ALCOVE INDUSTRIES LTD Vs. ORIENTAL STRUCTURAL ENGINEERS LIMITED

JUDGEMENT

(1.) I PROPOSE TO DISPOSE OF THE INTERIM APPLICATION FILED IN THE PETITION UNDER SECTION 9 OF THE ARBITRATION & CONCILIATION ACT, 1996 IN WHICH APPLICATION THE PETITIONER HAS PRAYED FOR AN EX-PARTE ORDER RESTRAINING THE RESPONDENT FROM ENCASHING SEVERAL BANK GUARANTEES. THIS PRAYER IS IN PARI MATERIA WITH THE FIFTH PRAYER IN THE PETITION. ON 9.9.2003 MY LEARNED BROTHER HAD GRANTED AN INTERIM INJUNCTION INTER ALIA FOR THE REASON THAT THE CONTRACT HAD NOT BEEN TERMINATED AND THEREFORE CLAUSE 22 OF THE AGREEMENT BETWEEN THE PARTIES HAD NOT COME INTO PLAY; THAT NO REASONS HAD BEEN ASSIGNED FOR THE INVOCATION OF THE BANK GUARANTEES; AND THAT ONCE THE BANK GUARANTEES WERE ENCASHED THE ARBITRATION WOULD BE RENDERED ANFRACTUOUS. THE CONCERNED BANK HAS NOT BEEN IMPLEADED IN THESE PROCEEDINGS.

(2.) THE HON'BLE SUPREME COURT HAS ON NUMEROUS OCCASIONS DEVOTED ITS ATTENTION AND TIME ON ENUNCIATING AND REITERATING THE LAW ON PARAMETERS OF JURAL INTERFERENCE WITH THE INVOCATION/ENCASHMENT OF LETTERS OF CREDIT AND BANK GUARANTEES. THE LAW HAS BEEN SO CRYSTALIZED IN ITS PRONOUNCEMENTS THAT IT ADMITS OF NO DEBATE OR DOUBT. OVER A QUARTER CENTURY AGO, THE COURT HAD IN TARAPORE AND CO., MADRAS VS. V.O TRACTORS EXPORT MOSCOW, AIR 1970 SC 891 ELABORATELY AND PERSPICUOUSLY EXPLAINED THE SCOPE AND AMBIT OF JUDICIAL INTERFERENCE IN MATTERS CONCERNING LETTERS OF CREDIT AND BANK GUARANTEES IN THESE WORDS-- THE SCOPE OF AN IRREVOCABLE LETTER OF CREDIT IS EXPLAINED THUS IN HALSBURY'S LAWS OF ENGLAND (VOL.34, PARAGRAPH 319 AT PAGE 185):

(3.) IN UNITED COMMERCIAL BANK VS. BANK OF INDIA AND OTHERS, (1981) 2 SCC 766 = AIR 1981 SC 1426 THE APEX COURT HAS REITERATED THAT COURTS OUGHT NOT TO GRANT INJUNCTIONS RESTRAINING THE PERFORMANCE OF THE CONTRACTUAL OBLIGATIONS FLOWING OUT OF A LETTER OF CREDIT OR A BANK GUARANTEE BETWEEN ONE BANK AND ANOTHER. IT OBSERVED THAT - THE OPENING OF A CONFIRMED LETTER OF CREDIT CONSTITUTES A BARGAIN BETWEEN THE BANKER AND THE VENDOR OF THE GOODS WHICH IMPOSES ON THE BANKER AN ABSOLUTE OBLIGATION TO PAY. A BANKER ISSUING OR CONFIRMING AN IRREVOCABLE CREDIT USUALLY UNDERTAKES TO HONOUR DRAFTS NEGOTIATED, OR TO REIMBURSE IN RESPECT OF DRAFTS PAID, BY THE PAYING OR NEGOTIATING INTERMEDIATE BANKER AND THE CREDIT IS THUS IN THE HANDS OF THE BENEFICIARY BINDING AGAINST THE BANKER. A LETTER OF CREDIT CONSTITUTE THE SOLE CONTRACT WITH THE BANKER AND A BANK ISSUING OR CONFIRMING A LETTER OF CREDIT IS NOT CONCERNED WITH THE UNDERLYING CONTRACT BETWEEN THE BUYER AN SELLER. DUTIES OF A BANK UNDER A LETTER OF CREDIT ARE CREATED BY THE DOCUMENT ITSELF, BUT IN ANY CASE IT HAS THE POWER AND IS SUBJECT TO THE LIMITATIONS WHICH ARE GIVEN OR IMPOSED BY IT, IN THE ABSENCE OF THE APPROPRIATE PROVISIONS IN THE LETTER OF CREDIT. THE BANKER OWES A DUTY TO THE BUYER TO ENSURE THAT THE DOCUMENTS TENDERED BY THE SELLERS UNDER A CREDIT ARE COMPLIED WITH THOSE FOR WHICH THE CREDIT CALLS AND WHICH ARE EMBODIED IN TERMS OF PAYING OR NEGOTIATING BANK THE DESCRIPTION OF THE GOODS IN THE RELATIVE BILL OF EXCHANGE MUST BE THE SAME DESCRIPTION IN THE LETTER OF CREDIT, THAT IT, THE GOODS THEMSELVES MUST IN EACH BE DESCRIBED IN IDENTICAL TERMS, EVEN THOUGH THE GOODS DIFFERENTLY DESCRIBED IN THE TWO DOCUMENTS ARE, IN FACT, THE SAME. IT IS THE DESCRIPTION OF THE GOODS THAT IS ALL IMPORTANT AND IF THE DESCRIPTION IS NOT IDENTICAL IT IS THE PAYING BANK'S DUTY TO REFUSE PAYMENT.