This is a good and worth to study case contested between seller who was a beneficiary of Letter of Credit and banks; especially Negotiating Bank and Issuing Bank. Due to the faults and wrong interpretation of definition of discrepancy (as per seller’s proposition), the seller had to bare heavy losses.
Buyer opened the L.C. Advising Bank advised it to the seller. Seller prepared goods and sent it to the buyer and submitted the documents for negotiation to seller’s Negotiating Bank which in chain submitted documents to Issuing bank.
Issuing Bank did not honor invoices and rather declined to make payment of invoices on certain wholly extraneous grounds that documents submitted by complainant / seller through its banker (i.e. Negotiating Bank) did not conform to Terms & Conditions of LC.
Issuing Bank sent a letter to Applicant / buyer to wave discrepancies, send clearance letter of bills & to provide funds into CC account to clear bills on DP basis.
Buyer waved discrepancies & accepted documents. But, this communication emanated after LC had lapsed / expired.
Though the buyer accepted discrepant documents, delay caused by the respective banks made the Letter of Credit un-usable as till that time L/C got expired.
Who is at the fault in this case? Exporter, Importer, Issuing Bank or Negotiating Bank? What liability and penalty can be fixed?
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Detail Case Discussion
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Seller / Complainant: SSSSS Polytex
Buyer / Applicant: MMMM Mills
Letter of Credit: Irrevocable L/C from Central Bank of India / CBI, Madurai. L/C was subsequently amended so to establish guaranteed payment on fulfillment of certain conditions fully recorded in LC.
Issuing Bank: Bank who issued L.C on request of buyer.
Negotiating Bank: SBI, New Delhi.
Complainant / Seller got an order from Buyer.
New Delhi based seller had forwarded 9 consignments of Polyester Staple Fiber to OP No. 4 / Buyer & requisite documents were submitted to Issuing Bank through SBI Ghaziabad - for negotiating documents against aforesaid LC & to obtain payment of invoices.
Issuing Bank did not honor invoices. It rather declined to make payment of invoices on certain wholly extraneous grounds that documents submitted by complainant through its banker did not conform to Terms & Conditions of LC.
Issuing Bank sent a letter to Applicant / buyer to wave discrepancies, send clearance letter of bills & to provide funds into CC account to clear bills on DP basis.
Buyer waved discrepancies & accepted documents. But, this communication emanated after LC had lapsed / expired.
Say of complainant / Seller: Act of SBI, Ghaziabad, New Delhi (OP-3) and Issuing Bank in not honoring documents submitted by complainant was for wholly unjustified & untenable reasons in as much as there were no material discrepancy (s) in said documents submitted by it & therefore action of Banks would amount to negligence on their part tentamounting to deficiency in service for which they are liable to compensate complainant / seller.
PRAYER:
Complainant claimed
a sum of Rs. 65,25,280/- as the sale price of
goods as per the 9 invoices
along with
interest @ 20.25% 4m 29.6.95 till dt. of realization
besides
a sum of Rs. 40.00 Lakhs as damages for financial loss of reputation suffered by the complainant due to the alleged gross deficiency in service on the part of the Issuing Bank & Negotiating Bank, SBI, Ghaziabad, New Delhi
LEGAL QUESTION:
Whether action of Issuing Bank in not honoring commitment under LC & not releasing payment of said invoices raised by complainant due to alleged discrepancies etc. constitute deficiency in service on their part?
Answer:
Whether these documents were in order and in compliance of Terms & Conditions of LC is the crucial question which would decide if action of Issuing Bank in not releasing payment was correct or can it be faultered?
Law Points to be studied in this case:
Article xx of the Uniform Customs Practice for Documentary Credit (UCPDC) providing Liabilities and Responsibilities of the Bank and the Standard for Examination of Documents.
Article yy of the Uniform Customs Practice for Documentary Credit (UCPDC) relates to the procedure to be followed in case of discrepant documents etc.
Article zz of the Uniform Customs Practice for Documentary Credit (UCPDC) provides that if a Credit calls for a Rail, Road, Inland Waterway Transport Documents, banks will, unless otherwise stipulated in credits, accept a doc. of type called for whatever named.
Article 00 of the Uniform Customs Practice for Documentary Credit (UCPDC) relates to insurance documents submitted to creditor.
Discussion of old Judgments Referred by court in this case:
United Commercial Bank Vs. BOI
Equitable Trust Vs. Dawnson
Reference also was taken of position laid down in few of below English Cases:
1. Rayner v. Hambros Bank
2. Bank Melli Iran v. Barclays Bank
3. Lamborn v. Lake Shore Banking Co.
4. Laudisi v. American Exchange National Bank
Few international Laws also were referred by Supreme Court as under:
1. Halsbury’s Laws of England
2. Paget’s Law of Banking
3. Davis’ Law Relating To Commercial Letters Of Credit
It makes this case very interesting one in a way that many international laws, cases and law points are discussed here.