Delhi District Court
Nirlon Ltd vs Union Bank Of India on 15 November, 2025
THE COURT OF SH. MANOJ KUMAR SHARMA :
DISTRICT JUDGE-07, TIS HAZARI COURTS (WEST), DELHI.
Civ DJ No. 612692/2016
CNR NO. DLWT010000182001
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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 1/45 Branch at B.S. Marg, Fort, Mumbai-400023.
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 FOR RECOVERY OF Rs.15,50,803.28P (RUPEES FIFTEEN LAKHS FIFTY THOUSAND EIGHT HUNDRED THREE AND PAISE TWENTY EIGHT ONLY) ALONGWITH PENDENTE LITE AND FUTURE INTEREST THEREON AT THE RATE OF 18% PER ANNUM.
Date of institution of the Suit : 07.11.2001 Date of Judgment was reserved : 24.07.2025 Date of Judgment : 15.11.2025
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 seeking recovery of Rs.15,50,803.28P alongwith pendente lite and future interest @ 18% per annum on the principal amount of Rs.7,84,799.60 from 17.06.1999 and on Rs.7,66,003.68P from 29.06.1999.
1.1. It is to be noted that although the present suit has been filed against three defendants, the relief has been sought against defendant no.1 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. has filed the present suit through Sh. P.N. Sharma, who is the Duty General Manager of the plaintiff company.
2.2. 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.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 3/45 2.3. Defendant no.3 is a Private Limited Company constituted under the Companies Act, 1956 and is engaged in manufacture of rubber products and has been declared a Sick Company under the Sick Industrial (Provisions) Act, 1985.
2.4. Defendant no.3 placed an order with the plaintiff company for supply of conveyor belting fabric etc vide its letter / purchase order dated 19.12.1998 and the following invoices were raised in respect of the goods under the purchase orders :
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 plaintiff and defendant no.3 that the payment in respect of aforesaid goods would be made by means of documentary letter of credit and the said fact was also recorded in the purchase order of defendant no.3, who accordingly directed its Bankers M/s Bank of India / defendant no.2 to open 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 Letter of Credit was opened by the Bank of India and forwarded to Union Bank of India / defendant no.1.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 4/45 2.7. The plaintiff drew Bills of Exchange in respect of invoices and sent the same to defendant no.1 with a request to discount the same and credit the amount in its account in terms of the following details:
B/E No.Invoice Nos. Amount Dt. drawn Due dt. L/C No. D/565 3081550/49 7,84,799.60 30.03.99 17.06.99 15/141 D/15 3081598 7,66,003.68 06.04.99 29.06.99 15/141 2.8. The plaintiff delivered all the requisite documents under the letter of credit bearing no.15/141 including invoices, bills of exchange, delivery challan, excise invoice, MTRs, 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 L/C Opening Bank / defendant no.2.
2.9. Defendant no.2 rejected the aforesaid documents on frivolous grounds and intimated defendant no.1 about the same vide their letter dated 16.04.1999 wherein it was recorded that the documents were discrepant and had also been sent to the applicant / defendant no.3 for its acceptance.
2.10. The plaintiff vide its letters dated 19.04.1999 and 23.04.1999 directed defendant no.3 to accept / waive the discrepancies and in furtherance thereof, defendant no.3 vide its letter dated 28.04.1999 directed defendant no.2 to make the payment under L/C No. 15/141.
2.11. On 12.06.1999, plaintiff again wrote to defendant no.3 to ensure Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 5/45 that Bank of India release the payment on due date.
2.12. The goods supplied by the plaintiff under the letter of credit bearing no.15/141 have been accepted and utilized by defendant no.3 without raising any objections towards the quality, quantity and standard. Defendant no.3 vide its letters dated 28.04.1999 and 15.09.1999 have duly acknowledged and admitted its liability of Rs.15,50,803.28p under the aforesaid letters of credit and the defendant no.2 is liable to make payment.
2.13. Defendant no.2 and 3 in collusion with each other are depriving the plaintiff from its rightful claim under L/C No.15/141 as defendant no.2 was under an unambiguous and unequivocal obligation to pay the principal amount of Rs.15,50,803.28p to the plaintiff under the L/C No.15/141.
2.14. Defendant no.2 not only in violation of the terms and conditions of 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 to defendant no.1 alongwith its letter dated 16.04.1999 and consequently, bound to make the payment.
3. Summons for the settlement of issues of the suit were issued to the defendants on 15.01.2002 and the defendants put their appearance on 29.04.2002.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 6/45
4. Written statement was filed on behalf of defendant no.2 on 15.04.2004.
5. As none appeared for defendant no.1 and 3, hence they were proceeded ex-parte vide order dated 22.08.2014.
6. CASE OF DEFENDANT NO.2.
6.1. The suit filed by the plaintiff is misconceived, baseless and deserves to be dismissed.
6.2. The present dispute between the parties is arising out of purely contractual / commercial transaction. The defendant no.2 opened Letters of Credit for a sum of Rs.16,00,000/- on the application of defendant no.3 in favour of the plaintiff and was supposed to make the payment only subject to the strict compliance of the terms of Letter of Credit.
6.3. As per UCP 500 Guidelines, defendant no.2 is entitled to reject the request for encashment of the LC if any defect / discrepancy is observed in the document submitted by the party and the intimation of the rejection of documents be also sent to the concerned party.
6.4. In the present case, the request for encashment of LC No. 15/141 made by plaintiff to defendant no.2 through defendant no.1 for the suit amount was also rejected on the ground of discrepant documents and vide rejection notice dated 16.04.1999, defendant no.1 was duly Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 7/45 informed.
6.5. Defendant no.2 acted in compliance with UCP 500 Guidelines while dealing with the documents filed by defendant no.1 on behalf of the plaintiff.
6.6. There is no valid cause of action in favour of plaintiff to claim the suit amount as in the plaint itself, the plaintiff has admitted regarding the existence of discrepancies in the documents and that defendant no.2 was justified in not encashing the LC. Hence, the plaintiff itself was at fault and cannot blame the defendant no.2 for declining the payment.
6.7. The plaintiff had filed documents incorporating the details of goods, different than what specified in Letter of Credit no.15/141 and was also seeking payment against those goods, which were not covered under the Letter of Credit, hence defendant no.2 was not liable in any manner to release payment to the plaintiff.
6.8. The factum of waiver of discrepancies or consuming the goods in question by defendant no.3 does not put an obligation on defendant no.2 for making payment under the LC in question to the plaintiff.
7. REPLICATION 7.1. The averments made by defendant no.2 in written statement are false, vague and emphatically denied.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 8/45 7.2. Defendant no.2 in a highly mischievous and illegal manner colluded with defendant no.3 for rejecting the claim of plaintiff and did not honour the LC No. 15/141.
7.3. Defendant no.2 failed to comply with the terms of UCP 500 and is deemed to have accepted the documents filed seeking encashment of LC and under a contractual obligation to make payment of the suit amount to the plaintiff.
8. Thereafter, based upon pleadings of parties, the following issues were framed on 18.03.2005:--
(1) Whether the suit has been signed verified and instituted by the competent person? OPP.
(2) Whether the plaintiff is entitled to the recovery of suit amount, if yes, from whom? OPP.
(3) Relief.
9. PLAINTIFF EVIDENCE AND DOCUMENTS RELIED UPON. 9.1. In support of its case, the plaintiff company examined Sh. P.N. Sharma, Deputy General Manager as PW-1, who deposed that plaintiff is a public limited company, engaged in the manufacture and sale of various kinds of conveyor belts, nylon tyre, cord fabric etc. and he is its authorised signatory and fully competent to depose vide Board Resolution Ex.PW-1/1.
9.2. PW-1 has deposed that defendant no.1 and 2 are public sector banks while defendant no.3 is a private limited company which is Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 9/45 engaged in the manufacture of herbal products and for consumption at its factory, placed orders with the plaintiff for supply of conveyor belting fabric etc vide purchase order dated 19.12.1998 Ex.PW-1/2, which were supplied under three invoices Ex.PW-1/3 to Ex.PW-1/5 and it was agreed between them that payment of the aforesaid goods would be made by means of letter of credit and in pursuance thereof, defendant no.2 Bank of India opened a letter of credit bearing no.15/141 on the instructions of defendant no.3 in favour of plaintiff company and defendant no.1 acted as a negotiating bank.
9.3. PW-1 has further deposed that as per the requirements of letter of credit Ex.PW-1/6, all the necessary documents including invoices, bills of exchange, delivery challan, excise invoice, MTRs etc were forwarded with the request to discount the bills and make payment in terms of the invoices generated by the plaintiff company.
9.4. PW-1 has further deposed that defendant no.2 rejected the aforesaid documents on frivolous grounds vide letter dated 16.04.1999 Ex.PW-1/9 and also failed to return the same to defendant no.1. PW-1 has further deposed that vide letters dated 19.04.1999 and 23.04.1999 Ex.PW-1/10 and Ex.PW-1/11 respectively, a request was made to defendant no.3 to waive off the discrepancies pointed out by defendant no.2 and in response vide letter dated 28.04.1999 Ex.PW-1/12, defendant no.3 acceded to the request of plaintiff company and accepted all the discrepancies and requested defendant no.2 to release the payment under the letter of credit Ex.PW-1/6.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 10/45 9.5. PW-1 has further deposed that despite waiver of discrepancies, the letter of credit in question was not encashed and defendant no.2 failed to honour its obligations under the LC Ex.PW-1/6.
9.6. The plaintiff has also examined PW-3 / PW-4 Sh. Jasmine Kumar Bhavsar, who deposed that he is the Company Secretary and Vice President, Legal of the plaintiff company and vide Board of Resolution dated 02.03.1995 Ex.PW-1/1, Sh. P.N. Sharma was authorised to sign documents, plaint, written statement, petitions, affidavits, declaration, vakalatnamas and other necessary documents in respect of any matter in general in any Court of Law or before any authority. PW-Sh.Jasmine Kumar Bhavsar also brought on record the original minute book Ex.PW-3/1 as well.
9.7. In his evidence, PW-1 has relied upon the following documents:
A. Certified true copy of Board Resolution passed in Board meeting of plaintiff company dated March 2, 1995 as Ex.PW-1/1; B. Photocopy of purchase order dated 19.12.1998 as Ex.PW-1/2; C. Photocopy of invoices no. 3081550 dated 19.03.1999 for Rs.77,969.84, 3081549 dated 19.03.1999 for Rs.7,06,829.76 and 3081598 dated 31.03.1999 for Rs.7,66,003.68 as Ex.PW-1/3 to Ex.PW-1/5 respectively;
D. Photocopy of the LC No. 15/141 in the sum of Rs.16,00,000/- as Ex.PW-1/6;
E. Photocopies of letters dated 30.03.1999 and 07.04.1999 sent by plaintiff to defendant no.1 bank seeking discounting of bills of exchange under LC bearing no.15/141 as Ex.PW-1/7 and Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 11/45 Ex.PW-1/8 respectively;
F. Photocopy of the letter / notice dated 16.04.1999 whereby defendant no.2 conveyed its decision to defendant no.1 regarding rejection of documents as Ex.PW-1/9;
G. Photocopies of letters / communication dated 19.04.1999 and 23.04.1999 between plaintiff and defendant no.3 as Ex.PW-1/10 and Ex.PW-1/11 respectively;
H. Photocopy of letter dated 28.04.1999 sent by defendant no.3 company to defendant no.2 bank accepting discrepancies in the documents filed seeking encashment of LC No. 15/141 as Ex.PW-1/12;
I. Photocopy of letter dated 12.06.1999 sent by plaintiff to defendant no.3 requesting issuance of instructions to defendant no.2 for the encashment of LC as Ex.PW-1/13;
J. Photocopy of letter dated 07.07.1999 as Ex.PW-1/14; K. Photocopies of letters dated 20.10.1999, 21.10.1999, 30.11.1999 as Ex.PW-1/15 to Ex.PW-1/17 respectively;
L. Photocopy of legal notice dated 22.02.2000 as Ex.PW-1/18; and M. Reply dated 11.03.2000 given by defendant no.2 to legal notice as Ex.PW-1/19.
During cross examination, letter dated 30.11.1999 / 06.12.1999 Ex.PW-1/D1 was put to PW-1.
9.8. PW-3 / PW-4 Sh. Jasmine Kumar Bhavsar, Company Secretary of plaintiff company, who tendered his evidence affidavits Ex.PW-3/A and Ex.PW-4/1 / PW-4/B in his examination-in-chief.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 12/45 9.9. In his evidence, PW-3 has relied upon the following document:
A. Copy of the minutes book containing the extract of the minutes passed on 02.03.1995 as Ex.PW-3/1.
B. Certified copy of extracts of Board Resolution passed by directors by way of circulation on 30.09.2015 as Ex.PW-4/1.
10. No other witness was examined on behalf of plaintiff. Accordingly, plaintiff evidence was closed.
11. DEFENDANT No.2 EVIDENCE AND DOCUMENTS RELIED UPON.
11.1. In support of its case, defendant no.2 examined Sh. Satnam Singh, Authorised Representative of defendant no.2 as DW-1, who deposed that the dispute involved in the present suit is arising out of pure contractual and commercial transaction and the payments under the letter of credit in question in the sum of Rs.16,00,000/- were to be made only upon the strict compliance of the terms incorporated therein and as the LC is a contract between defendant no.2 and the plaintiff company, so the acceptance of documents and waiver of discrepancies by defendant no.3 does not oblige or legally bind defendant no.2 to make the payment. DW-2 has further deposed that all the documents were returned to defendant no.1 including the MTR No.522 dated 19.03.1999 of Shiv Shakti Transport Corporation. DW-2 has further deposed that defendant no.2 acted in strict compliance with the provisions of UCP 500 while rejecting the claim of plaintiff seeking payment against the goods which were not even covered Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 13/45 under the letter of credit.
12. No other witness was examined on behalf of defendant. Accordingly, defence evidence was closed.
13. During plaintiff evidence, an application was filed on its behalf under Section 151 CPC for summoning the relevant record pertaining to the Letter of Credit No.15/141 from defendant no.1 Union Bank of India and the same was allowed vide order dated 19.07.2013 and defendant no.1 was directed to produce all the relevant documents. In pursuance thereof, on 08.05.2014, Sh. K.C. Chaudhary (Law), Union Bank of India appeared and submitted that the record pertaining to documents Ex.PW-1/1 to Ex.PW-1/11 is not traceable and his separate statement to the said effect was recorded.
14. On an application under Order XIV Rule 5 read with Section 151 CPC moved on behalf of defendant no.2, the following additional issue was framed vide order dated 29.02.2024: -
Issue No.2A.
"Whether the refusal to accept the documents under the L/C No.15/141 by the defendant no.2 is not on legal and valid grounds? Onus on parties".
15. ADDITIONAL EVIDENCE AND DOCUMENTS RELIED UPON.
15.1. In support of its case, defendant no.2 also examined Sh. Chitranshu Gangal, Senior Manager, Overseas Branch, Bank of India, Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 14/45 Connaught Place, New Delhi-110001 as DW-2A, who has deposed that defendant no.2 Bank responded to the letters dated 05.04.1999 and 08.04.1999 sent by defendant no.1 within seven banking days vide its letter dated 16.04.1999 Ex.PW-1/9.
15.2. DW-2A has further deposed that the notice Ex.PW-1/9 was in accordance with the mandate of Article 14(d)(i) and (ii) UCP 500 as defendant no.2 was only required to notify the discrepancies of the documents at that stage.
15.3. DW-2A has further deposed that plaintiff in collusion and connivance with defendant no.3 allowed defendant no.3 to take the delivery of the goods in question as all through the time, the documents required for taking possession of the goods including the MTR were lying in the custody of defendant no.2 till 30.11.1999 / 06.12.1999.
15.4. DW-2A deposed that defendant no.2 has strictly complied with the provisions of UCP 500 and rightly refused to encash the claim of plaintiff under letter of credit Ex.PW-1/6.
15.5. In his evidence, DW-2A has relied upon the following document:
A. Authority letter as Ex.DW-2A/1;
B. Circular dated 09.04.1999 as Ex.DW-2A/2; and C. Certificate under Section 63 of Bharatiya Sakshya Adiniyam, 2023 as Ex.DW-2A/3.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 15/45
16. ARGUMENTS ON BEHALF OF THE PLAINTIFF.
16.1. Defendant no.2 was under an unambiguous and unequivocal obligation to pay the suit amount to the plaintiff under the LC No.15/141 and failed to abide by its terms and conditions.
16.2. Defendant no.2 violated the mandate of UCP 500 Guidelines by not returning the documents alongwith the rejection notice Ex.PW-1/9.
16.3. Defendant no.2 did not adhere with the timeline of seven banking days provided under UCP 500.
16.4. Defendant no.2 in collusion with defendant no.3 did not take timely action and let the LC No. 15/141 to expire, for depriving the plaintiff its dues / entitlement under the aforesaid LC.
16.5. Defendant no.2 has violated UCP 500 guidelines in the conduct of its business.
17. ARGUMENTS ON BEHALF OF DEFENDANT NO.2.
17.1. Defendant no.2 acted in strict compliance of UCP 500 Guidelines during the transaction in question and the plaintiff has no cause of action to claim the suit amount from it.
17.2. The plaintiff was seeking payment against the goods which were not covered under the Letter of Credit Ex.PW-1/6 and rightly rejected Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 16/45 by defendant no.2 vide its letter dated 16.04.1999 Ex.PW-1/9.
17.3. The documents presented by the plaintiff through defendant no.1 for the encashment of LC No. 15/141 were discrepant and rightly rejected by defendant no.2.
17.4. The plaintiff has nowhere stated either in its pleadings or evidence that the rejection notice Ex.PW-1/9 was not sent within seven banking days by defendant no.2.
17.5. Defendant no.2 choose to reject the discrepant documents submitted by the plaintiff to defendant no.1 seeking encashment of LC Ex.PW-1/6 on valid grounds and not bound by the waiver of discrepancies / admission of documents by applicant / defendant no.3.
17.6. The present suit filed by the plaintiff is per se not maintainable as the same has not been instituted by a duly authorised person as the Board Resolution Ex.PW-1/1 does not contain the word ' Institute' thereby authorising Sh. P.N. Sharma to initiate / institute the present suit against defendant no.2.
17.7. In support of its submissions, Ld. Counsel for defendant no.2 has also relied upon the following judgments:
A. Veena Estate Private Limited Vs. Commissioner of Income-tax, 2024: BHC-4S: 605-DB - Defective notice not a question of law; B. Union of India Vs. Murugesan, (Manu/SC/08/09/2021) -
Principle of Estopple and Aprobate-Reprobate;
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 17/45 C. National Insurance Co. Vs. Mustan and Anr., Appeal (C) 7381 of 2005, Hon'ble Apex Court - Principle of Estopple and Aprobate- Reprobate;
D. S. Tirupatirao Vs. M. Lingamaiah and Ors., 2024 INSC 544 -
Fraud vitiates proceedings.
E. Rajender Kumar Vs Rama Bala Gupta, (MANU/D/0111/2019) -
Documentary evidence prevails over oral testimony;
F. Gulati Trading Co. Vs. Manmohan Verma, (MANU/D2495/2014) - Parties cannot argue beyond pleadings; and G. Shivaji Balaram Haibatti Vs. Avinash Maruthi Awar, (MANU/SC/0048/2024) - Documentary evidence prevails over oral testimony.
17.8. 183rd Law Commission.
18. I have heard Ld. Counsel for the parties and perused the record.
19. My issue wise finding is as under:-
20. ISSUE NO.1.
Whether the suit has been signed verified and instituted by the competent person? OPP.
20.1. The onus to prove this issue is upon the plaintiff. Plaintiff is a public limited company registered under the Companies Act, 1956, an artificial person created by law having a separate legal entity that acts through a natural person, who has authorisation in his favour vide a Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 18/45 Board Resolution passed by the Board of Directors of the company concerned.
20.2. The present suit has been filed by the plaintiff company through its Deputy General Manager, Sh. P.N. Sharma, who deposed as PW-1 that he is competent to sign, verify and institute the present suit in terms of Board Resolution Ex.PW-1/1.
20.3. In rebuttal, defendant no.2 has disputed the authorisation of Sh. P.N. Sharma to file the present suit by pleading that Ex.PW-1/1 only empowers him to sign the plaint and lead evidence and not to institute the suit. Hence, there is a fundamental defect / infirmity in the very institution of the present suit.
20.4. During the course of her arguments, Ld. Counsel for defendant no.2 submitted that a suit filed on behalf of a company on the premise of a defective Board Resolution is bad in law and deserves dismissal.
20.5. As the controversy involved herein revolves around the Board Resolution Ex.PW-1/1, so the relevant para 13 of the same is reproduced hereinbelow:
"13 Authority to officials RESOLVED that Shri P.N. Sharma, Shri R.K. Banerjee and Shri B.K. Dasgupta, officials in-charge of the Company's offices at Delhi, Calcutta and Madras respectively, be and they are hereby severally authorized to sign documents, plaints, written Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 19/45 statements, petitions, affidavits, declarations, vakalatnamas and other necessary documents and lead evidence in the name and on behalf of the Company in respect of any property either office, residential premises or godowns, taken by the Company on leave and licence / lease basis and in respect of any other matter in general in any court of law or before any authority.
July 1, 2002."
20.6. A plain reading of the contents of Board Resolution Ex.PW-1/1 clearly shows that Sh. P.N. Sharma was practically authorised by the plaintiff company to perform every act necessary for fighting a lawsuit.
20.7. Ex.PW-1/1 authorises Sh. P.N. Sharma to sign documents, plaints, written statements, petitions, affidavits, declarations, Vakalatnamas and other necessary documents alongwith leading evidence on behalf of the plaintiff company before any court of law and this Court is of the opinion that the authorisation of this amplitude in his favour especially the authority to sign the plaint and vakalatnama was nothing but validation / delegation of authority to institute a suit / claim before a Court of Law or take any legal action on behalf of the plaintiff company.
20.8. At this stage, it is also relevant to make reference to Rule 15 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 20/45 Order VI CPC which provides that every pleading shall be verified by the party or some other person proved to the satisfaction of the Court to be acquainted with the facts of the case and in the present case, all through his deposition as PW-1, Sh. P.N. Sharma has consistently deposed that he is well aware with the facts and circumstances of the present case, which is the due compliance of the aforementioned provision.
20.9. Hence, a mere omission to mention the terms ' Institution' and 'verify' in the Board Resolution Ex.PW-1/1 cannot set the authorisation / competence of Sh.P.N. Sharma to institute the present suit or take any legal action on behalf of the plaintiff company at naught as by Board Resolution Ex.PW-1/1, he was practically authorised to perform every act on the part of the plaintiff company, which is necessary for the conduct of the suit from the very inception till the conclusion of the trial.
20.10. Even otherwise, this Court is of the opinion that Board Resolution Ex.PW-1/1 should not be read in a mechanical manner rather it be construed practically and purposefully for understanding its true intent. Moreover, in M/s Amco Vinyl Limited Vs. M/s Classic Industries, RFA No.523/2024 dated 25.05.2012, Hon'ble Delhi High Court observed that a Board Resolution authorising the authorised representative to appoint a lawyer and sign all documents on behalf of a company is sufficient authorisation for the valid institution of the suit by the said authorised representative on behalf of the company.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 21/45 20.11. The aforesaid legal position has been reiterated by the 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.
20.12. The record of the present case reflects that for supplementing the testimony of PW-1 regarding his authorisation to institute the present suit on behalf of the plaintiff company and for further clarification, plaintiff choose to examine PW-3 / PW-4 Sh. Jasmine Kumar Bhavsar, Company Secretary and Vice President, who deposed in categorical terms that vide the Board Resolution Ex.PW-1/1, Sh. P.N. Sharma was duly authorised to institute the present suit on behalf of the plaintiff company and for establishing his assertion and authority of Sh. P.N. Sharma to that effect, he also brought on record the minutes of meeting Ex.PW-3/1 and the certified copy of Board Resolution passed by the directors of plaintiff company by way of circulation on 30.09.2015 as Ex.PW-4/1.
20.13. So, the testimony of PW-3 / PW-4 also strengthens and corroborates the version of PW-1 Sh. P.N. Sharma regarding his authorisation to verify the contents of plaint and institute the suit on behalf of the plaintiff company against the defendants.
20.14. Secondly, 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 22/45 able to depose to the facts of the case, even in the absence of any formal letter or authority or power of attorney.
20.15. In the present case, there is no dispute to the fact that at the relevant time Sh. P.N. Sharma was working as Deputy General Manager of the plaintiff company. 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.
20.16. 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.
20.17. Thirdly, it is also worthwhile to make 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 23/45 held that a suit filed by a company should not be dismissed on technical ground of validity of the institution.
20.18. 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.
20.19. Accordingly, this issue is decided in favour of the plaintiff and against the defendants.
21. ISSUE NO.2.
Whether the plaintiff is entitled to the recovery of suit amount, if yes, from whom? OPP.
21.1. The onus to prove this issue is upon the plaintiff.
21.2. The factual matrix of the present case 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.
21.3. In the present case, there is no dispute to the fact that defendant no.2 established the letter of credit bearing no.15/141 Ex.PW-1/6 on the request of defendant no.3 to whom the goods were supplied by the Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 24/45 plaintiff and thereafter, when the plaintiff approached defendant no.2 through defendant no.1 and presented the documents for the encashment of LC, the same were rejected alleging discrepancies vide notice Ex.PW-1/9.
21.4. The plaintiff has alleged that the rejection notice Ex.PW-1/9 was defective / unjustified and defendant no.2 did not follow the UCP 500 guidelines in dealing with its request for encashment of LC Ex.PW-1/6 and communicating the rejection of documents vide notice Ex.PW-1/9.
21.5. 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.
21.6. 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.PW-1/6 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 that the same are not in compliance with the terms and conditions of the documentary credit.
21.7. So far as the claim of plaintiff is concerned, a bare perusal of the plaint and replication averments clearly show that the following Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 25/45 grounds have been put forth for demonstrating the liability of defendant no.2 for the suit amount under the LC no.15/141 Ex.PW-1/6:
(i) Firstly, defendant no.2 was obligated to encash the LC Ex.PW-1/6 as the discrepancies raised by it in notice Ex.PW-1/9 were waived off by defendant no.3 vide letter dated 28.04.1999 Ex.PW-1/12;
(ii) Secondly, defendant no.2 is liable to make payment for the goods supplied by plaintiff under LC Ex.PW-1/6 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.PW-1/6 as it did not return the documents presented for encashment within the period of 7 banking days prescribed under UCP 500 alongwith the notice Ex.PW-1/9; and
(iv) Fourthly, the failure on the part of defendant no.2 to comply with the UCP 500 guidelines in the conduct of its business constituted a deemed acceptance of the documents presented by the plaintiff for the encashment of the LC Ex.PW-1/6 and as a consequence, defendant no.2 was left with no option but to encash the LC.
21.8. In rebuttal, defendant no.2 has taken a very categorical stand that it was the plaintiff who was at fault for having presented discrepant documents containing the details of goods different than what specified in the letter of credit and the plaintiff was seeking payment against those goods, which were not even covered under Ex.PW-1/6.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 26/45 21.9. Defendant no.2 has further pleaded that all the UCP 500 guidelines were complied with on its part in the conduct of business 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 cited in the rejection notice Ex.PW-1/9.
21.10. 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 concept of letter of credit and UCP 500, it is expedient to give a brief overview of the same.
21.11. So far as the 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.
21.12. 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 27/45 and the beneficiary.
21.13. 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.
21.14. 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.
21.15. 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 28/45 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 UCP 500, it shall be estopped from claiming that the documents are not in compliance with the terms and conditions of the documentary credit.
21.16. 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.
21.17. Now coming to the analysis / adjudication of the pleas taken by plaintiff and defendant no.2 in support of their respective versions.
21.18. Firstly, so far as the argument of plaintiff that defendant no.2 was obligated to encash the LC Ex.PW-1/6 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 are not binding and does not obligate the issuing bank to encash the LC and the decision to accept the documents with discrepancies lies entirely within the sole discretion of the issuing bank.
21.19. Secondly, the plea of plaintiff that defendant no.2 is 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 29/45 is a separate contract independent of the underlying sale agreement and the issuing bank is primarily and exclusively concerned with examining 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.
21.20. 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 as Article 14 (d) only talks about a refusal notice and Article 14 (e) gives an option either to hold the documents at the disposal of, or return them to the presenter.
21.21. In the present case, the notice Ex.PW-1/9 specifically records that the issuing bank held the documents at the disposal of the presenter. The relevant extract out of Ex.PW-1/9 is reproduced hereinbelow for better understanding :
"We have presented the documents to the applicant for their acceptance. In the meantime, we hold the documents at your risk and responsibility."
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 30/45 21.22. So it is clear that defendant no.2 did not violate UCP 500 by not returning the documents alongwith the notice Ex.PW-1/9.
21.23. Fourthly, the plaintiff has taken the plea that the failure on the part of defendant no.2 to comply with the UCP 500 guidelines constituted a deemed acceptance of the documents presented and as a consequence, defendant no.2 is obligated to encash the LC.
21.24. In rebuttal, Ld. Counsel for defendant no.2 argued that the plaintiff cannot be allowed to raise the aforesaid plea as no such assertion has been made by it in the pleadings and it is a well established principle of law that a party cannot plead beyond pleadings.
21.25. However, this Court does not find any merit in the aforesaid submission and reject the same on the following grounds:
(i) Firstly, the plaintiff has taken a specific plea of non-compliance of UCP 500 guidelines by defendant no.2 in para 12 of its replication and the same is reproduced hereinbelow:
"The contents of para 12of parawise reply are false and are emphatically denied and the contents of corresponding para of plaint is reaffirmed and reiterated. On receipt of documents pertaining to B/R No.D/565 dated 30.3.99 and B/E No. D/15 dated 7.4.99, the opening Bank i.e. Bank of India while rejecting the same on frivolous grounds failed to return the documents within the prescribed period Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 31/45 under the UCP-500 and forwarded the documents to defendant no.3 for waiver of discrepancies, which were duly waived by the Defendant no.3 on 28-04- 1999. The Defendant no.2 having forwarded the documents to defendant no.3 for their acceptance, was left with no choce but to honour the L/C upon acceptance by defendant no.3.
Even otherwise failure to comply with terms of UCP 500, the defendant no.2 is deemed to have accepted the documents under the said LC and was under a contractual obligation to make the payment to the plaintiff;"
21.26. Hence, it is clear that there is a factual foundation in the pleadings of the plaintiff regarding the non-compliance of UCP 500 by defendant no.2 in the conduct of the transaction in question. It is to be noted that replication is considered as part of pleadings. Reference can be made to the judgment passed by Hon'ble Delhi High Court in Moti Ram Vs. Baldev Krishan, 15 (1979) DLT 90.
21.27. Moreover, it is manifest from the pleadings / record of the present case that the factual matrix of the present case revolves around UCP 500 guidelines and this Court is of the opinion that pleadings have to be read as a whole to ascertain their true import and the Court should not look merely to its form but to its substance and gather the real intention of the parties by reading the pleadings as a whole.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 32/45 21.28. The following observations made by the constitution bench of Hon'ble Apex Court in Bhagwati Prasad Vs. Shri Chandramaul, AIR 1966 SC 735 are extremely relevant:
" If a plea is not specifically made and yet it is covered by an issue by implication, and the parties knew that the said plea was involved in the trial, then the mere fact that the plea was not expressly taken in the pleadings would not necessarily disentitle a party from relying upon if it is satisfactorily proved by evidence. The general rule no doubt is that the relief should be founded on pleadings made by the parties. But where the substantial matter relating to the title of both parties to the suit was touched, tough indirectly or even obscurely in the issues, and evidence has been led about them then the argument that a particular matter was not expressly taken in the pleadings would be purely formal and technical and cannot succeed in every case. What the Court has to consider in dealing with such an objection is : did the parties know that the matter in question was involved in the trial, and did they lead evidence about it? If it appears that the parties did not know that the matter was in issue at the trial and one of them has had no opportunity to lead evidence in respect of it, that undoubtedly would be a different matter. To allow one party to rely upon a matter in respect of which the other party did not lead evidence and has had Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 33/45 no opportunity to lead evidence, would introduce considerations of prejudice, and in doing justice to one party, the Court cannot do injustice to another."
21.29. Furthermore, this Court is of the opinion that in the present case plaintiff and defendant no.2 went to the trial fully knowing each others case and led evidence not only in support of their contentions but in refutation of the case of the other side as well and all along the journey of the trial they were well aware of the fact that their respective pleas would be tested on the touchstone of the UCP 500 guidelines.
21.30. Thirdly, a bare perusal of the LC Ex.PW-1/6 reveals that it contains a specific condition to the effect that this documentary credit is subject to UCP 500 and it is trite to mention that a letter of credit is a binding agreement that obligates the executants to adhere strictly to its stated terms and conditions.
21.31. Moreover, it is a settled position of law that all the annexures attached to the plaint or written statement alongwith their contents become part of the pleadings. Reference can be made to the judgment passed by Hon'ble Delhi High Court in KK Manchanda and Anr. Vs. S.D. Technical Services Pvt. Ltd., RA 320/2008 in CM (M) 1205/2007.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 34/45 21.32. So this Court would now discuss the relevant Articles for adjudging the plea of plaintiff regarding non-compliance of UCP 500 by defendant no.2 in the transaction in question.
21.33. Article 13 and 14 of UCP 500 deals 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.
21.34. The entire procedure of examination of documents and thereafter taking up or refusing the same by the issuing bank 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 the 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 35/45 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 that the documents are not in compliance with the terms and conditions of the credit and refusing encashment of the LC.
21.35. At this stage, it is important to highlight that the plaintiff has not pleaded that the communication Ex.PW-1/9 was not received within seven banking days from defendant no.2.
21.36. So the entire controversy involved in the present suit boils down to the legality / sufficiency of the notice dated 16.04.1999 Ex.PW-1/9, the letter addressed by defendant no.2 to defendant no.1 / nominated bank.
21.37. Hence, this Court would now adjudicate as to whether the letter dated 16.04.1999 Ex.PW-1/9, which is stated as rejection notice by Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 36/45 defendant no.2, was in compliance with UCP 500 guidelines or not.
21.38. For better appreciation, the relevant text of the aforesaid letter Ex.PW-1/9 is reproduced herein below:
"Please refer to your letter No. dated 5-4-99 and 8-4-99 enclosing bills pertaining to M/s Hilton Rubber Ltd. for Rs.784,799.60 and Rs. 766,003.68 respectively.
2. As per Article 14(D) of OCPDC 500, we reject the documents under the above letter of credit. 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
Torapur to Sonepat instead of Tarapur (Distt. Thane) to Badhkalsa (Distt. Sonepet).
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 the goods or its conditions and we are unable to store, insure the goods. However, we will deliver the documents to the applicant if finally accepted prior to Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 37/45 your instructions."
21.39. A plain reading of Ex.PW-1/9 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.
21.40. However, through Ex.PW-1/9, 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.
21.41. Hence, it is clear that Ex.PW-1/9 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.
21.42. This Court is of the view that the notice Ex.PW-1/9 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.
21.43. In other words, under UCP 500, two distinct individual options have been provided to the issuing bank i.e. either to reject the Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 38/45 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.
21.44. 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.
21.45. 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 the 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).
21.46. So, this Court is not ready to accept the argument of Ld. Counsel for defendant no.2 that Ex.PW-1/9 was a valid rejection notice issued in due compliance of UCP 500 Guidelines as by virtue of Ex.PW-1/9, the issuing bank kept the option of accepting the documents through a second notice opened, which is impermissible.
21.47. In other words, the notice Ex.PW-1/9 cannot be treated as a rejection / refusal notice since it was inconclusive and the option to accept the documents and encash the LC was left open.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 39/45 21.48. 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.
21.49. As in the present case, it is crystal clear that the final decision to reject the documents of plaintiff was not conveyed by defendant no.2 to the presenter within seven banking days as prescribed under Article 13(b), so by virtue of Article 14(e), it is precluded from rejecting the documents by citing discrepancies and bound to encash the LC Ex.PW-1/6.
21.50. 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: 40/45 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: 41/45 21.51. 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.
21.52. In light of the entire foregoing discussion, this Court is of the considered opinion that Ex.PW-1/9 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.
21.53. Before concluding the discussion, it is necessary to deal with the plea of fraud taken by Ld. Counsel for defendant no.2 during the course of the arguments, however, the aforesaid plea is per se hollow as a bare perusal of written statement filed by defendant no.2 clearly reflects absence of any plea thereby alleging fraud on the part of plaintiff in the conduct of its business, which is the subject matter of the present suit and it is a well settled position of law that the factum of fraud, misrepresentation or undue influence cannot be proved if specific pleadings to the said effect are absent and the aforesaid position also gets re-affirmed by Rule 4 Order VI CPC which provides that 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 Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 42/45 (D) by LRs and Anr. Vs. Jose Francisco Pinto and Anr., Civil Appeal No.1491 of 2007.
21.54. In view thereof, the argument of Ld. Counsel for defendant no.2 alleging fraud practised by defendant no.2 during transaction in question stands rejected.
21.55. So far as the rate of interest is concerned, a bare perusal of the LC Ex.PW-1/6 and the pleadings reflect that there was no agreed rate of interest and it is a matter of record that the transaction in question is commercial in nature. Hence, the plaintiff is held entitled to pendente lite and future interest @ 8% per annum upon the principal amount of amount of Rs.7,84,799.60 from 17.06.1999 and on Rs.7,66,003.68P from 29.06.1999 till the actual realization of the decreetal amount.
21.56. Accordingly, the plaintiff is held entitled to the recovery of suit amount from defendant no.2.
21.57. Hence, this issue is decided in favour of the plaintiff and against the defendants.
22. ISSUE NO.2A.
Whether the refusal to accept the documents under the L/C No.15/141 by the defendant no.2 is not on legal and valid grounds? Onus on parties 22.1. The onus to prove this issue is upon the parties.
Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 43/45 22.2. The issue pertains to the decision of defendant no.2 in rejecting the documents presented by the plaintiff through defendant no.1 for encashment of LC No.15/141 Ex.PW-1/6.
22.3. So far as the question of documents in question being in compliance of terms and conditions of LC Ex.PW-1/6 is concerned, record of the present case reflects that the plaintiff itself sent communications to defendant no.3 seeking waiver of the discrepancies in the documents highlighted by defendant no.2. Hence, it is obvious that the documents presented for encashment of LC were not strictly in compliance of LC Ex.PW-1/6.
22.4. However, the question involved herein is not pertaining to the discrepancy of documents presented for the encashment of LC Ex.PW-1/6 rather it is regarding the legality of the act of defendant no.2 in refusing to accept those documents and encashing the LC.
22.5. This Court has already arrived at the finding while adjudicating issue no.2 that defendant no.2 did not comply with the UCP 500 guidelines in the conduct of the business, especially Article 14 and Article 14(e) specifically provides that if the issuing bank fails to act in accordance with the provisions of this Article,it shall be precluded from claiming that the documents were not in compliance with the terms and conditions of the credit.
22.6. Hence, this Court is of the opinion that as by virtue of Article 14(e), defendant no.2 was precluded from questioning the suitability Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 44/45 of documents and its decision of refusal to accept the documents presented under the LC No.15/141 Ex.PW-1/6 cannot be termed as an act done on the basis of legal and valid grounds.
22.7. Accordingly, the present issue is decided in favour of plaintiff and against the defendants.
23. RELIEF.
In view of the aforesaid discussion, the suit of the plaintiff is decreed in the following terms:
A. Plaintiff is held entitled to recover a sum of Rs.15,50,803.28P alongwith pendente lite and future interest @ 8% per annum on the principal amount of Rs.7,84,799.60 from 17.06.1999 and on Rs.7,66,003.68P from 29.06.1999 till the date of actual realization.
24. Parties are left to bear their own costs.
25. Decree sheet be prepared accordingly.
26. File be consigned to record room. MANOJ Digitally signed by MANOJ KUMAR KUMAR SHARMA Date: 2025.11.15 SHARMA 17:27:01 +0530 Announced in the open court (MANOJ KUMAR SHARMA) on 15th November, 2025. DJ-07/WEST/THC/DELHI Nirlon Limited Vs. M/s Union Bank of India & Ors.
Page: 45/45