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TMI Blog1997 (12) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporation Bank which has its zonal office at Bangalore. The suit was filed in the year 1985 by the said Bank against defendants 1 to 4 belonging to Tadikonda family residing at Guntur in Andhra Pradesh and against the appellant I.T.C. Ltd. The relief claimed in the suit was for a sum of Rs. 52,59,639.66. The defendants 1 to 4 above-mentioned are respondents 4 to 7 in this appeal. The first respondent is the Debt Recovery Appellate Tribunal and the 2nd respondent is the Debt Recovery Tribunal. After the suit was filed in the civil court, it was transferred to the Debt Recovery Tribunal on 9-10-1995. Before the said Tribunal, the appellant filed an application under order 7 rule 11 of the Code for rejecting the plaint so far as the appellant was concerned on the ground that no valid cause of action had been shown against the appellant. The said application was rejected by the Tribunal on 12-12-1996 holding as follows: "Objections filed. Heard. Cause of action is a mixed question of fact and law. Hence LA. 3 cannot be entertained at this stage. Post for evidence." Against the said order, the appellant filed an appeal before the Tribunal which was dismissed by the said Tribunal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in August 1983 and the plaintiff-bank agreed to open an additional Letter of Credit in favour of the appellant and did so in April 1983 and issued a 'revolving Letter' of Credit No. 1 of 1983 in favour of the appellant for Rs. 18 lakhs against demand bills of the appellant on the buyers at sight 'without recourse' for the full invoice value of the goods purporting to be supply of cigarettes manufactured by the appellant. In respect of the above Letters of Credit, the buyers executed necessary loan documents in favour of the bank for issue of confirmed irrevocable Letter of Credit, Letter of General Lien relating to immovable properties, etc. Demand Promissory Notes were also executed by the buyers. 6. The plaint then states that the appellant availed the benefits of drawing various sums on several dates purporting to be for despatch of goods (cigarettes) by the appellant to the buyers (defendants 1 to 4) and that was how the appellant appropriated the amounts drawn as against goods purportedly despatched by the appellant to the buyers. It stated in para 6 of the plaint, that "the 5th defendant misrepresented to the plaintiff that the goods were despatched while presenting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e illegal drawings and, therefore, both were liable to reimburse the plaintiff with interest. In para 12 of the plaint it was then stated as follows : "The 5th defendant has drawn the amounts contrary to the terms of Letters of Credit. The payments by the plaintiff to the 5th defendant was due to the mistaken assumption that the 5th defendant had despatched the cigarettes which entitled the 5th defendant to the payments under the Letters of credit. The plaintiff discovered the mistake when it received the letter of the first defendant dated 23-1-1984 as also the reply of the defendants 1 and 5 dated 13-4-1984 and 18-4-1984 respectively. The payments to the 5th defendant being under due to the mistake, as aforesaid, the plaintiff will entitled to be repaid of the said amounts by the 5th defendant. The 5th defendant has unjustly enriched itself by the several payments." In para 14 of the plaint again there is an allegation that the appellant was guilty of false representation that goods in question had been despatched when in fact the 5th defendant received the payments towards other claims against the buyers. As already stated, the Tribunal and the High Court, on the above aver-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 11, a contention that once issues have been framed, the matter has necessarily to go to trial has been clearly rejected by this Court in Azhar Hussain v. Rajiv Gandhi 1986 (Suppl.) SCC 315 as follows: "In substance, the argument is that the Court must proceed with the trial, record the evidence, and only after the trial ... is concluded that the powers under the Code of Civil Procedure for dealing with a defective petition which does not disclose cause of action should be exercised. With respect to the learned counsel, it is an argument which it is difficult to comprehend. The whole purpose of conferment of such powers is to ensure that a litigation which is meaningless and bound to prove abortive should not be permitted to occupy the time of the Court." (p. 324) The abovesaid judgment which related to an election petition is clearly applicable to suits also and was followed in Samar Singh v. Kedar Nath 1987 (Suppl.) SCC 663. We, therefore, hold that the fact that issues have been framed in the suit cannot come in the way of consideration of this application filed by the appellant under order 7 rule 11. We shall next deal with the question whether the allegations in the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied] (p. 193) It will be noticed from the underlined portion in the above passage that there will be no cause of action in favour of the bank in cases where the seller has not shipped the goods or where the goods have not conformed to the requirements of the contract. The bank, in the present case before us, could not, by merely stating that there was non-supply of goods by the appellant, use the words 'fraud or misrepresentation' for purposes of coming under the exception. The dispute as to non-supply of goods was a matter between the seller and buyer and did not, as stated in the above decision, provide any cause of action for the bank against the seller. 12. The learned counsel for the respondent then relied upon Bank Russo- Iran v. Gordon Woodroffe & Co. Ltd. The Times dated 4-10-1972 where Browne, LJ. state as follows : "In my judgment, if the documents are presented by the beneficiary himself, and are forged or fraudulent, the bank is entitled to refuse payment if the bank finds out before payment, and is entitled to recover the money as paid under a mistake of fact if it finds out after payment." [Emphasis supplied] The above passage was quoted with approval by Lord De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary for the bank to refuse payment is a case of clear 'fraud' and the banks knowledge as to such fraud - Bolivinter Oil S.A. v. Chase Manhattan Bank N.A. [1984] (1) LLR 392. As pointed by Lord Denning and Lord Lane in Edward Owen's case (supra), the bank cannot refuse payment merely because according to it the claim was 'dishonest' or 'suspicious' or it appeared to be a sharp practice but it must be established as 'fraud'. Lord Ackner in United Trading Corpn. S.A. v. Allied Arab Bank Ltd. [1985] (2) LLR 554 (CA) held that the bank could object to pay not because the demand was not 'honestly' made but was made fraudulently. Waller, J. in Turkive v . Bank of China [1996] (2) LLR 611 (617-618) said that the question was whether the demand for payment was 'fraudulent'. Mere allegations and counter allegations between the parties as to breach of contract, non-payment of advances or non-supply of machinery did not amount to fraud. 16. In the result, we hold that an allegation of non-supply of goods by the sellers to the buyers did not by itself amount, in law, to a plea of 'fraud' as understood in this branch of the law and, hence, by merely characterising alleged non-movement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edn., 1954) (pp. 160-161 for facts of this case) the position was different. There the complaint was that the sellers who were to ship 'bristles' deliberately placed 50 cases of material on board a steamship, procured a bill of loading from a steamship company and obtained customary invoices. The documents described the goods as bristles as per the letter of credit. In fact, the Indian sellers had filled the 50 crates with 'Cowhair' and other worthless material and rubbish with intent to simulate genuine merchandise and so 'defraud' the plaintiff, the buyers - who had instructed the defendants to issue the letter of credit. The sellers then drew a draft under the letter of credit to the order of the Chartered Bank of India, Australia and China and delivered the draft and the 'fraudulent documents' to the Chartered Bank at Cawnpore for collection on account of the sellers. The buyer brought the action which succeeded, to restrain the defendants from paying the draft. The learned Judge said : "It must be assumed that the seller has intentionally failed to ship any goods ordered by the buyer. In such a situation, where the seller's fraud has been called to the bank's attention before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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