M/S Centex Fashions Ltd Vs. MIM, represented by its Managing Director and others 2018 (1) LNJ 13

Case No: First Miscellaneous Appeal No. 31 of 2017 With Civil Rule No. 24(F.M.) of 2017

Judge: Syed Md. Ziaul Karim. J.

Court: High Court Division,

Advocate: Mr. Imtiaz Mainul Islam, Mr. Nasir Sikder,

Citation: 2018 (1) LNJ 13

Case Year: 2017

Appellant: M/S Centex Fashions Ltd

Respondent: MIM, represented by its Managing Director and others

Subject: Letter of Credit

Delivery Date: 2018-02-15

HIGH COURT DIVISION

(CIVIL REVISIONAL JURISDICTION)

 

Syed Md. Ziaul Karim, J.

And

Sheikh Md. Zakir Hossain, J

Judgment on

05.06.2017

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M/S Centex Fashions Ltd., represented by its Managing Director, Morshed Uddin Khan,

. . .Plaintiff- appellant.

-Versus-

MIM, represented by its Managing Director and others,

. . . Defendant-respondents.

Words and Phrases

Letter of Credit

After issuance of letters till now the Bank did not issue any further letter raising the question of any discrepancy into the document but the plaintiff himself raised some objections for non payment of L/C amount on the ground of some fraud and fraudulent committed by the seller and some fraud documents furnished with Bank (Defendant respondent no.19). The allegations raised by the plaintiff, in our view are absolutely the subject matter of evidence, and the same can be decided at trial. . . .(19)

Words and Phrases

Letter of Credit

Where an irrevocable credit is confirmed by an intermediary bank, the later assumes a direct liability to the seller and looks to the issuing bank for indemnity. . . .(20)

Words and Phrases

Letter of Credit

The process of establishing a letter of credit begins with the buyer requesting the issuing bank to open a letter of credit in favour of the seller. With the opening of a letter of credit, a contract is entered into by the issuing bank with the negotiating bank, to make payment under the L.C. on receipt of the document contemplated in the L.C. provided there is no discrepancy in the documents.  . . . (21)

Words and Phrases

Letter of Credit

As soon as the letters of credit are established between the issuing bank and the negotiating bank, it becomes an independent agreement between the two banks, neither the seller nor the buyers has any privacy to that agreement. It is by nature a separate transaction from the sale agreement between the seller and the buyer. Consequently , the undertakings and obligation of a bank to pay, accept and pay drafts or negotiate under a letter of credit are not subject to claims or defences by either the seller or the buyer. The only exception to this struck rule is the knowledge of the bank that the documents presented are forged and fraudulent.         . . .(23)

Words and Phrases

Letter of Credit

With the establishment of a letter of credit a contract is created between the issuing bank and the negotiating bank without creating any right to a stranger. The letter of credit is an independent contract and not qualified by the original contract of sale though it is based on it. It is also not affected by any dispute between the buyer and the seller. The Court will not allow interference by outsiders with the letter of credit as it is bound to have serious repercussions on the international trade of a country.         . . .(24)

Words and Phrases

Letter of Credit

When an irrevocable letter of credit is opened and confirmed by a bank, such bank is left with no option but to honour its obligation under the letter of credit and pay. Therefore, the Court below by refusing an order of temporary injunction committed no error of law.    . . . (29)

Standard Bank Ltd. Vs. Tripos Engineering and Training Company and others, Amitex Knitting and dying and others 9 MLR (AD) 309; M/S Tanni Knit Wear Limited Vs. Deputy General Manager, Sonali Bank and others 2 MLR 396; Gooryonly (BD) Textile Ltd. Vs. Chartkar Information Holding Ltd. and others 54 DLR (AD) 70; Gooryonly (BD) Textile Ltd. Vs. Chartar Information Holding Ltd. and others 54 DLR (AD) 70; United Trading Corporation Sa Vs. Allied Arab Bank Ltd. 1985, 2 Lioyd’s Law Report 554; Zayta  Garments Ltd. Vs. Union Bank Ltd., 55 DLR (AD) 56; Training Knit Wear Limited Vs. DGM. Sonali Bank and others, (1997) 2 MLR (AD) 396; Comforts Apparels (Pvt.) Ltd. Vs. Imperial Knitting Industries Ltd. 53 DLR 350; S.M. Fazlul Huque Vs. Salauddin Ahmed and another, 1992 BLD 155; Janata Bank Vs. Ahmedia Garments, 40 DLR 72; Sarind Garments Ltd. Vs. Glory Truth Industries, 49 DLR-260; Uttara Bank Vs. Macneil and Kilburn Limited and others 33 DLR (AD)-296 and United Commercial Bank Limited Vs. Synthetic Textile Limited and others (1987)  Company cases 245 ref.

Mr. Imtiaz Mainul Islam, Advocate with

Mr. Behesti Morjan, Advocate,

 …. For the plaintiff-appellant.

Mr. Md. Nasir Sikder, Advocate,

…. For the defendant respondent nos. 7, 8, 14 and 18

Mr. Asraful Hasan Siddique, Advocate,

. . . For the defendant respondent no. 19.

JUDGMENT

Syed Md. Ziaul Karim, J: By this appeal, the plaintiff appellant has challenged the legality and propriety of the order dated 23-01-2017 passed by learned Joint District Judge, First Court, Dhaka, rejecting an application for temporary injunction filed under Order XXXIX Rules 1 & 2 of the Code of Civil Procedure( briefly as the Code) restraining the defendant respondent no. 19 from releasing payment under the BTB Letter of Credits amounting to Tk.3,08,96,944.80 in Money Suit no. 06 of 2017.

2.            Materials facts leading to this appeal are that on 22-01-2017 the appellant as plaintiff instituted Money Suit no. 06 of 2017 in the First Court of Joint District Judge, Dhaka for the following relieves:

(a)   Pass a decree for realization of USD 6,75,292.04 equivalent to BDT 5,41,03,363.20 from the defendants and in favour of the plaintiff;

(b)   Pass such other or further order or orders as may be deemed fit and proper;

(c)    Pass a decree for cost of the suit.

3.            The plaintiff’s case in brief are that it is a limited company duly incorporated under the Companies Act, 1994 and engaged in the Textile business with formidable reputation for over decades. The Chairman and Managing Director are respectable entrepreneurs with awe-inspiring social status.

4.            The defendant no.1 is a France based commercial entity and a buyer of Textile products, defendant no. 2 is it’s Bank; the defendant no.3 is the agent and local buying house of defendant no.1 and for all purposes acts as his authorised representative, the  defendant nos. 4-18 are nominated fabric suppliers nominated by the defendant nos.1 and 3, the defendant no.19 is his Bank from which back to back Letter of Credits (BTB  LCs) were opened in favour of the  defendant nos. 4 -18.

5.            The defendant no.1 placed orders to him through defendant no.3 and started entering into purchase contracts with him. He entered into multiple purchase contracts with the defendant no. 1. All these said purchase contracts were provided to him by the defendant no.3 by their emails; the said purchase contracts stipulated that the defendant no. 2 is the Bank of the defendant `no.1 and will give acceptance at delivery of documents and will make payment for the goods supplied by him after 30 days of acceptance. Immediately after entering into the said purchase contracts, the defendant no. 3 nominated the defendant nos. 4-18 for supply of fabrics, accessories and washing and intimidated him vide their emails to open BTB Letter of Credits in favour of them. He opened back to back Letter of Credits (BTB Letter of Credits).

6.            The defendant nos. 4-18 delivered the fabrics/accessories after getting the secured confirmation of the BTB Letter of Credits and he was tricked by the defendant nos. 1 and 3 to open such BTB Letter of Credits even though as per normal practice, he did not receive any master/export L/C. Without giving any export L/C, the defendant nos. 1-3, fraudulently induced him to open BTB Letter of Credits in favour of defendant nos. 4-18 and in favour of the defendant no. 3 amounting to USD 3,86,211.81 equivalent to  BDT 3,08,96,944.80 who are all actually the same party. He, in good faith believed the defendants and prepared the goods and handed finished products to the nominated freight forwarder of defendant nos. 1 and 3.

7.            Thereafter the products were delivered to the port as advised by the defendants in partial shipments, and he started sending commercial documents against each of such partial shipments for payment but most fraudulently the defendant no. 2 bank gave acceptance, fixed maturity dates and handed over all submitted commercial documents to defendant no.1 who released the goods from port without making any payment and perpetrated fraud. H shipped goods worth USD 6,76,292.04 equivalent to BDT 5,41,03,363.20.

8.            The defendant  no. 2 Bank gave acceptance making maturity dates after 30 days and/or later and then handed over all submitted commercial documents to the defendant no.1 who released the goods from port but did not make any payment on maturity and perpetrated fraud, the Commercial Counselor Bangladesh aswellas Bangladesh Garment Manufacturers and Exporters Association (BGMEA) pursued the France Embassy to take action but the defendant no. 1 avoided the payment declared itself bankrupt and now doing business with help the administrator without any obligation to repay him. He filed Writ Petition no.15584 of 2016 asking for direction upon the Bangladesh Bank to help them to recover the export  proceeds, the fraud perpetrated is of the highest sophistication and one of the most dangerous white collar crime in the world now.

9.            In suit, on 23-01-2017 the plaintiff filed an application under Order XXXIX Rules 1 & 2 of the Code for temporary injunction restraining the defendant no. 19 from releasing payment under the BTB Letter of Credits described in the schedule of the application with further prayer for ad-interim injunction in the above terms.

10.        On receipt of the application and after hearing the learned Judge by the impugned order dated 23-01-2017 rejected the application holding that there is no scope to grant such injunction on L/C payment.

11.        Feeling aggrieved the plaintiff as appellant preferred the instant appeal.

12.        In appeal, the plaintiff also sought for injunction, upon which the Rule was issued and defendant no. 19 was restrained from releasing payment under BTB Letter of Credits, total amounting to Tk.3,08,96,944.80 opened in favoour of defendant nos. 4-18.

13.        The learned Advocate appearing for the plaintiff appellant seeks to impeach the impugned order on four fold arguments:

Firstly: The appellant has a very strong prima facie case, the defendant respondent nos. 1 and 3 have already defrauded the appellant to loose out a huge amount of export, that, the prima facie case of fraud is well established from the actions of the defendant respondents.

Secondly: The defendant respondent nos. 1, 2 and 3 have committed fraud in connivance with the defendant respondent nos. 4 -18 and made the appellant to open the BTB Letter of Credits’ in favour of their own partners and themselves without first providing any master LC/Export LC, then made the appellant  shipped the goods worth USD 6,76,292.04 equivalent to BDT 5,41,03363.20 and most fraudulently released all of the goods without making payment against the said purchase contracts at maturity in absolute violation of international commercial Law;

Thirdly: The defendant respondent no. 3 being the agent and buying house of the defendant respondent no. 1 is making two ways profit by defrauding the appellant as in one hand in collaboration with its partners i.e. defendant respondent nos. 4-18 it sold its own fabrics and accessories the appellant under the BTB Letter of Credits for which they will be paid soon and also they, with the defendant respondent nos.1 and 2, stole the finished goods by evading the binding terms of the said purchase contracts. The modus operandi of the defendant respondent no.3, by being the agent of a fraud foreign buyer like the defendant no.1 itself, by nominating fraud partners who supplied fabrics, by making BTB Letter of Credits in their own name worth over USD 1,10,000 ( which is half of the total BTB Letter of Credits amount) and then by stealing legally shipped goods clearly prove that the defendant respondent nos.1 and 3 was  established to defraud innocent suppliers like the appellant and steal goods without making any payments.

Fourth and lastly: The balance of convenience also lies in favour of the appellant and shall suffer irreparable losses if the defendant respondents no.19 is not restrained by an order of injunction from releasing payment under BTB Letter of Credits.  

14.        The learned Advocates appearing on behalf of the defendant respondent nos. 7, 8, 14,  18 and 19 oppose the appeal and Rule. Their common contentions are that there was no discrepancies in respect of documents filed in the Bank and thereby the Bank is lawfully bound to release the money. They add that the payment of L/C cannot be restrained by an order of injunction. They lastly submit that the allegations of fraud as alleged by the plaintiff are the subject-matter of evidence and can be decided at trial. So the instant appeal is liable to be dismissed.

15.        In support of their contention they refer the following decisions:

1.      In the case of Standard Bank Ltd. Vs. Tripos Engineering and Training Company and others, Amitex Knitting and dying and others 9 MLR(AD) 309 held:

Code of Civil Procedure, 1908

Order XXXIX Rules 1 & 2- Court cannot stop Bank to make payment under letter of credit-

Under International Credit Operation and International Banking transaction issuing Bank is bound to make payment under back to back L/C on production of papers which on the face appear to be correct and the court cannot issue injunction restraining such payment since the Bank has nothing to do with the delivery of goods in  between the parties.

In the premises aforesaid and in the facts and circumstances of the case that the petitioner Bank did not oppose the application for temporary injunction against payment under the letter of credit or took any step for vacating the order of status-quo or ever challenged the same, instead paid the bulk  of the amount under the letter of credit and thereafter only in July, 2002 raising the plea before the High Court Division that or enquiry by its officials revealed non-existence of the beneficiary of the letter of credits when bulk of the proceed is already paid, the issuing bank has got no right to withhold the payment notwithstanding the fact that the payment was not complete.

2.            In the case of M/S Tanni Knit Wear limited Vs. Deputy General Manager, Sonali Bank and others 2 MLR-396 held:

The Code of Civil Procedure, 1908.

Order XXXIX Rules 1 & 2-

In an international business transaction no injunction can be granted for withholding payment against letter of credit on the Bank merely on the allegation of fraud which is yet to be established. The aggrieved party in appropriate case can seek compensation or damage if he suffers from any loss.

In the facts of the present case no clear case of fraud has been made out by the plaintiff. It was just an allegation and on the basis of this mere assertion no injunction can be granted on the Bank to withhold the payment. If the plaintiff has suffered any pecuniary loss for the damage/shortage of the clothes he can recover the same by way of compensation or damage but injunction is not an adequate remedy and injunction should not be normally granted in such a case. The principle enunciated in 33 D.L.R. (AD) 298 does not really help the petitioner.”

3.            In the case of Gooryonly (BD) Textile Ltd. Vs. Chartkar Information Holding Ltd. and ors. 54 DLR(AD) 70:

“ Code of Civil Procedure

Orders XXXVIII rule 5

In the aforesaid premises, the proceeds of the letter of credit do not squarely come within the provision of Order XXXVIII rule 5 for attachment before judgment  for which the Court could interfere asking her furnishing security or by attachment before judgment in order to satisfy any possible decree that may be passed in the suit.”

16.        In order to appreciate their submissions we have gone through the record and given our anxious consideration to their submissions.

17.        The point for consideration whether the impugned order calls for interference by this Court.

18.        On going to the materials on record it transpires that after shipment of the consignment the negotiating Bank submitted documents to the standard Bank Ltd. herein defendant respondent no.19 for payment of Letter of Credit amount. On receipt of the such documents and after examination it was found discrepancy free, and it was duly reported to the plaintiff in due time. So, the Bank is bound to make payment to the negotiating Bank.

19.        After issuance of letters till now the Bank did not issue any further letter raising the question of any discrepancy into the document but the plaintiff himself raised some objections for non payment of L/C amount on the ground of some fraud and fraudulent committed by the seller and some fraud documents furnished with Bank (Defendant respondent no.19). The allegations raised by the plaintiff, in our view are absolutely the subject matter of evidence, and the same can be decided at trial.

20.        In an ordinary commercial credit transaction normally there are four parties. The parties are (i) the buyers who procure the issue of the credit, (ii) the bank that issues the credit, (iii) the correspondent bank which is the intermediary between the issuing bank and the seller i.e. the beneficiary. It pays or negotiates documents or drafts tendered with documents or simply advises the credit to the beneficiary. In case of an irrevocable letter of credit it pays and negotiates documents on demand and (iv) the seller or the beneficiary in whose favour the credit is normally issued. A credit is sometimes issued by the bank direct to the seller but generally the issuing bank advises the credit through its own branch or through an intermediary bank in the country of export. It may be noted here that where an irrevocable credit is confirmed by an intermediary bank, the later assumes a direct liability to the seller and looks to the issuing bank for indemnity. Therefore, in a typical commercial credit and transaction, there are several types of contract which are (i) contract between the buyer and seller ,(ii) between the buyer and the issuing bank, (iii) between the issuing bank and the seller, (iv) between the issuing bank and the negotiating bank, (v) between the negotiating bank and the seller and (vi) if credit has been confirmed the intermediary bank then the reimbursing bank and the issuing bank.

21.        The process of establishing a letter of credit begins with the buyer requesting the issuing bank to open a letter of credit in favour of the seller. With the opening of a letter of credit, a contract is entered into by the issuing bank with the negotiating bank, to make payment under the L.C. on receipt of the document contemplated in the L.C. provided there is no discrepancy in the documents.

22.        At the same time under the contract between the negotiating bank and the seller an obligation is created for the negotiating bank to make payment to the seller when the necessary documents are presumed to it.

23.        As soon as the letters of credit are established between the issuing bank and the negotiating bank, it becomes an independent agreement between the two banks, neither the seller nor the buyers has any privacy to that agreement. It is by nature a separate transaction from the sale agreement between the seller and the buyer. Consequently , the undertakings and obligation of a bank to pay, accept and pay drafts or negotiate under a letter of credit are not subject to claims or defences by either the seller or the buyer. The only exception to this struck rule is the knowledge of the bank that the documents presented are forged and fraudulent.

24.        From the above discussions we come to the conclusion that with the establishment of a letter of credit a contract is created between the issuing bank and the negotiating bank without creating any right to a stranger. The letter of credit is an independent contract and not qualified by the original contract of sale though it is based on it. It is also not affected by any dispute between the buyer and the seller. The Court will not allow interference by outsiders with the letter of credit as it is bound to have serious repercussions on the international trade of a country.

25.        In the case of gooryonly (BD) Textile Ltd. Vs. Chartar Information Holding Ltd. and others 54 DLR(AD) 70 held:

″ Thus a letter of credit is independent and unqualified by the contract of sale or underlying transaction and the autonomy of the same is required to be protected. The authorizing or negotiating Bank is bound to pay when all papers as per terms and conditions of the letter of credit are presented which appears to the issuing bank to be correct on the face of it and, as such under the International Credit operation and International Banking transaction Banks are in no way concerned or bound by the selling contract of the parties even if reference to such contract is made in credits, for Bank in such credit operation deals in documents and not with the quality/ quantity of goods shipped or deal with other performance of the seller to which the document may be related. ″

26.        House of Lords in 1983 HL 168 in the case of –UCM Vs. Royal Bank of Canada held:

″The whole commercial purpose of which the normal system of confirmed irrevocable documentary credits has been developed in the International trade is to give to the seller assured right to be paid before the parts with control of the goods that does not permit any dispute with the buyer as to the performance of the contract of sale being used as a ground for non –payment of reduction or determent of payment. ................. ″

″ To this general statement of principle as to the contractual obligations of the confirming Bank to the seller, there is one established exception, that is where the seller or the purpose of drawing on the credit, fraudulently presents to the confirming Bank documents that contain, expressly or by implication, material representation of facts that to his knowledge are untrue. ″

27.        In the case of United Trading Corporation Sa Vs. Allied Arab Bank Ltd. reported in) 1985) 2 Lioyd’s Law Report 554 held:

″ It seems to us clear that, where payment has in fact been made, the bank’s knowledge that the demand made by the beneficiary on the performance bond was fraudulent must exist prior to the actual payment to the beneficiary and that its knowledge at that date must be proved. Accordingly, it at all a plaintiff can establish such knowledge after payment, then he has failed to establish his course of action. The bank would not have been in breach of any duty in making the payment without the requisite knowledge. We doubt that this really open to contest.″

28.        These views receive support in the cases of Zayta  Garments Ltd.  Vs. Union Bank Ltd., 55 DLR (AD) 56, Training Knit Wear Limited Vs. DGM. Sonali Bank and others, (1997) 2 MLR (AD) 396; Comforts Apparels (Pvt.) Ltd. Vs. Imperial Knitting Industries Ltd. 53 DLR 350, S.M. Fazlul Huque Vs. Salauddin Ahmed and another, 1992 BLD 155, Janata Bank Vs.Ahmedia Garments, 40 DLR 72, Sarind Garments Ltd. Vs. Glory Truth Industries, 49 DLR-260. Uttara Bank Vs. Macneil and Kilburn Limited and others 33 DLR(AD)-296, and United Commercial Bank Limited Vs. Synthetic Textile Limited and others (1987)  Company cases 245.

29.        After appreciating the materials on record we hold that a letter of credit is an independent contract and not qualified by the original contract of sale though it is based on it. It is also not affected by any dispute between the buyer and seller. When an irrevocable letter of credit is opened and confirmed by a bank, such bank is left with no option but to honour its obligation under the letter of credit and pay. Therefore, the Court below by refusing an order of temporary injunction committed no error of law.                                                                                                                                                                                                                                                                                                      

30.        Moreover the impugned order in its entirety is well founded in the facts and circumstances of the case. So, the submissions advanced by the learned Counsel for the petitioner are not the correct exposition of law and facts. Therefore we are unable to accept his submissions. On the contrary the submissions advanced by the learned Counsel for the opposite parties prevails and appears to have a deal of force.

31.        In the light of discussions made above and the preponderant judicial views emerging out of the authorities referred to above, we are of the view that the impugned order suffers from no legal infirmity which calls for no interference by this Court. Thus the appeal having no merit fails. 

32.        In the result, the appeal is dismissed. With the aforesaid observations the Rule issued in Civil Rule no. 24(F.M.) of 2017 is discharged without any order asto cost. The order of injunction granted earlier in Civil Rule no. 24 (F.M.) of 2017 stands vacated.

33.                   The learned Judge of the Court below is directed to dispose of the suit within 6(six) months from the date of receipt of this order.

34.                   The office is directed to communicate the order at once.

Ed.



First Miscellaneous Appeal No. 31 of 2017 With Civil Rule No. 24(F.M.) of 2017