1. The present Appeal has been filed against the Order dated 30.07.2013 passed by the State Consumer Disputes Redressal Commission Tamil Nadu, Chennai (hereinafter to be referred to as “State Commission”), whereby the Complaint filed by M/s. S.S. Mills, (hereinafter referred to as the Complainant) was allowed and the Jammu & Kashmir Bank Limited (hereinafter referred to as the Opposite Party Bank) was directed to pay a sum of ₹8,34,000/- to the Complainant on the basis of the letter of credit dated 23.03.2004.  The Opposite Party No. 1 & 2 Bank were also directed to pay ₹1,50,0000/-, in total, towards mental harassment/agony and litigation cost of ₹10,000/- to the Complainant within six weeks from the date of Order failing which the Complainants would be entitled to claim the same alongwith interest @6% p.a. from the date of default till the date of realisation.

 

2. Brief facts of the case as narrated in the Complaint are that the Complainant is the manufacturer and exporter of knitted garments at Tirupur.  M/s. Lynx Trading Co. Ltd. (hereinafter referred to as the 3rd Opposite Party) placed a supply order with the Complainant for supply of 21,000 blue cotton basic T-Shirts at a total sale consideration of ₹11,34,000/- by paying a sum of ₹3,00,000/- as advance and for remaining ₹8,34,000/- the third Opposite Party obtained letter of credit dated 23.03.2004 from the Jammu & Kashmir Bank Ltd, Bangalore (hereinafter referred to as the 2nd Opposite Party).  As per terms of the letter of credit, the Complainant has to supply the goods to the M/s. Sheriff & Sons (hereinafter referred to as the 4th Opposite Party), i.e., agent of the third Opposite Party.  After supplying the goods the Complainant has to submit the documents for negotiation with Syndicate Bank, (hereinafter referred to as the 5th Opposite Party) for payment of ₹8,34,000/-.  The 5th Opposite Party was entitled for necessary charges for forwarding the documents submitted for negotiation to the 2nd Opposite Party Bank.  The Complainant delivered the goods as per supply order to the 4th Opposite Party, i.e., agent of the 3rd Opposite Party on 25.03.2004.  The said goods were duly received and accepted by the 3rd Opposite Party on 26.03.2004.  The Complainant submitted the documents to 5th Opposite Party for negotiation on 26.03.2004.  The said documents were forwarded to the 2nd Opposite Party Jammu & Kashmir Bank, Bangalore on 24.04.2004.  Despite receiving the documents, 2nd Opposite Party Jammu & Kashmir Bank, Bangalore, failed to honour the letter of credit of ₹8,34,000/- issued by them.  Only on the basis of this letter of credit issued by 2nd Opposite Party Jammu & Kashmir Bank, Bangalore, guaranteeing the payment of ₹8,34,000/-, the Complainant supplied the goods to the agent of the third Opposite Party.  After supplying the goods, the 2nd Opposite Party Jammu & Kashmir Bank, Bangalore denied the payment of ₹8,34,000/- to the Complainant on the basis of some discrepancies in the documents submitted by the Complainant and advised the 5th Opposite Party to set right the discrepancies through the Complainant.  It was alleged that the said discrepancies does not empower the 2nd Opposite Party to deny payment of ₹8,34,000/- to the Complainant as per letter of credit dated 23.03.2004.  Undisputedly, the Complainant supplied the goods on 25.03.2004, which was received by the 3rd Opposite Party on 26.03.2004 and the documents for negotiation submitted to the 5th Opposite Party on 26.03.2004 and so the documents were received by the 2nd Opposite Party on 24.04.2004, within 30 days as per terms and conditions of the invoice and thereby the Complainant claimed the amount from the 2nd Opposite Party which was not materialized.  Legal notice was also issued on 05.06.2004 but having no response, alleging deficiency in service on the part of the Opposite Parties, the Complainant filed a Consumer Complaint before the State Commission.  

 

3. The Opposite Party Jammu & Kashmir Bank contested the Complaint before the State Commission by submitting that payment under Letter of Credit was refused by the Jammu & Kashmir Bank on account of discrepant documents forwarded by the Syndicate Bank.  According to the Complainant the goods were dispatched on 25.03.2004, the documents were negotiated with Syndicate Bank on 27.03.2004 which in turn dispatched the documents for presentation to Jammu & Kashmir Bank vide letter dated 24.04.2004 and the same were received by J&K Bank only on 26.04.2004, which as per terms of the Letter of Credit were to be received on or before 06.04.2004.  Therefore, the presentation of the documents was after the expiry of the credit.  Hence the documents having been received by J&K Bank after due date, the discrepancy raised by the Appellant Bank is genuine.  It was further submitted that the bill of exchange was drawn at 30 days DA whereas the draft submitted by the Complainant was for 30 days DA after LR date.  Further, invoice did not certify goods strictly as per beneficiary invoice no. 75 dated 19.03.2004 & invoice mentioned payment terms as 100% LC at sight instead of LC at 30 days.  

Therefore, the documents being discrepant as compared to terms and conditions in Letter of Credit.  It was further submitted that there was no deficiency in service on their part and it was prayed that the Consumer Complaint be dismissed.

 

4. After hearing both the parties and perusal of material on record, the State Commission partly allowed the Complaint in above terms by observing as under:-

“7. In this complaint enquiry it is the admitted case of both sides that the Complainant has supplied Blue Cotton Basic T. Shirts of 21,000 numbers for the value of ₹11,34,000/- to the 3rd Opposite Party and delivered the same to the 4th Opposite Party as per the directions of the 3rd Opposite Party being the agent of the 3rd Opposite Party for which the letter of credit dated 23.3.2004 for ₹8,34,000/- on production of relevant documents for the supply of goods through the 5th Opposite Party bank to the 2nd Opposite Party for honouring the letter of credit payment of ₹8,34,000/- to the Complainant as beneficiary. It is the case of the Complainant that the documents submitted to the 2nd Opposite Party through the 5th Opposite Party are all in order and in accordance with the negations that the 3rd Opposite Party and the alleged discrepancies to the documents by the 2nd Opposite Party are irrelevant and the 2nd Opposite Party has no authority to retain the amount after the goods were delivered and accepted by the 3rd Opposite Party which is not in dispute, but the 2nd Opposite Party contended as per the terms and conditions and documents are to be received within 30 days from the DA on 23.3.2004 and the payment were received by the 2nd Opposite Party on 24.4.2004 and dispatched by the 5th Opposite Party 26.4.2004 and thereby they were beyond the expiry date of credit. Further it is also stated that as per the earlier condition on the basis of proforma invoice the date of acceptance in 30 days. But the documents were submitted is mentioned as 100 LC  at sight and against From H instead of LC at 30 days as per Ex.B4. In the letter of credit under Ex.B1 “Latest Date of Shipment 26.3.2004, Latest Date of Negotiation 6.4.2004 and credit available with any bank by Negotiation Drafts at 30 days DA” and As per the details Negotiating Bank 5th Opposite party sent the documents under Ex.B6 dated 24.4.2004 requesting to send proceeds by DD at Tirupur and it was received by the 2ndOpposite Party under Ex.B7 by letter dated 28th April, 2004 without mentioning the date receipt of document from the 5th Opposite Party and stating that invoice mentioned payment terms as 100% LC at sight instead of LC at 30 days and requesting instructions to clarify the defects under Ex.B8 addressed by the 3rd Opposite Party to the 2nd Opposite Party letter dated 28th April 2004 for not entertaining the documents due to discrepancies. The learned counsel for by the Complainant contended that this letter was addressed by the 3rd Opposite Party who had accepted the delivery of the goods requesting the 2nd Opposite Party not entertaining the documents due to certain discrepancies. But even before this letter under Ex.B8, the 2nd Opposite Party under Ex.B7 on 28.4.2004 itself was addressing the 5th Opposite Party to clarify the discrepancies even before getting instructions or stoppage of payment by the 3rd Opposite Party which was addressed only on 24th May 2004 nearly 3 weeks after Ex.B7 would go to show that the 2nd Opposite Party some how interested in not honouring the letter of credit this would go to show that the 2nd Opposite Party on flimsy ground refused to honour the letter of credit in payment of the Complainant. For these the 2nd Opposite Party counsel contended that since there are discrepancies relating to the documents which are received from the 5th Opposite Party belatedly after the expiry date on 25.4.2004, the clarification were sought for under Ex.B7  there was no wrong in it. On the basis of details from Ex.B6 to B8 and on perusal of the contentions of 5th Opposite Party in their written version in the written version of 5th Opposite Party in paras 4 & 5 averred as follows:

 

“This Opposite Party submits that if there are any minor discrepancies in the documents submitted by the Opposite Party, the 2nd Opposite Party ought to have credited the proceeds of the said documents on the basis of letter of credit dated 23.4.2004, issued by it in favour of the Complainant. In respect of the Paragarph B and para 5 of the complaint this Opposite Party submit that this Opposite Party submitted the bills within the period of 30 days and further the 4th Opposite Party received the goods sent by the Complainant and hence the alleged discrepancies pointed out by the 2nd Opposite Party is not material and not to honour the Letter of Credit issued by it in favour of the Complainant.”

 

From these details we are able to find out that the 3rd Opposite Party and 4th opposite parties who have received the good supplied by the Complainant for the value of ₹11,34,000/- for which a sum of ₹3,00,000/- was paid as advance and for the remaining balance of ₹8,34,000/- letter of credit under Ex.A2 and B1 are arranged by the way of supply of goods conveniently remained absent in the proceedings after receipt of the goods and if really they have agitatedthe matter in this proceedings. Further the Complainant has already established that the delivery of goods and after delivery the movement of the goods by shipping to Canada through the bill of lading under Ex.A10 which are all not denied by the 2nd Opposite Party. Further the Complainants have relied upon the following ruling reported relating to the letter of Credit entertained by the Bank.

 

(1) 1981 SUPREME COURT 1426 in the case of “United Commercial Bank – vs- Bank of India and others” it is held as follows:

 

“As bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit. In view of the banker’s obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not to pay. The opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay.”

 

(2) 1996 5 Supreme Court Cases 34 in the case of “Hindustan Steelworks construction Ltd –vs- Tarapore & Co. and Another” it is held is follow:

 

“Banker and Customer – Bank guarantee – Injunction restraining encashment of – Held, can be granted by Court only in case of fraud or in case of irretrievable injustice if encashment allowed – Any other special circumstances and/ or special equity would not constitute ground for granting injunction – Contract of bank guarantee between the bank and the beneficiary is independent of the primary contract between the party furnished the bank guarantee and the beneficiary.”

 

(3) (1997) I Supreme Court Cases 568 in the case of “U.P. State Sugar Corporation –vs- Sumac International Ltd” it is held as follows:

 

“Banker and Customer –Bank guarantee – Enforcement of –Irrevocable and unconditional bank guarantee payable on demand without demur-Whenever such bank guarantee is sought to be encashed by the beneficiary, bank is bound to honour the guarantee irrespective of any dispute raised by the customer (at whose instance the guarantee the guarantee was issued) against the beneficiary – This is, however, subject to two exceptions viz, a fraud committed in the notice of the bank which would vitiate the very foundations of the guarantee or encashment of the bank guarantee would  result in irretrievable harm or himself – Except  under these circumstances. Court should not readily issue injunction to restrain realization of the bank guarantee.”

 

From the above said rulings it is clear that the banks cannot stop the honouring of the letter of credit/ bank guarantee for the beneficiary even if dispute between the parties unless if any fraud committed in the notice of the bank which would vitiate the very foundations of the guarantee or encashment to result in irretrievable harm or injustice of the kind which make it impossible for the guarantor to reimburse himself since the honouring of letter of credit is the obligation of the bank. In our case no such fraud or irretrievable loss or injustice caused to the 3 & 4th opposite parties is established. In those circumstances the contentions of the 2nd Opposite Party in this regard are untenable and no merits and thereby the 2nd Opposite Party is liable to honour the commitment or letter of credit to the beneficiary/Complainant. Hence, we answer this point accordingly.

 

In view of the findings as above the Complainant is entitled to get the relief for payment of ₹8,34,000/- from the 1st and 2nd opposite parties being the bankers issued the letter of credit. The Complainant claimed ₹7,00,000/- as compensation for the negligence from the 1st and 2nd opposite parties and ₹3,00,000/- towards mental agony and to ₹2,00,000/-as costs. These claims of compensation are all very high and disproportionate to the claim made and the expected expenses to be made in the litigation. Hence, we are of the view that for  the negligence of opposite parties 1 & 2 not honouring the letter of credit dated 23.3.2004 till the date of filling complaint in 2005 and for the mental agony and negligence caused  to the Complainant due to this by the opposite parties 1 and 2 in all a sum of ₹1,50,000/- (₹75,000/- each compensation for mental agony and negligence and award a sum of ₹10,000/- as costs would meet the ends of justice and thereby we answer this point accordingly.”

 

5. Feeling aggrieved by the Order dated 30.07.2013 passed by the State Commission, the Appellant Jammu & Kashmir Bank has filed the present Appeal before this Commission.

 

6. We have heard Mr. J. Senthil Kumar, learned Counsel for the Appellant Bank, Mr. L. Damodaran, learned Counsel appearing for the Respondent/Complainant and perused the material available on record.   

 

7. Mr. J. Senthil Kumar, learned Counsel appearing on behalf of the Appellant Jammu & Kashmir Bank submitted that the State Commission grossly erred in not appreciating the preliminary objection regarding jurisdiction of the Commission to entertain the Complaint.  It was submitted that the Complaint filed before the State Commission is purely a commercial transaction because the Letter of Credit opened by the Complainant for buying goods from the supplier, i.e., beneficiary of the LC is none other than Complainant.  Therefore, the Complainant cannot be said to qualify the definition of ‘Consumer’ u/s 2(1)(d) of the Consumer Protection Act, 1986.  

 

8. It was further submitted that the payment under Letter of Credit was refused by the Jammu & Kashmir Bank on account of discrepant documents forwarded by the Syndicate Bank.  According to the Complainant the goods were dispatched on 25.03.2004 under Invoice No. 41, the documents were negotiated with Syndicate Bank on 27.03.2004 which in turn dispatched the documents for presentation to Jammu & Kashmir Bank vide letter dated 24.04.2004 and the same were received by J&K Bank only on 26.04.2004, which as per terms of the Letter of Credit were to be received on or before 06.04.2004.  Therefore, the presentation of the documents was after the expiry of the credit.  Hence the documents having been received by J&K Bank after due date, the discrepancy raised by the Appellant Bank is genuine.  It was further submitted that the State Commission failed to appreciate that bill of exchange was drawn at 30 days DA whereas the draft submitted by the Complainant was for 30 days DA after LR date.  Further, invoice did not certify goods strictly as per beneficiary invoice no. 75 dated 19.03.2004 & invoice mentioned payment terms as 100% LC at sight instead of LC at 30 days.  

Therefore, the documents being discrepant as compared to terms and conditions in Letter of Credit.  It was further submitted that there was no deficiency in service on their part and it was prayed that the impugned Order passed by the State Commission be set aside.   

 

9. Per contra, Mr. L. Damodaran, learned Counsel appearing on behalf of the Respondent/Complainant, supported the Order passed by the State Commission as according to him the State Commission had passed a well-reasoned and justified order, which is based on a correct and rightful appreciation of evidence and material available on record and does not call for any interference.

 

10. As far as the contention of the Appellant Jammu & Kashmir Bank whether the Complainant fall under the definition of ‘Consumer’ as defined under section 2(1)(d) of the Consumer Protection Act, 1986 is concerned, in the present case, the Complainant availed the services of the Appellant Jammu & Kashmir Bank for letter of credit only for the purpose of security, protecting the interest and averting the risk associated with the transfer of goods and this was not intended to generate profit but for protecting their interest against the peril of non-payment, which in our considered view, is not a commercial transaction and the Complainant does fall under the definition of ‘Consumer’ in view of the principle laid down by the Hon’ble Supreme Court as well as this Commission in catena of judgments, i.e., ‘Lakshmi Engineering Works vs. PSG Industries (1995) 3 SCC 583’, New Delhi Municipal Council vs. Sohan Lal Sachdev (2000) 2 SCC 494 and M/s. Harsolia Motors vs. M/s. National Insurance Co. Ltd. (2005) CPJ 27 (NC).  Offering of letter of credit is just a service offered by Bank to its customers and come within the purview of services as defined under Section 2(1)(o) of the CPA, 1986 as has been held by the Hon’ble Supreme Court in ‘Vimal Chandra Grover vs. Bank of India [AIR 2000 SC 2181]’. For the reasons stated hereinabove, it is held that the Complainant does fall under the definition of Consumer as defined under section 2(1)(d) of the Consumer Protection Act, 1986 and the present Consumer Complaint is maintainable before the Consumer Fora.

 

11. The State Commission has dealt with all the issues raised by the Parties in detail in its well-reasoned Impugned Order dated 30th July 2013.  The findings recorded by the State Commission are well supported by the principle laid down by the Hon’ble Supreme Court in ‘U.P. State Sugar Corpn. v. Sumac International Ltd., (1997) 1 SCC 568’ wherein it has been held as under:-

“15. Our attention was invited to a number of decisions on this issue —among them, to Larsen & Toubro Ltd. v. Maharashtra SEB [(1995) 6 SCC 68] and Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) (P) Ltd. [(1995) 6 SCC 76] as also to National Thermal Power Corpn. Ltd. v. Flowmore (P) Ltd. [(1995) 4 SCC 515] The latest decision is in the case of State of Maharashtra v. National Construction Co. [(1996) 1 SCC 735 : JT (1996) 1 SC 156] where this Court has summed up the position by stating: (SCC p. 741, para 13)

 

“The rule is well established that a bank issuing a guarantee is not concerned with the underlying contract between the parties to the contract. The duty of the bank under a performance guarantee is created by the document itself. Once the documents are in order the bank giving the guarantee must honour the same and make payment ordinarily unless there is an allegation of fraud or the like. The courts will not interfere directly or indirectly to withhold payment, otherwise trust in commerce internal and international would be irreparably damaged. But that does not mean that the parties to the underlying contract cannot settle the disputes with respect to allegations of breach by resorting to litigation or arbitration as stipulated in the contract. The remedy arising ex contractu is not barred and the cause of action for the same is independent of enforcement of the guarantee.”

 

The other recent decision is in Hindustan Steelworks Construction Ltd. v. Tarapore & Co. [(1996) 5 SCC 34 : JT (1996) 6 SC 295]”

 

12. Respectfully following the principle laid down by the Hon’ble Supreme Court in “U.P. State Sugar Corpn. v. Sumac International Ltd. (supra)” the State Commission has rightly observed that the banks cannot stop the honouring of the letter of credit/ bank guarantee for the beneficiary even if dispute between the parties unless if any fraud committed in the notice of the bank which would vitiate the very foundations of the guarantee or encashment to result in irretrievable harm or injustice of the kind which make it impossible for the guarantor to reimburse himself since the honouring of letter of credit is the obligation of the bank. In our case no such fraud or irretrievable loss or injustice caused to the 3 & 4th opposite parties is established. In those circumstances the contentions of the 2nd Opposite Party in this regard are untenable and no merits and thereby the 2nd Opposite Party is liable to honour the commitment or letter of credit to the beneficiary/Complainant.

 

13. For the reasons stated hereinabove, the Impugned Order dated 30.07.2013 passed by the State Commission cannot be said to be erroneous.  The State Commission has dealt with all the issues in detail and passed a well-reasoned Order after appreciation of evidence and material available on record.  We do not find any illegality or perversity in it.  Accordingly, the Impugned Order dated 30.07.2013 passed by the State Commission is upheld and the Appeal is dismissed.  Keeping in view the facts and circumstances of the case, there shall be no order as to costs.