Calcutta High Court
Super Smelters Limited vs Jaguar Steel & Coal Pte Ltd. & Anr on 23 December, 2024
OCDSL- 1
IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
COMMERCIAL DIVISION
G.A. (Com) No. 1 of 2024
In
C.S. (COM) No. 828 of 2024
SUPER SMELTERS LIMITED
-VS-
JAGUAR STEEL & COAL PTE LTD. & ANR.
BEFORE:
The Hon'ble JUSTICE KRISHNA RAO
Date : 23.12.2024
Appearance:
Mr. Ratnanko Banerjee, Sr. Adv.
Mr. Anuj Singh, Adv.
Mr. Vivek Jhunjhunwala, Adv.
Mr. Pratik Shanu, Adv.
... For the plaintiff.
Mr. Ranjan Bachawat, Sr. Adv.
Mr. Krishnaraj Thaker, Sr. Adv.
Mr. Varun Kedia, Adv.
Mr. Avee Jaiswal, Adv.
... For the defendant no 1.
ORDER
1. The plaintiff has filed the present application praying for grant of
temporary injunction. The plaintiff is carrying on business of
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manufacture and sale of basic iron and steel products. The defendant
no.1 is a company incorporated under the relevant laws of Singapore
and is engaged in sale of Shredded Steel Scrap and Plate and
Structural Steel to prospective buyers. The defendant no. 2 is the
banker of the plaintiff and upon instructions of the plaintiff has issued
diverse letters of credit in favour of the beneficiary.
2. On usual course of business, the defendant no.1 negotiated a
transaction with the plaintiff wherein the defendant no.1 agreed to sell,
supply and deliver Shredded Steel Scrap and Plate and Structural Steel
of specific quantity on the specific terms and conditions. The plaintiff
and the defendant no.1 entered into three contracts for sale of Steel
Scrap bearing Contract No. JSC-6080 dated 21st August, 2024 wherein
the defendant no. 1 agreed to sell, supply and deliver 2000 MT of
Shredded Steel Scrap, Contract for Sale of Steel Scrap bearing No. JSC-
6082 dated 21st August, 2024 and Contract bearing No. JSC-6095
dated 3rd September, 2024 for supply of 2000 MT of Shredded Steel
Scrap as per ISRI 211 of UK/ Europe origin.
3. Mr. Ratnanko Benerjee, Learned Senior Advocate representing the
plaintiff submits that the defendant no.1 has fraudulently and
maliciously encashed the letters of credit issued under the first and
second contract, while the debit notes raised by the plaintiff under
these contracts remain unpaid. He submits that the Letter of Credit
related to third contract was amended by the plaintiff based of the false
representations made by defendant no.1. He submits that the plaintiff
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reasonably apprehends that the defendant may also encash the letter of
credit issued under the third contract without repaying or remitting the
amounts due under the debit notes to the plaintiff.
4. Mr. Banerjee submits that in addition to the above three contracts, the
plaintiff and the defendant no.1 has also entered into further three
contracts being nos. JSC-6096 dated 4th September, 2024, JSC-6106
dated 10th September, 2024 and JSC-6107 dated 10th September, 2024
and the consignments in respect of the fourth and sixth contracts have
been diverted by the defendant no.1 to third parties.
5. Subsequently, when the plaintiff had entered into the third contract
dated 3rd September, 2024, the defendant no.1 has forwarded all the
documents to the plaintiff and requested the to issue letter of credit in
favour of the defendant no.1 for a sum of USD 780,000/- and
accordingly on 21st October, 2024, the plaintiff issued letter of credit
with respect to the contract No. JSC-6095 for a sum of Rs. 780,000
USD. He submits that immediately after opening of letter of credit, the
defendant no.1 requested the plaintiff to amend the letter of credit as
the goods sought to be deliver by the defendant no.1 under the third
contract also were not confirming to the specified quality or standard.
The defendant no.1 agreed to offer discounts at the rate of USD 20 per
MT on the contract price to the plaintiff to cover such lapses. The
plaintiff accepting the request of the defendant no.1 amended the letter
of credit dated 21st October, 2024, on 11th December, 2024 with respect
to contract No. JSC-6095.
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6. The plaintiff relying upon the representation of the defendant no.1
made vide emails dated 4th December, 2024, 11th December, 2024 and
12th December, 2024, the plaintiff reminded the defendant no.1 to take
appropriate steps to process the release of sum of USD 56,904.71. By
an email dated 13th December, 2024, the defendant no.1 informed the
plaintiff that the remittance of the sum of USD 56,904.71 was stopped
on account of purported lapses on the part of the plaintiff who had
allegedly “exaggerated the nature of” the debit notes and made
“exaggerated quality claims”.
7. Mr. Banerjee submits that the plaintiff has special equities as to why
the amended letter of credit dated 11th December, 2024, issued
pursuant to the third contract is not liable to be encashed and the
invocation of the same is required to be restrained permanently. He
submits that the defendant no.1 is also liable to pay a sum of USD
88,253.21.
8. Mr. Banerjee submits that the defendant no.1 is also liable to pay a
sum of USD 88,253.21 on account of discount given by the defendant
no.1 under the third contract i.e. USD 22,258.50, value of debit note of
USD 56,904.71 and discount to be provided with respect to the
undelivered goods under the second contract being USD 9090. Mr.
Banerjee submits that the defendant no.1 has committed fraud upon
the plaintiff by obtaining the amended letter of credit dated 11th
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December, 2024 and attempting to invoke it maliciously, has violated
the plaintiff’s right under the contract no. JSC-6095.
9. Mr. Banerjee relied upon the unreported order passed by the
Coordinate Bench of this Court in the case of SM Niryat Pvt. Ltd. Vs.
Indian Bank & Ors. in C.S. No. 161 of 2023 with G.A. No. 1 of
2023 dated 14th August, 2023 in which in the similar case, the
Coordinate Bench has passed an order on interim injunction.
10. Mr. Ranjan Bachawat, Learned Senior Advocate representing the
defendant no.1 submits that the Letter of Credit is irrevocable and the
negotiable bank is any bank at Singapore but the plaintiff has not
made the negotiable bank as party to the suit. He submits that as per
the terms of the Letter of Credit, the beneficiary will be paid at sight by
reimbursing bank upon receipt of the complied documents.
11. Mr. Bachawat submits that as per UCP-600 banks are no way
concerned with or bound by such contract, even, if any, reference
whatsoever to it is included in the credit. He submits that the banks
deal with the documents and not with goods, services or performances
to which the documents may relate.
12. Mr. Bachawat submits that as per Article 7 of the UCP 600 if the
stipulated documents are presented to the nominated bank or to the
issuing bank and that they constitute a complying presentation, the
issuing bank must honour if the credit is available by sight payment,
deferred payment or acceptance with the issuing bank. He submits
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that the issuing bank is irrevocably bound to honour as of the time it
issues the credit.
13. Mr. Bachawat submits that as per Article 14 of the UCP-600 nominated
bank acting on its nomination, a confirming bank, if any, and the
issuing bank shall each have a maximum of five banking days following
the day of the presentation to determine if a presentation is complying.
This period is not curtailed or otherwise affected by the occurrence on
or after the date of presentation of any expiry date or last day for
presentation.
14. He submits that if an issuing bank determines that a presentation is
complying, it must honour. He submits that the bank received request
on 16th December, 2024 and five working days is over on 21st
December, 2024 but being the 21st December, 2024 and 22nd
December, 2024, the bank will honour the amount on 23rd December,
2024.
15. Mr. Bachawat relied upon the judgment in the case of Standard
Chartered Bank Vs. Heavy Engineering Corporation Limited and
Another reported in (2020) 13 SCC 574 and submitted that supply of
defective materials or other contractual deficiencies are outside the
purview of bank guarantee. He submits that while dealing with an
application for injunction in the course of commercial dealing, and
when an unconditional bank guarantee or letter of credit is given or
accepted, the beneficiary is entitled to realize such bank guarantee or
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letter of credit in terms thereof irrespective of any pending disputes
relating to the terms of the contract. He submits that the bank giving
such guarantee is bound to honour it as per its terms irrespective of
any dispute raised by its customer.
16. Mr. Bachawat further submits that the plaintiff has alleged about the
alleged fraud committed by the defendant no.1 but the plaintiff has not
informed the bank about the alleged fraud and thus the plaintiff cannot
take plea of fraud in the suit in support of his submissions, he has
relied upon the judgment reported in the case of Federal Bank Ltd.
vs. V.M. Jog Engineering Ltd. and Others reported in (2001) 1 SCC
663.
17. Mr. Bachawat submits that the plaintiff has not brought to the notice of
this Court about the final outcome of the order relied upon by the
plaintiff dated 14th August, 2023 and submitted that the plaintiff in the
said suit had initially obtained ad-interim order but subsequently, the
plaintiff has withdrawn the said suit.
18. Heard the Learned Counsel for the respective parties, perused the
materials on record and the judgements relied upon by the parties.
There is no dispute with regard to the transaction between the parties.
The case made out by the plaintiff that as per contracts entered
between the parties, the plaintiff has open letter of credit with the
defendant no. 2 bank on 21st October, 2024 for a sum of USD 780,000
in favour of the defendant no.1. Immediately after opening of the letter
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of credit with respect to the third contract, the defendant no.1
requested the plaintiff to amend the letter of credit as the goods sought
to be delivered by the defendant no.1 under the third contract were not
in conformity to the specified quality or and standard. The defendant
no.1 agreed to offer discounts at the rate of USD 20 per MT on the
contract price to the plaintiff to cover the lapses. As per request of the
defendant no.1, the plaintiff has amended the letter of credit on 11th
December, 2024 with respect to the third contract.
19. By an email dated 11th December, 2024, the defendant no.1 informed
the plaintiff that none debit notes issued by the defendant no.1
amounting to USD 56,904.71 will be remitted tomorrow before 12 noon
subject to receiving confirmation. On 12th December, 2024, the
defendant no.1 again sent an email to the plaintiff wherein the
defendant no.1 has attached remittance copy USD 56,904.71 against
the debit notes.
20. By an email dated 13th December, 2024, the defendant no.1 has
informed the plaintiff that the remittance of USD 56,904.71 was
stopped at midnight due to exaggerated quality claims and also
threatened that they will divert the cargo of contract nos. 6096 and
6107 to other buyers at the current market price.
21. The amount of Letter of Credit is for a sum of USD 780,000 and the
defendant no. 1 has claimed USD 757,741.50 only and refunded a sum
of USD 22,258.50 but the plaintiff is claiming further USD 56,904.71
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which was remitted by the defendant no.1 by an email dated 12th
December, 2024 and further USD 9090 being undelivered goods under
the second contract.
22. The order relied by the plaintiff in the case of S.M Niryat Pvt. Ltd.
(Supra), though the Coordinate Bench of this Court granted ad-interim
order but immediately on 25th August, 2023, the plaintiff has
withdrawn the suit. The judgment relied by the defendant in the case of
Standard Chartered Bank (Supra), the Hon’ble Supreme Court held
that:
“15. The learned counsel further submits that
the bank guarantees are in reference to two
category of losses (i) non-supply/defective supply
of plant and equipment (ii) “other contractual
deficiencies” and by the invocation vide letter dated
19-12-1998 claims caused by “non-
supply/defective supply of plant and equipment
and other contractual deficiencies” is outside the
purview of the bank guarantee. Further, assuming
the correctness of the claim, the 1st respondent if
suffered loss for both (i) non-supply/defective
supply of plant and equipment (ii) “other
contractual deficiencies”, it is difficult to determine
the apportionment between the two categories,
because the invocation does not state how they are
apportioned. The invocation is thus inchoate and
incomplete and this according to the appellant does
not constitute a valid invocation at all and it has
not been properly appreciated by the Division
Bench of the High Court in the impugned judgment
and has to be interfered by this Court.
19. The law relating to invocation of bank
guarantees with the consistent line of precedents of
this Court is well settled and a three-Judge Bench
of this Court in Ansal Engg. Projects Ltd. v. Tehri
Hydro Development Corpn. Ltd. held thus:
“4. It is settled law that bank guarantee
is an independent and distinct contract
10between the bank and the beneficiary and is
not qualified by the underlying transaction
and the validity of the primary contract
between the person at whose instance the
bank guarantee was given and the
beneficiary. Unless fraud or special equity
exists, is pleaded and prima facie established
by strong evidence as a triable issue, the
beneficiary cannot be restrained from
encashing the bank guarantee even if dispute
between the beneficiary and the person at
whose instance the bank guarantee was given
by the bank, had arisen in performance of the
contract or execution of the works undertaken
in furtherance thereof. The bank
unconditionally and irrevocably promised to
pay, on demand, the amount of liability
undertaken in the guarantee without any
demur or dispute in terms of the bank
guarantee. The object behind is to inculcate
respect for free flow of commerce and trade
and faith in the commercial banking
transactions unhedged by pending disputes
between the beneficiary and the contractor.
5. … The court exercising its power
cannot interfere with enforcement of bank
guarantee/letters of credit except only in
cases where fraud or special equity is prima
facie made out in the case as triable issue by
strong evidence so as to prevent irretrievable
injustice to the parties.”
20. A bank guarantee constitutes an
independent contract. In Hindustan Construction
Co. Ltd. v. State of Bihar, a two-Judge Bench of
this Court formulated the condition upon which the
invocation of the bank guarantee depends in the
following terms:
“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
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
11the 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.”
22. Taking note of the exposition of law on the
subject in Himadri Chemicals Industries
Ltd. v. Coal Tar Refining Co. , a two-Judge Bench of
this Court in Gujarat Maritime Board v. Larsen &
Toubro Infrastructure Development Projects Ltd.,
has laid down the principles for grant or refusal for
invocation of bank guarantee or a letter of credit.
The relevant paragraph is as under: (Himadri
Chemicals Industries Ltd. case, SCC pp. 117-18,
para 14)
“14. From the discussions made
hereinabove relating to the principles for grant
or refusal to grant of injunction to restrain
enforcement of a bank guarantee or a letter of
credit, we find that the following principles
should be noted in the matter of injunction to
restrain the encashment of a bank guarantee
or a letter of credit:
(i) While dealing with an application for
injunction in the course of commercial
dealings, and when an unconditional bank
guarantee or letter of credit is given or
accepted, the beneficiary is entitled to realise
such a bank guarantee or a letter of credit in
terms thereof irrespective of any pending
disputes relating to the terms of the contract.
(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
realisation of a bank guarantee or a letter of
credit.
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(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.
(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 one of the parties concerned.”
23. In the present case, the plaintiff has tried to make out a case that on
the assurance of the defendant no.1, the plaintiff has amended the
letter of credit with the assurance that the defendant will remit the
amount with respect to the defective goods but subsequently, the
defendant no.1 backed out for giving the remittance and also
threatened that the cargo of contract will be diverted to other buyers.
The case made out by the plaintiff is with respect to dispute between
the plaintiff and the defendant no. 1. The defendant no. 2 is no way
connected with the said dispute. The existence of dispute between the
parties to the contract is not a ground for issuance of an ad interim
injunction to restrain enforcement of the Letter of Credit.
The Hon’ble Supreme Court held that the fraud committed by the
firm is to be informed to the bank but in the present case, the plaintiff
has not informed about the alleged fraud of the defendant no.1 to the
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defendant no. 2. In the case of Federal Bank Ltd. (supra), the Hon’ble
Supreme Court held that:
“56. Decided cases hold that in order to
obtain an injunction against the issuing bank, it is
necessary to prove that the bank had knowledge of
the fraud.
57. Kerr, J. said in R.D. Harbottle (Mercantile)
Ltd. v. National Westminster Bank Ltd. that
irrevocable Letters of Credit are “the lifeblood of
international commerce”. He said:
“Except possibly in clear cases of fraud of
which the banks have notice, the courts will
leave the merchants to settle their disputes
under the contracts by litigation or
arbitration…. Otherwise, trust in international
commerce could be irreparably damaged.”
Denning M.R. stated in Edward and Owen
Engg. Ltd. v. Barclays Bank International Ltd. that
“the only exception is where there is a clear fraud
of which the bank had notice”. Browne, L.J. said in
the same case: “but it is certainly not enough to
alleged fraud, it must be established and in such
circumstances, I should say, very clearly
established”. In Bolivinter Oil S.A. v. Chase
Manhattan Bank, it was said
“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 ‘before the
injunction is vacated’ “.
Thus, not only must “fraud” be clearly proved
but so far as the bank is concerned, it must prove
that it had knowledge of the fraud. In United
Trading Corpn. S.A. v. Allied Arab Bank it was
stated that there must be proof
of knowledge of fraud on the part of the bank at
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any time before payment. It was also observed that
it
“would be sufficient if the corroborated
evidence of the plaintiff usually in the form
of contemporary documents and the unexplained
failure of a beneficiary to respond to the attack,
lead to the conclusion that the only
realistic inference to draw was ‘fraud’ “.
In Guaranty Trust Co. of New
York v. Hannay, the banker accepted the
documents without any knowledge of fraud or
falsification and it was held that the defendants
could not counter-claim from the bank. However, it
would be the banker’s duty to refuse the
documents which on their face bear signs of having
been altered. That was a C.I.F. contract. This Court
in I.T.C. Ltd. v. Debts Recovery Appellate
Tribunal also held that knowledge of the bank as to
the fraud or forgery had to be prima facie
established.”
24. This Court finds that the bank guarantee is governed under the UCP
600. It is settled law that the letter of credit is an independent contract
between the bank, the beneficiary and the bank is always obliged to
honour its guarantee as long as it is an unconditional and irrevocable.
The present bank guarantee is irrevocable and the defendant has made
demand to the bank on 16th December, 2024 and as per UCP 600
Article 14 maximum period of five banking days following the day of
presentation to determine if a presentation is complying. The Counsel
for the defendant no.1 submits that the amount has already
discounted. Considering the above, this Court did not find any prima
facie case and balance of convenience and inconvenience in favour of
the plaintiff.
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25. In view of the above, ad-interim order as prayed for by the plaintiff is
refused. The defendant is directed to file affidavit-in-opposition within a
period of one week after winter vacation, reply, if any, within a week
thereafter. List the matter on 21st January, 2025.
(Krishna Rao, J.)
p.d/-
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