( 1 ) THIS is a suit for recovery of Rs. 6,50,970. 42 paise. The plaintiff is State Bank of India which is authorised to deal in foreign exchange under the Foreign Exchange Regulation Act, 1947. While the defendant No. 1 is Earnest Traders, a partnership firm dealing in the business of exports and imports, the defendant No. 2 is one of its partners.

( 2 ) BY letter dated June 6, 1973, defendant No. 2 on behalf of defendant No. 1 forwarded to the plaintiff photostat copies of Five contracts executed by and between the defendants and M/s. Century Rayon, Bombay, and M/s. Indian Rayon Corporation Limited, Bombay, for shipment of Rayon Filament Yarn to Afghanistan Against dollar payment to be received from M/s. Sharvan D. Sethi, Kabul during the period from June 1973 to December 1973. As per the letter, the total quantity of Rayon to be exported to Afghanistan came to 210,000 kgs. The aggregate value of the same as per the following details was Rs. 40,38,500. 00 :-

1. Century Rayon: 180,000 kgs. valued at Rs. 36,11,000. 2. Indian Rayon : 30,000 kgs. valued at Rs. 4,27,500.

( 3 ) ALONG with the letter a copy of the letter dated June 4, 1973 received from M/s. Sharvan D. Sethi accepting the above arrangement and requesting the defendants to cover the foreign exchange in dollars through any bank was forwarded to the plaintiff. The defendants by means of the aforesaid letter also requested the plaintiff to cover the US dollars for the above said amount. By the same letter the defendants requested the plaintiff to convey the rate for the former s acceptance. In response to the letter of the defendants the plaintiff by its letter dated June II, 1973 required the defendant "to intimate the exact amounts in terms of US dollars and specific periods of the forward contracts" which the defendants wanted the plaintiff to book. On receipt of the letter of the plaintiff, the defendants by their letter dated June 15, 1973 gave the necessary details and requested the plaintiff to book four forward purchase contracts on their behalf as per below:-

( 4 ) ON the same date, viz. , June 15, 1973, the plaintiff booked the four forward contracts and in this regard informed the defendants by its letter dated June 18, 1973. Along with the letter the plaintiff enclosed contracts No. ET/73/1/$ to ET/73/4/$ for the signatures of the defendant. On June 27, 1973 the defendant returned the exchange contracts duly signed. In so far as contract No. ET/73/1/$ is concerned, the plaintiff received US dollars 69,850 and US dollars 95,100 aggregating to US dollars 1,65,000 in July 1973. In regard to contract No. ET/73/2$ the defendants by their letter dated July 28, 1973 requested the plaintiff for extending the delivery period from August 15, 1973 to September 14, 1973. This request was made as the situation in Afghanistan had changed. Subsequently, on August II, 1973 the defendants informed the plaintiff that as per the Export Order (Trade Control) dated July 27, 1973 (for short the banning order ) the export of Rayon Filament Yarn had been banned by the Government of India. It was also stated in the said letter that the defendants were approaching the concerned authorities for special permission to export the filament yarn to Afghanistan. On receipt of the letter of the defendants the plaintiff by its letter dated August 14, 1993 asked the defendants to intimate if they wanted extension or cancellation of the aforesaid contracts. On August 16, 1973 the defendants requested the plaintiff to extend three contracts, namely, ET/73/2, ET/73/3 and ET/73/4 for a further period of two months. The plaintiff by its communication dated August 31, 1973 informed the defendants that it had been advised by its Foreign Department that as the forward purchase contracts ET/73/2 ET/73/3-and ET/73/4 were valid upto 14th September 1973, 14th September 1973 and 14th October 1973, respectively, they will consider the matter after a decision is taken by the Government of