In order to pay for 5,000 metric tons of Billets, Sunvijay Rolling and Engineering, through M.S.T.C. Ltd. (Buyer/Applicant), obtained a commercial letter of credit in the amount of US$22,25,000 in favor of Aurohill Global Commodities (Beneficiary), payable at 100% sight. Clause no. 19 of the purchase order stated that disputes regarding the LC were to be settled by arbitration in accordance to British Rules of Arbitration. The LC was to be confirmed by Seller's Bank. It "was payable against presentation of FCR (a receipt of confirmation) of goods at the port of loading."

After the goods arrived in the Ukraine, an FCR was issued and documents were presented. Appellant then requested that drawings on the LC be suspended, which Beneficiary declined to do, whereupon Appellant requested a price reduction and threatened to "suspend" the LC. Issuer claimed that "the LC was inoperative as certain conditions were not satisfied, namely, non-execution of the performance guarantee," although Beneficiary claimed that there was no such requirement.

Beneficiary filed an arbitration application in India under the Arbitration and Conciliation Act of 1996. Additionally, Beneficiary claimed that the Buyer had waived its right to claim arbitration proceedings in accordance with the British Rules of Arbitration. Judge Kapadia ruled "that the question as to whether there existed a contract (would) be decided in the arbitration proceedings," and that "there was no waiver of the British Rules of Arbitration."


The opinion does not suggest that the LC was subject to arbitration. One wonders, then, why a deferred payment obligation under an LC could be rendered subject to arbitration or injunction pending arbitration based on the underlying contract.



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.