Article

Note: To pay for the purchase of industrial pitch from Coal Tar Refining Company (Beneficiary/Seller), Himadri Chemicals Industries (Applicant/Buyer) opened a commercial LC that provided for "at sight" payment. When Beneficiary/Seller submitted documents for payment, the description of the goods was discrepant. It was then agreed that the LC's payment terms were to be changed to be 230 days from date of shipment in exchange for Applicant's waiver of the discrepancies. After the goods were delivered, a dispute occurred over the quality of the pitch on the last installment of the product delivery.

Applicant/Buyer then sued Beneficiary/Seller under Section 9 of the Arbitration and Conciliation Act to enjoin drawing on maturity. An interim injunction was granted but subsequently vacated. On appeal, Appellate Court, affirmed. Tarun Chaterjee, J., affirmed the denial of the temporary injunction by the High Court and dismissed Applicant/Buyer's appeal.

Citing multiple cases, the Judge stated 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." (¶10) The Judge stated that the only exceptions to this rule are fraud against the bank and irrevocable harm caused by extraordinary circumstances that barred the victim from any recovery. Since the dispute was over quality, the Judge ruled that these exceptions did not apply.

[JEB/sb]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.