M/S. Global Steel Philippines ... vs State Trading Corporation Of ...
2009 Latest Caselaw 1990 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI


+           FAO (OS) No. 186/2009 & CM No. 6769/2009


%                                      Date of decision : 12.05.2009


M/S. GLOBAL STEEL PHILIPPINES (SPV - AMC)
      ...   ...    ...    ...     ...     ...     ...    ...     ...APPELLANT
          Through : Dr. A.M. Singhvi & Mr. A.S. Chandhiok,
                    Sr. Advs. with Mr. Gaurav Mitra,
                    Mr. Sachin Midha, Ms. Reha Mitra &
                    Ms. Kirti Kumar, Advocates.

                             -VERSUS-

STATE TRADING CORPORATION OF INDIA LTD. & ORS.
     ...   ...    ...    ...     ...    ...    ...    RESPONDENT
         Through : Mr. Sandeep Sethi, Sr. Adv. with
                   Mr. Arvind Nayyar & Mr. Sindhu Sinha,
                   Advocates for Respondent No. 1.

                           Mr. Pradeep Dewan & Mr. Rajiv Samaiyar,
                           Advocates for Respondent No. 2.

                           Mr. Rajiv Nayar, Sr. Adv. with
                           Mr. Mahesh Agarwal, Mr. Rishi Agrawala,
                           Mr. Akshay Ringe & Mr. Nikhil Rohatgi,
                           Advocates for Respondent No. 3.

                           Mr. Amar Gupta, Mr. Mayank Mishra &
                           Mr. Chetan Chopra, Advocates for
                           Respondent No. 4.


CORAM :

HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE SUDERSHAN KUMAR MISRA

1.     Whether the Reporters of local papers
       may be allowed to see the judgment?            No

2.     To be referred to Reporter or not?             No

3.     Whether the judgment should be                 No
       reported in the Digest?



FAO (OS) No. 186 of 2009                               Page No. 1 of 15
 SANJAY KISHAN KAUL, J. (ORAL)

Caveat No. 31/2009

Learned counsel for the respondent / caveator has entered

appearance and the caveat is discharged.

FAO (OS) No. 186/2009 & CM No. 6769/2009

1. Learned counsel for the appellant has filed in Court

an affidavit of Mr. Abhishek Kumar, Authorised

Representative of the appellant, stating that he would

like to withdraw the last sentence of ground „n‟ of the

appeal at page 32 of the paper book, which had crept in

inadvertently and that he tendered unconditional

apology for the same. The request made in terms of the

affidavit is acceded to and the apology accepted. The

last sentence of ground „n‟ accordingly stands deleted.

2. The appellant entered into an Agreement dated

04.04.2005 with respondent No. 1 / State Trading

Corporation (STC) for purchase of various goods from

time to time giving authority to respondent No. 1 to

execute contracts and place purchase orders on behalf

of the appellant. In terms of this arrangement, the

payment is to be made by respondent No. 1, which is to

be reimbursed by the appellant. It is in pursuance to

this arrangement that a contract dated 29.01.2009 was

executed on 05.02.2009 by respondent No. 1 on behalf

of the appellant with respondent No. 3 for purchase of

40000 MT of "Prime Continuous Steel Slabs" for a

consideration of US $ 1,60,00,000, which price was

amended to US $ 1,50,52,000. The payment of the

goods was through an irrevocable Letter of Credit ( for

short, „LC‟ ) to be arranged by respondent No. 1. In

fact, a Tripartite Agreement was arrived at in terms

thereof. The LC was accordingly opened in accordance

with the principles laid down in Uniform Customs and

Practice for Documentary Credit 2007 Revision, ICC

Publication No. 600 ( for short, „UCP 600‟ ). The

appellant claims to have received a letter dated

24.03.2009 from the service provider of the port of

discharge that no loading or unloading of cargo would

take place at Iligan port commencing from 8th April,

2009, which was specified as a private port, in view of

the disputes between the service provider and its

stevedores. The appellant claims to have also got a

certificate issued by the Chamber of Commerce and

Industry, Foundation of Iligan certifying that effective

from 08.04.2009, 4K Development Corporation had

served a notice of not providing stevedoring services

until all the pending issues were resolved with finality.

Respondent No. 1 / STC, in turn, informed respondent

No. 3 on 25.03.2009 about this fact and invoked the

force majeure clause contained in clause No. 21 of the

contract signed between the parties on 05.02.2009 as

there was a strike-like situation beyond the control of

either the appellant or respondent No. 1. Respondent

No. 3 sent an e-mail asking for the official letter signed

and stamped by STC together with the certificate issued

by the Chamber of Commerce on the same date, i.e.,

25.03.2009.

3. The appellant pleads that in view of the aforesaid

documents, the force majeure clause contained in

clause No. 21 was correctly invoked. The said clause

reads as under :-

"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, blockades, 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 fulfillment of the obligations under the present contract shall be extended for the period during which such circumstances last. If such circumstances last for more than 2 months the Parties shall have the right to refuse further fulfillment of its obligations under the present contract and in that case neither Party shall have the right to claim compensation for eventual losses 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 fulfillment 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."

(Emphasis supplied)

4. The grievance of the appellant is that despite the

aforesaid force majeure clause being invoked,

respondent No. 3 shipped the goods on 28.03.2009 and

05.04.2009. These shipments were, thus, alleged to be

in breach of the terms and conditions of the contract

dated 29.01.2009 and a manifestation of fraudulent

intent of respondent No. 3. The appellant apprehending

that the LC would be presented to respondent No. 4

filed a civil suit on the original side of this Court for

perpetual and permanent injunction along with an

application for interim relief thereby seeking to restrain

respondent No. 3 from presenting the documents to

respondent No. 4 for encashment of the LC dated

27.02.2009 or, if already presented, from encashing the

document and / or taking any steps in furtherance

thereof. A restraint order was also sought against

respondent No. 4 from accepting any document for

encashment of the LC or, if already accepted, from

encashing such documents and / or taking any steps in

furtherance thereof. An ad interim ex-parte order was

passed in favour of the appellant on 06.04.2009.

Respondent No. 3 filed an application for vacation of

stay under Order XXXIX Rule 4 of the Code of Civil

Procedure, 1908 ( for short, „CPC‟ ).

5. Learned Single Judge heard both the interlocutory

applications and decided the same by the impugned

order dated 08.05.2009 whereby the injunction

application of the appellant was dismissed and the

interim orders vacated. This order is now challenged in

appeal.

6. Dr. A.M. Singhvi, learned senior counsel for the

appellant, crystallized his submissions thus :-

(i) The force majeure clause clearly provided for

strike or some other contingencies beyond the

control of the parties, if it directly affected the

execution of the contract. In such eventuality, the

time for fulfillment of obligations under the

contract stood extended for a period during which

such circumstances lasted, but in case such

circumstances lasted for more than two months,

the parties had the right to refuse further

fulfillment of the obligations under the contract. A

certificate issued by the Chamber of Commerce of

the country where such circumstances occurred

was to be treated as sufficient proof of the

existence of such contingencies and their

duration. Since the operation of the contract

dealing with the LC and other conditions

prescribed "The terms and conditions of LC should

correspond to the terms and conditions of the

contract : conditions, which are not included in the

contract, cannot be included into LC", it implied

that the force majeure clause stood incorporated

as a term of the LC. The force majeure clause

provided for conclusivity of the procedure, which

had been followed in the present case.

(ii) The fact that the procedure prescribed by the

force majeure clause has been followed was

apparent from the notice dated 24.03.2009,

certificate of Chamber of Commerce dated

25.03.2009 and the response of respondent No. 3

through e-mail dated 25.03.2009. Once this

should have kept the shipments in abeyance and

ought not to have shipped the goods on

28.03.2009 and thereafter on 05.04.2009.

(iii) The LC in question was not a case of a classic

unconditional bank guarantee or LC. The terms of

the contract were such that they envisaged the

incorporation of those terms and conditions in the

LC and, thus, both the contract and the LC had to

be read together for interpreting the obligations

under the LC.

(iv) LC is normally payable on presentation, but, in the

present case, the LC itself provided for payment

after 180 days from the date of bill of lading being

issued. The terms of the LC originally envisaged

no such period, but subsequently they were so

amended to incorporate the period of 180 days

credit for which even necessary price adjustment

was made.

(v) The shipment of goods in the circumstances

amounts to fraud.

7. Learned senior counsel for the appellant submits that

though the impugned judgment is an elaborate one,

learned Single Judge has fallen into various errors while

vacating the injunction.

8. We have heard learned counsel for the parties at length.

9. It is not in dispute that the LC is an independent

contractual document. The disputes between the

contracting parties are to be settled by arbitration in

London but the banks are not party to that contract.

Thus, what is sought to be restrained by filing the suit is

payments to be made under the LC.

10. Learned Single Judge while examining the legal position

has focused on the two aspects -- the terms and

conditions of the Agreement being read into the LC and

the plea of fraud. The legal position on grant of

injunction against LC has been succinctly discussed

from para 31 onwards by reference to various

authoritative pronouncements of different High Courts

and the Apex Court. The ratio, which clearly emerges,

is that the bank which opens an LC is not concerned

with the relationship between the seller and the

customer or of the performance of the contractual

obligations and the general principle that LC must not

be interfered with by courts as the same had a major

implication upon international commerce. So long as

the documents accompanying the LC are presented, the

LC must be honoured on its terms. The exception to

this, of course, is a fraud of gross nature and such fraud

should be by the beneficiaries. Learned Single Judge

has found that the plaint is silent about the alleged

fraud of egregious nature in respect of the LC and in the

absence of specific pleadings in this behalf, no case on

fraud is made out. The LC was found to be guided by

UCP 600 Rules. A finding was reached that the clauses

of the underlying Agreement dated 29.01.2009 cannot

be read into the LC.

11. It may be noticed that there is some factual dispute

even as to the invocation of the force majeure clause as

respondent No. 3 contended that the excuse of a strike

was only a rouse to get out of the obligations under the

LC. This was more so as the port in question was a

private port with the appellant having an interest in its

management. The aspect of the LC providing for a

deferred payment of 180 days has also been examined

in the impugned order and the learned Single Judge has

found force in the contention of respondent No. 4 that

the deferment of payment is a matter of extended

credit by respondent No. 4 vis-à-vis respondent No. 2

(confirming bank and issuing bank respectively), but not

for the confirming bank to defer encashment of the LC.

Respondent No. 4 was not party to the underlying

contract nor to any addendum about the extension of

time for presentation of the LC to 180 days. It has been

noticed that respondents No. 1 to 3 have already

initiated the arbitration proceedings.

12. Learned senior counsel for the appellant fairly concedes

that unless we agree to his principal submission of

reading the terms and conditions of the contract

between the parties into the LC, the case of the

appellant really cannot go far. In fact, the complete

case of the appellant is predicated on the fundamental

plea of the force majeure clause of the contract being

incorporated into the LC in view of what is set out in the

contract. The other pleas of the procedure being

followed for force majeure clause, etc. would only flow

from the same. This, in turn, is dependent on the

construction of the LC since the appellant pleads that

the present case is not one of unconditional LC. Thus,

all the first three submissions of learned senior counsel

for the appellant, as noticed at the inception itself, have

a common thread running through them.

13. We are afraid that we cannot accept the plea of learned

senior counsel for the appellant, which is the premise of

practically all the submissions. The LC is undisputedly a

separate contract. The contract dated 29.01.2009 only

prescribes the requirement of opening of an LC. Such

LC was to be issued after the draft was approved by the

seller (respondent No. 3 ). It is not in question that LC

has, in fact, been issued and there is no challenge to

issuance of the LC. We are of the view that the mere

stipulation that the LC should correspond to the terms

and conditions of the contract does not imply that the

terms and conditions of contract, in turn, stood

incorporated in the LC. The object of such a stipulation

is only that the LC should meet with the financial terms.

Not only that, it has clearly been stipulated that the LC

is subject to UCP 600 Rules. Thus, it can hardly be said

that the LC is not governed by the UCP 600 Rules.

14. There is no doubt that clause 21 does provide for force

majeure clause and the manner of its invocation and as

to how it would come into force. That is, however, a

dispute between the parties to the contract as to

whether the force majeure clause stood properly

invoked and whether respondent No. 3 should have still

proceeded to load the goods for shipment. Such

disputes have to be settled in terms of clause 22 of the

contract, which is the arbitration clause. We may once

again note that the arbitration clause providing for the

proceedings to be conducted in accordance with the

London Maritime Arbitrators Association stand already

invoked by respondent No. 3 and it is in those

proceedings that this aspect would be settled.

15. We are unable to accept the plea of learned senior

counsel for the appellant that the LC in the present case

is an extraordinary document not falling in line with a

normal LC. In fact, the endeavour of learned senior

counsel for the appellant was to read the LC as a

conditional document as he could not dispute that

otherwise a confirmed LC must be honoured on its

presentation. However, such a plea of conditional LC is

only predicated on the premise of conditions of contract

being incorporated into the LC, which plea we have

already rejected. In our considered view, the LC must

be read as a separate contract as per its own terms.

16. As far as the plea of learned senior counsel for the

appellant about the LC providing a deferred payment is

concerned, that aspect arises when the LC is presented

and is honoured as per its terms. The banking channel

would be governed by the terms and conditions of the

LC and would naturally abide by the same. This plea

has also been dealt with in the impugned order by

reference to the terms and conditions of the LC itself,

which provide that payment has to be made upon

presentation of confirming documents by the encashing

bank to respondent No. 3. If there is some extended

credit inter se banks, which has varied the total amount

payable under the LC, that would not imply that credit is

to be given contrary to the stipulation in the LC. In fact,

the contract cannot really be looked into nor the two

documents read together as pleaded by learned senior

counsel for the appellant, i.e., the contract and the LC.

On the other hand, the LC has to be read by itself and

its terms and conditions enforced.

17. The plea of fraud lacks in any material particulars being

set out in the plaint. The only general allegation of the

alleged fraud is that respondent No. 3 shipped the

goods despite invocation of the force majeure clause.

This is really no matter of fraud, but at best a plea of

breach of contract.

18. In the end, we may note that the Supreme Court itself

has extended caution on various occasions through

authoritative pronouncements of interfering with such

international commercial transactions supported by LC

contrary to UCPs has an adverse impact on international

trade. If the appellant is ultimately able to establish its

case against respondent No. 3 in the arbitral

proceedings based on the force majeure clause, the

claim for the amount paid under the LC can also be

adjudicated at that time and the appellant is not without

the remedy of seeking recovery of such amount paid

under the LC.

19. The Supreme Court has succinctly set out in Wander

Ltd. & Anr. v. Antox India P. Ltd., 1990 (Supp) SCC 727

the scope of interference by the Division Bench against

the exercise of discretion by the Single Judge. In has

been observed in para 14 as under :-

"14. The appeals before the Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate would have taken a different view may not justify interference with the trial court‟s exercise of discretion. After referring to these principles, Gajendragadkar, J. in Printers (Mysore) Private Ltd. v. Pothan Joseph, (1960) 3 SCR 713 = AIR 1960 SC 1156 :-

"... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton, 1942 AC 130, "... the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is

well established, and any difficulty that arises is due only to the application of well settled principles in an individual case."

(emphasis supplied)

20. We find the reasoning of learned Single Judge

unexceptionable and do not find any ground to interfere

with the well-reasoned order of the learned Single

Judge.

21. Dismissed.

SANJAY KISHAN KAUL, J.

May 12, 2009 SUDERSHAN KUMAR MISRA, J.

madan