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TMI Blog2007 (8) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... peal in this Court. 4. The appellant entered into a contract on 29th May, 2006 with the respondent by which the respondent had agreed to supply 26,000 metric tones of Extra Hard Pitch (Reprocessing Grade) (in short goods) to the appellant as per schedule set out in the contract. In the said contract, one of the terms of payment was that a Letter of Credit will be opened and accordingly an irrevocable Letter of Credit was opened by the appellant in favour of the respondent. Initially, under the said Letter of Credit, payment was to be made at sight. The document against which payment was to be made, was received directly by the banker of the appellant and on presentation of the document it was found by the banker of the appellant that the description of the goods was not as per the terms of the Letter of Credit. Accordingly, the banker of the appellant by a Letter dated 11th September, 2006, intimated the aforesaid fact to the appellant and sought advice whether the appellant was willing to waive the discrepancies indicated in the Letter dated 11th September, 2006. In response to this query of the banker, the appellant waived the discrepancies and accepted the documents by a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it as the respondent is a foreign company from Iran and has no assets in India. 7. The respondent raised a plea for vacating the interim order of status quo granted by the learned Single Judge on the application for injunction filed u/s 9 of the Act alleging the following facts:- Goods were dispatched to the appellant by the respondent under two shipments. So far as the first shipment was concerned, goods were received, documents negotiated and payment released. Therefore, there could not be any dispute in respect of the goods relating to the first shipment. By the second shipment, the respondent had dispatched 12,503 metric tones of goods to the appellant which arrived at Calcutta from Iran by a vessel called M.V. Iran Takhti. Out of the aforesaid 12,503 metric tones of goods so dispatched and arrived at Calcutta, documents relating to 2503 metric tones of goods were negotiated by the Central Bank of India, Calcutta and payment released. However, for the balance 10,000 metric tons, documents were not negotiated and no payment was released. It was further alleged by the respondent that there was no reason for not negotiating the documents or effecting release of the payment as pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the interim order of status quo. 9. We have heard the learned counsel for the parties and carefully examined the orders of the learned Single Judge as well as that of the Division Bench. We have also examined in detail the application for injunction, the original contract, the Letter of Credit as amended and the other documents on record. Having noted salient facts and materials on record, let us now consider whether the Division Bench was justified in affirming the order of the learned Single Judge vacating the interim order of status quo in the matter of stopping the payment in terms of the Letter of Credit. But before dealing with this aspect of the matter, let us consider the principles for grant or refusal to grant injunction in the matter of release of payment in terms of a Letter of Credit or a Bank Guarantee. 10. The law relating to grant or refusal to grant injunction in the matter of invocation of a Bank Guarantee or a Letter of Credit is now well settled by a plethora of decisions not only of this court but also of the different High Courts in India. In U.P. State Sugar Corporation Vs. Sumac International Ltd. [(1997) 1 SCC 568], this court considered its various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the banks knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a banks Credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged. (Emphasis supplied) 12. In Svenska Handelsbanken Vs. Indian Charge Chrome [(1994) 1 SCC 502], it has also been held that a confirmed Bank Guarantee/irrevocable Letter of Credit cannot be interfered with unless there is established fraud or irretrievable injustice involved in the case. In fact, on the question of fraud, this decision approved the observations made by this court in the case of U.P. Coop. Federation Ltd Vs. Singh Consultants and Engineers (P) Ltd. [(1988) 1 SCC 174]. 13. So far as the second exception is concerned, this court in U.P. State Sugar Corporation Vs. Sumac International Ltd. [(1997) 1 SCC as considered herein earlier, at para 14 on page 575 observed as follows : \023 On the question of irretrievable injury wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Credit in terms thereof irrespective of any pending disputes relating to the terms of the contract. (ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit. (iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit. (v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned. 15. Keeping these principles in mind and applying the same on the facts of this case, we can only draw this conclusion that no good ground has been made out by the appellant to inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open for the bank to rely upon the terms of the underlying contract between the parties. 17. In view of the discussions made herein above and in view of the admitted fact that in respect of 2503 metric tones of goods out of 12503 metric tones of goods in the second consignment, documents were admittedly negotiated and payments were released and further in view of the communication dated 3rd October, 2006 by the appellant to the banker that it had agreed to accept the discrepancies raised in respect of the goods and also agreed to make payment of the same, we are not satisfied that a case of fraud even prima facie has been made out by the appellant for grant of injunction. It is difficult to conceive that the appellant having accepted a part of the second consignment and having directed to release payments in respect of the same, would be defrauded by the respondent in respect of the balance quantity of goods which had arrived at Calcutta in the second shipment. In any view of the matter, in our view, the defective quality of goods in respect of which an order of injunction of the encashment of the Letter of credit was sought could at all be a reasonable ground for grant of injunc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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