Standard Chartered Bank

*
IN THE HIGH COURT OF DELHI AT NEW DELHI
+
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Reserved on: 4th October, 2013
Decided on: 21st January, 2014
%
STANDARD CHARTERED BANK
(CHINA) LIMITED SHENZHEN BRANCH
..... Plaintiff
Through: Mr. Ajay Monga, Mr. Ateev K.
Mathur and Mr. Devmani Bansal,
Advocates.
versus
STATE BANK OF PATIALA & OTHERS
..... Defendants
Through: Mr. V. Shankara, Advocate for
Defendant No. 1.
Mr. R.K. Sanghi and Ms. Parul Singh,
Advocates for Defendant No. 2.
CORAM:
HON'BLE MS. JUSTICE MUKTA GUPTA
1.
By these applications Defendant Nos. 1 and 2 seek leave to defend the
suit filed by the Plaintiff under Order XXXVII CPC for recovery of USD
180921.35 equivalent to Rs. 83,26,000/- along with pendent lite and future
interest till actual realization.
2.
The Plaintiff is a company incorporated under the laws of China and is
having one of its office at Shenzhen, China. Defendant No. 1 is State Bank
of Patiala having its Head Office at Patiala with various branches including
the branch at Darya Ganj, New Delhi. Defendant No. 2 is a Company
registered under the Companies Act, 1956 having its registered office at 37,
Netaji Subhash Marg, Darya Ganj, New Delhi-110002 and is carrying on the
business of manufacturing and sale of copper tube made from copper
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 1 of 10
cathode which is the raw material. Defendant No. 3 Company in Hongkong
entered into an agreement with Defendant No. 2 Company for supply of
copper cathodes. At the instance of Defendant No. 2, Defendant No. 1
issued irrevocable Standby Letter of Credit (in short „SBLC‟) in favour of
Plaintiff bank, the beneficiary in order to extend General Banking Facility to
Defendant No. 3 at Shenzhen, China. Thereafter, the SBLC was extended
twice at the instance of Defendant No. 2 on the same terms and conditions as
mentioned in the principal SBLC dated 23rd December, 2006 vide swift code
messages dated 5th September, 2006 and 4th December, 2006 thus extending
the validity of the SBLC till 7th February, 2007. Since Defendant No. 3 did
not repay for the banking facility extended by the Plaintiff, the Plaintiff vide
its swift message dated 26th January, 2007 invoked the SBLC and submitted
the drafts drawn at sight, that is, the Bills of Exchange. Pursuant thereto
Defendant No. 1 vide its swift message dated 15 th February, 2007
acknowledged the invocation and agreed to pay to the Plaintiff under the
SBLC by 19th February, 2007. However, on 20th February, 2007 the Plaintiff
received another swift message from Defendant No. 1 wherein the Defendant
No. 1 intimated to the Plaintiff that it had received the Bill of Exchange at
sight dated 26th February, 2007 for USD 133032.35; had not received swift
message from the Plaintiff and that the claim of the Plaintiff was incomplete
as per the SBLC terms. The fact that the claim was incomplete was never
intimated by Defendant No. 1 in its earlier message dated 15 th February,
2007. Further in its message dated 20th February, 2007 Defendant No. 1 did
not specify the discrepancy in the documents submitted. Since Defendant
No. 1 failed to make the payment, the Plaintiff sent further swift message on
3rd March, 2007 demanding payment however, Defendant No. 1 did not
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 2 of 10
honour the same. Defendant No. 3 is stated to have admitted the breach of
terms of the contract entered into between Defendant Nos. 2 and 3 and in
view thereof Defendant No. 1 had stopped the payment to be made pursuant
to the SBLC. Defendant No. 2 also instituted a suit before this Court being
CS (OS) No. 448/2007 seeking mandatory injunction against Defendant No.
1 herein. On the statement of Defendant No. 1 herein that they were not
making the payments to the Plaintiff, this Court dismissed the suit being
based on no cause of action with liberty to file the same as and when the
cause of action arises. Hence the present suit.
3.
Learned counsel for Defendant No. 2 states that since number of
tribable issues arise, the Defendants are entitled to be granted leave to
defend. It is contended that the suit has been filed by the wrong Plaintiff.
The Plaintiff is a separate legal entity. The beneficiary of the SBLC dated
24th June, 2006 is a branch of Standard Chartered (U.K.) Ltd. and an
independent legal entity.
Reliance is placed on Vodafone International
Holding vs. Union of India, 2012 (6) SCC 613. It is the case of Defendant
No. 2 that Defendant No. 3 failed to fulfill the contract and did not supply
the copper cathodes as agreed and thus the Plaintiff is not entitled to encash
the SBLC from Defendant No. 1. It is further contended that the present suit
is barred by limitation. The suit was filed on 16 th February, 2010 and refiled
on 22nd February, 2010, the Letter of Credit on which the suit was based was
issued on 24th June, 2006 and was valid till 7th February, 2007. Further the
suit is also filed on the basis of an alleged Bill of Exchange dated 26th
January, 2007 which was issued by Standard Chartered Bank and not
signed/accepted by Defendant No. 2. Fraud has been played on Defendant
Nos. 1 and 2 by Standard Chartered Bank and Defendant No. 3 as the SBLC
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 3 of 10
was opened by Defendant No. 1 at the request of Defendant No. 2 for the
purchase of goods from Defendant No. 3.
Under the contract between
Defendant Nos. 2 and 1, Defendant No. 3 provided a prescribed format of
Letter of Credit and accordingly the SBLC was opened. Defendant No. 3
has failed to supply the goods. Therefore, the question of payment does not
arise. Further the SBLC has been invoked at the wrong address. The swift
address code of Defendant No. 1 in the SBLC is „STBPINBB902‟ however,
the Plaintiff did not send the swift messages directly to the issuing bank but
had sent the same at a different destination. Hence the SBLC was never
validly invoked. The communication dated 15th February, 2007 sent by
Defendant No. 1 is not relevant as the Plaintiff failed to send the swift
message directly to the issuing bank on the swift code „STBPINBB902‟ as
required under the SBLC. Further the communication dated 15 th February,
2007 was sent after the expiry of the Letter of Credit, that is, on 7th February,
2007. There are various discrepancies in the documents sent by the Standard
Chartered Bank such as the SBLC amount that could be demanded, that is,
USD 135,188 whereas the amount of Bill of Exchange was USD 133,032.35.
There is no provision for sending the alleged Bill of Exchange in the SBLC
but the Plaintiff sent two Bills of Exchange. The two Bills of Exchange have
been issued for the same amount which shows that one of the Bills of
Exchange ceases to exist. Further the Bill of Exchange was not stamped
under the Stamp Act and thus could not be acted upon being not a valid Bill
of Exchange. The Bill of Exchange had to be compulsorily noted and
protested however, the same was neither noted nor protested in violation of
Section 104 of Negotiable Instruments Act. A suit for recovery of the
amount on the basis of SBLC is not covered under the provisions of Order
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 4 of 10
XXXVII CPC. Reliance is placed on Radnik vs. Janta Bank and others, ILR
1995 Delhi 538. The invocation of the SBLC is contrary to FEMA and RBI
guidelines. Further the claim of interest is not covered by the SBLC. The
dispute, if any, arises between the Plaintiff and Defendant No. 3. Defendant
No. 3 has failed to appear and has been proceeded ex-parte. It is between the
Plaintiff and Defendant No. 3 that the disputes are required to be decided.
Since no relief which falls within the ambit of Order XXXVII CPC can be
granted, triable issues are raised and hence leave to defend is required to be
granted. Reference is made to Hindustan Zinc Ltd. vs. Punjab National
Bank, AIR 2002 Delhi 398.
4.
Learned counsel for Defendant No. 1 State Bank of Patiala reiterating
the contentions of the learned counsel for Defendant No. 2 further states that
since fraud has been alleged, the same being a triable issue leave to defend
be granted.
Further the documents sent by the Plaintiff already stand
rejected by Defendant No. 1, thus leave to defend is required to be granted
on this count as well. The shipment was not carried out and so the Plaintiff
has no claim on the money either from Defendant No. 2 or Defendant No. 1.
Reliance is placed on Bhaurao Dagdu Paralkar vs. State of
Maharashtra and others, 2005 (5) SLR 595.
5.
Learned counsel for the Plaintiff contends that the plea of Defendants
Nos. 1&2 that the swift message was sent at wrong address is absolutely
incorrect. Defendant No. 1 is State Bank of Patiala, Darya Ganj Branch with
its head office at Nariman Point and the Letter of Credit itself was issued
from the Head Office at Nariman Point with the address „STBPINBB‟ and
thus the swift message was sent to the correct address. Defendant No. 1 in
its swift message dated 15th February, 2007 admitted its liability and assured
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 5 of 10
the payments by 19th February, 2007. No claim of incomplete documents
was made and thus Defendant No. 1 is deemed to have accepted the claim.
Further Articles 14 and 15 of the Uniform Customers and Practice for
Documentary Credit Rules, 600 (in short „UCP 600‟) guarantee declaration
in the broadest sense. If there was a discrepancy in the documents, the same
ought to have been informed within five days and even as per UCP 500
within seven days failing which the documents are deemed to have been
accepted and Defendant No.1 is precluded from claiming that the documents
were not in compliance with the terms of credit. The Plaintiff‟s claim was
received by Defendant No. 1 on 26th January, 2007 and no objection
whatsoever was raised till 20th February, 2007. The Bill of Exchange was
duly accepted by the acceptor and since the same was payable at sight in
terms of Section 21 of Negotiable Instruments Act, the same was not
required to be stamped. The difference of amount in the SBLC and the
claim has no relevance as the SBLC only prescribed the maximum liability
of Defendant No. 1 to the extend of USD 135,188 whereas the Plaintiff
claimed a lesser amount of USD 133,032.35. The contention that there was
no contract between the Plaintiff and Defendant No. 1 and hence Order
XXXVII CPC was not applicable is wholly incorrect. The suit under Order
XXXVII CPC can be based on a Letter of Credit as well. Relying on Article
4 of UCP 600 it is stated that the issuing bank and the negotiating bank are in
no way concerned with the underlying transaction. The Letter of Credit by
its nature itself is a separate transaction and an independent contract.
Reliance is placed on United Commercial Bank vs. Bank of India and others,
AIR 1981 SC 1426; Federal Bank Ltd. vs. V.M. Jog Engineering Ltd. and
others, AIR 2000 SC 3166; Himadri Chemicals Industries Ltd. vs. Coal Tar
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 6 of 10
Refining Company, 2007 (8) SCC 110; UBG AG vs. State Bank of Patiala,
AIR 2006 SC 2250 and Mechelec Engineers and Manufacturers vs. Basic
Equipments Corporation, AIR 1977 SC 577.
6.
I have heard learned counsel for the parties.
7.
The facts have already been noted above. One of the issues raised by
the defendants is of limitation.
The present suit was instituted on 16 th
February, 2010 and refiled on 22nd February, 2010. The SBLC was valid till
7th February, 2007 and thus the Defendants claim that this suit is instituted
beyond the period of limitation. Learned counsel for the Plaintiff on the
other hand has contended that the acknowledgment of the claim was made
by Defendant No. 1 on 15th February, 2007, to be payable upto 19th
February, 2007, thus the cause of action accrued to the Plaintiff on and after
19th when the claim of the Plaintiff was not granted to it. A perusal of the
documents show that by swift message dated 20th February, 2007 Defendant
No. 1 for the first time stated that the claim was incomplete as per the SBLC
and thus rejected the same, giving cause of action to the Plaintiff to file the
present suit. The present suit is based on SBLC which was valid till 7th
February, 2007 which is a contract between the Plaintiff and Defendant No.
1 and the Bill of Exchange dated 26th January, 2007 drawn by the Plaintiff
on Defendant No. 1. The actual cause of action arose to the Plaintiff only
when Defendant No.1 failed to acknowledge its liability and refused the
claim of the Plaintiff vide its message dated 20th February, 2007. The
present suit was instituted on 16th February, 2010 thus within the period of
limitation of three years and hence is not barred by limitation.
8.
Learned counsels for the Defendants have laid lot of emphasis on the
incorrect address to which swift messages were sent by the Plaintiff. In this
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 7 of 10
regard it may be noted that the Head Office of Defendant No. 1 is at
Nariman Point with the address „STBPINBB‟ and the address of Defendant
No. 1 is „STBPINBB902‟, that is of Darya Ganj Branch of State Bank of
Patiala. A perusal of the documents filed by the Plaintiff show that SBLC
was issued by State Bank of Patiala, Atlanta Building , Floor-I, Nariman
Point with the Centre Address as „STBPINBB‟ and it was mentioned that the
drawees address was „STBPINBB902‟. Since the Letter of Credit itself
provided the address as „STBPINBB‟ the Plaintiff cannot be stated to have
sent the swift messages at the wrong address in case they were sent to
„STBPINBB‟ and the Defendants cannot draw any mileage from the same.
9.
The principal contention of Defendant Nos. 1 and 2 is that fraud has
been played on Defendant No. 2 and since Defendant No. 3 did not deliver
the goods to Defendant No. 2 the SBLC in favour of the Plaintiff is not
required to be honored. There is no doubt that normally a letter of credit is an
independent contract from the contract between the parties. However, if the
contract between the parties itself is vitiated by fraud, the same would vitiate
the entire transaction. The exception for fraud on the part of the beneficiary
seeking to avail the credit is a clear application to the maxim “ex trupi cause
non oriture”, that is, “fraud unravels all', and the courts will not be party to
the fraud played by a dishonest person. The system of confirmed irrevocable
documentary credits that has developed in international trade, was to give the
seller of goods an assurance of payment before he parts with the goods.
However, the bank‟s duty to the seller is only vitiated if there is fraud on the
part of the seller and not if there is a discrepancy in goods supplied. In U.P.
Cooperative Federation Ltd. vs. Singh Consultants and Engineer (P) Ltd.,
1988 (1) SCC 174 their Lordships held:
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 8 of 10
“24. I may notice that in India, the trend of law is on the same
line. In the case of Texmaco Ltd. v. State Bank of India [AIR
1979 Cal 44] one of us (Sabyasachi Mukharji, J.) held that in
the absence of special equities arising from a particular
situation which might entitle the party on whose behalf
guarantee is given to an injunction restraining the bank in
performance of bank guarantee and in the absence of any clear
fraud, the bank must pay to the party in whose favour guarantee
is given on demand, if so stipulated, and whether the terms arc
such have to be found out from the performance guarantee as
such. There the court held that where though the guarantee was
given for the performance by the party on whose behalf
guarantee was given, in an orderly manner its contractual
obligation, the obligation was undertaken by the bank to repay
the amount on “first demand” and “without contestation, demur
or protest and without reference to such party and without
questioning the legal relationship subsisting between the party
in whose favour guarantee was given and the party on whose
behalf guarantee was given”, and the guarantee also stipulated
that the bank should forthwith pay the amount due
“notwithstanding any dispute between the parties”, it must be
deemed that the moment a demand was made without protest
and contestation, the bank had obliged itself to pay irrespective
of any dispute as to whether there had been performance in an
orderly manner of the contractual obligation by the party.
Consequently, in such a case, the party on whose behalf
guarantee was given was not entitled to an injunction
restraining the bank in performance of its guarantee. It appears
that special equities mentioned therein may be a situation where
the injunction was sought for to prevent injustice which was
irretrievable in the words of Lord Justice Danckwerts [ Vide
Corrigendum No. F.3/Ed BJ/43 dated 8-9-88] in Elian and
Rabbath v. Matsas and Matsas [(1966) 2 Lloyd's List Law
Reports 495] .
10.
This
Court
in
National
Highways
Authority
of
India
Vs. Elsamex-TWS-SNC Joint Venture, 150 (2008) DLT 215 held that if prima
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 9 of 10
face case is made out that an element of fraud exists on the part of the
beneficiary or if there exists a special equity in the form of preventing
irretrievable injustice then alone an injunction may be issued. Further, fraud
has to be of an egregious nature and not a dispute that goods supplied are not
as per contract. Considering the fact that the Defendants have clearly made
out a case of fraud of an egregious nature wherein no goods have been
supplied at all, I am of the considered opinion that it is a fit case where leave
to defend is required to be granted to Defendants No.1 and 2.
CS(OS) 312/2010
11.
Written statement be filed by defendants No. 1 and 2 in four weeks
and replication thereto in four weeks thereafter.
12.
List on 15th April, 2014 before learned Joint Registrar for
admission/denial of documents.
13.
List the matter before this Court on 8th July, 2014 for framing of
issues.
(MUKTA GUPTA)
JUDGE
JANUARY 21, 2014
‘vn’
I.A. Nos. 11892/2010 and 14728/2010 in CS(OS) 312/2010
Page 10 of 10

Download Report