JUDGMENT
Sachar, J.
1. This is an appeal against the order of the learned single judge dated February 16, 1981 (See [1983] 54 Comp Case 313 (Delhi), by which he refused the application of the appellant/defendant under O. 37, r. 5, of the CPC, 1908, for leave to defend the suit filed by the plaintiff and, consequently, passing a decree for Rs. 18,44,944.80.
2. A contract was entered into between the appellant and one M/s. Palmex Enterprises, Singapore, dated July 11, 1979, for the purchase of PVC resin. The contract was for an amount of Rs. 16,50,000. In terms of the contract, a confirmed letter of credit was opened with the respondent/plaintiff bank. The letter of credit was transmitted to the seller, Palmex Enterprises, through Hanover Trust Co., Singapore (to be called “the negotiating banker’) authorising them to negotiate the draft for the face amount of the credit and, therefore, claiming reimbursement of the amount paid to the seller by debiting the amount to the plaintiff bank with its New York Office. Hanover Trust informed the plaintiff bank on September 3, 1979, that it had negotiated the documents tendered by the seller and had made the payment in terms of the letter of credit and asked for reimbursement. On September 10, 1979, the documents were presented to the buyers. It appears that earlier, the ship, M. V. Dahdi, which was alleged to be carrying the consignment of the goods, was said to have sunk. The appellants instead of making payment took the stand that an insurance was taken out on the goods and he lodged the claim with the insurance company. Some correspondence ensued between the appellant and the plaintiff bank. But no payment having been made by the appellants, the bank used for the amount in question.
3. The defendants applied as was necessary for leave to defend the suit. Various defenses were taken; it was pleaded that there was the benefit of marine insurance taken by the plaintiff and, therefore, the appellants were not liable. It was also pleaded that the goods had never been shipped and that the appellants could not be thus made liable. It was also pointed out and this is what mainly the learned counsel for the appellant, Mr. Dewan, sought to urge that there were lot of discrepancies and irregularities and the documents were not in compliance with the letter of credit (details mentioned in the letter dated April 7, 1980). A day before filing this suit, a notice was sent by the plaintiffs on July 9, 1980.
4. The learned single judge did not examine on merits the defenses raised by the appellants for the grant of leave. This he did not do because, according to him, in terms of the conditions agreed to by the appellants in his letter of August 3, 1979, with the plaintiff bank, it had undertaken that in consideration of plaintiff having agreed to open the above letter of credit (LC), they would retire the documents on presentation of relative documents and that in case they fail to retire the documents within seven days form the date of presentation, the bank had authority to retire the documents at their risk and responsibility. The learned judge held that no objection had been raised to the documents within the said period. It, therefore, held that as during the period of seven days, the buyers did not take the plea that the documents were not strictly in accordance with the terms of the letter of credit, they could not now be allowed to allege that the plaintiff bank acted outside their mandate and ton allow the buyers to repudiate their liability after seven months of presentation of documents would be doing injustice to the plaintiff bank. The buyers were thus held bound by their waiver and not entitled to raise any pleas as to non-compliance by the plaintiff bank with the terms of the letter of credit. Leave was thus refused. The appellants naturally have filed an appeal against this order.
5. We may mention that originally the appeal (FAO (OS) No. 18 of 1981) was filed against the order refusing leave to defend on a fixed court fee. This appeal was filed within time in March, 1981. At that time, the view about the competency of appeal prevailing in this court was a laid down in University of Delhi v. Hafiz Mohd. Said , under which an appeal would not have lain to a Division Bench because the said order is not appealable under O. 43, r. 1, CPC, and that is why it had been indicated by Mr. Narula, the learned counsel for the plaintiff, that he would be objecting that the appeal was not properly filed because it was not filed with the requisite court fee which meant ad valorem court fee because on the refusal to grant leave, a decree had also followed. Subsequently, the appellant filed R.F.A. (OS) No. 14 of 1981 by paying requisite court fee (this was done beyond time) though reserving its right to maintain that no court fee was payable. We would, in the normal course, have had to decide that in case it is held that no appeal was competent against an order refusing leave under O. 37, CPC, whether a regular first appeal filed by the appellant against a decree could be considered to be within time because admittedly court fee court fee was paid beyond the statutory period of limitation. We are, however, relieved to do so because Hafiz Mohd Said’s case, , has been held to be no longer good law as stated in S.L.P. 3894 of 1982 decided on May 6, 1982. The Supreme Court has laid down the parameters and conditions in which an appeal could lie from a single judge’s order to a Division Bench under letters patent, (See Shah Babulal Khimji v. Jayaben D. Kania, ). Though Mr. Narula somewhat hesitatingly wanted go to urge that the Full Bench decision had specially taken into consideration the parameters of orders which can be held to be appealable under the letters patent but had nevertheless held that because of historical perspective in this part of area, the legislature had designedly made a departure and consideration relevant for interpreting the word “judgment” under letters patent are irrelevant and foreign when deciding which orders are appealable from the judgment of a single judge to a Division Bench under the Delhi High Court Act, 1966. But this argument is of no avail so far as this court is concerned because the Supreme Court, in the said case, has specifically overruled the Full Bench of this court. That an order refusing leave to defend the suit in an action under O. 37, CPC, is a judgment and, hence, appealable has been held in Shah Babulal Khimji’s case, . In that view, it is apparent that an appeal is competent against the impugned order refusing leave to defend and the challenge to the competency of appeal must, therefore, fail.
6. Mr. Dewan next contended that the present suit was not one which was covered within Chapter 15 of the Delhi High Court (Original Side) Rules as one of those which may be tried as summary suits and, therefore, the present proceedings under O. 37, CPC, initiated by the respondents were misconceived. This argument seeks to find support from Printpak Machinery Ltd. v. Jay Kay Paper Congeters, , wherein it has been held that in the event of inconsistency, the Original Side Rules on the original side of this court prevail and not the CPC and the Amendment Act of 1976 has made no difference in this respect. But the authority has no applicability. The present is a case for reimbursement of amount paid under confirmed letter of credit, and the following observations in Food Corporation of India v. Bal Kishan Garg [1980] DLT 167 would apply.
7. It should be construed as a suit for enforcing payments of a debt within the amended clause (b) of sub-rule (2) of rule 1 or order 37, CPC, which covers a few more categories of suits and not being inconsistent with rule 1 of Chapter XV of the Original Side Rules, will govern the present suit, vide rule 12 of the said rules, as explained in Printpak Machinery Ltd. v. Jay Kay Paper Congeters, . Avadh Behari J. in Sushila Mehta v. Shri Bansi Lal Arora (I.A. No. 3032 of 1981 in Suit No. 93 of 1981, decided on 26-10-1981) has held that the amendment of Order 37, CPC, is neither repugnant nor inconsistent with Chapter XV of the Original Side Rules, and a suit on a debt arising out of written contract can be brought under the summary procedure. We are in respectful agreement with that view.
8. Mr. Dewan, however, contended that the present was not a suit arising out of a written contract within the scope of expanded clause (b) of sub-r. (2) of r. 1 of O.37, CPC. The argument was that before the amount could be claimed, it had to be shown that the terms of the letter of credit have been complied with and it was only then that it could be said that there was any amount due and till that time it could not be held that there was any debt or a liquidated amount which could be claimed. We cannot agree. The banker’s irrevocable credit (as in the present case) is a device which has been introduced to ease and facilitate international trade of buying and selling. In this, the buyer approaches his own banker (usually described as an issuing banker) and instructs him to issue an irrevocable credit giving him details of the transactions. This constitutes a contract between the buyer and the banker (See Anson’s Law of Contract, 24th edition, page 413).
9. Pursuant to the contract of sale, the buyer requests his own bankers to open a documentary credit in favor of the seller. The buyer completes an application form provided by the buyers. The application form then becomes the basis of the contract between the issuing banker and the buyer, vide Benjamin on Sale of Goods, second edition, para 2183.
10. Pursuant to a contract of sale, the buyer, in order to procure the issue of credit, applies to a local bankers setting out his requirement. This is usually made up on a standard application form provided by the banker. The relationship between the buyer and the issuing banker depends solely on the terms of contract between them and are not affected by rights or obligations which either of them has against or owes to the other party. Thus, if the banker at the instructions of the buyer issues an irrevocable credit, then despite any dispute that the buyer cannot on his own will compel the banker to cancel the credit (vide Chitty on Contracts, 24th edition, page 262, para 2613.)
11. There can be thus no doubt that the relationship between the appellant who asked for the issue of credit by the respondent/plaintiff which is the issuing banker is governed by a written contract between them. The application to open a documentary credit which is the basic of contract requested opening of an irrevocable credit in the amount of Rs. 16,50,000. By this application, the appellant undertook to provide the bank on or before maturity with funds to meet all expenses together with commission charges, etc. Thus there is a definite amount for which the liability had been undertaken by the appellant subject to the bank disbursing the amount in accordance with the terms laid down in the letter of credit. It is an ascertained and definite amount and an unqualified liability in regard to a definite amount with the obligation to pay forthwith. The mere facts that the appellant could, on proof that the bank had not complied with the terms of the letter of credit, be able to disclaim liability does not mean that the claim of the bank does not arise out of a written contract. This preliminary objection to the maintainability to the form of the suit fails.
12. Now, the principles on which courts should grant or refuse leave to defend the suit are not in doubt. Thus :
“(b) If the defendant raises a terrible issue indicating that he has a fair or bonafide or reasonable defense although not a positively good defense, the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend.
(c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defense, yet shows such a state of facts as leads to the inference that at the trial of the action, he may be able to establish a defense to the plaintiff’s claim, the plaintiff is not entitled to judgment and the defendant is entitled to leave to defended, but in such a case, the court may in its discretion impose conditions as to the time or mode of trial but not as to payment into court or furnishing security”. (See Michael Engineers & Manufacturers v. Basic Equipment Corporation, ).
13. The question is to whether the case of the appellant falls within (b) or (c) above. In this context, it is necessary to appreciate and understand the implication of the relationship between the parties, that is, the buyer, like the appellants, the issuing banker, like the plaintiff bank, and the manufacturers, Hanover Trust Co., Singapore, the negotiating bank, and the Palmex Enterprises, the seller. In all sale transactions, the question of trust between the buyer and the seller is of material significance. Sales may be made on the faith that the buyer will carry out his part of the bargain and make payment. In such a case, the intervention of the bank, is not invited. In many cases, however, the intervention of the bank, in order to see that the payment is made to the seller in terms of the contract, is called for. This is more often the case in the case of a sale to a foreign buyer. In that case, the intervention of the bank in the country of the buyer is invoked, but then if the seller is a foreign supplier, he may not be satisfied to rely on the credit of a banker of the country to which the buyer belongs but may prefer to have a promise of a banker carrying on business in his own country. In such cases, the banker issuing the credit will nominate another banker known as the intermediary or a negotiating banker, the relationship with whom is, unless otherwise agreed to be, that of principle and agent, so that when the intermediary banker has fully complied with his mandate, he has a right to reimbursement of any moneys he has properly paid. The rights and liabilities of intermediary bankers are mostly, if not entirely, governed by the terms of the instructions which they receive from the issuing banker and of the advice or notification communicated by them to the seller in pursuance of such instructions. The appellants were buying the goods from Palmex Enterprises of Singapore. For that purpose, the appellant applied to the plaintiff bank to open an irrevocable credit in favor of Palmex for Rs. 16,50,000. The issuing bank (the plaintiff), in its own turn, informed the seller, Palmex, of having opened the necessary confirmed irrevocable letter of credit and also informed that the term of credit will be honoured on due presentation and that Hanover Trust Co., the negotiating bank, has been allowed to negotiate the draft for the face amount under the credit. On August 3, 1979, the appellant had also given in writing to the respondent bank that in consideration of the latter having agreed to open the letter of credit, he undertakes to retire the documents on presentation and had also stated that “in case he fails to retire the documents in LM/TAS A/c in local currency at our risk and responsibility”. The negotiating bank is said to have informed the plaintiff that it made the payment to the seller against the shipping document on August 31, 1981. On September 8, 1981, the plaintiff bank received original documents from the negotiating bankers. On September 10, 1981, the documents were presented to the buyer and they were asked to make the equivalent payment. As mentioned above, since the payment was not made by the appellant, the suit has been brought for recovery of the amount.
14. In the application for leave to defend, various pleas have been taken. Some defenses do not deserve consideration. This is because many of the defenses relate to the liabilities on a contract rising between the buyer and the seller. The defenses that the goods were lost and never reached the destination or that there was an insurance policy taken on the goods or that the plaintiff had also the benefit of the insurance policy with regard to those goods and, therefore, can claim the said amount from the insurance company are defenses which had nothing to do with the liability of issuing bankers to make payment in terms of the contract between it and the seller because any dispute between the buyer and the seller has no relevance to the liability under the terms of the letter of credit.
15. An irrevocable letter of credit constitutes an independent contract between the issuing banker and the seller and is not qualified by or subject to the terms of the contract of sale made between the buyer and the seller, or the contract between the issuing banker and the buyer also (vide Chitty on Contracts, 24th edition, para 2620).
16. If the banker at the instruction of the buyer issues an irrevocable credit, then despite any dispute that the buyer may thereafter have with the seller under the contract of sale, the buyer cannot of his own will compel the banker to cancel the credit (vide Chitty on Contracts, 24th edition, para 2613, page 262).
17. The contract thus created between the seller and the banker is separate from, although ancillary to the original contract between the buyer and the seller by reason of the banker’s undertaking to the seller which is absolute. The buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective (vide page 102 of Halsbury’s Laws of England, 4th edition, volume 3).
18. The claim between the plaintiff bank and the seller is an independent one while the contract between the appellant and the plaintiff bank is a separate one. They are not integral part of the same thing. The reason why the irrevocable letter of credit was owned in favor of the seller was no doubt because of the contract between the appellant and Palmex Enterprises, but then this contract is independent and distinct from the bargain between the issuing banker and the seller. The rights under both the contracts are distinct and cannot be integrated into one.
19. Of course, the buyer can stipulate the form of any document against which payment is to be made and the banker must at his peril insist upon complete compliance. In order that the banker can claim reimbursement, it must show that it has performed it mandate. Thus, the buyer cannot enjoin the issuing bank from honouring the draft presented by the seller and accompanied by the required documents merely because the seller has failed to perform his contract with the buyer by supplying goods of an inferior quality (vide Chitty on Contracts, 24th edition, para. 2620).
20. But there is also an equally well-settled rule that a person who ships in reliance on a letter of credit must do so in exact compliance with its terms. It is also elementary to say that a bank is not bound or indeed entitled to honour drafts presented to it under a letter of credit unless those drafts with the accompanying documents are in strict accord with the credit as opened. The observation of Lord Sumner to the effect that “there is no room for documents which are almost the same or which will do just as well. Business could not proceed securely on any other lines were accepted in United Commercial Bank v. Bank of India, .
21. Mr. Dewan, learned counsel for the appellant, heavily relied on the appellant’s letter of April 7, 1980, in which the appellant had taken the stand that, amongst other defenses, there was the defense that there were glaring infirmities and clear non-compliance with the terms of the letter of credit in drawing the documents sought to be negotiated and the documents having been drawn contrary to and not in compliance with the strict terms of the letter of credit, the bank should have rejected the documents and not made the payments. That in the leave application reliance was placed on this letter could not be disputed though Mr. Narula, learned counsel for the bank, sought to urge otherwise. We cannot agree with Mr. Narula. We are satisfied that in the leave application, the averments made in the letter of April 23, 1980, were incorporated as various pleas of defense being put forth by the appellant. The learned single judge, however, did not go into any of these pleas of the appellant because he held that as the period of seven days from 10th September was allowed to expire without any reason, it was not open to buyer to say that the terms of the letter of credit had not been observed. The learned judge accepts that during the crucial period of seven days, the buyer could have pointed out any discrepancy if there was one in honouring the letter of credit but he takes the view that failure to raise any objection within the period of seven days is decisive of the matter and that the appellant cannot be permitted to raise any objection after the period of seven days computed from September 10, 1979, when the shipping documents were presented to the buyer. The learned judge accept that if during the period of seven days, the buyer could point out that the terms of the letter of credit had not been complied with, they could avoid the liability, but as they sought to raise those objections in their letter of April 23, 1980, they could now be permitted to raise the plea that the bank had acted outside its mandate. He held that the right to raise objection on the score of non-compliance with, the condition in the letter of credit is gone once a period of seven days had passed. He therefore, held that no objection could be revised as the appellant must be deemed to have waived any objection he might have had. He, therefore, refused leave and decreed the suit.
22. Mr. Dewan contends that the finding about the waiver by the learned judge alone would show the error in the judgment as he had given a finding on an issue of fact without permitting evidence to be led. Now, “it is elementary that waiver is a question of fact and it must be properly pleaded and proved. No plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation for it is laid in the pleadings. ‘Waiver’ means abandonment of a right and it may be either express or implied from conduct, but its basic requirement is that it must be an intentional act with knowledge.'” (vide Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. ). Mr. Dewan’s grievance is that nowhere in the plaint was the plea of waiver raised. No doubt the plaint stated that objections to the presentation of document within a period of seven days (as per terms of letter of August 3, 1979) had not been taken. But it cannot be denied that no plea of abandonment of the right of the appellant had been taken on the ground that after an period of seven days, it must be deemed to have been given. Mr. Dewan refers to the letter of April 1, 1980, and says that prior to the filing of the suit, the appellant had specifically taken the plea that earlier the plaintiff bank had been told about the infirmities and non-compliance with the terms of the letter of credit and says that in that context the finding of waiver by the learned judge is both contrary to record and untenable. He says that before giving a finding of waiver, it was essential to give an opportunity to the parties to place facts before the court and such a finding cannot be assumed of based on conjectures.
23. Mr. Dewan had also objected that the reliance on the letter of August 3, 1979, as a justification for holding that the appellant had waived his right was a smoke-screen because adjustment had already been made by the Hanover Trust/the negotiating bank on August 31, 1979, much earlier than the presentation of the bill on September 10, 1979, and the plea of the appellant to the plaintiff bank for withholding the payment in case the appellant was to point out the discrepancies in the letter of credit would have been of no avail because payment to the Hanover Trust had already been made. But, Mr. Narula says, this objection is in ignorance of banking practice and says that in the normal course the negotiating bank makes the adjustment in its own books and then informs the issuing bank but that still leaves it open to the issuing banker to recall the payment if it is able to point out that the document is not in compliance with the terms of the credit and had the appellant objected within time, the plaintiff bank could have taken corrective steps. He also contends that silence on the part of appellant would amount to ratification by conduct and emphasises that ratification need not be express and can be implied by conduct. “Ratification will be implied from any act showing an intention to adopt the transaction, even silence or a mere acquiescence.” (vide Chitty on Contracts p. 2019). “But in a documentary credit transaction, the issuing banker does not contract on the buyer’s behalf. Usually, at the buyer’s request, the issuing banker enters into an independent contractual relationship with the seller. Thus, he does not purpose to act as an agent. For this reason, it may be more accurate to regard the buyer who accepts documents although the issuing banker has deviated from his instructions as waiving the breach. But it is to be doubted whether this distinction between waiver and ratification has any practical implications.” (vide Benjamin on Sale of Goods, p. 2186). But do not all these matters require to be gone into in trail ? We have mentioned these contentions to show that these are issues of fact which do arise and cannot be said to be so bereft of any merit that the appellant should not have been given leave to defend the suit so that he could prove his point by evidence. Surely the facts in the present case are stronger than those in Santosh Kumar v. Bhai Mool Singh, , (in which leave was granted) where though execution of cheque was admitted, stand was taken that it was a collateral security and that payment was made by cash and by other cheques. The Supreme Court held that it is failure of justice if the defendant, in these circumstances is not allowed to prove his assertion. We cannot see how a different conclusion can be arrived at in the present case.
24. In order to further strengthen the finding of the learned judge that the appellant, as he did not object to retiring of documents by the respondent bank within a period of seven days, must be held to be stopped, Mr. Narula, counsel for the respondent, goes further and refers us to a number of articles to be found in the brochure of “Uniform customs and practice” which admittedly governs the contract between the parties. He especially refers to art. 8 which provides that in a documentary credit operation (like the present), all parties concerned deal in documents and not in goods. Clause (b) of art. 8 provides that payments, acceptance or negotiation against documents which appear on their face to be in accordance with the terms and conditions of credit by a bank authorised to do so, binds the party giving the authorisation to take up the documents and reimburse the bank which has effected the payment, etc. Clause (c) provides that if upon receipt of documents, the bank considers that they appear on their face not to be in accordance with the terms and conditions of credit, that bank must determine on the basis of the documents alone whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit. Clause (d) gives the issuing bank a reasonable time to examine the documents and to determine whether to make such a claim. If a claim is to be made, notice to that effect stating the reasons must, without delay, be given by cable or other expeditious means to the bank from which the documents have been received. Mr. Narula specifically and very strongly relies on clause (f) which provides that if the issuing bank fails to hold the documents at the disposal of the remitting bank, or fails to return the documents to such bank, the issuing bank shall be precluded from claiming that the relative payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit. It is stressed that if there is a delay in taking objection to the documents, the bank is precluded and so on a party of reasoning if the appellant did not object to the bank retiring the documents within a period of seven days from the date of presentation as mentioned in letter of August 3, 1979, he is prohibited in law from raising any objection subsequently about the alleged non-compliance with the terms of the letter or credit. Mr. Narula strongly urges that if this be not the position, the banks will be placed in an unenviable situation in the matter of international credit. He says it is anomalous that while after a reasonable period of bank’s silence, it will be precluded from claiming that relative payment, negotiation was not affected in accordance with the terms and conditions of credit, the buyer should be allowed to sit pretty and choose to object after a great deal of delay and thus introduce uncertainty in international banking channel. We fully appreciate the urgency in international commerce and the desire to keep the stream of international trade free from any pollution unnecessary restraint. But at the same time whether this condition (Article 8 of U.P.C.) is to be read as limiting the right to object within a period of seven days, as Mr. Narula urges, cannot be said to be so patently clear as not even to call for a reply, which necessarily can only be done after giving leave to defend the suit to the appellant. A possible argument may be, as Mr. Dewan contends, that the only effect of the letter of August 3, 1979, is that if within seven days the appellant does not retire the documents, the bank is authorised to retire the same and no objection could be raised on the ground as to why they had been retired. But that does not mean, he says, that the bank can retire a document even if it was not in compliance with the terms and conditions of the letter of credit. The argument is that notwithstanding the silence of the appellant, the bank is not absolved of its liability to examine the documents to see that it strictly complied with the terms of the letter of credit and if the documents are not as mentioned in the letter of credit, the bank must refuse payment notwithstanding that the appellant may have kept silent after the presentation of the relative documents, Prima facie this argument cannot also be said to be totally devoid of force because admittedly the contract between the bank and the buyer being separate from that between the bank and the beneficiary, a paying banker who pays against documents describing goods in terms which are similar to, but not exactly the same as those stipulated in the credit cannot be protected (See para. 37 of UCO Bank’s case, ). If, therefore, Mr. Dewan urges, the credit contract is independent of the sale contract and if there is to be strict compliance by the banker with the customer’s instruction, how can it be said that simply because of silence of the appellant beyond a period of seven days, it automatically relieves the issuing banker from carrying out its mandate in terms of the letter of credit. May not it be too extreme to hold, he says, that even if it is a case of a absolute departure from the terms of the letter of credit, a buyer would be liable to reimburse the bank only on the ground that he had not exercised his option to write to the bank within a period of seven days. Equally it is plausible, as Mr. Narula says, that if the appellant did not act as required by letter of August 3, 1979, it is reasonable assumption that he is raising no objections to the documents and this legitimately led the bank to make payment and the appellant cannot be permitted to turn round after a delay of over seven months. Prima facie both these positions have a plausibility, but in these proceedings we are not to opine finally on either of them. We are only noticing these to point out that with such defenses it is impossible to say, as the learned judge seems to think, that the defense that the appellant wishes to raise is completely a moonshine and a chimerical one and that he is not even entitled to go to trial on this plea. Surely, this plea cannot be disposed of in this summary manner without having material regarding the practice in the trade and other relevant data on this matter. In order further to reinforce his contention that defense raises “terrible” issues entitling the appellant to the grant of leave to defend, Mr. Dewan refers us to a number of alleged discrepancies which he says are to be found in the documents, like bill of exchange, invoice bill of lading. He especially emphasises the defense mentioned in the letter of April 7, 1980 (para III), that Palmex Enterprises is a proprietary concern and yet all the negotiable documents are signed by the secretary, though it is not indicated what authority the secretary had to sign the documents nor was any such authority given in terms of the letter of credit. The argument is that the bill of exchange drawn by Palmex Enterprises could not be considered valid in the eyes of law and, therefore, was not negotiable. It is important to note that all these objections which were mentioned in the letter of April 7, 1980, by the appellant were taken note of by the plaintiff on July 9, 1980 letter but only a bald denial was made. There was no assertion that the secretary was authorised to negotiate the bill of exchange and had the proper authority or that in fact the bill of exchange had been signed by the proprietor. Even in the plaint though it is mentioned that the bill of exchange was not negotiated by the seller, no effort is made to explain the point as to how the secretary came to sign the bill of exchange. The invoice and the certificates are all signed by the secretary. According to Mr. Dewan, all these documents signed by the secretary on behalf of Palmex Enterprises cannot be said to be in compliance with the terms of the letter of credit because Palmex Enterprises is a proprietary concern and unless it was shown on the face of documents that there was an authority with the secretary, the documents are invalid.
25. Mr. Narula characterises this objection as not only hypertechnical but pointless and says that the mere fact that documents are signed by the secretary does not mean that they have not been signed on behalf of Palmex Enterprises. According to him, payments have been made and credited to the account of Palmex Enterprises and, therefore, the mere fact that documents purpose to have been signed by the secretary instead of the proprietor is of no consequence. Mr. Narula may well be right that the endorsement by the secretary instead of the proprietor is not of any serious flaw and cannot be treated to be a non-compliance with the terms of the letter of credit. But is not this aspect which can only be decided after a trial. Here the bill of exchange is signed by the secretary. Does it affect its negotiability as urged by Mr. Dewan or is it of no consequence, as urged by Mr. Narula ? Surely this aspect cannot be decided without having evidence regarding the circumstances in which it was endorsed by the secretary. Mr. Narula would characterise this objection as a sham objection, but that is not how J. D. Jain J. understood it in I.A. No. 1 of 1980 in Suit No. 2 of 1980 (Indo Java and Co. v. Bentrex and Co.) decided on November 13, 1981. In that case also, the bills of exchange had been signed by someone as secretary though it was a sole proprietary concern. Objection was raised that since on the face of the documents they do not show that the secretary had any authority to sign these documents, they were rendered non-negotiable and could not considered to be valid in law. The learned judge relied on an earlier decision given by him in I. A. No. 3104 of 1979 in Suit No. 1223 of 1979 decided on August 5, 1980 (Interlards Advertising P. Ltd. v. Bentrex and Co. [1983] 53 Comp Case 646 (Delhi), to hold that the document apparently suffered from obscurity and ambiguity and the same may legitimately give rise to some kind of litigation regarding the liability of the person making it. The learned judge, therefore, upheld this objection “that the negotiability of the said documents, in particular the bill of exchange, is rendered highly doubtful on account of this apparent flaw/discrepancy and that, in this view of the matter, it may be said prima facie that defendant No. 2 or, for that matter, the negotiating bank was under no legal obligation to accept or negotiate the same”. The learned judge further held that on this finding, “it may be said that there is a prima facie case in the sense that a terrible issue had been made out”. Mr. Dewan very strongly laid great emphasis on this aspect to argue that if one learned single judge of this court has held a similar defense to raise terrible issue, the appellant is at least entitled to the grant of leave even if ultimately on a matured consideration and after trial, the court was to reject such a defense. We are not saying that we necessarily agree with the views of J. D. Jain J. because the said matter is not in appeal before us. We are emphasising it only to point out that one learned judge (J. D. Jain) of this court had found arguable merit in this point to call it a terrible issue. Avadh Behari J. had not gone into this aspect because he seems to hold that once a period of seven days had elapsed, the appellant was not entitled even to raise a defense. Apparently on this matter also, J. D. Jain J. appears to have taken a somewhat different view because though no doubt holding that the plaintiff in that case was guilty of laches in not indicating his acceptance or rejection of the documents promptly and emphasising that the buyer must accept or refuse the documents tendered to him, promptly he did not go on to hold that such a defense was barred to the buyer, though it may have relevance in equity to the grant of injunction in his favor. It appears to us that in these circumstances the test laid down in Santosh Kumar’s case, , for the grant of leave is satisfied, namely, that the defense raised is not frivolous and untenable and cannot be called a sham one, and truth can only be found out by going into evidence and trial – a pre-eminent case where leave should have been granted.
26. We also must note that different considerations prevail for the issue of grant of interim injunction and for the grant of leave to defend under O.37, CPC. We are quite willing to accept that if on the present arguments an interim injunction had been sought by the appellant to restrain the bank from encashing any bank guarantee or security given by it during the tendency of the suit, we would be disinclined to issue the injunction. In the matter of considering whether to grant injunction or not, there has to be not only a prima facie case in favor of a party but it was further to be shown that the balance of convenience is in his favor and that irreparable harm and injury will be done if an injunction is not granted. Surely none of the latter two requirements is fulfillled in the present case because there is no balance of convenience in favor of the appellant considering that the plaintiff bank has prima facie made the payment to the negotiating bank purporting to act apparently on the basis of valid documents and without objection having been raised by the appellant within a period of seven days. There is also no question of irreparable harm and injury to the appellant because whatever money is adjusted by the bank could always be got back without difficulty if the bank’s claim is found to be unjustified and the appellant could be properly compensated by award of interest, etc., whereas to injunct the bank would be to involve it in further vexatious and expensive litigation. It is in that context that we are making it clear that though as a result of our accepting the appeal, the decree passed against the appellant will automatically be set aside, we are not inclined to direct restitution of the amount of Rs. 2 lakhs received by the bank on August 2, 1982, in pursuance of our order during the tendency of appeal and also not direct the reversal of adjustment of FDR of Rs. 85,000 deposited by the appellant as margin money with the bank (though about this FDR, it is even doubtful that any order could be passed in these proceedings). We feel that these deposits should remain with the bank, notwithstanding that we intend giving the appellant leave to defend the suit. In our view, the deposit of the amount will be some kind of a spur on the defendant/appellant so that he does not unnecessarily prolong the litigation. This course has the merit that if ultimately the suit is decreed, the appellant will be able to avoid payment of interest (which has been demanded by the bank) on this amount. Equally, if the suit fails, it will be open to the appellant to claim payment of interest on this amount unjustifiably held by the bank. These amounts will, therefore, remain with the bank subject to the final order which may be passed by the court at the time the suit is finally disposed of. This will sufficiently safeguard the interests of both the parties.
27.The facts of this case also do not show that the appellant is raising a defense without any bona fide reason and is out to enrich himself unlawfully. The present is not a case in which the appellant has taken benefit of the arrangement of over Rs. 18 lakhs and is now deliberately refuse to make the payment. Of course, it is true that, in terms of the contract, the bank has no concern whether the goods have in fact been received by the buyer or not and further if the bank has complied with the terms of the letter of credit, it is entitled to reimbursement and the fact that the goods have been sunk in the sea is a matter between the buyer (appellant) and the seller and would not absolve the appellant of his liability towards the plaintiff. But we are noting this fact only to show that it is not a case where the appellant having received the goods and having taken advantage of the letter of credit is perversely refusing to pay up the amount.
28. As a result of the above, we feel that the refusal to grant leave to the appellant to defend the suit is a harsh one and, in the circumstances, we feel that he is entitled to the grant of leave. We would, in the circumstances, set aside the judgment of the single judge and grant leave to defend the suit to the appellant. We, however, feel that though he is entitled to defend the suit, yet considering also that much time has passed, we do not wish that unnecessary time should be taken or utilised by the defendant/appellant to delay the trial of the suit. We would, therefore, while allowing the appeal and giving him leave, direct that he will file his written statement before the Deputy Registrar within a period of one month from today. We also make it clear that the Deputy Registrar will not give him any further time or extension for filing the written statement. The subsequent dates in the case will naturally have to follow as under the rules and the directions that may be given by the learned single judge trying the suit.
29. As a result of our allowing the appeal and giving leave to defend the suit, it is obvious that the decree passed by the learned single judge as a consequence of refusing to grant leave has necessarily to be set aside. The decree is, therefore, set aside. Parties will bear their own costs throughout.