Full Judgment Text
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
th
% Judgment Reserved on : 29 March, 2019
Judgment Pronounced on: 25 November, 2019
+ RFA(OS)27/2017
ALLAHABAD BANK ..... Appellant
Through Mr.J.P. Sengh, Senior Advocate with
Ms.Yamini Khurana, Mr. Sugham
Seth, Ms.Manisha Mehta, Ms.Vaishali
Tanwar and Ms.M. Shekhar,
Advocates.
versus
MALAYAN BANKING LIMITED ..... Respondent
Through Mr.Ravinder Sethi, Senior Advocate
with Mr.Devmani Bansal, Ms.Jagriti
Ahuja and Mr.Amol Sharma,
Advocates
CORAM:
HON'BLE MR. JUSTICE G.S.SISTANI
HON'BLE MS. JUSTICE SANGITA DHINGRA SEHGAL
G.S.SISTANI, J.
1. This is an appeal under Section 96 read with Order XLI of the Code of
Civil Procedure, 1908 read with Section 10 of the Delhi High Court
Act, 1966 filed by the appellant impugning the judgment dated
20.01.2017 by which a Single Judge of this Court has dismissed the
application seeking leave to defend and has decreed the suit in favour
of the respondent.
2. The brief facts which are required to be noticed for the disposal of this
appeal are that M/s. Millennium Wires Pvt. Ltd (hereinafter referred to
RFA (OS) 27/2017 Page 1 of 22
as ‘buyer’) is dealing in the manufacturing and trade of Continuous
Cast Copper Wire Rod and ‘EC Grade, Hard Drawn Copper’ for
manufacturing of copper wire. The buyer was willing to import
Continuous Cast Copper Wire Rod for trading purposes and
accordingly, it entered into an Association Agreement on 02.12.2011
with State Trading Corporation (‘STC’). The said agreement
envisaged the import of the goods from Synergic Industrial Materials
and Services Pvt. Ltd. and Synergic Industrial Material Services
Malaysia (‘Synergy’/‘seller’). The aforesaid transaction was based on
the opening of Letters of Credit (LCs) in favour of the seller through
Malayan Banking Berhad, the respondent bank herein, on the request
of the buyer. Four LCs were issued by the appellant at the instance of
STC. As per the terms and conditions of the LCs, after shipment of
the goods from the port at Malaysia, the seller was to send across the
shipment documents to STC via appellant through the banking
channel and thereafter, the said shipment documents were to be sent
by the seller through the respondent to the appellant, which had
opened the LCs on behalf of the STC. The said documents then were
to be sent to STC by the appellant for acceptance, which were to be
sent to the buyer for verification and their acceptance. After receiving
acceptance from the buyer, STC was to convey the same to the
appellants who would send the acceptance to the respondent. It is the
case of the appellant that payment as per the terms of the LCs had to
be made after 90 days from the date of bill of lading.
3. As per the appeal, on 17.12.2011, STC received the documents of the
first shipment for acceptance of goods which, as per the shipment
RFA (OS) 27/2017 Page 2 of 22
documents presented by the seller to the respondent for payment and
thereafter received by the appellant, were allegedly shipped on
08.12.2011. The documents, prima facie , were in order and showed
that the goods were shipped and STC, after receiving acceptance from
the buyer, in good faith gave its acceptance to the appellant who
forwarded the same to the respondent.
4. On 31.12.2011, STC received the documents of the other shipments,
which were submitted by Mr. Rajiv Singh, MD of the seller to the
respondent. Consequently, STC gave its acceptance for two more
shipments after receiving the acceptance from the buyer and as per the
terms and conditions, the payment had to be made. The goods were to
reach India within 25 to 30 days after the date of shipment. STC
repeatedly sought information about the shipped orders from the
shipping company’s local agent, namely, M/s. Expo Freight Pvt. Ltd.,
having its local office in Ludhiana, but the local agent failed to give
any information about the shipment orders and STC was asked to find
out from the exporter as no containers as per the shipment documents
were traceable in India. On 19.01.2012, STC wrote a letter to the
agent in India seeking information about the consignment so that the
necessary arrangements for clearance and delivery could be made. On
23.01.2012, simultaneously the STC contacted Mr. Rakesh Khanna,
MD of the buyer, who had introduced the seller to STC and at whose
behest STC was dealing with the seller. Mr. Rakesh Khanna, buyer of
the purported imported goods, intimated STC vide its letter dated
23.01.2012 that the seller had played a fraud upon the importer STC.
On 08.02.2012, the seller sent a letter to STC whereby it had stated
RFA (OS) 27/2017 Page 3 of 22
and confirmed that the shipping documents as alleged to have been
sent by the seller under the LCs were not original seller documents
and the same are not to be relied upon. On 27.02.2012, as no
container was traceable, STC contacted the shipping company’s agent
in Malaysia, namely, Diffreight Agencies (M) Sdn. Bhd., who after
verifying the documents, informed the buyer vide email that the
documents were forged and also sent a copy of the FIR dated
27.02.2012. They also informed that the containers through which the
said shipment was being sent were not available at the port on the said
dates.
5. As per the appeal, when STC informed the appellant about the fraud
and about the forged documents presented by the seller, the appellant
immediately contacted the respondent to stop payments towards the
LCs. It is the case of the appellant that it was shocked to know that
the respondent even without waiting for the expiry of 90 days, in
complete violation of the terms of the LCs, had already released
payments towards the LCs to Mr.Rajiv Singh against some loan
facility under their Offshore Foreign Currency Loan (‘OFCL’), which
was not a part of the LC transaction in question. As per the appeal,
Mr.Rajiv Singh, and other concerned persons of the seller, in
connivance with the respondent, committed serious fraud upon STC,
buyer and the appellant as no goods were ever shipped, and forged
documents were created by Mr. Rajiv Singh, who had successfully in
connivance with the respondent illegally discounted the LCs.
6. On 27.02.2012, STC filed a suit bearing CS (OS) 545/2012 before this
Court seeking permanent, mandatory and perpetual injunction against
RFA (OS) 27/2017 Page 4 of 22
seller, the respondent and the appellant preventing any action or
release of funds under the LCs. On 02.03.2012, this Court granted an
injunction order in the aforesaid suit against release of funds. It is the
case of the respondent that in the said suit, the appellant had virtually
accepted the case of the respondent/plaintiff.
7. On 25.10.2013, the aforesaid suit was dismissed by this Court on the
ground that there are no specific averments of fraud made against the
respondent. Subsequently, the STC lodged a criminal complaint to the
Director of Serious Fraud Investigation Office (SFIO), New Delhi
against the seller and other persons who were involved with the fraud
and conspiracy with regards to this matter.
8. On 13.03.2015, the respondent filed a suit under Order XXXVII, Code
of Civil Procedure, 1908 (CPC) seeking recovery of US $
1,505,267.81 claiming it to be equivalent to INR 11,00,04,972.03,
along with pendente lite and future interest against the appellant. The
same was registered as CS (OS) 745/2015. After appearing in the
matter, the appellant filed an application seeking leave to defend
raising various triable issues.
9. The Single Judge vide judgment dated 20.01.2017 dismissed the said
application and decreed the suit for a sum of INR 11,00,04,972.03
along with pedente lite and future simple interest till realization at the
rate of 9% per annum. Hence, the present appeal.
10. Mr. Sengh, learned senior counsel for the appellant, submits that there
was no negotiation conducted on the part of the respondent as the
payments to the seller were made through a separate credit facility and
not through a LC. The respondent has also acted in violation of the
RFA (OS) 27/2017 Page 5 of 22
terms and conditions of the LCs which specifically state that any bank
in Malaysia cannot make any payments prior to 90 days from the bill
of lading dates. Therefore, the respondent is not entitled to seek the
recovery of the amount paid to the seller as the same was not paid
under the terms of the LC.
11. Learned senior counsel further submits that the respondent, in
connivance with the seller, has committed a fraud of egregious nature
for the reason that the respondent had knowledge that the seller had
forged invoices and bills of lading. Despite the same, the respondent
released payment to the seller before the acceptance or rejection of the
documents by the appellant. It was alleged that in two cases, the
payment was released even prior to the documents coming in
existence. Therefore, as the respondent had knowledge about the
fraud, the general rule of unconditionally honouring the LCs would
not be applicable. Reliance is placed on the judgement in the case of
Standard Chartered Bank (China) Limited Shenzhen Branch v .
State Bank of Patiala , (2014) SCC OnLine Del 279 .
12. Mr. Sengh further submits that the appellant, in its written statement in
the previous suit, did not admit any liability of payment in relation to
the four LCs in terms of the provisions Uniform Customs and Practice
for Documentary Credits, 2007 (‘UCP-600’). Mr. Sengh contends that
the admission of the appellant that they are bound by the terms of
UCP-600 in relation to the present LCs, does not tantamount to the
admission of liability. It is further submitted that the respondent has
failed to act under the terms of UCP-600 and have made payments to
RFA (OS) 27/2017 Page 6 of 22
the seller even before the dispatch of the goods which is evident from
the shipping documents.
13. Mr.Sengh further submits that there exist several cases pending
against the respondent and the seller for the same time period. In one
of the cases being CS(OS) 2035/2014, pending before this Court, the
respondent was informed by another bank about the discrepancies in
the documents submitted by the same seller. Thus, the knowledge of
the discrepancies in the seller’s documents clearly indicates that the
respondent was not alien to the possibility of fraud committed by the
seller.
14. Mr. Sengh further contends that pursuant to the letter of the RBI dated
05.11.2015, wherein the RBI advised the appellant to act under the
provisions of UCP-600 while making clear that the same should not be
construed as statutory/government approval, there does not exist any
irrevocable obligation on part of the appellant towards the respondent
as fraud and irreparable harm under UCP-600 form an exception to
such LC. It is further submitted that the suit of the respondent before
the Single Judge was bad for non-joinder of necessary parties.
15. Mr.Sengh further submits that the aforementioned grounds raise a
‘substantial defence’ and are in no way frivolous, sham or vexatious.
It is further submitted that the Single Judge failed to appreciate the
guidelines laid down in the case of IDBI Trusteeship v . Hubtown ,
(2017) 1 SCC 568 wherein the Supreme Court held that the
observations in the case of Mechelec Engineers and Mfg. v . M/s
Basic Equipment , AIR 1977 SC 577 are inapplicable to summary
suits instituted post the amendment to CPC in 1976.
RFA (OS) 27/2017 Page 7 of 22
16. It is further submitted that the Single Judge arbitrarily decreed the suit
without ascertaining the amount and the period of interest to which,
the respondent would be entitled to. He submitted that the amount
decreed is more than the value of the LCs. Further, the conversion
rate of Rs.63 per US $ is incorrect. It was finally contended that the
interest has also been granted from 26.10.2013, i.e. the dismissal of
the previous suit, for no cogent reason.
17. Per contra , Mr. Sethi, learned senior counsel for the respondent has
submitted that the documents presented by the respondent to the
appellant were not forged and in fact they were in consonance with the
terms of the LCs. The same were also duly accepted by the appellant,
STC and the buyer. Mr. Sethi has further submitted that the alleged
fraud by the seller is not attributable to the establishment of the LC,
and it is for the buyer to take action against the seller. Additionally,
mere non-supply of goods from the seller to the buyer does not
necessarily mean ‘fraud’. Reliance is placed on ITC v . Debt Recovery
Appellate Tribunal , (1998) 2 SCC 70 (paras 22 and 35). Mr.Sethi,
while relying on Article 16(f) of the UCP-600, has further submitted
that even if fraud is detected by the buyer at a later stage, the appellant
cannot halt the reimbursement of the LCs since there existed an
independent contract between the appellant and the respondent.
Reliance is placed on the judgments in the cases of Federal Bank Ltd.
v . V.M. Jog Engineering Ltd. , (2001) 1 SCC 663 (paras 42, 48 and
65) and United Commercial Bank v . Bank of India , (1981) 2 SCC
766 .
RFA (OS) 27/2017 Page 8 of 22
18. Mr.Sethi, in response to the submission made by the appellant that the
payment could not have been made prior to 90 days, submits that the
period of 90 days is meant for reimbursement and not for negotiation.
It is further submitted that the said submission is completely
misplaced as if the said argument is to be accepted then there was no
question of accepting the document. Reliance is placed on the
judgment of the Bombay High Court in the case of Malayan Banking
Berhad v . IndusInd Bank Ltd. , Summary Suit No.405/2015 (paras 8,
17 and 18).
19. Mr.Sethi has further submitted that the appellant has in its written
statement admitted its liability to honour the payments to be made
under the LCs in an earlier suit. The said admissions are binding on
the party that makes them and amounts to waiver of proof. Reliance is
placed on the judgments in the cases of Nagindas Ramdas v .
Dalpatram Ichharam , (1974) 1 SCC 242 (para 27) and Seema
Thakur v . Union of India , 223 (2015) DLT 132 (para 16).
20. Mr.Sethi has further submitted that the contention of the appellant that
the negotiation has not taken place due to the payment being made
under a different loan facility is not tenable, in the light of the
judgment in the case of UBS AG v . State Bank of Patiala , ( 2006) 5
SCC 416 (paras 22 and 34 to 36) wherein the Supreme Court has held
the definition of ‘negotiation’ as contained in Article 2 to mean
advance of funds. Additionally, the said ground was never raised at
any earlier point in time.
21. Mr.Sethi has further submitted that the fraud as alleged by the
appellant on the part of the seller is not attributable to the
RFA (OS) 27/2017 Page 9 of 22
establishment of LC and it is for the buyer to take action against the
seller. Therefore, the appellant cannot shy away from its obligation to
release the payment in favour of the respondent.
22. Mr.Sethi, while relying on Article 7 of the UCP-600, has further
submitted that the submission of the appellant that the respondent
released the payment to the seller without taking acceptance from the
appellant is misconceived. As per the said article, if the documents
are negotiated and further forwarded, the issuing bank must reimburse
the amount.
23. We have heard learned counsels for the parties, perused the relevant
documents and have considered their rival submissions.
24. The first contention of Mr.Sengh is that the appellant is not bound by
UCP-600. However, a perusal of the written statement filed by the
appellant in CS (OS) 545/2012, clearly shows that the appellant
admitted that it has an obligation, under the terms of UCP-600, to
make payments to the respondent on the respective due dates for the
three set of documents as accepted by STC. The appellant also
admitted that the payment as regards the fourth LC also cannot be
withheld on the ground of fraud as there was no discrepancy in the
documents; though the said documents were not accepted by STC.
The appellant further admitted that it was not concerned with the
goods covered in the documents but just the documents. In our view,
having admitted the genuineness of the documents with respect to all
the four LCs, the appellant now cannot be permitted to retract from its
admission and take a contrary stand. We may note that the Supreme
Court in Nagindas Ramdas (Supra) has held that admissions in
RFA (OS) 27/2017 Page 10 of 22
pleadings are fully binding on the party that makes them and it
constitutes a waiver of proof. Thus, it is not open to the appellant to
contend that UCP-600 is not applicable to them.
25. Having held the UCP-600 to be applicable to the transaction between
the appellant and the respondent, two clauses of the Rules are of
significance to the present case. Clause (d) of Article 16 of the Rules,
obligates the appellant to intimate any discrepancy in the documents
no later than the close of the fifth banking day following the day of
communication of documents. The consequence of failing to do so is
categorically provided under Clause (f) as being “ precluded from
claiming that the documents do not constitute a complying
presentation .” Further, Article 7 clearly stipulates that the obligation
of the issuing bank for reimbursing the nominated bank is independent
of the issuing bank’s undertaking to the beneficiary.
26. Learned senior counsel for the appellant had also strongly urged
before us that the goods under the LCs were never shipped and the
compliance documents such as the bills of lading and invoices were
forged, thus, making the appellant not liable to make the payment
under the LCs. In our view, the substratum of such a contention is that
the respondent had knowledge of the fraud either by being informed of
it or being a party thereto. The same is clear from the decision of the
Supreme Court in UBS AG v . State Bank of Patiala , (2006) 5 SCC
416 wherein it was held that if knowledge of fraud had been
communicated to the respondent bank before the negotiation, only
then the defence of fraud can be taken up as a triable issue. The
relevant portions read as under:
RFA (OS) 27/2017 Page 11 of 22
“ 22. The main contention raised on behalf of the appellant
Bank is that since it had no knowledge of any fraud
perpetrated by the constituent of the respondent Bank before
making payment under the letter of credit in question, the
respondent Bank could not refuse to reimburse the appellant
Bank of payments already made to the beneficiary under the
letter of credit before such intimation was received. It was
also the case of the appellant Bank that since it had no
knowledge of the fraud said to have been committed with
regard to the bills of lading and the letter of credit itself, it
negotiated documents presented before it by the beneficiary
and made payment accordingly as per the instructions of the
respondent Bank.
…
35. The facts of these three appeals are clear and simple.
The letters of credit were issued by the issuing bank to the
confirming bank with a request to inform the beneficiary
that an irrevocable letter of credit had been established for
the sum indicated therein to be paid by the appellant Bank
on negotiation of documents to be presented by the
beneficiary. Such documents having been presented by the
beneficiary to the appellant Bank, it made payment under
the letter of credit to the beneficiary and was entitled to
receive reimbursement for the same from the respondent
Bank. If the fraud had been detected earlier and the
appellant Bank had been informed of such fraud and put on
caution prior to making payment, the respondent Bank may
have had a triable issue to go to trial. That is not so in these
three cases. In these cases, the fraud was detected after the
letters of credit had been negotiated and hence such fraud
alleged to have been committed by the constituent of the
respondent Bank cannot be set up even as a plausible
defence in the suit filed by the appellant Bank. ”
(Emphasis Supplied)
27. At this stage, it is appropriate to mention that there were four LCs in
question, three dated 07.12.2011 and last one dated
RFA (OS) 27/2017 Page 12 of 22
02.01.2012. Referring the LCs by their last three digits, the LCs were
LC-150, LC-151, LC-154 and LC-159. As required, the documents
presented were forwarded by respondent to the appellant. As regards
LC-150, the documents were first accepted by the appellant and
thereafter, after expiry of five days rejected the same. The documents
pertaining to LC-151 and LC-154 were never rejected within 5 days
and were only rejected after a long delay. The documents of final LC-
159 were first accepted and then rejected, both being after 5 days.
Thus, it is clear that as far as the appellant is concerned, it had not
communicated any discrepancy within 5 days for any of the LCs.
28. In order to overcome the lapse, learned senior counsel for the
appellant contended that the respondent was not only privy to the
fraud, but also, a party thereto. The first fact, according to Mr.Sengh,
that shows the collusion of the respondent, is that payments were
released prior to the receipt of documents or expiry of the 5 days’
period as mentioned under Article 16 of UCP-600. We are unable to
accept the submission. The funds were released under a different
credit facility and the same shall not desist the obligation of the
appellant to reimburse the respondent. The liability of the appellant
would crystalize once there was valid presentation and the appellant
failed to communicate its rejection within 5 days. The same would
also run contrary to the mandate of Article 7 of the UCP-600.
29. The second contention of the appellant was that there are other
pending cases involving respondent as a party and hence, the
respondent was well aware of the discrepant documents. According to
us, the same does not make out fraud by the respondent in the present
RFA (OS) 27/2017 Page 13 of 22
case. Mr.Sengh had primarily relied upon the case in CS (OS)
2035/2014 to contend that on 08.12.2011, the issuing bank therein had
informed the respondent herein of discrepancies in the documents.
According to him, as such, the respondent was well aware of the fraud
and ought not have released the payment; and that the releasing of the
payment clearly shows that the respondent was hand in glove with the
seller.
30. We are unable to accept the aforestated contention as the informing of
discrepancies regarding the documents presented in another
transaction will not have a bearing on the present case. Every LC is
an independent contract to be honoured on valid presentment. Merely
because discrepancies in other LCs had been highlighted would not
affect the obligation of the respondent to honour other LCs where no
discrepancies are highlighted within time. In fact, the appellant would
be obligated to reimburse the respondent for the same.
31. As far as the submission of the appellant with respect to the payment
made before the expiration of 90 days is concerned, we find no force
in the said submission. We have perused the LCs, the relevant clause
states that the payment is to be made “ 90 DAYS FROM B/L DATE. ”
We are unable to accept the interpretation ascribed by the learned
senior counsel for the appellant. The term “ from ” cannot mean only
the after the expiry of the said period. On the contrary, the same
denotes that the payment is to be made within the said period. Similar
view has been taken by a Single Judge of the Bombay High Court in
Malayan Bank Berhad (Supra) , the relevant paragraph of which
reads as under:
RFA (OS) 27/2017 Page 14 of 22
“ 17. As regards the defence that the Plaintiff should not
have paid within the 90 days period provided in the letter of
credit, the same also cannot be accepted. The 90 days
period in the credit only means that once the documents are
accepted, the Defendant has 90 days to pay. Its liability to
pay is crystalized but date of payment is deferred. ”
32. Even otherwise, we are also in agreement with the reasoning adopted
by the Single Judge that the liability of appellant to pay was
crystalized on the day it conveyed its acceptance of the documents to
the respondent or failed to do so in accordance with Article 16.
33. Additionally, in the previous round of litigation [CS (OS) 545/2012],
the Single Judge, had after analyzing the facts of the case and
evidence on record, concluded that the fraud was not made out. The
said decision was challenged by STC before a Division Bench of this
Court in RFA (OS) 139/2013 wherein the Division Bench dismissed
the appeal and held that as long as the documents presented by the
seller are in accordance with the terms and conditions of the LC the
bank has to honour the obligation to make the payment under the LC.
The relevant portion of the judgment of the Division Bench read as
under:
“ 19. The bank’s obligation, in this case of the foreign bank,
is to honour the LC, and in the words of the Court,
“if the seller prima facie complies with the terms of
the Bank Guarantee or Letter or Credit, namely, if
the seller products the documents enumerated in the
Bank Guarantee or Letter of Credit. If the Bank if
satisfied on the face of the documents that they are in
conformity with the list of documents mentioned in
the Bank Guarantee or Letter of Credit and there is
RFA (OS) 27/2017 Page 15 of 22
no discrepancy, it is bound to honour the demand of
the seller for encashment. ”
20. This obligation is not affected merely because the buyer
disputes the due performance of the contract. The obligation
is unaffected, as long as the documents presented are in
accordance with the terms of the LC. That is the essence of
the documentary autonomy of the LC. In this case, the
documents presented for LCs 150, 154 and 156 were in
order, and this was never disputed by STC or Millennium.
Quite to the contrary, STC admitted to having conveyed its
acceptance with respect to these three LCs to Allahabad
Bank. As regards LC 151, the foreign bank’s position is that
the documents complied with the requirements under the
LC, and, the obligation therefore, to pay was triggered.
Here, Article 16, UCP-600 is crucial, which reads as
follows:
“Discrepant Documents, Waiver and Notice:
(a) When a nominated bank acting on its nomination,
a confirming bank, if any, or the issuing bank
determines that a presentation does not comply, it
may refuse to honour or negotiate.
(b) When an issuing bank determines that a
presentation does not comply, it may in its sole
judgement approach the applicant for a waiver of the
discrepancies. This does not, however, extend the
period mentioned in sub-article 14 (b).
(c) When a nominated bank acting on its nomination,
a confirming bank, if any, or the issuing bank decides
to refuse to honour or negotiate, it must give a single
notice to that effect to the presenter.
The notice must state:
(1) that the bank is refusing to honour or negotiate;
and
(2) each discrepancy in respect of which the bank
refuses to honour or negotiate; and
(3) (a) that the bank is holding the documents
pending further instructions from the presenter; or
RFA (OS) 27/2017 Page 16 of 22
(b) that the issuing bank is holding the documents
until it receives a waiver from the applicant and
agrees to accept it, or receives further instructions
from the presenter prior to agreeing to accept a
waiver; or
(c) that the bank is returning the documents; or
(d) that the bank is acting in accordance with
instructions previously received from the presenter.
(d) The notice required in sub-article 16 (c) must be
given by telecommunication or, if that is not possible,
by other expeditious means no later than the close of
the fifth banking day following the day of
presentation.
(e) A nominated bank acting on its nomination, a
confirming bank, if any, or the issuing bank may,
after providing notice required by sub-article 16 (c)
(iii) (a) or (b), return the documents to the presenter
at any time.
(f) If an issuing bank or a confirming bank fails to act
in accordance with the provisions of this article, it
shall be precluded from claiming that the documents
do not constitute a complying presentation.
(g) When an issuing bank refuses to honour or a
confirming bank refuses to honour or negotiate and
has given notice to that effect in accordance with this
article, it shall then be entitled to claim a refund, with
interest, of any reimbursement made. ”
21. Article 16(f), therefore, casts a responsibility on the
issuing and confirming banks to be diligent in following the
provisions of Article 16, failing which the documents would
be deemed to constitute complying performance for the
purpose of releasing payment under the LC, with or without
the waiver from the buyer. Crucially, the decision as to
whether the documents constitute complying presentation is
solely that of the issuing bank (i.e. its “sole judgment”, in
terms of the sub-clause (b), in this case, Allahabad Bank),
which may, in case a discrepancy in the documents is found,
approach the buyer for a waiver. However, in a case where
RFA (OS) 27/2017 Page 17 of 22
the issuing bank does decide that the documents do not meet
the compliance requirements under the LC, in terms of
clause (c), such notice must be given “no later than the
close of the fifth banking day following the day of
presentation.
22. Thus, in case the payment under the LC is to be
injuncted, a notice under Section 16 is mandatory, within
the terms of that article. In this case, as regards LCs 150,
154 and 159, the documents were accepted by Allahabad
Bank, and no notice was given under Section 16, thus
rendering payment under those LCs by the foreign bank
proper. As regards LC 151, the only LC as regards which
STC/Millennium claim to have rejected the documents, two
points are important: first, that under Article 16, UCP, it is
the sole judgment of Allahabad Bank to determine whether
the documents constitute a complying presentation, and if
that bank does so determine, the non-acceptance by the
buyer (STC/Millennium) is not determinative. However, if
Allahabad Bank were to determine that the documents do
not constitute complying presentation, the same could be
waived by STC/Millennium. In this case, however, as
regards LCs 150, 154 and 159, no such question arose;
whereas with regard to LC 151, the refusal to honour the
LC by Allahabad Bank (after receiving notice of non-
acceptance by STC) came after 5 days from presentation of
the LC by the foreign bank. In such a case, the terms of
Article 16(d), read with 16(f), are clear, in that payment
under the LC subsequently by the foreign bank cannot be
objected to. ”
(Emphasis Supplied)
34. The said decision was impugned before the Supreme Court, which
vide order dated 23.03.2015, upheld the above decision of the
Division Bench and further held that the appellant admitted to be
bound by the provisions of UCP-600. It was further held that LC-154,
for which the presentation was rejected by the appellant was made
RFA (OS) 27/2017 Page 18 of 22
after 19 days while under the terms of UCP-600, the said rejection has
to be made to the negotiating bank within five days. Hence, the
Supreme Court also permitted the buyer and seller to avail of the
appropriate remedies to decide the question of fraud.
35. The Single Judge in the judgment impugned before us has, while
relying on the decision of the Supreme Court, held that the allegation
of fraud against the respondent was never raised in the earlier
litigation and the respondent released the payments after getting due
acceptance from the appellant. In view of the above facts, the Single
Judge has rightly held that the submission of the appellant regarding
fraud cannot be accepted.
36. The law in respect of granting leave to defend is well settled that leave
to defend in a summary suit is granted only when the triable issues are
raised and the same are not sham, frivolous or moonshine IDBI
Trusteeship Services Ltd. (Supra) (paragraphs 17 to 17.6). As an
alternate argument, learned senior counsel for the appellant had also
tried to contend that even if this Court comes to the conclusion that the
amount is admitted, the leave may be granted subject to deposit. He
relied upon the following paragraphs of IDBI Trusteeship Services
Ltd. (Supra) :
“ 17.6. If any part of the amount claimed by the plaintiff is
admitted by the defendant to be due from him, leave to
defend the suit, (even if triable issues or a substantial
defence is raised), shall not be granted unless the amount so
admitted to be due is deposited by the defendant in court. ”
37. The submissions of the appellant raised above are ill-founded. We
have already held that nothing urged by the appellant raises any triable
RFA (OS) 27/2017 Page 19 of 22
issues as such. The leave was correctly rejected by the Single Judge
and there is no reason to prolong the litigation. We take cue from the
object of the provisions of Order XXXVII as observed by the Supreme
Court in Santosh Kumar v. Bhai Mool Singh , 1958 SCR 1211
(paragraph 8) that “ the defendant does not unnecessarily prolong the
litigation and prevent the plaintiff from obtaining an early decree by
raising untenable and frivolous defences in a class of cases where
speedy decisions are desirable in the interests of trade and
commerce. ” Thus, the contention of the appellant is rejected.
38. Thus, the appellant has failed to show that the respondent had
knowledge of the fraud prior to the disbursement of payment or the
expiry of the 5 days period from presentment of documents. As such,
in view of the decision in UBS AG (Supra) , the appellant has failed to
raise any triable issue. The contention regarding the respondent bank
being a perpetrator of the fraud is clearly sham and moonshine.
39. Mr.Sengh, had also tried to impugn the calculation of the decretal
amount before. He had submitted that the appellant cannot be held
liable for an amount of Rs.11,00,04,972.03 as decreed by the Single
Judge. The submissions of the learned senior counsel are threefold:
firstly , the amount of recovery is more than the amounts of LCs;
secondly , interest has been calculated from 26.10.2013, i.e. the date of
vacation of the stay in the previous suit; and thirdly , the rate of
conversion of Rs.63/- per US $ is incorrect as on the date of the
institution of the suit, the rate was Rs.61.8343 per UD $.
40. We proceed to deal with the contentions one by one. The first is liable
to be rejected. The LCs issued clearly state that the tolerance
RFA (OS) 27/2017 Page 20 of 22
percentage is plus or minus 3%. The amount financed and claimed by
the respondent is within the tolerance amount. It is not disputed that
in fact the amounts were released to the seller. We are also unable to
subscribe to the second contention as once the interim order in the
previous suit stood vacated, it was incumbent upon the appellant to
honour its liability. Having failed to do so, it would be liable to pay
the interest from the said date.
41. The final contention pertains to the rate of conversion. It has been
settled by the Supreme Court in the case of Forasol v. ONGC , 1984
Supp SCC 263 and Meenakshi Saxena v. ECGC Limited , (2018) 7
SCC 479 that when the plaintiff sues for the sum of money, due in a
foreign currency, after converting it into Indian Rupees, then, in the
absence of any express contractual rate, he may do so at the
conversion rate prevailing on the date when the amount became
payable or on the date of the filing of the suit. After going through the
plaint, we are unable to find any basis of the conversion rate being
taken at Rs.63/- per US $. Accordingly, the rate of conversion on the
date of filing of the suit may be taken. The submission of the
appellant is accepted. The respondent would be entitled to convert the
due amount at Rs.61.8343 and not at Rs.63/- per US $.
42. The amount claimed by the appellant was US $ 1,746,110.46 and
converting the amount at Rs.61.8343 per dollar comes to
Rs.10,79,69,518.02.
43. Accordingly, the decree is modified to the extent that the respondent
would be entitled to a sum of Rs.10,79,69,518.02 with the pedente lite
RFA (OS) 27/2017 Page 21 of 22
and future interest remaining the same. With the said modification,
the appeal is disposed of.
C.M. No. 15211/2017 (stay)
44. In view of the order passed in the appeal, the applications have been
rendered infructuous and as such, are disposed of.
G.S.SISTANI, J.
SANGITA DHINGRA SEHGAL, J.
NOVEMBER 25, 2019
//
RFA (OS) 27/2017 Page 22 of 22