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Tuesday, March 24, 2015

Injunction suit - Or.VII, rule 11 C.P.C - Rejection of plaint - Letter of Credits & it's acceptance - Malayn Bank had forwarded the documents presented by the Synergic Companies to the Allahabad Bank. Out of four Letters of Credit, Allahabad Bank had accepted the presentation of documents in two Letters of Credit with the consultation of the STC. Only one of the presentation was rejected while there is no information with respect to the response of the Allahabad Bank on presentation of documents of the fourth Letter of Credit. - Even on the Letter of Credit for which the presentation was rejected, the response was made after 19 days while UPC-600 provides that rejection or any objection against the presentation must be communicated to the negotiating bank of the beneficiary within 5 days. - Single judge rightly rejected the plaint as It is not enough to allege fraud but there must be clear evidence both as to the fact of fraud as well as to the bank's knowledge of such fraud. - 2015 S.C. MSK LAW REPORTS


The
learned Single Judge rejected the plaint  of  the  appellants  herein  under
Order VII Rule 11 of the Code of Civil Procedure, 1908.
Division  Bench  of
the Delhi High Court by which the High Court dismissed the appeals filed  by
the appellants.

 M/s.  Millenium  Wires  (P)
Ltd. (hereinafter referred  to  as  "Millenium  Wires")  and  State Trading
Corporation of India Limited (hereinafter  referred  to  as  "STC")   entered
into an Associateship Agreement (hereafter referred to as "the  Agreement"),
for importing continuous  cast  copper  wire  rods  from  Synergic  Material
Services  PTE  Limited,  Singapore   and    Synergic   Industrial   Material
Services, Malaysia (hereinafter referred to as  "Synergic,   Singapore"  and
"Synergic,  Malaysia"  severally   and   collectively   as   the   "Synergic
Companies"). 
 The STC opened 4 Letters of Credit  with  the  Allahabad  Bank
being  Issuing  Bank  and  the  Malayn  Banking  BHD,  Malaysia  being   the
Confirming Bank.

With respect to all these Letters of Credit the  Malayn  Bank  had  released
the payment to the Synergic Companies after the documents were presented  by
them. It was at this stage that the Millenium Wires and STC  approached  the
Delhi  High  Court  by  filing  a  suit  seeking  permanent,  mandatory  and
perpetual injunction  against  the  Synergic  Companies  from  claiming  any
benefit under the Letters of Credit in question and against  the  Confirming
Foreign Bank being Malayn Bank to prevent any action  or  release  of  funds
under the Letters of Credit.

The Malayn Bank filed an application under Order VII Rule 11 of the Code  of
Civil Procedure, 1908.

Apex court held that

In view of that, the following observation of the Court  in  R.D.  Harbottle
(Mercantile) Ltd. v. National Westminster Bank, (1977)  3  WLR  752,  should
suffice:
"Banks must be allowed  to  honour  their  guarantees  without  interference
except in clear cases of notice of fraud to the  bank.  The  merchants  take
risk which are not to be imposed on the banks. Such interference will  deter
trust in international commerce."

We would uphold and restate the law on injunction against  honouring  Letter
of Credit by a Bank as summed up by the learned Single Judge as follows:
(1) The Court must be slow in granting an order  of  injunction  restraining
the realisation of a bank guarantee or Letter of Credit.
(2)  There are two exceptions to the above rule. The first is that  it  must
be clearly shown that a fraud of a grievous nature has  been  committed  and
to the notice of the Bank. The second is that injustice of  the  kind  which
would make it impossible for the guarantor to reimburse  himself,  or  would
result in irretrievable harm or injustice to one of the  parties  concerned,
should have resulted.
(3) It is not enough to allege fraud but there must be clear  evidence  both
as to the fact of fraud as well as to the bank's knowledge of such fraud.

It would suffice to say here that injunctions against the negotiating  banks
for making payments to the beneficiary must be given cautiously as  constant
judicial interference in the normal practices of market can have  disastrous
consequences as it affects the  trustworthiness  of  the  Indian  banks  and
markets.

Furthermore, it appears that the Malayn Bank  had  forwarded  the  documents
presented by the Synergic Companies to  the  Allahabad  Bank.  Out  of  four
Letters  of  Credit,  Allahabad  Bank  had  accepted  the  presentation   of
documents in two Letters of Credit with the consultation of  the  STC.  Only
one of the presentation was rejected while  there  is  no  information  with
respect to the response of the Allahabad Bank on presentation  of  documents
of the fourth Letter of Credit. Even on the Letter of Credit for  which  the
presentation was rejected, the response was made after 19  days  while  UPC-
600 provides that rejection or any objection against the  presentation  must
be communicated to the negotiating bank of the beneficiary within 5 days.

In the circumstances as narrated above and in light of the  settled  law  on
the point of injunction against the banks to  honour  their  guarantees,  we
are of the view that these appeals  are  to  be  dismissed  and  accordingly
appeals are dismissed. - 2015 S.C. MSK LAW REPORTS

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