Point of Law : Work Contract - Rate of further interest, in the absence of the contractual rate, shall not exceed the rate on which moneys are lent or advanced.

JUDGMENT :

N.J. JAMADAR, J.

1. This is a suit for damages for negligence in making payment of money under the letter of credit and consequent loss of business, and interest thereon.

2. The material averments in the plaint can be summarized, in brief, as under:

(a) The plaintiff is a company incorporated under the Companies Act, 1956. It deals in the business of manufacture of pesticides. The plaintiff entered into a contract for purchase of 400 metric tonnes of Yellow Phosphorous for US$ 615200 with Hunan Leader International Trade General Corporation, Changsha, Peoples Republic of China (Hunan). Under the terms of the contract the payment to Hunan was to be made through irrevocable letter of credit.

(b) Defendant no. 1 is a body corporate incorporated under the Royal Charter of England, 1853. Defendant no. 1 carries on the business of banking in India. On 6th June, 1996, the plaintiff applied to the Mumbai branch of defendant no. 1 (defendant no. 2) for issue of letter of credit in favour of Hunan for US$ 615200 (the defendant-bank). On 10th June, 1996 the defendant-bank opened a letter of credit, being L/C. NO. 529/960341 for US$ 615200.

(c) Under the terms of the letter of credit, the beneficiary was required to submit following documents:

(i) Five Commercial Invoices in quadruplicate stating description, quantity and value of goods as per plaintiff’s purchase order No. BV 100343 dated 17th May, 1996.

(ii) Complete set of not less than three original and non-negotiable copies of clean on board ocean bills of lading (issued by the Carrier or his agent) marked freight paid to the order of the bank with the party to be notified being the plaintiff.

The letter of credit further stipulated that the goods should be shipped by sea worthy vessels, which are not more than 25 years old classified 100 A1 by Lloyds or equivalent classification society. A certificate to that effect from the shipping line or their agents was required to accompany the documents.

The letter of credit was also subject to Uniform Customs and Practice for Documentary Credit 1993 Revision (UCP 500).

(d) On 8th July, 1996 the bank advised the plaintiff that they had received bills of exchange and related documents purported to have been drawn under the said letter of credit. The bank had not offered inspection of those documents to the plaintiff. The plaintiff was, thus, constrained to rely upon the statement of the bank in the advice that there were no discrepancies in those documents. Under UCP 500, it was a bounden duty of the bank to scrutinize the documents for any discrepancy therein and inform the plaintiff thereof. The bank was obligated not to accept the documents if they were found to be not in conformity with the terms and conditions of the letter of credit.

(e) The bank furnished documents to the plaintiff on or about 19th July, 1996. Vide letter dated 23rd July, 1996, the defendant bank advised the plaintiff that it had debited accounts of the plaintiff to the tune of Rs. 2,22,54,460.66/-.

(f) While the plaintiff was making efforts to ascertain whereabouts of the vessel, on which the cargo was being carried to Mumbai, by making enquiries with the Seller and the Carrier, the plaintiff noticed that there were serious discrepancies in the documents, especially the transport document and the sea worthiness certificate. Eventually, the plaintiff came to know that the Seller and its representatives had produced false documents to Agricultural Bank of China and obtained payment for the bills of exchange from them. The Agricultural Bank of China obtained reimbursement of the amount paid by them to the beneficiary from the New York Branch of the defendant bank, the reimbursement bank specified in the letter of credit. Defendant bank, thus, wrongly made and/or allowed payment to be made under the letter of credit without scrutinizing the documents.

(g) The plaintiff a