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TMI Blog1984 (3) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate of origin in duplicate issued by a Chamber of Commerce; (c) full set of clean shipped on board bills of lading; (d) marine insurance policy or certificate in duplicate; (e) a certificate to the effect that immediately after shipment the defendant No. 1 had by Air Mail sent in advance one set of non-negotiable documents directly to Hanuman Synthetics Ltd It was also stipulated in the said Letter of Credit Please add your confirmation to this Credit and release the L/C through United Commercial Bank, Robinson Road, Singapore. 2. On or about March 17, 1983 the goods were shipped and the United Commercial Bank, Singapore duly paid the amount against the documents mentioned in the Letter of Credit and forwarded the negotiated documents to the Central Bank of India, Bombay. On or about March 24, 1983 the shipping documents were presented to Hanuman Synthetics Ltd. the respondent No. 1 by the Central Bank of India and the respondent No. 1 accepted the Bill of Exchange drawn by respondent No. 3, J. B. International, the exporter upon the respondent No. 1 Hanuman Synthetics Ltd. and in favour of United Commercial Bank, Singapore Branch. It has been alleged that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the respondent No. 1, has contended that the appeal preferred against the order dated July 9, 1983 is misconceived because that order has merged in the second order that was passed on July 25, 1983. 6. We are unable to accept this contention because the order that was passed on July 25, 1983 was not a final order and there cannot be any question of the interim order passed on July 9, 1983 merging in the order that was passed on July 25, 1983. Moreover, the interim order that was passed on July 9, 1983 was not for a limited period. It was not necessary to pass any order for its continuance and, in fact, there was no application before the Court for continuation of that order. On July 25, 1983 an oral application was made by the appellant for vacating the ex parte interim order. That application was not entertained at all. The appellant was directed to take appropriate steps in the matter. It is true that in the minutes of the Court it was recorded that the interim order would continue. In the context of the facts and circumstances of this case, it can only mean that the oral application for vacating the interim order was not being entertained and nothing more. Any other int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court the argument was that the State was bound by an order that was passed in a proceeding to which it was not a party. It was argued that the State, if it was prejudiced, could have moved by way of appeal or review and got the order set aside and that not having been done, it was bound by the order. Krishna Iyer J. in that case merely pointed out that no right of review or of appeal under the provisions of the Punjab Securities Land Tenures Act can be availed of by the State as of right . Krishna Iyer J., however, did not hold that the State could not appeal even with leave of Court. 11. Section 96 of the Civil P. C. and Order 43, Rule 1 have enumerated the decrees and orders against which appeal will lie. But the question in this case is whether a person who is seriously prejudiced by an order can appeal against that order even though he was not made a party to the proceeding in which the order was passed. The Code of Civil Procedure does not contain any bar. In the case of Securities Insurance Company (1894) 2 Ch 410 Lindley L.J. at page 413 observed : I understand the practice to be perfectly well settled that a person who is a party can appeal (of course within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or as well as the learned Company Judge were bound by the rules of natural justice to issue a notice to the appellant and hear her before making the order appealed against. If there was default on their part in not, following the correct procedure it is wholly incomprehensible how the appellant could be deprived of her right to get her grievance redressed by filing an appeal against the order which had been made in her absence and without her knowledge. It would be a travesty of justice if a party is driven to file a suit which would involve long and cumber-some procedure when an order has been made directly affecting that party and redress can be had by filing an appeal which is permitted by law. It is well settled that a person who is not a party to the suit may prefer an appeal with the leave of the appellate Court and such leave should be granted if he would be prejudicially affected by the judgment. 15. This case was sought to be distinguished on the ground that this was a decision under the Companies Act and the law laid down could not be the general law. We are unable to accept this contention. The Supreme Court has not come to the decision on the basis of any specific p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt passed an ex parte order after exercising the discretion vested in it under Rule 3 it passed an order under Rule 1 or Rule 2. 20. In the case of Shah Babulal Khimji v. Jayaben D. Kania , it was held that there was no inconsistency between Section 104 of the Civil P. C. read with Order 43, Rule 1 and the appeals under the Letters Patent and there was nothing to show that the Letters Patent in any way excluded or overrode the application of Section 104 read with Order 43 Rule 1 or to show that these provisions would not apply to internal appeals within the High Court. It was held in that case that an order of the trial Judge refusing to appoint a Receiver or to grant an ad interim injunction was undoubtedly a judgment within the meaning of the Letters Patent both because Order 43 Rule 1 applied to internal appeals in the High Court and because it would be a judgment within the meaning of Clause 15 of the Letters Patent. In our opinion, the objection as to the appealability of the order is also without any merit. It has further been alleged that fraud has been practised upon the importer and, therefore, the order of injunction passed by the lower Court should not be disturbed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, too. A vendor of goods selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. That is of no mean advantage when goods manufactured in one country are being sold in another. It is, furthermore, to be observed that vendors are often reselling goods bought from third parties. When they are doing that, and, when they are being paid by a confirmed letter of credit, their practice is --and I think it was followed by the defendants in this case -- to finance the payments necessary to be made to their suppliers against the letter of credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have the effect of freezing if I may use that expression the sum in respect of which the letter of credit was opened. 23. The question was examined by the Calcutta High Court in the case of B. S. Ahuja Company Pvt. Ltd. v. Kaluram Mahadeo Prasad . In that case, it was observed, after referring to Halsbury's Laws of England, 4th Edition, Volume 3 : After the letter of credit is issued the issue of credit duly notified to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The Courts are not concerned with their difficulties to enforce such claims; these, are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantee. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the Courts. Otherwise trust in international commerce could be irreparably damaged. 26. It was re-emphasized by A. P. Sen J. in that judgment that the banker was not bound or entitled to honour the Bills of Exchange drawn by the seller unless they, and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit. It was further emphasized : Such documents must be scrutinised with meticulous care. If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vendor and the purchaser, but that cannot be the reason for freezing the sum in respect of which the Letter of Credit was opened. 30. The contention that payment was stopped on the ground of discrepancies in the two sets of documents that were sent cannot also be upheld in the facts of this case. All the documents as required by the letter of credit were forwarded to the Central Bank of India on March 18, 1983. The documents were presented to the importer by the Central Bank of India along with the bill of exchange on 24th March, 1983. Both the Central Bank of India and the Respondent No. 1 had ample time and opportunity to reject the documents on the ground of alleged discrepancies. They, however, did not do so. It was only on July 6, 1983 and only after the dispute about the clearance of the goods arose with the customs-authorities, Khaitan Co., on behalf of the Respondent No. 1, instructed the Central Bank of India to repudiate its liability under the Letter of Credit. It was not the case of the Central Bank of India nor the Respondent No. 1 at any stage that the documents were not in order and payment under the Letter of Credit would not be made on that ground. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r particular conditions stipulated in the document or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented thereby, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers or the insurers of the goods or any other person whomsoever. 32. As will appear from the facts of this case the Central Bank of India, upon examination of the documents, considered them to be in accordance with the terms and conditions of the credit. The Central Bank of India did not by cable or by any other expeditious means or at all inform the appellant that the documents were being held at the disposal of the appellant or were being returned. On the contrary, the Central Bank of India actually confirmed that the Bill of Exchange would be paid on April 15, 1983. The Central Bank of India is now precluded from claiming that the acceptance or negotiation of the documents was not effected in accordance with the terms and conditions of the credit. 33. The allegation of fraud is equally unconvincing. The observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Bank of India and the bank cannot make any payment under the letter of credit. 36. It is to be noted that Lord Denning referred to the case of Sztejn v. Henry Schroder Banking Corpn. (1941) 31 NY Supp 2 d 631 at 633 as an exception to the strict rule. That was a case where the seller had intentionally failed to ship any goods ordered by the buyer. In such a case where the seller's fraud had been called to the bank's attention before the drafts and documents had been presented for payment, it was held that the principle of the independence of the bank's obligation under the letter of credit could not be extended to protect the unscrupulous seller. 37. But that was a case where the shipping documents were forged. Lord Denning emphasized at page 982 that case shows that there is this exception to the strict rule; the bank ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances when there is no right to payment. 38. Browne L. J. in his concurring judgment observed at page 984 : -- As Lord Denning M. Rule has said, it is well established that in the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment on this point before me, the familiar English phrase 'Fraud unravels all' was also discussed However, it is important to notice that in the Sztejn case ((1941) 31 NY Supp 2d 631) the proceedings consisted of a motion to dismiss the formal complaint on the ground that it disclosed no cause pf action. That being so, the Court had to assume that the facts stated in the complaint were true. The complaint alleged fraud, and so the Court was dealing with a case of established fraud. I should also add that on the facts required to be assumed in the Sztejn case the collecting bank there was not a holder in due course, who would not be defeated by the fraud, but was merely an agent for the fraudulent seller. 42. It is of interest to note that in that case also the allegation was of. lack of correspondence between the documents and the goods. Megarry J. also pointed out that in that case the seller had already been paid by the bank which discounted the bill. The result of the injunction would be to prevent the banks concerned from honouring their obligations. 43. The facts of the case of Discount Records Ltd. (1975-1 All ER 1071). are very similar to the facts in our c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old payment after its obligation to pay has arisen merely because an allegation of fraud has been made against the seller. As Browne L. J. emphasized in the case of Edward Owen that it was not enough to allege fraud. If that was possible in law, all that a buyer had to do to stop payment under an irrevocable letter of credit was to allege fraud against the seller. It is very easy to allege fraud whenever there is a dispute as to quantity or quality of the goods. But that cannot be the ground on which the bank will be entitled to refuse payment. As Lord Denning has emphasized that the rule, in the case of a confirmed irrevocable credit in respect of contract for the sale of goods, is that the confirming bank is in no way concerned with disputes between the buyer and the seller as to the contract of sale which underlies the credit and it is a strict rule. In order to come within the exception, the buyer must not only allege but clearly establish that the documents that were presented by the beneficiary were forged or fraudulent. 46. It is difficult to see how the principles laid down in the case of Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. (1978) 1 All ER 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny liability or responsibility, inter alia, for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented thereby . It is also of significance that the Respondent No. 1 has not repudiated the contract on the ground of fraud. It has not rejected the goods. It has not claimed damages on account of non-delivery of the goods or wrong description of the goods in the shipping documents. The Respondent No. 1 has lodged a bill of entry at Calcutta Port and is trying to get the goods cleared by the customs authorities. It has taken delivery of the goods and is claiming title to the goods on the strength of the documents that have been forwarded under the letter of credit. On the strength of the title derived from these very documents, it is trying to clear the goods from the Customs authorities. We were told that the dispute between the Respondent No. 1 and the Customs authorities is now under adjudication. The Respondent No. 1 has not accepted the contention of the Customs authorities that the disputed goods are not viscose fibre. We specifically inquired in course of the hearing of this case about the stand taken by the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The dispute is whether the goods that have been shipped conform with that description or not. The Respondent No. 1 has taken delivery of the goods on the strength of the documents negotiated under an irrevocable letter of credit The dispute has arisen because of the stand taken by the Customs Department There may be a dispute as between the Respondent No. 1 and the Respondent No. 3 about the quality, quantity or description of the goods; but the Central Bank after accepting the documents cannot withhold payment under the irrevocable letter of credit on that account. Its obligation to pay is quite independent of that dispute. The Court cannot also prevent the Central Bank from honouring its obligation to pay by an order of injunction merely because an allegation of fraud has been made. If such practice is allowed to develop, the opening of irrevocable letter of credit will become meaningless and trust in international commerce and banking would be irreparably damaged. 52. In our opinion, in the facts of this case there is not the slightest ground for withholding the payment to the United Commercial Bank. The interim injunction passed by the Court below must be vacated. 53. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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