Case name- M/s. Devang Solar v. Punjab National Bank & Anr
Date of judgement – 17.09.2025
1. Introduction
The present judgment has been delivered by the Court of Sh. Sandeep Yadav, District Judge (Commercial)-03, South, Saket Courts, NewDelhi in CS (Comm) No. 29/2018 (CNR No. DLST01-008026-2018) titled M/s. Devang Solar v. Punjab National Bank & Anr. The suit was instituted on 05.12.2018 and decided on 17.09.2025, after having been reserved for judgment on 11.09.2025.
The dispute emanates from a commercial transaction involving supply of solar street lights by the plaintiff, M/s. Devang Solar, to defendant no.2, M/s. SEW Engineering Works Pvt. Ltd., against consideration of ₹16,12,275/-, part of which was paid in advance while the balance was agreed to be secured through a Letter of Credit (LC) opened by defendant no.2 with defendant no.1 (Punjab National Bank, successor of Oriental Bank of Commerce). The plaintiff alleged that despite due performance of its obligations under the contract, including supply of goods and submission of documents, the defendants, acting in collusion, wrongfully refused to honour the LC and release the balance payment, thereby compelling the plaintiff to institute the present proceedings for recovery of ₹16,45,300/- along with interest.
The suit was contested by both defendants. Defendant no.1, the issuing bank, denied liability on the ground that the documents presented by the plaintiff were not in strict conformity with the terms and conditions of the LC, thereby justifying refusal of payment. Defendant no.2, the purchaser, while admitting placement of purchase order and opening of LC, disputed the quality and quantity of goods supplied, contending that only 82 lights were delivered as against the agreed 83, and that the batteries supplied did not conform to the agreed specification of Samsung Lithium-Ion with 20–22 hours of backup. Defendant no.2 further challenged the very maintainability of the suit, contending that it was not instituted by a duly authorised person and that this Court lacked territorial jurisdiction.
Upon completion of pleadings, issues were framed on 06.01.2020 relating to (i) the entitlement of the plaintiff to the claimed sum, (ii) maintainability of the suit, and (iii) consequential relief. Thereafter, both parties led evidence in support of their respective contentions.
The judgment thus proceeds to examine the rival claims, scrutinise the evidence adduced, and determine whether the plaintiff has successfully established its entitlement to a decree for recovery of the claimed amount under the law of contracts, the scheme of letters of credit, and provisions of the Civil Procedure Code governing institution and maintainability of suits.
2. Issues
The Hon’ble Court framed the following pertinent issues for determination, among others, which are crucial to Defendant No. 1’s position:
- Whether the Plaintiff is entitled to recover the suit amount from the Defendants, jointly or severally, as prayed for?
- Whether the suit filed by the Plaintiff is maintainable in its present form?
3. Key Sections
The adjudication of the present matter involved the interpretation and application of several key legal provisions and principles:
- Order III Rule 1 of the Code of Civil Procedure, 1908 (CPC): This provision governs the appearance, applications, and acts in court by a party, their recognized agent, or a pleader. Its relevance in this case stemmed from the challenge to the authority of the person instituting and prosecuting the suit on behalf of the Plaintiff.
- Order III Rule 2(a) of the Code of Civil Procedure, 1908 (CPC): This rule specifically defines a “recognized agent” as a person holding a power of attorney authorizing them to act on behalf of a party. The Court examined whether the individual representing the Plaintiff possessed the requisite authorization as per this provision.
- Section 20 of the Code of Civil Procedure, 1908 (CPC): This section deals with the territorial jurisdiction of courts, stipulating where a suit may be instituted based on the residence or place of business of the defendants, or where the cause of action wholly or in part arises. A crucial aspect of the defence raised was the lack of territorial jurisdiction of the Delhi courts over Defendant No. 2, who operated from Noida, and the absence of leave sought under this section.
Principles Governing Letters of Credit (LC): Although not explicitly cited as a statutory provision, the entire dispute revolved around the operational principles of a Letter of Credit. These principles include the doctrine of strict compliance, which mandates that documents presented under an LC must strictly conform to its terms and conditions, and the principle of independence, which posits that an LC is independent of the underlying contract of sale. The Court’s analysis implicitly considered these established commercial law principles in evaluating the refusal of payment by Defendant No. 1.
4. Analysis
The Court’s analysis decisively supported Defendant No. 1’s actions, affirming the bank’s adherence to established Letter of Credit principles.
- Principle of Strict Compliance: The judgment implicitly upheld the fundamental principle of strict compliance in Letter of Credit transactions. A bank’s obligation to pay under an LC is conditional upon the presentation of documents that precisely conform to the terms and conditions stipulated in the LC. Any deviation, however minor, entitles the issuing bank to refuse payment.
- Failure to Prove Conforming Goods and Documents: The Court found that the Plaintiff failed to prove that the goods were supplied as per the LC terms. This was a critical finding, directly validating Defendant No. 1’s refusal.
- Specific Document Discrepancies:
- Inconsistent Product Description: The purchase order specified “83 batteries,” whereas the delivery copy mentioned “82 solar lights.” This glaring inconsistency in the description of goods was a significant deviation from the LC terms.
- Unspecified Battery Type: The purchase order required “Ah Lithium ION Battery (Samsung) with backup 20-22 hours.” However, the In-house test report mentioned “Lifepo4” as the battery type, and the Plaintiff failed to clarify if this was indeed a Samsung Battery or if it met the stipulated backup duration. This ambiguity rendered the test report non-compliant.
- Unacknowledged Test Report: Crucially, the test report, a vital document for quality assurance, was not signed by any representative of Defendant No. 2. This lack of acknowledgment was a direct breach of the LC’s prerequisite for such documents.
- Missing Required Documents: The Plaintiff failed to furnish other required documents as per the LC itself, including a signed invoice copy in duplicate, a copy of the purchase order, and a delivery challan, all acknowledged by Defendant No. 2.
- Justification for Refusal: The Court explicitly concluded that Defendant No. 1 was entirely justified in refusing to release the LC amount because the goods were not supplied, and the documents were not presented, as per the precise terms of the Letter of Credit. The bank, as an intermediary dealing solely with documents, cannot be compelled to honor an LC when the presented documents contain material discrepancies.
- Maintainability of Suit: The Court also decided Issue No. 2 (maintainability of suit) in favor of the defendants, further weakening the Plaintiff’s case by identifying procedural flaws, which indirectly reinforced the overall dismissal.
- Plaintiff’s Arguments Dismissed: The Plaintiff’s claims of connivance and that Defendant No. 1 had no right to withhold payment were rejected by the Court, as the evidence clearly demonstrated the Plaintiff’s failure to meet the LC’s conditions. The bank’s duty is to scrutinize documents, not to investigate the underlying commercial transaction or the intent of the parties.
6.Conclusion
This case highlights a central feature of the law on Letters of Credit: the issuing bank’s obligation is strictly tied to the terms of the LC and the documents presented under it, not to the underlying contract between buyer and seller. The Court found that the plaintiff, M/s. Devang Solar, failed to furnish documents in exact conformity with the LC requirements. There were discrepancies in the number of units supplied, uncertainty about whether one unit was delivered as a “sample,” and a mismatch between the battery specifications ordered and those mentioned in the plaintiff’s test report.
Because of these inconsistencies, the issuing bank, Punjab National Bank, was justified in refusing to honour the LC. The Court reiterated that banks are entitled and indeed bound to reject documents that do not strictly comply with the terms of credit. Any deficiency in compliance leaves the beneficiary (in this case, the plaintiff) without recourse against the bank.
Thus, the failure to meet LC conditions, coupled with lack of proper authorisation to institute the suit, resulted in dismissal. The judgment reaffirms that in commercial transactions, the sanctity of the LC mechanism depends on strict adherence to documentary requirements, and a beneficiary cannot expect payment where such requirements are not met.
The Defendant no1 Punjab National Bank was presented by represented by-
Mr. Akhand Pratap Singh Chauhan- Partner
Mr. Shantanu Garg (Senior Associate)
Ms. Mahima Rathore (Associate)