Safiya Malik

The Delhi High Court, in a case decided by Justice Prateek Jalan, has directed the payment of Rs. 5.23 crore to an exporter in a commercial dispute concerning an irrevocable Letter of Credit (L/C). The case arose from a payment dispute between the plaintiff and a foreign bank that issued the L/C. The bank declined to honor the payment, citing discrepancies in the submitted documents, prompting the plaintiff to initiate legal proceedings. The court, after examining the claims, rejected the bank’s objections and directed the enforcement of the L/C. The judgment also addressed the question of territorial jurisdiction and held the issuing bank liable for the claimed amount.

The plaintiff, an exporter, entered into an agreement with a foreign buyer for the export of rice. To secure payment, an irrevocable L/C was issued by the defendant bank in favor of the plaintiff. Upon completion of the shipment, the plaintiff submitted all required documents to the negotiating bank, which subsequently forwarded them to the issuing bank for payment.

The defendant bank raised objections to the payment under the Letter of Credit, citing discrepancies in the submitted documents. It contended that the L/C number was mentioned on documents other than the commercial invoice, which it claimed was not in compliance with the terms of the credit. Another objection was that the ‘no lien’ clause, which was required to be present on the bill of lading, was not separately countersigned by the ship’s captain. Additionally, the bank argued that the phytosanitary certificate did not explicitly certify that the goods were fit for human consumption, asserting that this omission rendered the documents non-compliant with the L/C requirements.

Due to this rejection, the plaintiff was compelled to sell the goods to alternative buyers at a lower price, leading to financial losses. As the plaintiff had already taken an advance against the L/C, the unpaid amount had to be settled with the negotiating bank, including interest at the rate of 20% per annum. Consequently, the plaintiff initiated legal proceedings against the issuing bank, seeking recovery of Rs. 5,23,49,757/-.

The defendant bank raised two key objections:

• Lack of Jurisdiction: The bank argued that since it was an international entity based in Switzerland and had no direct business operations in India, the Indian courts lacked jurisdiction to entertain the suit.

• Documentary Compliance: The bank contended that an L/C requires strict compliance, and any deviation—however minor—justifies non-payment. The cited discrepancies, it argued, constituted valid grounds for rejecting the claim.

The court first addressed the issue of jurisdiction. It rejected the defendant’s argument that Indian courts had no authority over the matter, stating:

"The plaintiff has pleaded that the L/C was received by the plaintiff at New Delhi, tested and verified at the New Delhi branch of defendant No. 1, and also stamped by it."

The court noted that the negotiating bank and advising bank operated in India and that a substantial part of the transaction, including the plaintiff’s obligations, took place in New Delhi. It further referenced previous judgements where courts had taken jurisdiction over similar matters and concluded that the plaintiff’s claim was maintainable in Indian courts.

Regarding the alleged discrepancies in the documents, the court examined each issue in detail. The defendant bank contended that the L/C number was mentioned on several documents, violating the explicit terms of the credit. However, the court found no conclusive evidence that the L/C number had been included in a manner that would invalidate the claim. The plaintiff clarified that the only number mentioned was the negotiation reference number, which is a standard banking practice that does not contravene the L/C conditions. The court held that this did not constitute a valid discrepancy.

The defendant bank also asserted that the ‘no lien’ endorsement on the bill of lading was required to be separately countersigned by the ship’s captain. The court reviewed the bills of lading and found that the endorsement had been stamped and signed in close proximity to the master’s signature. It stated, "On a balance of probabilities, I am of the view that the ‘no lien’ endorsement was duly countersigned by the Master of the vessel, on each of the bills of lading." The court rejected the defendant’s claim that a separate signature was necessary and stated that the clause had been fulfilled in accordance with the L/C terms.

The issuing bank further argued that the phytosanitary certificate did not explicitly certify that the goods were fit for human consumption. The plaintiff presented certificates issued by SGS India Ltd., which referenced official government phytosanitary certificates affirming compliance with import regulations. The court examined the wording of the certification and concluded that it met the L/C requirement. It stated, "The L/C did not require that the underlying scientific analysis be undertaken by SGS itself. The requirement of the L/C is, in my view, duly satisfied by the certificates provided by SGS."

Having determined that the defendant’s objections were not substantiated, the court found that the bank’s refusal to honor the L/C was not justified and awarded the full claimed amount to the plaintiff.

Based on its findings, the court issued the following directives:

• The issuing bank must pay the plaintiff Rs. 5,23,49,757/-.

• Interest shall be paid at a simple rate of 12% per annum from the date of filing until realization of the full amount.

• The suit against other defendants was dismissed as not pressed.

• The issuing bank was ordered to pay Rs. 10 lakhs in costs, inclusive of court fees of Rs. 5,13,280/-.

Case Title: Kannu Exports v. Banque Nationale De Paris (Suisse) SA & Ors.

Neutral Citation: 2025: DHC:

Case Number: CS (OS) 930/2000

Bench: Justice Prateek Jalan

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