Case: American Express Bank Limited Vs. Calcutta Steel Company, and Others

The admitted facts are that the appellant/first defendant is the banker. The CSC, obtained licence NO. OGL 6/86, dated April 1, 1986 to import steel billets. The Government of Indias import policy forwas that iron and steel etc. should be imported through canalised agency i.e. M/s Minerals and Metals Trading Corpn. of India Ltd., for short "MMTC", the 3rd defendant/3rd respondent. By letter dated November 12, 1986 CSC approached MMTC for letter of authority to import the goods and by letter dated November 18, 1986, copy addressed to M/s Harlow & Jones Ltd., London, the supplier, the latter permitted CSC to draw draftA/c Calcutta Steel Co. Ltd., 20, Hemanta Basu Sarani,for a sum not exceeding US $ 1, 456, 000 (US Dollars one million four hundredthousand only), payable to the beneficiary on presentation of a separate draft... at 180 days from the date of bill of lading drawn for 100% of the invoice value and accompanied by...."was further stated that the material imported was as per the requirement of the end user and sold to them on high seas basis against back to back letter of credit established by end user. In order to reduce the financial burden of the end user it had been decide that the end user would open letter of credit directly in favour of the foreign suppliers with the condition that its name as opener of the letter of credit by the end user in favour of the foreign suppliers will be shown as MMTC. It has expressed no objection to open letter of credit by CSC (end user) in favour M/s Harlow & Jones Ltd., strictly as per pro forma enclosed. The material part readsthis connection, please note that our name will be shown as openers of the proposed L/C to meet the requirements of exchange control only, and we are not in any way responsible for the failure of the end user to comply with the requirements of L/C. This L/C is required to be established at the expense and L/C limit of the end user viz., M/s Calcutta Steel Company Ltd., who would accept the draft(s) and make payment on due date at Calcutta."Pursuant thereto CSC opened an Irrevocable Letter of Credit No. 166/86 on November 18, 1986 for the said sum in favour of M/s Harlow & Jones Ltd., /2nd defendant/2nd respondent. On December 31, 1986 about 7 tonnes of steel billets were shipped by the second respondent to CSC under invoice No. 710231 dated December 31, 1986 and the bill of lading No. 1 dated December 31, 1986. On February1987 the second respondent presented on the London Branch of the appellant, three bills of exchange dated December 31, 1986 for a sum of U.S. $ 1, 498, 694.56 with interest for 180 days at 7% per annum on the price of the goods. The bills of exchange were addressedA/c M/s Calcutta Steel Co.>4. The cargo sent under bill of lading reached at Calcutta port in the month February 1987 and was presented to CSC, who received the documents, executed a trust receipt in favour of the appellant and endorsed its acceptance on the said three usance bills of exchange duly accepting with the following crucialunder irrevocable letter of credit No. 166/86, dated December 18, 1986;""MMTC of India Ltd. for and on behalf of Harlow & Jones Ltd.""Accepted by Calcutta Steel Companyand stamp of the company were put onOn acceptance of the bills of exchange by CSC, the appellant released the documents of title to the goods. On March 3, 1987 CSC obtained necessary endorsement from MMTC confirmingenclose herewith bill of lading No. 1, dated December 31, 1986 in respect of shipment of 6965.950 M.T. of billets from Gilon. You are requested to kindly endorse the bill of lading in our favour so that we can take delivery of the goods. We confirm that the usance draft has been accepted by us and documents released from our bankers."had delivery of the goods imported and appropriated the same. On June 29, 1987 on maturity when the appellant presented the three bills of exchange to the respondent for payment they were dishonoured. The CSC filed suit No. 781 of 1987 on the original side of the Calcutta High Court against M/s Harlow & Jones Ltd. and Others for a declaration that the said there bills of exchange were illegal, null and void, invalid, inoperative and of no effect nor binding on the plaintiff (CSC) and for delivery of the said bills of exchange for cancellation and permanent injunction restraining the appellant and respondents 2 and 3 from giving effect or enforcing the said bills of exchange. The learned Trial Judge dismissed the suit. On appeal the division bench by judgment dated February 25, 1992 in Appeal No. 1134 of 1988 allowed the appeal and decreed the suit. This this appeal under Article 136

Reasoning:
7. It would thus be clear that the maker of a bill of exchange is the drawer; the person thereby directed to pay is called the drawee; after the drawee has signed his assent upon the bill he is called the acceptor. In the absence of any contract to the contrary, the acceptor, before maturity of a bill of exchange, is bound to pay the amount thereof at maturity according to the acceptance to the holder on demand. No person except the drawee of the bill of exchange, in case of numerical drawees one or all drawees or the person named thereon as a drawee in case of need or honour can bind himself by anHaving given our anxious and careful consideration to the facts and circumstances of the case, we find no merit in the contentions of Shri A. K. Sen, the learned senior counsel for the first respondent which runs thus : That the liability of CSC on the basis of the bills of exchange being commercial instruments would aries only if CSC is the drawee and acceptor thereof. Since the acceptance creates a technical contract between the acceptor and the drawer, the parties to the instruments on their face alone are entitled to be dealt with and no other parties to a bill independently could act upon unless it is a case of agency which is not the case of the appellant or of the MMTC. MMTC is the principal drawee; for the purpose of receiving the goods, letters of credit were opened by CSC as per the authority dated November 18, 1986 and the bills of exchange were addressed to MMTC A/c of CSC. The sale of goods having been taken place on high seas and the bill of lading made to the order of MMTC, bills of exchange having been drawn in favour of MMTC, it alone is the drawee in relation to Harlow & Jones Ltd. and sellerthe first respondent, CSC being not an agent of the MMTC, the acceptance by CSC is void. The declaration granted by the High Court is, therefore, legal and being a discretionary relief no interference under Article 136 isLaw Merchant always insists that a negotiable instrument must bear no veil but reveal its true character on its face. A party that takes a negotiable instrument make his contract with all the parties who appear on its face to be bound for its payment. Therefore, the Act insists that a bill of exchange makes the acceptor personally liable unless the acceptor states on the face of the bill that he subscribes for a disclosed principal. The usual mode of accepting bills of exchange is for the drawee to write, accepted across the face of the bill and then to sign his or its name underneath. The acceptance need not necessarily be on the face of the bill and an acceptance on its back is also sufficient. In all cases it is essential that the acceptance should be on the bill itself otherwise it is a mereBhashyam and Adiga in their Negotiable Instruments Act, 15th edn. at page 362 stated that a bill of exchange, being in its nature a letter of request from the maker to a particular person, no one can be made liable on it but the person to whom it is addressed as the person to accept the bill. As it has been stated, the acceptance of a bill is the signification by the drawee of his assent to the request of the drawer and such acceptance must be in writing on the bill and signed by the drawee. At page 363, Bhashyam stated that if there is no drawee named in the bill and a person accepts such instruments, such acceptance must be regarded as acknowledging that he is the drawee. At page 365 it was further stated that a drawee is under no obligation to the holder to accept a bill drawn on him, even though such refusal may be in breach of a contract between the drawee and drawer. Such contract will, however, entitle the drawer to sue the drawee on breach ofThe ratio in Sitaram Krishna Padhye v. Chimandas Fatehchand 1928 AIR(Bom) 516), relied on by Shri Sen is also of little assistance to the facts in this case. The Hundi therein was in the following term :days after date I promise to pay Seth Chimandas Fatehchand or order the sum of Rs. 600 only or value received in cash. G. V. Athale, Managing Proprietor, Gangadhar & B. Friends, Sandhurst Road, Bombay No. 4". It was held that the person liable on the Hundi was Athale and not any alleged firm passing under the name of Gangadhar & B. Friends21. In the light of the above law and the facts of the case we unhesitatingly hold that the plaintiff, CSC is theIn a suit based on the letter of credit laid by M/s Harlow & Jones Ltd., CSC and the appellant suffered a decree in London Court which the appellant discharged and became a holder in due course. Based thereon the appellant filed Civil Suit No. 479 of 1990 under order 37 of the Code of Civil procedure against CSC which is pending in the High Court. Therefore, we do not therefore propose to express any opinion on merits of the liability ofUndoubtedly declaration of the rights or status is one of discretion of the court under Section 34 of the Specific Relief Act, 1963. Equally the grant or refusal of the relief of declaration and injunction under the provision of the Act is discretionary. The plaintiff cannot claim the relief as to right. It has to be granted according to sound principles of law and ex debito justitiae. The court cannot convert itself into an instrument of injustice or vehicle of oppression. While exercising its discretionary power, the court must keep in its mind theprinciples of justice and fair play and the discretion would be exercised keeping in view the ends of justice since justice is the hallmark and it cannot be administered in vacuum. Grant of declaration and injunction relating to commercial transactions tend to aid dishonesty and perfidy. Conversely, refusal to grant relief generally encourages candor in business behavior, facilitates free flow of capital, prompt compliance with covenants, sustained growth of commerce and above all inculcates respect for the efficacy of judicial adjudication., Before granting or refusing to grant relief of declaration or injunction or both the court must weigh pros and cons in each case, consider the facts and circumstances in their proper perspective and exercise discretion with circumspection to further the ends of justice. From the backdropwe have no hesitation to hold that the relief of declaration granted is unjust and illegal. It tended to impede free flow of capital, thwarted the growth of mercantile business and deflected the course of justice