National Consumer Disputes Redressal
M/S. Sun Pharmaceutical Industries vs State Bank Of India on 23 May, 2007
NCDRC NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI ORIGINAL PETITION NO.197 OF 1995 M/s.Sun Pharmaceutical Industries Ltd. 401-D Poonam Chambers A-Wing 4th floor Dr.Annie Besant Road Worli Mumbai 400 018. Complainant Versus 1. State Bank of India Shivsagar Estate Branch Worli South Mumbai 400 018. 2. State Bank of India Local Head Office Madam Cama Road Mumbai 400 021. Opposite Parties BEFORE: HONBLE MR.JUSTICE M.B. SHAH, PRESIDENT DR. P.D. SHENOY, MEMBER For the Complainant : Mr. P.N. Misra, Sr.Advocate and Mr. S.D. Mokashi, Advocate with him. For the Opp. Party : Mr. A.K. Chitale, Sr. Advocate and Mr. Niraj Sharma, Advocate with him. Dated 23rd May , 2007 O R D E R
M.B. SHAH, J., PRESIDENT It is the case of the complainant, M/s.Gujarat Lyka Organics Ltd., now merged with M/s.Sun Pharmaceutical Industries Ltd., that it deals in production and sale of antibiotics and life saving drugs and is enjoying a global market. It is the say of the complainant that it had appointed the State Bank of India (hereinafter referred to as SBI for short), Opp.Party No.1, as a negotiating bank for the purpose of a Letter of Credit (hereinafter referred to as L.C. for short) opened at the request of one M/s.Condea Chemical Trading Company, Honkong, (hereinafter referred to as M/s.Condea for short) by Hongkong and Shanghai Banking Corporation Ltd. (hereinafter referred to as HSBC for short) in favour of the complainant. It is contended that as the negotiating bank, the SBI offered to render services to the complainant in the matter of the said L.C. for consideration agreed to be paid by the complainant. The bank had undertaken to pay the complainant an amount of US $ 1,41,000 as mentioned in the L.C. The complainant despatched the goods in October, 1994 as per the terms of the contract to the consignee, M/s.Condea Chemical Trading Company, and, on 26.10.1994, handed-over all the necessary documents to the SBI. The SBI accepted the documents, and, after scrutiny, paid the entire amount to be received under the L.C. to the Complainant by means of credit on 28.10.1994 against the export bills discounting facility enjoyed by the complainant with the SBI. The documents were forwarded to the HSBC.
On 8.11.1994, the issuing bank, HSBC, sent a telex message to the SBI pointing out certain discrepancies in the documents.
The issuing bank also sent another telex message on 15.11.1994 seeking reply from the SBI and stating that pending the reply they would return the documents. Finally, the HSBC returned the documents which were received by the SBI on 19.11.1994.
On 8.12.1994, the SBI re-presented the documents clarifying and disclaiming all discrepancies pointed out by the HSBC.
Thereafter, on 24.12.1994, the SBI requested the issuing bank for confirmation of acceptance, which was refused by the HSBC on 25.12.1994. It is pointed out that on 17.2.1995, the documents were again presented to the issuing bank by the SBI but the same were returned to the negotiating bank, i.e., SBI on 8.3.1995 disclaiming the liability under the L.C. Hence, the SBI reversed the credit given to the complainant and also recovered interest amounting to Rs.1,17,212/- from the complainants account.
It is contended that it was the duty of SBI as a negotiating bank, to scrutinize the documents and to verify whether the same were in order in accordance with the terms and conditions of the L.C. Further, the SBI did not respond promptly to the correspondence addressed to them by the issuing bank.
It is also contended that the L.C. was irrevocable one, but the complainant had to suffer due to negligent attitude of the SBI because it was the duty of the SBI to identify the discrepancies and to notify the same to the complainant, well in time, in order to enable them to rectify and correct the same. It is further contended that the complainant was never informed about the telex message dated 8.11.1994 sent by the HSBC. If the complainant was informed about it, it would have removed the discrepancies within the time. Thereafter, the HSBC sent another telex on 15.11.1994 to SBI stating that it had not received reply to the earlier telex dated 8.11.1994 and in the absence of the reply, the documents would be returned and on 19.11.1994, the documents were returned by the issuing bank.
It is, therefore, contended that there is deficiency in service by the SBI on the following counts:
a) That the SBI did not take effective steps to rectify the discrepancies nor did it inform the complainant about the same in time in order to enable the complainant to rectify discrepancies, if any.
b) Had the SBI informed the complainant about the discrepancies in time and about the time limit set by the HSBC, the complainant would have definitely rectified the same, if any.
c) SBI assigned the sale proceeds after getting the documents in their favour from the complainant. Therefore, their action of reversing the credit is illegal and not sustainable in law.
d) There was no term between the parties that if the negotiating bank, due to their own negligent act, could not recover the amount from the issuing Bank, they can reverse the credit entry and claim the amount with interest thereon.
Hence, it has been prayed in the complaint that the SBI be ordered to pay a sum of Rs.44,47,140/- with interest at the rate of 21% from 28.10.1994 till realization.
CONTENTIONS OF THE OPP.PARTY : (S.B.I.):
It is contended by the opp.party that the complaint is totally misdirected against the SBI because it ought to have been filed against
-
(i) M/s.Condea, the consignee of the goods ;
(ii) the HSBC, , the Bank which issued the L.C; and
(iii) M/s.Fosan Feedmill Ltd.
It is contended that as M/s.Condea is non-existent or has vanished and hence the HSBC has repudiated its liability in spite of strenuous efforts by the SBI to help the complainant.
The role of SBI in the entire transaction, as a negotiating bank, was quite limited, i.e., to collect money on behalf of the complainant on the basis of the L.C. and to forward the documents.
It is pointed out that the complainant is enjoying credit with the SBI branch and when the complainant enters into a contract with the foreign buyers for export of the goods manufactured by the complainant, it discounts export bills drawn on the foreign buyers on shipment of goods for liquidating the export purchase credit. It is the say of the SBI that the complainants export purchase credit liabilities are liquidated on receipt and application of export proceeds on negotiations of the export bills. The banks liability persists till realization of export bills in terms of covenants governing the advances granted to the complainant.
On that basis, the complainant made a request to the bank by letter dated 26.10.1994 for negotiating the documents pertaining to export of goods at China. With the said letter, the complainant enclosed the following documents :
1. Draft No. EXP/GLOL/94-95/34 dated 14.10.1994 FOR US Dollars 1,41,000(1st and 2nd exchange).
2. Invoice No. EXP/GLOL/94-95/34 dated 14.10.1994 FOR US Dollars 141.000(1st and 2nd exchange).
3.
Packing list/weight memo.
4. Certificate of analysis.
5. Airway bill vide No. BS BOM/9494007dated 21.10.1994.
6. Certified true copy of beneficiarys fax to applicant.
7. Beneficiarys certificates.
8. Certificate of origin.
9. Insurance policy.
10. Duplicate copy of GR vide No. AG-435428 dated 14.10.1994.
11. Original L/C. It is pointed out that by Annexure-OP/2, the complainant requested the Bank to negotiate the documents and credit their proceeds against the packing credit facilities enjoyed by the complainant under its sub-limit in Shivasagar Estate Branch of the Bank. The Bank submited that the request of the complainant to the Bank was merely:
(a) to negotiate the documents as tendered by the complainant to the Bank; and
(b) to credit their proceeds, i.e. collections, if and when made by HSBC or subject to collection from HSBC in the packing credit limit enjoyed by the complainant for the aforesaid banking facility.
It is also contended that it was not proposed by the complainant to the Bank, directly or indirectly, that the Bank should ensure that there was no discrepancy between the complainants own documents mentioned above and the letter of credit issued by the HSBC. The complainant also did not propose to the Bank that the Bank should bear the responsibility for the amount covered by the letter of credit to the complainant, if HSBC dishonoured its obligations under the letter of credit. Lastly, the complainant did not propose to the Bank that the bank should bear the responsibility for recovering the price payable by Condea for the sale of the goods. Such proposals were not made in Annexure OP/2 and were never accepted by the Bank. They would be contrary to the basic concept of the role of a negotiating bank in such transactions of letters of credit.
The SBI has also pointed out Annexure-OP/3 which contains undertaking and indemnity by the complainant in favour of the bank which is as under:
We hereby undertake to indemnify State Bank of India for negotiations of the documents under the above L.C..
It is further pointed out that the Bank agreed to negotiate the documents by its letter dated 28.10.1994, subject to the following terms and conditions:
The payment is made to you on the strict understanding that:
(a). If the bills are not realized within the normal transit period, you will pay overdue interest for the delayed period, and
(b). If the documents are not acceptable to the credit opening bank as per Article 16B of Uniform Customs and Practices for Documentary Credit ICC 400 (1983 Revision), you will repay on demand the bill amount together with interest and charges.
It is contended that the Bank made it absolutely clear to the complainant that if the bills were not realized within the normal transit period, the Bank would not be liable, and the complainant would pay overdue interest to the Bank on the delayed period and if the documents were not acceptable to HSBC as the credit opening bank, for any reason, the complainant would repay, on demand, the bill amount together with interest and charges. It is to be stated that a copy of the aforesaid letter dated 28.10.1994 is not produced.
It is, therefore, contended that the contract between the complainant and the SBI was on the basis of letters Annexure-OP/2 and Annexure-OP/4 which constitute acceptance.
It is next contended that the negotiating bank (SBI) does not and cannot give assurance to the seller that the documents will be accepted by a credit opening bank. The negotiating bank is not responsible for pursuing the credit opening bank or the buyer, opener of the letter of credit. The privity of contract is between the seller and the opener and also the seller and the credit opening bank. The negotiating bank cannot be drawn into the principal transaction of sales and purchase nor the obligation created by the letter of credit.
Thereafter, it has been pointed out that the SBI forwarded the documents given by the complainant to HSBC with its letter dated 28.10.1994. In this letter, the full name and postal address of the Shivsagar Estate Branch of the Bank were clearly stated. The HSBC was also instructed to send the payment on the due date, i.e., 15.2.1995. The HSBC was requested to remit the proceeds of the bill by swift/telex transfer to Shivsagar Estate Branch of the Bank through the specific channel unmistakably indicated in the letter, i.e., through Bankers Trust Company in New York and the State Bank of India, FD, Calcutta for further credit to Shivsagar Estate Branch of the Bank. The HSBC was also instructed to adhere to the instructions given at the foot of the letter, including the following which are reproduced ad verbatim:
2) Kindly present the Bill to the Drawees for acceptance/payment.
3) In case of any discrepancies please inform us by telegram.
4) We do not assume any responsibility for the correctness, validity or genuineness of the documents, nor for description, quality, quantity or delivery of the goods represented thereby.
5) Kindly quote our above mentioned bill no./reference no. and branch name on all your correspondence/payment.
At the foot of the letter the telephone number, telex number and fax number of the Shivsagar Estate Branch of the Bank were given. Thus clearly the mode of communication of the discrepancies and the address to which the discrepancies should be communicated were mentioned. HSBC was also categorically informed that the SBI did not assume any responsibility for the correctness, validity or genuineness of the documents, nor for description, quality, quantity or delivery of the goods represented thereby.
It is also submitted by the SBI that a copy of the said letter was sent to the complainant. Thereafter, on 8.11.1994, HSBC sent a telex message to the Main Branch of the SBI at Bombay instead of Shivsagar Estate Branch of the SBI, to the effect that the documents contained the following discrepancies, which are reproduced ad verbatim:
Invoice not showing packing details as per DC stipulation.
Certificate of analysis not signed by the issuer.
HAWB showing telephone number of Foshan Feedmill Ltd. as 359750 I/O 359750 and measurement differ from P/list.
Insurance policy not showing number of original policy issued.
Beneficiary certificate not certifying that the non-negotiable documents are the same as the negotiating documents with the bank.
P/list showing goods Cephalexin Monohydrate power BP/USP not called by DC.
Invoice showing beneficiarys address differ.
FINDINGS:
.(a). At the outset, we have to state that there was no justifiable ground for the Complainant not to proceed against the HSBC Bank which has issued the LC particularly when it is contended by the Complainant and the SBI that the LC was wrongly dishonoured by the HSBC.
.(b). It is also to be stated that there was no reason for the Complainant in not taking any action against the Foshan Feedmill Ltd., Foshan, China or the Condea Chemical Trading Company, Hong Kong. It is admitted that without the original documents including the Airway Bill M/s.Condea Chemical Trading Co. had managed to take the delivery of the goods on 31st October, 1994 i.e. before the HSBC sent the telex dated 8.11.1994 for alleged discrepancy to the SBI main branch.
.(c). Further, there was no justifiable reason for the HSBC not to send telex message or telegram to the SBI, Shivsagar Estate Branch despite in its communication dated 28.10.994 to the HSBC wherein it was specifically mentioned that communications be sent at SBI, Shivsagar Estate Branch, Mumbai.
.(d). The Complainant by its letter dated 30.11.94 specifically stated that there was no discrepancy and the alleged discrepancies pointed out by the HSBC was totally unjustifiable and the documents were as per the terms of the LC.
SBI also by its letter dated 7.12.1994 written to HSBC, denied any discrepancy and stated as under:
With reference to your Telex dated 22.11.1994, we acknowledge the receipt of documents. However, we do not agree with the discrepancies pointed out by you in your Telex dated 8.11.94. It is obvious from your Telex that discrepancies pointed out are not serious but on flimsy grounds only for the purpose of disclaiming your liability under the Letter of Credit which is not in the spirit of UPDC 500 Article 9.
We would like to clarify about the discrepancies pointed out in your Telex dated 8.11.94.
There was no stipulation in the Letter of Credit about packing details.
Certificate of Analysis not required to be signed as per Letter of Credit terms.
Telephone number of Foshan Feedmill Ltd. in our copy has been defaced and cannot be taken as a serious discrepancy for the rejection of documents since full address of the final buyer viz. Foshan Feedmill Ltd., 6 Flat, 19 Da Fu Road, Foshan, China, does appear on the Airway Bill.
Insurance Policy does shows the S.No. as 23431 can be verified from the enclosed documents.
Certificates from beneficiary stating that the non- documents are the same as the negotiable documents with the bank is very much with the documents which is also acknowledged by you in your covering letter.
Packing List showing goods Cephalexin Monohydrate Power BP/USP not called by Documentary Credit. Please refer Article 37C.
Invoice shows the correct beneficiarys address. All the posts and mails are well received without mention of Appellant Shivsagar Estate.
Moreover, the liability of credit issuing bank is primary and irrevocable as per Article 9.
Therefore we request you to reimburse4 us USD 141,000/- on 15.2.95.
It is pointed out by the SBI that the HSBC, unfortunately, flouted instructions contained in Anneuxre-OP5. It never presented the Bill to Condea Chemical Trading Co. for acceptance or payment.
Non-endorsement of LC in favour of SBI and other documents:
Firstly, it is to be stated that the complainant approached the SBI by letter dated 26.10.1994 and requested to negotiate the documents and credit the proceeds against banking credit facility under the sublimit, and the Bank vide its letter dated 28.10.1994 agreed to negotiate the documents, subject to the conditions, quoted above.
Along with the said request, an undertaking was given by the complainant to the effect We hereby undertake to indemnify State Bank of India for negotiations of the documents under the above L.C. (Ann.OP/3) On that basis, the Shivsagar Estate Branch of the SBI wrote to the Manager, HSBC, on 28.10.94 and forwarded the bill particulars for reimbursement instructions. Thereafter, a telex was sent by the HSBC on 8.11.1994 to the SBIs Bombay Main Branch wherein it has been stated that --
Pls relay the following message to your Shivsagar Estate Branch at Worli (S) P.B. No.16555, Bombay 18 India Your bill ref. N/BE/94/601465 for USD 141,000.00 drawn under our DC DVW113238 Our ref : AUC SB01932950DVW Documents received and found to contain the following discrepancies :
o Invoice not showing packing details as per DC stipulation o Certificate Of analysis not signed by the issuer o HAWB showing telephone number of Foshan Feedmill Ltd. as 359750 I/O 359760 and measurement differ from policy issued.
o Insurance policy not showing number of original policy issued o Benef. Cert. not certifying that the non-neg. docs are the same as the neg. docs with the bank o P/List showing goods Cephalexin Monohydrate powder BP/ISP not called by DC.
o Invoice showing benef.
Address differ.
Applicant has refused to accept the above discrepancies and requested us to return documents to your bank.
Pls contact bene. and let us have your immediate instructions by return tested tlx marking attn CWD, CBC, imports Division.
Meanwhile documents are held at your disposal according to Article 14 of UCP500.
The said message was transmitted to SBIs Shivsagar Estate Branch only on 15.11.1994.
Thereafter, on 16.11.1994, the HSBC returned the documents by stating as under:
[ With reference to our telex dated 15 Nov. 94, we herewith return the full set of documents to you to our complete discharge.
Invoice 4 Weight list/Packing list 4 Cert. of Analysis 3x4 Cert. of Origin 4 Fax 1 Certificate 2x2 Insurance cert. 3 Airway bill 3+1C Please acknowledge receipt by signing and returning the duplicate copy of this letter to us and also let us have your demand draft for USD254.25 being our cable charges, handling comm. and postages.
At this stage we would mention that on enquiry from Bright State Company Ltd. (Opp.party No.2), it was revealed that the Cargo sent by the complainant was delivered on 31st October 1994. The relevant information is as under:
We would like to confirm you that above mentioned cargoes were loaded on SHI YUN 407 V.110B ETD HKG 27.10.94 and according to 2nd CARRIER HKG AGDNT advised that the consignee have clear the goods on 31.10.94.
It is apparent that, non-acceptance of the LC on so called discrepancies was mere excuse by the HSBC and Condea Chemical Trading Company. Secondly, the other question would be whether SBI was only a negotiating bank for collection of the L.C. amount or not. If it was merely a collecting agent then the bank would not be responsible for non-payment of the L.C. amount by the HSBC.
In the present case, there is nothing on record to establish
i) that L.C. was transferred to or endorsed in favour of the SBI ;
ii) that SBI had undertaken that if the amount is not received as per L.C., the bank would reimburse the complainant.
The contract between the complainant and SBI appears to be wholly that of a collecting agent.
Section 14 of the Negotiable Instruments Act, 1881 provides that when a promissory note, bill of exchange or cheque is transferred to any person so as to constitute the person the holder thereof, the instrument is said to be negotiated. There is nothing on record to establish that L.C. was transferred in favour of the SBI. On the contrary, SBI has produced on record the documents indicating that the complainant has undertaken to indemnify SBI, in case the L.C. is not accepted.
Further, the LC is not produced on record to establish that it was endorsed in favour of the SBI. If the LC was endorsed in favour of the SBI then the SBI would have kept the LC and would not have delivered the same to the Complainant. Sec.48 of the Negotiable Instrument Act specifically provides that a promissory note, bill of exchange, or cheque payable to order is negotiable by the holder by endorsement and delivery thereof. There is nothing on record that the Complainant has endorsed the LC in favour of the SBI.
In support of his contention, the learned Counsel for the Complainant has relied upon the decision of the Apex Court in Corporation Bank & Anr. Vs. Navin J. Shah, (2000) 2 SCC 628, wherein the Court has pointed that if the bills and relevant documents are accepted by the banker with endorsement in its favour the banker becomes a purchaser and holder of the L.C. The relevant discussion is as under:
10. When a bank, after purchasing or discounting an instrument from a customer, credits the customer with the amount of the instrument and allows the customer to draw against the amount as credited before the bill or instrument is cleared, then the bank would be collecting the money not for the customer but chiefly for itself. If the bills and the relevant documents presented by its drawer are accepted by a banker with endorsement in its favour and the same are immediately discounted by the banker without waiting for its collection, by giving full credit for the entire amount of the document, so presented, the banker itself becomes a purchaser and the holder thereof for full value. A banker discounts a bill as opposed to taking it for collection or as security for advances, when he takes it definitely and at once as transferee for value and that it does not matter that the amount of the bill, less discount, is carried to current account as in the case of a customer that is the usual course and where the transaction is really one of discounting, the banker is of course at liberty to deal with the bill as he pleases rediscounting or transferring it.
In the present case, no doubt, the Bank has given credit to the Complainant. But, that credit was given against the packing credit facility given to the Complainant by the Bank. That too, after an undertaking given by the Complainant to the effect that the Complainant would indemnify the bank (SBI) for negotiation of the documents under the LC. As such, the LC was not transferred or endorsed in favour of the SBI.
Similarly, In Federal Bank Ltd. Vs. V.M.Jog Engineering Ltd. & Anr. (2001) 1 SCC 663 the Court discussed various aspects and held that transaction between the Collecting Bank, and the Complinant may partake of a duel nature, i.e. either Collecting Bank or Agent for collecting the amount and that of holder in due course. The Court held as under:
59 . Applying the said principle, we may state that if the appellant Federal Bank was merely a Collecting Bank or agent which had approached the Bank of Maharashtra (the Issuing Bank) and if the Issuing Bank was sought to be restrained by the buyer before payment was made by the Issuing Bank to the Collecting Bank, the Collecting Bank could not have compelled the Issuing Bank to release the money for collection if the buyer informed the Issuing Bank in his plaint that the documents to be presented to it by the Collecting Bank were forged or fraudulent. But where, on the other hand, the Negotiating Bank, i.e. Federal Bank (appellant), has said on the basis of a clearance given by the Issuing Bank as to genuineness of documents, and seeks reimbursement, then the Negotiating Bank is in the position of a holder in due course and can claim that the suit of the buyer must fail if it sought to restrain the Issuing Bank from reimbursing the Negotiating Bank. These principles prima facie flow from Shientag, Js judgment which has been followed both in England and by this Court, in several cases.
Legal relation of a negotiating bank vis--vis the issuing bank 60 . The contract between the issuing banker and the paying or negotiating (intermediary) banker may partake of a dual nature. The relationship is mainly that of principal and agent , mandator and mandatory. In order that he may claim reimbursement for any payment he makes under the credit or the indemnity of an agent, the intermediary banker must obey strictly, the instructions he receives, for by acting on them, he accepts them and thus enters into contractual relations with the issuing bank. The instructions may take the form of an authority either to pay against documents or drafts accompanied by document, or to negotiate drafts drawn either on the issuing banker or on the buyer. The authority may be accompanied by instructions to the intermediary banker to confirm the credit, that is, to place himself in binding contractual relationship with the beneficiary. There is ordinarily no privity between the intermediary banker and the buyer. But the intermediary banker, though initially the agent of the issuing bank, may also act as principal in relation to him. ( Pagets Law of Banking , 9th Edn., 1982, pp. 543-44.) In the present case, the SBI is merely a collecting Bank or the agent of the Complainant for recovering the amount from issuing Bank, HSBC.
Further, even the Complainant did not raise any objection to the reversal of the credit, as the Complainant was aware that the SBI had the full right to do, because (a) the bills were not realized within the normal transit period and (b) documents were not acceptable to the HSBC, the credit opening Bank as stipulated in Ex. OP/4. By a letter dated 29.3.1995 the Complainant simply made an appeal to the SBI to once again permit credit to the Complainant in the following words:
Kindly consider to reverse the debit of Rs.44 lakhs effected by the Bank on return of the documents. This will give us a great relief to meet our immediate financial commitments, as we did not anticipate reversal of this amount, since the documents were negotiated on LC basis. However, the unfortunate situation has forced you to reverse the amount.
We have done export worth Rs.16 Crores in 1993-94 and our exports during 1994-94 are around Rs.20 Crores. You would certainly like to support us to achieve higher target in the years to come. However, the said amount of Rs.44 lakhs does play an important role in our financial planning and we earnestly request you to credit this amount immediately. We also confirm that as and when the case is decided, we shall certainly abide by the final decision of the Bank.
We now request you to prevail upon the HSBC to honour their commitment under LC failing which we will be constrained to take up the matter at Govt. level and / or legal action and insist that all trade transactions with HSBC be placed under caution.
The highlighted portion makes it clear that the Complainant did not question the right of the Bank to make the debit and only requested the Bank to give it a favour by continuing credit facility.
Secondly, it was for the Complainant to file a suit or proceedings against the HSBC if the LC was dishonoured wrongly by the HSBC, because the LC was not transferred in favour of the SBI. In any set of circumstances, the Complainant has not chosen to make the HSBC as party before this Commission nor has he taken any action against the consignee.
However, the learned Counsel for the Complainant relied upon Uniform Customs and Practice for Documentary Credits (1993) Revision) [UCP]. The relevant articles upon which reliance is placed by the parties are Articles 2, 10, 13 and 14, which are reproduced as under:
Article 2 Meaning of Credit.
For the purpose of these articles, the expressions Documentary Credit(s) and Standby Letter(s) of Credit (hereinafter referred to as Credit(s) mean any arrangement, however name or described whereby a bank ( the Issuing Bank) acting at the request and on the instructions of a customer ( the Applicant) or on its own behalf:
.(i). is to make a payment to or to the order of a third party ( the Beneficiary or is to accept and pay bills of exchange (Draft(s)) drawn by the Beneficiary.
.(ii). Authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Draft(s)), or .(iii). Authorizes another bank to negotiate against stipulated document(s) provided that the terms and conditions are complied with.
For the purpose of these articles, branches of a bank in different countries are considered another bank.
Article 10-Types of Credit
(a) All credits must clearly indicate whether they are available by sight payment, deferred payment, by acceptance or by negotiation.
(b)(i) Unless the Credit stipulates that it is available only with the Issuing Bank, all Credits must nominate the bank ( the Nominated Bank) which is authorized to pay, to incur a deferred payment undertaking, to accept Draft(s) or to negotiate in a freely negotiable Credit, any bank is a Nominated Bank.
Presentation of documents must be made to the Issuing Bank or the Confirming Bank, if any or any other Nominated Bank.
(ii) Negotiation means the giving of value for Draft(s) and/or document(s) by the bank authorized to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation.
(c) Unless the nominated bank is the confirming bank, nomination by the issuing bank does not constitute any undertaking by the nominated bank to pay, to incur a deferred payment undertaking, to accept Draft(s), or to negotiate. Except where expressly agreed to by the Nominated Bank and so communicated to the Beneficiary, the Nominated Banks receipt of and/or examination and/or forwarding of the documents does not make the bank liable to pay, to incur a deferred payment undertaking, to accept Draft(s), or to negotiate.
(d) By nominating another bank, or by allowing for negotiation by any bank, or by authorizing or requesting another bank to add its confirmation the Issuing Bank authorizes such bank to pay, accept Draft(s) or negotiate as the may be against documents which appear on their face to be in compliance with the terms and conditions of the Credit and undertakes to reimburse such bank in accordance with the provisions of these articles.
Article 13: Standard of examination of documents:
(a) Banks must examine all documents stipulated in the credit with reasonable care to ascertain whether they appear on their face to be in compliance with the terms and conditions of the credit. Compliance of the stipulated documents on their face with the terms and conditions of the credit shall be determined by International Standard banking practice as reflected in these Articles.
Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the credit.
Documents not stipulated in the credit will not be examined by banks. If they receive such documents, they shall return them to the presenter or pass them on without responsibility.
(b) The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.
(c) If a credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them.
Article 14- Discrepant Document and Notice:
(a) Where the Issuing Bank authorizes another bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against documents 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, accepted Drafts(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 terms and conditions of the credit, such banks may refuse to take 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 judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13(b).
(d)(i) If the Issuing 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 at, or returns 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 draws 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 when, or on whose behalf, the indemnity was obtained.
On the basis of the said Articles, learned Counsel for the Complainant submitted that in the present case the SBI can be held as a bank authorized by the issuing bank to negotiate. He further submitted that as soon as the HSBC has pointed out discrepancies the SBI was required to act promptly and rectify the discrepancies within seven (7) days. That has not been done by the SBI. Hence, there is deficiency in service by the SBI.
As against this, the learned counsel appearing on behalf of the SBI has pointed out that SBI is neither issuing Bank, Confirming Bank nor Nominated Bank acting on behalf of the issuing Bank. He, therefore, submitted that for SBI there is no time limit prescribed under the UCP. Therefore, the UCP articles have no relevance in the present case. He further, pointed out that as per Art. 10(b)(ii) negotiation requires giving of the value for the documents/LC by the Bank authorized to negotiate. In the present case, that has not been done. The SBI has merely forwarded documents to the HSBC without giving value of the LC, and, therefore, it does not constitute negotiation as contemplated under the UCP.
We agree with the said submission. Art.10 makes it clear that negotiations for the purpose of UCP means giving of value for documents/LC by the bank authorized to negotiate. In addition, it makes clear that mere examination of the documents without giving value does not constitute negotiation.
In the present case, no doubt, the amount was given, but it was given towards credit facility which was given to the Complainant by the Bank. The SBI is neither issuing bank, confirming bank or nominated bank, nor authorized bank to make payment, and, therefore, Art. 13(b) which provides for prompt action would not be applicable.
Hence, in the present case, the UCP has no bearing, as no claim is made against the HSBC or confirming bank or nominated bank.
Further, in any case, it is admitted by the Complainant and the SBI that there were no discrepancies as alleged by the HSBC. In this view of the matter, it was the duty of the issuing bank, HSBC to pay the amount as per Art. 16(b) which provides that refusal by the issuing bank to pay must be on the documents alone as appears on the their face to be inconsistent with the terms and conditions of the credit. [Re. Federal Bank Vs. V.M. Jog (Supra)].
However, that question is not required to be discussed further, because HSBC is not party to the present proceedings.
Further, from the discussion made in the order passed in Complaint No. 196 of 1995 filed by the Complainant against the consignee and its agent, it is apparent that there was deficiency in service by the carrier in handing over the goods to the consignee or its agent without the original Air waybills or the documents. In that complaint it is pointed out by the Complainant that the carrier committed fraud. That question is not required to be discussed here. That complaint is allowed and we have directed the carrier and the agent to reimburse the Complainant for the loss suffered by it.
Delay in communication on the part of the SBI:
Undisputedly, the Telex message from the HSBC mentioning the alleged discrepancies was received by the SBI main branch on 8.11.94. In the said telex there was a request that the said communication be sent to Shivsagar Estate Branch. But that was not done on the same day. It was sent only on 15th November, 1994. Thereafter, on 16th November, 1994, the HSBC returned the documents to the main branch of the SBI along with a letter. Again, on 22nd November, 1994 the SBI, Main Branch, was informed that the documents were returned on 22nd and the file was closed.
Thereafter, Shivsagar Estate Branch, Worli (South) has chosen to inform the Complainant only on 29th November, 1994 about the discrepancies and on 30th November, 1994 the alleged discrepancy was remedied by the Complainant by pointing out that there was no discrepancy and the telex message in this regard was sent to the HSBC Bank. But, for the reasons best known to the HSBC, same was not accepted may be that Condea Chemical Trading Co. was a fake entity and that the goods were already received by the consignee much before the transmitting of the telex by the HSBC on 8th November, 1994.
The question would be, whether for this delay in sending communication to the Complainant, SBI is liable to pay the entire amount lost by the Complainant?
In our view, the contention of the Complainant cannot be accepted.
Delay was due to intentional or unintentional mistake of HSBC, in sending telex message at main Branch of the SBI even though it was specifically mentioned by the SBI in its communication dated 28.10.94 that all the proceeds of LC be sent to the Shivsagar Estate Branch of the SBI.
Secondly, the telegram was required to be sent by HSBC to the Shivsagar Estate Branch.
Thirdly, delay in sending the reply has not prejudiced the case of the Complainant because the goods were already delivered on 30th or 31st October, 1994 to the consignee. Therefore, that consignee was not prepared to accept the documents on alleged ground of discrepancies which was an excuse made out by the HSBC.
Thereafter, the SBI branch and the Complainants sent various communications to the HSBC for honouring the LC. But, that was not done, and the SBI failed to convince the HSBC to honour the LC. Therefore, as stated above, the SBI is not liable to pay the entire amount.
However, there was delay in communicating the alleged discrepancies to the Complainant by the Shiv Sagar Brnach of the SBI.
The Complainant was informed only on 29th November, 1994 and thereafter the Complainant wrote letter to the HSBC on 30th November, 1994 pointing out that there were no discrepancies. That was not accepted by the HSBC even though the due date for payment as per the LC was 15th February, 1995. Therefore. It is apparent that the alleged discrepancies were mere excuse in not honouring the LC.
However, deficiency in service on the part of the SBI for delay in communicating to the Complainant with regard to receipt of the letters dated 8.11.1994 and 15.11.1994 and in not dealing with the documents promptly, SBI is required to pay compensation. In the facts of the present case, it would be just and reasonable to direct the SBI to pay the amount of Rs.1,17,212/- which it has received as interest from the Complainant.
In the result the complaint is allowed partly. The SBI is directed to pay the sum of Rs.1,17,212/- to the Complainant with interest at the rate of 9% p.a. from the date of the complaint, namely, 7.12.1995 till the date of payment. There shall be no order as to costs.
Sd/-
.J. ( M.B.SHAH ) PRESIDENT Sd/-
( P.D.SHENOY ) MEMBER