V O TRAGTOROEXPORT MOSCOW Vs. TARAPORE AND COMPANY

JUDGEMENT

(1.) These connected appeals which involve points of importance and interest in international commercial arbitration arise out of a suit instituted on the original side of the High Court of Judicature at Madras by M/s. Tarapore and Co against M/s. V. O. Tractoroexport, Moscow.

(2.) Initially the claim was for a permanent injunction restraining the Russian firm from realizing the proceeds of a Letter of Credit opened on June 9, 1965, with the Bank of India Ltd., Madras, which had also been impleaded as a defendant. Subsequently by an amendment of the plaint the plaintiff has confined relief to recovery of damages.

(3.) The facts chronologically are as follows: A contract was entered into on February 2, 1965, between the Indian and the Russian firms for the supply of earth-moving machinery for a value of Rupees 66,09,372.00. The machinery was required by the Indian firm for executing the work of excavation of a feeder canal as part of the Farraka Barrage Project. On June 9, 1965, the Indian firm opened a Letter of Credit with the Bank of India Ltd., for the entire value of the machinery in favour of the Russian firm. The consignments started arriving at Calcutta in October, 1965. On February 22, 1966, the Indian firm wrote to the Russian firm saying that there was something wrong with the design and working of motorised scrapes which had been supplied and which formed one of the items of machinery covered by the contract. On June 6, 1966 came the devaluation of the Indian rupee by 57.48 per cent. as a result of which the amount that became payable by the Indian firm to the Russian firm under the contract increased by Rs. 25 lakhs or so. On June 20, 1966, the Russian firm demanded an increase in the Letter of Credit owing to the devaluation. On August 1, 1966, the Indian firm served a notice on the Russian firm containing the main allegations relating to breach of contract on the part of the Russian firm. The latter was called upon to remedy the breaches and pay compensation. It was made clear that until this was done the Russian firm would not be entitled to encash the Letter of Credit for the balance amount. On August 4, 1966, the Indian firm filed a suit on the original side of the Madras High Court and obtained an ex parte order of injunction in respect of the operation of the Letter of Credit. On August 14, 1966, the parties arrived at a settlement at Delhi after mutual discussion.