Debt Recovery Appellate Tribunal - Mumbai
Western Ministil Ltd. vs Bank Of Rajasthan And Ors. on 12 October, 2006
Equivalent citations: 2(2007)BC13
JUDGMENT
S.S. Parkar, J. (Chairperson)
1. The only point which is required to be considered in these two appeals is whether in view of the terms and conditions of the letters of credit dated 5th August, 1991, the bills of exchange dated 5th August, 1991 drawn by the appellants, Western Ministil Limited and discounted by the respondent No. 1-the Bank of Rajasthan Limited can be said to be "without recourse" to the drawers. The said point is required to be considered in the following facts and circumstances.
2. The respondent No. 3 Virgo Steels had placed orders on the appellants, Western Ministil Limited for supply of R.C.S. billets some time in the months of July and August, 1991. The payment was to be made under the letters of credit against the bills of exchange which were accepted by the buyers. The respondent No. 3 who were constituents of the respondent No. 2 the U.Co. Bank had got irrevocable letters of credit issued from the U.Co. Bank on 5th August, 1991 in favour of the appellants. The said letters of credit were without recourse to the vendors of the goods i.e. the appellants. The letters of credit could be negotiated by any Bank. The bills of exchange were not marked as "without recourse". The appellants had received payment for the goods supplied by them to the respondent No. 3 Virgo Steels from the respondent No. 1, the Bank of Rajasthan. When the respondent No. 2, the U.Co. Bank declined to make payments to the respondent No. 1 Bank as per the terms of the letters of credit, the respondent No. 1 filed two suits for recovery of the amount due on the bills of exchange guaranteed by the letters of credit. There were different letters of credit issued by the U.Co. Bank and the bills of exchange drawn by the appellants Western Ministil Limited on the same day. The demand in respect of all the bills were made by the Bank of Rajasthan but the amount was not reimbursed by the U.Co. Bank and therefore four suits had been filed by the Bank of Rajasthan impleading the U.Co. Bank as defendant No. 1, the purchasers Virgo Steels as defendant No 2 and the appellants, Western Ministil Limited, the vendors of the goods as defendant No. 3.
3. After enactment and coming into force of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short "RDDBFI Act") the suits filed initially in the High Court came to be transferred to the Debts Recovery Tribunal (for short "D.R.T."). The suits were decreed by the D.R.T, against all the defendants including the appellants. The matters were brought in appeal before this Tribunal by all the three defendants. The appeals were dismissed by this Tribunal by a common judgment dated 31st December, 2004. Even the original applicant, The Bank of Rajasthan Limited, had also filed appeal before this Tribunal against the very same order of the D.R.T. on the question of interest. That appeal also came to be dismissed along with the appeals preferred by the defendants by the common order dated 31st December, 2004. Aggrieved by the said decision of this Tribunal only the appellants had taken the matter before the High Court in writ petition Nos. 2079/2005 and 2089/2005. When these two petitions came up for hearing before the High Court it was noticed that the aforesaid point though raised by the appellants both before the D.R.T. and the Debts Recovery Appellate Tribunal (for short "D.R.A.T.") was not decided either by the D.R.T. or the D.R. A.T. and therefore the matters were remanded to this Tribunal for deciding the said issue within three months from the date of the order of the High Court i.e. 21st July, 2006. Accordingly I have heard both sides at length.
4. It would be relevant to mention here at this stage that on 18th September, 2006 when these appeals came up for hearing, the Advocates for the respondent No. 1 Bank took time to obtain instructions from the said Bank as the Senior Manager of the respondent No. 2 U.Co. Bank who was present in the Court on that day stated that the matter had been settled between the respondent Nos. 1 and 2 Banks. The Advocate for the respondent No. 1 Bank was told to make statement on the next date whether the said Bank wanted to pursue its claim against the appellants and, therefore the matter was adjourned to 20th September, 2006. On that date Advocate for the respondent No, 1 Bank made a statement that the Bank of Rajasthan had settled the claim with the respondent No. 2 i.e. U.Co. Bank by entering into memorandum of understanding and took time to place those facts on affidavit and therefore the matter was adjourned to 28th September, 2006.
5. On 28th September, 2006 an affidavit was tendered on behalf of the respondent No. 1 Bank stating therein that the Bank of Rajasthan Limited and the U.Co. Bank had entered into memorandum of understanding dated 31st March, 2005 whereby the U.Co. Bank had agreed to make payment of an aggregate amount of Rs. 1,700 lacs to the respondent No. 1 Bank towards the full and final settlement of its claim against the U.Co. Bank and on receipt of the said amount the respondent No. 1 Bank had to immediately withdraw all suit and litigations pending in various Courts of Law against the U.Co. Bank and respondent No. 1 Bank would assign all the debts and their rights to claim amount from the respective drawers and drawees of the bills of exchange to U.Co. Bank. It is further stated that the respondent No. 1 Bank had received a sum of Rs. 1,700 lacs and therefore its claim in these matters as also in other Original Applications stood settled. In response to the affidavit filed on behalf of the Bank of Rajasthan it is contended on behalf of the appellant that if the Bank of Rajasthan's claim is satisfied in respect of the bills on which the suits have been filed, the Bank of Rajasthan cannot claim any amount from these appellants. The appellants also sought time to file reply to the said affidavit.
6. On 5th October, 2006 an affidavit in reply was filed by the appellants objecting to the assignment of the claim by the respondent No. 1 Bank to the U.Co. Bank. Hearing of the appeals commenced on that date and the respondent No. 1 Bank was represented by an Advocate on that date but thereafter none appeared on behalf of the respondent No. 1 Bank. On 6th October, 2006 the Advocate Mr. Nasikwala appearing for the respondent No. 2, the U.Co. Bank, stated that he wanted to argue the matter on behalf of the respondent No. 1 Bank also. This was objected to on behalf of the appellants as Mr. Nasikwala is Counsel for the respondent No. 2, the U.Co. Bank which is one of the judgment-debtors and therefore it was argued that he should not be permitted to argue on behalf of the respondent No. 1 Bank which is the decree holder. However, since none appeared on behalf of the respondent No. 1 Bank as this Tribunal is informed that it had assigned the claim in favour of the U.Co. Bank, I allowed Mr. Nasikwala to argue the matter on behalf of the respondent No. 1, because otherwise I would not have an advantage of hearing the arguments of the respondent No. 1 Bank in countering the contentions raised on behalf of the appellants. The learned Counsel for the appellants also did not mind Mr. Nasikwala arguing the matter without prejudice to the appellants' right to oppose the assignment by the respondent No. 1 Bank, the decree holder, in favour of the respondent No. 2 Bank which is one of the judgment-debtors, Thus, the appeals were heard on the point on which the matter was remanded by the High Court without prejudice to the rights and contentions of the appellants to object to the assignment by the Bank of Rajasthan in favour of U.Co. Bank at appropriate stage. Mr. Nasikwala's arguments were based on the written submissions previously filed on behalf of the respondent No. 1 Bank.
7. On behalf of the appellants, it is argued that since the bills of exchange were drawn under the letters of credit issued by the U.Co. Bank which were without recourse to the drawers i.e. the appellants, the bills of exchange also should be considered or read as without recourse to the drawers. In support of this contention, the appellants relied on the terms of the irrevocable letters of credit dated 5th August, 1991 which were issued by the U.Co. Bank at the request of the buyers Virgo Steels for the benefit of the appellants. Perusal of the letter of credit dated 5th August, 1991 shows that they were negotiable by any Bank. The letters of credit also provided that all drafts drawn under the letters of credit must be marked "drawn under letters of credit" of the U.Co. Bank and while negotiating under the said bills the parties were required to produce the letters of credit to the negotiating Bank.
8. Reliance is also placed in the bills of exchange stating that the bills of exchange were drawn under an irrevocable letter of credit of the U.Co. Bank issued in favour of the drawers of the bills and it is contended that both the documents will have to be read together for the purpose of interpretation and though the bills do not contain the words "without recourse to the drawers" these words will have to be read into the bills as they were drawn with a specific and express reference to the irrevocable letter of credit issued by the U.Co. Bank. The letter of credit contained condition that all the drafts drawn under that credit must be marked "under letters of credit" of U.Co. Bank.
9. In this respect the appellants also relied on Article 10 of Uniform Customs and Practice for Documentary Credits. The relevant portion of Article 10 of U.C.P. 400 on which reliance is placed on behalf of the appellants reads as follows:
Article 10:
(a) An irrevocable credit constitutes a definite undertaking of the issuing Bank, provided that the stipulated documents are presented and that the terms and conditions of credit are complied with--
(ii) ....
(iii) ....
(iv) if the credit provides for negotiation to pay without recourse to drawers and/or bona fide holders, draft(s) drawn by beneficiary, at sight or at a tenor, on the applicant for the credit or on any other drawee stipulated in the credit other than the issuing Bank itself, or to provide for negotiation by another Bank and to pay, as above, if such negotiation is not effected.
10. The appellants have also relied on certain circumstances like the Bank of Rajasthan writing a letter dated 6th August, 1991 to the U.Co. Bunk before negotiating the bills of exchange. By that letter the Bank of Rajasthan had enclosed a set of documents drawn by the appellants for the payment made on the bills of exchange along with the original letters of credit and wanted the U.Co. Bank to confirm whether the documents were in order and whether the officers who had signed the letters of credit were authorized to sign them and also for confirming their signatures. By the said letter the Bank of Rajasthan wanted to confirm the due date and also whether the U.Co. Bank would make payment on due date. The U.CO. Bank by the letter of the same date confirmed the signatures of the authorized officers on the letters of credit and stated that the documents were in order. They also agreed to release the payment on the due date by pay order directly to the Bank of Rajasthan. Thus, according to the appellants since the bills of exchange were drawn expressly under and in pursuance of the letters of credit and the Bank of Rajasthan had confirmed with the U.CO. Bank about the execution of the irrevocable letters of credit which were without recourse to the drawers i.e. the appellants, it is contended on behalf of the appellants that notwithstanding the absence of the words "without recourse" in the bills of exchange, the bills will have to be considered or read as "without recourse".
11. In this connection reliance is also placed on the judgment of the Supreme Court in the case of 5. Chattalatha Karayalar v. Central Bank of India Ltd. AIR 1965 SC 1856. In that case in para 3 of the judgment the Supreme Court has held the principle is well established that if the transaction is contained in more than one document between the same parties they must be read and interpreted together and they have the same legal effect for all purposes as if they are one document.
In the said judgment Supreme Court has referred to the observations of Moulton, L.J. in the case of Manks v. Whiteley 1912-1 Ch. 735 at p. 754, which are as follows:
Where several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as arc relevant to this case as if they were one deed. Each is executed on the faith of all the others being executed also and is intended to speak only as part of the one transaction, and if one is seeking to make equities apply to the parties they must be equities arising out of the transaction as a whole.
13. Reference is also made on behalf of the appellants to the averments made in the plaint by the Bank of Rajasthan Limited that they had been induced to act on the confirmation by the U.Co. Bank and that the Bank of Rajasthan while making demand on the U.Co. Bank had stated in the notice that the U.Co Bank was primarily liable to any amount due on the bills of exchange by virtue of the letters of credit issued by the said Bank.
14. The stand taken on behalf of the Bank of Rajasthan is that both documents i.e. the letters of credit as well as the bills of exchange should be considered separately and in the absence of the words "without recourse" in the bills of exchange, the appellants are also liable on the bills. In support of this contention reliance is placed on the summons for judgment proceeding and the orders passed therein. It is contended that at the time of applying for leave to defend the appellants had raised this contention first before the Single Judge of the Bombay High Court and thereafter before the Division Bench of the Bombay High Court and ultimately the matter was taken to the Supreme Court. The said contention was negatived by the learned Single Judge of the Bombay High Court vide his order dated 22nd January, 1997 in summons for judgment No. 427 of 1994 in summary suit No. 226 of 1993. In that order different articles of U.C.P. were considered and it was held that two documents i. e. letter of credit and bill of exchange were different and could not be read together. The matter was taken in appeal before the Division Bench which had delivered a judgment negativating the said contention. The said judgment is reported in AIR 1998 Bom. 82. Applying Section 30 of the Negotiable Instruments Act it was held by the Division Bench of the High Court that the appellants were liable to pay the amount to the Bank of Rajasthan and therefore a conditional order was passed against the appellants confirming the order of the Single Judge. When the matter was taken to the Supreme Court by the parties, though a conditional order was passed against the U.Co. Bank and buyers Virgo Steels, the appellants Western Ministil Limited were granted an unconditional leave to defend the suit quashing the orders of the High Court.
15. On behalf of the appellants it is contended that since the orders passed by the High Court were quashed and the appellants were granted an unconditional leave to defend, the judgments of the High Court cannot be relied on for the view taken therein. However, on behalf of the Bank of Rajasthan observations of the Supreme Court "insofar as the defendant No. 3 is concerned, the liability arises under Section 30 of the Negotiable Instruments Act" are relied on to contend that the Supreme Court has confirmed the view expressed by the Division Bench of the Bombay High Court holding that so far as the bills of exchange executed by the appellants are concerned they would be governed by Section 30 of the Negotiable Instruments Act. It cannot, however, be disputed that it is a settled position in law that a holder of a bill of exchange is entitled to recover the amount of a dishonoured bill either from a drawer or an acceptor.
16. On behalf of the appellants it is contended that the view taken by the High Court at the interim stage cannot be binding. In support of this, they have relied on the judgment of the Supreme Court in the case of Amresh Tiwari v. L.P. Dubey . The Division Bench of the Bombay High Court itself has clarified in para 20 of the judgment that the observations made by it and by the learned Single Judge were made only at prima facie stage for considering whether an unconditional leave to defend was required to be granted or not. In other words, the view taken by the High Court was a prima facie view taken for deciding leave to defend applied for by the defendants and therefore it cannot be taken as a binding precedent. Moreover as relied on behalf of the appellants the Supreme Court in the case of Amresh Tiwari v. Lalla Prasad Dubey (supra), has observed in para 10 as follows:
It is settled law that interim orders, even though they may have been confirmed by the higher Courts, never bind and do not prevent passing of contrary order at the stage of final hearing.
17. Thus, the view taken by the Single Judge as well as the Division Bench of the Bombay High Court at the interim stage cannot be binding on the parties nor can it be said to be a binding precedent. Same can be said about the observation made by the Apex Court while granting unconditional leave to defend to these appellants also. Nonetheless, it cannot be disputed that the view taken by the High Court can have persuasive value.
18. On behalf of the respondent No. 1 Bank, reliance is placed on the judgment of the Privy Counsel in the case of M.A. Sassoon and Sons v. International Banking Corporation AIR 1927 P.C. 195, wherein it is held that in order to absolve the drawers of the bills of exchange from the liability under the bills, they must show that the transaction is without recourse. That was a case where the respondents had discounted the drafts only on a letter of advice and the appellants not having proved that the transaction was without recourse, they were held liable. The ratio of this decision would not be applicable to the present case because in this case the bills of exchange were drawn under the letters of credit which were without recourse to the drawers while in the Privy Council case the letter of advice was with recourse.
19. In the aforesaid circumstances I have to consider whether in terms of the letters of credit it can be said that the appellants had drawn the bills of exchange "'without recourse" notwithstanding the absence of the words "without recourse" in the bills.
20. The appellants are mainly relying on the judgment of the Supreme Court in the case of S. Chattalatha Karayalar v. Central Bank of India Ltd. AIR 1965 SC 1856, wherein it has been held that where a transaction between the same parties is contained in more than one document, all the documents must be read and interpreted together and they have the same legal effect for all purposes as if they are part of one document.
21. No doubt both, the letters of credit as well as the bills of exchange were executed on the same date i.e. 5th August, 1991 and the letters of credit were issued by the U.Co. Bank at the request of the Virgo Steels in favour of the appellants. The bills of exchange were drawn by the appellants which were accepted by the Virgo Steels and discounted by the Bank of Rajasthan. The Bank of Rajasthan however was not a party to the letters of credit but it had got confirmed from U.Co. Bank that the said letters of credit were executed authentically by the authorized officer of the U.Co. Bank so as to hold U.Co. Bank liable for its claim. The liability of the U.Co. Bank to the Bank of Rajasthan by virtue of letters of credit cannot be disputed.
22. In the aforesaid case decided by the Supreme Court reliance was placed on a letter of continuity dated 26th November, 1946 which was addressed to the Bank by all the three defendants stating therein that they were enclosing a demand pro-note for Rs. 4 lacs which was given as a security for repayment of the overdraft facility and that the said pro-note would be a security for the repayment of the ultimate balance of the sum remaining unpaid on the overdraft. The said pro-note was executed by all the defendants on the same date i.e. on 26th November, 1946. There was also a hypothecation deed whereby the goods were hypothecated to secure a demand cash credit. Thus, the pro-note executed by the three defendants was given as a security for the overdraft facility to the extent of Rs. 4 lacs. In that context the Supreme Court held that if the language of the promissory note was interpreted in the context of the said letter it was manifest that the status of the third defendant with regard to the transaction was that of a surety and not of a co-obligant. The suit was filed not on the pro-note but upon the balance of the overdraft account in the books of the plaintiff Bank. Reference is also made to some letters of the plaintiff Bank in which the defendant No. 3 was referred to either as a guarantor or a person having furnished guarantee for the repayment of the loan. That situation is not obtaining in the present case because the letters of credit which were sought to be read by the appellants along with the bills of exchange are not signed by the Bank of Rajasthan. The Bank of Rajasthan had only discounted the bills drawn by the appellants as per the letters of credit issued by the U.Co. Bank. Though the letters of credit were issued without recourse to the drawers, the bills of the exchange were not drawn without recourse to the drawers. If the appellants had desired to escape their liability on the bills of exchange as well, they could have drawn the bills without recourse. In the absence of the words "without recourse to drawers" or contract to contrary the drawer of a bill is liable to the holder in case of dishonour as per the provisions of the Negotiable Instruments Act.
23. It is a fact that the Bank of Rajasthan had confirmed from the U.Co. Bank by the letter dated 6th August, 1995 whether the documents and the letters of credit were signed by the authorized officers or not. However, this must have been done to ensure that its payment is secured by U.Co. Bank and not with a view to absolve the appellants of their liability on the bills. Even the averments made by the Bank of Rajasthan in the plaint that they had been induced to act on the confirmation of U.Co. Bank, will be of no assistance to the appellants because that only goes to show that the Bank of Rajasthan wanted to confirm whether the U.Co. Bank was liable or not, so that it would be safer for it to discount the bills as it could be sure of the recovery of its amount when U.Co. Bank had vouchsafed the payment by letters of credit.
24. Reliance placed on Article 10 of U.C.P. would also not be of any help to the appellant because the said article does not contemplate any definite practice that the contents of the letters of credit can be read into the bills of exchange. The Article 10 of U.C.P. states about letters of credit and provides about assurance to pay without recourse to the drawer and/or bona fide holders of the drafts drawn by the beneficiary. That article does not provide that by virtue of terms of letters of credit drawer of the bills is exempt from liability on the bills. No doubt the U.Co. Bank was liable to pay the amount to the negotiating Bank i.e. the Bank of Rajasthan by virtue of the letters of credit. The only advantage the appellants could have was, in case the buyer's Virgo Steels did not make payment to the U.Co. Bank, the latter could not have recourse to the appellants as the letters of credit issued by the U.Co. Bank were without recourse to the drawers, However, so far as the bills of exchange discounted by the Bank of Rajasthan are concerned, the same would be governed by the provisions of the Negotiable Instruments Act. Under Sections 30 and 32 of the said Act in the absence of a contract to the contrary, in case of dishonour by the drawee or the acceptor of bills of exchange the drawer thereof is liable to compensate the holder of a bill.
25. Another circumstance which is relied on behalf of the appellants is that the Bank of Rajasthan initially made demands from the U.Co. Bank and then from the appellants. That was done because naturally the Bank of Rajasthan would first try to see whether it could recover money from the U.Co. Bank which was liable under the letters of credit. It was only when the U.Co. Bank did not honour its commitment under the letters of credit and pay the amount though demanded, the Bank of Rajasthan had to file suits for recovery of the amount against all the parties who were legally liable and therefore demand notice was sent to the appellants subsequently.
26. So far as the argument of the appellants on the judgment of the Supreme Court in S. Chattalatha Karayalar's case (supra) is concerned, in my view, that decision was given in the facts of that case. The ratio of that decision is not applicable to the present case. A decision has to be considered in the facts of that case and not divorced from the facts in order to find out its ratio.
27. In my view the appellants are liable to the Bank of Rajasthan Limited on the bills of exchange drawn by them as they were not "without recourse to the drawers". It is different thing that the liability of all the three defendants was joint and several and the holder of the bills of exchange could recover the amount either from one or from all the three parties separately or jointly. In this respect the appellants have relied on the deposits made by the U.Co. Bank in the High Court pursuant to the orders passed by the Supreme Court in the summons for judgment proceeding and the pre-deposits made in this Tribunal pursuant to the orders passed under Section 21 of the RDDBFI Act. It is common ground that the U.Co. Bank had deposited in the High Court a sum of Rs. 1,21,50,000/ - which amount with interest of Rs. 1,93,67,722/- comes to Rs. 3,15,17,722/-. Thereafter the U.Co. Bank had deposited a sum of Rs. 4,34,82,000/- in the D.R.A.T. in appeal No. 207 of 2001 which was invested in F.D.R. and some interest had accrued thereon. The entire amount deposited by the U.Co. Bank in summons for judgment proceeding and the amount deposited in this Tribunal along with interest accrued thereon has been withdrawn by the Bank of Rajasthan pursuant to the order passed by this Tribunal on 24th March, 2005. As stated earlier the appeals filed by the U.Co. Bank have been dismissed and therefore the decrees against the U.Co. Bank have been confirmed pursuant to which the aforesaid amount had been withdrawn by the Bank of Rajasthan Limited. Thus, the decree holder, the Bank of Rajasthan Limited can only recover the balance amount of their claim from all the judgment-debtors. Moreover, it is pointed out on behalf of the appellants that as per the affidavit dated 28th September, 2006 the entire claim of the Bank of Rajasthan Limited is satisfied. As per the said affidavit the Bank of Rajasthan Limited had received Rs. 1,700 lacs from the U.Co. Bank in full and final settlement of the claim in all the Original Applications and therefore it is contended on behalf of the appellants that in view of the fact that the entire claim of the Bank of Rajasthan Limited has been satisfied, the said Bank cannot proceed to recover any amount from the appellants pursuant to the decrees passed against them. However, this is the question which can be raised in execution proceedings or in a proceeding which may be filed by the appellants before an appropriate forum.
28. For the view taken by me on the point which was raised in these appeals, these appeals are dismissed.
29. On the request of the Advocate for the appellants the operation of this order is stayed for a period of eight weeks from today.