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Judgment
M. Sathyanarayanan, J.—The suit was originally filed praying for declaration that the purchase order dated 24.05.1999 made by the plaintiff
with the third defendant in Germany has been duly and validly cancelled and for permanent injunction restraining the first defendant from calling
upon the plaintiff to retire the documents pertaining to the Letter of Credit dated 27.08.1999 and make payment there for in pursuant to the first
defendant''s letter dated 12.07.1999 (mistake for 12.08.1999) and for costs. Thereafter, an Application for amendment of the plaint was filed and
the first defendant herein has not filed his counter and ultimately the said Application was ordered. Thereafter, the following prayer came to be
included in the plaint:
(b) direct the first and third defendants jointly and severally to pay a sum of Rs. 45,00,000/- paid by the first defendant to the third defendant in
pursuance to the Letter of Credit together with interest @ 18% p.a. from the date of invocation of the Letter of Credit i.e. on 27.08.1999, till the
date of realisation;
(c) direct the first and third defendant jointly and severally to pay a sum of Rs. 15,00,000/- towards damages and expenses from the date of
determination till the date of realisation @ 6% p.a.;
Prior to the amendment of the plaint, the first defendant has filed its written statement and defendants 2, 3 and 4 have not chosen to enter
appearance and did not file their written statement.
As per the averments made in the original plaint, it is averred that the plaintiff is engaged in several industrial activities to cater to the need of the
various Government departments besides the public and in the course of its commercial activities, the plaintiff undertook the work of printing of bus
tickets for various transport corporations of Tamil Nadu. Since the existing machinery was found insufficient to print and number large volume of
tickets entrusted by the various Transport Corporations of Tamil Nadu and with a view to meet that requirement, the plaintiff has placed orders
with the third defendant for supply of Numbering Machines for printing machinery and spare parts as per their Mumbai Office offer dated
27.4.1999. The said machinery is to be fitted with Web Offset Printing Machine for the value of DM 64053 which works about Indian currency
value of Rs. 16.00 lakhs (approximately). The plaintiff placed a Letter of Indent on 30.04.1999, which was faxed on 03.05.1999 with the foreign
supplier through its Indian office at Mumbai - the fourth defendant. The order was placed in terms of the proforma invoice sent by the foreign
supplier who is arrayed as the third defendant.
The plaintiff further averred that an Application for opening the Letter of Credit was made by the plaintiff on 26.05.1999 to the first defendant
Bank, clearly indicating the nature of the goods as per proforma invoice and also stipulating the last date of expiry for the purpose of shipment as
6.07.1999. The Letter of Credit was opened on 27.05.1999 and one of the clauses of the said document clearly stipulates that the last date for
shipment as 06.07.1999 and it was made subject to UCPDC 1993 (Revision-I-CC No. 500). The last date for shipment was fixed as
06.07.1999 taking into account number of ticket books to be printed and numbered which is about 190 lakhs ticket books.
Since the foreign supplier has not despatched the goods in terms of the Letter of Credit dated 27.5.1999, the plaintiff on the evening of
6.7.1999 cancelled the purchase order and communicated the same by fax to the foreign supplier and also to its Indian Office at Mumbai (4th
defendant) on 6.7.1999 and even prior to the sending of fax, the plaintiff, on number of occasions called upon the 4th defendant to intimate the
stage of its readiness to despatch the goods before the date i.e. 6.7.1999 stipulated in the Letter of Credit. But there was no reply from the 4th
defendant.
It is further averred in the plaint that on 12.07.1999 an intimation was received from the second defendant wherein it was noticed that the
Master Airway Bill was dated 07.07.1999 and the House Airway Bill also dated 07.07.1999 with regard to the flight No. G.A2 9026 dated
11.07.1999, enclosing the House Airway Bill alone and however, the Master Airway Bill was not sent though it has been indicated in the Cargo
arrival notice sent to the plaintiff. The plaintiff contacted the second defendant and got a copy of the Master Airway Bill which showed that the
goods were entrusted to the Airliner of the foreign supplier only on 07.07.1999 and it also bears the Customs Seal of the Exporting Country which
constitute the shipping document. The Master Airway Bill further disclosed that the Cargo had actually left on 10.07.1999 which is in contravention
to the terms of the Letter of Credit wherein it has been clearly stipulated that the last date for shipment is 6.7.1999. Therefore, the plaintiff had
cancelled the purchase order for the Numbering Machines in view of the breach committed by the Foreign Supplier.
The plaintiff further averred that the first defendant''s bank insisted to retire the Bill by making necessary payment since the plaintiff had already
got overdraft facilities with the first defendant bank and the equivalent of Indian Rupee of DM 64053 has already been set apart in the said
account, as per the terms of the Letter of Credit. The first defendant insisted the plaintiff to agree for making necessary payment to the Foreign
supplier to enable them to debit the value of the machinery in the account of the plaintiff with them. The plaintiff sent replies dated 06.07.1999,
07.07.1999, 13.07.1999, 19.07.1999, 22.07.1999, 23.07.1999, 29.07.1999, 10.08.1999 and 12.08.1999, justifying its action in cancelling the
purchase order and also refusing to make the payment or allowing it to debit the above said sum in the overdraft facilities.
The plaintiff specifically contended that the proforma invoice sent by the Foreign supplier was specifically made part of the Letter of Credit. The
first defendant in its letter dated 21.07.1999 also pointed out that the description of goods differ from the terms of Letter of Credit as per the
proforma invoice dated 05.05.1999. The plaintiff further contended that the goods were not despatched in time as per the terms of Letter of
Credit. Apart from that, it is not tallying with the description given in the proforma invoice. In spite of the said fact, the first defendant vide its letter
dated 12.07.1999 has called upon the plaintiff to retire the Bill against the payment. Therefore, the plaintiff was constrained to file the suit for
declaration and for permanent injunction.
The first defendant filed its written statement contending that as per the request made by the plaintiff under the Irrevocable Letter of Credit on
27.05.1999 for DM 64,053 favouring the third defendant for supply of Numbering Machines for printing machinery and spare parts and the
plaintiff cancelled the purchase order on the alleged breach committed by the third defendant. It is further contended by the first defendant that an
Irrevocable Letter of Credit cannot be cancelled unilaterally and in response to the communication sent by the plaintiff, they forwarded the
objections to its Overseas Bank and as per their reply, the objections raised by the plaintiff were found to be untenable under the Uniform Practice
for Documentary Credit 1993 Revision No. 500 (UCPDC No. 500), which is the basis for the International Settlement of Bills under the
Documentary Credit. Accordingly, the first defendant sent a reply to the plaintiff stating that the discrepancies pointed out by the plaintiff are not
material/valid enough for rejection of documents and that the Letter of Credit being an Irrevocable one, it has to be honoured strictly based on
merits. The first defendant also informed the plaintiff vide its letter dated 25.08.1989 stating that it would be making the payment under the Letter
of Credit by debiting account of plaintiff and accordingly the payment was effected on 27.08.1999 by debiting the account of the plaintiff
equivalent to the Indian currency value of Rs. 15,03,373/- which included commission and other charges.
The first defendant further averred that the bankers are concerned only with shippers copy of Airway Bill which is dated 06.07.1999 and it is
in no way concerned with the dates mentioned in the consignee copy or any other related document as per Article 27A of UCPDC. The first
defendant reiterated that since the document is an Irrevocable Letter of Credit, the bank is under obligation to honour its payment and therefore,
prayed for the dismissal of the suit.
After the plaint was amended, on November 2004, the first defendant filed its additional written statement on February, 2007.
As per the amended plaint, the plaintiff contended among other things that in view of the fact that after the filing of the suit, the first defendant
has paid the entire amount to the fourth defendant by debiting the account of the plaintiff and also charged interest on the said amount, it was
constrained to seek for amendment. It is further averred that the fourth defendant ought to have despatched the goods on or before 06.07.1999
and it was not despatched on that date. The first defendant on receipt of documents from the third defendant, has written a letter dated
21.07.1999 informing the plaintiff that it had noted certain discrepancies in the document with that of the Letter of Credit. In the said letter dated
21.07.1999, the plaintiff has pointed out the said discrepancies and the first defendant by way of reply specifically stated that the plaintiff should
communicate its decision on accepting the documents within 24 hours on receipt of the said letter and if no such reply is received, the first
defendant will construe that the plaintiff is willing to accept the documents and payment will be made to the fourth defendant. The plaintiff in
response to the letter dated 21.07.1999 received from the first defendant, has sent a reply dated 22.07.1999 stating that there is a major deviation
from the proforma invoice of the supplies made by the third defendant and hence it is refusing to take delivery of the consignment and further
requested that not to honour the Letter of Credit and not to release any payment to the fourth defendant. The plaintiff further averred that the first
defendant has committed a serious error in not forwarding the proforma invoice along with the Letter of Credit to the foreign suppliers and that is
why it had written a letter dated 21.07.1999 to the plaintiff specifically pointing out that the documents received from the fourth defendant grossly
differs from the specification given by the plaintiff in the proforma invoice dated 05.05.1999.
The plaintiff further averred that in the Application for injunction filed in this suit, notice was ordered and after effecting service of notice on the
first defendant, and in spite effecting service of notice on the first defendant, it honoured the Letter of Credit by making payments to the foreign
suppliers by debiting the account. Therefore, it was constrained to amend the plaint by including the relief of B and C, i.e., for recovery of sum of
Rs. 45 lakhs with interest and also for damages for Rs. 15 lakhs.
The first defendant had filed its additional written statement after the commencement of trial. As per the additional written statement, the first
defendant averred that the plaintiff was explained about the decision of the bank and the circumstances under which the payment was made under
Letter of Credit. It is further averred by the first defendant that events happened subsequent to the filing of the suit cannot be the subject matter of
the suit and the plaintiff ought to have withdrawn the suit and instituted a fresh suit based on the fresh cause of action. It is further contended by the
first defendant that the claim is time barred and therefore, the action cannot be brought within the ambit of the present suit.
The first defendant further contended that the Irrevocable Letter of Credit has to be acted upon and honoured and if at all the plaintiff has any
grievance with regard to the non-compliance of the terms of the contract by the third defendant, or breach of any conditions, it has to seek relief
only against the third defendant and no claim against the first defendant is sustainable.
The plaintiff filed a reply statement to the additional written statement contending among other things that once the first defendant has pointed
out the discrepancies in the machineries which landed in India, it ought to have waited for the orders passed by this Court in the Application for
injunction. As regards the contention raised by the first defendant that the claim is barred by limitation, the plaintiff contended that once amendment
of plaint is ordered, it date backs to the original date of the suit and therefore the cause of action will survives. It has been once again reiterated by
the plaintiff in the reply statement that the first defendant ought not to have honoured the Letter of Credit in view of the discrepancies pointed out
by the first defendant itself.
This Court on the above pleadings has framed the following issues for consideration:
Whether the purchase order dated 24.05.1999 issued by the plaintiff on the third defendant has been duly and validly cancelled on 06.07.1999
by the plaintiff?
Whether the first defendant was justified in paying the amounts in pursuance to the letter of credit, especially when the machinery supplied by the
third defendant was not in line with the purchase order and this fact was brought to the knowledge of the plaintiff by the first defendant, and which
basis the contract was cancelled by the plaintiff?
Whether the plaintiff has any right to cancel the letter of credit, when the machinery to be supplied was not in line with the purchase order dated
24.05.1999 issued by the plaintiff?
Whether the defendants are jointly and severally liable to pay a sum of Rs. 45,00,000/- the amount paid by the first defendant to the third
defendant in pursuance to the Letter of Credit on the basis of the invocation of the Letter of Credit dated 27.08.1999 with interest?
Whether the first and third defendant are jointly and severally liable to pay a sum of Rs. 15,00,000/- towards damages and expenses from the
date of determination of this Hon''ble Court till the date of realisation with interest at 6%?
Whether the plaintiff is entitled to the cost of the proceedings?
To what reliefs, the parties are entitled to?
In the trial, on behalf of the plaintiff (PW1) who was working as the manager in the Plaintiff company was examined as P.W.1 and the former
Accounts Officer of the plaintiff was examined as P.W.2 and Exs. P1 to P38 were marked on the side of the plaintiff. On the side of the first
defendant, the Manager working in the Guindy Branch of the first defendant Bank was working as D.W.1 and the Senior Manager of the Guindy
Branch of the first defendant Bank who worked in that capacity between 1997 and 2002 was examined as D.W.2. On the side of the first
defendant Exs. D1 to D7 were marked.
It is enough to refer some of the documents filed by the plaintiff and the first defendant for adjudication of the issues.
Ex.P 2 is the letter dated 27.04.1999 sent by the fourth defendant to the plaintiff, wherein it has been stated that after negotiations, the fourth
respondent offered revised rates in respect of machineries to be supplied on DM 64053. It has been further indicated in the said document that the
origin of shipment at West Germany and the time is 4 to 5 weeks from the date of letter of indent and subject to Letter of Credit in one week and
the payment is 100% Irrevocable Letter of Credit in favour of the third defendant.
Ex.P 4 is the letter dated 30.04.1999 sent by the plaintiff to the fourth defendant placing indent for supply of the machineries. In the said
document, it has been indicated that delivery is to be effected within five weeks and the regular purchase order and opening of Letter of Credit will
follow on receipt of the proforma invoice from the fourth defendant and the fourth defendant was also called upon to confirm their acceptance.
Ex.P 4 is the vital document according to the plaintiff and it is a proforma invoice emanated from the third defendant to the plaintiff. A perusal of
the said document would disclose that it is dated 05.05.1999 and the machineries are to be sent by consolidated Air Freight via Messrs. MSAS
Cargo International GMBH at Stuttgart Airport and through Letter of Credit. Following are the list of machineries to be supplied to the plaintiff
under the said document:
NUMBERING MACHINES FOR PRINTING MACHINERY AND SPARE PARTS:
Case gross weight: approx.38,700 kg.
No. I net weight : approx.33,600 kg.
LEIBINGER-numbering cylinder compl. 17.39
(440mm), split and divided lengthwise, approx.
600 mm long, with 5 guide ways 87 x 4 x 92
mm around, bore 45 mm keyway, compl. with
clamping gib; .. 1
and:
LEIBINGER-special rotary-numbering machines
model 420 SF, straight and flat base design, in
special case 35 mm long, 6-digits, backward,
Roman engraving No. 217, center 3.17 mm, fixed
zeros, with direct drive on the swing .. 85
directing rods slotted .. 7
clamping levers with roll without pin, prefix .. 7
idem, unit .. 7
bearing trestles for bearing of the directing rods .. 10
cams 17.39"" RH, split,
center distance: 90,075 mm
bore: 25 mm
keyway to be specified .. 2
1 Carton, gross weight approx. 19,000 kg.
No. II net weight approx. 12,100 kg
LEIBINGER-special rotary numbering machines,
model 420 SF. straight and flat base, in case
44,96 mm long, 7-digits. backward, Roman
ongraving No. 217, center 3.17 mm. fixed zeros,
with direct drive on the swing, with skip
Pos.7 = figure wheel 11-div. and low blank .. 55
In the second page of the said document the value of the machinery is fixed at DM 64,053 and the origin is from West Germany and the delivery
time is 5 weeks after the receipt of the firm order - resp. the Letter of Credit.
Ex.P 5 is dated 24.05.1999 sent by the plaintiff to the third defendant, whereby they confirmed the purchase order against their office letter
dated 30.4.1999 marked as Ex.P 3. As per Ex.P 5, the delivery time has been fixed within four weeks from the date of their office letter.
Ex.P 6 is the Application & Agreement for Irrevocable Letter of Credit submitted by the plaintiff to the first defendant. The contents of the
Ex.P 6 would disclose that the advised Bank is Deutsche bank AG at Tuttlingen and the beneficiary is the third defendant. The shipment date has
been fixed as 06.07.1999 and the negotiation date is fixed as 20.07.1999. Clause No. 1 states as follows:
Signed Commercial Invoice in Three copies for value not exceeding the draft amount quoting Import licence No. ...Proforma Invoice No. 2407
Dt.05.05.1999 and certifying goods are as per order/indent No. ...and covering Numbering Machine for printing Machinery and spare parts as per
(proforma invoice).
It has been further indicated in Ex.P 6 that the Airway Bill for air consignment must indicate flight number and date. As per clause No. 8 of the said
document the shipment despatched should be effected from Stuttgart Airport to Chennai Airport via through the second defendant. The plaintiff
herein has also agreed that the Credit will be subject to the Uniform Customs and Practice for Documentary Credit (1983 Revision) ICC
Publication No. 400. Clause No. 14 of Ex.P 6 would indicate that the documents viz., Order together with the order of confirmation of overseas
supplier or the Proforma Invoice of the overseas supplier duly countersigned by them and indent/offer from overseas or their authorised agent
together with the exchange.... copy of the relative import licence have also been enclosed at the time of submission of Ex.P 6 to the first defendant.
Ex.P 7 is the Letter of Credit. In Clause 4 of Ex.P 7 it has been stated as follows:
Text block:
27 - Sequence of total 1/2 .
40A - Form of documentary credit -Irrevocable
31C - Date of issue :27.05.1999
31D - Date and place of expiry : 20.07.1999, Germany.
51 - Applicant - Bank - D1
50 - Applicant - Plaintiff
59 - Beneficiary - Third defendant
42C - Draft at - Sight
44A - Loading on board - Stuttgart Airport
44B - For transportation - Chennai Airport
44C - Latest shipment date - 06.07.1999
45A - Description of goods and/ or services:
Numbering machines for printing machinery
and spare parts as detailed in the proforma
invoice 2407 dated 05.05.1999 (Ex.P 4)
48 - Period for presentation:
documents to be presented within 15 days from the
date of shipment. But within the validity
of the Credit.
78 - Instructions to the paying/accepting/negotiating bank:
Upon receipt of required documents as per the terms of
Credit we shall effect payment as per negotiating
bank''s instructions.
72 - Sender to receiver information:
This credit is subject to UCPDC 1993 (Revision)
ICC No. 500. This shipper must be his representative
and no model conferment will follow.
47B - Additional conditions:
All documents must bear our ICC No. and date.
A transport document bearing a date of issuance
prior to that of the Credit is not acceptable.
Ex.P 9 is Tele Fax dated 06.07.1999 sent by plaintiff to defendants 3 and 4 by marking a copy to the first defendant. In the said document, it
has been stated that due to the failure on the part of D3 and D4 on the following aspects, the purchase orders placed by them on 24.05.1999 for
the supply of Numbering system and Machinery has been cancelled and therefore D3 and D4 were requested not to Airlift the Numbering system
and cylinder.
Under Ex.P 10, dated 06.07.1999 addressed to the first defendant, the plaintiff has stated that they have cancelled the order placed with the
third defendant due to failure on their part to supply the machine as per delivery schedule of the purchase order and as per their conditions and
consequently they requested the first defendant to withdraw the Letter of Credit issued in favour of the third defendant and stop payment against
the same and in the mean time, they shall produce the prescribed form if any for the cancellation of the Letter of Credit issued in the reference
second cited forthwith without honouring the same.
As per Ex.P 11, dated 07.07.1999, the plaintiff through fax message sent to D1, has stated that the third defendant has not executed the
Agreement and also not delivered the Numbering Machine as per the terms of their purchase order (Ex.P 5) and that it is further understood that
they have not airlifted the Numbering Machine on the due date on 06.07.1999 and hence the purchase order has been cancelled. Therefore, the
first defendant was requested not to release payment on receipt of the documents from the other side and without their consent.
Ex.P 12 is the cargo arrival notice/invoice of the second defendant and it is dated 12.07.1999. A perusal of Ex.P 12 would indicate that the
Master Airway Bill and House Airway Bill dated 07.07.1999 and the shipment date is 11.07.1999 through Alitalia flight.
Ex.P 13 is the Airway Bill issued by Alitalia flight. In Ex.P 13 it has been stated that the shippers name and address is MSAS"" Global Logistics
(Germany) GMBH, Station Frankfurt and the consignees name and address is given as Blue Skies Pvt. Ltd., Chennai and the Airport name and
city of despatch is stated MSAS Global Logistics (Germany) GMBH, Frankfurt (Main). It has been further indicated in Ex.P 13 that Airport
departure is Frankfurt and the Airport destination is Chennai and the flight/date is given as A2-9026/10.07.1999. One of the columns in Ex.P 13
would indicate that as per the accounting information A2-9026 landed on 10.07.1999. Ex.P 13 also bears the seal of the Germany customs
authorities and the said document was executed on 07.07.1999 at Frankfurt.
Under Ex.P 14, dated 13.07.1999, the plaintiff addressed a letter to the first defendant stating among other things that today (13.07.1999)
they have received Cargo arrival notice/invoice No. 79, dated 12.07.1999 from the second defendant and a perusal of the same would indicate
that the Way Bill is found to be dated 07.07.1999, whereas the consignment ought to have been airlifted on or before 06.07.1999 as per the
condition noted at 44C under Column No. 4 Text Block noted in the Letter of Credit(Ex.P .7). It is further stated in Ex.P 14 that the party has not
airlifted the items on 06.07.1999 and adhered to the deadline given in the said Letter of Credit and that there is variance in specifications noted at
page No. 2 of the party''s invoice booked in Carton No. 2 for item No. 6. In page No. 2 of Ex.P 14 itself, the difference between specification as
per the purchase order and in party''s invoice received from the carrier regarding the description of the machinery has been indicated. A perusal of
the said portion of Ex.P 14 would reveal that it should be in case 45mm long 7 digits backward counting, whereas as per the specifications
mentioned in the party''s invoice received from the carrier it has been 44.96 mm long 7 digits backward. Therefore the plaintiff under the said
document has stated that the consignment has not been airlifted as per the Letter of Credit(Ex.P 7) deadline date of 06.07.1999 and that there are
variations in specifications and as well as requested the first defendant not to honour the document and payment need not be released as already
requested by them. The plaintiff has specifically indicated in Ex.P 14 that if the bills are honoured in spite of the above letter, it shall be at their own
risk and the plaintiff shall not be liable.
Ex.P 15 is the letter dated 19.71999 sent by the plaintiff to the first defendant requesting them not to honour the Letter of Credit as they have
already informed the supplier they have cancelled the order and that they do not hold any liability as the goods stated to have been airlifted on
11.07.1999. Under Ex.P 15, the plaintiff has made it clear once again that even after Ex.P 15 letter, if the Letter of Credit is to be honoured by the
first defendant, they will be doing so at their own risk and the plaintiff will not held any liability whatsoever in the matter and requested for the co-
operation of the first defendant.
Ex.P 16, is the reply dated 21.07.1999 sent by the first defendant to the plaintiff and the contents of the same have been extracted below:
Referring to the above, we wish to inform you that we have received the relative documents drawn under the above captioned letter of credit. In
this connection, we wish to add that the airway bill is dated 06.07.1999 which is in accordance with the credit terms for the last date of shipment.
For your reference, we also enclose herewith the xerox copies of the Article 27 of UCP 500 which deals with the date of shipment for Air
Transport documents.
We also observe the following discrepancies in the documents received by us:
Beneficiary''s address differ from LC terms.
Description of goods differ from the LC terms as per proforma invoice No. 2407 dt.05.05.1999.
as per proforma invoice as per docs. received
a. 45mm keway compl 45mm keyway cpl
b. with direct drive on direct drive to
c. 17.39"" 17.39"" circ
d. cd 90.075mm cd 90.075"" 8mm slot
e. clamping lever clamp lever
f. special rotary numbering machines.
numbering machines
We request you to communicate to us your decision in accepting the above documents within 24 hours on receipt of this letter. Non receipt of the
above communication from your end within the stipulated time will be construed as your willingness to accept the documents and payment will be
made accordingly.
The said document would further indicate that according to the first defendant, that the Airway Bill is dated 06.07.1999 which is in accordance
with the credit terms for the last date of shipment and the first defendant has also enclosed Xerox copies of the Article 27 of UCP 500 which deals
with the date of shipment of Air transport documents. It is further stated in Ex.P 16 that the first defendant also observed the following
discrepancies in the documents received by them. It is pertinent to point out at this juncture that the first defendant has indicated that the description
of goods, differ from Letter of Credit terms as per the proforma invoice No. 2407 dated 05.05.1999 (Ex.P 4). It has been further stated by the
first defendant in Ex.P 16 as regards the description of machinery, found as per proforma invoice and as per the documents received, there are
discrepancies. As per the proforma invoice, the machinery to be supplied is ''special rotary numbering machines"" and as per the documents
received it is mentioned as ''numbering machines''. The first defendant under Ex.P 16 requested the plaintiff to communicate their decision in
accepting the above documents within 24 hours on receipt of their letter and non receipt of the above communication from them within the
stipulated time will be construed as their willingness to accept the documents and payment will be made accordingly.
Ex.P 18 is letter dated 22.07.1999 sent by the plaintiff to the first defendant. As per Ex.P 18, the plaintiff has stated that as per the letter of the
first defendant, there are major deviations and the document now received, do not adhere to the proforma invoice of the suppliers for which, the
plaintiff had taken Letter of Credit and some of the deviations have also been listed which also confirm the observations of the first defendant made
in their letter under Ex.P 16 dated 21.07.1999. Therefore the plaintiff has stated that in view of the variations pointed out, they refused to take
delivery of the consignment and requested the first defendant not to honour the Letter of Credit and not to release the payment. The plaintiff further
requested that the Open Cash Credit limit set apart for meeting the Letter of Credit may also to be released and added to their regular account for
their day-to-day operations.
Under Ex.P 19 dated 23.07.1999 sent by the plaintiff to the first defendant, they enclosed a Xerox copy of the Master Airway Bill (Ex.P 13)
dated 07.07.1999 at Alitalia and as per the said document, the original consignment booked to the carrier was only on 07.07.1999 and not as
06.07.1999 as stated by the third defendant and therefore, the first defendant was once again requested not to honour the Letter of Credit and not
to release the payment to them.
Under Ex.P 20 dated 29.07.1999 and under Ex.P 21 dated 10.08.1999 sent by the plaintiff to the first defendant, the plaintiff has stated that
no proforma invoice is enclosed with the Letter of Credit and it is not an integral part of Letter of the Credit, is not correct and based on the
proforma invoice only, the plaintiff have opened the Letter of Credit which in turn forms an integral part of the Letter of Credit. It has been further
stated in Ex.P 20, that the Master Airway Bill issued by the Airliner has not been sent to the first defendant and it appears to be purposeful and
that the perusal of Master Airway Bill available with the second defendant would reveal that he is only an agent of the supplier and the date of
receipt of goods by the Airliner was on 07.07.1999, which is in contravention to the terms of the Letter of Credit i.e. the latest shipment date
should be 06.07.1999 and it is a major deviation to the terms of the Letter of Credit regarding shipment date. Therefore, the plaintiff has indicated
that they are stick to their earlier decision to refuse to take delivery of the consignment and once again requested the first defendant not to honour
the Letter of Credit and not to release payment.
Under Ex.P 21 dated 10.8.1999, the contents of Ex.P 20 have been once again reiterated and the plaintiff has made it clear that if the Letter of
Credit is honoured by the first defendant in any manner whatsoever, it will be at their cost and risk.
Under Ex.P 22 dated 12.08.1999 addressed to the first defendant the plaintiff recalled the discussion that took place on 11.08.1999 between
the officials and the first defendant and also communications to the defendants regarding the description of the goods and the failure to consign
airlift within the stipulated time.
Under Ex.P 23 dated 12.08.1999, the first defendant has sent a reply to the plaintiff in respect of their letter under Ex.P 21. In Ex.P 23 it has
been stated by the first defendant that the discrepancies pointed out by them were already communicated by them to the negotiating bank and that
the negotiating bank does not accept the refusal of the documents as the discrepancies are untenable as per the UCPDC 500 and that the copy
received by the plaintiff from the consignee is irrelevant for their Letter of Credit as the only relevant Airway Bill for the Letter of Credit is original
No. 3 for shipper presented to the plaintiff by the first defendant. Therefore, the first defendant advised the plaintiff to retire the Bill against the
payment without further delay.
Ex.P 24 is the legal notice sent on behalf of the plaintiff to the first defendant and Ex.P 25 is the reply sent by the first defendant to the plaintiff.
In Ex.P 25 the first defendant has stated that the Letter of Credit is Irrevocable in nature and it has to be honoured strictly on merits as per the
tenor of the documents received under the Letter of Credit and not based on information or documents extraneous to the Letter of Credit. It has
been further stated by the first defendant that India is a signatory to International Chambers of Commerce and therefore it is neither possible nor
correct to cause a breach in the practice of internationally accepted Rules and procedures, as demanded by the first defendant and even lead to
boycott of Letter of Credit from India as a whole. The first defendant further stated that they are compelled to effect payment under the Letter of
Credit notwithstanding objections of the plaintiff to the contrary and they would be effecting payment to the debit of plaintiffs account on
27.08.1999.
Under Ex.P 27 dated 30.08.1999, the first defendant informed the plaintiff that they have effected payment of the above bill for DEM 64,053
to the debit of plaintiff''s OCC limit as authorised by them vide their letter dated 26.05.1999 and the payment was effected on 30.08.1999 i.e. the
date of Ex.P 27. The first defendant also enclosed the relative debit advice along with Ex.P 27 to facilitate them to take delivery of the goods.
Under Ex.P 31 dated 26.10.1999 the plaintiff has returned all the documents sent by the first defendant and indicated that the issue is
subjudice before the Court and the first defendant alone is responsible for the loss caused to them.
The first defendant vide letter dated 30.10.1999 under Ex.P 32, has reiterated the contents of their letter dated 26.10.1999 (Ex.P 31). As per
the statement of accounts of the first defendant bank, a sum of Rs. 15,05,831 was debited to the OCC account of the plaintiff on 30.08.1999.
P.W.1 is the Manager of the plaintiff working in Guindy Industrial Estate, Chennai-32 and his chief examination is based on the plaint
averments and the documents marked by the plaintiff. In cross-examination, P.W.1 deposed that the Letter of Credit is Irrevocable one and the
entire payment of machinery to be imported has to be made under Ex.P 6 under Irrevocable Letter of Credit. P.W.1 further deposed that as per
the terms of Ex.P 6 Letter of Credit, the last date for shipment is 06.07.1999 and proforma invoice is part of the Letter of Credit. The transaction
between the plaintiff and the defendant was based on documents and the bank was dealing with documents only on behalf of the plaintiff in respect
of Letter of Credit.
P.W.2 was the Accounts Officer of the plaintiff company and at the time of giving evidence, he has retired from service. In the chief
examination P.W.2 deposed that the first defendant debited the account of the plaintiff a sum of Rs. 15,03,373/- towards Letter of Credit and
subsequent interest of Rs. 2458/- was also debited in their account and that it has also debited interest for the period from 30.08.1999 to
31.03.2007 under Ex.P 36.
On the side of the defendants, Exs. D1 to D7 were marked. Ex.D1 is the letter from Deutsche bank Tuttlingen branch dated 15.07.1999
addressed to the first defendant, wherein they have acknowledged the consideration for the sale of machinery at DEM 64,053 and also enclosed
documents and it was received by the first defendant on 21.07.1999. Ex.D2 is the invoice dated 05.07.1999 received from the third defendant
and it contains description of machineries and it was received by the first defendant on 21.07.1999. Ex.D3 dated 05.07.1999 and it also contains
description of the machinery. Ex.D4 is the certificate of origin dated 15.07.1999 and it would indicate that two cartons etc., of Numbering
Machines for printing machinery and spare parts as detailed in proforma invoice No. 2407, dated 05.05.1999 has been airlifted. Ex.D5 is the
Certificate of Marine and Insurance Policy and it would also indicate that the Numbering machine for printing machinery and spare parts as
detailed in the proforma invoice dated 05.05.1999 has been insured. Ex.D6 is the true copy of the Airway Bill dated 06.07.1999 and it would
indicate that the place of air shipment was at Stuttgart Airport and it was received by the first defendant on 21.07.1999. Ex.D7 is the certified
copy of the order dated 31.01.2001 in O.S.A. No. 185 of 2000 wherein the appeal preferred by the plaintiff against the order dated 24.12.1999
in Application No. 4165 of 1999 in C.S. No. 650 of 1999 came to be dismissed.
D.W.1 at the time of chief examination, was working as Manager in Guindy branch of first defendant Bank and he deposed that the
Application under Ex.P 6 was submitted by the plaintiff on 26.05.1999 and the Letter of Credit was issued in favour of beneficiary- third
defendant subject to UCPDC 1993 Revised ICC 500 and as a bank, they have to deal with only the documents and not the Merchandise goods.
D.W.1 further deposed in chief that if the negotiating bank sent document to the paying bank and if the documents are found in order, the first
defendant bank have to make the payment to the negotiating bank. Ex.D6 is the copy of Airway Bill received by the first defendant and as per
Ex.D6, the goods were despatched from Germany on 06.07.1999 and the payment in Letter of Credit was made on behalf of the plaintiff on
30.08.1999 under Ex.P 27 and a sum of Rs. 15,05,831/- was due from the plaintiff under the Letter of Credit account. D.W.1 further deposed
that the document sent by the negotiating bank was found to be in order and therefore the payment was effected.
In the cross-examination, D.W.1 deposed that his chief examination is purely based on records and he do not have personal knowledge and
he is not aware of the procedure relating to Letter of Credit and Ex.P 6 is the Application , agreement, for Irrevocable Letter of Credit applicable
as on May 1999. Ex.P 7 is the swift message from the first defendant to the advising bank and it contains all the important terms and conditions of
Letter of Credit for the purpose of honouring it.
The attention of D.W.1 was specifically drawn to Ex.P 7. D.W.1 deposed that under entry 31D - date and place of expiry, the date is
mentioned as 20.07.1999 and under entry 44A - Loading on board/disp./taking charge, it is mentioned as Stuttgart Airport and against entry 44C
- latest shipment, date is mentioned as 06.07.1999. In respect of entry 45A - Description of goods and/or service, D.W.1 deposed that it is
mentioned as Numbering Machines for printing machinery and spare parts detailed in the proforma invoice No. 2407 dated 05.05.1999. D.W.1
denied the suggestion that the proforma invoice is not the part of terms and conditions of Letter of Credit. Which means that the proforma invoice
is part of terms and conditions of Letter of Credit.
D.W.1 further deposed in the cross-examination that he is not aware as to why the terms and conditions of proforma invoice have been
detailed in Ex.P 7 and normally, the proforma invoice is not integral part of Letter of Credit. But in this case, the proforma invoice might have been
made as part of terms and conditions of Letter of Credit. D.W.1 further deposed that he do not know the meaning of entry 44C - Latest shipment
date in Ex.P 7 - Swift message and he is not aware as to shipment means delivery of machinery on board the vessel and that he is not aware as to
whether the machinery was loaded at Stuttgart Airport. When the attention of D.W.1 was drawn to Ex.P 13, he deposed that in the said
document, it is stated that the goods have been despatched from Frakfurt to Chennai and though in Ex.P 7 - Letter of Credit is stated that the
goods to be loaded at Stuttgart Airport. D.W.1 further deposed that under Ex.P 13, goods might have been despatched on 10.07.1999 and he
denied the suggestion that the shipment took place on 10.07.1999. Ex.P 6 does not contain the seal and according to D.W.1, the moment the
goods are handed over to the shipper, the shipment is completed. D.W.1 also deposed in his cross-examination that since Ex.P 13 is not an
integral part of Letter of Credit, they need not to have take any action and they have not filed copy of communication sent to Deutsche Bank viz.,
negotiating Bank and referred to under Ex.P 23 and they have also not filed any document with regard to UCPDC 1993 Revised ICC 500. In
Ex.D3 no dates have been stated and in Ex.D5 weight of the materials is stated as 58 kg. and in Ex.P 13 weight of the goods is mentioned as
575.9 kg. D.W.1 further deposed that since OCC account is a running account, after debiting Rs. 15,00,000/-, the particular transaction is over
and they charged interest for the whole limit of the loan and Ex.P 36 statement of Account is a running account and though it is a running account
they have charged interest on the Letter of Credit Account. D.W.1 further denied the suggestion that the suit claim is not barred by limitation.
D.W.2, who was the Senior Manager of the Guindy Branch for the period between 1997 and 2005 was examined as D.W.2 and during his
tenure only Letter of Credit at the instance of the plaintiff was opened. In the chief examination, D.W.2 deposed that as a banker, first defendant is
obliged to deal only with the documents and not with the machineries to be imported and as per Ex.D6 Airway Bill, the goods were despatched on
06.07.1999. D.W.2 further deposed that the negotiating bank informed the first defendant that the discrepancies are not tenable as per UCPDC
1993 Revised ICC 500 and the first defendant made payment under the Letter of Credit on 27.09.1999. D.W.2 also deposed in the chief
examination that the plaintiff is having only one account with the first defendant and that is Open Cash Credit loan account and it is a running
account and the claim of the plaintiff is also barred by limitation.
In the cross-examination D.W.2 deposed that the first defendant bank has a format for issuance of Letter of Credit and all the details in Ex.P 7
- Letter of Credit have been fed by their Telex Operator and that he has gone through the Letter of Credit before it was sent to the negotiating
bank and the checking of the particulars contained in the Letter of Credit was done by another officer. D.W.2 admitted in his cross-examination
that as per Ex.P 7 - Letter of Credit, the last date for shipment to be done by the third defendant was on 06.07.1999 and the term latest shipment
date in Ex.P 7 denotes the last date of shipment and last date of shipment is the date of Airway Bill and according to him, the date of shipment in
the present case is the date mentioned in the Airway Bill in Ex.D6 and in Ex.D6 though the name of the Airport is mentioned, the name of the
Airline, date of flight and flight number have not been mentioned. D.W.2 further deposed in his cross-examination that since Airway Bill in Ex.D6
came along with documents sent along with the negotiating bank, they came to know that the materials have been shipped. D.W.2 also admitted
that there is no mention of the name of the Airline, flight number and date of flight in Exs.D1 to D6 and no seal of Customs authorities were also
found in those documents. In Ex.P 13, the Airport of Departure is mentioned as Frankfurt and at the bottom of the document date is mentioned as
07.07.1999. D.W.2 has admitted that he handled this transaction when he was the Senior Manager of the first defendant bank and before giving
evidence he did not check as to when the machineries were landed at Chennai and it could have been landed at Chennai from Frankfurt. To the
specific question, D.W.2 answered that there was no need to ask negotiating bank as to when the machineries were landed at Chennai as they deal
only with the documents.
Under Ex.P 16, first defendant has asked the plaintiff as to whether they are going to accept the machinery or not and it is a mandatory letter
whenever there is discrepancy in the goods. D.W.2 further admitted that they have not produced the communication to negotiating bank as
referred to in para 2 of the Ex.P 23 letter. D.W.2 deposed that since the plaintiff is agreed in the Application under Ex.P 6 that the amount towards
Letter of Credit can be adjusted against their OCC account, they have debited that account on 30.08.1999 for the payment under the Letter of
Credit. Ex.P 36 is the statement of accounts of the plaintiff and it is incomplete and OCC account of the plaintiff is a running account based on
debit and credit, interest is levied.
Heard Mr. N.C. Ramesh, learned Counsel appearing for the plaintiff and Mr. Jayesh B. Dolia, learned Counsel appearing for the first
defendant.
Issue Nos. 2 and 3:-
Under Ex.P 3 dated 30.04.1999, the plaintiff placed a letter of indent with fourth defendant for the supply of machinery, the details of which have
been stated therein. Ex.P 4 is the proforma invoice issued by third defendant in favour of the plaintiff and it is dated 05.05.1999. Under Ex.P 4 it
has been stated that the Numbering Machines for printing machinery and spare parts - gross weight: approximately 38,700 kg. net weight :
approximately 33,600 kg. is to be despatched by Consolidated Airfreight via Messrs. MSAS Cargo International GMBH Stuttgart Airport and
through Letter of Credit. CIF is to be done at Chennai and the delivery time is fixed at 5 weeks after receipt of a firm order resp. the Letter of
Credit.
Ex.P 5 is dated 24.05.1999 minutes from the plaintiff to third defendant, wherein the plaintiff confirmed the purchase order against their letter
of indent under Ex.P 3 dated 30.04.1999. Under Ex.P 5, the details of price, consignee, delivery time, delivery instructions, payment clearance of
consignment and other particulars have been stated and the copy of the same was also marked to the fourth defendant.
Ex.P 6 is the Application and Agreement for Irrevocable Letter of Credit submitted by the plaintiff to first defendant and as per the said
Application , the advising bank is Deutsche bank AG at Tuttlingen and the beneficiary is third defendant. In Ex.P 6 expiry date (country of
beneficiary) is stated as 06.07.1999 for shipment and on 20.07.1999 for negotiations. In Clause No. 1 of Ex.P 6 it has been stated as follows:
Signed Commercial Invoice in Three copies for value not exceeding the draft amount quoting Import licence No. .......... Proforma Invoice No.
2407 Dt.05.05.1999 and certifying goods are as per order/indent No. ........... and covering Numbering Machine for printing Machinery and spare
parts as per (proforma invoice).
As per Clause No. 8 of Ex.P 6, shipment, dispatch should be effected from the Stuttgart Airport to Chennai via the second defendant and the
plaintiff is also agreed that the Letter of Credit will be subject to UCPDC (1983) RICC 400. Along with Ex.P 6, ... order together with the order
of confirmation of overseas supplier (k) proforma invoice of overseas suppliers duly signed by the plaintiff and the indent or offer from overseas
supplier or authorised agent imported licence, have been enclosed.
Ex.P 7 is the Letter of Credit which has been opened in pursuant to the Application made under Ex.P 6. In Ex.P 7 as per entries 40A, it is an
Irrevocable Letter of Credit and the date of issue was 27.05.1999 and the date and place expiry at Germany on 20.07.1999 and the beneficiary is
third defendant. As per entry No. 44A loading on board etc., is at Stuttgart Airport and as per entry No. 44C latest shipment date is fixed as
06.07.1999.
Entry No. 45A in Ex.P 7 is important entry for the reason that in respect of Description of goods and/ or services: it has been stated as follows:
Numbering machines for printing machinery
and spare parts as detailed in the proforma
invoice 2407 dated 05.05.1999 (Ex.P 4)
As per entry No. 78, it speaks about instructions to paying or accepting or negotiating bank, again it has been stated that upon receipt of required
document as per terms of credit, the first defendant shall effect payment as per negotiating bank instructions and as per entry No. 72 the credit is
subject to UCPDC 1993 (Revision) ICC 500 and swift message is operative and no mail confirmation will be given.
A careful perusal and analysis of the Ex.P 6 and P7 would reveal that the proforma invoice under Ex.P 4 was also enclosed along with Ex.P 6
and that is why in Ex.P 7 under entry No. 45A, it has been stated that the Numbering Machines for printing machinery and spare parts as detailed
in the proforma invoice 2407 dated 05.05.1999. If really the proforma invoice is not a part of Letter of Credit as contended by the first defendant,
there is no need to incorporate Clause No. 14 in Ex.P 6 namely the Application and Agreement for Irrevocable Letter of Credit and entry 45A in
Ex.P 7-Letter of Credit issued by the first defendant.
The plaintiff in Ex.P 9 dated 16.07.1999, informed the defendants 3 and 4 that they have failed to adhere to the terms of the purchase order
and also not completed dispatch within the stipulated time as per the letter of indent and copy of Ex.P 9 was also marked to the first defendant.
The plaintiff further informed the first defendant under Ex.P 10 dated 06.07.1999 that the third defendant has failed to supply the machinery as per
the delivery schedule as per purchase order and as per conditions, and therefore requested the first defendant to withdraw the Letter of Credit and
stop payment under the said document. Under Ex.P 11 dated 07.07.1999 the plaintiff once again requested the first defendant not to release the
payment on receipt of documents without their consent as the third defendant has not comply with the terms of the purchase order. Under Ex.P 12
Cargo arrival notice received by the plaintiff, the Master Airway Bill is dated 07.07.1999 and the House Airway Bill is dated 07.07.1999 and the
date of shipment through Alitalia is 11.07.1999 and therefore it implies that air shipment was not made on 06.07.1999. Ex.P 13 is the Airway Bill
which also contains the seal of the custom authorities of Germany, the shippers address is given as Frankfurt and air shipment took place on
10.07.1999 from Frankfurt and not at Stuttgart and not on 06.07.1999 as agreed by the third defendant. The plaintiff under Ex.P 14 dated
13.07.1999 pointed out the same to the first defendant and requested them not to release payment and also put the first defendant on notice that if
the details are honoured in spite of the said specific instructions, the first defendant will be at their own risk and the plaintiff shall not be held liable.
The same thing was reiterated under Ex.P 15 dated 19.07.1999 addressed to the first defendant.
Ex.P 16 is dated 21.07.1999 sent by the first defendant to the plaintiff wherein they have stated that the Airway Bill is dated 06.07.1999 and
the same is in accordance with the credit terms for the last date of shipment and the first defendant has also enclosed Xerox copies of Article 27 of
the UCP 500 which deals with the date of shipment for Air Transport documents. The first defendant also stated in Ex.P 16 that they also
observed the following discrepancies in the documents received by them.
Beneficiary''s address differ from LC terms.
Description of goods differ from the LC terms as per proforma invoice No. 2407 dt.05.05.1999.
as per proforma invoice as per docs. received
a. 45mm keway compl 45mm keyway cpl
b. with direct drive on direct drive to
c. 17.39"" 17.39"" circ
d. cd 90.075mm cd 90.075"" 8mm slot
e. clamping lever clamp lever
f. special rotary numbering machines.
numbering machines
It is pertinent to point out at this juncture, that under Ex.P 16 the first defendant conceded and admitted that the description of goods differ from
the Letter of Credit terms as per proforma invoice 2407 dated 05.05.1999 (Ex.P 4). They also called upon the plaintiff to communicate their
decision in accepting the above documents within 24 hours of receipt of the letter and non receipt of their response will be construed as their
willingness to accept the documents and make the payment.
A combined reading of Ex.P 6, P7 and P16 would clearly reveal that description of the goods differ from the terms of Letter of Credit and as
per proforma invoice under Ex.P 3 dated 05.05.1999 and it was also admitted by the first defendant. It is to be remembered at this juncture that
the plaintiff sought the import of the said machineries from the third defendant as the existing machinery was not found sufficient to print large
volume of tickets needed by various Transport Corporations of Government of Tamil Nadu and therefore, description of machinery assumes great
importance.
Under Ex.P 18 dated 22.07.1999 sent by the plaintiff to the first defendant, they have clearly pointed out the discrepancies between the terms
of proforma of Letter of Credit and as per the bank documents. A careful analysis of Ex.P 18 would exhibit that description of machinery is not in
accordance with the proforma invoice which admittedly forms part of Letter of Credit and as per the own admission of the first defendant under
Ex.P 16. The plaintiff specifically requested the first defendant not to honour the Letter of Credit and not to release the payment under Ex.P -18.
Even in Ex.P 19 also, the plaintiff pointed out to the first defendant that as per the Master Airway Bill - Ex.P 13, a copy of which also sent to the
first defendant, the original consignment which was booked through carrier is only on 07.07.1999 and not on 06.07.1999 as stated by the third
defendant.
Under Ex.P 20 and P21, the plaintiff has pointed out that the proforma invoice is the integral part of the Letter of Credited based on proforma
invoice only, they have opened the Letter of Credited it was further pointed out to the first defendant that the supplier managed to manipulate the
House Airway Bill which was served on the bank and the same is not in confirmity with the terms of Letter of Credited therefore, the defendant
was once again requested not to make any payment and if they do so, they will be at their peril and risk. The first defendant in reply to Ex.P 21,
has sent a letter dated 12.08.1999 under Ex.P 23 wherein it has been stated among other things that with regard to the several discussions held
between the officials of the plaintiff and the first defendant, the discrepancies pointed out by the plaintiff were already communicated to Deutsche
Bank viz., negotiating bank in Germany and the negotiating bank does not accept the refusal of document on the part of the plaintiff as the
discrepancies are not tenable as per UCPDC 500 and the first defendant also pointed out the response received from the negotiating bank in
respect of discrepancies pointed out. In page No. 2 of Ex.P 23, column No. 2 the discrepancies pointed out by the plaintiff was that description of
goods differ from Letter of Credited terms as per the proforma invoice 2407 dated 05.05.1999 (Ex.P 3) and the response of the negotiating bank
by way of reply is that proforma invoice was not integral part of Letter of Credit. The first defendant also indicated that they have received only
House Airway Bill and the Cargo is classified under Master Airway Bill dated 07.07.1999 which is the date as per the last date of shipment.
Admittedly the communications addressed by the first defendant to the negotiating bank and the reply received from the negotiating bank have not
been marked as exhibits by the first defendant. The reply of the negotiating bank is extracted in Ex.P 23 written by the first defendant to the plaintiff
would indicate that proforma invoice was not integral part of Letter of Credit. However, in view of Ex.P 6 - Application - Agreement for
Irrevocable Letter of Credit submitted by the first defendant by the plaintiff and Ex.P 7 - Letter of Credit issued by the first defendant to plaintiff
and Ex.P 16 - letter dated 21.07.1999 addressed by the first defendant to the plaintiff, it is not open to the first defendant to contend that the
proforma invoice was not integral part of Letter of Credited they have to abide by UCPDC 500.
The first defendant under Ex.P 25 dated 25.08.1999 addressed to the plaintiff, has indicated that they are compelled to make payment under
Letter of Credit notwithstanding objections of the plaintiff to the contrary and they would be effected payment to the debit of plaintiff''s account on
27.07.1999 and they have effect payment by debiting the OCC account of the plaintiff on 30.08.1999 under Ex.P 27. Under Ex.P 32, also the
first defendant has informed the plaintiff about the effecting of payment by debiting his OCC account of the plaintiff and the statement of accounts
would also reveal that a sum of Rs. 15,05,831 was debited to OCC account which admittedly a running account against the plaintiff.
Even though P.W.1 admitted that Ex.P 6 is an Irrevocable Letter of Credited the entire payment for machinery has to be made under Ex.P 6
and that the transaction between the plaintiff and defendant was based on documents, in the teeth of contents of Exs.P6, P7 and P16, it is not open
to the first defendant to contend that the proforma invoice is not part of Letter of Credited in the light of their explanation under Ex.P 23, they will
make the payment in terms of UCPDC 500, is whole untenable. It is useful to refer Article 14 of UCPDC (in short UCP 500)
Article 14: Discrepant documents and Notice
(a) When the Issuing Bank authorities another Bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against documents
which appear on their face to be in compliance with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are
bound --
(i) to reimburse the Nominated Bank which has paid, incurred a deferred payment undertaking, accepted Draft(s), or negotiated;
(ii) to take up documents.
(b) Upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, 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, such banks may refuse to take up the
documents.
(c) 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 the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in Sub-
article 13(b).
(d) (i) If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must
give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but not later than the close of
the seventh banking day following the day of receipt of the documents. Such notice shall be given to the Bank from which it received the
documents, or to the Beneficiary, if it received the documents directly from him.
(ii) Such notice must state all discrepancies in respect of which the Bank refuses the documents and must also state whether it is holding the
documents at the disposal of or is returning them to, the presenter.
(iii) The issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting Bank refund, with interest, of any
reimbursement which has been made to that bank.
(e) If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the
documents at the disposal of, or return them to, the presented, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming
that the documents are not in compliance with the terms and conditions of the Credit.
(f) If the remitting Bank draws the attention of the Issuing Bank and/or Confirming Bank, if any, to any discrepancy(ies) in the document(s) or
advises such banks that it has paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated under reserve or against an
indemnity in respect of such discrepancy(ies), the issuing Bank and/or Confirming Bank, if any, shall not be thereby relieved from any of their
obligations under any provision of this Article. Such reserve or indemnity concerns only the relations between the remitting Bank and the party
towards whom the reserve was made, or from whom, or on whose behalf, the indemnity was obtained.
A perusal of the said Article would reveal that if the documents appear on their face not to be in compliance with the terms and conditions of the
Letter of Credit, such bank may refuse the documents and if the issuing bank determines documents appears on their face not compliance of the
terms and conditions it may in its sole judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the
period mentioned in Sub-article 13(b).
The plaintiff under Ex.P 18, P19, P20, P21 and P22 had specifically pointed out the discrepancies in the description of the machinery and
number of times requested the first defendant not to make payment and also indicated if they went upon doing so, they will be doing so at their risk
and cost. Under Ex.P 23 the first defendant sent a reply stating that in view of discrepancies pointed out by the plaintiff, they contacted negotiating
bank and the negotiating bank also sent a reply wherein it has been stated among other things that the proforma invoice was not an integral part of
Letter of Credited that the negotiated bank does not accept refusal on the part of the plaintiff as the discrepancies are not tenable as per UCPDC
However, Article 14 of UCPDC 500 gives liberty to the Issuing Bank or Confirming Bank, if any, or a Nominated Bank acting on their
behalf, that they 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 and if the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such
banks may refuse to take up the documents. Admittedly, as narrated in the earlier paragraphs, proforma invoice became integral part of the Letter
of Credited the first defendant has also received Ex.D3 dated 05.07.1999 from the third defendant and that the plaintiff under Ex.P 18 dated
22.07.1999 addressed to the defendants has also pointed out the discrepancies in detail. The first defendant has also admitted under Ex.P 16
dated 21.07.1999 about the discrepancies in the documents received by them would be with regard to the description of the goods. Having
accepted, it is not open to the first defendant to contend that in respect of such major discrepancies which is evident on the face of the record still
they will honour the Letter of Credit in terms of UCP 500 in the considered opinion of the Court, is solely untenable.
D.W.1 in his cross-examination has admitted the contents of entry under 44A, 44C,45A in Ex.P 7 and though he denied the suggestion that
the proforma invoice is not part of terms and conditions of Letter of Credit. It means that the proforma invoice is part of terms and conditions of
Letter of Credited entry No. 45A in Ex.P 7 would also vouch the said fact. D.W.1 further admitted in his cross-examination that he is not aware
that the terms and conditions of the proforma invoice have been detailed in Ex.P 7 and normally, proforma invoice is not an integral part of Letter
of Credited however, in this case it might have been made as part of terms and conditions of Letter of Credit. D.W.1 further admitted that the
goods were despatched from Frankfurt to Chennai and in the bottom of Ex.P 13 the date is mentioned as 07.07.1999 and under Ex.P 13 goods
might have been despatched on 10.07.1999 and he further admitted that under Ex.P 6 no flight number and date of flight has been given and it also
does not contain the seal. D.W.1 further admitted that no dates have been mentioned in annexure of Exs.D1, D2, D3 and D5, the weight of the
materials stated as 58 kg. and in Ex.P 1 the weight of the materials mentioned as 575.9 kg. and in Ex.D5 viz., the certificate of origin also does not
mention the date of shipment. D.W.2 though deposed that the first defendant bank is obliged to deal only with the documents and not with the
machineries to be imported and that the negotiating bank informed that the discrepancies are not tenable as per UCPDC 1993 Revision ICC 500
the first defendant has not chosen to mark the communication sent by them to the negotiating bank as well as reply received by them. It is to be
remembered that D.W.2 was the official incharge at the time of opening of Letter of Credited he only handle the entire transaction. D.W.2 further
admitted in Ex.P 16 though the name of the Airport is mentioned, name of the Airliner, date of flight and flight number has not been mentioned and
Ex.D6 came along with documents sent by the negotiating bank. It is to be pointed out at this juncture, the admission on the part of D.W.2 that
there is no mention of the name of the Airline, flight number and the date of flight in Ex.D1 to D6 and there is no Seal of the Customs authorities
found. D.W.2 further deposed that he did not check as to when the machinery landed at Chennai, and that the machinery could have been landed
at Chennai from Frankfurt. In the light of the above referred documents and in view of the admission on the part of D.Ws. 1 and 2, it is not open to
the first defendant to contend irrespective of the discrepancies found on the face of the record with regard to the description of machineries, date
of despatch and date of landing, they will go only by the terms of UCPDC 500 on the face of it, is untenable.
Ex.P 13 is the Ariway Bill which bears the seal of the Germany Customs Authorities. A careful perusal of Ex.P 13 would reveal that the goods
were despatched from Frankfurt and not from Stuttgart and it was despatched only on 07.07.1999 and it landed on 10.07.1999 through Alitalia
flight and it is beyond 06.07.1999 as stipulated under entry 44A, 44C of Ex.P 7. Assuming that the proforma invoice is not a part of Letter of
Credit, the contents of Ex.P 7 would reveal non compliance on the part of the supplier in respect of place or Air shipment, time of air shipment and
even on that ground, it was opened to the first defendant to refuse payment. As already pointed out under entry No. 45A in Ex.P 7, it has been
clearly indicated that the proforma invoice is part and parcel of Letter of Credit.
Ex.P 5 is the purchase order dated 24.05.1999 sent by the plaintiff to the third defendant which contains details of instructions to be complied
with and the said document coupled with Ex.P 6, P7, P9, P10, P13, P14 dated 13.07.1999 and more importantly ExP16 dated 27.07.1999 sent
by the first defendant to the plaintiff would clearly establish that the proforma invoice is part and parcel of terms of Letter of Credited that is why
under Ex.P 16, the first defendant himself has pointed out the discrepancies with regard to the description of the machinery.
The learned Counsel appearing for the plaintiff has submitted that ""shipment"" includes loading into an Aircraft, and ""shipped"" and Cognate
expressions are construed accordingly. In support of his submissions he placed reliance upon [1965] 2 All E.P. 860 J. Rosenthal & Sons Ltd. v.
Esmail (Trading as H.M.H. Esmail & Sons, wherein it has been held that the shipment means placing the goods on board and that it can mean also
either the operation of placing goods on board or the parcel of goods which has been placed on board. Under Ex.P 13 the date of despatch was
given as 07.07.1999 and it landed at Chennai on 10.07.1999. Therefore, the air shipment was made only on 07.07.1999 which is beyond
06.07.1999 as stipulated in entry No. 44C of Ex.P 7.
The learned Counsel appearing for the plaintiff further submitted that once the documents are not in consonance with the terms of Letter of
Credit, it is the duty of the paying banker to refuse payment and in support of his submissions, he has placed reliance upon the judgment reported
in (i) 1993 MK 63 (DB) - Regional Science Centre and Anr. v. Varghese K. Pulayath and Co. and Anr. (ii) State Bank of India and others Vs.
Manganese Ore (India) Ltd. and another, . In 1996 2 SCC 113 (cited supra), the Hon''ble Supreme Court of India having found that the air
shipment of the goods was not in confirmity with the quality and specifications either in the Agreement dated 18th March or the letters of credit
dated 6th March, held that:
though the letters of credit are not Irrevocable and unconditional contract entered into between the appellant and the first defendant, it is subject to
the compliance of the quality of the goods supplied by the first defendant to the plaintiff and in view of the undisputed and admitted position that the
goods were not of the quality conformable to either the original Agreement or the letters of credit, as stated earlier, the appellant is not obliged to
honour the letters of credit, it being a condition precedent, namely, goods supplied shall be of the quality in confirmity with the conditions of the
letters of credit.
In [1975] 75 Comp Cas 519 Roshan Lal Anand and Anr. v. Mercantile Bank Limited (DB) (Delhi), the Court has extracted the principle with
regard to the honouring the Letter of Credit as found in The Law of Bankers'' Commercial Credits by Gutteridge, fourth edition, page 90, which is
as follows:
Equally without foundation is the claim of the appellants that it was the responsibility of the bank to see whether the goods actually shipped by the
shipper under the Letter of Credit correspond thereto or to the description of goods as contained in the import licence. In documentary credit
operations, as in this case, all parties concerned deal in documents and not in goods. The banker owes a duty to his customer to refuse any
documents which do not conform to the terms of the instructions given for the opening of the letter of credit. The duty of the banker is only to
examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the
credit. Where the purchase is financed by an Irrevocable credit, the credit transaction would not be affected by a rejection of the goods after
acceptance of the documents, if the latter were such as were called for by the credit. There is a difference between the position of a seller and
buyer. The position of the seller and buyer under c.i.f. contract is that the seller has two distinct obligations: (a) to deliver the proper documents of
title, and (b) to ship the proper goods; and that the buyer, in the event of the seller''s failure, has two distinct rights: (i) to reject the documents, and
(ii) to reject the goods, the former right arising when the documents are tendered and the latter when the goods are landed and, after examination,
are found not to be in conformity with the contract. (See The Law of Bankers'' Commercial Credits by Gutteridge, fourth edition, page 90).
One has, therefore, to examine the conditions which were agreed upon between the parties. The import licence is an integral part of the contract
leading to the opening of the letter of credit. It is the duty of the banker to see that the documents are in respect of goods and to the extent
authorised by the import licence. If the apparent tenor of the shipping documents clearly shows either that the goods are not goods the importation
of which was authorised by the import licence or even if they are, the value thereof is in excess of the value as authorised by the import licence, the
banker cannot claim indemnification.
In 1991 70 Comp Cas 609 U.K. Paints (I) P. Ltd. v. Oriental Bank of Commerce (Delhi), it has been held as follows:
The opening of a confirmed Letter of Credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker an
absolute obligation to pay. However, the banker is not bound or entitled to honour the bills of exchange drawn by the seller unless the bills and
such accompanying documents as may be required there under, are in exact compliance with the terms of the letter of credit. Such documents must
be scrutinised with meticulous care.
The plaintiff opened an Irrevocable Letter of Credit with the first defendant bank covering shipment of goods under a letter of indent. The
documents sent by the negotiating bank in Holland were defective in many respects. The plaintiff pointed out the defects, but the first defendant
bank demanded retirement of the documents by the plaintiff. The plaintiff filed an Application in a suit for an injunction restraining the bank from
appropriating any of its credit balance towards retirement of the documents.
Held accordingly, that among the defects in the documents received against the letter of credit, the certificate of origin of the goods was glaringly
defective inasmuch as in the letter of indent, which forms an integral part of the letter of credit, it was expressly provided that the country of origin
of the goods in question was to be France, whereas the invoice bore a certificate that the goods were of Dutch origin. There was a prima facie
case in favour of the plaintiff for the reason that the issuing bank was not bound or entitled to honour the bill of exchange drawn by the foreign
seller, as there was no exact compliance which the terms of the letter of credit, especially in regard to the origin of the goods. The plaintiff was not
bound to accept goods of an altogether different origin and had rejected the documents received by the issuing bank from the foreign negotiating
bank on account of the discrepancies in the documents. If the plaintiff were made to accept the defective documents, it would suffer irreparable
loss. Therefore, the plaintiff''s Application for an ad interim injunction restraining the first defendant bank from appropriating, utilising or otherwise
adjusting any of the present or future balances in any of the plaintiff''s accounts with the first defendant bank towards retirement of the documents
received against the Letter of Credit was to be granted.
In 1991 72 Comp Cas 70 Japson International and Anr. v. State Bank of India and Anr. (Panjab and Haryana), it has been held as follows:
Bank and their customers should normally be allowed to enforce their respective obligations under the established banking system. It is only in
exceptional cases that the court should interfere with the machinery of mutual obligations assumed by them. They must be allowed to be honoured,
free from interference by courts.
The opening of a confirmed Letter of Credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker an
absolute obligation to pay. However, the banker is not bound or entitled to honour the bills of exchange drawn by the seller unless they, and such
accompanying documents as may be required there under, are in exact compliance with the terms of the credit. Such documents must be
scrutinised with meticulous care.
In United Commercial Bank Vs. Bank of India and Others, , the Hon''ble Supreme Court of India laid down the following ratio:
The opening of a confirmed Letter of Credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker
an absolute obligation to pay. A banker issuing or confirming an Irrevocable credit usually undertakes to honour drafts negotiated, or to reimburse
in respect of drafts paid, by the paying or negotiating intermediate banker and the credit is thus in the hands of the beneficiary binding against the
banker. A Letter of Credit constitutes the sole contract with the banker and a bank issuing or confirming a Letter of Credit is not concerned with
the underlying contract between the buyer and seller. Duties of a bank under a Letter of Credit are created by the document itself, but in any case
it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit.
The banker owes a duty to the buyer to ensure that the documents tendered by the sellers under a credit are complied with those for which the
credit calls and which are embodied in terms of paying or negotiating bank. The description of the goods in the relative bill of exchange must be the
same as the description in the letter of credit, that is, the goods themselves must in each case be description in identical terms, even though the
goods differently described in the two documents are, in fact the same. It is the description of the goods that is all important and if the description is
not identical it is the paying bank''s duty to refuse payment.
Per contra, the learned Counsel appearing for the first defendant has placed reliance upon the following decisions in support of his contentions.
U.P. Cooperative Federation Ltd. Vs. Singh Consultants and Engineers (P) Ltd., ,
2000(6) Supreme 619 Federal Bank Ltd. v. V.M. Jog Engineering Ltd. and Ors.
Federal Bank Ltd. Vs. V.M. Jog Engineering Ltd. and Others, .
Mahatma Gandhi Sahakra Sakkare Karkhane Vs. National Heavy Engg. Coop. Ltd. and Another, .
Vinitec Electronics Private Limited Vs. HCL Infosystems Limited, .
2008 DRJ 100 69 : 2008 (TLS) 139095 (Delhi) Impex Trading GMBH v. Anunay Fab. Ltd.
In U.P. Cooperative Federation Ltd. Vs. Singh Consultants and Engineers (P) Ltd., , the issue raised was with regard to the grant of ad-
interim injunction restraining the Bank from invoking the Bank Guarantee. The Hon''ble Supreme Court of India held that:
in that decision that in order to restrain the operation either of Irrevocable Letter of Creditor of confirmed Letter of Creditor of Bank Guarantee,
there should be serious dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable
injustice between the parties. Otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get
jeopardised. Upon bank guarantee revolves many of the internal trade and transactions in a country.
In 2000(6) Supreme 619 Federal Bank Ltd. v. V.M. Jog Engineering Ltd. and Ors., it has been held that it is the duty of the negotiating bank
to examine with reasonable care that the documents on their face, conformed to the terms and conditions of Letter of Credited once the issuing
bank confirmed genuineness of documents, it is not open to them to reimburse the amount to the negotiating bank which had discounted Bill of
Exchange on the basis of confirmation of issuing bank.
In Federal Bank Ltd. Vs. V.M. Jog Engineering Ltd. and Others, it has been held that:
in case of an Irrevocable bank guarantee or Letter of Credit, buyer cannot obtain injunction against the banker on the ground that there was breach
of the contract by the seller. The bank is to honour the demand for encashment if the seller prima facie complies with the terms of the bank
guarantee or letter of credit, namely, if the sale products the documents enumerated in the bank guarantee or Letter of Credit. If the bank satisfied
on the face of the documents that they are in conformity with the list of documents mentioned in the bank guarantee or Letter of Credited there is
no discrepancy, it is bound to honour the demand of the seller for encashment. While doing so it must taken reasonable care and it is not
permissible for the bank to refuse payment on the ground that the buyer is claiming that there is a breach of contract. Nor can the bank try to
decide the question of breach at that stage and refuse payment to the seller. It is an obligation under the document having nothing to do with any
dispute as to breach of contract between the seller and the buyer.
In Mahatma Gandhi Sahakra Sakkare Karkhane Vs. National Heavy Engg. Coop. Ltd. and Another, , injunction against invocation of bank
guarantee came for consideration and the Hon''ble Supreme Court of India after taken into consideration the earlier judgments and on the facts of
the case held that:
if the bank guarantee furnished is an unconditional and Irrevocable one, it is not open to the bank to raise any objection whatsoever to pay the
amounts under the guarantee.
Similar view was also taken in Vinitec Electronics Private Limited Vs. HCL Infosystems Limited, .
In 2008 69 DRJ 100 : 2008 (TLS) 139095 Impex Trading GMBH v. Anunay Fab. Ltd., Article 9 of UCP 500 has been considered and as
per the said Article, an Irrevocable Credit constitutes a definite undertaking of the issuing bank provided that the stipulated documents are
presented to the nominated bank or issuing bank and that the terms and conditions of the credit are complied with. It has been held that:
If the bank is satisfied on the face of the documents that they are in conformity with the list of documents mentioned in the bank guarantee or Letter
of Credited there is no discrepancy, the bank is bound to honour the demand of the seller for encashment and bank cannot refuse that the buyer is
claiming that there is breach of contract nor the bank can decide the question of breach and refuse payment to the seller. The liability to the bank
under the document is independent of any dispute as to breach of contract between the seller and the buyer.
Of course the Delhi High Court held that the dispute with regard to the quality of material supplied by the appellant therein can be settled after full-
fledged enquiry/trial by the civil Court.
This Court has kept the said principles in mind and in view of the detailed discussions made in the earlier paragraphs, is of the opinion that even
under Ex.P 6- Application and Agreement for Irrevocable letter of credit, proforma invoice 2407 dated 05.05.1999 forms part. Under Ex.P 7,
Letter of Credit, under entry No. 45A, proforma invoice under Ex.P 3 has been made part and parcel of the said document. Under Ex.P 16 the
first defendant also admitted that the description of goods differs from Letter of Credit terms as proforma invoice dated 05.05.1999 (Ex.P 3) with
regard to the machineries supplied. Ex.D3 received by the first defendant had also contained the details of machinery to be imported by the plaintiff
from the third defendant. Under Ex.P 18, the plaintiff has specifically pointed out in detail the discrepancies between the proforma invoice and the
Letter of Credited the bank documents and specifically made the request to the first defendant that they should not honour the Letter of Credited
not release payment and that they are also refusing to take delivery of the consignment. Under Ex.P 20 the plaintiff pointed out to the first
defendant that the proforma invoice forms part of Letter of Credited the same has been reiterated in Ex.P 21. Under Ex.P 21, dated 10.08.1999
addressed to the first defendant, the plaintiff has specifically pointed out that there is a deliberate attempt on the part of the supplier to fraudly and
covertly be satisfied the conditions of Letter of Credit and instead of enclosing Master Airway Bill, the supplier has arranged for House Airway bill
only and it is obvious that the supplier has managed to manipulate the present document as though it does not in conformity with the Letter of
Credit. Therefore, the plaintiff has specifically pointed out the fraud played by the supplier with regard to the Master Airway Bill and the House
Airway Bill and therefore they requested the first defendant not to honour the payment and if they honouring, it will be at their own risk and cost.
Under Ex.P 23, the first defendant had stated that the objection raised by the plaintiff were communicated to Duetsche Bank and they does not
accept the refusal as the document is the discrepancies are not tenable as per UCPDC 500.
It is admitted by D.W.2 that Ex.D1 to D6 did not contain any date any seal etc. and whereas Ex.P 13 Master Airway Bill contains the seal of
the German authorities. It is to be pointed out at this juncture that under Ex.P 21 the plaintiff had pointed out the fraud by the machinery supplied to
the first defendant. However, the first defendant proceeded on the footing that they have to honour the payment as stipulated in UCPDC 500 and
therefore they have effected the payment.
The said course adopted by the first defendant is not tenable as Article 9 UCP 500 would state that Irrevocable credit can be honoured
provided that the stipulated documents are presented to the negotiating bank or to the issuing bank and that the terms and conditions of the credit
complied with. In the case on hand, as evidenced from the oral and documentary evidence, description of the machineries supplied by the supplier,
is not in compliance of the terms of Letter of Credit as the proforma invoice forms part of the letter of credit. In spite of such
discrepancies/violation specifically pointed by the plaintiff to the first defendant, and in spite of admission on the part of the first defendant that the
description of the machineries in variance with the terms of Letter of Credit and proforma invoice, it has still chosen to honour the Letter of Credit
merely on the basis of UCP 500 which stipulates that the Letter of Credit can be honoured only if the terms and conditions of the creditor
complied with. Since the terms and conditions of Letter of Credit are not complied with, the first defendant ought not to have honoured the Letter
of Credit and it was still within its rights to refuse payment or at least would have obtain indemnity from the negotiating bank/machinery supplier,
before honouring the Letter of Credit. However, they honoured the Letter of Credit and debiting running OCC account of plaintiff for a sum of Rs.
15,05,831/- on 30.08.1999.
Therefore, for the reasons stated above, in respect of issue No. 2, it is held that the first defendant was not justified in paying the amount in
pursuant to the Letter of Credit especially when the machineries supplied by the third defendant were not in compliance of terms of the purchase
order and Letter of Credit and in spite of having knowledge, the first defendant has made such payment. In respect of issue No. 3, it is held that
the plaintiff has got every right to cancel the Letter of Credit when the machinery to be supplied was not in terms of conditions of purchase order
dated 24.05.1999. That apart, the third defendant has not adhered to the time schedule regarding the shipment of the consignment through Air
transport and the same is evidenced by Ex.P 12 Cargo arrival notice/invoice sent by the second defendant to the plaintiff and Ex.P 13 Airway Bill.
Therefore, the plaintiff was within his right not to take delivery of the consignment as the consignment despatched was in variance with the
description found in the Letter of Credit and that the proforma invoice is the form part of the Letter of Credit. Issue No. 2 and 3 are answered
accordingly in favour of the plaintiff.
Issue No. 1:- Under Ex.P 5 dated 24.05.1999, the plaintiff has confirmed the purchase order under Ex.P 3 by writing the letter to the third
defendant. Since the terms of proforma invoice and the Letter of Credit have not been complied with in terms of Ex.P 6 and P7, plaintiff written a
letter under Ex.P 4 and by marking copy to the first defendant stating that since delivery is not within the stipulated time and not in accordance with
terms of the purchase order, they are cancelling the order. The said fact was also communicated to the first defendant by letter under Ex.P 9, dated
06.07.1999 followed by Exs.P11, P14, P15. Under Ex.P 16, the first defendant has also admitted that the description of the goods differ from
Letter of Credit terms as per the proforma invoice under Ex.P 3 and beneficiary''s address differ from Letter of Credit terms. Under Ex.P 18, the
plaintiff once again pointed out to the first defendant about the discrepancies between the proforma invoice and documents and the contents of the
same, were once again reiterated in Ex.P 20, P21 and P22. In spite of receipt of such objections, the first defendant proceeded on the footing that
they have to comply with UCPDC 500, within the opinion of the Court, is unsustainable as UCP 500 does not say so but says that only on being
satisfied with the terms and conditions of the creditor complied with, the bank can honour the Irrevocable Letter of Credit. Therefore, the plaintiff
has validly cancelled Ex.P 5 purchase order and under Exp9. Therefore the issue No. 1 is answered in favour of the plaintiff.
It is contended by the learned Counsel appearing for the first defendant that the suit hopelessly barred by limitation for the reason that the
Application for amendment of plaint was filed during January 2004 only and it was allowed on 02.11.2004 and that the payment was made to the
negotiating bank on 30.08.1999. In support of his submission the learned Counsel appearing for the plaintiff placed reliance upon Radhika Devi
Vs. Bajrangi Singh and others, . and K.C. Skaria Vs. The Govt. of State of Kerala and Another, . In those cases, the amendment made to the
plaint was challenged, wherein it has been held that where the party acquires right by bar of limitation and if the same is sought to be taken away by
way of amendment of the pleading, amendment in such circumstances would be refused. It has been further held in the decisions that permissibility
of amendment would depend on limitation and may not be permitted after expiry of limitation period. In the considered opinion of this Court those
decisions are not applicable to the facts of this case for the reason that Application No. 4271 of 2001 which was filed for amendment was allowed
on 02.11.2004 as admittedly, no counter has been filed by the first defendant. Once amendment is ordered, it relates back to the date of the plaint
and therefore, it cannot be said that the suit claim is barred by limitation. Even after the amended plaint was filed, the first defendant has not chosen
to file the written statement and it was filed only during February 2007, after the evidence of P.W.1 was taken in part. The plaintiff has filed its
reply statement during April, 2007.
It is further contended by the learned Counsel appearing for the first defendant that failure on the part of the plaintiff to quantify the relief
properly resulted in negotiation of right in favour of the defendants against the negotiating bank.
The said submission of the first defendant lacks merits for the reason that only on this suit being decided, the rights of the either parties will get
crystallised and it is always open to the first defendant to proceed against the negotiating bank to whom it made payment in pursuant to the letter of
credit. Even though, no issue has been framed with regard to the bar of limitation in respect of the suit claim, since it has been specifically argued by
the learned Counsel for the first defendant, this Court is constrained to go into the said question.
That apart, the OCC account of the plaintiff was debited on 31.08.1999 for a sum of Rs. 15,05,831 being the payment made by the first
defendant to the negotiating bank in lieu of Letter of Credit. It is the contention of the learned Counsel appearing for the plaintiff that since it is a
running account, the claim is not barred by limitation. It is further submitted by the learned Counsel appearing for the plaintiff that interest was also
periodically paid by the plaintiff and therefore, the said payment would also save the period of limitation. In support of the said submission the
learned Counsel appearing for the plaintiff drew the attention of this Court to the oral evidence of D.W.2. D.W.2 admitted that in respect of
amount payable by the plaintiff, in pursuant to the payment made under Letter of Credit, they did not file any independent suit for recovery of
money. D.W.2 further deposed that it is Open Cash Credit Account of the plaintiff, which is a running account based on debit and credit, interest is
levied. D.W.1 also deposed in his cross-examination that the plaintiff is having only one account with the first defendant and it is a Open Cash
Credit loan account and it is a running account which has been opened long back. Moreover, apart from Exs. D1 to D6 there are no materials
available to sustain the claim of the first defendant that the suit is barred by limitation. As already held above, that in view of the amendment of
plaint which was ordered on 02.11.2004 and that no appeal has been filed challenging the vires of the said order, the amendment dates back to the
date of original plaint. That apart on the sum of Rs. 15,03,373/- paid by the first defendant to the negotiating bank, the interest is periodically levied
and as per statement under Ex.P 38, the plaintiff has paid the interest of Rs. 37,21,782/- for the period from 27.08.1999 to 31.03.1999 and
therefore, the payment of interest would also save the limitation. Therefore, in the opinion of the Court, the suit is not barred by limitation.
Issue No. 4:- Even though prayer is made for directing the first and third defendants jointly and severally to pay a sum of Rs. 45 lakhs paid by
the first defendant to the third defendant in pursuant to the Letter of Credit together with interest at the rate of 18% from the date of invocation of
Letter of Credit dated 27.08.1999 till the date of realisation, the fact remains that the first defendant has debited OCC account of the plaintiff on
30.08.1999 for a sum of Rs. 15,05,831/- as evidenced by Ex.P 27 and Ex.P 36. Under Ex.P 38, the first defendant debited a sum of Rs.
37,20,782/- between 27.08.1999 and 31.03.1999 towards interest on the sum of Rs. 15,03,373/-.
No details have been given in the plaint as to how a sum of Rs. 45 lakhs have been arrived at by the plaintiff and there is no evidence to show
the payment of Rs. 45 lakhs by the first defendant to the third defendant in pursuant to the Letter of Credit under Ex.P 7. However, as per Ex.P
38, the plaintiff has paid a sum of Rs. 37,21,782/- by way of interest from 27.08.1999 to 31.03.1999 on the principal amount of Rs. 15,03,373/-,
they are entitled to get contra/reverse entry in respect of the Principal amount paid by them apart from the interest being paid by them/debited in
the said account till this date. Therefore, issue No. 4 is answered accordingly in favour of the plaintiff.
Issue No. 5:- in view of the above said findings, that the proforma invoice is part of Letter of Credited in view of the admission on the part of
the first defendant under Ex.P 16, and that of the testimonies of D.Ws. 1 and 2 coupled with Exs. P18, P20, P21, P22 requesting the first
defendant not to make the payment and in spite of receipt of such letters, the first defendant effected the payment by debiting the OCC account of
the plaintiff, the first defendant is liable to compensate the plaintiff by way of damages and expenses. However, there are no clear averments
available in the plaint as to the quantification of a sum of Rs. 15 lakhs together with interest as damages and the testimonies of P.Ws. 1 and 2 and
are also of no help in fixing the damages and expenses at Rs. 15 lakhs as claimed by the plaintiff. Therefore, this Court is of the opinion that a sum
of Rs. 1.00 lakh towards damages and expenses together with interest at the rate of 6% per annum from the date of judgment till realisation, would
meet the ends of justice. Therefore, the first and third defendants are jointly and severally to pay a sum of Rs. 1.00 lakh towards damages and
expenses together with interest at the rate of 6% per annum from the date of judgment till realization. Issue No. 5 is answered accordingly in favour
of the plaintiff.
Issue No. 6:- Since the suit is one for declaration and for recovery of money, and also for damages and expenses etc., the plaintiff is entitled to
the costs incurred by them by way of court fees and other connected expenses. Therefore, issue No. 6 is answered in favour of the plaintiff.
Prayer No. (d) does not survive as the first defendant already effected payment under Letter of Credit by debiting the OCC account of the
plaintiff and hence it is negatived.
In the result, the suit is decreed with costs and the plaintiff is granted the following reliefs:
(a) declaring that the purchase order dated 24.05.1999 (Ex.P 5) made by the plaintiff with the third defendant has been duly and validly cancelled.
(b) The first defendant and third defendants are jointly and severally liable to pay a sum of Rs. 15,03,373/- towards principal and interest of Rs.
37,21,792/- paid by the plaintiff to the first defendant from 27.08.1999 to 31.03.1999 and the subsequent interest on the principal amount paid by
the plaintiff/debited in the account of the plaintiff from 01.04.2007 till this date together with interest at the rate of 18% per annum from the date of
invocation of Letter of Credit(Ex.P 7) till realisation.
(d) The first defendant and third defendant are jointly and severally liable to be a sum of Rs. 1.00 lakh towards damages and expenses with interest
at the rate of 6% per annum from the date of judgment till realization.