UNITED COMMERCIAL BANK

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 respet of the second lot, the appellant bank refused payment on the ground of the discrepanies 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 underreserve 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 undertaking 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.

I 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 Injunction 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 amount of the

~'-,.._,_Jetter of credit as welt as bought the whole lot of goods for Rs. 18.53 Iakhs.

' - Oa the question whether the High Court should, in a transation between a banker and a banker, grant an injunction at the instance of the beneficiary of an irrevocable letter of credit restrainin'g -the issuing bank from recalling the amount paid under r""5erve from the negotiating bank acting on behalf of the beneficiary against a document or guaranteefindemnity at the instance of the beneficiary and (2) whether this Court could, in a matter like this, depart from its normal practice and refuse to. interfere with an i_nterlocutory order under Article 136 of the Constitution.

Allowing the appeal,

HELD: J(a) The High Court was wrong in granting the temporary injunc~ tion restraining the appellant bank from recalling the amouD.t paid to the respondent bank. Courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a

• H

bank guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail. [329 F, 324B-C]

(b) In the instant case the appellant bank was under a duty to its constitu- B ent to scrutinise the documents and could not be compelled to make payment particularly when the description in the document did not tally with that in the letter of credit. It was fully entitled to exercise its judgment for its own protection. Instead of asking the buyers to change the description of the goods in the letter of credit the sellers sought to get over the irregularity by instructing the bankers to execute a letter of guarantee or indemnity. [325 G-H] c

(c) The appellant bank knew little or nothing about the mustard oil. Its ciuty was not to go out and determine by physical examination of the consignments, or employment of experts, whether the goods actually conformed to the contract between the buyer and the seller, nor even determine either from its own or expert advice whether the documents called for the goods whic:1 the buyer would be bound to accept. [326 C-D]

2(a) Bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. The duties of a bank under a letter of credit are created by the document itself; in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit. [319 B-C]

(bJ The opening of a confirmed letter of credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker an absolute obligation to pay. The banker is not bound or entitled to honour the bills of exchange drawn by the seller unless they and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit.

Such documents must be scrutinised with meticulous care.' If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes between the buyer and the seller whether the goods are upto the contract or not. [317 C-D]

Tarapore and Co., Madras v. Tractors Export, Moscow and Anr. [1969] 2 S.C.R. 920 applied.

Hamzeh Malas and Sons v. British Imex Industries Lid. [1958] 2 Q.B. 127 and Urguhart Lindsay and Co. Ltd. v. Eastern Bank Lid. [1922] 1 K.B. 318, referred to.

(c) The refusal of the bank to honour a bill of exchange drawn by the seller on presentation of the proper documents constitutes a repudiation of the contract as a whole and the sellers are entitled to damages arising from such a breach. [317 El

(d) A letter of credit constitutes the sole contract with the banker, and the bank issuing the letter of credit has no concern with any question that may arise between the seller and the purchaser of the goods, for the purchase price of which the letter of credit was issued: [319 G]

(e) It is settled Jaw that in dealing with commercial letters of credit the documents tendered by the seller must comply with the terms of the letter of credit, and the banker owes a duty to the bllyer to enmre. that his instructions relative to the do; uments against which the letter of credit is to be honoured are complied with. [322 DJ

(f) A payment under reserve is understood in banking transactions to mean B that the recipient of money may not deem it as his own but mu5t be prepared to return it. on demand. The balance of convenience clearly lies in allowing the normal banking transactions to go forward. The sellers have failed to establish that they would be put to an irreparable loss unless aJ> interim injunction was granted. [329 B-C)

English , Scottish and Australian Bank Ltd. v. Bank of South Africa [1922) 12 Ll.L. Rep. 21 st. 24, E1uitable Trust Co. of New York v. Dawson Partners Ltd. [1927] 27 Ll.L. Rep. 49, Rayner v. Hambros Bank Ltd. [1943) 1 K.B. 37, Bank Melli Iran v. Barclays Bank [1951] 2 Ll.L. Rep. 367, Lamborn v. Lake Shore Banking Co. [1921] 196 App. Div, 504 at p. 507; 188 NYS 162 at p. 164 and Laudisi v. American Exchange National Bank [1924] 239 NYS 234 ; 146 N.E. 347 at 348 referred to.

3(a) The powers of this Court under Article 136 of the Constitution though untrammelled, are subject to self-ordainerd restrictions. The Court does not, as a matter of rule, interfere with interlocutory orders, save under very exceptional circumstances. [327 HJ

(b) In the instant case there was no justific1tion for the High Court to grant a temporary injunction under order 39 rules l and 2 of C.P.C. to the sellers, the effect of whkh virtually was to restrain a transaction between a banker and a banker. Courts view with disfavour the grant of such temporary injunction. The High Court has prejudged the whole issue by holding that the appellant could not unilaterally impose the conditions of payment 'under reserve' nor was it justified in holding that the documents were 'clean'. [328 BJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 132 of 1980.

Appeal by Special Leave from the Judgment and Order dated 17.10.79 of the High Court of Bombay in Appeal No. 382 of 1979 in Suit No. 1028/78.

P.S. Narim::m, P.H. Parekh, K.R. Modi, R.A. Kapadia, Raian Karnjawala and M.H. Shah for the Appellant.

K.K. Venugopal, Vinay Bhasin, Rakesh Sahani, Vineet Kumar, G.E. Vahanvati and S.J. Thacker for Respondent No. 1.

A Soli J. Sorabjee, E.J. Ba/sara, S. Ganes//, Narain and P.H. Amin for Respondent No.2 .

Lal Narain Sinha, Attorney General of India, Ram Ba/c<k Mahto and B.P. Singh for Respondent No. 3. "'(

The Judgment of the Court was delivered by

SEN, J. This appeal by special leave is from an order of the Bombay High Court dated August 24, 1979, granting a temporary injunction restraining the appellant, the United Commercial Bank.

By this order the appellant has been restrained from making a recall of a sum of Rs. 85,84,456 paid by it under reserve against the relative bills of exchange drawn against the letter of credit issued by it, from respondent No. l, the Bank of India, and in terms of the Jetter of guarantee or indemnity executed by that Bank, in a suit based on a bankers' letter of credit.

D The facts are somewhat complicated, but it is necessary to

disentangle the facts to bring out the point of law involved.

The respondent No. 2, Messrs Godrej Soaps Limited, hereinafter referred to as 'the plaintiffs', by a contract dated February 2, 1978 agreed to supply to the respondent No. 3, the Biliar State Food and Civil Supplies Corporation Limited, hereinafter referred to as 'the Bihar Corporation', one thousand metric tonnes of 'Sizola Brand pure Mustard oil' the total value of which was apprpximately Rs. 86 lacs, packed in brand new leakproof 62,040 tins of net 16 kg. each at the rate of Rs. 13 7 per tin. The contract provided inter alia that the Bihar Corporation were to open a letter of credit with the appellant, the United Commercial Bank, for the said amount, which the Bihar Corporation_ duly did.

The letter of credit issued by the appellant was in the following terms:

United Commercial Bank Nariman Point Branch

United Commercial Bank Frazer Road, Patna Branch, 13th June, 1978.

Office : Malbourne Road, Calcutta-I.

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To M/s Godrej Soaps Ltd., Eastern Express Highway, Vikhroli, Bombay 400 079.

Dear Sirs,

LETTER OF CREDIT No. 1/78

At the request of Bihar State Food & Civil Supplies Corpn. Ltd., Patna, we hereby establish our confirmed irrevocable Letter of Credit in favour of your good self for account of Messrs Bihar State Food & Civil Supplies Corpn. Ltd., East Boring Road, Patna, for any sum or sums not exceeding in all Rs. 86,00,000 (say Rupees eighty six lakhs only) outstanding at anyone time available by your drafts at sight drawn on Messrs Bihar State Food & Civil Supplies Corpn. Ltd. without recourse to drawers for full invoice value of merchandise to be described in the invoice as : 62040 tins of Sizola Brand Pure Mustard Oil packed in brand new leak proof tins of net 16 kgs. each@ Rs. 137 (Rupees one hundred thirty seven only) per tin.

Despatched from Bombay accompanied by the following documents:

(i) -Signed detailed invoices in duplicate.

(ii) Railway Receipts consigned to or endorsed in favour of UNITED COMMERCIAL BANK marked 'FREIGHT/ TO PAY' evidencing despatch by Railway of the merchandise as stated above.

Signed Delivery order on your godown at ...... fvg. United Commercial Bank covering the delivery of the above-mentioned merchandise.

(iii) Insurance Policies or Certificate covering usual transit risks and rail issued in duplicate and endorsed in blank by Transit Insurance at the cost of openers not exceeding one per cent of value of goods to be effected by beneficiary and to be included in the invoice.

Railway Receipt/Delivery order must be dated not later than H 13.7.1978.

Bills of Exchange must be dated and negotiated not later than 20.7. 1978.

sd. Accountant sd. Manager.

The schedule annexed specified the various destinations to which the goods were to be despatched.

Between June 22, 1978 and June 26, 1978, the plaintiffs from time to time despatched an aggregate of 24,400 tins of their mustard oil by invoices bearing Nos. 4501 to 4520 of the aggregate value of Rs. 36,52,960 to various destinations mentioned in the schedule annexed to the letter of credit. Between June 17 to July I, 1978 the plaintiffs further despatched an aggregate of 23,080 tills of the said goods covered by invoices Nos. 4521 to 4539 of the aggregate value of Rs. 34,70,312 on July 7 and 8, 1978 the plaintiffs also despatched an aggregate of 10,560 tins covered by invoices Nos. 4540 to 4547 of the aggregate value of Rs. 14,61,184.

The plaintiffs presented the documents for payment of Rs. 85,84,456 in two lots. There were twenty sets of documents in the first lot, the total value of which was Rs. 36,52,960, the second lot in 27 sets of the total value of Rs. 49,31,496. The first lot consisted of four sets of the value of Rs. 7.30 lacs, seven sets of Rs. 12.78 lacs, five sets of Rs. 9.13 lacs and four sets worth Rs. 7.30 lacs, the second of 27 sets, consisting of 19 sets of Rs. 34.17 lacs and 8 sets of Rs. 14.16 lacs. It is these two lots of documents which are the subject matter of the suit.

When the documents were presented by the plaintiffs for payment of Rs. 36, 52,960 against the first lot of 20 sets, and Rs. 49,31,496 against the second lot in 27 sets, the appellant, United Commercial Bank refused to make payment 'except under reserve' on the ground of 'discrepancies'. The main discrepancy was that the goods were described in the railway receipts as "Sizola Brand Pure Mustard Oil 'Unrefined"'. The plaintiffs accordingly instructed their bankers, the Bank of India, to accept payment of Rs. 36,52,960 against the first lot of documents 'under reserve'.

The appellant accordingly made an aggregate payment of Rs. 36,52,960 to the Bank of India, that is, the negotiating bank, by three cheques of Rs. 7,30,502, Rs. 12, 78,636 and Rs. 16,43,832. It is significant to note that Bank of India in their turn credited the account of the plaintiffs, who were their constituents, alio 'under reserve', with a

specific notation that 'it was paid under reserve on account of discre A pancies'.

As regards the second lot comprising of 27 sets of documents, 19 sets were presented by the plaintiffs on July 3, 1978, with sight drafts of Rs. 1,82,648 each along with bills of exchange together with the relevant documents. On July 5, 1978 the appellant addressed a letter to the plaintiffs refusing to make any payment under the letter of credit due to 'discrepancies' as well as some of the railway receipts being 'stale'. It was clearly stated by the appellant "We are unable to negotiate the documents and are returning the same to you. However, if you so desire, we shall send the documents on collection basis and shall remit the amount to you on receipt of proceeds".

Admittedly, the discrepancies remained till July 12, 1978 as the description of goods in the railway receipts still remained "Sizola Brand Pure Mustard Oil 'Unrefined"' till the plaintiffs made a request to the Central Railways for the deletion of the word 'Unrefined'.

On July 12, 1978 the appellant addressed a letter to the Bank of India making a demand for the refund of the amount of Rs.36,52,960 paid under reserve in respect of the first lot of documents stating "In this connection we wish to state that we are now advised by our Patna Office that the bills are not acceptable to the Corporation due to discrepancies. We shall therefore, thank you if you kindly remit the amount with interest at 5 per cent from the date of payment to you by us to the date of payment by you to us." On the same day, the appellant addressed a letter to the plaintiffs in regard to the second lot of 27 documents that the documents were not acceptable due to discrepancies and, therefore, no payment could be made against them under the letter of credit. On the next day, i.e., July 13, 1978 the plaintiffs addressed a letter to the appellant in respect of the first lot of 20 documents 'negotiated and paid by you under reserve', stating that the word 'Unrefined' in the railway receipts should not have been treated as a discrepancy, forwarding copies of telegrams sent by the Central Railway to the various destinations deleting the word 'unrefined', with a request that the appellant may, as regards the 27 documents of the second lot, 'negotiate the documents and pay for the same forthwith'.

On the same day, the plaintiffs also addressed a letter to the Bihar Corporation stating that the word 'Unrefined' had no relation to the quality but was inserted for the purpose of paying a lower freight, and further that the railway authorit.ies had agreed to amend the railway receipts by deleting the word 'Unrefined'.

On July 13, 1978 the plaintiffs addressed the following letter to their bankers, the Bank of India :

Bank of India, Foreign Exchange Dept., Mahatma Gandhi Road, Bombay 400 023.

Dear Sirs.

July 13, 1978.

Attn: MR. SJRUR

19 documents for Rs. 1,92,648 each drawn under L/C No. 1 /78 dated 13.6.1978 of United Commercial Bank Patna Office.

We are enclosing 19 documents as referred to above - and request you to forward the same to the United Commercial Bank, Nariman Point, Bombay for negotiations of payment.

We request you to collect these funds forthwith and credit our Cash-Credit Account No.I with you.

We have complied with all the terms and conditions of the Letter of Credit and feel that United Commercial Bank would make the payment to you without reserve.

You may accept the payment under reserve if insisted upon by them.

Asst.Financial Controller

The Bank of India accordingly wrote letter to the appellant stating "we would accept payment under reserve". On July 14, 1978 the appellant addressed a letter to the Bank of India returning the 27 documents relating to the second Jot signifying their inability to negotiate the documents due to discrepancies in the description of goods in the railway receipts, stating that mere deletion of the word 'Unrefined' could not make the railway receipts clean, and furthermore, because some of the railway receipts were 'stale'. It also intimated the plaintiffs by their letter of even date that they could lift the 'reserve' without obtaining prior permission of their constituents i.e. the Bibar Corporation.

.. '(

\ l

The plaintiffs, being apprehensive that their bankers, the Bank of India, would be bound to refund Rs.36.52 lacs pursuant to the notice of demand served by the appellant inasmuch as the payment was made under reserve, kept a plaint ready on July 17, 1978 for grant of a perpetual injunction against the appellant, and on the same day addressed a letter to the appellant asking for payment of Rs.49,31,496 against the second lot of documents, enclosing a letter of guarantee or indemnity executed by their bankers, which reads :

United Commercial Bank, Nariman Point,

Bombay 400021.

Dear Sirs,

Date July 17,1978

Attn : Mr.P.K. Sharma

Letter of Credit No. I /78 of your Patna Office

dated 13.6. 78-Two sets, each containing 19 & 8 D ,1egotiable documents.

We are in receipt of your )etters bearing No. Fex/Exp/78 dated 12.7.78 and 14.7.78 on the above subject.

We refer to our submission of 19 documents through our bankers, Bank of India and 8 documents submitted directly by us to you for negotiation and payment. We learnt from you that you have returned the set of 19 documents to Bank of India pointing out certain discrepancies in the documents to them.

The set of 8 documents has been returned to us by you stating certain discrepancies under cover of your letter Fex/Exp/GSR/78 dated 12.7.78.

One of the discrepancies pointed out by you in both the sets of documents ( 19 & 8 ) is regarding the appearance of the word 'unrefined' in the railway receipts, as the same . word does not appear in the Letter of Credit along with the words "Sizola Brand Pure Mustard Oil". Out of abundant precaution, we then obtained and gave you copies of telegrams issued by the Central Railway to the Station

Masters of the various destination stations, to which the H goods were booked, to the effect that the word "unrefined" is superfluous and, therefore, deleted. You have taken

the stand that by this action of the Central Railway also the documents still does not continue to be in accordance with the letter of credit.

 Out of abundant precaution, we are now submitting herewith the railway receipt returned by you wherein the word "unrefined" has been physically deleted by the railway authorities.

We are also enclosing a letter of undertaking which is J letter of undertaking issued by our bankers, the Bank of India, in your name indemnifying you against demurrage, wharfage and such other charges which you may have to pay at various destinations, where the goods have been consigned. This action of ours is without prejudice to any of our rights and contentions.

We now request you to Pay for these documents forthwith.

Director.

The Bank of India executed a letter of indemnity or guarantee to the effect :

United Commercial Bank, Mafatlal Centre, Nariman Point Branch, Bombay.

Dear Sirs,

Bank of India 70/80, M.G.Road Bombay-400023. 18th July, I 978.

In consideration of your having negotiated Documentary Bills of Exchange drawn by Godrej Soaps Ltd., drawn on Bihar State Food & Civil Supplies Corpn. dated (various dates) under the commercial letter of credit. No. L/C 1/78 dt.13. 6.78 issued by United Commercial Bank, Frazer Road Branch for account of Bihar State Food and Civil Supplies Corpn., We hereby 'unconditionally' agree to hold you harmless and indemnified for all consequences of nonacceptance and/or non/payment of t_his/these bill (s) exchange by reason of the following discrepancies claims by you:

, 1

u. co. BANK v. BANK OF !NOIA (Sen, J.)

We have made arrangements for due payment of this/ these bill (s).

We further unconditionally agree that in the event of the bills being dishonoured on due presentation on account of the above discrepancies claimed by you to reimburse and on demand the equivalent of the above mentioned bill(s) together with all other expenses, demurrage and all such other charges incurred by you in connection with dishonoured bill (s).

Notwithstanding anything contained hereinbefore our liability under this bond is restricted to Rs. 86,00,000 (Rupees Eighty Six lacs only) apart from charges enumerated above and it will remain in force till 17.8.1978. Unless a claim under the guarantee is made against us in writing and received by us before that date all your rights under the said guarantee shall be forfeited and we shall be relieved and discharged from all liability thereunder.

for BANK OF INDIA sd. P. Accountant sd. P. Manager

It is significant to note that it was represented by the Bank of India acting on behalf of the plaintiffs,"We have made arrangements for the payment of these bills", meaning thereby that the Bihar Corporation had agreed to retire the bills of exchange.

On July 19, 1978 the representative of the plaintiffs, Messrs Godrej Soaps Ltd. met the representatives of the appellant, the United Commercial Bank at Bombay. It was pointed out to him that first set of 20 documents had not ben accepted by the Bihar Corporation due to discrepancies and that the appellant had, therefore, by their letter dated July 12, 1978 made a demand for refund of Rs. 36,52,960.

As regards the second lot of 27 documents towards which the balance amount of Rs. 49,31,496 was payable to the Bank of India, in terms of the letter of indemnity or guarantee executed by it, he was informed that the instructions were awaited from the head office and was asked to come in the evening on the same day.

The plaintiffs on the same day, i. e., on July 19, 1978, brought the suit in the Original Side of the Bombay High Court alongwith an application for the grant of a temporary injunction to restrain the appellant from recalling the amount of

A Rs. 36,52,960 but the learned Single Judge, Bharucha

J., declined to grant an ex parte ad interim injunction, while allowing liberty to the plaintiffs to take out notice of motion returnable on August 4, 1978 but it appears that no such notice was ever taken out.

B When the appellant came to know of the suit, the plaintiff's

representative made an endorsement at the foot of the letter dated July 17, 1978:

As per Mr. Sharma's talk with Mr.K.R. Gokulam we hereby undertake not to proceed with this suit. sd.R.V. Shekar

19.7 1978

On the faith of the undertaking the appellant made payment of Rs.49,31,496 to the Bank of India in terms of the letter of indemnity.

There is controversy between the parties as to what transpired " before the payment of Rs.49,31,496 and as to the meaning of the aforesaid endorsement.

We refrain from making any observations as they would tend to prejudice the rights of the parties. But one thing is clear that R. V. Shekar, Assitant Financial Controller, Godrej Soaps was acting on behalf of the plaintiffs, and the word 'we' meant Messrs.

Godrej Soaps Limited'.

Further, that payment was secured by making the endorsment.

The Bank of India addressed two letters dated July 20,1978 to the plaintiffs, that their account had been credited with Rs. 34,70,312 and Rs. 14,61,184 i.e., Rs. 49,31,496 representing the value of the second lot of 27 documents, 'under reserve'.

From the narration of these facts, prima facie it appears that the payment of Rs. 36,52,960 against the first lot of 20 documents made by the appellant to the Bank of India, was a payment made 'under reserve' and that of Rs. 49, 31,496 was also made 'under reserve' as well as against the letter of guarantee or indemnity executed by it.

On August 2, 1978 the appellant served a letter of demand on the Bank of India, for refund of Rs. 85,84,456 together with interest thereon at 15% per annum from the date of payment by it to th date of refund, stating that the bills of exchange had not

~.

been retired by the Bihar Corporation, that is the buyers, due to discrepancies. The letter reads :

Fex/exp/ I 1 I0/78 2nd August, 1978 Bank of India 70/80 M.G. Road, Bombay 400 023.

Attn: Mr. PUDV AL, Manager (Advance)

Dear Sirs,

Re: Your Guarantee Re. C/72/943 .dated 18th July 1978 in our favour for Rs.86.00,000 Document drawn by M/s Godrej Soaps Ltd., under our Frazer Road, Patna Branch L/C I /78 dated 13.6.1978-negotiated by us under reserve.

Please refer to our letter No. 646/78 dated !st August, 1978.

Jn this connection we are now advised by our Patna Office that the bills have not been accepted by the drawees, Bihar State Food & Civil Supplies Corporation Limited due to /he discrepancies. Our Patna Office is, therefore, arranging to return the documents to us which we hereby undertake to forward to you when received.

In terms of your Guarantee No. 8/72/943 dated 18th July 1978 tor Rs. 86,00,000 and in terms of our letters date 24.6.1978, 27.6.1978 and 28.6.1978 and two letters of 19.7.1978, under cover of which we had made payment of the bills to you, we hereby call upon you to refund to us the amount of bills viz.

Rs. 85,84,456 (Rupees Eighty five lacs eighty four thousand four hundred and fifty six) together with interest from the date of payment by us to you to the date of refund by you to us@ 15%per annum.

In the meantime, please note that the documents are held by us at your sole risk and responsibility. You may, if you so desire protect the merchandise including keeping insurance covernote valid.

Please treat this as MOST URGENT.

sd ......... Manager

The 47 Notary's protest Certificates show that when the bills of exchange were re-presented for payment to the Bihar Corporation on August 2, 1978 the drawees dishonoured the bills of exchange on August 3, 1978 for the reason that (1) the railway receipts accompanying the bills were 'stale', (2) the goods had not been supplied as per the terms of agreement, and (3) the chemical analysis showed that the oil required refinement before being fit for human use,.

The Bank of India accordingly addressed a letter to the plaintiffs on the next day i.e. August 4, 1978 giving intimation that the appellant by its letter dated August 2, 1978 had made a demand for refund of the amount of Rs. 85,84,456 paid under reserve and in terms of its letter of guarantee or indemnity, seeking their b_'instructions' in the matter.

On August 6, 1978 which was a Sunday, -the plaintiffs moved learned Single Judge at his residence, alongwith an affidavit of their Sales Manager stating that unless an injunction was granted the Bank of India, according to the banking practice, would make payment of Rs. 85,84,456/- to the appellant, on the -commencement of the banking hours on August 7, 1978. The learned Single Judge granted an ex-parte ad interim injunction restraining the appellant from recalling or receiving the amount due from the Bank of India.

On December 17, 1978, the learned Single Judge appointed the Court receiver to be the ad interim receiver with power to sell the goods in question eithet in one lot or separate lots, on 'as is where is basis', without any obligation or liability to purchasers thereof as to quality, quantity or edibility of the said goods. On March 27, 1979 the Court receiver accepted the offer of the plaintiffs to ouy the goods for Rs. 18,53,000 and the sale was confirmed by the High Court on April 4, 1979.

The learned Single Judge by his order dated August 24, 1979 made the temporary injunction absolute till the disposal of the suit on the view that the appellant was not entitled under the terms of the G letter of credit, to unilaterally impose the condition of payment 'under reserve' or refuse to pay against the documents tendered by the plaintiffs merely because of the alleged discrepancies, nor was it open to it to reject the documents as stale, for in his view, there were indeed no stale documents.

Upon these grounds, he held that the H plaintiffs had aprimafacie case. He, however, added a rider that (1) the- Bank of India was left free to decide whether or not the conditions for payment under the letter of indemnity had been satisfied so

as to justify the making of payment thereunder to the appellant, and

(2) the appellant was not restrained from making a claim upon the Bank of India or from receiving from it the amount payable in terms of the letter of indemnity nor was the Bank of India restrained from making payment thereunder.

The appellant being aggrieved by the order of the learned Single B Judge dated August 24, 1979 preferred an appeal but a Division Bench of the High Court summarily dismissed the appeal on October

17, 1979.

The result of all this has been that the plaintiffs have not only received Rs. 85,84,456 towards the price of 1000 metric tonnes of 'Sizola Brand Pure Mustard Oil', but also have the mustard oil in question on payment of Rs. 18,53,000.

The repercussions arising from the learned Single Judge's order dated August 24, 1979 are reflected in the correspondence that ensued between the parties. There is no need to refer to all the letters

except a few.

The plaintiffs by their solicitor's letter dated August D 29, 1979, drew the attention of the Bank of India to the learned Single Judge's order granting injunction, and 'instructed' it not to pay. It reads :

The said interim order makes it absolutely clear that our clients will in no way be liable and responsible to return the amounts received under reserve and therefore our clients are in no way liable to pay any sum to UCO Bank and therefore you are also not liable at present to pay any sum to UCO Bank under the said letter of indemnity.

In the circumstances, it will not only be improper but illegal for you to make any payment to UCO Bank.

In the circumstances, we have been instructed by our clients to request you which we hereby do not to make any payment to UCO Bank. In spite of what is stated herein, if any payment is made by you to UCO Bnk, the same will not be binding on our clients and you will not be entitled to debit such amount to our clients current account with you and our clients will refuse to reimburse you any sum so wrongfully paid by you. Please note that if any payment is made by you, it will be entirely at your risk and peril.

The appellant by its letter dated August 31, 1979 addressed to the Bank of India made a demand for payment of Rs. 85,84,456 in

terms of the letter of guarantee or indemnity.

But this was of not avail since the Bank of India as instructed by the plaintiffs, sent a letter dated October 16, 1979 to the appellant, by which it referred to the order passed by the learned Single Judge, and refused to make any payment, stating :

In its order dated 24th August, 1979 the Court has stated that there is no provision regarding staleness of the Railway Receipts in the letter of Credit and it is not open to Bihar Food Corporation to recall the payments made on that ground. Further, it is stated in the said order that 'the protests made upon dishonour of the bills b)' these second defendants show that no discrepancy was made a ground of dishonour.

Having regard to the observatio.ns in the order of the Court, it cannot be said that the Bills were dishonoured on the presentation on account of the discrepancies.

Further, the bills do not appear to have been duly presented.

We understand that you have not appealed against this order. In view of the aforesaid observations in the said order dated 24th August, 1979 the terms of the indemnity cannot be said to have been complied with so as to enable us to make payment to you.

The Bank of India went on to say that in the circumstances set out above, it had been advised that it was not proper for it to make any payment under the letter of guarantee to the appellant unless it was established in proper proceedings that the terms of the mandate had been complied with so as to entitle it to receive payment and to enable the Bank of India to make payment to it.

This was contrary to its earlier stand taken in the affidavit filed in June, 1979, in opposition to the notice of motion, by whk:h it denied that 'it was trying to wriggle out of its obligations' under the letter of guarantee or indemnity and by which it said that it 'submits to the order of the Court'.

The main point in controvery is: Whether the Court should in a transaction between a banker and a banker grant an injunction, at the instance of the beneficiary of an irrevocable letter of credit, re- H straining the issuing bank from recalling the amount paid under reserve from the negotiating bank, acting on behalf of the beneficiary against a docwmeot of i:uarantee/indemnity at the instance of the

--(

beneficiary ? Another question also arises as to whether the Court A should not in a matter like this, depart from its normal practice, and refuse to interfere with an interlocutory order under Art. 136 of the Y Constitution.

The nature of the contractual obligations flowing from a banker's letter of irrevocable credit and more particularly, the rights of the seller as the accredited party or beneficiary of the credit, against the is>uing and drawee bank was dealt with by this Court in Tarapore and Co. Madras v. Tractors Export, Moscow and Anr.(1) It was held that the opening of a confirmed letter of credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker an absolute obligation to pay. It was. however, pointed out relying on a passage in "Chalmers' Bills of Exchange" that it can hardly be over-emphasised that the banker is not bound or entitled to honour the bills of exchange drawn by the seller unless they, and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit'. Such documents must be scrutinised with meticulous care.

If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not. The Court relied upon the two decisions in Hamzeh Malas and Sons v. British Imex Industries Ltd.(2) and Urguhart Dnds:iy and Co. Ltd. v. E:istern

Bank Ltd.(3) and observed at p. 930 of the Report, that the refusal of the bank to honour the bills of exchange drawn by the seller on presentation of the proper documents constituted a repudiation of the contract as a whole, and the sellers were entitled to damages arising from such a breach.

In Stein v. Hambro' s Bank of Northern Commerce(4) a contract for the sale of hides by an English seller to a buyer from Venice, to be shipped from India, was financed by an irrevocable letter of credit.

The buyer, contending that a condition had not been met, instructed the bank to cancel the credit and to refuse acceptance, which was accordingly done.

In an action by the seller against the issuing bank it was held that there had been a breach of the letter of credit contract and that the seller could recover the amount of the bill of

(2) [1958] 2 Q.B. 127.

(3) [ l922] I K.B. 318.

(4) [1921] 9 Ll.L. 433, rev. [1922] 10 Ll.L. Rep. 529 (CA).

exchange for which acceptance was refused. The case was concerned chiefly with the question of the measure of damages.

The right of the seller to maintain the action, if the conditions had been met, seems to have been assumed without discussion.

The theory underlying this result is that the issuing bank is not concerned with the sales contract at all.

Rowlatt J. said :

The obligation of the bank is absolute, and is meant to be absolute, that when the documents are presented they have to accept the bill. That Lis the commercial meaning ofit.

The fulfilment of the terms of the sales contract is a matter for the seller and the buyer alone.

In Urguhart, Lindsay and Co. Ltd. v. Eastern Bank Ltd. (supra) Rowlatt J. held that the position of the banker under an irrevocable credit is in law the same as that of a person who has contracted to buy a shipping document representing the goods shipped, or to be shipped, under the contract between the beneficiary and the person at whose instance the credit has been issued. The credit in this case was opened in pursuance of a contract between Urguhart, Linsday and Co. and Benjamin Jute Mills, by which the former were to manufacture certain machinery and deliver it f.o.b. Glasgow, for shipment to Calcutta. Two instalments of the machinery were manufactured and shipped and duly paid for by the bank. A third instalment was also manufactured and shipped, but the bank in this case refused to take up the shipping documents and honour the draft on the ground that items for extra cost of labour were included in the invoice price of the goods and that the bank had been instructed by Benjamin Jute Mills to refuse payment in those circumstances.

Rowlatt J. held that in such a case, the banker must accept and pay for the documents irrespective of any defence which there may be to a claim under the contract of sale and that such defence is solely a matter to be fought out between the buyer and the seller.

In Gutteridge and Megrah's Law of Bankers' Commercial Credits, Sixth Edn. p. 21, the nature of the obligation created by a banker's commercial credit is succinctly stated. A seller of goods relying on such an instrument believes that he has 'the direct obligation of the issuing bank running in his favour, enforceable by him against that bank, that it will pay his drafts if drawn in compliance with the terms of the letter of credit'. Banks are not concerned with

the sales contract or the goods ; if it were otherwise credit business A would be impossible.

Banker's commercial credits are almost without exception everywhere made subject to the code entitled the 'Uniform Customs and Prnctices for Documentary Credits', by which the General Provisions and Definitions and the Articles following are to "apply to all documentary credit and binding upon all parties thereto unless expressly agreed". A banker issuing or confirming an irrevocable credit usually undertakes to honour drafts negotiated, or to reimburse in respect of drafts paid, by the paying or negotiating intermediate banker and the credit is thus in the hands of the beneficiary binding against the banker. The credit contract is independent of the sales contract on which it is based, unless the sales contract is in some measure incorporated. Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the terms of the paying or negotiating bank, the beneficiary cannot claim against the paying . bank and it is the paying bank's duty to refuse payment.

General Provision (c) of the Uniform Customs states that :

(c) Credits, by their nature; are separate transactions

from the sales or other contracts on which they may be E based and banks are in no way concerned with or bound by such contracts.

and Article 8 emphasises this in providing that :

(a) In documenta:ry credit operations all parties concerned deal in documents and not in goods.

The authorities are uniform to the effect that a letter of credit constitutes the sole contract with the banker, and the bank issuing

the letter of credit has no concern with any question that may arise G between the seller and the purchaser of the goods• for the purchase price of which the letter of credit was issued.

There is also no lack of judicial authority which lay down the neceesity of strict compliance both by the seller with the letter of credit and by the banker with his customer's instructions. In English, Scottish and Australian Bank Ltd. v. Bank of South Africa (1) Bailhache, J. said: H

(!) (1922] 13 Ll.L. Rep. 21 st. 24.

It is elementary to say that a person who ships in reliance on a Jetter of credit must do so in exact compliance with its terms.

It is also elementary to say that a bank is not bound or indeed entitled to honour drafrs presented to it under a letter of credit unless those drafts with the accompanying documents are in strict accord. with the credit as opened.

As Lord Sumner said in Equitable Trust Co. of New York v.

Dawson Partners Ltd.,(1) approving the dictum of Bailhache J. :

It is both common ground and common sense that in such a transaction the accepting bank can only claim indemnity if the conditions on which it is authorised to accept are in the matter of the accompanying documents strictly observed. There is no room for documents which are almost the same, or which will do just as well.

Business could not proceed securely on any other lines.

In Rayner v. Hambros Bank Ltd.(2) the credit called for documents covering a shipment of 'Coromandel groundnuts' ; the invoice tendered was for Coromandel groundnuts, but the bill of lading evidenced a shipment of 'machine-shelled groundnut kernels'; country of origin : British India, and Hambros Bank refused to pay on the ground that the letter of credit called for an invoice and bill of lading both covering a shipment of 'Coromandel groundnuts' whereas the bill of lading did not describe the goods in those terms, their attitude being upheld by the Court of Appeal.

Mackinnon, L.J. after quoting Bailhache, J., in English, Scottish and Australian Bank Ltd. v. Bank o, f South Africa (supra) and Lord Sumner in Equtiable Trust Co. of New York v. Dawson Partners Ltd.

(supra) laying down that a person who ships in reliance on 11; letter of credit must do so in exact compliance with its terms, observed :

The defendant bank were told by their Danish principals to issu~ a letter of credit under which they were to accept documents-an invoice and bills of lading-covering ''Coromandel groundnuts in bags" .. They were offered bills of lading covering "machine-shelled groundnut "kernels". The country of origin was stated to be British

(1) [1927] 27 Ll.L. Rep. 49.

(2) [1943] 1 K.B. 37.

India. The words in that bill of lading clearly are not the A same as those required by the letter of credit. The whole case of the plaintiffs is, in the words of Lord Sumner, that "they are almost the same, or they will do just as well".

The bank, if they had accepted that proposition, would have done so at their own risk.

I think on pure principle B that the bank were entitled to refuse to accept this sight draft on the ground that the documents tendered, to bill of lading in particular, did not comply precisely with the terms of the letter of credit which they had issued.

The learned Judge dealing with that part of the judgment of Atkinson, J., in which he said that "a sale of Coromandel ground nuts is universally understood to be a sale of machine-shelled kernels", said :

When Atkinson, J., says that it is "universally under

stood" he means that these gentlemen from Mincing Lane D have told him : "We dealers in Mincing Lane all understand these things.

We understand that 'Coromandel groundnuts' are machine-shelled kernels, and we understand when we see 'C.R.S.' that that means 'Coromandels'.

I think that is a perfectly impossible suggestion . . It is quite impossible to suggest that a banker is to be affected with E knowledge of the customs and customary terms of every one of the thousands of trades for whose dealings he may issue letters of credit.

In Bank Melli Iran v. Barclays Bank(1) the documents evidencing a shipment of '100 new, good, Chevrolet trucks' were held not to be a good tender under a credit calling for 'new' trucks. Mc Nair J. held that all the documents tendered and accepted by the defendants were defective and consequently the defendants were not entiled to debit the plaintiff with the amount paid against these documents, although the defendants succeeded on the ground that the plaintiffs had by their conduct ratified the defendant's action in accepting the documents. The dicta in American cases are to the' same effect. In Lamborn v. Lake Shore Banking Co. (2) Smith J. said :

A party who is entitled to draw against a letter of credit must strictly observe the terms and conditions under

(I) [l 951] 2 Ll.L. Rep. 367.

(2) (1921] 196 Appl. Div. 504 at p. 507; 188 N.Y.S. 162 at p. 164.

which the credit is to become available, and, if he does not, and the bank refuses to honour his draft, he has no cause of action against the bank.

Again, Hiscock, C. J. in L:iudisi

v. American Exchange Nationc! Bank (1) said :

The bank has the power and subject to the limitations which are given and imposed by (the customer's) authority.

If it keeps within the powers conferred it is protected in the payment of the draft. If it transgresses those limitations, it pays at its peril.

The relevant authorities uniformly lay down in dealing with commercial letters of credit that the docume:lts tendered by the seller must comply with the terms of the letter of credit, and that the banker owes a duty to the buyer to ensure that the buyer's instructions relative to the documents against which the letter of credit is to be lron0ured are complied with.

The rights of a banker are described in Halsbury's Laws of E1gland, 4th Edn., vol.3, para 141 at p. 106 :

Unless documents tendered under a credit are in accordance with those for which the credit calls and which are em bodied in the promise of the paying or negotiating banker, the beneficiary cannot claim against the paying banker, and it is the paying banker's duty to refuse payment.

The documents must be those called for, and not documents which are almost the same or which will do just as well.

The banker is not called upon to know or interpret trade customs and terms. It has been held that where mandate is ambiguous and a paying banker acts in a reasonable way in pursuance of it, he may be protected.

But this general rule cannot be stertched so far as to protect a banker who pays against docliments describing goods in terms which are similar to, but not exactly the same as, those stipulated in the credit.

The description of the goods in the relative bill of lading must be the same as the description in the letter of credit, that is, the goods themselves must in each case be described in identical terms, even H though the goods differently described in the two documents are, in

(I) [1924] 239 N.Y. 234: 146 N.E. 347 at 348.

r !

'1·

fact, the same. It is the description of the goods that is all important.

The reason for this requirement is stated in Davis' Law Relating to Commercial Letters of Credit, 2nd Edn. p. 76 :

It is not only the buyer who faces the risk of dishonesty or sharp practice on the part of the seller.

For, in many instances, the banker looks to the goods for reimbursment of the whole or part of the amount he pays under the letter of credit. It is equally to his interests to ensure that such documents are called for by the letter of credit as will result in goods of the contract descripton being ultimately delivered.

The buyer is not compelled to enter into the sales contract nor , is the banker compelled to issue the letter of credit.

If either of these contracts is entered into then it is for the buyer and the banker respectively to safeguard themselves by the terms of the contract.

Otherwise they must be prepared to bear any ensuing loss.

But the liability thus imposed on the issuing banker carries with it a corresponding right that the seller shall, on his part, comply with the terms of the letter of credit and the seller's obligations have been construed as strictly as those of the banker.

We have already referred to the statement of law in Halsbury's Laws of England w:1ich found a place in Paget's L1w of Banking, 8th Edn. p.648, and we may at the risk of repetiton reproduce the same, to the effect :

Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the promise of the intermediary or issuing banker, the beneficiary cannot claim against him; and it is the banker's duty to refuse payment. The documents must be those called for and not documents which are almost the same or which seem to do just as well.

It the light of these principles, the rule is well established that a bank issuing or confirming a letter of credit is not concerned with

the underlying contract between the buyer and seller.

Duties of a H bank under a Jetter of er.edit are created by the document itself, but in any case it has the power and is subject to the limitations

A which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit.

It is somewhat unfortunate that the High Court should have granted a temporary injunction, as it has done in this case, to restrain the appellant from making a recall of the amount of B Rs. 85,84,456 from the Bank of India in terms of the letter of guarantee or indemnity executed by it. The courts usually refrain from granting injunction to retrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be c granted in a transaction between a banker and a banker, restraining a bank from recall'ing the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail.

In view of the banker's obligation under an irrevocable letter D of credit to pay, his buyer-customer cannot instruct him not to pay.

In Hamzeh Malas v. British lmex Industries Ltd. (1) the plaintiffs, the buyers, applied for an injunction restraining the sellers, the defendants, from drawing under the credit established by the buyer's bankers. This was refused, Jenkins, LJ. stating, at p. 129, that :

E ...... the opening of a confirmed letter of credit

constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay ...

and that 'this was not a case in which the Court ought to exercise its discretion and grant the injunction'.

The same considerations apply to a bank guarantee.

A letter of credit sometimes resembles and is analogous to a contract of guarantee. In Elian and Anr v. Matsas and Ors. (')

Lord Denning, M.R., while refusing to grant an injunction stated :

...... a bank guarantee is very much like a letter of credit.

The courts will do their utmost to enforce it according to its terms.

They will not in the ordinary course of things, interfere by way of injunction to prevent its due implementation. Thus they refused in Malas v. British lmex Industries

(I) [1958] 2 Q.B. 127.

(2) [1966] 2 LI. Rep. 495.

-~:

u. co. BONK v. BANK OF INDIA (Sen, J.) 325

Ltd. But that is not an absolute rule. Circumstances may A arise such as to warrant interference by injunction.

A Bank which gives a peformance guarantee must honour that guarantee according to its terms. In R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd., (1) Kerr, J. considered the position in principle. We would like to adopt a passage from his judgment at p. 761 :

It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by b:1.nks.

They are the lif e-Nood of international commerce.

Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which these merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees.

The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from in?erference by the courts.

Otherwise, trust in international commerce could be irreparably damaged. (Emphasis supplied.)

The observations of Kerr, J. have been cited with approval by Lord Denning, M. R. in Edward Owen Engineering Ltd. v. Barclays Bank International Ltd.(2)

The appellant was under a duty to its constituent, the Bihar Corporation, to scrutinize the documents, and could not be compelled to make payment particularly w:1e11 the description in the documents did not tally with that in the letter of credit.

It was fully entitled to exercise its judgment for its own protection. When the appellant againsMhe first lot of 20 documents refused to make payment except 'under reserve' and against the second lot of 27 documents even 'under reserve' the remdy of the plaintiffs was to approach the 'openers', i.e., Bihar Corporation, to instruct the appellant to effect

(l) [[Q77] 3 W.L.R. 752.

(2) [1977] 3 W.L.R. 764.

A a change in the description of the goods from 'Sizola Brand Pure Mustard Oil' to Sizola Brand Pure Mustard Oil "Unreii.1ed" in the letter of credit. Instead of adopting that course, the irregularity in the description in documents tendered for payment was sought to be got over by the plaintiffs by instructing their bankers, the Bank of India, to execute a letter of guarantee or indemnity.

When the bills B of exchange tendered to the Bihar Corporation were dishonoured when presented on August 3, 1978, the legal consequences must follow as between the appellant and the Bank of India.

There was the inevitable chain of events which could not be prevented by the grant of an injunction. c

The appellant presumably knew little or nothing about mustard oil.

Bankers are not dealers in mustard oil in such a case as this, but dealers in documents only.

The appellant as the issuing bank was presented with documents and asked to pay a very large sum of money in exchange for them.

Its duty was not to go out and determine by physical examination of the consignments, or employment of experts, whether the goods actually conformed to the contracts between the buyer and the seller, nor even determine either from its own or expert advice whether the documents called for the goods which the buyer would e bound to accept.

The banker knows only the letter of credit which is the only authority to act, and the documents which are presented under it. If these documents conform to the letter of credit, he is bouncl to pay. If not, he is equally not bound to pay. The letter of credit called for 'Sizola Brand Pure Mustard Oil' while the railway receipts carried the description "Siloza Brand Pure Mutsard Oil 'Unrefined' " and it was not within the province of the appellant to say that the latter description meant identicaily the same thing as the former.

In an action against a purchaser for reimburseme'lt, it is only necessary to prove that the goods tendered were the g.)ods purchased, no matter how described, i.e., the purchaser was offered that which he had contracted for, while in such a case as this, in an actiorr by the beneficiary against the issuing bank, it makes no difference whether the goods tendered were in fact identical to the goods purchased, the only question being : Did the documents conform to the letter of credit ?

It is clear from the letters addressed by the appellant to the Bank of India on June 23, 27 and 28, 1978 that the payment of Rs. 36,52,960 by three cheques for Rs. 7,29,872 Rs. 12,78,536 and Rs. 16,43,833 were payments made under reserve. Admittedly

-",..-

when these amounts were paid by the appellant to the Bank of India, the railway receipts were not clean because they contained the description "Sizola Brand Pure Mustard Oil " Unrefined".

The appellant had taken the precaution of saying "Please note that the payment is made to you 'under reserve' owing to the following discrepancies". There was a foot-note added: "Please note that this payment 1s made to you subject to repayment on demand of the bill amount, without loss of exchange to ourselves plus interest and other charges incurred by us, and or by our principals, if the documents are not acceptable to the openers or buyers in view of the discrepancies whatsoever". It was also added : "Please also note that this 'reserve' will remain in force until released by us in . writing". Acceptance of these amounts by the Bank of India on behalf of the plaintiffs was upon these terms.

The Bank of India and the plaintiffs were thus fully aware that the appellant was not prepared to pay except 'under reserve'. The plaintiffs in their letters addressed to the appellant dated June 22 and 23, 1978 had added in ink the post-script : "In case of discrepancies, pay to our bankers, Bank of India". These letters were in respect of 11 out of 20 documents ; it is not suggested that others stand on a different footing.

The letters conveyed a request to "negotiate the sight drafts for payment".

Thus, the payment of Rs. 36,52,96'.l against the first lot of 20 documents was 'under reserve' and was also covered by the letter of guarantee or indemnity.

As regards the second lot of 27 documents, the payment of Rs. 49,31,496 the appellant was not prepared to pay even 'under reserve' because the Bihar Corporation had refused to accept the consignment on the ground int only of discrepa11cies but also because the mustard oil was not fit for human consumption. There was no question of th~ appellant paying this large sum of money except against the letter of guarantee or indemnity executed by the Bank of India. It was represented by the Bank of India that it had made arrangements for due payment of the bills of exchange.

When the bills of exchange were dishonoured on being presented on August 3, 1978 the amount of Rs. 49,31,496 became immediately repayble on demand.

There still remains the question whether the court should interfere with an order of this nature. The Court's powers under ArtJ36 of Constitution are untrammelled, but they are subject to selfordained restrictions. The Court does not, as a matter of rule, H interfere with interlocutory orders, save under very exceptional circumstances.

The grant of a temporary injunction by the High Court under

0. 39 rr. 1 and 2 appears to be wholly unwarranted. For reasons already stated, the appellant was within its rights in making a recall of the amount of Rs. 85,84,456 paid 'under reserve' and/or in terms of the letter of guarantee or indemnity.

We fail to appreciate any justification for grant of a temporary injunction to the plaintiffs, the effect of which virtually is to restrain a transaction between a banker and a banker.

The courts view with disfavour the grant of such temporary injunction.

In the instant case, the High Court has assumed that the plaintiff has a prima facie case.

It has not touched upon the question where the balance of convenience lay, nor has it dealt with the question whether or not the plaintiffs would be put to irreparable loss if there was no injunction granted. In dealing with the prima facie case, the High Court assumes that the appellant was in breach. There is no basis for this assumption at all.

The High Court in this case has pre-judged the whole issue by holding that the appellant could not unilaterally impose the condition of payment 'under reserve', nor was it justified in holding that the documents were 'clean'. The question whether the appellant was in breach is an issue to be tried in the suit. The question whether the documents were 'clean' or 'unclean' is a vexed question on which no opinion could be expressed at this stage. It is also premature at this stage to assume that there was no 'due presentation' of the bills of exchange and their refusal.

No injunction could be granted under 0.39, rr. 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima .f acie case and, if so as between whom ? in view of the legal principles applicable, it is difficult for us to say on the material on re1; ord that the plaintiffs have a prima facie case.

It cannot be disputed that if the suit were to be brought by the Bank of India, the High Court would not have granted any injunction as it. was bound by the terms of the contract.

What could not be done directly cannot be achieved indirectly in a suit brought by the plaintiffs.

Even if there was a serious question to be tried, the High Court liad to consider the: balance of convenience.

We have no doubt

that there is no reason to prevent the appellant from recalling the amount of Rs. 85,84,456. The fact remains that the payment of Rs. 36,52,960 against the first lot of 20 documents made by the appellant to the Bank of India was a payment under reseve while that of Rs. 49,31,496 was also made under reserve as well as against the letter of guarantee or indemnity executed by it. A payment 'under reserve' is understood in banking transactions to mean that the recipient of money may not deem it as his own but must be prepared to return it on demand. The balance of convenience clearly lies in allowing the normal ban king transactions to go forward.

Furthermore, the plaintiffs have failed to establish that they would be put to an irreparable loss unless an interim injunction was granted.

It was, however, tried to be impressed upon us that the balance of convenience lay in granting the injunction since the appellant would not be put to any loss because it had furnished the letter of guarantee against 100 per cent margin, i.e. on deposit being made by the Bihar Corporation of Rs. 85,84,456 for meeting the payment to be. made under the credit. It was also said that the effect of recalling of Rs. 85,84,456 from the Bank of India will result in the plaintiffs facing a serious credit-freeze, as the Bank of India will, on its turn, recall the amount from the plaintiffs.

We are afraid, these considerations cannot prevail. For all these reasons, we are constrained to hold that there was no justification for the High Court to grant a temporary injunction under 0. 39 rr. 1 and 2 of the Code of Civil Procedure, 1908.

It the result, the appeal succeeds and is allowed with costs.

The order passed by the High Court dated August 24, 1979 granting a temporary injunction restraining the appellant, tbe United Commercial Bank, from recalling Rs. 85,84,456 from the Respondent Nol , the Bank of India is set aside, and the application filed by the plaintiffs, Messrs.

Godrej Soaps Ltd. for the grant of a temporary injunction under 0.39, rr.1 and 2 of the Code of Civil Procedure,

1908 is rejected with a direction that the High Court shall try to dispose of the suit as expeditiously as possible, and in any event, within six months from today. The costs of the appellant shall be borne by the Respondents Nos. I and 2 equally.

P.B.R.

Appeal allowed.

UNITED COMMERCIAL BANK

BANK OF INDIA AND OTHERS

March 26, 1981

A.C. GUPTA

A.P. SEN

Constitution of India

Article 136

Art. 136

Article 136

[1969] 2 S.C.R. 920

Article 136

C.P.C

P.S. Narim::m

P.H. Parekh

K.R. Modi

R.A. Kapadia

Raian Karnjawala

M.H. Shah

K.K. Venugopal

Vinay Bhasin

Rakesh Sahani

Vineet Kumar

G.E. Vahanvati

S.J. Thacker

A Soli J. Sorabjee

A Soli J. Sorabjee, E.J. Ba/sara, S. Ganes//, Narain and P.H. Amin for Respondent No.2 .

E.J. Ba

S. Ganes//

Narain

P.H. Amin

Lal Narain Sinha

Ram Ba

B.P. Singh

SEN

Bank of India

Godrej Soaps Limited

February 2, 1978

Biliar State Food and Civil Supplies Corporation Limited

Bihar Corporation

United Commercial Bank

United Commercial Bank Nariman Point

Patna

Ltd., East Boring Road, Patna, for any sum or sums not exceeding in all Rs.

Bihar State Food & Civil Supplies Corpn. Ltd.

Sizola Brand Pure Mustard Oil

Bombay

UNITED COMMERCIAL BANK

June 22, 1978

June 26, 1978

July 7 and 8, 1978

July 3, 1978

July 5, 1978

July 12, 1978

Central Railways

July 13, 1978

July 14, 1978

Bibar Corporation

United Commercial Bank, Nariman Point,

Bombay 400021

P.K. Sharma

Dear Sirs,

Date July 17,1978

Attn : Mr.P.K. Sharma

Letter of Credit No.

Fex/Exp/78 dated 12.7.78 and 14.7.78 on the above subject.

Central Railway

18th July, I 978

Godrej Soaps Ltd.

BANK OF INDIA

July 19, 1978

Bombay High Court

Bharucha

August 4, 1978

Sharma

K.R. Gokulam

R.V. Shekar

R. V. Shekar

Godrej Soaps

Godrej Soaps Limited

August 2, 1978

PUDV AL

Attn: Mr. PUDV AL, Manager (Advance)

Dear Sirs,

Re: Your Guarantee Re.

Bihar State Food & Civil Supplies Corporation Limited

August 3, 1978

August 6, 1978

August 7, 1978

December 17, 1978

March 27, 1979

April 4, 1979

18,53,000 and the sale was confirmed by the High Court on April 4, 1979.

August 24, 1979

October

17, 1979

August D 29, 1979

UCO Bank

UCO Bnk

August 31, 1979

October 16, 1979

24th August, 1979

Bihar Food Corporation

Art. 136

Venice

India

Rowlatt

Urguhart

Linsday and Co.

Benjamin Jute Mills

Glasgow

Calcutta

Gutteridge

In Gutteridge and Megrah's Law of Bankers' Commercial Credits, Sixth Edn.

Megrah

Article 8

Bailhache

Sumner

Hambros Bank

British India

Mackinnon

Atkinson

Mc Nair

Smith

S. 162

Hiscock

Again, Hiscock, C. J. in L:iudisi

v. American Exchange Nationc!

Davis

England

Paget

Jenkins

Denning

Kerr

Denning

June 22 and 23, 1978

Code of Civil Procedure, 1908

Godrej Soaps Ltd.

Code of Civil Procedure


SANT SINGH NALWA & ANR.

THE FINANCIAL COMMISSIONER,

HARYANA & ORS., ETC.

March 30, 1981

(S. MURTAZA FAZAL ALI, A. VARADARAJAN AND A.N. SEN, JJ.]

Punjab Security of Land Tenures Act, 1953, S. 2(5) and Punjab Security of Land Tenures Rules 1953-Annexure 'A'-Classification of land according to quantity of yield aud quality of soil-Whether valid.

The appellants who were displaced persons were allotted land which was D entered as sailab land in the revenue records and they became the owners of these lands. After the coming into force of the Punjab Security of Land Tenures Act, 1953, the Revenue Authorities proeeded to determine the permissible area of the land of the appellants under section 2(3). They allowed 50 standard acres of land to each of the appellants and declared the balance as surplus land.

The appellants claimed that the lands allotted to them as displaced persons E fell in a portion of District Karna! which was sailab and adna sailab and according to the classification made under the Punjab Security of Land Tenures Rules, 1953 they did not carry any valuation. The Collector dismissed their application.

The Commissioner dismissed their appeals holding that the Collector was right in treating the surplus area as an unirrigated areas and valuing the same at nine annas per standard acre.

A single Judge accepting the contention of the appellant in his writ petition set aside the orders of the Revenue Court. The Financial Commissioner filed an appeal which was allowed by the Division Bench and the writ petition was dismissed.

In the appeals to this Court it was contended on behalf of the appellants that : (!)whereas sub-section (5) of section 2 of the Act directed the Government to frame Rules after considering the quantity of the yield and quality of soil, in the Rules framed by the Government the main guide-lines laid down by sub-section(S)were not followed, and the classification made by the Rules under Annexure 'A' was arbitrary without determining the quantity of the yield and quality of the soil, and (2) that even if the classification made in Annexure 'A' was valid, the Reveuue Courts as also the High Courts committed an error of law in misconstruing the classification and in arbitrarily placin2 the surplus area in the category of unirrigated land.

SANT SINGH V. FINANCIAL COMMR. HARYANA 331

Dismissing the appeals,

HELD : l(i) The view of the single Judge is not in consonance with the scheme and spirit of the Rules framed under the Act and is bassed on a wrong interpretation !of the nature, extent and ambit of the classification made in Annexure 'A'. The classification is in accordance with provisions of sub-section

(5) of section 2 of the Act and is, therefore, constitutionally valid. [337 E-F, G]

(ii) The Land Resettlement Manual prepared in 1952 by Tarlok Singh shows that the classification has been made in a very scientific manner after taking into consideration all the relevant factors. The Punjab Settlement Manual (4th Edition) prepared by Sir James M. Douie though possessing unimpeachable authenticity was made Jong ago arid since then there have been great changes resulting from various steps taken by the Government for improving the nature and character of the land and the irrigation facilities. Even so, the classification made by Sir James Douie has been adhered to broadly and basically by Tarlok Singh in his Manual which forms the pivotal foundation for. the schedule containing Annexure 'A' framed under the Rules. [335H-336 CJ

(iii) The classifications of land like barani, sailab, abi, nehri, chahi etc. are clearly mentioned in the Punjab Settlement Manual.f0The Rule Making Authority has not in any way either departed from the principles mentioned in sub-section(5) of section 2 of the Act or violated the guidelines contained therein, nor could it be said that the classification made under the Rules has not been made. according to the quantity of yield or the quality of the soil. [336 C, D-E]

(iv) If the dominant object of the act was to take over the surplus area according to the formula contained in various provisions of the Act particularly sub-sections (3) and (5) of section 2, there is no material on the record to show that the Rules do not fulfil or carry out the object contained in the Act. [336 G]

Jagir Singh and Ors. v. The State of Punjab and Ors., 44 (1965) Lahore Law Times 143, approved.

2.(i) There was no error in the classification made by the revenue authorities. So far as Karna] District was concerned, there was no sailab land at the time when the Rules were framed and the classification was made. Even if the land in question could be treated as sailab and equated with the land in Sonepat then the valuation would have been at 12 annas which could be more deterimental to the interest of the appellants. The Collector and the Commissioner have rightly treated the land as unirrigated which is the lowest category and whose valuation is given as nine annas per acre. [338C, BJ

(ii) The three categories given in clauses (a), (b) and (c) of Rule 2 do not cover the land of the appellants which is sailab or adna sailab and therefore, they cannot be given the benefit of any of these three sub-clauses of the proviso.

[339 A]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 490 and 2228 (N) of 1970. . ·,, Appeals by certificate from the Judgment and Order dated ... .t 9-10·1969 & 14-1-1970 of the Punjab and Haryana High Court in ·,,,,•· Letters Patent.Appeal Nos. 553 of 1968 & 570 of 1969 respectively.

A Hardev Singh and R.S. Sodhi for the Appellants (In both the

Appeals.)

K.C. Bhagat and R.N. Podar for the Respondent (in both the Appeals)

The Judgment of the Court was delivered by

FAZAL Au, J. These two appeals by certificate are directed against judgments dated 9.10.69 and 14.1.1970 of the Punjab and Haryana High Court in Letters Patent Appeals Nos. 553 of 1968 and 570 of 1969 hy which the contentions raised by the appellants ini the two appeals were rejected.

After the matter came up in ths Court the two appeals were consolidated as they arose out of almost the same sqbject-matter and involved identical points.

The facts whieh have given rise to these appeals lie within a very narrow compass and may be briefly summarised thus.

The appellants were refugees from Pakistan and Sant Singh D Nalwa was allotted 63 standard acres and 8! units in village Marghain and another area of l 9 standard acres and 5! units in Garden Colony in Jundla which were entered as sailab land in the revenue records. The other appellant, Kartar Kaur, was allotted 96 acres, 3 bighas and 13 biswas in the same district. These lands were given to the appellants as they were displaced persons. After the appellants E had become owners of the lands, the State of Punjab passed the Punjab Security of Land Tenures Act, 1953, (hereinafter referred to as the 'Act') which later applied to Haryaria also, under which every land owner whether a displaced prso1, allotte~ ot otherwis~ c:rnld not retain any area of latid which fell beyond the extent prescribed by sub-section (3) of s. 2 of the Act.

After the coming into force of the Act the revenue authorities proceeded to determine the permissible area of the land of both the appellants so that the area which was found to be in excess may be taken over by the State after paying the compensation as provided in the Act and the Rules made thereunder, viz., The Punjab Security of Land Tenures Rules, 1953 (hereinafter called the 'Rules'). In order to determine the permissible area the Act contains certain provisions by which the entire area held by a land OW!Jer has to be converted into standard acres on the basis of a formula contained in sub-section (5) of s. 2 of the Act which defines 'standard acre' thus : • " 'Standard acre' mean& a meas11re of area convertible int© ordinary acrc.s of any clat>s 0f land aeordin~ to the

/ t

prescribed scale with reference to the quantity of yield and A quality of soil."

Similarly, the relevant portion of sub-section 5-a which defines 'Surplus Area' may be extracted thus :

" 'Surplus Area' means the area other than the reserved B area, and, where no area has been reserved, the area in excess of the permissible area selected (under section 5-B or the area wpich is deemed to be surplus area under subsection (!) of section 5C) (and includes the area in excess of the permissible area selected under section 19-B) but it will not include a tenant's permissible area; ... " C

So far as the appellant, Sant Singh Nalwa, was concerned, the revenue authorities held that he was entitled to retain 50 (fifty) standard acres being the permissible area and the balance of 13 standard acres and odd units was declared as surplus. Similarly, in the case of the other appellants, Kartar Kaur, she was allowed to retain 50 standard acres and about 15 standard acr.:s of land was taken over being surplus. In the instant appeals, there is no dispute that the formula by which the extent of the land in possession of the appellants had been converted into standard acres was not in accordance with the provisions of the Act.

The

only point that was canvassed before the revenue authorities as also E in the High Court centred round the question of the nature of the land and the valuation thereof for the purpose of assessing compensation. The appellants case was that as the lands which had been . declared ; urplus or for that matter the entire lands/allotted to them as displaced persons fell in a portion of District Karna) which was sailab and Adna sailab and therefore according to the classification F made under the Rules they did not carry any valuation.

Sant Singh Nalwa challenged before the Collector the validity of declaration of the. surplus area and contested the valuation put by the Collector. The Collector dismissed the application by his Order dated 13.3.1963 and held that 13 standard acres and 61 units G of the land had to be declared surplus.

Against this Order, Sant Singh filed an appeal before the Additional Commissioner, Ambala Division where the only point raised by him was that the area was not correctly evaluated.

His main grievance was that the area in question was equated with Barani land and valuated at the rate of H unirrigated area as given in the valuatian statement of the Karna!

District under Annexure 'A' of the Rules.

The main contention of

the appellants before the Commissioner as also before us was that as the surplus area does not fall under any of the categories mentioned in Annexure 'A' it carried no valuation at all.

The Commissioner, however, dismissed the appeal holding that the collector was right in treating the surplus area as an unirrigated area and valuing the same at 9 annas per standard acre.

Thereafter, the appellant filed a writ petition before the High Court which was allowed by the Single Judge by his Order dated July 23, 1963.

The Single Judge set aside the orders of revenue courts and accepted the contention of the appellant. Against this order, the Financial Commissioner filed an appeal under Letters Patent before a Division Bench of the High Court which by its judgment dated l-9.10.69 allowed the appeal and dismissed the writ petition filed by the appellant before the High Court.

Similarly, Kartar Kaur, the other appellant also filed an appeal before the Additional Commissioner, Ambala Division regarding the surplus land and having failed there, filed a writ petition in the High Court on 10.2.1965 which was ultimately dismissed on 10.10.69 and the appeal under Letters Patent against the said Order of the Single Judge was also dismisse_d on 14.1.70.

Thus, the position is that both the appellants failed to get any redress from the High Court which ultimately confirmed the orders of the Revenue courts.

The learned counsel for the appellants raised two contentions before us.

In the first place, it was argued that the Revenue courts as also the High Court were in error in holding that the surplus area was rightly evaluated in as much as the classification made under the Rules was ultra vires as being in direct disobedience to the mandate contained in sub-section (5) of s. 2 of the Act. In other words, it was argued that whereas sub-section (5) directed the Government to frame Rules after considering the quantity of the yield and quality of soil, in the Rules framed by the Government under its rule making power given to it by the Statute the main guidelines laid down by sub-section (5) were not followed and the classification made by the Rules under Annexure 'A' was arbitrary without determining the quantity of the yield and the quality of the soil.

We might mention here that this contentfon appears to have found favour with the Single Judge in the writ petition filed by the appellant, Sant Singh Nalwa but the judgment of the Single Judge'

as already indicated, was reversed by the Division Bench in the A Letters Patent appeal.

Secondly, it was contended that even if the classification made in Annexure 'A' was valid, the Revenue courts as also the High Court committed an error of Law in misconstruing the classification and in arbitrarily placing the surplus area in the category of unirri- B gated land.

Coming now to the first point raised by the appellants regard-· ing the constitutionality of the Rules framed under the Act, after hearing the counsel for the parties we find no merit in this contention. Sub-section (5) of section 2 of the Act 1'.merely requires C that the Rule :should classify the land according to the quantity of the yield and quality of the soil. The Rules have classified the land by preparing a schedule consisting of various Annexures which divide the lands according to the quantity of yield and quality of the soil into various categories.

A perusal of the Annexures to the Rules clearly shows that the valuation statement D and the class of land has been described not only as being applicable to one place or the other but in view of the entire topography of every district or tehsil, it is manifest that in a peculiar State like Punjab and Haryana diverse factors, namely, the situation or position of the. land, its nearness to the river, the irrigation facilities, the ravages of flood, the fertility of the land and its pro- E duce and various other similar circumstances have to be taken into consideration in determining the nature and character of the land.

As far back as 1952, a Land Resettlement Manual was prepared by Tarlok Singh, which was relied upon by the judgment of the Single Judge and at p. 287 the land has been classified in following categories : F "Chahi and Abi Chahi Nehri Unirrigated Nehri Non-Perennial or other Nehri or Nehri-Inundation"

This classification varies from District to District and Tarlok Singh has also given the approximate value of the land. After going through the Land Resettlement Manual we find that the classification

has been made in a very scientific manner after taking into conside- H ration the relevant factors.

Even Sir James M. Douie in his Punjab Settlement Manual (4th Edition), which is undoubtedly a work of

unimpeachable authenticity, as pointed out by the Single Judge, had made a classification which is almost similar to the one made by Tarlok Singh. It is, however, obvious that the Punjab Settlement Manual by Sir Douie was made Jong ago and since then there have been great changes resulting from various steps taken by the. Government for improving the nature and charcter of the land and the irrigation facilities.

It is, therefore, not possible for us to rely on the Manual prepared by Sir Douie as the Single Judge had done because that would not be an objective assessment.

Even so, the classification made by Sir James Douie has been adhered to broadly and basically by Tarlok Singh in his Manual which forms the pivotal foundation for the schedule containing Annexure 'A' framed under the Rules.

The classification of land like barani, sailab, abi, nehri, chahi, etc., are clearly mentioned in para 259 of Sir James's Punjab

Settlement Manual which Sarkaria, J., as he than was, rightly classed as the Bible of Land Revenue Settlement.

The point, however, that has to be considered in this case is whether the rule making authority has in any way departed from the mandate given or the guidelines contained in the Act. There does not appear to be any material to show that the Rule Making Authority has in any way either departed from the principles mentioned in sub-section (5) of s. 2 of the Act or violated the guidelines contained therein. The appellants were not able to show that the classification made under the Rules has not been made according to the quantity of the yield or the quality of the soil.

Neither any affidavit nor any document has been produced before the courts below to prove tis fact.

In this state of the evidence the Single Judge was not justified in striking down the Rules as being ultravires.

Moreover, it is obvious that the Rules were made under section 27 of the Act which authorises the Government to make rules for carrying out the purposes of the Act. If the dominant object of the Act was to take over the surplus area according to the formula contained in various provisions of the Act particularly subsections (3} and (5) of s.2, there is no material on the record to show that the Rules do not fulfil or carry out the object contained in the Act.

Moreover, in Jagir Singh and Ors. v. The State of Punjab and Ors.(1} a Division Bench of the Punjab High Court while considering a similar contention rejected the argument that the Anilexure

framed . under the Rules was bad as it did not consider the nature

(1) 44 (1965] Lahore Law Times 143.

...----

SANT SINGH v. FINANCIAL COMMR. HARYANA (Fczal Ali, J.) 337

and quality of the Soil.

In this connection, the Division Beneh observed thus :-

"Jt is thus clear that the formation of an assessment circle neessarily takes into consideration the various factors mentioned by the learned author and those include the nature of soil and its quality apart from various other factors affecting the yield. The circumstance, therefore, that in the Annexure the State of Punjab has been split up into assessment circles, as determined at the time of the Settlement, is highly significant and leaves no doubt that the nature and the quality of the soil inherent in the formation of an assessment circle have been taken into consideration for valuing the land for purposes of its conversion into standard acres. At the same time, the existing sources of irrigation have all been taken into consideration. It is, in the circumstances, impossible to agree that the Annexure in any manner violates the direction contained in the Punjab

Security of Land Tenures Act.

We are, in the circumstances, unable to agree that the disputed rule and Annexure 'A' attached to the Rules are ultra vires the Punjab Security of Land Tenures Act."

We find ourselves in complete agreement with the observations made by the High Court and endorse the same. With due respect, the view taken by Sarkaria, J., as he then was, (the single Judge in the instant case) is not at all in consonance with the scheme and spirit of the Rules framed under the Act and is based on a wrong interpretation of the nature, extent and ambit of the classification made in Annexure 'A'.

We, therefore, fully agree with the Division Bench judgment of the High Court that the classification is in accordance with the provisions of sub-section (5) of s. 2 of the Act and is, therefore, constitutionally valid.

The first contention put forward by the counsel for the appellants is therefore overruled.

Coming now to the second c_ontention that even if the classification is correct, the revenue authorities were wrong in treating the surplus land in dispute as unirrigated area. We find no substance

in this argument. The relevant Annexure which gives the surplus H land in District Karna! is to be found at page 308 of the compilation of Punjab & Haryana Local Acts (vol. VII) where while lands

classified as Chahi, Abi, Nehri, Unirrigated and Nehri/Non-perennial are mentioned, there is no mention of sailab or adna sailab lands.

Whereas at page 306 in the same volume there is no sailab land except in tehsil Sonepat. Thus, it appears that so far as Kamal District is concerne, d, there was no sailab land at the time when the Rules were framed and the classification was made.

Even if the land in question could be treated as sailab and equated with the land in Sonepat then the valuation W'>Uld have been at 12 annas as shown at p. 306 of the aforesaid compilation, in which case this would be more detrimental to the interests of the appellants. The Collector and the Commissioner have therefore rightly treated the land as unirrigated which is almost the lowest category and whose valuation is given as 9 annas per acre.

We, therefore, find no error in the classification made by the revenue authorities.

We are unable to agree with the counsel for the appellants that as the land in question did not fall in any of the heads of classification made in District Kamal they will carry no value at all because this is directly opposed to the various schemes of the classification made under the Rules. A subsidiary contention in this very argument was that the land should have been valuedin accordance with Rule 2, provisos (a) to (c), which may be extracted thus :

"2. Conversion of ordinary acres into standard acres.

The Equivalent, in standard acres, of one ordinary acre of any class of land in any assessment circle, shall be determined by dividing by 16, the valuation shown in Annexure 'A' to these rules for such class of land in the said assessment circle;

Provided that the valuation shall be -

(a) in the case of Banjar Qadim land, one-half of the value of the class previously described in the records and in the absence of any specific class being stated, one-half of the value of the lowest barani land.

(b) in the case of Ba11jar Jadid land, seven-eighth of the value of the relevant class of land as previously entered in the records, or in the absence of specified class in the records of the lowest barani land; and

( c) in the case of cultivated thur land subject to waterlogging, one-eighth of the value of the class of land shown in the records or in the absence of any class, of the lowest barani land."

The three categories given in clauses (a), (b) and (c) as extrac- A ted above do not at all cover the land of the appellants which is sailab or adna sailab and therefore they cannot be given the benefit of any of these three sub-clauses of the proviso.

For these reasons, the second contention is overruled.

The result is that we find no merit in the appeals which are B accordingly dismissed but in the circumstances without any order as to costs.

N.V.K.

Appeals dismissed.

SANT SINGH NALWA & ANR

March 30, 1981

S. MURTAZA FAZAL ALI

A. VARADARAJAN

A.N. SEN, JJ.

S. 2(5)

section 2(3)

Karna

section 2

section 2

Tarlok Singh

James M. Douie

James Douie

section 2

section 2

Karna] District

Sonepat

CIVIL APPELLATE JURISDICTION

A Hardev Singh

R.S. Sodhi

K.C. Bhagat

R.N. Podar

FAZAL Au

Pakistan

Sant Singh D Nalwa

Marghain

Jundla

Kartar Kaur

Haryaria

s. 2

s. 2

s 0

section 5

section 5

section 5C

section 19

Sant Singh Nalwa

Sant Singh Nalwa

Sant Singh

July 23, 1963

s. 2

section 2

Punjab

Haryana

Douie

Sarkaria

s. 2

section 27

s. 2

Haryana Local Act

Kamal District

Kamal