State Bank of India &
ANR. Vs. M/S. Emmsons International Ltd. & ANR.
JUDGMENT
R.M. Lodha, J.
1.
This
civil appeal, by special leave, is from the judgment and decree of the Madhya
Pradesh High Court whereby the Division Bench of that Court allowed the first appeal
of the present 1st respondent--M/s. Emmsons International Ltd.--and set aside the
1judgment and decree of the trial court (First Additional District Judge,
Bhopal) and decreed the 1st respondent's monetary claim.
2.
Unialkem
Fertilizers Limited--2nd respondent in this appeal (hereinafter referred to as `the
buyer') placed a purchase order on M/s. Emmsons International Limited
(hereinafter referred to as `the seller') for supply of 2000 MT of Syrian Rock
Phosphate at the rate of Rs. 2100/- per metric ton for an aggregate amount of
Rs. 43,86,411/-. The payment terms provided `against 180 days issuance of
letter of credit'. On June 18, 1997, at the request of the buyer, a letter of credit
for Rs. 43,86,411/- was established by the appellant No. 1 -- State Bank of India,
Industrial Finance Branch, Bhopal (hereinafter referred to as `the issuing bank')
in favour of the seller; the appellant No. 2 State Bank of India, New Delhi
Main Branch, New Delhi being the advising Bank. The seller supplied the
material vide sale invoice, high seas delivery, bills of lading, etc. and the
buyer is said to have accepted the documents.
3.
The
letter of credit established by the issuing bank, inter alia, made the
following stipulations: " . . . . . . . THIS DOCUMENTARY CREDIT WHICH IS AVAILABLE
BY NEGOTIATION OF 2 YOURDRAFT AT 180 DAYS FROM DESPATCH DRAWN FOR 100.00% OF INVOICE
VALUE ON UNIALKEM FERTILIZERS LTD., E-5 PLOT NO. 4, RAVI SHANKAR NAGAR, BHOPAL,
462 016 BEARING THE CLAUSE "DRAWN UNDER DOCUMENTARY CREDIT NO. 0192097 LC000087
OF STATE BANK OF INDIA, INDUSTRIAL FINANCE BRANCH, GR. FLOOR, L.H.O. PREMISES, HOSHANGABAD
ROAD, BHOPAL - 462 011 (INDIA)." ACCOMPANIED BY DOCUMENTS LISTED IN
ATTACHED SHEET (S) EVIDENCING DISPATCH OF GOODS AS PER THE ATTACHED SHEETS. FOR
LIST OF REQUIRED DOCUMENTS, MERCHANDISE DESCRIPTION AND OTHER INSTRUCTIONS PLEASE
SEE
THE ATTACHED CONTINUATION
SHEETS WHICH FORM AN INTEGRAL PART OF THIS CREDIT. SHIPMENT FROM : SYRIA TO
KANDLA, INDIA SHIPMENT TERMS : CIF PARTIAL SHIPMENT : ALLOWED TRANSSHIPMENT : NOT
ALLOWED INSTRUCTION TO THE ADVISING BANK: - ALL BANK CHARGES (OTHER THAN ISSUING
BANK CHARGES) ARE FOR ACCOUNT OF BENEFICIARY.- DISCREPANT DOCUMENTS TO BE SENT STRICTLY
ON COLLECTION BASIS.- ALL DOCUMENTS TO INDICATE L/C NO. 0192097 LC 000087 AND
DATE 18/06/97.- NEGOTIATIONS UNDER THIS CREDIT ARE RESTRICTED TO STATE BANK OF INDIA,
NEW DELHI, MAIN BRANCH, 11, SANSAD MARG, POST BOX NO. 430, NEW DELHI - 110 001.
EXCEPT IN SO FAR AS OTHERWISE
EXPRESSELY STATED THIS DOCUMENTARY CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND
PRACTICES FOR DOCUMENTARY CREDITS (UCP) (1993 REVISION) OF THE INTERNATIONAL CHAMBERS
OF COMMERCE (PUBLICATION NO. 500) WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE
HOLDERS THAT DRAFT DRAWN AND NEGOTIATED IN CONFORMITY WITH THE TERMS OF THIS CREDIT
WILL BE DULY HONOURED ON PRESENTATION AND THAT DRAFTS ACCEPTED WITHIN THE TERMS
OF THIS CREDIT WILL BE DULY HONOURED AT MATURITY. THE AMOUNT OF EACH DRAFT MUST
BE ENDORSED ON THE REVERSE OF THIS CREDIT BY THE NEGOTIATION BANK..........."
(Emphasis supplied by us)
4.
The
terms of Letter of Credit were amended on June 23, 1997 to the following effect
: "AT THE REQUEST OF THE APPLICANT UNIALKEM FERTILIZERS LTD., E-5 PLOT NO.
4, RAVI SHANKAR NAGAR, BHOPAL - 462 016. WE HAVE TODAY AMENDED OUR CAPTIONED LETTER
OF CREDIT AS UNDER : FIRST PAGE OF LETTER OF CREDIT LINE SECOND TO READ AS : NEGOTIATION
OF YOUR DRAFT AT 180 DAYS FROM THE DATE OF DELIVERY ORDER DATED 18/06/97
INSTEAD OF EXISTING PLEASE MAKE
THE FOLLOWING AMENDMENTS
TO ATTACHED SHEET NO. 1 OF 4 L/C POINT NO. 01 TO BE DELETED POINT NO. 02 TO BE
DELETED POINT NO. 04 TO READ AS COPY OF CERTIFICATE OF SYRIAN ORIGIN ISSUED BY CHAMBER
OF COMMERCE INSTEAD OF EXISTING. POINT NO. 05 TO READ AS COPY OF CERTIFICATE OF
QUALITY AND QUANTITY ISSUED BY CHAMBER OF COMMERCE INSTEAD OF EXISITING POINT
NO. 12 TO READ AS DRAFT DRAWN UNDER THIS LETTER OF CREDIT ARE NEGOTIABLE BY THE
STATE BANK OF INDIA, MAIN BRANCH, NEW DELHI AND ORIENTAL BANK OF COMMERCE, OVERSEAS
BANK, NEHRU PLACE, NEW DELHI ALSO INSTEAD OF EXISTING. ALL OTHER TERMS AND
CONDITIONS REMAIN UNCHANGED." (Emphasis supplied by us)
5.
On
July 8, 1997, the issuing bank received negotiated documents under the letter of
credit from Oriental Bank of Commerce (hereinafter to be referred as `negotiating
bank') for payment. On that day itself, the issuing bank pointed out the
following discrepancies to the negotiating bank : (i) certificate from the negotiating
bank mentioning all the terms of credit have not been furnished; (ii) the
certificate of Syrian Origin is not issued by Chamber of Commerce.The issuing bank,
thus, advised the negotiating bank to rectify the discrepancies within seven
days of submission of documents.
6.
Thereafter,
between July 10, 1997 and February 7, 1998, the correspondence ensued through telegrams
and letters between the negotiating bank and the issuing bank. According to the
negotiating bank, the discrepancies notified by the issuing bank were rectified
and the documents complied with the requirement of the credit. On the other
hand, the issuing bank continued to insist that the documents were discrepant;
the documents presented were not acceptable to it and it was holding the
documents on collection basis at the risk and responsibility of the negotiating
bank.
7.
It
was then that the seller brought an action by way of a summary suit for a
decree in the sum of Rs. 63,74,356/- (principal amount of Rs. 43,86,411/- and
interest of Rs. 19,87,945/-) together with the interest at the rate of 18 per
cent per annum from the date of the suit to the date of decree and thereafter the
interest at the same rate on decretal amount till realization against the issuing
bank and the advising bank. The buyer was impleaded as a formal party.
8.
The
issuing bank (defendant no. 1) made an application for leave to defend which
was granted by the trial court. The issuing 6bank then filed written statement
justifying its action of not honouring the credit on diverse grounds, namely; (i)
the certificate of origin issued by Chamber of Commerce was different from the
certificate of origin dated March 30, 1997 issued by the supplier of the
material; (ii) neither the description of goods nor the quantity or weight
matched with each other in the above documents; (iii) the certificate of origin
has been issued in favour of MMTC and not in favour of the seller; (iv) at the request
of the negotiating bank, the documents were retained by it but only on
collection basis in order to remit the amount after collecting the same from
the buyer and (v) it has acted in accord with Uniform Customs and Practice for Documentary
Credits (for short, ` UCP500').
9.
On
the pleadings of the parties, the trial court framed the following five issues
: "Issue No. 1. Whether respondent Nos. 1 & 2 have dishonoured the documents
relating to the "letter of credit" against the rules and practice? Issue
No. 2. Whether applicant is eligible to get Rupees 43,86,411/- and 18 percent
interest p.a. over it from respondent Nos. 1 & 2 on the 7 basis of letter of
credit given by them? Issue No. 3. Assistance and expenses? Issue No. 4 Whether
respondent is eligible to get Rs. 14,258/- as handling/collection fee from applicant?
Issue No. 5. Whether applicant has accepted the encashment of bill and document
on collection basis?" It may be noted that trial court has referred to the
seller as applicant and the issuing bank (defendant no. 1) and the advising bank
(defendant no. 2) as respondent nos. 1 and 2 respectively.
10.
The
parties tendered oral as well as documentary evidence in support of their
respective case.
11.
The
trial court after viewing the evidence and hearing the arguments held that the
issuing bank has properly dishonoured the documents relating to the letter of credit
and the seller was not entitled to get any amount or interest from the issuing
bank and the advising bank on the basis of that letter of credit. The trial
court has also concluded that seller accepted the encashment of bill and
document on collection basis. In light of these findings, the trial court vide
its decision dated February 4, 2002 dismissed the seller's claim.
12.
The
seller filed first appeal against the judgment and decree of the trial court
before the High Court of Madhya Pradesh. As noted above, the Division Bench of
that Court allowed the seller's appeal and granted a decree to the seller as
prayed in the suit.
13.
The
legal position appears to be fairly well-settled that a draft with accompanying
documents must be in strict accord with the letter of credit. If the documents
presented comply with the terms of the credit, the issuing bank must honour its
obligation in accordance with the terms of credit. In United Commercial Bank v.
Bank of India and others1, this Court referred to few decided cases of the
English Courts, Halsbury's Laws of England and also couple of books on the subject
by eminent authors--Davis' Law Relating To Commercial Letters of Credit, 2nd
Edn. (at page 76) and Paget's Law of Banking, 8th Edn. (at page 648)--and it was
held that the documents tendered by the seller must comply with the terms of
the letter of credit and that the banker owes a duty to the buyer to ensure that
the buyer's instructions relative to the documents against which the letter of
credit is to be honoured are complied with.
It was stated that
the description of the goods in the relative bill of 1 (1981) 2 SCC 766 lading must
be the same as the description in the letter of credit, that is, the goods themselves
must in each case be described in identical terms, even though the goods differently
described in the two documents are, in fact, the same. The Court reiterated, `
. . . . . . 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'.
14.
Where
the customer of bank instructs the bank to open a credit, the bank acts at its
peril if it departs from the precise terms of the mandate.
15.
Lord
Diplock in Commercial Banking Co. of Sydney Ltd. v. Jalsard Pty. Ltd.2 stated
at page 286 of the Report that the issuing banker and his correspondent bank have
to make decisions as to whether a document which has been tendered by the
seller complies with the requirements of a credit.2 (1973) AC 279
16.
It
needs no emphasis that a contract is concluded between the issuing bank and the
seller no sooner the bank issues the credit and communicates it to the seller. Under
an irrevocable credit the issuing bank gives an unequivocal and binding
undertaking to the seller that it will pay against documents/bills drawn in
compliance with the terms of credit.
17.
The
relevant clauses of Articles 13, 14 and 19 of UCP 500 read as under: "Article
13. Standard for Examination of Documents a Banks must examine all documents stipulated
in the Credit with reasonable care, to ascertain whether or not they appear, on
their face, to be in compliance with the terms and conditions of the Credit. Compliance
of the stipulated documents on their face with the terms and conditions of the
Credit shall be determined by international standard banking practice as reflected
in these Articles. Documents which appear on their face to be inconsistent with
one another will be considered as not appearing on their face to be in compliance
with the terms and conditions of the Credit. Documents not stipulated in the Credit
will not be examined by banks.
If they receive such
documents, they shall return them to the presenter or pass them on without
responsibility. b The Issuing Bank, the Confirming Bank, if any, or a Nominated
Bank acting on their behalf, shall each have a reasonable time, not to exceed
seven banking days following the day of receipt of the documents, to examine the
documents and determine whether to take up or refuse the documents and to inform
the party from which it received the documents accordingly. c . . . . . .
.Article 14. Discrepant Documents and Noticea . . . . . . 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 judgement 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. . . . . . . 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. . . . . . . . . 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 presenter, 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 . . . . . . . . . . Article 19. Bank-to-Bank Reimbursement
Arrangements a . . . . . . . b Issuing Banks shall not require a Claiming Bank to
supply a certificate of compliance with the terms and conditions of the Credit
to the Reimbursing Bank. c . . . . . . . . d . . . . . . e . . . . . . ."
18.
In
light of the above legal position, we heard Mr. R.K. Sanghi, learned counsel for
the appellants and Mr. Shyam Divan, learned senior counsel for the 1st respondent
for some time. In the course of hearing, however, it transpired that the High
Court in its judgment that runs into 56 foolscap pages while reversing the
judgment of the trial court, has not at all adverted to issue no. 5 framed by
the trial court nor it considered or upset the finding of the trial court on
that issue.
19.
Mr.
Shyam Divan, learned senior counsel for the seller - 1st respondent fairly
stated that the finding on issue no. 5 recorded by the trial court has not at all
been considered in the impugned judgment although, he strenuously urged that once
the discrepancies on the basis of which the issuing bank refused the documents
were rectified and the time allowed for encashment had expired, the issuing
bank was obliged to honour the letter of credit and the case set up by the
issuing bank that the seller had accepted the encashment of bill and document
on collection basis was false and frivolous.
20.
Having
regard to the controversy set up by the parties in the course of trial, in our
view, it cannot be said that issue no. 5 is immaterial or finding of the trial court
on that issue is inconsequential. The High Court was hearing the first appeal and,
as a first appellate court it ought to have considered and addressed itself to all
the issues of fact and law before setting aside the judgment of the trial
court. The judgment of the High Court suffers from a grave error as it ignored
and overlooked the finding of the trial court on issue no. 5 that the seller
accepted the encashment of bill and document on collection basis. The High
Court was required to address itself to issue no. 5 which surely had bearing
on the final outcome of the case.
21.
In
Santosh Hazari v. Purushottam Tiwari (Deceased) by L.Rs.3, this Court held (at
pages 188-189) as under : "........The appellate court has jurisdiction to
reverse or affirm the findings of the trial court. First appeal is a valuable
right of the parties and unless restricted by law, the whole case is therein
open for rehearing both on questions of fact and law. The judgment of the appellate
court must, therefore, reflect its conscious application of mind and record findings
supported by reasons, on all the issues arising along with the contentions put
forth, and pressed by the parties for decision of the appellate court. ... while
reversing a finding of fact the appellate court must come into close quarters with
the reasoning assigned by the trial court and then assign its own reasons for
arriving at a different finding. This would satisfy the court hearing a further
appeal that the first appellate court had discharged the duty expected of
it......"
22.
The
above view has been followed by a 3-Judge Bench decision of this Court in Madhukar
and Others v. Sangram and Others4, wherein it was reiterated that sitting as a court
of first appeal, it is the duty of the High Court to deal with all the issues
and the evidence led by the parties before recording its findings.
23.
In
the case of H.K.N. Swami v. Irshad Basith (Dead) by LRs.5, this Court (at pages
243-244) stated as under : "The first appeal has to be decided on facts as
well as on law. In the first appeal parties have the right to be heard both on questions
of law as also on facts and the first appellate court is required to address
itself to all issues and decide the case by giving reasons. Unfortunately, the High
Court, in the present case has not recorded any finding either on facts or on law.
Sitting as the first appellate court it was the duty of the High Court to deal
with all the issues and the evidence led by the parties before recording the finding
regarding title.........".
24.
Again
in Jagannath v. Arulappa and Another while considering the scope of Section 96
of the Code of Civil Procedure, 1908, this Court (at pages 303-304) observed as
follows : "2. A court of first appeal can reappreciate the entire evidence
and come to a different conclusion. In the present case, we find that the High Court
has not adverted to many of the findings which had been recorded by the trial court.
For instance, while dismissing the suits filed by the respondents, the trial court
had recorded a finding on Issue that the defendant-appellant had taken actual possession
of the suit properties in Execution Petition No. 137 of 1980 arising out of OS
No. 224 of 1978. Without reversing this finding, the High Court simply allowed
the appeals and decreed the suits filed by the plaintiff-respondents in toto. Similarly,
there are other issues on which findings recorded by the trial court have not
been set aside by the High Court. The points involved in the appeals before the
High Court required a deeper consideration of the findings recorded by the trial
court as well as the evidence and the pleadings on record."
25.
The
decided cases of this Court in Jagannath6 and H.K.N. Swami5 were noticed by
this Court in a later decision in the case of Chinthamani Ammal v. Nandagopal
Gounder and Another7.
26.
In
our view, the High Court failed to follow the fundamental rule governing the exercise
of its jurisdiction under Section 96 of the Code of Civil Procedure, 1908 that
where the first appellate court reverses the judgment of the trial court, it is
required to consider all the issues of law and fact. This flaw vitiates the
entire judgment of the High Court. The judgment of the High Court, therefore,
cannot be sustained.
27.
For
the above reasons, we accept the appeal, set aside the impugned judgment of the
High Court and restore First Appeal No. 225 of 2002 for re-hearing and fresh
decision. All contentions of the parties are kept open to be agitated at the
time of the hearing of the first appeal. No order as to costs.
.........................J.
(Aftab Alam)
........................
J. (R.M. Lodha)
NEW
DELHI.
AUGUST
18, 2011.
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