9911796707
TMI Blog2009 (5) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 State Trading Corporation of India Ltd, Tolstoy Marg, New Delhi, a Government of India Undertaking to make available goods required by the plaintiff from time to time. Under the said arrangement, the Defendant No.1 is authorised to execute contracts and place purchase orders in respect of the goods on behalf of the Plaintiff Company. Under the said arrangement although the Defendant No.1 pays for the goods for which purchase order is placed by Defendant No.1 but the same is to be reimbursed by the Plaintiff. The said arrangement between the Plaintiff and Defendant No.1 has been renewed and continued from time to time. 3. On 29th January, 2009 the Defendant No.3 Metinvest International S.A. Switzerland as Seller entered into a contract with Defendant No.1. Under the said contract, the Defendant No.1 as buyer agreed to buy 40,000 MT of Prime Continuous Steel Slabs at the cost of USD 1,60,00,000 (which figure was later amended to USD 15052000 from Defendant No.3. 4. It was a financial term of the contract that the payment of the goods would be made by way of an irrevocable letter of credit to be arranged by Defendant No.1. The said contract was tripartite agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce majeure circumstances and to take immediate steps to inform Defendant No.3 so that it would not dispatch the goods. 9. The Defendant No.1 on 25th March, 2009 itself informed the Defendant No.3 of the impossibility to continue to perform the contract by means of e-mail dated 25th March, 2009 and the force majeure clause contained in Clause 21 of the contract was invoked. It was requested by Defendant No.1 to Defendant No.3 that the manufacture and dispatch of the slabs be kept on hold until further communication from the plaintiff in this regard. 10. According to the Plaintiff, the Defendant No.3 acknowledged and accepted the invocation of force majeure clause vide e-mail dated 25th March, 2009 and the certificate issued by the Chambers of Commerce and Industries was sent to Defendant No.3. 11. The case of the Plaintiff is that even after having full satisfaction about the force majeure situation, yet the Defendant No.3 with the malafide intention and questionable motive sent scanned copy of the Bill of Lading dated 25th March, 2009 intimating that the goods had been shipped by Defendant No.3. In Paras 17, 19, 20 and 26 of the plaint, it has been pleaded by the Plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiff is limited to that of a receiver of the goods who is not a party to the financial terms of the letter of credit contract between the Defendant No.3 and defendant No.1. Hence, the plaintiff does not have the locus standi to file the present suit. 17. According to Defendant No.3, the parties to the Sales contract (Plaintiff, Defendant No.1 and Defendant No.3) have already chosen under Clause 22 of the Sales contract that the applicable law of the Sales contract would be English law and all the disputes will be resolved by means of arbitration. 18. The plaintiff do not reside or work for gain within the territorial limits of this court nor does it has any local office within the local limits of this court and the plaintiff has deliberately arrayed defendant No.1 as a party to create the jurisdiction of this court and as a matter of fact no relief was claimed against the said defendant. On reading of arbitration clause 22.4 of the Sale contract dated 29 th January, 2009 and Section 8 and 45 of the Arbitration and Conciliation Act it is clear that the jurisdiction of this court is excluded. 19. It is further stated that Defendant No.3 has already initiated arbitration proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever to the claim raised by any of the party to the underlying contract in Articles 8 and 15 of the UCP 600. 23. It is further submitted that the defendant No.4 is under obligation to negotiate the letter of credit upon presentation of the complying documents so negotiated by issuing bank, namely, defendant No.2 Canara Bank. It is further alleged by defendant No.4 that the plaintiff has completely failed to establish any fraud of egregious nature in the facts of the instant case. Nowhere in the plaint as well as in the interim application, any averment is made by the plaintiff against defendant No.4 pertaining to the allegations of fraud, therefore, the essential ingredients of fraud are not established against defendant No.4. 24. It is further submitted that the allegation of breach of underlying contract as stated in the plaint can be adjudicated by resorting to Disputes Resolution mechanism provided under the contract. It is further submitted that the plaintiff has not disclosed the fact that the defendant No.4 vide swirl message dated 1 st April, 2009 while acknowledging message dated 31st March 2009 from defendant No.2 advised/responded stating that said message is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plaintiff Dr. A.M. Singhvi has firstly referred to the clauses of the agreement dated 29.1.09 and the various documents filed on the record, the relevant clauses of the agreement are reproduced hereunder: 16. Payment: By irrevocable confirmable Letter of Credit (draft to be approved by seller) at usance of 180 Days from the date of B/L issued by First Class Bank (Indian Prime Bank) and payable 100% at sight at counter s of seller s Bank upon presentation of the following documents: 1) Signal Commercial invoice in 1 original and 5 copies based on net weight as per Bills of Lading; 2) Full set of charter party Bills of Lading, duly stamped and marked freight prepaid , made out to the order and blank endorsed and notifying 1) Global Steel Philippines (SPV-AMC) Inc., Philippines, and 2) The State Trading Corporation of India Limited, New Delhi; 3) Signed and stamped packing list in three fold showing number of pieces and net weight as per B/L; 4) Certificate of origin issued by beneficiary in one original and two copies; 5) Confirmation copy confirming that within 5 days after the B/L date the beneficiary had faxed the non-negotiable copies of B/Ls, packing list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s practice for Documentary Credits, 2007 revision, ICC publication no.600. 20. Transport conditions: Cargo will be delivered CNF LO GSPI Private Port Iligan basis Seller is to provide for carrying vessel to perform transportation of the contract goods. The carrying vessel shall be seaworthy single decker in good technical condition. Vessel should not exceed 25 years in any case. OAP premium, if any shall be to the Seller s account. Seller shall advise Buyer by fax at least 7 days prior to loading the name and main particulars of the ocean vessel such as name, nationality, age, length overall, beam, load draft, number of holds and hatches, expected date of loading, Lloyd s classification or equivalent (provided it is verified and confirmed by the insurance company), voyage number and type of the vessels. The vessel nominated by the Seller has to be accepted by the Buyer within 24 hours upon nomination, which can t be unreasonably withheld. Seller undertakes that motor vessel has not been sold nor will be sold for scrapping or other purpose during the duration of the contract. Seller should guarantee that motor vessel arrival draft, gear capacity 25 MT maximum and all other equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel. In case the seller has planned to load at different ports, the seller has to inform the quantity planned to be loaded on the vessel at different ports. 21. Force majeure: The parties shall be released from responsibility for a failure to fulfil completely or partially their obligations under the present contract if it is a consequence of force-majeure circumstances such as fire, flood, earthquake, war, military operations of any kind, 5blockades, prohibition of export/import, strikes or some other contingencies beyond control of the Parties if such circumstances directly affect the execution of the present contract. In such case the time for the fulfilment of the obligations under the present contract shall be extended for the period furing which such circumstances last. If such circumstances last for more than 2 months the Parties shall have the right to refuse further fulfilment of its obligations under the present contract and in that case neither Party shall have the right to claim compensation for eventual loses from the other Party. The Party to whom it becomes impossible to meet its obligations under the present contract in the circumstances mentioned above is obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an agent, representative or delegate of the Govt. of India. It is further understood and agreed that the Govt. of India is not and shall not be liable of any acts, omissions, commissions, breaches or other wrongs arising out of the contract. Accordingly, Seller hereby expressly waives, releases and forgoes any and all actions or claims, including cross claims, impleader claims or counter claims against the Govt. of India arising out of this contract and covenants not to sue the Govt. of India as to any manner, claim, cause of action of thing whatsoever arising of/or under this agreement. It is clearly understood that STC‟s role is limited to making financial arrangements and disputes, if any, will be settled between the Seller and the ultimate Buyer - GSPI. 30. By Citing these clauses of the agreement, the plaintiff has two fold submissions i.e. the contents of the underlying agreement must be read into the letter of credit and thereby the present case is differentiated from the normal case of invocation of the letter of credit. The present case falls within the case of fraud which is exception to the ordinary rule of non interference of the court and the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the seller in an appropriate proceeding. But the Central Bank which has opened a confirmed and irrevocable letter of credit cannot refuse to pay even when all the terms of the letter of credit have been fulfilled to its satisfaction on the plea that the goods are not up to the contract or do not correspond with the description. The bank is not entitled to withhold payment after its obligation to pay has arisen merely because an allegation of fraud has been made against the seller. As Browne L. J. emphasized in the case of Edward Owen that it was not enough to allege fraud. If that was possible in law, all that a buyer had to do to stop payment under an irrevocable letter of credit was to allege fraud against the seller. It is very easy to allege fraud whenever there is a dispute as to quantity or quality of the goods. But that cannot be the ground on which the bank will be entitled to refuse payment. As Lord Denning has emphasized that the rule, in the case of a confirmed irrevocable credit in respect of contract for the sale of goods, is that the confirming bank is in no way concerned with disputes between the buyer and the seller as to the contract of sale which underlies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s letter of credit came into existence to bridge this gap. In such transactions, the seller (beneficiary) receives payment from issuing bank when he presents a demand as per terms of the documents. The bank must pay if the documents are in order and the terms of credit are satisfied. The bank, however, was not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract. Any dispute between the buyer and the seller must be settled between themselves. The Courts, however, carved out an exception to this rule of absolute independence. The Courts held that if there has been fraud in the transaction the bank could dishonour beneficiary's demand for payment. The Courts have generally permitted dishonour only on the fraud of the beneficiary, not the fraud of somebody else. 34. From the above discussion, it can be conveniently said that there is no res integra that the letter of credit is an independent contract and the courts are in trend of not to interfere with the encashment of the letter of credit unless the case falls within the purview of exceptions laid down by the Apex Court. Now, I shall go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h to facilitate free flow of trade and commerce in internal or international trade or business. It creates an irrevocable obligation to perform the contract in terms thereof. On the occurrence of the events mentioned therein the bank guarantee becomes enforceable. The subsequent disputes in the performance of the contract does not give rise to a cause nor is the court justified on that basis, to issue an injunction from enforcing the contract, i.e. bank guarantee. The parties are not left with no remedy. In the event of the dispute in the main contract ends in the party's favour, he/it is entitled to damages or other consequential reliefs. 9. It is settled law that the Court, before issuing the injunction under Order 39, Rules 1 and 2, CPC should prime face be satisfied that there is triable issue strong prima facie case of fraud or irretrievable injury and balance of convenience is in favour of issuing injunction to prevent irremediable injury. The court should normally insist upon enforcement of the bank guarantee and the court should not interfere with the enforcement of the contract of guarantee unless there is a specific plea of fraud or special equities in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the borrower/plaintiff. There was no question of defendant No. 4 not making any demand. The instalments for repayment of the loans had already been fixed and liable to be paid without demand by defendant No.4. Defendant No. 12 is under a duty to pay the instalments regularly on a fixed date without any demand to defendant No. 4. 39. On Similar lines, the following authorities are also noteworthy: (i) Centax (India) Ltd. v. Vinmar Impex Inc. Ors. 1986 (4) SCC (ii) The Projects Equipment Corporation of India Ltd. v. Onoda Engineering Consulting Company Ltd. 43 (1991) DLT 42 (iii) Coronation Marketing Services Ltd. v. MMTC Limited Anr. 61 (1996) DLT 61 (iv) Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. Anr. 1997 (6) SCC 450 (v) Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd. Anr. 2007 (6) SCC 470 (vi) Mountain Mist Agro India (Pvt.) Ltd. Anr. V. Mr. S.Subramaniyam IA 8979/2006 in CS(OS) 1643/2005 (vii) Fair Deal Agencies Anr. V. Inner Mongolia Muwang Animal By Product Company ltd. Ors. 150 (2008) DLT 623 (viii) P.V. Beverages Pvt. Ltd. v. Global Beverages AG Ors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Letter of the Credit. 44. The submission made by the Learned Counsel for the plaintiff is that the present case is the case wherein the Fraud is of egregious nature due to the reason that at the instance of the plaintiff, the Defendant no. 1 has informed the Defendant no. 3 on 25.3.2009 by its email about the impossibility of the performance of the contract on account of strike like situation imposed by the stevedore service provider at Iligian Port, Phillipines and the Defendant no. 3 has acknowledged the said communication and further asked the Defendant no. 1 to furnish the requisite certificate of chamber of commerce which was also duly provided by the Defendant no. 1 on the same date. 45. He submitted that inspite the said information about the force majure conditions, the defendant no. 3 deliberately and malafidely went on to dispatch the shipment on 28.3.2009 subsequent to the information given by the plaintiff , which is clear breach of terms and conditions of the contract which establishes fraud on the part of the Defendant no. 3. 46. The said fraud according to the plaintiff counsel gets corroborated when the Defendant no. 3 on the very same day presents the bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of credit. 49. I have considered rival submissions of the parties and have also gone through the relevant documents along with pleadings. In the present case, the chronology of the happening of events is significant to note in order to arrive to conclusion of existence of fraud. The dates are as under: CHRONOLOGY OF EVENTS 29th January 2009 - The Date of execution of underlying contract 20th and 25th February 2009- Addendums 27th February 2009- The date of issuance of letter of credit. 13th March 2009 - Defendant no. 3 requested the Defendant no. 1 to accept the nomination of vessel for the transportation of the contracted goods. 24th March 2009 - Letter from the port informing the force majure situation to the plaintiff 25th March 2009 - Defendant no. 3 Metinvest received email from the Defendant no. 1 inter alia stating that strike like situation has arisen at the port Illigan, Phillipines from 8 th April 2009 . On the same date, the Defendant no. 1 has furnished the requisite certificate from Chambers of Commerce, Phillipines . 28th March 2009- Defendant no. 3 dispatched goods to the destination i.e. port of Illigan and also presented the Bill of lading to the confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledge as clear from the chain of events which are two major elements for consideration are prima facie missing. 54. Applicability of UCP 600 The Learned Counsel for the plaintiff argues that the provisions of UCP 600 are not relevant for the facts and circumstances of the present case as the said rules are applicable inter se the banks. According to the counsel for the plaintiff, the present case is at the stage of pre presentation of the documents, the question of the liability of the banks inter se does not arise and the applicability of UCP at this stage is out of context. In support of his contention, reliance on Article 36 of UCP was made to state that force majure clause is recognized to the banks inter se, therefore, there is no reason for non applicability of the same principle of force majure in the present case. 55. On the other hand, the learned counsel for the Defendant No.4 states that UCP 600 is applicable and is expressly agreed by the parties in tri partite agreement under clause 16. 56. I find merit in the submission of the Defendant no. 4 that the letter of credit is guided by UCP 600 rules. Article 4 of the said rules postulates that the bank is not conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct but not forming the part of letter of credit cannot be invoked against the confirming bank. Force Majure Clause 60. Now I shall also examine the other submissions made by the plaintiffs in support of continuance of the interim order. It is submission of the plaintiff that the contract is frustrated by the Force Majure Conditions/ strike like situation which is beyond the control of the plaintiff and therefore clause 21 comes into play whereby if the said conditions continue for more than 2 months, the parties can seek discharge from the performance of their obligations. It is further contended that the seller which is Defendant no.3 is obligated to await till the force majure situations are over for the purpose of the encashment of the letter of credit. Per Contra the Defendant no. 3 and 4 have specifically denied the existence of any such force majure situation and has also referred clause 14 of the contract under the recital Load/ Discharge port which reads as under : 14. Load/Discharge Port : Any Ukraine port/ GSPI Private Port, Iligan, Phillippines 61. In the present case, it is not in dispute that the goods were dispatched to Illigan Port, Phillipines. Learned Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Defendant no. 3 to plaintiff agreeing to discount the price of the material and factor in the charges for deferred payment was acknowledged. The said acceptance of deferred payment of 180 days was set before the confirming bank could make the payment. Further, the reliance is made to the notice dated 2 nd April, 2009 addressed to confirming bank i.e. Defendant no. 4 informing the said facts to Defendant no. 4. 65. The Learned Counsel for the Defendant no. 4 Mr. Amar Gupta, refutes the said contention by stating that clause 78 and 46 B of the Letter of credit makes it clear that the payment has to be made immediately upon presentation of conforming documents by the Negotiable bank to the Defendant no. 3. The relevant clauses of LC are as under: 78/INSTR TO PAVGACCPTGOTG BANK UPON NEGOTIATION THE DOCUMENTS BE SHOULD BE FORWARDED TO CANABAR BANK OVERSEAS MAIN BRANCH B- 39, 1ST FLOOR CONNAUGHT CIRCUS NEW DELHI-110001 INDIA IN 2 SETS 1ST SET BY DHL COURIER AND 2ND SET BY REGD AIRMAIL. 2ND SET SHOULD CONSIST ONE COPY EACH OF ALL DOCS PROVIDED THAT ALL THE TERMS AND CONDITIONS OF THE LC ARE STRICTLY COMPLIED WITH. YOU ARE AUTHORISED TO NEGOTIATE THE DRAFT AND CLAIM REIMBURSEM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be again that the letter of credit is an independent and autonomous contract free from any other agreement between the parties. Moreover, the said further agreement/ arrangement by way of addendum 2 and email dated 25.2.2009 of deferred payment are not in conformity with the Letter of credit. Therefore, the Judgment titled as Banco Santander SA is not applicable to the present case and there is no self imposed injunction as argued by the learned counsel for the plaintiff. 68. INCORRECT FACTS Learned counsel for defendant No.3 and 4 have laid great stress on their objection for dismissal of the suit as according to the said defendants, the plaintiff has approached this court with unclean hands by making false statements, misrepresentations and suppression of material facts. I have considered the pleadings and submissions made by learned counsel for the defendants. 69. It is submitted that in Para 26 of the plaint, it is mentioned by the plaintiff that a legal notice dated 2 nd April, 2009 had been sent to defendant No.3 intimating the existence of force majeure situation and asking the defendant No.3 to suspend encashment of letter of credit. However, on examining the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of credit. The order dated 6th May 2009 was also passed in this respect. 74. On 6th May, 2009 an affidavit on behalf of Mr.Ravi Verma, Constituted Attorney of defendant No.3 has also been filed explaining the present status of the Vessel carrying the contracted goods under the contract dated 29th January, 2009. There is a specific deposition made in the said affidavit that Port at lligan in Philippines where the goods were delivered under the contract is a private port of the plaintiff which is also known as GSPI, lligan Port (Global Steel, Philippines-Plaintiff port and it was not possible for the Vessel to discharge the goods at this port without the authorization of the plaintiff. It is deposed in Para 4 of the affidavit that in absence of the plaintiff‟s authorization for the Vessel to discharge at Illigan, the Vessel carrying the contracted goods sailed instead to the nearby port of Manila on 3 rd May 2009 and is currently discharging the material which will be stored in Customs custody until the defendant No.3 takes further steps. The said affidavit has been filed after the hearing of the interim application. BALANCE OF CONVENIENCE 75. In view of the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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