Gujarat High Court
Adani Exports Limited vs Marketing Service Incorporated And ... on 8 February, 2005
Equivalent citations: AIR2005GUJ257, I(2006)BC545, 2006(1)CTLJ195(NULL), AIR 2005 GUJARAT 257, (2005) 3 GCD 2608 (GUJ), 2006 (3) CTLJ 195, (2005) 2 GUJ LH 156, (2006) 1 BANKCAS 545, (2006) 1 CURCC 306
Author: K.S. Jhaveri
Bench: K.S. Jhaveri
JUDGMENT K.S. Jhaveri, J.
1. Appeal from order No. 130 of 2002 is at the instance of the original plaintiff in Civil Suit No.4068 of 2001, which has been filed against the order dated 23rd January 2002 passed by the City Civil Court below Application Exhibit 5 (Notice of Motion) in the Civil Suit No.4068 of 2001.
2. Appeal from Order No.281 of 2002 has been filed against the order dated 23rd January 2002 passed by the City Civil Court below Application Exhibit 5 (Notice of Motion) in Civil Suit No.4068 of 2001. This appeal is at the instance of original defendant no.1 in the aforesaid suit.
3. Since in both the appeals the challenge is against the very same order, both the appeals are heard together and disposed of by this common judgement.
4. M/s Adani Exports Limited (hereinafter referred to as AEL or plaintiff) had filed Civil Suit No.4068 of 2001 before the City Civil Court, Ahmedabad against Marketing Services Incorporated (hereinafter referred to as MSI or defendant no.1), Abu Dhabi Commercial Bank Ltd. (hereinafter referred to as the Bank or defendant no.2) and Falcon Express Lines Incorporated (hereinafter referred to as FELI or defendant no.3) praying for declaration that MSI & FELI have defrauded AEL and the Bank by concocting false documents and by mentioning false dates on the Bill of Lading and other documents and therefore, it is not entitled to get released any payment represented by L/C No.ILCU 100012 dated 9.5.2001 from the Bank on the maturity date and restrain MSI from receiving any payment and further restraining the Bank from releasing any payment on the said L/C issued by the Bank in favour of MSI amounting to US$ 409024.50 by a permanent injunction of the Court.
4.1 MSI is engaged in the business of selling Reginned Cotton and it has its branch in China. MSI wanted to sell the Reginned Cotton (hereinafter referred to as the said goods) made in USA to AEL and Adani Global Ltd. (hereinafter referred to as AGL) and therefore sent samples of the goods to AGL through its China office prior to 18.04.2001. On the basis of the said samples, AGL entered into contract with MSI on 18.4.2001 for purchase of 100 MTs of the said goods to be supplied by MSI. Accordingly AEL entered into a contract to buy 500 MTs (+/-5%) of the said goods from MSI on or about 25.04.2001. It was agreed by MSI that the goods to be purchased by AEL and AGL would resemble the sample already supplied by MSI. As per the agreement the payment for purchase of the said goods was to be made by irrevocable Letter of Credit.
4.2 Thus, according to AEL, since the transaction between the AEL and the MSI is "sale by sample" the MSI was duty bound to permit AEL to have inspection of the goods before supplying the same. The allegation is that MSI has adopted unfair trade practice of sending the goods of the quality which was not in accordance with the sample sent to AEL by MSI and therefore MSI has committed fraud upon the AEL. In view of this the aforesaid suit came to be filed by AEL against MSI and others stating that MSI and FELI have defrauded the AEL as well as the Bank, by concocting false documents and by mentioning false date of bill of lading and other documents. According to AEL, MSI is not entitled to get released any payment represented by Letter of Credit from the Bank on its maturity.
4.3 The AEL has also filed Notice of Motion being Exh.5/6 praying for interim injunction restraining MSI from receiving any payment and the Bank from releasing any payment on passing of the Letter of Credit issued by the bank in favour of MSI.
4.4 The learned Judge of the City Civil Court by his order dated 23rd January 2002 allowed the notice of motion. The operative part of the said order reads as under:
"The Notice of Motion -exhibit-5/6 is hereby allowed.
The interim order dated 3-9-2001, is made abslute till final disposal of the suit on the following conditions upon the plaintiff:-
(1) to continue the validity of the Letter of Credit till disposal of the suit by appropriate arrangement with defendant No.2;
(2) to furnish bank guarantee for the suit amount to be encashed in case of necessity for making payment for the price of the goods in question as well as against claim for the loss of interest and damages that may be claimed by defendant no.1 for the delayed payment of price of the goods in question, if so required and (3) to file an undertaking before this Court regarding its liability for making such payment within 30 days from the date of this order. However, it is made clear that the defendant no.1 may ask for return of the goods in question within 30 days from the date of this order and the plaintiff may ask for disposal of the same at the prevailing market rate with an undertaking that the sale proceeds thereof shall be deposited directly before this Court within a week thereafter for disbursement amongst the defendants according to law. Accordingly, the notice of motion is disposed of. The costs to be cost in the cause.
5. Being aggrieved by the aforesaid order allowing the Notice of Motion the MSI has filed Appeal from Order No.281 of 2002. The AEL felt aggrieved by the conditions imposed by the trial court with regard to bank guarantee for interest as well as for damages and therefore filed Appeal from Order No.130 of 2002.
6. Heard Mr. K.V. Shelat for the MSI, Mr. Kamal B. Trivedi, Senior Advocate, with Mr. Amar N. Bhatt for AEL and Mr. Sunit Shah for the Bank.
6.1 Mr. Shelat for MSI submitted that the bank having accepted the documents on 24th July 2001, which has been in turn accepted by the original plaintiff on 3rd August 2001, it is not open for the plaintiff to allege fraud or omission on the part of MSI and seek a direction restraining the MSI from encashing L.C. According to him, acceptance of Bill of Exchange by AEL would prevent them from raising ground of fraud.
6.2 Mr. Shelat submitted that the actual delivery has taken place on 30th August 2001 and 31st August 2001 and the bank had informed that they would honour the LC before 4th September 2001.
6.3 According to Mr. Shelat, irrevocable Letter of Credit is subject to Uniform Custom and Practice (UCP) and that the contract and the LC is separate transaction and actual supply of goods. He submitted that a bank issuing a letter of credit is not concerned with the underlying contract between the parties. He submitted that the operations of Letters of Credit should not be interfered with. It is submitted that it is not open for the bank or the parties to examine the quality of the goods and looking to the chronology of events the trial court has committed an error in granting stay against encashment of the Letter of Credit. He has, after going through the record of the case, emphasized that the trial court has committed an error in granting the injunction and not following the judgement of the Supreme Court and this Court.
7. Mr. Shelat, in order to support his contentions, relied upon the following decisions.
7.1 In the case of Federal Bank Ltd. v. V.M. Jog Engineering Ltd. and Ors., reported in AIR 2000 SC 3166 [=(2001)1 SCC 663, 2000(Supp-I) JT 317, 2000(6) Scale 654] the Apex Court held that in case of irrevocable bank guarantee or letter of credit, court should not issue injunction restraining encashment thereof on ground of breach of the main contract between buyer and seller as contract of bank guarantee or letter of credit is independent of the main contract. Paragraph 55 of the said decision reads as under:
"55. In several judgements 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 plaintiff is prima facie able to establish that the case comes 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 and the buyer. This is also clear from Articles 3 and 4 of UCP (1983 Revision). In case of an irrevocable bank guarantee or letter of credit the buyer cannot obtain injunction against the banker on 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 prima facie complies with the terms of the bank guarantee or the letter of credit, namely, if the seller produces the documents enumerated in the bank guarantee or the 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 the 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."
7.2 In the case of Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., reported in 1997 (6) SCC 450 (=AIR 1997 SC 2477 = 1997(5) JT 417 = 1997(4) Scale 103), on the facts of the said case it was held that the Court ought not to have issued injunction restraining Bank from honouring its obligation. Mr. Shelat has relied upon paragraphs 20, 21, 22 and 28 of the said decision. Para 28 of the said decision reads as under:
"28. Coming to the allegation of fraud, it is an admitted fact that in the plaint itself, there was no such allegation. It was initially only in the first application for the grant of injunction that in a paragraph it has been mentioned that the appellant herein had invoked the bank guarantee arbitrarily. This application contains no facts or particulars in support of the allegation of fraud. A similar bald averment alleging fraud is also contained in the second application for injunction relating to bank guarantee No.40/47. This is not a case where defendant No.1 had at any time alleged fraud prior to the filing of injunction application. The main contract, pursuant to which the bank guarantees were issued, was not sought to be avoided by alleging fraud, nor was it at any point of time alleged that the bank guarantee was issued because any fraud had been played by the appellant. We have no manner of doubt that the bald assertion of fraud had been made solely with a view to obtain an order of injunction. In the absence of established fraud and not a mere allegation of fraud and that also having been made only in the injunction application, the Court could not, in the present case, have granted an injunction relating to the encashment of the bank guarantees."
7.3 In the case of U.P. State Sugar Corporation v. Sumac International Ltd., reported in AIR 1997 SC 1644 [=(1997)1 SCC 568 = 1996(10) JT 709 = 1996(8) Scale 676], in paragraph 12, it is observed as under:
"12. The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realisation of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may coexist in some cases. In the case of U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. which was the case of a works contract where the performance guarantee given under the contract was sought to be invoked, this Court, after referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer, nor with the question whether the supplier has performed his contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may absolve the bank from honouring its guarantee, this Court in the above case quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA V. Chase Manhattan Bank (All ER at p.352) (at SCC p.197).
"The wholly exceptional case where an injunction may be granted is 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 normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged."
This Court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee."
7.4 Before proceeding further, it is required to be noted that the above decisions propagate that courts ought not to grant injunction to restrain encashment of bank guarantee or letter of credit except in the case of fraud and irretrievable damage. If the plaintiff is prima facie able to establish that the case comes within these two exceptions, temporary injunction can be issued. Therefore it necessarily implies that facts of a particular case are required to be seen in the context of the aforesaid principles while considering the case for grant of injunction.
7.5 In the case of A.B.C. Laminart Pvt. Ltd. and Anr. v. A.P. Agencies, reported in AIR 1989 SC 1239 = 1989(2) SCC 163 = 1989(2) JT 38 = 1989(1) Scale 633) which deals with the jurisdiction of the Court, it is held that when more than one court having jurisdiction, contract to vest jurisdiction in one of them is not against public policy.
7.6 Similarly, in the case of Nirma Ltd. v. Lurgi Energi Und Entsorgung GMBH, Germany, reported in AIR 2003 Gujarat 145, this Court dealt with the question of jurisdiction of the Court wherein it is held that when proper law governing the arbitration is the law of India, the application under section 34 can be entertained by District Court.
7.7 At this stage it is required to be noted that the respondent no.1 has not raised the point of jurisdiction before the trial court and therefore I do not deem it fit to entertain the submission of jurisdiction at this stage in absence of specific plea of jurisdiction.
8. Mr. Trivedi appearing for the original plaintiff has further submitted that the defendant no.1 has committed breach of condition of LC viz. the goods were not delivered before 20th June 2001. According to him, the shipment was not done before 5th June 2001 and in that view of the matter since there is a condition of (in) Letter of Credit, the trial court was justified in granting injunction against encashment of bank guarantee. Mr. Trivedi has taken the Court through various correspondence entered into between the parties. He pointed out that the trial court has, in detail, considered all those documents in paragraphs 7, 11 and 12. He submitted that the order granting injunction is in consonance with the documents on record, more particularly when the defendant no.1 has not claimed damages in the present proceedings by way of counter claim.
8.1 However, Mr. Trivedi submitted that the trial court was not justified in imposing a condition to furnish bank guarantee for the suit amount, interest and damage when there is a prima facie case in favour of the plaintiff. He further submitted that the plaintiff was already directed to continue the validity of the Letter of Credit till disposal of the suit and therefore imposing a condition to furnish bank guarantee was not necessary, more particularly when the defendant no.1 has not claimed damages in the present proceedings by way of counter claim.
9. Mr. Kamal B. Trivedi for the original plaintiff to substantiate his contentions, relied upon the decisions of the Supreme Court as under:
9.1 Case of U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., reported in (1988)1 SCC 174 (=1987(2) Scale 1149 = 1987(4) JT 306). Learned counsel has placed emphasis in paras 45, 47 and 53 of the said decision which read as under:
"45. The letter of credit has been developed over hundreds of years of international trade. It was most commonly used in conjunction with the sale of goods between geographically distant parties. It was intended to facilitate the transfer of goods between distant and unfamilar buyer and seller. It was found difficult for the seller to rely upon the credit of an unknown customer. It was also found difficult for a buyer to pay for goods prior to their delivery. The bank's letter of credit came into existence to bridge his gap. In such transactions, the seller (beneficiary) receives payment from issuing bank when he presents a demand as per terms of the documents. The bank must pay if the documents are in order and the terms of credit are satisfied. The bank, however, was not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract. Any dispute between the buyer and the seller must be settled between themselves. The courts, however, carved out an exception to this rule of absolute independence. The courts held that if there has been "fraud in the transaction" the bank could dishonour beneficiary's demand for payment. The cuts have generally permitted dishonour only on the fraud of the beneficiary, not the fraud of somebody else.
47. Mr. Sztein did not make that sitting down. He went to court and he sought an injunction. Now in 1941 people just did not get injunctions against payment under letters of credit. The defendant bank, against its customer, filed the equivalent of a motion to dismiss for failure to state a claim. In that posture all the allegations of the complaint were taken as true, and those allegations were gross fraud that the holders in due course were involved. On those facts, the Court issued an injunction against payment.
53. Whether it is a traditional letter of credit or a new device like performance bond or performance guarantee, the obligation of banks appears to be the same. If the documentary credits are irrevocable and independent, the banks must pay when demand is made. Since the bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The bank's obligations of course should not be extended to protect the unscrupulous seller, that is, the seller who is responsible for the fraud. But, the banker must be sure of his ground before declining to pay. The nature of the fraud that the courts talk about is fraud of an "egregious nature as to vitiate the entire underlying transaction". It is fraud of the beneficiary, not the fraud of somebody else. If the bank detects with a minimal investigation the fraudulent action of the seller, the payment could be refused. The bank cannot be compelled to honour the credit in such cases. But it may be very difficult for the bank to take a decision on the alleged fraudulent action. In such cases, it would be proper for he bank to ask the buyer to approach the court for an injunction."
9.2 The case of General Electric Technical Services Company Inc. v. Punj Sons (P) Ltd. and Another, reported in (1991)4 SCC 230 (=1991(3) JT 360). Paragraph 9 of the said decision reads as under:
"The question is whether the court was justified in restraining the Bank from paying to GETSCO under the bank guarantee at the instance of respondent no.1. The law as to the contractual obligations under the bank guarantee has been well settled in a catena of cases. Almost all such cases have been considered in a recent judgement of this Court in U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., wherein Sabyasachi Mukharji, J., as he then was, observed (SC p.189, para 28) that "In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Otherwise, the very purpose of bank guarantees would be negatived and the fabric of trading operations will get jeopardised". It was further observed that the Bank must honour the bank guarantee free from interference by the courts. Otherwise, trust in commerce internal and international would be irreparably damaged. It is only in exceptional cases that is to say in case of fraud or in case of irretrievable injustice, the court should interfere. In the concurring opinion one of us (K. Jagannatha Shetty, J.) has observed that whether it is a traditional bond or performance guarantee, the obligation of the Bank appears to be the same. If the documentary credits are irrevocable and independent, the Bank must pay when demand is made. Since the Bank pledges its own credit involving its reputation, it has no defence except in the case of fraud. The Bank's obligations of course should not be extended to protect the unscrupulous party, that is, the party who is responsible for the fraud. But the banker must be sure of his ground before declining to pay. The nature of the fraud that the courts talk about is fraud of an "egregious nature as to vitiate the entire underlying transaction". It is fraud of the beneficiary, not the fraud of somebody else."
9.3 In the case of Hindustan Steelworks Construction Ltd. v. Tarapore & Co. and Anr., reported in (1996)5 SCC 34 (= AIR 1996 SC 2268 = 1996(6) JT 295 = 1996(5) Scale 186) wherein also relying upon the decision in the case of U.P. Coop. Federation Ltd. (Supra) the aforesaid principle, in the case of "fraud" has been discussed. Paragraphs 16 and 18 of the said decision reads as under:
"16. On the basis of these observations the learned counsel submitted that the law laid down by this Court is that except in case of fraud and that too when it creates special equities in the form of irretrievable injustice, the courts should not interfere by restraining the beneficiary from encashing the bank guarantee. We have carefully gone through the judgements delivered by Mukherji and Shetty, JJ. and in our opinion that is not the ratio of the judgement. In that case the court was not called upon to decide whether apart from fraud there can by any other valid ground for interference. Moreover, the said observations cannot be read like a text of a statute or out of context. Observations made by Mukherji, J. in other parts of his judgement (see paras 24 and 34) and his opinion stated in para 21, with which Shetty, J. also agreed, do not support that submission. Mukherji, J. in the paragraph has stated his opinion as under: (SCC p.186. para 21).
"21. ... An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out."
"18. What Mukherji, J. has stated in para 34 of his judgment, namely, that : "It is only an exceptional cases that is to say in case of fraud or in case irretrievable injustice be done, the courts should interfere" is really the ratio of the decision of this Court in U.P. Coop. Federation Ltd. Therefore, fraud cannot be said to be the only exception. In a case where the party approaching the court is able to establish that in view of special equities in his favour if injunction as requested is not granted then he would suffer irretrievable injustice, the court can and would interfere. It may be pointed out that fraud which is recognised as an exception is the fraud by one of the parties to the underlying contract and which has the effect of vitiating the entire underlying transaction. A demand by the beneficiary under the bank guarantee may become fraudulent not because of any fraud committed by the beneficiary while executing the underlying contract but it may become so because of subsequent events or circumstances. We see no good reason why the courts should not restrain a person making such a fraudulent demand from enforcing a bank guarantee.
9.4 In the case of Ram Chandra Singh v. Savitri Devi and Ors., reported in (2003)8 SCC 319 (=2003(8) Scale 505 = 2003(7) Supreme 267) the Apex Court held as under:
"Fraud as is well known vitiates every solemn act. Fraud and justice never dwell together. Fraud is a conduct either by letter or words, which induces the other person or authority to take a definite determinative stand as a response to the conduct of the former either by word or letter. It is also well settled that misrepresentation itself amounts to fraud. Indeed, innocent misrepresentation may also give reason to claim relief against fraud. A fraudulent misrepresentation is called deceit and consists in leading a man into damage by willfully or recklessly causing him to believe and act on falsehood. It is a fraud in law if a party makes representations which he knows to be false, and injury ensues therefrom although the motive from which the representations proceeded may not have been bad. An act of fraud on court is always viewed seriously. A collusion or conspiracy with a view to deprive the rights of others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud, fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata."
9.5 In the case of Ram Preeti Yadav v. U.P. Board of High School and Intermediate Education and Ors., reported in AIR 2003 SC 4268 [=(2003) 8 SCC 311 = 2003 (Supp-I)JT 25 = 2003(7) Scale 316] it is held that fraud is a conduct either by letter or words, which induces the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter and that although negligence is not fraud, but it can be evidence on fraud. Further it is held that once fraud is proved, it will deprive the person of all advantages or benefits obtained thereby and delay in detention of or in taking action will raise no equities.
9.6 In the case of GSRTC v. Suleman Hussainbhai, reported in 1998(2) GLH 293 it is held that in absence of any finding that the order of the trial court is arbitrary, perverse or capricious and in disregard to the legal process, without considering relevant records, Appellate Court has no jurisdiction to interfere with the order.
9.7 In the case of Bureau of Indian Standard v. Western India Engineering Company, reported in 1998(2) GLH 863, it is held that the Appellate Court will not reassess evidence independently, if the assessment of evidence and conclusions thereon arrived at by Trial Court are reasonable.
9.8 Mr. Trivedi therefore submitted that in case of fraud or in case of irretrievable injustice, the court would be justified in granting injunction. He submitted that as on the facts of the present case, the plaintiff has prima facie established that a fraud has been committed by the defendant no.1 which has the effect of vitiating the entire underlying transaction.
9.9 Relying on paragraphs 7 and 10 of the Notice of Motion, Mr. Trivedi submitted that the defendant no.1 has not denied the factum of fraud. Therefore he submitted that in view of special equities in its favour, the trial court has rightly granted injunction.
10. Mr. Sunit Shah for the bank submitted that the bank had filed reply to Notice of Motion and stated that the bank has not encashed the L.C. because of the stay granted by the Court. He further submitted that though the documents were accepted by the Bank, the Bank had no knowledge of fraud since the alleged fraud was known to AEL only as on 28.5.2001.
11. At this stage it is required to be noted that this Court has very limited scope in dealing with interim orders of the trial court and any observations which may be made by this Court will prejudice either side while proceeding with the main suit. In view of this, I am of the opinion that the present appeals are required to be decided only in the context of the basic principle whether the plaintiff has prima facie case, whether balance of convenience is in favour of the plaintiff and whether irreparable loss would be caused to the plaintiff by refusal of interim injunction.
12. I have carefully perused the order of the trial court. The trial court has, in detail, considered the entire documents on record. The case law on the subject has also been discussed threadbare.
13. From the record the trial court has found that the contract dated 25.04.2001 for purchase of the goods and the Letter of Credit dated 21.05.2001 provide that the shipment shall be done latest by 05.06.2001 and the L.C. shall be effective for 90 days from the date of bill of lading. The defendant no.1 has managed to issue the bill of lading on 05.06.2001 and prayed for amendment of the L.C. to be payable at sight instead of making it payable after 90 days i.e. on 4th September 2001. However, the transhipment was prohibited and the shipment was to be done within 45 days from the date of loading. Therefore, if at all the goods were loaded on 04.06.2001, it must reach to the destination at Jawaharlal Nehru Port, Mumbai, latest by 19.05.2001. However, the record speaks the shipment was not started till 22.06.2001 and the vessel Saudi Makkah 035E had not even reached the Houston port on 4th June 2001, but it reached there only on 21st June 2001.
13.1 The trial court found that when the vessel was not available on the port of Houston on 4th June 2001, if defendant nos.1 and 3 disclose that the goods in question had been loaded in such vessel, then it is certain that there is no error as identified by defendant no.1, but it is a willful disclosure of wrong information which can be termed as fraud because L.C. would be payable from the date of such shipment. The prima facie finding of the trial court is that if the date of shipment is falsely stated, then certainly, defendant no.1, with the help of defendant no.3, has tried to get the amount on a date earlier to its maturity at 90th day from the date of shipment.
13.2 In so far as the quality of the goods is concerned, from the correspondence on record, the trial court found that the plaintiff has repeatedly complained about quality of the goods to be supplied to it under the order in question and asked for its inspection, but defendant no.1 has categorically refused to permit inspection of the goods in question by the plaintiff's representative. I am of the opinion that the trial court has rightly drawn a conclusion that if defendant no.1 has nothing to say about quality of the goods to be supplied to the plaintiff under the contract, then non-permitting the plaintiff to inspect the goods in question goes to show that defendant no.1 was also aware of quality of the said goods, which can be confirmed by the analysis report produced on record by the plaintiff. The trial court rightly concluded that refusing inspection of the goods by the plaintiff goes against it and the analysis report is a conclusive proof regarding fraud alleged to have been committed by defendant no.1 with the help of defendant no.3. Apart from that the factum of fraud has not been denied by the defendant no.1.
13.3 It is further the finding of the trial court that the defendant no.1 kept quiet with regard to commission of fraud by giving false information in the document in question as well as for the quality and quantity of the goods, which is not as per the sample. There was also a short delivery. In view of this I do not find any substance in the contention raised by Mr. Shelat that the plaintiff has accepted the document and therefore, plaintiff is not entitled to get injunction in its favour.
14. The trial court, in paragraphs no.13 to 20, has very minutely discussed and analysed the case law on the subject and looking to the facts of the case, prima facie, found that the defendant no.1 has not supplied the goods of approved quality in time to the plaintiff, as agreed upon by it and therefore there is likelihood of an irretrievable injustice to the parties and it would be in the interest of justice to continue the L.C. in favour of defendant no.1 till final disposal of the suit. Therefore, I am of the opinion that the balance of convenience is in favour of the plaintiff.
15. In view of the prima facie finding of the trial court with regard to fraud, non-supply of the goods of approved quality and short supply, the facts of the present case are entirely different from the facts of the decisions cited by the learned counsel for the defendant no.1. The facts of the present case clearly warrant for exception to the rule laid down in the aforesaid decisions and therefore those decisions will not be of any assistance to the defendant no.1 for setting aside the injunction granted by the trial court.
16. On the other hand, as held in the case of Hindustan Steel Construction Ltd. (supra), and other decisions cited on behalf of the plaintiff, it is open for the Court to restrain a person making a fraudulent demand from enforcing a bank guarantee.
16.1 After a detailed discussion the trial court has found that the plaintiff has got prima facie case for interim relief and the balance of convenience is also in its favour inasmuch as absence of such relief would cause the plaintiff irreparable loss and irretrievable injustice if the fraud is permitted to be continued and completed. Therefore, I am of the opinion that the order passed by the trial court is just and proper, and no interference is called for by this Court.
17. It is required to be noted that the jurisdiction of the appellate court is very limited. This has been asserted in the decision reported in 1942 Appeal Cases page 130. At page 138 of the said decision it is stated as under: "... The appellate tribunal is not at liberty merely to substitute its own exercise of discretion for the discretion already exercised by the judge. In other words, appellate authorities ought not to reverse the order merely because they would themselves have exercised the original discretion, had it attached to them, in a different way. But if the appellate tribunal reaches the clear conclusion that there has been a wrongful exercise of discretion in that no weight, or no sufficient weight, has been given to relevant considerations such as those urged before us by the appellant, then the reversal of the order on appeal may be justified. This matter was elaborately discussed in the decision of this House in Evans v. Bartlam (2), where the proposition was stated by my noble and learned friend, Lord Wright, as follows (3): "It is clear that the Court of Appeal should not interfere with the discretion of a judge acting within his jurisdiction unless the court is clearly satisfied that he was wrong. But the court is not entitled simply to say that if the judge had jurisdiction and had all the facts before him, the Court of Appeal cannot review his order unless he is shown to have applied a wrong principle. The court must if necessary examine a new the relevant facts and circusmtances in order to exercise a discretion by way of review which may reverse or vary the order. Otherwise in interlocutory matters the judge might be regarded as independent of supervision. Yet an interlocutory order of the judge may often be of decisive importance on the final issue of the case, and one which requires a careful examination by the Court of Appeal. Thus in Gardner v. Jay (I), Bowen L.J. in discussing the discretion of the judge as regards mode of trial says: "That discretion, like other judicial discretions, must be exercised according to common sense and according to justice, and if there is a miscarriage in the exercise of it, it will be reviewed."
17.1 The above view has been followed by the Apex Court in the case of U.P. Cooperative Federation Ltd. v. Sunder Bros, Delhi, reported in AIR 1967 SC 249 (=1996 Supp SCR 215). Paragraph 8 of the said decision is relevant which reads as under:
"(8) It is well established that where the discretion vested in the Court under S. 34 of the Indian Arbitration Act has been exercised by the lower court the appellate court should be slow to interfere with the exercise of that discretion. In dealing with the matter raised before it at the appellate stage the appellate court would normally not be justified in interfering with the exercise of the discretion under appeal solely on the ground that if it had considered the matter at the trial stage it may have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. As is often said, it is ordinarily not open to the appellate court to substitute its own exercise of discretion for that of the trial judge; but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts then it would certainly be open to the appellate court to interfere with the trial court's exercise of jurisdiction."
17.2 Similar view has been reiterated by the Apex Court in case of Laxmikant V. Patel v. Chetanbhai Shah, AIR 2002 SC 275 (=2002(3) SCC 65 = 2001(10) JT 285 = 2001(8) Scale 350).
17.3 Applying the aforesaid principles it is not possible to state that the order of the trial Court suffers from any infirmity calling for interference at the hands of this Court at this stage.
18. However, on the facts of the case, I am of the view that the trial court fell into error by issuing directions for bank guarantee inasmuch as no claim is made for the damages by the original defendant no.1. Therefore, the order to the extent of directing the original plaintiff to issue bank guarantee for the alleged damage is unwarranted. In the result, I do not find any merit in Appeal from Order No.281 of 2002. The same is accordingly dismissed. No order as to costs. Since the appeal is disposed of, civil Application No.4542 of 2002 would not survive and is accordingly disposed of.
19. So far as Appeal from Order No.130 of 2002 is concerned, the appeal is partly allowed. The direction with regard to issuance of bank guarantee for the damage is set aside. The other conditions mentioned in the order of the trial court shall stand and to that extent the said order is hereby confirmed. No order as to costs. In view of the order passed in the appeal, Civil application No.2388 of 2002 would not survive and is accordingly disposed of.
19.1 Mr. Sunit Shah for defendant no.2 bank has submitted that the amount which is lying with the nationalized bank should have been directed to be deposited with defendant no.2. bank. However, the said question is not subject matter of the present appeals and therefore this submission is not entertained. It will be open for the learned counsel to move an appropriate application before the trial court praying for the said relief.
19.2 The suit is of the year 2001 and in the order itself the trial court has observed that the suit will be expedited. Therefore, if an application is moved by the original plaintiff before the trial court for the said purpose, the trial court shall expedite the hearing of the suit and shall dispose of the same within a period of one year from the date of filing of such application.
19.3 It is clarified that the observations made by this Court and trial court in the impugned order are tentative in nature and the trial court may not be influenced by the same while proceeding with the hearing of the suit.