Case: Tarapore &amp; Co., Madras Vs. M/S. V/O Tractors Export, Moscow And Anr

2. The suit has been brought by M/s. Tarapore and Co., Madras (hereinafter referred to as the "Indian Firm"). That firm had taken up on contract the work of excavation of a canal as a part of the Farakka Barrage Project. In that connection they entered into a contract with M/s. V/O Tractors Export, Moscow (which will hereinafter be referred to as the "Russian Firm") for the supply of construction machinery such as Scrapers and Bulldozers. In pursuance of that contract, the Indian Firm opened a confirmed irrevocable and divisible letter of credit with the Bank of India, Limited for the entire value of the equipment i.e. Rs. 66,09,372/- in favour of the Russain Firm negotiable through the Bank for Foreign Trade of the U. S. S. R., Moscow. Under the said letter of credit the Bank of India was required to pay to Russain Firm on production of the documents particularised in the letter of credit along with the drafts. One of the conditions of the letter of credit was that 25 per cent of the amount should be paid on the presentation of the specified documents and the balance of 75 per cent to be paid one year from the date of the first payment. The agreement entered into between the Bank of India and the Russain Firm under the letter of credit was "subject to the Uniform Customs and Practice for Documentary Credits (1962 Revision), International Chamber of Commerce Brochure No. 222." Art.3 of the brochure says thatirrevocable credit is a definite undertaking on the part of an issuing bank and constitutes the engagement of that bank to the beneficiary or, as the case may be, to the beneficiary and bona fide holders of drafts drawn and / or documents presented thereunder, that the provisions for payment, acceptance or negotiation contained in the credit will be duly fulfilled, provided that all the terms and conditions of the credit are complied with.An irrevocable credit may be advised to a beneficiary through another bank without engagement on the part that other bank (the advising bank), but when an issuing bank authorises another bank to confirm its irrevocable credit and the latter does so, such confirmation constitutes a definite undertaking on the part of the confirming bank either that the provisions for payment or acceptance will be duly fulfilled or, in the case of a credit available by negotiation of drafts, that the confirming bank will negotiate drafts without recourse to drawer.Such undertakings can neither be modified nor cancelled without the agreement of all concerned.Art.8 of the Brochuredocumentary credit operations all parties concerned deal in documents and not in goods.Payment, acceptance or negotiation against documents which appear on their face to be in accordance with the terms and conditions of a credit by a bank authorised to do so, binds the party giving the authorisation to take up the documents and reimburse the bank which has effect the payment, acceptance or negotiation .........".The only other Article in that brochure which is relevant for our present purpose is Art.9 which readsassume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and / or particular conditions stipulated in the documents or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented thereby, or for the good faith or acts and / or omissions, solvency, performance or standing of the consignor, the carriers or the insurers of the goods or any other person whomsoever.On the strength of the aforementioned contract, the Russian Firm supplied all the machinery it undertook to supply by about the end of December 1960, which were duly taken possession of by the Indian Firm and put to work at Farakka Barrage Project. They are still in the possession of the Indian Firm. After the machinery was used for sometime, the Indian Firm complained to the Russain Firm that the performance of the machinery supplied by it was not as efficient as represented at the time of entering into the contract and consequently it had incurred and continues to incur considerable loss. In that connection there was some correspondence between the Indian Firm and the Russian Firm. Thereafter the Indian Firm instituted a suit on the original side of the High Court of Madras seeking an injunction restraining the Russain Firm from realizing the amount payable under the letter of credit. During the pendency of that suit the parties arrived at an agreement on August 14, 1966 at Delhi (which shall be hereinafter referred to as the Delhi agreement). The portion of that agreement which is relevant for our present purpose reads as followsand Co., Madras agree to withdraw immediately the court case filed by them against "Tractoroexport" Moscow, in the Madras High Court.2. Immediately on Tarapore withdrawing the case, V/O "Tractoroexport" agree to instruct the Bank for Foreign Trade of the USSR in Moscow, not to demand any further payment against I. C. established by Tarapore and Co., Madras, for a period of six months from the due dates in the first instance. During this period both the parties shall do their best to reach an amicable settlement.3. In case the settlement between the two parties is not completed within this period of six months V/O Tractoroexport shall further extend the period of payment to further period of six months for the settlement to be completed.4. Tarapore and Co., shall authorise their Bank to keep the unpaid portions L. C. valid for the extended period as stated above.At this stage it may be mentioned that the Russain Firm had received from the Bank of India 25 per cent of the money payable under the letter of credit very soon after it supplied to the Indian Firm the machinery mentioned earlier. In pursuance of the aforementioned agreement the Indian Form withdrew the suit. Thereafter there were attempts to settle the dispute. In the meantime the Indian Rupees was devalued. The contract between the Indian Firm and the Russain firm contains the following termfor the delivered goods shall be made by the Buyers in Indian Rupee in accordance with the Trade Agreement between the USSR and India dated 10th June, 1963. All the prices, are stated in Indian rupee. One Indian Rupee is equal to 0.186621 grammes of pure gold. If the above gold content of Indian Rupee is changed the prices and the amount of this contract in Indian Rupees shall be revalued accordingly on the date of changing the gold parity of the Indian Rupee.This clause will be hereinafter referred to as the Gold Clause. In view of that clause, the price fixed for machinery supplied stood revised. Consequently under the contract the Indian Firm had to pay to the Russian firm an additional sum of about rupees twenty six lacs. Accordingly the bankers of the Russain Firm called upon the Indian Firm to open an additional letter of credit for payment of the extra price payable under the contract. They also intimated the Indian Firm that the extension of time for the payment of the price of the machinery supplied, agreed to at Delhi will be given effect to only after the Indian Firm arrange for the additional letter of credit asked for. The Indian Firm objected to this demand as per its letter of 20th September, 1966. The relevant portion of that letter readsare rather surprised to see this, because, by our arrangement dated the 14th August, 1966, at New Delhi you had agreed to give further time for the payments on the withdrawal of the Madras High Court case. That was the only condition that was talked abut and incorporated in our written agreement. If you will be good enough to refer to the agreement dated the 14th Aug., 1966, you will find that we were obliged to withdraw the Madras suit pending talks of settlement and immediately on our withdrawing this suit, you agreed to instruck your Bankers not to demand any further payment under the letter of credit. There is absolutely no reference in that agreement to our having to open any additional letter of credit in view of the devaluation of the Indian rupee ..... We would therefore request you to immediately instruct your Bankers in Moscow to advice our Bankers regarding the extension of time for payment under the letter of credit without any reference to any additional letters of credit in view of devaluation ..... Moreover, when the entire question is open for amicable settlement between us, it is not possible to determine what exactly will be amount payable and unless that amount is known, it is not possible to open additional letters of credit to give effect to the gold clause .....On November 1, 1966, the Russain Firm sent to the Indian Firm addendum No. 1 modifying the original contract in accordance with the gold clause. The last clause of that addendum recited that "all other terms and conditions are as stated in the above mentioned contract" (original contract). The Indian Firm objected to the addendum as well as to the demand for opening an additional letter of credit. In that connection the Russian Firm wrote a letter to the Indian Firm on November 29, 1966. As considerable arguments were advanced on the basis of that letter we shall quote the relevant portion of that lettersWe confirm that you have signed with us the addendum No. 1 to our Contract No. 61/Tarapore - 220/65 dated the 2nd Feb., 1965, at our request for the sole and specific purpose of satisfying our bankers. We confirm further that this addendum will not in any manner prejudice the arrangement we have come to in Delhi on the 14th August, 1966, and is without prejudice to your claims and points of controversy regarding which we shall have further discussions with a view to reach an amicable settlement.Under the addendum, the company will extend the letter of credit for one year and accept the drafts for the difference in value of 57.5% due to devaluation. The final amount payable will be in accordance with the settlement.Thereafter the Russain Firm appears to have drawn drafts on the Indian firm for the excess amount payable under the gold clause. For one reason or the other, no settlement as contemplated by the Delhi agreement was reached. The Indian firm complained that the Russain Firm never made any serious attempt to resolve the dispute whereas the Russain Firm alleged that it found no substance in the complaint made by the Indian Firm as regards the machinery supplied. In the suit as brought, as well as in these appeals that controversy is not open for examination. Suffice it to say that the parties did not amicably settle the dispute in question. When the extended time granted under the Delhi agreement was about to come to a close, the Indian Firm instituted the suit from which these appeals have arisen. In that suit the only substantive relief asked for is that the Bank of Indian as well as the Russain Firm should be restrained from taking any further steps in pursuance of the letter of credit opened by the Indian Firm in favour of the Russain Firm. Therein temporary injunctions were asked for in the very terms in which the permanent injunction were prayed for. At a subsequent stage a further injunction restraining the Russain Firm from enforcing its right under the gold clause was also prayed for. The Russain Firm opposed those applications but the trial Judge granted the temporary injunctions asked for. The Russain Firm took up the matter in appeal to the Appellate Bench of that High Court which reversed the order of the trial judge by its Order dated October 9, 1968 but it certified that they are fit cases for appeal to this Court. When the applications in the appeals seeking interim orders came up for consideration by this Court the Russain Firm entered its caveat. It not only opposed the interim reliefs prayed for it further challenged the validity of the certificate granted by the High Court on the ground that the orders appealed against are not final orders within the meaning of Art.133 of the Constitution. Evidently as a matter of abundant caution, the Indian firm had filed two separate applications seeking special leave to appeal against the orders of the Appellate Bench of the Madras High Court. After bearing the parties this Court revoked the certificates granted holding that the orders appealed against are not final orders but at the same time granted special leave to the Indian Firm to appeal against the orders of the Madras High Court. Civil Appeals Nos. 2051 and 2052 of 1968 are appeals filed by the Indian Firm.10. Before the Appellate Bench of the High Court of Madras, the Indian Firm had objected to the maintainability of the appeals filed by the Russian Firm on the ground that orders appealed against are not judgments within the meaning of Clause 15 of the Letters Patent of the Madras High Court but that objection had been overruled by the Appellate Bench following the earlier decisions of that High Court. That contention was again raised in the appeals filed by the Indian Firm in this Court. To obviate any difficulty the Russian Firm applied to this Court for special leave to appeal against the interim orders passed the trial judge. We allowed those applications and consequently Civil Appeals Nos. 2305 and 2306 of 1968 came to be filed.

Reasoning:
15. The main grievance of the Indian Firm is that if the Russian Firm is allowed to take away the money secured to it by the letter of credit, it cannot effectively enforce its claim arising from the breach of the contract it complains of. It was urged on its behalf that the Russian Firm has no assets in this country and therefore any decree that it may be able to obtain cannot be executed. Therefore, it was contended that the Trial Court was justified in issuing the impugned orders. The allegation that Russian Firm has no assets in this country was not made in the pleadings. That apart in the circumstances of this case that allegation has no relevance. An irrevocable letter of credit has a definite implication. It is a mechanism of great importance in international trade. Any interference with that mechanism is bound to have serious repercussions on the international trade of this country. Except under very exceptional circumstances, the Courts should not interfere with that mechanism.The main grievance of the Indian Firm is that if the Russian Firm is allowed to take away the money secured to it by the letter of credit, it cannot effectively enforce its claim arising from the breach of the contract it complains of. It was urged on its behalf that the Russian Firm has no assets in this country and therefore any decree that it may be able to obtain cannot be executed. Therefore, it was contended that the Trial Court was justified in issuing the impugned orders. The allegation that Russian Firm has no assets in this country was not made in the pleadings. That apart in the circumstances of this case that allegation has no relevance. An irrevocable letter of credit has a definite implication. It is a mechanism of great importance in international trade. Any interference with that mechanism is bound to have serious repercussions on the international trade of this country. Except under very exceptional circumstances, the Courts should not interfere with that mechanism.Evidently with a view to steer clear of the well established legal position Mr. Setalvad, learned Counsel for the Indian Firm urged that the letter of credit was no more enforceable as the original contract stood modified as a result of the Delhi agreement and the subsequent correspondence between the parties. It was urged that according to the modified contract the Indian Firm is only liable to pay the price that may be settled between the buyer and the seller. This contention has not been taken either in the plaint or in the arguments before the trial Judge or before the Appellate Bench. It is taken for the first time in this Court. This is not purely a legal contention. The contention in question bears on the intention of the parties who entered into the agreement. No one could have known the intention better than plaintiff who was a party to the contract. If there was such an intention, the plaintiff would have certainly pleaded the same. That apart, we are unable to accept the contention that either the Delhi agreement or the subsequent correspondence between the parties modified the original contract. The Delhi agreement merely provided that the parties will try and settle the dispute out of Court, if possible. Much was made of the letter written by the Russian Firm to the Indian Firm onThis letter has to be read along with the other letters that passed between the parties. If so read, it is clear that the statement that the final payment will be made in accordance with the settlement is subject to the condition that the parties are able to arrive at a settlement. Otherwise the parties continue to be bound by the original contract subject to the extension of the time granted under the Delhi agreement for the payment of the price. As regards the additional payment demanded by the Russian Firm, there is no occasion for issuing any temporary injunction. If the Indian Firm does not comply with that demand the law will take its course. It is for that Firm to choose its course of action.