1992 (12) TMI 233 - SC - Indian Laws

Company loses bid to block dishonored bills collection as relief would aid dishonesty and impede capital flow

American Express Bank Ltd. Versus Calcutta Steel Co. and Ors.

SC held that the plaintiff company was the drawee-acceptor of dishonored bills of exchange in a commercial dispute. The court dismissed the plaintiff's ... Dishonor of Bills of Exchange for payment - liability of the acceptor of a Bill of Exchange - Grant of declaration and injunction relating to commercial transactions - definitions and liabilities of drawer, drawee, and acceptor - Whether the first respondent M/s. Calcutta Steel Co. Ltd., plaintiff, ('CSC') is the drawer-acceptor of the impugned Bills of Exchange - HELD THAT:- We unhesitatingly hold that the plaintiff, CSC is the drawee acceptor. In a suit based on the letter of credit laid by M/s. Harlow and Jones Ltd., CSC and the appellant suffered a decree in London Court which the appellant discharged and became a holder in due course. Based thereon the appellant filed Civil Suit No. 479/90 under Order 37 of the CPC against CSC which is pending in the High Court. Therefore, we do not therefore propose to express any opinion on merits of the liability of CSC. Undoubtedly declaration of the rights or status is one of discretion of the court under Section 34 of the Specific Relief Act, 1963. Equally the grant or refusal of the relief of declaration and injunction under the provision of that Act is discretionary. The plaintiff cannot claim the relief as of right. It has to be granted according to sound principles of law and ex debito justitiae. The court cannot convert itself into an instrument of injustice or vehicle of oppression. While exercising its discretionary power, the court must keep in its mind the well settled principles of justice and fair play and the discretion would be exercised keeping in view the ends of justice since justice is the hall mark and it cannot be administered in vacuum. Grant of declaration and injunction relating to commercial transactions tend to aid dishonesty and perfidy. Conversely refusal to grant relief generally encourages candour in business behaviour, facilitates free Row of capital, prompt compliance of covenants, sustained growth of commerce and above all inculcates respect for the efficacy of judicial adjudication. Before granting or refusing to grant of relief of declaration or injunction or both the court must weigh pros and cons in each case, consider the facts and circumstances in its proper perspective and exercise discretion with circumspection to further the ends of justice. From the back-drop fact situation we have no hesitation to hold that the relief of declaration granted is unjust and illegal. It tended to impede free flow of capital, thwarted the growth of mercantile business and deflected the course of justice. Though the appellate court had exercised its discretion which the Trial Court negated it, in the light of the facts and circumstances of the case this is a fit case for interference. The appeal is accordingly allowed. The judgment and decree of the appellate court are reversed and the decree of the single Judge is restored and suit stands dismissed with costs throughout. Issues Involved:1. Whether the first respondent (CSC) is the drawer-acceptor of the impugned Bills of Exchange.2. Interpretation of the Negotiable Instruments Act, 1881 regarding the definitions and liabilities of drawer, drawee, and acceptor.3. Validity of the acceptance of the Bills of Exchange by CSC.4. Discretionary power of the court under Section 34 of the Specific Relief Act, 1963 in granting declarations and injunctions.Issue-wise Detailed Analysis:1. Whether the first respondent (CSC) is the drawer-acceptor of the impugned Bills of Exchange:The court examined whether CSC, the first respondent, was the drawer-acceptor of the Bills of Exchange. The facts revealed that CSC had obtained a license to import steel billets and approached MMTC for a letter of authority to import the goods. CSC opened an Irrevocable Letter of Credit in favor of the foreign supplier, M/s. Harlow & Jones Ltd. The Bills of Exchange were addressed to MMTC A/c CSC, and CSC endorsed its acceptance on the Bills of Exchange. When the appellant bank presented the Bills of Exchange for payment, CSC dishonored them, leading to a legal dispute. The court concluded that CSC, by accepting the Bills of Exchange, acted as the drawer-acceptor.2. Interpretation of the Negotiable Instruments Act, 1881 regarding the definitions and liabilities of drawer, drawee, and acceptor:Section 7 of the Negotiable Instruments Act, 1881 defines the roles of drawer, drawee, and acceptor. The court emphasized that the maker of a bill of exchange is the drawer, the person directed to pay is the drawee, and upon signing assent, the drawee becomes the acceptor. Section 32 outlines the acceptor's liability to pay the amount at maturity, while Section 33 restricts acceptance to the drawee or a person named in need or for honor. The court reiterated that the acceptor is personally liable unless they state they are acting for a disclosed principal.3. Validity of the acceptance of the Bills of Exchange by CSC:The court examined the acceptance of the Bills of Exchange by CSC. It was noted that CSC had opened letters of credit directly with the foreign supplier and had accepted the Bills of Exchange as drawee. The court referred to legal commentaries and precedents, emphasizing that acceptance must be on the bill itself and that the drawee must be named with reasonable certainty. The court found that CSC had validly accepted the Bills of Exchange as the drawee, and their acceptance was binding.4. Discretionary power of the court under Section 34 of the Specific Relief Act, 1963 in granting declarations and injunctions:The court discussed the discretionary power under Section 34 of the Specific Relief Act, 1963, which allows courts to grant declarations and injunctions. The court emphasized that such reliefs are discretionary and must be granted based on sound principles of law and justice. The court criticized the appellate court's decision to grant a declaration that the Bills of Exchange were illegal and void, stating that it impeded the free flow of capital and hindered mercantile business. The court held that the relief granted by the appellate court was unjust and illegal.Conclusion:The appeal was allowed, and the judgment and decree of the appellate court were reversed. The decree of the single Judge was restored, and the suit was dismissed with costs throughout. The court concluded that CSC was the drawer-acceptor of the Bills of Exchange and was liable for their payment. The discretionary relief granted by the appellate court was deemed unjust and illegal, and the court emphasized the importance of upholding commercial integrity and the efficacy of judicial adjudication.