Article

Note: "The parties in this case had an arrangement whereby the [Appellant/Surety] would get his bankers to issue letters of credit which were used to pay for goods the [Buyer/Borrower] purchased. When the letter of credit is issued and the goods are paid for, they would be taken by the [Buyer/Borrower or person for whom the arrangement was made]. For the benefit of the service, the [Buyer/Borrower] agreed to pay the [Appellant/Surety] the principal sum of the letter of credit, a commission charge, and interest."

In order to pursue business appointments which it could not finance until its LC facilities were fully integrated, Donald McCarthy Trading Pte Ltd. and its alleged principals, Mr. and Mrs. Vinod Kumar Ramgopal Didwania, (Buyer/Borrower) requested Pankaj s/o Dhirajlal (Applicant/Surety) to obtain an LC to finance the purchase of metals from overseas suppliers. Buyer/Borrower agreed to reimburse Applicant/Surety for the principal, costs, and pay a 1.5% commission and interest at a flat rate of 12% per annum with an additional 2% in the event of bank penalties.

Claiming unpaid sums, Applicant/Surety sued Buyer/Borrower to recover. In defense, Buyer/ Borrower claimed that outstanding sums had been paid with the exceptions of amounts due to excessive rates of interest which violated local statutes prohibiting excessive interest charges in moneylending (the Moneylenders Act). Specifically, it charged that Applicant/Surety "had used the LCs as a cover for lending money to the [first] defendants which was allegedly repayable with interest." After a hearing on the issue of whether Applicant/Surety was a moneylender, the Singapore High Court, Kan Ting Chiu, J., ruled that Applicant/Surety was not a moneylender.

The court noted that "[t]he illegal moneylending defence has been raised against a variety of underlying transactions in which one party offers financial assistance to another party. The lending of money is a common form of financial assistance, but it is by no means the only form of financial assistance, and not all forms of financial assistance involves the lending of money." It recognized that "[s]ome businessmen who do not have their own funds or banking facilities to pay for their purchases to rely on such arrangements to finance the purchases, and businessmen with ready facilities offer the service for a profit."

The court stated that "[l]ike the purchase of book debts and the discounting of bills, the provision of letters of credit facilities is distinct from moneylending. It is a form of financial assistance that one party offers to another, usually for a profit, but unless we take all forms of financial assistance for a profit as moneylending, the arrangement between the [Applicant/Surety] and the [Buyer/Borrower] is not moneylending because no money is lent."

[JEB/hah]

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.