Siechem Technologies Pvt. Ltd. vs Varomet Metals Limited and Others <BR>Varomet Trading Pvt. Ltd. Vs Siechem Technologies Pvt. Ltd. and Others

S. Rajeswaran, J.—O.A. No. 388/2006 : This Original Application No. 388/2006 has been filed u/s 9. of the Arbitration and Conciliation

Act, 1996 (hereinafter referred to as ''the Act'') for an order for interim injunction restraining respondents 1 to 3 herein from enforcing and

encashing the irrevocable Letter of Credit opened on 1.3.2.006 by the 4th respondent in favour of the 1st respondent in its Lettar of Credit No.

NBMFLC422017 dated 1.3.2006, pending arbitral proceedings.

O.A. No. 389/2006 : This O.A. No. 389/2006 has bean filed u/s 9 of the Act, 1996 to grant an injunction restraining the 5th respondent M/s.

Evergreen Marine Corporation/Evergreen India Pvt. Ltd., from delivering the goods viz. copper rods 52.787 MTs covered by B/L No. EISU 507

600000434 dt. 24.2.2006 (Container No. GLDU 2118328/20/943954) lying at NHAVA SHEVA Port at MUMBAI and the goods covered

under B/L No. EISU 507600001112 (Original B/L No. EISU 507600000434 dated 24.2.2006))Container No. FSCU 3584144/20/943962)

lying at JEBEL ALI Port (Arab Emirates), intended for the applicant-company., covered by B/L No. EISU 507600000434 dt.24.2.2006 pending

arbitral proceedings.

Application No. 2037/2006: This Application No. 2037/2006 has been filed u/s 9 of the Act, 1996 to vacate the order of interim injunction

passed in O.A. No. 388/2006 on 5.5.2006.

Application No. 1984/2006:This Application No, 1.984/2006 has been filed u/s 9 of the Act, 1996 to appoint an Advocate Commissioner to

seize the goods viz., copper rods 52.787 MTs which are lying at NHAVA SHEVA, Port at Mumbai (Container No. GLDU

2118328/20/943954). which have been shipped through the 5th respondent, M/s. Evergreen Marine Corporation vide their B/L No. EISU

507600000434 dt.24.2.2006 and deliver the same to the applicant pending disposal of the arbitral proceedings.

O.P. No. 388/2006: The applicant-company are manufacturers of communication cables. In the course of its business dealings, they used to

purchase one of the raw. materials, i.e., Copper Rods for its requirements and has been importing from different sources. The applicant has been

regularly importing copper rods from respondents 1 and 2 and the orders shall be placed from time to time with 2nd respondent who is based at

Calcutta and who is an Indian representative of 1st respondent. The 2nd respondent receives the order on behalf of 1st respondent and would

effect supplies in India on behalf of 1st respondent.

The applicant placed an order for purchase of 108 MTs of copper rods in January 2006 by contract No. C001.331 dated 31.1.2006. The

applicant paid an advance of US $ 5000 on 1.2.2006 and respondents 1 and 2 agreed to supply 108 MTs plus or minus 5% to be shipped in two

lots of two FCL each. The applicant-company was required to open a Letter of Credit covering the value of the goods to be supplied by

respondents 1 and 2 and accordingly the applicant opened a Letter of Credit through 4th respondent. Respondents 1 and 2 shipped the

consignment of 52.401 MTs on 10.2.2006. The total value of invoice No. 004296 dated 8.3.2006 is US $ 271323.47. The Letter of Credit was

opened on 1.3.2006 and :he documents were received on 24.3.2006 and the payment is due within 90 days from the date of Bill of Lading, i.e.,

on 10.2,2006 and the due date of payment is 11.5.2006.

The 2nd consignment of 52.787 MTs of copper rods was shipped on 24.2.2006 and the value of the consignment is US $ 273322.11. A Letter

of Credit was opened by the applicant on 7.4.2006 and after receiving the communication from the applicant, the 3rd respondent by

communication, dated 7.4.2006 cancelled the contract and withheld the consignment of second shipment. It appears that the consignment has.

reached Colombo which was despatched from Russia and thereafter out of the two containers intended for the applicant Company, one was

despatched to Arab Emirates end the other was re-directed to Mumbai. Respondents 1 and 2 have deliberately diverted the applicant''s

consignment to buyers for enhanced price thereby trying to enrich themselves at the cost of the applicant. The payment for the first consignment

was due for payment on 11.5.2006 and in the meanwhile if respondents 1 and 2 are allowed to encash the bank value covered by irrevocable

Letter of Credit furnished by 4th respondent, the applicant will be put to great prejudice. Contrary to the obligations enjoined upon respondents 1

to 3, they are committing fraud in declining the delivery of the goods which were intended for the Applicant. Hence the above Original Application

has been filed for an order of injunction restraining respondents 1 to 3 from encashing the irrevocable Letter of Credit opened on. 1.3.2006 by 4th

respondent bank in favour of the 1st respondent pending arbitral proceedings.

0.A. No. 389/2005; The applicant-Company has also filed another Application in O.A. No. 389/2006 for an injunction restraining the 5th

respondent from delivering the goods, i.e., copper rods of 52.787 MTs lying at NHAVA SHEVA Port at Mumbai and the goods lying at Jebel Ali

Port, Arab Emirates intended for the Applicant-company.

The Applicant filed another Application in Application No. 1984/2006 for appointment of an Advocate Commissioner to seize the goods,

namely, copper rods of 52.787 MTs which are lying at NHAVA SKEVA, Port at Mumbai which have been shipped through 5th respondent and

deliver the same to the Applicant.

All the above three Applications were admitted by the court on 5.5.2006 and notice was ordered in 0.A. No. 388/2006 and Application No.

1984/2006. In Application No. 388/2006, interim injunction was granted by this Court on 5.5.2006 and the same was in force till 17.6.2006 on

which date the case was posted for final hearing and heard fully and orders were reserved.

In the meanwhile, notice was served on 2nd respondent who filed an Application in A. No. 2037/2006 to vacate the order of injunction

granted on 5.5.2006 in 0. A. No. 388/2006. In the affidavit filed in support of A.NO..2037/2006, it is stated that this Court has no jurisdiction to

entertain the Application filed u/s 9 of the Act, 1996. It is stated that 1st respondent in 0.A. No. 388/2006 (parties are referred as per 0.A. No.

388/2006 for convenience) supplied 54 MTs of copper reds being the first lot to the Applicant as per the purchase order dated 2.2.2006. The

said goods were shipped from Russia on 10,2.2006 and reached Chennai Port on 11.3.2006. The goods on arrival at Chennai were received by

the Applicant from the Chennai Port on 11.3.2006. The Applicant took delivery of the goods and consumed the same for his business. In view of

the credit period the Letter of Credit issued by the Applicant through its bank, the 4-th respondent was due for payment on 11.5.2006 which was

90 days from the date of Bill of Lading.

It was further stated by 2nd respondent that in performance of its obligations, 1st respondent made the shipment of 2nd lot on 24.2.2006 and

forwarded the fax copy of bill of lading to the Applicant on 9.3.2006. By a mail dated 21.2,2006, 2nd respondent intimated the applicant about

the proposed shipment of the 2nd lot on 24.2.2006. Since the 2nd lot of shipment was on, board the 2nd respondent by another mail dated

9.3.2006 requested the Applicant to amend and enhance the amount of the earlier Letter of Credit opened for the 1st consignment which was

pending for payment to cover the price of the 2nd lot of shipped consignment. In reply to the said correspondence the Applicant by e-mail dated

n.3.2006 for the first time expressed concern over the quality of the goods in the first consignment and requested the 2nd respondent to re-direct

the shipment of the 2nd consignment to some other customer.It was specifically stated in the mail dated 11.3.2006 that since the applicant was

facing problem in the 1st consignment itself, they regretted for their inability to open/enhance the Letter of Credit value for the 2nd lot of 54 Mts.

Since the goods were already shipped, the 2nd respondent by E-mail dated 21.3.2006 and 27.3.2006 requested the Applicant to amend the

Letter of Credit to include the value of the 2nd lot of shipment, but the Applicant did not send any reply. Again on 28.3.2006, another mail was

sent to the Applicant informing about the arrival of the shipment of the 2nd lot at Colombo and the expected arrival of shipment at Chennai by

30.3.2006. Applicant was once again, requested to amend the Letter of Credit to incorporate the value of the second lot of shipment. To this mail

dated 28.3.2006, a reply mail was sent on 29.3.2006 by the Applicant informing that they have already intimated about the disinterest in

consuming the consignment and also, intimated that they are trying to locate a high seas buyer and they do not want to increase their stock. They

have also requested to give some time till the end of the 1st week of April to open the Letter of Credit. At this juncture 2nd respondent had no

other choice except to try and find a buyer on their own. Still, another mail dated 6.4.2006 was sent to the applicant giving a final chance and

extended the time to. open a Letter of Credit till 7.4.2005 before 10 A.M. GMT to be received by the 2nd respondent bankers at London.

However, the Applicant failed to do so and the 2nd respondent diverted the goods partly to UAE and partly to Mumbai after suffering a

substantial loss. There was no point in bringing the goods to Chennai when the Applicant refused to accept the goods and did not prepare the

Letter of Credit for the 2nd lot. Having obtained and consumed the goods under the 1st lot, covered under the Letter of Credit dated 1.3.2006,

the Applicant is duty bound to pay for the goods and by suppressing the entire facts the Applicant filed the above Application and obtained an

order of injunction which is to be vacated.

A reply affidavit has also been filed in A. No. 2037/2006 by the Applicant in O.A. No. 388/2006, wherein it is stated that the 2nd respondent

is not competent to file the affidavit in Application No. 2037/2006 to vacate the order of injunction. It is further stated in the reply affidavit that the

beneficiary of the Latter of Credit discounted the Letter of Credit on 21.3.2006 through Standard Chartered Bank, London and availed the funds.

Thus the order of injunction was flouted and they shall initiate contempt proceedings against respondents 1 to 3 and 5 independently. It is also

averred that respondents 1 to 3 and 5 have pre-dated the records and purported to nave delivered the goods to third party purchasers and the 5th

respondent ought not to have delivered the goods on instructions from. the 3rd respondent. If the transaction is vitiated by fraud, as committed by

respondents 1 to 3 and 5, the court will come to. the rescue by granting a prohibitory order for the amounts covered by the Letter of Credit and

with this allegation they prayed for dismissal of the vacate stay petition and make the interim order absolute pending initiation of arbitral

proceedings.

Heard the learned Counsel for the Applicant and Mr. T.V. Ramanujun, learned Senior Counsel appearing for the respondents. I have also

gone through the documents filed and the judgments relied on by them in support of their submissions.

Let me first consider the issue of jurisdiction raised by the learned Senior Counsel appearing for the 2nd respondent in 0.A. No. 386/2006. It

was submitted that no cause of action arose within the jurisdiction of this Court and the mere fact that the 4th respondent has its branch office at

Chennai does not mean that this Court has jurisdiction. The decision of the Hon''bla Supreme Court reported in South East Asia Shipping Co. Ltd.

Vs. Nav Bharat Enterprises Pvt. Ltd. and Others, was relied on for this purpose. In that decision, the Hon''ble Supreme Court held that merely

because bank guarantee was executed at Delhi and transmitted for performance to Bombay, it does not constitute a cause of action to give rise to

the respondent to lay the suit on the original side of the Delhi High Court.

I am unable to accept this argument of the learned Senior Counsel. It is settled law that the cause of action consists of bundle of facts which

give cause to enforce the legal injury for redress in a court of law and the cause of action means every fact, which if traversed, it would be

necessary for the Applicant to prove in order to support his right to an order of the court. In the case on hand, there was a contract between the

Applicant whose office is situated in Chennai and on the basis of the agreement an order was placed for purchase of 108 MTs of copper rods to

be supplied in two lots and the goods are to be delivered at the destination port, which is at Chennai and the consignment was meant for the

Applicant''s office at Pondy. In such circumstances, a part of the cause of action definitely arose within the jurisdiction of this Hon''ble court and

therefore the Applications filed u/s 9 of the Act, 1996 are within the jurisdiction of this Court.

Insofar as the prayer in Application No. 388/2006 is concerned, it is for an interim injunction restraining respondents 1 to 3 from enforcing and

encashing the irrevocable Letter of Credit opened on 1.3.2006 by the 4th respondent in favour of the 1st respondent. The reason given by the

Applicant is that a fraud of egregious nature was committed by respondents 1 to 3 resulting in irretrievable injury to the Applicant.

The settled law in this country is that a bank guarantee or a Letter of Credit is an independent contract between the bank and the beneficiary

and irrespective of any dispute, between the beneficiary and the party at whose instance the bank has given the guarantee, the bank is obliged to

honour the bank guarantee, as long as the guarantee is unconditional and irrevocable. This rule has got two exceptions, namely, (1) a fraud, of an

egregious nature vitiating the entire underlying transaction by the beneficiary and No. (2), when irretrievable injury could occur if such an injunction

is not granted.

Whether the Applicant is able to show that the transaction involved in this contract is vitiated on account. of an egregious fraud or whether the

irretrievable injury that would be caused to the Applicant is prima facie made out is the only question to be decided in this injunction Application.

It is not in dispute that the Applicant placed an order for the purchase of 108 MTS of copper rods in January 2006 by contract dated

31.1.2006. It is also an admitted fact that the 1st consignment of 52.401 MTs of copper rods were shipped on 10.2.2006 for which a Letter of

Credit was opened on 1.3.2006. (This Letter of Credit is sought to be injuncted from enforcing and encashing by the Applicant). The Applicant

took delivery of the first consignment and consumed the same for his business. Thus insofar as the 1st consignment of 52.401 MTs of copper rods

is concerned, it was duly despatched and was taken delivery for which the. Applicant is very much liable to pay and respondents 1 to 3 are entitled

to get the payment for the same,

The dispute arose only with reference to the 2nd consignment of 52.787 MTs of copper rods. It is the case of the Applicant that a Letter of

Credit was opened by the Applicant on 7.4.2006 as instructed by Respondents 2 and 3 on 6.4.2006 and on 7.4.2006 the contract was

unilaterally cancelled by the 3rd respondent withholding the consignment of 2nd shipment. Even though the 2nd consignment were consigned for

the Applicant company, after the same reached Colombo, one was re-directed to Arab Emirates and. other was re-directed to Mumbai. This was

indulged by Respondents 1 to 3 for enhanced price to enrich themselves unlawfully at the cost of the Applicant.

After going through the records and hearing the arguments of the learned Senior Counsel appearing for the 2nd respondent, I am of the opinion

that necessary facts were not pleaded and in fact not disclosed by the Applicant in the affidavit. After sending the 1st consignment which was

received by the Applicant from the Chennai Port on 11.3.2006, the proposed shipment of the 2nd consignment was intimated to the Applicant by

a mail dated 21.2.2006 from the Calcutta office and another mail was sent on 9.3.2006 informing the Applicant that the 2nd lot of shipment was

on board and requesting the Applicant to amend and enhance the amount of earlier Letter of Credit opened for the 1st consignment which was

pending for payment to cover the. Price of the 2nd lot of shipped consignment. But the Applicant by mail dated 11.3.2006 requested the 2nd

respondent to redirect the shipment to some other customer as they were facing problems in the 1st consignment itself. The Applicant has also

regretted for their inability to open/enhance the Letter of Credit value for the 2nd lot. As the goods were already shipped, further requests were

made by the 2nd respondent to amend the Letter of Credit to include the value of the 2nd lot of shipment, but the Applicant informed their inability

to do so as they were not in need of their stock. A final deadline was fixed by the 2 nd respondent by mail dated 6.4.2006 giving a final chance to

the Applicant to open the Letter of Credit till 7.4.2006 before 10 A.M. GMT to be received by the third respondent''s bank at London.

According to the learned Senior Counsel, as the Applicant failed to comply with the condition imposed in the mail dated 6.4.2006, the 2nd

respondent has rightly diverted the goods to other customers and there is nothing wrong in it, much less, there is involvement of any fraud of

egregious nature. The learned Counsel for the Applicant vehemently contended that the Letter of Credit as desired by respondents 1 and 3 was

opened and faxed to respondents 2 and 3 before 10 AM GMT on 7.4,2006. Therefore the only dispute involved between the parties is that

whether the Applicant opened a Letter of Credit before 10 AM GMT on 7.4.2006 or not and in such circumstances, I do not find any fraud

committed by respondents l to 3 much less a fraud of egregious nature. In fact, all along, the 2nd respondent has been communicating to the

Applicant to open a Latter of Credit for the 2nd lot and it is only the Applicant who has been pleading inability to do so as they did not want the

2nd lot. These facts were not brought forward by the Applicant in the affidavit filed in support of'' the injunction Application and as rightly

contended by the learned Senior Counsel appearing for the 2nd respondent if these facts had been brought to the knowledge of the court at the

first instance itself, this Court would not have. granted interim injunction at all.

Now let me consider whether the second exception, namely irretrievable injury or irretrievable injustice occurred in the transaction. Even

assuming for the sake of argument that Letter of Credit was opened within the time as directed by the 2nd respondent for the 2nd lot and despite

the same the goods were delivered to other customers as. alleged by the Applicant, what is the remedy open to the Applicant. For this purpose,

the clauses in the contract entered into between the Applicant and the 1st respondent should be looked into. Schedule 1 of the terms and.

conditions of sale of the contract deals with the conditions, liabilities, payments and jurisdiction. Clause 7 is the liability clause. Under Clause 7.4.1

the Company''s total liability in contract, tort (including negligence or breach of statutory duty), misrepresentation, restitution or otherwise arising in

connection with the performance or contemplated performance of the contract shall be limited to the contract price and under Clause 7.4.2 the

Company shall not be liable to the buyer for any pure economic loss, loss of profit, loss of business, depletion of. goodwill or otherwise, in each

case whether direct or indirect or consequential, or any claims for consequential compensation whatsoever (howsoever caused) which arise out of

or in connection with the contract. A reading of Clause 7.4 would prima facie prove that the liability of the Company is limited to the stipulations

contained therein and therefore, I do not see any irretrievable loss or irretrievable injury that would occur if an order of injunction is not granted.

Moreover, as rightly pointed out by the learned Senior Counsel, the injunction is prayed in 0.A. No. 388/2006 restraining respondents 1 to 3

from enforcing and encashing the irrevocable Letter of Credit opened on 1.3.2006, which is fox the first lot of the consignment. Admittedly, the

first lot of the consignment arrived at the destination Port and was taken delivery by the Applicant who is liable to pay for the same. Therefore, I

am at a loss to comprehend how this Letter of Credit could be injuncted by this Court when the goods covered under Letter of Credit were

already taken delivery and consumed by the Applicant. It is also admitted by the Applicant themselves that the 3rd respondent discounted on

21.3.2006 and has availed the funds. If that being so, the prayer in the injunction Application has already become infructuous and it is for the

Applicant to initiate appropriate proceedings if there is a violation of the interim order granted by this Court.

Looking at any angle the injunction prayer praying not to encash Letter of Credit opened on 1.3.2006 is not maintainable either in law or on

facts and the same is liable to be vacated as prayed for in Application No. 2037/2006.

The Applicant has also filed another injunction Application in 0.A. No. 389/2006 for an injunction restraining the 5th respondent from

delivering the goods to third parties pending disposal of the arbitration proceedings.

As already observed by me, the Applicant themselves informed the 2nd respondent that they did not want the 2nd consignment. But when a

time limit was fixed by the 2nd respondent, according to the Applicant, within that time a. Letter of Credit was opened for the 2nd lot also.

Whether the Letter of Credit was opened within the time stipulated by the 2nd respondent or whether there is a breach of the terms of contract by

respondents 1 to 3 are matters to be gone into in the arbitration proceedings proposed to be initiated by the parties. If an injunction is granted as

prayed for, it would amount to granting specific performance of the contract which cannot be granted by this Court when there is a liability clause

in the contract limiting the liability of the Company. Further it is also admitted by the Applicant that the goods were delivered to third parties

already. In such circumstances, I do not find any merits in this Application also.

Application No. 1984/2006 has been filed by the Applicant to appoint an Advocate Commissioner to seize the goods which are lying in

Mumbai and deliver the same to the Applicant pending disposal of the arbitration proceedings. This Application is also to be dismissed for the very

same reasons given by me for dismissing Application No. 389/2006.

In the result, O.A. Nos. 388 and 389 of 2006 and A. No. 1984/2006 are dismissed as devoid of merits. Consequently, A. No. 2037/2006 is

allowed. No costs.