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TMI Blog1988 (9) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... the Foreign Bank with the plaintiff by order of the buyer along with the communication an irrevocable letter of credit for an amount of ...3845 was sent to the plaintiff. It was expressly stated in the letter of credit that it was to be notified by the plaintiff without adding its confirmation. The Letter of credit was valid upto 15th December, 1971 in India. The plaintiff wrote on 6.10.1971 a letter to the seller enclosing therewith the letter of credit opened by the Foreign Bank. The plaintiff requested the seller to remit a sum of ₹ 5 towards advising commission. The period of validity of the letter of credit was extended by subsequent letters from the Foreign Bank. At first it was extended upto 15th January, 1972 and later upto 15th April, 1972. In the first extension letter it was stated to have been made on the advice of the buyer and in the second extension letter it was staled to have been made on the instructions of the seller. The related consignment was air-freighted by the seller from Bombay to Lagos. The corresponding bill No. 22/72 was discounted by the seller with the first defendant who is a customer of the plaintiff bank. The first defendant sent the bill to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrevocable letter of credit opened by the foreign bank with the plaintiff mentioned that the plaintiff should reimburse itself by drawing on the accounts of the foreign bank. The plaintiff could have its remedy only against the buyer and the foreign bank and not against the defendants. The written statement of the fourth defendant was expressly a defence on behalf of the other defendant also including the seller. Defendants 3 and 5 to 8 adopted the written statement filed by the fourth defendant. Though the seller engaged a separate advocate he did not file any separate written statement. The plaintiff filed a reply statement reiterating the claims made in the plaint. 5. The trial Court held that the plaintiff acted only as an agent for collection and did not open any letter of credit. Consequently, the trial Court held that the plaintiff is entitled to get back the money paid to the first defendant and that all the defendants were liable therefor. The trial Court passed a decree against defendants 1 to 4 and 9 personally and defendants 5 to 8 out of the assets of the late Gnanasigamani Nadar and their heirs for a sum of ₹ 14,293.05 with the interest at 6% per annum from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiary is an advising, negotiating confirming or paying banker according to the role he plays. Commercial letters of credit may be of two types namely revocable credits and irrevocable credits. Irrevocable credits may be confirmed or unconfirmed. 133. Commercial Letters of credit relationship. The contractual relationship between the issuing banker and the buyer is defined by the terms of agreement between them under which the letter opening the credit is issued, and as between the seller and the banker, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the banker directly liable to the settlor to pay the purchase price or to accept the bill of exchange upon tender of the documents. The issue of an irrevocable credit is not conclusive payment as regards the buyer and the seller for if the issuing banker should fail the seller still has a right to sue the buyer for the price. The contract thus created between the seller and the banker to rely upon terms of the contract between is separate from, although ancillary to, the original contract between the buyer and the seller by reason of the banker's undertaking to the seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been published by the International Chamber of Commerce. Some of the provisions therein are relevant: Article 3: An irrevocable credit is a definite undertaking on the part of an issuing bank and constitutes the engagement of that bank to the beneficiary or as the case may be to the beneficiary and bona fide holders of drafts drawn end or documents presented thereunder, that the provisions for payment acceptance or negotiation contained in the credit will be duly fulfilled, provided that all the terms and conditions of the credit are complied with. An irrevocable credit may be advised to a beneficiary through another bank without agreement on the part of that other bank (the advising bank), but when an issuing bank authorises another bank to confirm its irrevocable credit and the latter does so such confirmation constitutes a definite undertaking on the part of the confirming bank either that the provisions for payment or acceptance will be duly fulfilled or, in the case of a credit available by negotiation of drafts that the confirming bank will negotiate drafts without recourse to draw. Such undertakings can neither be modified nor cancelled without the agreement of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of India [1981] 3 SCR 300 the Supreme Court reiterated the rule that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller and the duties of a bank under a letter of credit are created by the document itself. The Court went on to point out that a letter of credit sometimes resembles and is analogous to a contract of guarantee. The following passage from the judgment of Lord Denning M.R. in Elian v. Marsas (1966) 2 LI.L.R.495 was quoted: a Bank guarantee is very much like a letter of credit. The Courts will do their utmost to enforce it according to its terms. They will not in the ordinary course of things interfere by way for injunction to prevent its due implementation. Thus they refused in Malus v. British Inex Industries Ltd., But that is not an absolute rule. Circumstances may arise such as to warrant interference by injunction. 11. In N.O. Company Industries v. Punjab Sind Bank A.I.R.1989 Delhi 9, it was held that the principle relating to letter of credit is not to be extended to protect an unscurpulous seller when there is a fraudulent transaction. 12. Bearing the above general principles in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the seller, the 9th defendant. There is no reason why the fourth defendant should try to protect the seller, the 9th defendant in the written statement. In spite of the fact that the 9th defendant had engaged a separate counsel he did not file any written statement on his own. This conduct on the part of the fourth defendant raises suspicion that the first defendant and the 9th defendant are going hand in glove with each other. 14. It is a fact that the first defendant had discounted the bills of the seller. The bills are drawn by the seller and are marked as Exhibit A.5. The first defendant had chosen to endorse the same in favour of Canara Bank, the plaintiff. The plaintiff has accepted the endorsement and paid the amount to the first defendant as the first defendant is admittedly a customer of the bank. Hence, the payment made by the plaintiff cannot be said to be on strength of the letter of credit opened by the foreign Bank, but it was on the basis of the discount of the bills made by a customer of the Bank. Unless there is specific evidence on record to show that the plaintiff acted only on the basis of the letter of credit and not on the discounted bills it c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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