Supreme Court of India

AMERICAN EXPRESS BANK LTD.versusCALCUTTA STEEL CO. AND ORS.

Citation: 1992 INSC 355
Decided: 18 December 1992
Disposal: Appeal(s) allowed
Bench: A M AHMADI

Holding

Calcutta Steel Co. is the drawee‑acceptor of the bills of exchange and therefore liable, rendering the declaration of nullity granted by the lower court unjust and illegal.

Summary

The Calcutta Steel Co. (CSC) obtained a licence to import steel billets and, to reduce the end‑user's financial burden, opened an irrevocable Letter of Credit directly with the foreign supplier, though the name of the canalising agency MMTC was shown for exchange‑control purposes. Bills of exchange were drawn on "MMTC of India Ltd., A/C Calcutta Steel Co."; CSC accepted and endorsed them, received the goods and appropriated them. When the bills matured, American Express Bank presented them for payment and CSC dishonoured. CSC sued the supplier for a declaration that the bills were void; the High Court dismissed, the Division Bench allowed, and the decree was in CSC’s favour. On appeal, the Supreme Court held that CSC was the drawee‑acceptor of the bills, making it liable, and that the declaration granted by the lower court was unjust and illegal. The appeal was allowed, reversing the appellate court’s decree and restoring the dismissal of CSC’s suit.

Issues considered

Whether Calcutta Steel Co. is the drawee‑acceptor of the bills of exchange drawn on MMTC’s account.
Whether the acceptance of a bill must be effected on the face of the instrument and thus bind the drawee.
Whether a declaration of rights under Section 34 of the Specific Relief Act, 1963, is discretionary and can be set aside in this context.

Legislation cited

Negotiable Instruments Act, 1881s. 32, s. 5, s. 7
Specific Relief Act, 1963s. 34

Subjects

Negotiable InstrumentsBill of ExchangeDraweeAcceptorAcceptanceSpecific Relief ActDeclarationLetter of CreditCanalised AgencyLiability

Judgment

AMERICAN EXPRESS BANK LTD. A
v.
CALCUTTA STEEL CO. AND ORS.

DECEMBER 18, 1992

[A.M. AHMADI, M.M. PUNCHHI AND K. RAMASWAMY, JJ.J B

Negotiable Instruments Act, 1881: Sections 5, 7, 32-lmport of steel
billets through canalised agency MMTC-Letter of Credit opened MMTC Ale
end user--Goods delivered- Appropriated by end user-Bills of Exchange
accepted by end !fSer-Liability of drawee and acceptor-MMTC-Whether C
absolved.

Specific Relief Act, 1963: Section 34--Grant of relief-Discretionary
power of Courts-Exercise of with Circumspection-Principles of justice and
fairplaJ-Ends of justice-To be kept in mind.
D
Words & Phrases : "Acceptance''-Meaning of.

·The first respondent (CSC) obtained licence to import steel billets.
As per Government of India's import policy, iron and steel Wt're to be
imported through canalised agency viz., Minerals and Metals Trading
Corporation of India Ltd. (MMTC). Hence CSC wrote to MMTC for letter E
of authority to import the said goods, with a copy addressed to the
supplier. The price was payable by way of Demand Draft drawn on MMTC
Ale. CSC. It wa-; decided that in order to reduce the financial burden of
the end user it would open Letter of Credit directly in favour of the foreign
suppliers with the condition ·that the name as opener of the Letter of F
Credit by the end user in favour of the foreign suppliers would be shown
as MMTC. It was also made clear that this was to meet the exchange
control only and MMTC was not in any way responsible for the failure of
CSC to comply with the requirements of the Letter of Credit, and that
CSC would accept the drafts and make payment on the due dates. There- G
after the first respondent CSC opened Letter of Credit in favour of the
foreign supplier.

On December 31, 1986 about 7 tonnes of steel billets were shipped
by the foreign supplier and the Bills of Exchange were presented to
MMTC A/c. CSC. The cargo reached Calcutta port in the month of H
833
834 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A February 1987 and the documents were presented. to CSC, which executed
a trust receipt in favour of the appellant-Bank and endorsed its accep-
tance on the three Bills of Exchange. The appellant released the d.ocu-
ments of title to the goods, and obtained the necessary endorsement
from MMTC. CSC took delivery of the goods and appropriated the
same. When the appellant-Bank presented the Bills of Exchange on
B maturity to CSC for payment they were dishonoured. CSC filed a suit
against the supplier before the High Court for a declaration that the
three Bills of Exchange were illegal, null and void. A Single Judge
dismissed the suit. The appeal filed before the Division Bench was
allowed and the suit was decreed. Hence this appeal by the appellant-
C Bank.

Respondent CSC contended that its liability on the basis of the Bills
of Exchange being commercial instruments would arise only if it was the
drawee and acceptor thereof; that the sale of goods having taken place on
high seas and the Bills of Lading made to the order of MMTC, it alone
D was the drawee; and that CSC being not an agent of MMTC, the accep-
tance by CSC was void.

Allowing the appeal, this Court

HELD ~ 1. A party that takes a negotiable instrument makes his
E contract with all the parties who appear on its face to be bound for its
payment. Therefore, the Negotiable ~nstruments Act insists that a Bill
of Exchange makes the acceptor personally liable unless the acceptor
states on the face of the bill that he subscribes for a disclosed principal.
The usual mode of accepting bills of exchange is for the drawee to write,
F 'accepted' across the face of the bill and then to sign his or its name
underneath. The acceptance need not necessarily be on the face of the
bill and an acceptance on its back is ·also sufficient. In all cases it is
essential that the acceptance should be on the bill itself, otherwise it is
a mere nullity. (841-D,E]
G 2. "Acceptanceh in regard to a bill of exchange is a technical term. It
does not mean "taking" ·or "receiving". Acceptance of a bill of exchange is
the signification by the drawee of his assent to the order of the drawer. It
is the act by which the drawee evinces his consent to comply with, and be
bound by, the request contained in a bill of exchange directed to him, and
H is the drawee's agreement to pay the bill when it falls due. In commercial
AMERICAN EXP. BANK v. CALCUITA STEEL CO. 835

parlance acceptance of a bill of exchange is the drawee's signed engage- A
ment to honour the draft as presented. The contract of the acceptor is .a
new and indepe'ndent one. It comes within the rules as to consider.Uion for
a contract on a negotiable instrument, and like every contract on a nego-
tiable instrument, is incomplete and revocable until delivery of the instru-
ment for the purpose of giving effect thereto. Acceptance, generaliy B
speaking, is therefore, necessary to render a drawee liable upon a bill of
exchange and until he accepts it the drawee is not liable on the bill. As
between a drawer and a drawee, the latter is under an obligation to accept
a bill of exchange drawn by the former. Thus it is a well-settled rule of
commercial law that no one but the person upon-whom it is drawn, or his
duly authorised agent can accept a bill except for need or honour. No C
person except the drawee of a bill of exchange can bind himself by accep-
tance. The drawee or a Bill of Exchange, in the absence of any contract to
·the contrary, on acceptance is the acceptor before maturity or the bill of
exchange and is bound to pay the amount thereof at maturity to the holder
on demand. When the drawee does accept he undertakes that he will pay D
the bill according to the tenor of the acceptance and he remains primarily
liable on the bill of exchange as acceptor. (843-8-F)

Negotiable Instruments Act, 15th Edition, p. 362; Byles on Bills of
£.xchan.ge, 25th Edition (1983) p. 31 and Halsbury's Laws of England, 4th
Edition, Vol. 4 p. 153 paragraphs 352, 354, 356 & 357, referred to. E

3. MMTC being a canalising agent, with a view to. reduce financial
burden to the end user (CSC) authorised CSC to directly open irrevocable
letter of credit with a foreign supplier with prior intimation and CSC
undertook to accept the liability under the bill and pursuant thereto F
MMTC stood absolved of its liability. CSC thus accepted to be the prin-
cipal importer of the steel billets from the foreign supplier; took ir-
revocable letter of credit and thereby undertaken the liability to the
foreign suppliers. Also CSC took delivery of the goods and appropriated
the same. These admitted facts unmistakably show that CSC accepted the
bills of exchange as drawee. [843-G,H 844-A,B] G

4. The proposition of law is unexceptionable since in the commercial
world the negotiable instrument should receive acceptation on the tenor of
the instrument on its face and generally it is impermissible to traverse
behind it unless parties inter se are at ad idem to the contract in writing H
836 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A or by conduct preceeding or succeeding the execution of the instrument or
acted upon, as an aid to cull out their intention. 844-C,D]

Deo v. Rias, (1832) 8 Bing 178; Chapman v. Bluel<., (1838) 4 Ring,
N/C. 187; and Radhakrishna Sivadutta Rai and Ors. v. Tayeballi "

B
Dawoodbhai, [1962] Suppl. 1 S.C.R. 81, referred to.

Odgers Constroction of Deeds and Statutes. 5th Edition by Dworkin,
-
p. 53; Random House Dictionary of the English Languqge, College Edition,
p.10; Reader's Digest Great Encyclopaedic Dictionary, Vol.1, p. 23; Concise
Oxford Dictionary, 7th Edition, p. 7; Shorter Oxford Dictionary, Vol. 1, p.
13; Collins English Dictionary, p. 9; Black's Law Dictionary, 6th Edition
c and Ramanatha Aiyer's, Law Lexicon, Reprint Edition 1987, referred to.

5. In the light of the settled law and the facts of the case CSC is the
drawee-acceptor. In a suit based on the letter of credit laid by the supplier,
CSC and the appellant suffered a decree in London Court which the
.D appellant discharged· and became a holder in due course. Based thereon
the appellant filed Civil Suit No. 479/90 under Order 37 of the Code of
Civil Procedure against CSC which is pending in the High Court. There·
fore, no opinion on merits of the liability of CSC, is expressed. (848-E, F]

Krishna Padhye v. Chimandas Fatehchand, A.I.R. 1928 Bombay 516
E distinguished.

Steele and Ors. v. M. Kinlay, (1880) 5 Appeal Cases, 754 and Mathews
v. Bloxsome, 33 LJ. (Q.B.) 209, referred to.

F 6.1. Undoubtedly declaration of the rights or status is one of discre-
tion 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
a debito justicia. The Court cannot convert itself into an instrument of
G 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 administred
in vacmtm. Grant of declaration and injunction relating to commercial
H transactions tend to aid dishonesty and perfidy. Conversely refusal to
... .: ~ ·: _;-.. ... ·-

AMERICAN EXP. BANK ·v. CALClJITA STEEL CO. [K. RAMASWAMY, J.] 837

gfant relief generally encourages candour in business behaviour, facilities A
free flow 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 eac~ case,
consider the facts and circumstances in its proper perspective and exer- B
cise discretion with circumspection to further the ends of justice.
[848-G, H; 849-A-C]

6.2. In the instant case, the relief of declaration granted is unjust
and illegal. It tended to impede free Dow of capital, thwarted the growth
of mercantile business and deflected the com-se of justice. [849-D] C
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5432 of
1992.

From the Judgment and Order dated 25.2.1992 of the Calcutta High
Court in Appeal No, 1134 of 1988. D
Ashok H. Desai, Ajay Gupta, G. Joshi, A. Datta, C.R. Addy and
Ashok Kumar Sil for the Appellant.

A.K. Sen, Harish N. Salve, S.K. Khaitan, N.D.B. Raju, Parag
Tripathi, N. Ganpathy and Sanjeev Puri for the Respondents. E
The Judgment of the Court was delivered by

K. RAMASWAMY, J. Special Leave granted.

The solitary question is whether the first respondent M/s. Calcutta F
Steel Co. Ltd., plaintiff, for short "CSC" is the drawee-acceptor of the
impugned Bills of Exchange. The admitted facts are that the appellant/first
defendant is the banker. The CSC, obtained licence No. OGL 6/86 dated
April 1, 1986 to import steel billets. The Govt. of India's import policy for
1985-88 was that iron and steel etc. should be imported through canalised
agency i.e. M/s. Minerals and Metals Trading Corpn. of.India Ltd. for short G
"MMTC", the 3rd defendant/3rd respondent. By letter dated November 12,
1986. CSC approached MMTC for letter of authority to import the goods
and by letter dated November 18, 1986, ropy addressed to M/s. Harlow
and Jones Ltd., London, the supplier, the latter permitted CSC to draw
draft on "MMTC Ne. Calcutta Steel Co. Ltd., 20, Hemanta Basu Sarani, H
838 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A Calcutta 700001" for a sum not exceeding US $ 1,456,000 (US Dollar one.
million four hundered fifty six thousand only....), payable to the beneficiary
on presentation of a separate draft .... at 180 days from the date of bill of
lading drawn for 100% of the invoice value and accompanied by ....... It
was further stated that the material imported was as per the requirement
of the end user and sold to them on high seas basis against back to back
B letter of credit established by end user. In order to reduce the financial
burden of the end user it had been decided that the end user would open
letter of credit directly in favour of the foreign suppliers with the condition
that its name as opener of the letter of credit by the end user in favour of
the foreign suppliers will be shown as MMTC. It had expressed no objec-
C tion to open letter of credit by CSC (End user) in favour of M/s. Harlow
& Jones Ltd. strictly as per proforma encloc;ed. The material part reads
thus:

"In this connection, please note that our name will be shown
as openers of the proposed L/C to meet the requirements
D of exchange control only, and we are not in any way
responsible for the failure of the enduser to comply with
the requirements of the ·L/C. This L/C is required to be
established at the expense and L/C limit of the enduser viz.
M/s. Calcutta Steel Company Ltd. who would accept the
E draft(s) and make payment on due date at Calcutta."

Pursuant thereto CSC opened an Irrevocable Letter of Credit No.
166/86 on November 18, 1986 for the said sum in favour of M/s. Harlow &
Jones Ltd./2nd defendant/2nd respondent. On December 31, 1986 about 7
F tonnes of steel billets were shipped by the second respondent to CSC under
Invoice No. 710'.ZJl dated December 31, 1986 and the Bill of Lading No. 1
dated December 31, 1986. On February 3-4, 1987 the second respondent
presented to the London Branch of the appellant, three Bills of Exchange
dated December 31, 1986 for a sum of U.S. $ 1,498,694.56 with interest for
180 days @ 7% per annum on the price of the goods. The Bills of Exchange
G were addressed to:

MMTC of India Ltd.,
A/C M/s. Calcutta Steel Co. Ltd.,
20, Hemanta Basu Sarani,
H Calcutta - 700001.
AMERICAN EXP. BANK v. CALCUTI'A STEEL CO. [K RAMASWAMY, J.) 839

The cargo serit under bill of lading reached at Calcutta port in the A
month of February, 1987 and were presented to CSC, who received the
documents, executed a trust .receipt in favour of the appellant and en-
dorsed it~ acceptance on the said three usance Bills of Exchange duly
accepting with the following crucial endorsements :
B
"Drawn under Irrevocable Letter of Credit No. 166/86 dated Decem-
ber 18, 1986;"

"MMTC of India Ltd. for and on behalf of Harlow and Jones Ltd."

"Accepted by Calcutta Steel Company Ltd." signature and stamp of C
the company were put on them.

On acceptance of the Bills of Exchange by CSC, the appellant
released the documents of title to the goo~. On March 3, 1987 CSC
obtained necessary endorsement from MMTC confirming thus: D

"We enclose herewith Bill of Lading No. 1 dated 31st December,
1986 in respect of shipment of 6%5.950 M.T. of billets from Gilon. You
are requested to kindly endorse the Bill of Lading in o\lr favour so that we
can take delivery of the goods. We confirm chat the Usanct dfaft has been E
accepted by us and documents released from our Bankers." CSC had delivery
of the goods imported and appropriated the same. On June 29, 1987 on
maturity when the appellant presented the three Bills of Exchange to the
respondent for payment they were dishonoured. The CSC filed Suit No.
781/87 on the Original Side of the Calcutta High Court against M/s. Harlow
and Jones Ltd. & Ors for a declaration that the said three bills of exchange F
were illegal, null and void, invalid, inoperative and of no effect nor binding
on the plaintiff (CSC) and for delivery, of the said Bills of Exchange for
cancellation and permanent injunction restraining the appellant and the
respondents Nos. 2 and 3 from giving effect or enforcing the said bills of
exchange. The learned Trial Judge dismissed the suit. On appeal the G
division bench by judgment dated February 25, 1992 in Appeal No. 1134/88
allowed the appeal and decreed the suit. Thus this appeal under Art. 136.

Section 7 of the Negotiable Instruments Act, 1881 for short 'the Act'
defines drawer, drawee and acceptor thus: H
840 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A (1) The maker of a bills of exchange or cheque is called the "drawer";

(2) The person thereby directed to pay is called the "drawee";

(3) After the drawee of a bill has signed his assent upon the bill, or,
if there are more parts thereof than one, upon one of such parts, and
B delivered the same, or given notice of such signing to the holder or to some
person on his behalf, he is called the "acceptor".

The other definitions in S.7 arc not relevant. Hence omitted. S.32
provides the liability of the acceptor of a Bill of Exchange thus: "In the
absence of a contract to the contrary, the maker of a promissory note and
C the acceptor before maturity of a bill of exchange are bound to pay the
amount. ther~of at maturity a~rding to the .aPP._a(en~. tenor of the note or
acceptance respectively, and the acceptor of a. bill of exchange at or. alter
maturity is bound to pay the amount thereof to the holder on demand.

D In default of such payment as aforesaid, such maker or acceptor is
bound to compensate any party to the note or bill for any loss or damage
sustained by him and caused by such default. Section 33 marginal note
states that only drawee can be acceptor except in need or for honour: thus:
"No person except the drawee of a bill of exchange, or all or some of
E several drawees, or a person named therein as a drawee in case of need,
or an acceptor for honour, can bind himself by an acceptance."

It would thus be clear that the maker of a bill of exchange is the
drawer; the person thereby directed to pay is called the drawee; after the
drawee had signed his assent upon the bill he is called the acceptor. In the
F. absence of any contract to the contrary, the acceptor, before maturity of a
bill of exchange, is bound to pay the amount thereof at maturity according
to the acceptance the amount thereof to the holder on dem~d. No person
accept the drawee of the bill of exchange, in case of numerical drawees
one or all drawees or the person named thereon as a drawee in case of
G need or for honour can bin~ himself by a~ a~ce~~nc;e....
Having given our anxious and careful consideration to the facts and
circumstances of the case, we find no merit in the contentions of Sri A.K.
Sen, the learned Senior counsel for the first respondent which runs thus:
that the liability of CSC on the basis of the Bills of Exchange being
H commercial instruments would arise only if CSC is the drawee and acceptor
AMERICAN EXP. BANK v. CALCUTfA SIBEL CO. [K. RAMASWAMY, J.] 841

thereof. Since the acceptance creates a technical contract between the A
acceptor and the drawer, the parties to the instruments on their face alone
are entitled to be dealt with and no other parties to a bill independently
could act upon unless it is a case of agency which is not the case of the
appellant or of the MMTC. MMTC is the Principal drawee; for the
purpose of receiving the goods Letters of Credit were opened by CSC as B
per the authority dated November 18, 1986 and the Bills of Exchange were
addressed to MMTC Ale of CSC. The sale of goods having been taken
place on high seas and the Bill of Lading made to the order of MMTC,
bills of exchange having been drawn in favour of MMTC, it alone is the
drawee in relation to Harlow and Jones Ltd. and seller vis-a-vis the first
respondent, CSC being not an agent of the MMTC, the acceptance by CSC C
is void. The declaration granted· by the High Court is, therefore, legal and
. being a discretionary. r.elief "'10 interference under Art.. 136 is warranted.

Law Merchant always insists that a negotiable instrument must bear
no veil but reveal its true character on its face. A party that takes a D
negotiable instrument makes his contract with all the parties who appear
on its face to be bound for its payment. Therefore, the Act insists that a
Bill of Exchange makes the acceptor personally liable unless the acceptor
states on the face of the bill that he subscribes for a disclosed principal.
The usual mode of accepting bills of exchange is for the drawee to write,
'accepted' across the face of the bill and then to sign his or its name E
underneath. The acceptance need not necessarily be on the face of the bill
and an acceptance on its back is also sufficient. In all cases it is essential
that the acceptance should be.on the bill itself otherwise it is a mere nullity.

Bhashyam & Adiga in their Negotiable Instruments Act, 15th Edition F
at page 362 stated that a bill of exchange, being in its nature a letter of
request from the maker to a particular person, no one can be made liable
on it but the person to whom it is addressed as the person to acq_ept the
bill. As has been stated, the acceptance of a bill is the signification by the
dra\Vee of his assent to the request of the drawer and such acceptance must
be in Writing on the bill and signed by the drawee. At page 363, Bhashyam G
stated that if there is no drawee named in the bill and a person accepts
- ... such instrument, such acceptance mu~t be regarded as acknowledging that
he is the drawee. At page 365 it was further stated that a drawee is under
no obligation to the holder to accept a bill drawn on him, even though such
refusal may be in breach of a contract between the drawee and drawer. H
842 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A Such contract will, however, entitle the drawer to sue the drawee on breach
of contract.

Byles on Bills of Exchange, 25th Edition (1983) at page 31, in S.6,
with heading 'drawee' stated thus:

B 6(1) "The drawee must be named or otherwise indicated in a bill with
reasonable certainty.

A bill of exchange, being its original letter, should be properly
addressed to the drawee. Where a bill was made payable 'at No. 1, Wilmot
C Street, opposite the Lamb, Bethnal Green, London', without mentioning
the drawee's name, and the defendant accepted it, he was not allowed to
make the objection. A bill cannot be addressed to one man and accepted
by another."

In Halsbury's Laws of England, 4th Edition, Vol. 4 at page 153 in
D paragraph 352 it was stated that the acceptance of a bill is the signification
by the drawee of his assent to the order of the drawer. Thereafter the
drawee is called the acceptor. But the drawee, in the absence of any special.
agreement, is under no obligation to accept a bill. In paragraph 354 it was
stated that the party primarily liable on a bill of exchange is the acceptor.
E The acceptor is the person to whom the order to pay is addressed. He is
on the face of the bill as drawn, the drawee; but as such he is not, apart
from special contract, by English law under any obligation to accept the
bill. The drawee who does not accept is not, therefore, liable on the bill.
In paragraph 356 it was stated that in the case of a bill of exchange, when
the drawee does accept, he undertakes that he will pay the bill according
F to the tenor of the acceptance, but, where the drawee declines to accept,
the drawer must bear all the losses and expenses incurred as well by reason
of the non-acceptance as of the non-payment. In paragraph 357 it was
further elucidated that wherever a bill is accepted the acceptor is and
remains the party primarily liable on the bill whatever may happen to the
G other parties and whether any of the other partfos are discharged or not.
Should ar. ind0rser have to pay the bill, the acceptor by the fact of his
acceptance is liable to indemnify him.

In the case of a bill drawn for the accommodation of another party,
the actual position differs from that appearing on the fact of the instru-
H ment. The acceptor is only surety for the party acco1.!lmodated, so that he
AMERICAN EXP. BANK ~·. CALClTITA STEEL CO. [K. RAMASWAMY, J.] 843

is entitled to be indernnifide by him, and if a holder has recovered part of A
the amount due from the party accommodated, he can only recover the
balance from the acceptor.

"Acceptance" in regard to a bill of exchange is a technical term. It
does not mean "taking" or "receiving." Acceptance of a bill of exchange is
the signification by the drawee of his assent to the order of the drawer. It B
is the act by which the drawee evinces his consent to comply with, and be
bound by, the request contained in a bill of exchange directed to him, and
is the drawee's agreement to pay the bill when it falls due. In Commercial
parlance acceptance of a bill of exchange is the ·drawee's signed engage-
ment to honour the draft as presented. T!te contract of the acceptor is a C
new and independent one. It comes within the rules as to consideration for
a contract on a negotiable instrument, and, like every contract on a
negotiable instrument, is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. Acceptance, generally
speaking, is therefore, necessary to render a drawee liable upon a bill of D
exchange and until he accepts it the drawee is not liable on the bill. As
between a drawer and a drawee, the latter is to be under an obligation to
accept a bill of exchange drawn by the former. Thus it is a well-settled rule
of commercial law that no one but the person upon whom it is drawn, or
his duly authorised agent, can accept a bill except for need or honour. We
have, therefore, no hesitation to hold that no person accept as drawee of E
a bill of exchange can bind himself by acceptance. The drawee of the bill
of exchange, in the absence of any contract to the contrary, on acceptance
is the acceptor before maturity by the bill of exchange and is bound to pay
the amount thereof at maturity to the holder on demand. When the drawee
does accept he undertakes that he will pay the bill according to the tenor F
of the acceptance and he remains primarily liable on the bill of exchange
as acceptor.

The question, therefore, emerges whether the CSC, first respondent,
is the drawee-acceptor when addressed as MMTC Ale CSC Calcutta as
extracted earlier. It is already seen that MMTC as a canalising agent and G
with a view to reduce financial burden to the end user (CSC) authorised
CSC to directly open irrevocabfa letter of credit with a foreign supplier
with prior intimation and CSC undertook to accept the liability under the
bill and pursuant thereto MMTC stood absolved of its liability. CSC thus
accepted to be the Principal importer of the steel billets from M/s Harlow H
844 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A & Jones Ltd.; took irrevocable letters of credit and thereby had undertaken
the liability to the foreign suppliers; on receipt of the cargo on bill of lading
.and the bills of exchange of drawer. M/s Harlow Jones Ltd. had accepted
the bills of exchange as drawee and had endorsement from MMTC on the
bill of lading in its favour; and thereafter had and appropriated the goods.
These admitted facts unmistakably show that CSC accepted the bills of
B exchange as drawee.

From this perspective the further contention of Sri Sen is that the
bill of excbange being a negotiable instrument the court has to look to the
tenor of the document on its face and no extraneous evidence oral or
C documentary is admissible in evidence nor is it permissible for the court to
traverse behind the instrument to look to the intention of the parties,
contracting or varying the terms of the instrument offending s. 92 of the
Evidence Act. The propo!"ition of law is unexceptionable since in the
commercial world the negotiable instrument should receive acceptation on
D the tenor of the instrument on its face and generally it is impermissible to
traverse behind it unless parties inter se are at ad idem to the contract in
writing or by conduct preceding or succeeding the execution of the instru-
. ment or acted upon, as an aid to cull out their intention. In Deo v. Rias
·· ((1832) 8 Bing, 178 at p. 186], Tindal, CJ. held that "we are to look at the
words of the instrument and to the acts of the parties to ascertain what
E their intention was; if the words of the instrument be ambiguous, we may
call in the aid of the acts done under it as a clue to the intention of the
parties. In Champman v. Bluck [(1838) 4 Ring, N/C. 187 at p. 195), Park J.
held that the intention of the parties may be collected from the language
of the instrument and may be elucidated by the con<tuct they have pursued.
F Odgers in his ConstlUction of Deeds and Statutes, 5th Edn. by Dworkin at
p. 53 stated that in the case of an ambiguity, judicial notice will be taken
of the way in which the parties themselves have interpreted their rights and
duties under the docu'ment. In the light of the facts and the conduct of CSC
as discussed above it is clear that CSC authorised Harlow & Jones Ltd. to
draw bills of exchange to its account for acceptance of the bills of exchange
G on its Acc.ount ~Ots address. GSC, ~her~f~l;'e, ·is th~ qrawee and it v1;1lidly
· accepted the bills of exchange as acceptor. ·

The word 'on account' of has been defined in Chamber's 20th Century
-
Dictionary, New Edition, page 8. thus: "On one's own account 'means' "for
H one's own sake; on one's responsibility." The Random House Dictionary of
AMERICAN EXP. BANK v. CALClJITA STEEL CO. [K RAMASWAMY, J.j 845

the English Language, College Edition page 10. "On account of' means "a. A
by reason of; because of; b. for the sake of." The Reader's Digest Great
Encyclopaedic Dictionary, Volume 1, page 23. "On account of' mean's "in
consideration of; because of." Concise Oxford Dictionary 7th Edition page
7. "On one's own account" means "for and at one's own purpose and risk."
Shorter Oxford Dictionary, Voi. 1 page 13. "On one's account" means "in
his behalf and at his expenses." In Collins English Dictionary at page 9 'on B
account of in item 16, it is stated, 'because of; by reason of', In Black's
Law Dictionary, sixth edn. relating to commercial transactions it is stated
at page lS thus "a statement of pecuniary transact~ons; a record or course
of business dealings between parties ............. accounts payable.........." In
Ramanatha Aiyer's, the Law Lexicon, Reprint Edn. 1987, 'account for' is C
defined at page 17 thus "in respect of moneys" 'to render an account of
and 'to be responsible for'. In Radhakrishna Sivadutta Rai and Ors. v.
Tayeballi Dawoodbhai, (1962] Suppl. 1 SCR 81 though as rightly pointed
out by Sri Sen did not relate to negotiable instrument', this court con-
sidered the meaning 'on account of in relation to bought and sold notes D
in connection with jute goods through a broker. It reads thus: "To Radhak-
rishna Sivadutta Rai, Ne Khetan & Sons Ltd., Shewpur, Banaras', the
bough~ and sold note, was addressed to the seller as "we confirm having
sold on your account and risk, the undernoted goods, to M/s. Radhakrishan
Shiv Dutt Rai with A.G. mark. Ne Khetan and Sons Ltd., Shewpur"
Banaras." In that case the question was "who was the real purchaser of the E
goods in question". Gajendragadar, J. (as he then was) speaking for the
court held that the appellant acted on account of the disclosed partner and
as such he was not entitled to sue. It was also further held that whether
the contract was entered on behalf of the principal racital in the relevant
document could provide the necessary clue. The letters and the confirma- F
tion slips were held to be read in the light of the bought and sold notes
and the conduct of the parties was presumed to be consistent with them.
The signature or how the parties described themselves was held to be not
relevant. The description of MM;TC in the letters of credit or the bills of
exchange is proforma compliance of foreign exchange regulations. CSC
acted as independent principal importer and its acceptance of bills of G
exchange on its account was as drawee. We therefore, find force in the
contention of Sri Ashok H. Desai that the plaintiff acted as Principal
drawee and accepted the bills of exchange "to its account undertaking its
liability to honour the same and did act upon the instruments.
H
846 SUPREME COURT REPORTS [1992} SUPP. 3 S.C.R.

A Steele and ors. v. M. Kimay, (1880) 5 Appeal Cases, 754, renders no
assistance to the respondent. The facts were that sons of James M. Kinlay
commenced business as timber-merchants in the name of W. & T. M.
Kinlay. As they required funds, they ~mmissioned their father James M.
Kinlay to obtain them an advance of 1000 pounds. James M. Kinlay entered
B a
into communication with John E. Walker who signed as drawer bill dated
May 25, 1874for1000 pounds at 12 months, addressed to M/s. W. & T.M.
Kinlay, wood merchant and handed over to James M. Kinlay. The later
sent it to his sons in Ireland, who returned it duly accepted in their firm's
name. J.M. Kinlay wrote his own signature across the back of the bill and
handed it over to Mr. Walker, who remitted its amount, less discount, to
C the drawee. Mr. Walker discounted the bill with the National Bank of
Scotland, but W. & T. M. Kinlay failed to pay the same when it was due.
In the meanwhile J.M. Kinlay died. Walker too died, the appellants as
trustees of Mr. Walker raised the action. The questions therein were
whether James M. Kinlay was acceptor? The aforesaid amount whether
D could be recovered on the bill of exchange? The bill of exchange was in
the following form:

"Stamp 10s. "Due 28th May, 1975

"1000 pounds stg; "Glasgow, 25th May, 1874.
E
"Twelve months after date pay to me or my order at the National
Bank of Scotland's office, Queen Street, Glas~ow, the sum of one thousand
pounds sterling, value received..

F "John E. Walker,
"W. & T.M. Kinlay.

''To Messers. William & Thomas M. Kinlay,

G "Wood merchants, Strabane."

The bill was indorsed on back as follows:-

"James M. Kinlay,
H "John E. Walker."
AMERICAN EXP. BANK v. CALCUITA SIBEL CO. [K. RAMASWAMY, J.] 847

On those fact.S, House of Lords held that James M. Kinlay was not A
acceptor and the action does not lie on bill of exchange. Lord Watson held
at p. 777 that "it is necessary to distinguish between the liabilities which the
law merchant attaches to a person who, by signing, has become party to a
bill, and those liabilities which may arise out of an understanding or
agreement of parties extrinsic of the bill. In some cases the precise char-
acter and consequent liabilities of parties to a bill are conclusively fixed by B
the tenor of the document. The person who draws a bill of exchange, and
his addressee who accepts it, can never, according to the principles of the
law merchant, be liable otherwise than in their respective characters of
drawer and acceptor". At p. 778 the learned· law lord further stated that
"in other cases the character and liability of parties to a bill cannot be C
ascertained without the aid of proof, as, for instance~ when a dispute arises
in regard to the order of time in which indorsements were made upon a
bill. But such proof, when it is admissible, must be strictly limited to facts
and circumstances attendant upon the making, issue, or indorsement of the
bill.
D
(emphasis supplied)

"This leads me to coll.sider whether the late James M. Kinlay, as a
party to the bill in the sense oi the law merchant, was under obligation,
failing payment by his two sons or their firm, to pay the contents to Mr. E
Walker; and in so doing, I assume as legitimate materials for inference all
those facts connected with the making, issuing, and discounting of the hlll
to which I have already adverted. ..........The tenor of the bill is, in my
opinion, conclusive against the view that James M. Kinlay was an acceptor.
Save in the case of acceptance for honour or per procuration, no one can F
become' a party to a bill qua acceptor who is not a proper drawee, or, in
other words, an addressee". At p. 782 he stated that "I am of opinion that
the character in which James M. Kinlay did become a party to the bill was,
both in fact and law, that of an indorser; and that in determining the legal
position the circumstance that M. Kinlay indorsement was written before
the bill was delivered to the drawer and the money advanced by him is G
quite immaterial. No doubt a proper indorsement can only be made by one
who has a right to the bill, and who thereby transmits the rights and also
incurs certain well-known and well-defined liabilities. (emphasis supplied) I
fail to see upon what principle James M. Kinlay can be interpolated as a
party to the bill in question between the drawer and the acceptor". At p. H
848 SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.

A 785 he further stated that "I should have had less difficulty in holding that
James M. Kinlay, as party to the bill, was an indorser, and therefore not
liable to pay to Mr. Walker, the drawer, when it was ~ishonoured by the
acceptors, had it not been that the point seems to have been otherwise
decided by the Court of Queen's Bench in Mathews v. Bloxsome, 33. L.J.
(Q.B.) 209. The report of the case is not satisfactory, and leaves room for
B . doubt whether the decision was intended to go so far as the report states."
At page 785 he stated th~t" being of opinion that James M. K.inlay was not,
as a party to the bill, under any obligation to the drawer, and that there is
no competent or sufficient evidence of his agre~ment to undertake such an
obligation, I think the appeal ought to be dismissed. In the light of those
C facts it was held that James M. Kinlay was not an acceptor within the
meaning of S.11 of the Bill of Exchange."

The ratio in Sitaram Krishna Padhye v. Chimandas Fatehchand, AIR
1928 Bombay 516 relied on by Sri Sen is also of little assistance to the facts
in this case. The Hundi therein was in the following term: "Fifty six days
D after date I promised to pay Seth Chimandas Fatehchand or order the sum
of Rs. 600 only for value received in cash. G.V. Athale, Managing
Proprietor, Gangadhar and B. Friends, Sandhurst Road, Bombay No. 4. It
was held that the person liable on the Hundi was Athale and not any
alleged firm passing tinder the name of Gangadhar and B. Friends.
E
. In the light of the above law and the facts of the case we unhesitat-
ingly 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 dis-
charged and became a holder in due course. Based thereon the appellant
F
filed Civil Suit No. 479/90 under Order 37 of the Code of Civil Procedure
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
G 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
~- debito justicia. The court cannot convert itself into an instrument of
H injustice or vehicle of oppression. While exercising its discretionary power,
AMERICAN EXP. BANK v. CALCUTIA SIBEL CO. [K RAMASWAMY, J.] 849

the court must keep in its mind the well set~led principles of justice and A
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 transac-
tions tend to aid dishonesty and perfidy. Conversely refusal to grant relief B
generally encourages candour in business behaviour, facilitates free flow 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 c
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 merchantile business and deflected the course of justice.

-
D
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 E
throughout.

G.N. .Appeal allowed.

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