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by sayum
26 May 2026 8:59 AM
“The conduct of the appellant clearly dilutes time being the essence of the contract” — Delhi High Court, in a decisive ruling dismissed an appeal filed by a Singapore-based importer challenging a money decree awarded to an Indian exporter. The judgment, delivered by Justice Mini Pushkarna, rejected the importer’s contention that a minor delay of two days in shipment under an irrevocable Letter of Credit justified its refusal to accept the consignment and make payment.
The Court affirmed the Trial Court’s finding that time was not the essence of the export contract and held that the importer had waived its right to object on grounds of delay by accepting previous delayed shipments without demur.
"Buyer Cannot Rely on Bank’s Discrepancies to Escape Contractual Liability" — Court Reaffirms Autonomy of Letter of Credit from Sale Contract
Dismissing the importer’s primary defence based on discrepancies in shipping documents raised by the issuing bank, the Court reiterated the established principle that the obligations under a Letter of Credit are independent of the underlying sale contract.
“It is a settled principle that the contract between the buyer and seller is distinct and independent from the contract between the seller and the issuing bank,” observed the Court, relying on the Supreme Court’s judgment in Tarapore & Co. v. Tractoroexport Moscow, AIR 1970 SC 891.
The appellant’s attempt to avoid liability on the basis of the issuing bank’s rejection of documents was firmly rejected. The Court stated, “The buyer is not entitled to rely on the bank’s objection to justify refusal of goods if the seller has performed his obligations under the sale contract.”
In this appeal under Section 96 of the Civil Procedure Code, the High Court examined the correctness of a decree passed by the Trial Court in favour of the plaintiff-exporter, awarding ₹7,89,840/- with interest at 12% per annum, after the defendant-importer failed to accept goods shipped under an amended Letter of Credit. The central legal issues concerned the applicability of time being of the essence, the scope of a buyer's reliance on discrepancies raised by banks, and the admissibility of electronic evidence.
The dispute emerged when the importer refused to accept the final consignment, claiming it was shipped two days beyond the “latest date” mentioned in the amended Letter of Credit. The goods had already reached Egypt, but were not cleared by the importer, causing the exporter to recall and resell them locally at a loss.
“Time of Shipment Was Not the Essence” — Minor Delay Held Non-Fatal Due to Waiver by Conduct
The Court extensively examined the facts and found that the final shipment was made on May 5/6, 2004, with the latest permitted date being May 7, 2004. Even assuming a two-day delay, the Court held such delay to be insignificant, especially in view of the importer’s conduct in earlier transactions.
“It is undisputed that the appellant had accepted the first two orders despite a delay of several weeks,” the Court observed, citing documentary evidence including the appellant’s own communications admitting delayed receipt and acceptance of earlier shipments.
The Court drew from the Supreme Court’s rulings in Welspun Specialty Solutions Ltd. v. ONGC and Hind Construction Contractors v. State of Maharashtra, to conclude:
“Even where time is specified, it may not be of the essence unless the contract makes it so and there are consequences specified for breach. Mere stipulation of a date does not make it sacrosanct.”
In this case, the absence of any penalty clause for delay, the consistent history of tolerance to late shipments, and the importer’s own delay in objecting led the Court to conclude that the contract was performed within reasonable time.
“Letter of Credit Is a Separate Transaction from the Sale Contract” — Bank Rejection Does Not Affect Buyer’s Obligation
Rejecting the importer’s reliance on bank-raised discrepancies, the Court underscored the principle that:
“A Letter of Credit transaction is autonomous, and banks deal with documents, not goods. The buyer cannot avoid liability under the sale contract by citing discrepancies raised in the banking transaction.”
In this case, the bank's communication highlighting seven discrepancies — including variation in address, description, invoice issues, and a delay in courier receipt — was held to be irrelevant to the buyer’s contractual liability.
The Court pointedly observed: “The appellant never mentioned these discrepancies when it refused to accept the shipment. Its only ground was the delay, which itself was not substantiated. The bank's discrepancies became a defence only later — clearly an afterthought.”
Referring again to Arosan Enterprises Ltd. v. Union of India, the Court affirmed that: “Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based.”
“Delay in Raising Objection Shows Buyer Was Negotiating With Its Own Customer” — Court Finds Conduct Suggests Avoidance of Liability
The importer’s internal email dated 30 June 2004 formed a crucial piece of evidence. The communication acknowledged that the buyer's customer had walked away, and that the importer was exploring options to resell the goods. It asked the exporter to either divert the goods or recall the shipment — not on grounds of contractual breach but commercial inconvenience.
Quoting the email, the Court noted: “The appellant did not reject the shipment on any legal or contractual ground. Rather, it conveyed that its customer had cancelled the order and it was attempting to find alternate buyers.”
This, according to the Court, clearly revealed that the non-acceptance was driven by the importer’s own commercial difficulties, not any failure on the part of the exporter.
Section 65-B Certificate Allowed at Appellate Stage — “Procedural Requirement Curable During Hearing”
Rejecting the challenge to the admissibility of emails under Section 65-B of the Evidence Act, the Court observed that the appellant never objected to these documents during trial and raised the issue for the first time on appeal.
The Court accepted the Section 65-B certificate produced by the respondent during the hearing, stating:
“Production of a 65-B certificate is a procedural requirement and can be cured at the appellate stage. This appeal being a continuation of trial, the defect is rectifiable.”
The Court relied on State of Karnataka v. T. Naseer alias Nasir, 2023 SCC OnLine SC 1447, and Arjun Panditrao Khotkar, to reiterate that failure to produce a 65-B certificate earlier does not render evidence inadmissible if the requirement is subsequently fulfilled.
Application for Additional Evidence Dismissed — "Negligence of Counsel Not Sufficient Ground"
The appellant had moved an application under Order XLI Rule 27 CPC, seeking to recall the plaintiff's witness for cross-examination and to produce its own evidence. The ground taken was that its previous counsel had negligently failed to file an affidavit or conduct cross-examination.
The Court dismissed the plea, noting: “The appellant is a corporate entity engaged in international trade and is expected to diligently pursue litigation. Vague allegations of negligence by counsel do not justify recall or reopening of evidence.”
Referring to Union of India v. Ibrahim Uddin, the Court reaffirmed that additional evidence is not to be permitted unless a compelling and exceptional circumstance exists — which the appellant failed to demonstrate.
"No Perversity or Illegality in Trial Court's Findings" — Appellate Court Declines to Interfere
Emphasizing the limited scope of interference in an appeal, the Court observed:
“Merely because two views are possible, the appellate court is not entitled to interfere unless the findings are perverse or illegal. The Trial Court’s findings are based on a plausible view of the evidence.”
Citing Raj Rani Sharma v. Sumer Segal and Dr. P. K. Chakravarty v. Debika Banerjee, the Court concluded that there was no ground to disturb the Trial Court’s decree, which had awarded a well-reasoned and limited claim for loss and interest.
Decretal Amount to Be Released with Interest
Having found no merit in the appeal, the Court ordered that the amount of ₹9,92,439/- deposited by the appellant during the pendency of the appeal, along with accrued interest, be released to the exporter.
The Court also took note of the fact that the respondent’s so-called “corporate guarantee” was merely a self-guarantee unsupported by security, and hence rejected earlier by the Registrar General.
Accordingly, the Court dismissed the appeal and all pending applications.
This judgment is a significant reaffirmation of the legal doctrines surrounding Letters of Credit, contractual obligations, and commercial conduct. The Delhi High Court has made it clear that minor deviations in shipment timelines cannot be weaponised by buyers to avoid liability, particularly when such deviations have previously been tolerated.
It also reinforces that a buyer cannot invoke discrepancies raised by banks under a Letter of Credit to excuse its own breach of contract — especially when such discrepancies are not contemporaneously relied upon. Furthermore, the judgment provides a practical application of procedural law on the admissibility of electronic evidence and the limitations on introducing additional evidence at the appellate stage.
As the Court aptly concluded: “No party can be permitted to escape liability under a valid and executed contract merely because it is commercially inconvenient or opportunistic to honour it.”
Date of Decision: September 1, 2025
