Limited grounds for judicial interference in payments under Letters of Credit (LCs) - 'egregious fraud and irretrievable injustice'. Independence of contracts in respect of Bank Guarantees and LCs from the main contract between the parties.

JUDGMENT

Amit Bansal, J. (Oral). -

IA No.719/2022(for exemption)

1. Allowed, subject to all just exceptions.

2. The application is disposed of.

IA No.720/2022(u/S. 12A of the Commercial Courts Act, 2015)

3. For the reasons stated in the application, the same is allowed.

IA No.718/2022(u/O.XXXIX R.1&2 CPC)

4. By way of the present application under Order XXXIX Rule 1 & 2 of the Code of Civil Procedure, 1908 (CPC), the plaintiff seeks restraint order against payments to the defendant no.1 of amounts covered under the Letter of Credit (LC) No.027LC01212850007 dated 12th October, 2021 and LC No.027LC01212600008 dated 24th September, 2021, which are due for payments on 17th January, 2022 and 28th January, 2022 respectively.

5. Notice in the said application was issued on 14th January, 2022 and parties were asked to file short submissions. Short submissions have been filed on behalf of the defendant no.2/HDFC Bank.

6. None appears on behalf of the defendant no. 1.

7. The case of the plaintiff is that sale orders for certain goods/materials were placed by the plaintiff on 13th September, 2021 and 5th October, 2021 with the defendant no. 1 and Letters of Credit (LCs) drawn on the defendant no.2/HDFC bank were opened on 24th September, 2021 and 12th October, 2021 in the sum of US$ 1,50,877.05 and US$ 49,589.39. On 2nd December, 2021 and 18th December, 2021, when the goods/materials, which was a subject matter of LCs, were received by the plaintiff, they was found to be defective. Reliance is placed on the e-mails dated 23rd December, 2021 and 16th January, 2022, to contend that the defendant no.1 has acknowledged that the goods supplied by the defendant no.1 to plaintiff were defective.

8. Counsel for the plaintiff relies upon Clauses 43P and 45A of the LC dated 24th September, 2021 to contend that the description of goods/materials supplied by the defendant no.1 did not match the description mentioned in the LCs as also the partial shipment was not allowed in terms of the LCs. Therefore, it is submitted that fraud has been played upon the plaintiff by the defendant no. 1. It is further contended that irretrievable injustice would be caused if the aforesaid amounts under the LCs are remitted to the defendant no. 1.

9. Counsel appearing on behalf of the defendant no.2/HDFC bank submits that the case pleaded by the plaintiff is not that of egregious fraud and irretrievable injustice. The case of the plaintiff is that out of the four containers supplied by the defendant no.1 to the plaintiff, only two containers have defective goods. Therefore, at best, the case made out by the plaintiff is with regard to breach of contract and it is not the case of fraud.

10. It is further submitted that SBI, Antwerp has already added its confirmation to the LCs and therefore, SBI, Antwerp has become liable to pay the defendant no.1 and consequently, draw upon the account of the defendant no.2 for the amounts under the LC No. 027LC01212850007. The acceptance of the documents was conveyed by the defendant no. 2/HDFC bank to SBI, Antwerp on 27th November, 2021 stating that the documents are in accordance with the LC. In respect of second LC No. 027LC01212600008, it is stated that the documents have been accepted by the defendant no.2/HDFC bank and in view thereof, the defendant no.2/HDFC bank would be liable to pay the advising bank, namely, Belfius Bank.

11. Reliance is placed on the judgments of the Supreme Court in United Commercial Bank Vs. Bank of India & Ors., (1981) 2 SCC 766 and Millennium Wires P Ltd Vs. State Trading Corp. of India Ltd., (2015) 14 SCC 375.

12. Reliance is also placed on Articles 5, 16(a), (c) and (f) of the Uniform Customs And Practices For Documentary Credits (UCP 600), which are rules agreed upon by the International Chamber of Commerce that apply to financial institutions for issuing LCs, to contend that honouring of LCs interms of the conditions contained in the LCs is essentially for the continuation of international trade and commerce. I