certain déscrepancies painted out in Barry receipts, hundies, banking ietters by the appetlant in its hatter EXP'! and P2 tn:
the advising bank Le. the C-anara Barrk, Shimcga, were next sent ti:
respcendent N04 and he was ignorant about the same. The advising bank has no': énfcrmed him. There ':3 n0 reason why the same was not brought is the rwtice in the respondent.N0.1 directly by the appellant which 33 caansigrree §.&. the person presenting the dosuments with hunciy far reaiisaiien 9f the arnount as per the terms 3f better of credit. rt was obéigatcry far the app»:-ziianr bank to intimate the progress or the remzrt of the hunacii car decurrzents is the respondent N<u.1V and to my wrrether rt is acceptafifiie 9:" rant. Resp0ndentNo.1 has kept in dark. He has fL§i'th$i' cacsntendad right from 3.9.94 in air the previous eccasiona M
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respondent No.4 has sent huhdies and necessary documents to the appellant bank with the Similar discrepation of the goods and other particulars in the said documents, which has accepted and the payments were made without any objectioh to the complainant. But now the appeilant bank deliberately is reluctant to offer the letter of credit although the description of goods and other particulars are in order and in terms of LQC. The DW1, the Manager of the appellant ' bank in the cross examination has clearly deposed about the remaining balance of Rs.2,15,722l- out of Rs.3,-40,000/~ under the letter of credit dt.2.6.£~38. Ex.P5 is issued by the appellant bank after making payment of R3.l,24,278l~ in respect of the previous consignment invoice No.Ex.P18 dt.?.6.98. This balance covers the value of the present consignmerzt under Ex.P2 for Ft3.1,40,3041-. The letter of credit considered to the preeerzt im'/oice E;-<.F'2 at Ex.l-95. it has got a reference about the irrevocable credit No.0LC/599M?/98-.99 which is found in the invoice Ex.F-'2. Order number in both the documents in Ex.P2 and P5 tallies. There are admissions in the cross examination of ow: regarding the consignments in theletter of credit, E><.P5 and P2 and also the maximum limit permissible to the complainant is mentioned therein regarding the sale of kraft paper. He can send the consigrsment of lesser weight and sell the same at the lesser rate, rather than thementioned in the letter of credit at E.x.P5, which is done under E><.,F'2 invoice by the respondent No.1 which is aolmitteol by the Bank Manager, DW1. 'SV' irx invoice Ex.P2 stands for 'semivergine'. The evidence of DW1 ehowe that on previous occasion in respect of which the QP2 bank i.e. the appellant had made the payment of the hurzoli amount, heci deeriloed the goods in the previous or g9' invoice at E><,F"i3 as semivergine. There are no material discrepancy in description of the gases: in invoice Ex.P2 -and P5. Ex.F'5 is the inveiee No.-429 and the ietter of credit, Ex.P8 are reiied. The maximum amount is Rs. i,6Ci,O00!- in theiiietter of credit Ex.P8. The value of the goods as per the inveice EXP8 is for Rs.1,-45,838!-. So, the said amount is covered in the ietter of credit. The irrevocable documentary credit No.iL<3%/598i'23:'1S398-9&3 in the letter of credit finds place in the invoice, Ex.P6. There are no rnateriai discrepancies in the ciecurnents in this transaction eise and the respendent has no objection to accept the credit by the appeiiant bank and to make payment to respondent No.1. Even if there is any minor discrepancies, those minor discrepancies wiii net vitiate transactions and extinguish the right of the cernpiainani uniess {here is an element of fraud invoived in ii. in the instant case, it is not so. The (1889) 65 Comp. Cases page 283 in the case of UP Ce-operative Federation Ltd. Vs. Singh is reiied on in supper': of the above contention. According to that, 'the bank which has issued the L00 has re make ihe payment as per the terms to the beneficiary in whose faveur it has issued. it is ebiigatery duty en the part of appeiiarii batik. it is desirable for the courts to interfere oniy when the fraud is made nut'. in the absence of it, the appeiiant bank has faiied in making payment and there is a deficiency in its service.
The advisrary bank has a minor ruie te pay in the instant case as the V ciairrr is fervrereee through it and the appeiiant bank had sent the ietters Ex.Pi arse $2 ihreugh the Canere Bank, no ebjectien fer letter of credit in favour ef the eompiainent. Adxrising bank has no iiabiiity in that regard.
£2
-Eg-
,v 5. We were tarczenrrhrougrr the impugned order. We have gone thrcugh the appear memorandum and the written arguments submitted by both the sirfieat arm 3335} considered the crrmtentions of both the $ide<s in the csurrse of their aura? argurnents. The case law qucted in 1989 volume 65 page 2&3 in the case of UP Cc:-operative Federatirrn Ltd. Vs. Seem Cansuitant and Engineer Private Ltd. It is held that "an irrevscabie commitrrremt either in the farm cf confirmed bank guarantee or an Srrevcrrzabia refier of credit carmei be interfered with except in the case sf fraud or where a case of appreciatiorr ef irretrievabfie injuatice has been made nut. in order to restrain the operation either of an irrevocable letter ef credit er er? a «confirmed hatter of creditor of a bank guarantee, there shouid be 5: seriaus diapute and {here shourd be 3 gcrod prim-a' facie saw of fraud, arm speciai equities in the farm cf preverrtirrg rrretrievabie rrrjrrstice between the parties. Otherwise, the very purpase cf hank guarantees wauid be negatived and tha fabric 0f tradrng rzperatiorrs wouid get §eopaard§3ed". In page 296 it is rzobsserved rhat "an 5fi"$'v'8vCE23:ri$ iatter of credit had a definite implication. _ it W83 independent <3? arr unqualified by the contract of a sale or rather urrdariined '{Taa¥"§$aGfiC3$"iS. it was a mechanism of great importarrce in irrterrrationai rraaie arrd any interference with that mechanism was beurrd is have $eri<:»us repercussions on international trade of this country. The wart raiterared that the autonomy af an irrevocable fetter of credrr was errtitied ro prctection and except in very exceptianal sircurrrstarraes, wrrrts srreurd net irrterfare with that autonomy" Vida in Taraprrr 3: C6" V5. vie Tracmeexport; Mascaw 'if-363 2 SCR 926; and (*3 973) 48 Comp gasses 44?. in page 303 ft isfibservecr that "if the:
docurrrerazary credits are rrresrcrcaiaie or éncrepandarrt the banks muat W ' -11- pay when demand is made. Sims the bank pledged its awn credit involving its rspudiaticari, it has rac: defence except in the case sf fraud.
The banlafs sbllgations "of ceurse shsuld not be extended to prstect the / unscrupulous seller, that is, the seller who is responsible for this fraud. But, the banks: must be sure of his ground before declining to pay. The nature of the fraud that courts talk about is fraud bl' an "egregious nature as to vitiate the entire underlying transaction". The absvs principles are kept in mind in csnsidering the present case. From the discussion cf the Fsrum in pages 8 to 22 regarding the paint l\l0."l, deficiency in service on the part cf appellant, it is seen that most of the 'points are admitted between the parties in this case. The only question that remains to be considered is whylzhe appellant bank did net make paymeni of the amounts' of the price: of botli 'aha csnslgnmsnts to thsssllsr. The slain defence setup by the appellant is that there are discrepancy in the dosuments such as particulars df gsocls in the invaics dc not taily with the particulars sf letter oicrsclit. The DW1 has explained the same in his examination chief law: as already pointed out by the isspsndent the cross examination portion cf the said witness and the relevant documents is. 2 letters dt.2.7.98 and 22.7.98 at Ex.P'l and P2 points cut the discrepancy in the larry receipts and hundi banking lists. The cspies sf said letters are not sent to the complainant ans iisturally he is kept in darkness. The appellant has only ccsrrsspondscl is the advisary bank. Actually the complainant is the corisigms" is W the person wlzc is presenting the necessary clscumsnts with liundi for rsalisatism of the amount as per the letters of credit. LS0, ii was is: the appellant bank to say to the csnsignsi as to whether it was asssptsbislsi' net. 2%, it was the boundsn duty cal" the:
ill -12- appetlaht to iet $223 knew thé deveiapmeht or the remit of the hundi or the decumehts thwthe compiainant. Earlier transactions were smooth in between the OP1 and OPE. As aiready pointed out by the LC for the :'espohderxt_,the evidence of mm in the cross examination cieairiy supports the stand of the respondent-compiainant that there is no serious or majcr discrepancies and the documents taiiy, namely the ietter at credit and the ihvczices and the goods said between the parties by using the ietter ht credit, is within the maximum limit prescribed theteuhcier of the quantity and the value. Even the description of the geads is aim tcsuhd piace in those documents that the abbreviation SV. stands for semivergihe. in the previous invoice at Ex.P'i8, tha payment was made by the appeliant bank of the hundi amount. The invoice, EXF2 ahfi P5 describes the goods which are as has been made can the previous invoice. The invoice Nc.429, EXP5 and letter of credit, EXPS aiso satisfies the requirement in the like manner i.e. indicating the maximum iimit permissibie th the complainant. The vaiue of the goecis said and the ccwerage of value of the congignmeht in ihveice E>»:.F'6 and the order number noted in both the said documents taiiyihg and the goods is described simitariy. The campiaihaht has actw within the parameters mentioned in theme ticcumertts. So, as cc.-ntended by the respondent-,am:i rightiy held by the Dist. Forum, there is he material discrepancies in the documents as compared with the ietterss of credit. There is no plea owifraud. The appeiiaht bank was bcuhd to make the payment in such a situation as it had cioheze far the previous trahsactionsfartd faiiihg it to do how is 3 clear deficiency it': sewiae. Regarding the non-joincier of necessary parties the mhtentioh at the tespnhdent that the iexpianatioh in the ix' 5"
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wrétten argismanmhoids géad. The raie of a advisary bank ~-- (Samara Bank, Shimoga. ié very fimitefi. The appeliant bank has dealt with the sefier cf credit and dowmentss and acted as a guarantor to the puré::ha.s er for the payment of the 3336: amount tq the walker. The "M , absenbe cs? advisary bank 5683 not affect this cazse. The appeflant bank has corresmnded to the. advizsary bank 5.6. Canara Bank, Shimaga, fer whai purpose it did so is not stem. 'The ccnsignor, Le. compiainant $3 the concemed warty whc should be in knew of things to answer the discrepancies in the dcacuments to get the payment. 80, under these circumstances, the contentien of the respondent has to be upheifi and %t $3 uphra-id. Sn View :31" this discussion, the cententicm of the appellant does» net hoié geod. The Dist. Forum has elaborately considered an the aspects and come to the prcpsr conciusion. It does not can for any interference. There is me merit in the appeal. We pass the f=:3I%ewing.0rdei'.
ORDER Far the reasans discussed abave, the appeai is 'dismiased. N0 crder as ':0 seats.
. /' f PRE§lDENT MEMBER A!"