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Delhi District Court

The vs Sumac on 16 December, 2016

              IN THE COURT OF MS DEEPALI SHARMA,
              ADDL. DISTRICT JUDGE-14 (CENTRAL):
                   TIS HAZARI COURTS: DELHI

                                    CS -258/16
                                   CSDJ-9887/16


Messrs Shree Acids & Chemicals Ltd.,
15, New Subzi Mandi,
Azadpur, Delhi-110033.
                                                                ......Plaintif
                                     Versus

1. Messrs Hercules Fibres Inc.,
   1010, Northern Boulevard,
   Suit No 208, Geat Neck,
   New York-11021, USA.

2. Messrs R.K. Interenational,
   Importers and Exporters,
   M-84, Greater Kailash-I,
   New Delhi-110048.

3. Punjab National Bank,
   ECE House Branch,
   Kasturba Gandhi Marg,
   New Delhi-110001.

4. American Express Bank Limited,
   New York Agency,
   LC Department,
   7, World Street Centre,
   New York, NY-10048, USA.
                                                                ....Defendants

Date of institution of suit                                     : 11.04.1996
Date when reserved for Judgment                                 : 11.11.2016
Date of pronouncement of judgment                               : 16.12.2016

                SUIT FOR PERMANENET INJUNCTION




(Shree Acid v. Hercules & Ors.)                                                      (page 1 of 49)   
 JUDGMENT

1. The Plaintiff has filed the instant suit for Permanent Injunction praying that Defendant No.1 be restrained from realizing any payment against the Plaintiff Company by invoking the Letter of Credit No.9532-N/95 dated 11.12.1995 opened by the Plaintiff Company with Defendant No.3 and further to restrain Defendant No.4 from debiting Defendant No.3 for any amount in respect of said Letter of Credit and to restrain Defendant No. 4 from realizing any amount in respect of said Letter of Credit.

2. It is averred that the Plaintiff is engaged in manufacture and sales of various kinds of papers. For the purpose of manufacture of paper, the Plaintiff uses raw material and waste paper of different kinds. The raw material is procured indigenously as well as by imports from outside India. In the first week of November, 1995, Plaintiff met Defendant No.2, who was working as Agent for Defendant No.1 and stated that Defendant No.1 could supply the waste paper of requisite quality as desired by the Plaintiff. The Plaintiff and Defendants No+.1 & 2 negotiated an agreement for sale and purchase of "a particular type of waste paper, called 'computer print outs' " and other types of continuous stationery, commonly called as "LFCPO" which is used as raw material in the manufacture of white papers. It is averred that Defendants No.1 & 2 agreed to supply 300 Metric Tons of LFCPO at the rate of US $ 380. per metric tons.

3. On 22.11.1995, Defendant No.2, acting as an Agent of Defendant No.1, placed an indent being No. 83/21 dated 22.11.1995 for supply of 300 metric tons of LFCPO to the (Shree Acid v. Hercules & Ors.)                                               (page 2 of 49)    Plaintiff. The indent, described the product as "Paper Waste LFCPO" (computer print outs). Pursuant thereto, the Plaintiff arranged a Letter of Credit, bearing No.9532-N/95 dated 11.12.1995 to be opened by its Bankers, Punjab National Bank i.e. Defendant No.3 for a sum of US$ 57,000. with respect to price of 150 metric tons of LFCPO. The Letter of Credit was opened in favour of Defendant No.1 as beneficiary and the payment was to be made to Defendant No.4. It was agreed that the documents with respect to the Letter of Credit shall be negotiated by Defendants No.3 & 4 as Bankers. The said Letter of Credit was subsequently amended on 01.01.1996 to increase the amount covered by Letter of Credit from US$ 57,000. to US$ 95,000. to cover the value of 250 metric tons of LFCPO at the rate of US$ 380 per metric tons. Vide the said amendment the last date of the shipment was also extended from 01.01.1996 to 31.01.1996.

4. On 11.01.1996, the Letter of Credit was again amended to increase the amount to US$ 1,14,000. to cover the value of 300 metric tons of LFCPO.

5. It is averred that a binding contract for sale and purchase of 300 metric tons of LFCPO was accordingly entered into between the Plaintiff and Defendants No.1 & 2 and the consideration as agreed was to be paid through the Letter of Credit as mentioned herein above. Defendant No.1 was entitled to draw the Letter of Credit subject to fulfillment of terms and conditions of the Letter of Credit and supply of requisite LFCPO to the Plaintiff.

6. In terms of Letter of Credit, the draft was to be drawn on Defendant No.3 at 180 days from the date of Bill of Lading for 100% of invoice under Credit No. LC-9532/N/95 and the (Shree Acid v. Hercules & Ors.)                                               (page 3 of 49)    period of presentation was to be within 15 days from the date of shipment, but within the validity of the Letter of Credit.

7. Accordingly, the last date of shipment was stipulated as 31.01.1996 and last date of negotiation was stipulated as 15.02.1996. In pursuance of the agreement reached between the parties, the Defendants No.1 & 2 were required to ensure that the requisite quality of LFCPO of the specifications agreed between the parties was handed over to shipper by 31.01.1996 and one additional set of non- negotiable documents are forwarded to the Plaintiff through Courier at the earliest but not later than two days after the shipment.

8. The Plaintiff has averred that out of 300 metric tons, one shipment of 245.786 metric tons reached Bombay Port on 20.02.1996. The Plaintiff did not receive any documents or any information about the shipment either from Defendant No.1 or Defendant No.2 as was required to be done as per the terms of the Letter of Credit. The Plaintiff received a letter dated 28.02.1996 from M/s. Ajay Shipping & Trading Company, the clearing agent of the Plaintiff, informing the Plaintiff of the date of arrival of vessel carrying 2245.786 metric tons on 20.02.1996 and advised the Plaintiff to pay an amount of Rs.3,41,013/- towards custom duty to clear the said consignment. Accordingly, a draft in respect of the said amount was sent to the Clearing Agent on 02.03.1996, which deposited the same with the Custom Authorities.

9. It is further averred by the Plaintiff Defendants No.1 & 2, failed to comply with terms of the Letter of Credit and did not inform the date of shipment to the Plaintiff and also did not (Shree Acid v. Hercules & Ors.)                                               (page 4 of 49)    send one additional set of documents by courier within two working dates of the date of shipment. The Plaintiff Company, vide its letter dated 08.03.1996 informed the Defendants that the goods had incurred demurrage and detention charges on account of the fault of Defendant No.1 and as such, the liability in respect thereof, shall be to the account of Defendant No.1 and not of the Plaintiff.

10. It is also the case of the Plaintiff that on 09.03.1996, the clearing agent of the Plaintiff informed the Plaintiff that the material supplied is not LFCPO but a different material, namely Double Sorted Old Corrugated Cartons (herein after referred to as the DSOCC) which was totally a different product as compared with LFCPO.

11. The Plaintiff has further averred that two materials, namely LFCPO and DSOCC are two different materials.

12. On receiving the above information from the Clearing Agency on 09.03.1996 itself, the Plaintiff contacted Defendant No.2 and informed him about the objection to the material supplied. Thereafter, on 11.03.1996, the Plaintiff sent a FAX as well as a letter to Defendant No.2 in regard to the discrepancy in the material supplied. Since then, the Plaintiff has been calling upon and corresponding with Defendants No.1 and 2 in regard to the discrepancy in the waste paper supplied, informing them that the material supplied under the shipment is different that the material ordered and accordingly, the Plaintiff is not interested in clearing the material from the Custom Authorities until the consequential action is taken and fully settled. The Plaintiff has averred that the Plaintiff also informed that the Defendants are responsible for sorting out the matter with (Shree Acid v. Hercules & Ors.)                                               (page 5 of 49)    the custom authorities and all charges, costs, etc. in regard to the demurrage; detention shall be to the account of the Defendants No. 1 and 2.

13. The Plaintiff has further averred that the value of DSOCC in the market is US $ 170 per metric tonne as against the value of LFCPO at US $ 380 per metric tonne. Despite the fact that Defendant No.1 clearly admitted and accepted not only the differences in the two materials, but also that the material sent is inferior to the material ordered, has unreasonably been asking the Plaintiff to pay the total amount under the Letter of Credit or otherwise to pay the price at US $ 170 per metric tonne and adjust the amount otherwise than under the Letter of Credit.

14. The Plaintiff has averred that it has come to its knowledge that without sending the non-negotiable set of documents, Defendant No.1 proceeded to issue a certificate to the Bank to the effect that it had forwarded the non-negotiable set of documents through the courier to the Plaintiff and this was done so as to negotiate the documents with the Bank by a false representation. The Defendant had neither sent the document to the Plaintiff by courier nor informed about the actual date of the shipment and the Plaintiff came to know about the arrival of the shipment only from its Clearing Agency much after the shipment reached Bombay. The Plaintiff also apprehends that there has been a manipulation in regard to the date on which the documents were negotiated by Defendant with Defendant No.4. The Plaintiff also apprehends that the dates have been pre-dated while the actual negotiations were held after the prescribed time.

15. It is further the case of the Plaintiff that on 27.02.1996, the (Shree Acid v. Hercules & Ors.)                                               (page 6 of 49)    Plaintiff Company received documents in respect of another consignment of 46.848 metric tons of the value of US $ 17802.24. On scrutiny of the said documents, the Plaintiff Company noticed that in the bill of lading, the date has been changed, as in the copy of the said bill of lading supplied by Defendant No.1, the date of 06.02.1996 has been scored out and instead thereof, the date of 31.01.1996 has been mentioned with an endorsement thereon that the correction is approved by Messrs Heogh Lines Inc. . Accordingly, the Plaintiff Company requested Messrs Hoegh Lines to supply them a copy of the bill of lading in question. However, the Agent of Messrs Heogh Lines in India denied that any such correction has been approved by them on their authorized agents and this fact is also clear from the fact that the copy of the Bill of Lading supplied by Messrs Heogh Lines does not bear either the initials or their seal with regard to the alleged corrections. Thus, the invoice No. 2166 dated 31.01.1996 for shipment of 46.848 mt. Tons of LFCPO has been tampered. The Plaintiff, vide its letter dated 20.03.1996, sent by fax and also by registered A/D post brought this change in the bill of lading to Defendant No.1, with a copy to other Defendants and also the agents of Messrs Heogh Lines in India.

16. It is further averred by the Plaintiff that the consignment of 46.848 mt. tons of the material also consisted of material other then LFCPO, ordered by the Plaintiff. It is averred that defendant no. 1 and 2 have played a fraud upon the Plaintiff Company and instead of admitting the fact that the material supplied is DSOCC instead of LFCPO, are insisting to invoke the Letter of Credit in question, which was opened for the (Shree Acid v. Hercules & Ors.)                                               (page 7 of 49)    supply of a specific material and can be invoked only if the Defendant supply the contracted material and act in accordance with the terms of the Letter of Credit. However, in the instant case, though the Defendants have admitted that the material supplied is not the same, they are still threatening to invoke the Letter of Credit.

17. It is averred that the Plaintiff Company has already incurred an amount of Rs.3,41,013/- in connection with the above consignment towards customs duties alone. Accordingly, the Defendants No.1 and 2 are not entitled to enforce the Letter of Credit and cannot call for the payment under the Letter of Credit. Defendant No.3 Banker, issued the Letter of Credit Defendant No. 4 is the banker of the beneficiary and they are required to see that the terms of the Letter of Credit are complied with as per the terms of the Letter of Credit before effecting or enforcing the payment.

18. The Plaintiff has submitted that Defendant No.1 is liable to be restrained from realizing any payment against the Letter of Credit No.9532-N/95 dated 11.12.1995 and Defendant No.3, Punjab National Bank is liable to be restrained from making any payment to the Defendant No.1 in respect of the said Letter of Credit. Defendant No.4 is also liable to be restrained from invoking the aforesaid Letter of Credit in respect of which the Defendant No.1 is the beneficiary. However, the Plaintiff has not claimed any relief against M/s. R.K. International, Defendant No.2 and it was arrayed as a Defendant in the instant suit being a proper party in the present proceedings.

19. Defendant No.1 did not put in appearance and was proceeded exparte vide order dated 27.01.2005 of the Ld. Predecessor (Shree Acid v. Hercules & Ors.)                                               (page 8 of 49)    Court.

20. Vide order 10.10.2008, Defendant No.2 was directed to file Written Statement within 15 days of receipt of amended plaint. Defendant No.2 filed its Written Statement on 15.11.2008. Vide Order dated 20.08.2014 Counsel for the Plaintiff submitted that no relief has been claimed against Defendant No.2 is a proforma party to the instant suit and the case was fixed for exparte evidence.

21. Defendants No.3 and 4 after filing of their Written Statements were proceeded exparte vide order dated 16.03.2011.

22. Defendant No.3, in the Written Statement, has pleaded that Defendant No.3 was not aware about the details of the transaction between buyer and the seller. The Plaintiff approached the Bank, Defendant No.3 for issuance of an irrevocable Letter of Credit on or about 24.11.1995 and at request of the Plaintiff, an irrevocable documentary credit bearing No.9532-N/95 was opened by Defendant No.3. It is stated that the said Letter of Credit is subject to "Uniform Customs & Practise for Documentary Credits (UCPDC)"

No.500. It is pleaded that the Plaintiff issued a letter to Defendant No.3 on 26.02.1996 confirming that the documents are in terms of the credit.

23. It is further averred that on 26.02.1996 itself, the Bill of Exchange was received by the Plaintiff and the documents were got retired by the Plaintiff from Defendant on 27.02.1996, where-after the acceptance of the Bill of Exchange by the Plaintiff was conveyed by Defendant No.3 to Defendant No.4.

24. It is stated by Defendant No.3 that it was not aware of any tampering of documents. Defendant No.3 came to know (Shree Acid v. Hercules & Ors.)                                               (page 9 of 49)    about the tampering of the documents on inspection of the Bank record. In this regard, it is also stated by Defendant No.3 that in respect of the consignment for US $ 93398.68, the documents forwarded by Defendant No.4 to Defendant No.3 contained a Bill of Lading dated 29.09.1996 of Maersk line. However, vide letter dated 08.10.1996, received from M/s. Maersk India Limited, it was brought to the notice of Defendant No.3 that the vessel "Sea Guardian" departed New York Port (USA) on 14.01.1996. However, the original documents received by Defendant No.3 from Defendant No.4 contained a Bill of Lading dated 29.09.1996. It is further stated in the Written Statement that Bill of Lading is prepared before the date of shipment and not after 15 days of departure. Accordingly, Bill of Lading was of a later date than the date of actual departure. It is also stated that Defendant No.4 vide a message dated 24.04.1996 had confirmed that the documents of US $ 93368.28 were presented to them on 13.02.1996 for negotiation (i. e. within 15 days from the date of shipment in terms of the Letter of Credit). It is, therefore, stated that the date on the Bill of Lading was changed to get the documents negotiated within the stipulated period in terms of the Letter of Credit.

25. As regards the other consignment for US $ 17802.24, which was payable after 180 days from the date of shipment. It is stated that in terms of Letter of Credit, the last date of shipment was 31.01.1996. The documents, forwarded by Defendant No.4 to Defendant No.3 also showed the date of shipment as 31.01.1996. However, the actual date of shipment was 06.02.1996, it was subsequent to the last date of shipment as permitted in the Letter of Credit.

(Shree Acid v. Hercules & Ors.)                                               (page 10 of 49) 

26. It is, accordingly pleaded by Defendant No.3 that the documents in respect of both the shipment were tampered and when they were received by Defendant No.3, they were apparently in compliance with the terms and conditions of Letter of Credit. It is stated by Defendant No.3 that it is not dealing with the goods, transacted between the parties and has denied that the quality of goods was a condition of Letter of Credit and merely describing the goods in the Letter of Credit will not make it a part of terms and conditions of the Letter of Credit.

27. Defendant No.3 has further stated that as regards the first set of documents pertaining to shipment of US $ 93368.28, as per UCPDC, any Bill of Lading submitted after 15 days from the date of shipment shall become a stale Bill of Lading (the period of presentation being 15 days as per the Letter of Credit) and it shall be treated as late presentation and thus, not eligible for negotiation under the Letter of Credit. It is stated that the Bill of Lading relating to the vessel that sailed on 14.01.1996 was tampered and the date of shipment was changed to 29.01.1996 to get the benefit of Letter of Credit and to get the documents negotiated within the stipulated period of 15 days from the date of shipment as permissible under the Letter of Credit. It is stated that as regards the second set of documents of US $ 17802.24, it appears that the documents were tampered to show the date of shipment as 31.01.2006. It is stated that Defendant No.1 prepared two set of documents for the same shipment; one received by Defendant No.3 from defendant No.4 showing the dates in terms of the Letter of Credit and the other set of documents submitted (Shree Acid v. Hercules & Ors.)                                               (page 11 of 49)  by Defendant No.4 before this court, showing the date of shipment as 06.02.1996. It is stated that the documents with a shipment date, subsequent to the date of shipment as mentioned in the Letter of Credit are to be treated as late shipment and are to be handled outside the Letter of Credit terms. Defendant No.3 has stated that negotiation of discrepant documents under the Letter of Credit is contrary to the terms of the Credit. It is also submitted that the role of Defendant No.4 in the Letter of Credit was of a confirming Bank and that Defendant No.4 has not confirmed and acted in accordance with "UCPDC 500" in this regard. It is stated that any set of documents which are not in exact compliance of terms and conditions of the Letter of Credit, ought to have been rejected by the confirming Bank i.e. Defendant No.4 itself. It is, accordingly, prayed by Defendant that the account of Defendant No.3 be not debited towards dues of the Plaintiff.

28. Defendant No.4 has also filed its Written Statement wherein it is pleaded that this Court does not have the requisite territorial jurisdiction to try and entertain the instant suit. It is pleaded that the Plaintiff has made false and misleading allegations of fraud and collusion which are unsubstantiated. It is also stated that the plaintiff has failed to explain that the Seller offered to give a discount of US $ 46589.40 to the Plaintiff which the Plaintiff has chosen not to respond to. It is averred that Defendant No.4 believes that the Plaintiff has already taken delivery of the goods in question and is now trying wriggle out of its obligation to make payment in respect of both goods. It is relevant to note that Defendant No.4 has pleaded that the beneficiary (Shree Acid v. Hercules & Ors.)                                               (page 12 of 49)  can get the cash immediately on presentation of the documents by getting the drafts discounted. It is stated that however, the Buyer would be charged with the draft amount on maturity by the confirming Bank. It is accordingly contended that defendant no. 4 bank has acted in accordance with established practices.

29. It is also pleaded that in the present case, the documents tendered by the beneficiary i.e. defendant no. 1 were in accordance with the terms of letter of credit, therefore, defendant no. 4 discounted the draft on the basis of the said documents and defendant no. 4 bank is therefore a holder in the due course. It is also stated that defendant no. 4 after verifying the documents made the payment under the letter of credit and even defendant no. 3 found the documents in order and told defendant no. 4 to make the payment under the letter of credit. Defendant no. 4 has denied the allegations as regards manipulation of the dates on the documents negotiated by defendant no. 1 with defendant no. 4. It is also stated by defendant no. 4 that it has already made a payment under the letter of credit to defendant no. 1 of US $ 111200.92 after presentation and verification of the said documents on the instructions of defendant no. 3. It is also averred by defendant no. 4 that plaintiff does not seem to have made out a case of fraud in respect of invocation of the letter of credit. It is stated that defendant no. 1 having already paid a sum of US$ 111200.92 under the letter of credit no. 9532 N-95 dated 11.12.1995, only the account of defendant no. 3 now remains to be debited by defendant no. 4 as per UCPDC and the terms of letter of credit.

(Shree Acid v. Hercules & Ors.)                                               (page 13 of 49) 

30. The plaintiff has filed replication to written statement filed by defendant no. 4 wherein it has reiterated and reaffirmed the contents of the plaint.

31. The plaintiff has averred that this court has the requisite territorial jurisdiction to try and entertain the suit as the instant transaction has originated from India and cause of action have also arisen in India. It is specifically denied that the plaintiff is making false allegations of fraud and collusion . The plaintiff has pleaded as regards the offer of the defendant no. 1 of discount of US$ 46,589.40 made by defendant no. 1, the plaintiff vide its letter dated 02.05.1996 replied to the said offer. It is further averred that the goods supplied by the defendant no. 1 did not match the description of goods in the documents and defendant no. 1 despite repeated requests of the plaintiff did not send the revised documents having correct description of the goods and therefore the plaintiff could not get the goods released from the custom authorities. It is averred that eventually the plaintiff applied for refund of custom duties and received the said refund relating to the first consignment vide cheque no. 374754 dated 18.12.1996 for Rs. 3,41,013/- and another cheque bearing no. 430474 dated 02.07.1997 for Rs. 64,999/- issued by the customs department in favour of the plaintiff. It is averred that subsequent to the refund of the duty, the Mumbai Port Trust Docks has auctioned the second consignment of the goods whereas a notice of auction has been issued in respect of first consignment. It is accordingly, denied by the plaintiff that it has taken the delivery of goods supplied by defendant no.1.

(Shree Acid v. Hercules & Ors.)                                               (page 14 of 49) 

32. It is also averred that defendant no. 4 is acting at the behest of defendant no. 1 and 2 to obtain the payment under the letter of credit. It is averred that defendant no. 4 has acted contrary to the terms and conditions of letter of credit and it could not make any payment to defendant no. 1 before the date of maturity i.e. 26 th and 29th July, 1996. It is specifically denied that the beneficiary could get the payment immediately on presentation of documents after negotiation by getting the drafts discounted. It is reiterated that letter of credit clearly provided that payment under the letter of credit was due only after 180 days from the date of Bill of Lading and since the Bill of Lading were dated 29.01.1996 and 31.01.1996 as per defendant no. 4, therefore the payment was due only on 26.07.1996 and 29.07.1996 as the letter of credit provided for deferred payment of amount and not on site payment. Plaintiff has relied upon Article 9 of the UCPDC 500 as applicable to the said transaction.

33. The plaintiff also given notice to produce dated 20.09.1996 to defendant no. 3 and 4 to produce the correspondence in this regard. It is accordingly pleaded that plaintiff never authorized defendant no. 4 to make the payment due under the letter of credit before the maturity date i.e. 26.07.1996 and 29.07.1996. It is accordingly pleaded that defendant no. 4 was not authorized to make any payment under the letter of credit on 13.02.1996 and 16.02.1996 as the same is not in accordance with the terms of letter of credit. It is further pleaded that any amount paid by defendant no. 4 to defendant no. 1 prior to the date of maturity either by discounting or otherwise can only be made pursuant to an (Shree Acid v. Hercules & Ors.)                                               (page 15 of 49)  independent agreement or arrangement between defendant no. 4 and defendant no. 1 and neither the plaintiff nor defendant no. 3 is concerned with the said agreement between defendant no. 1 and defendant no. 4. In such circumstances, it is pleaded that if any such amount has been paid to defendant no. 1 by defendant no. 4, defendant no. 4 may take appropriate legal action against defendant no. 1 for the recovery of the said amount.

34. In such circumstances, it is pleaded that in view of fraud on the part of defendant no. 1, plaintiff is entitled to seek an injunction upon invocation of letter of credit. It is also relevant to note that on Hon'ble Delhi High Court vide order dated 16.04.1996 granted an ex parte temporary injunction in favour of the plaintiff and defendant no.3 thereby restrained for making any payment against the said letter of credit bearing No. 9532-N/95 dated 11.12.1995 in favour of defendants no. 1 and 2 and defendant no. 4 was restrained the debating the account of defendant no.3 for the said amount. The defendants moved an application u/o 39 rule 4 Code of Civil Procedure, filed by defendant no.4 seeking to set aside the ex parte injunction granted in the faour of plaintiff. The said application was dismissed vide order dated 18.03.2005.

35. On the basis of pleadings and documents of the parties, following issues were framed by the Ld. Predecessor Court vide order dated 23.09.2009:

(1) Whether the Defendant No.1 is liable to be restrained from recovering any any payment from the Plaintiff by the means of invocation of Letter of Credit No. 9532-N/95 dated 11.12.1995 open in the name of Defendant No.1 ? OPP.

(Shree Acid v. Hercules & Ors.)                                               (page 16 of 49)  (2) Whether the Defendant No.3 and 4 are also liable to be restrained from transacting on the basis of said LC ? OPP.

(3) Whether the suit is not maintainable ? OPD.

(4) Whether this Court has no territorial jurisdiction to try and entertain the present suit ?

OPD.

(5) Relief."

36. In support of its case, Plaintiff has examined, the Appraising Officer, New Custom House, Mumbai, as PW1. PW1 was tendered for cross-examination and no question has been put to this witness on behalf of any of the Defendant.

37. Sole Proprietor of M/s. Ajay Shipping and Trading Co., Mumbai, Custom House Agent appointed by the Plaintiff Company for import of consignments from Defendant No.1 Co. has been examined as PW2. PW2 was also tendered for cross- examination. No question has been put to this witness on behalf of Defendant No.2 as no relief has been claimed against Defendant No.2. On behalf of remaining Defendants, no question has been put to this witness.

38. PW3, Director of American Express Banking Corporation, Gurgaon. He has deposed that he has signed the Written Statement filed on behalf of Defendant No.4 in his capacity as an authorized signatory and proved the same as Ex.PW3/1. PW3 has also proved the list of documents filed by Defendant No. 4 as Ex.PW3/3. No question was put to this witness on behalf of Defendant No.2 as no relief has been claimed against Defendant No.2.

(Shree Acid v. Hercules & Ors.)                                               (page 17 of 49) 

39. The Proprietor of Defendant No.2, was examined as PW4.

40. On the date when issues were framed it was brought to the notice of the court that certain differences had cropped up between directors of plaintiff company and Sh. Sandeep Mittal, a director of the plaintiff company submitted that he wished to prosecute the case himself and that he may be permitted to engage a counsel to his choice. The original Board Resolution stood in favour of Sh. Ravi Mittal the other director of the plaintiff company who had been representing the plaintiff. The counsel for the plaintiff appearing for Sh. Ravi Mittal stated that he has no objection if Sh. Sandeep Mittal also appears for prosecuting appears on behalf of plaintiff company. In such circumstances, the Ld. Predecessor ordered that Sh. Sandeep Mittal is at liberty to prosecute the case through an independent counsel. However, the plaintiff would not be given any benefits of having two counsels one for each director or for the purposes of cross-examining the witnesses of defendants. The suit was thereafter prosecuted by Sh. Sandeep Mittal.

41. PW5 Shri Vineet Kumar Sharma, the Attorney Holder of the Plaintiff Company tendered his evidence by way of affidavit Ex.PW5/A. He proved the Special Power of attorney executed in his favour as Ex.PW5/1. copy of certificate of Incorporation as Mark-A. Original letters dated 03.05.1996 and 13.04.1996 received by the Plaintiff from M/s. R.K. International as Ex.PW5/3 and Ex.PW5/4 respectively and Fax received by the Plaintiff from Defendant No.1 as Ex.PW5/5. Original letter dated 24.05.1996 received by the Plaintiff Company from Shri Rakesh Agarwal, Advocate of the Plaintiff Company as Ex.PW5/6. Copy of letter dated 27.02.1996 sent by the (Shree Acid v. Hercules & Ors.)                                               (page 18 of 49)  Plaintiff to Defendant No.2, through FAX, as Mark-B. Documents dated 08.03.1996, 15.03.1996 and 28.03.1996 received by the Plaintiff through FAX from (i) Ajay Shipping Trading Co., (ii) Defendant No.2 and (iii) Defendant No.1 are Ex.PW5/8 to 10. Letter dated 02.05.1996 sent by the Plaintiff to Defendant No.2 as Ex.PW5/12. FAX dated 14.03.1996 received by the Plaintiff from Defendant No.1 as Ex.PW5/13. Letter dated 14.03.1996 sent by the Plaintiff to Defendant No.2 as Ex.PW5/14. Invoice dated 06.02.1994 received by Plaintiff through FAX from Defendant No.1 as Ex.PW5/15. Message letter dated 06.04.1996 received by Defendant No.3 from Defendant No.4 as Ex.PW5/16. Fax dated 02.04.1996 sent by Defendant No.2 to Defendant No.1 as Ex.PW5/17. Bill of Lading issued by Defendant No.1 through Punjab National Bank as PW5/18. Rider to Bill of Lading as Ex.PW5/19. Fax dated 08.03.1996 received by Plaintiff from Ajay Shipping Trading as Ex.PW5/22. Invoice dated 31.01.1996 issued by Defendant No.1 in favour of the Plaintiff as Ex.PW5/23. Certain documents i.e. Photocopy of Bank draft dated 18.12.1996 for Rs.3,41,013/- as Mark-C; Letters issued by Bombay Port Trust as Mark-D (colly.); Letter dated 05.10.1996 issued by the Plaintiff as Mark-E; Fax dated 08.01.1996 of Maersk India Ltd, as Mark-F; Letter dated 19.03.1996 from Defendant No.3 to Defendant No.4 as as Mark-G; Copy of legal notice dated 29.03.1996 sent by the Plaintiff to Defendant No.1 as Mark-H and Scrap Specification Circular 1993 as Mark-I Letters of Credit dated 12.12.1996 as Ex.PW5/32 (Colly.). Amendment letters/ messages dated 01.01.1996 & 11.01.1996 sent by Defendant No.3 to Defendant No.4 as Ex.PW5/34 & Ex.PW5/35. Beneficiary (Shree Acid v. Hercules & Ors.)                                               (page 19 of 49)  certificate dated 29.01.1996 received by Plaintiff from Defendant No.1 as Ex.PW5/36. Rider to Insurance Policy and invoices dated 29.01.1996 as Ex.PW5/37 & Ex.PW5/38. Marine Policy & Certificate of Original as Ex.PW5/39 & Ex.PW5/40. Bill of lading as Ex.PW5/41. The arrival notice as Ex.PW5/42. PW5 has further stated that the Plaintiff Company received the refund of custom duty relating to the first consignment vide cheque No.374754 dated 18.12.1996 for Rs.3,41,013/- and a sum of Rs.64,999/- vide cheque No.430474 dated 02.07.1997 issued by the Assistant Chief Accounts Officer of Custom, Mumbai in favour of the Plaintiff and proved copies thereof as Mark-C & D. The Mumbai Port Trust Bocks had auctioned the consignment and proved copy of the notice for auction dated 09.04.1998 as Mark-E.

42. Since the Defendants No.1, 3 and 4 had been proceeded exparte and no relief has been claimed against Defendant No.2, no evidence has been led on behalf of the Defendants.

43. ISSUE NO.1 &2:

"(1) Whether the Defendant No.1 is liable to be restrained from recovering any payment from the Plaintiff by the means of invocation of Letter of Credit No. 9532-N/95 dated 11.12.1995 open in the name of Defendant No.1 ? OPP."

(2) Whether the Defendant No.3 and 4 are also liable to be restrained from transacting on the basis of said LC ? OPP.

Issue no. 1 & 2 are taken up together as they are interconnected. Onus to prove these issues is on the Plaintiff. Admittedly, a Letter of Credit bearing No.9539-N/95 dated (Shree Acid v. Hercules & Ors.)                                               (page 20 of 49)  11.12.1995 was opened by Defendant No.3 at the instance of the Plaintiff for a sum of US $ 57,000 to cover the price of 150 metric tons of LFCPO. The said Letter of Credit was opened in favour of Defendant No.1 as a beneficiary and Defendant No.4 was the confirming Bank. The Letter of Credit was amended on 01.01.1996 to increase the amount covered by Letter of Credit from US $ 57,000 to US$ 95,000 to cover the value of 250 metric tons of LFCPO at the rate of US$ 380 per metric tons. Vide the said amendment the last date of the shipment was also extended from 01.01.1996 to 31.01.1996. Thereafter, on 11.01.1996, the Letter of Credit was again amended to increase the amount to US$ 1,14,000 to cover the value of 300 metric tons of LFCPO.

44. The terms of Letter of Credit Ex.PW5/32 that are relevant to determine the issue at hand, amongst others, are the following:

"DESCR (Description) Goods and/ or services:

150 MT paper waste LFCPO (Computer Print Ounts and other types of continuous stationery) @ US $380 per metric ton.

TERMS OF PAYMENT:

Confirmed irrevocable unrestricted Letter of Credit for full value on 180 days from the date of the bill of lading.

PERIOD OF PRESENTATION Within 15 days from the date of shipment but within validity of Letter of Credit.

45. Admittedly, the aforesaid Letter of Credit was amended on 01.01.1996 and the last date of shipment was extended upto 31.01.1996 and accordingly, the date of negotiation was also extended to 15.02.1996.

46. Admittedly, the Letter of Credit in issue is governed by Uniform Customs and Practices for Documentary Credits 500" i.e. "UCPDC 500" or "UCP 500".

(Shree Acid v. Hercules & Ors.)                                               (page 21 of 49) 

47. It is contended by the Plaintiff that in accordance with the agreement between the parties, Defendants No.1 & 2 were required to ensure that the requisite quantity and quality of LFCPO was shipped by 31.01.1996 and one additional set of non-negotiable documents was required to be forwarded to the Plaintiff within two days of date of shipment. It is contended by the Plaintiff that there was discrepancy in the material supplied by the Defendant to the Plaintiff as the Plaintiff was supplied a different material namely Double Sorted Old Corrugated Cartons (hereinafter referred to as DSOCC) and not the contracted material. It is deposed by the Plaintiff that the material actually supplied is of a much inferior quality and the value of the said material is US $ 170 MT as against the quality ordered, which was US $ 380 MT.

48. During its cross-examination, PW1, Apprising Officer from the New Custom House, Mumbai, deposed that as per the examination report, the declared goods were, "Computer Print-out Waste Papers", whereas, the goods received at the custom House were found to be "Old Corrugated Cartons". An examination report in this regard was also made by Apprising Officer, Customs, Mumbai and was counter-signed by the Commissioner Docs Mumbai. A copy of the same was also placed on record .

49. PW2, sole proprietor of Ajay Shipping and Trading Company, the custom house Agent of the Plaintiff deposed that after the containers containing the consignments reached the nominated point, an inspection of the consignment was done by the Custom Authorities and it was found that instead of the declared goods, the consignment contained (Shree Acid v. Hercules & Ors.)                                               (page 22 of 49)  "Old Corrugated Cartons" and a report to this effect was also made by the Apprising Officer. It is relevant to note that vide a letter dated 29.03.1996, the said clearing agent of the plaintiff informed the plaintiff that on examination of the goods of the consignment it was found that against the declared goods 'CPO', the entire consignment consisted of 'Old Corrugated Cartons (OCC)'. The said letter dated 29.03.1996 has been Ex. PW-2/3.

50. PW4, the Proprietor of Defendant No.2, the Indenting Agent of Defendant No.1 in India has deposed that the material that was shipped by Defendant No.1 Company was not as per specifications of the Plaintiff.

51. The plaintiff has also relied upon a telefax dated 14.03.1986 whereby defendant no.1 has stated that erroneously they have shipped DSOCC against your LFCPO order as our traffic department applied DSOCC container against your LFCPO order. Defendant no.1 also agreed to return the differential amount to the plaintiff and to reimburse demurrage charges and difference in the import duty in case the same was not refunded by the Indian Authorities. Subsequently, on 28.03.1986 vide Ex. PW-5/10 defendant no.1 send a telefax to the plaintiff to defendant no.2 wherein it is stated that by mistake the shipping department of defendant no.1 applied wrong folder and other grade was shipped to SACL (plaintiff herein). It was also stated that Defendant no. 1 was ready to pay the difference money back to the plaintiff. Accordingly, defendant no.1 in its various communications admitted that wrong material was shipped by it erroneously.

52. It is accordingly evident from the above that the material shipped by Defendant No.1 was not as per the (Shree Acid v. Hercules & Ors.)                                               (page 23 of 49)  specifications. It is however relevant to note that the Hon'ble Supreme Court in a catena of decisions has held that the bank is bound to honor the letter of credit as per its terms irrespective of any dispute raised by the customer. The bank is not concerned in the least with the relation between the supplier and customer. Accordingly, a letter of credit has to be honored irrespective of any dispute as regards the underlying contract between the parties.

53. It is also relevant to note that it is settled law that a bank guarantee is very much like a letter of credit. Therefore, law relating to Bank Guarantee may be referred to for adjudication of a dispute pertaining to a letter of credit. It is settled that the courts will do their utmost to enforce them according to their terms. They will not in the ordinary course of things, interfere by way of injunction to prevent their due implementation. But that is not an absolute rule. Circumstances may arise such as to warrant interference by injunction.

54. In U.P. State Sugar Corporation Vs. Sumac International Ltd. [(1997) 1 SCC 568], the Hon'ble Supreme Court observed that 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. It was also observed in para 16 that in the matter of invocation of a Bank Guarantee or a Letter of Credit, it is not open for the bank to rely upon the terms of the underlying contract between the parties.

55. Similarly, in U.P. Cooperative Federation Ltd. v. Singh (Shree Acid v. Hercules & Ors.)                                               (page 24 of 49)  Consultants and Engineers (P) Ltd. (988 [1] SCC 174), it was held that the bank giving such a guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. 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 suppler 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.

56. In the aforestated cases amongst others, the Hon'ble Supreme court has carved out two grounds for grant of injunctions to restrain the enforcement of a Letter of Credit.

57. In U.P. State Sugar Corporation Vs. Sumac International Ltd. (1997) 1 SCC 568, the Hon'ble Supreme Court has observed as follows:

"10..... However this court made two exceptions for grant of an order of injunction to restrain the enforcement of a Bank Guarantee or a Letter of Credit. (i) Fraud committed in the notice of the bank which would vitiate the very foundation of guarantee; (ii) injustice of the kind which would make it impossible for the guarantor to reimburse himself.

11. Except under these circumstances, the courts should not readily issue injunction to restrain the realization of a Bank Guarantee or a Letter of Credit. So far as the first exception is concerned, i.e. of fraud, one has to satisfy the court that the fraud in connection with the Bank Guarantee or Letter of Credit would vitiate the very foundation of such a Bank Guarantee or Letter of Credit. So far as the second exception is concerned, this court has held in that decision that it relates to cases where allowing encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned."

(Shree Acid v. Hercules & Ors.)                                               (page 25 of 49) 

58. As regards the exceptional circumstances under which a Letter of Credit or a Bank Guarantee can be invoked, in U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. 988 [1] SCC 174, it has been held that fraud should be clear and the Bank should have notice of the same:

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 a 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 NA (1984 [1] AER 351 at 352): "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".(emphasis supplied)

59. In the case of Hindustan Construction Co. Ltd. v. State of Bihar and Ors., AIR 1999 SC 3710, the Supreme Court while specifying the need for invoking the bank guarantee strictly as per terms of the bank guarantee and by the authority competent to do so held as under:-

"9. What is important, therefore, is that the bank guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or (Shree Acid v. Hercules & Ors.)                                               (page 26 of 49)  objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the bank guarantee or the person on whose behalf the guarantee was furnished. The terms of the bank guarantee are, therefore, extremely material. Since the bank guarantee represents an independent contract between the bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the bank guarantee, or else, the invocation itself would be bad."(emphasis supplied)

60. In the facts of that case it was held in para 21 as follows:

"21. As pointed out above, bank guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the defendants. It is independent of the main contract between HCCL and the defendants. Since the bank guarantee was furnished to the Chief Engineer and there is no definition of "Chief Engineer" in the bank guarantee nor is it provided therein that "Chief Engineer" would also include Executive Engineer, the bank guarantee could be invoked by none except the Chief Engineer. The invocation was thus wholly wrong and the Bank was under no obligation to pay the amount covered by the "performance guarantee"

to the Executive Engineer."

Accordingly, the Bank Guarantee has to be involved strictly in terms thereof.

61. In United Commercial Bank vs Bank Of India And Others, 1981 SCR (3) 300, it was observed by the Hon'ble Supreme Court that:

"Banker's commercial credits are almost without exception everywhere made subject to the code entitled the `Uniform Customs and Practices for Documentary Credits', by which the General Provisions and Definitions and the Articles following are to "apply to all documentary credit and binding upon all parties thereto unless expressly agreed". A banker issuing or confirming an irrevocable credit usually undertakes to honour drafts negotiated, or to reimburse in respect of drafts paid, by (Shree Acid v. Hercules & Ors.)                                               (page 27 of 49)  the paying or negotiating intermediate banker and the credit is thus in the hands of the beneficiary binding against the banker. The credit contract is independent of the sales contract on which it is based, unless the sales contract is in some measure incorporated. Unless documents tendered under a credit are in accordance with those for which the credit calls and which are embodied in the terms of the paying or negotiating bank, the beneficiary cannot claim against the paying bank and it is the paying bank's duty to refuse payment.

General Provision (c) of the Uniform Customs states that :

(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.

and Article 8 emphasises this in providing that :

(a) In documentary credit operations all parties concerned deal in documents and not in goods.

The authorities are uniform to the effect that a letter of credit constitutes the sole contract with the banker, and the bank issuing the letter of credit has no concern with any question that may arise between the seller and the purchaser of the goods, for the purchase price of which the letter of credit was issued. There is also no lack of judicial authority which lay down the necessity of strict compliance both by the seller with the letter of credit and by the banker with his customer's instructions. In English, Scottish and Australian Bank Ltd. v. Bank of South Africa Bailhache, J. said :

It is elementary to say that a person who ships in reliance on a letter of credit must do so in exact compliance with its terms. It is also elementary to say that a bank is not bound or indeed entitled to honour drafts presented to it under a letter of credit unless those drafts with the accompanying documents are in strict accord with the credit as opened. (emphasis supplied)

62. In Hindustan Construction Co. Ltd. vs Satluj Jal Vidyut Nigam Ltd. AIR 2006 Delhi 169 , the Hon'ble Delhi High Court summed up the law in this regard and held (Shree Acid v. Hercules & Ors.)                                               (page 28 of 49)  as follows:

20. On the analysis of the above law laid down by the Supreme Court in its different judgments, it is clear that injunction against encashment of bank guarantee is an exception and not the rule. Cases of such exceptions would have to be evidenced by documents and pleadings on record and compulsorily should fall within any of the following limited categories:-

i) If there is a fraud in connection with the bank guarantee which would vitiate the very foundation of such guarantee and the beneficiary seeks to take advantage of such fraud.

ii) The applicant, in the facts and circumstance of the case, clearly establishes a case of irretrievable injustice or irreparable damage.

iii) The applicant is able to establish exceptional or special equities of the kind which would prick the judicial conscience of the court.

iv) When the bank guarantee is not invoked strictly in its terms and by the person empowered to invoke under the terms of the guarantee. In other words, the letter of invocation is in apparent violation to the specific terms of the bank guarantee.

21. The exceptional cases would be few but it could never be stated as an absolute proposition of law that under no circumstances the court could injunct encashment/invocation of a bank guarantee which might have been furnished by a party as an independent contract. A beneficiary is not vested with an unquestionable or unequivocal legal right to encash the bank guarantee on demand. The obligation of the bank furnishing the bank guarantee to pay would be subject to a limited exceptional circumstance afore- noticed. As a matter of rule, the bank would be under obligation to encash the bank guarantee, once it is invoked in its terms. The exceptions afore-noticed are merely indicative of the kind of cases where the court may injunct encashment of a bank guarantee. It is neither possible nor permissible to exhaustively classify the cases where the court would not interfere (Shree Acid v. Hercules & Ors.)                                               (page 29 of 49)  and where the court would judicially intervene in such matters. Every case would have to be decided keeping in view its peculiar facts and circumstances. Despite the principal contract and bank guarantee being Ejusdem negotii, the bank guarantee is an independent and self-contained contract enforceable on its own terms. Except in the exceptional cases where definite material is available before the court to prima facie satisfy itself that on the basis of the pleadings of the parties; documents supporting has such a plea; the case falls in one or more of the categories afore- indicated, the bank guarantee would be encashable per se. It has an obligation which is not dependent upon adjudication of main disputes. The concept of irretrievable injustice, or damages, or special equities would come into play where the parties to a contract having been provided with internal adjudicative mechanism, attempts to frustrate results of such an internal adjudication by recourse to encashment of bank guarantee, particularly when under the terms and conditions of the contract, including the terms of the guarantee, such determination is 'final', of course subject to the limitations spelled out in such contracts. An attempt to over-reach the process of adjudication with intent to cause irreparable prejudice to the other side would be a circumstance which would influence the decision or tilt the special equities in favor of the applicant before the Court.

63. Viewed in the light of the aforesaid principles, the facts of the instant case are reverted to. It is contended by the Plaintiff that Defendant No.1 has played a fraud upon the Plaintiff in collusion with Defendant No.4 and Defendants No.1 and 4 have acted in breach of the terms of the Letter of Credit and, therefore, the Plaintiff is entitled to an injunction against Defendants, restraining them from realizing any payment by invoking the Letter of Credit No.9532-N/95 dated 11.12.1995.

(Shree Acid v. Hercules & Ors.)                                               (page 30 of 49) 

64. Admittedly, under the Letter of Credit bearing No.9532- N/95, two shipments were made by Defendant No.1 under the invoice No.2165 for goods worth US $ 93,398.68 (245.786 MT) and another shipment under invoice No. 2166 for US $17,802.24 (46.848 MT). It is the case of the Plaintiff that the said invoices were manipulated fraudulently by Defendants No.1 in collusion with Defendant No.4 to bring them in conformity with the terms of the Letter of Credit.

65. The Letter of Credit dated 11.12.1995 has been placed on record by Defendant No.3/Defendant no. 4 and the Plaintiff. Vide the amendment dated 01.01.1996 placed on record by defendant no. 4 and plaintiff (PW5/34)( also as a part of PW- 3/3), the last date of shipment and negotiation was extended to 31.01.1996 and 15.02.1996 respectively and the other terms and conditions of the Letter of Credit remained unchanged.

66. It is contended by the Plaintiff that there has been manipulation of the date of shipment on the Bill of lading w.r.t. invoice bearing No.2166. It is stated that the date of the invoice and the shipment have been predated and the actual shipment took after the prescribed period. It has been deposed by PW5 that on 27.02.1996, the Plaintiff received the documents in respect of invoice No.2166 which was a consignment of 46.848 MT of the value of US $17802.24. It is deposed that the date on the Bill of Lading had been changed. It is further stated that a copy of Bill of Lading supplied by defendant No.1 to the Plaintiff bears the date of shipment as 31.01.1996 (Ex. PW-5/1), whereas the copy of Bill of Lading supplied to the Plaintiff by M/s. Hoegh (Shree Acid v. Hercules & Ors.)                                               (page 31 of 49)  Lines by fax (Ex. PW-5/15) bears the date of 06.02.1996. It is stated that on the copy of Bill of lading supplied by Defendant No.1, the said date of 06.02.1996 has been scored out and the date of 31.01.1996 has been mentioned instead. It is further stated that the copy of the Bill of Lading showing the date of 31.01.1996 does not bear either the initials or the seal of the shipping company in this regard. It is accordingly contended that the Bill of Lading, issued with respect to invoice No.2166 has been tampered with to indicate the date of shipping as 31.01.1996 which actually was 06.02.1996.

67. It is contended that the same has been done by Defendant No.3 with knowledge of Defendant No.4 inasmuch as the last date of shipment as per the Letter of Credit, as amended, was 31.01.1996. The said manipulation was accordingly done to bring the invoice in confirmity with the terms of the Letter of Credit.

68. Perusal of the record shows that the invoice No. 2166 has been placed on record by the Plaintiff as Ex.PW5/23. The said document, being invoice No.2166 has also been placed on record by Defendant No.3, which also shows the date of invoice and date of shipment as 31.01.1996. It is, however, significant to note that the invoice No. 2166 has also been placed on record by Defendant No.4 Bank, which has also been exhibited as Ex.PW3/5, wherein the date of invoice No.2166 is mentioned as 06.02.1996 and the date of shipping is also mentioned as 06.02.1996. The Plaintiff has also placed on record a FAX copy of Bill of Lading which has been exhibited as Ex.PW5/15 in respect of invoice No. 2166 wherein the date of Loading on Board, i.e. shipping is (Shree Acid v. Hercules & Ors.)                                               (page 32 of 49)  reflected as 06.02.1996. It is further relevant to note that Defendant No.4 Bank has also placed on record a receipt of documents issued by Defendant No.4 whereby the documents were returned by it for correction to Defendant No.1 wherein it was indicated that the discrepancy as regards the last date of shipment was sought to be corrected. The said documents also mentioned that the Letter of Credit expires on 15.02.1996. Defendant No.3 and Defendant No.4 (whose documents have been exhibited as Ex.PW3/3) as well as the Plaintiff (Ex.PW5/18) have placed on record the Bill of Lading pertaining to invoice No.2166 on which the date of shipment i.e. 06.02.1996 has been scored out and has thereafter been reflected as 31.01.1996. The fact that the date of 06.02.1996 has been scored out, is evident on the bare perusal of the document. Instead a stamp of "JAN 31, 1996" has been affixed on the Bill of Lading.

69. Significantly, the fact that the date of shipping was 06.02.1996 and not 31.01.1996, is also corroborated by letter dated 16.02.1996 sent by Defendant No.4 to Defendant No.3, wherein the date of maturity of 180 days from the date of Bill of Lading was changed from 05.08.1996 to 29.07.1996 and thereby indicating that the original date of shipping on the Bill of Lading was 06.02.1996 and later changed to 31.01.1996. The original letter dated 16.02.1996 filed by defendant no. 3 has now been exhibited as Ex. C-1.

70. The Plaintiff has also relied upon a judgment of the Hon'ble Supreme Court of New York in the matter of Shree Acids & Chemicals Limited (Plaintiff herein) against Hercules Fibers Inc. (Defendant No.1 herein). The said action was instituted (Shree Acid v. Hercules & Ors.)                                               (page 33 of 49)  by the Plaintiff herein to recover compensatory and punitive damages for the alleged breach of contract, breach of an implied covenant of good faith, and fraud against Defendants No.1 and 4 herein for breach of its obligations under Letter of Credit, breach of implied warranty, "wrongful representations" and fraud. The said action was in respect of the transaction & Letter of Credit which is in issue in the instant case. In the said judgment, the Court has observed as follows:

"The gravamen of the causes of action against American Express is fraud. Taking as I must, on this motion, the truth of the factual allegations , the complainant states a cause of action against American Express, that the documentary evidence does not negate. The date on the Bill of Lading indisputably was altered from 06.02.1996 to 31.01.1996".

Consequently, the allegation of fraud was upheld.

71. From the aforesaid, it can be safely concluded that the date of shipment has been altered from 06.02.1996 to 31.01.1996 and the said alteration was well within the knowledge of Defendant No.4 Bank. In U.P. Cooperative Federation Ltd (supra) it has been held that in order to establish an allegation of fraud knowledge of bank as to fraud is necessary. Since the documents were returned by Defendant No.4 itself to Defendant No.1 to correct the discrepancies in the Bill of Lading and the Invoice No.2166, in order that the same may be brought in conformity with the terms of the Letter of Credit and to recover the payment there under, such action of Defendant No.1 and Defendant No.4 is evidently fraudulent.

72. As regards the other invoice bearing No.2165, it is deposed (Shree Acid v. Hercules & Ors.)                                               (page 34 of 49)  by PW-5 that the date of shipment mentioned on the said invoice is dated 29.01.1996. The Bill of Lading in respect of the said invoice, which is on record is, 29.01.2016. It is however deposed by PW5 that the said consignment was shipped vide the ship "Sea Guardian" Voyage No.417E of Mersk Line. The Bill of Lading has been exhibited as Ex.PW5/39. The said document has also been placed on record by Defendant No.3. It is deposed by PW-1 that on a specific enquiry, vide letter/ FAX dated 05.10.1996 (Mark-E) by the Plaintiff in this regard, Mersk Line replied vide telefax dated 08.10.1996 (Mark-F) stating that the Vessel "Sea Guardian" Voyage No.417E, departed New York port on 14.01.1996. It is accordingly pleaded by the Plaintiff that the date of shipping on the Bill of Lading has been manipulated to reflect the date of shipping as 29.01.1996 whereas the actual date of shipment was 14.01.1996.

73. As per the Letter of Credit the negotiations were to be held within 15 days of shipment. In the negotiations in respect of the said documents took place on 13.02.1996 which is evident from the Telex dated 26.03.1996 filed alongwith the documents filed by Defendant No.4 on record (Ex.PW3/3). It is stated that the date of shipping was changed in order that it fell within the stipulated period of 15 days from the date of negotiations i.e. 13.02.1996. The Plaintiff has however, failed to place the original of the said documents, Mark-A & Mark F, on record. Accordingly, the contentions that the Bill of Lading qua the invoice No.2165 has been manipulated is not proved and cannot be sustained.

74. It is however relevant to note that in the telex dated 26.03.1996 (Ex. PW-3/3), sent by Defendant No.4 to (Shree Acid v. Hercules & Ors.)                                               (page 35 of 49)  Defendant No.3, (placed on record by Defendant No. 4 Bank and Exhibited as a part of Exhibit PW3/3), it is stated as follows:

"Please note that the documents were negotiated on 13.02.1996 for USD 93,398.68 and draft discounted and on Feb 16, 1996 for USD 17802.24 also draft discounted STP again the issue we have discussed should be taken care of outside of the transaction because we bank do not handle goods. We contacted beneficiary who was very upset about the matter because he indicates that it is being taken care of."

75. It is accordingly evident from the above that the drafts in respect of the said Letter of Credit No.9532-N/95 for an amount of USD 93,398.68 and for USD 17,802.24, were discounted by Defendant No.4 before 26.03.1996 when the said Telex was sent to Defendant No.3. It is relevant to note that Defendant No. 4 in its Written Statement has averred that the beneficiary can get the cash immediately on presentation of the documents by getting the drafts discounted. It is stated that however, the Buyer would be charged with the draft amount on maturity by the confirming Bank. It is accordingly contended that defendant no. 4 bank has acted in accordance with established practices. On the other hand the Plaintiff has averred that Defendant no. 4 has acted contrary to the terms and conditions of letter of credit and it could not make any payment to defendant no. 1 before the date of maturity i.e. 26th and 29th July, 1996. It is denied by the Plaintiff that the beneficiary could get the payment immediately on presentation of documents after negotiation by getting the drafts discounted. It is further averred by the Plaintiff that letter of credit clearly provided that payment under the (Shree Acid v. Hercules & Ors.)                                               (page 36 of 49)  letter of credit was due only after 180 days from the date of Bill of Lading and since the Bill of Lading were dated 29.01.1996 and 31.01.1996 as per defendant no. 4, therefore the payment was due only on 26.07.1996 and 29.07.1996 respectively as the letter of credit provided for deferred payment of amount and not on site payment. It is accordingly contended by the Plaintiff that Defendant no. 4 could not have discounted the drafts in favour of Defendant no. 1 before the date of maturity.

76. In this regard, it is pertinent to note that as per the terms of the Letter of Credit, the draft was to be drawn on Defendant No.3 at 180 days on the bill of Lading for 100% of invoice under the Letter of Credit.

77. It is also significant to note that on 14.12.1995, Defendant No.4 sent a telex to Defendant No.3 which is filed alongwith the documents, filed by Defendant No.4 (Ex.PW3/3) whereby Defendant No.4 requested Defendant No.3 to amend the Letter of Credit and the draft to be drawn on Defendant No.4 as follows:

"In addition, please extend your authorization to debit your account at the time of negotiation."

The said telefax was replied to by Defendant No.3 on 18.12.1995 which is filed alongwith the documents, filed by Defendant No.4 (Ex.PW3/3), wherein Defendant No.3 has stated as follows:

"We authorize you to debit our New Delhi Acc. on due date, certifying compliance of Letter of Credit terms."

Consequently, the request of Defendant No.4 to debit the account of defendant no. 3 on the date of negotiation was categorically refused by Defendant No.3.

(Shree Acid v. Hercules & Ors.)                                               (page 37 of 49) 

78. It is accordingly contended by counsel for the Plaintiff that Defendant no. 4 in clear violation of the terms of the letter of credit has made payment to Defendant no. 1 and that too much before the due date as prescribed in the letter of credit and discounted the drafts before the date of maturity. Ld. Counsel for the Plaintiff has also placed reliance upon Article 9 of UCP 500 applicable to the Letter of Credit in issue, deals with liability of issuing and confirming banks. Relevant portion of Clause (B) of Article 9 provides as under:

(i). If the Credit provides for sight payment to pay at sight;

(ii). If the Credit provides for deferred payment to pay on the maturity date (s) determinable in accordance with the stipulations of the Credit;

Admittedly, in the present suit Defendant no. 4 discounted the drafts much before the date of maturity of Letter of Credit and made payment to Defendant no. 1 which is stated to be in contravention of the terms of the Letter of Credit in issue.

79. In this regard, it is relevant to note the judgment of the Hon'ble Supreme Court in UBS AG v. State Bank of Patiala, AIR 2006 SC 2250. The facts in the said case were as follows:

On 27.3.98 the Respondent Bank / Defendant therein Appellant/Plaintiff bank. The said Letter of Credit was issued at the instance of company known as M/s. Hamco Mining and Smeltings Ltd and the beneficiaries were M/s. Forbevia S.A. The said Letter of Credit was issued for import of tin ingots by M/s. Hamco Mining and Smeltings Ltd. On 30.3.98 the Appellant Bank /Plaintiff confirmed the said Letter of Credit as issued by the Respondent Bank. The said Letter of (Shree Acid v. Hercules & Ors.)                                               (page 38 of 49)  Credit was originally valid till 23.9.98. On 6.4.98 the Appellant/ confirming bank made the payment under the said Letter of Credit to the beneficiaries thereunder. On 22.7.98 the Respondent/ issuing bank issued a letter to the Appellant/ confirming bank accepting that they will make payment on the maturity date of the said Letter of Credit being 23.9.98. On 21.8.98 at the instance of M/s. Hamco Mining and Smeltings Ltd the Respondent/ issuing bank issued an extension of the maturity date of the said Letter of credit from 23.9.98 to 21.3.99. On 31.8.98 the Appellant/ confirming bank confirmed the said extension of maturity date. On 3.2.99 the advocate for the Respondent/ issuing bank informed the Appellant/ confirming bank about the fraud perpetuated by the M/s. Hamco Mining Smeltings Ltd and beneficiaries M/s. Forbevia S.A. and put the Appellant/ confirming bank on caution that there is a difficulty in honouring the said Letter of Credit and therefore the Appellant/ confirming bank should not negotiate the said export bills presented by the beneficiary. On 23.3.99 the Appellant/ confirming bank called upon the defendant to remit the payment under the said Letter of credit. On 27.3.99 the Respondent/ issuing bank through their advocate stated that they will not be honouring the said Letter of Credit as the contract of Letter of Credit has been vitiated by fraud played by M/s. Hamco Mining and Smeltings Ltd and beneficiaries M/s. Forbevia S.A. On 7.4.99 the Appellant/ confirming bank rejected the contention of the Respondent/ issuing bank and demanded the payment of the amount. Ultimately on 30.6.99 the Appellant/ confirming bank addressed an advocate's notice and since (Shree Acid v. Hercules & Ors.)                                               (page 39 of 49)  the payment was not made and consequently filed the suit.

The Single Judge of the Hon'ble Bombay High Court granted unconditional leave to defend the suit to the Respondent/ issuing bank/ defendant in the suit.

80. The Appellant/ confirming bank filed a Special Leave Petition before the Hon'ble Supreme Court. Accordingly in the said case, the beneficiary presented the document under letter of credit for negotiation to the confirming bank on 06.04.1998 and on the basis thereof the confirming bank made payment under the letter of credit to the beneficiary and informed the issuing bank accordingly. The letter of credit was accepted to mature on 23.09.1998 on which date the funds were to be remitted as per the instructions of confirming bank. Subsequently, the date of maturity of letter of credit was extended from 23.09.1998 to 21.03.1999. The said extension was confirmed by the confirming bank. Thereafter, the issuing bank vide a letter dated 03.02.1999 wrote to the confirming bank that certain frauds had been brought to its notice and it was also mentioned therein that the clear implication was that the letters of credit were fraudulently encashed by production of bogus documents. The confirming bank was accordingly was put "on caution" not to negotiate the documents presented by the beneficiary and not to make any payment whatsoever to the beneficiary. The main contention raised by the Appellant/ confirming bank was that since it had no knowledge of fraud before making the payment under the letter of credit in question, the Respondent/ issuing bank could not refuse to reimburse the Appellant/ confirming bank of the payments already made to the beneficiary (Shree Acid v. Hercules & Ors.)                                               (page 40 of 49)  under the letter of credit before such intimation was received. It was accordingly pleaded that since the Appellant/ confirming bank had no knowledge of fraud, it negotiated the document presented before it by the beneficiary and made payment accordingly.

81. It is noteworthy that the contention of Respondent/issuing bank in the said case was that the confirming bank could claim reimbursement only on the due date of payment as stipulated in the letter of credit agreed upon between the issuing bank and the confirming bank. It was further urged that since fraud committed by the beneficiary had been discovered and intimated to the confirming bank before the due date of reimbursement, the issuing bank was entitled to withhold the payment under the letter of credit. It was also contended that the payment, if any, made by the confirming bank to the beneficiary may have been under some private agreement and not under the letter of credit. The said contention is identical to the contention raised in the present suit by the Plaintiff.

82. In the aforesaid facts and circumstances, it was observed by Hon'ble Supreme Court that International commerce operates on trust and relies to a large extent on arrangements between banks on behalf of their respective client, giving rise to "UCP 500" which governs the letter of credit involved in the instant case. It was held that prior to 03.02.1999 when the issuing bank wrote to the confirming bank, there is nothing on record to suggest that any fraud had been perpetrated or that the confirming bank had been requested not to negotiate the documents to be presented by the beneficiary. The confirming bank made payment (Shree Acid v. Hercules & Ors.)                                               (page 41 of 49)  under the letter of credit to the beneficiary and was entitled to receive reimbursement for the same from the issuing bank. If fraud had been deducted earlier and the confirming bank had been informed of such fraud and put on caution prior to making payment, the issuing bank may have had a triable issue to go to trial. Since the fraud was deducted after the letters of credit had been negotiated, therefore, fraud cannot be set up even as a plausible defence in the suit filed by the confirming bank. The leave to defend filed by the issuing bank was accordingly refused by the Hon'ble Supreme Court.

83. The facts of the aforesaid case are also similar to the facts of the present case. It is relevant to note that the said Letter of Credit was also governed by "UCP 500" as in the instant case. In the present suit also the confirming bank i.e. defendant no. 4 discounted the drafts on the presentation of the documents on 13.02.1996 with respect to invoice for US$ 93,398.68 and on 16.02.1996 for invoice for US $ 17802.24. The said fact was admittedly intimated to issuing bank/ Defendant No. 3 on 26.03.1996 as mentioned above. The letter of credit with respect to US $ 17802.24 was to mature on 29.07.1996 and with respect to US $ 93,398.68 date of maturity was 26.07.1996. The letter of credit was manifestly discounted prior to the date of maturity of Letter of Credit as mentioned above. However, in respect of invoice bearing no. 2166 for an amount of US $ 17802.24, there was fraud committed by Defendant no. 1 to the knowledge of Defendant no. 4, the confirming bank and in light of the judgment of Supreme court in U.P. Cooperative Federation Ltd. (supra), the fraud having been (Shree Acid v. Hercules & Ors.)                                               (page 42 of 49)  committed to the knowledge of defendant no. 4, the defendant no. 4 is not entitled to payment under the said invoice and is liable to be injuncted from receiving payment under the said invoice from the Defendant No 3/ issuing bank or the Plaintiff.

84. However, as regards the other invoice bearing no. 2165 for an amount of US$ 93,398.68, which stood discounted on 13.02.1996, as noted hereinabove, the Plaintiff has not been able to establish fraud. The contention of the plaintiff that defendant no. 4, the confirming bank could not have discounted the drafts prior to 180 days i.e. the date of maturity is liable to be rejected in view of the aforementioned judgment of Hon'ble Supreme Court in UBS AG v. State Bank of Patiala (supra), wherein the Hon'ble Supreme Court upheld the payment made by the confirming bank to the beneficiary prior to the date of maturity of letter of credit and held that the confirming bank is entitled to receive the payment from the issuing bank under the letter of credit since it was not aware of any fraud as on the date of discounting. In the instant case no fraud has been established by the plaintiff or the issuing bank as regards invoice no. 2165 for US$ 93,398.68 .

85. A letter has been placed on record by Defendant no. 3 addressed to Defendant no. 4 mentions that since it appears to be a case of fraudulent transaction, we request you not to debit our account on 26.07.1996 without our prior consent. The said letter is dated 19.03.1996. However, prior thereto on 13.02.1996 and 16.02.1996, the confirming bank i.e. defendant no. 4 had already discounted the drafts in favour of the defendant no. 1. Accordingly, defendant no.

(Shree Acid v. Hercules & Ors.)                                               (page 43 of 49)  4 i.e. the confirming bank was not aware of any fraud having been committed as on the date of discounting of the drafts. Even otherwise no fraud has been established wrt Invoice no. 2165 for US $ 93,398.68.

86. It is also significant to note that the payment was to be made on the date of maturity, which was 180 days from the date of Bill of Lading which in the instant case in respect of invoice No. 2165 ( Bill of Lading dated 29.1.1996) and in respect of invoice No. 2166 ( Bill of Lading dated 31.1.1996) is 26.7.1996 and 29.7.1996 respectively. Accordingly, the Letter of Credit was to mature and payment made in respect of invoice No. 2165 for US $ 93,398.68 on 26.7.1996 and the date for the Letter of Credit was to mature and payment made in respect of invoice No. 2166 for US$ 17802.24 was 29.7.1996. It is accordingly evident that the payments under the Letter of Credit could be made separately/independently and it was not imperative that the Letter of Credit be invoked only once for both the invoices/ payments.

87. In such circumstances, the Plaintiff or Defendant no. 3 are not entitled to an injunction qua the amount against invoice no. 2165 for US$ 93,398.68 as confirming bank had no notice of any alleged fraud as on the date of its discounting i.e. 13.02.1996. Pertinently, no fraud has been established on record qua the said invoice no. 2165. However, since the confirming Bank/Defendant No.4 was aware of the fraud in respect of invoice bearing no. 2166 for an amount of US $ 17802.24, the Plaintiff/Defendant No 3 are entitled to an injunction qua amount of US$ 17802.24 against the said invoice.

88. Defendant No.1/ Defendant No. 4 is therefore not liable to (Shree Acid v. Hercules & Ors.)                                               (page 44 of 49)  be restrained from recovering payment from the Plaintiff by the means of invocation of Letter of Credit No. 9532-N/95 dated 11.12.1995 opened in the name of Defendant No.1 to the extent of amount covered under invoice no. 2165 for US$ 93,398.68. Defendant No.1/ Defendant No. 4, however, are liable to be restrained from recovering payment from the Plaintiff by the means of invocation of Letter of Credit No. 9532-N/95 dated 11.12.1995 opened in the name of Defendant No.1 with respect to the amount covered under invoice no. 2166 for US$ 17802.24.

89. Accordingly Defendant No.3 and 4 are not liable to be restrained from transacting on the basis of said LC to the extent of amount covered under invoice no. 2165 for US$ 93,398.68 and are liable to be restrained from transacting on the basis of said LC to the extent of amount covered under invoice no. 2166 for US$ 17802.24.

Issue No 1&2 are decided accordingly.

90. Issue No. 3:

Whether the suit is not maintainable ? OPD.

Onus to prove this issue is on Defendant. No evidence has been led by the Defendants in support of the said issue. Moreover, in view of the findings in issue No.1&2 above, it cannot be stated that the instant suit is not maintainable.

Accordingly, Issue No 3 is decided against the Defendant.

91. Issue no. 4:

"Whether this Court has no territorial jurisdiction to try and entertain the present suit ? OPD".

Onus to prove this issue is on Defendant. It is (Shree Acid v. Hercules & Ors.)                                               (page 45 of 49)  contended by defendant no. 4 that this court has no territorial jurisdiction to try and entertain the suit as defendant no. 4 is situated outside India and the letter of credit was confirmed by defendant no. 4 at New York. It is averred that as far as defendant no. 4 is concerned no part of cause of action has arisen in Delhi and the suit must fail as regards defendant no. 4 for want of territorial jurisdiction. No such objection has been raised by defendant no. 2 and defendant no. 3 in their written statement. The plaintiff in its replication to written statement of defendant no. 4 had pleaded that the present case defendant no. 4 is dealing with the transaction originating in India and therefore the cause of action has arisen in Delhi.

92. Admittedly, defendant no. 4 is the confirming bank of defendant no. 1 in respect of a letter of credit opened by defendant no. 3 Bank situated at Delhi at the request of plaintiff ,the buyer of goods from defendant no. 1 ie the beneficiary under the letter of credit and the seller of the goods. The plaintiff, buyer and defendant no. 3 i.e. the issuing bank are both situated in Delhi. The entire transaction of opening the letter of credit by the defendant no. 3 bank at the instance of the plaintiff and the subsequent confirmation of said letter of credit by defendant no. 4 bank for the beneficiary i.e. defendant no.1 forms a part of one single transaction.

93. In terms of Order 1 Rule 3 Code of Civil Procedure, all persons may be joined as Defendants where any right to relief in respect of, or arising out of same act or transaction is alleged to exist against such persons. The opening of the Letter of Credit by the Plaintiff with Defendant no. 3, with (Shree Acid v. Hercules & Ors.)                                               (page 46 of 49)  Defendant no. 1 as the beneficiary, where Defendant no. 4 was the confirming bank forms one single transaction. Moreover, since a part of cause of action has arisen in Delhi, this court has the requisite territorial jurisdiction to try and entertain the instant suit in terms of section 20 of the Code of Civil Procedure.

Issue No.4 is accordingly decided against the Defendant.

RELIEF:

94. In view of the aforesaid discussion, the suit of the Plaintiff is decreed partially as follows:

(i) Plaintiff is entitled to a decree of Permanent Injunction restraining Defendant no. 1/Defendant no. 4 from recovering the payment from the Plaintiff on the basis of letter of credit no. 9532-N/95 dated 11.12.1995 opened by the Plaintiff with Defendant no. 3 with respect to the amount covered under invoice no. 2166 for US$ 17802.24;

(ii) The Plaintiff is however not entitled to a decree of Permanent Injunction restraining Defendant no. 1/Defendant no. 4 from recovering the payment from the Plaintiff on the basis of letter of credit no. 9532-N/95 dated 11.12.1995 opened by the Plaintiff with Defendant no. 3 with respect to the amount covered under invoice no. 2165 for US$ 93398.68;

(iii) Accordingly, the Plaintiff is entitled to a decree of Permanent Injunction restraining Defendant no. 4 from debiting the Plaintiff /Defendant no. 3 to the extent of US$ 17802.24 under invoice no. 2166 covered under Letter of Credit No. 9532-N/95 dated 11.12.1995;

(iv) The Plaintiff is however not entitled to a decree of Permanent (Shree Acid v. Hercules & Ors.)                                               (page 47 of 49)  Injunction restraining Defendant no. 4 from debiting the Plaintiff /Defendant no. 3 to the extent of US$ 93398.68 under invoice no. 2165 covered under Letter of Credit No. 9532-N/95 dated 11.12.1995.

No order as to costs. Decree sheet be prepared accordingly.

File be consigned to Record Room after due compliance.

Announced in open court on 16th December, 2016 (DEEPALI SHARMA) Addl.District Judge-14 (Central):

Tis Hazari Courts, Delhi.

(Shree Acid v. Hercules & Ors.)                                               (page 48 of 49)  CSDJ No. 18286/16 M/s Shree Acids Chemicals v. M/s. Hercules Fibers Inc.  16.12.2016 Present: Sh. Rattan Kr. Singh, counsel for the plaintiff.

None for defendants.

Vide separate judgment of even date, the suit has been decreed partially.  Decree sheet be prepared accordingly. 

File be consigned to record room after due compliance. The   operation   of   the   judgment   passed   in   the   matter   today   is stayed till 23.12.2016 and will accordingly be effective from 24.12.2016.

  (DEEPALI SHARMA) ADJ­14(CENTRAL)/DELHI 16.12.2016