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2010 Supreme(Mad) 3429
High Court of Judicature at Madras
ARUNA JAGADEESAN
Nippon Impex Corporation, Granite Exporters by its Proprietor R. Vijayarahavan & Others
Versus
M/s. Nestor Granite Handel GmbH & Co. by its Partners & Others
CS.Nos.1846 of 1993 & 726 of 1995
Decided On : 13-08-2010
For the Petitioner:R. Thiagarajan , R. Krishnaswami for Srinath Sridevan, Advocates.
For the Respondents:R. Krishnaswami, SC for Srinath Sridevan R. Thiagarajan, Advocates.
The issuing bank under an irrevocable LC is liable to pay the beneficiary upon presentation of apparently conforming documents, irrespective of any dispute between the parties as to whether the goods are upto the contract or not.
Headnote:
LETTER OF CREDIT - IRREVOCABLE - LIABILITY OF ISSUING BANK - DUTY OF BANK UNDER LETTER OF CREDIT - DISCREPANCIES IN DOCUMENTS - DUTY OF BANK TO EXAMINE DOCUMENTS - LIABILITY OF ISSUING BANK TO PAY BENEFICIARY - COUNTER CLAIM - RIGHT TO SET OFF - ORDER 2 RULE 2 OF CPC - APPLICABILITY - INTEREST ON DECRETAL AMOUNT - RATE OF INTEREST.
Fact of the Case:
Plaintiffs, granite stone dealers, entered into an agreement with the 1st Defendant, a foreign buyer, to export granite stones. The 1st Defendant opened an irrevocable Letter of Credit (LC) with the 4th Defendant Bank in favor of the Plaintiffs. The Plaintiffs exported the granite stones and sent three sets of documents, one to the 1st Defendant and the other two sets to their Bankers, Commerz Bank, Bremen, the 4th Defendant herein as per the terms of the LC. The 1st Defendant raised certain frivolous objections and failed to honor the documents. The Plaintiffs filed a suit for recovery of the amount representing the value of the goods sold and delivered to the 1st Defendant pursuant to the LC. The 1st Defendant filed a counterclaim seeking to recover an amount from the Plaintiffs based on a letter of undertaking executed by the Proprietor of the 1st Plaintiff Company, accepting the responsibility for paying the amounts as stated in the letter of undertaking.
Finding of the Court:
1. The issuing bank under an irrevocable LC is liable to pay the beneficiary upon presentation of apparently conforming documents, irrespective of any dispute between the parties as to whether the goods are upto the contract or not. 2. The duty of the bank under a LC is to examine with reasonable care all the documents presented in order to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit and if so, to pay to the seller/beneficiary by whom the documents have been presented the sum stipulated by the credit or to accept or to negotiate without recourse to drawers draft drawn by the seller/beneficiary if the credit so provides. 3. The bank's duty will be vitiated only if there was fraud on the part of the seller. 4. The bank cannot refuse to honor the LC, merely because there is a statement of material fact that was not accurate, although the documents presented were in conformity on their face with the terms of the LC. 5. The counterclaim is in the nature of a cross action and not merely a defence to the Plaintiff's claim. It enables a Defendant to enforce a claim against the Plaintiff as effectively as an independent action. 6. The right to set off or counterclaim arises out of the same transaction or out of transaction which are so connected in their nature and circumstances.
Issues: 1. Whether the Plaintiff is entitled for a decree as against the Defendants 1 to 3 jointly and severally for Rs.29,713.75 equivalent to Indian currency at the time of passing of decree being the value of 47.542 Cu.M? 2.Whether the Plaintiff is entitled for the money that has been realised by sale of the cut and dust granites covered by Invoice NO.006 dated 9.11.1993? 3.Whether the Plaintiff is entitled to claim interest at the commercial rate at 24% p.a. from the date of the supply till the date of actual payment? 4.Whether the defective supply of blocks by the Defendant has resulted in a loss to the Plaintiff? 5.Whether the Defendant is bound to indemnify the loss sustained by the Plaintiff in respect of supply of granite made by the Defendant either as agent or partner or the sole proprietor? 6.Whether the Plaintiff is entitled to the amount claimed as per the statement of account? 7.Whether the Plaintiff is entitled to interest on the outstanding at 15% p.a. from the date of the plaint till the date of realization? 8.Whether the Plaintiff is entitled to hold the amount deposited to the credit of CS.No.1846/93 against the Defendants liability to the Plaintiff? 9.Whether the Plaintiff is entitled to suit claim as prayed for?
Ratio Decidendi: 1. The discrepancies pointed out by the 1st Defendant in the documents were not major discrepancies and did not lead to a conclusion that the documents tendered by the Plaintiffs were not in accordance with the LC. 2. The 1st Defendant did not have any right to set off or counterclaim the amount claimed by the Plaintiffs as the claim made by the Plaintiffs was a separate transaction and it had nothing to do with the arrangement made in the letter of undertaking. 3. The 1st Defendant failed to establish that there was any defective supply of blocks, which resulted in a loss to the 1st Defendant, in so far as the suit transaction was concerned.
Final Decision: 1. The suit in CS.No.1846/1993 is decreed to the extent mentioned above and the suit in CS.No.726/1995 is dismissed. 2. The amounts available in Commerz Bank, Bremen, the 4th Defendant herein are directed to be repatriated to the funds of the 5th Defendant herein, Central Bank of India. 3. The Plaintiffs shall work out with the 5th Defendant Bank to claim the amount together with interest subject to the rights of Central Bank of India.
1. CS.No.1846/1993 is filed for a Judgement and Decree, (a) directing the Defendants 1 to 3 to jointly and severally pay the second Plaintiff (Transferee/Assignee of the first Plaintiff) 29,713.75 US Dollars (or its equivalent in Indian Currency at the time of payment) being the value of 47.542 Cu.M (214 M.T.) of cut and dressed granite dimensional stones of colour "GANGA" by accepting the sale documents sent by the first Plaintiff and honouring the transferable and irrevocable Letter of Credit given by the 4th Defendant Bank No.BRE 1006 34493 dated 15.7.1993 by crediting 29713.75 US Dollars to the credit of the second Plaintiff with the 5th Defendant Bank, (b) for permanent injunction restraining the Defendants 1 to 3 from in any way taking delivery of the cut and dressed granite dimensional stones of colour "GANGA" covered by Invoice No.006 dated 9.11.1993 without accepting the sale documents sent by the first Plaintiff and without paying the amount covered under the transferable and irrevocable Letter of Credit given by the 4th Defendant Bank No.BRE 1006 34493 dated 15.7.1993 viz. 29713.75 US Dollars (or its equivalent in Indian Currency at the time of payment) by crediting the said amount to the 2nd Plaintiff with the 5th Defendant Bank viz. Central Bank of India, Madras-6, (c) for permanent injunction restraining the shipping agent viz. the 6th Defendant herein from in any way delivering the cut and dressed granite dimensional stones of colour "GANGA" covered by Invoice No.006 dated 9.11.1993 without getting clearance from the Plaintiffs to the effect that the Defendants 1 to 3 have honoured the documents and paid the sum of 29713.75 US Dollars through Commerz Bank, Bremen, the 4th Defendant, payable to the Plaintiffs bankers viz. Central Bank of India, Mount Road, Madras-6 the 5th Defendant and (d) for directing the Defendants to pay the costs of the suit.
CS.No.726/1995 is filed for a Judgment and Decree in favour of the Plaintiff against the Defendant for recovery of a sum of Rs.33,27,914.15/-together with interest at 15% p.a from the date of the plaint till the date of realization.
2. The plaint averments in CS.No.1846/93 are as follows:-
a. The Plaintiffs are dealing in the sale of granite stones in different colours to foreign buyers. The practice is that the foreign buyer will come to the Plaintiffs and give their requirements and the Plaintiffs will take them to their quarry site and the buyers will tell their requirements regarding the dimension and colour of the said goods. Thereafter, the Plaintiffs will settle the terms like consideration, delivery schedule, mode of delivery and the terms regarding opening of irrevocable Letter of Credit towards payment of sale consideration etc.
b. In one of such dealings, after mutual discussions, the 1st Defendant placed orders on the first Plaintiff for the supply of 47.542 cubic meters equivalent of 214 metric tonnes of granite stones at the rate of USD625 per cubic meter (Rs.31.38/- per cubic meter) amounting to the sale consideration of 29713.75 US Dollars equivalent to Rs.9,32,417. The 1st Defendant was represented by its Managing Partner, the 2nd Defendant herein, who placed orders at Madras with the 1st Plaintiff. It was agreed that the 1st Defendant will open a transferable and irrevocable Letter of Credit for the consideration of the granites, viz. the value of 29713.75 US Dollars in favour of the 1st Plaintiff. Accordingly, the 1st Defendant has opened a transferable and irrevocable Letter of Credit No.BRE.1006 34493 dated 15.07.1993 with their bankers, viz. Commerz Bank, Bremen, the 4th Defendant herein, stating that they have communicated the same to the bankers of the 1st Plaintiff, viz. Central Bank of India, Mount Road, Madras-6, the 5th Defendant herein.
c. Based on the said transferable and irrevocable Letter of Credit, the 1st petitioner has made arrangements for exporting blue granite of the description of "Cut and Dressed Granite Dimensional
