IMPORTANT POINT
It is settled law that a Letter of Credit transaction is a separate and independent transaction from the contract, if any, between the opener and the beneficiary and the issuing bank is not at all concerned with the contract and in the absence of fraud or some other act on the part of the issuing bank, they cannot be called upon to extend the validity period.

Headnote:Civil Procedure Code, 1908-Section 145, Order 21, Rule 46-Arbitration and Conciliation Act, 1996-Sections 46 to 49-Letter of Credit-Issuing Bank is not at all concerned with the contract and/or dispute between the opener and the beneficiary-Appellants, owners of a vessel chartered out the said vessel to 1st respondent-In respect of freight and demurrage charges, certain amounts became due and payable-For remitting this amount, permission of Reserve Bank of India was required-1st respondent gave to appellants irrevocable Standby Letter of Credit issued by 3rd respondent-Dispute as to liability for the sum of USD 267,000 for demurrage-Appellant invoked Arbitration as per Charter Party Agreement-Appellants filed suit-Only allegations were against 1st and 2nd respondents and not against 3rd respondent-Appellants obtained an ex parte ad interim order directing respondents to keep alive irrevocable Letter of Credit-3rd respondent obeying order of Court extended validity of Letter of Credit from time to time-3rd respondent filed an application for vacating the order-Appellants secured an Award in Arbitration proceedings instituted against 1st respondent-Enforcement Petition-Whether 3rd respondent can be made liable-(No)-No infirmity in judgment of the Division Bench setting aside orders directing payment to be made by 3rd Respondent to appellants.
       Held : In our view, Mr. Sanghi is right that a Letter of Credit is an independent transaction. The issuing bank is not at all concerned with the contract and/or dispute between the opener and the beneficiary. Also to be noted that the 3rd Respondents were not parties to the Arbitration proceedings and there is no Award directing payment by the 3rd Respondent. In our view, Mr. Sanghi is also right that the Court should not have been passed an interim order, which affected the rights of an issuing banker. In the absence of fraud or some other act on the part of the issuing bank, they cannot be called upon to extend the validity period. At the highest the Court could have directed the 1st Respondent to keep alive the Letter of Credit. By directing an issuing bank to keep a Letter of Credit alive, the Court is likely to cause prejudice to the issuing bank inasmuch as the value of the security may deteriorate. We cannot accept the submission of Mr. Sanghi that the 3rd Respondent was not bound by the interim order. However, wrong the order may be the 3rd Respondent was bound by the order. By not immediately challenging the order and keeping the Letter of Credit alive, the 3rd Respondent took the risk of having to pay, if documents in conformity with the Letter of Credit, were presented to it. They were bound to extend from time to time the validity period of the Letter of Credit. The 3rd Respondents were negligent in not pursuing their application and in not having the orders directing them to keep the Letter of Credit alive, set aside or challenged in a high of form. However, obeying an order of the Court does not amount to acquiescence and does not estopp 3rd Respondent from contending that they cannot be made liable as documents presented are discrepant. (Para 21)
       As stated above, the suit was a limited suit. The only prayer was that the Letter of Credit be kept alive. In the suit, there are no averments or allegations against the 3rd Respondents. Once the Letter of Credit was kept alive, the suit became infructuous. The learned Judge was right in dismissing the suit as having become infructuous. In this suit, with an amendment and there being proper averments and prayers, the dispute between the Appellant and 3rd Respondent pertaining to discrepancy could not have been decided. The Enforcement Petition was for enforcing the English Award. It was under Sections 46 to 49 of the Arbitration and Conciliation Act, 1996. In such proceedings, the enforcement has necessarily to be between the parties to the Award. In such proceedings, serious disputes regarding the liability of third persons to pay up could not be decided. Once the dispute arose, as to whether or not the documents were discrepant, the Court should have directed the Appellants to have that dispute decided by a Competent Court in an appropriate proceeding. Provisions contained in Part II of the Arbitration and Conciliation Act, 1996 do not permit Courts to decide such disputes with third parties in such proceedings. To that extent, the Division Bench is right. Such a dispute could not have been decided in these proceedings. In our view, however, the Division Bench was wrong in remitting the matter back for following the procedure under Order 21 Rule 46, CPC. Order 21 Rule 46, CPC, deals with garnishee proceedings. These apply when monies of the judgment debtor are in the hands of third parties. In cases of Letter of Credit the liability of the issuing bank is an entirely independent liability. It cannot be said that the monies payable by the issuing bank are monies belonging to the judgment-debtor. Thus, the claim, if any, can only be decided in independent proceedings which should have been adopted by the Appellants. In this view, we see no infirmity in the judgment of the Division Bench to the extent that it sets aside the orders directing payment to be made by the 3rd Respondent to the Appellants. (Paras 24 to 26)

JUDGMENT

S.N. Variava, J.-These Appeals are against the Order of the Delhi High Court dated 17th July, 2001.

2. Briefly stated the facts are as follows:

The Appellants are the owners of vessel "DEKHODA". They had chartered out the said vessel to the 1st Respondent. In respect of freight and demurrage charges, certain amounts became due and payable. For remitting this amount, the permission of the Reserve Bank of India was required. According to the Appellants, the 1st Respondent, through its Banker, the 2nd Respondent, was to apply for the Reserve Bank of India permission. In the meantime, parties agreed that the irrevocable Standby Letter of Credit would be opened. The 1st Respondent thus gave to the Appellants irrevocable Standby Letter of Credit issued by the 3rd Respondent. After receipt of the irrevocable Standby Letters of Credit, the Appellants delivered possession of the cargo to the 1st Respondent. In respect of the amount of freight, Reserve Bank of India permission was taken and the amount was remitted. The 1st Respondent then raised the dispute in relation to the liability for the sum of USD 267,000 for demurrage.

3. As the 1st and/or 2nd Respondents were not applying for Reserve Bank of India permission the Appellant invoked Arbitration as per the Charter Party Agreement. The Appellants then filed Suit No. 1746 of 1996, in the Delhi High Court. In the suit, the only allegations were against the 1st and 2nd Respondents. Even though the 3rd Respondent was a party to the suit, there were no allegations against them. However, the following prayers were made in the suit:-

"a) Grant a decree of mandatory injunction directing the Defendants to keep the irrevocable Letter of Credit, issued by Global Trust Bank, Calcutta, bearing No. CA/FLC/011/96 dated 20th May, 1996 alive beyond it is present date of expiry-15th August, 1996, till the dispute is settled between the parties by the Arbitral forum culminating in a decree.

b) Grant a decree of permanent injunction directing the Defendants to perpetually keep alive the irrevocable Letter of Credit, issued by Global Trust Bank, Calcutta, bearing No. CA/FLC/011/96 dated 20th May, 1996 till the dispute is settled between the parties by the Arbitral forum culminating in a decree".

4. On 24th July 1996 the Appellants obtained an ex-parte ad- interim order directing the Respondents to keep alive the irrevocable Letter of Credit. This meant that even if the 1st Respondent took no step to keep the Letter of Credit alive, the 3rd Respondent would be bound to keep it alive. At this stage, it must be mentioned that the 3rd Respondent was only the issuer of the Letter of Credit. It is settled law that a Letter of Credit transaction is a separate and independent transaction from the contract, if any, between the opener and the beneficiary Respondent. As issuer of the Letter of Credit, the 3rd Respondent was not concerned with the dispute between the Appellant and 1st Respondent. In the absence of any allegations against the 3rd Respondent bank, the Court should not have directed them to keep alive and/or extend the expiry date of Letter of Credit. The correct Order should have been to call upon the 1st Respondent to keep alive the Letter of Credit. The Appellants by their letters dated 24th July, 1996 and 3rd August, 1996 intimated the 3rd Respondent about the passing of the said order.

5. At this stage, it must also be mentioned that while passing the ex parte ad-interim injunction, the Court had also directed, Summons in the suit and Notice on the I.A., to be issued. The returnable date of both was 22nd of November, 1996. Thus, before 22nd November, 1996 the matters should not have been taken up for hearing. However, it appears that on 29th August, 1996 the Court confirmed the ex parte order even though the returnable date was 22nd November, 1996. The 3rd Respondent appeared to have no knowledge of this hearing on 29th of August 1996. The ex parte order is confirmed only after hearing Advocat

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