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High Court Of Calcutta
SATISH CHANDRA, S. C. SEN
UNITED COMMERCIAL BANK - Appellant
Versus
HANUMAN SYNTHETICS LTD. - Respondent
Appeal Nil Of 1983
Decided On : 03/30/1984
LETTER OF CREDIT - IRREVOCABLE AND CONFIRMED - OBLIGATION OF BANK TO PAY - DISPUTE BETWEEN BUYER AND SELLER - NOT A GROUND FOR WITHHOLDING PAYMENT - FRAUD - MUST BE ESTABLISHED - NOT ENOUGH TO ALLEGE FRAUD.
Fact of the Case:
The appellant bank opened an irrevocable and confirmed letter of credit in favor of the respondent seller for the purchase of viscose staple fiber. The respondent seller shipped polyester fiber instead of viscose fiber. The customs authorities initiated proceedings against the respondent buyer for importing polyester fiber instead of viscose fiber. The respondent buyer filed a suit against the appellant bank and the respondent seller alleging fraud and obtained an ex parte interim injunction restraining the appellant bank from making any payment to the respondent seller. The appellant bank challenged the interim injunction.
Finding of the Court:
The court held that the appellant bank was obligated to pay the respondent seller upon presentation of the shipping documents, regardless of any dispute between the respondent buyer and the respondent seller. The court further held that the respondent buyer had not established fraud on the part of the appellant bank or the respondent seller. The court also held that the respondent buyer could not withhold payment under the letter of credit simply because the goods did not conform to the description in the shipping documents.
Issues: 1. Whether the appellant bank was obligated to pay the respondent seller upon presentation of the shipping documents, regardless of any dispute between the respondent buyer and the respondent seller? 2. Whether the respondent buyer had established fraud on the part of the appellant bank or the respondent seller? 3. Whether the respondent buyer could withhold payment under the letter of credit simply because the goods did not conform to the description in the shipping documents?
Ratio Decidendi: 1. The court held that the appellant bank was obligated to pay the respondent seller upon presentation of the shipping documents, regardless of any dispute between the respondent buyer and the respondent seller, because the letter of credit was irrevocable and confirmed. The court reasoned that the purpose of an irrevocable and confirmed letter of credit is to provide the seller with a guarantee of payment, regardless of any disputes between the buyer and the seller. 2. The court held that the respondent buyer had not established fraud on the part of the appellant bank or the respondent seller. The court reasoned that the respondent buyer had merely alleged fraud, but had not provided any evidence to support the allegation. 3. The court held that the respondent buyer could not withhold payment under the letter of credit simply because the goods did not conform to the description in the shipping documents. The court reasoned that the respondent buyer's remedy was to sue the respondent seller for breach of contract.
Final Decision: The court allowed the appeal and set aside the interim injunction. The court also ordered the respondent buyer to pay the appellant bank the costs of the appeal.
( 1 ) HANUMAN Synthetics Ltd. , the Respondent No. 1, entered into an agreement to purchase from the Respondent No. 3, J. B. International, Singapore, 75 Metric Tonnes of Viscose Staple Fibre having semi dull normal tenacity, of Japanese or South Korean origin of the specification 1. 5 Deniar x 51 MM. The Central Bank of India opened a Letter of Credit dated February 21, 1983 at the request of Hanuman Synthetics Ltd. The Letter of Credit was opened in favour of J. B. International, the Respondent No. 3, herein. The Letter of Credit was an irrevocable and transferable Letter of Credit. Under the Letter of Credit, it was stipulated that J. B. International would be entitled to avail and/or operate the same by drafts drawn at 120 days from the date of the Bill of Lading which was 17th March, 1983 and by presentation of the following documents:- 1985 Cal. /7 III G-18 (A) signed commercial invoice in quadruplicate covering shipments of VISCOS Staple Fibre; (b) certificate of origin in duplicate issued by a Chamber of Commerce; (c) full set of clean "shipped on board" bills of lading; (d) marine insurance policy or certificate in duplicate; (e) a certificate to the effect that immediately after shipment the defendant No. 1 had by Air Mail sent in advance one set of non-negotiable documents directly to Hanuman Synthetics Ltd. It was also stipulated in the said Letter of Credit "please add your confirmation to this Credit and release the L/c through United Commercial Bank, Robinson Road, Singapore. "
( 2 ) ON or about March 17, 1983 the goods were shipped and the United Commercial Bank, Singapore duly paid the amount against the documents mentioned in the Letter of Credit and forwarded the negotiated documents to the Central Bank of India, Bombay. On or about March 24, 1983 the shipping documents were presented to Hanuman Synthetics Ltd the respondent No. 1 by the Central Bank of India and the respondent No. 1 accepted the Bill of Exchange drawn by respondent No. 3, J. B. International, the exporter upon the respondent No. 1 Hanuman Synthetics Ltd. and in favour of United Commercial Bank, Singapore Branch. It has been alleged that by inadvertence the amount was actually paid even before the due date. On March 30, 1983 the United Commercial Bank refunded the said amount. On April 2, 1983 the Central Bank of India acknowledged the receipt of the documents under the Letter of Credit and confirmed that the Bill of Exchange would be due for payment on April 15, 1983. On April 4, 1983 the vessel carrying the imported consignment arrived at the Port of Calcutta and on April 16, 1983 the Bill of Entry was submitted by the respondent No. 1. The Customs Authorities were of the view that the goods that were imported were not VISCOSE Staple Fibre but were Polyester Fibre and proceedings were started by the Customs Authorities under the Customs Act. The stand taken by the respondent No. 1 before the Customs Authorities has not been disclosed. However, On July 6, 1983 M/s. Khaitan and Co. on behalf of respondent No. 1 asked the Central Bank of India to repudiate the liability under the said Letter of Credit. On or about July 9, 1983 a suit was filed in this Court by Hanuman Synthetics Ltd. against the Central Bank of India and. J. B. International praying for, inter alia, a perpetual injunction restraining the defendant No. 1 (Central Bank of India) from making any payment or giving any credit to the account of the defendant No. 2 (J. B. International) in respect of the said Letter of Credit. The appellant, United Commercial Bank, was not made a party to that suit.
( 3 ) IN that suit, an application for interim order was made and on that application, on July 9, 1983, an order of temporary injunction was issued restraining the Central Bank of India from giving any effect to or making any payment to any person in respect of the said Letter of Credit dated February 21, 1983. The order was not of any fixed duration. It also does
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