Note: Tarapore & Co. (Buyer/Applicant), an Indian firm, agreed with M/S. V/O Tractors Export, Moscow (Seller/Beneficiary) to purchase construction machinery for Rs. 66,09,372 via a commercial letter of credit issued by the Bank of India. The letter of credit was made expressly subject to the Uniform Customs and Practice Documentary Credits (1962 Revision) (UCP 222). Beneficiary supplied all the machinery and received twenty-five percent of the money payable under the letter of credit when it presented specified documents. The LC stated that the remaining seventy five percent would be paid one year from the date of the first payment.

Subsequently, Applicant complained that the machinery "was not as efficient as represented," and sued Beneficiary, seeking to enjoin Beneficiary from collecting the balance. The parties agreed that if Applicant would withdraw the suit, Beneficiary would not demand payment for six months during which time the parties would attempt to settle amicably. If no settlement were reached, they agreed to extend the period for another six months. Applicant withdrew the suit but before the parties could arrive at a settlement, the Indian rupee was devalued. As a result of a contractual clause fixing payments to be made in the event of a devaluation, Applicant would have had to pay an additional sum for the machinery supplied. Beneficiary insisted that Applicant obtain an additional letter of credit to cover the extra amount.

Because the original dispute between the parties was not amicably settled and the extended time under the arrangement was about to expire, Applicant refiled its suit for an injunction restraining Beneficiary from claiming the balance. The trial court judge granted the injunction. On appeal, the High Court of Judicature at Madras, Hedge, J., reversed. The appellate court judge ruled that "any [court] interference with [the letter of credit] is bound to have serious repercussions on the international trade of this country. Except under very exceptional circumstances, the courts should not interfere with that mechanism." The appellate court judge concluded that the trial court was not justified in granting Applicant's temporary injunction.



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.