LARSEN AND TOUBRO LTD Vs. MUNSON LTD

JUDGEMENT

(1.) LEAVE granted under Rules 147 and 148 of the High Court Rules (O.S.) in terms of draft notice of motion handed in. Motion returnable after eight weeks. Mr. Kadam wavies service for defendant No.3. Mr. Sancheti, learned counsel for plaintiffs submits that advance intimation of this application has been sent to defendant Nos.1 and 2. However, none appears on behalf of defendant Nos.1 and 2.

(2.) ON 26th November 1997, the plaintiffs placed an order for supply of Soda Ash dens extra grade packed in 1 M.T. polypropylene jumbo bags, upon the defendant No.2 for a value of US $ 80,000. The shipment was to be on cost and freight basis. The terms of payment were by way of letter of credit - 90 days credit free of interest through a bank. The said purchase order specified various other terms and conditions. Under clause 4 of the Commercial terms and conditions to the purchase order, the plaintiffs specifically stipulated that the shipment was to be latest by early December 1997 and delivery was to be of utmost importance and strict adherence to the agreed shipment was a must and was to be maintained. The shipment was to be made by fast direct regular liner vessel approved by Lloyds or its equivalent shipment approved by the Institute of London Underwriters or by their various agents stating that the carrying vessels is classed as Lloyds-100-A1 or its equivalent and not over 20 years of age. According to the plaintiffs, the specification of the vessel was in order to ensure that the carrying vessel was seaworthy and did not have any problems either from the financial or navigational point of vew. A letter of credit came to be established by the defendant No.3 for a sum fo US $ 80,000 in favour of defendant No.2 recording therein various terms and conditions and classifying that the plaintiffs had 90 days credit free of interest as one of the payment terms. The plaintiffs case is that the defendant No.2 informed the plaintiffs that the consigment under the purchase order was shipped per m.v. SAPPHIRE and thereafter, the plaintiffs received an intimation from their bankers that the original documents in the nature of ocean bill of lading, invoice, packing list, certificate that the goods were as per the order, certificate that the vessel is classified as 100-A1 in Lloyds register and is seaworthy and not more than 20 years old issued by Nedelco Shipping, inspection certificate issued by the SGS, Romania were received and upon scrutiny, having found these documents to be in consonance with the letter of credit, the plaintiffs accepted them on or about 21st January 1998. The defendant No.2 also forwarded to the plaitniffs an intimation of the name and address of the agents of the vessel m.v. SAPHIRE as Sahi Oretrans Pvt. Ltd. and that the vessel is expected to arrive at port Bombay being the port of discharge on 20th Feburary 1998. It is stated by the plaintiffs in the plaint that the vessel did not arrive at port Bombay as per the expected time of arrival announced by the defendant No.2 and instead, by a fax dated 27th Feburary 1998 the agents of the defendant No.1 enclosed a message to the plaintff that the vessel was arrested at Port Said and that the defendant No.1's Solicitors are endeavouring to have that vessel released. Upon receipt of the said message, the plaitnffs case is that for the first time, it was revealed that the vessel's registered owners are M/s. Navrom and that the vessel m.v. SAPPHIRE is not listed as per the list given by the defendants. The plaintiffs Advocate inspected Lloyds Register of Shipping at Bombay and it was revealed that the Lloyds Register shows no vessel by name m.v. SAPPHIRE either registerd under M/s Navrom Ltd. or registered under N.I. JOHNSON. Though there are various vessels as SAPPHIRE in the Lloyds Register, none of these matched with the specifications disclosed by the defendants in respect of the present vessel m.v. SAPPHIRE. It is thus the case of the plaintiffs that a fraud has been perpetuated by the defendant No.2 by giving false, incorrect and misconceived information and the documents. In the circumstances, the plaintiffs have claimed decree for permanent injunction restraining the defendant No.2 from deriving any benefits as a beneficiary of otherwise under the letter of credit established by the plaintffs and opened by the defendnat No.3 in favour of the defendnat No.2 as beneficiaries either directly or through its corresponding bank in Bucharest. In the alternative, it is also prayed that it be declared that by reason of non-compliance of the C. and F. terms and/or by reason of voyage of the vessel m.v. SAPPHIRE having virtually come to an end by the arrest of the vessel at Port Said, Egypt, the entire adventure stands frustrated and the contract dated 26th November 1997 being the purchase order between the plaintffs and the defendant No.2 has come to an end and/or stands frustrated. By the notice of motion taken out by the plaintiffs, it is prayed that pending the hearing and final disposal of the suit, the defendant No.3 be restrained by an order and direction of this Court from directly of indirectly remitting and/or transferring and/or paying any amount under the letter of credit dated 28th November 1997 for US $ 80,000 opened by the defendant No.3 in favour of defendant No.2 at the instance of the plaintiffs in any manner whatsoever and defendant No.3 be restrained from making any payment on the basis of any letter, document of writing that the plaintiffs may have executed in relation to the establishment of the letter of credit dated 28th November 1997 for US $ 80,000 covering the shipment under the purchase order between the plaintiffs and the defendant No.2 in any manner whatsoever. In support of notice of motion, an affidavit of Mr.D.A. Mehta has been filed. During the course of arguments, Mr. Sancheti, learned counsel appearing for plaintiffs, relied upon the pleadings made in paragraphs 17 and 25 of the plaint to point out that a fraud has been perpetrated upon the plaintiffs and therefore, the defendant No.3 are not obliged to honour the letter of credit.

(3.) THE law is no more res integra and the principles which the Courts must apply while considering the question whether to grant an injunction which has the effect of restraining the encashment of bank gurantee of honouring the letter of credit are well settled. The only two exceptions carved out are - 1) established fraud prima facie perpetrated by the beneficiary (ventures of which the beneficiary seeks to take advantage) and 2) irrestrievable injustice. Dealing with the question of fraud, it has again been well established by the series of the judgments of the Apex Court that fraud has to be an established fraud. The evidence must be clear both as to the fact of fraud and as to the client's knowledge. A mere uncorroborated statement of the customer would not be sufficient to infer the case of fraud. The irretrievable injury is an injury in a circumstance which would make it impossible for the guarantor to reimburse himself if he ultimately succeeds. This again has to be decided and establsihed and it must be proved to the satisfaction of the Court that there would be no possibilty of the recovery of the amount from the beneficiary by way of restitution. At the outset, it may be stated that the plaintiffs themselves have not sought to make out a case of second exception of the rule of granting injunction i.e. resulting irretrievable injury. The only ground on which the injunction is sought is the fraud having been practiced upon by the defendant No.2.