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
