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Bank Of India v. State Bank Of India

Debts Recovery Tribunal

Jan 20, 2006

Judgment

Subsequent
References

CaseIQ

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Summary of Opinion — K.J. Paratwar, Presiding Officer

Factual and Procedural Background

This application seeks recovery of US $4,65,932.00 (equivalent figures are given in the record) with interest; the applicant ultimately sought to recover US $3,12,000 (equivalent to Rs. 39,07,326.20) paid pursuant to a memorandum of settlement in the United States. The factual matrix as recorded in the opinion is as follows:

On or about 16.6.1979, at the instance of Metro Exports Private Limited (MEPL), the defendant's Overseas Branch in Mumbai opened an irrevocable Letter of Credit (L/C) No. 79/10251 in favour of Palmex Enterprises, Singapore for US $6,24,000. The defendant requested the applicant's Singapore Branch to add confirmation to the L/C; the applicant so confirmed.
The beneficiary presented documents through Hong Kong and Shanghai Bank. The applicant's Singapore Branch negotiated the documents on 11.9.1979, paid the beneficiary (via Hong Kong and Shanghai Bank), and claimed reimbursement from Irving Trust Company (ITC), New York, through Manufacturers Hanover Trust Company (MHTC), New York, the reimbursing agent.
MHTC by cable on 12.9.1979 stated ITC had no authority and reverted to the issuing bank. Communications followed between applicant and defendant in September–October 1979 about alleged discrepancies and the sinking of the vessel "Oh Dai" (dated 8.9.1979).
ITC ultimately made payment on 7.1.1980. The defendant contended that ITC's payment was unauthorised and refused to reimburse ITC; ITC sued in the U.S. District Court, Southern District of New York for recovery of US $6,24,000.
The U.S. suit was settled by a memorandum of settlement dated 15.8.1983 under which the applicant and defendant each paid US $3,12,000 to ITC; the MOU preserved the parties' rights to have the Indian court decide their dispute.
The applicant filed the present original application in India to recover its share of the settlement payment (US $3,12,000) with interest, alleging the documents it negotiated conformed with the L/C; despite demands, defendant did not pay.
The defendant filed a written statement (Exh. 6) resisting the application, contending inter alia that MEPL (the L/C opener) was a necessary party and that the documents negotiated by the applicant did not conform to the L/C.
MEPL filed Suit No. 2754 of 1986 in the High Court in which the parties to this original application were impleaded as defendants; that suit was later dismissed for want of prosecution on 18.10.2004.
Evidence before the court included claim affidavits (Exhs. 18, 32), multiple telex/cable messages admitted as secondary evidence, the text of the L/C in the telex (Exh. 53), defendant's telex pointing out discrepancies (Exh. 24), applicant's replies (Exhs. 20 and 25), and the U.S. suit memorandum (Exh. 26); defendant filed a counter-affidavit (Exh. 51).

Legal Issues Presented

Whether the documents negotiated by the applicant under the Letter of Credit conformed to the terms of the Letter of Credit, thereby entitling the applicant to recover the amount it paid under the memorandum of settlement (US $3,12,000).
Whether the applicant was entitled to recover interest on the amount from the date of filing the original application or from another date (as the applicant claimed interest from the date of filing the original application, but the court awarded interest from 15.8.1983).
Whether the defendant's plea of non-joinder (that MEPL, the opener of the L/C, was a necessary party) affected the maintainability of the original application.

Arguments of the Parties

Applicant's Arguments

The applicant's Singapore Branch negotiated the documents on 11.9.1979 because the presented documents complied with the terms of the Letter of Credit.
The applicant relied on the text of the Letter of Credit (as incorporated in telex Exh. 53) and on provisions of the then-prevailing Uniform Customs and Practice (UCP) — specifically Article 9, Article 20-B and Article 33 — to show the purported discrepancies raised by the defendant were not valid objections to negotiation.
The applicant asserted that the banks do not assume liability for the form, sufficiency, accuracy or genuineness of documents (Article 9), and that in relation to evidence of shipment Article 20-B permitted the bill of lading's contents to suffice without an initialed "shipped on board" notation if the bill otherwise evidenced shipment.
With respect to the certificate of despatch and requirement for non-negotiable copies, the applicant relied on Article 33 to show the requirement was satisfied by air-mailing two sets of non-negotiable copies to the L/C opener.
As a consequence, the applicant contended it was entitled to retain amounts received on behalf of the defendant and, having paid ITC under the MOU, was entitled to recover its share (US $3,12,000) from the defendant.

Defendant's Arguments

The defendant contended that the opener of the L/C (MEPL) was a necessary party and that the original application was defective for non-joinder; MEPL had filed Suit No. 2754 of 1986 in the High Court (later dismissed for want of prosecution).
The defendant asserted the documents submitted by the applicant under the Letter of Credit did not conform to the terms and conditions of the L/C and pointed to specific alleged infirmities by telex dated 26.9.1979 (Exh. 24).
The defendant contended that payment to the applicant was unauthorised; it said it only became aware of ITC's payment upon a letter dated 7.2.1980 and sought reversal of a debit entry; ITC later informed that it had honoured the applicant's claim because it had wrongly interpreted a telex message and ITC reversed the amount in March 1980. The defendant thereby denied liability and sought dismissal of the original application.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court framed the controversy narrowly and proceeded to examine whether the documents negotiated by the applicant under the Letter of Credit conformed to the L/C terms — a threshold on which the applicant's entitlement to recover depends. The court's analysis proceeded as follows:

Recitation of core facts: The court recounted the sequence — issuance and confirmation of the L/C, negotiation by the applicant's Singapore Branch on 11.9.1979, claim for reimbursement from ITC (via MHTC), initial denial of authority by MHTC on 12.9.1979, subsequent communications and allegations of discrepancies (including notice of the sinking of vessel "Oh Dai"), ITC's eventual payment on 7.1.1980, the defendant's refusal to reimburse ITC, and the U.S. litigation culminating in the 15.8.1983 memorandum of settlement under which each side paid US $3,12,000 to ITC.
Proof and admissible record: Although originals of the Letter of Credit and bill of lading were not on the record, the court accepted the text of the L/C as incorporated in the telex (Exh. 53), the defendant's telex setting out infirmities (Exh. 24) and the applicant's replies (Exhs. 20 and 25) as sufficient to decide the key question.
Examination of each alleged infirmity: The court listed the infirmities raised by the defendant and examined each in light of the terms of the Letter of Credit and the then-prevailing UCP provisions relied upon by the applicant:

(i) Bill of lading of doubtful validity — the applicant relied on UCP Article 9 to show banks assume no liability for form/sufficiency/accuracy of documents; the court accepted the applicant's position on this point.
(ii) "Shipped on board" notation not initialed — the applicant relied on Article 20-B of the UCP; the court explained Article 20-B permits shipment to be evidenced either by a bill of lading bearing wording indicating loading/shipment on board a named vessel or by a notation signed/initialled by the carrier; because the bill of lading in this case named the vessel, no separate notation was necessary.
(iii) Bill of lading not indicating type of vessel or voyage number — the court noted the bill of lading mentioned the vessel "Oh Dal" and that the L/C required the name of the steamer; the L/C did not require specification of whether it was a sailing vessel; the defendant itself had stated that the vessel sank (Exh. 22), showing awareness of the vessel's nature; the court found this objection unpersuasive.
(iv) Certificate and bill of lading both dated 1.9.1979 — the applicant again relied on Article 9 to argue that the bank does not assume responsibility for genuineness or falsification; the court accepted the applicant's position in context.
(v) Certificate of despatch not evidencing despatch of PVC resin — the applicant relied on UCP Article 33 to show that mailing two sets of non-negotiable copies to the L/C opener upon shipment satisfied the requirement; the court accepted the applicant's explanation.

Conclusion from analysis of infirmities: The court found that none of the infirmities pleaded by the defendant actually existed when judged against the L/C text and the relevant UCP provisions; the applicant had accepted the documents in accordance with the L/C and therefore was entitled to the amount it received on the defendant's behalf.
Effect of the U.S. settlement: Although the applicant was entitled to retain the amount it had received, it had nonetheless paid US $3,12,000 to ITC pursuant to the memorandum of settlement; therefore, the applicant could seek recovery of that sum from the defendant in India.
Interest: Considering "the present scenario and period for which the interest is to be granted as also the nature of transaction," the court decided that an interest rate of 9% per annum would meet the ends of justice (the applicant had sought a higher rate in its pleadings).
Procedural/joinder point: The court noted MEPL had filed suit in the High Court which was dismissed for want of prosecution, but the court nevertheless proceeded to decide the original application on the basis that the applicant's entitlement depended on conformity of documents — a matter it could decide from the admitted telexes and other materials on record.

Holding and Implications

Holding:

DISPOSED OF — The original application is allowed.

Direct consequences imposed by the court:

The defendant is ordered to pay the applicant Rs. 39,07,326.20 (equivalent to US $3,12,000 as per the MOU) with interest at 9% per annum from 15.8.1983 until full realization.
The original application is allowed with costs.
The court directed issuance of a recovery certificate accordingly.

Broader implications:

The opinion does not articulate any new legal precedent; it rests its decision on the application of the Letter of Credit's terms and the then-prevailing UCP provisions (Articles 9, 20-B and 33) to the admitted documentary record. No broader rule of law or binding precedent was declared beyond the court's application of those documentary-credit principles to the facts of this case.

O.A allowed.

Show all summary ...

K.J Paratwar, Presiding Officer:— This is an application for recovery of US $ 4,65,932.00 equivalent to Indian Rs. 58,35,090.71 with interest @ 18% p.a from the date of filing the original application till full realization.

2. The facts leading to the case are that on (ft about 16.6.1979 at the instance of Metro Exports Private Limited (MEPL), the defendant's Overseas Branch in Mumbai established an irrevocable Letter of Credit No. 79/10251 in favour of M/s. Palmex Enterprises, Singapore in the sum of US $ 6,24,000. The letter of credit was advised through the applicant's Singapore Branch with a request to add its confirmation thereto. Accordingly, the applicant's Singapore Branch advised the letter of credit to the beneficiary who in due course presented documents through Hong Kong and Shanghai Bank under the letter of credit. As the documents presented were in accordance with the letter of credit and with stipulations thereon, the applicant's Singapore Branch negotiated the documents on 11.9.1979 and paid the amounts through Hong Kong and Shanghai Bank to the beneficiary. On that date itself, the applicant's branch despatched the documents to the defendant and claimed US $ 6,24,785 from Irving Trust Company (ITC), New York [through the Manufacturers Hanover Trust Company (MHTC), New York], who were reimbursing agent under the letter of credit.

3. The MHTC, New York by cable dated 12.9.1979 stated that ITC, New York had no authority and that they were reverting to the letter of credit opening Bank. On 13.9.1979, the applicant sent cable to the defendant informing about the reply given by MHTC with a request to immediately advise ITC to pay the amount. On 20.9.1979, the defendant's Overseas Branch sent cable to the applicant's Singapore Branch that on preliminary scrutiny, it found that the documents may not constitute valid lender. The letter also stated that the vessel ‘Oh Dai’ carrying the goods sank en route on 8.9.1979 By cable dated 22.9.1979, the applicant refuted that there were discrepancies in the documents. This was reiterated by the applicant in reply dated 28.9.1979 and dated 1.10.1979

4. The ITC ultimately and on 7.1.1980 the amount without any condition. But, the defendant contended that such payment was unauthorised and refused to reimburse ITC, New York who filed suit against the parties to this original application in the District Court, Southern District, New York for recovery of US $ 6,24,000. That suit ultimately came to be disposed of by memorandum of settlement dated 15.8.1983 under which the parties to this original application paid equal amount (US $ 3,12,000 each) to ITC in full and final settlement. In the MOU however it was specifically agreed that the rights of the parties shall be subject to decision in the legal proceedings in India. It is in the above circumstances that the applicant claims to be entitled to recover a sum US $ 3,12,000 with interest from the date of filing the original application till full realization. As the payment was not made despite repeated demands and notice, this original application is filed.

5. The defendant vide written statement Exh. 6 has resisted the original application inter alia on the ground that the opener of the letter of credit (MEPL) was necessary party. The MEPL filed Suit No. 2754 of 1986 in High Court in which the parties to this original application are impleaded as defendants. The suit is bad for its non-joinder. The facts about the opening of the letter of credit and the correspondence between the parties referred to in the original application are not controverted. The defendants has come out with a case that the documents submitted by the applicant under the letter of credit did not conform to the terms and conditions of the letter of credit. It is contended that only on receipt of letter dated 7.2.1980 from the applicant, calling upon the defendant to pay interest for delayed period, the defendant came to know that ITC had made payment to the applicant. By letter dated 1.3.1980, the defendant called upon to reverse the debit entry which it had earlier affected on 31.12.1979 and re-credit the amount in the defendants' account. The ITC by letter dated 7.3.1980 informed that the applicant's claim was honoured because ITC wrongly interpreted the defendant's telex message. At the instance of the defendant, ITC reversed the amount to its account in March 1980 but filed the suit referred to above which ultimately was settled. The defendant denies the liability on the aforesaid ground and has prayed for dismissal of the original application.

6. The evidence in this case comprises of claim affidavit of Mr. R.K Mitra (Exh. 18) and Mr. R.N Mandke filed additional claim affidavit at Exh. 32. The documents are xerox copies of telex messages which were admitted on the record pursuant to the grant of permission to lead secondary evidence. Import documents of cable confining text of letter of credit (Exh, 53), defendant's letter pointing out discrepancies (Exh. 24), the applicant's replies to it (Exhs. 20 and 25), memo in the suit filed in U.S District Court by ITC (Exh. 26). The defendant filed counter affidavit of Mr. C.B Patel at Exh. 51.

7. The submissions of learned Counsel representing the rival parties marked the end of the hearing.

8. Having regard to the limited controversy, it is necessary to reckon following facts. At the behest of MEPL, the defendant's Overseas Branch in Mumbai had established the letter of credit for US $ 6,24,000 favouring Palmex Enterprises, Singapore. The applicant branch was requested by the defendant to add its confirmation. The applicant did so and as such negotiated on 11.9.1979 the documents presented under the letter of credit since they were conforming to the terms of the letter of credit. Consequently, the applicant demanded payment (through MHTC) from ITC, being reimbursing agent under the letter of credit. The reimbursing agent initially contended that the letter of credit opening Bank had at that point of time not authorized it but eventually made payment on 7.1.1980 The defendant however refused to reimburse ITC whereupon ITC filed suit in District Court, Southern District, New York. By memorandum of settlement dated 15.8.1985, that suit was settled on the applicant's and defendant's making payment each of US $ 3,12,000 to ITC by keeping open the controversy between them to be decided in Indian Court.

9. The opener of the letter of credit (MEPL) had also filed suit being No. 2754 of 1986 in High Court of Judicature at Bombay which came to be dismissed for want of prosecution by order dated 18.10.2004

10. The cause of action of this original application thus has arisen from the applicant's making payment of US $ 3,12,000 to ITC as per the MOU. Although that is so, the applicant can succeed only if it shows that the documents negotiated by it were in conformity with the letter of credit. Neither the letter of credit nor the bill of lading thereunder are available on the record. But, the question on the anvil can be well decided on the basis of text of the letter of credit incorporated in the telex massage (Exh. 53), the defendant's telex message dated 26.9.1979 (Exh. 24) to the applicant setting out the infirmities and the applicant's replies dated 1.10.1979 (Exh. 20) and dated 28.9.1979 (Exh. 25) as to how the points of infirmity raised by the defendant were incorrect. The validity and the correctness of the points raised by the defendant can be examined from the letter of credit. I shall now deal with the infirmities raised by the defendant and the replies given by the applicant and show the correctness or otherwise in the same:

(i) The bill of lading is of doubtful validity: The applicant has squarely met this objection with reference to Article 9 of the then prevailing Uniform Customs and Practice (UCP for documentary credits inter alia providing that the Banks assume no liability or responsibility for the form sufficiency, accuracy, description, quantity, weight, quality, etc. of any document.

(ii) Shipped on board notation not initialed: The applicant has, with reference to terms of letter of credit and Article 20-B (reproduced below for ready reference) of the then UCP rightly pointed out that since the bill of lading clearly mentioned ‘shipped’ and ‘not received for shipment’ notation to that effect was not necessary.

“Article 20-B.: Loading on board a named vessel or shipment on a named vessel may be evidenced either by a bill of lading bearing working indicating loading on board a named vessel or shipment on a named vessel, or by means of a notation to that effect on the bill of lading signed or initialled and dated by the carrier or his agent, and the date of this notation shall be regarded as the date of loading on board the named vessel or shipment on the named vessel”.

The above provision shows that either the name of the vessel may be mentioned in the bill of lading or notation should be there. In this case, name of the vessel appears to have been written on the bill of lading and therefore there was no necessity of notation.

(iii) The bill of lading does not indicate type of vessel or voyage number: The bill of lading in this case admittedly mentioned that the goods were shipped in vessel ‘Oh Dal’. Reading of the letter of credit shows that what was necessary was to give name of the steamer. The letter of credit does not require to specifically mention whether it was a sailing vessel. In any case, in Exh. 22 the defendant had stated that the vessel has sunk which means that it was aware that it was a sailing vessel. This objection also therefore does not hold any water.

(iv) Certificate and bill of lading both dated 1.9.1979: The applicant by referring to Article 9 has correctly stated that the Bank does not assume any responsibility about the genuineness, falsification or illegal effect of any document.

(v) The certificate of despatch does not evidence despatch of PVC resin. The applicant while referring to Article 33 of the then UCP has pointed out that certificate that two sets of non-negotiable copies of documents have been air-mailed to the letter of credit opener as soon as the shipment is effected duly satisfies the said requirement.

11. Thus, none of the infirmities pointed out by the defendant did exist. The applicant had accepted the documents in accordance with the terms of the letter of credit. The applicant therefore was entitled to retain the amount received on behalf of the defendant. But, it was required to give to ITC in view of the memorandum of settlement. The original application therefore for US $ 3,12,000 (equivalent to Rs. 39,07,326.20) will have to be allowed. Considering the present scenario and period for which the interest is to be granted as also the nature of transaction, I think, awarding the interest @ 9% p.a would meet the ends of justice.

(A) The original application is allowed with costs.

(B) The defendant shall pay to the applicant Rs. 39,07,326.20 (Rs. thirty-nine lakh seven thousand three hundred twenty-six and paise twenty only) with interest @ 9% p.a from 15.8.1983 till full realisation.