Sabyasachi Mukharji, J.
1. This appeal arises out of an order passed and judgment delivered by Mrs. Justice Padma Khastgir on the 7th April, 1980. Before we refer to the judgment and points involved in the appeal, it would be necessary to refer to certain facts. On or about 1st December, 1978, there was a contract of sale, being contract No. BSA 297/-298/78 between the plaintiff, as the buyer and the defendant No. 1, the seller, which is the appellant. The suit was filed by the plaintiff, the buyer. There were four defendants in this suit. The defendant No. 1 is the seller, the defendant No. 2 is the United Commercial Bank, Calcutta, which is the paying Bank. The defendant No. 3 is the Insurance Company and defendant No. 4 is the European Asian Bank, which was the banker of the defendant No. 1, the seller. As mentioned hereinbefore, the contract was for sale. The clause of the contract gives requirements as to certificates. The date of delivery, from time to time, was extended and the final extended date of delivery was July/August, 1978. The contract was in respect of sale of certain refined bleached Deodorised Palm Oil. The terms and conditions of the sale are set out in para 6 of the plaint. Letters of Credit, being Nos. 162764 and 162765 were opened with the United Commercial Bank, Calcutta on the 24th August, 1978 and thereafter, the seller, the first defendant was advised of the same. At pages 28-29 of the Paper Book, there was a document, which was an internal correspondence being the telex between the United Commercial Bank, Calcutta and its branch at Singapore. We shall presently refer to the said document. It is the plaintiff's version of the letter of credit. It will be material, in view of the controversy raised between the parties, to set out the relevant portion of the said document. The said document contains, inter alia, the following statements : 'Please telex to telex TS 21682 A/B UCO Bank Singapore Message relayed on behalf of UCO Bank Calcutta we repeal our cable of date with same message and test please avoid duplication. ... Refer to our Telex 22nd instant advising you opening credit 162764 and 162765 for U.S. Dollers 161449.86 CIF Calcutta each wherein we advised air mailing details. AIR mail copy not despatched. Stop Full Text cable now being called. Please avoid duplication. Advice beneficiary B. S. Aujla Co. Pvt. Ltd., 8 Lorong Malayu, Singapore 14 opened credits 162764 and 162765 U. S. $ 161449.86 each available by drafts drawn on 90 days from B/Lading date on Kaluram Mahadeo Prosad 1-A, Burman Street. Calcutta-7 without recourse to drawer for 100 % invoice value of Approx. 200 tonnes each of refined bleached Deodorised Palm Oil at the rate U. S. Dollar 825 per metric tonne per contract No. BSA/197/78 and BSA/298/78 both date 1-12-1978 in one or more shipment from Singapore to Calcutta import is being covered under import Licenses No. P/F2028484/C/XY and P/F/ 2028485/C/XX both dated 20-8-1979 shipment by Pakistani Flag vessel not allowed Stop Following documents are to be submitted to negotiating bank within 15 days from B/Lading date 6 copies invoices certifying that goods are Singapore origin Stop Full Set of clean shipped on board bill of Lading signed by Master or S. S. Agent Market Freight prepaid unto order of United Commercial Bank 10, Brabourne Road, Calcutta-1, B/Lading notify Kaluram Mahadeo Prosad, 1-A, Burman Street, Calcutta-7 Stop Forwarding Agent receipt not acceptable policies or certificate covering marine and war risks in the currency of the credit in negotiable form covering the full C. I. F. Invoice amount plus a margin of not less than 10% W. A. including customary institute warehouse to warehouse clause war risk to be covered in conformity with current institute clause claims payable at port of destination Stop Bill must be marked drawn under United Commercial Bank 10, Bra-bourne Road, Calcutta credits 162764 and 162765 and should be enforced payable at current selling rate of exchange on USA with charges and interest at current rate from the date hereof to approximate arrival to date of return remittance documents to include certificate of quality with following description in colour while 100% solid with grains FFA O.25 % MAX. M & I O.I% melting point capillary slip method between 36 and 37 Centigrade Max. packing list to describe as follows: Packed in best quality tins new in uniform weight contg. 16.5 Kg. net each New Tin duly wrapped in a Carton and 60 tins in Cartons duly palletised in wooden pallets suitable to face transit hazards Stop Certificate of origin to be counter-signed by any recognised Chamber of Commerce in Singapore in specific form Stop from any independent Surveyor/B/Lading must be dated net later than 16-9-79 and negotiation within 14-12-79. Documents should show amount of freight paid payment will be made to negotiating bank on 90 days from B/Lading free of interest against submission of drafts by shippers as stated above. For payment effected under these credits the negotiating bank is to reimburse themselves on our account with Bankers Trust Company. New York. These are operative credits. No Air Mail confirmation will follow'. It will appear, as mentioned hereinbefore, the requirement of the quality mentioned was F. F. A. O. 25% Max. This requirement, according to the present appellant, was not communicated to the first defendant. On the other hand, the requirement advised by Singapore Branch of United Commercial Bank in the letter of credit which appears at pages 127-129 of the Paper Book indicated that the requirement was 'F. A. O. O. 25 Max'. It may be instructive to refer to the relevant portion of the said communication, which reads as follows :
'Without responsibility or obligation on our part we beg to advise having received a cable dated 28-8-1979 from United Commercial Bank, Calcutta reading in substance as follows:
...... 162765 and should be enforced payable at current selling rate of exchange on USA with charges and interest at current rate from the date hereof to approximate arrival to date of return remittance documents to include certificate of quality with following description in colour while 100-0/0 solid with grains F. A. O. 25-0/0 Max M and 1 : 0.1-0/0 Melting point: Capillary slip method between 36 degree and 37 degree centigrade Max Packing list to describe as follows : Packed in best quality Tins New in uniform weight contg. 16.5 Kg. net each New Tin duly wrapped in a Carton and 60 tins in Cartons duly palletised in wooden pallets suitable to face transit hazards Stop. Certificate of Origin to be counter-signed by any recognised Chamber of Commerce in Singapore in specific form Stop From any independent Surveyor B/Lading must be dated not later than 15-9-79 and Negotiation within 14-12-79 documents should show amount of freight paid payment will be made to negotiation Bank on 90 days from B/Lading free of interest against submission of drafts by shippers as stated above for payment effected under these credits the negotiating bank is to reimburse themselves on our account with Bankers Trust Company, New York. These are operative credits. No Air Mail confirmation will followUCO Bank. Calcutta.'
The said advice, according to the appellant, is admitted by the United Commercial Bank as would be evident from its letter dated 6th April, 1980. This letter was addressed by the United Commercial Bank to the plaintiff with enclosures being the letter of credit as advised by United Commercial Bank to defendant No. 1. This letter appears at page 84 of the Paper Book. It would be necessary also, in view of the controversy, to refer to the relevant portion of the said letter. The said letter, as we have mentioned before, is addressed to the plaintiff and reads as follows :
'Letter of Credit No. 162764 for US $161.449.86 opened by United Commercial Bank, Calcutta.
Without responsibility or obligation on our part, we beg to advise having received a cable dated 24-8-1979 from United Commrcial Bank, Calcutta reading in substance as follows :
162765 and should be enforced payable at current selling rate of exchange on USA with charges and interest current date from the date hereof to approximate arrival to date of return remittance documents to include certificate of quality with following description in colour while 100-0 solid with grains -
F. A. O. 25-0/0 Max M and 1 : 0.1-0/0
Melting Point : Capillary slip method between 36 degree and 37 degree centigrade Max Packing list to describe as follows :
Packed in best quality tins new in uniform weight contg. 16 Kg. net each new tin duly wrapped in a carton.
And 60 tins in cartons duly palletised in wooden pallets suitable to face transit hazards Stop Certificate of Origin to he counter-signed by any recognised Chamber of Commerce in Singapore in specific form Stop From any independent Surveyor B/ Lading must be dated not latter than 15-9-79 and Negotiation within 14-12-79 Documents should show amount of freight paid payment of interest against submission of draft by Shipper as stated above for payment effected under these credits the negotiating Bank is to reimburse themselves on our account with Bankers Trust Company New York. These are operative credits. No Air Mail confirmation will follow.
UCO Bank, Calcutta,'
The document, according to the appellant, at page 84 is relevant. 'According to the said letter, according to the appellant, the requirement was F. A. O. O.25% Max. and not I . F. A. O.25. On the 29th Aug. 1979. the letters of credit were amended and their value was reduced to 1,60,153,56 dollars. We are not concerned with this aspect of the matter. On the 3rd Aug., 1979, there was a further amendment specifying that the certificate of quality should be given by an independent Surveyor. It has been emphasised on behalf of the appellant and it is important to note that originally the letter of credit provided that the quality certificate should be issued by 'named agency'. The said letters arc in the Paper Book. On the 31st Aug., 1979, certain quality certificate was alleged to have been given. On the 4th Sept., 1979 the advice was received of the United Commercial Bank. Singapore by the first defendant regarding the amendment of letter of credit. On the 5th Sept., 1979, the documents were negotiated by the European-Asian Bank. Singapore, which is defendant No. 4 herein. On the 6th Sept., 1979 it is stated that there were certain reports published in the Economic Times about the sinking of certain vessels which were supposed to carry the goods covered under the said letter of credit. There were also certain news item on the 19th Sept., 1979 published in the Weekly Blitz in this regard. On the 25th Sept., 1979, a letter was written on behalf of the plaintiff to the Union Ocean Shipping Pvt. Ltd. It was emphasised on behalf of the plaintiff, as would be evident from this letter, that the plaintiff had decided to prefer their claim on the Insurance Company and therefore various particulars mentioned in the said letter were sought for. This letter is at page 64 of the Paper Book. It is not necessary for our present controversy to refer to the said letter, in detail. On the 3rd Oct., 1979, the United Commercial Bank wrote to the European Asian Bank, Singapore stating that the quality certificate did not fulfil the requirements of the letter of credit and also pointing out that regarding the packing nothing had been mentioned by the Surveyors in respect of the materials used in packing. It is important to note that on the 3rd Oct., 1979 the United Commercial Bank raised its objection to the shipping documents. It is also important to note from the document at page 90 of the Paper Book that on the 10th Oct., 1979. the United Commercial Bank. Calcutta had regretted its delay in communicating its objection to the shipping documents. On the 9th Oct., 1979 the Insurance Company wrote to the plaintiff stating that several vessels had sunk under suspicious circumstances. This letter is important because certain allegations on account of fraud seem to have been built up on the basis of the allegations made in the said letter. In the said letter dated 9th Oct., 1979, which is at page 34 of the Paper Book, the Divisional Manager of the United India Insurance Co. Ltd. wrote to M/s. Kaluram Mahadeo Prosad. respondent No. 1 as follows :
'We are in receipt of your letter No. CA/6478/78-79 of the 25th ultimo in the above connection and note your advices therein.
We understand that of late of several vessels on the voyage from Malaysia and Singapore Ports to India have been reported sunk under suspicious circumstances. These casualties have been shrouded in mysteries as to the unseaworthiness of the vessels, cargo not being loaded on the vessels even though bills of lading were issued, cargos being off loaded at some other ports before sinking.' On the next date, the plaintiff informed the first defendant of the letter dated 9th Oct., 1979 of the Insurance Company and also about the reply to the said letter. The United Commercial Bank, Calcutta sent a telex message to the European Asian Bank, Singapore, regretting the delay in sending the communication of the discrepancies pointed out by the plaintiff. The European Asian Bank. Singapore, sent a telex message on the 9th Oct., 1979 to United Commercial Bank, Calcutta stating that since one month had elapsed in informing the discrepancies, the objections of the United Commercial Bank, Calcutta to the shipping documents were unacceptable. Reference was made to the relevant provisions of the Uniform Custom & Practice of the Documentary Credits Act, to which we shall have later occasion to refer. On the 18th Oct., 1979, the plaintiff got by registered post the memorandum from the United Commercial Bank together with two sets of the first bill of exchange dated 31st Aug., 1979 under the letters of credit in question. It is important to note that the respondent did not admit the receipt of this first bill of exchange. On the 19th Oct., 1979, the plaintiff wrote to the United Commercial Bank that the Bank did not send and the plaintiff did not receive the Bank's memorandum dated 21st Sept., 1979 together with the relevant documents. The plaintiff contended that the same were received by it only on the 18th Oct., 1979 after the plaintiff's letter dated 17th Oct., 1979 which appears at page 39 of the Paper Book. On the 10th Nov., 1979, a letter was written to the plaintiff by one Prof. M. M. Chakrabarty of the University of Calcutta regarding the meaning of 'F. F. A.' and 'F. A.'. It may be relevant to refer to the relevant portion of the said letter, which appears at page 119 of the Paper Book. Prof. Chakrabarty wrote inter alia, as follows:
'(1) The term 'Free Fatty Acidity' according to definition means percentage by weight of fatty acids of specified molecular weight according to the type of oil or fat under investigation.
(2) The term 'F. A.' or 'Free acidity' is not clear as it may include any type of acidity either derived from fat i. e. fatty acid or even mineral acids which may be adventitiously present in a fat or oil sample.
Under these circumstances the analytical report giving figure as 'F. A.' will not mean the same thing as 'F. F. A.' or free fatty acidity.'
On the 5th Oct., 1980, a letter was received by the plaintiff from the Central Bureau of Investigation. As some point of fraud was made out, based on certain letter which is at page 110, it may be instructive to refer to the relevant portions of the said letter. The said letter, inter alia, stated as follows: 'During the course of investigation of the abovenoted case, it has been learnt that M/s. Kaluram Mahadeo Prosad had entered into an agreement contract with M/s. B. S. Aujla & Co. of Singapore in the middle of 1979, for the import of about 400 MT of Palm Oil. Following documents relating to said transaction may be handed over to me since the same are very urgently required by us for the purposes of investigation.
1. Contract/agreement between KMP and B. S. Aujla & Co.
2. Letter of Credit issued by UCO Bank, Calcutta.
3. Cover-note and insurance policy.
4. Shipping documents namely Bill of Lading, Weighment and quality certificate, invoice, despatch advice, certificate of origin, etc.
5. Any other correspondence with M/s. B. S. Aujla & Co.
6. ..... UCO Bank, Calcutta.
7. Copy of injunction order passed by the Hon'ble High Court.'
Upon these circumstances, this suit was filed by M/s. Kaluram Mahadeo Prosad, being the buyer against four defendants, as mentioned hereinbefore, on the 25th Oct., 1979. In that suit the plaintiff have claimed for a perpetual injunction restraining the defendant No. 1 and defendant No. 4, viz. the seller and the European Asian Bank from demanding or claiming any payment either from defendant No. 2, that is to say, the United Commercial Bank, Calcutta or demanding or claiming any payment from the plaintiff under the said two letters of credit. There was also a prayer for a perpetual injunction restraining the defendant No. 2 from making payment of amounts covered by the said two letters of credit or part thereof. There was also a prayer for a declaration that the said two letters of credit were void and of no effect and also certain other consequential reliefs.
2. Thereupon, it appears that an application was made before the learned trial Judge for an order of injunction. On the 7th Apr., 1979 the learned Judge passed an order of injunction which is the subject matter of this appeal. In the said order, the learned Judge has set out the facts and has observed that according to the plaintiff, petitioners, the said documents tendered were not in accordance with the said two contracts and/ or letters of credit entered into by and between the parties. In the premises, it was recorded by the learned Judge that the petitioner did not receive the said documents and/or letters of credit. According to the petitioner, the learned Judge observed, the shipping documents received by the petitioner's banker did not contain any certificate regarding weighment of the goods concerned either by the party or any independent Surveyor. Moreover, according to the learned Judge, the said documents did not contain any certificate regarding the packing materials used for packing the said goods as it was agreed under the letters of credit. The learned Judge has further observed that the quality certificate contained in the said documents were not in accordance with the terms as agreed upon by and between the parties. In that situation, the learned Judge noted that ihc petitioner's banker refused to accept the said documents. Thereafter the petitioner came to know that the ship 'Ohdai' had collided with some unknown submerged object and that the ship had been abandoned and ihc petitioner had been notified by the respondent No. 1 that the vessel and the cargo had been declared as total loss. According to the learned Judge, there was a serious dispute by and between the parties regarding the actual letter of credit that had been opened by and between the parties through the banker, the defendant No. 2, because the document relied on by the petitioner as the true letter of credic was not accepted to be such by the respondent No. 1. Various terms and conditions, as contained in the said letter of credit, had not been, according to the learned Judge, complied with by the respondent No. 1. Hence, the respondent No. 1 was not entitled to enforce the Bank Guarantee and the letter of credit granted by the defendant No. 2 in respect of the two contracts entered into by and between the parties. On behalf of the respondent, the learned Judge noted, it was submitted that the document relied on by the Bank was the letter of credit which was opened by the parties in respect of the two contracts entered into by and between the parties. Reference was also made to the various telex messages received by the defendant No. 1 from the Bank. The learned Judge was of the view that there was serious dispute by and between the parties regarding the disputed documents, viz. the letter of credit on which the claim of the respondent No. 1 was based. The United Commercial Bank had used (sic) an affidavit and according to the learned Judge in the said affidavit the Bank had also supported the case of the petitioner because, according to the Bank, the learned Judge noted, the documents tendered by the respondent No. 1 were not in accordance with the terms as agreed upon by and between the parties. The learned Judge was of the view that there were serious allegations of fraud, as the petitioner and the respondent No. 2 were apprehensive that there had been interpolation in the original letter of credit, that is, in respect of the expressions 'F.F.A. O.25% Max.' and 'F.A. O.25% Max'. In view of the serious charges levelled against the party claiming advantage, the learned Judge noted, under the letter of credit and in view of the fact that there was serious dispute by and between the parties regarding the terms of letter of credit and also because of the fact that the attention of the learned Judge had been drawn to the fact that there were many charges levelled against the respondent No. 1 and in respect of which, in fact, certain enquiries were being held on international level to enquire into the allegations brought against the respondent No. 1, the learned Judge was of the view that the allegations of fraud could not be decided summarily on that application. The learned Judge further noted that in view of the fact that there was a serious dispute regarding execution and identity of the letters of credit and also in view of the fact that the particular letters of credit, as would appear from the averment made by the parties and from the documents annexed were not irrevocable letters of credit, the learned Judge was of the view that an order of injunction should be passed and in those circumstances the learned Judge passed an order of injunction in terms of prayers (a) and (b) of the petition. It is the propriety and the validity of the said order which are under appeal before this Court.
3. On behalf of the appellant, it was urged that the learned Judge had erred in holding that there was a serious dispute between the parties regarding the letter of credit operative between the par-ties. According to the appellant, the operative letter of credit and the only letter of credit binding on the first defendant, viz. M/s. B. S. Aujla & Co. being the appellant herein was the one that the Branch Office at Singapore of the United Commercial Bank at Calcutta advised it of. The first defendant, according to the appellant, had to strictly comply with the terms or else the shipping documents tendered by it and the Bank at Singapore would have been rejected. It was further urged that the learned single Judge had not attempted to prima facie determine as to whether the shipping documents submitted by the first defendant were in accordance with the letter of credit and the provisions of the Uniform Customs and Practice of Documentary Credit Act, 1974. The United Commercial Bank, for the first time, according to the appellant, on the 3rd Oct., 1979 had put forward two objections to the shipping documents and those were that : (1) the quality certificate did not fulfil the essential requirements of the letters of credit and contract and (2) regarding the packing, nothing had been mentioned by the surveyors in respect of the material used for packing. These appear to be the objections of the plaintiff also. The European Asian Bank told the United Commercial Bank by its tetter appearing at page 89 of the Paper Book stating that these objections were be-ing raised after a lapse of one month. It had also referred to the relevant provisions of the United Custom and Practice and Documentary Credit Act, 1974. The United Commercial Bank by its letter, which is appearing at page 90 of the Paper Book, expressed its regret for the delay in communicating its objections. It was evident that after delay of one month the United Commercial Bank had put forward, according to the appellant, the aforesaid two objections and such a long delay was not permissible, according to the appellant, under the Uniform Customs and Practice of the Documentary Credit Act. 1974. which provided that if objections to the shipping documents were not communicated 'expeditiously', the issuing bank should be deemed to have accepted those documents, as they were, and the issuing bank was precluded, thereafter from raising any objections to the shipping documents. It was then contended, the learned ferial Judge had erred in holding that there were serious allegations inasmuch as the second defendant in the suit and the plaintiff were apprehensive that there had been interpolation in the original letter of credit. Further the first defendant was advised and the second defendant admitted that the Singapore Branch had advised the letter of credit established by the United Commercial Bank, Calcutta. In the letter of credit, as advised to the first defendant, it was submitted, the terms which were set out in the letter of credit, the first defendant had strictly to comply with. The requirement was that the quality certificate should certify that the goods shipped were F. A. and not F. F. A. It was further urged that the learned trial Judge had erred in relying on extraneous and irrelevant contentions to the effect that the charges against the first defendant were being enquired into at international level and that the said facts amounted to a charge of fraud against the first de-fendant. It was urged that it was submitted by the first defendant that the allegations that various charges made were being enquired into did not, in law, amount to an averment of fraud. None of the bank, it was submitted, had any time, much less at the material time, been notified by the plaintiff or the second defendant of any fraud and, it was urged, as such, the said banks were liable to honour the letter of credit as it stood. It was further submitted that the learned trial Judge did not take into consideration the other relevant factors in considering whether an injunction should be granted or refused, Thus, the balance of convenience of the irreparable injury had not been taken into consideration. It was further submitted that in any event the interim injunction should not have been granted without any condition. Besides, the order of injunction had driven the first defendant as also the European Asian Bank to litigation. On the other hand, even if the plaintiff's suit was ultimately dismissed, it was urged that the plaintiff as also the United Commercial Bank might refuse to pay the amounts covered by the letter of credit.
Thus, the operation of the ad interim injunction was oppressive and, according to the appellant, unjust. It was further submitted that the learned trial Judge should have taken into consideration the fact that the letter of credit was an important mechanism in trans international trade and the Courts except in clear cases of established fraud should not grant injunction restraining payment under the letter of credit. In the present case, the European Asian Bank had not submitted, according to the appellant, to the jurisdiction of this Court and as such the order of injunction should not have been granted and the plaintiff should have been left to the available remedies. We may incidentally point out that we see no substance in the argument advanced on behalf of the appellant on this aspect of the matter. If a party has been properly served and if the part of cause of action arises which will attract the jurisdiction of this Court the fact whether it has submitted or not is of no relevance unless the party is immune to the jurisdiction of the municipal Court of this country. The parties which are not immune to the municipal jurisdiction of this Court cannot evade the consequence of legal action by not submitting to the jurisdiction of this Court.
4. It was further urged that the plaintiff and the United Commercial Bank not having rejected the documents expeditiously and communicated the same to the European Asian Bank they were precluded and estopped from setting up irregularities in the shipping documents in that when they had the duty to speak they chose to remain silent, according to the appellant. The appellant further submitted that it should, therefore, be held that the plaintiff and the United Commercial Bank had waived or condoned the irregularities in the documents, if any, which was also not admitted. It was submitted that the bankers under the Uniform Custom and Practice of Documentary Credit Act, 1974 had to accept the documents regarding which no special requirements were mentioned in the letter of credit, as they were submitted and the Banks should not have embarked on any enquiry as to whether F. F. A. could have been 'the proper quality certificate appropriate to the goods shipped. It was further urged that the pleadings before the Court would show that the plaintiff had filed the present suit mala fide. It was significant that the original requirement of the contract of sale under the letter of credit was that the survey certification should be given by M/s. S. G. S. Singapore Private Ltd. By an amendment to the letter of credit dated 31st Oct., 1979, the requirement was amended as certificate of quality to be signed by an independent surveyor. Notwithstanding the amended portion, the plaintiff in its affidavit, it was urged, had contended that weighment certificate from M/s. S. G. S. Singapore Private Ltd. had to be given which was not at all furnished when the letter of credit was negotiated by the first defendant. It was further urged that the plaintiff had raised various objections to the shipping documents at the earliest opportunity but they chose to remain silent on this aspect. The main factor, it was emphasised on behalf of the appellant, was that the learned trial Judge did not appreciate that the sale contract was distinct and different from the letter of credit. The first defendant and the appellant herein had to atrictly comply with the letter of credit as advised by the Bank and us such the suit itself was liable to be dismissed under Order 7, R. 11 of the Civil Procedure Code, according to the appellant, as the plaint did not disclose any cause of action. The appellant further urged the learned trial Judge should have appreciated that the plaintiff and the United Commercial Bank never raised any objections to the shipping documents and they had stated their objection only after the plaintiff had learnt about the sinking of the ship and this was mala fide. It was emphasised that the learned trial Judge should have held that only in clear cases or fraud, of which the Bank had notice, the Court could interfere otherwise the merchants should be left to settle the disputes under the contract by litigation or arbitration. In this connection. several authorities were cited, which we shall deal with at the appropriate time. It was further urged that the learned trial Judge should have held that the banks were not concerned with the rights or wrongs of the underlying dispute, it was, further urged that in the facts and circumstances of this case, no case for issuing any injunction in the form it was granted had been made out in the plaint.
5. On behalf of the respondents it was, however, contended that in this case the learned Judge has made an unequivocal finding that this was not an irrevocable letter of credit It was submitted that this finding at fact of the learned trial Judge had not been challenged or no grounds had been taken disputing this finding of fact. It was, secondly, submitted that in case of a revocable letter ef credit if the letter had been revoked then no question of payment arises. It was, thirdly, submitted that in this case there were allegations of fraud and for this purpose reference was made to the letters both from the Insurance Company and the letter of enquiry from the C. B. I. which we have referred to hereinbefore. It was, next, contended on behalf of the respondents that unlike other normal cases here there was discrepancy between the expression 'F.F.A.' and 'F.A.' and these meant entirely two different qualities of goods. Therefore, between the letters of credit issued to the seller and the instruction given to the opening bank there was difference and as such it could not be said that the seller had a clear case for enforcement of the letter of credit. Furthermore, neither the quality certificate nor the packing certificate as required by the letter of credit was produced to the satisfaction of the paying bank. In these circumstances, it was submitted that the learned Judge was amply justified in passing the order of injunction because it was urged that if the seller obtained the money, then the buyer could, in the circumstances where the goods were not of the contracted quality, as there was certain amount of fraud which required investigation. It was urged that there was certain amount of uncertainty as to which one is the correct letter of credit. In these circumstances, the seller could not seek enforcement of the letter of credit on which it relied which was at variance with the letter of credit. These were broadly the contentions urged on behalf of the respondents. In support of these various contentions several authorities were cited.
6. It is well settled that letters of credit could be both revocable and irrevocable. While the irrevocable and confirmed letters, of credit stand on a diffeffrent footing, revocable letters of credit within the time can be revoked before negotiations. In this connection reference may be made to Halsbury's Laws of England, 4th Edn., Vol. 3, page 99 onwards, paras 131 onwards. Where it was noted that the commercial letters of credit might be of two types, revocable and irrevocable. Irrevocable letters of credit might be confirmed or unconfirmed. It was stated therein that the contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued; and its between the seller and the banker, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the banker directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents. This aspect is important as will be apparent from para 133 of the said Halsbury's Laws of England. After the letter of credit is issued the issue of credit duly notified to the seller creates a new contractual nexus and renders the banker directly liable to the seller to pay the purchase price upon tender of the documents. It was also emphasised that the banker was not entitled to rely upon the terms of the contract between the buyer and the seller which might permit the buyer to reject the goods or to refund payment for them and conversely, the buyer was not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods were defective. A letter of credit, it was stipulated in para 136. came into being as a result of formal written application by the applicant, usually the buyer. The buyer who pursuant to his sales contract instructs his banker to open a credit undertakes to put the banker in funds, provided the documents against which the banker paid were what the buyer called for. The banker was bound to apply the funds to the purpose to which they were appropriated; but if he failed before this was done the buyers had only a right to prove. But if a bill is accepted payable conditionally on delivery of document the acceptor is not liable unless the documents are tendered to him before the presentation of the bill. In para 137 the distinction between revocable and irrevocable letters of credit are highlighted. It is stated that the contract between the issuing bank and the intermediary banker and the beneficiary depended upon the terms in which the former's promise to pay was couched. It would become binding in the case of a confirmed credit, that is, an irrevocable credit which has been confirmed by the intermediary or paying banker, as soon as it is indicated to the beneficiary. If the credit was revocable, there was no point in having it confirmed; such a credit was deemed to be revocable at any time without notice though it was thought that a banker paying under a revocable credit could demand to be reimbursed in respect of any payment he had made up to the time of revocation. But in order to enforce payment the documents tendered must conform to the exact terms and conditions stipulated in the letter of credit. It would not do to be more or less similar. In para 132 at page 100 Halsbury stresses that in every case the party claiming must act strictly within the terms and limitations of the letter. Possession of the letter was not sufficient evidence that the person presenting it was the grantee. This point was also highlighted in a decision of the Supreme Court which we shall presently note. The law on this point has recently been reviewed by the Supreme Court in the case of United Commercial Bank v. Bank of India, : 3SCR300 . There the Su-preme Court reiterated that a bank issuing or confirming a letter of credit was not con-cerned with the unlerlying contract between the buyer and the seller. Duties of a bank under a letter of credit were created by the document itself, but in any case it had the power and was subject to the limitations which were given or imposed by it, in the absence of appropriate provision in the letter of credit. IN view of the banker's obligation, according to the Supreme Court, under an irrevocable letter of credit to pay his buyer customer could not instruct him not to pay. This aspect is important though this observation was made in the context of an irrevocable letter of credit. The opening of a confirmed letter of credit constituted a bargain between the banker and the vendor of the goods which imposed on the banker an absolute obligation to pay. The same consideration applied to a bank guarantee. A letter of credit sometimes resembled and was analogous to a contract of guarantee. The bank which gave a performance guarantee was bound to honour that guarantee according to its terms. The opening of a confirm-ed letter of credit, according to the Supreme Court, constituted a bargain between the banker and the seller of the goods which imposed on the banker an absolute obligation to pay. However, the banker was not bound or entitled to honour the bills of exchange drawn by the seller unless they, and such accompanying documents as might be required thereunder were in exact compliance with the terms of the credit. Such documents, the Supreme Court emphasised, must be scrutinised with meticulous care. In the case before the Supreme Court the plaintiff agreed to supply 'Sizola brand pure mustard oil' to the Bihar State Food Civil Supplies Corporation which, in turn, opened a letter of credit in favour of the plaintiff in a bank. The railway receipts and other documents evi-dencing despatch of the goods by the plaintiff to the Corporation revealed the description of the goods 'Sizola brand pure mustard oil unrefined'. The issuing bank informed the negotiating bank that there was discrepancy in the description of the goods and some claims stale and agreed to make payments only under reserve. The plaintiff had agreed to this arrangement. On the instructions of the State Corporation that the goods were acceptable to it the issuing banker called the payment made under reserve along with stipulated interest. It was held by the Supreme Court that in the circumstances the plaintiff was not entitled to injunction restraining the issuing bank from recalling the payment made under reserve. The High Court could not grant injunction on assumption that the issuing bank was wrong in imposing the condition of payment under reserve and as such the assumption would amount to prejudging the issue. The Courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of the letter of credit or a bank guarantee between one banker and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker restraining a bank from recalling the amount due when payment was made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail. It is only in exceptional cases that the Courts would interfere with the machinery of irrevocable obligations as-sumed by bankers. The Supreme Court emphasised further that these were the life-blood of the inter national commerce. The machinery and commitments of banks were on a different level. These must be allowed to be honoured free from interferences by the Courts, otherwise trust in international commerce could be irreparable damages. Certain observations in certain English Courts which were followed were referred. We shall have to refer to these decisions to which our attention was also drawn.
7. It was further emphasised no injunction could be granted under Order 39, Rules 1 and 2 of the Code of Civil Procedure unless the plaintiffs established that they had the prima facie case meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. A payment 'under reserve' was understood in a banking transaction to mean that the recipient of money might not deem it as his own but must be prepared to return it on demand. The balance of convenience clearly lay in allowing normal banking transactions to go forward. Furthermore, the plaintiffs had failed to establish, according to the appellant, that they would be put to irreparable loss. There the Supreme Court in paras 41 and 42 referred to the observations of Lord Denning J. in the case of Elian v. Matsas, (1966) 2 Lloyd Rep 495 and also referred to several other decisions and observed that only in exceptional cases the Courts would interfere with the machinery of the irrevocable obligations assured by the banks. The Court also considered the decision in the case of R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd., (1977) 3 WLR 752. Kerr, J. considered the position in principle. Our attention was also drawn to the said decision.
8. Here in the instant case at para 28 at page 1434 of the report the Supreme Court considered only the nature of the contractual obligations flowing from a bank letter of irrevocable credit and more particularly the rights of the seller as the accredited party or beneficiary of the credit against issuing bank and the drawing bank was dealt with by the Supreme Court in the case of Tarapore and Co., Madras v. Tractoroexport, Moscow, : 2SCR920 . The Supreme Court reiterated there that it was held that the opening of a confirmed letter of credit constituted bargain between the banker and the seller of the goods which imposed on the banker an absolute obligation to pay. It was, however. pointed out relying on a passage in Chalmers Bill of Exchange that the banker was bound or entitled to honour the bills of exchange drawn by the seller unless these and such accompanying documents as might be required therein were in exact compliance with the terms of credit and such documents should be scrutinised with meticulous care. If the seller had complied with the terms of the letter of credit, however, there was an absolute obligation upon the banker to pay irrespective of any dispute there might be between the buyer and the seller as to whether the goods were up to the contract or not. Certain other decisions were also referred to. It is true that in this case the Supreme Court was dealing with a confirmed or irrevocable letter of credit. Tt has to be emphasised and it has to be borne in mind that irrevocable letter of credit unless and until it is properly revoked is a binding contract between the issuing bank and the seller and provided the seller conforms to the conditions stipulated to the letters of credit, in our opinion, laid down the letter of credit until, and unless it is properly revoked before negotiation, stands on the same footing as irrevocable and confirmed letter of credit. In this case it has to be home in mind that it is not the case of the respondent No. 1 or the plaintiff that the said letter of credit was revoked by the proper party. What the plaintiff had contended in the plaint was that the said letter of credit was voidable because certain allegations were mentioned in the petition. Whether these allegations amount to a proper averment of fraud which will void a letter of credit or not is another question with which we shall presently deal with. To say a contract or a document is void is not the same thing that the contract has been revoked. Anything which is void and voidable cannot be revoked because a thing which is void or voidable one does not exist. No question of revocation of such obligation arises. Therefore in this case it was emphasised on behalf of respondent No. 1 that the letter of credit unlike those in the decision of the Supreme Court or some other decisions to which our attention was drawn and to which we shall presently refer was revocable. There was evidence of revocation of letter of credit according to the respondent. The question arises whether the letter of credit was revoked before it was presented and if so was it revoked by a party who was competent or entitled to do so. If this was not so it stands on the same footing even it was revocable and in judging the respective contentions between the buyer and the seller the same principle would apply as would be applicable to 'the irrevocable or confirmed letter of credit, in respect of granting any injunction in this matter. In this connection our attention was drawn to the observations of R. D. Harbottle v. National Westminster Bank Ltd., (1977) 2 All ER 862. This is a decision which was duly considered in the aforesaid Supreme Court decision which we have just now referred. In that case the plaintiffs were the merchants and they had extensive dealings with the buyer. The plaintiffs contracted with the Egyptian buyers for the sale of a certain quantity of goods under three separate contracts.
9. In this connection it is instructive to refer to the observations of Mr. Justice Kerr in the case of R. D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd., (1977) 2 All ER 862. Before we refer to the relevant observations which we are of the opinion should guide the Court in the matter of this nature it would be necessary to refer to the certain facts. The plaintiffs in that case were merchants who had extensive dealings with buyers in Egypt. The plaintiffs had contracted with Egyptian buyers for the sale of goods under three separate contracts. Each of the contracts provided that the plaintiffs were to be paid by the buyers by means of irrevocable confirmed letters of credit and that any dispute was to be resolved by arbitration. The contracts provided that the plaintiffs were to establish a guarantee confirmed by a bank of five per cent of the price in favour of the buyers. The guarantees were in effect performance bonds, their purpose being to provide security to the buyers for the fulfilment by the plaintiffs of their obligations under the contracts. These were to be established with two Egyptian banks. That was done by the plaintiffs instructing their own bank ('the bank') to confirm the guarantees to the respective Egyptian banks which in turn confirmed the guarantees to the buyers. The guarantees were backed by counter-indemnities by the plaintiffs to the bank. The plaintiffs agreed to indemnify the bank in the widest terms and gave irrevocable authority for payment under the guarantees and to debit the plaintiffs' account accordingly. The guarantees themselves simply provided that payment would be made on the buyers' 'first demand' without proof of any breach of contract by the plaintiffs or any other safeguard against abuse by the buyers. In the event disputes arose between the plaintiffs and the buyers and in such case the buyers demanded payment under the guarantees without, so the plaintiffs alleged, any justification. Once the demands had been made the bank took the view that it had no option but to pay, but the plaintiffs on learning of the bank's intention, instituted proceedings against the bank, the Egyptian banks and the buyers, and obtained ex parte interim injunctions restraining the bank and the Egyptian banks from paying and the buyers from obtaining payment under the guarantees. The bank subsequently applied for the discharge of the injunctions issued against it, having previously acquiesced in them. None of the other defendants entered an appearance. At the hearing of the bank's application the plaintiffs contended firstly that on the evidence the buyers were not entitled to payment under the guarantees and that their demands for payment were fraudulent and secondly that since the only application before the Court was the application by the bank to discharge the injunctions against itself, the Court had no jurisdiction to discharge the injunctions against the other defendants and to discharge the injunction against the bank would therefore be against the balance of convenience since it would lend to a break in the chain of payments or encourage the other defendants to disregard the injunctions against them. It was held that the injunctions against the defendants would be discharged. In this connection it would be instructive to refer to the observations of Mr. Justice Kerr at p. 869 of the report where his Lordship observed as follows :
'However, lei it be assumed in the plaintiffs' favour that these considerations would not by themselves preclude the Court from continuing the injunctions against the bank. The plaintiffs then still face what seems to me to be an insuperable difficulty. They are seeking to prevent the bank from payment and debiting their account It must then follow that if the bank pays and debits the plaintiffs' account, it is either entitled to do so or not entitled to do so. To do so would either be in accordance with the bank's contract with the plaintiffs or a breach of it. If it is in accordance with the contract, the plaintiffs have no cause of action against the bank and, as it seems to me, no possible basis for an injunction against it. Alternatively, if the threatened payment is in breach of contract, which the plaintiffs' writs do not even allege and as to which they claim no declaratory relief, the plaintiffs would have good claims for damages against the bank. In that event the injunctions would be inappropriate, because they interfere with the bank's obligations to the Egyptian banks, they might cause greater damage to the bank than the plaintiffs could pay on their undertaking as to damages, and because the plaintiffs would then have an adequate remedy in damages. The balance of convenience would in that be hopelessly weighed against the plaintiffs.'
As emphasised by the learned Judge there the principle is that once a letter of credit is established there is a contract between the issuing bank and the seller. The buyer has no right to intervene. If the bank pays in violation of the letter of credit, then the buyer can always sue the bank for any damages or breach of his contract, If, on the other hand, there are certain other claims of the buyers against the seller then the buyers can file a suit for recovery of such damages and money from the seller. But as between the seller and the issuing bank the injunction should not be granted. That is the principle that was reiterated by the learned Judge. Though that principle in that case was invoked in case of an irrevocable letter of credit, in this case the came principle would apply even though it was an irrevocable letter of credit and as until today nobody has yet revoked the letter of credit.
10. While on this point we may refer to another decision of the Court of England in the case of Edward Owen Engineering Ltd. v. Barclays Bank International Ltd.. (1977) 3 WLR 764 at p. 773 : (1978) 1 All ER 976 at p. 983 where Lord Denning M. R. observed as follows :
'All this leads to the conclusion that the performance guarantee stands on a similar footing to a letter of credit. A bank who gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least that the relations between the supplier and the customer; not that the question whether the supplier has performed his contracted obligation or not; nor that the question whether the supplier is in default or not. The bank must pay according to its guarantee: on demand it so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice.'
11. This proposition was also referred to in the case of Discount Records Ltd. v. Barclays Bank Ltd., (1975) 1 All ER 1071. There are some observations of Mr. Justice Megarry which have been referred to by Mr. Justice Kerr in the decision we have set out hereinbefore. The relevant observation would appear at page 1075 of the report. It is not necessary for us to recapitulate the same principle.
12. This position is also reiterated by the Supreme Court in the case of Tarapore and Co., Madras v. Tractor export. Moscow, : 2SCR920 where the Supreme Court observed that opening of a confirmed letter of credit constituted a bargain between the banker and the vendor of the goods, which imposed upon the banker an absolute obligation to pay. irrespective of any dispute there might be between the parties as to whether the goods were up to contract or not. A vendor of the goods selling against a confirmed letter of credit was selling under the assurance that nothing would prevent him from receiving the price. If the buyer had an enforceable claim that adjustment must be made by way of refund by the seller and mot by the way of retention by the buyer. The letter of credit was independent of Supreme Court emphasised, and unqualified by the contract of sale or underlying transaction. The autonomy of an irrevocable letter of credit was entitled to protection. Therefore, the Courts refrained from interfering with that autonomy. The same principle was reiterated by a decision of mine in the case of Texmaco Ltd. v. State Bank of India, : AIR1979Cal44 where it was held that in the absence special equities arising from a particular situation which might entitle the party on whose behalf guarantee was given to an injunction restraining the bank in performance of bank guarantee and in the absence of any dear fraud, the bank must pay to the party in whose favour guarantee was given on demand, if so stipulated and whether the terms are such have to be found out from the performance guarantee. The same principle would also be applicable to a letter of credit which is revocable as in this case which has not been revoked. This view was affirmed by two Division Bench decisions of this Court, one being on appeal from the aforesaid decision reported in (1979) 83 Cal WN 807 and another being the case of Bird and Co. v. Tripura Jute Mills, (1979) 83 Cal WN 802.
13. There is another aspect of the matter which was emphasised by the appellant i. e. to say that in this ease indisputably the letter of credit was negotiated by the European Asian Bank on 5th Sept., 1979 and it was only on 3rd of Oct., 1-979 after about a month that the bank raised certain objections about the certificates not being in order. In this connection it may be relevant to refer to the letter at page 38 of the paper book. European Asian Bank immediately wrote back to say that since one month had elapsed in informing about the so-called discrepancies, the objections of the United Commercial Bank to the shipping documents, namely packing certificate and quality certificate, are not tenable. This, however, is disputed by the appellant. Firstly, it is asserted that the original letter of credit stipulated that the quality certificate should be given by a named surveyor was amended subsequently to the effect that the same could be given by qualified surveyor. Therefore, that certificate was given. That certificate was retained for about a month and thereafter it has been communicated that the certificate was not in order. Secondly, it appears that so far as the packing certificate is concerned, it is also a case of the appellant that was tendered because it was included in the quality certificate; In any event, it is the contention of the appellant that after retention of the said documents for about a month in international transaction of this nature the United Commercial1 Bank was not competent to re-fuse to honour the same.
14. In this connection, reference may be mode to the Uniform Customs and Practice for Documantary Credits (1974) where Article 8 continue as follows :--
(a) In documentary credit operations all parties concerned deal in documents and not in goods.
(b) Payment, acceptance or negotiation against documents which appear on their race to be in accordance with the terms and conditions of a credit by a bank authorised to do so, binds the party giving the authorization to take up the documents and reimburse the bank which has effected the payment, acceptance or negotiation.
(c) If, upon receipt of the documents, the issuing bank considers that they appear on their face not to be in accordance with the terms and conditions of the credit, that bank must determine, on the basts of the documents alone, whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.
(d) The issuing bank shall have a reasonable time to examine the documents and to determine as above whether to make such a claim.
(e) If such claim is to be made, notice to that effect, stating the reasons therefor, must, without delay, be given by cable or other expeditious means to the bank from which the documents have been received (the remitting bank) and such notice must state that the documents are being held at the disposal of such bank or are being returned thereto.
(f) If the issuing bank fails to hold the documents at the disposal of the remitting bank, or fails to return the documents to such bank, the issuing bank shall be precluded from claiming that the relative payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.
(g) If the remitting bank draws the attention of the issuing bank to any irregularities in the documents or advises such bank that it has paid, accepted or negotiated under reserve or against a guarantee in respect of such irregularities, the issuing bank shall not thereby be relieved from any of its obligations under this article. Such guarantee or reserve concerned only the relations between the remitting bank and the beneficiary.'
15. In this connection our attention was also drawn to The Law of Bankers' Commercial Credits, H. C. Gutteridge Maurice Megrah, Sixth Edition at page 160 where a reference was made to the decision in the case of Bank Melli Iran v. Borelays Bank (Dominion, Colonial and Overseas), (1951) 2 Lloyd's Rep 367 in which the defendant bank paid against documents which did not comply with the terms of the credit. Barclays relied mainly on the plea of ratification, to which Bank Melli's reply was that ratification did not apply as the relationship between the two banks was that of banker and customer and not that of principal and agent -- a contention which was clearly untenable as regards the credit. The facts were simply that payment under an irrevocable credit was to be made in two instalments, and it was so made, though not against the documents called for. There Mr. Justice McNair at p. 377 of the Report observed as follows:--
'The position as regards ratification of the second payment is more difficult As stated above, Barclays Bank paid the final 3684 against bill of lading, insurance policies and invoice on May 20 against a letter of indemnity from Eastern Developments for discrepancies in these documents. Advice of this payment, together with photostat copies of the documents and information as to the guarantee, was sent the same day by Barclays Bank to Bank Melli, who received them on June 15, the very day upon which they had written to Barclays Bank rejecting the first documents. Yet no action was taken by Bank Melli on receipt of the photostat copies covering the second payment until July 14, when they formally applied to Khar-razi for settlement of the 3684.8s.9d., notifying them that in default of payment 12 per cent, interest would be debited to them and asking for instructions as to the release of the letter of indemnity taken by Barclays Bank. Instructions to repudiate were given by Kharrazi on July 21, and on July 23 Bank Melli cabled their repudiation in the following terms :
Credit 15249 your schedule 20/5 and attached documents orderers claim refund amounts paid as requested by our cable nineteenth Bank Melli.
There was thus an interval of nearly six weeks between the receipt of June 15 by Bank Melli from Barclays Bank of the documents against which the second payment was made, and the despatch on July 23 by Bank Melli of their cable of repudiation. Unexplained, this delay and inaction might afford evidence from which an intention to ratify might be inferred.'
In this connection reference was also made to certain observations in Illinger's Documentary Laws of Credit where at page 198 the learned author observed as follows:--
'As regards the seller, the banker has a right to examine the documents. The question is how quickly must the banker inform the seller whether he has accepted or rejected the tender'.
Reference was also made in this connection to Article 8 of the UCP to which we have referred to hereinbefore and it was observed that a prolonged retention of the documents without rejection by the bank was deemed an acceptance of the tender. At page 200 the proposition is put thus:--
'This is an acceptable solution. Its main shortcoming is that the banker is not required to return the documents. The solution of the UCP, i. e. that the banker must reject or accept the documents within a reasonable time, seems preferable. A 'reasonable time' is, of course, an undefined period. Documentary credits are, however, opened in various circumstances. It is unnecessary to lay down a fixed period of time for accepting or rejecting documents. If the seller and the banker are not operating in the same town, a rigid rule as to what constitutes a reasonable time may lead to complications. It may take the banker an extra day or two to return the documents. If, on the other hand, the banker and the seller operate in the same place, even three days may be an unreasonably long time for inspecting documents. Similarly, if the credit stipulates for the tender of fifteen documents it may take a longer time to examine them than it would take to examine a tender of three documents. It is, therefore, preferable to allow the banker 'a reasonable tune' for examining the documents. The length of such 'a reasonable time' would always depend on the facts of each case. This is a flexible rule which is well suited to the practice of documentary credits.'
Again at page 207 it was observed as follows:--
'Would not the very lapse of time between the acceptance of the documents and the subsequent claim for repayment affect the position of the seller 1 Even a lapse of three or four days -- during which the banker forwards the documents to the buyer --may dimmish the chances of the seller finding a new purchaser for the documents. These might even became stale in the meantime. Moreover, it might be argued that the seller changes his position when the banker pays him the amount of the credit or accepts his draft. The seller, at that time, parts with the possession, of the documents and the goods. This was hinted at in National City Bank of New York v. Partola Manufacturing Co. In practice there is no difference between the American view and the opinion of Cutteridge and Megrah.
French law takes the same view as that expressed in the American cases. Stoufflet thinks that the banker, who accepts irregular documents, has no right of recourse against the seller. The banker is under a duty to accept or reject the documents within a reasonable time. The seller is entitled to treat the banker's acceptance of the documents as a final step. It would, therefore, be wrong to allow the banker a right of recourse. He has only himself to blame for not exercising reasonable care in examining the documents. Stoufflet adds that rights which the buyer might have against the seller are not conferred on the banker by way of subrogation. Such a right of subrogation would, in his opinion, destroy the independence of the documentary credit.'
Therefore, in this case there is no satisfactory explanation of the conduct of the United Commercial Bank in not honouring the letter of credit after such a lapse of time. Even on that ground that if the United Commercial Bank refuses to pay, it must do so at its own peril. The plaintiff or the respondent No. 1 has no say in this matter. It is a transaction between the issuing bank and the seller of the goods. The title to the goods passed on the document -- that the contract is acknowledged by the letter of credit. Therefore, it is the bank's responsibility to the seller to honour the same.
16. If, however, the bank discharges its obligations, makes the payment without satisfying itself to the conditions having been fulfilled, the Bank does it at its own peril and may be liable to the buyer.
17. In this case there is no special equities as such between the parties. There is another aspect of the matter. There is certain discrepancy between the letter of credit and the quality mentioned in the letter of credit. It appears to us that the advice that was given by the Agent of the Calcutta Bank to Singapore to the seller which appears at page 84 of the paper book contains the quality as 'F. A. O. 25'. This is corroborated also by the communication of the letter which is at page 82 written by the Singapore branch of the United Commercial Bank. It is true that in the internal document between the United Commercial Bank, Calcutta and its Singapore branch the quality mentioned is F. F. O. 25%. The respondent No. 1 is, however, not concerned with the internal communication. However, on behalf of the appellant it was further stressed that really between these two expressions there is no difference. In this connection our attention was drawn to certain, extracts from Oils, Fats and Fatty Foods -- Their Practical Examination by Bolton and Revis Third Edition where dealing with the Description of Oil at page 253 of the Book it was observed that owing to the different methods of preparation of the oil and particularly to the varying lengths of time between gathering of the fruit and separation of the oil, a very wide variation in the proportion of free fatty acid was found and the following examples were given:--
Free Fatty Acids as (sic) per centOil scientifically extracted from fresh fruit in Bubao.3.3Oil extracted in this country from fruit freshly plocked and packed dry.9.0 to 15.0Accra Addah Oil ,, ,, (average)51.2New Calabar Oil ,, ,,31.3Benin Oil ,, ,,37.5Red Sherbros Oil ,, ,,22.1
A 10 per cent solution of palm oil in ether, when cooled on ice deposits crystals, which rapidly redissolve when removed from the ice, and may thus be distinguished from the more insoluble deposit yielded by hardened oils and animal fats when treated in the same way.
The methods of refining and deodorising which serve for most vegetable fats fail to deal with palm oil satisfactorily, but after certain additional treatment an excellent product can be produced which is of a pale yellow colour and has the consistency of butter,
COMPOSITION OF FATTY ACIDS: myristic, 1-2.5; palmitic, 32-47; Stearic, 1-9; Oleic, 40-53; Linoleic 2-11.
18. Reliance was also placed on a letter of the Secretary, Central Committee for Food Standard to All Port Health Officers where the characteristics of Palm Oil was stated which is as follows:--
S. No.CharacterisationRaw Palm Oil (Not for direct human consumption).Refined Palm Oil (For Direct Human Consumption).
1.Moisture & other insoluble (??) (??) impurities (Max.)0.25%0.10%2.Molting Point (capit(??) (??) method) (Max.)37C37C3.B. R. Reading at or (Ref. Index 56C)35.5-44.0 (1.44126.96.36.19952)35.5-14.0 (1.44188.8.131.5252)4.Iodine value (Wij's method)45.5645.565.Seponitisation value195.205195.2056.Unsaponitiable matter (Max).1.2%1.2%7.Percentage of FFA ((??) Olate acid) (Max).5.60.258.Acid value (Max).10.0(??).59.Peroxide value (Max). expre(??) as multi-equivalent of 02 per Kg. 10.0 mg.
19. On the other hand on behalf of the respondent No. 1 it was stressed, that sufficient compliance would not do. It must be exact compliance and if the requirement was F. F. A. C. 25% as contended by the respondent No. 1 and not F. A. O. O. 25% then the question is whether these two meant the same thing or not. In this connection reference was also made to a letter from Prof. M. M. Chakraborty which appears at p 115 and page 119 of the paper book where Prof Chakraborty has expressed the view that these two contain different elements. In the connection it is not necessary, for us to ex-press any opinion. It is for the bank to de-cide whether the letters tendered were strictly in complance with the requirement of letter of credit. The plaintiff or the respondent No 1 as such has not say in this matter. After the letter at credit was opened and though not irrevocable one, it has not been revoked, the bank must, honour if otherwise satisfied. The other aspect of the matter that was emphasised was that in this case certain allegations of fraud were there. In the petition or in the plaint there is no Allegation of fraud. In case of fraud, exception has been engrafted by the English Courts and that has been recognised in the Indian Courts. To avoid obligation of the letter of credit, there must be a dear case of fraud and to the knowledge of the bank. In this connection it may be noted that bank did not allege any fraud in the making or issuing of the letter of credit. It has been stated that certain allegations have been, made by the Insurance Company and certain enquiries were being made and CBI had written to the plaintiff about certain documents. The bank had never averred or has not stated that it had knowledge of graud. Furthermore, ever allegations of fraud and not there in the plaint or in the petition. It has been emphasised by the Judicial Committee in the case of Narayanan Chettyar v. Official Assignee, High Court, Rangoon, AIR 1941 PC 93 fraud like any other change of a criminal offence whether made in civil or criminal proceedings must be established beyond reasonable doubt. A finding as to fraud cannot be based on suspicion and conjecture. Apart from certain insinuation in the Affidavit-in-Reply of certain enquiries being made on behalf of CBI as well as on behalf of Insurance Co. there is no clear case of fraud according to the principle laid down by Lord Denning in the case mentioned hereinbefore. The plaintiff or the respondent No. 1 on the other Hand had itself made a claim on the Insurance Co. That could only be on the basis that the title to the goods had passed an to them. Equity, is in favour of defendant No. 1. This, however, does not disentitle the buyer or the respondent No. 1 from instituting any appropriate proceeding against either the bank if ttte Bank acts in deviation and not strictly in compliance with the letter of credit in making the payment or ever from instituting any suit for any wrongful or illegal or mala fide conduct or for any damages if they are otherwise entitled to. In view of well settled principle of balance of convenince; in our opinion, in such a case in the absence of clear case of fraud to the knowledge of the bank, the Court should not grant injunction restraining payment in form of the letter of credit, as though in this case the letter of credit was irrevocable one; it has not yet been revoked.
20. For the reason aforesaid; we are unable to sustain the reason given in the dictated order of the learned Judge of the Court below. In the aforesaid view of the matter the order of the trial Court and the dictated reasons dated 7th Apr., 1988 are set aside. This, however, will not preclude the respondent No. 1 from taking any appropriate action against any party if they are so entitled in law.
21. The appeal is allowed and the order of injunction is vacated. Costs of this appeal will be cost in the suit.
22. Mr. Tapan Mitra appeasing for the bank orally prays for stay.
23. In view of the fact the bank has indicated for some reason or other that it is not willing to pay there is no question of granting any stay. Further, we have stated that we have followed the principle laid down by the Supreme Court and as such we cannot held that any important question requires consideration by the Supreme Court. The prayer for stay is therefore, refused.
C.K. Banerji, J.
24. I agree.