HIMADRI CHEMICALS INDUSTRIES LTD v. COAL TAR REFINING COMPANY

A by the appellant in favour of the respondent . In terms thereof, payment was to be made "at sight". The document against which payment was to be made, was received directly by the appellant's banker and it was found that the description of the goods as supplied was not as per the terms of the Letter of Credit Accordingly, the banker intimated the fact to the appellant and sought advice whether the appellant was willing to waive the discrepancies indicated B in the Letter. of Credit. The appellant waived the discrepancies and accepted the documents and also directed the banker to make the payments. However, before accepting the documents and agreeing to make payments, the appellant had given the respondent two options: (i) either to negotiate the document and resolve the quality issue; or (ii) reject the shipment document. Later, the C appellant and the respondent agreed to amend the Letter of Credit On the basis of the amended Letter of Credit, the payment could be made on or before fOth April, 2007. However, no effective steps were taken by the respondent sup.plier "to resolve the quality issue of the goods agreed to be supplied. Aggrieved; the appellant-company filed an application under Section 9 of the Act to stop release of payment under the Letter of Credit Single Judge of the D High C~urt passed an interim order granting status quo in the matter. The interim order of status quo, so granted, was extended from time to time. Later, Single Judge vacated the interim order of status quo granted earlier against which an appeal was preferred by the appellant before a Division Bench of the High Court which dismissed the appeal and affirmed the order of the Single E Judge vacating 'the interim order of status quo. Hence the present appeal. ·Dismissing the appeal, the Court HELD: 1.1. The law relating to grant or refusal to grant injunction in the ,matter of invocation of a Bank Guarantee or a. Letter of Credit is now F . well settled by a plethora of decisions not only of this Court but also of the different High Courts. From these decisions, which are relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a Bank Guarantee or a Letter of Credit, the following principles should be noted in the matter of injunction to restrain the encashment of a Bank Guarantee or a Letter of Credit:- G (i) While dealing with an application for injunction in the course of ·commercial dealings, and when an unconditional Bank Guarantee or .Letter.ofCredit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms thereof Jrrespective of any pending disputes relating, to the terms of the H HIMADRI CHEMICALS INDUSTRIES LTD. v. COAL TAR REFINING COMPANY contract 871 A (ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer. (iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit. B (iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit C (v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation. (vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to D one of the parties concerned. , Keeping these principles in mind and applying the same on the facts of the instant case, the only conclusion that could be drawn is that no good ground has been made out by the appellant to interfere with the impugned order. E (Paras 10, 14 and 15) 1877-C; 879-D, E, F, G, H; 880-A, B, CJ