Suhas Chandra Sen, J.
1. Hanuman Synthetics Ltd., the Respondent No. 1, entered into an agreement to purchase from the Respondent No. 3, J. B. International, Singapore, 75 Metric Tonnes of Viscose Staple Fibre having semi dull normal tenacity, of Japanese or South Korean origin of the specification 1.5 Deniar x 51 MM. The Central Bank of India opened a Letter of Credit dated February 21, 1983 at the request of Hanuman Synthetics Ltd. The Letter of Credit was opened in favour of J. B. International, the Respondent No. 3, herein. The Letter of Credit was an irrevocable and transferable Letter of Credit. Under the Letter of Credit, it was stipulated that J. B. International would be entitled to avail and/or operate the same by drafts drawn at 120 days from the date of the Bill of Lading which was 17th March, 1983 and by presentation of the following documents : --
(a) signed commercial invoice in quadruplicate covering shipments of VISCOS Staple Fibre;
(b) certificate of origin in duplicate issued by a Chamber of Commerce;
(c) full set of clean 'shipped on board' bills of lading;
(d) marine insurance policy or certificate in duplicate;
(e) a certificate to the effect that immediately after shipment the defendant No. 1 had by Air Mail sent in advance one set of non-negotiable documents directly to Hanuman Synthetics Ltd
It was also stipulated in the said Letter of Credit 'Please add your confirmation to this Credit and release the L/C through United Commercial Bank, Robinson Road, Singapore.'
2. On or about March 17, 1983 the goods were shipped and the United Commercial Bank, Singapore duly paid the amount against the documents mentioned in the Letter of Credit and forwarded the negotiated documents to the Central Bank of India, Bombay. On or about March 24, 1983 the shipping documents were presented to Hanuman Synthetics Ltd. the respondent No. 1 by the Central Bank of India and the respondent No. 1 accepted the Bill of Exchange drawn by respondent No. 3, J. B. International, the exporter upon the respondent No. 1 Hanuman Synthetics Ltd. and in favour of United Commercial Bank, Singapore Branch. It has been alleged that by inadvertence the amount was actually paid even before the due date. On March 30, 1983 the United Commercial Bank refunded the said amount. On April 2, 1983 the Central Bank of India acknowledged the receipt of the documents under the Letter of Credit and confirmed that the Bill of Exchange would be due for payment on April 15, 1983. On April 4, 1983 the vessel carrying the imported consignment arrived at the Port of Calcutta and on April 16, 1983 the Bill of Entry was submitted by the respondent No. 1. The Customs Authorities were of the view that the goods that were imported were not VISCOSE Staple Fibre but were Polyester Fibre and proceedings were started by the Customs Authorities under the Customs Act. The stand taken by the respondent No. 1 before the Customs Authorities has not been disclosed. However, on July 6, 1983 M/s. Khaitan & Co. on behalf of respondent No. 1 asked the Central Bank of India to repudiate the liability under the said Letter of Credit. On or about July 9, 1983 a suit was filed in this Court by Hanuman Synthetics Ltd. against the Central Bank of India and J. B. International praying for, inter alia, a perpetual injunction restraining the defendant No. 1 (Central Bank of India) from making any payment or giving any credit to the account of the defendant No. 2 (J. B. International) in respect of the said Letter of Credit. The appellant, United Commercial Bank, was not made a party to that suit.
3. In that suit, an application for interim order was made and on that application, on July 9, 1983, an order of temporary injunction was issued restraining the Central Bank of India from giving any effect to or making any payment to any person in respect of the said Letter of Credit dated February 21, 1983. The order was not of any fixed duration. It also does not appear that the order was made returnable on any particular date. Liberty was, however, given to the petitioner to serve the Central Bank of India by telex or by special messenger and to serve J. B. International, Singapore, by registered post with acknowledgment due.
4. The appellant, United Commercial Bank had the matter mentioned before the learned Judge on July 25, 1983. The learned Judge, however, directed the petitioner to take appropriate steps in accordance with law.
5. The United Commercial Bank has now preferred this appeal before us. Mr. R.C. Deb, counsel on behalf of the respondent No. 1, has contended that the appeal preferred against the order dated July 9, 1983 is misconceived because that order has merged in the second order that was passed on July 25, 1983.
6. We are unable to accept this contention because the order that was passed on July 25, 1983 was not a final order and there cannot be any question of the interim order passed on July 9, 1983 merging in the order that was passed on July 25, 1983. Moreover, the interim order that was passed on July 9, 1983 was not for a limited period. It was not necessary to pass any order for its continuance and, in fact, there was no application before the Court for continuation of that order. On July 25, 1983 an oral application was made by the appellant for vacating the ex parte interim order. That application was not entertained at all. The appellant was directed to take appropriate steps in the matter. It is true that in the minutes of the Court it was recorded that the interim order would continue. In the context of the facts and circumstances of this case, it can only mean that the oral application for vacating the interim order was not being entertained and nothing more. Any other interpretation would make the order that was passed on July, 25, 1983 meaningless and redundant. No externally impressed force was necessary to continue the operation of the interim order that was passed on July 9, 1983.
7. Mr. Deb's second contention is that the United Commercial Bank was not a party to the suit and did not have any locus standi to prefer this appeal. Mr. Deb's contention is that even if the United Commercial Bank was aggrieved by the order passed on July, 9, 1983 it was not competent to prefer this appeal, and its only remedy was to apply to the Court below to be added as a party.
8. Mr. Deb has relied on the case of Srinath Das v. Probodh Chunder Das (1910) 11 Cal LJ 580 at p. 586 and has contended that the petitioner may be aggrieved by the order of injunction that was passed. But merely because it is aggrieved or has suffered a prejudice, it cannot in law prefer an appeal. It was not a party to the proceeding. He has also invited our attention to the judgment of the Supreme Court in the case of State of Punjab v. Amar Singh : [1974]3SCR152 and has contended that the view expressed by Sarkaria J. at page 1016 of the report (para 84) was not approved by the majority of the Judges. Sarkaria J. relying on a number of judgments including the dictum of Lindley L.J. in Re: Securities Insurance Company (1894) 2 Ch 410 held that a person who was not a party to a decree or order might with the leave of the Court prefer an appeal from such decree or order if he was either bound by the order or was aggrieved by it or was prejudicially affected by it.
9. Mr. Deb's contention is that since the view of Sarkaria J. was not accepted by the majority of the Judges, that view must be taken to be erroneous. Krishna Iyer J. with whom Palekar J. agreed, observed at page 1006 :--
'The ordinary rule is that only a party to a suit adversely affected by the decree or any of his representatives-in-interest may file an appeal. Under such circumstances, a person who is not a party may prefer an appeal with the leave of the Appellate Court 'if he would be prejudicially affected by the judgment and if it would be binding on him as res judicata under Explanation 6 to Section 11'..... Thus, no right of review or of appeal under Section 18 can be availed of by the State as of right.' (The underlining is ours.)
10. It has to be noted that in the case before the Supreme Court the argument was that the State was bound by an order that was passed in a proceeding to which it was not a party. It was argued that the State, if it was prejudiced, could have moved by way of appeal or review and got the order set aside and that not having been done, it was bound by the order. Krishna Iyer J. in that case merely pointed out that no right of review or of appeal under the provisions of the Punjab Securities Land Tenures Act 'can be availed of by the State as of right'. Krishna Iyer J., however, did not hold that the State could not appeal even with leave of Court.
11. Section 96 of the Civil P. C. and Order 43, Rule 1 have enumerated the decrees and orders against which appeal will lie. But the question in this case is whether a person who is seriously prejudiced by an order can appeal against that order even though he was not made a party to the proceeding in which the order was passed. The Code of Civil Procedure does not contain any bar. In the case of Securities Insurance Company (1894) 2 Ch 410 Lindley L.J. at page 413 observed :
'I understand the practice to be perfectly well settled that a person who is a party can appeal (of course within the proper time) without any leave, and that a person who without being a party is either bound by the order or is aggrieved by it, or is prejudicially affected by it, cannot appeal without leave. It does not require much to obtain leave. If a person alleging himself to be aggrieved by an order can make out even a prima facie case why he should have leave he will get it; but without leave he is not entitled to appeal.'
12. This dictum of Lindley L.J. has been consistently accepted and followed by the High Courts in India A Division Bench of the Bombay High Court, in the case of The Province of Bombay v. Western India Automobile Association AIR 1949 Bom 141, was faced with this question and Chagla C. J. held :
'But it is recognised that a person who is not a party to the suit may prefer an appeal if he is affected by the order of the trial Court, provided he obtains leave from the Court of Appeal. Therefore, whereas in the case of a party to a suit he has a right of appeal, in the case of a person not a party to the suit who is affected by the order he has no right, but the Court of Appeal may in its discretion allow him to prefer an appeal.'
13. In the case of Nookala Setharamaiah v. Kotaish Naidu : [1971]1SCR153 , Shah J. took note at page 1355 of the line of Indian decisions which have followed the dictum of Lindley L.J. in the case of Securities Insurance Company, Shah J. observed that it was settled by a long course of authorities that a person who had not been made a party to a proceeding might still appeal with leave of the Appellate Court, provided he might have properly been made a party to the proceeding. Although there was a difference on some other point between Shah J. and Hegde J. and Grover J., on the question of appealability Hegde J. and Grover J. did not express any dissenting opinion.
14. In the case of Smt. Jatan Kanwar Golcha v. Golcha Properties Private Ltd. (In Liquidation) : [1971]3SCR247 the question was whether the appellant was debarred from filing an appeal because he was not made a party to a proceeding under the Companies Act. The High Court was of the view that the only remedy of the appellant was by way of a suit after obtaining leave of the Company Judge under Section 446 of the Act. The Supreme Court held at p. 376 of the report : --
'In our opinion, apart from Rule 139 to which reference has been made by the High Court, the Official Liquidator as well as the learned Company Judge were bound by the rules of natural justice to issue a notice to the appellant and hear her before making the order appealed against. If there was default on their part in not, following the correct procedure it is wholly incomprehensible how the appellant could be deprived of her right to get her grievance redressed by filing an appeal against the order which had been made in her absence and without her knowledge. It would be a travesty of justice if a party is driven to file a suit which would involve long and cumber-some procedure when an order has been made directly affecting that party and redress can be had by filing an appeal which is permitted by law. It is well settled that a person who is not a party to the suit may prefer an appeal with the leave of the appellate Court and such leave should be granted if he would be prejudicially affected by the judgment.'
15. This case was sought to be distinguished on the ground that this was a decision under the Companies Act and the law laid down could not be the general law. We are unable to accept this contention. The Supreme Court has not come to the decision on the basis of any specific provision of the Companies Act; but the Supreme Court has referred to the well settled law of the land.
16. We were referred to a large number of decisions of various High Courts on this point but it is not necessary to discuss those judgments in view of the clear enunciation of law by the Supreme Court in the case of Jatan Kumar Golcha : [1971]3SCR247 . In our opinion, the appellant was entitled to prefer this appeal with leave of the Appeal Court. The appeal cannot be dismissed in limine as not maintainable.
17. Mr. Mitra, appearing on behalf of the appellant, has argued that some of the High Courts have gone to the extent of holding that even leave of Court is not necessary for a party aggrieved to prefer an appeal. It is not necessary to express any opinion on that aspect of the matter because in the instant case leave was in fact obtained for filing this appeal.
18. On behalf of the Respondents, it has next been argued that in any event, the order is not appealable. It was argued that this was an interim order of injunction which was passed under Order 39, Rule 3. Under Order 43, Rule 1 such an order had not been made appealable.
19. Order 39 Rules 1 and 2 set out the cases in which temporary injunction may be granted. Rule 3 of Order 39 lays down that before granting injunction, Courts must direct notice to opposite parties. It also provides that where it appears to the Court that it was necessary to grant injunction without any delay, then the Court may grant injunction without giving any notice, but the Court must record its reasons for granting injunction and also require the applicant to send to the opposite party a copy of the application for injunction together with a copy of the affidavit, a copy of the plaint and copies of such other documents on which reliance has been placed. Order 39 Rule 3, in our opinion, merely lays down the procedure for passing orders of injunction under Rule 1 and Rule 2. Order 39 Rules 1 and 2 have been made specifically appealable under Order 43, Rule l(r). We were referred to the case of L. D. Meston School Society v. Kashi Nath Misra : AIR1951All558 in which a Division Bench of the Allahabad High Court held that whenever a Court passed an ex parte order of injunction, it was to be construed to be an order passed under Rule 1 or Rule 2 and as such, an appeal lay under Order 43, Rule 1(r). The Allahabad High Court observed that when a Court passed an ex parte order after exercising the discretion vested in it under Rule 3 it passed an order under Rule 1 or Rule 2.
20. In the case of Shah Babulal Khimji v. Jayaben D. Kania : [1982]1SCR187 , it was held that there was no inconsistency between Section 104 of the Civil P. C. read with Order 43, Rule 1 and the appeals under the Letters Patent and there was nothing to show that the Letters Patent in any way excluded or overrode the application of Section 104 read with Order 43 Rule 1 or to show that these provisions would not apply to internal appeals within the High Court. It was held in that case that an order of the trial Judge refusing to appoint a Receiver or to grant an ad interim injunction was undoubtedly a judgment within the meaning of the Letters Patent both because Order 43 Rule 1 applied to internal appeals in the High Court and because it would be a judgment within the meaning of Clause 15 of the Letters Patent. In our opinion, the objection as to the appealability of the order is also without any merit. It has further been alleged that fraud has been practised upon the importer and, therefore, the order of injunction passed by the lower Court should not be disturbed.
21. In the case before us, the Letter of Credit that was opened was a confirmed and irrevocable Letter of Credit and its implications are well-known and well-settled. The Supreme Court in the case of Tarapore and Co. Madras v. V/O Tractoro export Moscow : [1969]2SCR920 observed that it is a mechanism of great importance in the international trade and any interference with that mechanism was bound to have serious repercussions on the international trade. Except under very exceptional circumstances, the Court should not interfere with that mechanism. In that case, a suit was brought by the plaintiff alleging that machinery supplied was not up to the contract. But the Supreme Court held that the Court would not be justified in granting temporary injunction restrainng the Bank as well as the seller from taking any further steps in pursuance of the Letter of Credit that was opened. It was observed at page 896 para 8 :
'For our present purpose we shall assume without deciding that the allegations made by the Indian Firm are true. We shall further assume that the suit as brought is maintainable though Mr. Kumaramangalam seriously challenged its maintainability. But yet, in our judgment, the learned trial Judge was not justified in law in granting the temporary injunctions appealed against. Ordinarily this Court does not interfere with interim orders. But herein legal principles of great importance affecting international trade are involved. If the orders impugned are allowed to stand they are bound to have their repercussion on our international trade.'
22. The Supreme Court quoted with approval a passage from the judgment of Jenkins L.J. in the English case in Hamzeh Malas and Sons v. British Imex Industries Ltd. (1958) 2 QB 127 :
'We have been referred to a number of authorities, and it seems to be plain enough that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties as to whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that banker's confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice.
There is this to be remembered, too. A vendor of goods selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. That is of no mean advantage when goods manufactured in one country are being sold in another. It is, furthermore, to be observed that vendors are often reselling goods bought from third parties. When they are doing that, and, when they are being paid by a confirmed letter of credit, their practice is --and I think it was followed by the defendants in this case -- to finance the payments necessary to be made to their suppliers against the letter of credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have the effect of 'freezing' if I may use that expression the sum in respect of which the letter of credit was opened.'
23. The question was examined by the Calcutta High Court in the case of B. S. Ahuja Company Pvt. Ltd. v. Kaluram Mahadeo Prasad : AIR1983Cal106 . In that case, it was observed, after referring to Halsbury's Laws of England, 4th Edition, Volume 3 :
'After the letter of credit is issued the issue of credit duly notified to the seller creates a new contractual nexus and renders the banker directly liable to the seller to pay the purchase price upon tender of the documents. It was also emphasised that the banker was not entitled to rely upon the terms of the contract between the buyer and the seller which might permit the buyer to reject the goods or to refund payment for them and conversely, the buyer was not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods were defective.'
24. On behalf of the Respondents, our attention was drawn to the case of United Commercial Bank v. Bank of India : [1981]3SCR300 and also to certain observations made in para 37 and in particular on the following passage at p. 1437 : --
'Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the promise of the paying or negotiating banker, the beneficiary cannot claim against the paying banker, and it is the paying banker's duty to refuse payment. The documents must be those called for, and not documents which are almost the same or which will do just as well.'
25. In that case it was observed that the description of the goods on the relative bill of lading must be the same as the description in the letter of credit, that is, the goods themselves must in each case be described in identical terms, even though the goods differently described in the two documents are, in fact, the same. The Supreme Court went on to observe at page 1438 that in view of the banker's obligation under irrevocable letter of credit to pay, his buyer customer cannot instruct him not to pay. The Supreme Court again observed at page 1438 :
'A bank which gives a performance guarantee must honour that guarantee according to its terms. In Harbottle R. D, (Mercantile) Ltd. v. National Westminster Bank Ltd. (1977) 3 WLR 752, Kerr. J. considered the position in principle. We would like to adopt a passage from his judgment at p. 761 : It is only in exceptional cases that the Courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The Courts are not concerned with their difficulties to enforce such claims; these, are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantee. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the Courts. Otherwise trust in international commerce could be irreparably damaged.'
26. It was re-emphasized by A. P. Sen J. in that judgment that the banker was not bound or entitled to honour the Bills of Exchange drawn by the seller unless they, and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit. It was further emphasized :
'Such documents must be scrutinised with meticulous care. If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not.'
27. In the case before us, all the requisite documents were sent to the Central Bank of India. Under the terms of the Letter of Credit, a certificate to the effect that a duplicate set of non-negotiable documents had been directly sent in advance to Hanuman Synthetics Limited was also given. It was for the Central Bank of India to be satisfied whether the documents that were tendered to it were in order. The Central Bank of India was satisfied about the documents and accepted the documents and forwarded the documents along with the bill of exchange to the Respondent No. 1 as early as on March 24, 1983. The Respondent No. 1 accepted the bill of exchange which was made out in favour of the appellant. In fact, the appellant received payment even before the due date and refunded the amount on March 30, 1983 because the amount had not become due on that date.
28. These facts are not disputed. On April 2, 1983 the Central Bank of India wrote to the United Commercial Bank 'We acknowledge the receipt of above documents and confirm that the bill will be due for payment on 15-7-83, on which date you may claim reimbursement from Manufacturer Hannover Trust Co., New York as per L/C terms.'
29. It is not the case of the Central Bank of India that it found that the documents were not in terms of the Letter of Credit and, therefore, they were withholding payment. If the terms of the Letter of Credit have been complied with to the satisfaction of the Central Bank of India, there cannot be any reason for withholding the payment. It was the buyer who instructed the Central Bank of India not to pay and this is precisely what the buyer cannot do. The Supreme Court in the case of United Commercial Bank v. Bank of India, : [1981]3SCR300 that 'In view of the banker's obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not to pay,' If the buyer has suffered in any way, it can sue the seller for damages. But as has been emphasized by Jenkins LJ.. ip British Imex case that opening of a confirmed Letter of Credit constitutes a bargain between the banker and the vendor of the goods. It is for the banker to be satisfied whether proper documents have been tendered in terms of the Letter of Credit and if the banker is so satisfied and accepts the documents it cannot refuse to pay. In this case, a dispute may have cropped up between the vendor and the purchaser, but that cannot be the reason for 'freezing' the sum in respect of which the Letter of Credit was opened.
30. The contention that payment was stopped on the ground of discrepancies in the two sets of documents that were sent cannot also be upheld in the facts of this case. All the documents as required by the letter of credit were forwarded to the Central Bank of India on March 18, 1983. The documents were presented to the importer by the Central Bank of India along with the bill of exchange on 24th March, 1983. Both the Central Bank of India and the Respondent No. 1 had ample time and opportunity to reject the documents on the ground of alleged discrepancies. They, however, did not do so. It was only on July 6, 1983 and only after the dispute about the clearance of the goods arose with the customs-authorities, Khaitan & Co., on behalf of the Respondent No. 1, instructed the Central Bank of India to repudiate its liability under the Letter of Credit. It was not the case of the Central Bank of India nor the Respondent No. 1 at any stage that the documents were not in order and payment under the Letter of Credit would not be made on that ground. The documents have not only not been returned on the ground of discrepancy but have been retained and relied upon for obtaining delivery of the goods. The Respondents cannot be heard to say now that payment will not be made in terms of the Letter of Credit because of the discrepancies that are now being pointed out.
31. There is another aspect of the matter. The Letter of Credit that was issued was specifically made subject to Uniform Custom and practice for Documentary Credit (1974 Revision). Article 8(a), (b), (c), (d), (e) and (f) and Article 9 which are important for our purpose are quoted below :--
'Article 8. (a) In documentary credit operations all parties concerned deal in documents and not in goods.
(b) Payment, acceptance or negotiation against documents which appear on their face to be in accordance with the terms and conditions of a credit by a Bank authorised to do so, binds the party giving the authorisation to take up the documents and reimburse the bank which has effected the payment, acceptance or negotiation.
(c) If, upon receipt of the documents, the issuing bank considers that they appear on their face not to be in accordance with the terms and conditions of the credit, that bank must determine, on the basis of the documents alone, whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.
(d) The issuing bank shall have a reasonable time to examine the documents and to determine as above whether to make such a claim.
(e) If such claim is to be made, notice to that effect, stating the reasons therefor, must, without delay, be given by cable or other expeditious means to the bank from which the documents have been received (the remitting bank) and such notice must state that the documents are being held at the disposal of such bank or are being returned thereto.
(f) If the issuing bank fails to hold the documents at the disposal of the remitting bank, or fails to return the documents to such bank, the issuing bank shall be precluded from claiming that the relative payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.
Article 9. Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification of legal effect of any documents, or for the general and/or particular conditions stipulated in the document or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented thereby, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers or the insurers of the goods or any other person whomsoever.'
32. As will appear from the facts of this case the Central Bank of India, upon examination of the documents, considered them to be in accordance with the terms and conditions of the credit. The Central Bank of India did not by cable or by any other expeditious means or at all inform the appellant that the documents were being held at the disposal of the appellant or were being returned. On the contrary, the Central Bank of India actually confirmed that the Bill of Exchange would be paid on April 15, 1983. The Central Bank of India is now precluded from claiming that the acceptance or negotiation of the documents was not effected in accordance with the terms and conditions of the credit.
33. The allegation of fraud is equally unconvincing. The observation of the Supreme Court in the case of United Commercial Bank v. Bank of India : [1981]3SCR300 'Except possibly in clear case of fraud of which the banks have notice, the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts' cannot also be of any assistance to the Respondent No. 1 in this case. The discrepancies that are now being pointed out in the two sets of documents are trivial and of no consequence. Under the contract the goods had to be of South Korean/Japanese origin. Place of origin was shown in one set of document as Japan and in another as Korea. The date of departure of the Vessel was mentioned in one set and was left blank in another. The Certificates of origin granted by the Singapore-Indian Chamber of Commerce bore two different dates. The Respondents have been unable to show how they have been prejudiced by these discrepancies. In order to make out a case of fraud, the Respondents must show something apart from trivial discrepancies. The vendor has not derived any advantage from these discrepancies nor have the Respondents suffered any loss or detrimentin any way. The Respondents have not been able to make out any case of fraud at all much less 'a clear case of fraud.'
34. It was next contended that the Respondent No. 1 had entered into a contract for purchase of viscose fibre and the letter of credit was opened for that purpose. What was shipped was polyester fibre. The Respondent No. 1, therefore, was entitled to instruct the bank not to make any payment in terms of the letter of credit.
35. Reliance was placed in this connection on a judgment of the Court of Appeal in the case of Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. (1978) 1 All ER 976. Mr. Deb strongly relied on the observation of Lord Justice Denning that 'When a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit.' Lord Denning went on to observe that to this general principle there is an exception in the case of 'What is called established or obvious fraud to the knowledge of the bank'. The Respondent No. 1 has contended that this is a case of fraud to the knowledge of the Central Bank of India and the bank cannot make any payment under the letter of credit.
36. It is to be noted that Lord Denning referred to the case of Sztejn v. Henry Schroder Banking Corpn. (1941) 31 NY Supp 2 d 631 at 633 as an exception to the strict rule. That was a case where the seller had intentionally failed to ship any goods ordered by the buyer. In such a case where the seller's fraud had been called to the bank's attention before the drafts and documents had been presented for payment, it was held that the principle of the independence of the bank's obligation under the letter of credit could not be extended to protect the unscrupulous seller.
37. But that was a case where the shipping documents were forged. Lord Denning emphasized at page 982 'that case shows that there is this exception to the strict rule; the bank ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances when there is no right to payment.'
38. Browne L. J. in his concurring judgment observed at page 984 : --
'As Lord Denning M. Rule has said, it is well established that in the case of a confirmed irrevocable credit in respect of a contract for the sale of goods the confirming bank is not in any way concerned with disputes between the buyers and the sellers under the contract of sale which underlies the credit. But I agree also that it is established that there is at any rate one exception to this rule. Lord Denning M. Rule has already referred to the New York case of Sztejn v. J. Henry Schroder Banking Corpn. and has quoted what I said in Bank Russo-Irari v. Gordon Woodroffe & Co. Ltd That exception is that where the documents under the credit are presented by the beneficiary himself and the bank knows when the documents are presented that they are forged or fraudulent, the bank is entitled to refuse payment.' Browne L.J., however, emphasized 'But it is certainly not enough to allege fraud; it must be 'established', and in such circumstances, I should say very clearly established.'
39. Lane L. J. also expressed the view that the fraud must be clear and obvious to the bank to exonerate it from the obligation to pay.
40. The exception to the strict rule is of very limited scope. In order to come within the exception it has to be shown (i) the documents were being presented by the beneficiary himself and (ii) the bank knows the documents are presented that they are forged or fraudulent. The case of Discount Records Ltd. v. Barclays Bank Ltd. (1975) 1 All ER 1071 was referred by Browne L. J. to illustrate the point that it was not enough to allege fraud; but fraud must be clearly established.
41. In the case of Discount Records Ltd, a French Company entered into an agreement with an English Company to sell 8625 gramaphone records and 825 cassettes specified in the agreement. An irrevocable letter of credit was opened with a bank in France. The goods were shipped in cartons. When the cartons were opened it was found that most of the cartons were empty or contained rubbish and also some goods that were not ordered. Only a small quantity of the goods actually ordered had arrived. The English Company brought an action alleging fraud against the French company and sought an interlocutory injunction restraining the bank from paying out any sums to the French Company or to any party pursuant to the irrevocable letter of credit. Megarry J. in that case refused to grant the prayer of injunction and observed at page 1074 : --
During the argument on this point before me, the familiar English phrase 'Fraud unravels all' was also discussed However, it is important to notice that in the Sztejn case ((1941) 31 NY Supp 2d 631) the proceedings consisted of a motion to dismiss the formal complaint on the ground that it disclosed no cause pf action. That being so, the Court had to assume that the facts stated in the complaint were true. The complaint alleged fraud, and so the Court was dealing with a case of established fraud.
I should also add that on the facts required to be assumed in the Sztejn case the collecting bank there was not a holder in due course, who would not be defeated by the fraud, but was merely an agent for the fraudulent seller.'
42. It is of interest to note that in that case also the allegation was of. lack of correspondence between the documents and the goods. Megarry J. also pointed out that in that case the seller had already been paid by the bank which discounted the bill. The result of the injunction would be to prevent the banks concerned from honouring their obligations.
43. The facts of the case of Discount Records Ltd. (1975-1 All ER 1071). are very similar to the facts in our case. The allegation is that the goods were not in conformity with the description in the documents. There is also an allegation of fraud. The seller has already been paid by the appellant bank by which the documents have been negotiated. The appellant is a holder in due course. The effect of the injunction will be to prevent the Central Bank from honouring its oligation to the appellant bank.
44. The law is well-established that the bank which has opened a letter of credit is not concerned with the relationship between the seller and the customer; nor with the question whether the seller had performed its contracted obligation or not. The bank is also not concerned with the question whether the seller is in default in any way or not. The machinery and the commitment of the bank are on a different level. It has been emphasized by the English Courts and also by the Supreme Court that the bank must be allowed to honour its commitments under a letter of credit free from interference by the Courts; otherwise, trust in international commerce will be irreparably damaged. The dispute as to the sufficiency of the performance between the buyer and the seller or between the seller and the buyer cannot be the reason for withholding the payment under a letter of credit. The bank is only required to see whether the event has happened on which its obligation to pay has arisen.
45. In this case, the Central Bank was required to pay in terms of the letter of credit against certain documents. The documents have been duly tendered and accepted by the Central Bank and the event has happened on which the Central Bank is now obliged to pay in terms of the letter of credit. Whether the goods that have been delivered are of merchantable quality or not or whether the goods are up to the contract or not or whether they are of the specified quality or quantity cannot be gone into by the bank. Similarly, the question whether the goods correspond with the description is also a question that must be resolved by the buyer and the seller in an appropriate proceeding. But the Central Bank which has opened a confirmed and irrevocable letter of credit cannot refuse to pay even when all the terms of the letter of credit have been fulfilled to its satisfaction on the plea that the goods are not up to the contract or do not correspond with the description. The bank is not entitled to withhold payment after its obligation to pay has arisen merely because an allegation of fraud has been made against the seller. As Browne L. J. emphasized in the case of Edward Owen that it was not enough to allege fraud. If that was possible in law, all that a buyer had to do to stop payment under an irrevocable letter of credit was to allege fraud against the seller. It is very easy to allege fraud whenever there is a dispute as to quantity or quality of the goods. But that cannot be the ground on which the bank will be entitled to refuse payment. As Lord Denning has emphasized that the rule, in the case of a confirmed irrevocable credit in respect of contract for the sale of goods, is that the confirming bank is in no way concerned with disputes between the buyer and the seller as to the contract of sale which underlies the credit and it is a strict rule. In order to come within the exception, the buyer must not only allege but clearly establish that the documents that were presented by the beneficiary were forged or fraudulent.
46. It is difficult to see how the principles laid down in the case of Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. (1978) 1 All ER 976 help the contention of the Respondent No. 1 in any way at all. In the case before us, the only allegation is that the goods that have been shipped are Polyester Fibre and not Viscose Fibre. In other words, the goods do not correspond with the description. It has to be noted that it is the allegation of the customs department. The Respondent No. 1 has not established in any way that the goods are not in conformity with the description given. At the highest it is a simple contractual dispute between the buyer and the seller. But merely because this allegation has been made, the Central Bank cannot resile from its obligation to pay which has arisen by reason of its acceptance of the documents under the terms of letter of credit and which obligation it has already acknowledged in writing to the appellant. The Central Bank must honour that obligation. The Court cannot interfere with that obligation of the bank only because a suit has been instituted by the buyer alleging fraud on the ground that the goods that have been shipped are polyester fibre and not viscose fibre.
47. It has also to be noted that in this case there is nothing more than a mere allegation of fraud against the Respondent No. 3 in the plaint. This is not a case where the goods were not shipped at all and the bill of lading was forged as in the case of Sztejn v. Henry Schroder Banking Corpn. (1941) 31 Ny Supp 2d 631. Fraud has not been established in any way. As Browne LJ emphasized that fraud has to be 'established' and 'very clearly established.'
48. In any event, there is not a whisper of allegation of fraud against the appellant Bank. The documents had been negotiated in course of its usual banking business. The documents were presented in terms of the letter of credit to the Central Bank. The Central Bank not only did not decline to accept the documents on the ground that the documents were forged or fraudulent, but actually confirmed that payment will be made on the 15th April, 1983. There is now an irrevocable obligation of the Central Bank to pay the appellant Bank and that obligation does not in any way depend on the correct resolution of the dispute that has arisen between the seller and the buyer or between the buyer and the customs department.
49. It has also to be noted that under Article 9 of the Uniform Customs & Practice for Documentary Credit the banks do not assume any liability or responsibility, inter alia, for 'the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented thereby'. It is also of significance that the Respondent No. 1 has not repudiated the contract on the ground of fraud. It has not rejected the goods. It has not claimed damages on account of non-delivery of the goods or wrong description of the goods in the shipping documents. The Respondent No. 1 has lodged a bill of entry at Calcutta Port and is trying to get the goods cleared by the customs authorities. It has taken delivery of the goods and is claiming title to the goods on the strength of the documents that have been forwarded under the letter of credit. On the strength of the title derived from these very documents, it is trying to clear the goods from the Customs authorities. We were told that the dispute between the Respondent No. 1 and the Customs authorities is now under adjudication. The Respondent No. 1 has not accepted the contention of the Customs authorities that the disputed goods are not viscose fibre. We specifically inquired in course of the hearing of this case about the stand taken by the Respondent No. 1 before the Customs authorities. We were told that the Respondent No. 1 had not yet filed their objection in the adjudication that was going on. The important point is that the claims of the Customs authorities are being disputed. The Respondents are still trying to clear the goods and claiming title to the goods on the strength of the documents that had been negotiated under the letter of credit. We fail to see how payment can be withheld by Central Bank of India on the allegation that the documents were forged or fraudulent under these circumstances.
50. Mr. Mitra, appearing on behalf of the Appellant Bank, has also drawn our attention to the fact that no relief has been claimed against the exporter either in the plaint or in the petition that was presented in the Court below. The role of the United Commercial Bank in this transaction was known to the Respondent No. 1. In fact, the United Commercial Bank was specifically mentioned by name in the letter of credit and also in the advice, given for opening the letter of credit by the Respondent No. 1. The documents that were sent to the Respondent No. 1 bear the stamp of the appellant bank. The fact that the documents had been negotiated and the fact that the appellant Bank had already paid the Respondent No. 3 were known to the Respondent No. 1. But in the suit that has, been filed the appellant bank has not been made a party at all. The effect of the injunction that was obtained was to restrain the Central Bank of India from paying the appellant Bank. The seller, the respondent No. 3 has already received payment. If the suit is decreed, the seller will not suffer in any way. The Central Bank of India has nothing to lose. The Respondent No. 1 stands to gain a good deal. It will not have to pay for the goods that have been imported and if it succeeds in the adjudication proceedings before the Customs authorities, it will get the entire consignment of the goods free of cost. The only party which is prejudiced is the appellant bank which was not made a party to the suit at all.
51. This is not a case of established fraud to the knowledge of the Bank. This is simply a case of contractual dispute between the buyer and the seller in which the rights and wrongs are not clear. The dispute has arisen out of a contract of sale and delivery of goods. The contract was for purchase and sale of viscose fibre. The dispute is whether the goods that have been shipped conform with that description or not. The Respondent No. 1 has taken delivery of the goods on the strength of the documents negotiated under an irrevocable letter of credit The dispute has arisen because of the stand taken by the Customs Department There may be a dispute as between the Respondent No. 1 and the Respondent No. 3 about the quality, quantity or description of the goods; but the Central Bank after accepting the documents cannot withhold payment under the irrevocable letter of credit on that account. Its obligation to pay is quite independent of that dispute. The Court cannot also prevent the Central Bank from honouring its obligation to pay by an order of injunction merely because an allegation of fraud has been made. If such practice is allowed to develop, the opening of irrevocable letter of credit will become meaningless and trust in international commerce and banking would be irreparably damaged.
52. In our opinion, in the facts of this case there is not the slightest ground for withholding the payment to the United Commercial Bank. The interim injunction passed by the Court below must be vacated.
53. The appeal is allowed. The order under appeal dated 9th July, 1983 is set aside.
54. The appeal and the application are disposed of on the above terms. The Respondent No. 1, in the facts of this case, must pay the appellant the costs of this appeal.
55. The undertaking given by the Advocate-on-Record for the appellant to file the Paper Book is discharged.
56. The prayer for stay of operation of this order is refused.
Satish Chandra, C.J.
57. I agree.