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(1) This Fao is directed against an order granting injunction against encashment of confirmed Irrevocable Letter of Credit No. 71/95 dated 23rd June 1995 issued by Punjab National Bank (PNB for short).

(2) The respondent No.3 M/s Khaleel Enterprises entered into an agreement under Raw Material Procurement Scheme with National Small Industries Corporation Limited (NSIC for short) for supply of 500 Mt of Crca sheets. These sheets of the value of Rs.96,23,750 were to be supplied to M/s Shree Laxminarayana Metal Rolling Private Limited (SLMR for short) on Cif basis from Bombay to Bangalore. In pursuance of the said arrangement between respondents No. 1, 2 and 3, Ilc No.71/95 was established by Pnb on the request of Nsic along with M/s Khalil Enterprises on 23.6.1995. The respondent No.2, Slmr are the beneficiaries under the confirmed ILC.

(5) The goods under the consignment note dated 24th/26th June 1995, which formed basis of Ilc, were never received. Nsic made enquiries through its letter dated 14th August 1995 from Slmr as well as M/s Dayal Express Line. By a letter dated 22nd August 1995, Slmr claimed that they had supplied goods worth Rs.16 lakhs to M/s Khalil Enterprises directly and have requested them to deposit the sale proceeds with Nsic and thus admitted not to have supplied the material in question and regretting the delay in dispatch due to unavoidable circumstances. Then the plaintiff-NSIC came to know that they have been duped and M/s Dayal Express Line had forged and submitted the said consignment notes at the behest of Slmr to defraud the NSIC. The Nsic threatened to cancel the ILC. It also transpired that M/s Dayal Express Line was not an approved transporter on the list of defendant No.4-PNB. Thereafter, apprehending that at the instance of the appellant, Pnb was about to make payment, the suit was filed on 4th November 1995 seeking permanent injunction and restraining defendant No.2 Slmr from claiming or receiving any amount from defendant No.4-PNB on 29th October 1995 under the said Ilc and restraining the Pnb from making any payment to the appellant.

(11) Now coming to the responsibility of the plaintiff and M/s Khalil Enterprises as well as to the question of waiver as has been mentioned hereinabove, the documents were accepted by Khalil Enterprises and it is an admitted case that they were seen by Nsic also before accepting the Bill of Exchange. There cannot be any doubt that in terms of Article 14(c) of Ucpdc (1993 Revision) Icc Publication 400, Pnb did not determine that the documents appeared on their face not to be in conformity with the terms and conditions of the credit. Nor is it anybody's case that the Pnb approached the applicant for waiver of the discrepancies. However, this is also a fact that the defective documents were seen by M/s Khalil Enterprises and according to clause (e) it is also apparent that the Pnb failed to act in accordance with the provisions of Article 14 and failed to return the documents represented. Consequently, the Pnb as well as the applicants the Nsic and M/s Khalil Enterprises should stand precluded from claiming now that the documents were not in compliance with the terms and conditions of the credit. On account of their failure to point out the defect in the documents, they have virtually laid a trap for an innocent person like the appellant. The appellant-Bank paid a sum of Rs. 92,23,826 in view of the acceptance of Bill of Exchange also. In such circumstances, it has to be deemed that the plaintiff-respondent Nsic and M/s Khalil Enterprises are precluded from now questioning the documents so far as the appellant-Bank is concerned.

(34) Seeing that there is a prima facie case of innocence in favour of the appellant and of negligence on the part of Pnb, Nsic and M/s Khalil Enterprises and an apparent and virtual case of fraud by M/s Laxminarayan Metal Rolling Private Limited and M/s Dayal Express Line like, "Who is to be protected?" is the question. Whether an innocent person like Society Generale should be allowed to suffer on account of negligence of Pnb and Nsic or on account the fraud of M/s Dayal Express Line and M/s Laxminarayan Metal Rolling Private Limited. It is notable that the Pnb was willing to pay the amount in terms of Ilc and the Bill of Exchange, the Pnb could not be interdicted at the instance of Nsic, the plaintiff/respondent in view of waiver and estoppel on their part and special equities having been created on account of estoppel, in favour of the appellant-Bank by altering its own position on the basis of the representation made by making payment of over Rs.92 lakhs. We feel that for smooth functioning of the banking business in our country, it is essential that the innocent bank should be protected and should not be made to suffer at the hands of the negligent and the crooks. In the case of Indian Bank Vs. Satyam Fibre, Jt 1990 (7) Sc 135, Supreme Court protected just an innocent French Bank where a fraud was noticed. It may also be mentioned that so far as the Bill of Exchange is concerned, the appellant is a holder for value as well as holder in due course and was not aware of the defects in documents. Consequently, the appellant has special equities in his favour and thus a prima facie better case.