2003 Supreme(Del) 535

High Court Of Delhi
INTERADS ADVERTISING PRIVATE LIMITED - Appellant
Versus
PALMEX ENTERPRISES - Respondent
Suit 1419 of 1979
Decided On : 05/30/2003

Headnote:Banking - Bill of Lading — Liability of bank — Bill of lading can be issued by the shipping company or their agents under Article 19 of the Uniform Customs and Practice for documentary credits (UCP) 300 — Bank only to peruse the document — No liability to investigate into whether it was issued by a forwarding agent or under subject to the condition of the Charter party

       Held:

       Since the Bank deals in documents alone responsibility of Defendant No. 3 is restricted thereto;, it was not necessary or prudent to carry out any investigation beyond perusing the Bill of Lading itself. The argument of the Plaintiff is palpably predicated on a misreading of Article 19 of UCP. However, there is no basis for the submission that the Bill of Lading is issued either by a forwarding agent or is issued under or subject to the condition of the Charter-party. It also does not cover a shipment by a sailing vessel. There was no difficulty in the way of the Plaintiff specifying the shipping company or vessel on which the carriage was to be performed. In actual fact the Plaintiff was aware that the carriage was to be completed on the M..V. Oh Dai. Having failed to specify the carrier, the responsibility of investigating the reliability of the shipping company/vessel cannot be fastened on Defendant No. 3 which has merely assured payment, subject to conditions imposed by he Plaintiff, and has thereby facilitating on international transaction.

       Letter of Credit and Bank Guarantee — Encashment — Judicial interference — Scope — Courts ought not to grant an injunction restraining the performance of the contractual obligations flowing out of a letter of credit or a Bank Guarantee between one bank and another — A party committing default can be proceed against in an action for recovery of money, and not against the bank, it being a third party.

       Courts should interfere in the encashment of Bank Guarantees and Letters of Credit with great circumspection . Although this approach may appear to be harsh on a defrauded party, it should not be forgotten that such a party has the legal recourse to proceed against the defrauder, in a civil action for recovery of money. The Bank is a third party, and is merely a facilitator to commercial transactions. The Bank ought not to be made liable for the legal inequities of another.

       Letter of Credit — Negotiation of document under — Person competent — Defendant -1 a proprietory concerning defendant-2 a partner in the concern — Secretary of the defendants could validly sign the documents sought to be negotiated under the Letter of Credit — Bill of Exchange signed by Secretary under Letter of Credit could be negotiated, and Bill of Lading could be validily endorsed by him in blank effecting negotiations.

       Defendant No. 1 is a proprietory concern of Defendant No. 2. In fact plaint itself provides that "the Defendant No. 2 is one of the partners of the concern named, Palmex Enterprises ...... an exporter, inter alia, of Brass Scrap and other goods". The documents sought to be negotiated under the Letter of Credit could validly be signed by the Secretary of Defendant No. 1 and that Defendant No. 3 was not obligated in terms of the UCP or the law pertaining to the issuance of notice under the Letter of Credit to investigate whether the signatory had any express or written authority to represent Defendant No. 1. This is all the more so since it is the same person who has uniformally signed all the connected documents. These objections have been raised after the event, and in my view in order to escape liability.

       Letter of Credit — Liability of penning bank — International transaction — Acts done beyond the domain of the Letter of Credit — Bank simply facilitating the transaction not be held liable — If there is no discrepancy on the face of the documents, bank not expected to carry out any further inquiries.

       Letter of Credit — Certificate issued by negotiating bank — Issuing bank could act under the Letter of Credit on the basis of the certificate.

       So far as Defendant No. 3 is concerned, the testimony of its witness has remained unchallenged that the documents were nspected/perused by its own officers. Regardless, there is no legal impediment in the part of Defendant No. 3 acting on the Letter of Credit on the basis of any certification of Defendant No. 9. Both the Banks, namely, Defendant No. 3 and 9 found the documents to be in order. The issue is decided in favor of Defendant No. 3, since the Plaintiff has failed to provides any discrepancy therein.

       Letter of Credit — Encashment — International transaction — Allegation of fraud — -Liability of bank — Negotiation of documents under Letter of Credit not fraudulent — If any fraud committed by the seller in the shipment proper remedy for plaintiff is to file a suit for recovery of price of consignment — Negotiating bank not be held liable where payments already released under Letter of Credit.

       The investigations appear to indicate that the vessel/ship and all consignments allegedly on board, have been lost mysteriously. This suit does not concern this fraud except to the extent of whether there was any fraud in connection with the documents. The Plaintiff has failed to disclose the existence of any fraud in this regard. If any other fraud in the shipment is alleged, the Plaintiff could have filed a suit for recovery of the price of the consignment against Defendants No. 1 and 2 alone, without making a grievance or attempting to restrain payments being made against the Letter of Credit. Perhaps, an order of attachment of the price of goods would have been appropriate, since the series of judgments forbidding Court interference in the honouring Letter of Credits and Bank Guarantees would not have come in the way of the Plaintiffs. There is no justification to render the negotiating Bank liable for frauds committed by the foreign seller, if payments have been released by them already. No Explanationn is forthcoming as to why an action for recovery of the price paid for the goods had not been initiated against Defendants No. 1 and 2. Keeping the cavalier manner in which the Plaintiff conducted itself in this transaction inasmuch as it neglected to indicate the Vessel, the Surveyor, the exact quality of the goods etc., complicity in the fraud cannot be ruled out. In this analysis Plaintiff has failed to even preponderantly provides that the documents negotiated under the Letter of Credit are the product of a fraud committed by Defendants No. 1 and 2.

       Letter of Credit — Encashment — Suit for injunction — Maintainability — International transaction — Payment by the issuing bank under the Letter of Credit to the foreign bank not made prior to institution to the suit — Suit not infructuous.

       The ship OH DAI appears to have sunk on 8.9.1979 and Defendant No. 3 has lodged their claim with the Insurance Company on 13.9.1979 stating that the Bill of Lading has been pledged to it and it was the joint holder of the Cover Note.

       Defendant No. 3 was duty bound to plead in his Written Statement the date on which payments had been made by it to Defendant No. 9. Counsel for Defendant No. 3 has also not been able to show any statement in the deposition on its behalf where the date of payment has been mentioned. In this situation, it would be impermissible to draw any inference, or to take judicial note of the fact that payments between Banks can be made merely by entries in the respective accounts. Ex. P-14 is not a clear admission that payments have actually been made/debited to the account of Defendant No. 3. The best evidence on this issue has been withheld from the Court by Defendant No. 3. Accordingly payments have not been made by Defendant No. 3 to Defendant No. 9 under the Letter of Credit prior to the filing of the Suit. Accordingly, the Suit for injunction is not infructuous.

       Letter of Credit and Bank Guarantee — Encashment — Suit for injunction against — International transaction — Payment not yet been made — Defendants not defending the suit — No fraud in documentation — Fraud committed on beneficiary by defendants in the entire transaction — Injunction restraining encashment of bank guarantees and Letters of credit decreed.

       Payments till date have not been released by Defendant No. 3, the fate of the litigation assumes a transformation. While Banks only deal in documents, and while judicial interference in matters regarding Credit is to be abjured, the Supreme Court has specified that where a fraud of egregious proportions is found to exist, an injunction can be granted. There is no fraud so far as documentation is concerned and, thereforee, if payments have already been made, it would have been improper to grant any injunction and subject the Bank to any liability. Defendants No. 1 and 2 as also Defendant No. 9 have not defended the suit and it is possible to come to the conclusion that a fraud has been perpetrated in respect of the entire arrangement. As has been clarified by the Supreme Court a fraud of beneficiary is a good reason to grant an injunction against the encashment of Bank Guarantees and Letter of Credits.

       Accordingly, a permanent injunction is passed restraining the defendant No. 3 herein, its servants, agents, employees, officers from making payments against the documents received under Letter of Credit dated 20.8.1979, favoring M/s. Palmex Enterprises, Singapore, defendant No. 1 herein, or to its agent, nominee and/or any person/persons, company, authority, claiming under defendant No. 1.

       Court Pee and Suit Valuation - Suit for declaration and for injunction — Maintainability — If there is a necessity for a declaration before grant of injunction it would not be suit for injunction — -If grant of declaration not necessary, suit would be purely a suit for injunction even though a needless declaration is prayed for — Suit to be valued for purposes of court fee and jurisdiction as a suit for injunction — Suit maintainable — Court Fees Act, Section 7(iv)(d).

       The plaint should be read as one seeking a perpetual injunction simpliciter, and the prayers pertaining to declarations be treated as surplusages and be ignored. In natural sequence, the valuation of the suit was allowed as prayed for as one for an injunction alone. The suit was valued for the purposes of court fee and jurisdiction at Rs. 25,00,000- and additional court fee of Rs. 23,944/- has already been paid. In these circumstances there is. no merit in the objection that the suit is ridden with such oblique motives as would be an impediment to its maintainability.

       Sale of Goods - International transactions — Bank guarantees and Letters of Credit — Liability of bank — Bank being only an intermediary having no interest in the transactions payment on compliance of pre-requisites and preconditions contained in documents — Bank not obliged to do anything more — Plaintiff alleging discrepancy in quality and description of goods — Details of quality and description not mentioned in the invoice and letter of credit — Plaintiff failing inspect the goods by nominating an Inspector/Surveyor — Onus of proof of lay on plaintiff not discharged — Bank not be held liable.

       The law pertaining to the sale of goods has identical application to domestic as well as international transactions. Normally, the price of goods is paid when delivery is made. But there are several variations, mostly, because parties are known to each other and repose trust amidst themselves. Where this trust is betrayed, the doors of domestic courts can be conveniently knocked upon. Where this is not so, even in respect of intra-country sales, Bank Guarantees or Letters of Credit are insisted upon. This forms the norm in international trade, since parties are not always known to each other and trust is not reposed mutually, and thus the existence of an intermediary becomes imperative. Such an intermediary is normally a Bank, which accordingly has no interest in the transaction beyond assuring payment on compliance of the prerequisites and preconditions that are present in the documents agreed upon by. the seller and the buyer. It is for this pragmatic reason that the UCP sets down the limits and parameters of the Banks liability.

       It is the responsibility of the purchaser to carefully circumscribe the circumstances in which the Bank should release payments. The Banks interests are not aligned with those of the Seller. If the Buyer mentions the merchandise or commodity invague terms, the Bank is not obliged to do anything more than ensure that the goods supplied by the seller correspond, on their face, with the specifications spelt out by the Buyer. In the present case the Plaintiff had merely indicated, both in the Invoice and in the Letter of Credit, the commodity in question to be Brass Scrap (Honey Grade). Despite evidence having been recorded in detail, there is no indication of any quality other than Honey Grade that was agreed upon by the parties. The description and quality is contained in the words Brass Scrap (Honey Grade). If there are qualities within this description, it was the duty of the Plaintiff to indicate which one was contemplated; and for failure, the Plaintiff is alone responsible, and must bear the consequences. The shipped goods are clearly mentioned in the relevant documents, in the Certificate of Weight and Quality, as also the Bill of Lading as Brass Scrap (Honey Grade), The Bank, deals in ocuments, which on their face, should not contain any infirmity.

       It was the sole responsibility of the Plaintiff to locate and nominate an Inspector/Surveyor who could adequately discharge these duties. This is normally specified by the Buyer in international trade. There is no discrepancy in the documentation which Defendant No. 3 has accepted. Reading the documents from the standpoint of Defendant No. 3, I cannot lay any importance on the use of the words - "This certificate is issued to the best of our knowledge and belief" in the said Certificate. I am also unable to read the certificate as failing to certify both the weight of the consignment and that the consignment was Brass Scrap (Honey Grade) which was "packed into the already weighed drums". I may mention that although the Letter of Credit, mentioned Certificate of Weight and Quality (Ex. D-6), the application to open a Documentary Credit (D-5) contains no such qualification and the contract (Ex.P-12) mentions only Weight Certificate to be issued by independent surveyors. It is thereforee arguable that the Letter of Credit unauthorisedly required a certificate for both weight and also of quality. But since I am satisfied that the Certificate covers both aspects, this question looses significance. The Plaintiff has stated that a copy of the Letter of Credit was received by them on 12.9.1979, and if this argument is pursued, the Plaintiff cannot rely on any terms thereof which are in excess of the contract and Ex. D-5 on principles of estoppel or otherwise.

       Maritime Transactions - Bill of lading — Clean Bill of Lading — Requirement — Superimposed notation "Shipped on Board" — Additional words "in apparent good order and condition" — Absence thereof in the notation does not make the Bill any the less than "Clean Bill of Lading".

       There is no substance in the contention that a clean Bill of Lading must necessarily bear the notation "shipped on board in apparent good order and cohdition". In Blacks Law Dictionary, Vth Edition, a Clean Bill of Lading has been defined as one which contains nothing in the margin qualifying the words in the Bill of Lading itself. "Shipped on Board" signifies that the consignment in question was loaded on the vessel in apparent good order and condition. Since the Bill of Lading contains no qualifications or exemption from liability, it fully conforms to a Clean Bill of Lading as conceived of in maritime nomenclature.

       Since the Bill of Lading contained no superimposed clause or notation as mentioned therein, it cannot be termed or seen as discrepant in any sense of the word.

       Negotiable Instruments - Bill of Exchange — Drawer — Bill of Exchange drawn in Singapore-Liability of bank — Law existing in Singapore not akin to that of India — Plea that defendant being a sole proprietorship concern must be signed only be sole proprietor — To be conclusively proved by plaintiff — Bank to see whether the document on the face of it conform to the transaction in question — No further liability to see what law exists in Singapore

       Nothing has been shown which would indicate that the law existing in Singapore is akin to that in our country. The Plaintiff was obliged to conclusively show that a Bill of Exchange, drawn in Singapore, must be signed only by the sole proprietor. The responsibility of the Bank did not extend further than to ensure that the documents, on their face, conformed to the terms of the engagement. There are submissions in the pleadings themselves which indicate that Defendant No. 1 is a partnership firm. This matter could have been elucidated by Defendants No. 1 and 2 who have hopelessly failed to put up any defense. Even so far as Indian law is concerned, there is no legal impediment in a partnership firm authorising any other person to act on its behalf; for that matter even a sole proprietor can execute a general Power of Attorney in favor of any person authorising him to act in a manner that would bind the sole proprietor. The Plaintiff did not stipulate that the Bill of Exchange as well as the Packing List must be signed by Defendant No. 2 alone and merely because the nomenclature used by the signatory is Secretary, it would not inevitably and inexorably lead to the conclusion that the maker/signatory had no authority to appoint any of the parties hereto. It cannot be ignored that PW1, who is also the signatory to the plaint, has stated as follows - "I entered into a contract with M/s. Palmex Enterprises on 20.7.1979, I signed this contract on behalf of the Plaintiff company and Mr. B.S. Aujla, Defendant signed it on behalf of Defendant No. 1 Company. The agreement DW2/B has been signed by me. It is not the contract." Learned counsel for the Defendant has shown that the signatory of the Bill of Exchange is the same as on the Invoice and other documents emanating from Defendants No. 1 and 2.