Supreme Court of India
STATE BANK OF INDIA AND ANR.versusM/S. EMMSONS INTERNATIONAL LTD. AND ANR.
- Citation
- 2011 INSC 592
- Decided
- 18 August 2011
- Disposal
- Disposed off
- Bench
- AFTAB ALAM
Holding
An issuing bank is bound to honour an irrevocable letter of credit if the presented documents strictly comply with its terms, and a first appellate court must consider every issue of fact and law; failure to do so invalidates its judgment.
Summary
The buyer placed a purchase order for Syrian rock phosphate and obtained an irrevocable letter of credit (LC) from State Bank of India (issuing bank) in favour of the seller. The seller presented documents to the negotiating bank, which forwarded them to the issuing bank; the bank flagged discrepancies and refused payment, alleging non‑compliance with the LC terms. The trial court held that the bank had properly dishonoured the documents and that the seller had accepted the bill on a collection basis, dismissing the seller's claim. The High Court reversed that decision, granting a decree to the seller, but failed to consider the trial court's fifth issue regarding acceptance of the bill on collection. The Supreme Court affirmed the principle that an issuing bank must honour an irrevocable LC when documents strictly comply, and held that a first appellate court must address all factual and legal issues; its failure to do so vitiated the High Court judgment, leading to the restoration of the first appeal for rehearing.
Issues considered
- Whether the issuing bank must honour an irrevocable letter of credit when presented documents strictly comply with its terms.
- Whether the bank can refuse payment on the basis of alleged discrepancies in the documents.
- Whether the seller had accepted the encashment of the bill and documents on a collection basis.
- Whether the High Court erred by not considering all issues of fact and law, particularly issue no. 5, in violation of Section 96 of the CPC.
- Whether the appeal should be allowed and the High Court judgment set aside.
Legislation cited
Subjects
Letter of CreditDocumentary CreditIrrevocable CreditBank ObligationsUCP 500Section 96 CPCAppellate JurisdictionDocument DiscrepancyBank Duty of Care
Judgment
[2011) 10 S.C.R. 436
A STATE BANK OF INDIA AND ANR.
V.
M/S. EMMSONS INTERNATIONAL LTD. AND ANR.
(Civil Appeal No. 1709 of 2007)
AUGUST 18, 2011
B
[AFTAB ALAM AND R.M. LODHA, JJ.]
Bank/Banking: Letter of credit - Held:. Where the
customer of bank instructs the bank to open a credit, the bank
C acts at its peril if it departs from the precise terms of the
mandate - 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
D undertaking to the seller that it will pay against documents!
bills drawn in compliance with the terms of credit - 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
E in accordance with the terms of credit - In the instant case,
second respondent placed a purchase order to the seller for
Rs. 43 lacs - Letter of credit was established by the issuing
bank in favour of the seller- Issuing bank received negotiated
documents under the letter of credit from 'negotiating bank'
F and pointed out discrepancies - Monetary claim was filed by
seller against the issuing Bank and the advising Bank - Trial
Court dismissed the seller's claim, however, High Court
granted a decree to the seller as prayed in the suit - The order
of the High Court was made ignoring and overlooking the
finding of the trial court that the seller accepted the
G encashment of bill and document on collection basis - High
Court was required to address itself to the said issue which
surely had bearing on the final outcome of the case - It failed
to follow the fundamental rule governing the exercise of its
H 436
STATE BANK OF INDIA AND ANR. v. EMMSONS 437
INTERNATIONAL LTD. AND ANR.
jurisdiction u/s. 96, CPC that where the first appellate court A
reverses the judgment of the trial court, it is required to
consider all the issues of law and fact - This flaw vitiated the
entire judgment of the High Court - Judgment of the High
Court set aside and First Appeal restored for re-hearing and
fresh decision - Code of Civil Procedure, 1908 - s. 96. B
The second respondent-buyer placed a purchase
order on first respondent-seller for supply of 2000 MT of
Syrian Rock Phosphate for Rs.43 lacs. The payment
terms provided 'against 180 days i~suance of a letter of C
credit'. At the request of buyer, a letter of credit for Rs.43
lacs was established by appellant no.1 (issuing bank) in
favour of the seller. Appellant no.2 was the advising bank.
The seller supplied the material and the buyer was said
to have accepted ttre documents. On July 8, 1997, the
issuing bank received negotiated documents under the D
letter of credit from negotiating bank for payment. On that
day itself, the issuing bank pointed out the discrepancies
to the negotiating bank that the certificate from
negotiating bank mentioning all the terms of credit were
not furnished. The ,issuing bank, thus, advised the E
negotiating bank to rectify the discrepancies within
seven days of submission of documents. In the
correspondence between the·negotiating bank and the
issuing bank, the negotiating bank took stand that the
discrepancies notified by the issuing bank were rectified F
and the documents complied with the requirement of
credit. However issuing bank continued to insist that the
documents were discrepant and were not acceptable to
it. The seller filed a monetary suit against the issuing bank
and advising bank. The buyer was impleaded as formal G
party. The trial court held that the issuing bank had
properly dishonoured the docume~ts 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 also H
438 SUPREME COURT REPORTS [2011] 10 S.C.R.
A concluded that seller accepted the encashment of bill and
document on collection basis. In light of these findings,
the trial court dismissed the seller's claim. The seller filed
appeal before the High Court. The High Court allowed the
seller's appeal. The instant appeal was filed challenging
B the order of the High Court.
Disposing of the appeal, the Court
Held: 1. The legal position is fairly well-settled that a
· draft with accompanying documents must be in strict
C 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. [Para 13] [446-D-E]
D United Commercial Bank v. Bank of India and others
(1981) 2 sec 766 - relied on.
2. 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. A contract is concluded
E 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
F with the terms of credit. [Paras 14, 16] (447-B, D]
Lord Diplock in Commercial Banking Co. of Sydney Ltd.
v. JalsardPty. Ltd. (1973) AC 279 - referred to.
3. The issue no. 5 framed by the trial court was
G whether the seller accepted the encashment of bill and
document on collection basis~ It cannot be said that
Issue no. 5 was immaterial or finding of the trial court on
that issue was Inconsequential. The High Court did not
advert to issue no.5 at all nor did it upset or consider the
H
STATE BANK OF INDIA AND ANR. v. EMMSONS 439
INTERNATIONAL LTD. AND ANR.
finding of the trial court on that issue. The High Court was A
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 suffered
from a grave error as it ignored and overlooked the said B
finding of the trial court. The ·High Court was required to
address itself to issue no. 5 which surely had bearing on
the final outcome of the case. The High Court failed to
follow the fundamental rule governing the exercise of its
jurisdiction under Section 96 of the Code of Civil c
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 vitiated
the entire judgment of the High Court. The judgment of
the High Court, therefore, cannot be sustained. The first D
appeal is restored for rehearing and fresh decision.
[Paras 18, 20, 26, 27] [450-A, D, F; 452-E-G]
Santosh Hazari v. Purushottam Tiwari (Deceased) by
L.Rs. (2001) 3 SCC 179: 2001 (1) SCR 948; Madhukar and
Others v. Sangram and Others (2001) 4 SCC 756: 2001 (3) E
·scR 138; H.K.N. Swami v. lrshad Basith (Dead) by LRs.
(2005) 10 SCC 243; Jagannath v. Arulappa and Anr. (2005)
12 SCC 303; Cfiinthamani Ammal v. Nandagopal Gounder
and Anr. (2007) 4 sec 163: 2007 (2) SCR 903 - relied on.
F
Ha/sbury's Laws of England; Davis' Law Relating To
Commercia/Letters of Credit, 2nd Edn. (at page 76); Paget's
Law of Banking 8th Edn. (at page 648) - referred to.
Case Law Reference:
G
(1981 > 2 sec 766 relied on Para 13
(1973) AC 279 referred to Para 15
2001 (1) SCR 948. relied on Para 21
H
440 SUPREME COURT REPORTS [2011) 10 S.C.R.
A 2001 (3) SCR 138 relied on Para 22
(2005) 1o sec 243 relied on Para 23
(2005) 12 sec ~03 relied on Para 24
2007 (2) SCR 903 relied on Para .25
B
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1709 of 2007.
From the Judgment & Order dated 11.11.2006 of the High
c court of Madhya Pradesh in First Appeal No. 225 of 2002.
R.K. Sanghi (for Anil Kumar Tandale) for the Appellants.
Shyam Divan, C.D. Mulherkar, S.S. Khemka (for Punit Dutt
Tyagi) for the Respondents.
D
The Judgment of the Court was delivered by
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
E appeal of the present 1st respondent-Mis. Emmsons
International Ltd.-and set aside the judgment and decree of
the trial court (First Additional District Judge, Bhopal) and
decreed the 1st respondent's monetary claim.
F 2. Unialkem Fertilizers Limited-2nd respondent in this
appeal (hereinafter referred to as 'the buyer') placed a
purchase order on Mis. 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
G 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
}i referred to as 'the issuing bank') in favour of the seller; the
STATE BANK OF INDIA AND ANR. v. EMMSONS 441
INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.]
appellant No. 2 - State Bank of India, New Delhi Main Branch, A
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 B
alia, made the following stipulations:
" ........ THIS DOCUMENTARY CREDIT WHICH IS
AVAILABLE BY NEGOTIATION OF YOUR DRAFT AT
180 DAYS FROM DESPATCH DRAWN FOR 100.00%
OF INVOICE VALUE ON UNIALKEM FERTILIZERS LTD., C
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, D
HOSHANGABAD ROAD, BHOPAL - 462 011 (INDIA)."
ACCOMPANIED BY DOCUMENTS LISTED IN
ATTACHED SHEET (SJ EVIDENCING DISPATCH OF
GOODS AS PER THE ATTACHED SHEETS.
E
FOR LIST OF REQUIRED DOCUMENTS,
MERCHANDISE DESCRIPTION AND OTHER
INSTRUCTIONS PLEASE SE,E THE ATTACHED
CONTINUATION SHEETS WHICH FORM AN
INTEGRAL PART OF THIS CREDIT.
F
SHIPMENT FROM : SYRIA TO KANDLA, INDIA
SHIPMENT TERMS : CIF
PARTIAL SHIPMENT : ALLOWED
G
TRANSSHIPMENT : NOT ALLOWED
INSTRUCTION TO THE ADVISING BANK:
ALL BANK CHARGES (OTHER THAN ISSUING H
442 SUPREME COURT REPORTS [2011) 10 S.C.R.
A BANK CHARGES) ARE FOR ACCOUNT OF
BENEFICIARY.
DISCREPANT DOCUMENTS TO BE SENT
STRICTLY ON COLLECTION BASIS.
B 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
c DELHI, MAIN BRANCH, 11, SANSAD MARG,
POST BOX NO, 430, NEW DELHI -110 001.
EXCEPT IN SO FAR AS OTHERWISE
EXPRESSEL Y STA TED THIS
DOCUMENTARY CREDIT IS SUBJECT TO
D
THE UNIFORM CUSTOMS AND PRACTICES
FOR DOCUMENTARY CREDITS (UCP) (1993
REVISION) OF THE INTERNATIONAL
CHAMBERS OF COMMERCE (PUBLICATION
NO. 500)
E
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
F 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 .......... ."
G (Emphasis supplied by us)
4. The terms of Letter of Credit were amended on June
23, 1997 to the following effect :
H "AT THE REQUEST OF THE APPLICANT UNIALKEM
STATE BANK OF INDIA AND ANR. v. EMMSONS 443
INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.]
FERTILIZERS LTD., E-5 PLOT NO. 4, RAVI SHANKAR A
NAGAR, BHOPAL - 462 016. WE HAVE TODAY
AMENDED OUR CAPTIONED LETTER OF CREDIT AS
UNDER:
FIRST PAGE OF LETTER OF CREDIT LINE SECOND B
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 L/C POINT NO. 01 TO BE DELETED POINT C
NO. 02 TO BE DELETED POINT NO. 04 TO READ AS
COPY OF CERT/FICA TE OF SYRIAN ORIGIN ISSUED
BY CHAMBER OF COMMERCE INSTEAD OF
EXISTING. POINT NO. 05 TO READ AS COPY OF
CERT/FICA TE OF QUALITY AND QUANTITY ISSUED
BY CHAMBER OF COMMERCE INSTEAD OF D
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 E
INSTEAD OF EXISTING.
ALL OTHER TERMS AND CONDITIONS REMAIN
UNCHANGED."
(Emphasis supplied by us} F
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 tha_t day itself, the issuing bank pointed out the G
following discrepancies to the negotiating bank :
(i) certificate from the negotiating bank mentioning all
the terms of credit have not been furnished;
H
444 SUPREME COURT REPORTS [2011] 10 S.C.R.
A (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.
8
6. Th~reafter, betwe!'!n 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
C by the issuing bank were rectified and the documents complied
with th~ 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
D responsibility of the negotiating bank.
7. It was then that the seller bro1.ght an action by way of a
summary suit for a decree in the sum of Rs. 63,74,356/-
(principal amotmt/of Rs. 43,86,411/- and interest of Rs.
E 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.
F 8. The issuing bank (defendant no. 1) made an application
for leave to defend which was granted by the trial court. The
issuing bank 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
G 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
H the request of the negotiating bank, the documents were
STATE BANK OF INDIA AND ANR. v. EMMSONS 445
INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.]
retained by it but only on collection basis in order to remit the A
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 B
the following five issues :
"Issue No. 1. Whether respondent Nos. 1 & 2 have
dishonoured the documents relating to
the "letter of credif' against the rules and
practice?
c
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 basis of letter of credit given D
by them?
. Issue No. 3. Assistance and expenses?
Issue No. 4 Whether respondent is eligible to get
Rs.14,258/- as handling/collection fee E
from applicant?
Issue No. 5. Whether applicant has accepted the
encashment of bill and document on
collection basis?" F
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
respectiwely.
G
1O. 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 argu'ments held that the issuing bank has properly H
446 SUPREME COURT REPORTS [2011] 10 S.C.R.
A 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
B 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 a·nd
decree of the trial court before the High Court of Madhya
Pradesh. As noted above, the Division Bench of that Court
C 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
D 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 others 1, this Court
referred to few decided cases of the English Courts, Halsbury's
E 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
F 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 lading must be the same as the description in the letter
of credit, that is, the goods themselves must in each case be
G 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
H 1. (1981) 2 sec 766
STATE BANK OF INDIA AND ANR. v. EMMSONS 447
INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.]
the buyer and seller. Duties of a bank under a letter of credit A
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 ietter of credit'.
14. Where the customer of bank instructs the bank to open B
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 C
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.
16. It needs no emphasis that a contract is· concluded
between the issuing bank <;1nd the seller no sooner the bank D
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 E
500 read as under:
"Article 13.
Standard for Examination of Documents
F
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 G
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
2. (1973) AC 279. H
448 SUPREME COURT REPORTS [2011] 10 S.C.R.
A 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,
B 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
c 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.
D
c .......
Article 14.
Discrepant Documents and Notice
E a ......
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
F
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.
G
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
H of the discrepancy(ies}. This does not, however,
STATE BANK OF INDIA AND ANR. v. EMMSONS 449
INTERNATIONAL LTD. AND ANR. [R.M, LODHA, J.]
extend the period mentioned in sub. Article 13 (b). A
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 B
documents at the disposal of, or is returning them
to, the presenter.
iii. . . . . . . . .
e If the Issuing Bank and/or Confirming Bank, if any, c
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
D
not in compliance with the terms and conditions of
the Credit.
f ..........
Article 19.
E
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 F
conditions of the Credit to the Reimbursing Bank.
c ........
d ......
e ....... II
G
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 H
450 SUPREME COURT REPORTS [2011) 10 S.C.R.
A 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
8 - 1st respondent fairly sta~dJbat-the-finding on issue no. 5
recorded by the trial eeillfhas not at all been considered in the
impugned judgment although, he strenuously urged that once
the discrepancies on the basis of which the issuing_b_ank-
refused the documents were rectified andJlle.!jme"'31Fow8d for
C encashment had expired, the issuing"'Sank 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
0
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 h<'Ve considered and
addressed itself to all the issues of fact and law before setting
E 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
F 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
G 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 '
H 3. c2001) 3 sec 11s.
STATE BANK OF INDIA AND ANR. v. EMMSONS 451
INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.]
mind and· record findings supported by reasons, on all the A
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 8
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 C
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. lrshad Basith (Dead) D
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 fir:st E
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
F
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 G
follows:
4. (2001) 4 sec 756.
5. (2005) 1o sec 243.
6. (2005) 12 sec 163. H
452 SUP'REME COURT REPORTS [2011] 10 S.C.R.
A ·"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
B the respondents, the trial court had recorded a finding on
Issue 5 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.
c 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
D 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. f\Jcindagopa/ Gounder
E and Another.
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,
F 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
G 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.
D.G. Appeal disposed of.
H 7. (2001) 4 sec 163.
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