Madras High Court
Union Bank Of India, Madras Rep. By Its ... vs Rilvan Leathers, Periamet, Madras, I. ... on 11 July, 2002
Author: K. Raviraja Pandian
Bench: K. Raviraja Pandian
JUDGMENT K. Raviraja Pandian, J.
1. The above appeals are directed against the common judgment dated 11th April 1989 made in C.S.No.527 of 1979 and C.S.No.604 of 1980 by the learned single Judge of this Court.
2. The appellant Union Bank of India is the defendant in C.S.No.527 of 1979 and plaintiff in C.S.No.604 of 1980. The respondent Rilvan Leathers is the plaintiff in C.S.No. 527 of 1979 and defendant in C.S.No.604 of 1980. C.S.No.527 of 1979 was filed seeking for the relief of direction directing the defendant therein for taking account of the amount due by the plaintiff to the defendant after giving credit to the amounts to which the Rilvan Leathers are entitled and which were not credited in their accounts on the date of the plaint and said to be kept in sundry Deposit Account with the defendant Bank as well as for direction to give credit to a sum of Rs.2,84,000/- in the month of November 1978 and thereafter to ascertain the exact amount due and payable by the plaintiff to the defendant bank . C.S.No. 604 of 19809 was filed for recovery of a sum of Rs.5,51,280.29 against the Rilvan Leathers and its partners as well jointly and severally.
3. For the sake of convenience, the parties are referred to as arrayed in C.S.No. 527 of 1979.
4. The undisputed facts, which are common to both the suits are as follows:
The plaintiff (Rilvan Leathers) was an exporter of finished leather and importer of tanning materials. The defendant is their banker and the plaintiff had three accounts with the defendant bank namely (1) Shipping Loan Account in which facilities to the tune of Rs.7,00,000/- were obtained. (2) Foreign Deposit Bills Purchase Account(FDBP Account). The limit granted under this account to the plaintiff was at Rs.25,00,000/- and (3)Current account.
5. In or about June 1978, an Italian Firm by name `Conceria Bomar Via Pannocchis, Ponte, A. Egela Pisa' (hereinafter referred to as "Foreign Company" for brevity) placed an order with the plaintiff under Contract NO.520/78 through their local agents for supply of 5 lakh sq. ft chrome white seuds upper goat with grain with certain specifications. One of the terms of the order was that the goods would be inspected by their local agents before the shipment is effected. By another contract No. 528/78 dated 16.6.1978 the said foreign Company placed another order for 50,000/ sq. ft. of the same quality of leather. Both the quantity to be supplied were valued to 5,22,500 U.S. $ However, the letters of credit were opened only to an extent of 2,26,218.75 US $. These letter of credit dated 15.9.1978 related to both the orders of the Foreign Company.
6. With reference to the Contract NO.520/78 a bill was drawn in accordance with the letter of credit for 27,660 /90 US $ and the same was negotiated with the defendant and the amount has been credited to the account of the plaintiff. The rest of the portion covered under the above said Contract No.520/78 was exported by the plaintiff under Invoice No.893/RL/78-70 dated 7.1.1978 and a bill was drawn in accordance with the letter of credit for 9370/66 US $ and the same was negotiated by the defendant and the amount has also been credited to the plaintiff's current account. A portion of the contract covered by Contract No.528/78 after due inspection by the local agents of the Foreign purchaser were despatched by the plaintiff under Invoice No. 892/RL/78-79 dated 7.10.1978 and a bill was drawn in accordance with the letter of credit for 11,576-52 US $ and the same was negotiated by the defendant bank. The sum total for which the goods have been exported by the plaintiff in the manner aforesaid was to an extent of 37,031.56 US $ in respect of the order No.520/78 dated 9.6.1978 and a sum of 11,576.53 US $ in respect of the order No.528/78, in all put together 48,608/09 US $. The foreign purchaser had paid the entire amount covered by the aforesaid three bills to their Italian Bankers namely, Credite Italinie.
7. Subsequently, the foreign purchaser seems to have filed an action in the Italian Court and obtained an order called "conservative arrest", which resulted in detention of 13,552 US $. By virtue of the order of conservative arrest, the Italian Bank did not transmit the aforesaid amount to the defendant bank not withstanding the fact that the irrevocable letter of credit has been opened concerning the aforesaid amount.
8. In the meantime the plaintiff exported Leather to West Germany for the value of Rs.3,84,718/and yet another export was made to London for the value of Rs.2,40,909/15. The plaintiff deposited the documents in respect of the above two exports for negotiation.
9. In these factual situation, the defendant bank suggested the plaintiff that unless the plaintiff gave concurrence to keep a portion of the amounts i.e. 13,552 US $ to be realised in respect of the above said two invoices namely Nos.899 and 905, the defendant Bank would not negotiate and purchase the bills. Since the goods in respect of the West Germany and London orders have already been despatched and if the documents were not negotiated through the banker, they would lose the money as well as the goods, left with no other alternative except to succumb to the pressure Ex.P9 was issued by the plaintiff in favour of the defendant Bank for keeping the amount in a sum of Rs. 2,84,000/- (equivalent to 13,552 US $ detained under Conservative arrest) in Sundry Deposit accounts until the clearance of Exs. P3, P5 and P7 invoices. The defendant Bank by negotiating the Invoice Nos. 899 and 903 concerning the export of leather to West Germany and London retained a sum of Rs.1,84,000/- and Rs.1,00,000/- respectively on 14.11.1978 and 24.11.1978 in Sundry Deposit Account. But for Ex.P9 dated 21.11.1978 the aforesaid sums ought to have been credited to the current Account or the Shipping Loan Account of the plaintiff on the respective dates.
10. The amount due by the plaintiff to the defendant on 14.11.1984 in the Shipping Loan Account was Rs.13,90,528/29. If a sum of Rs.1,84,000/- would have been credited on 14.11.1978 on realisation of the Invoice NO.899, the balance amount only be Rs. 12,06,528/23. The defendant bank is entitled to interest only on the aforesaid sum. Similarly the defendant bank ought to have given credit to a sum of Rs.1,00,000/- on 24.11.1978 in the shipping Loan Account of plaintiff which should have resulted in a balance on 24.11.1978 at Rs.11,06,528/23. As a result of not giving credit to the amount due to the plaintiff in the manner aforesaid, the defendant bank charged interest for the quarter ending with 31.12.1978 in a sum of Rs.32,474/03. The defendant Bank ought to have charged interest after giving credit for the above said sum of Rs.2,84,000/- Similarly,, the defendant Bank should have debited interest for the quarter ending with 31.3.1979 in a sum of Rs.34,763/15 and for the quarter ending with 30.6.1979 in a sum of Rs.28,464/30. Such charging of interest without giving credit to a sum of Rs.2,84,000/- is illegal and interest should have been calculated and charged after taking into account a sum of Rs.2,84,000/- as aforesaid. Taking advantage of Ex.P9, the defendant Bank is calling upon the plaintiff to pay the entire amount without giving credit to the aforesaid amount.
11. The case of the plaintiff is that the defendant bank ought to have realised the amount from the foreign banker, who opened the letter of credit and further it is for the defendant bank to get the 'conservative arrest' raised or revoked. The Bank cannot go beyond the undertaking given by way of letter of credit if the conditions contemplated under the Letter of credit are not complied with. The amount realised from the other documents in respect of the export made to West Germany and London should not have been adjusted for the amounts arrested by the Italian Judicial authority and requested the defendant Bank to adjust the sum which has been kept in the Sundry deposit account for the amounts due from them.
12. However, the defendant Bank under Ex.P16 dated 18.9.1979, made a reply that the letter of credit in respect of the Italy export were not confirmed by them nor the bills were purchased without recourse to the plaintiff and thus directed the plaintiff to make good the shortfall in the bills due to the judicial attachment. Ex.P9 was also taken in their favour. But that stand of the defendant has been refuted by the plaintiff. With this dispute, the suits have been filed. C.S.No. 604 of 19890 was filed for recovery of a sum of Rs.5,51,280/29 which are due from the plaintiff.
13. Both the suites were heard together and the learned single Judge after taking into consideration of the materials placed and also the arguments advanced on either side, allowed the appeal filed by the plaintiff for accounting giving credit to the amount withheld in the sundry deposit account and in respect of the suit filed by the defendant bank under Sub-clause 3 of the Order XXIII Rule 1 of the Civil Procedure Code the learned single Judge, suo motu granted the liberty to the defendant bank to file a fresh suit in case the plaintiff failed to pay the correct amount that would be arrived in accordance with the decree passed in the suit filed by the defendant Bank and dismissed the suit as withdrawn. As against this order, the present appeals have been filed as stated above.
14. The learned counsel appearing for the appellant has contended that the order of the trial Judge is manifestly illegal in so far as the direction that it is for the defendant bank to have the matter agitated before the Italian Court and get the order of conservative arrest raised or vacated. The recourse the defendant had against the plaintiff is well settled in the sense if the bills drawn by the plaintiff are not honoured as a negotiating Bank, the defendant has every right to have recourse against the plaintiff for recovering the amount from the plaintiff. With this contention the learned Counsel prayed this Court to reverse the order of the learned single Judge by correcting the same by issuing a decree that the defendant is entitled to recover the amount taking recourse through the plaintiff seller. He also contended that the dismissal of the suit in C.S.No.604 of 1989 is against the provisions and the Court cannot dismiss the suit by giving liberty to file a fresh suit on its own.
15. We heard the arguments of the learned counsel appearing on either side.
16. The point in issue is whether the defendant bank could adjust the amount of Rs.13,552 US $ from and out of the amount cleared for West Germany and London export?
17. It is not disputed that under Exs.P1 and P2 the Foreign Bank issued a irrevocable letter of credit in Credit NO. 520/20385-87 in favour of the plaintiff beneficiary through the defendant Union Bank of India Kuralagam Building. In the said letter of credit, the foreign Bank confirmed to the defendant and instructed the defendant Bank to notify to the beneficiary the opening of the above mentioned documentary credit. The conditions stipulated in the above said letters of credit is that the letter of credit is issued on behalf of the applicant M/s. Conceria Bomar Sas Di Borgia Mario the foreign buyer and the credit is issued in favour of Rilvan Leathers i.e., plaintiff. The letter of credit is irrevocable in respect of 45,243.75 US $ representing the 95.25% of the goods value. The letter of credit expires by 10th October 1978 in Madras only for presentation of documents. The credit amount is payable at the foreign Bank counter at 30 days after sight and against delivery of the following documents.
1. Air way Bill issued for Goods addressed to Credito Italiano Expoli (Italy) showing credit number 520/20385/87, marked "Freight Prepaid" and dated not later than 30th September 1978, Notify Conceria Bomar Sas - Via Pannocchia -Ponte A EGOLA.
2. The Commercial Invoice in triplicate, showing the deductions of 3.50% as trade discount and 1.25% as Insurance Premium and Countersigned by M/s. Shakeel for inspection before export.
3. GSP Certificate of origin issued in Form "A" duplicate.
4. Packing List in Triplicate
5. Copy of Beneficiary's cable sent to the Buyer one day before the date of the despatch showing the number of package, goods value, Chess and Net Weight, Marks and Numbers fly Number.
Covering: One or more despatches by Air of 50,000 sq.ft Full Chrome Suede Upper Goatskins Finished Leather with Grain Mark "Rilvan" Mark and Standard Size 3/6 sq. ft. Selection All Suedes, Substance 05/09 MM colour white at the price of 95 US Cents per sq.ft for goods to be delivered G. and A.F Rome Contract NO.528/78 dated 15.6.78.
The documents must be presented to the Negotiating Bank not later than 10 days From the date of the Air Way Bill.
Since the credit is available at our counters it remains understood that upon receipt of the proper documents, we shall undertake to effect payment at the terms indicated above and at maturity we shall credit you with the relative amount with Irving Trust Company New York. Please Remit us By Airmail the Original Documents (Duplicate to follow by next Air mail)
18. This Ex.P1 has been confirmed by Ex.P2 wherein that apart from the above condition, this guarantee has been extended till 15th December 1978, which was originally issued upto 10th October 1978. But the endorsement in Ex.P2 states that the letter of Credit is subject to Uniform Customs and Practice for Documentary Credits, 1974 (Revision) International Chamber of Commerce Publication 290".
19. There is no dispute that the goods were despatched and the documents were presented to the defendant negotiating bank and the negotiating bank also scrutinised and sent the documents to the Foreign Bank who issued the letter of credits and the negotiating bank negotiated the bill. There is no dispute that the documents mentioned in the letters of credit were furnished by the plaintiff seller and they have been scrutinised by the negotiating bank and sent the documents to the foreign banker.
20. There is no dispute or discrepancies as to the documents. Pursuant to the submission of the documents of title to the goods by the plaintiff and the defendant Bank also forwarded the documents as per letter of Credit dated 15.9.1978 and requested the foreign Bank to remit the proceeds to Irwing Trust New York to the credit of their Head office at Bombay.
21. After that, it seems that the Italian Buyer i.e., the Principal for whom the letter of credit has been issued by the Foreign Bank retired the bills i.e. Exs. P3, P5 and P7 through the foreign Bank and cleared the goods. In such factual circumstances, the Foreign Bank ought to have paid the amount to the negotiating bank the defendant herein. It is not disputed as and when the bills are presented, the negotiating bank would credit to the account of their constituent i.e., the plaintiff herein. But in this case, the foreign buyer after clearing the goods seems to have initiated legal proceedings and attached a sum of Rs. 13,552.08 us $, as a result of which the Foreign Bank was not able to credit the amount in the account of Irwing Trust & Co in the account of the defendant. This made the defendant to issue a communication dated 20.11.1978 to the plaintiff asking them to make immediate arrangement to pay the defendant Bank the rupee equivalent 13,552.08 US$. It also transpired that the Foreign Bank advised the Negotiating Bank the defendant to engage a lawyer in order to object the conservative arrest. This is so clear from Ex.P50 dated 23.11.1978.
22. It is further seen that on the legal advice obtained about the transaction, the defendant bank demanded the plaintiff to pay back the amount by taking recourse to the plaintiff. Again, the defendant bank has written several letters to the foreign Bank pointing out their legal liability to pay the amount as agreed in the letter of credit. The defendant negotiating Bank received reply from the Foreign Bank expressing their inability to remit the portion of the amount which was attached by the legal authority. Hence there is absolutely no fault on the part of the plaintiff. Pursuant to the irrevocable letter of credit issued by the Foreign Bank, the plaintiff Seller has despatched the goods and submitted all the necessary documents in accordance with and as required by the letter of credit issued by the Foreign Bank. As per the letter of credit, either the issuing banker i.e., the Bank who opened the letter of credit or the negotiating bank are not concerned with the goods or the parties or the contract. They are concerned only with the documents. If the documents are submitted as stated in the letter of credit by the defendant, the negotiating bank the Foreign Bank have to pay the amount to the negotiating bank.
23. As stated earlier in this case all the conditions required for honouring the bills have been completed right though from the raising of the invoice and presentation of the documents as required under the letter of credit till the retirement of documents by the foreign buyer and clearing of the goods. Thereafter the foreign buyer seems to have attached a portion of the amount. In such circumstances, we cannot find any fault on the part of the seller plaintiff herein. The negotiating bank has to pay the amount of the bill as covered under the Letter of Credit. The negotiating Bank has also understood the legal position correctly, which is manifest from their letters. Ex.D62 and D63 wherein the negotiating bank has stated that Exs.P3,P5 and P7 were negotiated under the credit of the Foreign Bank. As such the amount were due to the defendant bank and the foreign Bank had an obligation in terms of the letter of credit. The letter further proceeds that the funds at the hands of the foreign bank is the funds of the defendant bank. The relevant portion in the Exhibits are as follows:-
" The matter involves Bankers faith in letter of credit as an instrument guaranteeing due fulfilment of credit opening banks commitments under credit terms. You would have taken extreme care and interest in protecting our mutual interest. Please act accordingly and swiftly in apprising us of the present position and also arrange to expedite remittance of the blocked amounts together with overdue interest.
24. Under Ex.P63 also the defendant Bank reiterated the Foreign Bank that in terms of commitment under letter of credit, the Foreign Bank is bound to honour the amount in respect of bill negotiated by the Union Bank of India under letter of credit and that they are not concerned with the dispute between the buyers and sellers nor with the distress of the Italian Court.
25. There are also further evidence of PW3 available to the effect that before the information as to the conservative arrest, reached the defendant, the defendant bank has paid to the plaintiff the amount due under Exs.P3,P5 and P7 and thereafter the defendant has become holders indue course in respect of those bills. It is also an undisputed fact that the foreign buyer has cleared the goods after retiring the documents from the foreign bank. The moment the documents are retired from the foreign bank, the foreign bank is answerable to the negotiating bank and it is for the negotiating bank to get the amount. The plaintiff is liable to repay the amount to the defendant only in cases where the bills were not honoured by the letter of credit issuing bank on account of certain defect or discrepancy in the documents of title as required under the letter of credit.
26. As seen from Article 3 of the Uniform Customs and Practice for Documentary Credits (1974 Revision) an irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the terms and conditions of the credit are complied with. Such undertakings can neither be amended nor cancelled without the agreement of all parties thereto. In 1983 Revision also under Article 3 it is stated that Credits, by their nature are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts, even if any reference whatsoever to such contracts is included in the credit. Article 4 of 1983 Revision provides that in credit operations all parties concerned deal in documents and not in goods, services and /or other performances to which the documents may relate. Article 10 provided that 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 the credit are complied with:
(i) if the credit provides for sight payment - to pay, or that payment will be made;
(ii) if the credit provides for deferred payment - to pay, or that payment will be made, on the date(s) determinable in accordance with the stipulations of the credit.
Hence Uniform Customs and Practice for Documentary Credits also provides that as and when the conditions stipulated in the document of credit have been complied with the Bank has to honour the document and the credit by its nature a separate transaction from the sale or other contracts, the banks are in no way connected with or bound by any such contract. Further it clearly provides that the credit operations deal only on documents and not in goods or services. Hence we are of the considered view that on the retirement of the documents by the foreign buyer, it is the duty of the Foreign Buyer to remit the amount recovered under the Letter of Credit to the negotiating Bank, the defendant herein and for the non-remittance on the part of the foreign bank, the negotiating bank, the defendant herein cannot call upon the plaintiff to compensate the same.
27. Learned counsel for the appellant placed reliance in KERALA STATE HANDLOOM DEVELOPMENT CORPORATION VS. STATE BANK OF INDIA (AIR 2001 KERALA 175). That was the case in which at the request of the seller, the documents were negotiated under the specific condition "under reserve" when originally the issuing bank refused to effect payment on the ground that delivery has not been effected in compliance with the terms of the letter of credit. But in this case there is no reservation or any complaint whatsoever as to the terms of the Letter of Credit till the documents are retired. Hence the above case is of no consequence as to the facts of the present case and as such the judgment is of no assistance to the appellant.
28. Learned counsel appearing for the appellant contended that the dismissal of the suit filed by the defendant for recovery of the amount with liberty to file fresh suit is against the provisions of the Act. Sub-clause 3 of Order 23 provides that where the Court is satisfied
(a) that a suit must fail by reason of some formal defect or
(b) that there are sufficient grounds for allowing the plaintiff to institute a fresh suit for the subject-matter of a suit or part of a claim, it may on such terms as it thinks fit, grant the plaintiff permission to withdraw from such suit or such part of the claim with liberty to institute a fresh suit in respect of the subject-matter of such suit or such part of the claim.
This provision has been considered by several Courts. The majority of the judgments on this particular provision is that it is wrong to grant leave to withdraw a suit with liberty to file a fresh suit after the evidence is concluded though the hearing may be adjourned for final arguments and certain other cases, it was held that the other reasons stated in clause (b) need not be construed ejusdem generis with clause (a). Whatever may be the position of law , even if the order of the learned single Judge dismissing the suit by reserving the liberty to the defendant bank to file a fresh suit is not in accordance with the provisions of Civil Procedure Code, the order of the learned single Judge in granting the relief in favour of the plaintiff for accounting after adjustment of the amount withheld in the sundry deposit account is a direct answer to the suit filed by the defendant.
29. Hence for these reasons, we are of the view that no relief could be granted to the defendant bank even in the appeal filed by them against the dismissal of the suit in C.S.No.604 of 1980, which is appealed against in O.S.A.No. 322 of 1994. We also find that there is absolutely no infirmity or illegality in the order passed by the learned single Judge in C.S.No.527 of 1979.
30. For the foregoing reasons, the appeals are dismissed. No costs.