UBS AG versus STATE BANK OF PATIALA

Citation: [2006] SUPP. 2 S.C.R. 239 · Decided: 10-05-2006 · Supreme Court of India · Bench: B.P. SINGH · Disposal: Appeal(s) allowed

Judgment (excerpt)

UBS AG 
v. 
STATE BANK OF PATIALA 
MAY JO, 2006 
[B.P. SINGH AND ALTAMAS KABIR, JJ.] 
Code of Civil Procedure, 1908: Order XXXVII, Rule 3. 
Summary suit-Unconditional leave to defend--Triable issues - Letter 
of credit issued by defendant-bank to plaintiff-bank with a request to inform 
the beneficiary that an irrevocable Letter of Credit had been established for 
the sum indicated therein to be paid by the plaintiff-bank on negotiation of 
documents to be presented by the beneficiary-On such documents having 
been presented by the beneficiary to the plaintiff-bank, it made payment 
under the Letter of Credit to the beneficiary-The defendant-bank informed 
the plaintiff-bank, after the payment was made, that the beneficiary was 
perpetrating fraud with banks in India-The plaintiff-bank was put "on 
caution" not to make any payment to the beneficiary-The plaintiff-bank 
demanded reimbursement for the same from the defendant-bank-However, 
the defendant-bank refused to reimburse on the ground that it had put the 
plaintiff-bank "on caution"-The plaintiff-bank filed a summary suit before 
the High Court-The High Court granted unconditional leave to the 
defendant-bank to defend the suit as triable issues were raised-Correctness 
of-Held: If the fraud had been detected earlier and the plaintiff-bank had 
been informed of such fraud and put on caution prior to_making-lhe payment, 
the defendant-bank may have had a triable issue to go to trial-In this case· 
the fraud was detected after the payment was made-Therefore, there is no 
plausible defence in the suit filed by the plaintiff-bank-Hence, unconditional 
leave to defend the suit revoked-Uniform· Custom and Practice for 
Documentary Credit 500. 
·On 27.3.1998, on the request of its client, the respondent-Bank 
issued an irrevocable Letter of Credit for a sum of U.S. Dollars 13,20,900 
to the petitioner-Bank. The beneficiary of the said Letter of Credit was 
A 
B 
c 
D 
E 
F 
G 
one "F". The said Letter of Credit had been issued for the import of 
255.00 MT of Tin Ingots by the said "F". On 30.3.1998, the petitioner-
Bank confirmed the said Letter of Credit, which was to be valid till 
H 
239 
A 
B 
240 
SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R. 
23.9.1998. On 6.4.1998, upon production of relevant documents by the 
beneficiary, the petitioner-bank made payment under the said Letter of 
Credit to the said beneficiary, namely, "F". 
Despite having made payment of the entire amount covered by the 
Letter of Credit to the beneficiary, the petitioner-Bank agreed to the 
extension of the maturity date of the Letter of Credit from 23. 9.1998 till 
21.3.1999. On 3.2.1999, the Advocate for the respondent-Bank wrote to 
the petitioner-Bank that the respondent-Bank had received information 
that the beneficiary along with other constituents of the respondent-Bank 
had been perpetrating huge frauds on several banks in India. It was also 
C 
mentioned that from the enquiry undertaken, it was clear that "F" did 
not ship any goods on the vessel in question and the bill of Lading 
D 
negotiated by "F" was fraudulent. 
By the said letter, the petitioner-Bank was informed further that 
the respondent-Bank had been advised not to make any payment under 
the above-mentioned Letter of Credit dated 27.3.1998 and the petitioner-
Bank was put 'on caution' and was advised not to negotiate the export 
bills presented by "F" and further not to make any payment to "F" in 
respect of the said Letter of Credit. 
E 
The petitioner-Bank demanded remittance of the entire amount 
covered by the Letter of Credit, which was due for payment on 21-3-
1999. On receipt of two such demands, the respondent-Bank replied 
drawing the attention of the petitioner-Bank to the letter written by its 
Advocate on 3.2.1999, informing the petitioner-Bank that it had been 
F 
advised not to make any payment under the aforesaid Letter of Credit 
dated 27.3.1998, favouring "F". 
G 
On receipt of the said communication, the petitioner-Bank wrote 
to the respondent-Bank indicating that the documents presented by the 
beneficiary had been negotiated and payments had already been made 
on 6.4.1998 long prior to the allegations of fraud indicated by the Advocate 
of the respondent-Bank. It was pointed out that irrespective of the said 
fact, under the Uniform Custom and Practice for Documentary Credit 
500 (UCP 500), the respondent-Bank was under an obligation to reimburse 
on the due date of the Letter of Credit, the amount 

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