Tarapore & Co., Madras Vs. M/S.
V/O Tractors Export, Moscow & ANR  INSC 293 (26 November 1968)
26/11/1968 HEGDE, K.S.
CITATION: 1970 AIR 891 1969 SCR (2) 920 1969
SCC (1) 233
CITATOR INFO :
R 1981 SC1426 (28)
Banking Practice-Irrevocable letter of
credit-Significance of-If Courts can interfere with commercial practice when
international repercussions are involved.
An Indian Firm (the appellant) entered into a
contract with a Russian Firm (the respondent) for supply of certain machinery.
In pursuance of the contract, the appellant opened a confirmed, irrevocable and
divisible letter of credit with a Bank in India for the entire value of the
equipment. The respondent supplied all the machinery and received 25% of the
money payable under the letter of credit from the Bank. Thereafter, the
appellant complained that the performance of the machinery was not efficient
and filed a suit seeking an injunction restraining the respondent from
realising the balance of amount payable under the letter of credit. The
parties, however, entered into an agreement, by which it was agreed that the
appellant would withdraw the suit, the respondent would not demand any payment
under the letter of credit for 6 months, the parties would try to settle the
dispute amicably during that period, 'and if no settlement was reached the
period would be extended by a further period of 6 months. The appellant
withdrew its suit, but before any settlement was arrived at the Indian rupee
was devalued, as a result of which the appellant had to pay an additional sum
for the machinery supplied. There was correspondence between the parties
wherein the respondent insisted upon the appellant opening an additional letter
of credit. for the extra amount and the appellant objected to such a course.
The original dispute between the parties was not amicably settled and when the
extended time under the agreement was about to expire, the appellant filed a
suit on the original side of the High Court for restraining the Bank and the
respondent from taking any steps in pursuance of the letter of credit. A
temporary injunction was also prayed for and it was granted, but the order was
reversed by the Appellate Bench of the High Court.
In appeal to this Court, on the question
whether the order of temporary injunction was sustainable,
HELD: (1 ) An irrevocable letter of credit
has a definite implication. It is independent of and unqualified' by the
contract of sale or other underlying transactions.
It is a mechanism of great importance in
international trade and any interference with that mechanism is bound to have
serious repercussions on the international trade of this country. The autonomy
of an irrevocable letter of credit is entitled to protection 'and except in very
exceptional circumstances courts should not interfere with that autonomy. [929
B--C; 931 G] Urquhart Lindsay and Co. Ltd. v. Eastern Bank Ltd.,  1 K.B.
318; Hamzeh Malas and Sons v. British Imex Industries Ltd.,  2 Q.B. 127
and Dulien Steel Products Inc. o/Washington v. Bankers Trust Co., Fed. Rep.
2nd Series, 298, p. 836, applied.
(2) The allegation of the appellant that the
respondent had no assets in this Country and therefore if the respondent was
allowed to take away 921 the money secured to it by the letter of credit the
appellant could not effectively enforce its claim arising from the breach of
the contract, was not made in the pleadings. Nor do the facts pleaded in the
plaint amount to a plea of fraud. [929 B; 931 H] (3) It could not be contended
that the letter of credit was not enforceable as the original contract was
modified by the later agreement and subsequent correspondence between the
parties. The contention was not taken either in the plaint or in the High
Court. It is not a mere legal contention as it bears on the intention of
Further, a perusal of the entire
correspondence between the parties shows that in the absence of an amicable
settlement, the parties continued to be bound by the original contract subject
only to extension of time granted for payment of' price. [932 B--D, F]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 2251 and 2252 of 1968.
Appeals by special leave from the judgment
'and order dated' October 9, 1968 of the Madras High Court in O.S.A.
Nos. 26 and 27 of 1968 and Civil Appeals Nos.
2305 and 2306 of 1968.
Appeals by special leave from the judgment
and order dated April 12, 1968 of the Madras High Court in Applications Nos.
1760 and 2455 of 1967 in C.S. No. 118 of 1967.
M.C. Setalvad, V.P. Raman, D.N. Mishra and 1.
B. Dadachanji for the appellant (in C.As. Nos. 2251 and 2252 of 1968) and
respondent No. 1 (in C.As. 2305 and 2306 of 1968).
S. Mohan Kumaramangalam, M.K. Ramamurthi,
Shyamala Pappu and Vineet Kumar, for respondent No. 1 (in C.As. Nos. 2251 and
2252 of 1968) and the appellant (in C.As. 2305 and 2306 of 1968).
Rameshwar Nath and Mahinder Narain, for
respondent No. 2 (in all the appeals).
The Judgment of the Court was delivered by
Hegde, J. These are connected appeals. They arise from Civil Suit No. 118 of
1967 on the original side of the High Court of Judicature at Madras. Herein the
essential facts are few and simple though the question of law that arises for
decision is of considerable importance.
The suit has been brought by M/s. Tarapore
& Co., Madras (hereinafter referred to as the "Indian Firm").
That firm had taken up on contract the work of excavation of a canal as a part
the Farakka Barrage Project. In that connection they entered into a contract
with M/s. V/O Tractors Export, Moscow (which 922 will hereinafter be referred
to as the "Russian Firm") for the supply of construction machinery
such as Scrapers and Bulldozers. In pursuance of that contract, the Indian Firm
opened a confirmed, irrevocable and divisible letter of credit with the Bank of
India, Limited for the entire value of the equipment i.e., Rs. 66,09,372 in
favour of the Russian Firm negotiable through the Bank for Foreign Trade of the
U.S.S.R., Moscow. Under the said letter of credit the Bank of India was required
to pay to the Russian Firm on production of the documents particularised in the
letter of credit alongwith the drafts. One of the conditions of the letter of
credit was that 25 per cent of the amount should be paid on the presentation of
the specified documents and the balance of 75 per cent to be paid one year from
the date of the first payment. The agreement entered into between the Bank of
India and the Russian Firm under the letter of credit was "subject to the
Uniform Customs and Practice for Documentary Credits (1962 Revision),
International Chamber of Commerce Brochure No. 222". Article 3 of the
brochure says that:
"'An irrevocable credit is a definite
undertaking on the part of an issuing bank and constitutes the engagement of
that bank to the beneficiary or, as the case may be, to the beneficiary and
bona fide holders of drafts drawn and/or documents presented thereunder, that
the provisions for payment, acceptance or negotiation contained in the credit
will be duly fulfilled, provided that all the terms and conditions of the
credit are complied with.
An irrevocable credit may be advised to a
beneficiary through another bank without engagement on the part of that other
bank (the advising bank), but when an issuing bank authorises another bank to
confirm its irrevocable credit and the latter does so, such confirmation
constitutes a definite undertaking on the part of the confirming bank either
that the provisions for payment or acceptance will be duly fulfilled or, in the
case of a credit available by negotiation of drafts, that the confirming bank
will negotiate drafts without recourse to drawer.
Such undertakings can neither be modified nor
cancelled without the agreement of all concerned." Article 8 of the
"In the documentary credit operations
all parties concerned deal in documents and not in goods.
923 Payment, acceptance or negotiation
against documents which appear on their face to be in accordance with the terms
and conditions of a credit by a bank authorised to do so, binds the party
giving the authorisation to take up the documents and reimburse the bank which
has effected the payment, acceptance or negotiation ...... " The only
other Article in that brochure which is relevant for our present purpose is
Art. 9 which reads:
"Banks assume no liability or
responsibility for the form, sufficiency, accuracy, genuineness, falsification
or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon; nor do they
assume any liability or responsibility for the description, quantity, weight,
quality, condition, packing, delivery, value or existence of the goods
represented thereby, or for the good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers or the insurers of the
goods or any other person whomsoever." On the strength of the
aforementioned. contract, the Russian Firm supplied all the machinery it
undertook to supply, by about the end of December 1965, which were duly taken
possession of by the Indian Firm and put to work at Farakka Barrage Project.
They are still in the possession of the Indian Firm. After the machinery was
used for sometime, the Indian Firm complained to the Russian Firm that the
performance of the machinery supplied by it was not as efficient as represented
at the time of entering into the contract and consequently it had incurred and
continues to incur considerable loss. In that connection there was some
correspondence between the Indian Firm and the Russian Firm.
Thereafter the Indian Firm instituted a suit
on the original side of the High Court of Madras seeking an injunction
restraining the Russian Firm from realizing the amount payable under the letter
of credit. During the pendency of that suit the parties arrived at an agreement
on August 14, 1966 at Delhi (which shah be hereinafter referred to as the Delhi
agreement). The portion of that agreement which is relevant for our present
purpose reads as follows:
"Tarapore & Co., Madras, agree to
withdraw immediately the court case filed by them against 'Tractoro export'
Moscow, in the Madras High Court.
2. Immediately on Tarapore withdrawing the
case, V/O 'Tractoro export' agree to instruct the Bank for 924 Foreign Trade of
the USSR in Moscow, not to demand any further payment against L.C.
established by Tarapore & Co., Madras,
for a period of six months from the due dates in the first instance. During
this period both the parties shall do theft best to reach an amicable
3. In case the settlement between the two
parties is not completed within this period of six months V/O Tractors export
shall further extend the period of payment by further period of six months for
the settlement to be completed.
4. Tarapore & Co. (shall authorise their
Bank to keep the unpaid portions L.C.
valid for the extended period as stated
above." At this stage it may be mentioned that the Russian Firm had
received from the Bank of India 25 per cent of the money payable under the
letter of credit very soon after it supplied to the Indian Firm the machinery
In pursuance of the aforementioned agreement
the Indian Firm withdrew the suit. Thereafter there were attempts to settle the
dispute. In the meantime the Indian Rupee was devalued.
The contract between the Indian Firm and the
Russian Firm contains the following term:
"Payment for the delivered goods shall
be made by the Buyers in Indian Rupee in accordance with the Trade Agreement
between the USSR and India dated. 10th June, 1963. All the prices are stated in
Indian Rupees. One Indian Rupee is equal to 0.186621 grammes of pure gold. If
the above gold content of Indian Rupee is changed the, prices and the amount of
this Contract in Indian Rupee shall be revalued accordingly on the date of
changing the gold parity of the Indian Rupee." This clause will be
hereinafter referred to as the 'Gold Clause'. In view of that clause, the price
fixed for machinery supplied stood revised.. Consequently under the contract
the Indian Firm had to pay to the Russian Firm an additional sum of about
rupees twenty six lacs. Accordingly the bankers of the Russian Firm called upon
the Indian Firm to open an additional letter of credit for payment of the extra
price payable under the contract. They also intimated the Indian Firm that the
extension of time for the payment of the price of the machinery supplied,
agreed to at Delhi will be given effect to only after the Indian Firm arranges
for the additional letter of credit asked for. The Indian Firm objected to this
demand as per its letter of 20th September, 1966. The relevant portion of that
925 "We are rather surprised to see
this, because, by our arrangement dated the 14th Aug., 1966, at New Delhi you
had agreed to give further time for the payments on the withdrawal of the
Madras High Court case. That was the only condition that was talked about and
incorporated in our written agreement. If you will be good enough to refer to
the agreement dated the 14th Aug., 196'6, you will find that we were obliged to
withdraw the Madras suit pending talks of settlement and immediately on our
withdrawing this suit, you agreed to instruct your Bankers not to demand any
further payment under the letter of credit. There is absolutely no reference in
that agreement to our having to open any additional letter of credit in view of
the devaluation of the Indian rupee ........ We would therefore request you to
immediately instruct your Bankers in Moscow. to advise our Bankers regarding
the extension of time for payment under the letter of credit without any
reference to any additional letters of credit in view of devaluation ..........
Moreover, when the entire question is open for amicable settlement between us,
it is not possible to determine what exactly will be the amount payable and
unless that amount is known, it is not possible to open additional letters of
credit to give effect to the gold clause ............ " On November 1,
1966, the Russian Firm sent to the Indian Firm addendum No. 1 modifying the original
contract in accordance with the gold clause. The last clause of that addendum
recited that "all ,other terms and conditions are as stated in the above
mentioned contract" (original contract). The Indian Firm objected to that
addendum as well as to the demand for opening an additional letter of credit.
In that connection the Russian Firm wrote a
letter to the Indian Firm on November 29, 1966. As considerable arguments were
advanced on the basis of that letter, we shall quote the relevant portion of
that letter :-- " ...... We confirm that you have signed with us the
addendum No. 1 to our Contract No. 61/Tarapore 220/65 dated the 2nd Feb., 1965,
at our request for the sole and specific purpose of satisfying our bankers. We
confirm further that this addendum will not in any manner prejudice the
arrangement we have come to in Delhi on the 14th August, 1966, and is without
prejudice to your claims and points of controversy regarding which we shall
have further discussions with a view to reach an amicable settlement.
926 Under this addendum, the company will
extend the letter of credit for one year and accept the drafts for the
difference in value of 57.5 per cent due to devaluation. The final amount
payable will be in accordance with the settlement." Thereafter the Russian
Firm appears to have drawn drafts on the Indian Firm for the excess amount
payable under the gold clause. For one reason or the other, no settlement as
contemplated by the Delhi agreement was reached. The Indian Firm complained
that the Russian Firm never made any serious attempt to resolve the dispute
whereas the Russian Firm alleged that it found no substance in the complaint
made by the Indian Firm as regards the machinery supplied. In the suit as
brought, as well as in these appeals that controversy is not open for
examination. Suffice it to say that the parties did not amicably settle the
dispute in question. When the extended time granted under the Delhi agreement
was about to come to a close, the Indian Firm instituted the suit from which these
appeals have arisen.
In that suit the only substantive relief
asked for is that the Bank of India as well as the Russian Firm' should be
restrained from taking any further steps in pursuance of the letter of credit
opened by the Indian Firm in favour of the Russian Firm. Therein temporary
injunctions were asked for in the very terms in which the permanent injunctions
were prayed for. At a subsequent stage a further injunction restraining the
Russian Firm from enforcing its right under the gold clause was also prayed
for. The Russian Firm opposed those applications but the trial judge granted
the temporary injunctions asked for. The Russian Firm took up the matter in
appeal to the Appellate Bench of that High Court which reversed the order of
the trial judge by its Order dated October 9, 1968 but it certified that they
are fit cases for appeal to this Court. When the applications in the appeals
seeking interim orders came up for consideration by this Court the Russian Firm
entered its caveat. It not only opposed the interim reliefs prayed for, it
further challenged the validity of the certificates granted by the High Court
on the ground that the orders appealed against are not final orders within the
meaning of Art. 133 of the Constitution. Evidently as a matter of abundant
caution, the Indian Firm had filed two separate applications seeking special
leave to appeal against the orders of the Appellate Bench of the Madras High
After hearing the parties this Court revoked
the certificates granted holding that the orders appealed against are not final
orders but at the same time granted special leave to the Indian Firm to appeal
against the orders of the Madras High Court. Civil Appeals Nos. 2051 and 2052
of 1968 are appeals filed by the Indian Firm.
Before the Appellate Bench of the High Court
of Madras, the Indian Firm had objected to be maintainability of the appeals
927 filed by the Russian Firm on the ground that orders appealed against are
not judgments within the meaning of el. 15 of the Letters Patent of the Madras
High Court but that objection had been overruled by the Appellate Bench
following the earlier decisions of that High Court. That contention was again
raised in the appeals filed by the Indian Firm in this Court. To obviate any
difficulty the Russian Firm applied to this Court for special leave to appeal
against the interim orders passed by the trial judge.
We allowed those applications and
consequently Civil Appeals Nos. 2305 and 2306 of 1968 came to be filed.
In view of the appeals filed by the Russian
Firm in this Court against the interim orders made by the trial judge it is not
necessary to decide whether the appeals filed by the Russian Firm before. the
Appellate Bench of the Madras High Court were maintainable? On that question, judicial
opinion is. sharply divided as could be seen from the decision of this Court in
Asrumati Debi v. Kumar Rupendra Deb Rajkot and Ors.(x) Hence we shall, confine
our attention to the question whether the temporary injunctions issued by the
trial judge are sustainable? The scope of an irrevocable letter of credit is
explained' thus in Halsbury's Laws of England (Vol. 34 paragraph 319 at p.
"It is often made a condition of a
mercantile contract that the buyer shall pay for the goods by means of a
confirmed credit, and it is then the duty of the buyer to procure Iris bank,
known as the issuing or originating bank, to issue an irrevocable credit in
favour of the seller by which the bank undertakes to the seller, either
directly or through another bank in the seller's country known as the
correspondent or negotiating bank, to accept drafts drawn upon it for the price
of the goods, against tender by the seller of the shipping documents. The
contractual relationship between the issuing bank and the buyer is defined by
the terms of the agreement between them under which the letter opening the
credit is issued; and' as between the seller and the bank, the issue of the
credit duly notified to the seller creates a new contractual nexus and renders
the bank directly liable to the seller to pay the purchase price or to accept
the bill of exchange upon tender of the documents. The contract thus created
between the seller and the bank is separate from, although ancillary to, the
original contract between the buyer and. the seller, by reason of the bank's
undertaking to the seller, which is absolute.
Thus the bank is not entitled to, (1) 
S.C.R. 1159. L6 Sup. CI/69-8.
928 rely upon terms of the contract between
the buyer and the seller which might permit the buyer to reject the :goods and
to refuse payment therefore; and, conversely, the buyer is not entitled to an
injunction restraining the seller from dealing with the letter of credit if the
goods are defective." Chalmers on "Bills of Exchange" explains
the legal position in these words:' "The modern commercial credit serves
to interpose between a buyer and seller a third person of unquestioned
solvency, almost invariably a banker of international repute;
the banker on the instructions of the buyer
issues the letter of credit and thereby undertakes to act as paymaster upon the
seller performing the conditions set out in it. A letter of credit may be in
any one of a number of specialised forms and contains the undertaking of the
banker to honour all bills of exchange drawn thereunder. It can hardly be
over-emphasised that-the banker is not bound or entitled to honour such bills
of exchange unless they, and such accompanying documents as may be required
thereunder, are in exact compliance with the terms of the credit. Such
documents must be scrutinised with meticulous care, the maim de minimis non
curat lex cannot be invoked where payment is made by later of credit. If the
seller has complied with the terms of the letter of credit, however, there is
an absolute Obligation upon the banker to pay irrespective of any disputes
there may be between the buyer and the seller as to whether the goods are up to
contract or not:
Similar are the views expressed in Practice
and Law of Banking by H.P. Sheldon 'the Law of Bankers Commercial Credits"
by H.C. Gutteridge "the Law Relating to Commercial Letters of Credit"
by A.G. Davis "the Law Relating to Bankers' Letters of Credit" by
B.C. Mitra and in several other text books read to us by Mr. Mohan Kumaramangalam,
learned Counsel for the Russian Firm. The legal position as set out above was
not controverted by Mr. M.C. Setalvad, learned Counsel for the Indian Firm. So
far as the Bank of India is concerned it admitted its liability to honour the
letter of credit and expressed its willingness to abide by its terms. It took
the same position before the High The main grievance of the India Firm is that
if the Russian Firm is allowed to take away the money secured to it by the
letter ' 929 of credit, it cannot effectively enforce its claim arising from
the breach of the contract it complains of. It was urged on its behalf that the
Russian Firm has no assets in this country and therefore any decree that it may
be able to obtain cannot be executed. Therefore, it was contended that the trial
court was justified in issuing the impugned orders. The allegation that Russian
Firm has no assets in this country was not made in the pleadings. That apart in
the circumstances of this case that allegation has no relevance. An irrevocable
letter of credit has a definite implication. It is a mechanism of great
importance in international trade. Any interference with that mechanism is
bound to have serious repercussions on the international trade of this country.
Except under very exceptional circumstances, the Courts should not interfere
with that mechanism.
For our present purpose we shall assume,
without deciding, that the allegations made by the Indian Firm are true. We
shall further assume that the suit as brought is maintainable though Mr.
Kumaramangalam seriously challenged its maintainability. But yet, in our
judgment, the learned trial judge was not justified in law in granting the
temporary injunctions appealed against. Ordinarily this Court does not
interfere with interim orders. But herein legal principles of great importance
affecting international trade are involved. If the orders impugned are allowed
to stand they are bound to have their repercussion on our international trade.
We have earlier referred to several well
known treatises on the subject. Now we shall proceed to consider the decided
eases bearing on the question under consideration.
A case somewhat similiar to the one before us
came up for consideration before the Queens Bench Division in England in Hamzeh
Malas and Sons v. British Imex Industries Ltd.(1) Therein the plaintiffs, a 10
Jordanian firm contracted to purchase from the defendants, a British firm, a
large quantity of reinforced steel rods, to be delivered in two installments.
Payment was to be effected by opening in favour of the defendants of two
confirmed letters of credit with the Midland Bank Ltd., in, London, one in'
respect of each installment. The letters of credit were duly opened and the
first was realized by the defendants on the delivery of' t, he first installment.
The plaintiffs complained that that installment was defective and Sought an
injunction to bat the defendants from realizing the second letter of credit.
Donovan 1., the trial judge refused the application. In appeal Jenkins, Sellers
and Pearce L.JJ.
confirmed the decision of the trial judge. In
the course of (1)  2 Q.B. 127.
930 his judgment Jenkins L.J. who spoke for
the Court observed thus:
"We have been referred to a number of
authorities, and it seems to be plain enough that the opening of a 'confirmed
letter of credit constitutes a bargain between the banker and the vendor of the
goods, which imposes upon the banker an absolute obligation to pay,
irrespective of any dispute there may be between the parties as to whether the
goods are up to contract or not. An elaborate commercial system has been built
up on the footing that bankers' confirmed credits are of that character, and,
in my judgment, it would be wrong for this Court in the present case to
interfere with that established practice.
There is this to be remembered, too. A vendor
of goods selling against a confirmed letter of credit is selling under the
assurance that nothing will prevent him from receiving the price. That is of no
mean advantage when goods manufactured in one country are being sold in
another. It is, furthermore, to be observed 'that vendors are often reselling
goods bought from third parties. When they are doing that, and when they are
being paid by a confirmed letter of credit, their practice is--and I think it
was followed by the defendants in this case--to finance the payments necessary
to be made to their suppliers against the letter of credit.
That system of financing these operations, as
I see it, would break down completely if a dispute as between the vendor and the
purchaser was to have effect of 'freezing,' if I may use that expression, the
sum in respect of which the letter of credit was opened." In Urquhart
Lindsay and Co. Ltd. v. Eastern Bank Ltd.(1) the King's Bench held that the
refusal of the defendants bank to take and_pay for the particular bills on
presentation of the proper documents constituted a repudiation of the contract
as a whole and that the plaintiffs were entitled to damages arising from such a
breach. It may be noted that in that case the price quoted in the invoices was
objected to by the buyer and he had notified his objection to the bank. But
under the terms of the letter of credit the bank was required to make payments.
on the basis of the invoices tendered by the
seller. The Court held that if the buyers had an enforceable claim that
adjustment must be made by way of refund by the seller and not by way of
retention by the buyer.
(1)  1 K.B. 318.
931 Similar opinions have been expressed by
the American Courts, The leading American case on the subject is Dulien Steel
Products Inc., of Washington v. Bankers Trust Co.(1). The facts of that case
are as follows:
The plaintiffs,. Dulien Steel Products Inc.,
of Washington, contracted to sell steel scrap to the European Iron and Steel
Community. The transaction was put through M/s. Marco Polo Group Project, Ltd.
who were entitled to commission for arranging the transaction. For the payment
of the commission to Marco Polo, plaintiffs procured an irrevocable letter of
credit from Seattle First National Bank. As desired by Marco Polo this letter
of credit was opened in favour of one Sica. The defendant-bankers confirmed
that letter of credit. The credit stipulated for payment against (1 ) a receipt
of Sica for the amount of the credit and (2 ) a notification of Seattle Bank to
the defendants that the plaintiffs had negotiated documents evidencing the
shipment of the goods. Sica tendered the stipulated receipt and. Seattle Bank
informed the defendants that the Dulien had negotiated documentary drafts.
Meanwhile after further negotiations between
the plaintiffs and the vendees the price of the goods sold was reduced and
consequently the commission payable to Marco Polo stood reduced but the
defendants were not informed of this fact.
Only after notifying the defendants about the
negotiation of the drafts drawn under the contract of sale, the Seattle Bank
informed the defendants about the changes underlying the transaction and asked
them not to pay Sica the full amount of the credit. The defendants were also
informed that Sica was merely a nominee of Marco Polo and has no rights of his
own to the sum of the credit. Sica, however, claimed payment of the full amount
of the credit. The defendants asked further instructions from Seattle Bank but
despite Seattle Bank's instructions decided to comply with Sica's request.
After informing Seattle Bank of their intention, they paid Sica the full amount
of the credit. Plaintiffs thereupon brought an action in the District Court of
New York for the recovery of the moneys paid to Sica. The action was dismissed
by the trial court and that decision was affirmed by the Court of Appeals. That
decision establishes the well known principle that the letter of credit is
independent of an unqualified by the contract of sale or underlying
transaction. The autonomy, of an irrevocable letter of, credit is entitled to
protection. As a rule courts refrain from interfering with that autonomy.
A half hearted attempt was made on behalf of
the Indian Firm to persuade us not to apply the principles noticed above as in
these appeals we are dealing with a complaint of fraud. The facts pleaded in
the plaint do not amount to a plea of fraud despite the (1) Federal Reporter
2nd Series 298, p. 836.
932 assertions of the Indian Firm that the
Russian Firm was guilty of fraud.
Evidently with a view to steer clear of the
well established legal position Mr. Setalvad, learned Counsel for the Indian
Finn urged that the letter of credit was no more enforceable as the original
contract stood modified as a result of the Delhi agreement and the Subsequent
correspondence between the parties., It was urged that according to the
modified contract the Indian Firm is only liable to pay the price that may be
settled between the buyer and the seller. This contention has not been taken
either in the plaint or in the arguments before the trial judge or before the
Appellate Bench. It is taken for the first time in this Court. This is not
purely a legal contention. The contention in question bears on the intention of
the parties who entered into the agreement. NO one could have known the
intention better than the plaintiff who was a party to the contract. If there
was such an intention, the plaintiff would have certainly pleaded the same.
That apart, we are unable to accept the contention that either the Delhi
agreement or the subsequent correspOndence between the parties modified, the
original contract. The Delhi agreement merely provided that the parties will
try and settle the dispute out of court, if possible. Much was made of the
letter written, by the Russian Firm to the Indian Firm on 29-11-1965 wherein as
seen earlier it was stated:
"that the final amount payable will be
in accordance with the settlement".
This letter has to be read along with the
other letters that passed between the parties. If so read, it is clear that the
statement that the final payment will be made in accordance with the settlement
is subject to the condition that the parties are able ,to arrive at a
settlement. Otherwise the parties continue to be bound by the original contract
subject to the extension of the time granted under the Delhi agreement for the
payment of the price. As regards the additional payment demanded by the Russian
Firm, there is no occasion for issuing any temporary injunction. If the Indian
Firm does not comply with that demand the law will take its course. It is for
that Firm to choose its course of action.
In the result we allow Civil Appeals Nos.
2305 and 2306 of 1968 with costs of the appellant therein and set aside the
temporary injunctions granted by the trial judge. The other appeals are
dismissed with no order as to costs. The costs to be paid by the Indian
V.P.S. C.A. Nos. 2305 & 2306/68 allowed.
C.A.Nos. 2251 & 2252/68 dismissed.