KARACHI, June 29: Justice Shabbir Ahmed of the Sindh High Court has held that generally bill of exchange cannot be dishonoured and the only exceptions are when any demand for payment is fraudulent or where there is a challenge to its validity.

He spelt this out while dismissing the suits involving M/s Chemi Viscofibre Ltd (Plaintiff) and ING A. Maurer SA, Habib Bank and Credit Suisse First Boston (Defendants).

Justice Ahmed drew the conclusion from the arguments advanced by the parties concerned that “the plaintiff has failed to make out a prima facie case, nor balance of convenience lies in favour of the plaintiff, it may be observed that such contracts involving bills of exchange must be preserved and their sanctity should not be lightly interfered with.

“Payment due under a bill of exchange cannot be stopped/ restrained unless there be a strong case of fraud, forgery, or obtaining wrongful advantage from such contract.

“The principle of law is well-settled that generally bill of exchange cannot be dishonoured and the only exceptions are when any demand for payment is fraudulent or where there is a challenge to its validity.”

He was of the view that the essential ingredient relating to irreparable injury also did not lean in their favour. Therefore, CMAs were dismissed.

Through these applications, the plaintiff had sought order restraining the defendants or any endorsee of bills of exchange from claim.

The plaintiff had also pleaded for prohibiting the defendant No 2 from making any payment against the bills of exchange drawn on the plaintiff on February 5, 2001 in favour of the defendant No 1 and guaranteed by the defendant No 2.

The plaintiff was in need of sophisticated equipment to be integrated into the plant and machinery of their project of viscose fibre at Nawabshah, and they had agreed to purchase from the defendant No 1 vide agreement dated 17th January, 1996, whereby the defendant No 1 had agreed to supply machinery for sulphurizing and dissolving section of the plant.

Counsel for the plaintiff Muneer A. Malik’s contention was that according to the article 5 of the amended contract, the repayment was to be made in 14 equal consecutive semi-annual instalments, the first one falling due 21 months after coming into force of the contract.

He contended that on calculation of the maturity w. e. f. 17. 4. 2001, the first instalment would become due on 15. 1. 2003 and subsequent bills after every six months.

He contended that the presentation of bill before the date of maturity for payment guaranteed by the defendant No 2 was against the contract and lodging of the first bill of exchange for payment with the defendant No 2 on the basis of maturity date stated on the face thereof would be mala fide.

Khalid Rehman, counsel for the contesting defendants, maintained that the first bill of exchange matured for payment on 31. 1. 2002, and it was duly accepted by the plaintiff on 10. 2. 2001. The defendant No 3 became “holder in due course” and the bill matured for payment on 31. 1. 2001, was due for payment on presentation. But it could not be presented due to stay granted by the Court, on the day of presentation viz 31. 1. 2002.

He also contended that articles 2, 5 and 6 were amended. According to article 5, the payment of 75 per cent of contract price was payable in 14 equal consecutive semi-annual instalments, the first one falling due 21 months after coming into force of the contract.

The effective date of contract in terms of article 16. 2 (amended contract) was the date of receipt by the defendant No 1 of the down payment as per article 5. 3. 2 of the contract. He also pointed out that the down payment 25 per cent of the sale price was made by the plaintiff on 17. 3. 1996, 18.9. 1996 and 13. 9. 1996, according to para 3 of the plaint. Thus, according to him, the effective date was in terms of article 16. 2 when the down payments were made by the plaintiff.

Mr Rehman also contended that the defendant No 3 was “holder in due course” under section 9 of the Negotiable Instruments Act.

He had referred to section 118 of the Act, to contend that until the contrary was proved, presumption should be attached as to the validity of the bills of exchange.

It was pointed out that prima facie there was nothing on record from which it could be concluded that either the explanation to section 9 was attracted to or section 58 thereof.

It was also pointed out that there was no allegation in the plaint or the application filed under Order 39 Rules 1 and 2 of CPC or in supporting affidavit, which might disentitle the defendant No 3 from receiving the amount under the bill of exchange.

Justice Ahmed held that in the present case the only ground taken by the plaintiff was that an attempt was contemplated for presentation of bill before its maturity for payment and for that the case had been built on the basis of a fax dated 17. 4. 2001 as commencing date of contract and payment 21 months thereafter viz 15. 1. 2003.

He observed that there was no allegation of fraud or of unlawful consideration on the part of the defendant No 1 or defendant No 3 as was alleged by the plaintiff in his plaint.

He observed that “the defendant No. 3 is “holder in due course” by discount on payment to the seller, the defendant No 1. There was nothing on record from which the presumption attached to the validity of the bill of exchange U/S 118 of the Act could be negated. No doubt in exceptional cases, the Court could interfere with the machinery of obligation under bill of exchange, assumed by the banks, but those exceptional cases included where it was proved that the demand for payment clearly be fraudulent or where there was a challenge to the validity of the bill on the ground akin to fraud or concealment of material facts. None had been spelt out in the present case.

Justice Ahmed held that the dictum of Haral Textiles Limited (supra) was fully applicable in the instant case, and he was of the view that a “holder in due course” of a bill of exchange executed in respect of a letter of credit stood on a higher pedestal than a simpliciter beneficiary under a letter of credit.

The interest of innocent parties, who might hold drafts guaranteed by bank, should not be made to suffer on the ground that the draft had no material on account of modification of effective date after the acceptance by plaintiff.

He held that a contract of bank guarantee was a trilateral contract under which the bank had undertaken to unconditionally and irrevocably abide by the terms of the contract. If a bank guarantee was unconditional and irrevocable, the bank concerned must pay when demand was made.