1. At the conclusion of the arguments on the application for leave to defend the suit I pronounced the judgment on 16th February, 1981. I refused leave and decreed the suit in terms of the prayer made in the plaint. Now I give my reasons for refusal of leave.
2. The plaintiff, Lakshmi Commercial Bank Ltd. Delhi, has brought this suit for the recovery of Rs. 18,44,944.80 against the defendants, M/s. Hira Lal and Sons, and its partners under 0.37 of the CPC.
3. At the request of the defendants the plaintiff bank opened a letter of credit in favor of M/s. Palmex Enterprises, Singapore, for US Dollars 205,992.51. The defendants had agreed to buy from Palmex PLVC Resin suspension under a contract of sale, dated 13th July, 1979. Palmex was the seller (hereinafter called 'the seller'). Defendants were the buyers (hereinafter called 'the buyers'). The plaintiff was the issuing banker. In their application to open a documentary credit made to the plaintiff bank the buyers agreed to pay as 'primary obligator' the amount that will be due to the bank on account of opening the letter of credit.
4. The, letter of credit was opened. It was transmitted to the letter through Manufacturers Hanover Trust Co., Singapore (hereinafter called 'the negotiating banker'), authorising them to negotiate the drafts for the face amount under this credit and, thereafter, claim reimbursement of the amount paid to the seller by debiting the amount of the plaintiff bank with their New York Office.
5. The seller shipped the goods on 30th August, 1979, and tendered the documents. On 31st August, 1979, the negotiating banker made the payment of 205, 992 US Dollars to the seller against the shipping documents. On 3rd September, 1979, the plaintiff-bank received a debt advice from the negotiating banker that they as the paying banker, had debited the plaintiff's account with US dollars 205, 992 and had received the amount from New York. On 8th September, 1979, the plaintiff-bank received the original documents from the negotiating banker. On 10th September, 1979, these documents were presented to the buyers. They were asked to pay the equivalent of 205, 992 US dollars in Indian currency within 7 days. The buyers did not pay. Ultimately, this suit was brought against them. The buyers have now applied for leave to defend the suit.
6. Two points are important for the decision of the leave application. First, it appears that on 8th or 9th September, 1979, the ship, M.V. Oh Day, which was carrying the consignment of goods, sank. On 29th September, 1979, the buyers wrote to the plaintiff-bank that they have lodged the claim with the insurance company on 19th September, 1979.
7. The plaintiff-bank insisted on payment. They sent a reminder to the buyer on October 9, 1979, that the bill which had been presented to them for payment on 10th September, 1979, had remained unpaid. They asked the buyers to make payment of bill immediately. To this letter the buyers replied on 3rd November, 1979, in these terms :
'kindly refer to your printed circular letter No. PAD 1890, dated 9-10-1979, regarding the above matter by which you are demanding the amount under the subject L/C. In this connection, we refers you to our latter dated 22-9-1979, by which we had informed you that the ship carrying the consignment in question is stated to have been sunk on way from Singapore to India. Your bank is already holding the insurance cover notes/policies, and we understand that you have already lodged full claims against the insurance company and if not you may do so immediately without delay. Under the circumstances, your demand upon us for arranging immediate payment does not arise and you are, thereforee, requested to get the payments from the insurance company.'
8. The plaintiff bank replied that the buyers were liable to make payment to them.
9. The second important fact to notice is that during the period of seven days from 10th September, 1979, when the documents were presented to the buyers they did not make the payment. Nor did they make any complaint that the plaintiff-bank had not acted according to their mandate. They did not point out any discrepancy in the documents which could have been a ground to avoid the liability. On the expiry of seven days the liability of the buyers to pay the amount to the bank became absolute. It was no longer open to the buyers to run round and say that the plaintiff-bank had not strictly observed the terms of the letter of credit. During this crucial period seven days, the buyers could have pointed out the discrepancy, if there was one, in honouring the letter of credit. All that the buyers said in the letters dated 29th September, 1979, and 3rd November, 1979, was that the plaintiff-bank ought to make a claim against the insurance company and that the buyers were not liable to make the payment.
10. What is decisive in this case is the failure to raise any objection to the documents or to point but any discrepancy within the period of seven days computed from 10th September, 1979, when the shipping documents were presented to the buyers and they were asked to pay. If the documents were not in strict accord with the credit as opened this ought to have been raised as an objection without delay.
11. Counsel for the buyers argued that the negotiating banker had no right to make the payment on 31st August, 1979, to the seller. This argument loses sight of the first principles of export trade financing. When the seller shipped the goods on 30th August, 1979, he called upon the negotiating banker to make payment against the shipping documents. The negotiating banker was bound to pay if the documents were in conformity with the irrevocable letter of credit. The correspondent bank abroad can not refuse to make payment once the documents presented are in order. Because, this is the method mercantile genius has evolved in the last 150 years to finance business operations in international trade.
12. The negotiating banker is Singapore was the agent of the issuing banker at Delhi. The agent must do as he is told. If he does as he is told, he is safe; if he declines to do anything else, he is safe; if he departs from the mandate of the principal, he acts at his own risk. The opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay. The negotiating banker in the seller's country is the foreign agent of the issuing banker. He must pay to the seller on the presentation of the shipping documents. The negotiating banker is not a mere post office. He is a paying banker in the real sense. He is the agent of the paymaster. A letter of credit, irrevocable and confirmed, contains the undertaking of the banker to honour all bills of exchange drawn there under. If the seller has complied with the terms of the letter of credit, 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.
13. In modern commercial credit, the banker on the instructions of the buyer issues the letter of credit and thereby undertakes to act as paymaster upon the seller performing the conditions set out in it. As the Privy Counsel has said in Commercial Banking Co of Sydney Ltd. v. Jalsard Ply Ltd.,  AC 279;  3 WLR 566 :
'By issuing the credit, the banker does not only enter into a contractual obligation to his own customer, the buyer, to honour the seller's drafts if they are accompanied by the specified documents. By confirming the credit to the seller through his correspondent at the place of shipment he assumes a contractual obligation to the seller that his drafts on the correspondent bank will be accepted if accompanied by the specified documents, and a contractual obligation to his correspondent bank to reimburse it for accepting the seller's drafts.'
14. Immediately on payment, the negotiating banker sent the advice to the plaintiff-bank. The plaintiff-bank on 10th September, 1979, asked the buyers to make payment within seven days. This seven days is the critical period. The buyers were obliged to make payment to the plaintiff-bank. If they wanted to dispute their liability, they should have informed the plaintiff-bank within seven days that it had not performed the mandate because it did not fulfill strictly the conditions of credit for this, that, or other reason. The buyers did nothing of the kind. They had come to know that on 8th or 9th September, 1979, OH DAY had sunk. thereforee, they took the stand that it is now the business of the insurance company to pay the plaintiff-bank. This was their sole defense to the claim made by the plaintiff-bank upon them. This is no defense in law. To my mind it is not a repudiation of liability. It is a ratification of the bank's act accompanied by a refusal to pay on the specious ground that the bank must took to the insurance company for payment and not to the buyers.
15. Whether the ship sinks or sails is not the concern of the issuing banker. If the ship sinks it is the buyer's business to pursue the claim against the insurance company. The issuing banker's ship of credit has not sunk. The buyers are liable to pay to the plaintiff-bank the amount which had been debited to their account by the negotiating banker. The plaintiff-bank had established the letter of credit as requested. They are entitled to payment. They are not concerned with the sinking of the ship. Nor with any other dispute between the buyer and the seller. It is true that the plaintiff-bank had lodged a claim against the insurance company but that does not mean that the primary obligation of the defendants to pay the amount to the plaintiff-bank has ceased. The sinking of the ship will not absolve the buyers of their liability to the issuing banker.
16. Counsel for the buyers said the plaintiff-bank had made the payment to the seller through the negotiating banker much before the documents were presented to the buyers. The payment was made on 31st August, 1979, to the seller by the negotiating banker. The documents were presented to the buyers on 10th September, 1979. They were asked to pay within seven days. That the correspondent bank in Singapore had already made the payment to the seller is not something of which the buyers can justly complain. The negotiating banker had confirmed in writing to the plaintiff-bank that the documents presented were in exact compliance with the conditions of credit and, thereforee, payment had been made to the seller. Between the plaintiff-bank and the buyers, their customer, the period of seven days given to make the payment is of capital importance. That was the real chance to object. During the period of seven days, the buyers were entitled to point out that the bank had not strictly observed the terms of credit and had not done exactly what they were asked to do in the mandate to open the credit. During the period of seven days, the buyers were entitled to point out that the bank had not strictly observed the terms of credit and had not done exactly what they were asked to do in the mandate to open the credit. If they could successfully show this, they could avoid liability. They sought to raise some sort of spurious objections long after, in their letter of 23rd April, 1980. They abstained from complaint for so long and, thereforee, they cannot now allege that the plaintiff-bank acted outside their mandate.
17. This is a classic case of waiver. Both the issuing banker and his correspondent bank have to make quick decisions as to whether a document tendered by the seller complies with the requirements of a credit. Otherwise, they incur liability to one or other of the parties of the transaction if the decision is wrong. (Commercial Banking Co. of Sydney Ltd. v. Jalsard Ply Ltd.  AC 279;  3 WLR 566. thereforee, the buyer at whose instance the letter of credit is established ought to raise objection when the documents are presented timorously if he finds that the banker had accepted the non-complying documents of the seller. He cannot take objection after a long time. He must act promptly. The issuing banker has to indemnify the paying banker. Delay will be disastrous. If the buyer does not make any compliant within a reasonable period, the right to raise objection on score of non-compliance of the conditions of credit is gone once and for all. This right cannot be exercised at any time one chooses. To allow the buyers to repudiate the liability after seven months of presentation of documents is to do injustice to the plaintiff-bank. The buyers must, thereforee, be bound by their waiver.
18. That the ship had sunk is not a defense to the suit. The plaintiff-bank had opened a letter of credit. It is true that the policy of insurance is in the name of the buyers as well as the plaintiff-bank. But the primary obligation to pay is of the buyers. It is the business of buyers to enforce the claim against the insurance company. The buyers must pay the mount to the issuing banker. The buyers can reimburse themselves from the insurance company. If the plaintiff-bank receives the amount from the insurance company they are liable to make it over to the buyers, if the buyers discharge their liability beforehand. The insurance policy for all practical purposes is a security in the hands of the issuing banker and nothing more. It doe not mean that the issuing banker's claim against the buyers is unenforceable.
19. I have come to the conclusion that the buyers, namely, the defendants, have not been able to disclose any triable issue in their affidavit. I think the present is one of those cases where the court can say to the defendants : 'You have no defense to the suit. Leave must, thereforee, be refused.'
20. For these reasons I dismiss the application for leave and decree the suit in terms of para. 26 of the plaint.