1998 PLP 582 (CLC)

On the other hand, Mr. Najam‑ul‑Hassan Kazmi, Advocate, appearing for plaintiff‑respondent has supported the impugned order and has relied on case cited as Pan Ocean Enterprises (Pvt.) Ltd. v. Thairayon Company Limited and 5 others (PLD 1990 Karachi 395), to convass the proposition that in suitable cases the Municipal Courts can restrain payment under the letter of credit even when the same is irrevocable and confirmed. He has repeatedly emphasized that once the amount is paid under the letter of credit and taken out of Pakistan the plaintiff will have no means to realise the decree which would ultimately be passed.

5. The judgment cited from both sides do and I say so with respect, indicate correct nature of the letter of credit and the rights and obligations of the contracting parties. It is clear that the principle that the contract of letter of credit is altogether independent than the original contract between the buyer and seller is well‑settled. On the basis of alleged breach of contract of sale, a purchaser cannot frustrate the working of contract represented by a letter of credit. The working of contract of letter of credit can only be interrupted if it is shown that one or the other condition of a letter of credit itself has been breached. Further, a negotiating bank or holder of a negotiable instrument in due course has absolutely no concern with the working/improper working of the original contract of sale. Relevant Articles of the Uniform Customs and Practice for Documentary Credits, 1983 Revision, which is Publication No.400 of the International Chamber of Commerce are reproduced below: Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) included in the credit. In credit operations all parties concerned deal in documents, and not in goods, services and/or other performances to which the documents may relate. (a) An irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented and that the terms and conditions of the credit are complied with: (i)

(ii) If the credit provides for deferred payment to pay, or that payment will be made, on the date(s) determinable in accordance with the stipulations of the credit. Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever. "

6. In case cited as B.S. Aujla Company (Pvt.) Ltd. v. Kaluram Mahadeo Prosad and others (AIR 1983 Calcutta 106) it has been inter alia held as under: "A bank issuing or confirming a letter of credit was not concerned with the underlying contract between the buyer and the seller. Duties of a bank under a letter of credit were created by the document itself, but in any case it had the power and was subject to the limitations which were given or imposed by it, in the absence of appropriate provision in the letter of credit. Under an irrevocable letter of credit to pay his buyer customer could not instruct him not to pay. The opening of a confirmed letter of credit constituted a bargain between the banker and the vendor of the goods which imposed on the banker an absolute obligation to pay. The same consideration applied to a bank guarantee. A letter of credit sometimes resembled and was analogous to a contract of guarantee. The bank which gave a performance guarantee was bound to honour that guarantee according to its terms. The opening of a confirmed letter of credit, constituted a bargain between the banker and the seller of the goods which imposed on the banker an absolute obligation to pay." In case cited as Tarapore v. Tractoexport (AIR 1970 SC 891) it has been held as under: "An irrevocable letter of credit has a definite implication. It is a mechanism of great importance in international trade. Any interference with that mechanism is bound to have serious repercussions on the international trade. Except under very exceptional circumstances, the Courts should not interfere with that mechanism. In the above cited case it has been further held as under: "Opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties as to whether the goods are up to contract or not. A vendor of goods selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. If the buyer has an enforceable claim that adjustment must be made by way of refund by the seller and not by the way of retention by the buyer. The letter of credit is independent of and unqualified by the contract of sale or underlying transaction. The autonomy of an irrevocable letter of credit is entitled to protection. As a rule Courts refrain from interfering with that autonomy. "

7. The claim that appellant No. l is a negotiating bank and is holding the Bills of Exchange in due course has not been denied. The perusal of the plaint shows that not a word has been stated as to how the contract of letter of credit has been violated. The exclusive thrust of the plaint is that the terms of contract of sale have not been adhered to and that the seller has supplied defective machinery. In fact during the course of hearing in this Court. Mr. Najam‑ul- Hassan Kazmi, Advocate, learned counsel for the plaintiff‑purchaser described the machinery as "Junk". He also did not make any complaint that the contract of letter of credit has in any manner been breached. The perusal of the terms of letter of credit shows that on fulfilment of the conditions therein, the issuing bank has undertaken an unqualified obligation to pay the amount mentioned therein in instalments as agreed therein. In this view of the matter the Trial Court misconstrued the legal position that on showing a prima facie case of breach of contract of sale, a purchaser‑plaintiff becomes entitled to frustrate the payment under the letter of credit also.

8. The case of Pan Ocean Enterprises (supra) relied upon by the Trial Court as also by Syed Najam‑ul‑Hassan Kazmi, Advocate, before me is distinguishable. In that case the allegation was that the conditions of letter of credit itself have been violated inasmuch as the Bill of Lading contained wrong statement of facts particularly about the dates of shipping vessels in which the goods were lodged arid further that there was transhipment and all this was in violation of the terms of letter of credit. As noted, no such allegation has been levelled in the plaint or during the course of hearing in this Court. The Karachi case, therefore, is distinguishable.

9. The position taken by the issuing bank is also extremely relevant inasmuch as this defendant has clearly pleaded that under the contract of credit it has the liability to pay the amount to the beneficiary /negotiating bank and that it was willing to do so. The two letters dated August 5, 1993 and August 7, 1993, prima facie indicate the acceptance of the documents by the plaintiff and, thus, are sufficient to estop the plaintiff from asking for restraint order against payment under the letter of credit.

10. For the above reasons, this appeal is allowed and the impugned order I dated 29‑10‑1996, restraining payment under the letter of credit except on the condition of furnishing of bank guarantee, is set aside and the application of plaintiff‑respondent No. l herein filed under Order 39, Rules 1 and 2, C.P.C. is hereby dismissed. No order as to costs. A.A./B‑27/L Appeal accepted.