Bank of Maharashtra vs M/s Prajakta International Ltd. & Ors

Ashok Menon, Chairperson

Bank of Maharashtra, impugns the dismissal of Original Application No. 289 P/2001 (O.A.) vide judgment and order dated 18/11/2004 by the Debts Recovery Tribunal, Pune (D.R.T.) in this appeal filed under Sec. 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDB & FI Act”, for short).

The first respondent is a firm consisting of respondents Nos. 2 to 6 as its partners. They are engaged in the export business. On 29/06/1996, they approached the appellant bank for opening a current account and subsequently, on 24/12/1996, requested finance to execute an export order. The bank sanctioned ₹ 9,40,000/- as pre-shipment finance and $45,000/- as post-shipment facility to the firm.

Although the firm did not avail of the pre-shipment finance, on 08/03/1997, they requested a grant of post-shipment finance against bills/documents evidencing the export of goods by them to El Kanark Import & Export Trading Agency, 43, El Kolaly Street, Shoubra, Cairo, Egypt under LC No. 02/96/70/2/0701V for $45,000/-dated 11/12/1996 issued by Banque Du Caire Barclays International, SAE Cairo, Egypt(LC opening bank) and the State Bank of India, Delhi was the advising bank, and requested to negotiate the same. Two foreign bills of exchange dated 06/03/1990 for $ 18,000/-and $27,000/-were also drawn and produced by the firm. The appellant contends that the LC was not confirmed by it. Therefore, it was not under obligation to accept the bills for negotiation or pay the amount before the realisation of the bills. On 10/03/1997, the appellant forwarded the bills and documents to the LC opening bank at Cairo through a courier initially on a collection basis. But on request made by the firm, the same was discounted on 12/03/1997 and paid ₹ 13,74,705/-being 75% of the rupee equivalent of the amount of the said two foreign bills of exchange even before realisation and receipt of the proceeds of the bills. The payment was allegedly made “under reserve” for discrepancies observed by the LC opening bank. Thus, the amount paid to the respondents was alleged to be an advance against export bills/receivables. It is contended that in case of dishonour of the bills on the due dates, the appellant is entitled to recover the amount of the bills with interest from the drawers. As requested by the respondents, on the realisation of the bills, the advance was to be repaid and 25% of the proceeds were to be kept in a foreign currency account permitted under the Exchange Control Regulation of the Reserve Bank of India.

On the due date, the payment of the bills negotiated were allegedly not received. On 19/03/1997, the LC opening bank intimated by Telex about discrepancies in the export documents and the non-payment and sought instructions for the disposal of the papers. The respondents were informed about the non-payment. They were also called upon to take action about the disposal of the goods if warranted and to arrange for an alternate buyer to reimport the goods. The respondents were also directed to invoke the Export Credit Guarantee Corp Policy (ECGC). The respondents neglected to give necessary instructions about the documents and goods, and the LC opening bank returned the bills dishonoured on 28/07/1997. Several letters were addressed by the appellant to the respondents bringing the fact of dishonouring of the bills to their knowledge. The appellant issued a formal notice dated 26/03/1999 to the respondents calling upon them to pay the amount due as drawers of the bills. It is claimed that the respondents are also liable to pay interest on the amount at the rate of 20% per annum with quarterly rest. The respondents refused to respond to the demand made by the appellant. The appellant contends that the respondents were aware of the defects in one of the documents. The rectification was done after the expiry of the LC. The appellant filed Civil Suit No. 382 of 1999 before the Court of the Civil Judge, Senior Division, Pune. The suit was transferred to the D.R.T. and refiled as O.A.

The respondents contend that the appellant had illegally withheld payment of the balance amount of $11,250/-. In their letter dated 08/03/1997 to the appellant, they had requested to negotiate the documents and to credit the proceeds to their current account. It was contended by the respondents that they had never requested payment of any advance. Discrepancies, if any, should have been looked into by the appellant before forwarding the documents to the LC opening bank. As per the provisions of UCP 500 Article 14, the appellant should have pointed out any discrepancy within 7 days from the date of submission of the LC. It is also contended that there is no debt incurred by the respondents. There is no duty cast upon the respondents to collect the money from the importer and pay it to the appellant. Hence, it is contended that the appellant is not entitled to any amount from the respondents.

The D.R.T. found substance in the defence set up by the respondents and dismissed the O.A. vide the impugned judgment. The appellant is aggrieved and hence in appeal. The appeal was allowed by this Tribunal vide order dated 03/07/2014. The respondents filed Writ Petition No.11313 of 2014 before the Hon’ble High Court of Bombay challenging this Tribunal’s order. The Writ was disposed of on 19/07/2016 by setting aside this Tribunal’s order and the matter was remanded to this Tribunal for fresh disposal.

Heard the Ld. Counsel appearing for the appellant and the respondents. Records perused.

The primary question that would arise for consideration in this appeal is whether the amount claimed by the bank is the debt coming in the purview of Sec. 2(g) of the RDDB & FI Act. The respondents would contend that the only transaction between them and the appellant bank was to collect the amount due and payable under the LC from the issuing bank. The respondents would also contend that they did not avail of any loan from the bank. They have requested for financial assistance as pre-shipment and post-shipment assistance. Admittedly, they did not avail of pre-shipment assistance. The bank contends that the respondents had by letter dated 08.03.1997 requested post-shipment financial assistance for $45,000/- and the original LC with two amendments as well as other documents of export were produced and the bank was requested to negotiate the documents and credit to proceed their current account with the bank. In this letter, there is no indication of the respondents requesting any post-shipment finance. The appellant bank was supposed to negotiate the LC with the issuing bank at Cairo and the proceeds received by the bank were to be deposited in the current account of the respondents. For technical reasons, the issuing bank at Cairo refused to honour the LC for the reason that it was received belatedly and after the expiry of the LC. However, the appellant hastened to discount the bills and paid 75% of the amount equivalent to Indian Rupees to the respondents. The appellant bank was admittedly under no obligation to pay any amount to the respondents. The question of whether the appellants are entitled to claim the amount which has been paid to the respondents by filing an O.A. before the D.R.T. under Sec. 19 of the RDDB & FI Act claiming the amount as a “debt” is to be decided. The scope of Sec. 2(g) is very wide and has been made wider by way of amendment in 2016. The definition of debt would include not only the money lent but also any amount that is payable to the bank during the course of any business activity undertaken by the bank. Since the appellant claims that the amount that they had paid to the respondents on receiving the LC was in their ordinary course of business which included discounting of the bills presented for collection, the claim on account of such transaction would also come within the definition of “debt” within the ambit of Sec. 2(g) and therefore, the application for the realisation of the amount under Sec. 19 is maintainable. The suit was originally filed before the Civil Court and was rightly transferred to the D.R.T. The respondents did not raise any objection to the transfer and challenged the jurisdiction as a preliminary issue. Hence, it has to be held that the respondents had submitted themselves to the jurisdiction of the D.R.T.

The next question that arises for consideration is whether the claim of the appellant bank is sustainable. The LC that was produced mentions that it was confirmed. It is admitted by the officer of the appellant bank that they were not bound to the payment under LC. It is also admitted that the appellant bank is not concerned with any terms and conditions of the LC. However, the witness also admits that the bank did not verify the documents presented by the respondents to find out whether they were terms with the LC. In case the bank did not have the obligation to pay the amount without getting a confirmation from the issuing bank, there was no need to pay the amount to the respondents before getting a confirmation from the issuing bank. When the export documents were produced by the respondents for negotiating with the issuing bank, it was incumbent upon the appellant to have verified the validity of the documents and should have immediately brought the discrepancy, if any, to the notice of the respondents. Admittedly, they did not do so and sent the documents for collection to the issuing bank in Cairo. On receipt of the documents, the issuing bank informed the appellant about the discrepancy in the documents. However, by the time the documents were retransmitted, the LC had expired. Therefore, the appellant could not recover the money from the issuing bank. The appellant had paid the money to the respondents without getting confirmation and there can be no fault on the part of the respondents having received the money. There is no case for either the appellant or the issuing bank that the LC was not genuine. Once the bills are presented by the respondents to the appellant, and sent for collection, the appellant steps into the shoes of the respondents. It becomes the bank’s obligation to see that the documents are in order. The respondents have admittedly exported the goods to the buyer in Cairo and hence, they are entitled to receive the price of the goods exported. The non-acceptance of the LC by the issuing bank was not for the reason of any defect of the goods and the buyer not paying the amount.

The appellant contends that the payment made to the respondents was under reserve and therefore, on the issuing bank pointing out the discrepancy in the documents entitled the appellant to recall the amount paid by it to the respondents. There is not a scintilla of evidence to indicate that the payment made to the respondents was “under reserve” which entitled the appellant to reclaim the amount from them in the event of any discrepancy in the documents. The bank could have refused to pay the amount without getting a confirmation from the issuing bank. This was not done and hence, the respondents are not liable to make good the loss if any sustained by the appellant because of their folly. No case is made out regarding any unjust enrichment of the respondents. The appellant has also not pleaded a case of unjust enrichment of the respondents. On 20.10.1997, American Express Bank contacted the issuing bank and it was informed that the files were closed a long time ago since the documents were complying with the LC terms. The condition of the documents complying with the LC terms is essential. When the appellant bank had undertaken to negotiate the documents with the issuing bank, the responsibility was entirely on them to verify the documents before sending them. The appellant was also under obligation to see that the LC did not expire.

On appreciation of entire materials, facts, and circumstances, I find no reason to interfere with the findings of the impugned judgment. The appeal is without any merits and is, therefore, dismissed.