Calcutta High Court
Kamini Ferrous Limited vs Neelam International Pte. Ltd. And Ors. on 17 May, 2006
Equivalent citations: AIR2006CAL244, AIR 2006 CALCUTTA 244, 2006 (6) ALL LJ NOC 1334, 2006 (6) ABR (NOC) 1012 (CAL), 2006 (5) AKAR (NOC) 759 (CAL), 2006 A I H C (NOC) 350 (CAL)
Bench: Pinaki Chandra Ghose, Tapan Kumar Dutt
JUDGMENT
1. This appeal is directed against an order dated 7th March, 2006 passed by the Hon'ble First Court refusing an order of injunction restraining the bank from making any payment under Letters of Credit dated 23rd November, 2004 and 29th November, 2004 and also was pleased to refuse the restraint order against the respondent Nos. 1 to 3 from demanding payment under the said Letters of Credit. The suit was filed against the defendants for a decree for perpetual Injunction restraining the defendants and each of them, their servants, men, agents and assigns from making any payment under the said Letters of Credit; the suit was filed against the defendants for a decree for perpetual injunction restraining the defendants and each of them, their servants from in any way or the manner obtaining and/or seeking to obtain payment under the said Letters of Credit; a decree for perpetual injunction restraining the defendants from debiting the plaintiff's account for any amount in excess of Rs. 23.40 lakhs; declaration that the defendants are not entitled to demand any payment under the said Letters of Credit.
2. An ad-interim order was passed by the Court on March 23, 2005 restraining the payment under the said Letters of Credit. Subsequently, the said order was modified on 4th May, 2005 and after exchange of the affidavits the matter was finally disposed of by the Hon'ble First Court. When His Lordship was pleased to permit the respondent to obtain payment of the full amount upon furnishing a Bank Guarantee for the equivalent amount.
3. Facts of the case briefly are as follows:
It was agreed between the parties that the respondent No. 1 agreed to sell to the petitioner/appellant and the petitioner agreed to purchase from the respondent No. 1, 340 MT (iron and steel scrap) and 85 MT of re-rollable rail, scrap on the terms and conditions agreed upon between the parties. Admittedly, on 23rd November, 2004 and 29th November, 2004 respondent No. 29, being the banker of the petitioner issued two Letters of Credit covering the" price of the said goods. Under the said Letters of Credit, respondent No. 1 is the beneficiary and the respondent No. 3 is the advising bank. The said Letters of Credit are subject to UCP 500.
4. Respondent No. 1 shipped and/or caused to ship the goods under 4 several Bills of Lading and raised two several invoices on 15th November, 2004 for US $ 52445.06 and US $ 51780.70. The documents which were sent by the beneficiary being the respondent No. 1 to the bank, were not in accordance with the Letters of Credit and/or were discrepant documents. The respondent No. 2 made over the documents to the petitioner, the bank on 9th December, 2004 and 17th December, 2004. The petitioner accepted the same.
5. It is the case of the petitioner that on finding discrepancies the petitioner requested the bank to cancel the acceptance. The respondent No. 1 was informed of the discrepancies. The documents were returned to the respondent No. 1 and the respondent No. 1 corrected some minor discrepancies, but did not correct all. On the basis of the documents the petitioner took delivery of the goods and found that there were shortages. The petitioner caused the goods to be inspected by a surveyor and duly informed the respondent No. 1 in respect of such shortages. The respondent No. 1 accepted such shortages and confirmed by its letter dated 15th March, 2005 and acknowledged a part of the claim of the petitioner to the extent of US $ 32408.16.
6. It is the case of the petitioner that in spite of acknowledging the dues the respondent No. 1 attempted to obtain full payment fraudulently. It is further the case of the appellant/petitioner that the defendant No. 1 did not have any office at the address in Singapore shown in the contract.
7. The explanation of the respondent No. 1 that after the documents were returned, some were corrected and once again forwarded to the petitioner establishing that the Letters of Credit was not acted on. Therefore, it establishes that the Letters of Credit discharged.
8. On the contrary, the case of the respondent that the said Letters of Credit were subject to UCP 500 and Article 14 of the UCP 500 provides as follows:
a) It is the obligation of the issuing bank (in this case the respondent No. 2) to 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 bank may refuse to take up the documents (Article 14 (b)).
b) 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 judgment approach the applicant (here the petitioner) for a waiver of the discrepancy(ies). (Article 14(c)).
c) If the issuing bank (i.e. the respondent No. 2) 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 not later than the close of the 7th banking day following the day of receipt of the documents (Article 14(d)(i)).
d) If the issuing bank falls to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal or return them to the presenter, the issuing bank shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit (Article 14(e)).
9. No case has been made out by the petitioner/appellant that its banker ever refused to take the documents. On the contrary, the case of the appellant/petitioner is that its banker accepted the document and made over the same to the petitioner/appellant and the respondent No. 2 unconditionally accepted its liability which would be evident from Annexure "B" annexed to the Affidavit-in-Opposition (appearing at pages 177 to 178 of the stay petition).
10. The issuing bank, by not refusing to take up the documents and on the contrary by handing over the documents to the petitioner, became immediately liable and responsible to discharge its obligations under the said two Letters of Credit. In any event, admittedly the petitioner took delivery of the documents on the basis of the said documents. The case of the respondent No. 2 that the documents were received from the petitioner/appellant and not from its banker and thereafter, furnished the corrected documents to the petitioner and on the basis thereof the petitioner had taken delivery of the materials and has appropriated the same.
11. In case of short supply, relief of the petitioner is by way of damages which has to be tried on evidence. For such alleged short supply, payment under the Letters of Credit cannot be stopped. Letters of Credit are separate contracts and has nothing to do with the dispute with the supplier and the purchaser. The respondent No. 1 also raised disputes in respect of the short supply and disputing the documents relied upon by the petitioner/appellant. The respondent No. 1 denied such acknowledgement in respect of short supply. It is also pointed out that the Hon'ble First Court was pleased to direct the release of payment under the amount. Under the Letters of Credit only the respondent No. 1 furnishes having its branch office at Kolkata. Therefore, there cannot be any doubt that the claim in respect of short supply is also secured by the said order passed by the Hon'ble First Court.
12. Mr. Pratap Chatterjee, Learned Senior Advocate appearing on behalf of the appellant/petitioner contended that party seeking payment under a Letter of Credit must strictly observe the terms and conditions under which the credit is to become available failing which it cannot claim payment. Admittedly, the documents were not strictly in accordance with the Letters of Credit. He submitted that on that ground alone no payment should be made. He also relied upon a case of "Hindustan Copper Ltd. v. Rana Builders Ltd." and submitted that the principles governing the payment under a Letter of Credit are different from the principles governing payment under a Bank Guarantee. In case of a Letter of Credit, even without fraud, if the documents presented under the said Letters of Credit payment cannot be made thereunder. He further submitted that the special equities have also lied in favour of the appellant/petitioner. According to him, Article 14(c) of UCP 500 does not assist the case of the respondent, since there is no evidence to show that the issuing bank approached the plaintiff for waiver of the discrepancies in the documents. He also submitted that the short quantity of goods was admitted by Certificates of Lloyds Surveyor and the shortage accepted by the defendants and their agents by e-mails exchanged between the parties and further a letter dated 15th March, 2005 on behalf of the defendant No. 1's agent M/s. Altruistic Services Pte. Ltd. and according to him, the admission by Altruistic will bind the respondent No. 1.
13. He further contended that after rejection of the documents on December 20, 2004 there is no acceptance of waiver and no document has been disclosed to show such waiver and/or acceptance by the respondent No. 1. In the absence of such document the submission of the respondent No. 1, that the documents were accepted and discrepancies were waived, are without any basis.
14. He further contended that the respondent No. 1 should not be permitted to obtain the proceeds of its fraudulent act and conduct and to enjoy the fruits of its wrong doing. In the event, the respondent No. 1 is permitted to obtain such proceeds then the petitioner will be out of pocket whereas the respondent without supplying the goods will get the benefit. Hence, he submitted that the appeal should be allowed and the respondent bank should be restrained from making payment of the balance amount to the respondent No. 1.
15. Mr. Surojit Mitra, Learned Counsel appearing on behalf of the respondent No. 1 submitted that the claim of the petitioner/ appellant on account of short supply cannot get any relief in this application or in this appeal. The Letters of Credit is a separate contract and the same is nothing to do with the dispute with the supplier and purchaser and he relied upon a decision (Hira Lall and Sons v. Lakshmi Commercial Bank) in support of his contention.
16. After considering the facts and circumstances of this case and after scrutinizing the same we have not been able to find out that any special equity has been pleaded by the petitioner to get the benefit out of it, so that the order of injunction can be passed by the Court Invocation of the Letters of Credit cannot be mixed up with the other dispute as sought to be raised by the petitioner/appellant on account of short supply. In our opinion, banker has a duty to honour the Letters of Credit as and when the goods were delivered. If there is any claim of the petitioner/appellant on account of short supply, the petitioner/appellant has a right to take steps in a proper proceedings and that cannot be a ground or can act as a special equity to have an order of injunction restraining the bank to honour the Letters of Credit. Therefore, we do not find any reason to interfere with the order so passed by the Hon'ble First Court. This application stands dismissed.
17. By consent of the parties the appeal is treated as on the day's list and disposed of on the above terms.
18. All parties are to act on a Xerox signed copy of this order on the usual undertaking.