Case Note & Summary
The plaintiffs, Dena Bank and another, filed a summary suit against Sonali Bank for recovery of US $1,50,103.79 with interest under a letter of credit. The plaintiff no.2 supplied cotton hosiery yarn to a Bangladeshi purchaser, who opened a letter of credit through the defendant bank. The plaintiff no.2 negotiated the documents with plaintiff no.1 bank, which credited the account. The defendant bank failed to pay on the due date, citing the purchaser's complaint that the goods were defective. The purchaser instructed the defendant not to honour the credit and sought a 60% discount. After negotiations, plaintiff no.2 agreed to a 20% discount as a goodwill gesture, but the purchaser was dissatisfied and the defendant refused payment. The plaintiffs argued that the letter of credit is independent of the underlying contract and the bank must honour it. The defendant contended that there was a triable issue regarding the quality of goods and the discount agreement. The court held that the defendant's defence raised a triable issue, as the purchaser's complaint and the plaintiff's agreement to a discount suggested a genuine dispute. The court granted unconditional leave to defend, noting that the fraud exception to the independence principle requires bank knowledge of fraud, which was not established. The summons for judgment was dismissed, and the defendant was allowed to file a written statement within four weeks.
Headnote
A) Banking Law - Letter of Credit - Independence Principle - The court considered whether a bank can refuse payment under a letter of credit based on disputes about the quality of goods between the buyer and seller. Held that the letter of credit is independent of the underlying contract, and the bank must honour it unless there is clear fraud known to the bank. (Paras 1-4) B) Civil Procedure - Summary Suit - Leave to Defend - The court examined whether the defendant bank raised a triable issue entitling it to unconditional leave to defend. Held that the defendant's defence that the goods were not of the quality ordered and that the plaintiff agreed to a discount raises a triable issue, and unconditional leave to defend was granted. (Paras 4-5)
Issue of Consideration
Whether the defendant bank is entitled to unconditional leave to defend the summary suit for recovery under a letter of credit, given the purchaser's complaint about quality of goods and the bank's refusal to honour the credit.
Final Decision
The court dismissed the Summons for Judgement and granted unconditional leave to the defendant to defend the suit. The defendant was directed to file a written statement within four weeks.
Law Points
- Letter of credit is independent of underlying contract
- fraud exception applies only if bank has notice of fraud
- triable issue exists if defendant raises substantial defence
- summary suit procedure under Order 37 CPC
