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CASE NO.: Appeal (civil)  3521 of 2007

PETITIONER: Sonia

RESPONDENT: Oriental Insurance Co. Ltd. & Ors

DATE OF JUDGMENT: 07/08/2007

BENCH: TARUN CHATTERJEE & P.K.BALASUBRAMANYAN

JUDGMENT

CIVIL APPEAL NO.3521 OF 2007 [Arising out of SLP [C] No.22070 of 2004]

TARUN CHATTERJEE, J.

1.      Leave granted.

2.      This appeal is directed against the Judgment and order  dated 23rd August, 2004 passed by a Division Bench of the  High Court of Punjab and Haryana at Chandigarh whereby the  High Court dismissed a writ application filed by the appellant  only on the ground that no legal right of the appellant had been  infringed. 3.      A writ petition was filed by the appellant for a direction  upon the respondent to consider the case of the appellant for  promotion to the cadre of Assistant Administrative Officer  (AAO) against the vacancy reserved for Scheduled Tribe  candidates.  A further direction was also prayed by the appellant  to the extent that the respondents should keep one vacancy  reserved for the appellant who had competed and was found  successful as a candidate from Scheduled Caste reserved category  and for other incidental reliefs.

4.      The facts of the present case may briefly be stated as  follows:

5.      The appellant who is a Scheduled Caste by birth has been  working as Assistant [T] in the Oriental Insurance Company on  and from 2nd January, 1997.  Applications were invited from  eligible and desirous employees for appointment to the post of  Assistant Administrative Officer in terms of the promotional  policy of the respondents.  There are two modes of appointment  to the post of Assistant Administrative Officer, namely, (i)  promotion from the departmental candidates; and (ii) by direct  recruitment through competitive examination.  In the said  promotional policy, pre-examination training to Scheduled  Caste/Scheduled Tribes/Other Backward Classes candidates who  are eligible to appear in the aforesaid test has also been allowed.   It is also evident from the policy that if no eligible candidate is  available in a particular category, an exchange of vacancy  between Scheduled Caste and Scheduled Tribes categories can be  allowed to the extent of non-availability of eligible candidates in  a particular category.  Advertisement was published on 30th  October, 2003 and accordingly the appellant applied on the basis  of the said advertisement to the post of Assistant Administrative  Officer.  There were in all five vacancies out of which one was  reserved for candidates belonging to the Scheduled Tribes  category and both Scheduled Caste and Scheduled Tribes

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candidates were eligible to compete for this reserved vacancy.   The appellant was permitted to undergo a pre-examination  training between 1st December, 2003 to 19th December, 2003  which was imparted to Scheduled Caste and Scheduled Tribes  employees in accordance with the aforesaid promotional policy.   The appellant was permitted to appear for the competitive  examination held on     21st  December, 2003 against the vacancy  reserved for candidates belonging to Scheduled Tribes category.   The name of the appellant appeared at Sl.No.23 in the list of  successful candidates.  Since her name had appeared in the list of  successful candidates, the appellant claimed that she was entitled  to be called for interview and considered for selection. A notice  dated 27th February, 2004 was issued by the respondents that no  exchange of vacancies between Scheduled Caste and Scheduled  Tribes categories could be allowed even if no eligible candidate  was available under either of the two categories in view of OM  No.36012/17/2002-Estt.(Res) dated         6th November, 2003,  clarifying that it was not permissible to fill a post reserved for  Scheduled Tribes by a Scheduled Caste candidate or vice versa  by exchange of vacancies between the two. Feeling aggrieved by  refusal of the authorities to empanel the appellant for the  interview, the aforesaid writ petition was filed before the High  Court which, as noted herein earlier, was dismissed with the  observation that no legal right of the appellant had been infringed  for not empanelling her as a successful candidate to appear before  the Interview Board set up by the respondents.

6.      It is this order of the High Court which the appellant has  challenged before this Court by way of a special leave petition in  respect of which leave has already been granted.

7.      We have heard the learned counsel appearing for the parties  and examined the judgment of the High Court and other materials  on record.  A perusal of the order of the High Court impugned in  this appeal shows that the writ petition of the appellant as noted  herein above, was dismissed solely on the ground that in view of  OM dated 6th November, 2003, the exchange of vacancies  between Scheduled Caste and Scheduled Tribes categories was  not permissible.  Before we take up this question for our decision,  we may note that the respondents on 30th October, 2003, notified  the number of vacancies required to be filled under various  categories.  It is also evident from the advertisement that out of  five vacancies, four were unreserved and one was reserved for a  candidate belonging to Scheduled Tribes.  In this advertisement,  the respondents specifically mentioned that in case no eligible  candidates are available in a particular reserved category, i.e.,  Scheduled Caste and Scheduled Tribes, exchange of vacancies  between these two categories was permitted.  It would be  necessary for us to reproduce the portion of the Promotional  Policy regarding reservation for Scheduled Caste and Scheduled  Tribes candidates: "As regards exchange of vacancies between  SC/ST categories in case no eligible candidate is available in a  particular category such exchange is allowed between these two  categories to the extent of non-availability of eligible candidates  in a particular category."  From the above, it cannot be said to be  in dispute that when no eligible candidate is available in a  particular category, exchange of vacancies between Scheduled  Caste and Scheduled Tribes categories can be allowed to the  extent of non availability of eligible candidate in a particular  category.  It may also, at this stage, be noted that the Office  Memorandum dated 6th November, 2003 by which permission of  exchange of reservation between Scheduled Caste and Scheduled  Tribes was withdrawn, was issued at a time when candidates  including the appellant had already acted on the basis of the  advertisement dated 30th October, 2003 in which permission was

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granted for exchange of reservation between Scheduled Caste and  Scheduled Tribes.  Even on a plain reading of clause [6] of the  Office Memorandum dated 6th November, 2003, it can be seen  that in case some posts reserved for Scheduled Tribes might have  been filled by Scheduled Caste candidates by exchange of  reservation or vice versa before issuance of the said Office  Memorandum, such cases need not be re-opened.  This clause  would clearly show that the posts reserved for Scheduled Tribes  which have been filled by Scheduled Caste candidates by  exchange of reservation before issuance of this Office  Memorandum need not be disturbed. As noted herein earlier,  applications were invited by the respondents on   30th October,  2003 whereas the Office Memorandum withdrawing permission  of exchange of vacancies between Scheduled Caste and  Scheduled Tribes candidates was issued on     6th November,  2003.  Let us now, therefore, consider whether this Office  Memorandum could have a retrospective effect or not.  In our  view, the Office Memorandum dated 6th November, 2003 cannot  have or could not have retrospective effect as the appellant would  be governed or covered by the date on which applications were  invited to fill up the posts of Assistant Administrative Officer,  i.e., on       30th October , 2003 and also for the reason that no  retrospective effect has been given to the said Office  Memorandum.  In N.T. Devin Katti vs. Karnataka Public  Service Commission [ 1990[3] SCC 157 ] this Court has held that  where selection process has been initiated by issuing an  advertisement inviting applications, selection should normally be  regulated by the rule or order then prevalent and also when  advertisement expressly states that the appointment shall be made  in accordance with the existing rule or order,  subsequent  amendment in the existing rule or order will not affect the  pending selection process unless contrary intention is expressly  or impliedly indicated.  In the present case, admittedly, while  inviting applications, respondents advertised the number of  vacancies required to be filled under various categories.  Notice  inviting application also mentioned that if under a particular  category an eligible candidate was not available, exchange of  vacancies between the two categories was permitted.  The  appellant acted on the basis of the aforesaid advertisement which  permitted her to apply for the post and in fact she was permitted  to sit in the examination and was subsequently also found to be a  successful candidate in the said examination.  Therefore, in view  of the aforesaid decision in the case of N.T. Devin Katti vs.  Karnataka Public Service Commission [ 1990[3] SCC 157 ], we  are of the view that OM dated                    6th November, 2003  cannot have any retrospective effect and the date on which the  applications were invited should be the relevant date for  consideration whether exchange of Scheduled Caste and  Scheduled Tribes candidates was permissible.  The decision in  the case of N.T. Devin Katti vs. Karnataka Public Service  Commission [ 1990[3] SCC 157 ]has also been echoed by a  decision of this Court in the case of P. Mahendran and Ors. vs.  State of Karnataka and Ors.         [ 1990 [1] SCC 411 ].  In any  view of the matter, law is well settled that an Office  Memorandum cannot have a retrospective effect unless and until  intention of the authorities to make it as such is revealed  expressly or by necessary implication in the Office  Memorandum.  On the other hand from the Office Memorandum,  as noted herein above, we find that the candidates who had  already been selected, the case of such candidates would not be  re-opened.  A close examination of clause [6] of the Office  Memorandum dated            6th November, 2003, in our view,  would show that it does not speak about the pending process of  selection.  It only speaks about the appointments already made  and for which a retrospective effect has not been given.  

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Therefore, in view of the principles laid down by the aforesaid  two decisions of this Court, the Office Memorandum dated 6th  November, 2003, in our view, would not apply to the selection  process which started before the said Office Memorandum was  issued by the respondents.  It may be repeated at this stage that  the appellant was permitted to appear for the examination for the  post of Assistant Administrative Officer in respect of which she  was declared successful on 17th February, 2004 well after the  Office Memorandum was issued by the respondents.

8.      In view of the above, we are of the view that the High Court  was not justified in dismissing the writ petition of the appellant  only on the ground that in view of Office Memorandum dated                 6th November, 2003, no legal right of the appellant was infringed.   Since, we have already held that the Office Memorandum will  not be applicable in the case of the appellant and to the pending  process of selection, we are of the view that the appellant would  be entitled to be empanelled to appear before the Interview Board  for selection to the post of Assistant Administrative Officer.

9.      For the above reasons, we set aside the Judgment of the  High Court and allow this appeal.  The respondents are directed  to call the appellant for interview before the Interview Board for  selection to the post of Assistant Administrative Officer and if  she is selected by the Interview Board, she should be promoted or  appointed to the post of Assistant Administrative Officer.  There  will, however, be no order as to costs.   + 5 3522 2007 ! Himadri Chemicals Industries Ltd Vs. Coal Tar Refining Company @ August 07, 2007 # Tarun Chatterjee & P.K. Balasubramanyan

JUDGMENT:

JUDGMENT

CIVIL APPEAL NO.3522 OF 2007 [Arising out of SLP [C] No. 13775 of 2007]

TARUN CHATTERJEE, J.

1.      Application for permission to file special leave  petition is allowed. Leave granted.

2.       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  ’the Act’) for an order of injunction restraining the  respondent from receiving any payment under a Letter of  Credit.   

3.      At this stage, we feel it proper to narrate the facts

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which have given rise to the filing of this appeal in this  Court.

4.      The appellant 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 short  "goods") to 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  "at sight". The 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 following manner:  

"With reference 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 amount against above mentioned  three (3) Bills                         Euro 2348915.00

Less: Advance payment already   Made through Central Bank  of India Kol.  Main Office              Euro 387788.82

Amount to be paid against  the above three Bills           Euro 1961126.18"

5.      Before accepting 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  shipment document.  

6.      Thereafter, correspondence was exchanged  between the appellant and the respondent and the Letter  of Credit was amended and payment "at sight" was  substituted by the     words "230 days from the shipment  date". On 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

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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 in India.

7.      The respondent 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

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Letter of Credit could be granted and therefore the  application for injunction must be rejected.   8.      As noted 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.

9.      We have heard the learned counsel for the parties  and carefully examined the orders of the learned Single  Judge as well as that of the Division Bench.  We have  also examined in detail the application for injunction, the  original contract, the Letter of Credit as amended and the  other documents on record.   Having noted salient facts  and materials on record, let us now consider whether the  Division Bench was justified in affirming the order of  the learned Single Judge vacating the interim order of  status quo in the matter of stopping the payment in terms  of the Letter of Credit.  But before dealing with this  aspect of the matter, let us consider the principles for  grant or refusal to grant injunction in the matter of  release of payment in terms of a Letter of Credit or a  Bank Guarantee.

10.     The law relating to grant or refusal to grant  injunction in the matter of invocation of a Bank  Guarantee or a Letter of Credit is now well settled by a  plethora of decisions not only of this court but also of  the different High Courts in India. In U.P. State Sugar  Corporation Vs. Sumac International Ltd. [(1997) 1  SCC 568], this court considered its various earlier  decisions. In this decision, the principle that has been  laid down clearly on the enforcement of a Bank  guarantee or a Letter of Credit is that in respect of a  Bank Guarantee or a Letter of Credit which is sought to  be encashed by a beneficiary, the bank giving such a  guarantee is bound to honour it as per its terms  irrespective of any dispute raised by its customer.  Accordingly this Court held that the courts should be  slow in granting an order of injunction to restrain the  realization of such a Bank Guarantee. It has also been  held by this court in that decision that the existence of  any dispute between the parties to the contract is not a  ground to restrain the enforcement of Bank guarantees or  Letters of Credit. However this court made two  exceptions for grant of an order of injunction to restrain  the enforcement of a Bank Guarantee or a Letter of  Credit. (i) Fraud committed in the notice of the bank  which would vitiate the very foundation of guarantee;  (ii) injustice of the kind which would make it impossible  for the guarantor to reimburse himself.

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11.     Except under these circumstances, the courts  should not readily issue injunction to restrain the  realization of a Bank Guarantee or a Letter of Credit. So  far as the first exception is concerned, i.e. of fraud, one  has to satisfy the court that the fraud in connection with  the Bank Guarantee or Letter of Credit would vitiate the  very foundation of such a Bank Guarantee or Letter of  Credit. So far as the second exception is concerned, this  court has held in that decision that it relates to cases  where allowing encashment of an unconditional bank  guarantee would result in irretrievable harm or injustice  to one of the parties concerned.  While dealing with the  case of fraud, this court in the case of U.P. Coop.  Federation Ltd. Vs. Singh Consultants and Engineers  (P) Ltd. (1988) 1 SCC 174 held as follows:  

" The fraud must be of an egregious nature  such as to vitiate the entire underlying  transaction. While coming to a conclusion as to  what constitutes fraud, this court in the above  case quoted with approval the observations of  Sir John Donaldson, M.R. in Bolivinter Oil SA  V/s. Chase Manhattan Bank (1984) 1 All ER  351 at p. 352 which is as follows, " The wholly  exceptional case where an injunction may be  granted is where it is proved that the bank  knows that any demand for payment already  made or which may thereafter be made will  clearly be fraudulent. But the evidence must be  clear both as to the fact of fraud and as to the  bank’s knowledge. It would certainly not  normally be sufficient that this rests on the  uncorroborated statement of the customer, for  irreparable damage can be done to a bank’s  Credit in the relatively brief time which must  elapse between the granting of such an  injunction and an application by the bank to  have it charged."                                (Emphasis  supplied)

12.   In Svenska Handelsbanken Vs. Indian Charge  Chrome [(1994) 1 SCC 502], it has also been held that a  confirmed Bank Guarantee/irrevocable Letter of Credit  cannot be interfered with unless there is established  fraud or irretrievable injustice involved in the case. In  fact, on the question of fraud, this decision approved the  observations made by this court in the case of U.P.  Coop. Federation Ltd Vs. Singh Consultants and  Engineers (P) Ltd.  [(1988) 1 SCC 174].

13.     So far as the second exception is concerned, this  court in U.P. State Sugar Corporation Vs. Sumac  International Ltd. [(1997) 1 SCC as considered herein  earlier, at para 14 on page 575 observed as follows :  

"On the question of irretrievable injury which  is the second exception to the rule against  granting of injunctions when unconditional  bank guarantees are sought to be realized the  court said in the above case that the  irretrievable injury must be of the kind which  was the subject matter of the decision in the  Itek Corpn. Case (566 Fed Supp 1210). In that  case an exporter in USA entered into an

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agreement with the Imperial government of  Iran and sought an order terminating its  liability on stand by letter of credit issued by an  American Bank in favour of an Iranian Bank as  part of the contract. The relief was sought on  account of the situation created after the  Iranian revolution when the American  Government cancelled the export licences in  relation to Iran and the Iranian government  had forcibly taken 52 American citizens as  hostages. The US Government had blocked all  Iranian assets under the jurisdiction of United  States and had cancelled the export contract.  The court upheld the contention of the exporter  that any claim for damages against the  purchaser if decreed by the American courts  would not be executable in Iran under these  circumstances and realization of the bank  guarantee/letters of credit would cause  irreparable harm to the Plaintiff. This  contention was upheld. To avail of this  exception, therefore, exceptional circumstances  which make it impossible for the guarantor to  reimburse himself it he ultimately succeeds, will  have to be decisively established. Clearly, a  mere apprehension that the other party   will  not be able to pay, is not enough. In Itek case,  there was certainty on this issue. Secondly,  there was good reason, in that case for the  Court to be prima facie satisfied that the  guarantors  i.e. the bank and its customer  would be found entitled to receive the amount  paid under the guarantee." (Emphasis supplied)

14.     From the discussions made hereinabove relating to  the principles for grant or refusal to grant of injunction  to restrain enforcement of a Bank Guarantee or a Letter  of Credit, we find that the following principles should be  noted in the matter of injunction to restrain the  encashment of a Bank Guarantee or a Letter of Credit :-

(i)     While dealing with an application for  injunction in the course of commercial dealings,  and when an unconditional Bank Guarantee or  Letter of Credit is given or accepted, the  Beneficiary is entitled to realize such a Bank  Guarantee or a Letter of Credit in terms thereof  irrespective of any pending disputes relating to the  terms of the contract.

(ii)    The Bank giving such guarantee is bound to  honour it as per its terms irrespective of any  dispute raised by its customer.

(iii)   The Courts should be slow in granting an  order of injunction to restrain the realization of a  Bank Guarantee or a Letter of Credit.

(iv)    Since a Bank Guarantee or a Letter of Credit  is an independent and a separate contract and is  absolute in nature, the existence of any dispute  between the parties to the contract is not a ground  for issuing an order of injunction to restrain  enforcement of Bank Guarantees or Letters of  Credit.

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(v)     Fraud of an egregious nature which would  vitiate the very foundation of such a Bank  Guarantee or Letter of Credit and the beneficiary  seeks to take advantage of the situation.  

(vi)    Allowing encashment of an unconditional  Bank Guarantee or a Letter of Credit would result  in irretrievable harm or injustice to one of the  parties concerned.  

15.     Keeping these principles in mind and applying the  same on the facts of this case, we can only draw this  conclusion that no good ground has been made out by  the appellant to interfere with the impugned order. As  noted herein above, there are two exceptions when  courts can grant an order of injunction in favour of an  aggrieved party in the matter of encashment of a Bank  Guarantee or a Letter of credit.  Condition Nos. (v) and  (vi), as noted herein above, are two such exceptions. For  this reason, let us first deal with the case of fraud  pleaded by the appellant in their application for  injunction. The particulars of fraud have been pleaded in  paragraph 45 of the application for injunction filed by  the appellant in the High Court. From a close scrutiny of  the facts pleaded in the said paragraph of the application  for injunction, in our view, it cannot be held that such  facts have constituted fraud for which an order of  injunction in the matter of encashment of Letter of  Credit could be passed by the courts. The facts pleaded  in paragraph 45 of the application for injunction would  only show that although the respondent had agreed to  remove the defects in the goods by saying that it shall  take steps to reduce the ash content of the goods to 0.3  % before the payment date of the Letter of Credit as  extended, but they deliberately and with ulterior motive  had not fulfilled their intention to do so. It is not in  dispute that the particulars of the fraud prima facie were  restricted to 10,000 metric tones of the goods supplied  by the respondent in respect of which documents were  not negotiated by the appellant. The entire consignment  which was admittedly shipped by M.V.Iran Takhti was  12,503 metric tones out of which 2503 metric tones were  negotiated and payments released by the Central Bank of  India. Admittedly, as noted herein above, a case of fraud  was alleged only in respect of a part of the consignment  of the second shipment. It has been rightly held by the  High Court that this could not constitute fraud as fraud  must be in respect of the whole consignment and not in  respect of a part of the same. In this view of the matter,  we are, therefore, in agreement with the High Court that  the pleadings made relating to fraud in paragraph 45 of  the application for injunction were not sufficient nor any  strong prima facie case of fraud could be made out in the  petition which would warrant a continuance of the order  of status quo.

16.     That apart, as noted herein earlier, in the matter of  invocation of a Bank Guarantee or a Letter of Credit, it  is not open for the bank to rely upon the terms of the  underlying contract between the parties.

17.     In view of the discussions made herein above and  in view of the admitted fact that in respect of 2503  metric tones of goods out of 12503 metric tones of goods  in the second consignment, documents were admittedly

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negotiated and payments were released and further in  view of the communication dated 3rd October, 2006 by  the appellant to the banker that it had agreed to accept  the discrepancies raised in respect of the goods and also  agreed to make payment of the same, we are not  satisfied that a case of fraud even prima facie has been  made out by the appellant for grant of injunction. It is  difficult to conceive that the appellant having accepted a  part of the second consignment and having directed to  release payments in respect of the same, would be  defrauded by the respondent in respect of the balance  quantity of goods which had arrived at Calcutta in the  second shipment. In any view of the matter, in our view,  the defective quality of goods in respect of which an  order of injunction of the encashment of the Letter of  credit was sought could at all be a reasonable ground for  grant of injunction as it was related to payment dated  29th May, 2006 which was the subject matter of the  arbitration proceeding and the claim, if any, can be  recovered in the said arbitration proceeding.

18.     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

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grant an order of injunction in favour of the  appellant and hold that the High Court was fully  justified in doing so.  

19.     For the reasons aforesaid, we do not find any merit  in this appeal. The appeal is thus dismissed. We may,  however, make it clear that whatever findings have been  arrived at by us in this appeal or by the High Court while  dealing with the prayer for grant of an interim order of  injunction, shall not be taken to be final as to the  disposal of the application for injunction by the High  Court. There will be no order as to costs.