P L D 1975 Karachi 410 (PLP)

5. The defendants Nos. I to 3 filed a written statement denying liability contending that the bill of exchange was negotiated against the irrevocable credit upon prone; presentation of valid documents called thereunder and that no further responsibility for the consignment lay with these defendants ; that if there was any claim, it was against the defendants Nos, 4 and 5. 6.On these pleadings the following consent issues were accepted by the Court (1) Whether the Bill of Exchange presented by the defendant No. 1 to the plaintiff was not negotiated for reasons alleged in the plaint or on account of any default on the part of the plaintiff and if so, what is its effect? (2) Whether the delivery of bonus vouchers to defendant No. 1 was subject to payment of draft and whether the said defendant was liable to return the bonus vouchers in the circumstances of this case? (3) Whether defendant No. 1 had any responsibility for taking possession of the consignment in U. S. A. and for its disposal or destruction? (4) Whether defendant No. 1 had agreed and/or are liable to pay for clearance and cold storage of the goods or to bear litigation charges or any other charges incurred by the plaintiffs or their agents in U. S. A.? (5) Whether defendants Nos. 1 to 3 are liable on the plaintiffs' claim or any part of it? (6) Whether the suit is barred under section 20, C. P. C.? (7) What should the decree be? and whether any party is entitled to special costs.

7. Evidence in support of the plaintiff's case was given by Mohammed Saleh, the Incharge of the Export Department of the plaintiff Bank, while Taj Mohammad Khan, the defendant No. 1 gave evidence on behalf of the defendants Nos. 1 to

3. The defendants Nos. 4 and 5 were unrepresentative in the action. 8. 1 have considered the evidence and the submissions of counsel and my findings on the issues are as follows

9. Issues Nos. 1 & 5.‑These two issues are crucial and may be consi dered together. As the American Bank declined to accept the shipping documents and pay the bill of exchange upon presentation for payment by the plaintiff Bank the main question is whether the plaintiff has a right of recourse against Taj Seafood, (a) under the terms of the letter of credit and the contractual arrangements between them, and/or (b) on the dishonored bill of exchange under the Negotiable Instruments Act, 1881. From the terms of the letter of credit opened by the American Bank in favour of Taj Seafood (Exh. 6/1), it is clear that the credit was of the advising type and not of the confirming type. The plaintiff Bank was engaged merely to "advise" the opening of the credit of Taj Seafood. The letter of credit was itself addressed to Tai Seafood and the American Bank airmailed it to the plaintiff Bank with a request "to please forward the original to the beneficiary of Taj Seafood Industries . . . . retaining the copy for your files" (Exh. 5/3).The plaintiff Bank while advising Taj Seafood by its letter .Exh. 5/6 dated 29‑4‑1967, made it clear that it was passing a message "on behalf of the opening bank (American Bank) without any engagement or responsibility on our part, except for the correctness of cablegram/telegram, as received by us". It is clear therefore that the plaintiff was acting merely as a messenger or as a post office. The Letter of Credit gave no authority to the plaintiff Bank to "confirm" the credit or to negotiate drafts drawn by Taj Seafood. Therefore there was no undertaking or engagement by the American Bank to re imburse the plaintiff Bank, who may have negotiated the documents and paid on the bill of exchange. Had the credit been of the confirmatory type, under which an intermediary banker is authorised to confirm the credit and negotiate drafts drawn on the issuing banker, the plaintiff Bank would ordinarily have had no right of recourse under the credit against the benefi ciary‑seller. The position is otherwise, as in the present case, where the plaintiff Bank by negotiating the documents under credit and making payment to Taj Seafood on the bill of exchange. acted on its own as a principal. The plaintiff Bank was already a creditor of Taj Seafood having advanced a packing credit to it against the lien of the Letter of Credit and the Security of the consignment covered by the shipping documents. The letter of credit was marked "Under our Lien" when it was received and then it was forwarded to Taj Seafood. Therefore, the lien was in the knowledge of Taj Seafood and the agreement was that the bill of lading would be made out to the order of the plaintiff Bank as security for immediate payment against the bill of exchange, the understanding being that the plaintiff would then forward the shipping documents and present the bill of exchange for payment to the American Bank before the expiry of the credit. The implication was that if the American Bank failed to retire the shipping documents and make payment on due presentation of the bill, the plaintiff Bank would have a right of recourse against Taj Seafood. The following passage from the "Law of Bankers' Commercial Credits" by H. C. Gutteridge & Maurice Megrah, Fourth Edition at page 73 illustrates the right of recourse which an advising (non‑confirming) bank has against the beneficiary :‑ "There remains the question of recourse by an advising but not confirm ing bank which negotiates pursuant to an irrevocable credit. Article 3 of the Uniform Customs makes it clear that a confirming bank may not have recourse ; by implication it is otherwise in the case of a non‑confirming bank. The reason is that whereas the latter is the agent of the issuing bank for the purpose of advising the credit, it acts as a principal vis‑a‑vis the beneficiary. It is under no duty to negotiate and if it does so it may make whatever conditions it likes as a pre requisite to doing so. It follows that if the credit is available by `time' draft, the negotiating bank may have recourse on the draft if this is ultimately unpaid. The fact of advising places no responsibility on the negotiating bank, no greater responsibility than if it were not the advising bank, and it makes no difference that negotiation may be restricted to that bank. The beneficiary has no right to assume in this last case that the advising bank will do more, and negotiate, or that it will negotiate without recourse. The negotiating bank's rights against the issuing bank do not deprive it of its rights against the beneficiary, who can, if he wishes to be sure of his ground, draw his draft 'without recourse'."

10. The question, however, is whether the plaintiff bank has lost its right of recourse against Taj Seafood because of its default in neglecting to present the full set of the bills of lading. It is not disputed that only two copies of bills of lading were forwarded to the American Bank and, when the third missing copy of the bill of lading was despatched, it reached some 5 clays after the credit has expired in New York, as a result of which, the American Bank declined to retire the documents and pay against the bill of exchange. There is no doubt that the plaintiff Bank failed to scrutinize the documents to see whether they were in conformity with those required under the credit, before despatching them to the American Bank. Therefore, I would accept the submission of Mr. Mushtaq Hussain, learned counsel for the defendants Nos. 1 to 3, that the plaintiff Bank by its default has lost its right of recourse under the arrangement entered into with Taj Seafood.

11. That however, is not the end of the matter. Independently of the question of recourse, the plaintiff Bank had the added security of the pledge of the goods represented by the bills of lading. They were drawn to the order of the plaintiff Bank as security for the loan. As pledgee, the plaintiff' Bank could sell the goods without prejudice to any other right it might have against the beneficiary of the credit. The goods in question were surveyed upon arrival in New York but were found to be worthless and unfit for human consumption as per surveyors' report (Exh. 5/32) and, therefore, they had to be destroyed. It is not disputed that the plaintiff Bank gave reason‑ 8 able notice of sale to Taj Seafood. Therefore, the plaintiff Bank has a right under section 176, Contract Act, 1872 to recover the debt in case the pledgee cannot realise his security.

12. As rightly submitted by Mr. Liaquat Merchant, learned counsel for the plaintiff Bank, the plaintiff as holder of the bill has a further right of recourse against Taj Seafood under section 30 of the Negotiable Instruments Act, 1881. Section 30 (1) (a) of the said Act provides that the drawer of a bill of exchange by drawing it engages that on due presentment it shall be accepted and paid according to its tenor, and that if it be dishonoured, he Rill compensate the holder provided that due notice of dishonour of the bill has been given to the drawer. Moreover, under section 37 of the said Act, a drawer of the bill of exchange until acceptance is liable thereon as a principal debtor. Further, under section 131‑H thereof, when a bill of exchange is dishonoured by non‑acceptance, an immediate right of recourse against the drawer accrues to the holder of the bill. Mr. Mushtaq Hussain submitted that the right of recourse and the liability to compensate the holder, arise only upon "due presentment" of the bill and that in the present case there has been no due presentment because one bill of lading was short supplied. In my opinion, this submission is misconceived. The "due presentment" referred to in section 30 of the Act, relates to the due presentation of the bill of exchange and not of the shipping documents under a collateral contract of credit. The provisions of Chapter V of the said Act relating to present ment show that due presentment means that the bill of exchange must be duly presented according to its terms and at the time and at the place specified thereunder, during business hours on a business day and by the person entitled to demand it. There is no doubt that the bill of exchange was presented for payment to the American Bank duly negotiated and that it was dishonoured. Further that notice of dishonour had been given to Taj Seafood. A bill of exchange gives an independent cause of action to the holder thereof and in Karim and another v. Peoples Bank of India ((1915) 30 I C 35), it was held that a collateral agreement cannot be set up as a defence to a claim under section 30 of the Negotiable Instruments Act, 1881.

13. Mr. Mushtaq Hussain next submitted that the arrangement between the plaintiff Bank and the first three defendants showed that it was a case of sale of documents against payment of Rs. 56,622 (the rupee amount of U. S. $ 11,964.50 of the bill) and therefore, his clients have no further concern or responsibility for the non‑acceptance of the bill or the loss of the consignment. But the facts and circumstances of the case show otherwise, namely, that it was a cage of pledge of documents. The Letter of Credit (Exh. 6/1) was stamped "Under our Lien" pursuant to a specific request by Taj Seafood for overdraft against the Letter of Credit contained in its letter dated 3‑4‑1967 (Exh. 5). It was agreed that the Bills of Lading were to be the security for immediate payment. That is why, the bills of lading were made out to the order of the plaintiff Bank, although the letter of credit required them to be made out to the order of the American Bank. There is neither any plea of sale of documents in the written statement, nor did Taj Mohammad Khan (D. W. 1) mention a word about it in his deposition in Court. Therefore, the submission of Mr. Mushtaq Hussain cannot be accepted. My finding on the first issue is that the bill of exchange was not paid by the American Bank because of default on the part of the plaintiff Bank and the effect is that, thereby it has lost its right of recourse. But my finding on the issue No. 5, is in favour of the plaintiff Bank.

14. Issue No. 2.‑The Bonus Vouchers were delivered to Taj Seafood as exporter against and on the faith of the shipping documents and the Bill of Exchange and in particular in view of the signed undertaking to repatriate the foreign exchange proceeds resulting from the export (Exh. 5/10). The Bill remained unpaid and the goods perished. Therefore, on the failure to repatriate, Taj Seafood became liable to refund the bonus vouchers which were delivered on the faith of the aforesaid undertaking.

15. Issues Nos. 3 & 4.‑As discussed earlier, the Bill of lading was made out to the order of the plaintiff Bank in order that the go ids represented thereby shall be a security for the moneys advanced by the plaintiff Bank. The security was in the nature of a pledge of the goods, and carried by implication a right to sell the goods on default of payment, after giving reasonable notice of sale to enable the owner to make other arrangements for taking possession of the consignment and for its disposal. Since Taj Seafood declined responsibility, the plaintiff Bank was justified in clearing and storing the consignment and for its ultimate disposal. I would, therefore, hold that Tai Seafood is liable for the expenses.

16. Issue No. 6.‑Not pressed.

17. Issue No. 7.‑For the foregoing reasons and in view of my findings, I would decree the suit as prayed against the defendants with costs and interest at 6 per cent. K. B. A. Suit decreed