Case: Himadri Chemicals Industries Ltd Vs. Coal Tar Refining Company

This appeal is directed against the judgment and order dated 21st June, 2007 passed by a Division Bench of the Calcutta High Court whereby an appeal preferred against an order dated 5th June, 2007 of a learned Single Judge of the same High Court was dismissed and the order of the learned Single Judge was affirmed. The learned Single Judge by his order dated 5th June, 2007 had vacated an interim order of status quo granted earlier on an application filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘thefor an order of injunction restraining the respondent from receiving any payment under a Letter ofthis stage, we feel it proper to narrate the facts which have given rise to the filing of this appeal in thisappellant entered into a contract on 29th May, 2006 with the respondent by which the respondent had agreed to supply 26,000 metric tones of Extra Hard Pitch (Reprocessing Grade) (in shortto the appellant as per schedule set out in the contract. In the said contract, one of the terms of payment was that a Letter of Credit will be opened and accordingly an irrevocable Letter of Credit was opened by the appellant in favour of the respondent. Initially, under the said Letter of Credit, payment was to be made ‘atThe document against which payment was to be made, was received directly by the banker of the appellant and on presentation of the document it was found by the banker of the appellant that the description of the goods was not as per the terms of the Letter of Credit. Accordingly, the banker of the appellant by a Letter dated 11th September, 2006, intimated the aforesaid fact to the appellant and sought advice whether the appellant was willing to waive the discrepancies indicated in the Letter dated 11th September, 2006. In response to this query of the banker, the appellant waived the discrepancies and accepted the documents by a letter dated 3rd October, 2006 and also agreed to make the payments in the followingreference to the above and further to your swift message dated 3/10/2006, We are accepting the documents with discrepancy and the payment will be made after 180 days from today. We accept to make the following payments. (Emphasis supplied)Total amountagainst abovementioned three(3) BillsEuro 2348915.00Less : Advancepayment alreadyMade throughCentral BankofIndia Kol.Main OfficeEuro 387788.82Amount to bepaid againstthe abovethree BillsEuroaccepting the documents and agreeing to make payments, by a communication dated 28th September, 2006, the respondent had given the appellant two options:- (i) either to negotiate the document and resolve the quality issue; or (ii) reject the shipmentcorrespondence was exchanged between the appellant and the respondent and the Letter of Credit was amended and payment ‘atwas substituted by the words ‘230 days from the shipmentOn the basis of the amended Letter of Credit, the payment was, thereafter, payable on or before 10th April, 2007. The amendment of the terms of Letter of Credit was informed to the bankers of the respondent which was accepted by the respondent as well. The issue regarding the quality of goods remained undecided although an inspection report was submitted by SGS India Pvt. Ltd. with the concurrence of the respondent. Inspite of various steps taken by the appellant and promises made by the respondent, no effective step was taken to resolve the dispute regarding quality of the goods and hence the application under Section 9 of the Act was filed by the appellant to stop release of payment under the Letter of Credit without first resolving the issue regarding the quality of goods of the second consignment supplied by the respondent to the appellant. Therefore, in the application for injunction, it was pleaded that the act of the respondent for not resolving the dispute on the quality of goods in the second consignment amounted to fraud as the respondent had dishonestly and with ulterior motive not resolved the dispute as raised by the appellant and in any event, an order of injunction should be granted, otherwise, it would not be possible for the appellant to recover the money released under the Letter of Credit as the respondent is a foreign company from Iran and has no assets inrespondent raised a plea for vacating the interim order of status quo granted by the learned Single Judge on the application for injunction filed u/s 9 of the Act alleging the following facts:- Goods were dispatched to the appellant by the respondent under two shipments. So far as the first shipment was concerned, goods were received, documents negotiated and payment released. Therefore, there could not be any dispute in respect of the goods relating to the first shipment. By the second shipment, the respondent had dispatched 12,503 metric tones of goods to the appellant which arrived at Calcutta from Iran by a vessel called M.V. Iran Takhti. Out of the aforesaid 12,503 metric tones of goods so dispatched and arrived at Calcutta, documents relating to 2503 metric tones of goods were negotiated by the Central Bank of India, Calcutta and payment released. However, for the balance 10,000 metric tons, documents were not negotiated and no payment was released. It was further alleged by the respondent that there was no reason for not negotiating the documents or effecting release of the payment as payments for part consignment as noted hereinabove were already released. It was also the case of the respondent in support of its contention for vacating the interim order of status quo that despite discrepancies raised by the appellant, by its communication dated 3rd October, 2006, the appellant had agreed to accept the documents with discrepancy and make payments in respect of the goods for which disputes were raised by the appellant regarding the quality of such goods. It was further the case of the respondent that the defective quality of goods in respect of which order of injunction of the Letter of Credit was sought could not also be the reason for grant of injunction as it was related to a payment dated 29th May, 2006 which was also the subject matter of an arbitration proceeding and the claim, if any, could be recovered in the said arbitration proceeding. According to the respondent, since the Letter of Credit was an independent contract and the appellant could not satisfy any breach of the terms of the Letter of Credit, no order of injunction could be passed by the court for stopping the respondent from realizing the payment relating to the price of the goods supplied. The respondent further stated that the appellant could not make out any case of fraud for which an order of injunction restraining the respondent from realizing the payment by encashing the Letter of Credit could be granted and therefore the application for injunction must benoted herein earlier, the order of status quo was passed by the learned Single Judge of the High Court on the application for injunction filed under Section 9 of the Act at the instance of the appellant on 9th April, 2007, and by the said order, the interim order of status quo was granted till 30th April, 2007 and the same was extended from time to time from 23rd April 2007 till 17th May, 2007. Thereafter the matter was directed to appear on 16th May, 2007 and heard by the learned Single Judge on 17th May, 2007 and interim order of status quo was extended till 25th June, 2007. As noted herein earlier, the learned Single Judge by order dated 5th June, 2007 vacated the interim order of status quo granted earlier against which an appeal was preferred by the appellant before a Division Bench of the High Court of Calcutta which dismissed the appeal and affirmed the order of the learned Single Judge vacating the interim order of status quo.

Reasoning:
Let us now consider the other exception, namely, case where allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in an irretrievable harm or injustice to one of the parties concerned. In our view, irretrievable injury was not caused to the appellant by a refusal to grant an order of injunction restraining the encashment of the Letter of Credit for two reasons :-(i) Exceptional circumstances have not been made out by the appellant which would make it impossible for the Guarantor to reimburse himself if he ultimately succeeds. Only a case of apprehension has been shown in the application for injunction to the extent that if ultimately, the application for injunction is allowed, it would be impossible to recover the amount encashed on the basis of the Letter of Credit because the respondent is a Foreign Company in Iran which has no assets in India. In our view, this cannot come within the second exception indicated above.(ii) Admittedly in this case, the appellant has already filed an Admiralty Suit No. 14 of 2006 in the original side of the Calcutta High Court claiming damages in respect of the same set of goods. In the said suit filed in the month of November 2006, the respondent was given liberty to furnish a Bank Guarantee for a sum of Rs. 21,86,68,540/- being the sum claimed by the appellant on account of damages to the credit of the said suit and a Bank Guarantee to the extent of this amount has already been furnished by the respondent. Such being the position, the question of irretrievable injury even prima facie which would lead to injustice and harm the appellant cannot at all be conceived of since the appellant has been duly protected by the furnishing of Bank Guarantee. In our view, only because the respondent has no assets in India would not lead us to hold that the appellant was entitled to an injunction on the ground that he would suffer an irretrievable injury. In this view of the matter, we echo the finding of the High Court in refusing to grant an order of injunction in favour of the appellant and hold that the High Court was fully justified in doing so.