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National Bank Limited v. Ghanshyam Das Agarwal & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 7513 of 2009)Decided 14 Jan 2015
Civil Appeal No. 7513 of 2009
Justice Vikramajit Sen · Justice Arun Mishra

Background

An exporter of rice (the plaintiff) shipped a consignment to an importer in Bangladesh under a Letter of Credit (LC) opened by the appellant bank. The appellant bank received the shipping documents, flagged some discrepancies, but then, without informing the exporter or the negotiating bank, gave certified photocopies of the documents to the importer, who used them (allegedly with a forged clearance) to take delivery of the goods without the LC payment ever being made. The Calcutta High Court held the bank liable and decreed a money claim of USD 352,250 in the exporter's favour, which the bank appealed.

Decision Breakdown

The Supreme Court held that a bank opening a Letter of Credit bears a strict, fiduciary responsibility to ensure payment is secured before any consignment is released, and here the appellant bank's own written statement filed in a related Bangladeshi ("Dhaka") suit amounted to a clear admission that it was obligated to reimburse the exporter's bank. The Court found the appellant bank's conduct, certifying photocopies to the importer without safeguards and allowing the goods to be released without payment, was a clear breach of this fiduciary duty, regardless of whether it was complicit in the forgery used by the importer. Since an interim order had already allowed the impugned judgment to operate and the LC funds had already left the bank's control, the Court held the appeal to be essentially without merit and dismissed it with costs.

Lesson Learnt

A bank that opens a Letter of Credit for international trade carries a strict duty to protect the exporter's right to payment: it cannot hand over shipping documents or facilitate release of goods to the buyer without ensuring the agreed payment has been secured, and its own admissions in related litigation can be used against it.

Official source (sci.gov.in)View Judgment (PDF)

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