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High Court Of Delhi
SHIVKAR EXPORTS - Appellant
Versus
STATE BANK OF PATIALA - Respondent
Suit 43 of 1985
Decided On : 07/15/1997
Held:
It is held that the defendants had accepted the bills for negotiation on collection basis and were acting only as the agent of the plaintiff. The defendants do not have any liability since the foreign bank has refused to honour the bills on the ground of breach of terms of letters of credit. It was for the plaintiff to institute a suit or take appropriate legal action for rejection of the documents by the foreign bank and the defendant has no liabil ity in the matter.
It is borne out from the correspondence exchanged that the defendant bank had notified the plaintiff two clear courses of action available viz. the defendant to recall the bills sent and return them to the plaintiff or seeking recourse to arbitration under the Indian Council for Arbitration. The plaintiff opted for the latter and agreed to even bear the expenses thereforee. It is seen from the correspondence that the defendant, in due course, even made a reference to the Indian Council of Arbitration and sought relief from them. All these clearly establish that the plaintiff was not acting on the basis that the property in the documents had been transferred to the defendant and that the defendant alone had the obligation to make the payment to the plaintiff irrespective of the defendant bank receiving the money or not. This would indeed have been the situation had the defendant bank negotiated the bills as purchasers, in which case it was immediately obliged to make the payment to the plaintiff. The course of events that have taken place lend credibility to the defendants case that the bills had been accepted on collection basis and in any case it was only acting as an agent of the plaintiff. The factum of the plaintiff not demanding payment from defendant for a long period of time and calling for suit to be filed at the fag end when limitation was to expire, supports this position as analyzed in para 8 of the judgment.
( 1 ) THE plaintiff has sued the defendant for a sum of Rs. 4 lakhs together with interest at 22% from the date of institution of the suit till realization. The sum of Rs. 4 lakhs claimed in the suit comprises, Rs. 2,26,127. 00 being the amount claimed to be due in respect of the documents presented under the Letter of Credit by the plaintiff to the defendant bank. A sum of Rs. 1,69,000. 00 is claimed as interest at 22% P. A. on the amount of Rs. 2,26,127. 00 from 25th December, 1981 till 21st December, 1984, the date of institution. Another sum of Rs. 5,000. 00 is claimed towards telex and other miscellaneous expenses.
( 2 ) THE main question that arises for consideration in the suit is whether the defendant had negotiated the Bills of Exchange under the Letter of Credit, as a holder in due course for value and was, therefore, liable to the plaintiff for the amount of the Bill? or whether the defendant had only accepted the Bills of Exchange for collection and/or had negotiated the same as an agent of the plaintiff and, thereforehad no liability to pay the amount to the plaintiff unless proceeds were received?
( 3 ) THE relevant facts giving rise to the filing of the present suit may be noticed:-
(I)BANQUE Nationale De Paris had opened a transferable irrevocable documentary Letter of Credit bearing No. 3/0820/81194 on the Bank of India, Janpath, New Delhi in favour of M/s. Grand Slam Exports for shipment of readymade garments, garment accessories and handicrafts. The Letter of Credit, permitted partial shipment. The original value of the Letter of Credit was Rs. 1 lakh, but was subsequently increased to Rs. 3,50,000. 00. The Letter of Credit, at the request of M/s. Grand Slam Exports, was transferred to the plaintiff by the State Bank of India.
(II)THE plaintiff claimed to have shipped the goods on December, 1991 to M/s Grand Slam Exports in accordance with terms and conditions of the documentary credit. The plaintiff then approached the State Bank of Patiala, Defence Colony, defendant No. 1 herein, with the request for negotiation of the said documents, which were drawn up under the Letter of Credit bearing No. 3/0820/81194 of the Foreign Bank. It is the case of the plaintiff that the Defence Colony branch of the defendant No. 1, forwarded the same to defendant No. 2 for negotiation and realization from the foreign bank. In the event, the documents sent by the defendant were not accepted by the Banque Nationale De Paris. The objections raised being that the shipment related only to readmade garments, while the Letter of Credit provided for three categories of goods namely readmade garments, garment accessories and handicrafts. It is the contention of the foreign bank that even the partial shipment in respect of any one of the three items should have comprised all the three. Indisputably, in the instant case, the shipment was only of readmade garments. The defendant did not pay or credit the account of the plaintiff with the amount of the Bill under the Letter of Credit. The defendants, however, at the behest of the plaintiff entered into detailed correspondence with the foreign bank claiming payment. In the said correspondence, the defendants have stated that the documents had been negotiated by them and they were holders in due course and demanded payment. It was also contended that the plaintiff had complied with the terms of the Letter of Credit and the stand taken by the foreign bank was untenable. The buyers of the goods one M/s. G. B. filed an appeal to have the garnishee order vacated so that the foreign bank could make the payment.
THE defendants also called upon the foreign bank to refer the matter to arbitration. A letter was also written to Indian Council of Arbitration seeking their goods offices for resolution of the disputes. The defendant bank, which had not credited the account of the plaintiff, with the amount of the Bills of Exchange under the Letter of Credit, had nevertheless given clean
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