TMI Blog2004 (8) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellants irrevocable Standby Letter of Credit issued by the 3rd Respondent. After receipt of the irrevocable Standby Letters of Credit, the Appellants delivered possession of the cargo to the 1st Respondent. In respect of the amount of freight, Reserve Bank of India permission was taken and the amount was remitted. The 1st Respondent then raised the dispute in relation to the liability for the sum of USD 267,000 for demurrage. As the 1st and/or 2nd Respondents were not applying for Reserve Bank of India permission the Appellant invoked Arbitration as per the Charter Party Agreement. The Appellants then filed Suit No. 1746 of 1996, in the Delhi High Court. In the suit, the only allegations were against the 1st and 2nd Respondents. Even though the 3rd Respondent was a party to the suit, there were no allegations against them. However, the following prayers were made in the suit:- a) Grant a decree of mandatory injunction directing the Defendants to keep the irrevocable Letter of Credit, issued by Global Trust Bank, Calcutta, bearing No. CA/FLC/011/96 dated 20th May, 1996 alive beyond it is present date of expiry-15th August, 1996, till the dispute is settled between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch 1998. The 3rd Respondent obeys the order of the Court and extends the validity of the Letter of Credit from time to time. Thereafter, on 28th of May, 1997 the 3rd Respondent files an application for vacating the order. They contended that they were independent third parties and thus they could not be directed to extend the Letter of Credit. They contend that at the most the Court could direct Respondents 1 and 2 to apply to have the Letter of Credit kept alive and/or give adequate security. They point out that the order against them is prejudicially affecting them Inasmuch as at the time of issuing the Letter of Credit they have taken certain securities on the footing that the validity of the Letter of Credit was only till 15th August 1997. They point out that by having to keep the Letter of Credit open, they are suffering a loss inasmuch as the value of the security has gone down. They pray that the Court may permit them to deposit in Court the sum of Rs. 28,34 lacs and 63,600 shares of the 2nd Respondent, which were taken by them as security while issuing the Letter of Credit. On 14th January 1998 the Appellants secure an Award in the Arbitration proceedings instituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h September, 1999 on the captioned subject. In this connection we advise having accorded our in principle approval for the above remittance subject to your ascertaining, prior to effecting the remittance, that no appeal is pending against the above Court Order/Award. The Appellants then approach the 2nd Respondent for certification of Reserve Bank of India approval as is required under the Letter of Credit. The 2nd Respondent so certify on 11th October 1999. The 3rd Respondent now presses his application. Arguments are heard on this application on 6th October 1999. Judgment is reserved and only delivered on 16th March 2000. On 30th October 1999 the Appellants present to the 3rd Respondent a Bill of Exchange, Commercial Invoices and approval of RBI as certified by the 2nd Respondent. The 3rd Respondent conveys discrepancies in relation to the documents presented on 3rd November 1999. The Negotiating Bank does not agree that there are discrepancies. The 3rd Respondent reiterates that there are discrepancies. The 3rd Respondent thereafter returns all the documents to the Negotiating Bank on 8th February 2000. On 14th February 2000 the Negotiating Bank remits the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CPC should have been taken out. The Division Bench thus set aside the above mentioned two orders and remits the interim applications back to the Single Judge for adjudicating in accordance with the procedure laid under Order 21 Rule 46, CPC. Mr. Sundaram on behalf of the appellants has submitted that the Appellants, as beneficiary of the Letter of Credit, were entitled to receive the amounts under the Letter of Credit. He submitted that a Standby Letter of Credit is in the nature of a security. In support of this submission, he relies upon the following observations in the case of New Braunfels National Bank, Et Al., v. James T. Odiorne, Receiver of Southern International Insurance Company Ltd. 780 S.W. 2d 313 . A letter of credit is termed commercial when the underlying transaction involves the sale of goods and the credit becomes payable upon the presentation of documents showing that the seller has complied with the sales agreement; a credit is termed standby when it functions in a non sale setting and generally becomes payable upon certification of the obligor's noncompliance with the underlying agreement. See Republic Nat'l Bank, 578 S.W.2d at 113-14 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the presentation of the documents after 15th August 1997 was not valid and the 3rd Respondent could not be forced to pay. In the alternative, he submitted that even if this Court holds that the time had been validly extended and that the presentation was within the validity period of the Letter of Credit, the documents' presented were not in accordance with the Letter of Credit and were discrepant. He submitted that the Court could not have been, in these proceedings, decided whether there were discrepancies and could not have been called upon the 3rd Respondent to pay the amount. We have heard the parties. In our view, Mr. Sanghi is right that a Letter of Credit is an independent transaction. The issuing bank is not at all concerned with the contract and/or dispute between the opener and the beneficiary. Also to be noted that the 3rd Respondents were not parties to the Arbitration proceedings and there is no Award directing payment by the 3rd Respondent. In our view, Mr. Sanghi is also right that the Court should not have been passed an interim order, which affected the rights of an issuing banker. In the absence of fraud or some other act on the part of the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, serious disputes regarding the liability of third persons to pay up could not be decided. Once the dispute arose, as to whether or not the documents were discrepant, the Court should have directed the Appellants to have that dispute decided by a Competent Court in an appropriate proceeding. Provisions contained in Part II of the Arbitration and Conciliation Act, 1996 do not permit Courts to decide such disputes with third parties in such proceedings. To that extent, the Division Bench is right. Such a dispute could not have been decided in these proceedings. In our view, however, the Division Bench was wrong in remitting the matter back for following the procedure under Order 21 Rule 46, CPC. Order 21 Rule 46, CPC, deals with garnishee proceedings. These apply when monies of the judgment-debtor are in the hands of third parties. In cases of Letter of Credit the liability of the issuing bank is an entirely independent liability. It cannot be said that the monies payable by the issuing bank are monies belonging to the judgment-debtor. Thus, the claim, if any, can only be decided in independent proceedings which should have been adopted by the Appellants. In this view, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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