1997 Supreme(Bom) 390

IN THE HIGH COURT OF BOMBAY
M.B. Shah, C.J. Smt. R.P. Desai, J.
Virgo Steels ..... Appellant.
Versus
Bank of Rajasthan Ltd. others .... Respondents.
Appeal No. 231 of 1997, decided on 29-7-1997.
Advocates appeared :
Janak Dwarkadas, D.V. Merchant, Ms. Leena Mirasee i/by M/s. Shah and Sanghvi, for appellants.
Virendra Tulzapurkar with Virag Tulzapurkar i/by M/s. Kanga and Co., for respondent No. 1.S.H. Doctor with K.L. Desai and A. Hirani i/by M/s. Majumdar and Co., for respondent No.2.
C.R. Patel i/by M/s.C.R. Patel and Co., for respondent No. 3.

Headnote:Order XXXVII, Rule 2-Negotiable Instruments Act, 1881, Sections 30 and 52-Uniform Customs and Contract for Documents Credit UCP, Article 10-A(o)(iv)-Bills of Exchange-Drawer-Liability of Held-In case of dishonour by drawee or acceptor then to compensate the holder, drawer and drawee are jointly and severally liable to make payment to Bank.-In Court view, this submission is without any substance qua the plaintiffs, liability of the drawers of the Bill of Exchange is not governed by the Letters of Credit. Conditions in the Letters of Credit by using the expression without recourse to the drawers are between UCO Bank and the drawers, but, with regard to the liability of the drawers of the Bills of Exchange to make payment in case of not making payment by the UCO Bank, which have issued Letters of Credit, the holders of the Bills of Exchange are entitled to recover it from the drawers of the Bills of Exchange. This is absolutely clear in view of Section 30 of the Negotiable Instruments Act. This is also clear from Article, 10A(o)(iv) of the Uniform Customs and Contract for Documentary Credit UCP under which Articles, UCO Bank is required to make Article, UCP Bank is required to make payment without recourse to the drawers and/ or beneficiary under the Letters of Credit. It would means that, if the UCP Bank makes payment under the Letters of Credit, UCP Bank cannot demand such payment from the drawers, for whose benefit, Letters of Credit were issued, or from the bona fide holders of the drafts. It has to recover it form the drawees, but this would not mean that the liability of the drawers in case of failure on the part of the UCP Bank to make payment under the Letters of Credit, for one or the other reason, would absolve the drawers of their liability to make payment.

       In the present case, admittedly there is no endorsement on the Bill of Exchange to the effect without recourse to the drawer. Even the learned Authors have observed. A quoted above, that there is no foundation for the view that there should not be any right of recourse to the drawer because the negotiating Bank purchaser of the draft looks solely to the credit of the drawee bank and impliedly releases the drawer. The learned Authors have further stated that the right of recourse to the beneficiary is of value and renders purchase or negotiation more likely. If a Bank buys or negotiates the drawers draft it would normally have a right of recourse to the drawer in the event of dishonour, such right deriving from the law relating to negotiable instruments. Under the Negotiable Instruments Act, as discussed above, Section 30 specifically provides that a drawer of a Bill of Exchange is bound, in case of dishonour by the drawee or acceptor thereof, to compensate the holder. Hence the drawer and drawee in the present case are jointly and severally liable to make payment to the Bank of Rajasthan Ltd.

       Negotiable Instruments Act, 1881

       Section 30-Suit by respondent bank against UCO Bank and others on basis of bill of exchange negotiated on irrevocable letter of credit in favour of buyer-Dishonour of cheque by drawee-Unconditional leave to defend sought by bank issuing letter of credit on ground of fraud-Drawer of bill of exchange found to compensate the holder-Held, allegation of fraud would be no defence for non-payment of amount of bill of exchange-Thus, unconditional leave to defend was rightly refused to UCO Bank.-Admittedly, there is no endorsement of the Bill of Exchange to the effect without recourse to the drawer. Even, the learned authors have observed, that there is no foundation for the view that there should not be any right of recourse to the drawer because the negotiating bank purchaser of the draft looks solely to the credit of the drawee bank and impliedly releases the drawer. The learned Authors have further stated that the right of recourse to the beneficiary is of value and renders purchase or negotiation more likely. If, a bank buys or negotiates the drawers draft it would normally have a right of recourse to the drawer in the event of dishonour, such right deriving from the law relating to negotiable instruments. Under the Negotiable Instruments Act, Section 30 specifically provides that a drawer of a Bill of Exchange is bound in case of dishonour by the drawee or acceptor thereof, to compensate the holder. Hence, the drawer and drawee in the present case are jointly and severally liable to make payment to the Bank of Rajasthan Ltd.

       The defence raised by UCO Bank qua the plaintiffs. Bank of Rajasthan Ltd. is totally misconceived UCO Bank has issued in evocable LIC.

       Sections 30 and 52-See Civil Procedure Code, 1908-Order XXXVII, Rule 2.

       Uniform Customs and Contract for Documents Credit UCP

       Article 10-A(o)(iv)-See Civil Procedure Code, 1908, Order XXXVII, Rule 2.