The main legal point established in the judgment is that an amendment to a letter of credit must be accepted by all parties involved, and a unilateral amendment that enters into force unless rejected by the beneficiary within a certain time is not valid. Additionally, the bank issuing the letter of credit has an absolute obligation to honor it, and must make reasonable efforts to fulfill its obligations.

S. RAVINDRA BHAT, J.

Facts:

1. In this appeal, an unsuccessful plaintiff impugns the judgment and order of a learned Single judge of this Court, dismissing its suit for recovery of money from the first respondent (hereafter called “the defendant Bank”).

2. The Plaintiff is a public limited Company constituted under the Companies Act, 1956. It owns 100% export oriented spinning mills and carries on the business of manufacturing, trading, exporting hosiery, yarn, fabric and textiles. The respondent Bank is incorporated in Pakistan having its branches in Pakistan as well as Bangladesh. The second respondent (hereafter “the buyer”), on the other hand, is a company incorporated in Bangladesh and carries on the business of importing and exporting garments, yarn, etc. The third respondent was a sole proprietorship/partnership concern which was appointed as the Indenting agent, by the Plaintiff, for hosiery products in Bangladesh. The Plaintiff and the third Respondent had agreed that business procured by the latter would be on the basis of terms and conditions intimated by the Plaintiff from time to time.

3. On 02.11.1994, by Indent No. 23/TTL-33/94, an order was placed on the Plaintiff by the buyer for export of goods. The buyer requested the defendant Bank to establish an irrevocable letter of credit bearing No. HBL/CTG/060/BB/94 dated 22.11.1994 in favour of the Plaintiff for an amount of US Dollar 33,340/- (approximately Rs. 13,00,000/- = @Rs. 39.00 per US Dollar). The terms and conditions governing this letter of credit were stated in the said letter of credit itself. The original letter of credit provided that payment would be made within 120 days D.A basis for full invoice value of the shipment. The facts established are that the goods were shipped through the carrier, on 30-11-1994. However, the payment terms were subsequently amended on 12.01.1995 stating that the payment would be made on realization of export proceeds basis instead of 120 days D.A. basis. This was through a telex, addressed to the Plaintiff’s banker, with the stipulation that if the plaintiff did not confirm or deny, an amendment would be deemed to be accepted. The amendment (to the LC) was that payment would be 120 days after realization of export proceeds. Again, there is no dispute that the Plaintiff forwarded the documents in conformity with the terms of the letter of credit to its bank for negotiation. The Plaintiff’s bank under reference No. FOBC/6482 sent the documents for payment to the defendant bank. Despite several attempts on the part of the Plaintiff, the bank did not make the payment to it in terms of the credit. Due to the failure on the part of the bank to make the payment, the Plaintiff was forced to write to the High Commission of India to intervene in the matter. The plaintiff was constrained to cause legal notice to be issued; ultimately it instituted a suit (out of which the present appeal arises) before this Court, suing for the price of the goods shipped to the buyer.

4. The bank resisted the suit, stating that firstly that the buyer wrote to it (the bank) along with a letter from the third Respondent stating that the Plaintiff had agreed to a discount (agreed to accept USD 21,400/- instead of USD 33,340/-). It was further stated that the consignment which was received by the buyer from the Plaintiff had in turn been exported by it to Russia, but the proceeds had not been realized and that upon receipt of export proceeds, the bank would make the payment. The Bank also argued that with the amendment, that had been agreed to by the plaintiff and not objected to by the confirming bank, the terms of the letter of credit had been materially altered, in that payment became due only in the event of receipt of consideration from the purchaser of the goods (to whom the buyer had sold them). It was emphasized that this change in the terms of the credit, rendered it a contingent contract, in which payment depended upon the receipt o