Case Note & Summary
The suit was filed by Bank of India to recover Rs.5,67,332.51 with interest at 19.5% per annum from B.C. Mody Exports P. Ltd. (defendant no.1) and its director (defendant no.2). The plaintiff had granted defendant no.1 a Cash Credit facility in 1974, later enhanced, and a Foreign Bills Purchase (FBP) facility in 1969. Under the FBP facility, the plaintiff would purchase bills of exchange drawn by defendant no.1 on overseas buyers, credit the defendant's account, and then send documents to a collecting bank for acceptance and payment. The central dispute was whether there was an agreement that if any such bill was dishonoured, the plaintiff could debit the Cash Credit account for the amount. The plaintiff claimed such an arrangement existed, and on dishonour of five bills totalling a substantial sum, it debited the Cash Credit account, leading to the suit. The defendants denied any such arrangement, asserting that the documents were signed in blank and that the collecting bank was the plaintiff's agent, and that the plaintiff failed to present the bills in time, resulting in the loss. The defendants also pleaded collusion. The court examined the documentary evidence, including facility letters, collection instructions, and letters of acknowledgment, to resolve the factual dispute.
Headnote
A) Banking Law - Foreign Bills Purchase Facility - Agreement to Debit Cash Credit Account on Dishonour - No specific statute cited - The plaintiff bank alleged that there was an arrangement with the first defendant that if any bill of exchange purchased under the Foreign Bills Purchase facility was dishonoured, the bank would debit the defendant's Cash Credit account. The first defendant disputed this arrangement, contending that such a term was not part of the contract and that the documents were signed in blank. The court considered the evidence of the facility agreements, the conduct of the parties, and the correspondence to determine whether such an agreement existed. (Paras 4-5).
Issue of Consideration
Whether there existed an agreement or arrangement between the plaintiff bank and the defendants that upon dishonour of bills of exchange negotiated under the Foreign Bills Purchase facility, the plaintiff could debit the defendant's Cash Credit account, and consequently, whether the plaintiff is entitled to recover the amounts in respect of the dishonoured bills.
Law Points
- Enforcement of hypothecation and charge
- recovery of loan under Cash Credit facility
- agreement to debit account upon dishonour of foreign bills purchased
- responsibility of presenting bank for acceptance and payment of bills of exchange
- liability of guarantor
Case Details
2006 LawText (BOM) (07) 63
Ms. Sowmya Srikrishna, Ms. Vandana Tiwari, Ms. K.C. Nichani
B.C. Mody Exports P. Ltd & Anr.
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Nature of Litigation
Civil suit for recovery of money and enforcement of security
Remedy Sought
Plaintiff Bank seeking to recover Rs.5,67,332.51 with interest at 19.5% per annum and to enforce hypothecation and/or charge created by defendants to secure repayment
Filing Reason
Defendants failed to repay the amounts due under the cash credit facility and disputed the debit arrangement for dishonoured foreign bills
Previous Decisions
Defendant no.1 had filed Suit No. 1868 of 1980 to recover amounts in respect of the same bills of exchange. No outcome disclosed.
Issues
Whether there existed an agreement/arrangement that upon dishonour of bills of exchange under the Foreign Bills Purchase facility, the plaintiff bank could debit the defendant's Cash Credit account.
Whether the plaintiff bank was entitled to debit the account and recover the amount of the dishonoured bills from the defendants.
Submissions/Arguments
Plaintiff argued that there was an arrangement as described, and that upon dishonour of bills, the account was rightly debited.
Defendants denied the arrangement and contended that the documents were signed in blank; that the collecting bank was the plaintiff's agent and the plaintiff failed to present the bills timely, and there was collusion between the bank, the buyer, and the collecting bank.
Judgment Excerpts
The plaintiff’s case, which is one of the main disputes between the parties, is that there was an agreement and/or arrangement between defendant No.1 and itself that in the event of dishonour of any of the bills of exchange purchased by it from defendant No.1 and negotiated under the FBP facility and/or in the event of the plaintiffs not receiving for any reason whatsoever the amounts of any such bills of exchange from the respective drawee and/or acceptor thereof the plaintiffs would debit the first defendant’s account under the aforesaid Cash Credit facility by the amount which the plaintiffs had credited the first defendant’s account in respect of the FBP facility at the time of negotiation. This agreement and/or arrangement is seriously disputed by the defendants.
The defendants contend that it was the plaintiffs duty to present the documents and bills of exchange to the purchaser within reasonable time and to get the same accepted and to present the bills of exchange on the due dates to the acceptor for payment.
Procedural History
Suit No. 1594 of 1985 filed by Bank of India. Prior to this, defendant no.1 filed Suit No. 1868 of 1980 in respect of same bills. Despite that suit, defendant no.1 executed letters of acknowledgment dated 30.11.1980 and 28.6.1982. Present suit proceeded to trial with evidence led by both sides.
