M/S BAWA PAULINS PVT. LTD. versus UPS FREIGHT SERVICES (INDIA) PVT. LTD. AND ANOTHER
[2022] 9 S.C.R. 1162, Supreme Court of India, 2022
Outcome: Appeal(s) allowed (Granted)
Segment: Body
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   [2022] 9 S.C.R. 1162
1162
M/s BAWA PAULINS PVT. LTD.
v.
UPS FREIGHT SERVICES (INDIA) PVT. LTD. AND ANOTHER
(Civil Appeal No. 8298 of 2022)
NOVEMBER 10, 2022
[B. R. GAVAI AND B. V. NAGARATHNA, JJ.]
Consumer Protection – Sale of Goods through ‘Free on Board’
Basis – Quantum of compensation – Appellant during the course of
its business entered into a contract with respondent no. 5 for export
of goods for a total invoice value of US$ 31,920 (Rs.13,79,901/-
approx.) – Mode of payment was agreed to be through Letter of
Credit (LC) against the Forwarder Cargo Receipt (FCR) – The sale
of goods was through a ‘Free on Board’ (FOB) contract –
Respondent Nos. 1-3 were appointed as forwarding agents to collect
goods and forwarding the same – Respondent no.1 mentioned the
port of loading to be Jawaharlal Nehru Post Trust, Bombay instead
of FOB, New Delhi on the FCR, which was rectified later on – After
shipping goods, the Letter of Credit presented by the appellant could
not be honoured on account of discrepancies in the FCR – The
appellant neither got the goods back nor did they get any payment
in respect of the said goods and therefore the appellant approached
the concerned State Consumer Commission – State Commission
allowed the complaint and awarded a sum of 13,79,901/- towards
loss suffered, 50,000/- for mental agony and 10,000 towards the
cost of litigation – National Commission set aside the judgment
passed by the State
Commission – The National Commission, reduced
the compensation to Rs.10,000/- only along with an interest at the
rate of 9% p.a. – On appeal, held: It is only after the appellant
approached respondent no.1 to issue a certificate/letter rectifying
the error regarding the wrong point of loading, the respondent issued
such a certificate/letter mentioning that the shipment was loaded
from FOB New Delhi and effected from JNPT Bombay – The State
Commission has based its decision that a mistake was committed by
the respondent no.1 while issuing the FCR to the appellant – The
National Commission has categorically held that there was
deficiency in rendering services by the respondent no.1, therefore,
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the it ought not have reduced the compensation payable to the
appellant – National Commission was not right in setting aside the
judgment and order passed by the State Commission – Respondents
to make the payment as assessed by the State Commission.
Words and Phrases – Free on Board – Bill of Lading – Letter
of Credit – Explained.
Allowing the appeal, the Court
HELD : 1. As per Section 2 (g) of the Act of 1986,
‘deficiency’ is defined as “fault, imperfection shortcoming or
inadequacy in the quality, nature, and manner of performance which
is required to be maintained by or under any law for time being in
force or has been undertaken to be performed by a person in
pursuance of a contract or otherwise in relation to any service.”
What is needed to be assessed here is whether the admitted
error on the part of the respondent Nos. 1 to 3 would amount to
deficiency in service or not. In the factual matrix of the present
case, it is noted that the appellant herein vide its letter dated
11.02.1999 gave shipping instructions to respondent Nos. 1 to 3
wherein it was mentioned that the shipment is from FOB, New
Delhi to Baltimore. However, despite clear instructions vide the
said letter, respondent Nos. 1 to 3 negligently recorded the port
of loading to be JNPT Bombay. It is due to this negligence as
well as deficiency in service of the respondent Nos. 1 to 3 that
the respondent No. 4 Bank refused to accept/honour the
documents including the FCR and the same was
returned to the
bank of the appellant. Due to refusal of honouring the said
documents, the sale consideration was not paid to the appellant
herein who suffered loss as well as mental harassment and agony.
[Paras 36 & 37][1176-F-H; 1177-A-B]
2. The appellant herein received the telex/letter on
08.03.1999 wherein the documents including the FCR were
refused. It is only after the appellant approached respondent No.1
to issue a certificate/letter rectifying the error regarding the wrong
point of loading that the respondent No.1 issued such a certificate/
letter dated 30.03.1999 mentioning that the shipment was loaded
from FOB New Delhi and effected from JNPT Bombay. The
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER
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National Commission in the impugned order has held that it is an
admitted position that a mistake was committed by the respondent
No.1 while issuing the FCR to the appellant. The State
Commission has based its decision on the said reasoning. When
it is admitted that a mistake was committed by the respondent
No.1, it is not correct to say that the said mistake was not noticed
by the appellant while forwarding the documents to its bank and
that the appellant should have been more vigilant. It would be
incorrect to now say that the appellant should have exercised
due diligence in that regard. The National Commission has
categorically held that there was deficiency in rendering services
by the respondent No.1, therefore, the National Commission
ought not have reduced the compensation payable to the appellant
herein. In view of the aforesaid discussion, we find that the
National Commission was not right in setting aside the judgment
and order passed by the State Commission and therefore, the
impugned judgment and order passed by the National
Commission is liable to be set aside. [Paras 38-40][1177-C-G]
Hindustan Steel Workers Construction Ltd. V G.S. Atwal
& Co. (Engineers) (P) Ltd. (1995) 6 SCC 76 – relied
on.
Case Law Reference
(1995) 6 SCC 76
relied on
Para 35
CIVIL APPELLATE JURISDICTION : Civil Appeal No.8298
of 2022.
From the Judgment and Order dated 30.04.2015 of the National
Consumer Disputes Redressal Commission
New Delhi in First Appeal
No.6 of 2010.
Rajiv Garg, Ashish Garg, Lalit Nagar, T. L. Garg, Advs. for the
Appellant.
Sudhanshu S. Choudhari, Vikas Kumar, Devmani Bansal, Manish
Paliwal, Advs. for the Respondents.
The Judgment of the Court was delivered by
NAGARATHNA, J.
Leave granted.
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2. This Civil Appeal has been filed assailing the impugned judgment
and order dated 30.04.2015 passed by the National Consumer Disputes
Redressal Commission (hereinafter referred to as ‘National Commission’
for the sake of convenience) at New Delhi by which the National
Commission has allowed Appeal No. 6 of 2010 filed by respondent Nos.1
to 3 and set-aside the judgment and order dated 09.02.2009 passed by
the State Commission, New Delhi.
3. The National Commission vide impugned order has reduced
the amount of compensation to Rs.10,000/- (Rupees Ten Thousand) as
against the amount granted by the State Commission to be paid to the
appellant herein i.e., a sum of Rs.13,79,901/- (Rupees Thirteen Lakhs
Seventy-Nine Thousand Nine Hundred and One), together with
compensation of Rs.50,000/- (Rupees Fifty Thousand) and cost of
litigation amounting to Rs.10,000/- (Rupees Ten Thousand).
4. The issue involved in the present appeal is in a very narrow
compass and relates only to the quantum of compensation that the
appellant is entitled to receive from the respondents.
5. The appellant herein- original complainant, a private limited
company, filed a consumer complaint before the State Commission against
the present respondents-opposite parties. Respondent No.1- UPS Freight
Service (India) Pvt. Ltd. (formerly known as M/s Fritz Freight Forwarding
India Pvt. Ltd.) and respondent No.2- M/s Fritz International are the
subsidiaries and agents of respondent No.3- M/s
Fritz Companies Inc.
to administer, look after and carry out the business of respondent No. 3,
in India. Respondent No.4- Bank of Boston is the consignee’s bank and
respondent No.5- M/s County Seat Stores, New York is the consignee
company.
6. IA No. 1 of 2015 seeking deletion of respondent No.5 was
allowed and IA No. 40994 of 2017 for deletion of name of respondent
Nos. 2 - M/s. Fritz International and respondent No. 3- M/s. Fritz
Companies Inc. was allowed by this Court and were deleted from the
array of parties vide order dated 17.07.2017. Respondent No.5- M/s
County Seat Stores was deleted from the array of parties vide order of
this Court dated 08.07.2015.
7. Succinctly stated, the facts of the case are that the appellant
herein during the course of its business entered into a contract with
respondent No.5 for export of two hundred and thirty-four (234) packages
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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of MN’s 100% CTN Twill messenger bags for a total invoice value of
US$ 31,920 (equivalent to Rs.13,79,901/- approximately). The mode of
payment was agreed to be through Letter of Credit (“LC”, for short)
against the Forwarder Cargo Receipt (“FCR”, for short). For the said
purpose, respondent No.5 consignee appointed respondent No.4 as the
purchaser’s bank through which the Letter of Credit was opened in
favour of the appellant. Respondent Nos. 1-3 were appointed as
forwarding agents to collect the goods from the appellant and forward
the same.
8. As per the terms of the agreement and the Letter of Credit, the
shipment was Free on Board (“FOB”, for short), from New Delhi to
Baltimore M.D. Respondent No.5 consignee appointed Respondent
Nos.1-3 as their forwarding agents/consolidators to execute the entire
transaction for respondent No.5 with the appellant herein. A Purchase
Order dated 30.10.1998 was issued in that respect.
9. On 11.02.1999, the appellant issued shipping instructions to
respondent Nos.1 to 3 about the consignment from New Delhi to
Baltimore and respondent No.1 in turn issued a FCR to the appellant on
22.02.1999.
10. Immediately after shipping the goods, the appellant presented
the documents including the aforesaid FCR to its bank, namely, Canara
Bank for negotiating with respondent No.4 – Bank to release the payment
against the Letter of Credit which was opened in favour of the appellant
herein.
11. By
letter dated 08.03.1999, respondent No.4 informed the bank
of the appellant that in accordance with the Uniform Customs and
Practice for Documentary Credits (“UCP 500”, for sake of convenience),
the documents had been refused and that the Letter of Credit could not
be honoured on account of discrepancies in the FCR issued to the
appellant. The first discrepancy was late shipment. The second
discrepancy was that respondent No.1 mentioned the port of loading to
be Jawaharlal Nehru Post Trust (“JNPT”, for short), Bombay instead of
FOB, New Delhi on the FCR.
12. By letter dated 18.03.1999, respondent No.4 - Bank informed
appellant’s bank that they had approached respondent No.5 for approval
to pay the sale consideration but Respondent No.5 was not willing to
honour such request and thereafter the documents were returned to the
appellant’s bank i.e., the Canara Bank for further disposal.
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13. On being notified by the appellant’s bank of Respondent No.
5’s refusal to release the sale consideration, the appellant approached
respondent No.1 herein in connection with the negligence on their part
in mentioning the wrong point of loading in the FCR. Respondent No.1
then issued a letter/certificate dated 30.03.1999, rectifying the error and
mentioning therein that the shipment was loaded from FOB, New Delhi
and was effected from JNPT, Bombay.
14. As per the appellant’s version, the aforesaid letter/certificate
was accepted by respondent No.4 Bank which thereafter released the
documents to respondent No.5 but later respondent No.5 returned the
documents to respondent No.4 Bank and in order to camouflage their
misdeeds, they had put ink on the endorsement which respondent No.4
Bank had made on the reverse side of the FCR. In the meanwhile,
respondent Nos.4 and 5 acted in connivance and got the goods cleared
and refused to accept the documents. As per the appellant, after receiving
the documents including the FCR, the appellant got done infrared scanning
of the reverse side of the FCR and detected the misconduct of the
respondents.
15. The appellant herein neither got the goods back nor did they
get any payment in respect of the said goods and therefore the aggrieved
appellant approached the concerned State Commission by way of a
complaint claiming Rs.13,79,901/- (Rupees Thirteen Lakhs Seventy-Nine
Thousand Nine Hundred and One) as value of goods
consigned;
Rs.4,53,666/- (Rupees Four Lakhs Fifty-Three Thousand Six Hundred
and Sixty Six) as interest at the rate of 24% p.a., and Rs.1,50,000/-
(Rupees One Lakh Fifty Thousand) in lieu of loss of profit.
16. The State Commission vide order dated 09.02.1999 allowed
the complaint filed by the appellant herein and directed the respondents
to pay a sum of Rs.79,901/- (Rupees Seventy-Nine Thousand Nine
Hundred and One). As there was a typographical error in the figure, it
was later corrected to Rs.13,79,901/- (Thirteen Lakhs Seventy Nine
Thousand Nine Hundred and One) towards loss suffered by the appellant,
Rs.50,000/- (Rupees Fifty Thousand) towards compensation for mental
agony and harassment and Rs.10,000/- (Rupees Ten Thousand) towards
cost of litigation. The pertinent findings of the State Commission can be
encapsulated as under:
i.
That the appellant herein had acted as a beneficiary of the
services rendered by respondent Nos.1 and 2 and as such
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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is a consumer within the meaning of Section 2(1)(d)(ii) of
the Consumer Protection Act, 1986 (hereinafter, referred
to as the Act of 1986).
ii.
That respondent Nos.1 and 2 admitted that the port of
loading was mentioned as JNPT, Bombay instead of FOB,
New Delhi. The said error was rectified only on 30.03.1999
when respondent No.1 wrote a letter seeking rectification/
correction of the FCR.
iii.
That the whole transaction was covered by Letter of Credit
opened by respondent No.4 Bank and thus filing of
bankruptcy application by the respondent No.5 had no effect
on the payment that the appellant was entitled to receive.
iv.
that due to the negligence of the respondent Nos.1 and 2,
the Letter of Credit was not honoured by respondent No.4
and therefore the appellant had to suffer loss due to
negligence of the respondent Nos. 1 and 2. That more than
ten years had passed and respondent Nos.1 and 2 have to
make up for the loss suffered by the appellant herein.
17. The appellant herein filed an application seeking rectification
of the typographical error in the judgment and order of the State
Commission dated 09.02.2009 wherein the loss of amount towards loss
was mentioned wrongly mentioned as Rs.79,901/- instead of Rs.13,79,901/
-. The State Commission vide its judgment and order dated 17.03.2009
rectified the error and granted Rs.13,79,901/- (Rupees Thirteen Lakhs
Seventy-Nine Thousand Nine Hundred and One) towards loss
suffered
by the appellant, Rs.50,000/- (Rupees Fifty Thousand) towards
compensation for mental agony and harassment and Rs.10,000/- (Rupees
Ten Thousand) towards cost of litigation.
18. Aggrieved by the judgment and order passed by the State
Commission, respondent Nos. 1 to 3 approached the National Commission
by way of an appeal. The National Commission videorder dated
18.08.2010 admitted the appeal and condoned the delay of 216 days
subject to depositing a sum of Rs. 10,00,000/- (Rupees Ten Lakhs) with
the National Commission within a period of four weeks from the date of
order. The National Commission by the impugned judgment and order
disposed of the appeal filed by respondent Nos. 1 to 3 herein by allowing
the same and setting-aside the judgment and order passed by the State
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Commission. The National Commission held that the order of the State
Commission holding respondent Nos.1 to 3 liable to the extent of the
price of the goods, Rs.50,000/- as compensation and Rs.10,000/- as cost
of litigation could not be sustained and respondent No.1 was thus directed
to pay a sum of Rs.10,000/- as compensation to the appellant herein
along with interest at the rate of 9% per annum from the date of filing of
the complaint till the date of the payment. The pertinent observations of
the National Commission are encapsulated as under:
i.
That although it was an admitted position that a mistake
was committed by respondent No.1 herein while issuing
the FCR to the appellant herein by showing that the shipment
would be loaded from JNPT, Bombay instead of FOB, New
Delhi, nevertheless, the aforesaid mistake was not noticed
by the appellant while forwarding the documents to its
banker. Thus, the deficiency on the part of respondent No.1
in rendering services could have been redressed had the
appellant been vigilant.
ii.
That it could not be gathered from the letter dated
18.03.1999 as to why the respondent No.5 was not willing
to accept the document for payment. That it was
notclearwhether the unwillingness on the part of respondent
No.5 was due to late shipment of the goods or due to the
wrong port being indicated.
iii.
That the mistake in the document could not have been the
reason for respondent No.5 declining to accept the
documents for payment
unless the consignment itself had
not reached its destination on account of the aforesaid
mistake. That it was not the case of the appellant herein
that the consignment had not reached Baltimore at all.
Therefore, the description of the port is inconsequential.
Further, no evidence was produced by the appellant to prove
that the return of documents was solely on account of
mistake committed by respondent No.1 herein.
iv.
That the appellant herein did not lose the price of goods
exported by it to the US on account of the mistake
committed by respondent No.1 while issuing FCR. That it
could be possible that the appellant lost its price of goods
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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due to the connivance between the respondent No.4 and
respondent No.5 as was contended by the appellant, as a
result of the alleged endorsement made on the FCR which
waslater on concealed by putting ink on it. However, such
conduct of Respondent No. 4 and 5, which may have
resulted in loss in the price of the appellant’s goods, could
not be attributed to the mistake in the FCR.
19. Aggrieved by the reduction in the amount of compensation,
the appellant-original complainant has approached this Court by way of
the present appeal.
20. We have heard Sri Rajiv Garg, learned counsel for the appellant,
Sri Sudhanshu S. Choudhari, learned counsel for respondent No.1 and
Sri Vikas Kumar, learned counsel for respondent No.4 and perused the
material on record.
21. Learned counsel for the appellant at the outset submitted that
the State Commission was right in assessing the claim of the appellant
and had rightly granted the same, whereas, the National Commission
has erred in reducing the said amount towards the loss of goods,
compensation for mental agony and harassment and the cost of litigation.
The submissions of the learned counsel for the appellant are summarised
as under:
21.1
That the appellant was, as a seller, only obliged to hand-
over the consignment at New Delhi to respondent No.2,
which the appellant had duly carried out and therefore the
appellant became entitled to sale consideration. However,
the appellant was
deprived of the same for no fault of his
and solely owing to deficiency and negligence of the
respondents herein.
21.2
That respondent Nos. 1 to 3 admitted before the State
Commission their mistake in wrongly mentioning the port
of loading as JNPT, Bombay instead of FOB, New Delhi
on account of inadvertence and accordingly, acorrection
was carried out later. It is due to the mistake of these
respondents that respondent No.4 - Bank failed to honour
the FCR and declined the payment in favour of the
appellant herein.
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21.3
That respondent Nos. 1 to 3 also admitted before the
National Commission their mistake of writing the wrong
port of loading in the appeal and accepted that it was due
to an oversight on their part. The said appeal was also
time-barred,being filed after a delay of 216 days. This was
not appreciated by the National Commission
21.4
That the National Commission failed to notice that
respondent Nos. 1 to 3 had acted in collusion with
respondent Nos. 4 and 5 and they got the consignment
released from Customsin USA with the same FCR which
could have been done only at the behest of respondent
Nos.1 to 3 who were the shippers of respondent No.5.
The appellant was thus deprived of both the goods as well
as the sale consideration.
21.5
That the Letter of Credit (LC) was irrevocable, the FCR
was prepared by the respondent Nos. 1 to 3 on the
instructions given by the appellant herein. Therefore,
respondent No.4 had no option but to release the payment
without any objection.
21.6
That the National Commission erred in noting that
respondent Nos. 1 to 3 were appointed jointly by the
appellant and respondent No.5 and therefore held that they
could not be held liable to pay for the complete loss and
therefore reduced the amount of compensation. However,
the fact of the matter is that the respondent Nos. 1 to 3
were appointed as the shippers, solely by the respondent
No.5 – the buyer/consignee of the goods as per an FOB
contract.
21.7
That the delay in payment could
not be attributed to the
appellant herein since the Letter of Credit specified that
the consignment had to be shipped in the month of March
and the appellant herein on 11.02.1999 had informed the
shippers to take the delivery. Any delay occasioned was
only on account of the conduct of the shippers in taking
delivery of the goods and not on the part of the appellant.
21.8
That the facts narrated above would demonstrate that the
respondents acted in collusion with each other to deceive
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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the appellant herein. The modus operandi was to issue a
defective FCR and withhold the documents till the expiry
of the Letter of Credit and thereafter, rectify the FCR
and in the meanwhile, get the goods delivered without
payment of consideration to the appellant.
22. Per contra, the learned counsel for the respondent No.1
supported the judgment and order passed by the National Commission
and contended that the National Commission has rightly set-aside the
order passed by the State Commission, thereby reducing the
compensation and amount payable to the appellant. The submissions of
the learned counsel for the respondent No.1 are epitomized as under:
22.1 That had the appellant herein been vigilant, the FCR could
have been corrected before presenting the same to the
banker.
22.2 That the endorsement on the reverse side of FCR had been
made prior to Respondent No. 4 issuing the letter dated
18.03.1999 to the bank of the appellant i.e., the Canara
Bank. That the National Commission was right in holding
that the return of the documents could be on account of the
connivance between respondent Nos.4 and 5 and not on
account of the error in names of port of loading i.e., JNPT,
Bombay instead of FOB New Delhi by respondent No.1
while issuing the FCR. Therefore, respondent Nos. 1 to 3
are not responsible for the payment.
22.3 That the endorsement made on the reverse side of the FCR
and later on concealed by putting ink on it
and the return of
documents by respondent No.4 cannot be attributed to the
mistake in the FCR but solely to the acts of connivance on
the part of respondent Nos.4 and 5.
22.4 That the goods exported by the appellant were seized by
the U.S. Customs and thereafter auctioned by the Customs
to recover the dues. The whole transaction failed since
respondent No.5 had filed for bankruptcy under the US
laws and the goods went to General Order due to non-
payment of freight, ocean duty etc. by respondent No.5.
22.5 That respondent No.4 had clearly stated in their letter dated
18.03.1999 that respondent No.5 was not willing to make
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the payment. The appellant did not take any action against
respondent No.5 for recovery of money even after knowing
that it refused to pay inspite of release of the goods. Thus,
the respondent Nos.1 to 3 are nowhere concerned with the
transaction between the appellant and respondent No.5 and
thus are not responsible for the said payment.
23. Having heard the learned counsel appearing for the respective
parties, the following points would arise for our consideration:
(a)
Whether the National Commission was justified in reversing
the judgment and order passed by the State Commission
thereby reducing the amount of compensation that the
appellant herein was entitled to?
(b)
Whether the judgment and order of the National
Commission calls for any interference or modification by
this Court?
(c)
What order?
24. It is an admitted position that the goods in the consignment
have been delivered to the respondent No.5 on 17.02.1999 and this fact
has not been disputed any of the parties herein. The only issue before
this Court is whether the compensation ought to have been paid to the
appellant and as to what should be the quantum of the said compensation,
if at all the same is to be allowed.
25. The State Commission had awarded compensation of
Rs.13,79,901/- towards loss suffered by the appellant plus Rs.50,000/-
towards compensation for mental agony and harassment plus Rs.10,000/
- towards cost of litigation. The National Commission, on the other hand,
reduced the
compensation to Rs.10,000/- only along with an interest at
the rate of 9% per annum from the date of filing the complaint till the
date of payment. It is also noted that the National Commission directed
the payment of such amount from the amount deposited by the respondent
No.1 before the National Commission while filing the appeal and the
remaining amount was directed to be refunded to respondent No.1 after
deducting the amount payable to the appellant herein.
26. On a perusal of the purchase order issued by respondent No.5
dated 30.10.1998 to the appellant, it is clear that respondent No.5 herein
placed an order for Two Hundred and Thirty Four (234) packages of
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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MN’s 100% CTN Twill Messenger Bags. The mode of payment was
agreed to be through an irrevocable Letter of Credit. The Letter of
Credit was opened in favour of the appellant herein by respondent No. 5
through respondent No.4 Bank. Accordingly, the appellant herein issued
shipping instructions to respondent No.1 along with the copy of the invoice,
packing list and a copy of the Letter of Credit,on 11.02.1999. It is noted
that the said document shows ‘invoice basis’as FOB, New Delhi and
records that the shipment mode would be by seafrom New Delhi to
Baltimore. It is further noted that respondent No.5 appointed respondent
Nos.1 to 3 as its shippers/forwarding agents and the said shippers/
forwarding agents issued FCR dated 22.02.1999.
27. It is also undisputed that the Letter of Credit was for a specific
period of time i.e., till 28.02.1999 and was extended till 06.03.1999. The
appellant has brought the extension letter to our attention. In the meantime,
the documents including the FCR were submitted by the appellant to its
bank, namely, Canara Bank for collection of the proceeds from respondent
No.4 Bank. It is noted that the documents submitted by the appellant
along with the FCR were refused to be honoured by respondent No.4 by
way of a telex dated 08.03.1999, citing two discrepancies, one, being
late shipment and the other, being that the port of loading was shown as
JNPT, Bombay instead of FOB, New Delhi. By letter
dated 18.03.1999
addressed by respondent No.4 Bank to the appellant’s bank, respondent
No.4 returned the FCR and other documents to the appellant citing the
reason that respondent No.5 is unwilling to make the payment.
28. It is further noted that in the meantime, a letter/certificate
was issued by respondent No.1 rectifying the error and stating that the
shipment is ‘FOB Delhi’ and is being effected from JNPT Port at Mumbai.
Learned counsel for the appellant has also brought to our attention, a
legal notice dated 13.10.1999 sent by the appellant to respondent Nos.1
to 3 herein wherein the appellant alleged that it was because of the
discrepancy in the FCR, wherein the wrong port of loading had been
entered, that the Letter of Credit in favour of the appellant could not be
honoured. Further it was also alleged that there also has been negligence
on the part of the respondent Nos. 1 to 3 in not filing the Bill of Entry
with the Customs due to which their shipment was seized by the Customs.
29. It is also the case of the appellant herein that the respondents
herein have acted in collusion with each other and have got the goods
cleared based on the said FCR itself without paying the sale consideration
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to the appellant. It is alleged that the respondents put anink blot on the
endorsement to camouflage their misdeeds. Aggrieved by the non-
payment of dues as well as the action of the respondents in getting the
goods released, the consumer complaint was filed.
30. In the instant case, the sale of goods was through a ‘FOB’
contract. ‘FOB’ contract means a contract “Free on Board”. By such a
contract the seller is to put on board at his own expenses which means
this is a contract for sale of goods to be delivered free on board a ship.
The buyer must name the ship upon which they are to be delivered and
the seller must put them safely on board, meet the cost of doing so and
for the buyer’s protection, give possession of them to the ship only upon
the terms of a reasonable and ordinary bill of lading or other contract of
carriage; there the contractual liability of the seller as seller ceases and
delivery to the buyer is complete as far as he is concerned. The goods
are then at the risk of the buyer, he is responsible for the freight, and
subject to the seller reserving the right of disposal, the property passes
to the buyer. The price being payable against the bill of lading, they are
at the risk of the buyer and he must pay the price on presentment of the
bill of lading even if the goods have been lost.
31. Under the ‘FOB’ contract the seller is under no duty to make
advance arrangements for shipping the goods or to bear any expense
beyond that of putting
the goods on board. That while putting the goods
on board the seller is directly a party to the contract of carriage and he
may be bound to get the bill of lading issued in buyer’s name on the
terms usual in the trade.
32. The bill of lading is an instrument signed by the master of
shipping in his capacity of the carrier acknowledging the receipt of the
merchant goods. There are usually three parts – one, is to be retained by
the consigner of the goods; another, is sent to the consignee and the
other one, is preserved by the master of the ship. 
33. Undoubtedly, the appellant herein availed services provided
by the respondent Nos. 1 to 3 and respondent No. 4 is a beneficiary of
such services, therefore the appellant would fall under the definition of a
‘consumer’ as is under Section 2(1)(d)(ii) of the Act of 1986.
34. It is common knowledge that in international transactions, letter
of credit is used as a mode of ensuring payment and performance of the
contractual terms. A letter of credit is a document issued by a bank
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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(issuing bank) on behalf of a party (applicant) in favour of another party
(beneficiary) under which, the issuing bank undertakes to pay to the
beneficiary, certain sums of money subject to compliance of the terms
and conditions of the letter of credit. In an international transaction, the
beneficiary is the seller who requests the applicant (buyer) to furnish a
letter of credit from any bank which is recognized worldwide (issuing
bank). The letter of credit is issued in favour of a beneficiary on the
request of an applicant after furnishing securities as may be demanded
by the issuing bank. A seller can ask the issuing bank to honour the letter
of credit to his own bank (confirming bank) within a certain maturity
date. The seller is required to produce certain documents regarding proof
of delivery of goods, commercial invoice, bill of lading, insurance
documents etc. before the confirming bank. On scrutiny the confirming
bank would ask for advice of the issuing bank to confirm whether the
documents produced by the beneficiary is compliant to the terms and
conditions of the letter of credit. Once the issuing bank confirms the
document, the confirming bank is obligated to pay to the beneficiary on
demand, the credit amount and in turn recover the same from the issuing
bank.
35. In Hindustan Steel Workers Construction Ltd. V G.S. Atwal
& Co. (Engineers) (P) Ltd. [ (1995) 6 SCC 76] this Court held that a
letter of
credit is independent of and unqualified by the contract of sale
or underlying transactions. The autonomy of an irrevocable LOC is
entitled to protection and as a rule, courts refrain from interfering with
that autonomy. If courts interfere in such transactions, it would be prone
to misuse by the applicant party to gain undue advantage leaving the
issuing bank at peril in the international financial market.
36. As per Section 2 (g) of the Act of 1986, ‘deficiency’ is defined
as ”fault, imperfection shortcoming or inadequacy in the quality, nature,
and manner of performance which is required to be maintained by or
under any law for time being in force or has been undertaken to be
performed by a person in pursuance of a contract or otherwise in relation
to any service.”
37. What is needed to be assessed here is whether the admitted
error on the part of the respondent Nos. 1 to 3 would amount to deficiency
in service or not. In the factual matrix of the present case, it is noted that
the appellant herein vide its letter dated 11.02.1999 gave shipping
instructions to respondent Nos. 1 to 3 wherein it was mentioned that the
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shipment is from FOB, New Delhi to Baltimore. However, despite clear
instructions vide the said letter, respondent Nos. 1 to 3 negligently
recorded the port of loading to be JNPT Bombay. It is due to this
negligence as well as deficiency in service of the respondent Nos. 1 to 3
that the respondent No. 4 Bank refused to accept/honour the documents
including the FCR and the same was returned to the bank of the appellant.
Due to refusal of honouring the said documents, the sale consideration
was not paid to the appellant herein who suffered loss as well as mental
harassment and agony.
38. It is further observed that the appellant herein received the
telex/letter on 08.03.1999 wherein the documents including the FCR
were refused. It is only after the appellant approached respondent No.1
to issue a certificate/letter rectifying the error regarding the wrong point
of loading that the respondent No.1 issued such a certificate/letter dated
30.03.1999 mentioning that the shipment was loaded from FOB New
Delhi and effected from JNPT Bombay.
39. The National Commission in the impugned order has held that
it is an admitted position that a mistake was committed by the respondent
No.1 while issuing the FCR to the appellant. The State Commission has
based its decision on the said reasoning. When it is admitted that a mistake
was committed by the respondent No.1, it is not correct to say that the
said mistake was not noticed by the appellant while forwarding the
documents to its bank and that the appellant should have been more
vigilant. It would be incorrect to nowsay that the appellant should have
exercised due diligence in that regard. The National Commission has
categorically held that there was deficiency in rendering services by the
respondent No.1, therefore, the National Commission ought not have
reduced the compensation payable to the appellant herein.
40. In view of the aforesaid discussion, we find that the National
Commission was not right in setting aside the judgment and order passed
by the State Commission and therefore, the impugned judgment and
order passed by the National Commission is liable to be set aside.
41. In the result, the appeal filed by the appellant-complainant is
allowed and the impugned judgment and order passed by the National
Commission is hereby quashed and set aside and the judgment and order
passed by the State Commission is restored.The respondents, being
severally and jointly liable, shall make the payment of the amount as
M/s BAWA PAULINS PVT. LTD. v. UPS FREIGHT SERVICES
(INDIA) PVT. LTD. AND ANOTHER [B.V. NAGARATHNA, J.]
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assessed by the State Commission within a period of two months from
today. In the event the respondents fail to pay the said compensation
within the stipulated time, the appellant shall be at liberty to seek remedy
in accordance with the law.
42. If pursuant to the order of the State Commission, any amount
has been deposited by the respondents, the same shall be withdrawn by
the appellant in accordance with the order of the State Commission. If
any amount has already been paid to the appellant by the respondents
herein, then the balance amount, if any, as awarded by the State
Commission shall be paid to the appellant within a period of two months
from today.
43. Pending application (s), if any, shall stand disposed of.
Ankit Gyan
Appeal  allowed.
(Assisted by : Rahul Rathi, LCRA)