STATE BANK OF INDIA AND ANR. versus M/S. EMMSONS INTERNATIONAL LTD. AND ANR.

Citation: [2011] 10 S.C.R. 436 · Decided: 18-08-2011 · Supreme Court of India · Bench: AFTAB ALAM · Disposal: Disposed off
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Judgment (excerpt)

A 
B 
[2011) 10 S.C.R. 436 
STATE BANK OF INDIA AND ANR. 
V. 
M/S. EMMSONS INTERNATIONAL LTD. AND ANR. 
(Civil Appeal No. 1709 of 2007) 
AUGUST 18, 2011 
[AFTAB ALAM AND R.M. LODHA, JJ.] 
Bank/Banking: Letter of credit -
Held:. Where the 
customer of bank instructs the bank to open a credit, the bank 
C acts at its peril if it departs from the precise terms of the 
mandate - A contract is concluded between the issuing bank 
and 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 
D undertaking to the seller that it will pay against documents! 
bills drawn in compliance with the terms of credit - A draft with 
accompanying documents must be in strict accord with the 
letter of credit - If the documents presented comply with the 
terms of the credit, the issuing bank must honour its obligation 
E in accordance with the terms of credit - In the instant case, 
second respondent placed a purchase order to the seller for 
Rs. 43 lacs - Letter of credit was established by the issuing 
bank in favour of the seller- Issuing bank received negotiated 
documents under the letter of credit from 'negotiating bank' 
F and pointed out discrepancies - Monetary claim was filed by 
seller against the issuing Bank and the advising Bank - Trial 
Court dismissed the seller's claim, however, High Court 
granted a decree to the seller as prayed in the suit - The order 
of the High Court was made ignoring and overlooking the 
finding of the trial court that the seller accepted the 
G encashment of bill and document on collection basis - High 
Court was required to address itself to the said issue which 
surely had bearing on the final outcome of the case - It failed 
to follow the fundamental rule governing the exercise of its 
H 
436 
STATE BANK OF INDIA AND ANR. v. EMMSONS 
437 
INTERNATIONAL LTD. AND ANR. 
jurisdiction u/s. 96, CPC that where the first appellate court A 
reverses the judgment of the trial court, it is required to 
consider all the issues of law and fact - This flaw vitiated the 
entire judgment of the High Court - Judgment of the High 
Court set aside and First Appeal restored for re-hearing and 
fresh decision - Code of Civil Procedure, 1908 - s. 96. 
B 
The second respondent-buyer placed a purchase 
order on first respondent-seller for supply of 2000 MT of 
Syrian Rock Phosphate for Rs.43 lacs. The payment 
terms provided 'against 180 days i~suance of a letter of C 
credit'. At the request of buyer, a letter of credit for Rs.43 
lacs was established by appellant no.1 (issuing bank) in 
favour of the seller. Appellant no.2 was the advising bank. 
The seller supplied the material and the buyer was said 
to have accepted ttre documents. On July 8, 1997, the 
issuing bank received negotiated documents under the 
D 
letter of credit from negotiating bank for payment. On that 
day itself, the issuing bank pointed out the discrepancies 
to the negotiating bank that the certificate from 
negotiating bank mentioning all the terms of credit were 
not furnished. The ,issuing bank, thus, advised the 
E 
negotiating bank to rectify the discrepancies within 
seven days of submission of documents. In the 
correspondence between the·negotiating bank and the 
issuing bank, the negotiating bank took stand that the 
discrepancies notified by the issuing bank were rectified 
F 
and the documents complied with the requirement of 
credit. However issuing bank continued to insist that the 
documents were discrepant and were not acceptable to 
it. The seller filed a monetary suit against the issuing bank 
and advising bank. The buyer was impleaded as formal 
G 
party. The trial court held that the issuing bank had 
properly dishonoured the docume~ts 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 also 
H 
438 
SUPREME COURT REPORTS 
[2011] 10 S.C.R. 
A concluded that seller accepted the encashment of bill and 
document on collection basis. In light of these findings, 
the trial court dismissed the seller's claim. The seller filed 
appeal before the High Court. The High Court allowed the 
seller's appeal. The instant appeal was filed challenging 
B the order of the High Court. 
Disposing of the appeal, the Court 
Held: 1. The legal position is fairly well-settled that a 
· draft with acc
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