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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 7513  OF 2009   

NATIONAL BANK LIMITED                    .….. APPELLANT

VERSUS

GHANSHYAM DAS AGARWAL & ORS.        …..  RESPONDENTS

J U D G M E N T

VIKRAMAJIT SEN,J.   

1 Notice was ordered in the Special Leave Petition (now Appeal) on 9 th  

July,  2007, but  while doing so,  this  Court  had specifically clarified that:  

“Pending further orders the impugned order passed by the High Court shall  

continue  to  operate”.  The  impugned  Order  decreed  the  suit  filed  by  

Ghanshyam Das Agarwal, who is hereinafter referred to as ‘the Exporter’,  

for  a  sum of  USD 352,250 against  the Appellant  Bank (Defendant No.3  

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before the Trial Court/Single Judge) in favour of the Bank of India, which is  

the Exporter’s  Bank.   The remaining claim has  been relegated for  Trial.  

The  impugned  Order  further  clarifies  that  upon  the  payment  of  these  

decreetal dues the injunction granted by the Debt Recovery Tribunal by its  

Order dated April 10, 2002 shall stand vacated; and upon this payment the  

Orders of injunction passed by the Calcutta High Court on 22nd December,  

1999 and 14th January, 2000 shall also stand vacated.   The impugned Order  

goes further to state that the decreetal amount shall be satisfied from out of  

the funds lying with the American Express Bank Limited, Defendant No.2.  

To this extent the decreetal amount also stands satisfied.   It also transpires  

that the Defendant No.4, M/s. Sarumeah & Sons, a proprietorship concern,  

has, consequent on the death of the sole proprietor, been struck off from the  

array of parties.   In any event, since claims are posited on a Letter of Credit  

furnished by the Appellant, albeit, on the instructions of its now non-existent  

constituent, namely, M/s. Sarumeah & Sons, (hereinafter nomenclatured as  

the ‘Importer’) the latter is really a proforma or at best, a proper party, to the  

extent that the claim pertains to the subject Letter of Credit (L.C.).   The  

decreetal  amount  stands  satisfied  and  the  Plaintiff/Exporter  should  be  

pragmatic  enough not  to  expect  any further  recovery  owing to  the  legal  

dissolution of the sole proprietorship concern, i.e., the Importer.   In essence,  

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therefore, the question raised by the Appellant is reduced to an academic  

one, which Courts normally abjure from answering.   However, since Leave  

has been granted, we feel curially compelled to briefly delve into the factual  

matrix of the dispute.     

2 On 20th April, 1999, on the request of the Importer, the Appellant had  

opened a Letter of Credit for the aforementioned sum of USD 352,250 on  

Bank  of  India,  Calcutta  (Negotiating  Bank)  in  favour  of  the  Plaintiff-

Exporter; the American Express Bank Ltd. Calcutta, is Defendant No.4 in  

the said civil suit bearing CS No.678 of 1999, as the advising Bank of the  

Appellant.    The  contract  was  placed  on  the  Plaintiff/Exporter  for  a  

consignment of non-basmati rice to be exported from India to the Importer  

in Bangladesh by railroad.   One of the terms of the Letter of Credit was that   

one set of non-negotiable shipping documents would be couriered after the  

consignment was despatched to the opener of the LC, namely, the Appellant  

before  us.  This  was  done  on  11th May,  1999  and  thereupon  the  Bill  of  

Exchange drawn by the  Exporter  was  discounted  by its  banker,  namely,  

Bank of India, which thereupon drew another Bill  of Exchange upon the  

Importer.  It is alleged that the Appellant received the documentation on 19 th  

May,  1999,  and  on  that  very  day  pointed  out  the  existence  of  certain  

discrepancies therein to the Negotiating Bank.   The Appellant’s case is that  

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it  received  a  letter  from the  Importer  on  1st June,  1999,  stating  that  the  

documents were not acceptable and that the goods were damaged, and there  

were also shortages therein.   In its telex dated 24th June, 1999, the Appellant  

suppressed the stand of the Importer and stated as follows:-

“RE YR TLX MSG NO. 2288 DTD 24/6/99 CONCERNING  PAYMENT OF YR BILL UNDER OUR L/C NO. 02-133-99.  PLS  BE  INFMD  THAT  THE  DOCTS  HV  NOT  BEEN  ACCEPTED  BY  THE  IMPORTER  TILL  DATE  (.)  MEANTIME WE HOLD YR DOCTS. AT YR ENTIRE RISK  AND DISPOSAL (.)”

  3 The Negotiating Bank, viz., Bank of India, thereafter, raised a demand  

on the Appellant for the said sum of USD 352,250 by its telex dated 12 th  

July, 1999 in response to which the Appellant again, as we see it, evasively  

and with mala fide intent, mentioned that the Importer was out of station and  

that they would revert to the subject upon his arrival.   On 18th July, 1999,  

the  Appellant  addressed  a  telex  to  Bank  of  India  informing  it  that  the  

consignment was located at Darshana Land Custom and that the Importer  

and Exporter  were in dialogue with each other.   Eventually,  by its  telex  

dated  26th August,  1999,  the  Appellant  informed Bank  of  India  that  the  

documents  had  not  been accepted  by the  Importer.    The  Appellant  has  

admitted in its Written Statement that the documentation was received by it  

on 19th May, 1999 and returned to the Bank of India as late as 10th October,  

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1999.   It has also been admitted by the Appellant that in the interregnum,  

without prior information to the Negotiating Bank or to the Exporter, it had  

certified photocopies of the shipping documents to its constituent, i.e., the  

Importer, ostensibly for customs purposes.   These documents have not been  

returned to the Appellant and, obviously on their strength, the Importer has  

managed  to  clear  the  entire  consignment  from  the  Darshana  Railway  

Authority.   The say of the Appellant is that this was achieved through the  

C&F Agent of the Importer by producing a forged NOC and endorsement on  

the reverse of the photocopies of the shipping documents, certified by the  

Appellant.   Any reasonably diligent Banker would be alive to the possibility  

of the misuse of documents certified by it, even if we are to assume that it  

was not privy to the fraud.   We have earlier noted and we emphasise that the  

Appellant  had  evaded  mentioning  that  without  the  permission  of  or  

information to either the Exporter or the Bank of India, it had provided its  

certification to photocopies of the documentation which, in the event (and as  

any prudent Banker would anticipate), were misused by the Importer to have  

the  rice  consignment  released  to  him.    In  trans-border  or  international  

transactions, trade depends almost entirely on the faith reposed in banking  

institutions to secure the price of the exported goods, commodities etc.   The  

Exporter  can  legally  and  reliably  expect  that  the  Bankers  will  watch  its  

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interests by ensuring that the exported consignment shall be released to the  

buyer  only  on  the  transmission  of  the  price  of  the  shipment  as  secured  

through the Letter of Credit.   Heavy and fiduciary responsibility, therefore,  

rests on the Opening Bank which furnishes the Letter of Credit to ensure that  

payment  is  secured  unless  the  documentation  is  defective  and/or  the  

invocation  of  the  Letter  of  Credit  is  discrepant.   In  every  legal  system  

spanning our globe, jural opinion is unanimous to the effect that the Opening  

Bank cannot disregard, delay or dilute its responsibility to make payment  

strictly and promptly as obligated by the terms of the Letter of Credit.  This  

Bank owes a duty to all  concerned to ensure that any action taken by it  

would not enable or conduce the frustration of the obligations contained in a  

Letter  of  Credit,  as  recognised by International  Banking norms or extant  

Uniform Customs and Practice for Documentary Credits (UCP) 500.  As we  

see  it,  therefore,  keeping  in  perspective  that  the  Importer’s  Bank  i.e.,  

Appellant before us, should not have certified the documentation, reasonably  

anticipating or being aware of the possibility that this certification could be  

abused.   Law assures the Exporter and its Bank to repose in the expectation,  

nay, certainty, that the consignment, which is the subject-matter of the Letter  

of Credit, is not usurped by the Importer/Consignee or its agents, without  

remitting payment to the consignor’s Bank.   This is a strict liability cast on  

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the  bank  which opens  the  Letter  of  Credit,  since  otherwise  International  

trade and commerce will virtually and indubitably come to a standstill.

4 It is only when irretrievable injury is bound to result and it is plainly  

evident that there is egregious fraud strictly ascribable to the beneficiary of  

the LC, that a reason to insulate a party before it against liability and that  

too, comes about only through the prompt intervention and interdiction of a  

Court of law.  This Court has consistently adhered to this position of law  

even through the  passage  of  several  decades.   The LC has  the  effect  of  

creating a bargain between the banker and the vendor of goods, a deemed  

nexus between the Seller and the Issuing Bank, rendering the latter liable to  

the Seller to pay the purchase price or to accept a Bill of Exchange upon  

tender of the documents envisaged and stipulated in the LC (See Tarapore  

and Co. vs. V.O. Tractors Export, AIR 1970 SC 891 where Halsbury’s Law  

of England have been relied upon).   These observations have been repeated  

in United Commercial Bank vs. Bank of India [1981 (2) SCC 766], U.P.  

Coop. Federation Ltd. vs. Singh Consultants & Engineers (P)Ltd. [1988 (1)  

SCC 174], Federal Bank Ltd. vs. V.M. Jog Engineering Ltd. [2001 (1) SCC  

663, Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Co. [2007 (8)  

SCC 110].    The Opening Bank must  only look to assure itself  that  the  

invocation is in terms of the LC, and the completion of this exercise has  

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consistently been circumscribed to a short period, which in the case in hand  

is one week as per Article 13 B of UCP 500.

5 It is quite evident to us that it is this reasoning which has persuaded  

the Division Bench of the Calcutta High Court in the impugned Order to  

comprehensively consider and construe the stand taken by the Appellant in  

the Dhaka Suit as constituting a clear admission of the Appellant Bank’s  

liability.   We must immediately clarify that the Dhaka Suit had been filed  

by the Importer praying for an injunction against the Appellant as well as the  

Bank of America Ltd. restraining them from releasing any payment relating  

to the subject  consignment of rice exported to him in Bangladesh by the  

Exporter  from  Calcutta.  There  was  no  impediment  or  embargo  on  the  

Appellant stating in the pleadings in the Dhaka Suit those facts which it now  

seeks to proffer, viz. that it had no liability whatsoever and that it did not  

take any action which enabled or conduced the release of the consignment  

without first securing and remitting payment in terms of the LC opened by  

it.   Indeed, a holistic perusal of the Written Statement filed by the Appellant  

in the Dhaka litigation discloses that it had correctly spelt out the factual  

matrix, and the position it had adopted therein was in consonance with law  

pertaining to legal obligations of the Opening Bank with regard to the Letter  

of Credit furnished by it.  It is also noteworthy that the Written Statement  

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was filed in the Dhaka litigation after the Appellant had complete knowledge  

of the subject suit filed against the Appellant/Exporter in the Calcutta High  

Court, which suit is the springboard of the present Appeal.  It also needs  

clarification that in the Dhaka Suit Defendants 1 and 2 correspond to the  

Appellant,  Defendant  No.  3  therein is  American Express  Bank Ltd.,  i.e.,  

Respondent No.3 herein, Defendant No. 4, i.e., Bank of India, is Respondent  

No.2 herein,  and Defendant No. 5 is Respondent No.1 in this Appeal, i.e.,  

the Plaintiff in the Calcutta Suit.  The following paragraphs from the said  

Written  Statement  if  the  Appellant  in  the  Dhaka  Suit  are  worthy  of  

reproduction:

“13. That the statements made in paragraph No. 7 of the plaint  

are matters of record and the matter of strict proof, the onus of  

which  lies  on  the  Plaintiff.   Moreover,  it  is  stated  that  the  

request  of  the  Plaintiff,  the  Defendant  No.  2  certified  the  

photocopy of Non-negotiable copies of the shipping documents  

and handed over the same alongwith customs purpose copy of  

LCAF without  NOC to  the  Plaintiff  for  customs  assessment  

purpose. But the Plaintiff never returned the said documents to  

the Defendant No. 2 Bank.   But the Plaintiff cleared the entire  

consignment from the Daranana railway Authority through its  

C & F Agent M/s Anwar Hossian by producing forged NOC  

and  endorsement  on  the  back  side  of  the  photocopy  of  the  

shipping documents.

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…..

17. That the statements made in paragraph No. 11 of the plaint  

are matters of record and as such the Defendant Nos. 1 and 2 do  

not offer any comments with regard to them.  However, it is  

mentioned  here  that  the  Defendant  No.  2  received  the  

discrepant shipping documents on 19.05.99 and communicated  

with the negotiating bank i.e. Defendant No. 4 as well as the  

Defendant No. 5 Importer for rectification of the discrepancies.  

But on 10.10.99 the Defendant No. 5 returned the entire sets of  

shipping documents to the negotiating bank i.e. Defendant No.  

4 and mentioned here that the importer i.e. Plaintiff had taken  

delivery  of  the  imported  goods  against  the  said  shipping  

documents  of  letter  of  Credit  No.  02-133-99  from  Railway  

Station, Darshana during the period from 16.05.99 to 01.06.99  

through  its  C  &  F  Agent  M/s  Anwar  Hossian  by  forged  

documents.  So  question  of  discrepancy  in  the  documents  is  

immaterial and irrelevant and as such the application filed by  

the Plaintiff/petitioner for temporary injunction is liable to be  

dismissed.

18. That the statements made in paragraph No. 12, 13 and 14  

of the application are false fabricated, mala fide, concocted and  

hence  denied  by  Defendant  Nos.1  and  2  it  is  stated  that  

Defendant  No.2  returned  the  shipping  documents  to  the  

beneficiary’s bank i.e. the Defendant No. 4 due to discrepancy  

therein and requested to stop payment against the said shipping  

documents of the L/C No. 02-133-99.  The Defendant No. 4  

communicated  the  same  to  the  Defendant  No.  5.   But  the  

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Defendant  No.  5  i.e.  supplier  returned  the  entire  shipping  

documents  and  alleged  that  the  Plaintiff  has  already  taken  

delivery of the goods against the said shipping documents of  

the L/C No. 02-133-99.   It  may be mentioned here that the  

Defendant No.5 i.e. the supplier a suit as Plaintiff in this matter  

in  Calcutta  High  Court   being  suit  Nos.  C.S.  678  of  1999  

against (1) Bank of India (2) American Express Bank Calcutta  

(3) National Bank Limited, Khatungonj all are Defendant Nos.  

4,3,2  respectively in this suit and (4) M/s Saru Meah & Sons  

Plaintiff in this suit.  The supplier i.e. Defendant No.5 in this  

case obtained temporary injuries from Calcutta High Court in  

suit No. C.S. 678 of 1999 restraining American Express Bank  

Limited,  Calcutta  i.e.  Defendant  Nos.  3  in  this  suit  from  

disturbing  sums  without  leaving  a  sum  of  Rs.1.54  crore  

equivalent  to  more  or  less  US$  3,52,250.00  in  Nostro  A/D  

No.412800566  maintained  with  them  by  the  National  Bank  

Limited.  The Defendant No.1 of suit No. C.S. No.678 of 1999  

i.e. Defendant No. 4 in this onus requested the National Bank  

Limited,  to make immediate payment to the Plaintiff  of  Suit  

No.678 of  1999 i.e.  Defendant  No.5 in  this  suit  i.e.  supplier  

through  its  corresponding  bank  American  Express  Bank  i.e.  

Defendant  No.3.    The Defendant  No.1 of  the suit  No.  C.S.  

No.678 of 1999 made such request to the Defendant No.1 of  

this  suit  on  the   ground that  the  goods against  the  shipping  

documents  had already been delivered  and consumed by the  

Defendant No.4 i.e. Plaintiff in this suit.   Now the Defendant  

Nos. 1 and 2 are under deligation to reimburse the payments to  

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the supplier’s corresponding bank i.e. Defendant No.3.   So the  

application  filed  by  the  Plaintiff  for  temporary  injunction  is  

liable to be dismissed.”

A perusal of paragraph 18 of the Written Statement filed by the Appellant in  

the  Dhaka  litigation  discloses  that  its  position  was  that  it  was  “under  

obligation to reimburse the payments to the supplier’s corresponding bank  

i.e., Defendant No.3” (Bank of America Ltd. therein).   This admission of  

fact is clear, and in consonance with the law pertaining to legal obligations  

concerning  Letters  of  Credit,  obliges  it  to  remit  payments  contemplated  

therein.   Assuming that the Appellant did not take any mala fide action so as  

to enable the Importer to have the consignment released without authority, it  

was in clear violation of its fiduciary responsibility as the Opener of a Letter  

of  Credit.   Therefore,  insofar  as  the  factual  matrix  is  concerned,  the  

Appellant had correctly made the statement pertaining to its liability in the  

Dhaka Suit, which can legitimately be taken as an admission in the Calcutta  

Suit.

6 The interim Order, it may be recalled, did not restrain or interdict the  

operation  of  the  impugned  Judgment  and  has  in  actuality,  rendered  the  

Appeal infructuous, since the LC amounts have left the Appellant’s coffers.  

In view of the admission of fact made by the Appellant, we think the Court  

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was correct in concluding in the impugned Judgment that a money decree  

for  the  sum secured  by  the  subject  Letter  of  Credit  (for  USD 352,250)  

should be passed.   The Appeal is without merit and is dismissed with costs.

                       ............................................J.              [VIKRAMAJIT SEN]   

                                                                ............................................J.              [ARUN MISHRA]

New Delhi; January 14, 2015.  

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