Jagson International Ltd. vs IDBI Bank Ltd.

Pradeep Nandrajog, J.—plaintiff had placed an order for supply of spare parts for Rig on M/s Southern Technology and Services Inc., a company incorporated under the laws of United States of America. The order is dated 28.6.2002. The supply order lists the value of the spares to be supplied at US 10,47,710.70. Supply order permitted shipment of the goods in lots. Term of payment between the plaintiff and the said M/s Southern Technology and Services Inc. required payment to be made by and under an irrevocable letter of credit to be opened on behalf of the plaintiff, beneficiary being M/s Southern Technology and Services Inc.

In compliance with the supply order, plaintiff proceeded to secure payment to the foreign supplier by requiring its bankers, the defendant, to open a letter of credit in favor of M/s Southern Technology and Services Inc. on 3.10.2002, plaintiff furnished to the defendant the necessary application for opening the irrevocable letter of credit in favor of M/s Southern Technology and Services Inc. in the sum of US 7,35,602. Terms and conditions of the irrevocable letter of credit to be opened were set out in the application form.

Acting under the request aforesaid, the defendant opened an irrevocable letter of credit on 14.10.2002 in favor of M/s Southern Technology and Services Inc. Letter of credit required description of the goods to be described as under :

''''Ship''s spares/stores for Rig Deepsea Matdrill Dubai Drydock, Dubai U.A.E. As per P.Order No.100430/02 dtd. 28.06.2002 and P.Order No.1002 dtd. 02.10.2002''''

It may be noted that the term of the Letter of Credit stipulated :''''confirmed, irrevocable and discountable 180 days deferred letter of Credit''''.

Vide letter dated 5.11.2002, plaintiff required the defendant to effect certain amendments in the letter of credit opened by it. Necessary amendments were carried out by the defendant in the letter of credit on 6.11.2002.

By and under the letter dated 5.11.2002, apart from other amendments to the letter of credit, plaintiff required an insertion to be made in the letter of credit, insertion being the addition of ''''Citibank NY'''' as the drawee bank (Field 42A), confirming bank (Field 49) and reimbursing bank (Field 53a).

Since it is relevant, it may be noted at this stage that as per the amendment to the letter of credit, Citibank NY had a multiple character being the drawee bank, the confirming bank as well as as the reimbursing bank. In other words, being the confirming bank at the instance of the plaintiff, prima facie, would bind the plaintiff by its actions under the letter of credit viz-a-viz. the beneficiary as well as the defendant herein.

As amended, vide letter dated 5.11.2002, letter of credit opened by the defendant, at the asking of the plaintiff, required the under-noted documents at the time of negotiation :

(i) Signed commercial invoice in duplicate.

(ii) Packing list in duplicate.

(iii) Copy of Airway Bill/Ocean Bill of Lading notifying master Deepsea, Matdrill C/O Jagson International Ltd., Dubai Drydock.

(iv) Certificate for American Bureau of Shipping that the parts being shipped by M/s Southern Technology and Services Inc. vide P.Order No.H-100430/02 dt. 28.6.2002 are of AB approved quality.

It is an admitted position between the parties that since part shipment was permitted under the supply order, part payment could be made under the letter of credit. Goods as per the supply order were supplied by M/s Southern Technology and Services Inc. to the plaintiff in 5 lots. After effecting shipment from the port of export, M/s Southern Technology and Services Inc. presented the documents for payment by negotiating the letter of credit. Payments were released under the letter of credit as far as the first four lots were concerned. plaintiff and the defendant have no problem on that account. Problem arose when the 5th and final lot was delivered to the plaintiff and negotiation of letter of credit was put into motion by M/s Southern Technology and Services Inc.

There is no dispute between the parties that on earlier four occasions when payments were claimed under the letter of credit, there were discrepancies in the documents presented at the time of negotiation of the letter of credit. plaintiff was informed of the said discrepancies. plaintiff waived/accepted/consented to the said discrepancies and permitted the bank to release payment under the letter of credit.

The final lot of goods as per the purchase order were supplied by M/s Southern Technology and Services Inc. on 31.12.2002. plaintiff admits that it received the said goods at Dubai. Subsequent to the dispatch of goods on 31.12.2002, M/s Southern Technology and Services Inc. sent the documents to the Citibank, NY, USA which was the negotiating/confirming bank for the release of US 1,54,072 being payable in respect of the goods supplied in 5th and final lot.

Citibank NY transmitted the documents to the defendant under the letter of credit on 16.1.2003.

Defendant noted the following discrepancies :-

(i) Certificate for American Bureau of Shipping being not as per clause 3 of the letter of credit.

(ii) Description of goods in the commercial invoice differed from purchase order.

(iii) Amount of commercial invoice differed from the value of goods in Airway Bill (AWB).

On 28.1.2003, defendant intimated Citibank NY the aforesaid three discrepancies and refused the documents for the discrepancies aforesaid.

Defendant also intimated the plaintiff that it had received the documents aforesaid. The plaintiff was required to provide instructions to the bank. On 28.1.2003 itself, the plaintiff informed the defendant that it was not in a position to accept the discrepancies.

On 5.2.2003, defendant returned the documents to Citibank NY.

There was exchange of communication between the defendant and the Citibank NY. Finally, matter reached a stage when Citibank NY issued a communication to the defendant on 10.4.2003 intimating as under :

''''A. CONTAIN SIMILAR CONTENT SHOWN IN OTHER DOCUMENTS THAT YOU HAVE HONORED WITHOUT QUESTION.

B. RELATE TO MERCHANDISE WHCH IS MORE THEN LIKELY BEING USED BY YOUR CUSTOMER IN RELATION TO THE UNDERLYING TRANSACTION. IN LIGHT OF THE ABOVE WE FEEL THAT THERE IS NO SUBSTANTIAL REASON FOR PAYMENT TO BE DENIED TO US, FOLLOWING OUR TAKING UP DoCUMENTS, ON YOUR BEHALF, WHICH TRULY COMPLY IN GENERAL TO YOUR LETTER OF CREDIT TERMS AND CONDITIONS. SINCE WE, ON YOUR BEHALF, INCURRED AN ACCEPTANCE, WHICH IS DUE TO MATURE ON THE DATE OF JULY 7, 2003, WE SHALL BE HONORING THAT COMMITMENT AND IN TURREIMBURSE OURSELVES BY MEANS OF A DEBIT TO YOUR ACCOUNT MAINTAINED WITH US IN ACCORDANCE WITH YOUR LETTER OF CREDIT.''''

It would be instructive at this stage to note the three discrepancies in the documents.

The certificate issued by the American Bureau of Shipping was not on the letter head of the said Bureau. However, the language of the certificate, certified in terms of the letter of credit.

As noted above, second discrepancy was that the description of the goods in commercial invoice differs from that as given in the purchase order. Description of the goods in the commercial invoice, described the goods :

''''Ship''s spares/stores for Rig Deepsea Matdrill Dubai Drydock, Dubai U.A.E. As per P.Order No.100430/02 dtd. 28.06.2002 and P.Order No.1002 dtd. 02.10.2002''''

Description of goods as per the letter of credit is as noted in para 3 above.

It may be noted that there is no discrepancy in the description of goods in the commercial invoice viz-a-viz the letter of credit. As stated by learned counsel for the parties at the bar, actual dispute was that the purchase order detailed a packing list which, as per the plaintiff, ought to have found mention in the commercial invoice.

Submission made by counsel for the defendant was that the negotiation of the letter of credit required description of goods in the commercial invoice to conform to the letter of credit and no more. Further submission made was that the Uniform Customary Practice (UCP-500) required broad description of the goods.

Third discrepancy, was the difference in value of the goods in commercial invoice and the airway bill. Value of the goods as per the commercial invoice was US 1,54,072. As per the airway bill, declared value of the goods was US 1,53,632.

Submission made by learned counsel for the defendant was that due to freight, insurance and other charges, there could be a minor variation in the declared value in the commercial invoice and the airway bill. He argued that this was permissible under UCP-500. Further submission made was that the airway bill serve the predominant purpose, being that of transportation and a document of title to receive the goods and was not in the nature of a demand for the price of the goods, which demand had to be in terms of commercial invoice.

On 10.4.2003, Citibank NY paid the sum of US 1,54,072 to M/s Southern Technology and Services Inc. and debited the account of the defendant. In turn, defendant raised a demand for said sum upon the plaintiff and sought to debit the plaintiff''s account in the said sum.

At that stage, plaintiff filed the present suit praying for a declaration in its favor and against the defendant that the demand of US 1,54,072 be declared to be illegal and void and as a consequence, permanent injunction was prayed against the defendant restraining it from realizing the said sum from the plaintiff.

As noted above, plaintiff has admitted in the suit (refer para 23 of the plaint) that it received the goods in Dubai. It is, however, stated that the goods were found to be defective and this was pointed out to M/s Southern Technology and Services Inc.

It is further the case of the plaintiff that it has not received back the goods which were handed over for repairs to M/s Southern Technology and Services Inc. at its appointed workshop M/s Lamprell Dubai.

Mr. Prag Tripathi, learned senior counsel for the plaintiff urged that the defendant itself noted three discrepancies in the documents transmitted at the time of negotiation and acknowledged the said fact in its communication dated 28.1.2003 and, Therefore, the defendant is estopped from urging that there was no discrepancy or that the discrepancies were trivial.

On the facts noted above, plaintiff would not be entitled to any interim relief for at least three reasons.

Firstly, plaintiff accepted the discrepant documents and lifted the consignment from the port of destination on the basis of the documents furnished by M/s Southern Technology and Services Inc. Having accepted the documents and having received the goods, plaintiff would be precluded from questioning the validity of the documents or from questioning compliance with the letter of credit. That the goods which were received were defective and were returned by the plaintiff for repairs in an issue unrelated to the payment to the supplier under the letter of credit.

Second reason as to why the plaintiff would not be entitled to an injunction against the defendant is that name of Citibank NY was incorporated in the letter of credit at the asking of the plaintiff and as noted in paras 6 and 7 above, at the asking of the plaintiff. Amendment to the existing letter of credit was at three places pertaining to addition of the name of Citibank NY. The said bank became the ''drawee bank'', ''confirming bank'' and ''reimbursing bank''. Being the confirming ban at the instance of the plaintiff, actions of Citibank NY would prima facie bind the plaintiff viz.-a-viz. the defendant in respect of the letter of credit.

The third reason as to why the plaintiff would not be entitled to an interim injunction would be for the reason that the alleged discrepancies are no discrepancies in the eyes of law. De minimis principle requires law to ignore trivial in fractions. Three discrepancies were pressed in aid by the learned counsel for the plaintiff. The first pertain to the certificate issued by American Bureau of Shipping. As noted in para 19 above, language of the certificate, certifies in terms of letter of credit. It may not be on the letter head of the American Bureau of Shipping. But terms of the letter of credit did not require the certificate to be on the letter head of the American Bureau of Shipping.

Second discrepancy pertaining to description of goods differing in the commercial invoice viz-a-viz the purchase order is no discrepancy for the reason that for the purpose of letter of credit, what was required, was the description of the goods in the commercial invoice being in conforming with the description in the letter of credit. Field 45A of the letter of credit required description of the goods to be as under :

''''Ship''s spares/stores for Rig Deepsea Matdrill Dubai Drydock, Dubai U.A.E. As per P.Order No.100430/02 dtd. 28.06.2002 and P.Order No.1002 dtd. 02.10.2002''''

Description of goods in commercial invoice has been noted in para 20 above.

Not only are two descriptions identical, it has to be noted in addition that details of goods may be stated in different ways and there is no legal requirement of mirror imaging. What has to be seen is, whether description of the goods collated together represents the description of the goods corresponding to that in the letter of credit.

The commercial invoice shows the value of the shipment as US 1,54,072 and the trade term as FOB Houma, LA USA. The declared value for custom in the airway bill shows the price as US 1,53,632.

Letter of credit does not stipulate that the value declared for customs in the airway bill, if any, should exact to the amount shown in the commercial invoice i.e. if the value in invoice is shown as FOB, the declared value in airway bill must also be FOB.

Value declared for customs in an airway bill may be EXW, FCA or anything else. There is no basis for comparison.

For the reason noted above, IA.No.6548/04 filed by the plaintiff is dismissed. Ex-parte ad-interim dated 29.9.2004 is vacated.

IA.No.8344/04 and 264/04

IA.No.8344/04 was filed by the plaintiff seeking a direction pertaining to the renewal of the bank guarantee furnished by the defendant to ONGC. Vide order dated 17.12.2004, orders were passed directing the defendant to renew the bank guarantee. Defendant renewed the bank guarantee but inserted a recital therein that the renewal was under orders of this Court. plaintiff filed IA.No.264/04 praying that since ONGC has an objection, defendant should delete the recital that it was renewing the bank guarantee under orders of this Court.

Problem with the renewal of the bank guarantee surfaced because the defendant was out of pocket to the extent of US 1,54,072 as Citibank NY had debited the account of the defendant in the said sum.

Since ex-parte ad-interim injunction obtained by the plaintiff has been vacated, plaintiff would be liable to pay the said sum of US 1,54,072 to the defendant. Defendant would be entitled to debit the account of the plaintiff in the said sum in respect of the amount lying with the defendant, credited to the account of the plaintiff with the defendant. No directions can, Therefore, be passed as far as these two IAs are concerned for the reason that it would be for the plaintiff to comply with the terms of the defendant pertaining to issuing of bank guarantee i.e. condition of providing margin money etc.

The two application are accordingly dismissed.