It is a good case to learn in which exporter put himself in trouble by opening an usance Letter of Credit.
An Indian exporter got an order from Russian Importer.
Importer opened usance L.C Bangkong Bank PLC, London and L/C was advised by SBI who subsequently was also a negotiating bank.
Exporter exported cargo which reached to importer and documents were submitted to Negotiating Bank which were then sent to Issuing Bank.
Issuing Bank agreed to make payment so Negotiating Bank gave Bill of Exchange to Issuing Bank.
Be noted that L/C was a usance L.C i.e. payment was to be done after few days of shipment.
After receiving the cargo, importer picked up the conflict for quality issue in the cargo and went into London court to get an injection form making payment. London court gave him injection for the payment and so the Issuing Bank didn’t made payment to the Negotiating Bank.
Now, exporter was without payment and now he had to file a suit into the court in London to remove that injection ordered by last court of London to have injection for the payment.
Negotiating Bank and exporter mutually decided to contest that case and mutually agreed that that Negotiating Bank will contest it. Exporter consented to bare the cost of litigation in London by Negotiating Bank.
Negotiating Bank fought case and won it and removed injection against payment, but till that time the importer registered insolvency and bankruptcy and so all the payment could not be recovered by Negotiating Bank.
It was exporter’s contention that why Negotiating Bank gave Bill of Exchange to Issuing Bank when Issuing Bank shown agreement to make payment. It should have been given just only at the time of receipt of payment. It was the say of the exporter that due to this immature action of Negotiating Bank, exporter had to bare this losses and it is clear case of deficiency of services on part of Negotiating Bank.
Thus, exporter filed a suit against Negotiating Bank and a case was contested between exporter and negotiating bank.
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Detail Case Discussion
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Exporter: From India
Importer: From Russia
Letter of Credit: Usance L/C with payment on DA basis.
Advising Bank / Negotiating Bank: Letter of Credit was advised by SBI acting as Advising Bank and then was negotiated also with SBI.
Issuing Bank: Bangkok Bank PLC, London
Goods exported and exporter negotiated DA bill with SBI, the Negotiating Bank.
Issuing Bank agreed to make payment so Negotiating Bank gave bill of exchange to Issuing Bank.
Cargo reached destination.
Importer sorted quality issue in goods and approached London Court & got injection from making payment before due date of payment.
SBI informed it to exporter. Exporter consented SBI to contest case in London.
London court set aside injection and ordered to pay Principle amt $ 88500 $ + Interest $ 4,350.00 + ordered importer to pay GBP 7705 which could not be recovered by the Negotiating Bank as the importer went into liquidation.
The Negotiating Bank paid to the exporter:
Principle
(minus) –
Legal Expenditure & Interest
that is:
GBP 11255.00 (Rs.7,45,000)
(minus) --
Interest Rs.4,84,000/-
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PRAYER:
SBI be ordered not to recover
Litigation Expenses
&
Interest
As SBI was deficient in rendering service as it handed over Bill of Exchange to Bangkok Bank without receiving payment, as respondent / SBI was liable to pay compensation for deficiency in service for releasing Bill of Exchange without receiving payment.