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2015 (3) TMI 856 - SC - Indian LawsArticle 13 of the Uniform Customs and Practice of Documentary Credits (UCP) 500 - Letter of Credit - Standard for examination of documents - Held that:- In trans-border or international transactions, trade depends almost entirely on the faith reposed in banking institutions to secure the price of the exported goods, commodities etc. The Exporter can legally and reliably expect that the Bankers will watch its interests by ensuring that the exported consignment shall be released to the buyer only on the transmission of the price of the shipment as secured through the Letter of Credit - Heavy and fiduciary responsibility, therefore, rests on the Opening Bank which furnishes the Letter of Credit to ensure that payment is secured unless the documentation is defective and/or the invocation of the Letter of Credit is discrepant. In every legal system spanning our globe, jural opinion is unanimous to the effect that the Opening Bank cannot disregard, delay or dilute its responsibility to make payment strictly and promptly as obligated by the terms of the Letter of Credit. This Bank owes a duty to all concerned to ensure that any action taken by it would not enable or conduce the frustration of the obligations contained in a Letter of Credit, as recognised by International Banking norms or extant Uniform Customs and Practice for Documentary Credits (UCP) 500. Appellant before us, should not have certified the documentation, reasonably anticipating or being aware of the possibility that this certification could be abused. Law assures the Exporter and its Bank to repose in the expectation, nay, certainty, that the consignment, which is the subject-matter of the Letter of Credit, is not usurped by the Importer/Consignee or its agents, without remitting payment to the consignor’s Bank. This is a strict liability cast on the bank which opens the Letter of Credit, since otherwise International trade and commerce will virtually and indubitably come to a standstill. LC has the effect of creating a bargain between the banker and the vendor of goods, a deemed nexus between the Seller and the Issuing Bank, rendering the latter liable to the Seller to pay the purchase price or to accept a Bill of Exchange upon tender of the documents envisaged and stipulated in the LC (See Tarapore and Co. vs. V.O. Tractors Export, [1968 (11) TMI 97 - SUPREME COURT] where Halsbury’s Law of England have been relied upon). These observations have been repeated in United Commercial Bank vs. Bank of India [1981 (3) TMI 249 - SUPREME COURT], U.P. Coop. Federation Ltd. vs. Singh Consultants & Engineers (P)Ltd. [1987 (11) TMI 375 - SUPREME COURT], Federal Bank Ltd. vs. V.M. Jog Engineering Ltd. [2000 (9) TMI 1039 - SUPREME COURT], Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Co. [2007 (8) TMI 704 - SUPREME COURT]. The Opening Bank must only look to assure itself that the invocation is in terms of the LC, and the completion of this exercise has consistently been circumscribed to a short period, which in the case in hand is one week as per Article 13 B of UCP 500. Written Statement filed by the Appellant in the Dhaka litigation discloses that its position was that it was “under obligation to reimburse the payments to the supplier’s corresponding bank i.e., Defendant No.3” (Bank of America Ltd. therein). This admission of fact is clear, and in consonance with the law pertaining to legal obligations concerning Letters of Credit, obliges it to remit payments contemplated therein. Assuming that the Appellant did not take any mala fide action so as to enable the Importer to have the consignment released without authority, it was in clear violation of its fiduciary responsibility as the Opener of a Letter of Credit. Therefore, insofar as the factual matrix is concerned, the Appellant had correctly made the statement pertaining to its liability in the Dhaka Suit, which can legitimately be taken as an admission in the Calcutta Suit. interim Order, it may be recalled, did not restrain or interdict the operation of the impugned Judgment and has in actuality, rendered the Appeal infructuous, since the LC amounts have left the Appellant’s coffers. In view of the admission of fact made by the Appellant, we think the Court was correct in concluding in the impugned Judgment that a money decree for the sum secured by the subject Letter of Credit (for USD 352,250) should be passed. - Decided against appellant.
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