2009 (5) TMI 926 - HC - Indian Laws

Summary

Issues Involved:

1. Jurisdiction to entertain and adjudicate the dispute.
2. Plaintiff's locus standi to file the suit.
3. Applicability of force majeure clause.
4. Allegations of fraud and their impact on the letter of credit.
5. Applicability of Uniform Customs and Practice for Documentary Credits (UCP 600).
6. Balance of convenience and irreparable injury.

Issue-wise Detailed Analysis:

1. Jurisdiction to entertain and adjudicate the dispute:
The defendant argued that the court lacks jurisdiction as the letter of credit/contract is subject to Swiss law and the plaintiff is not a party to the letter of credit. The court held that the jurisdiction is excluded under the arbitration clause 22.4 of the Sales contract, and arbitration proceedings have already been initiated in London.

2. Plaintiff's locus standi to file the suit:
The defendant contended that the plaintiff, being a receiver of the goods and not a party to the financial terms of the letter of credit, lacks locus standi. The court agreed, stating that the plaintiff does not have the locus standi to seek an injunction on the realization of the letter of credit as it is not a party to the letter of credit.

3. Applicability of force majeure clause:
The plaintiff argued that the force majeure clause in the main contract should be read into the letter of credit, thus preventing its invocation. The court found that the force majeure clause is part of the underlying contract and not the letter of credit, which is governed by UCP 600 norms. Therefore, the force majeure clause cannot be invoked against the confirming bank.

4. Allegations of fraud and their impact on the letter of credit:
The plaintiff alleged fraud by the defendant in dispatching the goods despite being informed of the force majeure situation. The court held that for fraud to be an exception to the non-interference rule, it must be of an egregious nature and known to the bank. In this case, the confirming bank had no knowledge of the alleged fraud, and the plaintiff failed to establish a prima facie case of fraud of egregious nature.

5. Applicability of Uniform Customs and Practice for Documentary Credits (UCP 600):
The court emphasized that the letter of credit is governed by UCP 600 rules, which state that the bank is not concerned with the terms of the underlying contract unless they are part of the letter of credit. The bank's obligation is to honor the letter of credit upon presentation of complying documents, irrespective of disputes in the underlying contract.

6. Balance of convenience and irreparable injury:
The court found that the balance of convenience does not lie in favor of the plaintiff. The letter of credit is an independent contract, and the plaintiff's attempt to invoke the force majeure clause to avoid payment was not justified. The court held that the defendants would suffer irreparable loss if the interim order continued, and the plaintiff could seek damages if the underlying contract was eventually found to be frustrated or vitiated by fraud.

Conclusion:
The court vacated the ex parte ad interim order dated 6th April 2009, dismissed the plaintiff's application for an injunction, and allowed the defendant's application for vacation of the ex parte ad interim order. The case was listed for further proceedings before the Joint Registrar.