PKS Limited vs Uttara Bank Ltd.

Ruma Pal, J.—The Petitioner had entered into an agreement with the Respondent No. 3 in January 1996 under which the Petitioner agreed to sell rice to the Respondent No. 3. The Petitioner was to export the rice to the Respondent No. 3 at Bangladesh. Payment was to be made by the irrevocable Letter of Credit in favour of the Petitioner to be opened by the Respondent No. 3. The Respondent No. 1 is a Bank in Bangladesh. On January 16, 1996 it issued an irreevocable Letter of Credit in favour of the Petitioner on the application of the Respondent No. 3 for US $ 2,70,000. The Letter of Credit specified that the draft of the Petitioner was to be accompanied by several documents specified including ''Indian Application for export duly passed by Indian Customs, along with an Invoice certified by Bangladesh Customs. Sonamasjid, Nawabgonj duly accepted by importer/their authorised representative must accompany the original set of shiping documents''. The Letter of Credit also specified that ''Bill of Entry must be dated and negotiated within 30 days from the date of shipment''.

The rice was sent by trucks in instalments. The first instalment of 500 MT. was sent on January 19, 1996. According to the Petitioner they have received the payment under the said Letter of Credit without any Invoice being certified by the Bangladesh Customs. According to the Invoice by the Bangladesh Customs.

The subject matter of the present application relates to one of such instalments which was sent by truck under Truck Receipt dated February 13, 1996,

According to the Petitioner the documents were duly negotiated by the Petitioner with its banker being the Respondent No. 4. The Respondent No. 4 forwarded the documents to the Respondent No. 1 on April 4, 1996. The documents were received by the Respondent No. 1 on April 15, 1996. On the same date, the Respondent No. 1 sent a Telex message to the Respondent No. 4 stating that the documents received, had two discrepancies, viz.

1) that the documents (both original and duplicate) did not bear the certified invoice of Bangladesh Customs in terms of the Letter of Credit and

2) there was late presentation.

On the same date i.e. April 15, 1996 the Bank of Tokyo, the reapondent No. 2 was also informed by the Respondent No. 1 and requested to stop payment on the grounds that the documents negotiated were discrepant. On the same date the Respondent No. 1 also wrote to the Respondent No. 3 stating that it had received the shipping documents with the discrepancies noted above and requested the Respondent No. 3 to inform in writing whether the document was acceptable or not inspite of the said discrepancies.

By messages dated April 17, 1996 and April 30, 1996, the Respondent No. 1 wrote to the Respondent No. 4 stating that the documents had not been accepted by the Respondent No. 3 and that the documents were being held at the risk and responsibility of the Respondent No. 4. It does not appear that any response was given to these messages by the Respondent No. 4.

On May 11, 1996, the Respondent No. 1 wrote to the Respondent No. 3 requesting it to intimate whether the documents were acceptable. By letter to the Respondent No. 1 dated May 13, 1996 the Respondent No. 3 stated that he was not willing to accept the documents. This was communicated by the Respondent No. 1 to the Respondent No. 4 the next day. The Respondent No. 1 asked for ''disposal instructions'' within 10 days otherwise the documents would be returned at the risk of the Respondent No. 4.

The Respondent No. 4 replied through Telex mesage claiming that the document had been negotiated on February 4, 1996 but had been wrongly forwarded to the Respondent No. 4 on April 4, 1996. It is also stated that the Respondent No. 4 had advised the Petitioner to send the invoice duly certified by the Bangladesh Customs which on receipt would be forwarded to the Respondent No. 1. Request was also made for release of the payment against the export through the Bank of Tokyo in Calcutta. Such request was denied by the Respondent No. 1 by letter dated May 15, 1996 on the ground that the documents were discrepant and the discrepancies had not been accepted by the Respondent No. 3. On June 18, 1996 another Telex message was sent by the Respondent No. 1 to Respondent No. 4 asking for ''disposal instructions''. It does not appear that the Respondent No. 4 either replied to the Telex message or to the letter of May 15, 1996.

It is the Petitioner''s case that despite the alleged refusal on the part of the Respondent No. 3 to accept the documents negotiated by the Petitioner, the Respondent No. 3 obtained delivery of the consignment of rice. The Petitioner has relied upon a letter dated June 26, 1996 written by the Respondent No. 3 to the Petitioner with copies to the Commercial Attache, Indian High Commission in Bangladesh, a Manager of the Respondent No. 1 bank, the Superintendent of Customs Excise at Sona Masjid, Nawabganj as well as Dhaka Masjid. In the letter it is stated by the Respondent No. 3 that the shipment was in poor condition, underweight and non-consumable. The letter goes on to state that for this reason the documents could not be accepted against the consignment. The letter ends with the following sentence.

further note your exported goods are under the custody of Bangladesh Customs.

After a final request for disposal instruction by Telex by the Respondent No. 1 to the Respondent No. 4 on July 4, 1996 under cover of letter dated July 11, 1996 the original documents were returned to the Respondent No. 4 by the Respondent No. 1.

According to the Petitioner, in July 1996 it had filed a series of writ applications against, inter alia, the customs authorities of Bangladash in respect of the export of rice made by the Petitioner to the Respondent No. 3 or other concerns of the Respondent No. 3 carried on under different names and styles. In the writ applications the Petitioner prayed for a direction on the customs authorities to issue certified invoices on the basis of the entries made in the Bangladesh Customs Port Entry Registrar. The writ applications were dismissed by the Bangladesh High Court on the ground that although certification of the invoice by Bangladash customs was necessary in terms of a circular issued by Bangladesh Bank, the invoice ''like other import documents is to be submitted by the importer, and the importer not having submitted this documents with the Bill of Entry the question of certifying the qrginal invoice does not arise''. The judgment was delivered on March 3, 1997.

This suit was filed in May 1997 with leave under ci.12 of the Letters patent for -

a) Declaration that the Plaintiff duly invoked and is entitled to encash the letter of credit termed as Irrevocable documentary credit No. RAJ/06/96 dated 16th January, 1996 issued by the Defendant No. 1 as amended on 13th March, 1996 to get release of the value of 290.05 Metric Tonnes non-basmati fine rice sold, supplied, delivered and exported to the Defendant No. 3 between 30th January, 1996 and 13th February, 1996 to the tune of US $ 78,313.50;

b) Injunction restraining the Defendants and/or each one them and/or their agents, servants, assigns and/ or representatives from in any way withholding payment due to the Plaintiff under letter of credit being Irrevocable documentary credit No. RAJ/06/96 dated 16th January, 1996 as amended on 13th March, 1996 for the value of 290.05 M.T. non-basmati fine rice sold, supplied, delivered and exported to the Defendant No. 3 herein between 30th January, 1996 and 13th February, 1996.

c) Decree for US $ 94,070.60 as against the Defendants jointly or severally;

d) Interim and further interest and interest upon judgment at the rate to be fixed by this Hon''ble Court.

e) Attachment before Judgment.

This application was moved for diverse reliefs against the Respondents Nos. 1,2 and 3. Briefly stated the Petitioner has asked for payment in terms of letter of credit and for attachment of the Respondent No. l''s account with the Respondent No. 2 to the extent US $ 94.071.

On May 22, 1997 an ex parte ad interim orcer was passed restraining the Respondent No. 1 from operating or closing its bank accounts with Bank of Tokyo and Sonali Bank in Calcutta without retaining a sum US $ 94,794. An application was made by the Respondent No. 1 for vacating the ex parte order on June 23,-1997. In view of the urgency pleaded, by an order dated June 23, 1997 the application of the Respondent No. 1 was directed to be treated as the affidavit in opposition to the Petitioner''s application and liberty was granted to the Petitioner to file an affidavit-in-reply.

Although all the parties have been served both by the Petitioner as well as the Respondent No. 1, Respondents Nos. 2,3 and 4 have not chosen to file any affidavit in the proceedings nor have they been represented by Counsel at the hearing.

The basic issue is whether the Petitioner has been able to make out a prima facie case for the reliefs claimed. It is only if this issue is answered in the affidavit and in favour of the Petitioner that the further question of balance of convenience would be relevant.

In my judgment the Respondent No. 1 is correct in contending that the Petitioner has not been able to make out a prima facia case against the Respondent no,1. The law is too well settled to hold otherwise. The Courts have repeatedly held that ''the conditions of the credit must be strictly fulfilled, otherwise the seller would not be entitled to draw on it'' per Dening L.J: Pavia and Spa v. Thurmann Neilsen 1952 (2) Q.B. 84, 88. Approving the aforesaid statement of the law, the Supreme Court in Ellerman and Bucknall Steamship Co. Ltd. Vs. Sha Misrimal Bherajee,

As letters of credit are issued or opened on conditiona on which the request is made, the banker can only negotiate the shipping documents if the conditions are strictly complied with.

This view has been affirmed by the Supreme Court again in United Commercial Bank Vs. Bank of India and Others,

Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the terms of the paying or negotiating bank the beneficiary cannot claim against the paying bank and it is the paying bank''s duty to refuse payment.

It is both common ground and commonsense that in such a transaction the accepting bank can only claim indemnity if the conditions on which it is authorised to accept are in the matter of the accompanying documents strictly observed: There is no room for documents which are almost the same or which will do just as well. Business could not proceed securely on any other lines.

The Supreme Court also approved the several judicial decisions of other Courts which have held that if a party does not observe the terms and conditions under which the credit has become available and the documents submitted do not conform to the letter of credit. He has no cause of action against the bank and the bank on its part is duty bound not to pay.

In this case although there is some uncertainty whether the documents were negotiatad within the time specified, admittedly no invoice certified by Bangladesh Customs was submitted to the Respondent No. 1 by the Respondent No. 4 despite the specific requirement in the Letter of Credit. The submission that the Petitioner could not compjy with the condition because of the decision of the Bangladesh High Court gives a cause of action against the Respondent No. 3 but cannot impose any obligation on the bank to make payment because the Defendant No. 1 knows only the letter of credit which is the. only authority to act, and the documents which are presented under it. Had the documents conformed to the letter of credit it would have been bound to pay. If not it is bound not to pay.

It has been argued by the Petitioner that the bank was acting in collusion with the Respondent No. 3 as it was clear that the Respondent No. 3 had taken delivery of the rice. No such case of collusion has been made out in the petition nor is it even prima facie established from the documents on records. The letter dated June 26, 1996 shows that the goods are still with the Bangladesh Customs. The Petitioner has also relied upon a letter dated June 15, 1996 written by Maasraz Industrial in support of his submission that the Respondent No. 3 had received the goods. The letters of credit referred to in that letter are not the subject matter of the suit. Besides the letter does not show that the rice is in the custody of the Respondent No. 3. If the Respondent No. 3 is Maasraz Industrial and had wrongfully taken delivery of the rice, there would appear to be no question of asking for permission from the Petitioner to dispose of the same. Be that as it may, it would appear that the Respondent No. 3 is primarily liable to obtain the BDC. His refusal to do so may also be wrongful. But that does not give the Petitioner a cause of action against the Respondent No. 1.

The Petitioner then contends that the Respondent No. 1 had waived the condition relating to the BDC on the ground that it had made payment in respect of an earlier shipment under the same letter of credit without the BDC. This is not clear from the documents before this Court nor are the circumstances under which the payment may have been made for that shipment clear.

Assuming it to be so, nevertheless it cannot be held that the Respondent No. 1 can waive a condition under the letter of credit. The Respondent No. l''s case that the letter of credit was subject to the Uniform Customs and Practice for Documentary Credits (UCP)-500 has not been denied specifically by the Petitioner. UCP-500, inter alia, provides in Article 14 that if documents are discrepant the issuing bank, (in this case the Respondent No. 1) must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the credit. If the documents appear on their face not to be in compliance with the terms and conditions of the credit, the bank may refuse to take up the documents. If the issuing bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the credit it may in its sole judgment approach its constituent (in this case the Respondent No. 3) for waiver of the discrepancies. That is what has been actually done in this case. Where the constituent has refused to waive the discrepancy the bank cannot on its own waive it. The bank has the power to pay subject to limitations which are given and imposed by the letter of credit. If it keeps within the powers conferred it is protected in the payment of the draft. If it transgress this limitations, it pay at its peril.

Therefore on the basis of the settled legal principles and admitted facts, no injunction can issue against the Respondent No. 1. As held in United Commercial Bank v. Bank of India (Supra).

No injunction could be grand under Order 39, Rules 1 and 2 of the code unless the Plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case and, if so as between whom? In view of the legal principles applicable, it is difficult for us to say on the material on record that the Plaintiffs have a prima facie case.

Doubtless the Court''s power to grant relief u/s 151 in the interest of justice is unfettered vide Manohar Lal Chopra Vs. Rai Bahadur Rao Raja Seth Hiralal, Nevertheless those powers are not to be exercised when their exercise may be in conflict with what has been expressly provided in the Code of Civil Procedure. The Supreme Court had also held in this case (vide para 39) when there is a special provision in CPC for dealing with a particular contingency, recourse to the inherent powers under s.151 is not justified. The Petitioner in this case has sought to invoke the power of the Court under Order 38 Rule 5 of the Code of Civil Procedure. The case made out in the petition does not pass any of the tests culled out by Sinha-J. (as His Lordship then was) in Premraj Mundra Vs. Md. Maneck Gazi and Others, The allegation against the Respondent No. 1 in para 26 of the petition is wholly inadequate. What has been alleged is a ''strong possibility of the Respondent No. 1 shifting and/or transferring the said bank account beyond the reach of this Hon''ble Court, so as to defeat delay or extract recovery of the claim herein''. There is no transfer in fact. The intention to defeat the Petitioner''s claim in the suit has not been alleged. No basis in support of the strong possibility has been shown. In fact the Respondent No. 1 had returned the documents almost a year before the suit was filed and the application made by the Petitioner. It is not alleged that during this period the Respondent No. 1 had acted in a manner justifying the exercise of powers under the provisions of the Order 38 Rule 5 of the Code.

Even on the question of baiance of convenience, I am not prepared to hold that the injury that may be suffered by the Petitioner will outweigh that of the Respondent No. 1 if the injunction is not continued. It may be true that the Respondent No. 1 has no other asset within the jurisdiction of this Court, nevertheless to continue the injunction would be to hamper the very functioning of the Respondent No. 1 and its normal banking transactions, a course which should not be adopted except in the clearest of cases.

For the reasons aforesaid the application of the Petitioner against the Respondent No. 1 is dismissed. The interim order is vacated.

There will, however, be no order as to costs.

Stay is granted for and the same is granted for a period of seven days from date.

Let a xerox copy of the judgment duly signed by the Assistant Registrar of this Court be given to the parties upon their undertaking to apply for certified copy of the judgment and on payment of usual charges.