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Fraud Case

Allegations must be proved by adducing evidences

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Appellate Division (Civil)  :
Md Abdul Wahhab Miah J     
Nazmun Ara Sultana J
Md Imman Ali  J
Md Nizamul Huq J
Oriental Bank Ltd (formerly Al-Baraka Bank Limited)…..
Export Import Bank of Bangladesh Ltd
and others ………..........Respondents

December 1st, 2016  

Any allegation of fraud has to be proved strictly by adducing evidence… (10)
Zyta Garments Ltd vs Union Bank Ltd., 55 DLR (AD) 56 ref.
M Fida M Kamal, Senior Advocate, instructed by Md Zahirul Islam, Advocate-on-Record-For the Petitioner
M Anwarul Azim Khair, Advocate, Instructed by Syed Mahbubar Rahman, Advocate-on-Record-For the Respondents No.1
(None Represented-For Respondents Nos. 2-3)
Md Imman Ali J: This civil petition for leave to appeal is directed against the judgment and decree dated 16-5-2013 passed by a Division Bench of the High Court Division in First Appeal No. 183 of 2005 dismissing the appeal affirming the judgment and decree passed in Artha Rin Mamla No. 46 of 2003.

2. The facts of the case, in brief, are that the plaintiff and the defendant No. 1 are Bank companies duly incorporated under the relevant Companies Act. Defendant No. 1 the Oriental Bank Ltd. was formerly AI-Baraka Bank Limited. Defendant No.2, Velvet Textile Mills Ltd. and defendant No.3, Square Yam Company, have been impleaded as proforma defendants for proper adjudication of the dispute. Defendant No.2, i.e. Velvet Textile Mills Limited obtained Proforma Invoices from the defendant No.3, i.e. Square Yarn Company for purchasing super cotton weaving yarn on cone as detailed in the said proforma invoices. Defendant No.2 pursuant to the said proforma invoices applied to defendant No. 1 bank for opening back to back Letters of Credit (LCs) for purchasing the item mentioned in the said proforma invoices. Accordingly, defendant No.1 Bank opened as many as 5 back to back LCs in the name of defendant No.2. As per terms of  the proforma invoices, the plaintiff bank was the negotiating bank advised the LCs under reference as described in the plaint. Defendant No.3, i.e. Square Yarn Company as per terms and conditions of the said LCs supplied the goods through commercial invoices and defendant No. 2 received the same and, thereafter, defendant No. 3 submitted LC documents to the plaintiff Bank for negotiation. The plaintiff bank submitted the said documents (including bills, commercial invoices etc.) before defendant No.1 bank for acceptance and reimbursement of the proceeds on maturity against the said LCs and after examination of the said documents and having found the said documents to be in compliance with the terms and conditions of the said credits, defendant No.1 bank accepted the export documents/bills drawn under the different LCs and thereby confirmed, the plaintiff bank through letters. The payment against the said bill would be made at maturity dated as stated in the acceptance letters. The plaintiff bank purchased the said bills on the basis of unconditional acceptance by defendant No. 1 bank. Thereafter, the plaintiff bank requested defendant No. 1 to make payment against the said bills on or before the maturity dates. Defendant No.1 had made partial payment against the LCs bills and, thereafter, requested the plaintiff bank for extension of the maturity dates. The plaintiff bank agreed to extend the maturity date and informed defendant No. 1 accordingly. The plaintiff bank extended the maturity date up to 31-12-2001 with accrued interest at the rate of 16% thereon. However, defendant No: 1 after a long time wrote a letter on 12-11-2001 to the plaintiff bank confirming the extension of the bills up to 31-12-2001. The plaintiff bank for the realising outstanding bills from defendant No.1 Bank repeatedly requested defendant No.1 for making payment but failed. After expiry of the maturity date of the above bills, the plaintiff bank demanded US$ 2,61,270.80 against the said accepted unconditional bills, but it was also yielded. All of a sudden defendant No. 1 served a legal notice on 12-1-2002 upon the plaintiff Bank requesting the plaintiff bank to confirm in writing within 10 days to the effect that plaintiff bank would not claim any amount against the said bills. The plaintiff bank replied to the said legal notice on 20-1-2002 and requested to make payment against the accepted bills. But defendant No.1 paid no heed to the request of the plaintiff bank and the plaintiff bank finding no other alternative filed the instant suit seeking a decree amounting to Taka 2,23,68,527.08 as on 11-11-2003 along with interest calculable at the rate of 16% per annum from 12-11-2003 till realisation against defendant No.1.
3. Defendant No.1 contested the suit by filing written statement and contended that the same person Jabed A Matin is the Chairman of defendant No. 2 and proprietor of defendant No.3. The plaintiff with ill motive has shown others as Managing Director and proprietor. Jabed A Matin is the person, who negotiated with the plaintiff bank. He is the beneficial owner/owner of the two business entities defendant No.2 (Velvet textile Mills Ltd.) and defendant No.3 (Square Yarn Company). After opening the back to back LCs through the defendant Bank Jabed A Matin as proprietor of Square Yarn Company, who maintains an account with the plaintiff bank being AC No. 1100594-6, under the same specimen signature as in the account with defendant bank, has drawn 5 separate bills through his bank, the plaintiff. The plaintiff Bank sent those 5 bills and defendant No.1 Bank on bona fidebelief accepted the said bills considering that the transactions were genuine. In fact there was no supply of goods under the back to back LCs. The supplier and importer being the same  person the documents sent to and accepted by  the defendant bank were fabricated and paper  transactions. The entire transactions were thus  fraudulent and collusive to deceive defendant No.1 bank. Since the supplier and importer was the same person and no goods were supplied under the said back to back LCs and the transaction was illegal and void as per UCPDC Rules, the suit is therefore liable to be dismissed with cost.  
4. After hearing the parties and considering the evidence and materials on record, the Judge, Artha Rin Adalat, Dhaka, by his  judgment and decree dated 15-6-2005 decreed the suit. Then the defendants preferred First Appeal. No. 183 of 2005 before the High Court Division, which upon hearing the parties, was dismissed. Hence, the defendants are now before us having filed the instant civil petition for leave to appeal.
5. Mr Fida M Kamal, learned Senior Advocate appearing on behalf of the petitioner submitted that the judgment and decree dated 16-5-2013 of the High Court Division is bad in law as well as on facts and the same is, therefore, liable to be set aside. He further submitted that the High Court Division's observation to the effect that "the aforesaid citation have no manner of application in the facts and circumstances of the present ease" is erroneous as they were presented with decisions of the apex Courts where it was clearly established that while an issuing bank is not concerned with any 'breach of contract underlying a letter of credit, it is still obliged to refuse payment when there is a clear fraud of  which it has notice or knowledge, and, as such, the impugned judgment and decree is liable to be set aside. He also submitted that the High Court Division failed to notice that the suit itself was not maintainable in its frame, form and manner, and, as such, the impugned judgment and decree is liable to be set aside. He also submitted that the High Court Division failed to notice that the entire transaction was a mere fraudulent paper transaction and that it had been committed by respondents Nos. 2 and 3 by fabricating documents, with the knowledge of respondent No.1 bank, in order to practice fraud upon the appellant bank, whereupon, the agreements with the appellant bank in this regard were clearly vitiated and it was no longer under the duty to pay respondent No. 1 bank against the fraudulent bills/ documents. The learned Advocate also submitted that the finding of the High Court Division to the effect that "so in view of the aforesaid decision as decided in the said cases and also in view of the decision as decided in the case of Zyta Garments Ltd vs Union Bank Ltd., 55 DLR (AD) 56 as decided by our apex Court, we are of the firm view that the trial Court did not commit any wrong in deciding the suit," is bad in law as it does not take account of all the matters in issue, especially when read with the well-established principle of law that fraud vitiates all forms of agreements, and even more so when the same fraud was practiced with the knowledge of respondent No.1 bank whose offer the appellant bank had accepted unconditionally trusting in the bona fide nature of the transaction between banks and respondent No.1 bank's reputation as a financial institution. He further submitted that the High Court Division did not take note of the fact that Article 14 of UCPDC provides for the appellant bank to report within 7 days, any form of discrepancy in the documents, and that the same is not related to reporting 'fraud'. Moreover, the appellant bank had accepted the bills/documents without any objections since it trusted in the reputation of respondent No.1 bank as well as the bona fide nature of transactions between banks. However, respondent No.1 bank had acted illegally in not informing the appellant bank of the fraudulent paper transactions that were being perpetrated by Jabed A Matin, who was the owner of both respondent No. 2 and 3 companies. The appellant bank only became aware of the fraudulent nature of the transactions when Bangladesh Bank's investigation revealed the true nature of respondent No.2 and 3 company including the fact that the respondent companies did not, in truth, exist at all or carry out any form of business in the areas mentioned in their certificates of origin, and after becoming aware of the blatant fraud, the appellant bank had rightly stopped the payments as such a fraud clearly vitiates all agreements between the two banks. Additionally, it was primarily the duty of respondent No.1 bank to detect the fraudulent paper transactions that were being committed by the owner of respondent Nos. 2 and 3 companies and protect the petitioner bank from the fraud, as it is also a well established principle of law that a bona fide third-party should not suffer because of any faults of the parties to a contract. In addition, it is further submitted that the High Court Division has also misconstrued articles 2, 3, 4 and 8 of the UCPDC and their applicability in cases where a clear fraud has been perpetrated. He also submitted that the High Court Division has failed to take notice of the fact that respondent No.1 bank has intentionally, through its acts and omissions, caused the appellant bank to believe in the bona fide nature of the transactions between them in spite of being aware of the fraud, and having acted upon such belief, the appellant bank has suffered to their detriment due to having made part payments against the fraudulent bills and documents, and, as such, respondent No.1 bank should now be prevented by the principle of estoppel from denying the bona fide nature of the transaction between the two financial institutions and shifting the loss/damage caused by the fraud over to the appellant bank. He further submitted that since fraud has been perpetrated by respondent No.2 and 3 companies, it was not proper for respondent No. 1 company to take legal action against in innocent third party, i.e. the appellant bank. It is submitted that the respondent No.1 bank should have brought an action against respondent Nos. 2 and 3 companies and their owner Jabed A Matin, and that failure to do so on part of respondent No.1 bank clearly indicates that the respondent bank may have been colluding with the above persons in the perpetration of the fraudulent paper transactions. He lastly submitted that the High Court Division failed to notice that fraud perpetrated by respondent Nos. 2 and 3 companies cuts at the root of the case, and has also failed to lift the corporate veil as should be standard procedure upon clear proof of fraud, and has thus failed to take notice of the fraudulent paper transactions that has been arranged by Jabed A Matin, who is the owner of both respondent Nos. 2 and 3 companies. For this reason, the impugned judgement and order dated 16-5-2013 is liable to be set aside.
6. Mr Anwarul Azim Khair, learned Advocate appearing on behalf of respondent No.1 made submissions in support of the impugned judgement and order of the High Court Division.
7. We have considered the submissions of the learned Advocates of the parties concerned, perused the impugned judgement and decree of the High Court Division and other connected papers on record.
8. The main thrust of the petitioner's claim is that fraud was committed, which has been overlooked by both the trial Court and the High Court Division. The petitioner as appellant before the High Court Division cited the case of Zyta Garments Ltd vs Union Bank Ltd to support its claim that fraud vitiates all transactions. The claim of the petitioner all along was that the transaction between respondent No. 2 Velvet Textile Mills Ltd. and respondent No.3 Square Yarn Company are all paper transactions as both the companies are owned by the same person, namely Jabed A Matin.
9. We find from the deposition of the witnesses that one Md Soyeb Ahmed, Executive Officer, Oriental Bank, deposed as DW1 before the trial Court in support of the petitioner bank. We find that DW1 admitted in his evidence that the defendant did not submit any papers relating to their claim of fraud. He also admitted that defendant No.2 is a company and defendant No.3 is a proprietary firm and that they are not one and the same person.
10. The High Court Division referred to the decisions cited by the petitioner and noted that they had no manner of application in the facts of the present case. However, we find that the cases cited rather propound the established principle, i.e. "As soon as the letters of credit are established between the issuing bank and negotiating bank, it becomes an independent agreement between the two banks, neither the seller nor the buyer has privity to that agreement. It is by nature a separate transaction from the sale agreement between the seller and the buyer. The only exception to this strict rule is the knowledge of the bank that the documents presented are forged and fraudulent." However, any allegation of fraud has to be proved strictly by adducing evidence.
11. In the instant case, we note that the petitioner being satisfied, happily carried on encashing the instruments in question. The LCs were opened on 20-10-2000. The petitioner made part-payment on 24-4-2001 and suit was in fact filed much later, on 24-11-2003. We are of the view that the claim of fraud is somewhat belated and also that the petitioner has not been able to establish its claim of fraud having been practiced. On the contrary, the evidence of DW1 has negated the basis of the petitioner's claim that fraud was practiced, inasmuch as he admitted that defendant Nos. 2 and 3 are not the same person. The petitioner had claimed that defendant Nos. 2 and 3 were one and the same person and, therefore, the transactions between them were fraudulent paper transactions. Moreover, evidently the petitioner accepted the genuineness of the instruments and encashed some of them.
12. In view of the above discussion, we do not find any illegality or impropriety in the impugned order.
Accordingly, the civil petition for leave to appeal is dismissed.

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