Delhi High Court
Shree Krishna Paper Mils And ... vs Gail (India) Ltd And Anr. on 20 March, 2015
Author: Sanjeev Sachdeva
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: 19th March, 2015
Judgment Delivered on: 20th March, 2015
+ FAO(OS) 128/2015 & CM No. 5252/2015
SHREE KRISHNA PAPER MILS AND INDUSTRIES LTD.
.....Appellant
versus
GAIL (INDIA) LTD AND ANR. ....Respondents
Advocates who appeared in this case:
For the Petitioner: Mr Sudhir Nandrajog, Sr Advocate with Mr Ankit
Jain and Mr Sarvesh Rai, Advocates.
For the Respondents: Mr Sanjay Jain, Additional Solicitor General with
Ms Poornima Maheshwari and Ms Shreya Sinha,
Advocates
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA
JUDGMENT
SANJEEV SACHDEVA, J
1. The appellant has filed the present appeal impugning the
judgment dated 18.03.2015, whereby the learned Single Judge has
been pleased to dismissed the petition filed by the appellant under
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Section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter
referred to as the said "Act").
2. The appellant had filed the said petition seeking, inter-alia, the
following reliefs:-
"(a) Restrain the respondent No.1from invoking the
Letters of Credit bearing Nos.6011ILCRE140001 &
6011ILCRE30001 for an amount of Rs.18,08,000/- &
Rs.25,00,000/- respectively, issued by Respondent No.2,
till the time the disputes are finally adjudicated by an
Arbitrator;
(b) Restrain the respondent No.2 from making any
payment to respondent No.1 towards invocation of the
„Letters of Credit‟ bearing Nos.6011ILCRE140001 &
6011 ILCRE130001 for an amount of Rs.18,08,000/- &
Rs.25,00,000/- respectively, till the time the disputes are
finally adjudicated by an Arbitrator;
(c) Pass an ex-parte interim order in terms of prayers (a)
& (b) above;
And/or
Pass such other orders which this Hon‟ble Court may
deem fit any proper in the facts and circumstances of the
case in favour of the Petitioner."
3. The contention of the appellant is that the appellant being
engaged in the business of paper coating at its unit at Jhajjar, Haryana
required Regassified Liquid Natural Gas (RLNG) for its business and,
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accordingly, entered into an agreement dated 25.12.2008 with
respondent No.1 for supply of the same. In terms of the agreement,
the appellant provided two Letters of Credit, subject matter of the
present appeal, totalling a sum of Rs 43,08,000/-.
4. As per the appellant, the agreement stipulated a monthly
allotment of gas to the appellant for which a minimum guaranteed
amount was payable. Since the appellant did not require the minimum
monthly allotment of gas, the appellant requested the respondent to
reduce the monthly allotment with effect from 01.09.2013. It is
contended that the respondent failed to accede to the request of the
appellant to reduce the monthly allotment of gas. It is contended that
as the request for reduction of allotment of gas was under
consideration, the respondent could not have invoked the Letters of
Credit and the invocation amounted to a fraud.
5. Per contra, Mr Sanjay Jain, the learned Additional Solicitor
General, appearing on behalf of the respondents contended that the
agreement between the parties stipulated that, in the beginning of the
year the purchaser must commit the amount of gas it would take from
the respondent No.1 because the gas is imported and there is a back to
back agreement with the original supplier and the commitment made
by the purchaser has to be adhered to. He further contended that the
Letters of Credit was an irrevocable letter of credit and was an
independent contract, independent of the main contract between the
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parties. He further contended that the invocation was strictly in terms
of the Letters of Credit and that there was no fraud which would
vitiate the contract covered by the Letters of Credit.
6. The learned Single Judge by the impugned order has noticed
that the only allegation of fraud averred by the appellant was that the
demand made by the respondent No.1, without taking the decision on
the request made by the appellant to reduce the monthly allotment,
was fraudulent and mala fide. The learned Single Judge was of the
view, and in our view rightly so, that the said action would not
constitute a fraud so as to vitiate the contract of letter of credit. The
learned Single Judge in the impugned order has noticed that the
petitioner has neither pleaded irreparable damage or special equities
nor it was the case of the petitioner that the invocation was not in
terms of the Letters of Credit. The learned Single Judge has noted
that the Letters of Credit are irrevocable and covers delayed payment,
penalty, over drawl, taxes, duties and changes therein. The learned
Single Judge, accordingly, declined to grant any relief to the appellant
and has dismissed the petition under Section 9 of the said Act.
7. The two Letters of Credit, subject matter of the present appeal,
are in identical terms. The relevant terms are as under:
" STANDARD TERMS & CONDITIONS OF
LETTER OF CREDIT FOR GAIL
1. X X X X X X X
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2. This is a STANDBY IRREVOCABLE
REVOLVING LETTER OF CREDIT(L/C) which
revolves automatically for the L/c amount for the
next set of documents as soon as the negotiation of
present set of document is over and is valid up to 31-
03-2015 for submission of documents for
negotiation to the bank.
3. This L/C is raised under the Gas Supply Contract
(GSC) Dated 05-02-2004 and will be valid for all
invoices/Debit Notes etc. raised under the GSC as
well as supplementary agreements, amendments and
other addenda thereof.
4. This L/C covers supply of Regasified Liquefied
Natural GAS (RLNG) by GAIL to the buyer through
pipeline as well as Minimum Guaranteed Offtake
(MGO) take of pay amount Interest on delayed
payments, Penalty, over drawl Taxes, duties and
changes therein, Difference in price, transportation
charges, marketing margin etc.
5. Documents can be presented at any time after raising
of invoices/debit notes etc. but within the validity
period of the L/C.
6. X X X X X X
7. X X X X X X
8. Payment against the L/C shall be released
immediately on presentation of photocopies of
invoices/debit notes along with the draft in duplicate
by Gail (India) Limited. L/C shall also cover
requests against part payments.
9. Debit notes shall include payment against minimum
Guaranteed Offtake (MGO), Interest on delayed
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payments penalty, over drawl Taxes Duties and
changes therein Difference in price etc.
10. X X X X X X
11. X X X X X X
12. X X X X X X
13. The L/C value shall be for 48 Days supply of gas at
maximum contracted quantity with coverage of
value of gas for a period of three fortnights and
validity of LC for a period of one year. The L/C will
automatically be reinstated after invocation."
8. Perusal of the terms of the two Letters of Credit shows that
same are an irrevocable Letters of Credit. The contention of the
appellant that a request made for reduction of the monthly allotment
of gas not having been considered amounts to a fraud is not
sustainable. The contention of the appellant that it was entitled to
reduction of the monthly allotment of gas is not an issue which arises
out of the contract of Letters of Credit but is an issue that may be
covered by the main contract between the parties and would be the
subject matter of arbitration proceedings. The contract of letter of
credit is independent of the underlying contract and there is no
circumstance pointed out to show that the Letters of Credit are vitiated
on account of fraud. Even before us nothing has been pointed out to
show as to how payment under the two Letters of Credit could be
injuncted.
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9. No case is made out for restraining the respondents from
seeking payment against the irrevocable, unconditional Letters of
Credit. We do not find any infirmity in the impugned order. In view
of the above, the appeal is dismissed leaving the parties to bear their
own costs.
SANJEEV SACHDEVA, J.
MARCH 20, 2015 BADAR DURREZ AHMED, J.
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