Ubs Ag vs State Bank Of Patiala

The Petitioner-Bank, namely, United Bank of Switzerland, Lausanne, Switzerland (hereinafter referred to as 'USB AG') filed three separate Summary Suits, being Nos. 8907 of 2000, 1515 of 2000 and 6089 of 1999, against the State Bank of Patiala, Federal Bank Limited and United Western Bank, respectively. The Petitioner-Bank took out Summons for Judgment No.783 of 2003 in Summary Suit No.897 of 2000 against the State Bank of Patiala. Two similar Summons for Judgment Nos. 784 of 2003 and 786 of 2003 were also taken out by the Petitioner-Bank in connection with Summary Suit Nos. 1515 of 2000 and 6089 of 1999. Inasmuch as, the said three suits were filed in respect of various Letters of Credit, where the terms and conditions were identical and the defence taken were also identical, the said three Summons for Judgment were taken up for hearing and disposal analogously and were dismissed by a common order dated 28th October, 2005. The Learned Single Judge of the High Court of Judicature at Bombay also granted unconditional leave to the Respondent-Banks to defend their respective suits.

Since the facts in the three matters are more or less similar, we will first deal with the facts relating to the Special Leave Petition in respect of the State Bank of Patiala (SLP) No. 5639 of 2006).

On 27th March, 1998, on the request of its client, M/s Hamco Mining & Smelting Ltd, the State Bank of Patiala issued an Irrevocable Letter of Credit for a sum of U.S. Dollars 1,320,900 to the Petitioner-Bank. The beneficiary of the Letter of Credit was M/s. Frobevia S.A. The said Letter of Credit appears to have been issued for the import of 255.00 MT of Tin Ingots by M/s. Hamco Mining & Smelting Ltd. On 30th March 1998, the Petitioner-Bank confirmed the said Letter of Credit, which was to be valid till 23rd September, 1998. On 6th April, 1998, upon production of relevant documents by the beneficiary, the Petitioner-Bank made payment under the said Letter of Credit to the said beneficiary, namely, Frobevia S.A. Despite having made payment of the entire amount covered by the Letter of Credit to the beneficiary, the Petitioner-Bank agreed to the extension of the maturity date of the Letter of Credit from 23rd September, 1998 till 21st March, 1999. On 3rd February, 1999, the advocate for the Respondent-Bank wrote to the Petitioner-Bank that the Respondent Bank had received information that M/s. Hamco Mining & Smelting Ltd, M/s. Frobevia and one Solo Industries Ltd., having its offices at London and Sharjah, in connivance with other group companies of Hamco had been perpetrating huge frauds on several banks in India. It was also mentioned that from the enquiry undertaken, it was clear that M/s. Frobevia did not ship any goods on the vessel in question and the Bill of Lading negotiated by M/s. Frobevia was fraudulent. By the said letter, the Petitioner-Bank was informed further that the Respondent-Bank had been advised not to make any payment under the above mentioned Letter of Credit dated 27th March, 1998 and the Petitioner-Bank was put 'on caution' and was advised not to negotiate the export bills presented by M/s. Frobevia and further not to make any payment to M/s. Frobevia in respect of the said Letter of Credit.

Notwithstanding the aforesaid letter dated 3rd February, 1999, the Petitioner-Bank demanded remittance of the entire amount covered by the Letter of Credit, which was due for payment on 21st March, 1999. On receipt of two such demands made on 17th March 1999 and 23rd March, 1999, the Respondent-Bank replied drawing the attention of the Petitioner-Bank to the letter written by its learned advocate on 3rd February, 1999, informing the Petitioner-Bank that it had been advised not to make any payment under the aforesaid Letter of Credit dated 27th March, 1998, favouring M/s. Frobevia S.A. On receipt of the said communication, the Petitioner- Bank wrote to the Respondent-Bank on 7th April, 1999 indicating that documents presented by the beneficiary had been negotiated and payments had already been made on 6th April, 1998 long prior to the allegations of fraud indicated by the learned advocate of the Respondent-Bank. It was pointed out that irrespective of the said fact, under the Uniform Custom and Practice for Documentary Credit 500 (hereinafter referred to as ' UCP 500') the Respondent-Bank was under an obligation to reimburse on the due date of the Letter of Credit, the amount already paid by the Petitioner-Bank to the beneficiary. There was no evidence that the beneficiary had acted fraudulently. The Respondent-Bank was once again requested to remit the actual outstanding amount, together with interest at the rate of 5.7%, from the date of maturity upto the date of payment to the account of the Petitioner- Bank, that is, UBS AG, Stamford Branch, C.T., U.S.A. Inasmuch as, despite the repeated demands, the Respondent-Bank did not reimburse the Petitioner-Bank in respect of the amount paid to the beneficiary under the Letter of Credit before receipt of the letter dated 3rd February, 1999, written by the advocate of the Respondent-Bank, the Petitioner-Bank sent a legal notice dated 30th June, 1999 informing the Respondent-Bank that on account of their failure to honour their commitments under 'UCP 500', the Petitioner-Bank would be constrained to file a suit for recovery of their dues.

According to the Appellant-Bank, the beneficiary presented the documents indicated by the Letter of Credit for negotiation to the Appellant-Bank on 6th April, 1998 and on the basis thereof the Appellant-Bank made payment under the Letter of Credit to the beneficiary M/s.Frobevia S.A. and informed the Respondent-Banks accordingly. On 22nd July, 1998, the Respondent-Bank informed the Appellant-Bank that its documents for U.S. Dollars 1,320,900 referred to in the Letter of Credit had been accepted to mature on 23rd September, 1998 on which date the funds would be remitted as per the instructions of the Appellant-Bank. By a subsequent communication dated 21st August, 1998, the Respondent-Bank informed the Appellant-Bank that the beneficiary had agreed to extend the maturity date of the Letter of Credit from 23rd September, 1998 to 21st March, 1999. The Appellant-Bank was requested to confirm such extension. In response to the said communication, the Appellant-Bank by its communication dated 31st August, 1998 confirmed the extension of the reimbursement date till 21st March, 1999.

As indicated hereinbefore, notwithstanding the fact that the Appellant-Bank had made payment to the beneficiary under the Letter of Credit as far back as on 6th April, 1998, and had informed the Respondent-Bank accordingly, the Respondent-Bank caused a letter dated 3rd February, 1999 to be written by its learned advocate stating that certain frauds perpetrated by its constituent, M/s. Hamco Mining & Smelting Ltd., M/s. Frobevia and one M/s. Solo Industries Ltd., had been brought to its notice by several other banks which had established Letters of Credit at the instance of M/s. Hamco Mining & Smelting Ltd. It was also mentioned that the clear implication was that the Letters of Credit were fraudulently encashed by production of bogus Bills of Lading and other shipping documents. By the said letter the Appellant-Bank was put 'on caution' not to negotiate the export bills, if any, presented by M/s. Frobevia and further not to make any payment whatsoever to M/s. Frobevia in respect of the Letter of Credit.

As far as the submission regarding the maintainability of the appeals are concerned, we are satisfied that the principles enunciated in Babulal Khimji's case (supra) which apply to Letters Patent Appeals, will not apply to appeals for which special leave is granted under Article 136 of the Constitution. In such circumstances, these appeals succeed and are allowed. The judgment and order of the High Court in these three appeals are set aside and the unconditional leave granted to the Respondent-Bank to defend the suit is revoked.