S.N. Andley, C.J.
(1) The Mercantile Bank Limited, hereinafter referred to as 'the Bank' filed a suit for recovery of Rs. 15,147.71 against the appellants on the basis on an account in respect of two Bills of Exchange for 1b731-10 S each. By his judgment the subodinate judge First Class granted a decree to the Bank in the sum of Rs. 8,405. 61 with proportionate costs. The appellants have appealed and have prayed that the suit should have been dismissed in toto. The Bank has filed cross-objections in respect of the reduction in the amount claimed in the suit.
(2) The first appellant is the sole proprietor of and carries on business in the name of Messrs. Hari Chand Anand & Co. the second appellant. On April 25, 1960 the appellants applied to the Bank for the opening of a without-recourse irrevocable confirmed credit to the extent of 1577-0-0d (sterling) in favor of Messrs. D. Narahara & Sons of Tokyo at the Tokyo Branch of the Bank. The object of opening the letter of credit was to enable the appellants to make payments for parts of industrial sewing machines and Zig-Zag machines which were to be imported by the appellants from Tokyo through Messrs. D. Narahara & Sons, Tokyo under an import license No. A 860183|59|AU| CCI/D dated October 21, 1959. In pursuance of this application, the Bank opened a letter of credit on April 25, 1960 authorising Messrs. D. Narahara & Sons draw on appellant No. 2 for a sum not exceeding 1b1577-0-0d-CIF at 60 days sight. The import license referred to earlier is mentioned in this letter of credit which further mentions that the documents evidencing shipment from Japanese port should be in respect of 'Part for Industrial Sewing Machines and Zig-Zag machines'. It was agreed between the parties that the draft or drafts negotiated by the Bank under the aforesaid letter of credit will be paid by the appellants at 60 days sight and the Bank was not to be responsible for validity of any documents received from the beneficiary, correctness of the description quantity, quality or value of the merchandise as represented in beneficiary's invoice or other documents. In pursuance of this arrangement, the appellants paid the Bank a sum of Rs. 2,100.00 on April 25, 1960 as margin against the letter of credit and a further sum of Rs. 4,300.00 on August 16, 1960 as a deposit against Customs Duty and landing charges to be paid in connection with the importation of goods into India. On May 16, 1960 Messrs. D. Narahara & Sons presented for payment to the Bank's Tokyo Branch two Bills of Exchange No. 174/1 and 174/2 each for 731-10-0d. drawn on the appellants and accompanied by shipping documents, according to the Bank, in terms of the letter of credit. The Bank's branch at Tokyo negotiated these two Bills against the letter of credit and paid in Japanese currency the face value of the two Bills to Messrs. D. Narahara & Sons. These two bills were then presented for payment by the Bank to the appellants on May 24, 1960 and they were accepted by the appellants on May 27, 1960. Since they were payable 60 days after sight, the payment from the appellants became due on or about July 25, 1960. Payment was not made on the due date and extensions were asked for by the appellants from time to time. At the same time the appellants requested the Bank to clear the imported consignment at Bombay and for that purpose a firm of Clearing Agents at Bombay was appointed by the Bank. It is not disputed that the goods were seized by the Customs Authorities at Bombay as they comprised not goods in respect of which the import license had been issued but domestic sewing machines parts which were neither invoiced nor covered by the import license and the import of which was prohibited in India. The Bank thereupon sued the appellants for the amounts due together with interest and costs.
(3) The appellants contended in their written statement that a copy of the import license had been handed over to the Bank and this is not disputed by the Bank. It was alleged that Messrs. D. Narahara & Sons, Tokyo, were entitled to negotiate Bills against the letter of credit provided the bill of lading, invoices and other papers submitted by them covered goods as mentioned in the import license. According to the appellants, the bill of lading and other papers presented to the Bade by the beneficiary were not in conformity with the import license and, thereforee, the Bank was not entitled to make the letter of credit available for negotiation of the Bills issued by the beneficiary. It was contended by the appellants that wrong goods had been supplied and the Bank was negligent in permitting negotiation against the letter of credit although the invoices did not tally with the import license. On these grounds, the appellants contended that the Bank's suit should be dismissed.
(4) Replication was filed by the Bank but it is not necessary to refer to it as it contains merely a re-assertion of the case made out in the plaint.
(5) Now, in the import license the description of goods is as under:-
'(1)Components of Industrial Sewing Machines-Rs. 13,500.00 as per list attached.
COMPONENTSof Zig-Zag Industrial Embroidery Machines- Rs. 7.600.00 as per list attached'.
(6) It is also one of the conditions of the import license that where an irrevocable letter of credit is opened by the holders of the license to finance the import of any goods covered thereby, then the bank opening the credit being an authorised dealer for foreign exchange shall be deemed to be a joint holder of the license to the extent of goods covered by the credit. It may also be stated here that even according to the shipping documents, components of Zig-Zag Industrial Embroidery Machines were not shipped at all but there were two sets of shipping documents in respect of components of Industrial Sewing Machines in respect of which two Bills of Exchange for 731-10s equivalent to Rs. 9,787.31 each were negotiated. thereforee, the shipping documents in respect of components of Industrial Sewing Machines were of a total value of Rs. 19,574.62 against the value of Rs. 13,500.00 as permitted by the import license. The trial Court held that to the extent of Rs. 6,074.62 the negotiation of the Bills was not in accordance with the import license for which the Bank must suffer. The trial Court further held that it was no concern of the Bank that the goods had been seized by Customs and the Bank was entitled to claim from the appellants to the extent of the amount which was permitted by the import license.
(7) Counsel for the Bank has argued that the Bank did not exceed their authority in permitting negotiation of the two Bills to the extent of Rs. 19,574.62 as the application for opening the letter of credit made by the appellants and the actual letter of credit merely mention the total value of the goods to be imported at Rs. 21,000.00 and, thereforee, so long as the amount paid to the beneficiary is within this limit, the Bank is entitled to recover the amount claimed in the plaint we do not agree. To say that the liability of the Bank is to look only at the application for letter of credit and the letter of credit and not at the terms of the import license is to over-simplify the matter. In order to be entitled to recover from the person who has opened the letter of credit, the amount payable to the banker or the shipper, the banker must show that it has carried out, in all their strictness, its instructions as notified to it by the buyer. It is not a question of negligence or of a breach of employment to use reasonable care and skill but the case rests entirely on performance of the conditions precedent to the right of indemnity which are specified in the contract between the buyer and the banker resulting in the issue of the credit. (See 'The Law of Banker's Commercial Credits' by Gutteridge Fourth Edition, Page 42.)
(8) Equally without foundation is the claim of the appellants that it was the responsibility of the Bank to see whether the goods actually shipped by the shipper under the letter of credit correspond thereto or to the description of goods as contained in the import license. In documentary credit operations, as in this case, all parties concerned deal in documents and not in goods. The banker owes a duty to his customer to refuse any documents which do not conform to the terms of the instructions given for the opening of the letter of credit. The duty of the banker is only to examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. Where the purchase is financed by an irrevocable credit, the credit transaction would not be affected by a rejection of the goods after acceptance of the documents, if the latter were such as were called for by the credit. There is a difference between the position of a seller and buyer. The position of seller and buyer under c.i.f. contract is that the seller has two distinct obligations : (a) to deliver the proper documents of title, and (b) to ship the proper goods; and that the buyer, in the event of the seller's failure, has two distinct rights; (i) to reject the documents and (ii) to reject the goods, the former right arising when the documents are tendered and the latter when the goods are landed and, after examination, are found not to be in conformity with the contract. (See 'The Law of Banker's Commercial Credits' by Gutteridge Fourth Edition, Page 90.)
(9) One has, thereforee, to examine the conditions which were agreed upon between the parties. The import license is an integral part of the contract leading to the opening of the letter of credit it is the duty of the banker to see that the documents are in respect of goods and to the extent authorised by the import license. If the apparent tenor of the shipping documents clearly shows either that the goods are not goods the importation of which was authorised by the import license of even if they are, the value thereof is in excess of the value as authorised by the import license, the banker cannot claim indemnification.
(10) Now, in the present case, two Bills of Exchange for the equivalent of Rs. 9787.31 each were negotiated on May, 16, 1960. The shipping documents, invoices etc. contained the description of the goods, namely 'Parts for Industrial Sewing Machines' the import limit of the value whereof was fixed by the import license at Rs. 13,500.00. The Bank was perfectly justified in negotiating one of the Bills of Exchange because the amount thereof would be under the limit but we are clear in our mind that the bank was not justified in negotiating the second Bill of Exchange, because the value of both the Bills had exceeded the value of parts for Industrial Sewing Machines as given in the import license. To the extent of one of the Bills of Exchange, thereforee, there was non-performance of the conditions agreed to between the parties. If the matter had rested here, the Bank would be clearly disentitled to claim reimbursement in respect of both the Bills of Exchange and they would be entitled to claim reimbursement only with respect to one Bill of Exchange, the amount whereof would be within the limit of Rs. 13,500.00 specified in the import license for the import of 'Parts for Industrial Sewing Machines'.
(11) The position in this case, however, is that both the Bills when presented by the Bank for acceptance to the appellants were accepted on May 27, 1960. This acceptance also would not help the Bank because there is no evidence that on the date of acceptance the appellents knew that parts of Industrial Sewing Machines had been shipped in excess of the value authorised by the import license. There is no evidence that the bills of lading, invoices or other shipping documents were shown to the appellants on or before May 27, 1960 when they accepted the two Bills. Such acceptance may have been on the assumption that the shipping documents will be in order. But appellant No. 1 has admitted in his statement that he first came to know either in July, 1960 or August, 1960 that the documents were not in accordance with the import license when he saw the invoices in the premises of the Bank. It must, thereforee, be taken that in July, 1960 the appellants knew or ought to have known that the shipping documents were not in accordance with the terms agreed upon with the Bank. Yet there was no repudiation by the appellants and, in fact, the appellants wrote to the Bank by their letter dated July 23, 1960 to retire the bills in loan account and to forward the relatives shipping documents for clearance to the clearing agents at port. On July 25, 1960 the appellants informed the Bank by their letter that the two Bills were pending with the Bank the due date of payment whereof was July 25, 1960. In this letter they have stated that they have made necessary arrangement for the payment of the two Bills and assured that payment will be made latest by July 30, 1960. By letter dated August 1, 1960 the appellants again requested the Bank to forward the relative shipping documents to the clearing agents and promised to pay the amount of the Bills as soon as the goods were cleared and railway receipts received. They even promised to furnish further margin. In reply, the Bank wrote to the appellants by its letter dated August 3, 1960 regarding that the Bills had not been paid by July 30, 1960 as promised and demanding payment by August 6, 1960. The appellants by their letter dated August 3, 1960 to the Bank again requested the latter to send the relative shipping documents to the clearing agents for clearance and dispatch of the consignments and promised to pay the amount of the two Bills together with the Bank's charges as soon as the railway receipts were received. A futher request for time for making payment was made by the appellants by their letter dated August 5, 1960. By letter dated August 5, 1960, the Bank asked the appellants to furnish it with the Customs copy of the import license where under the goods in respect of the Bills had been imported together with the other documents to enable it to forward the documents for clearance and the appellants, under cover of their letter dated August 6, 1960 sent the Customs copy of the import license with other relevant documents to the Bank for being forwarded to the clearing agents for clearance of the two consignments at the risk and account of the appellants. By another letter of the same date, the appellants again sent instructions to the Bank for clearance of the goods and for their dispatch and authorised the Bank to sign any risk notes necessary to ensure the immediate dispatch of the goods and to cover insurance of the goods. The appellants also sent a sum of Rs. 4,300 to the bank to be held as margin to cover duty and other clearing charges on the goods on the understanding that the Bank will apply in part payment of the Bill in question any margin paid in excess of duty, clearing and forwarding charges in case of the appellants failure to pay the bill in full on due date. In accordance with these instructions, the Bank debited the C/D account of the appellants with Rs. 4,300. On August 18, 1960 the Bank informed the appellants that the clearing agents had advised it that Rs. 15,000 had been assessed as duty charges on the consignment and it requested the appellants to arrange to remit the balance amount of Rs. 10,700 after adjusting the aforesaid amount of Rs. 4,300 already paid by the appellants. The appellants promised to make payment as demanded by their letter dated August 20, 1960. By letter dated November 2, 1960 the Bank finally demanded payment of the two Bills which had been dishonoured by non-payment, but the appellants failed to pay and that led to the filing of the suit.
(12) The entire conduct to the appellants as indicated by the aforementioned correspondence shows that at no time until the filing of the suit, did the appellants take any objection to the negotiation of the two Bills under the letter of credit even though they must have known that at least one of the Bills of Exchange was not authorised by the limit imposed by the import license. In fact, far from there being any repudiation of liability, the appellants accepted their liability under the two Bills of Exchange and were only keen to have the goods cleared from Customs and dispatched. If the appellants had at any time repudiated their liability in respect of one of the Bills of Exchange, it would have been open to the Bank not to put in any bill of entry for Customs examination of the goods and they could have reshipped the goods back to Tokyo at the risk and account of the shippers. In these circumstances, the appellants cannot be heard to say that the negotiation of both the Bills of Exchange which had been accepted by them, was unauthorised. After all the Bank was merely an agent of the appellants and the conduct of the latter clearly indicates that they did not take up the position that the negotiation by the Bank of the two Bills of Exchange under the letter of credit was unauthorised or in violation of its terms and conditions.
(13) In view of this conduct of the appellants, we are of the opinion that the Bank is entitled to claim the full amount of the two Bills of Exchange.
(14) It is not disputed that the account shown in the plaint claiming Rs. 15,147.71 from the appellants is correct. The Bank is, thereforee, entitled to a decree for this amount together with the full costs of the suit. In the result, the cross-objections are allowed by enhancing the decretal amount by Rs. 6074.62 and the appeal is dismissed. In view of the fact that the Bank did not strictly comply with the conditions agreed upon between the parties, we do not make any order as to costs either as to the appeal or as to the cross-objections. Nor do we make any order for pendente lite or future interest as to the amount awarded by this judgment.