Case: United Commercial Bank Vs. Bank of India and Others

on a different footing. The letters conveyed a request to " negotiate the sight drafts for payment ".Thus, the payment of Rs. 36, 52, 960 against the first lot of 20 documents was " under reserve " and was also covered by the letter of guarantee or indemnity.57. As regards the second lot of 27 documents, the payment of Rs. 49, 31, 496 the appellant was not prepared to pay even " under reserve " because the Bihar Corporation had refused to accept the consignments on the ground not only of discrepancies but also because the mustard oil was not fit for human consumption. There was no question of the appellant paying this large sum of money except against the letter of guarantee or indemnity executed by the Bank of India. It was represented by the Bank of India that it had made arrangements for the due payment of the bills of exchange. When the bills of exchange were dishonoured on being presented on August 3, 1978, the amount of Rs. 49, 31, 496 became immediately repayable on demand.58. There still remains the question whether the court should interfere with an order of this nature. The courts powers under art. 136 of the Constitution are untrammelled, but they are subject to self-ordained restrictions. The court does not, as a matter of rule, interfere with inter-locutory orders, save under very exceptional circumstances.59. The grant of a temporary injunction by the High Court under O.39, rr. 1 and 2, CPC, appears to be wholly unwarranted. For reasons already stated, the appellant was well within its rights in making a recall of the amount of Rs. 85, 84, 456 paid " under reserve " and/or in terms of the letter of guarantee or indemnity. We fail to appreciate any justification for the grant of a temporary injunction to the plaintiffs, the effect of which virtually is to restrain a transaction between a banker and a banker. The courts view with disfavour the grant of such temporary injunction.60. In the instant case, the High Court has assumed that the plaintiffs had a prima facie case. It has not touched upon the question where the balance of convenience lay, nor has it dealt with the question whether or not the plaintiffs would be put to irreparable loss if there was no injunction granted. In dealing with the prima facie case, the High Court assumes that the appellant was in breach. There is no basis for this assumption at all. The High Court in this case has pre-judged the whole issue by holding that the appellant could not unilaterally impose the condition of payment " under reserve ", nor was it justified in holding that the documents were " clean ". The question whether the appellant was in breach is an issue to be tried in the suit. The question whether the documents were " clean " or " unclean " is a vexed question on which no opinion could be expressed at this stage. It is also premature at this stage to assume that there was no " due presentation " of the bills of exchange and their refusal.61. No injunction could be granted under O. 39, rr. 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether, in the facts and circumstances of the case, there is a prima facie case and, if so, as between whom ? In view of the legal principles applicable, it is difficult for us to say on the material on record that the plaintiffs have a prima facie case. It cannot be disputed that if the suit were to be brought by the Bank of India, the High Court would not have granted any injunction as it was bound by the terms of the contract. What could not be done directly cannot be achieved indirectly in a suit brought by the plaintiffs.62. Even if there was a serious question to be tried, the High Court had to consider the balance of convenience. We have no doubt that there is no reason to prevent the appellant from recalling the amount of Rs. 85, 84, 456. The fact remains that the payment of Rs. 36, 52, 960 against the first lot of 20 documents made by the appellant to the Bank of India was a payment under reserve while that of Rs. 49, 31, 496 was also made under reserve as well as against the letter of guarantee or indemnity executed by it (the Bank of India). A payment " under reserve " is understood in banking transactions to mean that the recipient of money may not deem it as his own but must be prepared to return it on demand. The balance of convenience clearly lies in allowing the normal banking transactions to go forward. Furthermore, the plaintiffs have failed to establish that they would be put to an irreparable loss unless an interim injunction was granted.63. It was, however, tried to be impressed upon us that the balance of convenience lay in granting the injunction since the appellant would not be put to any loss because it had furnished the letter of guarantee against 100 per cent. margin, i.e., on deposit being made by the Bihar Corporation of Rs. 85, 84, 456 for meeting the payment to be made under the credit. It was also said that the effect of recalling Rs. 85, 84, 456 from the Bank of India will result in the plaintiffs facing a serious credit-freeze, as the Bank of India will, on its turn, recall the amount from the plaintiffs. We are afraid, these considerations cannot prevail. For all these reasons, we are constrained to hold that there was no justification for the High Court to grant a temporary injunction under O.39, rr. 1 and 2 of the CPC, 1908.64.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The relevant authorities uniformly lay down in dealing with commercial letters of credit that the documents tendered by the seller must comply with the terms of the letter of credit, and that the banker owes a duty to the buyer to ensure that the buyers instructions relative to the documents against which the letter of credit is to be honoured are compliedrelevant authorities uniformly lay down in dealing with commercial letters of credit that the documents tendered by the seller must comply with the terms of the letter of credit, and that the banker owes a duty to the buyer to ensure that the buyers instructions relative to the documents against which the letter of credit is to be honoured are compliedthe light of these principles, the rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter ofis somewhat unfortunate that the High Court should have granted a temporary injunction as it has done in this case, to restrain the appellant from making a recall of the amount of Rs. 85, 84, 456 from the Bank of India in terms of the letter of guarantee or indemnity executed by it. The courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank 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 is 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 wouldview of the bankers obligation under an irrevocable letter of credit to pay, his buyer-customer cannot instruct him not tois only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or as stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims ; these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the courts. Otherwise, trust in international commerce could be irreparablyis clear from the letters addressed by the appellant to the Bank of India on June 23, 27 and 28, 1978, that the payment of Rs. 36, 52, 960 by three cheques for Rs. 7, 29, 872, Rs. 12, 78, 536 and Rs. 16, 43, 833 were payments made under reserve. Admittedly, when these amounts were paid by the appellant to the Bank of India, the railway receipts were not clean because they contained the description " Sizola Brand Pure Mustard Oil Unrefined ". The appellant had taken the precaution of saying " Please note that the payment is made to you  under reserve  owing to the following discrepancies ". There was a foot-note added :" Please note that this payment is made to you subject to repayment on demand of the bill amount, without loss of exchange to ourselves plus interest and other charges incurred by us, and/or by our principals, if the documents are not acceptable to the openers or buyers in view of the discrepancies whatsoever ".It was also added :" Please also note that this reserve will remain in force until released by us in writing ".Acceptance of these amounts by the Bank of India on behalf of the plaintiffs was upon these terms. The Bank of India and the plaintiffs were thus fully aware that the appellant was not prepared to pay except " under reserve ". The plaintiffs in their letters addressed to the appellant dated June 22 and 23, 1978, had added in ink the post-script :" In case of discrepancies, pay to our bankers, Bank of India ". These letters were in respect of 11 out of 20 documents ; it is not suggested that others stand on a different footing. The letters conveyed a request to " negotiate the sight drafts for payment ".Thus, the payment of Rs. 36, 52, 960 against the first lot of 20 documents was " under reserve " and was also covered by the letter of guarantee orregards the second lot of 27 documents, the payment of Rs. 49, 31, 496 the appellant was not prepared to pay even " under reserve " because the Bihar Corporation had refused to accept the consignments on the ground not only of discrepancies but also because the mustard oil was not fit for human consumption. There was no question of the appellant paying this large sum of money except against the letter of guarantee or indemnity executed by the Bank of India. It was represented by the Bank of India that it had made arrangements for the due payment of the bills of exchange. When the bills of exchange were dishonoured on being presented on August 3, 1978, the amount of Rs. 49, 31, 496 became immediately repayable onstill remains the question whether the court should interfere with an order of this nature. The courts powers under art. 136 of the Constitution are untrammelled, but they are subject to self-ordained restrictions. The court does not, as a matter of rule, interfere with inter-locutory orders, save under very exceptionalgrant of a temporary injunction by the High Court under O.39, rr. 1 and 2,CPC, appears to be wholly unwarranted. For reasons already stated, the appellant was well within its rights in making a recall of the amount of Rs. 85, 84, 456 paid " under reserve " and/or in terms of the letter of guarantee or indemnity. We fail to appreciate any justification for the grant of a temporary injunction to the plaintiffs, the effect of which virtually is to restrain a transaction between a banker and a banker. The courts view with disfavour the grant of such temporarythe instant case, the High Court has assumed that the plaintiffs had a prima facie case. It has not touched upon the question where the balance of convenience lay, nor has it dealt with the question whether or not the plaintiffs would be put to irreparable loss if there was no injunction granted. In dealing with the prima facie case, the High Court assumes that the appellant was in breach. There is no basis for this assumption at all. The High Court in this case has pre-judged the whole issue by holding that the appellant could not unilaterally impose the condition of payment " under reserve ", nor was it justified in holding that the documents were " clean ". The question whether the appellant was in breach is an issue to be tried in the suit. The question whether the documents were " clean " or " unclean " is a vexed question on which no opinion could be expressed at this stage. It is also premature at this stage to assume that there was no " due presentation " of the bills of exchange and theirinjunction could be granted under O. 39, rr. 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether, in the facts and circumstances of the case, there is a prima facie case and, if so, as between whom ? In view of the legal principles applicable, it is difficult for us to say on the material on record that the plaintiffs have a prima facie case. It cannot be disputed that if the suit were to be brought by the Bank of India, the High Court would not have granted any injunction as it was bound by the terms of the contract. What could not be done directly cannot be achieved indirectly in a suit brought by theif there was a serious question to be tried, the High Court had to consider the balance of convenience. We have no doubt that there is no reason to prevent the appellant from recalling the amount of Rs. 85, 84, 456. The fact remains that the payment of Rs. 36, 52, 960 against the first lot of 20 documents made by the appellant to the Bank of India was a payment under reserve while that of Rs. 49, 31, 496 was also made under reserve as well as against the letter of guarantee or indemnity executed by it (the Bank of India). A payment " under reserve " is understood in banking transactions to mean that the recipient of money may not deem it as his own but must be prepared to return it on demand. The balance of convenience clearly lies in allowing the normal banking transactions to go forward. Furthermore, the plaintiffs have failed to establish that they would be put to an irreparable loss unless an interim injunction waswas, however, tried to be impressed upon us that the balance of convenience lay in granting the injunction since the appellant would not be put to any loss because it had furnished the letter of guarantee against 100 per cent. margin, i.e., on deposit being made by the Bihar Corporation of Rs. 85, 84, 456 for meeting the payment to be made under the credit. It was also said that the effect of recalling Rs. 85, 84, 456 from the Bank of India will result in the plaintiffs facing a serious credit-freeze, as the Bank of India will, on its turn, recall the amount from the plaintiffs. We are afraid, these considerations cannot prevail. For all these reasons, we are constrained to hold that there was no justification for the High Court to grant a temporary injunction under O.39, rr. 1 and 2 of the