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Note: The Tadikonda Family (Applicants) obtained revolving letters of credit from an unidentified bank (Issuer) whose accounts receivable apparently had been transferred to a Debts Recovery Tribunal. The credits were represented to be for the purchase of cigarettes by I.T.C. Company (Beneficiary). The credits provided for payment "against demand bills of the [Beneficiary] at sight, 'without recourse' to the full invoice value of the goods purporting to be supply of Cigarettes by the [Beneficiary]."

When Applicants failed to reimburse Issuer, Issuer discovered that no cigarettes had been delivered and sued Applicants and Beneficiary, alleging fraud and seeking recovery of the proceeds. Issuer asserted that the LCs had been issued "to adjust some other liabilities incurred by the [Applicants] towards the [Beneficiary]."

Beneficiary moved to dismiss the Complaint. The Debt Tribunal and High Court of Karnataka granted the motion. On Beneficiary's appeal, the Supreme Court, M. Jagannadha Rao, delivered the court's opinion reversing and ruling that Applicant has no cause of action.

[JEB/nso]

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