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Petitioner: Messrs CHEMI VISCOFIBRE LTD. VS Respondent: ING. A. MAURER S.A. and others
Court Name: Sindh High Court Judge(s): Shabbir Ahmed Title: Messrs CHEMI VISCOFIBRE LTD. vs ING. A. MAURER S.A. and others Case No.: Suits Nos, 106 and 107 of 2002 Date of Judgment:2002-06-14 Reported As: 2003 CLD 420 Result: Application dismissed
Judgment ORDER ' The above applications involving similar facts and identical question of law were heard together and I intend to dispose of the same by common order. Through these applications, plaintiff seeks restraint order restraining the defendants or any endorsee of bills of exchange from claiming and prohibiting the defendant No,2 from making any payment against the bills of exchange drawn on the plaintiff on 5th February, 2001 in favour of the defendant No,1 and avalized (guaranteed) by the defendant No,2. It may not be necessary to recapitulate the facts of both cases, which are similar for the purpose of deciding the applications except the machinery and amount of price involved in Suit No,107 of 2002 and it might suffice by way of explaining the factual background to refer the facts of Suit No,106 of 2002. ' The plaintiff was in need of sophisticated equipment to be integrated into the plant and machinery of their project of Viscose Fibre at Nawabshah and they agreed to purchase from defendant No,1 vide agreement, dated 17th January, 1996, whereby the defendant No,1 agreed to supply machinery for sulphurizing and dissolving section of the plant. The salient features of the contract are as follows:-- 2.4.To supply all machinery and equipment to the port of destination as specified by MAURER. MAURER will arrange for 90% (value based) of the shipment of these items to take place within 12 to 15 months from the EFFECTIVE DATE of the CONTRACT. 5.1. The total CONTRACT price of Sw. FRs, 3,100,000, shall be paid to MAURER by CHEMI VISCOFIBRE as follows:-- 5.2.25% down payment to be paid in the following manner. 5.3.1. 5% of the CONTRACT price, namely Sw. FRs, 155,000.
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' This payment will be effected within 30 days after signing this Contract by transferring the above mentioned amount to MAURER's account with Credit Suisse, Berne, against MAURER's irrevocable letter of guarantee for the advance down payment, issued by Credit Suisse, Berne. 5.3.2. 10% of the Contract price, namely, Sw. FRs, 310,000. ' This payment will be effected within 120 days at the time of submitting the basic design documents. The payment will be cash or against irrevocable letter of credit. ' The plaintiff and defendant No,1 mutually acted upon the agreement, dated 17th January, 1996. The plaintiff paid the first tranche of Swiss Francs 155,000 on 17-3-1996, second amounting to Swiss Francs 310,000' on 18-9-1996 and opened a Letter of Credit amount to Swiss Francs 310,000 on 31-1- 1996 in favour of defendant No, 1 . It is maintained that 75% of the contract price was contemplated to be financed through a buyer's credit, which was not forthcoming, the plaintiff and the defendant No,1 agreed to amend the contract, dated 17-1-1996 by amendment, dated 4-8-1999, whereby Articles 2,5 and 16 of the original contract were amended and in terms of these amendments, the balance 75% of the contract price was made payable in form of seller's credit to be granted by defendant No,1 to the plaintiff payable in 14 equal consecutive semi-annual instalments, the first one falling due 21 months after the coming into force of the contract.' The delivery of the machinery and equipment was to take place within 2 to 6 months from the effective' date. The amended Articles 2.4, 5.4 and 16.2 read as follows:-- "2.4. To supply all machinery and equipment to the port of destination as specified by MAURER. MAURER will arrange for 90% (value based) of the shipment of these items to take place within 2 to 6 months from the EFFECTIVE DATE of the CONTRACT. Ownership of machinery and equipment supplied by MAURER will stand transferred to CHEMI VISCOFIBRE when they have effectively passed the ship's rail at the port of shipment, MAURER will give all the necessary information for shipment, at least 40 days before readiness of the shipments to enable. CHEMI VISCOFIBRE to arrange insurance. All the technical documentation as mentioned in Annex. 6 will be supplied by MAURER as per Annex. 3. 5.4 ' Repayment ' In 14 equal, consecutive semi-annual instalments, the first one falling due 21 months after coming into force of contract. ' Security ' Bills of exchange accepted by CHEMI VISCOFIBRE and avalized by the HABIB BANK LTD., Karachi. These bills of exchange will be issued by MAURER immediately after signing the Amendment No,1 and sent to CHEMI VISCOFIBRE. After having avalized by HABIB BANK LTD., Karachi, CHEMI VISCOFBIRE will convey them immediately to MAURER. 16.2 The EFFECTIVE DATE of this CONTRACT will be the date of the receipt by MAURER of the down payment as per Article 5.3.2 of this CONTRACT. ' The bills of exchange issued by the defendant No,1 were accepted by the plaintiff and avalized by the defendant No,2 in accordance with amended contract. ' It is also the case of the plaintiff that effective date was also modified by the defendants through fax message No,0306, dated 17-4-2001 (Annexure D). Thus the effective date of contract between the parties was 17-4-2001 and first payment of the suppliers credit became payable 21 months after 17-4-2001 i,e, on 15th January, 2003 and each subsequent bill would mature 6 months thereafter and the bills of exchange are payable by the defendant No,2 at Karachi. The plaintiff maintained that on 24-1-2002, the defendant No,2 informed the plaintiff that the first Bill of Exchange was maturing for payment on 31-1-2002 followed by their letter, dated 26-1-2002. According to the plaintiff, the defendant No,1 had malafidely and wrongly lodged the first bill of
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exchange for payment with the defendant No,2 on the basis of maturity date stated on the fact thereof despite the fact that the agreement between the plaintiff and the defendant No,1 contains an express stipulation that the first payment shall be made 21 months after the effective date being 17-4-2001. The plaintiff pointed out to the defendant No,2 that the bills were not payable on the date claimed by defendant No,1 and called upon the defendant No,2 not to make payment against the same on 31-1-2002. The defendant No,2 through their letter, dated 28-1-2002 refused to accede to the request of the plaintiff but in fact called upon the plaintiff to lawfully establish before a Court of competent jurisdiction that no payment/obligation has arisen on the part of the plaintiff in respect of the bills of exchange. Hence the suit with an application referred to above with supporting affidavit of Abdul Hai, Director of the plaintiffs company. In para. 3 thereof, it has been maintained that the plaintiff has made out a good prima facie case and unless the application is allowed, the plaintiff shall suffer irreparable loss and injury. The presentation of first bill of exchange for payment, with the defendant No,2 on the basis of the maturity date and on the fact thereof despite the fact that the agreement between the plaintiff and the defendant No,1 contains an express stipulation that the first payment shall be made 21 months after the coming into force to the contract being 17-4-2001 and premature payment against the bill of exchange would cause irreparable injury to the plaintiff. The plaintiffs project is being established pursuant to a comprehensive financial plan in which cash flows are of vital importance. Any pre-mature payment against the bill of exchange would irreparably damage the plaintiffs ability to meet the carefully determined cash flows worked out for the successful completion of the viscos fibre plant project. The premature would have a domino effect on other financial benchmarks that have been carefully planned for the completion of the project. Messrs Credit Suisse First Boston was joined on their application as defendant No,3 that they are endorsee of the 14 bills of exchange executed by plaintiff in terms of seller's credit. ' The defendants Nos, 1 and 3 have contested the application by filing separate counter-affidavits. According to them, the commencing date as maintained by the plaintiff through fax, dated 17-4- 2001 is not correct and according ' to them the payment secured by bills of exchange was payable on different dates that could not be changed and it was their case that after amendment in terms of clause 5.4, the defendant No,1 executed 1.4 bills of exchange and were accepted by the plaintiff on 10-2-2001 and also avalized by defendant No,2 confining the authenticity and binding effect of the said bills of exchange according to the international practice and according to them the effective date of the contract will be the date of receipt by defendant No,1 of the down payment as per Article 5.3.2 of the contract. The contract came into force on the effective date defined in the agreement, which is the date of receipt by the defendant No,1 the down payment in terms of Article 5.3.2. According to them, the letter, dated 17-4-2001 was addressed in the context that as from the point of view of the defendant No,1 this was to confirm that the defendant No,1 had from that point on accepted that the plaintiff have done all the necessary to remove any hurdle for the defendant No,1 to restart with the contractual work. The said letter has no bearing on the payments due under the bills of exchange. The first bill of exchange becoming due on 31-1-2002 was endorsed by the defendant No,1 to their bankers Credit Suisse First Boston who discounted the bill and effected payment to the defendant No,1 in terms of the banking transactions. All 14 bills of exchange were accepted by the plaintiff on 10-2-2001, which have been duly endorsed by the defendant No,1 in favour of defendant No,3, the same have been pleaded on record through rejoinder to the counter- affidavit to C.M.A. No,1885 of 2002, thus the defendant No,3 claimed the holder in due course by endorsement on discount. ' I have heard Mr. Muneer A. Malik, learned counsel for the plaintiff and Mr. Khalid Rehman, learned counsel for defendants Nos,1 and 3 as well as Mr. Arshad Tayebally, learned counsel for the defendant No,2 who has not argued for or against the application.
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' The case on behalf of the plaintiffs have been canvassed mainly on fax message, dated 17-4-2001, to contend the commencing date as 17-4-2001. This letter is from the defendant No,1 to the plaintiff, which reads as follows:-- "RE: Coming into Force Date:17th April, 2001. Dear Mr. Khatri, ' As per your request, we inform you, that all the conditions for the entering into force of the contract have been fulfilled, with one minor exception. This exception regards the validity of the L/C, which is now limited to September, 2001. ' We have, however, received your oral commitment to extend the validity and correspondingly the shipping date to maximum the end of December, 2001, if so requested by MAURER. Therefore, we are in a position to confirm the entering into force of the contract with immediate effect. ' The preparation work, as well as the purchase orders for the time critical items have already been executed and we trust to be able to keep the time schedule for delivery. The market situation in Eurpoe, however is very critical and not favourable for any shortening of delivery time." ' Mr. Muneer A. Malik's contention was that according to the Article 5 of amended contract, the repayment was to be made in 14 equal consecutive semiannual instalments, the first one falling due 21 months after coming into force of contract and he contended that on calculation of the maturity w,e,f, 17-4-2001, first instalment would become due on 15-1-2003 and subsequent bill after every six months and he contended that the presentation of bill before the date of maturity for payment avalized by defendant No,2 was against the contract and lodging of the first bill of exchange for payment with the defendant No,2 on the basis of maturity date stated on the face thereof would be mala fide. He also contended that the plaintiff or the guarantor bank is not liable for payment before the maturity date, therefore, the plaintiff has demonstrated a prima facie case and also contended that in case the plaintiff is required to make payment before the maturity date, it would cause irreparable injury to the plaintiff as the project is being established pursuant to the comprehensive financial plan in which cash flows are of vital importance and any premature payment against the bill of exchange would irreparably damage the plaintiffs ability to meet the carefully determined cash flows worked out for the successful completion of the plan and it will affect the project and the plaintiff would be defaulter and has to face the consequence of such default. ' Mr. Khalid Rehman, learned counsel for the contesting defendants maintained that the first bill of exchange matured for payment on 31-1-2002 and it was duly accepted by the plaintiff on 10-2- 2001. The defendant No,3 on endorsement by the defendant No,1 and discounted by the defendant No,3. The defendant . No,3 became "holder in due course" and the bill mature for payment on 31-1- 2001 was due for payment or presentation but could not be presented due to sta3 granted by this Court, on the day of presentation viz 31-1-2001. He also contended that the Articles 2.5 and were amended. According to Article 5, the payment of 75% of contract price was payable in 14 equal consecutive semi-annuai instalments, the first one failing due 21 months after coming into force of contract. The effective date of contract in terms of Article 16.2 (amended contract) was the date of receipt by the defendant No,1 of the down payment as per Article 5.3.2 of the contract. He also pointed out that the down payment 25% of the sale price was made by the plaintiff on 17-3-1996, 18-9-1996 and 13-9-1996, according to para. 3 of the plaint, thus according to him, the effective date was in terms of Article 16.2 when the down payments were made by the plaintiff. He also referred clauses 5.3.2 which require 10% of contract price namely, Swiss Franks 3,10,000 within 120 days at the time of submitting of basic design documents and payment in cash or against irrevocable letter of credit, therefore, he contended that it is wrong to contend that the effective date was 17-4-2001 and the maturity date for payment of bills has been varied. Articles 2.5 and 16 were amended, whereby the shipment period was reduced within 2 to 6 months from the effective date of contract, repayment of 75% of the contract price on seller's credit in 14 equal consecutive
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semi-annual instalments, the first one falling due 21 months after coming into force of contract and effective date in terms of Article 16.2 was the date of receipt by the MAURER of the down payments as per Article 5.3.2 of the contract. The down payment according to the plaintiff was made on 17-3- 1996, therefore, it is wrong to contend that the enforcement date was 17-4-2001. ' Mr. Muneer A. Malik also disputed the defendant No,3 claim to be the "holder in due course". According to him, the defendant No,3 to claim holder in due course under section 9 of the Negotiable Instruments Act, has to show that he is holder for consideration and endorsement thereof before it became over due and lastly without notice of the defect in title of the defendant No,1 from whom defendant No,3 derived their own title. He contended that the defendant No,3 cannot claim that he had no knowledge of the defect in title of the defendant No,1 as the amendment to the contract is admitted by defendant No,3 and he has referred that the bills of exchange were drawn under contract, dated 17-1-1996 and to contend that defective title of the defendant No,1, it has been canvassed before me that if the bill is presented before the maturity date for payment when it was not due, it will be a defective bill. Mr. Muneer A. Malik has canvassed that no doubt the Courts have not granted the stay in case involving the letter of credit or bill of exchange except in exceptional cases, when a demand for payment is fraudulent or where there is challenge to the authenticity of the bill and referred the case of (1) Ajaz Anis v. Tariq Isa and 6 others (1999 CLC 259) and (2) Haral Textiles Limited v. Banque Indosuez Belgium, S.A. And others (1999 SCMR 591). Later case has also been referred and relied upon by the learned counsel for the contesting defendants and it would be advantageous to refer the facts involved and rule enunciated therein. The facts were that the appellant agreed to purchase certain machinery from respondent No,2, a Belgium firm, and for that purpose opened an irrevocable Letter of Credit through Messrs Allied Bank of Pakistan Limited, which was arrayed as respondents Nos,6 to 8. Under the terms of the Letter of Credit the payment was to be made in 12 instalments on the dates specified on the bills of exchange drawn by respondent No,2 i,e, the seller, and accepted by the appellant purchaser. The required machinery and other allied articles were duly received and the same were installed. It was the case of the appellant that upon operation of the above machinery it was discovered that the same was defective, resulting in serious losses to the appellant. The appellant, therefore, filed suit for recovery of Rs,344.68 million or its equivalent amount in Belgium currency on the ground of breach of specifications and the inferior quality thereof. They also sought permanent injunction against the defendants inter alia for restraining Messrs Allied Bank of Pakistan Limited from releasing or remitting any payment by annual instalments. An application under Order XXXIX, rules 1 and 2, C.P.C. Was also filed, which was allowed by the learned Civil Judge by order, dated 29-10-1996. Further injunction was asked, restraining the seller and the negotiating bank/respondent No,1 from claiming any amount under the Letter of Credit or the bills of exchange drawn under the Letter of Credit by making payment of the sale price to respondent No,2, the seller. The appeal was filed before High Court, which was allowed in the following item:-- "10. For the above reasons, this appeal is allowed and the impugned order, dated 29-10-1996, restraining payment under the Letter of Credit except on the condition of furnishing of bank guarantee, Is set aside and the application of plaintiff-respondent No, 1 herein filed under Order 39, rules 1 and 2, C.P.C. Is hereby dismissed. No order as to costs." ' Leave to appeal was granted to consider the question, whether the. High Court was not justified to interfere with in the discretionary order of the Trial Court, and whether the appellant/plaintiff was estopped from asking for restraint order against payment under the Letter of Credit on the facts and circumstances of the case. Justice Ajmal Mian, Chief Justice (as he then was) wrote the judgment on behalf of the Bench, after considering the case-law referred from English, Indian and Pakistani jurisdiction, on behalf of the parties (i) Messrs U.D.L. Industries Ltd. v. Hongguang Electron Tube Plant and others (PLD 1997 Karachi 553), (ii) Pan Ocean Enterprises (Pvt.) Limited v. Thai Rayon
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Company Limited and 5 others (PLD 1990 Karachi 395), (iii) Messrs Kohinoor Trading (Pvt.) Ltd. v. .Mangriani Trading Co. And 2 others (1987 CLC 1533), (iv) The State Trading Corporation of India Ltd. v. Jainsons Clothing Corporation and another (AIR 1994 SC 2778), (v) Syndicate Bank v. Vijay Kumar and others (AIR 1992 SC 1066), (vi) General Electric Technical Services Company Inc. v. Messrs Punj Sons (P.) Ltd. And another (AIR 1991 SC 1994), (vii) Centax (India) v. Inmar Impex Inc. And others (AIR 1986 SC 1924), (viii) United Commercial Bank v. Bank of India and others (AIR 1981 SC 1426), (ix) Messrs Synthetic Foams Ltd. v. Simplex Concrete Piles (India) (Pvt.) Ltd. (AIR 1988 Delhi 207), (x) Messrs Banerjee & Banerjee v. Hindustan Steel Works Construction Ltd. And others (AIR 1986 Calcutta 374), (xi) National Oils & Chemical Industries, Delhi v. Punjab & Sindh Bank Ltd., Delhi and another (AIR 1979 Delhi 9), (xii) Braja Kishore Dikshit v. Purna Chandra Panda (AIR 1957 Orissa 153), (xiii) (Vatakkam Chirayil Parkum) Kurundaliammal v. T.P.E.N. Kunhi Kannan and others (AIR 1930 Madras 141), and the commentaries on (i) The Law of Bankers; Commercial Credits by the late H.C. Gutteridge and Maurice, 1984 Edition, (ii) Documentary Credits by Raymond Jack, 1993 Edition, (iii) Frey & Sons, Incorporated v. E.R. Sherburne Company and The National City Bank of New York. App. Div. Vol. CCCIII, November 12, 1920, (iv) Hamzed Malas & Sons v. British Imex Industries Ltd. (2) Queen's Bench Division 127), (v) Discount Records Ltd. v.Barclays Bank Ltd and another (1975) 1 All ER 1071, (vi) D.S. Aujla Company (Pvt.) Ltd. v. Kaluram Mahadeo Prosad and others (AIR 1983 Calcutta 106), (vii) Sirafi Trading Establishment v. Trading. Corporation of Pakistan Ltd. (1984 CLC 381), (viii) Messrs Allied Industries Hub (Pvt.) Ltd. v. Messrs China National Metals and Mineral Import and Export Corporation and another (1989 MLD 2027), (ix) Sevenska Handelsbanken v. Messrs Indian Charge Chrome and others (1995 PSC 1276) and concluded as follows:-- "From the above cited case-law and the celebrated treatises on the subject, it appears that the effect of an irrevocable Letter of Credit is to substitute the issuing bank for the buyer as to the person who undertakes to buy the shipping documents and this undertaking is absolute in the sense that so long as the documents of title to the goods which the seller tenders to the bank are in accordance with the terms of the contract, the . Bank is under an obligation to accept the same regardless of any dispute between the seller and the buyer as to the quality of the goods or otherwise. Any dispute between the seller and the purchaser is extraneous in such a case. On the basis of the above legal position an elaborate commercial system has been built up on the footing that bankers' confirmed credits are of that character which do not call for interference by a Court of law. The above system would break down completely if a dispute as between the seller and the purchaser was to have the effect of freezing the sum in respect of which the Letter of Credit was opened. ' It is only in exceptional cases that the Court will interfere with the machinery of irrevocable obligation assumed by banks for the reason that they are the life blood of international commerce. The above exceptional cases include, where it is proved that any demand for payment already made or will thereafter be made will clearly be fraudulent or when there is a challenge to the validity of a Letter of Credit on a ground akin to fraud or concealment of material facts. ' It may be observed that holder in due course of a Bill of Exchange executed in respect of a Letter of Credit stands on a higher pedestal than a simpliciter, beneficiary under Letter of Credit. It may be stated that the interest of innocent parties, who may hold drafts upon Letter of Credit, should not be made to suffer by a reason of rights that may exist between the parties to the contract in reference to which the Letter of Credit was issued. It would be a sad day in the business world, if for every breach of contract between the buyer and the seller, a party may come to a Court of equity and enjoin payment on drafts drawn upon Letter of Credit issued by a bank which owes no duty to the buyer in respect of the breach. ' The same principles are applicable to a Bank Guarantee. A contract of Bank Guarantee is a trilateral contract under which the bank has undertaken to unconditionally and irrevocably abide
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by the terms of the contract. It is founded on an act of trust with full faith to facilitate free growth of trade and commerce in internal or international trade or business. It, like a Letter of Credit, creates an irrevocable obligation to perform the contract in terms thereof. A Bank must honour a Bank Guarantee free from interference by the Courts otherwise trust of any commerce, internal and international, would be irreparably damaged, if a Bank Guarantee is unconditional and irrevocable, the Bank concerned must pay when demand is made unless the Bank has pledged its own credit involving its reputation. Generally, it has no defence except in case of fraud. ' Mr. Khalid Rehman, learned counsel for the contesting defendants contended that the defendant No,3 is "holder in due course" under section 9 of the Negoitable Instruments Act, which defines "holder in due course" means any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable…
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