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2013 Supreme(Mad) 1929
HIGH COURT OF JUDICATURE AT MADRAS
T. RAJA, J.
State Bank of India Overseas Branch, Chennai
Versus
The General Mercantile Overseas Corporation By Proprietor Gajanan Prasad, Chennai
Second Appeal No.207 of 2005
Decided on: 10-06-2013
For the Appellant:K. Sankaran, for D. Mukundan, Advocates.
For the Respondent:P. Vasudevan, for M/s. Malini & Mangai, Advocates.
.
The negotiation of the bill under reserve against the Letter of Credit, liability of the banker, and the responsibility of the exporter were central legal points established in the judgment.
Headnote:
Letter of Credit - Negotiation - Negotiable Instruments Act 1881, Uniform Customs, Law of Banker's Commercial Credits - The court discussed the negotiation of the bill under reserve against the Letter of Credit, liability of the banker, and the responsibility of the exporter. It emphasized the importance of examining documents and the right of recourse for the negotiating bank. The court found that the negotiation was not subject to the letter of indemnity and that the liability and responsibility of the exporter ceased once the materials were exported and bill negotiated against LC received in his name from the foreign buyer. The technical words like 'no recourse' did not bind the banker which negotiated the bill tendered by the exporter against Letter of Credit.
Fact of the Case:
The plaintiff, an export firm, entered into an agreement for supply of goods to a foreign buyer through an irrevocable letter of credit. After negotiation and acceptance of documents by the defendant bank, the foreign bank refused to accept the documents, leading to a dispute over liability and recourse.
Finding of the Court:
The court found that the negotiation was not subject to the letter of indemnity and that the liability and responsibility of the exporter ceased once the materials were exported and bill negotiated against LC received in his name from the foreign buyer. The technical words like 'no recourse' did not bind the banker which negotiated the bill tendered by the exporter against Letter of Credit.
Issues: The issues involved the liability of the negotiating bank for defects in the bill, the role of the banker as an agent, the responsibility of the exporter, and the applicability of technical words like 'no recourse' to the negotiating bank.
Ratio Decidendi: The negotiation was not subject to the letter of indemnity, and the liability and responsibility of the exporter ceased once the materials were exported and bill negotiated against LC received in his name from the foreign buyer. The technical words like 'no recourse' did not bind the negotiating bank.
Final Decision: The Second Appeal was dismissed, confirming the judgments and decrees of both the Courts below.
1. The appellant bank before this Court was the defendant before the trial court against whom both the courts below have decreed the suit filed by the plaintiff/respondent herein for a sum of Rs.1,26,650.65/-with interest at the rate of 6% along with costs on the ground that the irrevocable letter of credit was opened in his favour by the Bank of Baroda, London only after negotiating the documents called for in the credit with the defendant State Bank of India and the defendant bank also accepted the documents and thereupon credited the value of bill of exchange to their current account with a sum of Rs.80,664.40 on 27.11.1980. This was also on yet another basis that once the negotiation was completed the matter comes to an end so far as the plaintiff is concerned.
2. Brief facts leading to the filing of the present Second Appeal are given as under:
(i) The plaintiff/respondent is an export firm engaged in the export of Handloom Textiles and other General Merchandise for several years. Whileso, the plaintiff entered into an agreement for supply of certain quantity of Real Madras Hand Kerchiefs to M/s Optimistic International Company in Catonou Republic of Benin through the confirming House-M/s Hari Om Impex Ltd., London. On the basis of the above agreement, the confirming house, namely, Hari Om Impex Limited, London opened an irrevocable letter of credit No.61922 dated 16.10.1980 "without recourse" in favour of the plaintiff through the Bank of Baroda, London. The above irrevocable letter of credit dated 16.10.1980 mentioned that the drafts are to be accompanied with commercial invoice, certificate of origin, full set signed clean on-board Oceal Bills of Lading and order of Bank of Baroda, etc., evidencing current shipment of merchandise and packing list and it further stipulated that the Bills of Lading must be dated not later than 25.11.1980 but not prior to the date of this Credit and the Bill of Exchange must be dated and negotiated not later than 02.12.1980 and it also specifically prohibited transhipment. When the letter of credit advised by the opening bank, namely, Bank of Baroda, London also contained certain additional conditions stating that the negotiating bank-defendant/appellant herein should forward drafts and all documents negotiated directly to them with the certificate from the negotiating bank that the terms of the credit have been complied with, because on receipt of the documents they shall reimburse the negotiating bank for the draft amount in terms of Letter of Credit. Only after the receipt of the above letter of credit, the plaintiff/respondent started processing the goods as per the agreement. In the meanwhile, the plaintiff also received a cable dated 21.11.1980 from the Opening Bank-Bank of Baroda, London through the Bank of Baroda, Madras carrying amendment to the original letter of credit dated 16.10.1980 stating that the clause regarding Bills of Lading to be substituted by goods to be despatched by Air Flight and Air Way Bill evidencing despatch day and flight number to be made out, again making one more clause, that the negotiations restricted to Bank of Baroda is deleted. In view of that the plaintiff/respondent prepared Invoice Bill No.9041 dated 24.11.1980 in the name of Hari Om Impex Ltd., complying with all the other necessary formalities as per the letter of credit dated 16.10.1980, and the amended cable dated 21.11.1980 and finally handed over the goods to let Air Transportation (P) Ltd., through Leuimir Air Express for the purpose of transporting the consignment view Air Way Bill No.057-9884 5003 dated 25.11.1980.
(ii) Since the plaintiff had several transactions with the defendant bank and it also got negotiated documents through them prior to the suit transaction, the defendant bank also sanctioned Export Packing Credit to the limit of 1.50 lakhs and Foreign Documents Bill Credit under letters of Credit to the limit of Rs.3 lakhs for the purpose of export of Real Madras Hand-
