TMI Blog1997 (12) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... also contended that this was a case where a Letter of Credit was without recourse to the invoice value. Thus we hold that there is no cause of action even from the plaint allegations, against the appellant. Thus plaint is rejected under order 7 rule 11(a) as against the appellant-5th defendant. - CIVIL APPEAL NO. 8864 OF 1997 [ARISING OUT OF S.L.P. (C.) NO. 21091 OF 1997] - - - Dated:- 19-12-1997 - SUHAS C. SEN AND M. JAGANNADHA RAO, JJ. Soli J. Sorabjee, S. Ganesh, Ravinder Narain, Ms. Punitta and Ms. Juhi for the Appellant. M.J.S. Rupal, U.A. Rana, Sudhanshu Tripathi and S.N. Bhat for the Respondent. JUDGMENT Rao, J. - Leave granted. 2. The appellant has preferred this appeal against the judgment of the Kamataka High Court dated 14-8-1997 in Writ Appeal No. 2876 of 1997. The writ appeal was filed against the judgment of the learned Single Judge dated 9-4-1997 dismissing the writ petition filed by the appellant against the orders of the Debt Recovery Tribunal and the Appellate Tribunal rejecting the application of the appellant filed under order 7 rule 11 of the Code of Civil Procedure, 1908 ( the Code ). 3. The appellant was the 5th defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Court should not look into anything else except the plaint. Further, after the issues were framed and the case was posted for evidence, it was not desirable to consider the application filed under order 7 rule 11. 5. We shall refer to the facts of the case as set out in the plaint. The first defendant belonging to Tadikonda family (the buyers) approached the plaintiff bank in December 1979 for the issue of a Letter of Credit in favour of the appellant-company for an amount of ₹ 32 lakhs for the purpose of securing the payment towards supply of Cigarettes manufactured by the appellant and for certain other facilities. The plaintiff-bank sanctioned L.C. facility for the said sum and agreed to open the L.C. and issued a revolving Letter of Credit No. 1 of 1980 dated 12-1-1980 in favour of the appellant for ₹ 32 lakhs available against demand bills of the appellant at sight, without recourse to the full invoice value of the goods purporting to be supply of Cigarettes by the appellant. At the request of the buyers the Letter of Credit was renewed from time to time and the last one was on 20-1-1983 till 20-1-1984. Thereafter the buyer again approached the plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 9, that the appellant had committed breach of faith and acted contrary to the terms of the Letters of Credit and that the plaintiff issued registered notices to all the parties. The appellant stated in its reply dated 18-4-1984 that the payments had been received by it only for the supplies made and towards monies definitely due thereby. This, according to the bank, implied that the goods were not despatched under the terms of the Letters of Credit. Plaintiff then stated that the appellant had appropriated the monies from the bank under the guise of L.C. facilities to adjust some other liabilities incurred by the buyers towards the appellant under different transactions than envisaged in the L.C. facilities. The plaint referred to in para 10 to a reply dated 13-4-1984 of the buyers to the effect that the bills were drawn by the appellant and money appropriated towards the trading balance dues of the buyers. The plaint then stated that both the appellants as well as buyers acted contrary to the terms of the Letters of Credit and monies were drawn wrongly by the appellant misrepresenting the fact as to despatch of goods and the amount was appropriated towards other liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntation recognised by the Courts relate to the forgery or fraudulent presentation of the documents tendered to the bank. The case on hand did not come within the said exceptions and, therefore, there was no cause of action against the appellant. The learned counsel also contend-ed, that merely because the words fraud or misrepresentation were used in the plaint, the bank could not claim that the said allegations have to be accepted as true for purposes of order 7 rule 11. 8 . On the other hand, the learned counsel for the respondent-bank submitted that in view of the averments in the plaint relating to misrepre-sentation and fraud by the appellant, the said allegations have to be taken to be true when the appellant s application under order 7 rule 11 was taken up for consideration and it was not permissible for the Court to refer to any other material for the purpose of deciding whether there was any cause of action against the appellant. The first point here is whether the power to reject the plaint under order 7 rule 11 can be exercised even after the framing of issues, and when the matter is posted for evidence. This point has arisen because the Division Bench of the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the plaint. Question is whether a real cause of action has been set out in the plaint or something purely illusory has been stated with a view to get out of order 7 rule 11. Clever drafting creating illusions of cause of action are not permitted in law and a clear right to sue should be shown in the plaint - T. Arivandandam v . T.V. Satyapal 1977 (4) SCC 467. 11. It is now well-settled that the question whether goods were supplied by the appellant or not is not for the bank. This point has already been decided by the decision of this Court in U.P. Co-operative Federation Ltd. s case ( supra ) . In that case, it was stated by Jagannatha Shetty, J. as follows: The bank must pay if the documents are in order and the terms of credit are satisfied. The bank, however, was not allowed io determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract. Any dispute between the buyer and the seller must be settled between themselves. The Courts, however, carved out an exception to this rule of absolute independence. The Courts held that if there has been fraud in the transaction the bank could dishon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fraudulently entered on the Bill of Loading as the date on which the goods were shipped even though the goods were actually shipped on 16-12-1976 and the bank which came to know about this fact refused to pay. The House of Lords held that the bank could have justifiably refused to pay because the Bill of Loading, which was one of the documents to be presented before the bank, was there a fraudulent document. Having laid down the principle as stated above, the House of Lords, however, held on facts that the said false statement on the bill of loading was not made by the seller but was made by the shipping agent and inasmuch as the sellers were not responsible, the bank could not refuse payment. We are referring to this case only to illustrate what could be a fraudulent document presented before the bank by the sellers. We shall also refer a little later to another case in Sztejn v. J . Henry Schroder Banking Corpn. [1941] 31 NYS (2d) 631 which is also a case of presentation of fraudulent documents . 15. Likewise in the Cement Scandal case in Etablissement Esefka Inter-national Anstalt v . Central Bank of Nigeria 1979 (1) Lloyds LR 445 (CA). Lord Denning pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supplied] Megarry, J. then distinguished the American case on the ground that: . . . it was important to notice that in the Sztejn case, the proceedings consisted of a motion to dismiss the formal complaint on the ground that it disclosed no cause of action. That being so, the Court had to assume that the facts stated in the complaint were true. [Emphasis supplied] 18. The learned counsel for the respondent-bank contended that the case before us which is concerned with an application under order 7 rule 11( a ) for rejecting a plaint on the basis of absence of cause of action from a reading of the plaint was identical with the Sztejn s case ( supra ) and, hence, what Megarry, J. stated in Discount Records Ltd. s case ( supra ) directly applies. 19 . It is true, we are also dealing with a question whether the plaint disclosed a cause of action. But here the allegation in the plaint is only one relating to absence of movement of goods by the seller. As pointed in the decided cases and in particular in U.P. Co-operative Federation Ltd. s case (supra) and other cases decided by this Court and also Courts elsewhere, mere absence of movement has ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sztejn s case ( supra ) was a case where fraudulent documents were presented which simulated shipping of goods which were not only not shipped but on the other hand, the seller shipped some rubbish deliberately. Therefore, the allegations in the complaint filed by the buyers in that case were based upon the above facts - which as per the legal position in this branch of law i.e., presentation of fraudulent documents where goods were deliberately not shipped and an attempt was made to pass off rubbish as the goods ordered for - amounted to fraud . 20. As stated above, non-movement of goods by the seller could be due to a variety of tenable or untenable reasons, the seller may be in breach of the contract but that by itself does not permit a plaintiff to use the word fraud in the plaint and get over any objections that may be raised by way of filing an application under order 7 rule 11. As pointed out by Krishna Iyer, J. in T. Arivandandam s case ( supra ) , the ritual of repeating a word or creation of an illusion in the plaint can certainly be unravelled and exposed by the Court while dealing with an application under order 7 rule 11( a ). Inasmuch as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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