2009 Supreme(Del) 933

IN THE HIGH COURT OF DELHI AT NEW DELHI
HONBLE DR. JUSTICE S. MURALIDHAR, J.
MADAN KUKREJA - Plaintiff
Versus
BANQUE SCALBERT DUPONT S.A. & ANR. - Defendants
CS (OS) 2198 of 2003
Decided on : 26th August 2009

A bank has no obligation to take delivery of goods without prior agreement and is not liable for conversion or breach of bailment if the goods are released to the buyer on the basis of a separate LC and an indemnity clause.

Headnote:

LETTER OF CREDIT - COLLECTION - JURISDICTION - TORT OF CONVERSION - BAILMENT - URC 522 - In a suit for recovery of money for goods shipped to France, the court held that the Defendant Bank was not liable for conversion or breach of bailment as it had no obligation to take delivery of the goods without prior agreement and the goods were released to the buyer on the basis of a separate LC and an indemnity clause. The suit was dismissed.

Fact of the Case:

Plaintiff, a garment exporter, entered into a purchase order with Li & Fung India, acting as an agent of Promod S.A., for the supply of woven ladies dresses and blouses. The payment was to be effected through an irrevocable letter of credit (LC) established by Li & Fung Hong Kong through HSBC Bank at Hong Kong in favour of the Plaintiff. The goods were shipped to France to Defendant Bank as consignee and to notify M/s Promod S.A. upon arrival of the goods in France. The goods were inspected by the representatives of Li & Fung India and a certificate of inspection was issued to the Plaintiff, approving the goods for shipment. The goods were shipped under House Airway Bills (HAWB) and the consignee was shown as the Defendant Bank with Promod S.A. being shown the party to be notified upon the arrival of the goods at the destination. The dispatch of the goods, however, took place after the LC dated 8th November 2002 had expired on 4th May 2003. Li & Fung India assured the Plaintiff that notwithstanding the expiry of the LC, the documents on presentation would be honoured. Accordingly after the shipment of the goods, the Plaintiff prepared the necessary documents relating to the said shipment such as invoices, packing list, certificate of origin etc. Along with the said HAWB, these documents were presented by the Plaintiff to Defendant No.2 with the request that they should be sent to the Defendant Bank on collection basis. Defendant Bank, by a letter dated 29th May 2003 forwarded the documents to Defendant Bank on collection basis with instructions that the documents should be released upon payment (DP). Among the documents sent were Invoice No. 232 dated 16th April 2003 for Euro 24,000/-, Invoice No.235 dated 16th April 2003 for Euro 13,590/- and Invoice No. 268 dated 6th May 2003 for Euro 7,800/-, the packing list, the weight list, GSP Certificate of Origin issued by the Textile Committee, the purchase orders and the two HAWBs. Copies of the invoices, the originals of the packing list, GSP Certificate, weight list, Certificate of Origin, HWAB etc. were also handed over to the representatives of Li & Fung India. Even before the dispatch of the aforementioned documents to Defendant Bank, it issued release orders on 19th May 2003 and 21st May 2003 in respect of the entire shipment of the goods in favour of the Promod S.A. According to the Plaintiff, the Defendant Bank did this without instructions from the Plaintiff or Defendant No.2. This was stated to be contrary to the international norms of banking. It is stated that since Li & Fung had handed over the original export certificate to Promod S.A., the latter was able to take delivery of the goods against release orders. The Plaintiff alleges that the actions of Defendant Bank were in breach of its contractual obligations and duties as a banker. Defendant Bank is also alleged to have breached the trust and faith reposed upon it by the Plaintiff. In particular it is stated that in the forwarding letter dated 29th May 2003 it was specifically indicated that the documents were being forwarded for collection “subject to Uniform Rules for Collection (1995 Revision) International Chamber of Commerce, Publication No.522 read along with ICC Document No.470/822 Rev of April 6, 1998”. It is stated that while forwarding the documents to the Defendant Bank, the Defendant No.2 had instructed the Defendant Bank to remit the proceeds in respect of the invoices by DD/TT on Mumbai in India in equivalent US Dollars or credit the account of Defendant No.2 Bank with Dresdner Bank, A G, D 60301, Frankfurt AM Main. By a letter dated 7th June 2003, the Defendant Bank returned the documents to Defendant No.2 because “Promod refused to pay it”. Consequently, it was stated that “this collection is a documentary one and you must know that the law tells a bank is never obliged to pay such a remittance.” However, the Defendant No.2 informed the Defendant Bank as under: “Your refusal to pay and act of returning the documents is not understandable when the goods covered by the said documents consigned to you have been released on 19.5.2003 and 21.5.2003 against your release order. Since the documents stand utilized so you are under definite obligation to pay the same. Please remit the proceeds along with the up to date interest from the date of release of goods. Regards. Syndicate Bank, Nehru Place, New Delhi.” The documents which were again presented on 21st June 2003 by the Defendant No.2 to the Defendant Bank were returned on 4th July 2003. A third presentation was made on 8th August 2003 which again was refused and returned by the Defendant Bank to Defendant No.2 on 19th August 2003.

Finding of the Court:

1. The court held that it had jurisdiction to entertain the suit as the Defendant Bank carried on business within the jurisdiction of the court and a part of the cause of action arose within the jurisdiction of the court. 2. The suit was bad for non-joinder of necessary and proper parties as the Plaintiff had not proceeded against the other parties, viz., Li & Fung Hong Kong, Li & Fung India, and mainly Promod S.A. 3. The Defendant Bank was not liable for conversion or breach of bailment as it had no obligation to take delivery of the goods without prior agreement and the goods were released to the buyer on the basis of a separate LC and an indemnity clause.

Issues: 1. Whether the Courts of Delhi have no territorial jurisdiction to entertain the present suit in which no relief is claimed against the other Defendant (Syndicate bank) and no leave under Section 20 of the CPC has been obtained against Defendant No.1 which has no presence in India? 2. Whether the suit is bad for non-joinder of proper and necessary parties as stated in the written statement? 3. Whether the Plaintiff is entitled to enforce any obligation against the Defendant No.1 either directly or through Defendant No.2? 4. Whether the Plaintiff is entitled to claim any sum arising out of any liability from the transaction in question and if so, to what amount it is entitled? 5. If Issue No. 4 is held in favour of Plaintiff, whether the Plaintiff is entitled to claim interest @ 16.5% or at all and if so, for what period and on what amount? 6. If issues No.4 and 5 are held in favour of Plaintiff; who is/are the entity(es) against whom such claim is enforceable?

Ratio Decidendi: 1. The court held that it had jurisdiction to entertain the suit as the Defendant Bank carried on business within the jurisdiction of the court and a part of the cause of action arose within the jurisdiction of the court. 2. The suit was bad for non-joinder of necessary and proper parties as the Plaintiff had not proceeded against the other parties, viz., Li & Fung Hong Kong, Li & Fung India, and mainly Promod S.A. 3. The Defendant Bank was not liable for conversion or breach of bailment as it had no obligation to take delivery of the goods without prior agreement and the goods were released to the buyer on the basis of a separate LC and an indemnity clause.

Final Decision: The suit was dismissed with costs.