Super House Leather Ltd. Vs. Saggittarians International Ltd. and anr. - Court Judgment

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civil - injunctions - order 39 rule 1 and 2 of code of civil procedure,1908 - appeal against dismissal of injunction application by civil court - plaintiff-appellant seeking injunction to restrain defendents from operating of letter of credit directed at respondent no. 2 a bank - plaintiff purchased some machinery from defendent no 1 and guaranteed payment by letter of credit - machinery duly installed - not working up to satisfaction of plaintiff - held, no case of injunction made out by appellant - alternative civil remedy available to plaintiff. - - in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious dispute and there should be good prima jade case of fraud and special equities in the form of preventing irretrievable injustice between the parties. it is only in exceptional cases, that is to say, in case of fraud or in case of irretrievable injustice, the court should interfere.g. p. mathur, j. 1. this appeal has been preferred by the plaintiff under order xliii. rule 1 (r). c.p.c. against the order dated 29.1.2002 of civil judge (sr. division) by which the application no. 5c moved by the plaintiff for grant of interim injunction was rejected. 2. the plaintiff m/s. super house leather ltd. filed o.s. no. 423 of 2001, impleading saggittarlans international ltd., calcutta and punjab national bank as defendant nos. 1 and 2. the only relief claimed in the suit is that a decree for permanent injunction be passed in favour of the plaintiff and against the defendants whereby defendant no. 1 be restrained to encash the letter of credit from defendant no. 2 (bank) and the defendant no. 2 be restrained from making payment of letter of credit no. 35 of 2000, dated 12.10.2000 to defendant no. 1. 3. the case of the plaintiff, in brief, is that in pursuance to a concluded contract between the parties, the defendant no. 1 had supplied one toe lasting machine on 27.10.2000 and as per the terms of the contract, the plaintiff had opened a letter of credit bearing no. 35 of 2000 dated 12.10.2000, with the punjab national bank (defendant no. 2). the machine was installed in the premises of the plaintiff on 27.11.2000 but it did not function and the engineers of defendant no. 1 could not succeed in repairing the same and it was making noproduction. the case of the plaintiff further was that the defendant no. 1 played fraud and, consequently, it had instructed defendant no. 2 not to make any payment to defendant no. 1. 4. along with the suit, the plaintiff also moved an application under order xxxix, rules 1 and 2, read with section 151, c.p.c., praying that an ad interim injunction be granted in favour of the plaintiff and against the defendants and thereby the defendant no. 1 be restrained to encash the letter of credit from defendant no. 2 (bank) and also the defendant no. 2 (bank) be restrained not to make payment of letter credit no. 35 of 2000, dated 12.10.2000 to defendant no. 1 till the final disposal of the suit. the injunction application was opposed by both the defendants. the defendant no. 1 filed a counter-affidavit wherein, it was pleaded that the case of the plaintiff that the machine did not work was false and in fact, the plaintiff used the machine for a different kind of work and the damage caused to the same had been repaired by its engineers. the plea of fraud raised by the plaintiff was specifically denied and a further plea was raised that the contract had been settled outside kanpur and, therefore, the court at kanpur had no territorial jurisdiction to entertain the suit. the defendant no. 2 also filed counter-affidavit opposing the injunction application. a specific plea was raised that the bank is under a legal obligation to make payment to defendant no. 1. the learned civil judge (sr. division) held that the plaintiffs had not made out any case for grant of an interim injunction in its favour as refusal of the injunction order would not cause any irreparable injury and it could always claim damages from defendant no. 1. it was further held that under law, the defendant no. 2 cannot be restrained from making payment to defendant no. 1 in view of the letter of credit having been opened in its favour. it was also held that balance of convenience did not lie in favour of the plaintiff. in view of these findings, the injunction application was rejected.5. sri s. k. gupta, learned counsel for appellant has submitted that the defendant no. 1 committed fraud upon the plaintiffs and did not supply the machine for which the parties had entered into a contract. the machine was not a heavy duty machine as had been contracted by the plaintiff and it broke down immediately after installation which could not be successfully repaired by the engineers of defendant no. 1. he has further submitted that it was for this reason that the period of encashment of letter of credit was extended from 90 days to 180 days and in the facts and circumstances of the case, the plaintiff had made out a case for grant of an interim injunction order in its favour. sri pankaj bhatia, learned counsel for defendant no. 1 has submitted that the machine for which the order had been placed and the parties had contracted was in fact supplied. the defect, if any, occurred on account of wrong use by the workers of the plaintiff and the defect had been repaired by the engineers of defendant no. 1. he has further submitted that no injunction order can be passed restraining the bank (defendant no. 2) from honouring the letter of credit or restraining it from making payment to defendant no. 1. 6. a copy of letter of credit has been filed as annexure-4 to the affidavit. this shows that on the application of super house leather ltd., kanpur (plaintiff), an inland irrevocable documentary credit (ilc) was opened in punjab national bank, mall road, kanpur (defendant no. 2) in favour of sagglttarlans international ltd. calcutta (defendant no. 1) and it was mentioned as beneficiary and was numbered as ilc no. 35 of 2000. the period mentioned in this document was 90 days from the date of lorry receipt. annexure-11 to the affidavit is a copy of a letter sent by the bank which shows that at the request of the applicant (plaintiff), the i.l.c. no. 35 of 2000 dated 12.10.2000 was amended and payment term was advanced to 180 days from the date of lorry receipt instead of 90 days as per proforma invoice. it was further mentioned that this amendmentwould be an integral part of original letter of credit. 7. the main question which requires consideration here is, whether and in what circumstance a bank can be restrained from honouring the letter of credit and from making payment to the beneficiary namely, sagglttarlans international ltd., calcutta (defendant no. 1). 8. a similar question has been examined in considerable detail in united commercial bank v. bank of india and others, air 1981 sc 1426, and after referring to several decisions of superior courts in england and u.s.a., the law on the subject was stated as under : 'a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit. in view of the banker's obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not to pay. the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay. the same considerations apply to a bank guarantee. a letter of credit sometimes resembles and is analogous to a contract of guarantee. a bank which gives a performance guarantee must honour that guarantee according to its terms. the opening of a confirmed letter of credit constitutes a bargain between the banker and the seller of the goods which imposes on the banker an absolute obligation to pay.' 9. the question was again examined in u. p. cooperativefederation ltd. v. singh consultants and engineers (p.) ltd., (1988) 1 scc 174, hon'ble sabyasachi mukharji, j. (as his lordship then was) held that commitments of banks must be honoured free from interference by the courts. an irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with. in order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious dispute and there should be good prima jade case of fraud and special equities in the form of preventing irretrievable injustice between the parties. otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get jeopardised. upon bank guarantee revolves many of the internal trade and transactions in a country. in general electric technical services company inc. v. punj sons (p.) ltd. and another, air 1991 sc 1994, it was held that the bank must honour the bank guarantee free from interference from the courts. otherwise trust in commerce, internal and international, would be irreparably damaged. it is only in exceptional cases, that is to say, in case of fraud or in case of irretrievable injustice, the court should interfere. it was further held that if the documentary credits are irrevocable and independent, the bank must pay when demand ts made. since the bank pledges its own credit involving its reputation, it has no defence except in case of fraud. the nature of the fraud that the courts talk about is fraud of 'egregious nature as to vitiate the entire underlying transaction'. in suenska handelshanken v. indian charge chrome and others. (1994) 1 scc 502, it was held that while dealing with performance guarantee and guarantees against advances, the bank cannot be prevented by the party at whose instance the guarantee or letter of credit, was issued, from honouring the credit guaranteed. since the bank pledges its own credit involving its reputation, it has no defence except in the caseof fraud or irretrievable injustice. fraud must be of an 'egregious nature' so as to vitiate the entire underlying transaction. while irretrievable injustice should be of the kind arising in an irretrievable situation which was referred to in the u.s. case of itek corporation v. the first national bank of boston etc. 566 fed. supp. 1210. this rule was reiterated in state of maharashtra and another v. national construction company, bombay and another. 1996 (1) awc 529 (sc) : jt 1996 (1) sc 156, and it was held that a bank issuing a guarantee is not concerned with the underlying contract. the duty of a bank under the performance guarantee is created by the documents itself. once the documents are in order, the bank giving the guarantee must honour the same and make payment. this view has been consistently taken by the apex court in hindustan steelworks construction ltd. v. tarapore and co. and another. jt 1996 (6) sc 295 ; larsen and toubro limited v. maharashtra state electricity board and others. jt 1995 (7) sc 18 and oil and natural gas corporation ltd. v. s.b.i., overseas branch, bombay, (2000) 6 scc 385. 10. there is no dispute that the defendant no. 1 supplied the machine and the same was installed in the premises of the plaintiff. there is absolutely no allegation of any fraud having been played in the opening of inland irrevocable documentary credit (i.l.c.) in favour of defendant no. 1. the plaintiff does not dispute that the bank opened the letter of credit at its instance. the only allegation of the plaintiff is regarding quality of the machine which was supplied by defendant no. 1. the facts pleaded in the plaint cannot have any effect on the obligation of the bank to honour the guarantee and make payment to the beneficiary, namely, defendant no. 1. it has been held in para 43 of the judgment in u. p. co-operative federation ltd. v. singh consultants (supra), that the question of examining the prima fade case or balance of convenience does not arise if the court cannot interfere with theunconditional commitment made by the bank in the guarantees in question. therefore, on the facts of the present case, there is absolutely no ground on which an injunction may be issued restraining the bank from honouring the letter of credit or making payment thereunder to defendant no. 1. 11. the learned civil judge (sr. division) has held that the balance of convenience does not lie in favour of the plaintiff nor it would suffer irreparable loss or injury in the event of refusal of injunction as the plaintiff can always claim damages. we are in agreement with the view taken by the learned civil judge. under the letter of credit, the bank has to pay the price of the machine to defendant no. 1 which has been supplied by it to the plaintiff. the plaintiff admits the supply of the machine but its only grievance is regarding its functioning and not delivering the desired result. the plaintiff can always claim damages for the loss suffered by it and therefore, it is not a fit case where an injunction may be granted against the bank for restraining it from honouring the letter of credit opened by it in favour of defendant no. 1. 12. for the reasons mentioned above, we find no merit in this appeal, which is hereby dismissed under order xli, rule 11, c.p.c.