IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.N.KRISHNAN FRIDAY, THE 1ST OCTOBER 2010 / 9TH ASWINA 1932 AS.No. 391 of 1998(C) --------------------- ( OS.176/1977 of ADDL.SUB COURT, THALASSERY) .................... APPELLANT/2nd DEFENDANT IN THE SUIT: ------------------------------------------------------------- THE MANAGER, BANK OF BARODA, APPOLO BRANCH, BOMBAY SAMACHAR MARG, BOMBAY. BY ADVS. SRI.B.S.KRISHNAN, SENIOR ADVOCATE SRI.K.ANAND RESPONDENTS/PLAINTIFFS AND DEFENDANTS 1 & 3: ------------------------------------------------------------------------------ 1. MINTEX FABRICS, REP. BY PROPRIETOR, V.P.NIRMAL, SON OF SHEKHARAN RESIDING IN CANNANORE CONTONMENT. 2. JASMINE INTERNATIONAL OIL, 84, C. MUHAMMED ALI ROAD, BOMBAY. 3. THE CORPORATION BANK, CANNORE-3. BY ADVS. SRI.S.K.BRAHMANANDAN SRI.P.T.ANTONY SRI.S.B.PREMACHANDRA PRABHU SRI.G.S.PRABHU THIS APPEAL SUIT HAVING BEEN FINALLY HEARD ON 01/10/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: VK M.N.KRISHNAN, J. ------------------------- A.S. No. 391 of 1998 ------------------------------------- Dated this the 1st day of October, 2010. J U D G M E N T This is an appeal preferred against the judgment and decree of the Subordinate Judge's Court, Thalassery in O.S.No. 176/1977. The suit is having a chequered career and it is the second round of litigation. The plaintiff is a seller of textile goods, he used to sell the goods to first defendant. The Bombay Mercantile Co-operate Bank Limited is the banker of the first defendant and the Corporation Bank, the third defendant is the banker of the plaintiff. Since, Bombay Mercantile Co-operative Bank did not have any branch at Kannur, the help of Bank of Baroda was sought and it was through them the same transactions had taken place. The plaintiff has despatched goods worth Rs.61,009.66 and later, for Rs.34,051.88. Regarding the first there was no difficulty but it is the second that has caused problem which had given raise to the suit. What had happened was on the release of Ext.B3, an irrevocable credit for Rs.97,500/- issued by Bombay Mercantile Bank Ltd, the principals A.S. No. 391 of 1998 2 are M/s.Jasmine International and the beneficiaries are plaintiff namely, M/s.Mintex Fabrics. The amount involved is 97,500/- and the date of expiry of the irrevocable credit was on 15.01.1977. What had happened in this case when the second set of goods were despatched it is seen that the first defendant had given a cheque to the second defendant bank and on the basis of the said cheque, the second defendant delivered the documents to the first defendant and thereby the first defendant got delivery of the goods. But to the utter dismay of the second defendant when the cheque was presented for encashment, it was dishonoured. So virtually the amount which the plaintiff is entitled to realise as the value of goods had not been paid either by the bank or by the first defendant resulting in loss to him. Now it is contended by the learned counsel for the appellant that there is no privity of contract between the plaintiff and the Bank of Baroda. It has to be stated that the first defendant bank is Merchantile Bank. The irrevocable letter of credit shows the beneficiary as the plaintiff. So, it is on the basis of this irrevocable letter of credit, the plaintiff was supplying goods to A.S. No. 391 of 1998 3 the first defendant. Now the contention is since the plaintiff has no contract with the second defendant by no such imagination second defendant may be liable to pay for the goods and the loss sustained by the plaintiff. It has to be remembered the second defendant enters the arena only as the representative of the Mercantile Bank. That is why the irrevocable letter of credit is enforced through the said bank or in otherwise second defendant becomes authorized representative of the Merchantile Bank. So far as it relates to the letter of irrevocable credit, it is true that the irrevocable credit had expired on 15.01.1977. The plaintiff has submitted his bill for encashment through his bank, the third defendant, on 15.01.1977, next day Sunday, being a holiday, it was only sent on 17.01.1977. So in fact when the letter was received by the Bank of Baroda, the period fixed under the irrevocable credit had expired. So naturally, a prudent banker would have returned the said presentation back to the Corporation Bank intimating that the period has expired and therefore, they cannot honour the commitment. But it has to be stated what the second defendant had done was it had simply A.S. No. 391 of 1998 4 handed over the goods to the first defendant on receipt of a cheque and those documents enabled the first defendant to get the goods without making the payment. So it is very clear that it was not on the basis on the irrevocable letter of credit that the documents were released but they were released only on the basis of the cheque, which was given to by the first defendant to the second defendant. So it has to be stated that the second defendant had taken a calculated risk and the banker's risk. But when the calculated risk resulted loss of money of another person, it is certain that person has to be paid back by the second defendant, but there will be the liberty to the second defendant to proceed against the person, who had cheated him. From the materials available in this case, I am also inclined to hold the privity of contract is there, so far as it relates to the sustainment loss by the plaintiff on account of the careless act of second defendant in releasing the documents without receiving the money. Therefore, it is liable to make the loss sustained by the plaintiff and therefore, the judgment and decree do not call for any interference and they are confirmed and the appeal is A.S. No. 391 of 1998 5 dismissed. But I make it very clear that second defendant, bank had been taken for a ride by the first defendant. Therefore, the second defendant is at liberty to take any action against first defendant in accordance with law. Appeal is dismissed without costs. M.N.KRISHNAN, JUDGE ln.