In the High Court of Judicature at Madras Dated:12.12.2008 Coram: The Honourable Mr.Justice M.SATHYANARAYANAN Civil Suit No.650 of 1999 Tamil Nadu Small Industries Corporation Limited, rep. by its General Manager, A Government of Tamil Nadu Undertaking, Thiru Vi.Ka. Industrial Estate, Guindy, Chennai - 600 032. ... Plaintiff Versus 1. Indian Bank, rep. by its Branch Manager, Guindy Branch, Chennai - 600 032. 2. M/s. MSAS Global Logistics India Private Limited, No.4, Casa Major Road, Egmore, Chennai - 600 008. 3. M/s. Paul Leibingser GMBH & Co. KG Spezialfabriken Fur Numerierwerk, Stetten, Donaustrabe - 12, 78750 MUHL HEIM/DONAU, Germany. 4. Leibinger JIT - INT Numbering Systems & Ink Jet Systems, 210, Virwani Industrial Estate Service Road, Off Western Exp. Highways, Goregaon (East), Mumbai - 400 063. ... Defendants Civil Suit filed under Order IV Rule 1 of O.S. Rules read with Order VII Rule 1 of C.P.C. praying for a judgment and decree: (a) declaring that the purchase order dated 24.05.1999 made by the plaintiff with the third defendant in Germany has been duly and validly cancelled; (b) direct the first and third defendants jointly and severally to pay a sum of Rs.45,00,000/- paid by the first defendant to the third defendant in pursuance to the Letter of Credit together with interest @ 18% p.a. from the date of invocation of the Letter of Credit i.e. on 27.08.1999, till the date of realisation; (c) direct the first and third defendant jointly and severally to pay a sum of Rs.15,00,000/- towards damages and expenses from the date of determination till the date of realisation @ 6% p.a.; (d) permanent injunction restraining the first defendant from calling upon the plaintiff to retire the documents pertaining to the Letter of CreditNo.G.020 LC 642006/99, dated 27.5.1999 and make payment therefor pursuant to the first defendant's letter dated 12.7.1999 (mistake for 12.8.1999); (e) directing the defendants to pay the cost of this suit; For Plaintiff .. Mr.N.C.Ramesh For Defendant No.1 .. Mr.Jayesh B. Dolia for M/s. Aiyar & Dolia Defendants 2 to 4 .. Ex-parte. ***** JUDGMENT The suit was originally filed praying for declaration that the purchase order dated 24.05.1999 made by the plaintiff with the third defendant in Germany has been duly and validly cancelled and for permanent injunction restraining the first defendant from calling upon the plaintiff to retire the documents pertaining to the Letter of Credit dated 27.08.1999 and make payment there for in pursuant to the first defendant's letter dated 12.07.1999 (mistake for 12.08.1999) and for costs. Thereafter, an Application for amendment of the plaint was filed and the first defendant herein has not filed his counter and ultimately the said Application was ordered. Thereafter, the following prayer came to be included in the plaint: (b) direct the first and third defendants jointly and severally to pay a sum of Rs.45,00,000/- paid by the first defendant to the third defendant in pursuance to the Letter of Credit together with interest @ 18% p.a. from the date of invocation of the Letter of Credit i.e. on 27.08.1999, till the date of realisation; (c) direct the first and third defendant jointly and severally to pay a sum of Rs.15,00,000/- towards damages and expenses from the date of determination till the date of realisation @ 6% p.a.; 2. Prior to the amendment of the plaint, the first defendant has filed its written statement and defendants 2, 3 and 4 have not chosen to enter appearance and did not file their written statement. 3. As per the averments made in the original plaint, it is averred that the plaintiff is engaged in several industrial activities to cater to the need of the various Government departments besides the public and in the course of its commercial activities, the plaintiff undertook the work of printing of bus tickets for various transport corporations of Tamil Nadu. Since the existing machinery was found insufficient to print and number large volume of tickets entrusted by the various Transport Corporations of Tamil Nadu and with a view to meet that requirement, the plaintiff has placed orders with the third defendant for supply of Numbering Machines for printing machinery and spare parts as per their Mumbai Office offer dated 27.4.1999. The said machinery is to be fitted with Web Offset Printing Machine for the value of DM 64053 which works about Indian currency value of Rs.16.00 lakhs (approximately). The plaintiff placed a Letter of Indent on 30.04.1999, which was faxed on 03.05.1999 with the foreign supplier through its Indian office at Mumbai - the fourth defendant. The order was placed in terms of the proforma invoice sent by the foreign supplier who is arrayed as the third defendant. 4. The plaintiff further averred that an Application for opening the Letter of Credit was made by the plaintiff on 26.05.1999 to the first defendant Bank, clearly indicating the nature of the goods as per proforma invoice and also stipulating the last date of expiry for the purpose of shipment as 6.07.1999. The Letter of Credit was opened on 27.05.1999 and one of the clauses of the said document clearly stipulates that the last date for shipment as 06.07.1999 and it was made subject to UCPDC 1993 (Revision-I-CC No.500). The last date for shipment was fixed as 06.07.1999 taking into account number of ticket books to be printed and numbered which is about 190 lakhs ticket books. 5. Since the foreign supplier has not despatched the goods in terms of the Letter of Credit dated 27.5.1999, the plaintiff on the evening of 6.7.1999 cancelled the purchase order and communicated the same by fax to the foreign supplier and also to its Indian Office at Mumbai (4th defendant) on 6.7.1999 and even prior to the sending of fax, the plaintiff, on number of occasions called upon the 4th defendant to intimate the stage of its readiness to despatch the goods before the date i.e. 6.7.1999 stipulated in the Letter of Credit. But there was no reply from the 4th defendant. 6. It is further averred in the plaint that on 12.07.1999 an intimation was received from the second defendant wherein it was noticed that the Master Airway Bill was dated 07.07.1999 and the House Airway Bill also dated 07.07.1999 with regard to the flight No.G.A2 9026 dated 11.07.1999, enclosing the House Airway Bill alone and however, the Master Airway Bill was not sent though it has been indicated in the Cargo arrival notice sent to the plaintiff. The plaintiff contacted the second defendant and got a copy of the Master Airway Bill which showed that the goods were entrusted to the Airliner of the foreign supplier only on 07.07.1999 and it also bears the Customs Seal of the Exporting Country which constitute the shipping document. The Master Airway Bill further disclosed that the Cargo had actually left on 10.07.1999 which is in contravention to the terms of the Letter of Credit wherein it has been clearly stipulated that the last date for shipment is 6.7.1999. Therefore, the plaintiff had cancelled the purchase order for the Numbering Machines in view of the breach committed by the Foreign Supplier. 7. The plaintiff further averred that the first defendant's bank insisted to retire the Bill by making necessary payment since the plaintiff had already got overdraft facilities with the first defendant bank and the equivalent of Indian Rupee of DM 64053 has already been set apart in the said account, as per the terms of the Letter of Credit. The first defendant insisted the plaintiff to agree for making necessary payment to the Foreign supplier to enable them to debit the value of the machinery in the account of the plaintiff with them. The plaintiff sent replies dated 06.07.1999, 07.07.1999, 13.07.1999, 19.07.1999, 22.07.1999, 23.07.1999, 29.07.1999, 10.08.1999 and 12.08.1999, justifying its action in cancelling the purchase order and also refusing to make the payment or allowing it to debit the above said sum in the overdraft facilities. 8. The plaintiff specifically contended that the proforma invoice sent by the Foreign supplier was specifically made part of the Letter of Credit. The first defendant in its letter dated 21.07.1999 also pointed out that the description of goods differ from the terms of Letter of Credit as per the proforma invoice dated 05.05.1999. The plaintiff further contended that the goods were not despatched in time as per the terms of Letter of Credit. Apart from that, it is not tallying with the description given in the proforma invoice. In spite of the said fact, the first defendant vide its letter dated 12.07.1999 has called upon the plaintiff to retire the Bill against the payment. Therefore, the plaintiff was constrained to file the suit for declaration and for permanent injunction. 9. The first defendant filed its written statement contending that as per the request made by the plaintiff under the Irrevocable Letter of Credit on 27.05.1999 for DM 64,053 favouring the third defendant for supply of Numbering Machines for printing machinery and spare parts and the plaintiff cancelled the purchase order on the alleged breach committed by the third defendant. It is further contended by the first defendant that an Irrevocable Letter of Credit cannot be cancelled unilaterally and in response to the communication sent by the plaintiff, they forwarded the objections to its Overseas Bank and as per their reply, the objections raised by the plaintiff were found to be untenable under the Uniform Practice for Documentary Credit 1993 Revision No.500 (UCPDC No.500), which is the basis for the International Settlement of Bills under the Documentary Credit. Accordingly, the first defendant sent a reply to the plaintiff stating that the discrepancies pointed out by the plaintiff are not material/valid enough for rejection of documents and that the Letter of Credit being an Irrevocable one, it has to be honoured strictly based on merits. The first defendant also informed the plaintiff vide its letter dated 25.08.1989 stating that it would be making the payment under the Letter of Credit by debiting account of plaintiff and accordingly the payment was effected on 27.08.1999 by debiting the account of the plaintiff equivalent to the Indian currency value of Rs.15,03,373/- which included commission and other charges. 10. The first defendant further averred that the bankers are concerned only with shippers copy of Airway Bill which is dated 06.07.1999 and it is in no way concerned with the dates mentioned in the consignee copy or any other related document as per Article 27A of UCPDC. The first defendant reiterated that since the document is an Irrevocable Letter of Credit, the bank is under obligation to honour its payment and therefore, prayed for the dismissal of the suit. 11. After the plaint was amended, on November 2004, the first defendant filed its additional written statement on February, 2007. 12. As per the amended plaint, the plaintiff contended among other things that in view of the fact that after the filing of the suit, the first defendant has paid the entire amount to the fourth defendant by debiting the account of the plaintiff and also charged interest on the said amount, it was constrained to seek for amendment. It is further averred that the fourth defendant ought to have despatched the goods on or before 06.07.1999 and it was not despatched on that date. The first defendant on receipt of documents from the third defendant, has written a letter dated 21.07.1999 informing the plaintiff that it had noted certain discrepancies in the document with that of the Letter of Credit. In the said letter dated 21.07.1999, the plaintiff has pointed out the said discrepancies and the first defendant by way of reply specifically stated that the plaintiff should communicate its decision on accepting the documents within 24 hours on receipt of the said letter and if no such reply is received, the first defendant will construe that the plaintiff is willing to accept the documents and payment will be made to the fourth defendant. The plaintiff in response to the letter dated 21.07.1999 received from the first defendant, has sent a reply dated 22.07.1999 stating that there is a major deviation from the proforma invoice of the supplies made by the third defendant and hence it is refusing to take delivery of the consignment and further requested that not to honour the Letter of Credit and not to release any payment to the fourth defendant. The plaintiff further averred that the first defendant has committed a serious error in not forwarding the proforma invoice along with the Letter of Credit to the foreign suppliers and that is why it had written a letter dated 21.07.1999 to the plaintiff specifically pointing out that the documents received from the fourth defendant grossly differs from the specification given by the plaintiff in the proforma invoice dated 05.05.1999. 13. The plaintiff further averred that in the Application for injunction filed in this suit, notice was ordered and after effecting service of notice on the first defendant, and in spite effecting service of notice on the first defendant, it honoured the Letter of Credit by making payments to the foreign suppliers by debiting the account. Therefore, it was constrained to amend the plaint by including the relief of B and C, i.e., for recovery of sum of Rs.45 lakhs with interest and also for damages for Rs.15 lakhs. 14. The first defendant had filed its additional written statement after the commencement of trial. As per the additional written statement, the first defendant averred that the plaintiff was explained about the decision of the bank and the circumstances under which the payment was made under Letter of Credit. It is further averred by the first defendant that events happened subsequent to the filing of the suit cannot be the subject matter of the suit and the plaintiff ought to have withdrawn the suit and instituted a fresh suit based on the fresh cause of action. It is further contended by the first defendant that the claim is time barred and therefore, the action cannot be brought within the ambit of the present suit. 15. The first defendant further contended that the Irrevocable Letter of Credit has to be acted upon and honoured and if at all the plaintiff has any grievance with regard to the non-compliance of the terms of the contract by the third defendant, or breach of any conditions, it has to seek relief only against the third defendant and no claim against the first defendant is sustainable. 16. The plaintiff filed a reply statement to the additional written statement contending among other things that once the first defendant has pointed out the discrepancies in the machineries which landed in India, it ought to have waited for the orders passed by this Court in the Application for injunction. As regards the contention raised by the first defendant that the claim is barred by limitation, the plaintiff contended that once amendment of plaint is ordered, it date backs to the original date of the suit and therefore the cause of action will survives. It has been once again reiterated by the plaintiff in the reply statement that the first defendant ought not to have honoured the Letter of Credit in view of the discrepancies pointed out by the first defendant itself. 17. This Court on the above pleadings has framed the following issues for consideration: 1. Whether the purchase order dated 24.05.1999 issued by the plaintiff on the third defendant has been duly and validly cancelled on 06.07.1999 by the plaintiff? 2. Whether the first defendant was justified in paying the amounts in pursuance to the letter of credit, especially when the machinery supplied by the third defendant was not in line with the purchase order and this fact was brought to the knowledge of the plaintiff by the first defendant, and which basis the contract was cancelled by the plaintiff? 3. Whether the plaintiff has any right to cancel the letter of credit, when the machinery to be supplied was not in line with the purchase order dated 24.05.1999 issued by the plaintiff? 4. Whether the defendants are jointly and severally liable to pay a sum of Rs.45,00,000/- the amount paid by the first defendant to the third defendant in pursuance to the Letter of Credit on the basis of the invocation of the Letter of Credit dated 27.08.1999 with interest? 5. Whether the first and third defendant are jointly and severally liable to pay a sum of Rs.15,00,000/- towards damages and expenses from the date of determination of this Hon'ble Court till the date of realisation with interest at 6%? 6. Whether the plaintiff is entitled to the cost of the proceedings? 7. To what reliefs, the parties are entitled to? 18. In the trial, on behalf of the plaintiff (PW1) who was working as the manager in the Plaintiff company was examined as P.W.1 and the former Accounts Officer of the plaintiff was examined as P.W.2 and Exs. P1 to P38 were marked on the side of the plaintiff. On the side of the first defendant, the Manager working in the Guindy Branch of the first defendant Bank was working as D.W.1 and the Senior Manager of the Guindy Branch of the first defendant Bank who worked in that capacity between 1997 and 2002 was examined as D.W.2. On the side of the first defendant Exs. D1 to D7 were marked. 19. It is enough to refer some of the documents filed by the plaintiff and the first defendant for adjudication of the issues. 20. Ex.P2 is the letter dated 27.04.1999 sent by the fourth defendant to the plaintiff, wherein it has been stated that after negotiations, the fourth respondent offered revised rates in respect of machineries to be supplied on DM 64053. It has been further indicated in the said document that the origin of shipment at West Germany and the time is 4 to 5 weeks from the date of letter of indent and subject to Letter of Credit in one week and the payment is 100% Irrevocable Letter of Credit in favour of the third defendant. 21. Ex.P4 is the letter dated 30.04.1999 sent by the plaintiff to the fourth defendant placing indent for supply of the machineries. In the said document, it has been indicated that delivery is to be effected within five weeks and the regular purchase order and opening of Letter of Credit will follow on receipt of the proforma invoice from the fourth defendant and the fourth defendant was also called upon to confirm their acceptance. Ex.P4 is the vital document according to the plaintiff and it is a proforma invoice emanated from the third defendant to the plaintiff. A perusal of the said document would disclose that it is dated 05.05.1999 and the machineries are to be sent by consolidated Air Freight via Messrs. MSAS Cargo International GMBH at Stuttgart Airport and through Letter of Credit. Following are the list of machineries to be supplied to the plaintiff under the said document:- " NUMBERING MACHINES FOR PRINTING MACHINERY AND SPARE PARTS: 1. Case gross weight: approx.38,700 kg. No.I net weight : approx.33,600 kg. LEIBINGER-numbering cylinder compl. 17.39" (440mm), split and divided lengthwise, approx. 600 mm long, with 5 guide ways 87 x 4 x 92 mm around, bore 45 mm keyway, compl. with clamping gib; .. 1 and: LEIBINGER-special rotary-numbering machines model 420 SF, straight and flat base design, in special case 35 mm long, 6-digits, backward, Roman engraving No.217, center 3.17 mm, fixed zeros, with direct drive on the swing .. 85 directing rods slotted .. 7 clamping levers with roll without pin, prefix .. 7 idem, unit .. 7 bearing trestles for bearing of the directing rods.. 10 cams 17.39" RH, split, center distance: 90,075 mm bore: 25 mm keyway to be specified .. 2 1 Carton, gross weight approx. 19,000 kg. No.II net weight approx. 12,100 kg LEIBINGER-special rotary numbering machines, model 420 SF. straight and flat base, in case 44,96 mm long, 7-digits. backward, Roman ongraving No.217, center 3.17 mm. fixed zeros, with direct drive on the swing, with skip Pos.7 = figure wheel 11-div. and low blank .. 55" In the second page of the said document the value of the machinery is fixed at DM 64,053 and the origin is from West Germany and the delivery time is 5 weeks after the receipt of the firm order  resp. the Letter of Credit. 22. Ex.P5 is dated 24.05.1999 sent by the plaintiff to the third defendant, whereby they confirmed the purchase order against their office letter dated 30.4.1999 marked as Ex.P3. As per Ex.P5, the delivery time has been fixed within four weeks from the date of their office letter. 23. Ex.P6 is the Application & Agreement for Irrevocable Letter of Credit submitted by the plaintiff to the first defendant. The contents of the Ex.P6 would disclose that the advised Bank is Deutsche bank AG at Tuttlingen and the beneficiary is the third defendant. The shipment date has been fixed as 06.07.1999 and the negotiation date is fixed as 20.07.1999. Clause No.1 states as follows: "Signed Commercial Invoice in Three copies for value not exceeding the draft amount quoting Import licence No........... Proforma Invoice No. 2407 Dt.05.05.1999 and certifying goods are as per order/indent No............ and covering Numbering Machine for printing Machinery and spare parts as per (proforma invoice). It has been further indicated in Ex.P6 that the Airway Bill for air consignment must indicate flight number and date. As per clause no.8 of the said document the shipment despatched should be effected from Stuttgart Airport to Chennai Airport via through the second defendant. The plaintiff herein has also agreed that the Credit will be subject to the Uniform Customs and Practice for Documentary Credit (1983 Revision) ICC Publication No.400. Clause No.14 of Ex.P6 would indicate that the documents viz., Order together with the order of confirmation of overseas supplier or the Proforma Invoice of the overseas supplier duly countersigned by them and indent/offer from overseas or their authorised agent together with the exchange.... copy of the relative import licence have also been enclosed at the time of submission of Ex.P6 to the first defendant. 24. Ex.P7 is the Letter of Credit. In clause 4 of Ex.P7 it has been stated as follows: 4. Text block: 27 - Sequence of total 1/2 . 40A - Form of documentary credit -Irrevocable 31C - Date of issue :27.05.1999 31D - Date and place of expiry : 20.07.1999, Germany. 51 - Applicant  Bank  D1 50 - Applicant  Plaintiff 59 - Beneficiary  Third defendant 42C - Draft at - Sight 44A - Loading on board - Stuttgart Airport 44B - For transportation  Chennai Airport 44C - Latest shipment date  06.07.1999 45A - Description of goods and/ or services: Numbering machines for printing machinery and spare parts as detailed in the proforma invoice 2407 dated 05.05.1999 (Ex.P4) 48 - Period for presentation : documents to be presented within 15 days from the date of shipment. But within the validity of the Credit. 78 - Instructions to the paying/accepting/negotiating bank: Upon receipt of required documents as per the terms of Credit we shall effect payment as per negotiating bank's instructions. 72 - Sender to receiver information: This credit is subject to UCPDC 1993 (Revision) ICC No.500. This shipper must be his representative and no model conferment will follow. 47B- Additional conditions: All documents must bear our ICC No. and date. A transport document bearing a date of issuance prior to that of the Credit is not acceptable. 25. Ex.P9 is Tele Fax dated 06.07.1999 sent by plaintiff to defendants 3 and 4 by marking a copy to the first defendant. In the said document, it has been stated that due to the failure on the part of D3 and D4 on the following aspects, the purchase orders placed by them on 24.05.1999 for the supply of Numbering system and Machinery has been cancelled and therefore D3 and D4 were requested not to Airlift the Numbering system