2025 (7) TMI 1627 - HC - Indian Laws

Suit for recovery of price of goods sold and delivered and in the alternative a decree for damages - material discrepancies in the shipping documents - liability of appellant being transporter and clearing forwarding (CNF) agent for non-payment under Letters of Credit - HELD THAT - Given that Defendant No. 6 facilitated the physical transfer of goods under documentation later shown to be forged its failure to exercise minimal diligence in verifying the legitimacy of those documents or in maintaining proof of delivery amounts to more than mere oversight and there seems to be more than what meets the eye. It is undisputed that as the defendant nos. 6 and 7 owed the Plaintiff a duty of care and a fiduciary responsibility to act in good faith which it has failed to prove as per the material on record - The appellants have failed to establish that the appointment of defendant No. 6 to transport the goods by using the name Jain Parivahan was with the consent of the plaintiff or that the defendant No. 7 has acted on the instruction of the plaintiff to allow the defendant No. 6 to transport the goods under the name of Jain Parivahan . These facts have not been established or proved at the trial by the defendant Nos. 6 and 7. In the instant case the plaintiff had failed to realize the price of goods sold and delivered as the negotiating bank of the defendant Nos. 2 and 3 i.e. Islami Bank of Bangladesh Limited had refused to negotiate the Letter of Credit in view of breach of clause 46A(15) of Letter of Credit (Exhibit D) where it is mentioned that goods carried by truck and truck operator/driver should be approved by Indian Bank s Association. A certificate to this effect must accompany the original documents. Both the defendant Nos. 6 and 7 have admitted the said breach as the defendant No. 6 used the name of Jain Parivahan without the authority or approval of the plaintiff. Similarly the defendant No. 7 has also acted beyond its authority in accepting a document produced by the defendant No.6 as a CNF Agent. The defendant No. 7 knew or ought to have known that the said documents are not acceptable and contrary to the agreement. Their acts and conduct had only benefitted the Bangladesh importer in avoiding the liability as also the negotiating bank appointed by the importer. Even if it is assumed for the sake of argument that they might not be party to the fraud but they cannot escape their liability as they have acted beyond their authority that had resulted in the plaintiff suffering loss and damages for their acts and conduct. Viewed either way the culpability of the appellants for their acts and conduct resulting in a loss to the plaintiff is required to be compensated and the price of the goods sold and delivered would be a reasonable estimate of the loss that the plaintiff would suffer by reason of their acts and conduct. There are no reason to interfere with the decree passed by the learned Single Judge - appeal dismissed.

Summary

ISSUES:

Whether the appellants (defendants Nos. 6 and 7) can be held liable for non-payment under Letters of Credit due to alleged discrepancies in transport documentation and delivery of goods.Whether the appellants acted beyond their authority or were complicit in a fraudulent scheme affecting the plaintiff's recovery of price for goods sold and delivered.Whether the appellants' failure to use an Indian Banks' Association (IBA) approved transporter and substitution of transport documents constituted a breach of contract and caused loss to the plaintiff.Whether the appellants discharged their duty of care and fiduciary responsibility in handling the transportation and customs clearance of goods.The evidentiary standard required to establish fraud or collusion in civil proceedings involving commercial transactions under Letters of Credit.

RULINGS / HOLDINGS:

The appellants were held liable for the loss suffered by the plaintiff due to their acts and conduct resulting in non-payment under the Letters of Credit, as they "acted beyond their authority" and failed to comply with the terms requiring use of an IBA-approved transporter.The appellants' knowledge and use of the consignment note of "Jain Parivahan" without plaintiff's consent or approval, and the failure to produce verifiable proof of delivery to the importer, established their complicity and negligence contributing to the plaintiff's loss.The court found that the appellants owed the plaintiff a duty of care and fiduciary responsibility which they failed to discharge, and that their conduct facilitated a "web of fraud" involving forged documents and misrepresentations that caused the Letters of Credit to be dishonored.It was held that the plaintiff was not required to unravel every detail of the fraud, and that "the cumulative effect of all the facts and evidence" sufficed to establish fraudulent intent and liability on the appellants.The decree for recovery of the price of goods sold and delivered was upheld against the appellants, as a reasonable estimate of the loss caused by their breach and conduct.

RATIONALE:

The court applied the contractual terms of the Letters of Credit, specifically clause 46A(15) requiring use of an IBA-approved transporter and accompanying certificate, as a condition precedent to payment under the LC.Evidence from pleadings, witness testimony, and the Bangladesh Customs Investigation Report established that the appellants knowingly substituted transport documentation and failed to maintain proof of delivery, breaching their contractual and fiduciary duties.The legal principle that fraud in civil proceedings must be established beyond reasonable doubt was considered, but the court emphasized that "suspicions and surmises and conjecture are not permissible substitutes," while also recognizing that "every puzzling artifice or contrivance" need not be fully unraveled to find fraud.The court relied on precedent affirming that the cumulative evidence of collusion and fraudulent conduct suffices to impose liability, especially where appellants' acts directly resulted in non-payment and loss to the plaintiff.The decision reflects a doctrinal approach balancing strict compliance with LC terms against the practical realities of commercial fraud, holding agents responsible for acts beyond their authority that cause loss.