10 June 2024


Supreme Court

Bawa Paulins Pvt. Ltd. vs UPS Freight Services (India) Pvt. Ltd. And Anr.




Autonomy of an irrevocable letter of credit is entitled to protection and Courts should refrain from interfering with that autonomy

Present Civil Appeal has been filed assailing the impugned judgment passed by the National Consumer Disputes Redressal Commission (‘National Commission’) by which the National Commission has allowed Appeal filed by respondent Nos.1 to 3 and set-aside the judgment and order passed by the State Commission. The National Commission vide impugned order has reduced the amount of compensation to Rs.10,000 as against the amount granted by the State Commission to be paid to the Appellant i.e., a sum of Rs.13, 79, 901.

The issue involved in the present appeal is in a very narrow compass and relates only to the quantum of compensation that the Appellant is entitled to receive from the Respondents.

In the instant case, the sale of goods was through a ‘FOB’ contract. ‘FOB’ contract means a contract “Free on Board”. By such a contract the seller is to put on board at his own expenses which means this is a contract for sale of goods to be delivered free on board a ship. In international transactions, letter of credit is used as a mode of ensuring payment and performance of the contractual terms. A letter of credit is a document issued by a bank (issuing bank) on behalf of a party (applicant) in favour of another party (beneficiary) under which, the issuing bank undertakes to pay to the beneficiary, certain sums of money subject to compliance of the terms and conditions of the letter of credit.

In Hindustan Steel Workers Construction Ltd. V G.S. Atwal & Co. (Engineers) (P) Ltd., this Court held that a letter of credit is independent of and unqualified by the contract of sale or underlying transactions. The autonomy of an irrevocable LOC is entitled to protection and as a rule, courts refrain from interfering with that autonomy. If courts interfere in such transactions, it would be prone to misuse by the applicant party to gain undue advantage leaving the issuing bank at peril in the international financial market.

In the factual matrix of the present case, it is noted that the appellant herein vide its letter dated 11.02.1999 gave shipping instructions to Respondent Nos. 1 to 3 wherein it was mentioned that the shipment is from FOB, New Delhi to Baltimore. However, despite clear instructions vide the said letter, respondent Nos. 1 to 3 negligently recorded the port of loading to be JNPT Bombay. It is due to this negligence as well as deficiency in service of the Respondent Nos. 1 to 3 that the Respondent No. 4 Bank refused to accept/honour the documents including the Forwarder Cargo Receipt (FCR) and the same was returned to the bank of the Appellant. Due to refusal of honouring the said documents, the sale consideration was not paid to the Appellant herein who suffered loss as well as mental harassment and agony.

The National Commission in the impugned order has held that it is an admitted position that a mistake was committed by the Respondent No.1 while issuing the FCR to the Appellant. The State Commission has based its decision on the said reasoning. When it is admitted that a mistake was committed by the Respondent No.1, it is not correct to say that the said mistake was not noticed by the Appellant while forwarding the documents to its bank and that the Appellant should have been more vigilant. The National Commission has categorically held that there was deficiency in rendering services by the respondent No.1, therefore, the National Commission ought not have reduced the compensation payable to the Appellant herein.

National Commission was not right in setting aside the judgment and order passed by the State Commission and therefore, the impugned judgment and order passed by the National Commission is set aside and order passed by the State Commission is restored. Appeal filed by the appellant-complainant is allowed.

Tags : Compensation Reduction Legality

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