Paragraph numbers below are the court’s original numbering, recovered from the source text.
11. The trial court after viewing the evidence and hearing c the argu'ments held that the issuing bank has properly A dishonoured the documents relating to the letter of credit and the seller was not entitled to get any amount or interest from the issuing bank and the advising bank on the basis of that letter of credit. The trial court has also concluded that seller accepted the encashment of bill and document on collection basis. in light B of these findings, the trial court vide its decision dated February 4, 2002 dismissed the seller's claim.
12. The seller filed first appeal against the judgment a·nd decree of the trial court before the High Court of Madhya Pradesh. As noted above, the Division Bench of that Court C allowed the seller's appeal and granted a decree to the seller as prayed in the suit.
13. The legal position appears to be fairly well-settled that a draft with accompanying documents-must be in strict accord D with the letter of credit. If the documents presented comply with the terms of the credit, the issuing bank must honour its obligation in accordance with the terms of credit. In United Commercial Bank v. Bank of India and others1, this Court referred to few decided cases of the English Courts, Halsbury's E Laws of England and also couple of books on the subject by eminent authors-Davis' Law Relating To Commercial Letters of Credit, 2nd Edn. (at page 76) and Paget's Law of Banking, 8th Edn. (at page 648)-and it was held that the documents tendered by the seller must comply with the terms of the letter F of credit and that the banker owes a duty to the buyer to ensure that the buyer's instructions relative to the documents against which the letter of credit is to be honoured are complied with. It was stated that the description of the goods in the relative bill of lading must be the same as the description in the letter of credit, that is, the goods themselves must in each case be G described in identical terms, even though the goods differently described in the two documents are, in fact, the same. The Court reiterated, ' …… a bank issuing or confirming a letter of credit is not concerned with the underlying contract between H 1. (1981) 2 sec 766 STATE BANK OF INDIA AND ANR. v. EMMSONS INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.] the buyer and seller. Duties of a bank under a letter of credit are created 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 ietter of credit'.
14. Where the customer of bank instructs the bank to open a credit, the bank acts at its peril if it departs from the precise terms of the mandate.
15. Lord Diplock in Commercial Banking Co. of Sydney Ltd. v. Jalsard Pty. Ltd. 2 stated at page 286 of the Report that the issuing banker and his correspondent bank have to make decisions as to whether a document which has been tendered by the seller complies with the requirements of a credit.
16. It needs no emphasis that a contract is· concluded between the issuing bank <;1nd the seller no sooner the bank issues the credit and communicates it to the seller. Under an irrevocable credit the issuing bank gives an unequivocal and binding undertaking to the seller that it will pay against documents/bills drawn in compliance with the terms of credit.
17. The relevant clauses of Articles 13, 14 and 19 of UCP 500 read as under: "Article 13. Standard for Examination of Documents a Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles. Documents which appear on their face to 2. (1973) AC 279. be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit. Documents not stipulated in the Credit will not be examined by banks. If they receive such documents, they shall return them to the presenter or pass them on without responsibility. b The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each c have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly. c ……. Article 14. Discrepant Documents and Notice a …… b Upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents. c If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgement approach the Applicant for a waiver of the discrepancy(ies}. This does not, however, STATE BANK OF INDIA AND ANR. v. EMMSONS INTERNATIONAL LTD. AND ANR. [R.M, LODHA, J.] extend the period mentioned in sub. Article 13 (b). d. i. . . . . . . ii. Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter. iii. . . . . . . . . e If the Issuing Bank and/or Confirming Bank, if any, c fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit. f ………. Article 19. Bank-to-Bank Reimbursement Arrangements a ……. b Issuing Banks shall not require a Claiming Bank to supply a certificate of compliance with the terms and conditions of the Credit to the Reimbursing Bank. c …….. d …… e II …….
18. In light of the above legal position, we heard Mr. R.K. Sanghi, learned counsel for the appellants and Mr. Shyam Divan, learned senior counsel for the 1st respondent for some time. In the course of hearing, however. it transpired that the [2011) 10 S.C.R. A High Court in its judgment that runs into 56 foolscap pages while reversing the judgment of the trial court, has not at all adverted to issue no. 5 framed by the trial court nor it considered or upset the finding of the trial court on that issue.
19. Mr. Shyam Divan, learned senior counsel for the seller 8 – 1st respondent fairly sta~dJbat-the-finding on issue no. 5 recorded by the trial eeillf has not at all been considered in the impugned judgment although, he strenuously urged that once the discrepancies on the basis of which the issuing_b_ank- refused the documents were rectified and Jlle.!jme"'31Fow8d for C encashment had expired, the issuing"'Sank was obliged to honour the letter of credit and the case set up by the issuing bank that the seller had accepted the encashment of bill and document on collection basis was false and frivolous.
20. Having regard to the controversy set up by the parties in-the course of trial, in our view, it cannot be-said that issue no. 5 is immaterial or finding of the trial court on that issue is inconsequential. The High Court was hearing the first appeal and, as a first appellate court it ought to h<'Ve considered and addressed itself to all the issues of fact and law before setting E aside the judgment of the trial court. The judgment of the High Court suffers from a grave error as it ignored and overlooked the finding of the trial court on issue no. 5 that the seller accepted the encashment of bill and document on collection basis. The High Court was required to address itself to issue no. 5 which F surely had bearing on the final outcome of the case.
21. In Santosh Hazari v. Purushottam Tiwari (Deceased) by L.Rs. 3, this Court held (at pages 188-189) as under: " …….. The appellate court has jurisdiction to reverse or affirm the findings of the trial court. First appeal is a valuable right of the parties and unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. The judgment of the appellate court must, therefore, reflect its conscious application of ' 3. c2001) 3 sec 11s. STATE BANK OF INDIA AND ANR. v. EMMSONS INTERNATIONAL LTD. AND ANR. [R.M. LODHA, J.] mind and· record findings supported by reasons, on all the issues arising along with the contentions put forth, and pressed by the 'parties for decision of the appellate court . . . . while reversing a finding of fact the appellate court must come into close quarters with the reasoning assigned by the trial court and then assign its own reasons for arriving at a different finding. This would satisfy the court hearing a further appeal that the first appellate court had discharged the duty expected of it. ….. "
22. The above view has been followed by a 3-Judge Bench decision of this Court in Madhukar and Others v. Sangram and C Others4, wherein it was reiterated that sitting as a court.of first appeal, it is the duty of the High Court to deal with all the issues and the evidence led by the parties before recording its findings.
23. In the case of H.K.N. Swami v. lrshad Basith (Dead) by LRs. 5, this Court (at pages 243-244) stated as under: 'The first appeal has to be decided on facts as well as on law. In the first appeal parties have the right to be heard both on questions of law as also on facts and the fir:st appellate court is required to address itself to all issues and decide the case by giving reasons. Unfortunately, the High Court, in the present case has not recorded any finding either on facts or on law. Sitting as the first appellate court it was the duty of the High Court to deal with all the issues and the evidence led by the parties before recording the finding regarding title ……… ".
24. Again in Jagannath v. Arulappa and Another° while considering the scope of Section 96 of the Code of Civil Procedure, 1908, this Court (at pages 303-304) observed as follows: 4. (2001) 4 sec 756. 5. (2005) 1 o sec 243. 6. (2005) 12 sec 163. c SUP'REME COURT REPORTS · "2. A court of first appeal can reappreciate the entire evidence and come to a different conclusion. In the present case, we find that the High Court has not adverted to many of the findings which had been recorded by the trial court. For instance, while dismissing the suits filed by the respondents, the trial court had recorded a finding on Issue 5 that the defendant-appellant had taken actual possession of the suit properties in Execution Petition No. 137 of 1980 arising out of OS No. 224 of 1978. Without reversing this finding, the High Court simply allowed the appeals and decreed the suits filed by the plaintiff. respondents in toto. Similarly, there are other issues on which findings recorded by the trial court have not been set aside by the High Court. The points involved in the appeals before the High Court required a deeper consideration of the findings recorded by the trial court as well as the evidence and the pleadings on record."
25. The decided cases of this Court in Jagannath6 and H.K.N. Swami5 were noticed by this Court in a later decision in the case of Chinthamani Ammal v. f\Jcindagopa/ Gounder E and Another.
26. In our view, the High Court failed to follow the fundamental rule governing the exercise of its jurisdiction under Section 96 of the Code of Civil Procedure, 1908 that where the first appellate court reverses the judgment of the trial court, F it is required to consider all the issues of law and fact. This flaw vitiates the entire judgment of the High Court. The judgment of the High Court, therefore, cannot be sustained.
27. For the above reasons, we accept the appeal, set aside the impugned judgment of the High Court and restore G First Appeal No. 225 of 2002 for re-hearing and fresh decision. All contentions of the parties are kept open to be agitated at the time of the hearing of the first appeal. No order as to costs. D.G. Appeal disposed of. H 7. (2001) 4 sec 163.