Calcutta High Court
Popular Jute Exchange Limited vs Murlidhar Ratanlal Exports Ltd. And ... on 15 January, 1998
Equivalent citations: 2006(4)CHN381
Author: Umesh Chandra Banerjee
Bench: Umesh Chandra Banerjee
JUDGMENT Umesh Chandra Banerjee, J.
1. 'Mareva' Injunction is an established feature of English Law and the English Court has been categorical enough to record that there should not be any hesitation in the matter of such a grant where it appears likely that the plaintiff would recover judgment against the defendant for a certain or approximate sum and there is reason to believe that the defendant has the assets within the jurisdiction to meet the judgment but may deal with the same, so that they would not be available or traceable when the judgment is given against him. One of the basic criteria for the grant of Mareva Injunction is that the assets must be located within the jurisdiction to confer jurisdiction on the Court to grant a Mareva Injunction. Be it noted that this concept of grant of Mareva Injunction is not different from the power of the High Court to grant interlocutory or final order of an injunction and under this general power of jurisdiction to grant an ex parte injunction the English Court has developed a principle that the Court has power to restrain the defendant from removing assets from the jurisdiction pending the trial of action whenever it was just and convenient to do so. This power was originally exercised when the defendant was out of the jurisdiction but has subsequently been extended so as to be available against a defendant even though he is based within the jurisdiction. This extension of power has its due statutory recognition in the Supreme Court Act, 1981 and in particular, reference may be made to Section 37.
2. Having discussed the broad principles and the basic features of Mareva Injunction let us now at this juncture advert to the contextual facts briefly. The respondent, Murlidhar Ratanlal Exports Ltd. (hereinafter referred to as 'Murlidhar') is an exporter of jute goods. The records depict that Murlidhar entered into a contract with one Golden Fibre for purchase of different grades of raw jute of various quantities as specified in the sale contract dated 23rd April. 1996. In terms of the agreement, the said Murlidhar caused a letter of credit to be opened by one Golden Fibre Trade Centre Ltd. incorporated under the appropriate laws of Bangladesh in favour of its corresponding bank in Bangladesh viz., ANZ Grindlays Bank, Dhaka. Relevant contextual facts further reveal that there was amendment to the letter of credit by reason of a subsequent assignment. On arrival, however, of the goods it has been alleged by the plaintiff that there was difference in quality and as such the price of the goods was far less than what was agreed to be sold to the plaintiff-respondent herein. It has been stated that the value of the goods actually sold and delivered by the defendant to the plaintiff-respondent is US dollar 1,81,344 equivalent to Indian currency of Rs. 65,28,456/-. A definite assertion has been made that the plaintiff-respondent was supplied with a very inferior quality of goods and the factum of which has only been made known to the defendant and it is on this perspective the respondent No. 1 filed a suit claiming a decree for Rs. 11,36,000/- against the defendants jointly and/or severally together with a claim for interim interest and interest on judgment.
3. During the course of hearing Mr. Pratap Chatterjee, appearing for the respondent, contended that the shipment has been completed on 23rd May, 1996 and the letter of credit is negotiable after 90 days from the shipment which has expired on 22nd August, 1996. In the affidavit before the learned Single Judge it has been specifically averred :
The plaintiff is therefore reasonably apprehended that payment would be made by the bank immediately until and unless appropriate order is passed.
4. In paragraph 27 of the petition there is an averment to the following effect :
27. Your petitioner states that the defendant Nos. 1 and 2 do not have any assets and/or properties in India and have no place of business in India. The only asset which the defendant No. 1 has at present in India is the money payable by Vysya Bank, Brabourne Road Branch, Calcutta against the said letter of credit. Such money has become due on 22nd August, 1996 and is likely to be transmitted within a very short time to Bangladesh, unless and until restrained by this Hon'ble Court.
5. In paragraphs 28, 29 and 30 in the petition the plaintiff-respondent averred :
"28. Your petitioner states that if the defendant Nos. 1. and 2 are allowed to receive the monies against the said letter of credit without leaving apart a sum of Rs. 11.36,000/- the decree that is likely to be passed in the above suit would be rendered infructuous.
29.Your petitioner states that the defendants' only asset is likely to be removed from within the jurisdiction of this Hon'ble Court with the intention of defrauding your petitioner.
30. If Notice of this application is served on the defendants or any of them they would immediately cause the money payable against the said letter of credit to be transferred to Bangladesh which would render the suit infructuous.
6. It is on the basis aforesaid that the learned Trial Judge passed an order dated 6"' February, 1997 confirming earlier ad interim order of status quo until the disposal of the suit. While dealing with the matter the learned Trial Judge has the following to observe :
However, on mentioning by the defendant No. 1 in the presence of the plaintiff, I modified the said ad interim order by directing maintenance of status quo. The said order as modified is still continuing. The defendant No. 1 chose not to file any affidavit-in-opposition to the petition of the plaintiff. As such, the averments in the petition particular the averment that the defendant has no asset in India except for the aforesaid money lying with the said bank stands uncontroverted.
7. This appeal pertains to the above order of the learned Trial Judge. The learned Single Judge while dealing with the matter at the initial stage granted a definite order of injunction restraining payment in terms of the irrevocable letter of credit. Subsequently the defendant moved the Court that no order of injunction can be issued against a non-party and upon hearing the learned Single Judge modified the order directing maintenance of status quo as noted above.
8. Two primary issues arise for consideration in the matter of (a) the intervention of the Civil Court in the matter of an irrevocable letter of credit and (b) the grant of an injunction in the nature of Mareva Injunction in the contextual facts. As regards the first issue the law is well-settled that the Court would only interfere with the banker's irrevocable letter of credit only in the event of existence of a very grave cause and as the Supreme Court has described it only on the ground of fraud and special equity.
9. Sir John Donaldson in Bolivinte Oil SA v. Chase Manhattan Bank and Ors. 1984(1) All ER 351, has been pleased to observe that Judges who are asked, often at short notice and ex parte, to issue an injunction restraining payment by a bank under an irrevocable letter of credit or performance bond or guarantee should ask whether there is any challenge to the validity of the letter, bond or guarantee itself. If there is not or if the challenge is not substantial prima facie, no injunction should be granted and the bank should be left free to honour its contractual obligation. Sir Donaldson observed that the only 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. It must be clear as to the fact of fraud and as to the banks knowledge and it would certainly not normally be sufficient, as Sir John Donaldson observed that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank credit in the relatively brief period of time which must elapse between the grant of such an injunction and an application by the bank to have it discharged. Sir John Donaldson in the last noted decision observed :
Before leaving this appeal, we should like to add a word about the circumstances in which an ex parte injunction should be issued which prohibits a bank from paying under an irrevocable letter of credit or a performance bond or guanantee. The unique value of such a letter, bond or guarantee is that the beneficiary can be completely satisfied that, whatever disputes may thereafter arise between him and the bank's customer in relation to the performance or indeed existence of the underlying contract, the bank is personally undertaking to pay him provided that the specified conditions are met. In requesting his bank to issue such a letter, bond or guarantee, the customer is seeking to take advantage of this unique characteristic. If, save in the most exceptional cases, he is to be allowed to derogate from the bank's personal and irrevocable undertaking, given be it again noted at his request, by obtaining an injunction restraining the bank from honouring that undertaking, he will undermine what is the bank's greatest asset, however large and rich it may be, namely its reputation for financial and contractual probity. Furthermore, if this happens at all frequently, the value of all irrevocable letters of credit and performance bonds and guarantees will be undermined.
10. The Supreme Court also in the same vein in the case of Hindustan Steel Works Construction Ltd. v. Tarapore & Co. and Anr. 1997 WBLR (SC) 183 after elaborating the long catena of cases observed in paragraph 23 of the judgment as follows :
23. We are, therefore, of the opinion that the correct position of law is that commitment of banks must be honoured free from interference by the Courts and it is only in exception cases, that is to say, in case of fraud or in a case where irretrievable injustice would be done if bank guarantee is allowed to be encashed, the Court should interfere. In this case, fraud has not been pleaded and the relief for injunction was sought by the contractor/respondent No. 1 on the ground that special equities or the special circumstances of the ase required it. The special circumstances and/or special equities which have been pleaded in this case are that there is a serious dispute on the question as to who has committed breach of the contract, that the contractor has a counter-claim against the appellant, that the disputes between the parties have been referred to the arbitrators and that no amount can be said to be due and payable by the contractor to the appellant till the arbitrators declare their award. In our opinion, these factors are not sufficient to make this case an exceptional case justifying interference by restraining the appellant from enforcing the bank guarantees. The High Court was, therefore, not right in restraining the appellant from enforcing the bank guarantees.
11. It is interesting to note, however, that the observation of Donaldson L.J. in the year 1981 in the Court of Appeal in the case of Intraco Ltd. v. Notis Shipping Corporation (The 'Bhoja Trader') 1981 Lloyd's Law Reports 256. Donaldson L. J. observed that irrevocable letters of credit and bank guarantees given in circumstances such that they are the equivalent of an irrevocable letter of credit have been said to be the life blood of commerce, Donaldson L.J. observed :
Thrombosis will occur if, unless fraud is involved, the Courts intervene and thereby disturb the mercantile practice of treating rights thereunder as being the equivalent of cash in hand.
12. In Power Curber International Ltd. v. National Bank of Kuwait WAK 1981(3) All ER 607, Lord Denning in the Court of Appeal observed:
On this question of recognition, I must draw attention to the importance of letters of credit in international trade. They are the means by which goods are supplied all the world over. It is vital that every bank which issues a letter of credit should honour its obligations. The bank is in no way concerned with any dispute that the buyer may have with the seller. The buyer may say that the goods are not up to contract. Nevertheless the bank must honour its obligations. The buyer may say that he has a cross-claim in a large amount.
88. The High Court was also in error in considering the question of balance of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corpn. Here there is no such problem. Once the plaintiff is able to establish fraud against the suppliers or suppliers-cum-lenders and obtains any decree for damages or diminution in price, there is no problem for effecting recoveries in a friendly country where the bankers and the suppliers are located. Nothing has been pointed out to show that the decree passed by the Indian Courts could not be executable in Sweden.
89. The High Court totally ignored the irretrievable injury which will be caused to defendant No. 12 in not honouring the bank gurantee in international market which may cause grievous and irretrievable damage to the interest of the country as opposed to the loss of money to the borrower/plaintiff. There was no question of defendant No. 4 not making any demand. The instalments for repayment of the loans had already been fixed and liable to be paid without demand by defendant No. 4. Defendant No. 12 is under a duty to pay the instalments regularly on a fixed date without any demand to defendant No. 4."
Still the bank must honour its obligations. A letter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honoured. No set off or counter-claim is allowed to detract from it [see Nova (Jersey) Knit Ltd. v. Kammgarn Spinnerei Gmbh 1977(2) All ER 463 : 1977(1) WLR 713]. All the more so with a letter of credit. Whereas a bill of exchange is given by buyer to seller, a letter of credit is given by a bank to the seller with the very intention of avoiding anything in the nature of a set off or counter-claim. This is borne out by the Uniform Customs and Practice for Documentary Credits which have been adopted by the banks in all, or practically all, the countries or the world, from China to Andorra, from Cuba to Nauru. All subscribed to the Uniform Customs and Practice which declare in the general provisions and declarations '.... (c) credits by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts ...' If the Court of any of the countries should interfere with the obligations of one of its banks (by ordering it not to pay under a letter of credit), it would strike at the very heart of that country's international trade. No foreign seller would supply goods to that country on letters of credit because he could no longer be confident of being paid. No trader would accept a letter of credit issued by a bank of that country if it might be ordered by its Courts not to pay. So it is part of the law of international trade that letters of credit should be honoured and not nullified by an attachment order at the suit of the buyer.
Added to this, it seems to me that the buyer himself by his conduct has precluded himself from asking for an attachment order. By opening the letter of credit in favour of the seller, he has implicitly agreed that he will not raise any set-off or counter-claim, such as delay or resist payment. He has contracted under the terms of the Uniform Customs and Practice by which he promises that the bank will pay without regard to any set-off or counter-claim, and implicitly that he will not seek an attachment order. I gather that, if the Court in Kuwait had looked at the case in this way, they would not have granted the 'provisional attachment'. To my mind it is implicit in the Uniform Customs and Practice that such an attachment is precluded.
13. The Supreme Court in the off-cited decision of Union Commercial Bank v. Bank of India, observed:
38. In 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.
39. It is somewhat unfortunate that the High Court should have granted a temporary injunction, as it has done in this case, to restrain the appellant from making a recall of the amount of Rs. 85,84,456/- from the Bank of India in terms of the letter of guarantee or indemnity executed by it. The Courts usually refrain from granting injunction to restrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining, a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it. the whole banking system in the country would fail.
40. In view of the banker's obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not to pay. In Hamzeh Malas v. British Imex Industries Ltd. 1958(2) QB 127, the plaintiffs, the buyers, applied for an injunction restraining the sellers, the defendants, from drawing under the credit established by the buyer's bankers. This was refused, Jenkins, L. J., stating, at P. 129. that :
'...the opening of a confirm letter of credit constitutes a bargain between the banker and the vendor of the goods which imposes on the banker an absolute obligation to pay ... and that this was not a case in which the Court ought to exercise its discretion and grant the injunction. The same considerations apply to a bank guarantee.'
41. A letter of credit sometimes resembles and is analogous to a contract of guarantee. In elian v. Matsas 1966(2) LI LR 495, Lord Denning, M. R., while refusing to grant and injunction stated :
'... a bank guarantee is very much like a letter of credit. The Courts will do their utmost to enforce it according to its terms. They will not, in the ordinary course of things, interfere by way of injunction to prevent its due implementation. Thus they refused in Malas v. British Imex Industries Ltd. But that is not an absolute rule. Circumstances may arise such as to warrant interference by injunction.' A bank which gives a performance guarantee must honour that guarantee according to its terms. In R.D. Harbottle (mercantile) Ltd. v. National Westminster Bank Ltd. 1977(3) WLR 752, Kerr. J. considered the position in principle. We would like to adopt a passage from his judgment at p. 761 :
'It is only in exceptional cases that the Courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. 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 as available to them or stipulated in the contracts. The Courts are not concerned with their difficulties to enforce such claims, these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured free from interference by the Courts. Otherwise trust in international commerce could be irreparably damaged.' (Emphasis supplied) The observations of Kerr, J. have been cited with approval by Lord Denning, M. R. in Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. 1977(3) WLR 764.
14. Similar is the view expressed in the case of Svenska Handels Banker v. Indian Charge Chrome and Ors. :
86. We have already held that the contracts between the lenders and the borrower are not vitiated by any fraud much less established fraud and there is no question of irretrievable injury. Therefore, there was no reason for the High Court to set aside the order of the Trial Court. Again there is no case of any irretrievable injury either of the type as held in the case of Itek Corpn. as there is no difficulty in the judgment of this country being executable in the Courts in Sweden.
87. The High Court was not right in working on mere suspicion of fraud or merely going by the allegations in the plaint without prima facie case of fraud being spelt out from the material on record.
15. Law therefore seemed to be same both in this country as also in England that unless there is involvement of some fraud or special equity, question of intervention of Law Courts granting an order of injunction in regard to a letter of credit does not and cannot arise The issue therefore arise whether in the contextual facts, the plaintiff-respondent has been able to make out such a definite case of fraud so as to warrant an order of injunction as has been passed by the learned Single Judge. We are affraid, however, the contextual facts do not involve any fraud either conceptually or on facts. No fraud or even a special equity has been alleged excepting though that the goods are not in accordance with contracted quality which, in our view, cannot be said to be a sufficient ground for intervention of the Civil Court in the matter of an irrevocable letters of credit, bank guarantees or irrevocable letters of credit since there are the very basis on international trade and commerce and if Court intervenes or interferes, 'Thrombosis' will occur putting an end to such a trade and commerce.
16. While it is true that there is no counter-affidavit on record and allegations are deemed to be admitted but we are afraid that we cannot lend concurrence to the submissions of Mr. Chatterjee that the claim for damages stand admitted and as such the learned Trial Judge was otherwise within his jurisdiction to grant security and in the process an attachment order or an order of injunction is the only remedy. The claim of the plaintiff pertains to supply of inferior quality of goods. It is not a sum ascertained but is to be proved by way of definite evidence as such not a claim for liquidated sum. On the wake of this factual backdrop, in our view, in any event, grant of security does not and cannot arise.
17. Be it noted that the situation would not be different in the contextual facts, from ordinary run of the cases of bank guarantees and letters of credit and the averment that foreigner has no other assets, would not really alter the situation. Mr. Sarkar appearing in support of the appeal, however, contended that Order 38 Rule 5 of the Code of Civil Procedure cannot bring within its ambit properties beyond the country, the letters of credit indicate, Mr. Sarkar contended that the money is payable in New York that is to say beyond the country and as such the same cannot be within the ambit of Order 38 Rule 5 of the Code. In the view, we have taken as above we need not express any opinion in regard thereto excepting, however, recording that the same has some force and as such the contention of Mr. Chatterjee as regards the applicability of Section 60 of the Code of Civil Procedure need not be proceeded with further.
18. There has been a faint attempt on the part of Mr. Chatterjee that the views expressed by the English High Court as also by the Indian Supreme Court and other High Courts as regards bank guarantee and letter of credit would not apply in the contextual facts since there is no embargo in the matter of encashment of letter of credit in its entirety but only Rs. 11,00,000/- is to be withheld or stand attached. As such the letter of credit has been honoured in its entirety excepting the small protion and which would take the matter out of the purview of the general trend of decisions pertaining to the letters of credit. In our view, however, question of making any differentiation in regard thereto does not and cannot arise whether the embargo is in regard to its entirety or only in regard to a portion that really does not make any dirference of the applicability of the law as stated hereinabove. Berore we conclude we, however, place it on record that Mr. Chatterjee raised a preliminary objection as regards the maintainablity of the appeal since there is non-compliance of the undertakings undertaken by the appellant herein by not filing a list of dates pertaining to the question of limitation. Mr. Chatterjee contended that mandate of the Code is that no appeal could be maintained without having a certified copy being attached to the memorandum of appeal. Be it recorded by the order dated 17th June, 1997, this Court has dispensed with all formalities including the settlement of index in terms of the rules of this Court, though however Mr. Chatterjee contended that all formalities are not in regard to the undertakings since this is a special undertaking given by the appellant to more the Appellate Court without the certified copy of the order. We, however, unable to lend our concurrence to Mr. Chatterjee's contentions that dispensation of all formalities has a restricted meaning. The word 'all' appearing in the order means and implies all formalities pertaining to the filing of the paper book which includes a list of dates as regards the question of limitation. Incidentally, it has not been the case of Mr. Chatterjee that the appeal has been filed beyong the period of limitation-question of limitation in the instant matter does not and cannot arise. In any event, by reason of specific prayer of Mr. Sarkar for discharge of undertakings which we do hereby grant, Mr. Chatterjee's contentions, if we may say so, cannot be appreciated.
19. In the premises, question of grant of an interim order of injunction in the matter under consideration or an order of status quo does not and cannot arise since the international trade and commerce would come to a grinding halt in the event of such an interference by the Law Courts.
20. The appeal therefore succeeds. The order of the learned Trial Judge as regards the maintenance of status quo stand vacated, though however, the observation of the learned Trial Judge in regard to the expeditious disposal of suit ought to be allowed. The written statement be filed within a period of four weeks from the date hereof. Cross-order for discovery within a fortnight thereafter and inspection of the documents forthwith thereafter. Parties would be at liberty to apply for early hearing of the suit. Be it recorded that the services of writ summons has been waived by the defenant No. 1 but the same be effected on to the defendant No. 2 forthwith. There shall, however, be no order as to costs.
21. Prayer for stay made but refused.
Sidheshwar Narayan, J.
22. I agree