M/S. Global Steel Philippines ... vs Stc Of India Ltd. & Ors.
2009 Latest Caselaw 1928 Del

*         HIGH COURT OF DELHI : NEW DELHI

     I.A. No. 4615/2009 & IA No.5316/2009 in CS(OS) 637/2009

     %                Judgment reserved on :       1st May, 2009

                      Judgment pronounced on : 08th May, 2009

M/S GLOBAL STEEL PHILIPPINES (SPV-AMC)            ..... Plaintiff
        Through : Mr. Abhishek Manu Singhvi,
                  & Mr. A.S. Chandhiok, Sr. Advs. with
                  Mr. Gautam Mitra, Ms. Reha Mitra and
                  Mr. Sachin Midha, Advs.

          Vs.

STC OF INDIA LTD & ORS                             ..... Defendants
         Through : Mr. Dushyant Dave, Sr. Advocate with
                   Mr. Arvind Nayyar with Mr. Vinay P. Tripathi,
                   Adv. for def. no. 1
                   Mr. Pradeep Dewan with Mr. Rajiv Samaiyar,
                   Adv. for def. no. 2
                   Mr. Rajiv Nayyar, Sr. Adv. with Mr. Mahesh
                   Aggarwal, Mr. Rishi Agrawala, Mr. Akshay
                   Ringe, and Mr. Nikhil Rohtagi, Advs. for def. no. 3
                   Mr. Aman Gupta with Mr. Mayank Mishra and
                   Mr. Chetan Chopra, Advs. for def. no. 4

Coram:


HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                                  Yes

2. To be referred to Reporter or not?                               Yes

3. Whether the judgment should be reported
   in the Digest?                                                  Yes

MANMOHAN SINGH, J.

1. By this order, I shall dispose of two applications, one filed by

the plaintiff under Order 39 Rules 1 & 2 being I.A.No. 4615/09 and

another being I.A.No.5316/09 under Order 39 Rule 4 read with Section

151, Code of Civil Procedure, 1908 filed by Defendant No.3.

CASE OF THE PLAINTIFF

2. Plaintiff M/s. Global Steel, Philippines, under a contract

dated 4th April, 2005 has made an arrangement with Defendant 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

between Defendant No.3 as Seller, Defendant No.1 as Purchaser and the

Plaintiff as Receiver of the goods at lligan, Philippines. The said goods

were to be purchased by the Defendant No.1 on behalf of the Plaintiff.

5. Pursuant to the terms of the contract dated 29th January,

2009, certain variations and additions were made in the same by means

of addendums made subsequently on 20 th February, 2009 and 25th

February, 2009. It was mutually agreed by the parties that a Letter of

Credit would be opened and received at the counter of Defendant No.3

bank by 27th February, 2009. In view of the above, the Defendant No.1

made the necessary arrangement and accordingly a Letter of Credit

bearing No. 1588FLC09083 dated 27 th February, 2009 having the expiry

date of 6th May, 2009 for a sum of USD 1502000 was opened by

Defendant No.2 Canara Bank, Connaught Circus, New Delhi and the

same was intimated to Defendant No.3 who duly received it.

6. The said letter of credit was opened in accordance with the

principle laid down in Uniform Commercial Practice (USP 600). It was

provided in the agreement that if the forced majeure lasts for more than

two months the parties will have a right to refuse further fulfillment of

its obligations and neither party will have the right to claim

compensation for eventual losses. Under the Letter of Credit, the

relations between Defendant No.3 and Defendant No.4 i.e. Credit

Suisse, Switzerland are governed by the Swiss Law and subject to the

jurisdiction of Switzerland.

7. On 24th March, 2009 the service provider of Port informed

the plaintiff by means of a letter that no loading and unloading of cargo

by the plaintiff or any other party would take place at lligan port

commencing from 8th April, 2009 and the said interruption of activity at

the Port would continue till the dispute between the 4K Development

Corporation and other Stevedor had been finally resolved.

8. According to the Plaintiff, this contingency akin to strike is

wholly outside the control of the Plaintiff and also Defendant No.1. The

Plaintiff also obtained a certificate dated 25 th March, 2009 from the

Chamber of Commerce and Industries of lligan, Philippines reiterating

that no loading and unloading of cargo would be undertaken effective

from 8th April, 2009 till such time the issues are finally resolved. The

Plaintiff duly informed Defendant No.1 of the prevailing force 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 that the Defendant No.3 with

the malafide intention having full knowledge of the force majeure

situation shipped the goods on 28 th March, 2009.

12. The shipment was contrary to and in wilful breach of the

terms and conditions of the contract dated 29 th January, 2009 and is a

manifestation of fraudulent intent of defendant No.3. Thereafter the

plaintiff served a legal notice dated 2 nd April, 2009 on Defendant No.3

in this regard.

EX-PARTY ORDER

13. The plaintiff thereafter filed the present suit on 6 th April,

2009 along with the interim application being I.A.No.4615/09 and upon

hearing this court while taking a prima facie view of the matter had

passed an exparte ad interim order restraining Defendant No.3 from

presenting the documents to Defendant No.4 for encashment of Letter of

Credit bearing No.1588 FLC09083 dated 27 th February, 2009 or if

already presented from negotiating the said documents and/or taking any

steps in furtherance thereof. The Defendant No.4 was also restrained

from accepting any documents for encashment of Letter of Credit or if

already accepted from negotiating such documents and/or taking any

steps in furtherance thereof.

14. Upon service, the Defendant No.3 has filed the application

under Order 39 Rule 4 CPC being I.A.No.5316/09 for vacation of the ex

parte ad interim order as well as reply to the interim application. The

defendant No.4 has also filed the reply to the application under Order

39Rules 1 & 2 CPC. The Plaintiff as well as Defendant No.1 have filed

reply to the application filed by Defendant No.3 under Order 39Rule 4

read with Section 151CPC.

15. Defendant No.3 contends that this court does not have the

jurisdiction to entertain and adjudicate upon the present dispute.

According to it, the subject matter of the injunction sought is a letter of

credit/contract which is subject to Swiss law which was opened by

Defendant No.1 in favour of Defendant No.3. The plaintiff is not a

party to the Letter of Credit. Hence, no suit is maintainable by the

plaintiff seeking injunction on realization of Letter of Credit. The suit is

filed by a stranger and defendant No.1 as a buyer is wholly responsible

for complying with the financial terms of the sales contract and in

particular for arranging the issuance of an irrevocable letter of credit for

payment of the goods.

16. It is submitted that the role of the plaintiff 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 proceedings against the plaintiff and defendant No.1 in the

correct forum of jurisdiction, namely, by arbitration at London in

accordance with the LMAA Rules on 9th April, 2009. It is further

alleged by defendant No.3 that the plaintiff in Para 9 of the plaint has

stated that Letter of Credit itself does not incorporates the force majeure

clause. The said statement is factually incorrect and amounts to

misrepresentation to this court as the letter of credit does not contain

such force majeure clause. It is further contended that in Para 10 of the

plaint, the plaintiff has made a statement of having received the notice

dated 2nd April, 2009 from the defendant No.1 regarding intimation that

a force majeure situation had arisen. In fact the said notice was not

received by defendant No.3.

20. The Defendant No.3 has also submitted that the alleged force

majeure is a device raised by defendant No.1 only to escape its payment

obligation under the contract dated 29th January, 2009. The said force

majeure clause is not included in the letter of credit which is an

independent contract. The said 4K Development Corporation was the

plaintiff‟s own stevedoring contract for the port of lligan and the said

defendant No.3 has also denied the situation of force majeure as claimed

by the plaintiff.

CASE OF DEFENDANT NO.4

21. In addition to the contention of Defendant No.3, the

Defendant No.4 has alleged that the Defendant No.4 being the

nominated negotiating and confirming bank under the Letter of Credit

has no concern in any manner with the dispute regarding the underlying

contract dated 29th January, 2009 between the buyer (Defendant No.1)

and the Seller (Defendant No.3)(underlying contract). It is further

contended by Defendant No.4 that Letter of Credit is governed by

Uniform Customs and Practice for Documentary Credit 2007 Revision,

ICC Publication No.600 (hereinafter referred to as „USP 600‟).

22. It is submitted that the Plaintiff is not a party to the Letter of

Credit and has no locus to seek an injunction against the operation of the

Letter of Credit on the grounds of alleged breach of the underlying

contract. The defendant No.4 further submits that as per the provisions

of UCP 600 particularly Article 4(a) and 5, the defendant No.4 under

the said provisions are obliged by the terms of Letter of Credit itself to

perform its obligations without any reference 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 in contravention of

the prevailing UCP 600 and the terms of the letter of credit. The

plaintiff has suppressed the said message from the court. Lastly, the

defendant No.4 states that the letter of credit is an irrevocable letter of

credit and is governed by the terms and conditions of UCP 600.

25. The Defendant no. 4 submits that there is no force majeure

clause in the letter of credit. Once the documents are presented, the

defendant No.4 is under an obligation to negotiate the same without any

recourse to the issuing bank under clause 46(b) of the letter of credit to

forthwith pay 100% of invoice value. Therefore, the negotiating and

confirming bank defendant No.4 is required to send reimbursement from

"reimbursing bank" mentioned in clause 53(a), namely Bank of

America, defendant No.5 after 180 days of the agreement forming part

of the documents presented.

CASE OF DEFENDANT NO.1

26. The defendant No.1 has filed a short reply to the application

under Order 39 Rule 4 filed by Defendant No.3. The stand of the

defendant No.1 is that the defendant No.1 placed purchase order and

letter of credit pursuant to plaintiff‟s instructions. Subsequently the

defendant No.1 was to be reimbursed by the Plaintiff. The defendant

No.1 played a crucial role as facilitator for the opening of letter of credit

at the instance of the plaintiff. The defendant No.1 also contents that

defendant No.1 is solely responsible for opening of letter of credit.

According to defendant No.1, the buyer is wholly responsible for

performing the financial terms of the sales contract and the role of the

defendant No.1 was limited to making the financial arrangement.

27. The defendant No.1 has denied the allegation made by

defendant No.3 that defendant No.1 is using the force majeure to avoid

making payment as deliberate, malicious and false. The learned counsel

for defendant No.2, Mr.Pradeep Dewan states that defendant No.2

would abide by the order passed by this court.

28. The defendant No.2 had admittedly written letter dated 31 st

March, 2004 to defendant No.4 for invoking the clause of force majeure

which according to the defendant No.4 is contrary to the terms of the

letter of credit and the defendant No.2 has confirmed having received

the reply from defendant No.4 stating that the provisions of UCP 600

refers to the underlying contract.

29. Learned Senior counsel for the 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 and invoices to the buyer and receiver of the goods.

Documents to be sent outside L/C:

1. Original Mill Test Certificate(s) showing nitrogen content and other usual parameters to be sent within 30 days after shipment date; electronic format copy(ies) to be sent by email within 5 days after shipment date, and conforming 100% to the slabs which have been actually shipped & invoices as per Bill of Lading/Packing List/Invoice;

2. Certificate of non-radiation certifying that the cargo delivered is free of any radioactive contamination;

3. Non-negotiable copies of B/Ls, packing list, invoice are sent within 5 days after B/L date by fax.

L/C other conditions:

L/C to be opened and received at the counters of Seller‟s bank by seven (07) bank working days from the date of signing of the contract by all the parties, valid for shipment until April 15, 2009 and expiry on May 6, 2009, place of expiry - beneficiary‟s bank‟s country;

B/L with clause "atmospheric rust, stored at open area, wet before shipment, weight of pieces/quality unknown" and similar acceptable allowed.

Third Party documents acceptable except for the invoice and packing list;

T/T reimbursement allowed;

Documents to be presented within 21 days after B/L date, but within the validity of the LC;

10% more or less in both amount of credit and quantity of goods are acceptable All documents on English language or Russian with English translation, stamps in other languages than English are acceptable;

Spelling or typing errors not affecting figures are not considered as discrepancies;

All banking charges at the Seller‟s bank for Seller‟s account, in the Buyer‟s bank for Buyer‟s account; The beneficiary has right to confirm the L/C and in this case the confirmation charges to be for beneficiary‟s account, if any. Confirmation instructions: MAY ADD; Usance interest included confirmation charges are for the L/C applicants account. These amounts are payable over and above the L/C value. Negotiating bank should provide details of interest amount in their forwarding schedule. Negotiating bank is authorized to pay beneficiary at sight basis despite of usance L/C. The terms and conditions of L/C should correspond to the terms and conditions of the Contract; conditions, which were not included in the contract, can not be included into L/C;

L/C to be subject to Uniform Customs 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 equipment comply with official regulations of discharging port;

Seller has right to charter gearless vessel and in this case charges for shore cranes to be for Seller‟s account; Seller is to arrange separate loading/stowage of the material of different specifications into different holds and or different places of the holds;

Buyer is to provide for one good safe berth AAAA Discharging rate: CQD Time lost waiting for berth/discharging to count as detention/demurrage charges in case receivers did not submit all import cargo documents for custom clearance and one free safe berth at vessel‟s arrival at the port of discharge and continuous supply of trucks during discharge. In that case the Buyer to be responsible for detention/demurrage charges as per C/P.

Detention/demurrage charges are to be declared to the Buyer upon performing vessels nomination and fixture. Detention/Demurrage to be paid within 20 banking days after presentation of fax copies of N.O.R., S.O.F. and Time Sheet;

Owner‟s agent in discharging port;

The master of vessel should give notice of vessel‟s readiness for discharge within working hours of the discharging port from 0830hours to 1700hours, Monday through Friday, excluding Local public and national holidays whether in berth or not, whether in port or not,

whether custom cleared or not, whether in free pratique or not. Notice to be given by vhf/telex/radio to buyer; The owner/master/agent of the vessel should give 7 days, 5 days, 3 days, 48/24/12 hour notices advising arrival of the vessel at discharging port during office hours from 0830hours to 1700hours, Monday through Friday, excluding Local public and national holidays. All/any taxes and/or duties, whatsoever nature on cargo in discharging port to be for Buyer‟s account, including stevedore, lighterage and wharfage.

Buyer to be responsible for all stevedor‟s damages caused to the vessel and for all consequences resulting from such damages including detention of the vessel until damages had been rectified up to the owners satisfaction. Any disputes related to such damage to be settled between Buyer and owner of the vessel directly. Other conditions as per relevant "GENCON-94"/"NYPE- 93" charter party between Seller and the owners. Transshipment not allowed, partial shipment not allowed, part cargo allowed. Seller has to indicate the quantity planned to be loaded on the vessel. 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 obliged to advise immediately the other Party regarding commencement and cessation of the circumstances preventing fulfilment of its obligations. Certificates issued by the Chamber of Commerce of the country where such circumstances occurred shall be sufficient proof of the existence of such contingencies and their duration.

The Force Majeure (Exemption) clause of the International Chamber of Commerce (ICC Publication No. 421) is hereby incorporated in this contract.

22. Arbitration:

22.1 The present Contract shall be governed by and construed in all respects in accordance with English law. 22.2 Subject as may be provided elsewhere in this agreement, all disputes, differences or questions arising in relation to this agreement shall be referred in the first instance to the sales director and/or CEO of the Seller and the, Head-Bulk Raw Materials Procurement and/or MD of GSPI, Philippines, who shall meet together and attempt to settle the dispute between themselves (acting in good faith) within one calendar month. 22.3 If the sales director and/or CEO of the Seller and the Head- Bulk Raw Materials procurement and/or MD of GSPI, Philippines fail to resolve the dispute, it shall be referred to arbitration in London in accordance with the Arbitration Act of 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. 22.4 The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commences through three arbitrators appointed in accordance with the said Rules.

22.10...........

24. STC‟s mandatory clause, as below

Its expressly understood and agreed by and between the seller and the buyer that the buyer is entering into this agreement solely on its own behalf and not on behalf of any other person or entity. In particular, it is expressly understood and agreed that the Govt. of India is not a party to this agreement and has no liabilities, obligations or rights hereunder. It is expressly understood and agreed that the buyer is an independent legal entity with power and authority to enter into contracts slowly in its own behalf under the applicable laws of India and general principles of contract laws. The seller expressly agrees, acknowledges and understands that the buyer 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 plaintiff is entitled

for interim injunction prayed for.

Legal Position on the Grant of Injunction Against Letter of Credit

31. Before dealing with the rival submissions of the parties, I

feel appropriate to discuss the settled proposition of law with the respect

to judicial interference against the invocation of the letter of credit. The

scope of judicial interference is very limited and the same has been

emphasized by the Apex Court in catena of cases.

32. One of the celebrated cases was the Judgment of Calcutta

High Court titled as United Commercial Bank v. Hanuman

Synthetics Ltd. & Ors. AIR 1985 Cal 96 wherein the principles of

autonomous nature of Letter of credit independent from the underlying

contract has been laid down in para 44 and 45:

"44. The law is well-established that the bank which has opened a letter of credit is not concerned with the relationship between the seller and the customer; nor with the question whether the seller had performed its contracted

obligation or not. The bank is also not concerned with the question whether the seller is in default in any way or not. The machinery and the commitment of the bank are on a different level. It has been emphasized by the English Courts and also by the Supreme Court that the bank must be allowed to honour its commitments under a letter of credit free from interference by the Courts; otherwise, trust in international commerce will be irreparably damaged. The dispute as to the sufficiency of the performance between the buyer and the seller or between the seller and the buyer cannot be the reason for withholding the payment under a letter of credit. The bank is only required to see whether the event has happened on which its obligation to pay has arisen.

45. In this case, the Central Bank was required to pay in terms of the letter of credit against certain documents. The documents have been duly tendered and accepted by the Central Bank and the event has happened on which the Central Bank is now obliged to pay in terms of the letter of credit. Whether the goods that have been delivered are of merchantable quality or not or whether the goods are up to the contract or not or whether they are of the specified quality or quantity cannot be gone into by the bank. Similarly, the question whether the goods correspond with the description is also a question that must be resolved by the buyer and 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 credit and it is a strict rule. In order to come within the exception, the buyer must not only allege but clearly establish that the documents that

were presented by the beneficiary were forged or fraudulent."

33. The Apex Court had an occasion to deal with the similar

proposition in the case of UP Cooperative Federation Ltd. v. Singh

Consultants and Engineers (P) Ltd. (1988) 1 SCC 174, wherein the

court re-emphasized the principle that the letter of credit must not be

interfered with by the courts as the restraint on encashment of the same

has major implications upon the international commerce as well as it

hinders the autonomous nature of the transaction. The court has held

that the Bank is required to just look into the correctness and

appropriateness of the documents and if the same are found to be in

order, the other consideration of the main underlying contract does not

affect the encashment of the letter of the credit. The relevant paras of the

Judgment are noteworthy:

"44. The modern documentary credit had its origin from letters of credit. We may, therefore, begin the discussion with the traditional letter of credit. Paul R. Verkuil in an article [Bank Solvency and Guaranty Letters of Credit, Standford Law Review V. 25 (1972-73 at p. 719)] explains the salient features of a letter of credit in these terms:

The letter of credit is a contract. The issuing party- usually a bank-promises to pay the 'beneficiary'-traditionally a seller of goods-on demand if the beneficiary presents whatever documents may be required by the letter. They are normally the only two parties involved in the contract. The bank which issues a letter of credit acts as a principal, not as agent for its customer, and engages its own credit. The letter of credit thus 'evidences-irrevocable obligation to honour the draft presented by the beneficiary upon compliance with the terms of the credit.

45. The letter of credit has been developed over hundreds of years of international trade. It was most commonly used in conjunction with the sale of goods between geographically

distant parties. It was intended to facilitate the transfer of goods between distant and unfamiliar buyer and seller. It was found difficult for the seller to rely upon the credit of an unknown customer. It was also found difficult for a buyer to pay for goods prior to their delivery. The bank'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 ahead with the discussion on

exceptions which empowers the court to interfere on the encashment of

letter of credit.

Exceptions : Case of Fraud and Special Equities

35. The first exception which has been carved out by the courts

are the case of fraud of egregious nature meaning thereby that the said

fraud must be the fraud of gross nature which shakes the conscience of

the court and the said fraud must be known to the parties including party

representing as well as to the bank. Under the said circumstances, if the

said fraud is established, the court can interfere with the bank guarantee.

The legal proposition on the fraud has been laid down in the same case

of UP Cooperative Federation Ltd (Supra) which has been elaborated by

his Lordship Jagannath Shetty (as his Lordship then was) by stating the

following:

"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 bank's 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 bank's 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 discharged."

36. Under those circumstances, it was also held that the plea of

fraud must be in the nature of an egregious nature as to vitiate the entire

underlying transaction of the bank guarantee. It is fraud of the

beneficiary and not the fraud of somebody else that would make the

Court to grant the Order of injunction as asked for. If the bank detects

with the minimal investigation, the fraudulent action of the seller, the

payment could be refused.

37. The said legal proposition has been reiterated by the Supreme

Court in the case of State Trading Corporation v. Jainsons Clothing

Corporation, (1994) 6 SCC 597, the relevant paragraphs of the

judgment are worth mentioning:

"8. The grant of injunction is a discretionary power in equity jurisdiction. The contract of guarantee is a trilateral contract which the bank has undertaken to unconditionally and unequivocally abide by the terms of the contract. It is an act of trust with full faith 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 favour of the plaintiff. He must necessarily plead and produce all the necessary evidence in proof of the fraud in execution of the contract of the guarantee, but not the contract either of the original contract or any of the subsequent events that may happen as a ground for fraud."

38. The Apex Court in the above decision of State Trading

Corporation (Supra) has extended the exception from fraud to Special

Equties. The law again was brought forward by yet another decision of

Svenska Handelsbanken v. wherein an important point was discussed

about the inter relation of fraud and irretrievable injury in the following

words:

"We have already held that the contracts between the lenders and the borrower are not vitiated by any fraud much less established fraud and there is no question of irretrievable injury, therefore, there was no reason for the High Court to set aside the order of the trial court.

Against there is no case of any irretrievable injury either of the type as held in the case of Itek Corporation (supra) as there is no difficulty in the judgment of this country being executable in the courts in Sweden.

The High Court was not right in working on mere suspicion of fraud or merely going by the allegations in the plaint without prima facie case of fraud being spelt out from the material on record.

The High Court was also in error in considering the question of balance of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corporation (supra). Here there is no such problem. Once the plaintiff is able to establish fraud against the suppliers or suppliers-cum-lenders and obtains any decree for damages or dimunition in price, there is no problem for affecting recoveries in a friendly country where the bankers and the suppliers are located. Nothing has been pointed out to show that the decree passed by the Indian courts could not be executable in Sweden.

The High Court totally ignored the irretrievable injury which will be caused to defendant No. 12 in not honouring the bank guarantee in international market which may cause grievous and irretrievable damage to the interest of the country as opposed to the loss of money 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. 148 (2008) DLT 68

40. From the above analysis of the authorities, one can say with

certainty that there are two exceptions to the general rule that the court

should not interfere with the encashment of the bank guarantee, first

being fraud which must be of egregious nature or grossest of the

proportion as distinguished from the ordinary fraud and second; being

special equities / irretrievable injury. Both the exception are

interdependent on each other meaning thereby that absence of fraud will

not lead to irretrievable injury as held Svenska (Supra). Further, Fraud

must not be merely pleaded but has to be established which is further

subject to two qualifications that is clear evidence of the factum of the

fraud and bank‟s knowledge about the fraud .

41. Coming back to the present case, we have to examine as to

whether the circumstances in the present case are falling within the

parameters of the aforementioned tests laid down by the Apex Court and

warrants any judicial interference.

CONTENTIONS OF THE PARTIES

42. The thrust of the contention of the learned Senior counsel for

the plaintiff is that the terms and conditions of the Letter of Credit

should correspond to the terms of the contract meaning thereby that the

terms of the main contract should be read into the letter of credit. By

this, Learned counsel has made his submission clear that the force

majure clause in the main agreement which has vitiated the main

contract should also be read into the letter of credit and therefore the

said letter of credit should not be invoked.

43. The another limb of his submission is that if the strike or

conditions of force majure will continue for more than 2 months, then

the parties are free from performing their part of obligations. Therefore,

the seller who is Defendant no. 3 has to await the outcome for at least 2

months stipulated in clause 21 of the contract before encashing the letter

of credit. During the course of the arguments, the affidavit has been

filed on 1st May, 2009 wherein email message dated 25.2.2009 has been

annexed which has been written by the Defendant no. 3 to the plaintiff

inter alia, in relation to the deferred payment of L/c for 180 days. In

view of the said subsequent communication, according to the Learned

Counsel for the plaintiff, the said stipulation of 180 days period is kind

of self imposed injunction upon the 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 bill of lading to the confirming bank for release of payment. Thus,

the prior knowledge to the defendant no. 3 of the frustration of the

contract and proceeding further with the transaction thereafter amounts

to fraudulent conduct according to the plaintiff. He further adds that as

per the terms of the contract and also of letter of credit, the payment is

not to be made at the spot but on deferred payment system at 180 days

from the date of the issuance of the bill of lading.

47. The learned counsel for the plaintiff has referred to the

several judgments including the judgment passed by the Court of

Appeal in the case of Bolivinter Oil SA Vs. Chase Manhattan Bank

and others as well as the decisions reported in the case of Dai-ichi

Karkaria Private Ltd vs. Oil and Natural Gas Commission, Bombay

and another, AIR 1992 Bombay 309 and Dwarka Das & Co.

vs.Dhaluram Goganmull, AIR 1951 Calcutta 10 (Full Bench). The

said decisions are not applicable in the facts of the present case as the

plaintiff in the present case has failed to make out a case of fraud of

egregious nature which is an essential condition for obtaining an

injunction against the payment of letter of credit.

48. Per contra the contention of the Defendant no. 4 who is

confirming bank is that there is no knowledge/ notice to it in order to

attract the exception carved for interference with the letter of credit.

According to the Defendant no. 4, in its limited capacity as a confirming

bank, it cannot engage in determining the correctness of the allegations

and counter allegations made by the parties to the contract to which

bank is not even privity. The Defendant no. 4 mainly relied upon the

ratio of the cases mentioned above to state that the bank is to merely see

the documents and nothing else and encash the letter of credit. He

further argued that there is no allegation of fraud against Defendant no.

4 in the entire plaint which is condition to establish fraud. Further

contention is that the judgment cited by the plaintiff are of no avail as

the plaintiff has miserably failed to make out any case of fraud of

egregious nature which is essential condition for grant of injunction

against the encashment of letter of credit. Similarly, the plaintiff‟s case

is not covered by the other condition of special equities which has to be

satisfied before the court interferes with the invocation of letter 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 confirming bank.

2nd April 2009- The Defendant no. 4 Credit Suisse Bank received a fax from the plaintiff‟s advocate informing the invocation of the force majure clause. On the same date, the defendant no. 4 gave the reply informing the no responsibility of bank as the letter of credit is an irrevocable one and is guided UCP 600 norms and as a result is an independent instrument from the contract. 6th April 2009 is the date of institution of the suit.

50. It appears from the above chain of events that admittedly on

the date of dispatch of the goods i.e. 28.3.2009, the confirming bank

which is Defendant no. 4 was not put into the knowledge about the

invocation of force majure clause. Further, the confirming bank has also

denied the existence of the force majure situation which is first time

informed to the bank on 2nd April, 2009. The plaintiff has not alleged in

the entire plaint about the factum of the knowledge of fraud to the

confirming bank.

51. The plaint is further silent about the alleged fraud of

egregious nature in respect of the letter of credit. Under these

circumstances, it is difficult to say that there is any fraud committed by

the Defendant 3 and 4 as the Defendant no. 4 was not having the

knowledge on the date of presentation of the bill of lading that the

request for the payment which is likely to be made is fraudulent or not.

52. The existence of fraud and Bank‟s knowledge are two

qualifications which empowers this court to interfere against the

encashment of the letter of credit.. No doubt on the date of dispatch of

the goods, the seller/ defendant no. 3 was aware about the invocation of

the force majure clause by the plaintiff and defendant No.1 but the

knowledge of the fraud if any conducted must not be to be seller

exclusively but it must be in the knowledge of the bank which is the

essence of the fraud as it is from the perspective of the bank that the

fraud is analysed as to whether the bank was aware that the demand

which is made or likely to be made is fraudulent or not.

53. Therefore, prima facie there is substance in the contention of

the Defendant no. 4/ confirming bank that it had no knowledge about

the alleged fraud/ invocation of the force majure clause and thereby it

does not warrant any interim order. Hence, in the present case, the

existence of allegations of the fraud in the entire plaint as well as the

bank‟s knowledge 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 concerned about terms of the underlying

contract which are not forming part of letter of credit. The said Bank is

also relieved from any responsibility about the disputes arising out of

the main contract between the seller and the buyer. Essentially, the said

rule is the rule of privity of contract enshrined in the Contract Act

wherein the party who is not privity of the contract does not accept any

responsibility in the contract between the third parties. It is also correct

to state that the plaintiff or his representative Defendant no. 1 had never

asked for the incorporation of the terms of the underlying contract into

the letter of credit at the time of entering into the letter of credit.

57. The Courts have given primacy to the UCP norms over the

underlying agreement as the letter of the credit is governed by UCP

norms. In the case of United Commercial Bank v. Bank of India and

Ors. AIR 1981 SC 1426, the court also emphasized about the presence

or absence of the provisions in the letter of credit which governs the

bank‟s responsibility by stating as under :

" The rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credits of a bank"

58. The Supreme Court again came up with the similar question

in Federal Bank Ltd v. V.M. Jog Engineering Ltd and Others,

(2001) 1 SCC 663, wherein the court again said that the contract of the

Bank guarantee or the Letter of Credit is independent of the main

contract between the seller and the buyer. This is also clear from Art. 3

of the UCP (1983 Revision).

59. In view of the above discussion, I find that the clauses of the

underlying agreement dated 29.1.09 cannot be read into the letter of

credit. In the present case, when the letter of credit and its terms are seen

in totality, the bank‟s duty was to only go into the correctness and

appropriateness of the documents and compliances of the conditions

mentioned therein and it is not in anyway concerned with the terms of

the underlying contract. Thus, the condition of force majure which is

main condition in the underlying contract 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 Counsel for the

Defendant no. 3 and 4 states that cursory perusal of the said clause

indicates that the said port is private port of the plaintiff. It is also

contended by the Defendant no. 3 and 4 that the events of force majure,

which has happened subsequent to entering into the contract and the

letter of credit cannot be interfered on the basis of the happenings of

events subsequent to the contract. In support of the same, the learned

Counsel relied upon the dicta of STC v. Jainsons (Supra), which clearly

states that " The subsequent disputes in the performance of the contract

does not give rise to a cause nor is the court on that basis, issue an

injunction from enforcing the contract i.e. bank gurantee"

62. I find merit in the submissions of the Defendant no. 4 and

hold that the events subsequent to the contract be it force majure

conditions which may frustrate the contract can come in the way of

encashment of the letter of credit which is the separate contract.

63. At prima facie stage, it cannot be said with the certainty as to

whether the said port of Illigan is the private port of the plaintiff or not,

given the fact that the plaintiff and the Defendant are disputing the said

fact which has to be examined in trial. Suffice it to say that whenever

the contract is vitiated/ frustated by the happening of any subsequent

event which is beyond the control of the contracting party, the

beneficiary is entitled to reimburse the same. The said principle is stated

under section 65 of the Indian Contract Act and the plaintiff in any case

is entitled to seek restitution and damages. Thus, this clause of force

majure which is subject matter of the underlying cannot defeat the

encashment of the letter of credit.

Deferred Payment Mechanism : whether self imposed injunction

64. The next submission made by the Learned Counsel for the

plaintiff is that there is a contractual self imposed injunction upon the

Defendant no. 3 and 4 not to encash the letter of credit before the expiry

of 180 days due to the reason that the underlying contract states that the

letter of credit was payable 100% at sight upon presentation of bill of

lading and documents as per clause 16. The said clause has been

replaced by addendum 2 whereby the letter of credit is now available by

defer payment of 180 days. In support of his submission, the email

communication dated 25.2.2009 from 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 REIMBURSEMENT AS SHOWN IN FLD 53 ABOVE IN USD AFTER 4 WORKING DAYS OF YOUR SWIFT ADVICE TO US INFORMING AMT, DATE OF NEGOTIATION AND COURIER REPORT NO AND DATE EXCEPT AS OTHERWISE STATED THIS CREDIT IS SUBJECT TO UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (2007) REV - ICC PUB NO. 500 AND SUBJECT TO UNIFORM RULES FOR BANK REIMB UNDER DOC CREDITS - ICC PUB NO

525.

46B/DOCUMENTS REQUIRED

100 PCT OF THE SELLER‟S INVOICE VALUE SHALL BE PAID TO BENEFICIARY BY THE NEGOTIATING BANK UPON RECEIPT OF DOCUMENTS COMPLYING LC TERMS AND CONDITIONS THE NEGOTIATING BANK TO CLAIM REIMBURSEMENT AFTER 180 DAYS FROM THE DATE OF BIL OF LADING.

1. FULL SET OF ORIGINAL 3/3 SHIPPED ON BOARD BILL (S) OF LADING DULY STAMPED, SIGNED AND MARKET FREIGHT PREPAID, MADE OUT TO THE ORDERAND BLANK ENDORSED AND NOTIFY (1) GLOBAL STEEL PHILIPPINES (SPV-AMC) INC.

PHILIPPINES AND (2) STATE TRADING CORPORATION OF INDIA LIMITED, NEW DELHI CHARTER PARTY B/L (S) ARE ACCEPTABLE B/L WITH CLAUSE ATMOSPHERIC RUST STORED AT OPEN AREA, WET BEFORE SHIPMET WEIGHT OF PIECES /QUALITY UNKNOWN AND SIMILAR ACCEPTABLE ON DECK B/L (8) NOT ALLOWED."

66. The Learned counsel for the Defendant no. 4 thus states that

the said term of L/C of defer payment of 180 days is a matter of

extended credit between Credit Suisse which is Defendant no. 4 and

Canara Bank which is Defendant no. 2 ( between the issuing bank and

confirming bank) and not for the confirming bank to defer the

encashment of the letter of credit. In substance, he states that the time

period of 180 days prescribed in the L/C is for the

negotiating/confirming bank/ Defendant no. 4 to seek reimbursement of

the amount paid to the beneficiary which is Defendant no. 3 from the

Defendant no. 2 and does not affect the encashment of the L/C.

67. I agree with the learned counsel for the Defendant no. 4 in

this regard. Further, it is a matter of fact that the Defendant no. 4 is not

the party to the underlying contract and incase of subsequent agreement

by way of addendum 2 and by way of email 25.2.2009 whereby the three

parties in the agreement may agree to extend the time of presentation of

the letter of credit and document to 180 days, the said insertion of the

clause by way of addendum does not in any way bind the confirming

bank/ Defendant no. 4 and does not restrict the defendant no. 4 from

making the payment. The reason for the same would 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 said letter dated 2 nd April, 2009 it is clear

that the said notice was not addressed/sent to defendant No.3.

70. The Defendant argued that the plaintiff has also suppressed

the reply received from Defendant No.4 dated 2 nd April, 2009 wherein

the Defendant No.4 has specifically referred that the force majeure

clause is not applicable as the letter of credit is opened under the Rules

of UCP 600.

71. It is submitted that in Para No.14 of the plaint, it is also

stated by the plaintiff that defendant No.3 had acknowledged and

accepted the invocation of force majeure vide its e-mail dated 25th

March, 2009. In the reply, the defendant No.3 has denied accepting

the clause of force majeure. The objections raised by the defendant

No.3 are that the plaintiff has not come before the court with clean

hands and prayer for dismissal of suit on this account can be

considered on filing of written statement.

72. Pendency of Arbitral Proceedings:

The judicial notice of the fact is also taken into consideration

as mentioned by Defendant no. 3 in its reply that the arbitration

proceeding between the Plaintiff, Defendant no. 1 and Defendant no. 3

are already initiated on 9th April, 2009 in London in accordance with

London Maritime Arbitrators Assocition (LMAA) Rules by invoking

clause 22.4 of the contract. Thus, the inter se disputes between three

parties viz plaintiff, Defendant no.1 and 3 can be settled between

themselves in the artibitration proceedings and the interference with the

letter of credit is uncalled for as the same is independent from the

underlying contract as held by me and in view of the facts and

circumstances of the case.

Subsequent Developments

73. When the matter was listed for directions on 6th May,, 2009

to report the extension of letter of credit, the plaintiff has filed a copy of

the amendment to the letter of credit issued on 27 th February, 2009 for

extending the said period till 9 th June, 2009 along with the affidavit.

Defendant No.2 was also directed by this court to extend the letter of

credit from 6th May, 2009 till 9th June, 2009. The Defendant No.2 filed

a letter dated 5th May, 2009 in this regard. Defendants 3 and 4 have

made the submission that the defendant No.2 should assure this court

that reimbursement arrangement as originally made is currently

subsisting and shall continue to subsist till the validity of the amended

letter 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 reasons given in the preceding paragraphs of

this judgment, the balance of convenience does not lie in favour of the

plaintiff due to the reason that the letter of credit is an irrevocable letter

of credit issued in this matter in accordance with the rules framed under

the Uniform Custom and Practices for Documentary Credit 600 (UCP

600). The said rule clearly provide that the letter of credit will be

independent contract and would not be dependent on the underlying

contract i.e. contract dated 29th January, 2009. It is also a matter of fact

that defendant No.3 and 4 have denied the existence of force majeure

situation. The defendant No.3 has also invoked the arbitration clause

22.4 of the agreement before the appropriate forum as provided in the

agreement. Prima facie, the overall circumstances show that the

plaintiff wants to wriggle out of its responsibility to receive the

contracted goods which have already reached the port, therefore, in case

the interim order will continue in favour of the plaintiff, the defendants

3 and 4 will suffer irreparable loss and injury in monetary terms.

76. On the other hand, in case it is found ultimately that the

underlying contract is actually frustrated/ vitiated by fraud or any other

circumstances, the plaintiff would be entitled to claim the damages in

accordance with law. I am reiterating the legal proposition as discussed

by me earlier, that the fraud and special equities are interdependent of

each other and once I have arrived at the finding that there is no element

of fraud in the present case, then there is no special equities involved in

the matter. The Plaintiff has failed to make out a prima facie case for

injunction.

Conclusion

77. In view of the above, the ex parte ad interim order dated 6 th

April, 2009 is hereby vacated. The application of the Plaintiff under

Order 39 Rules 1 & 2 being I.A.No. 4615/09 is dismissed and I.A.

No.5316/09 under Order 39 Rule 4 CPC filed by the defendant No.3 is

allowed.

CS(OS) No.637/09

78. The written statement in this matter is yet to be filed by the

defendants. The same be filed in accordance with law. List the matter

before the Joint Registrar on 27th May, 2009 for further proceedings.

79. A copy of this order be given dasti to the parties under the

signatures of the Court Master.

MANMOHAN SINGH, J.

MAY 08, 2009 sa