Bhargava Commercial (P) Ltd. vs Bank Of Baroda And Ors.

P.K. Bhasin, J

This appeal is directed against the final order dated 23.9.2015 passed by the Debts Recovery Tribunal (DRT) in Original Application No. 35 of 2009 filed by respondent No. 1, Bank of Baroda, under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ('RDDBFI Act' in short) against the appellant herein and respondent Nos. 2 and 3 for recovery of Rs. 23,39,842/- with interest etc. The relevant facts leading to the filing of O.A. by Bank of Baroda are that at the request of respondent No. 2 herein State Bank of India had opened a Letter of Credit (LC) on 5.9.2007 in favour of the appellant herein, which Company was dealing in paper, for a sum of Rs. 19,08,086/- to ensure the payment of the price of paper purchased by respondent No. 2 from the appellant. The payment was to be made by respondent No. 1 Bank of Baroda. On receipt of the LC from State Bank of India on 5.9.2007 Bank of Baroda informed the appellant being the beneficiary of the LC and then on 6.9.2007 the appellant presented relevant documents which included Bill for Rs. 19,08,086/- issued in favour of the buyer of the paper, respondent No. 2 herein showing receipt of the paper from the appellant and a Bill of Exchange which was also duly signed by the buyer, respondent No. 2. Bank of Baroda then after being satisfied about the transaction of sale purchase between the appellant and respondent No. 2 made the payment of Rs. 19,08,086/- to the appellant herein. However, Bank of Baroda did not present the LC to State Bank of India within the period of its validity for receiving the payment which it had already made to the appellant and when the same was presented to State Bank of India on 9.1.2008 the payment was not made by State Bank of India to Bank of Baroda for the reason that LC had been presented after its expiry period. Thereafter, Bank of Baroda entered into correspondence with State Bank of India and respondent No. 2 (buyer) requesting them to make the payment of Rs. 19,08,086/- being the amount covered under the LC dated 5.9.2007. When Bank of Baroda could not get its payment from them it involved the appellant in the matter by demanding money from it also. However, no money was paid to Bank of Baroda by State Bank of India, respondent No. 2 or the appellant and consequently the Bank of Baroda filed a petition under Section 19 of the RDDBFI Act for the recovery of its money. In that O.A. the prayer made was for issuance of a Recovery Certificate against the appellant (impleaded as defendant No. 1) and respondent No. 2 (impleaded as defendant No. 2 in O.A.). State Bank of India was also impleaded as defendant No. 3 in the O.A. but no relief was claimed against it.

The O.A. was finally allowed by the DRT and the relevant portions of the impugned judgment dated 23.9.2015 are re-produced below:

"5. The defendant No. 2 had opened two letters of credit in favour of the defendant No. 1 through defendant No. 3 State Bank of Baroda and the same was forwarded to the applicant Bank vide letters dated 16.8.2007 and 5.9.2007 for a sum of Rs. 5,84,660/- and Rs. 19,08,086/- respectively which was payable after 120 days from the date thereof.

It is submitted that as regard to the LC for Rs. 5,84,616/- is concerned the payment of the same has been made by the defendant No. 2 through State Bank of Baroda on 31.3.2007. Hence, the present suit is being filed only in respect of LC for Rs. 19,08,086/- dated 5.9.2007. The applicant Bank has issued various letters to the defendant No. 1 for making the payment of aforesaid LC but despite given several assurance the defendant No. 1 failed to make the payment.

In these circumstances, the applicant Bank sent a notice of demand dated 19.9.2008 to the defendant No. 2 to pay the said amount within 7 days but all in vein. Thereafter, the applicant Bank issued afresh legal notice on 11.2.2009 upon the defendant Nos. 1 and 2. However, there is no response till date. Hence, the applicant Bank has not alternate to approach to this Tribunal to recover their dues.

Notices on this O.A, were issued to the defendants by this Tribunal and defendants put appearance through learned Counsel and filed written statement.

The defendant No. 1 in its written statement has raised the various objections such as the applicant Bank has not made defendant No. 3 as the proper party; the LC dated 16.8.2007 for Rs. 5,84,660/- and 5.9.2007 for Rs. 19,08,086/- issued by the defendant No. 3 Bank and applicant Bank has intentionally and wilfully lost the original LC and failed to file the original bill along with other documents which according to them remained unpaid therefore the present OA is not maintainable and liable to be rejected.

The defendant No. 3 has also filed its written statement stated therein that the defendant No. 3 is a proforma party and no relief is claimed against the answering defendant as the dispute is a matter between the defendant Nos. 1 and 2 with the applicant Bank and they are liable to make the payment of the applicant Bank.

The applicant Bank leads its evidence by filing the affidavit of Mr. Anil Gaindhar, AGM of the Bank who has proved and exhibited the documents as AW1/1 to AW1/28 respectively.

The witness of the applicant Bank has exhibited and marked power of attorney as AW1/A & AW1/1, board resolution as AW1/2 and AW1/5, D.P. Note as AW 1/3 & AW1/6, B.P. Undertaking as AW1/4 & AW 1/7, various letters as AW1/8 to AW 1/22, legal notice as AW1/23, e-mail message dated 24.9.2008 as AW1/24, legal notice dated 11.2.2009 as AW1/25, various letter as AW1/26 & AW1/27 and bill of exchange dated 6.9.2007 as AW1/28 respectively.

The defendant No. 1 has also led evidence by filing the affidavit of Sh. Sudhakar Bhargava, Director who has marked and exhibited bill of exchange dated 6.9.2007 as D1/1, copy of UCPDC 500 as D1/2.........

After hearing the learned Counsel for both sides at length and perusing the records, this Tribunal is of the view that it is admitted by the defendant Nos. 1 and 2 in their written statement that they have availed the LCs facility from the applicant Bank and the same is duty filed with the evidence and the same marked and exhibited as AW1/8. Thus, the objection raised to file original LC and bill along with other documents does not hold much water. Hence, this Tribunal is not convinced with the plea taken by the defendants is liable to be rejected and the same is hereby rejected in toto. In regard to the other objection the defendant No. 3 has been made a necessary party to adjudicate the present matter. Thus, this objection of the defendants is also turned down by this Tribunal, Hence, the defendants are liable to pay the dues of the Bank.

This witness has fully corroborated the averments made in the O.A. Even otherwise the whole case of the applicant Bank is based on the documents and the witness has duly proved all the documents.

On perusal of the records, this Tribunal is of the view that the Bank has proved its case beyond reasonable doubts, the documents and evidence led by the Bank and there is no question of disbelieving the evidence led by the applicant Bank based upon the written/printed documents."

The appellant's grievance, and which is fully justified, is that how could State Bank of Baroda claim any money from it after it had paid price of the goods to the appellant on 6.9.2007 on receipt of an LC from State Bank of Baroda and after being satisfied that the transaction of sale purchase between the appellant as the supplier of paper and respondent No. 2 being the buyer was genuine and all documentation on the part of the appellant was in order. According to the learned Counsel for the appellant the Bank of Baroda cannot claim any money from the appellant if State Bank of Baroda had refused to honour the LC issued by it in favour of the appellant at the request of the buyer which was the customer of State Bank of Baroda and if Bank of Baroda did not present the LC to State Bank of Baroda within the validity period of the LC it is the Bank of Baroda which has to suffer and not the appellant.

When it was put to the learned Counsel for the Bank of Baroda, respondent No. 1 herein, as to how it could demand any money from the appellant which had already supplied the paper to respondent No. 2 on the basis of LC issued by its Banker and which in turn was forwarded to Bank of Baroda for making the payment to the appellant the answer was that even though the Bank of Baroda had received the LC in question from State Bank of Baroda and payment of the amount covered under the LC had been made to the appellant as all documents submitted by the appellant were found to be in order and even if the LC was not presented in time by Bank of Baroda to State Bank of Baroda for receiving the payment which had already been released in favour of the appellant and State Bank of Baroda had rightly refused to honour its LC and Bank of Baroda was negligent in not forwarding the LC to State Bank of India in time but still Bank of Baroda could recover its money not only from the buyer of the goods i.e. respondent No. 2 herein but also from the supplier i.e. the appellant herein and the DRT was fully justified in making both of them liable jointly and severally. Learned Counsel attempted to justify this stand by pointing out that the appellant had a few days before the receipt of the LC in question by Bank of Baroda from State Bank of India requested to sanction a Bill discounting facility and that request was accepted by the Bank and when the appellant had supplied the goods to respondent No. 2 and had raised a Bill for the amount of the price of the goods and submitted the same to Bank of Baroda for discounting which request was also accepted by the Bank and the amount of that Bill, which was the amount covered under the LC, also was credited in the account of the appellant which it was having with this Bank and after two days on 8.9.2007 the appellant had also executed a promissory note for the said amount in favour of the Bank and so the liability was being fastened upon the appellant on the basis of its letter of request dated 6.9.2007 for the discounting of the Bill for Rs. 19,08,086/- and the promissory note for that much amount and there was nothing wrong in that decision of the Bank and even if initially the Bank had been claiming money from State Bank of India and respondent No. 2, Bank of Baroda was not estopped from claiming its money from the appellant.

I am, however, not at all convinced with these submissions of the learned Counsel for the Bank of Baroda. This is a simple case of sale purchase of goods between the appellant as the supplier of goods and respondent No. 2 as the buyer and the payment of the price of goods was ensured to the appellant by respondent No. 2 by way of an LC which it had got issued from its Banker, State Bank of India, Noida. State Bank of India however failed to honour its LC and that was admittedly on account of the negligence on the part of the officials of Bank of Baroda in not presenting the LC to State Bank of India within its validity period and for that act of negligence on the part of officials of Bank of Baroda the appellant could not be made to suffer under the legal position regarding the LC transactions which is internationally recognised and unless some fraud is attributed to the seller and buyer of goods the Bank which has to make payment to the supplier of goods under an LC cannot refuse to make payment which of course it was made by Bank of Baroda in the present case but after making payment it is demanding back that payment from the seller/beneficiary not on account of any fraud having played by the seller but because the LC issuing Bank had refused to honour the LC for which decision of State Bank of India the appellant cannot be blamed and made to suffer and if the claim of Bank of Baroda's claim against the appellant is to be allowed the appellant will suffer on two counts, firstly, by delivering goods to respondent No. 2 and secondly by being called upon to make the payment of the price of the sold goods to Bank of Baroda also. That is not permissible under the well settled legal guidelines governing the LC transactions involving two Banks.

It may be observed here that when hearing was going on before this appeal Bank of Baroda had made an offer to the appellant to close this legal battle in cased the appellant was willing to pay the amount of about Rs. six lacs which the appellant had deposited with this Tribunal towards compliance of the condition of pre-deposit for the entertainment of this appeal but that offer was not accepted by the appellant since that would also have amounted to unjustified financial burden upon the appellant for no fault of its. Counsel for the appellant had rightly submitted that this kind of offer should have been made to State Bank of India as a Banker to Banker co-operation or should have recovered the money from its own officials who were responsible for non presentation of the LC to State Bank of India in time.

In the facts and circumstances of the case it also becomes clear that the amount of Rs. 19,08,086/- was not paid to the appellant on the basis of a Bill discounting facility as was sought to be urged by the Counsel for Bank of Baroda. Normally whenever money is paid by any Bank to its customer after purchasing some cheque for the period during which it remains under clearance process or Bill is discounted that is done on payment of some charges/commission and the Bank does not extend that facility for free. In the present case full Bill amount was paid to the appellant and negatives the case of the Bank of Baroda that money was paid to the appellant under Bill discounting facility. In fact the Bank of Baroda had placed on request a form signed by the appellant on 8.9.2007 in respect of the Bank discounting facility to be sanctioned. Since the payment had already been made to the appellant on 6.9.2007 this Bank form also negatives the case that payment was made to the appellant under Bill discounting facility.

As far as the reliance placed on the promissory note allegedly executed by the appellant in favour of Bank of Baroda is concerned, I am of view that this Bank cannot succeed even on the strength of that document since it has always been the case of Bank of Baroda that it was to get its money from State Bank of India at first instance and then from respondent No. 2 (buyer of goods). It was never its case that immediately on the refusal of State Bank of India to make the payment that appellant herein had become liable to pay to it on the basis of the promissory note for Rs. 19,08,086/-. If at all, if the claim of Bank of Baroda was based on the Bill discounting facility and promissory note, it would not have demanded its money from State Bank of India and then from respondent No. 2 and these two defendants would not have been impleaded also in the O.A. That cause of action subsequently on being converted into a cause of action based on the Bill discounting facility and promissory note was thus not the genuine cause of action for filing of petition under Section 19 of the RDDBFI Act by Bank of Baroda but an illusory cause of act on devised only to base an unjustified claim against the seller of goods and as an attempt to get some relief by misleading the Tribunal and in which attempt it has succeeded before the Tribunal below. The learned Presiding Officer Mr. Ashish Kalia ought to have gone behind the sentences written in the Bank's petition to find out if the cause of action pleaded was a real one or not instead of passing a routine order simply saying that on the basis of documents exhibited by the Bank its case stood proved as if defence of a defendant has no importance at all and in this case the Presiding Officer has not even referred to the plea raised by the appellant that being the seller of the goods on the strength of an LC issued by State Bank of India in its favour requiring Bank of India to make the payment of Rs. 19,08,086/- it could not be fastened with any financial liability because of State Bank of India having refused to honour its own LC which even as per the own case of Bank of Baroda was due to inadvertent failure of its own employees to present the same to the issuing Bank within the validity period of the LC. Thus the impugned order cannot be said to have been passed by the Presiding Officer by applying his judicial mind and if I may so this is not the first order coming to the notice before this Tribunal passed by the same Presiding Officer which can be unhesitatingly said to have been passed in a most casual and mechanical manner. But this Tribunal cannot approve of the decision of the DRT rendered without paying any attention to the stand of the appellant in its written statement that payment having been made to it under an LC no money could be claimed back from it if the issuing Bank had justifiably or unjustifiably refused to honour its LC. For the aforesaid reasons, this appeal is allowed. The impugned order of the DRT whereby a recovery certificate was issued against the appellant is set aside. Since the respondent No. 2 which chose not to contest even the O.A. or to file any appeal against the final order of the DRT, the impugned judgment qua him will, however, remain unaltered. Consequently, the appellant shall also be now entitled to get back the money which it had deposited with this Tribunal as condition precedent for the entertainment of its appeal. As and when any application is moved by the appellant for release of that money which, if lying deposited in a Fixed Deposit, the same shall be got released and pay to the appellant with interest accrued on the initial amount of deposit.