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2009 Supreme(Mad) 4156
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE M. CHOCKALINGAM & THE HONOURABLE MR. JUSTICE R. SUBBIAH
Garware-Wall Ropes Limited Geosynthetic Division
Versus
Marg Limited (Formerly Marg Constructions Ltd.) & Another
OSA No.72 of 2009 & MP Nos.1 & 2 of 2009
Decided on: 12-10-2009
For the Appellant:T.V. Ramanujun, Senior Counsel, for M/s. Udwadia & Udeshi Solicitors & Advocates.
For the Respondents:R1, R. Krishnamoorthy, Senior Counsel, for S. Raghunathan, R2, M. Vaidyanathan Advocates.
An injunction can be granted to restrain the beneficiary from negotiating and encashing a letter of credit if the beneficiary's conduct constitutes a fraudulent claim and would result in irretrievable harm or injustice to the plaintiff.
Headnote:
Fraudulent Claim - Letter of Credit - - [Article 14 of UCP 600, Federal Bank Ltd. Vs. V.M.Jog Engineering Ltd ((2001) 1 SCC 663)] - The court granted an interim injunction to restrain the appellant from claiming or demanding any amount under the letter of credit without delivery of materials at the site. The court found that the appellant's attempt to negotiate the letter of credit without delivering the materials constituted a fraudulent conduct and would result in irretrievable harm or injustice to the plaintiff.
Fact of the Case:
The appellant, a construction company, failed to deliver materials as per the terms of the work order. The first respondent sought an interim injunction to restrain the appellant from claiming payment under the letter of credit for materials which were not delivered. The appellant argued that it had complied with the terms of the letter of credit and was entitled to negotiate it for payments.
Finding of the Court:
The court found that the appellant's attempt to negotiate the letter of credit without delivering the materials constituted a fraudulent conduct and would result in irretrievable harm or injustice to the plaintiff. The court granted an interim injunction to restrain the appellant from claiming or demanding any amount under the letter of credit without delivery of materials at the site.
Issues: The main issue was whether the appellant was entitled to negotiate the letter of credit for payments despite not delivering the materials as per the terms of the work order.
Ratio Decidendi: The court applied the legal principle established in the case of Federal Bank Ltd. Vs. V.M.Jog Engineering Ltd ((2001) 1 SCC 663), which held that an injunction could be granted to restrain the beneficiary from negotiating and encashing a letter of credit if the beneficiary's conduct constituted a fraudulent claim and would result in irretrievable harm or injustice to the plaintiff.
Final Decision: The original side appeal was dismissed, confirming the order of the learned Single Judge to grant an interim injunction restraining the appellant from claiming or demanding any amount under the letter of credit without delivery of materials at the site.
M.CHOCKALINGAM, J.
This appeal has arisen from the order of the learned Single Judge of this Court allowing an application in O.A.No.1202 of 2008 filed by the first respondent/plaintiff seeking for interim injunction restraining the appellant/first defendant from claiming or demanding any amount under the letter of credit No.MDSC/INLC/ML/I/08-09 dated 17. 2008 or under its amended one dated 8. 2008 issued by the second respondent without delivery of materials at the site and consequently restraining the second respondent from effecting any payment to the appellant under the letter of credit.
2. The above application has been filed by the first respondent/plaintiff with the following averments:
(a) The first respondent, a construction company, called offers from several contractors for various works at the proposed Port including construction of a reinforced wall around the Port. The appellant submitted its offer on 16. 2008 for supply of Soil reinforcement consisting of Tensar Geogrids, Polymer Connectors, Geotextile, etc., for the Reinforced Soil Retaining Wall System. As per Clause III of the offer, the payment was to be made through an irrevocable letter of credit payable in thirty days from the date of invoice and bill of lading with lorry receipt. As per Clause VI, the supplies were to be commenced within 8 weeks and completed within 12 weeks from the date of opening of the letter of credit. The first respondent issued a letter of award on 16. 2008. The value of the order was Rs.2,04,08,700/-. As per Clause 2 of Annexure I to the Letter of Award, 95% of the order value was required to be paid through irrevocable letter of credit. The balance 5% of order value was to be retained by the plaintiff as retention money which was to be released on expiry of defects liability period. As per Clause 4 of Annexure I, the appellant agreed to complete the total supply of materials within 8 weeks from the date of receipt of the order. On 26. 2008, the letter of award was modified, and the time schedule for completion of the supplies was extended to 12 weeks. The payment terms was also amended to 100% of the order value to be paid through irrevocable letter of credit on the appellant furnishing a bank guarantee for 5% of the order value.
(b) The appellant submitted a proforma invoice for supply of materials on 26. 2008. On 17. 2008, the second respondent issued an inland irrevocable letter of credit for an aggregate sum of Rs.2,03,84,373/-. In terms of the letter of credit, the appellant was required to submit certain documents for negotiating payment under the letter of credit. The second respondent agreed that payment would be effected only in the event of compliance with the terms and conditions of the letter of credit and presentation and delivery of documents specified in the letter of credit.
(c) On 27. 2008, at the request of the appellant, the conditions with regard to the time schedule for supply was modified. On 8. 2008, the letter of credit was modified. The appellant failed to supply the materials in accordance with the terms of the work order. Payments have been effected with regard to supplies that were made by the appellant upto 19. 2008. After 19. 2008, no materials have been delivered by the appellant at the Port site. With regard to the work of construction of the reinforced wall, the appellant submitted its offer dated 16. 2008. The first respondent has awarded the same to the appellant under the letter of award dated 16. 2008. On 30.10.2008, the first respondent was surprised to receive a request from the second respondent to accept a bill of exchange drawn by the appellant and negotiated for payment under the letter of credit. As no materials had been delivered by the appellant after 19. 2008 and all payments for materials delivered at site had been effected, the first respondent immediately requested the second respondent to provide the documents furnished by the first respondent for claiming payment u
