BEFORE THE A.P. STATE CONSUMER DISPUTES REDRESSAL COMMISSION
AT HYDERABAD.
C.C. No. 57/2006
Between:
GMR Industries Ltd.
Having its Registered Corporate
Office at 6-3-866/1/G2,
Greenlands, Begumpet
Hyderabad-500 016.
Rep. by its Authorized Signatory. *** Complainant
And
1). Punjab National Bank
Mid Corporate Branch
Banjara Hills
Hyderabad-500 034.
2) Andhra Bank
Somajiguda Branch
Road No. 1 Banjara Hills
Punjagutta, Hyderabad-500 082. *** Opposite Parties
Counsel for the Complainant: M/s. V. Ajay Kumar
Counsel for the OPs: Mr. P. Venkateswara Rao (R1)
HON’BLE SRI JUSTICE D. APPA RAO, PRESIDENT
SMT. M. SHREESHA, MEMBER
&
SRI K. SATYANAND, MEMBER
MONDAY, THIS THE TWENTY FOURTH DAY OF AUGUST THOUSAND NINE
Oral Order: (Per Hon’ble Justice D. Appa Rao, President)
***
1) The Complainant GMR Industries Ltd., a company incorporated under the Companies Act filed the complaint claiming Rs. 30,79,060/- from R1 bank alleging deficiency in financial service in respect of complaint’s export bill confirmed Letter of Credit (LC) and legal expenses of Rs. 50,000/-.
2) The case of the complainant in brief is that it is a company incorporated under Companies Act involved in various commercial and business activities. During the course of its business activities it received an order from M/s. Shandong Huaxin Industry Company Ltd., South Zhengzhou Road, Rizhao, Shandong, China for supply of iron ore fines of 27,500 wet Metric Tonnes valued for US $ 16,86,001.68. The buyer arranged for Letter of Credit (LC) on 20.9.2005 for US $ 17,25,000/- from China Construction Bank and the Foreign Letter of Credit (FLC) was confirmed by R1 bank on 26.9.2005. It had agreed to handle the documents and FLC established by China Construction Bank. It has paid an amount of Rs. 76,340/- to R1 on 26.9.2005 towards service charges. The consignment was despatched to the buyer vide bill of lading Dt. 30.9.2005. It had exported 27,500 MT of iron ores fines under export bill Dt. 18.10.2005 for US $ 16,86,001.68 and submitted the said bill to R2 on 19.10.2005 for negotiation and discounting purposes. The documents were presented to R1 through R2 on 19.10.2005 for immediate remittance as per the confirmation. However, the documents were rejected by R1 assigning specious reasons. Though R2 resubmitted the documents after getting the discrepancies in the export bill rectified and also clarified that the shipment Dt. 30.9.2005 is inconsonance with the terms of the FLC as per amendment Dt. 23.9.2005, however R1 vide its letter Dt. 21.10.2005 refused to accept the document on the pretext that in terms of UPCPDC all the amendments of LC should be routed through R1 the confirming bank. The said stand is unjustified. It is not in accordance with the banking practice and rules relating to LC. It has no alternative except to send through R2 to the LC opening bank on collection basis for payment in order to avoid demurrage charges on the consignment from the Port authorities. The said fact was intimated to R1. The buyer had taken advantage of the refusal of the bank to accept the documents and made
short payment of Rs. 24,44,430/- from the proceeds of the export bill and remitted balance only. This amounts to deficiency in service on the part of R1 bank. It could not have refused to honour the LC. It ought to have accepted instead of returning it to R2. Therefore, it claimed Rs. 24,44,430/- towards short fall amount received from the buyer under LC, Rs. 2,67,800/- towards interest paid to R2 and Rs. 3,66,830/- towards interest @ 18% p.a., on the above said amounts, in all Rs. 30,79,060/- together with costs.
3) R1 resisted the case. While questioning the maintainability of the complaint it alleged that the complainant had approached it on 23.9.2005 with a request to add its confirmation to the LC issued by China Construction Bank, Shadong Branch, China. It has issued LC in terms of Uniform Customs and Practice for Documentary Credit (UCPDC) added confirmation to the LC. When R2 has forwarded the documents on 20.10.2005 it has rejected on 21.10.2005 when it found discrepancies in the documents viz., the last date of shipment was 25.9.2005 while the shiptment was made on 30.9.2005 and the amendment was not routed through it as per Article 9(d)(ii) of UCPDC ICC 500. . The bill of lading produced was not as per the terms of LC. The bill of lading was marked as freight payable as per charter party however as per LC terms it should have been pre-paid. When it confirmed the LC it was very much in force. It was for the beneficiary or applicant to the LC to ensure getting an amendment to extend the period of shipment, complying with the UCPDC norms for amendment. It had no role to play in this regard. Being an exporter having FLC dealings through banks under UCPDC norms, it should be within the knowledge of the complainant that any amendment of the LC should be routed through the confirming bank. As this was not done the complainant should not expect the confirming bank to accept the documents. It cannot be found fault for the lapses of the complainant. Whether the documents are accepted or rejected, the buyer is
bound by the terms of the contract of purchase and if he had violated the complainant has legal recourse against him for recovery of the purchase price. Therefore such a claim cannot be made against it. It is not known why the buyer had reduced the price, and it has nothing to do with the refusal made by it. It has rightly rejected the LC as the amendment was not routed through it by virtue of Article 9(d) of UCPDC 600. The complainant has failed to submit under what Article of UCPDC the rejected documents were rectified and how the negotiating bank (R2) had parted with the said documents to the complainant. Therefore it prayed that the complaint be dismissed with costs.
4) The complainant did not take notice against R2 on the ground that it is only a proforma party and no relief is sought against it.
5) The complainant in proof of its case filed the Affidavit evidence of its Joint Managing Director and got Exs. A1 to A13 marked while R1 filed the affidavit evidence of its Chief Manager but did not file any documents.
6) The points that arise for consideration are:
i) Whether the rejection of LC by R1 is illegal?
ii) Whether the complainant is entitled to recover the shortfall of the amount made by the buyer in view of the act of R1 bank in refusing to honour the LC.
iii) Whether this Commission has jurisdiction to entertain the complaint?
iv) Whether the complaint is maintainable under the Consumer Protection Act?
v) To what relief?
7) It is an undisputed fact that the complainant exported 27,500 wet MT of iron ore fines for an amount of US $ 1.725 million to China as against FLC on receipt of order from China Construction Bank on 20.9.2005 through R2 and confirmed by R1. The complainant alleges that on confirmation of FLC by R1 they had exported 27,5000 WMT of iron ore fines vide export bill Dt. 19.10.2005 for US $ 1,686,100.68 and submitted the same to R2 on 19.10.2005 which in turn submitted the export bill on 20.10.2005 on R1 claiming for the payment. However R1 pointed out following discrepancies in Ex. A8 export bill Dt. 21.10.2005.
i) Last date of shipment as per the LC confirmed by us is 25.9.2005, whereas the shipment is made on 30.9.2005 and the amendment Dt. 23.9.2005 was not routed through us.
ii) Bill of lading issued is Charter-Party Bill of Lading and is not as per the terms of the LC and contrary to the article 25 of UCPDC.
iii) Bill of Lading is marked as “freight payable as per charter party” whereas as per the LC terms it should have been prepaid.
It has informed R2 that it was holding the documents at its own risk and responsibility. R2 in its turn gave reply under Ex. A9 stating :
i) Since the shipment date 30.9.2005 is well within the terms of the LC as per the amendment dated 23.9.2005 we request you to accept the documents for payment.
ii) & iii) We are now in receipt of the original Freight Prepaid Bill of
Lading dated 30.9.2005 submitted by the exporters as per
the terms of LC. We have enclosed the said original set of
Bill of Lading (Freight prepaid) along with the export bill
Submitted by the exporter.
Despite rectification that said to have been made by R2, R1 reiterated the following discrepancies in its letter Ex. A12 Dt. 23.12.2005.
“i) Last date of shipment as per the LC confirmed by us is 25.9.2005, whereas the shipment is made on 30.9.2005 and the amendment dated 23.9.2005 was not routed through us.
ii) Bill of lading issued is Charter-Party Bill of Lading and is not as per the terms of the LC and contrary to the article 25 of UCPDC ICC 500.
iii) Bill of Lading is marked as “freight payable as per charter party” whereas as per the LC terms it should have been prepaid.
We are not a party to any amendment made to the LC as they were not routed through us. When the amendments were not routed through the confirming bank, the confirming bank has the right to reject the same as per Article 9 and 14 of UCPDC ICC 500.”
8) In view of rejection of export bill and non-payment by R1 bank the complainant alleges that “sensing non-payment of the export bill by your Punjab National Bank ignoring the UCPDC norms relating to confirmed LC, the buyer had raised unrelated and unsustainable issues on certain teck-specs and deducted an amount of US $ 53,116.88 i.e., Rs. 24,44,430/- from the proceeds of the export bill and remitted the balance amount of US $ 1,632,885/- only on 8.11.2005 after a series of unwanted re-negotiations.” Though the complainant alleges that the buyer had raised unrelated and unsustainable issues on certain teck-specs and deducted sum amount after a series of unwanted re-negotiations, the said correspondence was not filed in order to know whether the deduction by the buyer had anything to do with the rejection of claim by R1. Obviously those objections that were raised were not related to the claim on hand. It has nothing to do with the act of R1 in not honouring the LC due to certain discrepancies. A perusal of Ex. A3 invoice shows that price of 25,124 MT of iron ore fires was made at US $ 1686008.83 as against contracted load of 27,500 MT not only after adjusting the price under penalties clause but also for moisture and other components. Had the complainant filed the correspondence it could have been known as to why the buyer has deducted the amount. Had it been for non-payment of export bill by R1 bank the complainant could not have stated that the buyer had raised certain unrelated and unsustainable issues on certain teck-specs. It could have stated that it was due to non-payment by R1 bank. From this it can be said beyond doubt that the complainant intended to collect the amount from R1 by linking up the issues raised by buyer for deducting certain amounts due to non-payment of export bill by R1 bank.
9) Learned counsel for R1 by referring to various clauses of UCPDC and guidelines issued by RBI on documentary credits and standby credits published by Foreign Exchange Dealer’s Association of India, Mumbai contended that in the light of discrepancies pointed out and as they being violative of Article 9(d) of UCPDCC sick the amendment has not been routed through it, it was not binding on it. Article 9(d) reads as follows :
“Except as otherwise provided by Article 48, an irrevocable credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.”
Neither the complainant nor R2 could point out as to how that the amendment of LC was within the UCPDC norms. It could not point out as to how the repudiation of LC by R1 was incorrect. It is not the case of the complainant that the documents were handled by R1. Evidently rectified documents were handled by R2 alone. It is not known why no claim was made against R2 though it handled all the documents. Had it pursued the claim R2 could be forced to explain as to how it forwarded the documents to China Construction Bank, and how it had recovered the amount. When R1 has rejected LC on specific grounds relying rules and regulations framed there under, it cannot be said that there was deficiency in service on its part. We reiterate that the deduction of amount by the buyer is for altogether different reason and not due to dishonour of LC by R1. Therefore this point is answered in favour of R1 and against complainant.
10) Learned counsel for R1 contended that the complainant being a public limited company which is involved in various commercial and business activities and that in the course of its business it received an order from a buyer at China for supply of iron ore fires and the entire transaction being commercial transaction not entitled to clutch the jurisdiction of this Commission. Therefore, the complaint is not maintainable under the provisions of Consumer Protection Act. Though the said objection was not raised in so many words except stating that the complaint is not maintainable, in view of the fact that the question raised is a question of law, necessarily this Commission has to consider the said contention. The Supreme Court in Laxmi Engineering Works Vs. P.S.G. Industrial Institute reported in (1995) 3 SCC 583 held :
Under definition of the expression 'consumer' in Section 2(d), a consumer means in so far as is relevant for the purpose of this appeal, (i) a person who buys any goods for consideration; it is immaterial whether the consideration is paid or promised, or partly paid and partly promised, or whether the payment of consideration is deferred; (ii) a person who uses such goods with the approval of the person who buys such goods for consideration (iii) but does not include a person who buys such goods for resale or for any commercial purpose. The expression "resale" is clear enough. Controversy has, however, arisen with respect to meaning of the expression "commercial purpose". It is also not defined in the Act. In the absence of a definition, we have to go by its ordinary meaning. "Commercial" denotes "pertaining to commerce" (Chamber's Twentieth Century Dictionary); it means "connected with, or engaged in commerce; mercantile; having profit as the main aim" (Collins English Dictionary) whereas the word "commerce" means "financial transactions especially buying and selling of merchandise, on a large scale" (Concise Oxford Dictionary). The National Commission appears to have been taking a consistent view that where a person purchases goods "with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit" he will not be a "consumer" within the meaning of Section 2(d)(i) of the Act. Broadly affirming the said view and more particularly with a view to obviate any confusion the expression "large-scale" is not a very precise expression the Parliament stepped in and added the explanation to Section 2(d)(i) by Ordinance/Amendment Act, 1993. The explanation excludes certain purposes from the purview of the expression "commercial purpose" - a case of exception to an exception.
The explanation however clarifies that in certain situations, purchase of goods for "commercial purpose" would not yet take the purchaser out of the definition of expression "consumer". If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of self-employment, such purchaser of goods is yet a "consumer". The explanation reduces the question, what is a "commercial purpose", to a question of fact to be decided in the facts of each case. It is not the value of the goods that matters but the purpose to which the goods bought are put to. The several words employed in the explanation, viz., "uses them by himself", "exclusively for the purpose of earning his livelihood" and "by means of self-employment" make the intention of Parliament abundantly clear, that the goods bought must be used by the buyer himself, by employing himself for earning his livelihood.”
11 We do not see how the services extended by R1 in this case could be a consumer dispute in the light of fact that the entire transaction is for commercial purpose and by a multi national company. The services that are availed by the complainant from the bank cannot be termed as service that could be attract the ambit and scope of Section 2(i)(d)(ii) of the Consumer Protection Act. This point is also answered in favour of R1.
12) In the result the complaint is dismissed with costs computed at Rs. 10,000/-. Time for compliance four weeks.
1) _______________________________
PRESIDENT
2) ________________________________
MEMBER
3) _________________________________
MEMBER
Dt. 24. 8. 2009
APPENDIX OF EVIDENCE
Complainant: Opposite parties:
None None
Documents marked for complainant:
Ex.A-1 Copy of purchase order from Shandong Huaxin Industry Co.Ltd.,
Ex.A-2 Copy of Foreign Letter of Credit dt.20.09.2005 for USD 17,25,000 opened by M/s China Construction Bank.
Ex.A-3 Copy of Commercial invoice dt.21.9.2005 issued by the complainant to Shandong Huaxin Industry Company Ltd.,
Ex.A-4 Letter dt.26.9.2005 addressed by the OP.No.1 bank confirming Letter of Credit.
Ex.A-5 Copy of Bill of Lading dt.30.9.2005.
Ex.A-6 Letter dt.19.10.2005 addressed by the second opposite party to the first opposite party.
Ex.A-7 Copy of amendment made by China Construction Bank to the Foreign Letter of Credit dt.20.9.2005.
Ex.A-8 Copy of Letter dt.21.10.2005 from the first opposite party to the second opposite party.
Ex.A-9 Letter dt.21.10.2005 addressed by the second opposite party to the first opposite party.
Ex.A-10 Letter dt.2.11.2005 addressed by the complainant to the opposite party.
Ex.A-11 Letter dt.9.11.2005 addressed by the complainant to the opposite party.
Ex.A-12 Letter dt.23.12.2005 addressed by the first opposite party to the complainant.
Ex.A-13 Statement of account issued by the second opposite party bank to the complainant showing the payment received relating to FLC transaction.
Documents marked for Opposite Parties : Nil.
1) _______________________________
PRESIDENT
2) ________________________________
MEMBER
3) _________________________________
MEMBER
Dt. 24. 8. 2009
“UP LOAD – O.K.”
