NATIONAL BANK LIMITEDversusGHANSHYAM DAS AGARWAL & ORS.

                    [2015) 1 S.C.R. 937


                 NATIONAL BANK LIMITED                          A
                              v.
          GHANSHYAM DAS AGARWAL & ORS.
            (Civil Appeal No. 7513 of 2009)
                    JANUARY 14, 2015
                                                                 8
      [VIKRAMAJIT SEN AND ARUN MISHRA, JJ.]

     International trade - Letter of credit (LC) - Responsibility
of the opening bank - Held: In trans-borcier or international
transactions, trade depends almost entirely on the faith C
reposed in banking institutions to secure the price of the
exporled goods, commodities etc - Exporler can legally and
reliably expect that the Bankers will watch its interests by
ensuring that the exporled consignment shall be released to
the buyer only on the transmission of the price of the D
shipment as secured through LC - Thus, heavy and fiduciary
responsibility rests on the Opening Bank which furnishes LC
to ensure that payment is secured unless the documentation
is defective and/or the invocation of LC is discrepant -
Opening Bank cannot disregard, delay or dilute its E
responsibility to make payment strictly and promptly as
obligated by the terms of LC - Law assures the Exporler and
its Bank to repose in the expectation, nay, cerlainty, that the
consignment, which is the subject-matter of LC is not usurped
by the lmporler/Consignee or its agents, without remitting F
payment to the consignor's Bank - On facts, Indian exporler
exporling rice to Bangladesh firm-imporler - Appellant had
opened LC for sum of USD 352,250 on Bank of India,
Calcutta in favour of Exporter - Appellant Bank evaded
mentioning that without the permission of or information to G
either the Exporler or the Bank of India, it had provided its
cerlification to photocopies of the documentation which, in the
event, and as any prudent banker would anticipate were
misused by the Importer to have the rice consignment
released to him - Appellant admitted its liability in the Dhaka
                              937                                 H
    938       SUPREME COURT REPORTS              [2015) 1 S.C.R.


A Suit filed by importer praying for injunction against the
  appellant that it was under obligation to reimburse the
  payments to the supplier's corresponding bank - Thus, in view
  of the said admission by the appellant, money decree for the
  sum secured by the subject LC by exporter against the
B appellant Bank in favour of the Bank of India was rightly
  decreed by High Court - Banking/banks - Uniform Customs
  and Practice for Documentary Credits 500.

       Tarapore and Co. vs. V. 0. Tractors Export 1969 (2) SCR
  920 :AIR 1970 SC 891; United Commercial Bank vs. Bank
C of India 1981 (2) SCC 766; U.P. Coop. Federation Ltd. vs.
  Singh Consultants & Engineers (P) Ltd. 1988 (1)
   SCR 1124 :1988 (1) SCC 174; Federal Bank Ltd. vs. V.M.
  Jog Engineering Ltd. 2001 (1) SCC 663; Himadri Chemicals
  Industries Ltd. vs. Coal Tar Refining Co. 2007 (8)
D SCR 869:2007 (8) SCC 110 - referred to.
                        Case Law Reference:
          1969 (2) SCR 920         Referred to          Para 4
E         1981 (2) sec 766         Referred to          Para 4
          1988 (1) SCR 1124        Referred to          Para 4
          2001 (1 > sec 663        Referred to ·        Para 4
          2007 (8) SCR 869         Referred to          Para 4
F
         CIVIL APPELLATE JURISDICTION: Civil Appeal No.7513
    of 2009.

      From the Judgment and Order dated 06.11.2006 of the
G High Court of Calcutta at Calcutta in APOT No. 472 of 2006.

        Debajyoti Basu, Sudhir Kumar Gupta, Naseeb Khan,
    Abhinav Gupta, Manish Gupta, Satish Kumar for the Appellant.

      Dhruv Mehta, Sagar Bandopadhyay, Hiren Dasan, Avinash
H Singh, Pranab Kumar Mullick for the Respondents.
  NATIONAL BANK LIMITED v. GHANSHYAM DAS                       939
             AGARWAL & ORS.

    The Judgment of the Court was delivered by                         A

      VIKRAMAJIT SEN, J. 1. Notice was ordered in the
Special Leave Petition (now Appeal) on 9th July, 2007, but
while doing so, this Court had specifically clarified that: "Pending
further orders the impugned order passed by the High Court             B
shall continue to operate". The impugned Order decreed the
suit filed by Ghanshyam Das Agarwal, who is hereinafter
referred to as 'the Exporter:', for a sum of USD 352,250 against
the Appellant Bank (Defendant No.3 before the Trial CourU
Single Judge) in favour of the Bank of India, which is the             C
Exporter's Bank. The remaining claim has been relegated for
Trial. The impugned Order further clarifies that upon the payment
of these decreetal dues the injunction granted by the Debt
Recovery Tribunal by its Order dated April 10, 2002 shall stand
vacated; and upon this payment the Orders of injunction passed
by the Calcutta High Court on 22nd December, 1999 and 14th             D
January, 2000 shall also stand vacated. The impugned Order
goes further to state that the decreetal amount shall be satisfied
from out of the funds lying with the American Express Bank
 Limited, Defendant No.2. To this extent the decreetal amount
also stands satisfied. It also transpires that the Defendant No.4,     E
 M/s. Sarumeah & Sons, a proprietorship concern, has,
 consequent on the death of the sole proprietor, been struck off
from the array of parties. In any event, since claims are posited
 on a Letter of Credit furnished by the Appellant, albeit, on the
 instructions of its now non-existent constituent, namely, M/s.        F
 Sarumeah & Sons, (hereinafter nomenclatured as the 'Importer')
 the latter is really a proforma or at best, a proper party, to the
extent that the claim pertains to the subject Letter of Credit
 (L.C.). The decreetal amount stands satisfied and the Plaintiff/
 Exporter should be pragmatic enough not to expect any further         G
 recovery owing to the legal dissolution of the sole proprietorship
 concern, i.e., the Importer. In essence, therefore, the question
 raised by the Appellant is reduced to an academic one, which
 Courts normally abjure from answering. However, since Leave
                                                                       H
    940       SUPREME COURT REPORTS                [2015] 1 S.C.R.


A   has been granted, we feel curially compelled to briefly delve into
    the factual matrix of the dispute.

          2. On 20th April, 1999, on the request of the Importer, the
    Appellant had opened a Letter of Credit for the aforementioned
B sum of USO 352,250 on Bank of India, Calcutta (Negotiating
    Bank) in favour of the Plaintiff-Exporter; the American Express
    Bank Ltd. Calcutta, is Defendant No.4 in the said civil suit
    bearing CS No.678 of 1999, as the advising Bank of the
    Appellant. The contract was placed on the Plaintiff/Exporter for
C . a consignment of non-basmati rice to be exported from India
    to the Importer in Bangladesh by railroad. One of the terms of
    the Letter of Credit was that one set of non-negotiable shipping
    documents would be couriered after the consignment was
    despatched to the opener of the LC, namely, the Appellant
    before us. This was done on 11th May, 1999 and thereupon
D the Bill of Exchange drawn by the Exporter was discounted by
    its banker, namely, Bank of India, which thereupon drew another
    Bill of Exchange upon the Importer. It is alleged that the
    Appellant received the documentation on 19th May, 1999, and
    on that very day pointed out the existence of certain
E discrepancies therein to the Negotiating Bank. The Appellant's
    case is that it received a letter from the Importer on 1st June,
    1999, stating that the documents were not acceptable and that
    the goods were damaged, and there were also shortages
    therein. In its telex dated 24th June, 1999, the Appellant
F suppressed the stand of the Importer and stated as follows:-

          "RE YR TLX MSG NO. 2288 OTO 24/6/99 CONCERNING
          PAYMENT OF YR BILL UNDER OUR UC NO. 02-133-99.
          PLS BE INFMD THAT THE DOCTS HV NOT BEEN
          ACCEPTED BY THE IMPORTER TILL DATE (.)
G
          MEANTIME WE HOLD YR DOCTS. AT YR ENTIRE RISK
          AND DISPOSAL (.)"

         3. The Negotiating Bank, viz., Bank of India, thereafter,
    raised a demand on the Appellant for the said sum of USO
H
   NATIONAL BANK LIMITED v. GHANSHYAM DAS                      941
     AGARWAL & ORS. [VIKRAMAJIT SEN, J.]

352,250 by its telex dated 12th July, 1999 in response to which         A
the Appellant again, as we see it, evasively and with mala fide
intent, mentioned that the Importer was out of station and that
they would revert to the subject upon his arrival. On 18th July,
1999, the Appellant addressed a telex to Bank of India
informing it that the consignment was located at Darshana               B
Land Custom and that the Importer and Exporter were in
dialogue with each other. Eventually, by its telex dated 26th
August, 1999, the Appellant informed Bank of India that the
documents had not been accepted by the Importer. The
Appellant has admitted in its Written Statement that the                c
documentation was received by it on 19th May, 1999 and
returned to the Bank of India as late as 10th October, 1999. It
has also been admitted by the Appellant that in the interregnum,
without prior information to the Negotiating Bank or to the
 Exporter, it had certified photocopies of the shipping                 D
 documents to its constituent, i.e., the Importer, ostensibly for
 customs purposes. These documents have not been returned
to the Appellant and, obviously on their strength, the Importer
 has managed to clear the entire consignment from the
 Darshana Railway Authority. The say of the Appellant is that this      E
 was achieved through the C&F Agent of the Importer by
 producing a forged NOC and endorsement on the reverse of
 the photocopies of the shipping documents, certified by the
 Appellant. Any reasonably diligent Banker would be alive to the
 possibility of the misuse of documents certified by it, even if
 we are to assume that it was not privy to the fraud. We have           F
 earlier noted and we emphasise that the Appellant had evaded
 mentioning that without the permission of or information to either
 the Exporter or the Bank of India, it had provided its certification
 to photocopies of the documentation which, in the event (and
 as any prudent Banker would anticipate), were misused by the           G
 Importer to have the rice consignment released to him. In trans-
 border or international transactions, trade depends almost
 entirely on the faith reposed in banking institutions to secure
 the price of the exported goods, commodities etc. The Exporter
 can legally and reliably expect that the Bankers will watch its        H
    942       SUPREME COURT REPORTS                 [2015] 1 S.C.R.


A   interests by ensuring that the exported consignment shall be
    released to the buyer only on the transmission of the price of
    the shipment as secured through the Letter of Credit. Heavy and
    fiduciary responsibility, therefore, rests on the Opening Bank
    which furnishes the Letter of Credit to ensure that payment is
B   secured unless the documentation is defective and/or the
    invocation of the Letter of Credit is discrepant. In every legal
    system spanning our globe, jural opinion is unanimous to the
    effect that the Opening Bank cannot disregard, delay or dilute
    its responsibility to make payment strictly and promptly as
c   obligated by the terms of the Letter of Credit. This Bank owes
    a duty to all concerned to ensure that any action taken by it would
    not enable or conduce the frustration of the obligations
    contained in a Letter of Credit, as recognised by International
    Banking norms or extant Uniform Customs and Practice for
    Documentary Credits (UCP) 500. As we see it, therefore,
0
    keeping in perspective that the Importer's Bank i.e., Appellant
    before us, should not have certified the documentation,
    reasonably anticipating or being aware of the possibility that
    this certification could be abused. Law assures the Exporter
    and its Bank to repose in the expectation, nay, certainty, that
E   the consignment, which is the subject-matter of the Letter of
    Credit, is not usurped by the Importer/Consignee or its agents,
    without remitting payment to the consignor's Bank. This is a
    strict liability cast on the bank which opens the Letter of Credit,
    since otherwise International trade and commerce will virtually
F   and indubitably come to a standstill.

         4. It is only when irretrievable injury is bound to result and
    it is plainly evident that there is egregious fraud strictly
    ascribable to the beneficiary of the LC, that a reason to insulate
G   a party before it against liability and that too, comes about only
    through the prompt intervention and interdiction of a Court of
    law. This Court has consistently adhered to this position of law
    even through the passage of several decades. The LC has the
    effect of creating a bargain between the banker and the vendor
H   of goods, a deemed nexus between the Seller and the Issuing
     NATIONAL BANK LIMITED v. GHANSHYAM DAS                    943
       AGARWAL & ORS. [VIKRAMAJIT SEN, J.)

  Bank, rendering the latter liable to the Seller to pay the purchase A
  price or to accept a Bill of Exchange upon tender of the
  documents envisaged and stipulated in the LC (See Tarapore
  and Co. vs. V.O. Tractors Export, AIR 1970 SC 891 where
  Halsbury's Law of England have been relied upon). These
  observations have been repeated in United Commercial Bank B
  vs. Bank of India [1981 (2) SCC 766], U.P. Coop. Federation
  Ltd. vs. Singh Consultants & Engineers (P)Ltd. [1988 (1) SCC
  174], Federal Bank Ltd. vs. V.M. Jog Engineering Ltd. [2001
  (1) SCC 663, Himadri Chemicals Industries Ltd. vs. Coal Tar
  Refining Co. [2007 (8) SCC 110). The Opening Bank must only C
  look to assure itself that the invocation is in terms of the LC,
  and the completion of this exercise has consistently been
  circumscribed to a short period, which in the case in hand is
  one week as per Article 13 B of UCP 500.

       5. It is quite evident to us that it is this reasoning which has D
  persuaded the Division Bench of the Calcutta High Court in the
  impugned Order to comprehensively consider and construe the
  stand taken by the Appellant in the Dhaka Suit as constituting
  a clear admission of the Appellant Bank's liability. We must
  immediately clarify that the Dhaka Suit had been filed by the E
  Importer praying for an injunction against the Appellant as well
  as the Bank of America Ltd. restraining them from releasing
  any payment relating to the subject consignment of rice
  exported to him in Bangladesh by the Exporter from Calcutta.
  There was no impediment or embargo on the Appellant stating F
  in the pleadings in the Dhaka Suit those facts which it now
  seeks to proffer, viz. that it had no liability whatsoever and that
• it did not take any action which enabled or conduced the
  release of the consignment without first securing and remitting
  payment in terms of the LC opened by it. Indeed, a holistic G
  perusal of the Written Statement filed by the Appellant in the
  Dhaka litigation discloses that it had correctly spelt out the
  factual matrix, and the position it had adopted therein was in
  consonance with law pertaining to legal obligations of the
  Opening Bank with regard to the Letter of Credit furnished by H
    944        SUPREME COURT REPORTS                  [2015) 1 S.C.R.


A   it. It is afso noteworthy that the Written Statement was filed in
    the Dhaka litigation after the Appellant had complete knowledge
    of the subject suit filed against the Appellant/Exporter in the
    Calcutta High Court, which suit is the springboard of the present
    Appeal. It also needs clarification that in the Dhaka Suit
B   Defendants 1 and 2 correspond to the Appellant, Defendant
    No. 3 therein is American Express Bank Ltd., i.e., Respondent
    No.3 herein, Defendant No. 4, i.e., Bank of India, is Respondent
    No.2 herein, and Defendant No. 5 is Respondent No.1 in this
    Appeal, i.e., the Plaintiff in the Calcutta Suit. The following
C   paragraphs from the said Written Statement if the Appellant in
    the Dhaka Suit are worthy of reproduction:

          "13. That the statements made in paragraph No. 7 of the
          plaint are matters of record and the matter of strict proof,
          the onus of which lies on the Plaintiff. Moreover, it is stated
D         that the request of the Plaintiff, the Defendant No. 2 certified
          the photocopy of Non-negotiable copies of the shipping
          documents and handed over the same alongwith customs
          purpose copy of LCAF without NOC to the Plaintiff for
          customs assessment purpose. But the Plaintiff never
E         returned the said documents to the Defendant No. 2 Bank.
          But the Plaintiff cleared the entire consignment from the
          Daranana railway Authority through its C & .F Agent M/s
          Anwar Hessian by producing forged NOC and
          endorsement on the back side of the photocopy of the
F         shipping documents.



         17. That the statements made in paragraph No. 11 of the
       · plaint are matters of record and as such the Defendant
G        Nos. 1 and 2 do not offer any comments with regard to
         them. However, it is mentioned here that the Defendant No.
         2 received the discrepant shipping documents on
         19.05.99 and communicated with the negotiating bank i.e.
         Defendant No. 4 as well as the Defendant No. 5 Importer
H        for rectification of the discrepancies. But on 10.10.99 the
NATIONAL BANK LIMITED v. GHANSHYAM DAS                   945
  AGARWAL & ORS. [VIKRAMAJIT SEN, J.]

 Defendant No. 5 rettirned the entire sets of shipping           A
 documents to the negotiating bank i.e. Defendant No. 4
 and mentioned here that the importer i.e. Plaintiff had taken
 delivery of the imported goods against the said shipping
 documents of letter of Credit No. 02-133-99 from Railway
 Station, Darshana during the period from 16.05.99 to            B
 01.06.99 through its C & F Agent M/s Anwar Hassian by
 forged documents. So question of discrepancy in the
 documents is immaterial and irrelevant and as such the
 application filed by the Plaintiff/petitioner for temporary
 injunction is liable to be dismissed.                           c
 18. That the statements made in paragraph No. 12, 13 and
 14 of the application are false fabricated, mala fide,
 concocted and hence denied by Defendant Nos.1 and 2
 it is stated that Defendant No.2 returned the shipping
 documents to the beneficiary's bank i.e. the Defendant No.      D
 4 due to discrepancy therein and requested to stop
 payment against the said shipping documents of the UC
 No. 02-133-99. The Defendant No. 4 communicated the
 same to the Defendant No. 5. But the Defendant No. 5 i.e.
 supplier returned the entire shipping documents and             E
 alleged that the Plaintiff has already taken delivery of the
 goods against the said shipping documents of the UC No.
 02-133-99. It may be mentioned here that the Defendant
 No.5 i.e. the supplier a suit as Plaintiff in this matter in
 Calcutta High Court being suit Nos. C.S. 678 of 1999            F
 against (1) Bank of India (2) American Express Bank
 Calcutta (3) National Bank Limited, Khatungonj all are
 Defendant Nos. 4,3,2 respectively in this suit and (4) M/s
 Saru Meah & Sons Plaintiff in this suit. The supplier i.e.
 Defendant No.5 in this case obtained temporary injuries         G
 from Calcutta High Court in suit No. C.S. 678 of 1999
 restraining American Express Bank Limited, Calcutta i.e.
 Defendant Nos. 3 in this suit from disturbing sums without
 leaving a sum of Rs.1.54 crore equivalent to more or less
 US$ 3,52,250.00 in Nostro AID No.412800566 maintained           H
    946        SUPREME COURT REPORTS                 [2015] 1 S.C.R.


A         with them by the National Bank Limited. The Defendant
          No.1 of suit No. C.S. No.678 of 1999 i.e. Defendant No.
          4 in this onus requested the National Bank Limited, to
          make immediate payment to the Plaintiff of Suit No.678
          of 1999 i.e. Defendant No.5 in this suit i.e. supplier
B         through its corresponding bank American Express Bank
          i.e. Defendant No.3. The Defendant No.1 of the suit No.
          C.S. No.678 of 1999 made such request to the Defendant
          No.1 of this suit on the ground that the goods against the
          shipping documents had already been delivered and
c         consumed by the Defendant No.4 i.e. Plaintiff in this suit.
          Now the Defendant Nos. 1 and 2 are under deligation to
          reimburse the payments to the supplier's corresponding
          bank i.e\ Defendant No.3. So the application filed by the
          Plaintiff for temporary injunction is liable to be dismissed."
D         A perusal of paragraph 18 of the Written Statement filed
          by the Appellant in the Dhaka litigation discloses that its
          position was that it was "under obligation to reimburse the
          payments to the supplier's corresponding bank i.e.,
          Defendant No.3" (Bank of America Ltd. therein). This
E         admission of fact is clear, and in consonance with the law
          pertaining to legal obligations concerning Letters of Credit,
          obliges it to remit payments contemplated therein.
          Assuming that the Appellant did not take any ma/a fide
          action so as to enable the Importer to have the
F         consignment released without authority, it was in clear
          violation of its fiduciary responsibility as the Opener of a
          Letter of Credit. Therefore, insofar as the factual matrix is
          concerned, the Appellant had correctly made the statement
          pertaining to its liability in the Dhaka Suit, which can
G         legitimately be taken as an admission in the Calcutta Suit.

         6. The interim Order, it may be recalled, did not restrain
    or interdict the operation of the impugned Judgment and has
    in actuality, rendered the Appeal infructuous, since the LC
    amounts have left the Appellant's coffers. In view of the
H
   NATIONAL BANK LIMITED v. GHANSHYAM DAS                947
     AGARWAL & ORS. [VIKRAMAJIT SEN, J.]

admission of fact made by the Appellant. we think the Court     A
was correct in concluding in the impugned Judgment that a
money decree for the sum secured by the subject Letter of
Credit (for USO 352,250) should be passed. The Appeal is
without merit and is dismissed with costs.
                                                                B
Nidhi Jain                                  Appeal dismissed.