WP(C) 1657/2011 & WP(C) 431/2011 Page 1 of 35 * THE HIGH COURT OF DELHI AT NEW DELHI Judgment reserved on : 15.12.2011 % Judgment delivered on : 23.12.2011 + WP(C) 1657/2011 M/S. SHYAM GARMENTS & ORS. .... PETITONERS Vs STATE BANK OF INDIA ... RESPONDENT AND + WP(C) 431/2011 STATE BANK OF INDIA …PETITIONER Vs M/S. SHYAM GARMENTS & ORS. …RESPONDENTS Advocates who appeared in this case: For the Petitioner: Mr. Sangram Patnaik, Mr. Anupam Siddhartha and Ms. Renu Narula, Advocates in WP(C) 1657/2011 and Mr R.P. Vats and Ms Reema, Advocates in WP(C) 431/2011. For the Respondent: Mr. R.P.Vats & Ms. Reema, Advocates in WP(C) 1657/2011 and Mr. Sangram Patnaik, Mr. Anupam Siddhartha and Ms. Renu Narula, Advocates in WP(C) 431/2011. CORAM :- HON’BLE MR JUSTICE SANJAY KISHAN KAUL HON'BLE MR JUSTICE RAJIV SHAKDHER RAJIV SHAKDHER, J WP(C) 1657/2011 & WP(C) 431/2011 Page 2 of 35 1. The captioned writs have been preferred against the judgment dated 21.09.2010, passed by the Debt Recovery Appellate Tribunal, Delhi (hereinafter referred to as DRAT). By virtue of this judgment, the DRAT allowed the appeal of the principal debtor (i.e., Shyam Garments, which is a partnership firm) and its partners, who had guaranteed the debt. The effect of the impugned judgment is that the principal debtor alongwith the guarantors, is liable to pay to the creditor i.e., State Bank of India having its branch at Okhla Industrial Estate, New Delhi, 50% of the principal amount decreed alongwith proportionate interest and the costs. The remaining amount is required to be borne by the creditor bank in lieu of compensation owed to the principal debtor and guarantors for injury caused to them. 1.1 Resultantly, both parties are aggrieved by the impugned judgment of the DRAT. Consequently, the captioned writ petitions were instituted, which are really in the nature of cross actions. 1.2 For the sake of convenience, we would be referring to the parties before us as follows :- The principal debtor be referred to as M/s. Shyam Garments, while its partners would be collectively referred to as guarantors. The Creditor Bank would be referred to as SBI, Okhla Branch. The reason we have made a reference to the specific branch of SBI would become clearer as we go along with the narrative. 2. With this preface, let us advert to the facts which would be relevant for adjudicating upon the issue raised in the captioned writ petitions : 2.1 Shyam Garments, which is in the business of manufacture and export of children‟s garments, approached SBI, Okhla Branch, sometime in the year 1998, for sanction and grant of Export Packing Credit Facility WP(C) 1657/2011 & WP(C) 431/2011 Page 3 of 35 (hereinafter referred to as EPC facility). Consequently, on 16.10.1998 Shyam Garments was sanctioned an EPC facility limited to Rs.50 Lakhs. To secure against future withdrawals that may be made against the sanctioned EPC facility, necessary security documents were executed by Shyam Garments, on 22.10.1998, in favour of SBI, Okhla Branch. In addition, security was also provided in the form of guarantees furnished by the partners of Shyam Garments. As a matter of fact, out of the four (4) guarantors, two (2) guarantors, also created, equitable mortgage in favour of the bank qua their respective immovable properties. 2.2 It appears, in the beginning of 2000, Shyam Garments received an order for supply of children‟s garments from one, M/s. Talib H.A, situate in Jeddah, Suadi Arabia (hereinafter referred to as Talib). In order to effectuate the transaction, Talib advised its local bank, one, National Commercial Bank, Jeddah (in short „NCB‟) to open a Letter of Credit in favour of Shyam Garments in the sum of USD 86320/- The said Letter of Credit was apparently advised to SBI, Okhla Branch through the Union Bank of India, Overseas Branch (in short „UBI‟) New Delhi. The communication in this regard was issued by UBI, on 10.12.1999. It has been the stand of SBI, Okhla Branch that as per the Letter of Credit, the negotiation of documents was restricted to UBI. 2.3 It is not in dispute that in pursuance of said Letter of Credit having been opened by Talib, Shyam Garments shipped the said garments to Talib. It is in connection with the said trans-shipment, that Shyam Garments raised two separate invoices, for a value of USD 37073/- and USD 38750/-. It is not in dispute that payment against invoice valued at USD 37073/- has been WP(C) 1657/2011 & WP(C) 431/2011 Page 4 of 35 received by Shyam Garments. The present proceedings are confined to the invoice valued at USD 38750/-. 2.4 Shyam Garments, under a cover of a letter dated 16.02.2000, submitted a set of documents detailed out therein to SBI, Okhla branch with the hope of securing payment from Talib, against garments exported by it. The letter, as is framed, is rather peculiar, in the sense, while in the opening paragraph, Shyam Garments alludes to the fact that it is enclosing a set of documents referred to therein for “negotiation”; in the concluding paragraph it is stated that the said documents were being sent for „collection‟. It is, however, not in dispute that the said letter is accompanied by a bill of exchange for a value of USD 38750/-, the title of which reads as follows :- “DOCUMENTS DRAWN FOR COLLECTION UNDER OUR INVOICE NO.SG/015/99 DATED 28.01.2000 AGAINST LC NO.613M9932562 DATED 09.12.1999.” 2.5 The SBI, Okhla Branch dispatched the aforementioned documents to NCB vide communication dated 17.02.2000, which again adverted to the fact that the documents were being sent on a collection basis which were to be delivered to the buyer / drawee i.e., Talib against payment. In this communication clearly, SBI, Okhla Branch had also indicated their collection number as : 00/2/00GC48802. At the foot of the document, there is also reference to the fact that the proceeds received by NCB had to be remitted to its Calcutta office account, bearing no.544-7-21930, maintained with Chase Manhattan Bank, Newyork, USA (in short „Chase Manhattan Bank‟). The communication went on to say that NCB was required to revert WP(C) 1657/2011 & WP(C) 431/2011 Page 5 of 35 back to the SBI, Okhla Branch by swift message/telex/cable, wherein the reference number given in the document was required to be quoted. More specifically, it was, in no uncertain terms, indicated that the said collection was „subject to Uniform Rules for Collection, 1995 revision I.C.C. Publication No. 522‟ ( in short, URC 522). 2.6 It is not in dispute that NCB under the Letter Of Credit opened by it had nominated the Bank of America, Newyork, USA (in short BOA) as its correspondent bank. 2.7 It appears that on 28.02.2000, a communication was sent by NCB, to the SBI, New Delhi overseas branch, on telex no.0813165459. By this communication, NCB apparently attempted to inform that the documents dispatched to it, were discrepant. The nature of the discrepancy evidently referred to in the document was as follows :- “(i). Amount insured in rupees; (ii). Insurance policy not showing 1.0.1; (iii). Vessel age on separate certificate and not on E/L; and (iv). LC restricted” 2.8 The aforementioned communication dated 28.02.2000, ended with the post script, that NCB was holding the documents at SBI‟s disposal and that they will be delivered unless NCB heard to the contrary. 2.9 Rather curiously, by a communication dated 07.03.2000, Shyam Garments informed the SBI, Okhla Branch that they had yet to receive payments against their two invoices deposited with it for „collection‟ despite the fact that they had been advised by the buyer i.e., Talib, that payment had WP(C) 1657/2011 & WP(C) 431/2011 Page 6 of 35 been released. Since the amount had not been credited, they required SBI, Okhla Branch to do the needful in the matter. 3. On the same date i.e., 07.03.2000, SBI, Okhla Branch sent a telex message to NCB giving reference of both the invoices i.e., the one valued at USD 37073/- and the other valued at USD 38750/- (i.e., the invoice in issue) mentioning therein that they had been advised by the drawer (i.e., Shyam Garments) that payments against both the invoices had been made by the drawee (i.e., Talib), and hence they should investigate the matter, and thereafter credit the payment to their nostro account maintained with the Chase Manhattan Bank. 3.1. The aforesaid communication was followed by yet another communication by SBI, Okhla Branch dated 24.03.2000, though this time it was sent directly to the BOA. This communication obviously was sent by SBI, Okhla Branch in the best interest of its client i.e., Shyam Garments, though in a sense they had circumvented, in their over enthusiasm, the established protocol in such like matters, which was to get in touch with the issuing bank (i.e., NCB). The reason perhaps is that SBI, Okhla Branch was unable to contact NCB directly and hence, wanted the message to be relayed through BOA – this fact is adverted to in the communication of 24.03.2000 itself. The said communication dated 24.03.2000, however, was restricted to the invoice in issue, which was issued for a value of USD 38,750/-. The BOA was specifically advised to remit the proceeds (as in their earlier communication) to their Calcutta office account no.544-7-2190, maintained with the Chase Manhattan Bank. The communication went on to say that information to that effect should be communicated by swift/telex/cable message, on quoting, their reference number. The communication ended WP(C) 1657/2011 & WP(C) 431/2011 Page 7 of 35 with SBI, Okhla Branch reminding that their earlier communication of 07.03.2000 had not been responded to. 3.2. The BOA on its part vide a written communication dated 28.03.2000, informed the head office of SBI, at Calcutta (now Kolkata), that funds against the invoice in issue, after making some nominal deductions, had been remitted to the referenced account maintained with the Chase Manhattan Bank. This communication was received in the head office of SBI, at Calcutta, on 29.03.2000. In so far as SBI, Okhla Branch is concerned, the communication got delivered on 03.04.2000. 3.3. After a lapse of nearly three (3) months, the BOA sent a communication dated 26.06.2000 to SBI, at its head office in Calcutta, informing them that they had received information from NCB that the funds remitted was a double payment and hence, was required to be refunded. By this communication, the BOA also indicated that they had at their end, got in touch with the Chase Manhattan Bank, which had asked them to get in touch with them, as they had not received any response in the matter. 3.4. Since SBI, Okhla Branch, at that point in time, found, that the basis for seeking refund of the money remitted, was untenable, it sought to clarify the situation vide their communication dated 07.07.2000, by adverting to the fact that they had sent for collection to NCB two invoices and hence, according to them, there was no case made out of double payment. 3.5. The issue, however, erupted once again when, NCB vide communication dated 04.11.2000 informed SBI, Okhla Branch that they had received discrepant documents against the invoice valued at USD 38750/-; a fact, which according to them, they had communicated vide their telex WP(C) 1657/2011 & WP(C) 431/2011 Page 8 of 35 message dated 28.02.2000, on the following telex number i.e., 81-3165459. The communication of 04.11.2000, went on to portray that the SBI, Okhla Branch had claimed payment from the BOA despite, the aforementioned communication of 28.02.2000. NCB, concluded the said communication, by stating that they were still holding the documents which had been rejected by the applicant i.e., buyer/Talib. Consequently, on this ground, they sought refund of their money, which, in turn, had debited to their account by the BOA. 3.6. It is at this juncture that SBI, Okhla Branch realized that the communication of NCB dated 28.02.2000, had been sent to an incorrect telex number. Accordingly, a communication dated 09.11.2000 was sent by it to NCB wherein it alluded to the following :- “We have to advise you as under :- (1). Documents for USD 38,750/- were sent to you by DHL courier on 18th Feb 2000 and no message for discrepancies has been received at our end. You have mentioned of TLX No.0813165459 which is not our telex no. so no discrepancy has been received by us. (2). After a lapse of almost one month on 24th March, 2000 as we have not received any response from your side, reimbursement claim was lodged with Bank of America as mentioned in L/C. (3). We have failed to understand that why rejected documents were held up at your end for so long time. As per our information buyer has received the goods. WP(C) 1657/2011 & WP(C) 431/2011 Page 9 of 35 As the bill of lading was in your favour how buyer have received goods. Refund of amount is not possible at our end as documents were negotiated under L/C. Matter may be treated as closed at our end.” 3.7. As was expected, NCB did not let the matter rest there. It responded by another communication dated 10.12.2000 wherein, they lodged their protest vis-à-vis the contents of the SBI, Okhla Branch‟s aforementioned communication. The thrust of this communication was that, as per their special condition, 47A(x) if, documents were forwarded for approval or payment without indicating the discrepancies, they were to be treated as collection documents and hence, relieving them of any liability. In this regard, reference was also made to Article 14 of URC 522. The communication went on to say that SBI, Okhla Branch‟s covering letter (which obviously referred to its letter dated 17.02.2000) quite clearly indicated that it was governed by URC 522, and therefore, it was acting as a collecting bank since, they were required to hand over the documents only against payment. Though, NCB did not refute the fact, that the message dated 28.02.2000 had been sent to the telex no.813165459, it reiterated that it constituted sufficient notice to SBI, Okhla Branch as, the message had, the reference number of the said branch appended to it. The communication concluded with, NCB once again, objecting to the fact that SBI, Okhla Branch had sought release of funds in their favour in respect of its collection without NCB‟s authorization. Consequently, NCB sought refund of the amount in issue. 3.8 The aforementioned communication prompted SBI, Okhla Branch to write to NCB vide letter dated 02.01.2001, whereby they sought a copy of WP(C) 1657/2011 & WP(C) 431/2011 Page 10 of 35 the telex dated 28.02.2000, in which, a reference was made to the discrepant documents. Information was also sought as to when the documents had been presented to the drawee i.e., Talib and, its response to the same. 3.9 SBI, Okhla Branch followed the aforementioned communication with a communication dated 06.01.2001 to the shipping agent i.e., Trans- World Shipping Services (I) Ltd., seeking information as to when the goods in issue were released at the foreign port / destination. On the same day, by a separate communication of even date i.e., 06.01.2001, SBI, Okhla Branch also wrote to Shyam Garments, seeking to know from them whether it had received any information with regard to the fate of the goods from the shippers. The said letter adverted to the fact that discussions with regard to the same had been held at the branch on 30.12.2000. Importantly, the letter opened with the phrase : “with reference to the above bill sent for collection on 17.02.2000” to NCB, Jeddah. 4. In the meanwhile, NCB at their end escalated the matter by having their international division contact the Mumbai office of SBI, to prevail upon SBI‟s Okhla Branch to refund the money. 4.1 SBI, Okhla Branch, however, by letter dated 16.01.2001, once again, called upon NCB to respond to their earlier communication dated 02.01.2001, whereby they had sought a copy of the telex message dated 28.02.2000, which alluded to the discrepant documents. 4.2 Finally, NCB responded vide their letter dated 04.02.2001, which was received at SBI, Okhla Branch on 15.02.2001. Under the cover of this letter, NCB dispatched all previous communication on the subject including their telex message dated 28.02.2000. WP(C) 1657/2011 & WP(C) 431/2011 Page 11 of 35 4.3 There was further communication in the matter for refund of money at NCB‟s end in the form of messages dated 21.02.2001 (swift message), 22.02.2001 and 21.05.2001. By virtue of the last communication dated 21.05.2001, the NCB returned the documents which had been rejected by the drawee i.e., Talib. 4.4 In the background of the aforesaid circumstances, the SBI, Okhla Branch bearing in mind the international banking practices, which ordinarily entailed remittance of funds or adjustment of accounts on a mere request of a bank of repute – found it difficult to withhold the moneys which BOA had remitted to them, by debiting the account of NCB, at its instance. It became quite clear that the drawee i..e, Talib had not retired the bill of exchange and made payment to NCB. Given these circumstances, on 07.12.2001, SBI, Okhla Branch remitted the amount to BOA to the extent of USD 38579/- after deducting its costs. Accordingly, it correspondingly debited the account of Shyam Garments to the extent of the equivalent value of USD 38579/- (i.e., Rs.18,48,892/-). The necessary consequences of this was that SBI, Okhla Branch was required to issue an advice to its Calcutta office to remit an amount equivalent to USD 38,579/- to Chase Manhattan Bank, USA. This leg of the transaction was completed on 29.12.2001. 5. It is the stand of SBI, Okhla Branch that Shyam Garments and its partners were thereafter called upon to pay the amount in issue and since, they did not respond favourably in the matter, a legal notice was issued to them, on 25.11.2002. By virtue of this legal notice, they were called upon to pay the entire outstanding amount alongwith interest. WP(C) 1657/2011 & WP(C) 431/2011 Page 12 of 35 5.1 It appears that the matter was referred at some stage to the Delhi Legal Services Authority (in short „DLSA‟). There is in the record a proceeding sheet of 07.12.2002 available, in which, certain aspects of the matter have been adverted to. Arguments on matters alluded to therein, have been addressed, which we have dealt with in the latter part of our judgment. 5.2 Suffice it to say that on 06.08.2003, SBI, Okhla Branch filed an application under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short „RDB Act‟) for recovery of a sum of Rs.23,52,289.29. In response to the same, a common reply was filed by Shyam Garments and its partners. 5.3 The Debt Recovery Tribunal (in short „DRT‟) by an order dated 28.09.2007, after perusing the record and the evidence adduced by parties, issued a certificate of recovery in favour of SBI, Okhla Branch in the sum of Rs.18,48,892/- alongwith pendente lite and future interest at the rate of 9% p.a. with monthly rests with effect from 07.12.2001 till the date of realization. In addition, cost of litigation was also directed to be paid to the applicant. It was directed that on failure to pay the amount by the judgment debtors, SBI, Okhla Branch i.e., the applicant could recover the decretal amount in the first instance from the sale of hypothecated and mortgaged property, and thereafter, from personal assets of the individual judgment debtors. 6. Being aggrieved, the judgment debtors i.e., Shyam Garments and its partners preferred an appeal before the DRAT. As indicated hereinabove, the DRAT by the impugned judgment allowed the appeal in part by WP(C) 1657/2011 & WP(C) 431/2011 Page 13 of 35 reducing the decretal amount and, the proportionate interest and cost by one half i.e., 50% on account of the fact that SBI, Okhla Branch had contributed to the negligence which resulted in the transaction at hand not bearing fruit. SUBMISSION OF COUNSELS 7. The arguments on behalf of SBI, Okhla Branch were addressed by Mr. R.P. Vats assisted by Ms. Reema, Advocate while, on behalf of the Shyam Garments arguments were advanced by Mr. Sangram Patnaik, Advocate assisted by Mr. Anupam Siddhartha and Ms. Renu Narula, Advocates. 7.1 Mr. Vats drew our attention to the evidence placed on record, in particular, with respect to the correspondence exchanged both with NCB and Bank of America. Our attention was also drawn by Mr. Vats to what SBI, Okhla Branch‟s mandate was qua the transaction at hand. It was the contention of Mr. Vats that the SBI, Okhla Branch was the collecting bank and not the negotiating bank, as contended by the other side. In this regard, he placed particular reliance on the letter dated 16.02.2000 issued by Shyam Garments to SBI, Okhla Branch, as also, the letter dated 17.02.2000, in turn, issued by SBI, Okhla Branch to NCB. Mr. Vats stressed that on a reading of the letter dated 17.02.2000 the following would emerge:- (a). that SBI, Okhla Branch was acting as a collecting bank; (b). the collection was subject to URC 522; (c). there was a clear reference to the telex number of the branch which, in the instant case, was: (031) 75189 SBIO and, not 0813165459 to which, the crucial telex message dated 28.02.2000 was sent by NCB WP(C) 1657/2011 & WP(C) 431/2011 Page 14 of 35 evidently pointing out that there was a discrepancy in the documents sent by it on behalf of Shyam Garments. 7.2 Mr. Vats thus submitted that SBI, Okhla Branch was neither responsible nor negligent as alleged by Shyam Garments and its partners in discharging the duties it owed to them. The fact that Shyam Garments and its partners were in communication with the drawee/the buyer i.e., Talib, purportedly through its agents, is evident from the averments made in ground „O‟ of the writ petition filed by Shyam Garments, and the letter dated 07.03.2000, issued by it. 7.3 It was contended by Mr.Vats that as a matter of fact, the letter dated 07.03.2000 led SBI, Okhla Branch to believe that the amounts in respect of both invoices have been released which, in turn, prompted them to call upon first, the NCB, and thereafter, the BOA to release the payment of the invoice in issue. 7.4 Mr. Vats submitted that the bank‟s keenness to act in the interest of its customer i.e., Shyam Garments is quite evident from the steps it took in regard to getting the amount remitted to its nostro account maintained with the Chase Manhattan Bank. In this regard, he emphasized on the contents of the telex message dated 07.03.2000, issued to NCB. This message, as is evident, was issued on the very date, Shyam Garments informed SBI, Okhla Branch that it had received communication from the buyer i.e., Talib that, they had released payments against both invoices. 7.5 The sum and substance of the contentions of Mr. Vats was that, the DRAT had erroneously come to the conclusion that SBI, Okhla Branch had WP(C) 1657/2011 & WP(C) 431/2011 Page 15 of 35 contributed to the negligence displayed in execution of the transaction in issue. 8. On the other hand, Mr. Patnaik submitted that the negligence of SBI, Okhla Branch was writ large as it had failed to bring to the notice of Shyam Garments the contents of communication dated 28.02.2000, whereby NCB had informed that the buyer i.e., Talib, had rejected the documents as the same were discrepant. The learned counsel submitted that this had resulted in an odd situation, which was that, the documents lay with NCB for an inordinately long period of time and got returned only on 21.05.2001, to SBI, Okhla Branch. It was contended that because of this piquant situation obtaining, the port authorities had ultimately auctioned the goods in issue, since, in the meanwhile, a substantial amount of demurrage had accumulated. 8.1 Mr. Patnaik further contended that the stand of the SBI, Okhla Branch that the telex message dated 28.02.2000 had been sent by NCB to its overseas Branch cannot result in Shyam Garments being mulcted with the loss