M/S. Swastik Plastics vs M/S.Sipchem Marketing Company ...
2015 Latest Caselaw 593 Del

$~
*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                                         Date of decision: 21.01.2015
+     CS(OS) 157/2015
      M/s. SWASTIK PLASTICS                               ..... Plaintiff
                     Through             Mr.Girish Aggarwal and Mr.Vaibhav
                                         Jain, Advs.
              versus
    M/S.SIPCHEM MARKETING COMPANY (SMC)..... Defendant
                     Through Mr.Navin Chawla, Mr.Rajeev M.Roy,
                             Mr.Ketan Paul and Mr.Anurup Narula
                             Advs. for D-1 and D-2
                             Mr.Aditya Madan, Adv. for D-3
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J. (ORAL)

IA No.1200/2015

1. This is an application under Order 39 Rule 1 and 2 CPC seeking to restrain defendant No.3 from making any payment to defendant No.1 under LC No.4979 0NI 000 34714 which is for USD 2,43,540=00 that is about Rs.1,51,00,000/- till the disposal of the present suit.

2. As per the accompanying plaint the plaintiff is in the business of plastic granules. It is stated that the plaintiff contacted defendant No.2 who introduced the plaintiff to defendant No.1 which is based in Saudi Arabia and is a manufacturer of plastic granules. The plaintiff gave an order for supply of 148.500 metric tons of LDPE LD 2023 OO & 49.500 metric tons of LDPE LD 0322 GO amounting to total USD 2,43,540=00 i.e.Rs.1,51,00,000/-. The plaintiff opened a letter of credit through defendant No.3 dated 11.12.2014

bearing No.4979 0NI 000 34714 in favour of the defendant No.1 for a sum of USD 2,43,540=00.

3. The shipment of goods arrived at Nhava Sheva on or about 07.01.2015 and was cleared from the port on 14.1.2015. The plaintiff states that on opening 5 containers out of 8, the plaintiff found that the goods exported by defendant No.1 are of inferior quality and none of the bags had the marking of LDPE LD 2023 OO & LDPE LD 0322 GO and it was bearing only LDPE which is an inferior quality of plastic granules. It is urged that the plaintiff estimates that the price of material supplied is between 900-1000 USD per metric ton whereas defendant No.1 has charged the plaintiff USD 1230 per metric ton. The plaintiff also claims to have paid Rs.40,57,088/- on account of custom duties and other charges on account of clearance and freight.

4. The plaintiff claims to have engaged M/s.SGS India for making a survey. It is urged that the said M/s.SGS India Private Limited which is an international/global certification agency has confirmed that the goods are of inferior quality and not the material ordered by the plaintiff. Hence, it is urged that defendant No.1 has failed to fulfil the terms and conditions of the Contract and has deliberately and mischievously supplied inferior grade material. It is further urged that in case the LC is honoured by defendant No.3, the plaintiff would not be able to recover its dues from defendant No.1 as they are based in Saudi Arabia and the plaintiff shall be rendered remediless. Hence, it is urged that defendant No.3 be restrained from making the payment based on the LC.

5. Learned counsel appearing for the plaintiff has placed on record in Court the inspection report of M/s.SGS India Private Limited to claim that the goods supplied are of inferior quality. He also relies upon judgment of the Supreme

Court in the case of Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Company, AIR 2007 SC 2798, and on an ex parte order passed by this Court on 19.1.2007 in CS(OS) 58/2007 where an injunction was passed against the defendants from collecting the amount under the letter of credit. Reliance is also placed on a judgment of this Court in the case of U.K.Paints (P) Ltd. vs. Oriental Bank of Commerce and Ors., (1987) ILR 2 Delhi 513 where injunction was passed in favour of the plaintiff restraining the defendants.

6. Learned counsel appearing for defendants No.1 and 2 submits that the submissions of the plaintiff are misplaced. He submits that only the packaging has the word LDPE written on it whereas the quality of goods supplied is as per the agreed terms and conditions. He submits that even as per the invoice raised by the defendant No.1 and also the bill of lading issued, the goods are of the quality as ordered by the plaintiff i.e. 148.500 metric tons of LDPE LD 2023 OO & 49.500 metric tons of LDPE LD 0322 GO. He submits that there is no allegation of fraud in the plaint and merely based on some misdescription of the goods on the packing material the plaintiff has filed the present suit. He further submits that there is no dispute that the documents as envisaged in the letter of credit have been duly filed with the bank and in view thereof there can be no question of any stay of the bank guarantee.

7. The Supreme Court in the case of Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Company (supra) in paragraphs 14 and 15 held as under:-

"14. From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a Bank Guarantee or a Letter of Credit, we find

that the following principles should be noted in the matter of injunction to restrain the encashment of a Bank Guarantee or a Letter of Credit:

(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.

(ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.

(iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.

(iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.

(v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation.

(vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.

15. Keeping these principles in mind and applying the same on the facts of this case, we can only draw this conclusion that no good ground has been made out by the appellant to interfere with the impugned order. As noted herein above, there are two exceptions when courts can grant an order of injunction in favour of an aggrieved party in the matter of encashment of a

Bank Guarantee or a Letter of credit. Condition Nos. (v) and

(vi), as noted herein above, are two such exceptions."

8. Hence, the only ground on which injunction can be granted in favour of the plaintiff is fraud of an egregious nature which will vitiate the very foundation of the Bank Guarantee or letter of credit or irretrievable harm or injustice.

9. The facts of the present case show that the only averment is that on the packaging material the word LDPE is used and not the full nomenclature of the quality of the goods ordered. In fact a perusal of the report from M/s.SGS India Private Limited filed in Court today by the plaintiff would show that it has made the following observations:-

"Note- The 2 grades as mentioned on the documents (B/L & B/E) viz. LDPE LD 0322 GO & LDPE LD 2023 OO were not observed on bags. Only marks observed on bags was "LDPE Low Density Polythene" for all 8 FCL cargo."

10. Hence, even M/s.SGS India Private Limited has based its report on a mere visual inspection of the packaging material. A question was posed to the learned counsel for the plaintiff as to whether any verification of the goods has taken place. He submits that for that purpose a chemical examination of the goods will be necessary to conclusively determine the quality of the goods supplied by the defendant No.1 and the same will take time. A further question was posed to learned counsel for the plaintiff as to how the plaintiff has come to a conclusion that the goods are defective. He replied that this is based on visual inspection of the material as he submits that the plaintiff/officers of the plaintiff have vast experience in the field and on mere physical inspection they are able to determine as to whether the goods are of the quality ordered.

11. In my opinion, the facts as pleaded would not tantamount to a fraud of an egregious nature as to vitiate the letter of credit. There is no document on record, other than the description shown on the packaging, to show that the material is not of the grade ordered by the plaintiff. These facts do not prima facie show any fraud having been done by defendant No.1.

12. On the issue of fraud the Supreme Court in Ramesh Kumar and Anr. vs. Furu Ram and Anr., 2011(9) SCALE 16 held as under:-

12. The manner in which the agreements dated 12.3.1992 were entered, the awards dated 13.3.1992 were made and the said awards were made rule of the court, clearly disclose a case of fraud. Fraud can be of different forms and different hues. It is difficult to define it with precision, as the shape of each fraud depends upon the fertile imagination and cleverness who conceives of and perpetrates the fraud. Its ingredients are an intention to deceive, use of unfair means, deliberate concealment of material facts, or abuse of position of confidence. 'Fraud' is 'knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment'. 'Fraud' is also defined as a concealment or false representation through a statement or conduct that injures another who relies on it in acting. (vide The Black's Law Dictionary). Any conduct involving deceit resulting in injury, loss or damage to some one is fraud.

13. Section 17 of the Indian Contract Act, 1872 defines 'fraud' thus:

17. 'Fraud' defined.-'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made without any intention of performing it;

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declares to be fraudulent.

Explanation.- Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is in itself, equivalent to speech.

13. The facts as narrated above do not show any fraud of a nature as to vitiate the letter of credit. In fact at this stage it is not even possible to conclude that the goods sent by defendant No.1 are not as per the quality ordered and paid for. There is no unrebutable evidence to the said effect. No case of concealment, deception etc. is prima facie made out.

14. In case the plaintiff were to succeed in the present suit, the plaintiff would have some difficulty in recovering its dues from defendant No.1 which is a Saudi Arabian company. This cannot be a ground to conclude that irretrievable injustice would be caused to the plaintiff. This kind of difficulty is a necessary fallout of international transactions where one party is overseas. This cannot be termed to be irretrievable justice.

15. The reliance of the plaintiff on two other judgments in the case of order

dated 19.02.2007 in CS(OS)58/2007 and the order in case of U.K. Paints (P) Ltd. v. Oriental Bank of Commerce and Ors. (supra), is misplaced. The judgment of this Court in order dated 19.01.2007 in CS(OS)58/2007 is an ex parte interim injunction after a prima facie conclusion of fraud. The case of U.K. Paints (P) Ltd. v. Oriental Bank of Commers (supra), is a case where the Court accepted the contention of the plaintiff that prima facie the documents sent by the defendant therein were not in compliance with the letter of credit.

16. The plaintiff has failed to make any prima facie case. Application is without merit and same is dismissed.

17. However, any observations made herein are only for the purpose of the present application and do not bind the parties at the time of final adjudication of the disputes.

CS(OS)157/2015 List on 16.4.2015.

JAYANT NATH, J JANUARY 08, 2015

This file has been recalled as there was a typographical error in the order. The date of order is mentioned as 08.01.2015 instead of 21.01.2015. The order has been corrected accordingly.

JAYANT NATH, J JANUARY 21, 2015 n