Rilvan Leathers vs Union Bank of India

S.T. Ramalingam, J.—C.S. No. 527 of 1979 was filed by Rilvan Leathers against the defendant Union Bank of India on 28-9-1979. The

defendant Union Bank is the plaintiff in the latter suit C.S. No. 604 of 1980, which was filed on 18-6-1980. The earlier suit is for taking account of

the amount due by the plaintiffs the defendant after giving credit to the amounts to which the Rilvan Leathers are entitled and which were not

credited in their accounts on the date of the plaint and said to be kept in Sundry Deposit Account with the Union Bank of India, as well as for a

direction to give credit to a sum of Rs. 2,84,000/- in the month of November, 1978 and thereafter to ascertain the exact amount due and payable

by Rilvan Leathers to the Union Bank of India.

The latter suit which is filed by the Union Bank of India, who is the defendant in the other suit is for recovery of a sum of Rs. 5,51,28-29 not

only against Rilvan Leathers but also against its partners viz., defendants 2 to 5 jointly and severally. The 5th defendant is the Power of Attorney

Agent of the 1st defendant-firm.

By consent of parties common evidence was recorded in C.S.No. 527 of 1979. For convenience sake and for proper understanding, the

parties will be called by their respective names as they are arrayed in C.S.No. 604 of 1980.

Certain basic facts, which are not in dispute and which are common to both the suits, may first be stated. Rilvan Leathers is mainly an exporter

of finished leathers and importer of Chemicals and other materials for tanning purposes. The Union Bank of India is one of the Bankers of Rilvan

Leathers, and Rilvan Leathers had several accounts with the Union Bank of India. Rilvan Leathers had an account called the ""Shipping Loan

Account"" and credit facilities to an extent of Rs. 7,00,000 were obtained. Rilvan Leathers had another account also, called ""Foreign Deposit Bills

Purchase Account (FDBP A/c)"". The limit granted under this account to Rilvan Leathers was Rs. 25,00,000/-. Apart from the aforesaid two

accounts, Rilvan Leathers had a current account with the Union Bank of India.

In or about June 9, 1978, an Italian Firm by name ''Conceria Bomar via Pannocchia, Ponte, A. Egola Pisa placed an order with Rilvan Leathers

under contract No.520/78 through their local agents for supply of 5 lakh sq.feet of full chrome white suede upper goat with grain with certain

specifications. One of the terms of the contract is that the goods would be inspected by their local agents before the shipment is effected. By

another contract No. 528/78 dated 15-6-1978, the said Firm placed similar order for 50,000 sq.feet. The quantity to be supplied under both the

orders is around 5,50,000 sq.ft of leather, equivalent to 5,22,500 U.S. Dollars. However letters of credit were opened only to an extent of

2,26,218.75 U.S. Dollars. These letters of credit dated 15-9-1978 related to Contract No.520 of 1978 dt. 9-6-1978 for 1,80,975 U.S. Dollars

representing the order for 5,00,000 sq.feet of leather, and contract No.528/78 dated 15-6-1978 for 45,243.75 U.S. Dollars for 50,000 sq.feet of

leather.

With reference to Contract No.520/78 a bill was drawn in accordance with the letter of credit for 27,660-90 U.S. Dollars and the same was

negotiated with the Union Bank of India and the amount has been credited by the Union Bank to the account of Rilvan. The rest of the portion

covered under the aforesaid contract No.520/78 was shipped by Rilvan under invoice No.893/RL/78-79 dated 7-10-1978 and a Bill was drawn

in accordance with the letter of credit for 9,370-66 U.S. Dollars and the same was negotiated with the Union Bank of India and the Union Bank of

India has credited the amount to the plaintiffs current account. A portion of the goods covered by contract No.528/78 after due inspection by the

local agents of the Italian Purchaser were shipped by Rilvan under Invoice No. 892/RL/78-79 dated 7-10-1978 and a Bill was drawn in

accordance with the letter of credit for 11,576-53 U.S. Dollars and the same was negotiated with the Union Bank of India. The sum total for

which goods have been exported by Rilvan in the manner aforesaid is to an extent of 37,031-56 U.S. Dollars in connection with the Contract No.

520/78 dated 9-6-1978 and a sum of 11,576-53 U.S. Dollars relating to Contract No. 528/78 dated 15-6-1978, in all making a total of 48,608-

09 U.S. Dollars.

The Italian Purchaser had paid the entire amounts covered by the aforesaid three bills to their Italian Bankers viz., Credito Italanio. Later on, the

Italian Purchaser for reasons best known to them, filed an action in the Italian Court and obtained an order called ''conservative arrest'' which

resulted in the detention of 13,552 U.S. dollars in respect of the first bill dated 18-9-1978, Ex.P3 and 9,370-66 U.S. dollars concerning invoice

dated 7-10-1978 Ex.P.7 as also 11,576-53 US dollars relating to the third invoice dated 7-10-1978 Ex.P5 in all 34,439-19 U.S. dollars. By

virtue of the conservative order of arrest they directed the Italian Bank Credito Italanio not to transmit the aforesaid amount to the Union Bank of

India notwithstanding the fact that irrevocable letter of credit has been opened concerning the aforesaid invoices. Meanwhile, an order from West

Germany has been placed with Rilvan Leathers for supply of full chrome white suede upper goat with grain. In pursuance of order, Rilvan Leathers

supplied goods to the West Germany Firm to an extent of (sic) 23,796-76 equivalent to Rs. 3,84,718-45 under invoice No. 899. Another firm

from London has also placed an order for the aforesaid skin to the value of (sic) 15,363-98 equivalent to Rs. 2,40,909-15. Goods have been

supplied to the London firm under invoice No. 905.

Rilvan Leathers negotiated the invoices 899 concerning the West Germany Firm and 903 concerning the London firm through the Union Bank

of India. In view of the conservative arrest made by the Italian Firm, the Union Bank of India suggested to Rilvan Leathers that unless Rilvan

Leathers gave concurrence to keep a portion of the amounts realised in respect of the two invoices viz., invoices 899 and 903, the Union Bank of

India would not negotiate and purchase the said bills.

Rilvan Leathers was put in a delicate situation since goods had already been despatched to West Germany as well as London. Rilvan Leathers

could not afford to lose the goods and the money at any rate for some time. Hence Rilvan Leathers has no other alternative but to succumb to the

pressure whereby the Union Bank of India called upon Rilvan Leathers to give a letter addressed to them on the basis of a draft letter given by the

Manager of the Union Bank of India to Rilvan Leathers.

According to Rilvan Leathers, they had no other alternative except to execute Ex.P.9 dated 21-11-1979, since they were subjected to

coercion and the Union Bank of India has taken undue advantage of the predicament in which Rilvan Leathers were placed. As such, Ex.P.9 letter

dated 21-11-1979 had been executed by Rilvan Leathers to the Union Bank of India concerning Invoice No.886 dated 18-9-1978, invoice

No.892 dated 7-10-1978 and invoice No.893 dated 7-10-1978 marked as Exs.P.3, P.5, and P.7 respectively concerning the consignments to

Italian Firm. In Ex.P.7, Rilvan Leathers have directed the Union Bank of India to keep a sum of Rs. 1,84,000/- in Sundry Deposit and also credit

in the sundry deposit a sum of Rs. 1,00,000/- out of the bills submitted concerning the goods with reference to invoice No.903 under which skins

worth about $15363-98 equivalent to Rs. 2,40,909-15 had been exported to London. Rilvan Leathers had also given an undertaking to keep the

aforesaid sum of Rs. 1,00,000/- and Rs. 1,84,000/- in the Sundry Deposit Account until the clearance of Exs.P.3, P.5 and P.7 invoices. The

Union Bank of India on negotiation of invoice No.899 and 903 concerning the export of skins to West Germany and London retained a sum of

Rs. 1,84,000/- and Rs. 1,00,000/- respectively on 14-11-1978 and 24-11-1978, in Sundry Deposit Account. But for Ex.P.9 dated 21-11-1978

the aforesaid sums ought to have been credited to the Current Account or the Shipping Loan Account of Rilvan Leathers on the respective dates.

The amount due by Rilvan Leathers to the Union Bank of India on 14-11-1984 in the Shipping Loan Account was Rs. 13,90,528-23. If a sum

of Rs. 1,84,000/- had been credited as should have been done on 14-11-1978 on realisation of invoice No. 899, the balance should be only Rs.

12,06,528-23. The Union Bank of India is entitled to interest only on the aforesaid sum Similarly, the Union Bank of India ought to have given

credit to a sum of Rs. 1,00,000/- on 24-11-1978 in the Shipping Loan Account of Rilvan Leathers which should have resulted in a balance on 24-

11-1978 at Rs. 11,06,528-23.

As a result of not giving credit to the amounts due to Rilvan Leathers in the manner aforesaid, the Union Bank of India charged interest for the

quarter ending with 31-12-1978 in a sum of Rs. 32,474-05. The Union Bank of India ought to have charged interest after giving credit for the

aforesaid sum of Rs. 2,84,000/-. Similarly the Union Bank of India should not have debited interest for the quarter ending with 31-3-1979 in a

sum of Rs. 34,763-15 and for the quarter ending with 30-6-1979 in a sum of Rs. 28,464-30. Such charging of interest without giving credit to a

sum of Rs. 2,84,000/- is illegal and interest should have been calculated and charged after taking into account a sum of Rs. 1,84,000/- on 14-11-

1978 and Rs. 1,00,000 on 24-11-1978.

Further, the Union Bank of India has been keeping a sum of Rs. 7,052-45 to which Rilvan Leathers is entitled to in Sundry Deposit Account,

from 15-12-1978 onwards as per Ex.P.20. If the accounts are kept in the manner aforesaid the amount to the Union Bank of India by Rilvan

Leathers would be Rs. 81,075-24 only. Taking advantage of Ex.P.9, the Union Bank of India is calling upon Rilvan Leathers to pay the entire

amount without giving credit to the amounts stated in Ex.P.20, and is adopting coercive tactics to recover the money from Rilvan Leathers.

Rilvan Leathers has written a letter dated 28th July, 1979, a copy of which is marked as Ex.P.15, to the Union Bank of India. Under the

original of Ex.P.15 dated 28-7-1979, it transpires that the Union Bank of India had written a letter dated 20-11-1978 (marked as Ex.D.21) to the

effect that the Italian buyer had levied a distress on the bills to an extent of 13,552-08 U.S. dollars through the Italian Judicial authorities and that

information have been conveyed to them by the Italian Bankers who has operated with the bills if exchange on full payment and that they are

crediting the balance to the account of the Union Bank of India and also stating that the message will be followed up with a letter. On that ground,

the Union Bank of India under Ex.D.21 dated 20-11-1978 called upon Rilvan Leathers to make immediate arrangements to pay Union Bank of

India the rupee equivalent to 13,552-08 U.S. dollars. Rilvan Leathers also informed the Union Bank of India that the Union Bank of India as the

Bankers of Rilvan Leathers ought to realise the amount from the banker, who opened the letters of credit and there cannot be any impediment

placed by any one in relation to realisation between one banker and another under a letter of credit, and consequently the question of Rilvan

Leathers, liability to make good in payment would not arise. Rilvan Leathers also mentioned about their letter dated 19-3-1979 copy of which is

marked as Ex.P.13, whereby Rilvan Leathers have pointed to the Union Bank of India that it is the duty of the Union Bank of India to protect the

interest of Rilvan Leathers in view of the letters of credit. Rilvan Leathers also stated that instead of taking steps to revoke the conservative arrest

in Italian Courts, the Union Bank of India is advising Rilvan Leathers that they have to take steps. Rilvan Leathers also stated in Ex.P.13 that if at

all any dispute arises between the seller and the buyer, the buyer had no right to stop the amount due under the letters of credit and that the Union

Bank as Bankers of Rilvan Leathers with whom letters of credit had been opened ought to insist upon the opening banker at Italy to pay the Union

Bank of India according to the tenor of the document. Rilvan Leathers also disputed their liability under the circumstances and made it clear that it

is the duty of the Union Bank of India to realise the amount since the letters have been honoured fully, and that the amount withheld by the Union

Bank of India in a sum of Rs. 1,00,000/- and Rs. 1,84,000/- ought not to have been put in Sundry Deposit. Rilvan Leathers made it clear that they

will take appropriate action against the Union Bank of India for recovery of the amount and requested the Union Bank of India to adjust the sum of

Rs. 2,91,000 which has been kept in Sundry deposit account.

The Union Bank of India made a reply under Ex.P.16 dated 8-8-1979 and contended that the letters of credit were not confirmed by them nor

the bills were purchased without recourse, and requested Rilvan Leathers to make good the short-falls in the bills account due to the judicial

attachment. The further case of Union Bank of India under Ex.P.16 is that with the full knowledge and concurrence of Rilvan Leathers they had

recovered portions of proceeds of further bills negotiated and kept the same in Sundry Deposit accounts, which fact has been intimated to Rilvan

Leathers under letter dated 27-7-1978 (not exhibited). The Union bank of India also requested Rilvan Leathers to make their own arrangements

for recovery of the amounts attached at the Italian Court.

In view of the stand taken by the Union Bank of India, Rilvan Leathers gave a notice dated 2-9-1979, a copy of which has been marked as

Ex.P.17 and explained the circumstances under which goods were despatched to Italy as well as West Germany and London, and the

circumstances under which Ex.P.9 had been written by Rilvan Leathers to the Union Bank of India and contended that it is the duty of the issuing

banker as well as the negotiating banker to remove the conservative arrest, if any, pointing out that the bills have been honoured in pursuance of the

letters of credit opened by the issuing bankers. In Ex.P.17 they also referred to article 3 of the Uniform Custom Rules and contended that if at all

Rilvan Leathers has to pay the Union Bank of India, it will be only a sum of Rs. 81,075-24, if the accounts are kept properly. They also claimed

interest on the amount lying in Sundry deposit from November, 1978. Rilvan Leathers also conveyed their willingness to pay such amounts that

may be found due after applying the proceeds of letters of credit and advance in the shipping loan account. Thereafter, the Union Bank of India

wanted to have a discussion in the matter with the Rilvan Leathers and required the plaintiffs to give their proposals and on that ground, the plaintiff

gave certain proposals as stated in Ex.P.18 dated 5.9.1979 letter written to the Union Bank of India. The proposals in effect are as follows:-

Rilvan Leathers are prepared to deposit the balance amount to be determined by the Union Bank of India, after giving credit to the interest as

claimed by Rilvan Leathers''s advocate''s letter dated 2nd September, 1979.

Rilvan Leathers requested Union Bank of India to kindly confirm the above;

Rilvan Leathers proposed to give a letter of undertaking compensating to the maximum of Rs. 25,000/- being the expenses which may be

incurred by Union Bank of India for defending the cases instituted by M/s. Concerio Bomar in Italy court; and

Till such time, the proceedings are disposed, Rilvan Leathers agree to create the equitable mortgage to the amount of Rs.5 lakhs.

The further case of Rilvan Leathers is that the offer of Rilvan Leathers to give collateral security to an extent of Rs. 5 lakhs is something which

Rilvan Leathers was not bound to give, but had been given to purchase peace and for carrying on business peacefully, and on that ground offered

collateral security. Inspite of the collateral security given, the Union Bank of India sent a reply notice dated 20.9.1979 marked as Ex.P.19

containing incorrect statements and untenable contentions. Under these circumstances, the Rilvan Leathers has filed the suit for taking account in

respect of the shipping loan account of Rilvan Leathers with the Union Bank of India and current account of Rilvan Leathers with the same bank; in

which amounts had been wrongfully debited as stated earlier and for directing the Union Bank of India to adjust the said amount including the

amount kept in sundry deposit account towards the shipping loan account of Rilvan Leathers and for directing the Union Bank of India not to

charge any interest on the amounts due under the bills in question from the date of their realisation, as well as for adjusting the balance due and

payable by Rilvan Leathers to the Union Bank of India, which Rilvan Leathers are willing to pay. According to Rilvan Leathers, if proper account

is taken, Rilvan Leathers would be liable to pay only a sum of Rs. 70,000/- and Rilvan Leathers is willing to pay the additional court-fee on the

amount found to be due over and above Rs. 70,000/-.

The case of the Union Bank of India in their written statement is as follows: The Union Bank of India granted Rilvan Leathers the following

credit facilities viz., (1) Shipping Loan (hyp) with ECGC cover to an extent of Rs. 10,00,000/- and (ii) F.D.B.P. (Foreign Documentary Bills

Purchase) account to an extent of Rs. 25,00,000/-. In the Shipping Loan advance accounts a sum of Rs. 7,00,000/-, Rs. 4,50,000/- and Rs.

1,00,000/- have been paid on 28.8.1987, 24.10.1978 and 22.10.1978 respectively. The advances were under the guarantee cover by the ECGC

against risks and default by the Rilvan Leathers. Rilvan Leathers is under an obligation to follow the terms and conditions prescribed by ECGC in

order to avail the guarantees. ECGC is a Government of India undertaking. Rilvan Leathers had no privity of contract with them. ECGC provides

guarantee to various banking institutions for advances made to customers for the purposes of export. Rilvan Leathers under a contract with ECGC

sought for guarantee in respect of the advances made by it to its various customers. The amounts advanced ought to have been repaid by Rilvan

Leathers by tendering relevant export bills within the expiry time. Rilvan Leathers committed default. As a result, the Union Bank of India was

forced to recover a portion of the advances from the proceeds of other export bills and from Rilvan Leathers''s current account with the Union

Bank of India. Ultimately a sum of Rs. 3,72,127-69 was found due under the shipping loan advance account, which could not be adjusted for

want of funds in Rilvan Leathers'' account. The Union Bank of India showed this state of affairs to the ECGC in the monthly statement of account

which the bank is legally obliged to furnish. This statement is being furnished by the Union Bank of India to the ECGC under a term of their

contract with the ECGC.

In September or October, 1978, Rilvan Leathers tendered Exs.P.3, P.7 and P.5 export bills totalling to 48,608-09 U.S. dollars drawn on

Messrs. Conceria Bomar under the letters of credit established by two Italian Bankers namely Banco Tescana and Credito Italaiano. The Union

Bank of India has reserved its rights to have recourse against the Rilvan Leathers, the drawer in case of non-payment by the Italian firm. Out of the

aforesaid amount, Banca Toscana with held a sum of 15,338-60 U.S. dollars out of the amount due under Ex.P.3 invoice and credito Italiano a

sum of 20,949-49 U.S. dollars representing Ex.P.7 and P.5 invoices on the ground that the Italian buyers namely Messrs. Conceria Bomar has

obtained a conservative arrest in Italian Courts to the aforesaid extent. According to the Union Bank of India, it has no privity of contract with

Messrs. Conceria Bomar, who are the buyers of Rilvan Leathers. Messrs. Conceria Bomar has filed an action in the Italian Court restraining the

aforesaid two Italian Bankers from paying the amounts mentioned above. The Union Bank of India has neither legal nor moral obligation to fight

out the case on behalf of Rilvan Leathers in the Italian Courts. The Union Bank of India has every right to call for the amounts due under these bills

by Rilvan Leathers. Rilvan Leathers cannot compel the Union Bank of India to fright on their behalf. It is entirely for Rilvan Leathers to fight the

action against their buyers and for the conservative arrest raised. Rilvan Leathers was duly informed about the conservative arrest as soon as the

two Italian Bankers conveyed the same to the Union Bank of India.

Ex.P.9 letter dated 21.11.1978 was not obtained by the Union Bank of India by coercion. Rilvan Leathers voluntarily gave that letter in

response to the Union Bank of India calling upon them to pay the amount not realised. The fact that Rilvan Leathers had been keeping quiet from

21.11.1978 to 28.7.1979, the date of Ex.P.15 would show beyond any doubt that there was absolutely no coercion. The letter Ex.P.15 dated

28.7.1979 written by Rilvan Leathers was an after thought. Rilvan Leathers has no right to demand for crediting a sum of R. 1,84,000/- on

4.11.1978 and Rs. 1,00,000/- on 24.11.1978 in the shipping loan account. The suit filed by Rilvan Leathers is not maintainable, as there is no

mistake or error in the account.

C.S.No.604 of 1980

The Union Bank of India filed this suit for recovery of Rs. 5,51,218-29 with interest thereon at 18 per cent per annum with quarterly rests from

the date of plaint till date of full payment against the five defendants jointly and severally under the following circumstances.

The 1st defendant is a firm of partnership carrying on business in No.39, Sydenhams Road, Periamet, Madras.3, of which defendants 2, 3 and

4 are the partners. The 5th defendant Ismail Sait is the father of the 2nd defendant and power-agent of the 1st defendant firm. He stood as

guarantor on behalf of defendants 2, 3 and 4. The 2nd defendant Badruddin is the son of the 5th defendant. The 3rd defendant Mohammed Kasim

is the son of the 5th defendant. The 4th defendant C.K.C.M Dulokarnine is a friend of the 5th defendant, who is alleged to have retired from the

partnership on 31.8.1978. Defendants 2 to 4 as partners of the 1st defendant-firm Rilvan Leathers approached the Union Bank of India for certain

credit facilities. The Union Bank of India sanctioned a sum of Rs. 10,00,000/- in an account called the shipping loan account and a sum of Rs.

25,00,000/- in an account called ''Foreign Documentary Bills Purchase (FDBP) Account"". These credit facilities have been granted to the firm

against the security of raw skins, semi-finished leather, tanned skins and chrome leather. The facilities carried interest at 2% over and above the

Reserve Bank of India rate with a minimum of 11% per annum with quarterly rests. The 5th defendant Ismail Sait guaranteed due payment of these

advances by a letter of guarantee dated 23.6.1978, marked as Ex.D.35.

The further case of the Union bank of India is that the bank advanced under the shipping loan account a sum of Rs. 12.50 lakhs in August-

September, 1978 to enable the firm to export goods under a Czechoslavakian contract for Rs. 30.50 lakhs. The firm exported some goods and

stopped further export, as a result a sum of Rs. 3,72,127-68 remained unadjusted in the shipping loan advance. Since the shipping loan advance

was allowed under the guarantee scheme of export credit guarantee corporation, the Union Bank of India has to submit monthly reports to ECGC

showing the balance in the account. If the amount remained unadjusted for over six months, the advances have to be reported in the over-due

column of the statement. Since the shipping loan account remained unadjusted for more than six months, ECGC black-listed the firm, as a result,

the 1st defendant firm could not get finance from banks under ECGC cover. The firm has filed C.S.No.527 of 1979 on the file of this Court for

taking accounts and filed application No.3980 of 1979 for injunction restraining the Union Bank of India from making any report to the ECGC

with a view to get further finance under the ECGC cover without adjusting the firm''s dues.

The Union Bank of India had discounted various foreign bills under the foreign documentary bills purchase facilities to an extent of Rs.

20,00,000/- since June, 1978. Out of these bills, three bills marked as Exs.P.3, P.5 and P.7 aggregating in a sum of Rs. 2,93,438-30 remained

unadjusted. The bills were discounted with the right of the Union bank of India to have recourse against the firm, which is the drawer. The Union

Bank of India therefore called upon Rilvan Leathers to pay the sum of Rs. 2,96,438-30. Rilvan Leathers deposited Rs. 2.91 lakhs in sundry

deposit account. The said amount is being kept in that account as per Ex.P.9 letter dated 21-11-1978 given by Rilvan Leathers, as margin for the

Foreign documentary bills purchase outstanding balance of Rs. 2,96,438-30, with interest which works out to Rs. 75,941-40 upto 15.6.1980.

Thus Rilvan Leathers owes the Union Bank of India the sum of Rs. 8,42,280-29 as stated below.

Amount outstanding in shipping loan account Rs. 3,72-127-69

-do- in overdraft current account Rs. 97,772-90

-do- in F.D.B.P. account Rs. 2,96-348-30

Interest due in respect of FDBP a/c Rs. 75,941-40

Total Rs. 8,42,280-29

After giving credit to the sum of Rs. 2.91 lakhs held in sundry deposit, there remained a sum of Rs. 5,51,280-29 which the firm is due to the

Union Bank of India. Defendants 2 to 4 as partners and 5th defendant as guarantor are jointly and severally liable to pay the said sum. The Union

Bank of India is entitled to claim interest at the rate of 18 per cent per annum with quarterly rests.

The 1st defendant filed a written statement, which was adopted by defendants 2 and 5. The case of the 1st defendant is this: The firm by name

Conceria Bomar, Italy, placed an order with the 1st defendant firm under contract No.520 of 1978 dated 9.6.1978 through their local agents

Messrs. Shakeel & Co., for supply of 5,00,000 sq.feet of goat skins as per the specification mentioned in the contract. In pursuance of the said

contract, a portion of goods were sent to the Italian firm under Ex.P.3, invoice No.886 dated 18.9.1978 worth about 27,660.90 U.S. dollars and

another portion of goods under the same contract was sent to the Italian buyers under Invoice No. 893, Ex.P.7 dated 7.10.1978 equivalent to

9,370-66 U.S. dollars. The said firm also placed another contract No.528 of 1978 dated 15.6.1978 for supply of 50,000 sq.feet goat skins

through the same local agents as per the specifications contained in the contract. In pursuance of the said contract No.528 of 1978, a portion of

goat skins were sent under invoice No.892 Ex.P.5 dated 7.10.1978 valued at 11,576-53 U.S. Dollars. All the three bills were negotiated through

the Union Bank of India. The Union Bank of India had credited the amounts to the Rilvan Leathers''s current account.

The Italian buyer had paid the entire amount covered under the aforesaid three bills to their Italian Bankers viz., Credito Italiano. Later on, it

transpired that the Italian Buyer for reasons best known to them filed an action in the Italian Court and obtained an order called ''Conservative

Arrest'', which resulted in the detention of 13,552-00 U.S. dollars in respect of Ex.P.3 invoice dated 18.9.1978 and the entire amount under

Ex.P.7 invoice dated 7.10.1978 pertaining to contract No.520 of 1978 viz., 9,370-66 U.S. dollars and the entire amount pertaining to invoice

Ex.P.5 dated 7.10.1978 in respect of contract No.528 of 1978 to an extent of 11,576-73 U.S. dollars, in all 34,499-19 U.S. dollars. By virtue of

the conservative order of arrest, the Italian buyer directed the Italian Bankers not to transmit the aforesaid amount to the Union Bank of India

notwithstanding the fact that irrevocable letters of credit have been opened concerning the aforesaid invoices.

Meanwhile, an order from West Germany was placed with Rilvan Leathers for supply of leather. In pursuance of the order, the Rilvan

Leathers supplied goods to the West Germany firm to an extent of (sic) 23,796-76 equivalent to Rs. 3,84,71845 under invoice No.899. Another

firm from London also placed an order for the aforesaid leather to the value of (sic) 15,363-98 equivalent to Rs. 2,40,909-15. Rilvan Leathers

negotiated the invoices concerning the West Germany and London Firms through the Union Bank of India. The Union Bank of India taking into

account the conservative arrest made by the Italian Buyer pressurised Rilvan Leathers to give concurrence to keep a portion of the amount realised

in respect of the invoices pertaining to the West Germany and London buyers for negotiating the bills.

According to Rilvan Leathers, they had no other alternative except to yield with pressure of the Union Bank of India and execute Ex.P.9 letter

dated 21.11.1979 concerning invoice Nos.896 and 893 (Exs.P.3 and P.7 respectively) with respect to contract No.520 of 1978 and invoice

No.892 (Ex.P.5) with reference to contract No.528/78 concerning the Italian buyers and directed the Union Bank of India to keep a sum of Rs.

1,84,000/- in Sundry Deposit Account and also credit in the Sundry Deposit account a sum of Rs. 1,00,000/- out of the bills submitted concerning

the goods supplied to West Germany and London. Under Ex.P.9, Rilvan Leathers had given an undertaking to keep the aforesaid two sums in the

Sundry Deposit Account until the conservative arrest is vacated.

In pursuance of Ex.P.9, the Union bank of India negotiated the invoice Nos.896 and 903 concerning the export of skins to West Germany and

London retained a sum of Rs. 1,84,000/- and Rs. 1,00,000/-respectively on 14.11.1978 and 24.11.1978 in the Sundry Deposit Account.

According to Rilvan Leathers, but for Ex.P.9 dated 21.11.1979 which has been obtained from Rilvan Leathers by practising undue influence and

coercion, the Union Bank of India would have credited the amount either in the current account of the Shipping Loan Account of Rilvan Leathers,

instead of keeping them in Sundry Deposit Account.

The further case of Rilvan Leathers is that the amount due to the Union Bank of India as on 14.11.1984 in the Shipping Loan account was Rs.

13,90,528-23. If a sum of Rs. 1,84,000/- had been credited as should have been, done on 14.11.1978 on realisation of invoice No.896

pertaining to West Germany, export the balance should be only Rs. 12,06,528.23. Similarly, the Union bank of India ought to have given credit to

the sum of Rs. 1,00,000/- on 24.11.1978 in the Shipping Loan Account of Rilvan Leathers in connection with invoice No.903 pertaining to the

London export. If the aforesaid course of action had been taken by the Union Bank of India, the amount due by Rilvan Leathers should have

resulted in a balance of Rs. 11,06,528.23 as on 24.11.1978.

As a result of not giving credit to the amounts due to Rilvan Leathers in the manner stated above, the Union Bank of India charged interest for

the quarter ending 31.12.1978 in a sum of Rs. 32,474.05. The Union Bank of India ought to have charged interest after giving credit for the

aforesaid sum of Rs. 2,84,000/-. Similarly, the debit made by the Union Bank of India with reference to interest for the quarter ending 31.3.1979

in a sum of Rs. 34,763.15 and a sum of Rs. 28,464.30 for the quarter ending 30.6.1979 are illegal. Interest ought to have been calculated only

after taking into account the sum of Rs. 1,84,000/- on 14.11.1978 and a sum of Rs. 1,00,000/- on 24.11.1978, which were available in the

Sundry Deposit Account. The Union Bank of India had been keeping a sum of Rs. 7,05245 to which Rilvan Leathers are entitled to in the Sundry

Deposit Account from 15.12.1978 onwards as per Ex.P.20.

According to Rilvan Leathers, if the accounts are kept in the manner aforesaid, by the Union Bank of India, the amount due by Rilvan Leathers

would be Rs. 81,075-24 only. Taking advantage of Ex.P.9, the Union Bank of India was calling upon Rilvan Leathers to pay the entire amount

mentioned in Ex.P.20 viz., Rs. 2,91,052-45 which is being kept in the Sundry Deposit Account and is adopting coercive tactics to recover the

money from Rilvan Leathers.

Rilvan Leathers has written a letter dated 28.7.1979 a copy of which is marked as Ex.P.15 to the union Bank of India. Under the original of

Ex.P.16, the Union Bank of India had written a letter on 20.11.1978 (marked as Ex.D.21) to the effect that the Italian Buyers had levied distress

on the bills to an extent of 13,552-08 U.S. dollars through the Italian Judicial Authorities and that information has been conveyed to the Union

Bank of India by the Italian Buyers, who have operated Ex.P.3, P.7 and P.5 on full payment, that the Italian bankers are crediting the balance to

the account of the Union Bank of India and that a message would be followed up with a letter. On that account, the Union Bank of India under

Ex.D.21 dated 20.11.1978 called upon Rilvan Leathers to make immediate arrangements for paying the rupee equivalent to 13,552-08 U.S.

dollars in respect of Ex.P.3 invoice pertaining to contract No.520 of 1978 and 9,370-66 U.S. dollars pertaining to Ex.P.7 invoice concerning the

same contract 520/78 and a sum of 11,576-53 U.S. dollars pertaining the invoice concerning contract No.528/78. On that ground Rilvan Leathers

have filed C.S.No.527 of 1979 before this court and requests that plaint to be treated as part and parcel of their written statement in this suit

C.S.604 of 1980. According to Rilvan Leathers C.S.527 of 1979 is a comprehensive suit filed by Rilvan Leathers for taking of accounts, and if

proper accounts are taken, the Union Bank of India is not entitled to the reliefs as prayed for in this suit.

The case of the 4th defendant in his written statement is this: The 4th defendant retired from the partnership on 31.8.1978 as per Ex.D.4 and

the retirement of the 4th defendant has been informed to the Union Bank of India under the original of Ex.D.29 dated 12.2.1979. The Union Bank

of India while acknowledging Ex.D.29 notice have stated in their reply dated 28th February, 1979, a xerox copy of which is marked as Ex.D.32

that since the advances have been granted to Rilvan Leathers while the 4th defendant was a partner, he is liable for that amounts. However, the 4th

defendant denied knowledge about the transactions after his retirement and has stated that the suit as such should be dismissed as against him.

On 4th July, 1984, Justice Venkatasami framed the following seven identical issues in both the suits without reference to the transposition of

Rilvan Leathers as the 1st defendant in the suit filed by the Union Bank of India and making the other partners as defendants in that suit:

Whether the defendants are liable to account after giving credit to the various amounts due to the plaintiff kept by them in sundry deposit

account?

Whether the 1st defendant is liable to pay the suit amount for the various reasons stated in the written statement?

Whether the 4th defendant was a partner at the time when the loan has been sanctioned?

Whether the 4th defendant is liable to pay any amount to the plaintiff?

Whether the suit is maintainable in so far as the 4th defendant is concerned since he has retired from the partnership as on 31.8.1978 and in the

retirement deed, the 4th defendant has been absolved from all liabilities?

Whether there is any outstanding as on 31.8.1978, the date on which the 4th defendant has retired from the partnership?

To what relief, are the parties entitled?

To obviate the confusion with reference to plaintiffs viz., Rilvan Leathers as well as the Union Bank of India, by consent of parties, the issues

were recast on 12.11.1986 as follows:

Whether the plaintiff in C.S.No.527/79 is entitled to a credit of Rs. 1,84,000/- on 14.11.1978 in the shipping loan account and not in the sundry

deposit account?

Whether the plaintiff in C.S.No.527/79 is entitled to a credit of Rs. 1,00,000/- as on 24.11.1978 in the shipping loan account and not in the

sundry deposit account?

Whether the letter dated 21.11.1978 Ex.P.9 addressed by the plaintiff in C.S.No.527 of 1979 to the defendant was obtained by the defendant

under coercion and undue influence?

Whether the plaintiff in C.S.No.604/80 is entitled to recover a sum of Rs. 5,51,280.29 made up of Rs. 3,72,127.69 from out of the shipping

loan account, Rs. 97,772.90 from out of the overdrawn current account, a sum of Rs. 2,96,438.30 from out of the foreign documents bills

purchase account and Rs. 75,941.40 being the interest amount due in foreign documents bills purchase account, minus Rs. 2,91,000/- which the

plaintiff gave credit in the sundry deposit account of the 1st defendant in C.S.No.604 of 1980.?

Whether the 4th defendant in C.S.No.604/80 is not personally liable on the ground that he has retired on 31.8.1978 as alleged by the 4th

defendant?

What is the amount exactly payable by the defendant in C.S.No.527/79 to the plaintiff in that suit?

After hearing both parties, I feel that both the suits can be disposed of on a single question viz., that as between Rilwan Leathers and Union

Bank of India, who is the proper person to take steps to raise the attachment of the sum of $34,419.19 concerning the three foreign exchange bills

marked as Ex.P.3 dated 18.9.1978, Ex.P.7 dated 7.10.1978 pertaining to contract No.520 of 1978 and Ex.P.5 dated 7.7.1978 pertaining to

contract No.528/78 made by the Italian buyer Conceria Bomar in the hands of his banker Credito Italiano, as a result of which, the Union Bank of

India had detailed sum of Rs. 2,84,000/- in the Sundry Deposit Account in pursuance of Ex.P.9 dated 21.11.1978 alleged to have been obtained

by the Union Bank of India by practising undue influence and coercion on Rilvan Leathers.

The case of Rilvan Leathers is that it is because of the conservative arrest made by the Italian buyer after honouring the bills of exchange, the

Union Bank of India suggested to Rilvan Leathers that unless Rilvan Leathers give concurrence to keep a portion of the amount realised in respect

of the invoices viz., invoice Nos.899 and 903 concerning the West Germany firm and London firm respectively, they would not negotiate and

purchase the said bills, Ex.P.9 has been executed. Before going to the question whether Ex.P.9 has come into existence as a result of the pressure

exercised by the Union Bank of India, if the question raised earlier is answered in favour of Rilvan Leathers, then the Union Bank of India is not

entitled to a decree as prayed for in their suit and it will be very much less. In case, the question is answered in favour of the Union Bank of India

that it is really Rilvan Leathers who has to take steps to raise the conservative arrest made by their buyer in the hands of the Italian Bank, then the

Union Bank of India is entitled to a decree as prayed for.

Ex.p.1 is a letter written by Credito Italiano the foreign banker through whom the Italian buyer Conceria Bomar opened an irrevocable letter of

credit dated 19.10.1978 to the Union Bank of India, whose customer is the Rilvan Leathers and with whom the foreign bills have been lodged for

onward march to Italy for realisation through the Italian Bank Credito Italiano. The Foreign Banker has written to Union Bank of India confirming

by wire the opening of the irrevocable letter of credit by Conceria Bomar in favour of Rilvan Leathers, Madras, to an extent of $45245.75

representing $95.29 of the value of the goods on presentation of documents in Madras on or before 10.10.1978. The amounts are payable at Italy

at 30 days after sight and against delivery to the Italian Bank of the documents mentioned in Ex.P.1. Ex.P.1 further shows that Credito Italiano

undertook to effect payment at the terms indicated above and at maturity they will credit the Union Bank of India with the relative amount with

Irwing Trust Co., New York. On that ground they advised the Union Bank of India to remit Credito Italiano by air-mail the original documents and

the duplicates to follow by the next air-mail. Ex.P.1 was followed by Ex.P.2 dated 15.9.1978 confirming the contents of Ex.P.1. Ex.P.2 conveys

that the negotiations are subject to Uniform Customs and Practice for Documentary Credits, 1974 revision, International Chamber of Commerce

Publication 290. In pursuance of Exs.P.1 and P.2, Rilvan Leathers lodged Ex.P.3 dated 18.9.1978, invoice Ex.P.7 dated 7.10.1978 concerning

contract No.520 of 1978 and Ex.P.5 invoice dated 7.7.1978 concerning the contract No.528/78 with the Union Bank of India.

On receipt of the aforesaid three invoices, the Union Bank of India wrote to the Credito Italiano under Ex.P.8 dated 12-10-1978 intimating

the foreign Bank that the Union Bank of India has received the invoices as per the letter of credit dated 15-9-1978 and requested the foreign Bank

to remit the proceeds to Irwing Trust Co., at No.1 Ball Street New York to the credit of their Head Office at Bombay, who are having account

with the Union Bank of India and directed the foreign bank to advise the Union Bank of India at Madras. Ex.P.8 contains certain conditions to the

following effect:

We accept for transmission only and at your risk items not payable at this institution and will not be responsible for any act, neglect, default, failure

or insolvency of any correspondent, agent or sub-agent or for losses or delays occurring in the course of transmission.

An extra charge will be made on items not paid within the normal period.

Unless otherwise indicated all charges will be claimed from the drawn out, if refused will be deducted from the proceeds. Furthermore if after the

proceeds are paid, our correspondents are rightly called upon to incur charges by reason of their having cleared the goods or otherwise protected

the interest of the drawers, such charges will be for your account.

Now, it transpires that the Italian buyer after having cleared the aforesaid three bills viz., Exs. P.3, P.7 and P.5 cleared the goods and after

having cleared the goods, attached a sum of $ 13552.08 pertaining to Ex P 3 invoice, $ 9,370.66 pertaining to Ex P 7 invoice and $ 11,576.53

pertaining to Ex P 5 invoice, through the Italian Judicial authorities, as a result of which the Foreign Bank was not able to credit Irwing Trust Co.

New York. On receipt of that information through cable from the foreign Bank, the Union Bank of India sent a communication dated 20-11-1978

to Rilvan Leathers asking them to make immediate arrangement to pay the Union Bank of India the rupee equivalent to $ 13,552.08. It is under

those circumstances it may be noticed that Ex P 9 has been executed by Rilvan Leathers.

It also transpires that the foreign bank advised the Union Bank of India to choose a lawyer in order to object the conservative arrest during the

hearing fixed on 1-3-1979 before the Judge in S. Mithiate. This is made clear by a perusal of Ex D 50 dated 23-11-1978. On that basis, the

Union Bank of India sought legal advice from Gagrat & Co. Bombay. In pursuance of the opinion sought by the Union Bank of India, Gagret &

Co. made a reply under Ex D 51 dated 2-2-1979. It is a letter addressed to the Manager, Union Bank of India, Legal Department Central Office,

Nariman Point, Bombay. I extract the letter in full hereunder for convenience sake.

We refer to your letter dated 27th ultimo, received on the 29th and to the discussions we had with you this day.

Having discussed the matter and perused the enclosed documents, we confirm having advised that you should have recourse against M/s Rilvan

Leathers whose documents you have negotiated and due to whose dispute with Italian Party, a part of the L C amount has not been remitted. You

should put your customer to notice of the fact that by virtue of a court order, you have not received the balance of your dues and as such, are

having recourse against them and it is for them to adopt such proceedings as they may be advised at their costs to get the attachment order vacated

or removed. You draw their attention to the fact that the court has proceeded on the basis that the balance amount of the L C represents property,

wealth and credits of M/s. Rilvan Leathers. It is, however, not practical nor necessary for your Bank to make any application to the Italian Court.

If, however, your Bank desires to do so, then it will have to approach Reserve Bank of India and obtain necessary permission and grant of foreign

exchange to engage services of the Italian Lawyer. This the Bank may consider doing only after M/s. Rilvan Leathers are prepared to fully bear all

the costs and indemnify the Bank as it may be possible to raise attachment on an application of the Bank rather than on the application of M/s

Rilvan Leathers. However, in the meantime, the Bank''s unpaid dues should be fully secured by M/s Rilvan Leathers.

On receipt of Ex D 51, the Head Office of the Union Bank has written a letter to the Union Bank of India at Madras. The letter is dated 17-2-

1979 and has been marked as Ex D 52. For convenience sake, I extract herein this letter also:

We invite your attention to the copy of letter No. Ad GM;LEG''RSG:1110 dated 5th instant which was endorsed to you by Ad. G M''s Office,

Legal Department.

We advise you that our Bank has recourse against the exporters M/s Rilvan Leathers, whose documents have been negotiated and due to whose

dispute with the Italian Party, a part of the L/C amount has not been remitted.

We, therefore, request you to put the customer on notice of the fact that by virtue of court Order, we have not received the balance of the amount

and as such, our Bank has recourse against them. It is for the party to adopt such proceedings as they may be advised at their cost to get the

attachment order vacated or removed. We, therefore, feel that our Bank''s advances should be fully secured or recovered from M/s Rilvan

Leathers.

You may obtain further instructions in this regard from Zonal Office, Madras to whom a copy of this letter and legal advice received from M/s

Gagrat & Company are enclosed.

Ex D 56 is a letter written by Credito Italiano to the Union Bank of India, Bombay enclosing a copy of the telex dated January 3rd, 1980 as well

as their telex dated December 6, 1979.

Now the question that arises for consideration is whether the money that has been arrested in the hands of the Foreign Bank with whom letters

of credit have been opened belongs to the Union Bank of India so as to enable the Union Bank of India to take steps to raise the conservative

arrest at their own costs or whether Rilvan Leathers have to take steps to raise the conservative arrest treating the money as that of Rilvan

Leathers?

The phraseology ''with recourse'' will come into play where the negotiating Bank is not in a position to realise the amount due to the fault of the

buyer. In such an event, they will have recourse both against the buyer as well as their customer, the seller herein. But where the Bank is unable to

realise the price money not as a result of the fault committed by their customer viz., the seller herein and the letters of credit have been honoured

fully, in such an event, it is not open to the negotiating bank to have recourse against the seller-their customer herein. The Rilvan Leathers have fully

discharged the condition imposed in the letters of credit; the buyer has also honoured the bills of exchange by purchasing it on par value, and, as

such, there remains nothing for the Bank of Italy who opened the letters of credit, except to transmit the money to the Union Bank of India, since

the price money has gone into their hands by parting with the bills of exchange.

Learned counsel for the Union Bank of India has urged that the letter of credit Ex P1 dated 11-9-1978 is with a condition that the Union Bank

of India should not add their confirmation, that Ex P 1 is followed by a telegram dated 15-9-1978 marked as Ex P 2 confirming Ex P 1 and that on

the basis of Exs P 1 and P 2, the Union Bank of India wrote to Rilvan Leathers requesting Rilvan Leathers to present the documents and also

conveyed Rilwan Leathers about the advice that they received from the Letter of Credit Opening Bank that the Union Bank of India should not

add their confirmation. This, according to the learned counsel, means that in case of non-realisation of amounts, the Union Bank of India will have

recourse against the exporters, in case the amounts are not paid to the Union Bank of India by the letter of credit opening Bank.

A perusal of Exs P 1 and P 2 shows that the letter of credit opening bank undertook to effect payment at the terms indicated in Ex. P 1 and at

maturity they will credit the Union Bank of India the negotiating Bank the relevant amount in the Irwin Trust Company, New York. The contention

of the learned counsel for the Union Bank of India is that Ex P 1 contain the words ''without adding Union Bank of India''s confirmation'' which

mean that in case of non-realisation of money, the Union Bank will have recourse against Rilvan Leathers. It is normally true that in case the

transaction falls through due to the fault of the seller, the term ''with recourse'' will certainly come into play as a helping hand to the Negotiating

Bank. But Ex P 1 conveys that it is as irrevocable without confirmation credit, the effect of which has not been judicially considered so far. But as I

see the document namely Ex P 1, I am able to perceive that the letter of credit opening Bank is bound by the conditions mentioned in Ex P 1.

Once the conditions are fulfilled as imposed by the letter of credit opening bank, the intermediary banker has a right to proceed against the letter of

credit opening banker by reason of the invitation contained in the credit or independently of it. In the former case, the negotiating bank is an agent

of the issuing bank vis-a-vis the beneficiary. The seller''s right under an irrevocable letter of credit is to deposit the intermediary bank the

documents of title pertaining to the goods skipped and to receive payment in whatever form the credit provides. In this case, the invoices have

been parted with on payment by the buyer and but for the conservative arrest, the letter of credit opening bank would have normally credited the

amount to the Irving Trust Company and the National Bank of North America as desired by the Negotiating Bank (Vide Exs P 6, P 8 and P 4

respectively). Hence the money that was detained at the hands of the letter of credit opening bank is really the money of the Union Bank of India

and not that of the seller viz., Rilvan Leathers. It is no doubt true that the letter of credit opening bank is an agent of the buyer. But once the buyer

obtains the documents of title on payment, the relationship between the buyer and the letter of credit opening bank ceases to be that of an agent

and principal, but a new relationship of agent and principal arises between the letter of I credit opening bank and the Negotiating Bank.

The matter may be looked into in an another angle. It is this. But for the conservative arrest, the money realised by the letter of credit opening

bank will be credited to the account of the Negotiating Bank at Irwing Trust Co., and not to Rilvan Leathers. This also proves that the money is

not that of Rilvan Leathers but that of the Union Bank of India. Money cannot be transmitted to Rilvan Leathers because the bills of exchange are

in favour of the Union Bank of India. By attachment, the money will not become the money of Rilvan Leathers, because in the absence of

attachment, the money will go to the account of the Union Bank of India. Exs D 36 and D 37 dated 12th and 15th September 1978 constitute an

undertaking on the part of the letter of credit opening bank to the Union Bank of India that upon receipt of proper documents, the letter of credit

opening bank will effect payment at the terms indicated in the aforesaid documents and at maturity they shall credit the Union Bank of India with

relevant amount with Irwin Trust Company, New York. This undertaking on the part of the letter of credit opening Bank with the Union Bank of

India constitutes a contract and the breach of the said contract entails the Union Bank of India to fight for their amounts, which were wrongly

attached as the amount belonging to Rilvan Leathers. This is made clear by the Union Bank of India Legal Adviser in Ex D 51 dated 2-2-1979.

The legal Department clearly states that it is possible to raise the attachment on application by the Bank rather than on an application by M/s.

Rilvan Leathers, and cautions to take steps to secure the Bank''s unpaid dues from Rilvan Leathers. Ex P 9 dated 21-11-1978 shows the

forethought of the Bank officials in safeguarding the advances made by the bank to Rilvan Leathers on the basis of Exs P 3, P 7 and P 5 invoices.

My finding that the money that has been the subject matter of the conservative arrest belongs to the Union Bank of India is further strengthened by

the telex Ex D 59 or 9.1.79 sent by the Union Bank of India to the letter of credit opening Bank at Italy wherein Union Bank of India have

categorically stated that they are the holders of bills for value, that credito Italiano should have presented to the court the nature of credit and the

letter of credit opening bank''s liability for payment to the holders of bills under letters of credit involving credit and reputation of the credit opening

bank, since the Union Bank of India is not concerned with any dispute between the buyer and the sellers. With reference to Ex D 59, the learned

counsel for the Union Bank of India has stated that it has been done in the interest to safeguard the interest of Rilvan Leathers and by threatening

the Italian Bank in the aforesaid terms, the Union Bank of India will not become the holders of the bills for value. I find no substance in this

argument. Ex D 59 dated 9-1-1979 really reflects the true nature of the transaction. The Union Bank of India looked to the Italian Banker as

holders for-value-is-due course for payment. It may be noticed that the bank officials came to that conclusion even before the advice given by their

legal department under Ex D 51 dated 2-2-1979.

The oral evidence of D W 2 Isaac, Manager in the Zonal office of the Union Bank of India at Madras also supports my conclusion. In his

cross-examination, he has accepted that the Union Bank of India is holder for value with reference to the invoices, that the Union Bank of India

also asked the Credito Italiano to place before the Court their view of the matter viz., that the Union Bank of India are the holders for value and as

such the money are really belonging to the Union Bank of India and that the same cannot be squeezed or cannot be the subject matter of the

conservative arrest. Further, the Italian Bankers have accepted the two bills Exs P 5 and P 7 under Exs P 10 and P 11. That was also admitted by

D W 2. The acceptance of Exs P 5 and P 7 under Exs P 10 and P 11 on 5-12-1978 are long after the first letter of Italian Court in November,

1978. D W 2''s assertion that there was an earlier refusal to accept the bills on the part of the Italian Bank, which resulted in the execution of Ex P

9 dated 21-11-1978 is not properly proved. Even though he has undertaken to produce the first letter under which the Italian Bank is alleged to

have communicated to the Union Bank of India their refusal to accept the bills, no letter has been produced so as to support the version of D W 2.

D W 2 has also accepted that Ex P 9 was obtained by him from Rilvan Leathers as he wanted it. (Evidence dated 14-11-1986 recorded between

3.15 and 4.15 p.m. page 4).

In the same way, the evidence of D W 3, Mr. Ramanathan, Deputy General Manager, Foreign Exchange Department, Madras Main Branch

of the Union Bank of India, supports my conclusion that they have become the holders of Exs P 3, P 5 and P 7 for value. Ex D 50 dated 23-11-

1978 is a letter written by Banca Tescana to the Union Bank of India, Madras. It shows that Messrs. Banca Tescana has sent telegram dated 17-

11-1978 and 22-11-1978 wherein they conveyed about the conservative arrest made on 13-11-1978, by Bonar in Ponte a Egola against Rilvan

Leathers in Madras. They have also suggested to the Union Bank of India to choose a lawyer to object during the audience that had to take place

on 1-3-1979 before the Judge in S. Miniato. It is on the basis of Ex D 50 the Union Bank of India, Bombay obtained legal advice under Ex D 51

to raise the attachment on an application by the Union Bank of India rather than on an application by M/s Rilwan Leathers. Ex D 52 dated 11-2-

1979 is a letter written by the Foreign Operations and Export Development Department, Bombay to Union Bank of India, Madras Main Office,

wherein they referred to a letter dated 5-2-1979 and advised the Madras Main Branch that the Union Bank of India has recourse against the

exporters whose documents have been negotiated and due to whose dispute that the Italian party a part of the letter of credit amount has not been

remitted. They also enclosed Ex D 51 along with Ex D 52. I have already referred to the impact of Ex D 51 as well as the circumstances under

which Ex P 9 has been obtained from Rilvan Leathers.

In Ex P 20 dated 14-12-1978, a sum of Rs. 2,91,052.45 has been credited to Sundry Deposit Account of Rilvan Leathers. This, according to

D W 3, had been done under the oral instructions by Rilvan Leathers and the same has been confirmed under Ex P 9 dated 21-11-1978. The

Union Bank of India has not noted any oral instructions to credit the aforesaid sum in the Sundry Deposit Account. As I stated earlier, Ex P 9 has

come into existence only to safeguard the interest of the Bank without realising that it is their duty to raise the conservative arrest. The Union Bank

of India has no right to keep the money belonging to Rilvan Leathers in the Sunday Deposit Account. It is only to justify their action, I find Ex P 9

has been obtained. It makes no difference whether it has been obtained by coercion or by any type of pressure known in commercial credits.

The evidence of D W 3 is not clear as to the date on which the Union Bank of India came to know about the conservative arrest. In his cross-

examination, he has accepted that under Ex D 58 dated 4-1-1979, the Union Bank of India came to know from the Italian Bank about the

conservative arrest and before that the Union Bank of India had Paid to Rilvan Leathers the amount due under Ex 3, P 5 and P 7 bills and that the

Union Bank of India had become the holders for value and holder in due course in respect of these bills. Ex D 62 dated 10-8-1979 is a telex sent

by the Union Bank of India, Madras to Credito Italiano Empeli wherein the Union Bank of India has stated thus:

The subject bills were negotiated under your credits and as such the amounts are rightfully due to Union Bank of India and your Bank has a liability

and an obligation in terms of your credit. ....Our funds cannot be termed as in any way belonging to Rilvan. The matter involves Bankers faith in

letter of credit as an instrument guaranteeing due fulfilment of credit opening banks commitments under credit terms. .. .. .. .. You would have taken

extreme care and interest in protecting our mutual interest. Please act accordingly and swiftly in apprising us of the present position and also

arrange to expedite remittance of the blocked amounts together with overdue interest.

Ex D 40 dated 14-9-1979 is the telex that was received by the Union Bank of India from Credito Italiano, guiding the Union Bank of India to

engage a lawyer of their own to raise the conservative arrest.

Ex D 63 is a telex from the Union Bank of India, Bombay to the Banca Toscana, Italy wherein the Union Bank of India reiterated that in terms

of commitment under letter of credit, the foreign Bank is bound to honour the amount in respect of bill negotiated by the Union Bank of India under

the letter of credit and that they are not concerned with the dispute between the buyers and sellers nor with the distress of the Italian Jurisdiction

Court, and requested the foreign banker to pay the amount immediately along with interest at 15 per cent for the period of delay.

All these will go to show that Ex P 3, P 5, and P 7 bills have been purchased and that the Union Bank of India have become holders in due

course and that the foreign bankers have parted with the bills of exchange and realised the amounts. Once the Union Bank of India has become the

holders-in-due course of these bills, they are entitled to receive and recover the amount due thereon from the drawee. In order to mulct the drawer

with liability, there must be proof of non-payment or non-acceptance. This is made clear u/s 30 of the Negotiable Instruments Act. This is not the

case here, because the bills have been duly honoured by due payment by the drawee. Further it may be noticed that the Union Bank of India is not

in a position to return the bills to the drawer since the bills have been duly honoured. As such, the instruction given by the letter of credit opening

Bank ''without adding your confirmation'' has no application to the facts of this case. That clause will come into play only where the bills are

dishonoured or not accepted. As such I find the keeping of the amount under the head ''Sundry Deposit Account'' as per Ex P 9 is not proper and

it is for the Union Bank of India to take action against its agent the foreign banker or to take steps to raise the conservative arrest made by the

foreign buyer.

In view of my aforesaid finding, the Union Bank of India have to give credit to the amounts mentioned in Exs P 3 P 5 and P 7 Bills at the

appropriate dates and also give credit to the amount withheld in the Sundry Deposit Account, more fully described in Ex P 20. If that is done, the

amount claimed by the Union Bank of India in C S No. 604 of 1980 will not be Rs. 5,51,280-29 and the interest in respect of the Foreign

Documents Bills Purchase account would not be 75,941-40, and the, interest on overdraft current account will not be Rs.97,772-90 and the

amount outstanding in the shipping loan account will not be as claimed in the plaint. Since the suit filed by Rilvan Leathers is a comprehensive suit

for accounts, and in view of my finding, the Union Bank of India have to re-write their accounts and have to submit a revised account taking into

consideration my aforesaid finding so as to enable Rilvan Leathers to pay the correct amount due by them to the Union Bank of India, I direct the

Union Bank of India to submit a correct account on or before 16th June, 1989.

For the reasons stated above the suit filed by the Union Bank of India has to fail. However for the reasons aforesaid and by virtue of the

power given to the court under clause 3 of Order XXIII of the Code of Civil Procedure, I give the Union Bank of India liberty to file a fresh suit, in

case the Rilvan Leathers fails to pay the correct amount that would be arrived at in pursuance of my findings. As such I give permission to the

Union Bank of India in C S No.604 of 1980 to withdraw their suit with liberty to institute a fresh suit in respect of the subject matter of their suit in

case Rilvan Leathers fail to pay the amount due by them to the Bank after the revision of the account, in the manner stated above. In the result, the

suit in C S No. 527 of 1979 is decreed as prayed for, and the suit in C S No. 604 of 1980 is dismissed as withdrawn under the provisions of sub

Clause 3 of Order XXIII of the Code of Civil Procedure. No costs. The cost of suit in C S No.527 of 1979 will be determined after the

submission of the revised account by the Union Bank of India. The Union Bank of India will submit the revised account on or before 16th June

1989. The plaintiff in C S No. 527 of 1979 shall pay the difference of court fee, if any, on the plaint.