M/S. MILLENIUM WIRES (P) LTD.versusTHE STATE TRADING CORPORATION OF INDIA LTD. AND ORS.

                   [2015] 3 S.C.R. 963


           M/S. MILLENIUM WIRES (P) LTD.                    A
                            v.
THE STATE TRADING CORPORATION OF INDIA LTD.
                 AND ORS.
                                                            B
           (Civil Appeal No.3103 of 2015 Etc.)
                    MARCH 23, 2015
  [M.Y. EQBAL AND PINAKI CHANDRA GHOSE, JJ.]
     Code of Civil Procedure, 1908- 0. VII r. 11 - Rejection c
of plaint - Injunction against banks to honour their
guarantees - Suit seeking injunction against the Company
from claiming any benefit .under the Letters of Credit and
against the Confirming Foreign Bank to prevent any action
or release of funds under the Letters of Credit - Meanwhile D
application u/O. VII r. 11 CPC by the Confirming Bank -
High Court allowed the application but dismissed the plaint
as no cause of action was shown against the Confirming
Bank - Appeal thereagainst also dismissed - On appeal,
held: No cause of action, whatsoever, could be deduced E
against the Negotiating Bank from the two extracts which
formed part of the plaint as also the other facts - Thus, the
order of rejection of the plaint by the High Court is upheld.
    Dismissing the appeals, the Court                       F
    HELD: 1.1 Nothing in the plaint except the two
extracts even come close to being an allegation against
the Negotiating Banks. In the two extracts, there is
expression of mere apprehension of the Plaintiffs that G
Negotiating Banks were in active collusion with the
Synergic Companies. No explanation or justification
has been made in the plaint as to how this active

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964     SUPREME COURT REPORTS              [2015] 3 S.C.R.


A collusion came about or what makes the plaintiff
  suspect so. In the plaint not all the evidence with
  respect to allegations is to be adduced however, a
  comprehensive narration of facts that constitute cause
  of action has to be given in the plaint. It is plain and
B clear that no cause of action, whatsoever, may be
  deduced against the Negotiating Bank from the extracts
  which form part of the plaint. [Para 10] [972-A-D]

       1.2 The law on injunction against honouring letter
C of credit by a Bank as summed up by the Single Judge
  of the High Court is upheld. The Court must be slow
  in granting an order of injunction restraining the
  realisation of a bank guarantee or Letter of Credit.
  There are two exceptions to the said rule that it must
D be clearly shown that a fraud of a grievous nature has
  been committed and to the notice of the Bank; and that
  injustice of the kind which would make it impossible
  for the guarantor to reimburse himself, or would result
  in irretrievable harm or injustice to one of the parties
E concerned, should have resulted. It is not enough to
  allege fraud but there must be clear evidence both as
  to the fact of fraud as well as to the bank's knowledge
  of such fraud. [Para 12] [972-G-H; 973-A-C]

F     1.3 Injunctions against the negotiating banks for
  making payments to the beneficiary must be given
  cautiously as constant judicial interference in the
  normal practices of market can have disastrous
  consequences as it affects the trustworthiness of the
G Indian banks and markets. Furthermore, it appears that
  the Confirming Bank had forwarded the documents
  presented by the Company to the Issuing Bank. Out of
  four Letters of Credit, Issuing Bank had accepted the
H presentation of documents in two Letters of Credit with
 MILLENIUM WIRES (P) LTD. v. THE STATE TRADING                965
              CORP. OF INDIA LTD.

the consultation of the STC. Only one of the A
presentation was rejected while there is no information
with respect to the response of the Issuing Bank on
presentation of documents of the fourth Letter of
Credit. Even on the Letter of Credit for which the
presentation was rejected, the response was made after B
19 days while UPC-600 provides that rejection or any
objection against the presentation must be
communicated to the negotiating bank of the
beneficiary within 5 days. [Paras 13, 14] [973-0-G]
                                                               c
     Saleem Bhai v. State of Maharashtra (2003) 1 SCC
557: 2002 (5) Suppl. SCR 491; Popat Kotecha Property
v. State Bank of India Association (2005) 7 SCC 510: 2005
(2) Suppl. SCR 1030; Sopan Sukhdeo Sable v. Asst..
Charity Commissioner (2004) 3 SCC 137: 2004 (1) SCR D
1004 - referred to.

   R.D. Harbottle (Mercantile) Ltd. v. National Westminster
Bank (1977) 3 WLR 752 - referred to.
                                                               E
                  Case Law Reference

 2002 (5) Suppl. SCR 491       referred to     Para 8

 2005 (2) Suppl. SCR 1030 referred to          Para 8
                                                               F
 2004 (1) SCR 1004            referred to      Para 8

   CIVIL APPELLATE JURISDICTION: Civil Appeal No.
3103 of 2015 etc.
    From the Judgment and Order dated 17.12.2013 of the G
High Court of Delhi at New Delhi in RFA No. 142 of 2013.

                          WITH

    C. A. No 3104 of 2015.                                     H
966        SUPREME COURT REPORTS                 [2015] 3 S.C.R.


A         Neeraj Kishan Kaul, ASG, Atul Nanda, S. Ganesh,
      Dinesh Agnani, Jaiveer Shergill, Ankul Sood, Pallavi Langar,
      Piyush Sharma, Leena Tuteja, K. G. Mishara, Devmani
      Bansal, Gagan Gupta for the Appearing Parties.

B         The Judgment of the Court was delivered by

          PINAKI CHANDRA GHOSE, J. 1.Leave granted in
      both the matters.

       2.These appeals, by special leave, have been
C preferred against the judgment and order dated 17.12.2013
  in RFA (OS) No.142/2013 and judgment and order dated
  10.12.2013 in RFA (OS) No.139/2013, passed by the
  Division Bench of the Delhi High Court by which the High
D Court dismissed the appeals filed by the appellants. RFA
  (OS) Nos.142/2013 and 139/2013 were filed by M/s.
  Millenium Wires (P) Ltd. and the State Trading Corporation
  of India Ltd., respectively, against the judgment and order
  of the learned Single Judge of the Delhi High Court in
E Original Suit, being CS (OS) No.545/2012. The learned
  Single Judge rejected the plaint of the appellants herein
  under Order VII Rule 11 of the Code of Civil Procedure,
  1908. Since these appeals are arising from same factual
  matrix and involve same questions of law and fact, they are
F being disposed of by this common judgment.

       3. Briefly stated, the facts of the case are that M/s.
  Millenium Wires (P) Ltd. (hereinafter referred to as
  "Millenium Wires") and State Trading Corporation of l11dia
G Limited (hereinafter referred to as "STC") entered into an
  Associateship Agreement (hereafter referred to as "the
  Agreement"), for importing continuous cast copper wire rods
  from Synergic Material Services PTE Limited, Singapore
  and Synergic Industrial Material Services, Malaysia
H (hereinafter referred to as "Synergic, Singapore" and
 MILLENIUM WIRES (P) LTD. v. THE STATE TRADING 967
 CORP. OF INDIA LTD. [PINAKI CHANDRA GHOSE, J.]

"Synergic, Malaysia"· severally and collectively as the A
"Synergic Companies"). The STC opened 4 Letters of
Credit with the Allahabad Bank being Issuing Bank and the
Malayn Banking BHD, Malaysia being the Confirming Bank.

     4. Under the said Agreement, STC was to import the        B
said copper wire rods for Millenium Wires from the Synergic
Companies. The agreement stipulated that Millenium Wires
shall provide STC with margin money as advance of 25%
of the value of Letter of Credit to be opened by STC (clause
4 of the Agreement) along with 25% cash advance and a          C
post dated cheque 102.5% of the value of consignment in
favour of STC along with an undertaking. The mode of
effecting the transaction between the Millenium Wires and
STC on one hand and the Synergic Companies on other
hand, was this: Oral orders were placed by the Millenium       D
Wires on the two Synergic Companies and the latter sent
 sales contracUproforma invoices to STC. The proforma
invoices were to be issued by Synergic, Singapore in favour
of STC, specifically mentioning Millenium Wire's name as
"Ne- Millenium Wires Pvt. Ltd.". On acceptance of the said     E
proforma invoice, final invoice was to be issued by the two
Synergic Companies, which on acceptance by Millenium
Wires was to be sent back to the Synergic Companies. This
would constitute the contract IJetween STC/Millenium Wires     F
on one side and the Synergic Companies on the other. At
this stage Letters of Credit were to be opened by STC
through Allahabad Bank payable to the Synergic
Companies through the Malayn Bank.

    5. In pursuance to the Agreement, STC opened four G
Letters of Credit with the Allahabad Bank being:



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968             SUPREME COURT REPORTS                          [2015] 3 S.C.R.


A              L.C. No.   Opened On      Bill of      D:x:uirenls   Response of
                                        lading      fOIVl0rded by   the
                                                    Malayn Bank     Allahabad
                                                     to Allahabad   Bank
                                                         Bank
      0189111 FLUJ00150   07/12/11    08/12/11     14/12111         Aocepted        on
B                                                                   23112/11
      0189111 FLUJ00151   07/12/11    09/12111     12/12/11         Rejected        on
                                                                    31/12/11
      0189111FLUJ00154    17/12/11    31/12/11     22112/11         ~ information

                                                                                -
c     0189111FLUJ00159    02!01/12    07/01/12     ffi/01/12        Aocepted        on
                                                                    1001/12



       With respect to all these Letters of Credit the Malayn
D Bank had released the payment to the Synergic Companies
  after the documents were presented by them. It was at this
  stage that the Millenium Wires and STC approached the
  Delhi High Court by filing a suit seeking permanent,
E mandatory and perpetual injunction against the Synergic
  Companies from claiming any benefit under the Letters of
  Credit in question and against the Confirming Foreign Bank
  being Malayn Bank to prevent any action or release of
  funds under the Letters of Credit.
F       6.       The Malayn Bank filed an application under Order
                VII Rule 11 of the Code of Civil Procedure, 1908. The
                learned Single Judge of the Delhi High Court allowed
                the application thereby dismissing the plaint giving
                following reasons:
G
        (i)     There were no specific allegation against the Malayn
                Bank except a statement that the Bank seems to be
                hand in glove with the Synergic Companies.

H       (ii)     As per UPC-600 (Uniform Customs and Practice for
MILLENIUM WIRES (P) LTD. v. THE STATE TRADING             969
CORP. OF INDIA LTD. [PINAKI CHANDRA GHOSE, J.]

     Documentary Credits, Sixth Edition) published by A
     International Chambers of Commerce, the Banks are
     bound to release the payment in terms of the Letter
     of Credit if the complying presentation is made by
     the Beneficiary (in this case Synergic Companies).
     Further the learned Single Judge relied on B
     established principle that the Court shall not grant
     injunction against the issuing bank or the confirming
     bank except in two circumstances:

a)    There is fraud and the bank has knowledge of the      c
     fraud; or

b) There would be irreparable injury caused to one of
   the parties if the injunction is not granted.
                                                           D
     The plaintiffs made specific allegations only against
     the Synergic Companies and         no averment with
     respect to the knowledge of such fraud to the
     confirming bank was made. Rather, it has been
     shown that there was no knowledge of fraud on the E
     part of the Confirming Bank and it cleared the
     payments to the Synergic Companies as per the
     provisions of UPC-600.

(iii) The learned Single Judge further pointed out that as
                                                             F
      per UPC-600 Clause 16, in case the issuing bank
      refuses to honour the presentation of documents, it
      has to give a notice of such refusal to the confirming
      bank within 5 days of the presentation of the
      documents. Here, the Allahabad Bank approved the G
      presentation of documents made by the Malayn
      Bank, Confirming Bank, for 2 of the four Letters of
      Credit and refused only one and even this refusal
      was communicated after 19 days, way beyond the
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970      SUPREME COURT REPORTS                  (2015] 3 S.C.R.


A         time period prescribed by Clause 16. Thus, the
          Malayn Bank was in its right as well as duty to have
          made the payment to the Synergic Companies as
          per the Letter of Credit and the UPC-600.

B      (iv) The learned Single Judge also pointed out that the
            remedies sought in the plaint i.e. injunction against
            the Synergic Companies to claim any benefit under
            the Letters of Credit and against the Malayn Bank
            to advance any payment under Letters of Credit had
C           already become infructuous as the Malayn Bank had
            made the payments to the Synergic Companies.

       (v) The learned Single Judge discussed the established
           law relating to the Letters of Credit in great detail.
o          He stated that the Letter of Credit is independent of
           the underlying contract between the applicant and
           the beneficiary and Courts of law would not meddle
           with the dealings of the banks and grant injunction
           as a matter of course as it would affect the .
E          trustworthiness of these transactions and also the
           position of the banks in the market. Further, the
           Banks should not be asked to not comply with the
           Letter of Credit for some dispute between the
           parties.
 F
      7. On these grounds the learned Single Judge allowed
  the application under Order VII RuJe 11 of the Code of Civil
  Procedure, 1908 and dismissed the plaint as showing no
  cause of action against the Malayn Bank, giving liberty to
G the Plaintiffs to pursue other appropriate remedies against
  the Synergic Companies. Against the order of the learned
  Single Judge, both the appellants filed separate appeals
  before the Division Bench of the High Court. The Division
  Bench also dismissed both the appeals on same grounds
H as that of the learned Single Judge.
    MILLENIUM WIRES (P) LTD. v. THE STATE TRADING                    971
    CORP. OF INDIA LTD. [PINAKI CHANDRA GHOSE, J.]

     8. The major contention of the appellants herein is that A
the High Court has committed grave error in dismissing the
suit under Order VII Rule 11 as it acted against the settled
principles of procedure with respect to application under
Order VII Rule 11. According to the appellants, in such an
application, the Court ought to have looked into the B
averments contained in the plaint only and it cannot look
into the written statement or any other evidence filed by the
Defendant. The Plaintiffs/appellants have, inter alia, relied
on Saleem Bhai v. State of Maharashtra, (2003) 1 SCC
557, Popat Kotecha Property v. State Bank of India C
Association, (2005) 7 SCC 510, and Sopan Sukhdeo Sable
v. Asst. Charity Commissioner, (2004) 3 SCC 137.

     9. After having gone through the plaint filed by the
Plaintiffs, we find that it is only twice that the plaintiffs have    D
alleged against the Malayn Bank in following words:

      (At para 17)

      "That it is also pertinent to mention herein that the           E
      Plaintiffs apprehend that the Defendant No. 4 Bank
      (which is the Negotiating/Beneficiary Bank) is in active
      collusion with the Defendant Nos. 3 & 4."

      (At para 47)
                                                                      F
      "Further, as enumerated hereinabove, it is amply clear
      that the Defendant No. 2 has forged the shipping
      documents to fraudulently demonstrate export in order
      to surreptitiously negotiate with the beneficiary bank for
      release of payments without actually ever dispatching G
'     the goods. The Negotiating Bank has also wrongly
      negotiated with the Defendant No. 2 without correctly
      verifying the documents, giving rise to suspicion, that
      it is hands in glove with the Defendant No. 2."
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972       SUPREME COURT REPORTS                 [2015) 3 S.C.R.


A         10. Nothing in the plaint except the above two extracts
    even come close to being an allegation against the
    Negotiating Banks. In the above two extracts, there is
    expression of mere apprehension of the Plaintiffs that
    Negotiating Banks were in active collusion with the Synergic
B · Companies. No explanation or justification has been made
    in the plaint as to how this active collusion came about or
    what makes the plaintiff suspect so. It is true that in the
    plaint not all the evidence with respect to allegations is to
    be adduced however, a comprehensive narration of facts
C that constitute cause of action has to be given in the plaint.
    It is plain and clear that no cause of action, whatsoever,
    may be deduced against the Negotiating Bank from the
    above two extracts which form part of the plaint.

D       11. Furthermore, both the learned Single judge and the
   Division Bench have discussed the law relating to Letter of
   Credit and UPC-600 in great detail. In view of that, the
   following observation of the Court in R.D. Harbottle
   (Mercantile) Ltd. v. National Westminster Bank, (1977) 3
 E WLR 752, should suffice:

        "Banks must be allowed to honour their guarantees
        without interference except in clear cases of notice of
        fraud to the bank. The merchants take risk which are
 F      not to be imposed on the banks. Such interference will
        deter trust in international commerce."
      12. We would uphold and restate the law on injunction
  against honouring Letter of Credit by a Bank as summed
G up by the learned Single Judge as follows:
               .               .. ''
   (1) The Court must be slow in granting an order of
       injunction restraining the realisation of a bank
       guarantee or Letter of Credit.
H
 MILLENIUM WIRES (P) LTD. v. THE STATE TRADING 973
 CORP. OF INDIA LTD. [PINAKI CHANDRA GHOSE, J.)

 (2) There are two exceptions to the above rule. The first A
     is that it must be clearly shown that a fraud of a
     grievous nature has been committed and to the notice
     of the Bank. The second is that injustice of the kind
     which would make it impossible for the guarantor to
     reimburse himself, or would result in irretrievable harm B
     or injustice to one of the parties concerned, should
     have resulted.

 (3) It is not enough to allege fraud but there must be clear
     evidence both as to the fact of fraud as well as to the C
     bank's knowledge of such fraud.

     13. It would suffice to say here that injunctions against
the negotiating banks for making payments to the
beneficiary must be given cautiously as constant judicial D
interference in the normal practices of market can have
disastrous consequences as it affects the trustworthiness
of the Indian banks and markets.

     14. Furthermore, it appears that the Malayn Bank had E
forwarded the documents presented by the Synergic
Companies to the Allahabad Bank. Out of four Letters of
Credit, Allahabad Bank had accepted the presentation of
documents in two Letters of Credit with the consultation of
the STC. Only one of the presentation was rejected while F
there is no information with respect to the response of the
Allahabad Bank on presentation of documents of the fourth
Letter of Credit. Even on the Letter of Credit for which the
presentation was rejected, the response was made after 19
days while UPC-600 provides that rejection or any objection G
against the presentation must be communicated to the
negotiating bank of the beneficiary within 5 days.

     15. In the circumstances as narrated above and in light
of the settled law on the point of injunction against the H
974         SUPREME COURT REPORTS              [2015] 3 S.C.R.


A     banks to honour their guarantees, we are of the view that
      these appeals are to be dismissed and accordingly appeals
      are dismissed.

       16. Before we part with, it would be most appropriate
B for us to point out that the appellants can pursue their
  remedies against the Synergic Companies in appropriate
  forum by instituting appropriate proceedings, if so advised.
  However, we make it clear that the opinion expressed by
  us in this judgment shall not stand in the way of deciding
C such proceedings on merits.
      Nidhi Jain                               Appeals dismissed.