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2003 Supreme(Del) 362
High Court Of Delhi
MADURA COATS LIMITED - Appellant
Versus
BANK OF INDIA - Respondent
Interim Application 10691 of 2000
Decided On : 04/21/2003
ASHWINI K.MATTA, Girdhar Govind
Headnote:Sick Industrial Companies (Special Provisions) Act, 1985 Section 22, 3, 17, 18 — Suit for recovery — Bar of Section 22 of Sick Industrial Companies (Special Provisions) Act, 1985 — Invocation of moratorium by a third party — On instructions of a company, bank opening irrevocable letters of credit for payment of goods supplied against purchase orders — Leave to defend suit declined to bank and suit decreed in favor of plaintiff — Defendant company declared sick under Section 3 of SCIA Act — If the company liable under of credit bank entitled to claim moratorium under SICA — Bank free to initiate proceedings for recovery of sums paid out to the company.
Held :
Section 22 provides that no suit for the enforcement of a guarantee in respect of any loan or advance granted to the concerned industrial company will lie or can be proceeded with or without the consent of the Board or the Appellate Authority. When the words of a legislation are clear, the court must give effect to them as they stand and cannot demur on the ground that the legislature must have intended otherwise.
A letter of credit is an instrument of payment in itself, having no linkage with the party at whose instance it has been issued. If this is the correct understanding of the law then it would be of no consequence whatsoever that HILTON had come under the protective mantle of SICA at any time after the issuance of the Letter of Credit. Since there is no term excusing or exonerating the Bank from making payment on the occurrence of such an event, the liability of the Bank is circumscribed by the Letter of Credit itself.
Upon the execution of the letter of credit the Plaintiff had no reason to look towards HILTON at all. In consonance with the terms of the Letter of Credit, on furnishing the necessary documents mentioned in the Letter of Credit itself, the Plaintiff could have rested assured of payment. The mischief so far as the Bank is concerned appears to be that it had negligently or fraudulently issued the Letter of Credit without taking the precaution of ensuring that it was fund based. The factum of HILTON now receiving the protection of SICA may result in a financial loss to the Bank but it has itself to blame for it.
Since there is no allegation of any irregularity committed by the Plaintiff in so far as the invocation of the Letters of Credit is concerned, Leave to Defend the suit is declined to the Bank. The suit is decreed in favor of the Plaintiff and against Defendants I and 2 for the sum of Rs. 87,99,121/- together with interest thereon at the rate of nine per cent per annum from the date of the institution of the suit till the realisation of the decretal amount. The Plaintiff shall be entitled to recover its costs from these Defendants.
It is unnecessary to return a finding on the question of whether the amount covered by the suit is within the contemplation of the winding-up petition filed in the Punjab & Haryana High Court and/or whether it was shown as a contingent liability and/or whether it was beyond or post registration under SICA. However, since the liability of the Bank is de hors and not connected in any manner with Defendant No. 3 it will be contradictory and incongruent to hold the Bank liable along with this Defendant. Conversely stated, if Defendant No. 3 is liable under the Letter of Credit, the Bank would be competent to claim the moratorium under SICA. For this reason the suit is dismissed against Defendant No. 3 without prejudice to any pending legal action and also without prejudice to any action that the Bank may initiate against Defendant No. 3 for the recovery of sums paid out by the Bank as a consequence of this decree and/or its liability under the Letters of Credit which are the subject matter of this suit.
( 1 ) A legal nodus of considerable interest and import has arisen in this case; whether a third party can invoke the moratorium available under Sick Industrial Companies (Special Provsions) Act, 1985 (hereinafter referred to as `sica ). The Plaintiff has filed a suit for the recovery of Rs. 87,99,121. 00 under Order XXXVII of the CPC against the Bank of India (as Defendant Nos. 1 and 2 `the Bank for short) and HILTON Rubbers Ltd. (Defendant No. 3 `hilton for short ). HILTON had placed several purchase orders for nylon and polyster fabrics on the Plaintiff in February and March, 1999 and on instructions of HILTON, the Bank had opened Irrevocable Letters of Credit for the payment of the material supplied against the aforementioned purchase orders. Payments were to be made by the Bank within ninety days from the date of despatch in respect of 100% of the invoice value, but this was not done, ostensibly because of some discrepancies in the documentation. It is alleged by the Plaintiff that the Bank has fabricated letters in this context (this allegation seems to have been fortified by the Plaintiff s Bankers namely State Bank of India), in order to circumvent their monetary obligations established under the Irrevocable Letters of Credits. However, one payment of Rs. 10,45,612/- was released by the Bank against a particular Letter of Credit dated 24. 3. 1999. A prevaricatory stance has been adopted by the Bank in respect of the notice dated 7. 9. 1999. The Plaintiff has asserted that but for the Letter of Credits it would not have effected supplies to HILTON. The Plaintiff had unsuccessfully invoked the extraordinary writ jurisdiction of this Court in CWP No. 5894/1999. So far as HILTON is concerned, it has placed on record the factum of its having been declared sick under Section 3 (1) (o) of SICA. It appears that the Bank has been directed to work out a package under Sections 17 (2) and 18 of the SICA, in the public interest.
( 2 ) THE decision in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation Limited and Anr. , JT 1993 (1) SC 310 : 1993 (2) SCC 144: 1993 AIR SCW 991 has been relied upon by Mr. Mata, learned counsel for the Bank, to buttress the contention that the present proceedings ought not to continue any further. The Bank has prayed for the grant of Leave to Defend the suit in IA No. 1069/2000 in which it has controverted the charge of fabrication of documents. It has been submitted, inter alia, that the Bank has no knowledge about the transactions between the Plaintiff and HILTON; and that it is bound only to discharge its contractual duties in the matter of the establishment and payment under Letters of Credit. In pointing out discrepancies in the Letter of Credit the Bank has acted on its commercial judgment in accordance with its contractual rights. It has been averred that a Letter of Credit is a contract between the Bank and the Plaintiff, and waiver of discrepancies by HILTON would be inefficacious against the Bank. It has been pleaded that the Bank is obliged to make payment strictly in conformity with the terms of engagement contained in the Letter of Credit but the contentions seem to me to be to the contrary. After filing this application the Bank has also preferred IA No. 12902/2000 under Section 22 (1) of SICA praying for the stay of proceedings.
( 3 ) SECTION 22 (1) of SICA reads as under:
"22. Suspension of legal proceedings, contract, etc.-- (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other
