IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 27.1.2009. CORAM THE HON'BLE MR.JUSTICE M.JEYAPAUL O.A. No.1202 of 2008 in C.S.No.1603 of 2008 MARG Limited (Formerly MARG Constructions Ltd.) Nos.4/318, Rajiv Gandhi Salai, Kottivakkam, Chennai 600 041. Applicant vs. 1. M/s.Garware-Wall Ropes Limited Geosynthetic Division, 2nd Floor, 749-A, Anna Salai, Chennai 600 002. 2. The Federal bank Limited, Rajaram Mehta Nagar, 25, Nelson Manickam Road, Chennai 600 029. Respondents For Applicant : Mr.T.R.Rajagopalan Senior Counsel for Mr.S.Raghunathan For R1 : Mr.T.V.Ramanujam, Senior Counsel for Mr.Rajesh Ramanathan ORDER
The Application is filed by the plaintiff seeking to grant an order of interim injunction restraining the first respondent and their agents from claiming or demanding any amount under the letter of credit No.MDSC/INLC/ML/1/08-09 dated 14.7.2008 or under its amended one dated 4.8.2008 issued by the second respondent without delivery of materials at the site and consequently restraining the second respondent from effecting any payment to the first respondent under the letter of credit.
2. The Applicant/plaintiff would contend as follows:-
The Applicant is a Construction Company. It is involved in the development of Special Economic Zones (SEZ), Integrated Townships and other infrastructural projects besides developing a Port at Karaikal. The Applicant called offers from several contractors for various works at the proposed Port including construction of a reinforced wall around the Port. On 16.6.2008, the first respondent submitted an offer for supply of Soil reinforcement consisting of Tensar Geogrids, Polymer Connectors, Geotextile, etc., for the Reinforced Soil Retaining Wall System. In terms of clause III of the offer, the payment was to be effected through an irrevocable letter of credit payable in thirty days from the date of invoice and bill of lading with lorry receipt. On 17.6.2008, the Applicant issued a letter of award bearing NO.MARG/KPPL/WO/111. The value of the order was Rs.2,04,08,700/=. On 28.6.2008, the first respondent submitted its Proforma Invoice for supply of materials. On 14.7.2008, the second respondent issued an Inland Irrevocable Letter of Credit bearing No.MDSC/INLC/ML/1/08-09 for an aggregate sum of Rs.2,03,84,373/=. In terms of the letter of credit, the first respondent was required to submit certain documents for encashing payment under the letter of credit. The second respondent stipulated certain conditions to be complied with prior to any payments being effected under the letter of credit. In terms of clause 7(2), the delivery of the materials had to be effected at the Karaikal Port Project Site. On 30.10.2008, the Applicant was surprised to receive a request from the second respondent to accept a bill of exchange drawn by the first respondent and negotiated for payment under the letter of credit. As no materials had been delivered by the first respondent after 12.9.2008, the Applicant requested the second respondent to provide the documents furnished by the first respondent. The applicant was surprised to note that the first respondent has alleged that certain materials were depsatched on 15/16.10.2008. The said materials had not been delivered till date at the Applicant’s project site. The first respondent is playing fraud upon the applicant by claiming payment under the letter of credit for materials which have not been delivered till date to the applicant. The applicant has not accepted the bill of exchange drawn by the first respondent. The first respondent has also falsely set up a ground that the goods had been delivered. The Entry Register maintained at the Karaikal Port would clearly establish that no lorry had entered the Port on 16.10.2008 or thereafter. Hence, the reliefs as sought for.
3. The first respondent has contended in the counter as follows:-
As per the letter of offer dated 16.6.2008, the first respondent offered to supply materials within 12 weeks from the date of opening the letter of credit. The materials were despatched by the first respondent through the Transporters M/s.Dhoble Goods Carriers in six heavy vehicles and the same have even crossed the check post from Navasheva to the destination Port site at Karaikal. When the goods reached the destination Port site at Karaikal of the applicant and was ready to be unloaded, the applicant did not allow the entry of goods into the site premises for reasons best known to them. Despite several attempts by the officers of the first respondent, the applicant failed to accept the delivery of the goods and did not even care to offer any explanation whatsoever for the abovesaid behaviour. The first respondent, left with no other option, took the materials to Pondicherry and stocked at the godown of M/s.Praveen Transporters, Pondicherry. The materials worth rupees one crore are still kept in storage at the godown of Pondicherry paying heavy sum as rent. After unloading the materials at the godown at Pondicherry on refusal to take delivery of the same by the applicant, the first respondent proceeded to invoke the letter of credit for the balance amount. It is not fair on the part of the applicant to stop entry of the Trucks in the site to unload the goods. The delivery was not completed on account of non acceptance of the materials by the applicant. The materials stocked at the godown at Pondicherry can be delivered even now. In the above circumstances, the first respondent prays for vacating the ad interim injunction granted on 17.11.2008.
4. There is no dispute to the letter of offer emanated from the first respondent to the applicant on 16.6.2008, the letter of award executed by the applicant to the first respondent on 17.6.2008 and the letter of credit dated 14.7.2008 issued by the second respondent bank at the instance of the applicant to the first respondent.
5. The only point that survives for consideration in this application is whether the negotiation of the letter of credit by the first respondent even before the delivery of the materials as per the terms of the letter of credit is proper.
6. Learned Senior Counsel appearing for the applicant, referring to clause 7(2) of the letter of credit, would submit that the irrevocable letter of credit can be negotiated only on condition that the delivery of materials were made by the first respondent at M/s.Karaikal Port Private Limited, Project Site, M/s.MARG Limited, Keezhavanjore Village, T.R.Patnam Commune Panchayat, Karaikal 609 601. Admittedly, the materials are still in the custody of the first respondent. Before ever parting with the materials, the first respondent cannot invoke the letter of credit against the terms and conditions adumbrated therein.
7. Learned Senior Counsel appearing for the first respondent, referring to the affidavit filed by the Proprietor of M/s.Dhoble Goods Carrier and Proprietor of M/s.Praveen Transport, who have transported the materials and stocked at the godown in Pondicherry respectively, would submit that the first respondent had to take back the materials and store them at Pondicherry on account of the refusal made by the applicant for the reasons best known to them to take delivery of the materials supplied. Referring to the lorry receipts, the learned Senior Counsel appearing for the first respondent would submit that the goods transported to the destination of the applicant and refused to be taken delivery would amount to delivery of materials.
8. The terms of the Inland Irrevocable Letter of Credit established by the second respondent in favour of the first respondent at the instance of the applicant would go to show that delivery at M/s.Karaikal Port Private Limited, Project site M/s.MARG Limited Keezhavanjore Village, T.R.Patnam Commune Panchayat, Karaikal 609 601 is a pre-condition for honouring the negotiation of the Inland Irrevocable Letter of Credit by the first respondent.
9. The first respondent has established producing lorry receipts and affidavits that the materials were transported engaging M/s.Dhoble Goods Carriers and the same were stored at the godown of M/s.Praveen Transport, Pondicherry.
10. It is the admitted case of the first respondent that the materials were not physically delivered to the applicant at the site of the applicant referred to above. Of course, the first respondent would contend that on account of the refusal and stiff resistance put up by the applicant to take delivery of the materials transported to the doorsteps of the applicant, the first respondent had to take back the materials to Pondicherry and store them in the godown of M/s.Praveen Transport. The refusal to receive the materials by the applicant may give rise to a cause of action for damages or compensation as the case may be. Inasmuch as the first respondent had not delivered the goods at the site as per the terms of the letter of credit, the first respondent cannot negotiate the letter of credit and insist for payment from the second respondent. I am unable to accept the contention of the learned Senior Counsel appearing for the first respondent that transportation of goods to the doorsteps of the applicant would amount to delivery of the materials at the site of the applicant. Physical delivery of the materials beforeever negotiating the irrevocable letter of credit has been contemplated as a condition precedent for the negotiation of the letter of credit. In the case on hand, no such delivery of materials had taken place.
11. The learned Senior Counsel appearing for the first respondent, referred to the ratio in I.T.C. LIMITED v. DEBTS RECOVERY APPELLATE TRIBUNAL AND OTHERS ((1998) 2 SCC 70) wherein it has been observed that the question whether the goods were supplied by the appellant does not arise for the bank which issued bank guarantee or letter of credit. The bank must pay if the documents are in order and the terms of credit are satisfied. The bank is not allowed to determine whether the seller had actually shipped the goods or whether the goods conformed to the requirements of the contract. Any dispute between buyer and the seller must be settled between themselves.
12. That was a case where the defendant, invoking Order 7 Rule 11 of the Code of Civil Procedure, 1908, sought for rejection of the plaint on the ground that there was no valid cause of action to file the suit against the defendant. In the facts and circumstances of that case, the Supreme Court observed that non-movement of goods in question would not amount to commission of fraud and therefore, there was no valid cause of action existing against the defendant. It is to be noted that the Supreme Court has categorically observed therein that the bank must pay only when documents are in order and the terms of the letter of credit are satisfied. In the case on hand, one of the terms of letter of credit is that there should be delivery of goods by the first respondent to the applicant at the latter’s site. The applicant has shown prima facie case that the terms of letter of credit were not complied with by the first respondent. In the above facts and circumstances, the above authority does not apply to the case on hand.
13. In FEDERAL BANK LIMITED v. V.M. JOG ENGINEERING LTD. ((2001) 1 SCC 663), the Supreme Court has observed that in case of irrevocable letter of credit, the court should not issue injunction restraining encashment thereof on the ground of breach of main contract between the buyer and the seller as the contract of letter of credit is independent of the main contract between the parties. The bank cannot refuse encashment of the letter of credit, if the seller, prima facie, complies with the terms of letter of credit.
14. In the instant case, the breach of conditions adumbrated in the main contract is not the subject of the dispute between the parties. That the terms of the letter of credit were not adhered to by the first respondent is the complaint of the applicant as against the first respondent. As per the above ratio, the bank is entitled to refuse encashment of the letter of credit if the beneficiary could not, prima facie, comply with the terms of the letter of credit. In the instant case, the first respondent could not show before this court that the clear term as regards the delivery of materials at the site of the applicant was complied with by the first respondent in its letter and spirit. Therefore, the above ratio does not come to the rescue of the first respondent.
15. The applicant has made out a prima facie case that the first respondent has not delivered the materials as per the terms of letter of credit issued by the second respondent at its instance. If the letter of credit is encashed by the first respondent against the spirit of the conditions adumbrated in the letter of credit, more especially when the goods are still in the custody of the first respondent, much hardship will be caused to the applicant. Irreparable loss will be occasioned if the letter of credit is encashed by the first respondent even before the goods are delivered at the site of the applicant. Therefore, the applicant is entitled to an order of injunction as prayed for.
16. In the result, the Application stands allowed. There is no order as to costs.
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