FARGO FREIGHT LTD.versusTHE COMMODITIES EXCHANGE CORPORATION AND ORS.

                       FARGO FREIGHT LTD.                                  A
                                  V.

  THE COMMODITIES EXCHANGE CORPORATION AND ORS.

                          AUGUST 3, 2004

           [S.N. VARIAVA AND ARIJIT PASAYAT, JJ.]                          B

     Banking Law :

      Hiring of a vessel from a Foreign firm-Payment of freight and
demurrage charges-Letter of Credit in exchange of Cargo-Freight paid C
by the firm-Liability in respect ofdemurrage-Suitfiled against respondent/
bankers-High Court directed issuing banker to keep alive the Letter of
Credit-Arbitration-Arbitrator gave Award in favour ofthe firm awarding
demurrage charges with interest thereon-Enforcement Petition-Decreed
by High Court-Noticing discrepancies in the documents, banker did not D
make payment-High Court found no discrepancies in the documents and
directed the banker to make payment in terms of Letter of Credit-On
appeal, Held : Letter of Credit transaction is a separate/independent
transaction from the contract-Issuer of Letter of Credit not concerned
with the disputes between parties to a contract-Banker should not have
been called upon to extend validity period of the Letter of Credit- E
However, the issuing banker is bound to follow order of the Court,
howsoever wrong the order may be-Obeying an order of the Court does
not necessarily amount to acquiescence and the issuing banker could not
be estopped from contending against-Banker negligent in notchallenging
the order of the High Court-However, since the issuing banker itself has F
offered to pay certain sum as also shares, and the firm has shown its
willingness to accept the offer in discharge of the liability of the banker
under the Letter of Credit, the proposed settlement allowed-Directions
issued.
                                                                           G
     Arbitration and Conciliation Act, 1996 :

     Sections 46 to 49-Proceedings under-Held : In such proceedings
serious disputes as to liability of third party could not be determined.

     Code of Civil Procedure, 1908; Order 21 Rule 46 :                     H
                                309
    310               SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A        Provisions ofgarnishee proceedings-Held: Applicable, when monies
    ofjudgment debtor are in the hands of third parties-However, it cannot
    be said that the monies payable by issuing banker are monies payable to
    judgment debtor-Liability against claim could be determined in an
    independent proceeding.
B
           Appellants, a foreign firm, chartered out a vessel to Respondent
    No. I. The firm raised demand of freight and demurrage charges.
    Pending permission from Reserve Bank of India (RBI) for making
    payment to the foreign firm, Respondent No. 1 gave an irrevocable
C   Letter of Credit to them, in exchange of Cargo. Later, Reserve Bank
    of India gave permission in respect of amount of freight charges but
    not for demurrage charges, and the amount was remitted by the
    Corporation. There arose a dispute with regard to liability of the
    Corporation towards demurrage charges. Firm invoked arbitration as
D   per terms of the Charter Party Agreement and later filed a suit for
    issuing injunction against Respondent Nos. 1 and 2 before the High
    Court. By an ex-parte interim order the High Court directed respondent
    No. 3 to keep alive the Letter of Credit. Respondent No. 3 kept on
    extending validity of the Letter of Credit from time to time. However,
E   it filed an application for vacating the order and sought permission of
    the Court to deposit the security taken by them in lieu of the Letter
    of Credit. High Court found Respondent No. 3 negligent as by
    extending time and not challenging the order thereof, it acquiesced the
    Order and therefore would continue to be made liable under the Letter
    of Credit.
F
        In the meantime, Arbitrator gave an Award in favour of the firm.
  The firm filed an Enforcement Petition. High Court decreed the suit
  permitting the firm to obtain necessary permission from the RBI to
  realize demurrage charges. The firm presented necessary documents
G for payment. However, Respondent No. 3 noticed discrepancies in the
  documents and refused to make payment. High Court held that there
  were no discrepancies in the documents and directed payment of
  demurrage charges as per Letter of Credit. Aggrieved, Respondent No.
  3 filed appeal, which was allowed by the Division Bench of the High
H Court. Hence the present appeals.
     FARGO FREIGHT LTD. v. COMMODITIES EXCHANGE CORPN. 311

     Disposing of the appeals, the Court                                    A
     HELD : 1.1. It is settled law that a Letter of Credit transaction
is a separate and independent. transaction from the contract, if any,
between the opener and the beneficiary Respondent. As issuer of the
Letter of Credit, the 3rd Respondent was not concerned with the B
dispute between the Appellant and 1st Respondent. In the absence of
any allegations against the 3rd Respondent bank, the Court should not
have directed them to keep alive and/or extend the expiry date of
Letter of Credit. (320-A-B)

     1.2. By directing an issuing bank to keep a Letter of Credit alive,
                                                                            c
the Court is likely to cause prejudice to the issuing bank inasmuch as
the value of the security may deteriorate. It cannot be said that the 3rd
Respondent was not bound by the interim order howsoever wrong the
order may be. By not immediately challenging the order and keeping D
the Letter of Credit alive, 3rd respondent took the risk of having to
pay, if documents in conformity with the Letter of Credit, were
presented to them. They were found negligent in not pursuing their
application and in not having the orders directing them to keep the
Letter of Credit alive, set aside or challenged. However, obeying an
order of the Court does not amount to acquiescence and does not estop E
them from contending that they cannot be made liable as documents
presented are discrepant. (320-C-D-E)

     2. The only prayer in the suit filed by the firm was that the Letter
of Credit be kept alive. However, there was no averments or allegations     F
against the 3rd Respondent. Once the Letter of Credit was kept alive
the suit became infructuous. In this suit, without an amendment, the
dispute between the Appellant and 3rd Respon!lent pertaining to
discrepancy could not have been decided. [320-H; 321-A)
                                                                            G
      3.1. The Enforcement Petition was for enforcing the English Award.
In the proceedings under Sections 46 to 49 of the Arbitration and
Conciliation Act, the enforcement has necessarily to be between the
parties to the Award. In such proceedings, serious disputes regarding
the liability of third persons to pay up could not be decided. Once the H
    312               SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A dispute arose, as to whether or not the documents were discrepant, the
    Court should have directed the Appellants to have that dispute decided
    by a Competent Court in an appropriate proceeding. [321-B-C)

       3.2. Provisions contained in Part-II of the Arbitration and
B Conciliation Act do not permit Courts to decide such disputes with third
  parties in such proceedings. To that extent, the Division Bench of the
  High Court was right in holding that such a dispute could not have been
  decided in these proceedings. However, it was wrong in remitting the
  matter back for following the procedure under Order 21Rule46 CPC.
  The said provisions deal with Garnishee Proceedings. It applies when
C monies of the judgment debtor are in the hands ofthird parties. In cases
  of Letter of Credit the liability of the issuing bank is an entirely
  independent liability. It cannot be said that the monies payable by the
  issuing bank are monies belonging to the judgment-debtor. Thus, the
  claim, if any, can only be decided in independent proceedings which
D should have been adopted by the appellants. (321-C-D-E)
         4. As the Appellants themselves were willing to accept the sum of
    Rs. 28 lacs and 63,600 shares, which had been offered by the 3'd
    Respondent to be deposited in the Court and with a view to put an end
    to the litigation, the Registry is directed to pay to the appellants a sum
E   of Rs. 28 lacs, with accrued interest thereon, from out of the amount
    deposited by the 3rd Respondent in this Court pursuant to the Order
    dated 14th January, 2002. The balance of the amounts so deposited,
    along with interest accrued thereon shall be returned back to the 3rd
    Respondent. Since the Transfer Forms for the shares are in the name
F   of the 3rd Respondent, it is directed to sell these shares in consultation
    with the Advocate-on-Record of the Appellants, and hand over he
    proceeds thereof to the Appellants. On compliance with the directions,
    the 3rd Respondent shall stand discharged of its liability under the
    Letter of Credit. [321-G-H; 322-A-B-C]

G        CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 456-457
    of 2002.

         From the Judgment and Order dated 17. 7.200 I of the Delhi High
    Court in FAO (OS) Nos. 265 & 268 of 2000.
H
    FARGO FREIGHT LTD. v. COMMODITIES EXCHANGE CORPN. [S.N. VARJAVA, J.]   3 J3
    C.A. Sundaram, Ms. Fereshte , D. Sethna, Ms. Anuradha Dutt and A
Ms. Manjula Gupta for the Appellant.

    G.L. Sanghi, R.K. Sanghi, N.M. Sharma, R.P. Singh and Arun
Vidyarthi for the Respondents.

     The following Order of the Court was delivered :                             B

     S.N. VARIA VA, J. : These Appeals are against the Order of the
Delhi High Court dated 17th July, 200 I.

     Briefly stated the facts are as follows.                                     c
     The Appellants are the owners of vessel "DEKHODA". They had
chartered out the said vessel to the I st Respondent. In respect of freight
and demurrage charges, certain amounts be~ame due and payable. For
remitting this amount, the permission of the Reserve Bank of India was
required. According to the Appellants, the I st Respondent, through its D
Banker, the 2nd Respondent, was to apply for the Reserve Bank of India
permission. In the meantime, parties agreed that the irrevocable Standby
Letter of Credit would be opened. The I st Respondent thus gave to the
Appellants irrevocable Standby Letter of Credit issued by the 3rd
Respondent. After receipt of the irrevocable Standby Letters of Credit, the E
Appellants delivered possession of the cargo to the I st Respondent. In
respect of the amount of freight, Reserve _Bank of India permission was
taken and the amount was remitted. The I st Respondent then raised the
dispute in· relation to the liability for the sum of USO 267,000 for
demurrage.                                                                  F
      As the I st and/or 2nd Respondents were not applying for Reserve
Bank of India permission the Appellant invoked Arbitration as per the
Charter Party Agreement. The Appellants then filed Suit No. 1746of1996,
in the Delhi High Court. In the suit, the only allegations were against the G
I st Respondents. Even though the 3rd Respondent was a party to the suit,
there were no allegations against them. However, the following prayers
were made in the suit :-

        "(a) Grant a decree of mandatory injunction directing the
        Defendants to keep the irrevocable Letter of Credit, issued by H
    314                SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A            Global Trust Bank, Calcutta, bearing No. CA/FLC/011/96 dated
             20th May, 1996 alive beyond it is present date of expiry-15th
             August, 1996, till the dispute is settled between the parties by the
             Arbitral forum culminating in a decree.

             (b) Grant a decree of permanent injunction directing the defendants
B            to perpetually keep alive the irrevocable Letter of Credit, issued
             by Global Trust Bank, Calcutta, bearing No. CA/FLC/011/96
             dated 20th May, 1996 till the dispute is settled between the parties
             by the Arbitration forum culminating ii) a decree".

c         On 24th July 1996 the Appellants obtained an ex-parte ad-interim
    order directing the Respondents to keep alive the irrevocable Letter of
    Credit. This meant that even if the !st Respondent took no step to keep
    the Letter of Credit alive, the 3rd Respondent would be bound to keep it
    alive. At this stage, it must be mentioned that the 3rd Respondent was only
D   the issuer of the Letter of Credit. It is settled law that a Letter of Credit
    transaction is a separate and independent transaction from the contract, if
    any, between the opener and the beneficiary Respondent. As issuer of the
    Letter of Credit, the 3rd Respondent was not concerned with the dispute
    between the Appellant and I st Respondent. In the absence of any allegations
    against the 3rd Respondent bank, the Court should not have directed them
E   to keep alive and/or extend the expiry date of Letter of Credit. The correct
    Order should have been to call upon the !st Respondent to keep alive the
    Letter of Credit. The Appellants by their letters dated 24th July, 1996 and
    3rd August, 1996 intimated the 3rd Respondent about the passing of t.lle
    said order.
F
        At this stage, it must also be mentioned that while passing the ex parte
  ad-interim injunction, the Court had also directed, Summons in the suit and
  Notice on the I.A., to be issued. The returnable date of both was 22nd of
  November, 1996. Thus, before 22nd November, 1996 the matters should
G not have been taken up for hearing. However, it appears that on 29th
  August, 1996 the Court confirmed the ex parte order even though the
  returnable date was 22nd November, 1996. The 3rd Respondent appeared
  to have no knowledge of this hearing on 29th August, 1996. The ex parte
  order is confirmed only after hearing Advocates for the 1st Respondent.
  Even at this stage the Court does not correct its order to only direct the
H I st Respondent to keep it alive. The I st Defendant had filed an Appeal
    FARGO FREIGHT LTD. v. COMMODITIES EXCHANGE CORPN. [S.N. VARIA VA, J.]   315

against the order dated 29th August, 1996. However, that Appeal came to A
be withdrawn by the 1st Respondent on 12th March, 1998.

      The 3rd Respondent obeys the order of the Court and extends the
validity of the Letter of Credit from time to time. Thereafter, on 28th of
May, 1997 the 3rd Respondent files an application for vacating the order. B
They contended that they were independent third parties and thus they
could not be directed to extend the Letter of Credit. They contend that at
the most the Court could direct Respondents 1 and 2 to apply to have the
Letter of Credit kept alive and/or give adequate security. They point out
that the order against them is prejudicially affecting them inasmuch as at
the time of issuing the Letter of Credit they have taken certain securities C
on the footing that the validity of the Letter of Credit was only till 15th
August, 1997. They point out that by having to keep the Letter of Credit
open, they are suffering a loss inasmuch as the value of the security has
gone down. They pray that the Court may permit them to deposit in Court
the sum of Rs. 28.34 lacs and 63,600 shares of the 2nd Respondent, which D
were taken by them as security while issuing the Letter of Credit.

     On 14th January 1998 the appellants secure an Award in the
Arbitration proceedings instituted against the 1st Respondent. Under the
Award, they became entitled to receive US$ 291,634.61 and£ 29,368.24 E
plus interest at the rate of 8% p.a.

      On 2nd November, 1998 the Appellants filed an Enforcement Petition
being OMP No. 263 of 1998 in the Delhi High Court. This petition is for
enforcement of the English Award dated 14th January, 1998. In this
petition, the Appellants apply for a decree and an order permitting them F
to apply to the Reserve Bank of India. At the hearing of this application,
the 3rd Respondent point out that the expiry period of the Letter of Credit
was 15th August, 1996. They submit that they are not bound to make
payment against this Letter of Credit. They submit that they cannot be
made liable and that an order of the Court should not prejudicially affect G
them. They point out that they were not concerned with the dispute between
the Appellants and the I st Defendant. The Court instead of deciding these
contentions records as follows :-

        "He had also urged that the letter of credit on which reliance is
        being placed was to expire on 15.08.1996 and, therefore, the Bank H
    316                SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A            is not bound to make payment against this document. This is the
             matter which will be dealt with subsequently.................. "

            "If and when the permission from the Reserve Bank of India is
            forthcoming, the extent of the liability of Respondent No. 3 in
            terms of and against the subject Letter of Credit would fall for
B           adjudication. Learned counsel for Respondent No. 3 relies on
            some pronouncement of the Apex Court to the effect that is it has
            suffered loss on account of an injunction obtained by the opposite
            party its liability to this extent would be diminished. Arguments
            on this point may be addressed on the next date of hearing".
c
         The Court grants a decree in terms of the Award and permits the
    Appellants to apply to the Reserve Bank of India for permission to remit
    the amount.

D        Pursuant to this, the Appellants, by their letter· dated 2nd September,
    1999, seek permission of the Reserve Bank of India for remittance of the
    demurrage. On 23rd September, 1999, the Reserve Bank of India grants
    permission in the following terms:-

             "Remittance ofUSD 267000.00 in terms of Order passed by Delhi
E            High Court in favour of Mis. Fargo Freight Ltd., Switzerland -
             Ale. Mis. Commodities Exchange Corporation Ltd.

             Please refer to your letter No. CAL/SR/873/99 dated 16th
             September, 1999 on the captioned subject. In this connection we
F            advise having accorded our "in principle" approval for the above
             remittance subject to your ascertaining, prior to effecting the
             remittance, that no appeal is pending against the above Court
             Order/Award."

       The Appellants then approach the 2nd Respondent for Certification
G of Reserve Bank oflndia approval as is required under the Letter of Credit.
  The 2nd Respondent so certify on I Ith October 1999.

         The 3rd Respondent now presses his application. Arguments are
    heard on this application on 6th October, 1999. Judgment is reserved and
H   only delivered on 16th March, 2000.
    FARGO FREIGHT LID. v. COMMODITIES EXCHANGE CORPN. [S.N. VARIAVA, J.]   317

      On 30th October, 1999 the Appellants present to the 3rd Respondent A
a Bill of Exchange, Commercial Invoices and approval of RBI as certified
by the 2nd Respondent. The 3rd Respondent conveys discrepancies in
relation to the documents presented on 3rd November, 1999. The Negotiating
Bank does not agree that there are discrepancies. The 3rd Respondent
reiterates that there are discrepancies. The 3rd Respondent thereafter B
returns all the documents to the Negotiating Bank on 8th February, 2000.
On 14th February, 2000 the Negotiating Bank remits the documents to the
Appellants.

       As stated above, on 16th March, 2000 the Delhi High Court delivered
its judgment in the application of the 3rd Respondent. The Delhi High C
Court holds that by extending time and not challenging the Orders the 3rd
Respondent had acquiesced thereto. The High Court holds that the
Appellants are not concerned with the nature and extent of collateral
obtained by the 3rd Respondent. The Court holds that the 3rd Respondent
should have obtained an appropriate order from the Court to safeguard D
itself. The Court holds that the 3rd Respondents are negligent. The Court
holds that the 3rd Respondent cannot be allowed to deposit the amount of
Rs. 28.34 lacs and the shares in Court and they must remain liable under
the Letter of Credit.
                                                                                 E
      On 21st July, 2000 the Enforcement Petition filed by the Appellants
is taken up for hearing. To be noted that the Enforcement Petition is under
Sections 46 to 49 of the Arbitration and Conciliation Act, 1996. It
necessarily could be against the !st Respondent only. The Court proceeds
to consider whether or not the 3rd Respondent ~as entitled to reject the
documents on the basis of discrepancies. The Court holds that there are F
no discrepancies and directs payment in terms of the irrevocable Standby
Letter of Credit. On the same day, the Court also takes up Suit No. 1746
of 1996 and noting that it has already directed payment, disposes of the
Suit as having become infructuous.
                                                                                 G
      The 3rd Respondent file Appeals against the Orders dated 16th March
2000 and 21st July, 2000. The appeals have been allowed by the impugned
Judgment. The Division Bench holds that the contention of the 3rd
Respondent, that time could not be extended and they could not be made
to suffer by an order of this Court, have not been dealt with. The Division H
    318                SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A Bench holds that there is no estoppel and that the 3rd Respondent could
  not be said to have acquiesced. The Division Bench notes that a Letter of
  Credit is independent of the transactions between the parties and that the
  issuing bank is not concerned with the disputes between the parties. The
  Division Bench holds that in a proceeding to execute the Award, no order
B could have been passed against the 3rd Respondent as they were not
  concerned with the Award. The Division Bench holds that if at all a claim
  had to be made against the 3rd Respondent then garnishee proceedings
  under Order 21 Rule 46 of the CPC should have been taken out. The
  Division Bench thus set aside the above mentioned two orders and remits
C the interim applications back to the Single Judge for adjudicating m
  accordance with the procedure laid under Order 21 Rule 46, CPC.

        Mr. Sundaram on behalf of the appellants has submitted that the
  Appellants, as beneficiary of the Letter of Credit, were entitled to receive
  the amounts under the Letter of Credit. He submitted that a Standby Letter
D of Credit is in the nature of a security. In support of this submission, he
  relies upon the following observations in the case of New Braunfels
  National Bank, Et Al. v. James T. Odiorne, Receiver ofSouthern International
  Insurance Company Ltd., 780 S.W. 2d 313.

             "A letter of credit is tenned "commercial " when the underlying
E
             transaction involves the sale of goods and the credit becomes
             payable upon the presentation of documents showing that the
             seller has complied with the sales agreement; a credit is termed
             "standby" when it functions in a nonsale setting and generally
             becomes payable upon certification of the obligor's noncompliance
F            with the underlying agreement. See Republic Nat'/ Bank,· 578
             S.W.2d at 113-14".

        He submits that the proceedings for enforcement of the Award are
  in the nature of execution proceedings and that in such execution proceedings
G the Appellants were entitled to make a claim even against the 3rd
  Respondent by virtue of Section 145 Civil Procedure Code. He submits that
  by not immediately challenging the Order, calling upon them to keep alive
  the Letter of Credit, the 3rd Respondent had acquiesced in the order. He
  submitted that by keeping quiet the 3rd Respondent has assisted the 1st
H Respondent and 2nd Respondent in playing a fraud on the Appellants. He
    FARGO FREIGHT LTD. v. COMMODillES EXCHANGE CORPN. [S.N. VARlA VA, J.)   319

submitted that the Appellants' claim was under the Letter of Credit. He A
submitted that such claim arose only after the Award given by the
Arbitrator. He submitted that, therefore, the Appellants were entitled to
have the Letter of Credit kept alive and also to claim in the Letter of
Credit in these proceedings. He submitted that the learned Single Judge
had rightly held that there were no discrepancies and that the rejection by B
the 3rd Respondent, on the ground that there were discrepancies, was not
valid.

      On the other hand Mr. Sanghi submitted that the 3rd Respondent was
merely an issuer of the Letter of Credit. He submitted that the 3rd
Respondent was not concerned with the dispute between the Appellants C
and the I st Respondents. He submitted that a Letter of Credit is an
independent transaction which has to be enforced strictly in accordance
with its terms and conditions. He submitted that one of the terms and
conditions was that the presentation of the documents was to be on or
before 15th August, 1997. He submitted that the 3rd Respondent being an D
independent party, not concerned with the disputes between the I st and 2nd
Respondents, could not have been called upon to keep the Letter of Credit
alive. He submitted that at the highest the Court could have called upon
the 1st and/or 2nd Respondent to have the Letter of Credit kept alive. He
pointed out that no order should have been passed against the 3rd E
Respondent as there were no averments made against the 3rd Respondent
in the suit filed by the Appellants. He submitted that merely because the
3rd Respondent obeyed orders of this Court could not mean that they had
acquiesced and/or that they are estopped from raising the contentions that
after 15th August 1997, they were not liable to honour the Letter of Credit.
He submitted that, therefore, the presentation of the documents after 15th F
August 1997, was not valid and the 3rd Respondent could not be forced
to pay.

      In the alternative, he submitted that even if this Court holds that the
time had been validly extended and that the presentation was within the G
validity period of the Letter of Credit, the documents presented were not
in accordance with the Letter of Credit and were discrepant. He submitted
that the Court could not have been, in these proceedings, decided whether
there were discrepancies and could not have been called upon the 3rd
Respondent to pay the amount.                                                 H
    320                 SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A         We have heard the parties. In our view, Mr. Sanghi is right that a
    Letter of Credit is an independent transaction. The issuing bank is not at
    all concerned with the contract and/or dispute between the opener and the
    beneficiary. Also to be noted that the 3rd Respondents were not parties to
    the Arbitration proceedings and there is no Award directing payment by
B   the 3rd Respondent. In our view, Mr. Sanghi is also right that the Court
    should not have been passed an interim order, which affected the rights
    of an issuing banker. In the absence of fraud or some other act on the part
    of the issuing bank, they cannot be called upon to extend the validity
    period. At the highest the Court could have directed the I st Respondent
    to keep alive the Letter of Credit. By directing an issuing bank to keep a
C   Letter of Credit alive, the Court is likely to cause prejudice to the issuing
    bank inasmuch as the value of the security may deteriorate. We cannot
    accept the submission of Mr. Sanghi that the 3rd Respondent was not
    bound by the interim order. However, wrong the order may be the 3rd
    Respondent was bound by the order. By not immediately challenging the
D   order and keeping the Letter of Credit alive, the 3rd Respondent took the
    risk of having to pay, if documents in conformity with the Letter of Credit,
    were presented to it. They were bound to extend from time to time the
    validity period of the Letter of Credit. The 3rd Respondents were negligent
    in not pursuing their application and in not having the orders directing them
E   to keep the Letter of Credit alive, set aside or challenged in a high of form.
    However, obeying an order of the Court does not amount to acquiescence
    and does not estopp 3rd Respondent from contending that they cannot be
    made liable as documents presented are discrepant.

          Between the parties, there is a serious dispute as to whether or not
F discrepant documents had been submitted to the 3rd Respondent. We do
    not wish to express any opinion on that question as it may prejudice either
    one or the other party.

          The question, which really needs to be answered, is whether in these
G proceedings any order could have been passed against the 3rd Respondent
    directing them to make payment.

          As stated above, the suit was a limited suit. The only prayer was that
    the Letter of Credit be kept alive. In the suit, there are no averments or
H   allegations against the 3rd Respondents. Once the Letter of Credit was kept
    FARGO FREIGHT LTD. v. COMMODITIES EXCHANGE CORPN. [S.N. VARIA VA, J.]   321

alive, the suit became infructuous. The learned Judge was right in A
dismissing the suit as having become infructuous. In this suit, without an
amendment and there being proper averments and prayers, the dispute
between the Appellant and 3rd Respondent pertaining to discrepancy could
not have been decided.
                                                                                  B
      The Enforcement Petition was for enforcing the English Award. It
was under Sections 46 to 49 of the Arbitration and Conciliation Act, 1996.
In such p;oceedings, the enforcement has necessarily to be between the
parties to the Award. In such proceedings, serious disputes regarding the
liability of third persons to pay up could not be decided. Once the dispute C
arose, as to whether or not the documents were discrepant, the Court should
have directed the Appellants to have that dispute decided by a Competent
Court in an appropriate proceeding. Provisions contained in Part II of the
Arbitration and Conciliation Act, 1996 do not permit Courts to decide such
disputes with third parties in such proceedings. To that extent, the Division
Bench is right. Such a dispute could not have been decided in these D
proceedings. In our view, however, the Division Bench was wrong in
remitting the matter back for following the procedure under Order 21 Rule
46, CPC. Order 21 Rule 46, CPC, deals with garnishee proceedings. It
applies when monies of the judgment-debtor are in the hands of third
parties. In cases of Letter of Credit the liability of the issuing bank is an E
entirely independent liability. It cannot be said that the monies payable by
the issuing bank are monies belonging to the judgment-debtor, Thus, the
claim, if any, can only be decided in independent proceedings which should
have been adopted by the Appellants.

    In this view, we see no infirmity in the judgment of the Division
                                                                                  F
Bench to the extent that it sets aside the orders directing payment to be
made by the 3rd Respondent to the Appellants.

       At this stage, Mr. Sundaratn after taking instructions from his clients
informs the Court that the Appellants are willing to accept the sum of Rs. G
28 lacs and 63600 shares, which had been offered by the 3rd Respondent
to be deposited in the High Court. He states that the Appellants will accept
the~e in full discharge of the liability of the 3rd Respondent under the Letter
of Credit and that the appellants will seek to recover the balance from the
 I st Respondent in terms of the Award.                                         H
    322                SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A        As the 3rd Respondent had themselves offered and with a view to put
    an end to this unfortunate litigation, we direct as follows :

        The Registry of this Court to pay to the Appellants a sum of Rs. 28
  lacs, with accrued interest thereon, from out of the amount deposited by
  the 3rd Respondent in this Court pursuant to the Order dated 14th January,
B 2002. The balance of the amounts so deposited, along with interest accrued
  thereon, to be returned to the 3rd Respondent. The 3rd Respondent is also
  in possession of 63600 shares of the 2nd Respondent. The Transfer Forms
  for such shares are in the name of the 3rd Respondent. The 3rd Respondent
  is directed to sell these shares in consultation with the Advocate-on-Record
C of the Appellants. The sale proceeds thereof to be handed over to the
  Appellants. On payment of this amount of Rs. 28 lacs with accrued interest
  thereon and on sale of the 63600 shares, the 3rd Respondent shall stand
  discharged of its liability under the Letter of Credit.

         The Appeals stand disposed of in the above terms. There will be no
D
    order as to costs.

    S.K.S.                                              Appeals disposed of.




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