Introduction

Mr. Gurmeet Taneja and Mr. Rahul Khatri are partners of M/S Taneja exports, Mumbai.

Both of them qualified from IIFT, New Delhi in the year 2002. They declined lucrative

corporate job offers, since they have decided to plunge into the world of international

business.

M/S Taneja Exports is registered as a partnership firm, with Mr. Gurmeet Taneja and Mr.

Rahul Khatri sharing the profits in the ratio of 60: 40.

The partners had conducted in depth market survey in the domestic as well as

international markets regarding the demand of womens apparels in cotton and hosiery.

They have taken the assistance of Apparel export promotion council and the marketing

agencies in various countries of European Union.

On account of their knowledge in foreign trade, they were able to quickly assess that

Indian exporters have not succeeded in penetrating into the huge apparel market of

Europe. They found out that the main reasons were ineffective marketing, improper

quality control and nonadherence to the shipping schedules. Mr. Gurmeet concentrated

on marketing of the cotton and hosiery apparels abroad and Mr. Rahul ensured on the

procurement of the raw materials and timely execution of shipments.

The firm had taken an industrial gala, measuring 700 sq ft, at 501, Mangal Das market,

Lower Parel, Mumbai. They were paying a monthly rent of Rs. 35,000/- for the office

premises and the stock of garments was kept in a godown in the same gala area, for

which the rent payable was Rs. 15,000/- pm

The firm was sourcing their raw materials from the south Indian towns of Tirupur and

Coimbatore. As per the export orders, they were providing the raw materials for job

works in Mumbai and subject the samples to rigorous quality and specification checks.

The firm had employed 2 accounts staff and 3 contract workers to attend to daily office

and godown activities.

The firm was able to achieve steady improvement in export sales due to the stringent

quality control measures and timely execution of shipment schedules. The following were

the credit facilities enjoyed from M/S International Bank of India, Fort branch, Mumbai.

Towards the security of the credit facilities, the firm had mortgaged the residential house,

valued at Rs 85 lakhs, belonging to Mr. Vikram Taneja, father of Mr. Gurmeet Taneja,

and stocks valued at Rs 15 lakhs was also hypothecated to the Bank. Mr. Vikram Taneja

stood guarantee for the facilities sanctioned to the firm.

M/S Taneja exports used to avail the export packing credit facility from International

Bank of India and adjust the same by purchase or negotiation of the export bills drawn on

their European buyers. Generally the bills carried a tenor period of 60 days. Most of the

export bills were drawn and send for collection through international Bank of India,

Mumbai Fort Branch, to the foreign buyers bankers, based on the confirmed purchase

order of the buyer. The bills were paid on the due dates and the conduct of the account on

the banks books was quite satisfactory. Based on the past history and the increase in

sales turnover achieved by the firm, the bankers were happy to increase the credit limits

from Rs 7 lakhs in 2003 to Rs 17 lakhs in 2005.

On June 17, 2005, the firm submitted an export document to International Bank of India,

Fort Branch, for Euro 53000.00, drawn on M/S St Laurn Fashions, Paris. The documents

were drawn on 60 days DA terms as per the contract. The merchandise under the export

were ladies garments in cotton and hosiery. In the covering letter of the firm to the bank,

they had instructed the bank to present the documents to St Laurn, Paris, through their

bankers viz, Credit Lyonnais, Paris. The exporter had submitted bills of exchange, bills of

lading, commercial invoice, packing list, inspection certificate, certificate of origin and in

the bill of exchange it was typed as to be co-accepted by credit Lyonnais.

The International Bank of India took the documents in its books and sent the documents

for collection to Credit Lyonnais, Paris. In due course, they received communication

from Credit Lyonnais that the documents were accepted by St Laurn and due date of the

documents were August 25, 2005.The bankers informed the due date of the bill to Taneja

exports. On August 30, 2005, Taneja Exports informed the bankers that they are yet to

receive the payment of the bill for Euro 53000.00 in their books. The bank sent a swift

message enquiring about the fate and payment of the bill. Two days later the bank

received a message from Credit Lyonnais saying that the importer, St Laurn, had become

bankrupt and they were unable to pay the bill. International Bank of India informed the

same to Taneja Exports. They argued with the bank that they had clearly mentioned in the

bills of exchange that the documents were to be released against the co-acceptance of the

French bank only. Immediately the Indian bank send a message to Credit Lyonnais that

since the bill of exchange contained the co-acceptance clause by the French bank, they

are liable to pay even though the importer had become bankrupt. The French bank refuted

the claim of the Indian Bank and intimated that the banks collection instruction did not

contain any co-acceptance clause by the French bank and they had acted as per the

provisions in the uniform rules for collection in the ICC publication No 522.

Since payments were not forthcoming, Taneja Exports filed a suit with the National

Consumer Forum, New Delhi for deficiency of services by International Bank of India,

Mumbai, on November 10, 2005. They put forth the argument that the bank was deficient

in not mentioning about the co-acceptance clause in their covering letter to the French

bank and in case of non-coacceptance by the French bank they would have returned the

documents to India and the exporter could have arranged for an alternate buyer or reimport

of the merchandise. This negligence on the part of the bank had caused them total

financial loss. After hearing the arguments of both the parties, The National Consumer

Forum gave the judgement, on February 6, 2006, that the International Bank of India was

deficient and negligent in their services and ordered them to compensate the value of the

export bill of Euro 53000.00 (approx Rs 24 lakhs) along with 15% interest, till the date of

payment.

The bank went on appeal against the order of the consumer forum in the Supreme Court

on March 20, 2006. After hearing the counsels of both sides, the Supreme Court gave the

judgement that since the original agreement between the exporter and importer do not

have any co-acceptance clause by the importers banker, the co-acceptance clause on the

bill of exchange cannot be binding on the French Bank as well as on the Indian Bank.

The bankruptcy of the importer is the reason for loss to the exporter and not the

deficiency of service by the bank. The Supreme Court set aside the judgement of the

National consumer forum and passed the judgement in favor of the bank, with costs, on

March 15, 2007.

Question

Elaborate on the Supreme Court judgement in the context of international banking

rules and practices, as guided by the ICC publications.

Fri 10:40 AM For Jobs Q E chegg.conm Study | Guided Solutions and Study Help ument nge RT Q&A ...or chat with a tutor Facility (Amount in Lakhs) Fund based a) Export packing credit b) Foreign bill purchased/Foreign 5.00 bill negotiated Non Fund based a) Performance guarantee 2003 2004 2005 live help within 5 minutes 7.00 7.00 5.00 0.00 10.00 Image Styles Border 2.00 5.00 7.00 No Border Export sales 20.00 30.00 40.00 19 Shadow Reflection lin Opacity 100% Engineering Electrical Engineering