TMI Blog2007 (8) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... on an application filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to 021 \the Act\022) for an order of injunction restraining the respondent from receiving any payment under a Letter of Credit. 3. At this stage, we feel it proper to narrate the facts which have given rise to the filing of this appeal 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, in the application for injunction, it was pleaded that the act of the respondent for not resolving the dispute on the quality of goods in the second consignment amounted to fraud as the respondent had dishonestly and with ulterior motive not resolved the dispute as raised by the appellant and in any event, an order of injunction should be granted, otherwise, it would not be possible for the appellant to recover the money released under the Letter of Credit 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 Takh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 16th May, 2007 and heard by the learned Single Judge on 17th May, 2007 and interim order of status quo was extended till 25th June, 2007. As noted herein earlier, the learned Single Judge by order dated 5th June, 2007 vacated the interim order of status quo granted earlier against which an appeal was preferred by the appellant before a Division Bench of the High Court of Calcutta which dismissed the appeal and affirmed the order of the learned Single Judge vacating 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gregious nature such as to vitiate the entire underlying transaction. While coming to a conclusion as to what constitutes fraud, this court in the above case quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA V/s. Chase Manhattan Bank (1984) 1 All ER 351 at p. 352 which is as follows, The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which 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 invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of injunction to restrain enforcement of a Bank Guarantee or a Letter of Credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a Bank Guarantee or a Letter of Credit :- (i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and not in respect of a part of the same. In this view of the matter, we are, therefore, in agreement with the High Court that the pleadings made relating to fraud in paragraph 45 of the application for injunction were not sufficient nor any strong prima facie case of fraud could be made out in the petition which would warrant a continuance of the order of status quo. 16. That apart, as noted herein earlier, in the matter of invocation of a Bank Guarantee or a Letter of Credit, it is not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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