GHULAM MUHAMMAD KOUREJO.-The facts giving rise to the present appeal briefly stated are, that the appellant No. 1 Taj Seafood Industries (hereinafter referred to as Taj Seafood) is a partnership firm which was carrying on business as exporter of frozen shrimps through its partners, appellants Nos. 2 and 3 had a current account with the United Bank Limited, Karachi, the respondent NQ. 1.. The firm entered into a general agreement dated 22-9-1966 with respondent No. 2 Atlanta Trading Corpora--tion of New York to export frozen shrimps on a consignment basis to be paid for by means of opening Letters of Credit. At the time of the last consignment, as Taj Seafood found itself was in need of funds to finance the export, it obtained from the United Bank .Respondent No. 1 an over--draft,. Called a packing credit against a lien on the Letter of Credit and on the security of shipment to be made under the Letter of Credit. It also executed a blank. Promissory note as further collateral security.
2. On the instructions of respondent No. 2 Messrs Atlanta Trading Corporation the Belgian American Banking Corporation of New York, the respondent No. 3 (hereinafter called as the American. Bank) opened and established an irrevocable Letter of Credit on 27-4-1967 in favour of Taj Seafood for U.
S: $ 15,000 undertaking to pay sight drafts drawn on the American Bank. By Taj Seafood accompanied by a full set of on board-- freight prepaid clean negotiable ocean bills of lading made out to the order of the. American Bank, in addition to the usual invoice and a quality Government Certificate. The Letter of Credit was to expire in New York on 1st June, 1967. The United Bank respondent No. I was instructed to advise Taj Seafood of the opening of the credit, which was accordingly done by the respondent No. 1's letter dated 29-4-1967. The advising letter further added "the above message is being passed on to you on behalf of the opening Bank without any engagement or responsibility on our part."
3. On 22-5-1967, Taj Seafood negotiated documents called for by the Letter of Credit together with a bill of exchange drawn on the buyer for the invoice value of U. S. $ 11,964.50 (equivalent of Pakistan Rs. 56,222). Particular mention must be made of the fact that the Bill of Lading was drawn to the order of the Bank respondent No. 1 and not to the order of American Bank as required under the credit. Upon the said negotiation of the documents the bank respondent No. 1 credited the- amount of the Bill of the account of Taj Seafood, after deducting the sum of Rs. 32,000 already advanced as a packing credit, to finance the export of the consign--ment, and the net amount of Rs. 24,617 was thus credited to the account of Taj Seafood. The United Bank respondent No. 1 also delivered to Tai Seafood Bonus vouchers of the value of Rs. 16,209 after obtaining the prescribed declaration and undertaking , which Taj Seafood as exporter was required to sign, undertaking to repatriate the foreign exchange proceeds resulting from the export. The United Bank respondent No. 1 then forwarded shipping documents together with the bill of exchange duly negotiated to the American Bank for payment. However, as only two copies of the bill of lading were forwarded to the American Bank instead of the required full set of three, American Bank declined to make payment on the bill of exchange. However, the third missing copy of the bill of lading was procured and was sent to the American Bank but it reached on 5th June, by which date the credit has expired.
Therefore, the American Bank finally notified the Bank respondent No. 1 that Messrs Atlanta Trading Corporation refused to authorise payment of the bill of exchange. The bank respondent No. 1 then gave a notice of dishonour to Taj Seafood and demanded refund of the amount of Rs. 56,222 as well the return of the bonus vouchers or their equivalent which Taj Seafood declined. The bank respondent No. I arranged for clearance and for its cold storage but the ship remained attached for a few days under the orders of New York Court in an action filed by Messrs Atlanta Trading Corporation against Taj Seafood to recover alleged overpayment in the previous consignment.
However, upon a survey of consignment it was found to be worthless arid unfit for human consumption and accordingly the Bank respondent No. 1 after notice to Taj Seafood had the same destroyed. As the foreign exchange amount was not remitted to Pakistan, the State Bank of Pakistan called upon the respondent No. 1 as authorised dealers of foreign exchange to pay compensation in lieu of bonus vouchers supplied to Taj Seafood at the rate of 193.6. % in terms of the Finance (Supplementary) Ordinance, 1972 after the Bonus Voucher scheme was abolished.
Accordingly the bank respondent No. I paid the sum of Rs. 31,392.17 to the State Bank of Pakistan.
The bank respondent No. 1 then filed a suit claiming the amount of the bill of exchange which was dishonoured by the respondent No. 2 Messrs Atlanta Trading Corporation, compensation of value of bonus vouchers issued against the export of the consignment and miscellaneous expenses of clearance of consignment and cold storage of the consignment in New York amounting to the total sum of Rs. 98,144.17.
4. The learned Single, Judge. Decreed the suit against the appellants with costs and interest with 6 % vide his judgment dated 28-6-1974. Aggrieved by the judgment and decree passed by the learned Single Judge the appellants have come in this appeal.
5. The appellants have denied the liability contending that the bill of exchange was negotiated against the irrevocable credit upon proper representa--tion of valid documents called thereunder and that no further responsibility for the consignment lay with them and that if there was any claim it was against respondents Nos. 2 and 3. '
6. The learned Single Judge had in all framed seven issues which are enumerated below :- "(1) Whether the Bill of Exchange presented by the defendant No. 1 to the plaintiff was not negotiated for reasons alleged in the plaint or on account of any default on the part of the plaintiff and if so, what is its effect?
(2) Whether the delivery of bonus vouchers to defendant No. 1 was subject to payment of draft and whether the said defendant was liable to return the bonus vouchers in the circumstances of this case?
(3) Whether defendant No. 1 had any responsibility for taking possession of the consignment in U. S. A. And for its disposal or destruction?
(4) Whether defendant No. 1 had agreed and/or are liable to pay for clearance and cold storage of the goods or to bear litigation charges or any other charges incurred by the plaintiffs or their agents in U. S. A.?
(5) Whether defendants Nos. 1 to 3 are liable on the plaintiffs' claim or any part of it?
(6)Whether the suit is barred under section 20, C. P. C.?
(7) What should the decree be? And whether any party is entitled to special costs.
7. Issues Nos. 1 and 5 were dealt with together as they were crucial. The learned Single Judge decided issue No. 1 against the Bank respondent No. 1 whereas issue No. 5 was decided in its favour.
8. Respondent No. I examined the evidence of Muhammad Saleh Incharge of Export Department of the bank, whereas appellant Taj Seafood examined Taj Muhammad, the appellant No. 2 on behalf of appellants, where--as the respondents Nos. 2 and 3 remained un-represented.
9. We have gone through the evidence on the. Record and have also heard the learned counsel appearing on behalf. Of the parties. The main question is as to whether the United Bank Limited respondent No. 1 has lost its right of recourse against Taj Seafood on account of its negligence to present full sets of the bills of lading. It is an admitted position that only two copies of the bill of lading were forwarded to the American Bank and when the third missing copy of the bill of lading was despatched it reached late at New York some five days after the credit had expired as a result of which the American Bank declined to retire the documents and pay against the bill of exchange.
The evidence on the record led by both the parties leaves no room for doubt that the United Bank Limited respondent No. 1 has failed to scrutinise the documents to see whether they complied with the requirement under the credit before despatching the same to the American Bank.
10. In this respect direct evidence was provided by the appellants witness Taj Muhammad who.
Deposed that he had supplied to United Bank the full set of 3 copies of Bill of Lading along with other documents at the time of negotiation. On the other band the respondent United Bank did not examine the Officer who had received the documents and thus it could not be established that one copy of Bill of Lading had been short delivered by the appellants. Therefore, finding of the honourable Single Judge on issue No. 1 was fully justified and the learned Single Judge, rightly reached the conclusion that the respondent No. 1 Messrs United Bank Limited by committing negligence lost it's right of recourse under the arrangement entered into with Taj Seafood.
11. But the decision of issue No. 1 did not decide the whole suit and, therefore, the learned Single Judge proceeded to consider the added security provided .By the appellants by the pledge of the goods represented by the Bills of lading. The learned Single Judge was of the view that under section 176 of the Contract Act, 1872, the respondent No. 1 was entitled to recover the debts of the appellant in case .The pledge would not realise his security. The relevant portion of section 176 of the Contract Act is reproduced hereinbelow;- "176. If the pawnor makes default in payment of the debt, or perform--ance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or pormise, and retain the goods pledged, as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale."
But we find that the said section provides for a situation where the pawnor makes a default in the payment of the debt or performance at the stipulated time of the promise in respect of the pledged goods. But in this case of the appellants we failed to understand as to how the appellants could be said to be in default in payment of the debt or to have defaulted in the performance of the contract between the parties. The learned Single Judge had already held while deciding issue No. 1 that the respondent Bank bad by its default lost its right to recourse under the arrangement entered into with the present appellant. In view of that finding the default if any in the performance of the contract was made by the respondent bank which had failed to present the full set of bills of lading along with bill of exchange to the American Bank and the respondent-Bank had, therefore, failed to perform its duty and, thereby it had failed to receive the payment for the Bill of Exchange in-satis--faction of the debts for which the Bills of Lading had been pledged with them. In fact it was this default on the part of the respondent Bank which had really been responsible for the non- payment of amount of the Bill of Exchange as well as the late clearance of the goods and their ultimate destruc--tion on account of their being ultimately found to be inedible and, therefore, the respondent-Bank was not able to realise any amount out of the sale of the pledged goods But after having been responsible for the default and the ultimate destruction of the pledged goods they could not turn around and claim the payment on their debts by the recourse to section 176 of the Contract Act. We are therefore, of the view that the recourse to section 176 could not be had by the respondent Bank which had defaulted in the first instance and which was itself responsible for the destruction of the pledged goods.
12. The learned Single. Judge had also decreed the suit of the respondent Bank on the basis of section 30 of the Negotiable Instruments Act, 1881 which provides that the drawer of a bill of exchange engages that on due present--ment it shall be accepted and that if it be dishonoured, he will compensate the holder. The learned Single Judge was of the view that the liability of the appellant was absolute in respect of the bill of exchange drawn by him and a collateral agreement could not be set up as a defence to a claim under section 30 of the Negotiable Instrument Act and that a bill of exchange gives an independent cause of action to the holder. In this respect, the learned Single Judge had relied upon (1915) 30 I C 35. The facts in that case were that Hundis were drawn in favour of a Bank and Railway receipts for goods/consigned to the drawee were handed over to the Bank which through mistake handed over the railway receipt to the drawer before the acceptance of the hundis which were subsequently dishonoured by the drawee. In those circumstances it was held that the loss of that collateral security did not affect the right of the Bank to recover on the hundi from drawer under section 30 of the Negotiable Instruments Act. It was held that the drawer could not set up a collateral agreement as a defence to a claim under section 30 of the Negotiable Instruments Act. We however find that in that case the Court had come to a definite conclusion that the Bank in that case had not been appointed as agent to collect the amount from the drawee and the finding of the Court was definite on that account that the relationship was not one of agency. In that very case it was observed by the Court that if the transaction had been one of the agency then it was conceivable that the Bank were under an obligation not to part with the railway receipt until the money was paid. Applying those observa-- tions to the present case we find that because the relationship between the respondent Bank and the appellant was one of agency and the respondent Bank was under an obligation to present the 3 bills of lading to the American Bank before 1st June, along with bill of exchange. The Bill of Lading and the Bill of Exchange were most integrated parts of the same transaction and the failure to present the full set of the bills of lading was the immediate cause of the non-payment of the bill of exchange and, therefore, we are of the view that (1915) 30 I C 35 was really distinguishable in the circumstances of the present case and the facts of our case were really covered by the observations made in that case in respect of the agency of the Bank. We even find that in that very case of 30 I C 35 relied upon by the learned Single Judge, Fawcet A I C had observed as under :- "there are no doubt cases where a creditor having control over a security is chargeable with what he might have received from it, but for his neglect or wilful default."
Fawcet A. J. C. Had relied on Peacock and another v. Pursell 143 E R 630. In that case, the observation of Erle C. J. Are of significance :-- "The security is marred by the plaintiff's own laches. The legal effect of taking a bill as a collateral security is, that if, when the bills arrives at maturity, the holder is guilty of laches, and omits duly to present it and to give notice of its dishonour, if not paid, the bill becomes money in his hands as between him and the person from whom he received it. That being so, the plaintiff's debt is satisfied."
We are, therefore, of the view that the respondent had failed to perform his duty in presenting the full set of bill of lading within time to,, the American Bank and since the bill of exchange could not be, presented for payment without the full set of the bill of lading, therefore, the'' respondent had marred the security and they were chargeable with what they) might have received from it but for their neglect or wilful default.
13. In those circumstances, there was no justification to award a decree on the basis of exchange and since the respondent Bank had been responsible for the default, therefore, they were not entitled to claim the refund of the bonus vouchers or the equivalent of its value as the non- patriation of the foreign exchange, which could be earned by the appellant, had become impossible on account of the default of the respondent/plaintiff Bank and hence they could not be awarded a decree in respect of the appreciated amount of the value of the bonus vouchers as the same would amount to ,paying a premium to a default and, therefore, there could be no decree on that account.
14. In similar fashion the decree to the extent of the expenses incurred by the respondent on litigation, storing for the shrimps and or their destruc--tion were the result of the default conducted by the respondents, and therefore, those amounts could not be awarded to the respondent.
15. The result is that the decree in question was completely unjustified and is hereby set Aside with costs.