Delhi District Court
Jindal Stainless Limited vs Icici Banking Corporation Limited on 5 September, 2018
IN THE COURT OF PRAVEEN KUMAR: ADDITIONAL
DISTRICT JUDGE05 :NEW DELHI DISTRICT, PATIALA
HOUSE COURTS, NEW DELHI.
Civil Suit No.56937/2016
In the matter of: (Fifteen Years Old Case)
Jindal Stainless Limited,
(Now known as JSL Limited, Hisar)
a company registered under
the Companies Act, 1956
having its Registered Office at
Delhi Road, Hisar ..................Plaintiff
Versus
1. ICICI Banking Corporation Limited
(Letter of Credit Department),
9A, Connaught Place,
New Delhi110001,
through its Branch Manager
2 & 2(a) ***
3. Surya Impex,
15501, Bruce B Down, 808,
Tampa, Florida FL 33647,
U.S.A.
through Mr. Murthy Azzarapu ..................Defendants
(Note: Defendant no.2 and 2(a)KBC Bank N.V. New York
Branch was allowed to be deleted from the array of parties vide
order dated 15.11.2007).
Date of Institution: 02.09.2003
Date of arguments: 30.08.2018
Date of decision: 05.09.2018
CS No.56937/16
Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.1 of 29
JUDGMENT:
1. This is a suit filed by plaintiff for passing of a decree of permanent injunction restraining the defendant no.1, namely ICICI Banking Corporation Ltd. (Issuing Bank) from remitting or authorizing the remittance of any amount under the letter of credit (in short 'LC') No.07MLC 34099 dated 08.10.1999 to KBC Bank N.V. New York Branch (Negotiating Bank) and restraining the defendants from claiming any reimbursement from the plaintiff company by debiting its account or in any manner, whatsoever.
2. The case of the plaintiff, in brief, is that the plaintiff, had placed an order with defendant no.3, a foreign seller, on 24.09.1999 for the supply of 600 metric tonnes Stainless Steel Scrap, and requested defendant no.1 to open a letter of credit (in short 'LC'). The terms of sale, inter alia, were that 90% of the payment was to be made to defendant no.3 through an irrevocable, transferable and confirmed usance LC payable after 180 days of the Bill of Lading. The balance (10%) was to be released within 10 working days after the receipts of goods and the satisfactory trial of the material by the plaintiff. Accordingly, plaintiff arranged for the opening of a LC from the defendant no.1 in favour of defendant no.3 for a sum of US $ 4,03,650 (later enhanced to US $ 4,48,500), which envisaged that KBC Bank NV, New York Branch was to make payment to defendant no.3 on the furnishing of the following documents (a) Sign Commercial CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.2 of 29 Invoice (original + five copies), (b) Certificate of El Salvador Origin issued by Chamber of Commerce (Original + three copies) and (c) Certificate from Shipping Company or its agents stating that the shipments has been effected through Conference Line Vessel, registered with the approved classification society. The LC was transferable at the request of beneficiary i.e. defendant no.3 and under this the Negotiating Bank was to make payment to defendant no.3 on furnishing of the transaction documents answering the correct description.
3. It is further the case of the plaintiff that on 03.03.1999 the defendant no.3 (seller) through nominee El Salvador party presented documents to Negotiating Bank along with bill of exchange drawn on defendant no.1 for 90% of the invoice value = US $ 423,832.50 and received the amount on the very next day. The defendant no.3 received US $ 82,709.79 and its nominee the balance amount. The Negotiating Bank then dispatched the documents to the defendant no.1 confirming negotiation and payment of US $ 423,832.50 and asked for reimbursement of this amount through its authorized designated representative (Chase Manhattan Bank) at New York.
4. It is further the case of the plaintiff that no objection was raised on the documents so much so that plaintiff conveyed that these documents would be acceptable to it even if there was any discrepancy. Plaintiff also authorized the debiting of its CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.3 of 29 account with defendant no.1 and reimbursement to Negotiating Bank by letter dated 10.11.1997.
5. It is further the case of the plaintiff that while all these was going, it is discovered that no shipment was infact made by the nominee/transferee of defendant no.3 (seller) - El Salvador party and the documents presented were also fraudulent. The defendant no.3 informed the Negotiating Bank of this. The plaintiff was also intimated. On this, plaintiff asked the defendant no.1 to stop the payment to Negotiating Bank, but the defendant no.1 declined saying that it was bound to pay under the provisions of Uniform Customs and Practice for Documentary Credits (1999 revision) ICC 500 Paris (in short 'UCP').
6. It is further the case of the plaintiff that the plaintiff then filed a suit before Civil Judge at Hisar and obtained an order of injunction dated 25.04.2000 restraining the defendant no.1 from making payment to Negotiating Bank. The order was taken in appeal before the Punjab & Haryana High Court. The High Court ruled that Hisar court had no jurisdiction in the matter. The plaintiff then filed the present suit in Delhi. Plaintiff has prayed that the suit of the plaintiff be decreed.
7. Defendant no.1 has filed written statement and has contested the suit. It is averred that the plaintiff as per its own case came to know of the alleged fraud, forged documents on or about 29.11.1999 whereas the plaintiff informed the answering CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.4 of 29 defendant only on 23.12.1999, more than three weeks after becoming aware of the alleged forgery in the documents. This is inexplicable by the plaintiff and does not speak of diligence and is suspicious. The plaintiff and Negotiating Bank has kept the defendant no.1 in the dark about several factual aspects of the alleged fraud, whereas the letter of credit was that of the defendant no.1 who was entitled to know about the same at the earliest. It is averred that the plaintiff approached the defendant no.1 on 07.10.1999 with a request to open a letter of credit in favour of the defendant no.3 as the beneficiary and submitted an application and also provided a guarantee for the issuance of the said letter of credit by the defendant no.1. In addition to the terms and conditions prescribed by the defendant no.1, the plaintiff submitted the additional terms and conditions of the LC, which specifically included that the letter of credit was to be transferable on the request of the beneficiary, and the amendments carried out by the defendant no.1 at the request of the plaintiff, inter alia included that the letter of credit was transferable at the request of the beneficiary and also permitted submission of third party documents. On the request of the plaintiff, the defendant no.1 established a letter of credit no.07MLC34099 indicating KBC Bank, New York as the negotiating banker. Thereafter, at the request of the plaintiff, the defendant no.1 amended the said letter of credit from time to time.
CS No.56937/16Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.5 of 29
8. It is further averred on behalf of the defendant no.1 that as per the terms and conditions of the letter of credit, the letter of credit could be transferred at the request of the beneficiary, the defendant no.3. The Negotiating Bank is reported to have remitted an amount of US $ 4,23,832.50. After the Negotiating Bank made the payment to both the defendant no.3 and the said alleged transferee, it sent the document drawn under the said letter of credit to the defendant no.1 vide its letter dated 04.11.1999. On the receipts of the documents, the plaintiff approached the defendant no.1 and confirmed to it that the original documents would be acceptable to the plaintiff even if there would be any discrepancy therein. The plaintiff vide its letter dated November 10, 1999 authorized the answering defendant, to debit their account with the amount of letter of credit on due date. The said letter of the plaintiff reads as under: "With reference to the above letter of credit, we understand that the original documents has reached in your office. We confirm that the original documents would be acceptable to us even if there will be discrepancy. You may debit our account with equivalent on due date".
9. It is further averred on behalf of the defendant no.1 that the plaintiff also executed a Promissory Note in favour of the defendant no.1 wherein the plaintiff promised to pay to the defendant no.1, the amount for which, the letter of credit was opened and the documents were received from the Negotiating Bank. It is submitted that the LC in question is governed by and CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.6 of 29 considered in accordance with the UCP.
10. Plaintiff has filed replication and has reiterated the contents of the plaint.
11. Vide order dated 17.07.2008 following issues were framed:
(i) Whether the plaintiff is entitled to a decree of permanent injunction restraining the defendant no.1 from remitting or authorising remittances of any amount under the Letter of Credit No.07MLC34099 dated 8th October, 1999 to M/s KBC Bank N.V. New York Branch? OPP.
(ii) Whether the defendant no.1 is bound by the provisions of the "Uniform Customs and Practice for Documentary Credit (1999 revision) ICC 500 Paris" and accordingly liable to make payment under the Letter of Credit No.07MLC34099 dated 8th October, 1999 to M/s KBC Bank N.V. New York Branch? OPD.
(iii) To what relief, if any, is the plaintiff entitled?
12. I have heard arguments in the present case. Ld. Counsel for plaintiff has contended that defendant no.3, the beneficiary of the LC had committed fraud with an intention to unlawfully extract monies under the LC and, therefore, defendant no.1 was/is under no obligation to honour the said LC and/or the requisite amounts of LC should not be deducted from the accounts of the plaintiff. In support of her contentions, she has relied upon CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.7 of 29 judgments - Banco Santander S.A. Vs. Bayfern Ltd., (1999)EWHC284(Comm.) MANU/UKCM/0017/1999; U.P. Cooperative Federation Ltd. Vs. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174; Messrs. Arul Murugan Traders Vs. Rashtriya Chemicals and Fertilisers Ltd., AIR 1986 Mad 161; Dwarikesh Sugar Industries Ltd. Vs. Prem Heavy Engineering Works, (1997) 6 SCC 450; Rigoss Exports International (P) Ltd. Vs. Tartan Infomark Ltd., AIR 2002 Del 285; Svenska Handelsbanken Vs. Indian Charge Chrome, (1994) 1 SCC 502; Synthetic Foams Ltd. Vs. Simplex Concrete Piles (India) Pvt. Ltd., AIR 1988 Del 207; Sztejn Vs. Henry Schroder Banking Corp., 177 Misc. 719, 31 N.Y.S 2d 631 and Virgo Steels Vs. Bank of Rajasthan, AIR 1998 Bom 82.
13. Plaintiff in support of his case has examined Sh. S. N. Aggarwal, Additional General Manager (Purchase) of the plaintiffcompany as PW1. He has deposed that he is fully conversant with the facts of the present case and has proved the Board Resolution dated 01.08.2003 in his favour as Ex.PW1/1. He has deposed that plaintiff was earlier known as Jindal Strips Ltd., however, pursuant to the order of the Punjab and Haryana High Court, the said Jindal Strips Ltd. has been merged with Jindal Stainless Limited. He has proved the certificate of incorporation, order of Punjab and Haryana High Court and Certificate of Registration as Ex.PW1/2 to Ex.PW1/4. He has further deposed CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.8 of 29 that during the pendency of the suit, the name of the plaintiff company has been changed from Jindal Stainless Ltd. to JSL Ltd. He has proved the certificate of incorporation in this regard as Ex.PW1/4. He has deposed on the lines of the averments made in the plaint and has proved the offer letter dated 22.09.1999 by defendant no.3 and purchase order by plaintiff as Ex.PW1/5 and Ex.PW1/6 respectively. He has also proved LC as Ex.PW1/7; Commercial Invoice as Ex.PW1/8; Certificate of Origin as Ex.PW1/9; Certificate of Shipment as Ex.PW1/10; Bill of Lading as Ex.PW1/11; Letters as Ex.PW1/12 to Ex.PW1/14, Ex.PW1/17 to Ex.PW1/22, Ex.PW1/25 and Ex.PW1/26; Business Information Report as Ex.PW1/15; Letter dated 29.11.1999 as Ex.PW1/16; Order passed by Ld. Civil Judge, Hisar as Ex.PW1/23; Judgment passed by the Court of Ld. Additional District Judge, Hisar as Ex.PW1/24.
14. I have gone through the file as well as judgments cited before me. My issuewise findings are as under: Issue no.1 & 2
15. Since these issues are interlinked, they are being decided together.
16. In judgment - Banco Santander S.A. (supra), the letters of credit stipulated payments as deferred and expressed it to be paid 180 days from the Bill of Lading date. Meanwhile the documents under the credit were presented before confirming CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.9 of 29 banker. The Banker examined and found that the documents were confirming. They discounted the letter of credit and payment was made before the maturity date by following the standard operational procedure. But after a week it was discovered that some of the documents were false and the issuing bank refused reimbursement to the confirming bank. The moot question was which bank is liable to bear the risk. The court held that the confirming bank should bear this risk. Langley J., held that the obligation to reimburse a party which has incurred a deferred payment obligation arises only when that deferred payment obligation has been discharged at maturity.
17. In judgment - U.P. Cooperative Federation Ltd. (supra), it has been held as under: "45. The letter of credit has been developed over hundreds of years of international trade. It was most commonly used in conjunction with the sale of goods between geographically distant parties. It was intended to facilitate the transfer of goods between distant and unfamiliar buyer and seller. It was found difficult for the seller to rely upon the credit of an unknown customer. It was also found difficult for a buyer to pay for goods prior to their delivery. The Bank's letter of credit came into existence to bridge this gap. IN such transactions, the seller (beneficiary) received payment from issuing bank when he presents a demand s per terms of the documents. The bank must pay if the documents are in order and the terms of credit are satisfied. The bank, however, was not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contrary. Any dispute between the buyer and the seller must be settled between themselves. The courts, however, carved out an exception to this rule of absolute independence. The courts held that if there CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.10 of 29 has been fraud in the transaction the bank could dishonour beneficiary's demand for payment. The courts have generally permitted dishonour only on the fraud of the beneficiary, not the fraud of somebody else".
"46. It was perhaps for the first time the said exception of fraud to the rule of absolute independence of the letter of credit has been applied by Shientag, J. in the American case of Sztejn Vs. J. Henry Schroder Banking Corporation (31 NYS 2d 631). Mr. Sztejn wanted to buy some bristles from India and so he entered into a deal with an Indian seller to sell him a quantity. The issuing Bank issued a letter of credit to the Indian seller that provided that, upon receipts of appropriate documents, the bank would pay for the shipment. Somehow, Mr. Sztejn discovered that the shipment made was not crates of bristles, but creates of worthless material and rubbish. He went to his bank which probably informed him that the letter of credit was an independent undertaking of the bank and it must pay".
"53. Whether it is a traditional letter of credit or a new device like performance bond or performance guarantee, the obligation of banks appears to be the same. If documentary credits are irrevocable and independent, the banks must pay when demand is made. Since the bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The bank's obligations of course should not be extended to protect the unscrupulous seller, that is, the seller who is responsible for the fraud. But, the banker must be sure of his ground before declining to pay. The nature of the fraud that the courts talk about is fraud of an egregious nature as to vitiate the entire underlying transaction. It is fraud of the beneficiary, not the fraud of somebody else. If the bank detects with a minimal investigation the fraudulent action of the seller, the payment could be refused. The bank cannot be compelled to honour the credit in such cases. But it may be very difficult for the bank to take a decision on the alleged fraudulent action. In such cases, it would be proper for the bank to ask the buyer to approach the court for an injunction".CS No.56937/16
Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.11 of 29
18. In judgment - Messrs. Arul Murugan Traders (supra), there had been multiple discrepancies and the delivery challans had been forged. The court, in addition to the merits and facts, relied on a variety of judgments to hold that the officers of the respondent had indulged in clandestine dealings and that, under the disputed invoices, plaintiff had not received goods. The Revision Petition was allowed & the injunction was granted.
19. In judgment - Dwarikesh Sugar Industries Ltd. (supra), while relying on a variety of judgments and affirming the law with respect to the fraud in letter of credit, specifically laid down that while granting an injunction, exception of fraud and irretrievable injury shall be a valid ground for stopping payment by the Banks. The Supreme Court reiterated the principle that if fraud is involved which would vitiate the very foundation of the bank guarantee and the beneficiary can be restrained from encashing it. But the fraud has to be an established fraud. The principle of unjust enrichment is not applicable to encashment of bank guarantee. Encashment of guarantee can be restrained only in circumstances where it will result in irreparable harm or injustice to one of the parties concerned. The resulting of irretrievable injury should be decisively established. It must be proved to the satisfaction of the court that there would be possibility whatsoever of the recovery of the amount from the beneficiary by way of restitution.
CS No.56937/16Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.12 of 29
20. In judgment - Rigoss Exports International (P) Ltd. (supra), the petitioner was doing exporting business through an agency. All the letters of credit transactions were induced by the agency. There was fraud and a document relating to shipment procured by the agent was found to be forged. Injunction was granted against encashment of guarantee.
21. In judgment - Svenska Handelsbanken (supra), the court stated that in a case of confirmed bank guarantee or irrevocable letter of credit it cannot be interfered with unless there is fraud and irretrievable injustice involved in the case and fraud has to be an established fraud. There should be prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Mere irretrievable injustice without prima facie case of established fraud is of no consequence in restraining the encashment of bank guarantee. Only in the event of fraud or irretrievable injustice the court would be entitled to interfere in a transaction involving a bank guarantee and under no other circumstances.
22. In judgment - Synthetic Foams Ltd. (supra), our High Court of Delhi held that misrepresentation, suppression of material facts and violation of the terms of the guarantee could be regarded as species of as fraud which would disentitle a beneficiary to enforce the bank guarantee.
23. In judgment - Sztejn (supra), the seller shipped CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.13 of 29 rubbish materials under a control of sale. He obtained a Bill of Lading from the carrier fraudulently stating that the goods shipped in the container are in good condition. However, on suspecting fraud, buyer refused to accept the documents and filed an injunction restraining the issuing bank from accepting this documents and making payment to the seller. The court held that the principle of autonomy is the important element of documentary credit. However, in case of fraud the autonomy principle cannot be upheld. Shientag J., said, "...where the seller's fraud has been called to the bank's attention before the drafts and documents have been presented for payment, the principle of the independence of the bank's obligation under the letter of credit should not be extended to protect the unscrupulous seller."
24. In judgment - Virgo Steels (supra), while relying on settled law, the court reiterated that courts generally permit dishonour of letter of credit only in the case of fraud of the beneficiary.
25. Though not referred to or relied upon, in judgment - Centax (India) Ltd. Vs. Vinmar Impex Inc., AIR 1986 SC 1924, it has been held that a Bank Guarantee resembles and is analogous to Letters of Credit and would therefore attract similar jural consideration and handling.
26. Though not referred to or relied upon, in judgment - United Commercial Bank Vs. Bank of India, (1981) 2 SCC 766 = CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.14 of 29 AIR 1981 SC 1426, the Apex Court reiterated that Courts ought not to grant injunctions restraining the performance of the contractual obligations flowing out of a Letter of Credit or a Bank Guarantee between one Bank and another. It observed as under: "The opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay. A banker issuing or confirming an irrevocable credit usually undertakes to honour drafts negotiated, or to reimburse in respect of drafts paid, by the paying or negotiating intermediate banker and the credit is thus in the hands of the beneficiary binding against the banker. A letter of credit constitute the sole contract with the banker and a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit. The banker owes a duty to the buyer to ensure that the documents tendered by the sellers under a credit are complied with those for which the credit calls and which are embodied in terms of paying or negotiating bank the description of the goods in the relative bill of exchange must be the same description in the letter of credit, that it, the goods themselves must in each be described in identical terms, even though the goods differently described in the two documents are, in fact, the same. It is the description of the goods that is all important and if the description is not identical it is the paying bank's duty to refuse payment".
27. Though not referred to or relied upon, in judgment Federation Bank Ltd. Vs. V.M. Jog Engineeing Ltd., (2001) 1 SCC 663, the Apex Court laid down the following enunciation of law: CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.15 of 29 "In several judgments of this Court, it has been held that courts ought not to grant injunction to restrain encashment of bank guarantees or letters of credit. Two exceptions have been mentioned (i) fraud, and (ii) irretrievable damage. If the plaintiff is prima facie able to establish that the case comes within these two exceptions, temporary injunction under Order 39 Rule 1 CPC can be issued. It has also been held that the contract of the bank guarantee or the letter of credit is independent of the main contract between the seller and the buyer. This is also clear from Article 3 and 4 of UCP (1983 Revision). In case of an irrevocable bank guarantee or letter of credit the buyer cannot obtain injunction against the banker on the ground that there was a breach of the contract by the seller. The bank is to honour the demand for encashment if the seller prima facie complies with the terms of bank guarantee or the letter of credit, namely, if the seller produces the documents enumerated in the bank guarantee or the letter of credit. If the bank is satisfied on the face of the documents that they are in conformity with the list of documents mentioned in the bank guarantee or the letter of credit and there is no discrepancy, it is bound to honour the demand of the seller for encashment. While doing so it must take reasonable care. It is not permissible for the bank to refuse payment on the ground that they buyer is claiming that there is a breach of contract. Nor can the bank try to decide this question of breach at that stage and refuse payment to the seller. Its obligation under the document having nothing to do with any dispute as to breach of contract between the seller and the buyer.
28. The meaning of credit finds definition in Article 2 of UCP. Under Article 3 of UCP, it is provided that credits defined in Article 2 of UCP are separate transactions from the sales or other contracts and Banks are in no way concerned with or bound by such contract and the undertaking of Bank to pay, accept, etc. or fulfill any other obligation under the credit, is not subject to claims or defences by the applicant resulting from his relationship CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.16 of 29 with issuing bank or the beneficiary. Article 4 of the UCP categorically states that in credit operations, all parties concern deal with the documents and not with the services and/or for other performances to which the documents may relate. Article 6 of UCP contemplates credits being revocable or irrevocable. The contract of guarantee is an independent contract, independent from the contractual rights between rights between/amongst the applicant and the beneficiary, and, hence, the contractual obligation arising under Bank Guarantee, bond/instrument or to be strictly enforced. Relevant Articles 14 & 15 UCP are reproduced hereinbelow: "Article 14 Discrepant Documents and Notice a. When the Issuing Bank authorises another bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against document which appear on their face to be in compliance with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are bound:
i. to reimburse the Nominated Bank which has paid, incurred a deferred payment undertaking, a accepted Draft(s), or negotiated.
ii. to take up the documents.
b. Upon receipt of the documents the Issuing Bank
and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents. c. If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.17 of 29 judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in subArticle 13(b).
d. i. If the Issue Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.
ii. Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.
iii. The Issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.
e. If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to, the presenter, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.
f. If the remitting bank draw the attention of the Issuing Bank and/or Confirming Bank, if any, to any discrepancy(ies) in the document(s) or advises such banks that it has paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated under reserve or against an indemnity in respect of such discrepancy(ies), the Issuing Bank and/or Confirming Bank, if any, shall not be thereby relieved from any of their obligations under any provision of this Article. Such reserve or indemnity concerns only the relations between the remitting bank and the party towards whom the reserve was made, or from whom, or on whose behalf, the indemnity was obtained."
"Article 15 CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.18 of 29 Disclaimer on Effectiveness of Documents Banks assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s), or for the general and/or particular conditions stipulated in the document(s) or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any document(s), or for the good faith or acts and/or omissions, solvency, performance or standing of the consignors, the carriers, the forwarders, the consignees or the insurers of the goods, or any other person whomsoever."
29. As per plaintiff, as stated in para 8 of the plaint, it was the sole and exclusive duty of defendant no.3 to check and verify the genuineness of the third party document to be presented to KBC Bank, New York of the LCEx.PW1/7 (dated 08.10.1999) before substituting its own invoice and draft/bill of exchange. In para 9 of the plaint, it is averred that the sequence of events which occurred after negotiation of document led the plaintiff to believe that the intention of defendant no.3 was bad, malafide and fraudulent from day one. Thus, in the plaint the plaintiff has not made any allegation of fraudulent or unbusinesslike conduct ascribable to the Negotiating Bank.
30. It is the settled law that the documents produced and placed on record by a party can be read against him even if these documents are not proved in accordance with law. A perusal of the record shows that on 03.11.1999 a Bill of Lading dated 28.10.1999 was presented by defendant no.3 to Negotiating Bank.
CS No.56937/16Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.19 of 29 The Bill of Lading No.C67JL893VN6 (placed at page no.3435) confirmed that Stainless Strips Scrap had been shipped to Vessel SKODSBORG V834 of Nordana Lines SA along with requisite certifications. The payment was immediately made to defendant no.3 by Negotiating Bank, which, on the following day, forwarded the negotiated documents to defendant no.1, Issuing Bank, for making payments on maturity i.e. 180 days from the date of shipment. The said letterEx.PW1/12 was received by the defendant no.1 on the same day i.e. 04.11.1999 and reads as under: "KBC Bank NV NEW YORK BRANCH TO: ICICI Banking Corporation Limited, Date: Nov.04, 1999, 9A, Connaught Place, New Delhi110001 India Attn.: Letter of Credit Dept. Your L/C No.07MLC34099 Our ref.:C50071/99 Documents for USD 423,832.50 Terms: 180 days from the date of Shipment Covering shipment of 630 mt stainless steel scrap From: Acajutla port, El Salvador to: New Delhi, India Dear Sir/Madam We enclose herewith documents drawn under the captioned letter of credit for payment at maturity April 25, 2000 as follow:
Invoice Amount: USD 470,925.00
90 Pct of Invoice value: USD 423,832.50
Plus interest
Interest at libor + .25% for 173 days US 12,933.37 (Libor at 6.10% + .25% = 6.35%) CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.20 of 29 ______________ Total: USD 436,765.87 ______________ At maturity (April 25, 2000) kindly authorize Chase Manhattan Bank, New York to honor our claim for USD 436,765.87.
Unless otherwise stated, we hereby certify documents have been presented to us within the terms and conditions of the letter of credit and within the expiry date or within the specified period of time after the date of issuance of shipping documents in accordance with Article 43a of UCP 500.
We do not assume any responsibility for the validity or genuineness of the enclosed documents.
This transaction is subject to the Uniform Customs and Practice for documentary Credits (1993 Rev.) International Chamber of Commerce Publication 500.
Authorized Signature."
31. The plaintiff addressed a letter to the defendant no.1 on 10.11.1999 which has not been proved by the plaintiff but can be read against it as the same has been produced and placed on record by the plaintiff itself. The said letter (placed at page no.38 of the paper book) is reproduced hereinbelow: "JINDAL STIPS LIMITED Jindal Centre, 12, Bhikaji Cama Place, New Delhi110066 Phone : 011618 834560 Fax : +9111616 1271 Email : [email protected] Nov. 10, 1999 The Manager, CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.21 of 29 ICICI Banking Corporation Ltd., 9A Connaught Place, New Delhi.
Subject: Original documents for USD 436,765.87 under L/C No.07MLC340/99 Dear Sir, With reference to the above letter of credit, we understand that the original documents has reached in your office. We confirm that original documents would be acceptable to us even if there will be any discrepancy. You may debit our account with equivalent on due date.
Thanking You, Yours faithfully, For Jindal Strips Limited (Authorised Signatories)"
(Emphasis mine)
32. After this sequence of events, the Negotiating Bank addressed the letter dated 29.11.1999Ex.PW1/16 which is reproduced hereinbelow: "KBC BANK NV NEW YORK BRANCH 125 WEST 55th STREET NEW YORK, NY 100 10 TO: SURYA IMPEX 15501 BRUCE B DOWNS 808, TAMPS FL 33647 ATTN: MUTTY AZZARPU RE: L/C NO. 07MLC34088 DOCUMENTS FOR USD 42383250 B/L NO. C57 JL892 VNG DATED OCTOBER 28, 1999 VESSEL: SKOTABORG V - 834 MR. AZZARPU, CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.22 of 29 WE HAVE RECORDED CONFIRMATION FROM NORDANA LINE. AS STATING THAT THE ABOVE MENTIONED SHIPMENT WAS NOT EFFECTED AND THE ABOVE MENTIONED BILLS OF LADING ARE FRAUDULENT.
WE REQUEST REFUND OF USD 52,709,70 IMMEDIATELY, PLEASE ATTRACT PAYMENT AS FOLLOW.
VIA FIND FURTHER: AB& 028008248
KBC BANK, N.V. NEW YORK, NY
FAVOR: A/C # 900 27348
ATTN: GTFG
UPON RECEIPT OF FUNDS FROM YOU WE SHOULD ADVICE THE ISSUING BANK, ICICI BANKING CORP. ACCORDINGLY.
KINDLY CONFIRM TO US WHEN PAYMENTS IS EFFECGTED.
IF YOU HAVE ANY QUESTIONS CONCERNING THIS REMITTANCE INSTRUCTION, KINDLY CONTACT US AT (212) 5410779.
AUTHORISE SIGNATURE KBC BANK N.Y. NEW YORK BRANCH, GLOBAL TRADE FINANCE GROUP TAS WEST 55th STREET - NEW YORK, NY 100 18 (212) 5410778 FAX (212) 7557421. TELEX MCI 651572."
33. It is the case of the plaintiff itself that the defendant no.3 has, in fact, refunded the sum of US $ 82,709.79, which is stated by to be the entire amount received by it as a consequence of the said transaction. The plaintiff on 23.12.1999 took a somersault by taking a stand contrary to its earlier letter dated 10.11.1999 reproduced hereinabove and requested the defendant no.1 not to honour the claim of the Negotiating Bank. The defendant no.1 responded vide its letter dated 30.12.1999 Ex.PW1/21 which is reproduced hereinbelow: "ICICI Bank ICBK/ND/FX December 30, 1999 Jindal Strips Limited, CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.23 of 29 Jindal Centre, 12, Bhikaji Cama Place, New Delhi 110066 Dear Sir, Sub: Letter of Credit No. 07MLC34099 We refer to your letter dated 23 December, 1999. While we noted that your trading partner has not been able to keep the commitment, it will be difficult to seek a remedy under the LC transaction in view of the following reasons: The captioned LC was issued subject to the provisions of Uniform Customs and Practice for Documentary Credits, ICC Brochure 500 (1993 revision) and some of the relevant provisions governing transactions under LCs are given below: Article 4 In credit operations, all parties concerned deal with documents and not with goods, services and/or other performances to which the documents may relate.
Article 15 Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal affect of any document(s) or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, conditions, packing, delivery, value or existence of the goods represented by any document(s) or for the goods faith or acts and/or omissions, solvency, performance or standing of the consignors, the carriers, the forwarders, the consignees or the importer of the goods or any other persons whomsoever.
In as much as the fact the documents received, on their face, have conformed to the terms and conditions of the LC, we as the LC issuing bank has no other alternative but to reimburse the negotiating bank on the due date. It is worth mentioning here that you had given your acceptance to the documents irrespective of the discrepancies. We will be honouring the payment on the due date and would like you to provide CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.24 of 29 adequate funds in the account.
We trust that the matter stands clarified from our point of view Yours faithfully For ICICI Bank Ltd., Sd/ Authorised Signatories."
(Emphasis mine)
34. From the perusal of evidence placed on record, it has neither been pleaded nor proved that the Negotiating Bank had committed any fraud or being privy to any fraudulent act. The Negotiating Bank disbursed the amounts covered by the LC Ex.PW1/7 and it could only recover an amount of US $ 82,709.79. Plaintiff has clearly mentioned in the plaint that the fraud was committed by defendant no.3 only. The discrepant nature of the Bill of Lading was discovered later on, on the initiative of Negotiating Bank before assignment of the contract, viz. the plaintiff. Significantly, discrepant documents could be 'approved' by the Issuing Bank, and in this context the plaintiff's letter dated 10.11.1999 addressed to it. The plaintiff was at fault as it had confirmed acceptance of discrepancy in documents vide its letter dated 10.11.1999 which caused investigations to be made after the Negotiating Bank has released payment to the assignee/third party. Even a subsequent holder of a usance/time bill does not cast any obligation on it to enquire as to whether the terms of the credit have been fulfilled. Though the initially the suit was filed CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.25 of 29 impleading the Negotiating Bank as a defendant but its name was deleted from the array of parties, and rightly so, as there are no allegation of fraud against it. The Negotiating Bank took prudent steps to effect the maximum recoveries from defendant no.3 by reclaiming US $ 82709.79, the benefit of which will be enjoyed and availed of by the plaintiff. Had plaintiff not issued letter dated 10.11.1999 to the defendant no.1, the situation would have been different. It was the plaintiff's letter dated 10.11.1999 which led the monies being paid.
35. The present case is squarely covered by the judgment
- Federation Bank Ltd. (supra). The Bank of Maharashtra (Issuing Bank) was the author of LC while the Federation Bank was the Negotiating Bank. The relation between these Banks was held to be that of principal and agent. The Negotiating Bank had sent copies of the documents received by it from the Beneficiary/Seller to the issuing banker. The latter spent an inordinate time in responding and in the meanwhile, strictly in conformity with the LC, Federal Bank paid the Seller. It was subsequently discovered that the Seller had allegedly committed a forgery on the documents. Nevertheless, since there was no infraction of the terms of the LC, the Apex Court held that the Negotiating Bank would be entitled to reimbursements from the Issuing Bank. The Supreme Court of India has held in catena of judgments that the Court should interfere in the encashment of Bank Guarantee and CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.26 of 29 LC with great circumspection. Although this approach may appear to be harsh on a defrauded party, it should not be forgotten that such a party has legal recourse to proceed against the defrauder in a civil action for the recovery of money. In most instances the fraud has been committed largely because of reckless trust reposed by one of the parties upon the other party to the transaction, in which folly foolhardiness or carelessness the Bank has no role to play. The Bank is a third party and is merely a facilitator of commercial transactions. The Bank ought not to be made to suffer for the recklessness of its constituents or be held liable for the legal inequities of a third party, else this significant and now irreplaceable method and medium of international trade be rendered unworkable and nonfunctional.
36. In nutshell, the plaintiff is not entitled to injunction for the reasons:
(i) The fraud was committed because of reckless trust reposed by the plaintiff upon the Seller. The plaintiff was at fault as it confirmed acceptance of discrepancy in documents vide its letter dated 10.11.1999. The said letter was filed by plaintiff itself and, therefore, can be read against it, even if not proved/exhibited.
(ii) There are no allegations of fraud against Negotiating Bank. In fact, the Negotiating Bank took prudent steps to effect the maximum recoveries from the Seller. Had it been hand in glove with Seller, it would not have done so.
CS No.56937/16Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.27 of 29
(iii) It is the own case of plaintiff that it came to know of the alleged fraud on or about 29.11.1999. The plaintiff took no steps to inform the Issuing Bank till 23.12.1999 about the alleged fraud. This three weeks delay is inexplicable and does not speak of due diligence, but, rather, is suspicious. The defendant no.1 was entitled to know about the alleged fraud at the earliest.
(iv) Injunction is a discretionary relief and it cannot be claimed as a matter of right. However, this discretion is to be exercised judiciously. Plaintiff can't be allowed to take advantage of its own wrong, firstly, by keeping the Issuing Bank in dark about alleged fraud for three weeks and, secondly, by issuing letter dated 10.11.1999 to the Issuing Bank.
(v) Though not referred to or relied upon, the judgment - Federation Bank Ltd. (supra) squarely covers the case in hand. The facts & circumstances in said case were strikingly similar to the present case.
(vi) The judgments relied upon by the plaintiff are not applicable to the facts of the present case.
(vii) Issuing Bank (defendant no.1) is a third party, a facilitator of commercial transaction between the plaintiff (buyer) and defendant no.3 (seller). In the facts and circumstances of this case, the defendant no.1 can't be made to suffer for the fault of plaintiff, else this significant and irreplaceable method and medium of International Trade would be rendered unworkable CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.28 of 29 and nonfunctional.
37. In view of the above discussion, these issues are decided against the plaintiff.
Relief
38. As I have decided both the issues against the plaintiff, the suit of the plaintiff is dismissed with costs. Decree sheet be prepared accordingly. File be consigned to Record Room after due compliance.
Digitally signed by
PRAVEEN PRAVEEN KUMAR
KUMAR Date: 2018.09.06
23:03:05 +0530
Dictated and announced in (PRAVEEN KUMAR)
open court today i.e. on 05.09.2018. Additional District Judge05, NDD,Patiala House Courts, New Delhi. ® CS No.56937/16 Jindal Stainless Ltd. Vs. ICICI Banking Corporation Ltd. & Ors. Page No.29 of 29