UNITED COMMERCIAL BANK versus BANK OF INDIA AND OTHERS

Citation: [1981] 3 S.C.R. 300 · Decided: 26-03-1981 · Supreme Court of India · Bench: A.C. GUPTA · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

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300 
UNITED COMMERCIAL BANK 
v. 
BANK OF INDIA AND OTHERS 
March 26, 1981 
[A.C. GUPTA AND A.P. SEN, Jl] 
Banking law-Documents submitted by the seller of goods not in conformity 
with instructions given in the letter of credit-Duties of the paying bank-Whether 
bound to determine by physical examination or on expert advice if the goods 
conformed to the contract-Nature and effect of letter of credit. 
Practice-Payment made b.v the paying bank "under reserve" as a result of 
discrepancies in the documents submitted by the seller-High Court, if could grant 
injunction restrai111i1g the paying bank from collecting the amount paid under 
reserve. 
Constitution of India-Article 136-Supreme Court, if would inte1fere with 
interlocutory orders under Art. 136. 
Words and Phrases-Payment "under reserve"-Meaning of. 
Respondent No. 2 entered into"a contract to sell to respondent No. 3 one 
thousand metric tonnes of "Sizola Brand Pure Mustard Oil" valued at approxi· 
mately Rs. 86 lakhs pursuant to which the buyer opened a letter of credit with 
the appellant bank. After despatching the goods to the various destinations to 
which they were instructed to send, the seller presented 20 sets of documents in the 
first lot and 27 sets of documents in the second, the aggregate value of which was 
equivalent to the amount of letter of credit. The appellant bank refused to make 
payment "except under reserve" pointing to a discrepancy in the railway receipts 
which stated "Sizola .Brand Pure Mustard Oil Unrefined" as against the descrip·. 
ti on in the instructions of the letter of credit "Sizola Brand Pure Mustard Oil". 
On instructions from the seller the respondent bank received the money in 
respect of the first lot of 20 documents "under reserve" and credited the amount 
to their account with a specific notation that the amount was paid "under 
reserve" as a result of discrepancies between the railway receipts and the instruc· 
lions in the letter of credit. 
In respe~t of the second lot, the appellant bank refused payment on the 
ground of the discrepan~ies in the railway receipts as before as also on the ground 
that some of the railway receipts were "stale". 
In the meantime the appellant bank asked the respondent to refund the 
amount paid in respect of the first lot of documents under- reserve because the 
U. CO. BANK V. BANK OF INDlA 
301 
bills were acceptable to the buyer due to discrepancies. Some correspondence 
ensued between the parties and the banks; eventually on the faith -of an under-
taking given by the seller the appellant bank paid the remainder" 3.mount in 
respect oft he 27 bills as well "under reserve
0 so that the value in respect of 
both the sets of bills paid to the: sellers in two instalments was made uunder 
reserve••. 
The sellers filed a suit in the High Court. 
A f:w days thereafter the appellant bank served a letter of demand on 
the respondent bank for the refund of the entire amount paid to it in respect of 
the two sets of bills together with inti!rest thereon because, according to it, the 
bills of exchange had not been retired by the buyer for the reasons that the 
railway receipts were state that the goods had not been supplied according to 
the term1 of th~ agreem!nt and that chemical an1lysis of the oil showed that it 
was not fit for human consumption. 
The - respondent hank in tum wrote to the seller to refund the whole 
amount \vhereupon the seller moved the High Court for the grant of an ex 
parte Od interim injunction restraining the appellant bank _from recalling or 
reci:iving the amount due from the respondent bank which was granted. 
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The High Court appointed a Court receiver with power to sell the goods 
without any obligation or liability to purchascrS as to their quality, quantity or 
edibility. At the __ S3.Ie the seller himself bought the goods for Rs. 18 1akhs odd. 
The sale was confirmed by the High Court. 
The single Judge of the liigh cOurt thereupon made the temporary Injunc-
tion absolute till the disposal of the suit filed by 1he sellers on the view that the 
appellant was not entitled under the termi of t..'13 letter of cr.!dit to unilaterally 
impose a condition of the payment "under reserve'.' or refuse to pay against the 
document<> tendered by the sellers merely because of the alleged discrepancies. 
A Division Bench of the High Court summarily dismissed the appellant's 
appeal with the result that the seller received the whole of the amou

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