Eight years after a letter of credit (L/C) dispute between Canara Bank and Wells Fargo began, the Indian bank has paid the US bank the principal amount of the disputed paper.

Canara Bank was only instructed to pay the principal amount of US$320,000 while Wells Fargo has had to write off interest accrued on the L/C since the dispute began.

Alleged fraud

The case began in December 1995, when a Pune-based importer opened a L/C with Canara Bank in favour of a US exporter. The confirming bank was First Interstate Bank (FISB) of the US, which later merged with Wells Fargo.

The US exporter discounted the L/C and on 10 June 1996, FISB paid the L/C amount to the exporter. A few days after the L/C was discounted, the Indian importer told FISB not to pay the exporter on the grounds of alleged fraud.

Temporary injunction

FISB informed Canara Bank that it had 'given value for the transaction', on the basis of acceptance by the Indian bank of the draft.

The US bank therefore asked Canara Bank to pay on the L/C by 27 August 1996 - but in the same month a district judge in Pune ordered a temporary injunction against making payments to the US bank.

String of appeals

Canara Bank subsequently filed an appeal with the Bombay High Court against the injunction and it was not until 7 November 2003 that the same court set aside that injunction. Even then, the high court stayed the order and gave the Indian importer four weeks to appeal to the Supreme Court, which in January 2004 upheld the decision of the lower court.

Only after a further appeal did the higher court rule once more, on 29 October 2004, that it accepted the verdict of the Bombay court. Canara Bank made the payment of US$320,000 to Wells Fargo on 4 December 2004.

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