M/s. Hussain Sheth Ispat Vs. Capital Corp Asia Pvt. Ltd. – Gujarat High Court

I. Case Reference Case Citation : (2023) ibclaw.in 429 HC Case Name : M/s. Hussain Sheth Ispat Vs. Capital Corp […]

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I. Case Reference

Case Citation : (2023) ibclaw.in 429 HC
Case Name : M/s. Hussain Sheth Ispat Vs. Capital Corp Asia Pvt. Ltd.
Appeal No. : R/Special Civil Application No. 5483 of 2023
Judgment Date : 16-Jun-23
Court/Bench : High Court of Gujarat
Present for Petitioner(s) : Mr Mihir Joshi, Sr. Advocate with Ms Amrita M Thakore
Present for Respondent(s) : Mr Rs Sanjanwala, Sr. Advocate with Advocates Mr. Siddharth Sinha, Mr Arvind Parikh, Mr Tabish Samdani and Mr Yohaann Limathwalla for J Sagar Associates, Mr Vishwas K Shah
Coram : Mr. Justice Ashutosh Shastri And Mr. Justice J. C. Doshi
Original Judgment : Download

II. Full text of the judgment

1. Rule returnable forthwith. Learned advocate Mr. Vishwas K. Shah waives service of notice of rule for the respondent No.2 and learned advocate Mr. Siddharth Sinha waives service of notice of rule for the respondent No.3. Though served, none appeared for the respondent No.1.

2. This petition filed under Article 227 of the Constitution of India assails the judgment and order dated 16.3.2023 passed by the learned Commercial Court (“appellate Court” for short) allowing the Commercial Appeal No.1 of 2023 filed by the DBS Bank Limited – respondent No.3, whereby the Learned Appellate Court by vacating injunction has quashed and set aside order below Exh.5 dated 7.5.2022 passed by the learned Commercial Court in Commercial Civil Suit No.10 of 2021.

2.1 The petitioners are the original plaintiffs, whereas the respondents are the original defendants in the Commercial Civil Suit No.10 of 2021. For the sake of bravity and convenience, they are referred to as their status before the learned Commercial Court.

FACTS:

3. Tersely stated facts leading to filing of this petition are that the plaintiffs have filed Commercial Civil Suit No.1 of 2020 before the learned Commercial Court against the defendants for declaration, permanent injunction and other reliefs. The case of the plaintiffs was that M/s Hussain Sheth Ispat is the partnership firm registered under the Partnership Act and the plaintiffs Nos.2 and 3 are its partners. It is further the case of the plaintiffs that they are engaged in the business of ship breaking, trading and manufacturing of iron and steel products having its principal place of business is at Alang, Dist: Bhavnagar. Further, as per the case of the plaintiffs, the defendant No.1 – Capital Corp Asia Private Limited, who claimed to be the owner of the ship namely MV – SENIHA-S (“vessel” for short). The plaintiffs entered into Memorandum of Agreement (“MOA” for short) with the defendant No.1 on 21.4.2021 for purchase of the said vessel for the consideration of US $ 31,58,540/-. As per the terms and conditions of the MOA dated 21.4.2021, the sale was required to be placed and the mode of payment was provided in clause 2 of the said MOA. The payment was to be made through Letter of Credit to be opened from the Punjab National Bank.

4. It is further the case of the plaintiffs that the MOA executed between the plaintiffs and the defendant No.1 underwent many changes from time to time. The first amongst was made on 23.4.2021 and in view of said amendment, opening of the Letter of Credit has been changed from the Punjab National Bank to Canara Bank – defendant No.2. It was further agreed that out of total consideration, US $ 24,58,540/- shall be paid by the Letter of Credit and US $ 7 lakh by way of telegraphic transfer. Subsequent thereto, the Letter of Credit was opened on 26.4.2021 by the defendant No.2 in favour of the defendant No.3. As such, the defendant No.3 acted as a banker of the defendant No.1 which was required to negotiate the Letter of Credit. One of the conditions of the Letter of Credit regarding the payment was that it was to be made after 150 days from the date of physical delivery of the vessel.

5. The MOA again underwent change and as per the first amendment made on 4.5.2021, certain conditions of the Letter of Credit were changed which were duly reflected in the delivery report issued by the defendant No.2. The change was provided in this delivery report that except for the change made in the delivery report, all other terms and conditions to remain the same. The MOA again underwent change on 13.5.2021 . As per the change in the MOA, the entire consideration of US $ 31,58,540/- was to be paid by the Letter of Credit. No payment was to be made through telegraphic transfer as it was provided earlier. Because of the change in the MOA, the value of the Letter of Credit was increased to US $ 31,58,540/-. The said change was reflected in the delivery report issued by the defendant No.2.

6. The MOA initially was provided that the said vessel shall be delivered and taken over at Alang on 21.5.2021, but since the defendant No.1 was not in a position to deliver the said vessel on the said date, the MOA changed on 21.5.2021 and as per the change, the date of delivery of the vessel was deferred to 15.6.2021 and the cancellation date was fixed on 26.6.2021. Again, Letter of Credit was amended on 24.5.2021 and again, further changes were made in the terms of the said Letter of Credit, which were reflected in the delivery report issued by the defendant No.2, which provides that all other terms and conditions remained the same. Subsequent thereto, the defendant No.2 forwarded an email to Mr. Ashit Parikh – broker of the defendant No.1 as well as to the plaintiffs on 28.5.2021 stating that the defendant No.3 has sent the documents for the presentation to negotiate the Letter of Credit. Thereafter, Mr. Ashit Parikh approached the defendant No.2 and it was conveyed that the said vessel was about to sail and reach at Alang on or before 22.6.2021 as promised by the defendant No.1 and further, it was conveyed that the defendant No.1 is required a letter from the plaintiffs to unable them to secure the early release of the said vessel and thus, the plaintiffs are required to pay as per the terms and conditions of the Letter of Credit and according to these instructions, the plaintiffs wrote a letter to the defendant No.2 on 1.6.2021 (However, it is the case of the plaintiffs that draft of the letter was dictated by Mr. Ashit Parikh – broker in his own language).

7. According to the plaintiffs, they will declare their intention that they are accepting the documents when the ship will arrive at Alang and when the notice of readiness be presented. Further, the case of the plaintiffs is that however, the defendant No.2 acted with gross negligence and issued SWIFT MESSAGE contained in the said delivery report dated 3.6.2021 in favour of the defendant No.3 to negotiate the Letter of Credit.

8. Appropos, the case of the plaintiffs that the defendant No.1 has not delivered the said vessel on or before 25.6.2021, as promised, hence, 3rd and 4th amendment to the MOA comes on 22.6.2021 and the accepted delivery time was shifted to 15.8.2021. On 18.8.2021, another amendment was underwent in the MOA. By way of 5th amendment, the expected delivery time is deferred to 30.9.2021 with the date of cancellation fixed on 6.10.2021. Thereafter, the plaintiffs had an extensive communications with the defendant No.1 and with their agents through email, whats app messages etc. The defendant No.1 was giving false excuses for non-delivery of the said vessel, but subsequently, the plaintiffs came to know that the said vessel was arrested by the Indonesian Court and in spite of that, the defendant No.1 was constantly giving false promises. Therefore, the plaintiffs wrote a letter dated 5.9.2021 to the defendant No.1 regarding cancellation of the Letter of Credit bearing No.00302FOUU2111601 for US $ 31,58,540/- and to refund the said amount.

9. According to the plaintiffs, lastly, the plaintiffs and the defendant No.1 entered into 6th and final amendment of the MOA on 17.9.2021 and both of them agreed to cancel the MOA dated 21.4.2021 and shown date of cancellation as 6.10.2021, which was mutually agreed between the plaintiffs and the defendant No.1 that neither of them will have any claim against each other and the defendant No.1 would be free to sell the said vessel to any other party. Pursuant to the final amendment in the MOA by and between the plaintiffs and the defendant No.1, a delivery report was sent by the defendant No.2 on 18.9.2021 to the defendant No.3 that MOA between the plaintiffs and the defendant No.1 has been cancelled and requested the defendant No.3 to confirm that said Letter of Credit stands cancelled.

10. It is alleged in the suit that in spite of the above communication, the defendant No.3 has not confirmed the cancellation of the Letter of Credit and did not agree to cancel the said Letter of Credit and disclosed that the defendant No.3 has discounted the Letter of Credit on the basis of the SWIFT MESSAGE and delivery report dated 3.6.2021 sent by the defendant No.2.

11. Upon such averments and contentions, the plaintiffs contained that the defendants have clearly played fraud upon the plaintiffs and discounted the Letter of Credit even in absence of delivery of the vessel and therefore, the plaintiffs filed Commercial Civil Suit No.10 of 2021 seeking the relief stated herein above.

12. Pending hearing of the suit, the plaintiffs have filed an application under Order 39 Rule 1 and 2 read with section 151 of the Civil Procedure Code, 1908 at Exh.5 seeking following reliefs:-

“(a) During the pendency and final disposal of the suit, the Hon’ble Court be pleased to grant a temporary injunction restraining defendant No.2 from making any payment under the Letter of Credit No. No.00302FOUU2111601.

(b) Pending hearing of this applciation, the Hon’ble Court be pleased to grant ex-parte ad-interim injunction in terms of para (a) above.”

13. Initially, the learned Commercial Court has issued ex parte injunction and after that, on completion of pleadings and having heard learned advocates for both the sides, the learned Commercial Court allowed the injunction application and confirmed the ad interim relief and made it absolute till final disposal of the suit by order dated 7.5.2022.

14. Being aggrieved by the order passed below Exh.5, the defendant No.3 preferred AO No.124 of 2022 under Order 43 Rule 1(r) of the Civil Procedure Code, 1908 before this Court. The Division Bench of this Court vide order dated 10.1.2023 transferred the appeal to the concerned Learned Appellate Court and as such, Commercial Appeal No.1 of 2023 came to be registered before the Learned Appellate Court at Bhavnagar.

15. Having heard learned advocates for both the sides, the Learned Appellate Court allowed the appeal and set aside the order passed below Exh.5 by the learned Commercial Court and vacated the interim relief granted in Commercial Civil Suit No.10 of 2021.

16. Being aggrieved, the plaintiffs have preferred present petition claiming following relief:-

“(A) This Hon’ble Court be pleased to issue a writ of or in the nature of a certiorari or any other appropriate writ, order or direction quashing and setting aside the impugned order dated 16.3.2023 passed by the Commercial Appellate Court at Bhavnagar in Appeal from Order No.1 of 2023 at Annexure E hereto.

(B) Pending the admission hearing and final disposal of the present petition, this Hon’ble Court be pleased to stay and suspend the operation and implementation of the impugned order dated 16.3.2023 passed by the Commercial Appellate Court at Bhavnagar in Appeal from Order No.1 of 2023 at Annexure E hereto.”

17. This Court vide order dated 5.4.2021 issued notice. Vide order dated 13.4.2023, this Court has extended the stay order passed below Exh.16 in Commercial Appeal No.1 of 2023 by the Learned Appellate Court till next date of hearing, which has been continued thereafter during the hearing of this petition.

18. Learned Senior Counsel Mr. Mihir Joshi appears with learned advocate Ms. Amrita Thakore for the petitioners – original plaintiffs. The respondent No.1 is served, but he has chosen not to remain present. Learned advocate Mr. Vishwas K. Shah appears for the respondent No.2 – original defendant No.2 – Canara Bank and Learned Senior Counsel Mr. RS Sanjanwala appears with Mr. Siddharth Sinha for J. Sagar Associates for respondent No.3 – original defendant No.3 – DBS Bank.

SUBMISSIONS ON BEHALF OF THE PETITIONERS/PLAINTIFFS

19. Learned Senior Counsel Mr. Joshi would submit that the order passed by the Learned Appellate Court is perverse, erroneous and passed without application of mind and as such, suffers from illegality, material irregularity and in excess of jurisdiction. He would further submit that the Learned Appellate Court was hearing the AO filed under Order 43 Rule 1(r) of the Civil Procedure Code, 1908. The scope and ambit of the AO is well defined and settled. The Learned Appellate Court cannot reassess the evidence on record and come to the conclusion other than conclusion arrived at by the learned Commercial Court at the first instance under the discretionary jurisdiction. He would further submit that by catena of decisions, it is settled that even if two view are possible, the view taken by the learned Court at the first instance under the discretionary jurisdiction has to be adhered to until it is proved that such view is perverse and against settled principles of law. He would further submit that the Learned Appellate Court has ignored these principles by allowing the AO substituting its view upon the possible view arrived by the learned trial Court under discretionary jurisdiction and as such, has committed serious, but patent error. To support his submission, learned Senior Counsel Mr. Joshi has relied upon decision of the Hon’ble Apex Court in case of Mohd. Mehtab Khan Vs. Khushnuma Ibrahim Khan reported in 2013(9) SCC 221.

20. Learned Senior Counsel Mr. Joshi would further submit that the terms of the Letter of Credit are required to be strictly complied with by the banks in its invocation /encashment, the terms of MOA has to be scrupulously adhered by the issuing bank and negotiating bank i.e. defendant Nos.2 and 3 while negotiating the Letter of Credit. He would further submit that since the Letter of Credit is governed by the terms and conditions of the MOA, the negotiation of the Letter of Credit is subject to fulfillment of the conditions stated in the MOA. He would further submit that the bank inter se cannot agree to ignore or modify or waive its terms. He would further submit that though the Letter of Credit has witnessed various amendments and changes, field 42C stipulates that payment was to be made 150 days from the date of physical delivery of the vessel. He would further submit that Field 48 stipulates that presentation was to be made 21 days from the date of shipment. Point 9 of Field 47A (Additional Conditions) stipulates that document to be presented after receipt of an authenticated SWIFT MESSAGE as under:

“A tested telex or swift advice from the opening bank confirming that buyers have received the notice of readiness from the seller or seller’s agent at Alang that the vessel is ready to be delivered physically to buyers.”

21. Learned Senior Counsel Mr. Joshi would further submit that Point 8 of Field 47A stipulates that notice of readiness would be issued only after the vessel has been arrived at a safe anchorage at Alang, India and is ready for effecting physical delivery. He would further submit that Field 78 of the Letter of Credit made it clear that payment under the Letter of Credit was subject to compliance with the credit terms that “upon receipt of documents at our counter on due presentation on or before 5.6.2021 drawn in compliance with the credit terms we shall remit the fund on due date as per negotiating bank’s instructions”

22. Learned Senior Counsel Mr. Joshi would therefore, submits that both the banks i.e. defendant Nos.2 and 3 i.e. issuing bank and the negotiating bank were independently duty bound to determine whether the conditions stated in the Letter of Credit are fulfilled and only upon fulfillment of the conditions, the Letter of Credit can be negotiated. However, in the present case, the defendant No.1, who is a proposed seller of the vessel, had never given delivery of the vessel to the plaintiffs and as such, committed fraud on the plaintiffs. The DBS Bank i.e. negotiating bank without following conditions of the Letter of Credit, presented the documents, which were not in compliance of the terms and conditions of the Letter of Credit. The defendant No.2 played fraud in collusion and passed SWIFT MESSAGE even in absence of clear acceptance of the documents by the plaintiffs and permitted the defendant No.3 to negotiate the Letter of Credit. In that event, on negotiation of the Letter of Credit, the sale consideration has been received by the defendant No.1 without physical delivery of the vessel and thereby, the plaintiffs became the victim of fraud played by the defendants.

23. Learned Senior Counsel Mr. Joshi would further submit that the Letter of Credit is a separate contract between two bankers and is governed by the UCP 600. However, such practice developed by the International Chamber of Commerce by incorporating UCP, does not absolute. But the issuing bank and the negotiating bank are under the duty to comply with the terms and conditions of the Letter of Credit. He would further submit that though the UCP is a practice developed by the International Chamber of Commerce and operating to the field, in absence of inequitable or unconditional Letter of Credit, the terms and conditions of the Letter of Credit would always govern the negotiation of the Letter of Credit. He would further submit that the banks under the guise of operating UCP 600 cannot modify, or waive the terms of the MOA, which governs the Letter of Credit. For such submission, Learned Senior Counsel Mr. Joshi has relied upon judgment in case of United Commercial Bank Vs. Bank of India reported in 1981(2) SCC 766 as well as Hindustan Construction Co. Vs. State of Bihar reported in 1999(8) SCC 436. Relying upon these judgments, he would submit that the Learned Appellate Court has totally ignored the this aspect and terms and conditions of the MOA, which were governing the Letter of Credit.

24. Learned Senior Counsel Mr. Joshi would further submit that the Learned Appellate Court has misconstrued the word “presentation” regarding documents in background of the UCP 600. He would further submit that the presentation does not mean that the only presentation of documents themselves but also the delivery of vessel thereof. He would further submit that presentation must be complying presentation and it should be in accordance with the terms and conditions of the Letter of Credit. But, in the present case, the Learned Appellate Court has erroneously believed that the negotiating bank has presented the documents to the issuing bank and it was accepted by the plaintiffs and therefore, under the waiver clause of the UCP, the negotiating bank was not required to see that all the conditions of the Letter of Credit are fulfilled. He would further submit that such an approach on the part of the Learned Appellate Court is erroneous and completely against the settled principles of law. He would further submit that the plaintiffs have never accorded the presentation of the document by waiving certain terms and conditions of the Letter of Credit, but the Learned Appellate Court has totally missed to read this aspect, which had been rightly believed by the learned Commercial Court at the first instance.

25. Learned Senior Counsel Mr. Joshi would further submit that the learned Commercial Court at the first instance has rightly believed that the defendant No.3 was duty bound to determine whether the terms of the Letter of Credit were complied with when the defendant No.1 presented the document and that both the banks i.e. negotiating bank and the issuing bank has not taken required care before negotiating the Letter of Credit. The Learned Appellate Court has committed patent jurisdictional error by taking different view against the possible view of the Court at the first instance. He would further submit that finding of the Learned Appellate Court to the effect that the plaintiffs have not raised any dispute as to the presentation of the documents and waived the terms and conditions is clearly and factually incorrect finding. He would further submit that in any circumstances, adherence of the terms and conditions of the Letter of Credit are separate matter along with acceptance of the documents and compliance and thus, the communication of the plaintiffs cannot amend or waive the other conditions of the Letter of Credit. He would submit that in fact, no communication to the effect of waiver of the condition of the Letter of Credit has ever been made and yet, the defendant Nos.2 and 3, hand in glow with the defendant No.1, negotiated the Letter of Credit, which is totally against the terms and conditions. Moreover, since no vessel was ever delivered to the plaintiffs by the defendant No.1, no occasion arises for the defendants to negotiate and discount the Letter of Credit, but ignoring all these aspects, the defendant No.3 has discounted the Letter of Credit. The learned Commercial Court at first instance has rightly observed and held that such act of the defendant No.3 is illegal. However, the Learned Appellate Court has set aside such factual finding, which clearly indicates that the Learned Appellate Court has transgressed its jurisdiction and thereby, has committed error.

26. Learned Senior Counsel Mr. Joshi would further submit that fact of the case apparently disclosed or demonstrated that the plaintiffs became the victim of the fraud played by the defendant No.1, who without delivering the vessel to the plaintiffs, presented documents for discounting the Letter of Credit and such presentation has been considered by the defendant No.3 without considering that whether such presentation of the document is complied with the terms and conditions of the Letter of Credit and as such, the plaintiffs became the victim of the fraud and is one of the important ground seeking special equity in favour of the plaintiffs, which was rightly considered by the learned Commercial Court. He would further submit that since the plaintiffs did not get the vessel and yet the defendant No.3 was permitted to negotiate the Letter of Credit, it was put massive financial burden upon the plaintiffs. He would further submit that in this position, the plaintiffs, who have not received the vessel, would have to pay the sale consideration and that will cause irretrievable prejudice to the plaintiffs and therefore, action on the part of the defendant No.2 and 3 would be extremely unjust and inequitable. He would further submit that the defendant No.1 has its address in Singapore, so there is unlikely chance that even if any decree is passed against the defendant No.1 for recovering the amount which he has already pocketed on encashing the Letter of Credit, therefore, equity runs in favour of the plaintiffs. Learned Commercial Court has discussed all these factual aspects in its order. However, the learned Appellate Court has ignored these aspects and as such, committed patent error, which requires to be corrected by allowing this petition.

27. Learned Senior Counsel Mr. Joshi would further submit that since the terms and conditions were part of the Letter of Credit, it cannot be waived inter se by the banks i.e. defendant Nos.2 and 3. He would further submit that plea of waiver is a question of fact and can be established by proper pleadings of proof. The defendant Nos.2 and 3, who have argued regarding the plea of waiver, are not permitted to take such waiver until it is properly pleaded. For such submission, Learned Senior Counsel Mr. Joshi has relied upon judgment of the Hon’ble Apex Court in case of VM Salgaocar Vs. Board of Trustees of Port of Mormugao reported in 2005(4) SCC 613.

28. Upon such submission, Learned Senior Counsel Mr. Joshi would submit that the learned Appellate Court has committed grave and serious error in upsetting the order passed below Exh.5 by the learned Commercial Court at the first instance under the discretionary jurisdiction and as such, he would submit to allow this petition, and urged to restore order passed below Exh.5 by upturning the judgment and order delivered by the learned Appellate Court.

SUBMISSIONS ON BEHALF OF RESPONDENT NO.2/DEFENDANT NO.2

29. On the other hand, learned advocate Mr. Vishwas K. Shah appearing on behalf of the defendant No.2 Canara Bank in his crisp argument opposed the submission canvassed by the Learned Senior Counsel Mr. Mihir Joshi. He would submit that the Letter of Credit is a contract between two banks, namely issuing bank and the negotiating bank. This Letter of Credit has nothing to do with the contract/ MOA executed between the buyer and the seller and therefore, the terms and conditions of the MOA/contract between the buyer and seller would not ipse dixit applicable to the Letter of Credit. He would further submit that the Letter of Credit has been opened by the plaintiffs with the defendant No.2 on 26.4.2021 and it came to be amended from time to time. On 24.5.2021, the third amendment was made in the Letter of Credit and in that third change, the Letter of Credit dated 24.5.2021 does not spell out that notice for readiness or physical delivery of the vessel would be condition precedent before issuing confirmation of the defendant No.3 for discounting the Letter of Credit.

30. Learned advocate Mr. Vishwas K. Shah would further submit that in view of UCP 600, the negotiating bank had to present the document and if that document is approved by the plaintiffs, it would be incumbent upon the defendant No.2 to issue SWIFT MESSAGE. He would further submit that on 1.6.2021, the plaintiffs have given two letters to the defendant No.2 giving green signal to communicate SWIFT MESSAGE and consequent thereto, the SWIFT MESSAGE was passed by the defendant Nos.2 to defendant No.3 and which has resulted in discounting of the Letter of Credit.

31. Learned advocate Mr. Vishwas K. Shah would further submit that the plaintiffs are guilty of the suppression of material facts. The plaintiffs, who wrote two letters dated 1.6.2021, have produced only one of them and did not produce another one, which has given green signal to the defendant No.2 for passing SWIFT MESSAGE. Said letter was first time produced by the defendant No.2 before the learned Commercial Court along with its written statement. Thus, the crucial document has been withheld and produced by the plaintiffs while seeking equitable relief. Hence, the plaintiffs were not entitled for any discretionary and equitable relief from the Court. He would further submit that the payment due dated 19.11.2021 is reflected in the SWIFT MESSAGE dated 3.6.2021 from the defendant No.2 to the defendant No.3 on the admission of the plaintiffs that the vessel shall arrive on 22.6.2021, which was reflected in the letter dated 1.6.2021 issued by the original plaintiffs to the defendant No.2. Therefore, the condition of paying the amount 150 days after the vessel is arrived, which was between the defendant Nos.2 and 3 i.e. issuing bank and the negotiating bank and upon completion of 150 days, the defendant No.3 who is negotiating bank, which has confirmed negotiating the Letter of Credit, is entitled to encash the amount from the defendant No.2. He would further submit that in view of Article 5 of UCP 600, the issuing bank and the negotiating bank i.e. defendant Nos.2 and 3 has to deal with the document and not with the goods. Thus, before issuing confirmation to the defendant No.3, on 3.6.2021, the defendant No.2 had obtained two letters in view of Article 5 of the UCP 600 from the original plaintiffs, which entitled the defendant No.2 to pass SWIFT MESSAGE containing that the plaintiffs have honoured the presentation of the document.

32. Learned advocate Mr. Vishwas K. Shah would further submit that the grant or refusal of injunction as far as matter under the bank guarantee or Letter of Credit is concerned, the law is well settled that the Court must be circumspect and while granting injunction in the case of invocation of the bank guarantee or Letter of Credit, until the fraud is specifically pleaded and proved with cogent evidence in the case of LC.A. fortiori. He would submit that the learned Appellate Court has not committed any error by reversing the order of the learned Commercial Court at the first instance, which has not considered the settled law on granting injunction on the issue of invocation of the bank guarantee/Letter of Credit. In that facts and circumstances, he would submit that the present petition is bereft of merit and thus, it is required to be dismissed. In support of his submission, he has relied upon recent judgment of the Hon’ble Apex Court in case of Bawa Paulins Vs. UPS Freight Services reported in 2022 SCC Online SC 1551.

SUBMISSIONS ON BEHALF OF RESPONDENT NO.3/DEFENDANT NO.3

33. Learned Senior Counsel Mr. RS Sanjanwala assisted by learned advocate Mr.Siddharth Sinha for J. Sagar Associates for the defendant No.3 DBS Bank Limited would submit that the plaintiffs have not asked any injunctive relief against the defendant No.3. Taking this court through the relief prayed in injunction application as well as in the plaint, he would submit that the plaintiffs have asked relief only against the defendant No.2 and not against the defendant No.3. He would further submit that in spite of said fact, the learned Commercial court had erroneously granted injunction against the defendant No.3, which has rightly been corrected by the learned Appellate court. He would further submit that the Letter of Credit was accepted by the defendant No.2 on 3.6.2021, whereby the defendant No.2 has categorically promised to pay the amount under the Letter of Credit on 19.11.2021. Based on such assurance and promise, the defendant No.3 has acted to its prejudice by discounting the Letter of Credit and released the discounted amount in favour of the defendant No.1 i.e. the beneficiary. He would further submit that since negotiating or discounting of the amount has already taken place in favour of the defendant No.1, grant of injunction was not permissible. However, the learned Commercial Court has committed patent illegality in granting injunction against settled provisions of law, which has rightly been corrected by the learned Appellate Court.

34. In support of his submission, learned Senior Counsel Mr. Sanjanwala has referred and relied upon the judgment of the Hon’ble Apex Court in case of Federal Bank Limited Vs. V.M. Jog Engineering and others reported in 2001(1) SCC 663; in case of Millenium Wires (P) Ltd. vs. State Trading Corporation of India Ltd. reported in 2015(14) SCC 375 and in case of Bawa Pollins (supra).

35. It was further argued that the defendant No.2 opened the Letter of Credit in favour of the defendant No.3 on 26.4.2021. The Letter of Credit thereafter, underwent three amendments, first on 4.5.2020, second on 18.5.2021 and third on 24.5.2021. He would further submit that as finally agreed upon, certain documents were presented as per Field 46A only. Apart from those documents, no other documents inviting notice of readiness was required to be presented in view of Field 46A comes in by way of 3rd amendment in Letter of Credit. He would further submit that the documents as required under Field 46A were duly presented to the defendant No.2 by scrutiny undercover of letter dated 20.5.2021. He would further argue that in the said letter, it was clearly stated that “we have enclosed the documents for your acceptance and payment at maturity. Upon your acceptance, we will negotiate the presented documents under the DC. Advise due date and acceptance by autenticated Swift/tested Telex – we have endorsed the documents amount on the reverse of the DC.”

36. Learned Senior Counsel Mr. Sanjanwala would further submit that these documents presented to the defendant No.2 was not only scrutinized by the defendant No.2, but was also verified and authenticated by the plaintiffs and pursuant to such, letter of acceptance was issued on 1.6.2021 in favour of the defendant No.2 inter alia accepting the documents and permitting discounting of Letter of Credit. He would further submit that in view of acceptance by the plaintiffs itself, the Letter of Credit was negotiated. The defendant No.3 was not required to obtain separate concurrence of the plaintiffs for permission to discount the Letter of Credit. It is only the defendant No.2 who was required to do so and it has obtained permission and get the documents verified from the plaintiffs, which is clearly reflected from the letter of 1.6.2021. This has rightly been appreciated by the learned Appellate Court to deny the injunction application. He would further submit that in fact, this letter was crucial and pivotal and yet the plaintiffs, in order to obtain equitable relief, has suppressed this letter, but it was filed by the defendant No.2 along with its written statement. Thus, it clearly indicates that the plaintiffs were indulged in submitting false statement since the beginning.

37. It is further submitted that since the plaintiffs have wrote a letter dated 1.6.2021 to the defendant No.2 informing the defendant No.2 that they have accepted the documents presented by the defendant No.1 through the defendant No.3 and therefore, there is no reason not to discount the Letter of Credit by the defendant No.3. The plaintiffs were failed to bring to notice that under which pretext or facts or reasons, the defendant No.3 has committed fraud upon the plaintiffs or with the defendant No.2. It was further submitted that considering letter dated 1.6.2021 written by the plaintiffs to the defendant No.2, they cannot plead ignorance that the defendant no.3 has discounted the Letter of Credit without the permission of the plaintiffs since the clear acceptance has been indicated by the plaintiffs in letter dated 1.6.2021.

38. Learned Senior Counsel Mr. Sanjanwala would further submit that the Letter of Credit is a separate contract between the two bankers i.e. Issuing Bank and Negotiating Bank and it is confined by the condition if any operates between the two bankers i.e. Issuing Bank and Negotiating Bank, the Letter of Credit cannot be governed by the separate MOA between the seller and the buyer of the product. He would further submit that whether product is reached to the plaintiffs or not is not a material for the Negotiating Bank. He would further submit that once the documents, which were presented by the seller, which in the present case is the defendant No.1 has been admitted by the defendant No.2, which is Issuing Bank in the present case and further verified by the plaintiffs, which are purchasers in the present case, the task of the defendant No.3 is complete and the defendant No.3 was under contractual obligation to discount the Letter of Credit, which in the present case, the defendant No.3 has done so. The plaintiffs cannot set the case against its letter dated 1.6.2021 and bring something different which was never part of the condition in the Letter of Credit.

39. Upon such arguments, learned Senior Counsel Mr. Sanjanwala has submitted that the learned Appellate court has rightly appreciated all these aspects and found that the learned Commercial Court has acted in ignorance of the settled principles of law. Such finding of the learned Appellate court is having full of reason and backed by the provisions of law and therefore, does not call for interference in the limited jurisdiction under Article 227 of the Constitution of India.

40. Learned Senior Counsel Mr. Sanjanwala would further submit that considering the entire plaint as well as injunction application, at no place, the plaintiffs have levelled allegation of fraud against the defendant No.3 Bank. Considering the pleadings of the plaint, the allegation of fraud is levelled against the defendant No.1 as well as defendant No.2, but not against the defendant No.3 and in that circumstances, one of the main elements being allegation of fraud is missing in the pleadings and since the allegation of fraud is not a part of the pleadings, no such fraud can be alleged against the defendant No.3. He would further submit that the learned Appellate court has rightly appreciated this aspect.

41. Learned Senior Counsel Mr. Sanjanwala would further submit that UCP 600 is the governing principle and process to be followed in case of presentation of the documents and Letter of Credit etc. The learned Appellate court has rightly interpreted the articles of UCP 600 and rightly interpreted these provisions to upturn impugned injunction order. He would further submit that in view of Article 16 of the UCP 600, once the document even if it is discrepant is accepted by the Issuing Bank and further verified by the plaintiffs, which is purchaser of the vessel under UCP 600, the defendant No.3 was at compulsion to negotiate/discount the Letter of Credit, whether the product for which the Letter of Credit has been reached to the purchaser or not is immaterial for discounting the Letter of Credit. In support of such argument, learned Senior Counsel Mr. Sanjanwala has relied upon judgment of Hon’ble Calcutta High Court in case of Navyug Enterprises (P) Ltd, Vs. Bangladesh Krishi Bank reported in (2016) SCC Online Cal 12227 as well as Division Bench judgment which has upheld the learned Single Judge judgment in case of Bangladesh Krishi Bank Vs. Navyug Enterprises (P) Ltd reported in MANU/WB/1021/2019.

42. Learned Senior Counsel Mr. Sanjanwala would further submit that ordinarily the learned Appellate Court should not disturb the finding of the Court at the first instance arrived upon the discretion, however, when the learned Commercial Court has acted in ignorance of the settled principles of law and arbitrarily, the learned Appellate Court is duty bound to interfere with such order to prevent the miscarriage of justice, which in the present case, the learned first Appellate Court has done and rightly, which is not required to be interfered with in the limited jurisdiction under Article 227 of the Constitution of India.

43. Learned Senior Counsel Mr. Sanjanwala would further submit that the plaintiffs have failed to bring out any extraordinary case. The defendant No.3 has acted bona fide and in due compliance with the provisions of law as well as under UCP 600 and therefore no exercise of extraordinary jurisdiction under Article 227 of the Constitution of India to interfere with the impugned order is required. In support of such submission, he has relied upon judgment of the Hon’ble Supreme Court in case of Waryam Singh and another Vs. Amarnath and another reported in AIR 1954 SC 215, Puri Investments Vs. Young Friends and Co. and others reported in 2022(4) Scale 654 as well as in case of Shalini Shyam Shetty and another Vs. Rajendra Shankar Patil reported in (2010) 8 SCC 329.

44. Mainly upon above submissions, learned Senior Advocate Mr. Sanjanwala prays to dismiss this petition with cost.

SUBMISSIONS ON BEHALF OF THE PETITIONERS/PLAINTIFFS IN REJOINDER

45. In reply, insofar as the argument that the plaintiffs have not asked for the relief against the defendant No.3, it is sought to be submitted by the learned Senior Counsel Mr. Mihir Joshi that the Court has always jurisdiction to mould relief appropriate to the pleadings. He would further submit that the Court cannot be hyper-technical so as to deny the relief, which is otherwise equitable in favour of the plaintiffs. Learned Senior Counsel Mr. Joshi having referred to Order VII, Rule 7 of the Code of Civil Procedure and the judgment of the Hon’ble Supreme Court in case of Sopanrao V. Syed Mehmood reported in (2019) 7 SCC 76 as well as in case of Manohar Ramkrishna Shirodkar V. Trimbak Rama Kelkar reported in ILR 1992 Kar 213 to submit that if the equitable jurisdiction is just and proper to grant relief which is not sought in a plaint, in view of Order 7 Rule 7, it can be granted. Therefore, it was submitted by learned Senior Counsel Mr. Joshi that the submission that no relief is asked against the defendant No.3 would not prevent the Court from granting equitable relief if it is just and proper.

46. Further, learned Senior Counsel Mr. Joshi would submit that there is no suppression of material facts on the part of the plaintiffs. The plaintiffs have pleaded about the letter dated 01.06.2021, since it was a format letter and having no much importance, it was not produced along with the plaint. But, the plaintiffs have made pleading of this document and therefore, allegation that the plaintiffs have suppressed material fact has no ground to stand. He would further submit that the judgment of Federal Bank (supra) is not applicable to the facts of the present case. Insofar as Federal Bank (supra) judgment is concerned, it is submitted that it is based upon UCP of 1983 which revised with tasking the Bank to determine whether a presentation is applied with terms and conditions of Letter of Credit or not and therefore this judgment would not be applicable to the facts of the present case. It is further submitted that in case of Federal Bank (supra), the confirming bank had no knowledge of any fraud when it discounted the Letter of Credit and there was no issue of non-compliance with the terms and conditions of Letter of Credit. Whereas in the present case there was a requirement of compliance of terms and conditions of Letter of Credit, mainly the notice of readiness and payment is to be made 150 days after the vessel is arrived.

47. Learned Senior Counsel Mr. Joshi would submit that the judgment of Bawa Paulins (supra) is also on different facts and therefore it is not applicable. Lastly, it is argued that the learned Commercial Court has rightly appreciated the facts of the case to the effect that the fraud was committed upon the plaintiffs and the special equity and irretrievable prejudice was caused to the plaintiffs as the plaintiffs did not receive product i.e. vessel and yet the plaintiffs were required to pay the amount of the said vessel. So, it was a clear case of fraud and which was rightly appreciated by the learned court at the first instance under the discretionary jurisdiction. The learned Appellate court ignoring the scope and ambit of the AO, unsettled the impugned order by substituting its own view upon the discretionary view exercised by the learned Commercial Court and therefore, the order is bad, capricious and against the settled principles of law and thus, learned Senior Counsel Mr. Mihir Joshi prays to interfere with the impugned order passed by the learned Appellate court by allowing this petition and to restore injunction order passed by the learned Commercial Court.

48. No other and further arguments have been canvassed by the learned advocates appearing for the either party.

49. Heard learned advocates for the respective parties in extenso.

ANALYSIS & CONCLUSION

50. It is trite law that the Bank Guarantee/ Letter of Credit is an independent contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the beneficiary and the person at whose instance, the bank has given the Bank Guarantee or issued the Letter of Credit is immaterial and of no consequences. There are exception to this rule. When there is a clear case of fraud or irretrievable injustice or special equity, the court can interfere with by issuing proper injunction. However, the court ordinarily should not interfere with the invocation or encashment of Letter of Credit or Bank Guarantee so long as it is in terms of Letter of Credit or Bank Guarantee.

51. In United Commercial Bank (supra), the Hon’ble Apex court observed that Letter of Credit is not concerned with the contract between the buyer and seller, it is an independent contract between the bankers i.e. Issuing Bank and Negotiating Bank. We deem it fit to quote para 40, which reads as under:-

“It the light of these principles, the rule is well established that 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.”

52. Yet in another case between the Standard Chartered Bank Vs. Heavy Engineering Corporation reported in 2020(13) SCC 574, the Hon’ble Supreme court in para 23 observed following:-

“23. The settled position in law that emerges from the precedents of this Court is that the bank guarantee is an independent contract between bank and the beneficiary and the bank is always obliged to honour its guarantee as long as it is an unconditional and irrevocable one. The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this Rule when there is a clear case of fraud, irretrievable injustice or special equities. The Court ordinarily should not interfere with the invocation or encashment of the bank guarantee so long as the invocation is in terms of the bank guarantee.”

53. In Federal Bank (supra), the Hon’ble Supreme court in para 55 to 57 and 60 has observed following:-

“55 In several judgment of this Court, it has been held that Courts ought not to grant injunction to restrain encashment of Bank guarantees or Letters of Credit, Two exceptions have been mentioned-(i) fraud and (ii) irretrievable damage. If the plaintiffs is prima facie able to establish that the case conies within these two exceptions, temporary injunction under Order 39, Rule 1, CPC can be issued. It has also been held that the contract of the Bank guarantee or the Letter of Credit is independent of the main contract between the seller arid the buyer. This is; also clear from Arts. 3 and 4 of the UCP (1983 Revision). In case of an irrevocable Bank guarantee or Letter of Credit the buyer cannot obtain injunction against the Banker 0n the ground that there was a breach of the contract by the seller. The Bank is to honour the demand for encashment if the seller pima facie complies with the terms of the Bank Guarantee or Letter of Credit, namely, if the seller produces the documents enumerated in the Bank Guarantee or Letter of Credit If the Bank is satisfied on the face of the documents that they are in conformity with the list of documents mentioned in the Bank Guarantee or Letter of Credit and there is no discrepancy, it is bound to honour the demand of the seller for encashment. While doing so it must take reasonable care. It is not permissible for the Bank to refuse payment on the ground that the buyer is claiming that there is a breach of contract. Nor can the Bank try to decide this question of breach at that stage and refuse payment to the seller. Its obligation under the document having nothing to do with any dispute as to breach of contract between the seller and the buyer. As to its knowledge of fraud or forgery, we shall presently deal with it, Knowledge of fraud :

56. Decided cases hold that In order to obtain an injunction against the Issuing Bank, it is necessary to prove that the Bank had knowledge of the fraud.

57.Kerr, J. said in R.D, Harbottle (Mercantile) Lid v. National Westminister Bank Ltd., (1978) Q.B, 146 at 155 at irrevocable Letters of Credit are ‘the life blood of international commerce”.

He said :

“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……..Otherwise, trust in international commerce could be irreparably damaged.”

Denning M,R, .stated In Edward and Owen Engineering Ltd. v. Barclays Sank International Lid. (1978) Q.B. 159 that ‘the only exception is where there is a clear fraud of which the bank had notice”: Browne, LJ. said in the same case : “but it is certainly not enough to alleged fraud, it mast be established” and in such circumstances, I should say, very clearly established”, in Bolvinter Oil S.A.v. Chase Manhattan Bank, (1984) 1 All E.R, 351 at P. 352, it was said ‘where it is proved that the Bank knows that any demand for payment already made or which may thereafter be made, will clearly be fraudulent. But the evidence must be.clear both as to the fact of fraud and as to the bank’s knowledge. It would certainly not be sufficient that this rests Upon the uncorroborated statement of the customer,, for irreparable damage can be done to a bank’s credit in the relatively brief time “before the injunction is vacated”. Thus, not only must ‘fraud’ be clearly proved but so far as the Bank is concerned, it must prove that it had knowledge of the fraud. In United Trading Corp. S.A. v. Allied Ards Bank, (1985) 2 Lloyds Rep, 554, it was stated that there must be proof of knowledge of fraud on the part of the Bank at any time before payment. It was also observed that it “would be sufficient if the corroborated evidence of the plaintiffs usually in the form of contemporary documents and the unexplained failure of a beneficiary to respond to the attack, lead to the conclusion that the .only realistic inference to draw was ‘fraud'”. In Guarantee Trust Co, of New York v, Hanney, (1918) 2 K.B. 623 (KB), the Banker accepted the documents without any knowledge of fraud or falsify and it was held that me defendants could not counter-claim from the Bank. However, it would be the ‘Banker’s duty to refuse the documents which oh their face bear signs of having been altered (See Re Salomon and Nandszus, [l899].92’ L.T. 325. that was a c.i.f. contract. This Court in ITC Ltd. v. Debts Record Appellate Tribunal, [1998] .2 :SCC 70 (at 79) also held that knowledge Of the Bank as to the fraud or forgery had to be prima facie established.

60. The contract between the issuing banker and the paying or negotiating (intermediary) banker may partake of a dual nature. The relationship is mainly that of principal and agent, mandator and mandatory. In order that he may claim reimbursement for any payment he makes under the credit or the indemnify of an agent, the intermediary banker must obey strictly, the instructions he receives, for by acting on them, he accepts then and thus enters into contractual relations with the issuing Bank. The instructions may take the form of an authority either to pay against documents or drafts accompanied by document; or to negotiate drafts drawn either on the issuing banker or on the buyer. The authority may be accompanied by instructions to the intermediary banker to confirm the credit, that is, to place himself in binding contractual relationship with the beneficiary. There is ordinarily no privity between the intermediary banker and the buyer. But the intermediary banker, though initially the agent of the Issuing Bank, may also act as principal in relation to him.”

54. In recent judgment of Hon’ble Supreme Court in case of Bawa Paullins (supra), after considering various previous judgments, observed that letter of credit is used as a mode of ensuring payment and performance of the contractual terms and international transaction once the bank issued, the Letter of Credit confirmed the document, the confirming bank is obliged to pay to the beneficiary on demand, the credit amount and in turn recover the same from the issuing bank. It is further observed that a letter of credit is independent of and unqualified by the contract of sale or underlying transactions. The irrevocable Letter of Credit is autonomous documents. It is further observed that if courts interfere in such transactions, it would be prone to misuse by the party to gain undue advantage leaving the issuing bank at peril in the international financial market. We deem it fit to quote para 34 and 35 as under:-

“34. It is common knowledge that in international transactions, letter of credit is used as a mode of ensuring payment and performance of the contractual terms. A letter of credit is a document issued by a bank (issuing bank) on behalf of a party (applicant) in favour of another party (beneficiary) under which, the issuing bank undertakes to pay to the beneficiary, certain sums of money subject to compliance of the terms and conditions of the letter of credit. In an international transaction, the beneficiary is the seller who requests the applicant (buyer) to furnish a letter of credit from any bank which is recognized worldwide (issuing bank). The letter of credit is issued in favour of a beneficiary on the request of an applicant after furnishing securities as may be demanded by the issuing bank. A seller can ask the issuing bank to honour the letter of credit to his own bank (confirming bank) within a certain maturity date. The seller is required to produce certain documents regarding proof of delivery of goods, commercial invoice, bill of lading, insurance documents etc. before the confirming bank. On scrutiny the confirming bank would ask for advice of the issuing bank to confirm whether the documents produced by the beneficiary is compliant to the terms and conditions of the letter of credit. Once the issuing bank confirms the document, the confirming bank is obligated to pay to the beneficiary on demand, the credit amount and in turn recover the same from the issuing bank.

35. In Hindustan Steel Workers Construction Ltd. V G.S. Atwal & Co. (Engineers) (P) Ltd. [ (1995) 6 SCC 76] this Court held that a letter of credit is independent of and unqualified by the contract of sale or underlying transactions. The autonomy of an irrevocable LOC is entitled to protection and as a rule, courts refrain from interfering with that autonomy. If courts interfere in such transactions, it would be prone to misuse by the applicant party to gain undue advantage leaving the issuing bank at peril in the international financial market.”

55. Thus, it is clear that Letter of Credit is independent contract between bankers governed by condition stated therein. Contract/Agreement between the parties is also autonomous contract regulating purchase and sale of goods being stated therein. Both are operating in different arena. One may not have any bearing over other. Invocation of Letter of Credit can be interfered in explicitly only in case where fraud is pleaded and proved or terms and conditions of Letter of Credit is breached.

56. Before we examine second aspect whether the condition of the Letter of Credit is breached, let us go through the plaint so as to find out whether allegation of fraud is levelled and prima facie proved against the defendant No.3 and as such, first aspect is attracted. On going through the averments made in the plaint as it is, it transpires that in the entire plaint, the allegations of fraud are levelled against the original defendant No.1, more particularly, reading para 10, 11 and 13 of the plaint and some of the allegations are levelled against the defendant No.2. However, there is no whisper of fraud alleged against the defendant No.3. The plaintiffs have not pleaded that the defendant No.3 has committed fraud with the plaintiffs with hand in glow with the defendant Nos.1 and 2. It is settled law that it is not enough to allege fraud, but there must be clear evidence as to the facts of the fraud. At the cost of the repetition, it can be said that on surfacing through the plaint, at nowhere, the plaintiffs have alleged that the defendant No.3 has committed fraud hand in glow with other two defendants. In fact, no relief is asked against the defendant No.3 in the plaint or in the injunction application. Learned Senior Counsel Mr. Mihir Joshi is failed to point out averment of fraud levelled against the defendant No.3 in plaint.

57. On perusal of the records, it shows that the MOA has been entered into by and between the plaintiffs and the defendant No.1 on 21.4.2021 with various conditions. It was initially decided to pay 31,58,540 US $ as part of the purchase price through irrevocable Letter of Credit to be opened from the Punjab National Bank. One of the important conditions of the MOA was that the opening bank to provide necessary instructions to confirming bank to permit discounting of the Letter of Credit upon receipt of appropriate documents from the seller. Meaning thereby, it was the opening bank, which was authorized to pass instructions to the confirming bank to permit discounting of the Letter of Credit and not the plaintiffs. The another important condition was that the SWIFT MESSAGE from the opening bank confirming that buyer shall receive the notice of readiness from the seller or seller’s agent at Alang that the vessel has been physically delivered to the buyer. Another condition between buyer and seller was that the seller shall issue notice of readiness for delivery only after vessel is arrived at safe anchorage at Alang and is ready to affect physical delivery. All these conditions as part of the MOA were operating between the plaintiffs and the defendant No.1. The MOA has witnessed first change on 23.4.2021 and it was considered first amendment, whereby the opening bank has been changed from the Punjab National Bank to the Canara Bank, Bhavnagar – defendant No.2 herein with the further condition that the total amount of sale consideration of the vessel shall be paid through Letter of Credit and that too after 150 days of discounting of the Letter of Credit. Another change was made on 13.5.2021 in the MOA by way of Addendum 2. On 20.5.2021, the MOA witnessed third change called as Addendum 3, where expected time of delivery of the vessel was stated 15.6.2021 and date of cancellation was stated and considered as 22.6.2021. Thereafter, the MOA has witnessed several subsequent changes.

58. As per the MOA, the Letter of Credit was obtained with the Canara Bank i.e. defendant No.2 and the receiving bank or negotiating bank was considered as DBS Bank i.e. defendant No.3. It was an irrevocable Letter of Credit and the applicable rules were UCP latest version. In the first opening of the Letter of Credit, there were certain conditions mentioned, which was a contract between the defendant Nos.2 and 3, and as it is stated earlier, it was irrevocable contract. The prime condition between the defendant Nos.2 and 3 was that the amount of the Letter of Credit shall be recovered by the defendant No.3 from the defendant No.2 150 days after discounting it and from the date of physical delivery of the vessel. In Field 46A, there are certain conditions incorporated when the Letter of Credit was opened.

59. Learned Senior Counsel Mr. Mihir Joshi has pressed his argument on the condition that the issuance of the notice of readiness for delivery of the vessel and the physically delivery to the buyer are the most important condition operating between the defendant Nos.2 and 3 and it continued to operate between the parties throughout in spite of the Letter of Credit has witnessed several changes. In order to examine said submission, it is incumbent to refer the Addendum impugned in the Letter of Credit. The first Addendum was made in the Letter of Credit, which is on page 84 of the paper book, whereupon, Field 46B has been brought on record, which reads as under:-

46B – Documents required

REPALL / FIELD 46A

POINT NO.4 NOW TO BE READ AS A LETTER OF UNDERTAKING FROM SELLERS THAT THEY WILL SUBMIT TO THE BUYERS COPY OF CERTIFICATE FROM PRESENT PORT OF REGISTRY STATING THAT THE TIME OF DELIVERY VESSEL IS FREE OF ENCUMBRANCES

POINT NO.7 NOW TO BE READ AS A TESTED TELEX OR SWIFT ADVICE FROM THE OPENING BANK CONFIRMING THAT THE BUYERS HAVE RECEIVED THE NOTICE OF READNESS FROM THE SELLSER OR SELLERS AGENT AT ALANG THAT THE VESSEL IS READY TO BE DELIVERED PHYSICALLY TO BUYERS

57A- Advise Through Bank BIC / IFSC CODE – DBSSSGSGXXX
BIC / IFSC DESCRIPTION
DBS BANK LTD.
DBAS ASIA CENTRAL MDFC TOWER 3, 12 MARINA BOULEVARD
73Z Sender to Receiver Information ALL OTHER TERMS AND CONDITIONS TO REMAIN SAME

 

60. So, substantial change has been witnessed. Instead of condition of the vessel has been arrived at/anchoring at Alang, it has been changed that tested telex or swift advised from the opening bank confirming that the buyers have received the notice of readiness from the seller or seller’s agent at Alang that their vessel is ready to be delivered physically to buyer. Thus, the condition has been substantially and radically changed. Initially, the condition was that the vessel has been arrived at Alang, but has been replaced with the word that “ready to be delivered physically to the buyer.” The condition of the Letter of Credit was changed upon letter from the plaintiffs dated 4.5.2021 (page 86 of the paper book). Likewise, the amount of Letter of Credit was also enhanced by 70,00,000 US $.

61. On 21.5.2021, the defendant No.1 also wrote letter to the plaintiffs for deleting point No.7 of Field 46B and and be added condition in Field 47A that the document to be presented after receipt of SWIFT MESSAGE as under:-

“A TESTED TELEX OR SWIFT ADVICE FROM THE OPENING BANK CONFIRMING THAT THE BUYERS HAVE RECEIVED THE NOTICE OF READINESS FROM THE SELLER OR SELLERS AGENT AT ALANG THAT THE VESSEL IS READY TO BE DELIVERED PHYSICALLY TO BUYERS.”

62. Consequent thereto, third amendment was taken place in the Letter of Credit incorporating said condition. On 25.5.2021, the defendant No.1 had presented necessary documents for encashing/discounting of the Letter of Credit, which includes bill of sale, notarial certificate, commercial invoices etc. (page 94 to 102 of the paper book). Upon receipt of documents for encashment or discounting of the Letter of Credit, the defendant No.3 forwarded it to the defendant No.1 for confirmation with the following:-

“We enclose documents relating to this drawing as required under the terms of the above documentary credit.

Please handle this document in accordance with the instructions.

We have enclosed the documents for your acceptance and payment at maturity.

Upon your acceptance, we will negotiate the presented document under the DC.

Advise due date and acceptance by authenticated swift /tested telex.

We have endorsed the documents amount on the reverse of DC.”

63. Mr. Ashit Parikh, who was broker of the plaintiff, also sent the documents for approval to the plaintiffs vide email. Consequent thereto, the plaintiffs have approved the documents by format/letter of acceptance on 1.6.2021, which reads as under:-

“FORMAT OF LETTER OF ACCEPTANCE OF USANCE DOCUMENTS TO BE OBTAINED FROM THE IMPORTER CLIENTS IN RESPECT OF DOCUMENTS RECEIVED UNDER LC

Date – 1st June, 2021

From

Hussain Sheth Ispat (Ship Breaking)
Apt No.5D, Alang Ship Yard,
Alang,
Bhavnagar

To,
The Branch in-Charge,
Canara Bank,
Bhavnagar Branch

Dear Sir,

Sub :- Acceptance of documents drawn under import letter of credit No.00302FOU02111601 for vessel towards import of Seniha – S.

Ref : Advance Bill No.____

This bears reference to the documents received under import Letter of Credit established by you covering import of vessel Seniha-S as detailed above and in this regard, WE HEREBY

i. tender our acceptance of documents drawn under subject LC without reservations.

ii. Confirm the due date of bill as ______

iii. Undertake to submit all the necessary documents to ensure transfer of funds.

iv. Undertake to make payment on due date and authorize you to debit out account on the due date the counter value of the bill amount together with interest and such other charges incidental thereto.

This acceptance letter given by us is in continuation of our FLC agreement cum application executed while establishing the Letter of Credit.

Thanking you

Yours faithfully

Authorized signatory”

(Above letter has not been produced by the plaintiffs along with the plaint, but has been produced by the defendant No.2).

64. Another letter was also written by the plaintiffs to the defendant No.2 on 1.6.2021, which reads as under:-

“Date – 1st June, 2021

To,
The Branch Manager,
Canara Bank,
Bhavnagar

Sub – Regarding accepting the documents of vessel Seniha- S

Dear Sir,

We are accepting the documents, the same will accept by us on arrival of ship along with present of notice of readiness. Kindly, inform the DBS bank, Singapore accordingly.

We enclose here with addendum no.3 as per which the delivery will be on or before 22nd June, 2021.

This is for your kind information and please do the needful.

Regards,

Hussain Sheth Ispat (Ship Breaking)
Parnter
Encl – Addendum no.3.”

65. Thus, both the above format of letters indicates that the plaintiffs have accepted the documents which were presented by the defendant No.1 for the purpose of discounting/negotiating/encashing the Letter of Credit. The plaintiffs have instructed the defendant No.2 to inform the defendant No.3 accordingly. The plaintiffs have also mentioned that the delivery of the vessel will be arrived on or before 22.6.2021. Thus, having stated so, the plaintiffs have accepted the documents produced by the seller through the defendant no.3 and reached to the plaintiffs through the defendant No.2 as well as from his broker Mr. Ashit Parikh.

66. Article 16 of the UCP 600 which was governing and applicable rules upon the Letter of Credit provides the clause for discrepant document waiver notice. Article 16 reads as “if the issuing bank or the confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.” Means, until the issuing bank or the confirming bank, in present case defendant No.2, raises any dispute in regards to the document tendered by the defendant No.3 for the purpose of discounting the Letter of Credit, it would be considered as complying presentation. In Article 16A to 16D, various provisions are given as to raise the dispute regarding non-presentation of the documents. It is nobody’s case that the dispute has been raised as per Article 16A to 16D or under any of them. However, this dispute for non-complying presentation has to be raised by the defendant No.2 only. In the present case, even the plaintiffs have not raised any such dispute about noncomplying of the presentation of the documents. In fact, by above stated two format of letters, the plaintiffs have accepted the presentation of the documents which was tendered by the defendant No.3 for discounting/encashing/negotiating of Letter of Credit.

67. Consequent upon two letters, by which the plaintiffs have accepted the presentation of the documents, the defendant No.2 has issued the SWIFT MESSAGE to defendant No.3, which reads as under:-

77 – Narrative

DOCUMENTS FOR USD 3158540.00 UNDER LC REF NO. 00302FOUU211601 HAVE BEEN ACCEPTED TO BE PAID ON 19.11.2021

WE WILL REMIT THE NEGOTIATED AMOUNT AS PER YOUR INSTRUCTIONS ON DUE DATE IF THIS PAYMENT DUE DATE  FALLS ON A SATURDAY OR ON A NON BANKING DAY IN INDIA THEN THE PAYMENT WILL BE MADE ON THE FOLLOWING BANKING DAY PLEASE AVOID DUPLICATION

 

68. At this juncture, we may deem it fit to quote para 11(C) of the reply given by the defendant No.2, which reads as under:-

“The plaintiffs vide letter dated 1.6.2021 informed to the defendant No.2 that they are accepting the documents, the same will be accepted by them on arrival of ship along with the notice of readiness. It submitted that as per the letter dated 1.6.2021 along with the Addendum#3, it is transpired that the ship is about to arrive on 15.6.2021, accordingly, the defendant No.2 informed to the defendant No.3 vide SWIFT MESSAGE dated 3.6.2021 that the documents have been accepted and the amount of the Letter of Credit will be paid on 19.11.2021 assuming that the delivery of the vessel and notice of readiness etc. will be provided on or before 22.6.2021 as per the terms and conditions of the Letter of Credit and the copy of said SWIFT MESSAGE was also forwarded to the plaintiffs as per procedure and not disputed by the plaintiffs. The copy of the aforesaid documents are attach with separate list.”

69. The defendant No.1 has tendered documents to the defendant No.3, which has been forwarded to the defendant No.2 for confirming it as a complying presentation, which was a part of the condition between the defendant Nos.2 and 3 as per the terms and conditions of the Letter of Credit. The defendant No.2 being issuing bank has sent all these documents to the plaintiffs. The broker of the plaintiffs have also sent all these documents to the plaintiffs for confirming it as a complete compliance. The plaintiffs had unequivocally and explicitly accepted the presentation of the documents and considered it as a perfect compliance requirement. Thus, in turn, the defendant No.2 by SWIFT MESSAGE informed the defendant No.3 to discount the Letter of Credit. The plaintiffs himself have accepted that since the vessel was about to arrive on 15.6.2021, it directed the defendant No.2 to inform the defendant No.3 and consequent thereto, on 3.6.2021, a SWIFT MESSAGE was issued by the defendant No.2 to the defendant No.3 for discounting the Letter of Credit with the condition that the defendant No.2 shall pay the amount on 19.11.2021 150 days after the Letter of Credit is discounted. So, there is no breach of the terms and conditions of the contract on the part of the defendant No.2 or defendant No.3. In fact, the plaintiffs by varying the condition itself have allowed to relax the condition from vessel physically arrived to vessel to be arrived and informed that as per the seller’s letter, the vessel is likely to arrive on 15.6.2021 and therefore, the Letter of Credit may be discounted and having confirmed/approved the complying presentation of the document, as per Article 16 of the UCP 600, the defendant Nos.2 and 3 to act upon the Letter of Credit and to pay the amount to the defendant No.1. Learned Senior Counsel Mr. Mihir Joshi failed to point out that how and in what circumstances, the defendant Nos.2 and 3 have done wrong. They have acted as per the instructions of the plaintiffs and discounted the amount of the Letter of Credit. Whether product (vessel) was reached to the plaintiffs or not, was not the issue governed by the terms and conditions of the Letter of Credit. It is a separate contract between the plaintiffs and the defendant No.1 and even that has been relaxed by the plaintiffs as well as the defendant from the “vessel has to be arrived to “vessel to be arrived”.

70. At the cost of the repetition, it can be observed that at no point of time, the plaintiffs had denied or objected the documents tendered by the defendant No.1 and received to the plaintiffs through the defendant No.2 forwarded by the defendant No.3 as well as forwarded through his broker or did not point out any discrepancy therein or issue any notice revising to honour the documents or the presentation as per Article 16 of the UCP 600 within the stipulated time period or even thereafter. Since the plaintiffs did not protest or quarrel about the insufficiency of the document at any point of time, its failure to do so has the effect to admitting those documents and which permits the defendant No.2 as well as defendant No.3 to play on the Letter of Credit and to negotiate it. The banks have to only deal with the documents and documents alone. The bank is not concerned over the issue whether the goods are delivered or not. Support can be derived from the case between Bangladesh Krishi Bank Vs. Navyug Enterprises (P) Ltd (supra), the Division Bench of the Calcutta High Court has observed following:-

“…the bank has to only deal with the documents and the documents alone and it is not the bank’s concern even as to whether the goods covered by the documents exists or not.”

71. In view of above reasons, there is shred of merit in any of the grounds canvassed by learned Senior Counsel Mr. Mihir Joshi appearing for the petitioner. Invocation of Letter of Credit, which can be questioned on two aspects; firstly on fraud and secondly, on non-compliance of the condition of the Letter of Credit, both of which are missing in the present case.

72. Two mere arguments were canvassed by learned Senior Counsel Mr. Mihir Joshi for the petitioner that in view of Order 7 Rule 7 of the Civil Procedure Code, 1908, the Court can mould the relief, if the equity demands. Reliance was placed upon the judgment of Manohar Ramkrishna (supra). Para 14 & 15 of the said judgment observed following:-

“14. Having regard to the facts and circumstances of the case, the learned Judge K.S. Hegde, J, as he then was, held “that the lesser right in plaintiffs’s favour was sufficient to grant the relief prayed for.

15. Under Order 7 Rule 7 the plaint shall state specifically the relief which the plaintiff claims either simply or in the alternative. If any general or other relief is not asked in the plaint, if the Court thinks just and proper, such relief can be granted as if the plaintiff has asked for such relief. This Rule applies to any relief claimed by the defendant in his written statement.”

73. So, conclusions herein above indicates general or the relief which is ancillary to the main relief if has not been asked in the plaint, it can be granted if the Court thinks fit under the jurisdiction of granting equitable relief, but under Order 7 Rule 7 of the Civil Procedure Code, 1908, the Court cannot grant relief if not asked. In case of Sopanrao (supra), the Hon’ble Apex Court in para 11 has observed as under:-

“11. In our view, the aforesaid judgment does not help the appellants and, in fact, helps the respondents. The judgment clearly lays down that the lesser relief or smaller version of the relief claimed or prayed for can be granted. The plaintiffs claimed the status of Inamdars which is a higher position than that of (2008) 17 SCC 491 Mutawalis. The High Court has granted a lesser or lower relief and not a higher relief or totally new relief and, therefore, we reject this contention also.”

74. In the present case, it is undisputed that the plaintiffs have not asked any relief against the defendant No.3, therefore, under the guise of using power under Order 7 Rule 7 of the Civil Procedure Code, 1908, Court cannot grant relief against the defendant No.3. The plaintiffs are required to ask specific relief against the defendant No.3. Until the plaintiffs asked relief against the defendant No.3, the Court under the caption of general or other relief, cannot grant relief against the defendant No.3. Thus, that contention has no substance to stand. In fact, Order 7 Rule 7 of the Civil Procedure Code, 1908 clearly mandates that relief to be specifically asked, the provisions of law contain word “shall” which indicates that asking of relief specifically is the mandatory and the plaintiffs cannot turn away from the provisions of Order 7 Rule 7 of the Civil Procedure Code, 1908 basing himself that the Court under the equitable jurisdiction can mould the relief.

75. The second submission canvassed by learned Senior Counsel Mr. Mihir Joshi was to the effect that under Order 43 Rule 1(r) of the Civil Procedure Code, 1908, the learned Appellate Court enjoys very limited and circumscribe jurisdiction. The learned Appellate Court has committed error by upturning the order passed by the learned Commercial Court under the exercise of discretion. He would further submit that interference at the hand of the learned Appellate Court was not warranted even if the learned Appellate Court held different view. Reference was made to the judgment of Hon’ble Apex Court in case of Mohd. Mehtab Khan (supra). There is no cavil on the proposition of law canvassed or are propounded in the aforesaid judgment. Under Order 43 Rule 1(r) of the Civil Procedure Code, 1908, the learned first Appellate Court enjoys the circumscribe jurisdiction and ordinarily, it cannot interfere with the order impugned arrived at in exercise of discretion. However, if the order passed under discretionary jurisdiction is palpably wrong and passed in ignorance of settled principles of law or patently illegal, to prevent miscarriage of justice, the appellate Court can interfere with such order. In the present case, the learned Commercial Court has totally missed to read and follow the settle principles of law. In a case where injunction is sought against invocation of Letter of Credit, the learned Commercial Court has granted ex parte injunction, which even otherwise, has to be granted in a very rare and exceptional circumstances. What more shocking appears that ex parte injunction was granted with recording satisfactory reason and proper application of mind. The Court is under an obligation to record the reason that why an ex parte order of injunction is required to be passed in the best facts and circumstances of the particular case. Recording of the reason is not mere formality for granting ex parte injunction, but it is a pre-condition. This requirement is consistent with the principle that a party to suit which is being restrained from exercising a right which such party claims to exercise either under statute or under common law. The factor which is waived with the Court to grant ex parte injunction, which is well-defined by the Hon’ble Apex Court in case of Morgan Stanley Mutual Fund Vs. Kartik Das reported in 1994(4) SCC 225. It is undisputed that ex parte injunction has been granted in ignorance of these principles and the factors which is enumerated by the Hon’ble Apex Court in case of Morgan Stanley Mutual Fund (supra). Not only that, thereafter, while hearing the injunction application by parte, the learned Commercial Court without reading UCP 600 in its proper perspective and without bifurcating difference between the MOA and the contract of Letter of Credit, intermixed it and granted stay against the defendant No.3 against whom no relief was ever prayed by the plaintiffs and therefore, exercise of power under the discretionary jurisdiction by the learned Commercial Court was totally against settled principles of law and it was palpably wrong for as much appalling to the judicial conscience.

76. The learned Appellate Court in para 33 to 36 of the impugned order, has addressed issue that how the learned Commercial Court has passed the order against settled principles of law and how it is arbitrary, wrong and capricious and eventually displayed its disapproval. According to this court, the learned Appellate Court has not committed any error in upturning the order passed by the learned Commercial Court. The learned Appellate Court has considered articles of UCP 600 in background of the contract of Letter of Credit between the parties as well as presentation of the documents and issuance of the SWIFT MESSAGE rightly. We do not find any reason to interfere with the impugned judgment delivered in Commercial Appeal No.1 of 2023.

77. Even otherwise, under Article 227 of the Constitution of India, under the supervisory jurisdiction, we cannot lens the impugned order as a appellate body. This Court has to confine to its jurisdiction of being supervisory, and refrain from entering into the factual arena of the issue, which is legally impermissible. It is settled proposition that supervisory power conferred by Article 227 of the Constitution of India has to be exercised rarely. In this regard, we deem it fit to quote para 12 of the judgment of the Hon’ble Apex Court in case of Waryam Singh (supra), which, later on, is reiterated by the Hon’ble Apex Court in its decision of Shalini Shyam Shetty (supra). Para 12 reads as under:-

“This power of superintendence conferred by article 227 is, as pointed out by Harries C. J., in Dalmia Jain Airways Ltd. v. Sukumar Mukherjee(2), to be exercised most sparingly and only in appropriate cases in order to keep the Subordinate Courts within the bounds of their authority and not for correcting mere errors. As rightly pointed out by the Judicial Commissioner in the case before us the lower courts in refusing to make an order for ejectment acted arbitrarily. The lower courts realised the legal position but in effect declined to do what was by section 13 (2) (i) incumbent on them to do and thereby refused to exercise jurisdiction vested in them by law. It. was, therefore, a case which called for an interference by the court of the Judicial Commissioner and it acted quite properly in doing so. In our opinion there is no ground on which in an appeal by special leave under article 136 we should interfere. The appeal, therefore, must stand dismissed with costs.”

78. With profit, we may refer recent decision of Garment Craft V/s Prakash Chand Goel reported in (2022) 4 SCC 181, wherein the Hon’ble Apex Court with regards to the jurisdiction under Article 227 of the Constitution of India has observed following:-

“15. Having heard the counsel for the parties, we are clearly of the view that the impugned order is contrary to law and cannot be sustained for several reasons, but primarily for deviation from the limited jurisdiction exercised by the High Court under Article 227 of the Constitution of India. The High Court exercising supervisory jurisdiction does not act as a court of first appeal to reappreciate, reweigh the evidence or facts upon which the determination under challenge is based. Supervisory jurisdiction is not to correct every error of fact or even a legal flaw when the final finding is justified or can be supported. The High Court is not to substitute its own decision on facts and conclusion, for that of the inferior court or tribunal [Celina Coelho Pereira (Ms) and Others v. Ulhas Mahabaleshwar Kholkar and Others, (2010) 1 SCC 217]. The jurisdiction exercised is in the nature of correctional1 jurisdiction to set right grave dereliction of duty or flagrant abuse, violation of fundamental principles of law or justice. The power under Article 227 is exercised sparingly in appropriate cases, like when there is no evidence at all to justify, or the finding is so perverse that no reasonable person can possibly come to such a conclusion that the court or tribunal has come to. It is axiomatic that such discretionary relief must be exercised to ensure there is no miscarriage of justice.

16. Explaining the scope of jurisdiction under Article 227, this Court in Estralla Rubber v. Dass Estate (P) Ltd., (2001) 8 SCC 97 has observed:-

“6. The scope and ambit of exercise of power and jurisdiction by a High Court under Article 227 of the Constitution of India is examined and explained in a number of decisions of this Court. The exercise of power under this article involves a duty on the High Court to keep inferior courts and tribunals within the bounds of their authority and to see that they do the duty expected or required of them in a legal manner. The High Court is not vested with any unlimited prerogative to correct all kinds of hardship or wrong decisions made within the limits of the jurisdiction of the subordinate courts or tribunals. Exercise of this power and interfering with the orders of the courts or tribunals is restricted to cases of serious dereliction of duty and flagrant violation of fundamental principles of law or justice, where if the High Court does not interfere, a grave injustice remains uncorrected. It is also well settled that the High Court while acting under this article cannot exercise its power as an appellate court or substitute its own judgment in place of that of the subordinate court to correct an error, which is not apparent on the face of the record. The High Court can set aside or ignore the findings of facts of an inferior court or tribunal, if there is no evidence at all to justify or the finding is so perverse, that no reasonable person can possibly come to such a conclusion, which the court or tribunal has come to.”

79. In view of above, the petitioner failed to make out a case, which may persuade this Court to exercise the supervisory power conferred by Article 227 of the Constitution of India.

80. For the foregoing reasons, this petition sans merit and is accordingly rejected. Interim relief, if any, stands vacated forthwith. Connected Civil application, if any, stands disposed of. Rule discharged.

(ASHUTOSH SHASTRI, J)

(J. C. DOSHI,J)

FURTHER ORDER

After pronouncement of judgment, learned Senior Advocate Mr. Mihir Joshi appearing with learned advocate Ms. Amrita Thakore for the petitioners prays to continue the interim relief for a further period of six weeks, which was operating during the pendency of the petition so as to enable the petitioners to approach the Apex Court. Learned advocate appearing for the other side objected to grant of said request. Since the interim relief was operating pending hearing of this petition, it is continued for a further period of three weeks from today.

(ASHUTOSH SHASTRI, J)

(J. C. DOSHI,J)


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