T.C. LIMITED versus DEBTS RECOVERY APPELLATE TRIBUNAL

Citation: [1997] SUPP. 6 S.C.R. 683 · Decided: 19-12-1997 · Supreme Court of India · Bench: S.C. SEN · Disposal: Appeal(s) allowed

Judgment (excerpt)

.. 
l.T.C. LIMITED 
v. 
DEBTS RECOVERY APPELLATE TRIBUNAL 
DECEMBER 19, 1997 
(SUHAS C. SEN AND M. JAGANNADHA RAO, JJ.) 
Code of Civil Procedure 1908-0rder 7 Rule I I-Rejection of 
Plaint-Held, court entitled to reject plaint under Order 7 R 11 at any stage 
of the suit even if the issues were framed and the matter was posted for 
A 
B 
evidence. 
C 
BANKING : Bank guarantee and letters of credit-Payment by Bank 
to the seller-Allegation by the bank that seller had drawn monies from the 
bank against the letter of credit without movement of goods to the buyer and 
therefore acted fraudulently-Suit for Recovery--Cause of action-Held, the 
dispute as to non-supply of goods was a matter between the seller and the D 
buyer and did not provide any cause of action for the bank against the 
seller-Fwther, the Bank would have an independent cause of action against 
the seller only if the documents presented by the seller were forged or 
fraudulent to the knowledge of the selle1---Clever drafting r:reating illusions of 
cause of action are not pem1itted in law and a clear 1ight to sue should be E 
shown in the plaint. 
Fraud-Plea of-Payment of amounts covered by Bank Guarantees or 
letters of Credit-Held; bank has to honour the Bank Guarantee or the letters 
of credit subject to cases of two exceptions, namely, where there was fraud or 
in-etrievable injwy--An allegation of non-supply of goods by the sellers to the 
F 
buyers did not by itself amount, in law, to a plea of "Fraud" as understood 
under Banking Law-No fraud or misrepresentation as it was 1wt a case of 
· presentation of forged or fraudulent documents. 
Respondents 4 to 7, the buyers, approached respondent no. 3 Bank 
for the issue of letter of credit in favour of the appellant company; the G 
seller, for the purpose of securing the payment towards supply of cigarettes 
manufactured by the appellant and for certain other facilities. The Bank 
sanctioned letter of credit facility which was renewed from time to time. 
The appellant availed the benefits of drawing various sums of several 
dates. The buyer refused to make good the payment made by the Bank to H 
683 
684 
SUPREME COURT REPORTS [1997) SUPP. 6 S.C.R. 
A the appellant to the extent of the money already paid by the Bank to the 
appellant under the Letters of Credit. The Bank demanded reimbursement 
of the said amounts by the buyers to which demand the buyers put off by 
replying that the appellant seller was not entitled to draw any amount 
under the LC facility from the Bank as there was no movement of the goods 
B by the appellants. 
The Bank instituted a suit for recovery of Rs. 52,59,639.66 against 
the buyers and the appellants which was transferred to the Debt Recovery 
Tribunal from the Civil Court. The appellant filed an application under 
Order 7 Rule 11 CPC for rejecting the plaint so far as the appellant was 
C concerned on the ground that no valid cause of action had been shown 
against the appellant. The said application was rejected by the Tribunal 
against which the appellant filed an appeal before the Appellate Tribunal 
which was again dismissed. The appellant then filed a writ petition in the 
High Court which was dismissed. Against this, the appellant filed a writ 
appeal which was also dismissed. Aggrieved, the appellant preferred this 
D appeal. 
On 'behalf of the appellant it was contended that the court was 
entitled to reject the plaint under Order 7 Rule 11 CPC at any stage of the 
suit even if the issues were framed and the matter posted for evidence. It 
E was also contended that in regard to payment under the Bank Guarantees 
or the irrevocable Letters of Credit, the contract between the appellant 
seller and the Bank was independent of contract between the buyers and 
the sellers in res1iect of the goods. The Bank had no authority to refuse 
payment on the ground of any alleged breach of contract by the sellers in 
F 
their contract with the buyers. 
On behalf of the respondent Bank it was submitted that in view of 
the averments in the plaint relating to misrepresentation and fraud by the 
appellant, the said allegations have to be taken to be true when the 
appellant's application under Order 7 Rule 11 was taken up for considera-
G tion. 
Allowing the appeal, this Court 
HELD : 1. The fact that issues have been· framed in the suit cannot 
come in the way of consideration of the application filed by the appellant 
H under Order 7 Rule 11 C.P.C. The power to reject the plaint 

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