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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3103 OF 2015 (Arising out of  SLP (C) No.9689  of 2014)

M/S. MILLENIUM WIRES (P) LTD. ...APPELLANT    :versus:

THE STATE TRADING CORPORATION OF INDIA LTD. AND ORS. ...RESPONDENTS

AND CIVIL APPEAL NO. 3104 OF 2015                        

 (Arising out of  SLP (C) No.11848 of 2014)

THE STATE TRADING CORPORATION OF INDIA LTD. ...APPELLANT   

 :versus: MILLENIUM WIRES (P) LTD. AND ORS. ...RESPONDENTS

J U D G M E N T

Pinaki Chandra Ghose, J.

1. Leave granted in both the matters.

2. These appeals, by special leave, have been 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  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

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Ltd.,  respectively,  against the judgment and order of the learned  

Single Judge of the Delhi High Court in 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 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 India 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 (hereinafter referred  

to as “Synergic,  Singapore” and “Synergic, Malaysia” severally and  

collectively  as  the  “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 said copper  

wire  rods for  Millenium Wires  from the Synergic  Companies.  The

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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  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 Wires on the two Synergic  

Companies and the latter sent sales contract/proforma invoices to  

STC.  The  proforma  invoices  were  to  be  issued  by  Synergic,  

Singapore in favour of STC, specifically mentioning Millenium Wire's  

name as “A/c- Millenium Wires Pvt. Ltd.”. On acceptance of the said  

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  

between  STC/Millenium  Wires  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  Letters  of

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Credit with the Allahabad Bank being:

L.C. No. Opened On Bill of Lading Documents  forwarded by  

Malayn Bank to  Allahabad Bank  

Response of the Allahabad Bank

0189111FLU000150 07/12/11 08/12/11 14/12/11 Accepted  on  23/12/11

0189111FLU000151 07/12/11 09/12/11 12/12/11 Rejected  on  31/12/11

0189111FLU000154 17/12/11 31/12/11 22/12/11 No information 0189111FLU000159 02/01/12 07/01/12 06/01/12 Accepted  on  

16/01/12

With respect  to  all  these Letters  of  Credit  the Malayn 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,  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.

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:

(i) There  were  no  specific  allegation  against  the  Malayn  Bank

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except a statement that the Bank seems to be hand in glove with  

the Synergic Companies.

(ii) As  per  UPC-600  (Uniform  Customs  and  Practice  for  

Documentary  Credits,  Sixth  Edition)  published  by  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 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 fraud; or

b)  There  would  be  irreparable  injury  caused  to  one  of  the  

parties if the injunction is not granted.  

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 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 per UPC-

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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 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  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.

(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  

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. 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

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course as it would affect the 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.  

7. On  these  grounds  the  learned  Single  Judge  allowed  the  

application under Order VII Rule 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 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 as that of  the learned Single Judge.

8. The major contention of the appellants herein is that 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 averments contained in the plaint only and it cannot look

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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 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 alleged against the  

Malayn Bank in following words:

(At para 17)  

“That  it  is  also  pertinent  to  mention  herein  that  the  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)  

“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 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.”

10. Nothing in the plaint except the above two extracts even come  

close to being an allegation against the Negotiating Banks. In the

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above two extracts, there is expression of mere apprehension of the  

Plaintiffs that 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 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 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.

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 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  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

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honouring Letter of Credit by a Bank as summed 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.

(2)  There are two exceptions to the above rule. The first 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  

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 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  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 forwarded

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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 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 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 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 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

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opinion expressed by us in this judgment shall not stand in the way  

of deciding such proceedings on merits.  

….....…..…………………..J. (M.Y. Eqbal)

….....…..…………………..J. (Pinaki Chandra  Ghose)

New Delhi; March 23, 2015.

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ITEM NO.1A               COURT NO.12               SECTION XIV (For judgment)                

S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C)  No(s).  9689/2014 (Arising out of impugned final judgment and order dated 17/12/2013  in RFA No. 142/2013 passed by the High Court Of Delhi At New  Delhi)

M/S MILLENNIUM WIRES P LTD                         Petitioner(s)                                 VERSUS STATE TRADING CORP. OF INDIA LTD & ORS             Respondent(s)

WITH SLP(C) No. 11848/2014

 Date : 23/03/2015 These petitions were called on for  

pronouncement of judgment today.

For Petitioner(s) Mr. Atul Nanda, Sr. Adv. SLP 9689/2014 Mr. Jaiveer Shergill, Adv.

Mr. Ankur Sood, Adv.                    Ms. Pallavi Langar, AOR SLP 11848/2014 Mr. N.K. Kaul, ASG

Mr. Piyush Sharma, AOR Ms. Leena Tuteja, Adv. Mr. K.G. Mishara, Adv.

For Respondent(s) Mr. S. Ganesh, Sr. Adv. Mr. Devmani Bansal, Adv. Mr. A.P. Mathur, Adv. Mr. Ajay Monga, Adv.

                 For Mr. Gagan Gupta, AOR Mr. Dinesh Agnani, Sr. Adv. Mr. Piyush Sharma, AOR Ms. Leena Tugeja, Adv. Mr. K.G. Mishra, Adv.

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Hon'ble  Mr.  Justice  Pinaki  Chandra  Ghose  pronounced  the  reportable judgment of the Bench comprising Hon'ble Mr. Justice  M.Y. Eqbal and His Lordship.  

Leave granted in both the matters. The appeals are dismissed in terms of the signed reportable  

judgment.

(R.NATARAJAN)        (SNEH LATA SHARMA)  Court Master       Court Master

(Signed reportable judgment is placed on the file)