2024 (4) TMI 366 - HC - Indian Laws

Bank liable as acceptor under Section 37 after confirming bill clearance despite no underlying credit limit

Indus Ind Bank Limited Rep. By its Manager Versus Sivakumar S/o. Boologapandian, Surya Exports and Imports A Firm Rep. By its Proprietor Mr. N. Surya Srinivas S/o. Bhaskara Rao, Chennai, Indian Bank Rep. By its Assistant Regional Manager, Chennai

The Madras HC upheld the trial court's decision treating the transaction as bill discounting where the appellant bank assured payment. The court rejected ... Bills of Exchange - Discounting of bill or Document Collection Method - appellant would vehemently contend that the learned Trial Judge was not right in treating the transaction as a 'Bill Discounting Transaction' where the appellant had assured payment - HELD THAT:- Though appellant would contend that there was no underlying LC or BG or an OCC limit in favour of the first defendant to support these transactions, we are unable to accept his contention as the arrangement between the first and second defendants are exclusively within their knowledge and the presence or absence of LC or BG or an OCC limit will not affect the liability of the second defendant as against third parties more so when the Bank has chosen to issue a SFMS message confirming that the bill will be cleared on 22.08.2017. This is also confirmed by the e-mail dated 06.06.2017 wherein there is a clear and categorical undertaking by the appellant / Bank to pay the bill amount on the due date. A similar question was considered by a Single Judge of this Court in REVATHI – C.P. EQUIPMENTS LTD. VS. SANGEETHA TUBEWELL CORPORATION, MADRAS [1988 (10) TMI 289 - MADRAS HIGH COURT] wherein the impact of Sections 32 and 37 of the Negotiable Instruments Act, 1881, was considered. This Court ultimately concluded that if the Bill of Exchange is accepted by a Bank that by itself confirmed a separate and independent contract. Once the Bill of Exchange is accepted by the Bank, the Banker would be liable as an acceptor under Section 37 of the Act. There are no reason to interfere with the judgment of the learned Single Judge and the appeal fails and the same is dismissed. Issues:The case involves a dispute over the liability of a bank in a bill discounting transaction, where the bank initially accepted a Bill of Exchange but later refused to pay, claiming the goods were returned for quality issues.Judgment Details:Issue 1: Liability in Bill Discounting TransactionThe plaintiff sued for recovery of a sum from the bank, claiming that the bank initially accepted the Bill of Exchange but later refused to pay. The Commercial Division concluded that the transaction fell within the scope of Section 37 of the Negotiable Instruments Act, making the bank liable for the suit claim. The Trial Judge granted interest at 9% per annum on the claim and directed the defendants to pay the suit cost.Issue 2: Bank's ContentionThe bank contended that the transaction was a 'Document Collection Method' and not a 'Bill Discounting Transaction,' thus denying any liability for payment. The bank failed to provide evidence to support this claim.Issue 3: Court's AnalysisThe Court examined the evidence, including SFMS messages confirming payment and emails indicating an undertaking to pay the bill amount. Referring to relevant case law, the Court emphasized that once a bank accepts a Bill of Exchange, it becomes liable under Section 37 of the Negotiable Instruments Act.Precedent and Legal InterpretationThe Court cited previous judgments to support its decision, highlighting the importance of bank acceptances in financial transactions. The Court emphasized the liability of banks as acceptors under Section 37 of the Act once a Bill of Exchange is accepted.ConclusionThe Court rejected the bank's contention that it was not liable for payment, emphasizing the legal principle that bank acceptances create binding contracts. The appeal was dismissed, and no costs were awarded.