1. ' M/s. Manzoor Textile Mills Ltd., the petitioner before this Court which is an incorporated company, entered into a contract for supply of cotton by M/s. Dunavant SA World Trade Centre, respondent No,3, through its agent M/s. Amir Umar Industries (Pvt.) Ltd. Respondent No, 4, before this Court.
2. In pursuance of the aforementioned contract five pro forma invoices, stating the specifications, quantities, price and other terms of the contract of supply referred to above, were issued in terms whereof, the cotton had to be supplied. L.Cs. Were opened with the respondent No,2. The cotton was supplied by the respondents Nos.3 and 4, a major portion whereof, has already been received by the petitioner, and balance delivery is only about 1500 bales.
3. The petitioner filed a suit seeking a decree for declaration and permanent injunction on the basis of the allegation; that the cotton supplied is inferior in quality; that the terms of the contract have been violated and that fraud has been committed by the respondents in the manner of supply of cotton. In the plaint following prayers have been made:--
(a) It be declared that the defendant No,1 has no right to debit the accounts of the plaintiff against any of the L.Cs, subject-matter of the suit and the bills drawn there under or to release any securities connected therewith.
(b) The defendant No,1 be permanently restrained from debiting the accounts of the plaintiff against any of the LCs or bills drawn there under, or realising any securities given there under.
(c) The defendant No,1 be directed to reverse all debit entries that may already have been made for any bills drawn under the L.Cs.
(d) Defendant No,1 be permanently restrained from making any payments under the LCs (mentioned in para. 2 above) or any bills drawn there under.
(e) Defendant No,2 be permanently restrained from receiving any payments under the LCs whether directly or indirectly through its agents, assignees, transferees etc.
(f) Any other relief that this Honourable Court deems fit and proper in the facts and circumstances of the case may also kindly be granted.
(g) Costs ' Alongwith the plaint an application under Order XXXIX, Rules 1 and 2 has also filed, wherein it has been prayed that the respondents may be restrained from adjusting the accounts of the plaintiff against any of the LCs/Bills drawn thereunder, realising any securities, any bills drawn, receiving any amount and making of payments against the LCs in question. This application has been contested and dismissed by the learned Special Judge Banking vide order dated 27-9-1994. This order has been challenged through this Constitutional petition.
4. Mr. Hamid Khan, Advocate, learned counsel for the petitioner has referred to copies of LCs, the bills of lading, the invoices and a copy of the facsimile transmission (Annexures 'A to C') which have been appended to the paper book at pages 21 to 37 thereof, and has contended that there is a noncompliance with the terms of the contract inasmuch as the goods had to be shipped on the basis of pre-paid freight, but the same have been supplied subject to payment of freight at destination and further that the dates of loading of the goods in the ships are proved to be false as on the said dates the ship was not on the port, hence it stands prima facie established that it is a case of fraud as well as non-compliance of the terms of the contract as such the petitioner is entitled to the grant of stay order as prayed for. Learned counsel has further contended that in view of the admitted position that the respondent No,3 has no assets in Pakistan, therefore, if the payment is made, the decree if passed in favour of the petitioner shall stand frustrated and the petitioner shall be left with no remedy and shall suffer irreparable loss, hence balance of inconvenience lies in favour of the petitioner, but the learned Trial Court has illegally refused interim injunction, hence the impugned order is illegal and is without a lawful authority. In support of his arguments learned counsel has relied upon the following cases:--
(i) Pan Ocean Enterprises (Pvt.) Ltd. v. Thai Rayon Company Ltd. And 5 others (PLD 1990 Karachi 395).
(ii) M/s. Kohinoor Trading (Pvt.) Ltd. v. Mangrani Trading Co. And 2 others (1987 CLC 1533).
(iii) M/s. Allied Industries HUB (Pvt.) Ltd. v. M/s. China National Metals and Mineral Import and Export Corporation and another (1989 MLD (Karachi) 2027).
2. ' Lastly, learned counsel has contended that the petitioner is ready to deposit the amount payable to foreign bank, with respondent No,2 subject to the condition that it is not paid to the foreign bank and hence taken out of Pakistan and hence has prayed that in order to avoid further complicating stay order may be granted in the above terms.
5. Mr. Shahid Hamid Khan, Advocate, learned counsel for the respondent No,2 has referred to a book-let named "ICC Uniforms Customs and Practice for Documentary Credits", has taken me thorough Articles 1, 3, 9, 13, 14, 15, 23, 32, 33 & 37 thereof and has argued that collective reading of the above articles clearly shows that so far as banking is concerned it has got no concern with the terms of the contract between the private parties and alleged violation thereof as banks deal in documents on the basis of face entries thereof and any alleged violation of the terms of the contract does not confer any actionable cause of action, upon the petitioner to ask for grant of interim injunction as grant thereof will interfere with the internal working of the bank as well as smooth running of the foreign trade. Even on merits of the case, it is contended that prima facie no case of fraud or non-compliance of terms contract is made out. Further elaborating hi& arguments learned counsel has referred me to the documents Annexures 'A to C' of the writ petition and Document Annexure 'G' appended at page 95 of the reply submitted by the respondent No,3 and has demonstrated that the ship in question had arrived at the port on 25-6-1994, had loaded the goods till 6th of July, 1994, and then have to go for repair and whereafter it sailed of on 29th July, 1994. The documents bear the stamp of freight being pre-paid and it is only the handling charges which had to be received at the terminal, postponement of payment whereof, being not prohibited under the trading practice referred to above, it cannot be said that there was a violation of terms of the contract hence it is contended that the petitioner has no prima facie case. Learned counsel has further argued that the respondent No,2 has got nothing to do with the dispute between the parties and therefore on the face of the documents there being no discrepancies, fraud or evidence of noncompliance case of the petitioner does not fall within any of the exceptions as enumerated in case of Pan Ocean Enterprises (Pvt.) Ltd. (supra), hence payment against the irrevocable L.Cs cannot be directed to be stopped. It is further contended that issuance of stay order in this case will result in causing of irreparable loss to the respondent No,2 in whose favour balance of inconvenience lies, hence in Constitutional jurisdiction discretionary interim order passed by a Court of special jurisdiction, which is not even appealable under the statute no interference should be made, therewith. In support of his contentions learned counsel relies on the cases of:--
(i) Tarapore & Co., Madras v. Tractoro Export, Moscow (AIR 1970 SC 891).
(ii) United Commercial Bank v. Bank of India and others (AIR 1981 SC 1426).
(iii) M/s. National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311).
3. ' Offer made by the learned counsel for the petitioner regarding grant of stay on deposit has been put to the learned counsel, but he has not accepted and has placed on record a written undertaking to the effect that in case it is finally adjudicated that the respondent bank should not have made payment to the bankers of respondent No,3 under L.Cs 46/148 dated 23-4-1994 and 46/153 dated 23-4-1994, the respondent bank will refund to the petitioner the amounts realized from them for payment to respondent No,3's bankers, provided the petitioner returns to the respondent bank cotton bales of equivalent value as on date of refund. This undertaking has been marked as "CI". None has appeared on behalf of respondent No, 1 . Learned counsel for respondents Nos.3 and 4 has adopted the arguments, addressed by Mr. Shahid Hamid, Advocate.
6. Before embarking upon the. Discussion and decision on issues involved in this case in hand it will be appropriate that the relevant articles referred to by the learned counsel for respondent No,2 and gist of the relevant case-law on the subject is reproduced which is as under:-- Article 1: ' Application of UCP: ' The Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication N 500 shall apply to all documentary credits (including to the extent to which they may be applicable, Standby Letter (s) of Credit) where they are incorporated into the text of the Credit. They are binding on all parties thereto, unless otherwise expressly stipulated in the credit. Article 3.
4. ' Credits v. Contracts:
(a) 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) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft (s) or negotiate and/or to fulfil any other obligation under the credit, is not subject to claims or defences by the applicant resulting from his relationships with the issuing bank or the beneficiary.
(b) A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank. Article 9.
5. ' Liability of Issuing and Confirming Banks: ' An irrevocable credit constitutes a definite undertaking of the issuing bank, provided, that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions of the credit are complied with--
(i) if the credit provides for sight payment-to pay at sight;
(ii) if the credit provides for (erred payment--to pay on the maturity date (s) determinable in accordance with the stipulations of the credit;
(iii) if the credit provides for acceptance--
(a) by the issuing bank-to accept draft (s) drawn by the beneficiary on the issuing bank and pay them at maturity, or
(b) by another drawee bank--to accept and pay at maturity draft(s) drawn by the beneficiary on the issuing bank in the event the drawee bank stipulated in the credit does not accept draft (s) drawn on it, or to pay draft(s) accepted but not paid by such drawee bank at maturity;
(iv) if the credit provides for negotiation--to pay without recourse to drawers and/or bona fide holders, Draft(s) drawn by the beneficiary and/or document(s) presented under the credit. A credit should not be issued available by Draft(s) on the applicant. If the Credit nevertheless calls for Draft(s) on the applicant, banks will consider such draft (s) as an additional document(s).
(b) A confirmation of an irrevocable credit by another bank (the "confirming Bank") upon the authorisation or request of the issuing Bank, constitutes a definite undertaking of the confirming Bank, in addition to that of the issuing Bank, provided that the stipulated documents are presented to the confirming bank or to any other Nominated Bank and that the terms and conditions of the Credit are complied with--
(i) if the Credit provides for sight payment--to pay as sight;
(ii) if the Credit provided for deferred payment--to pay on the maturity date (s) determinable in accordance with the stipulations of the Credit;
(iii) if the Credit provides for acceptance--
(a) by the confirming bank--to accept draft(s) drawn by the beneficiary on the confirming bank and pay them at maturity; or
(b) by another drawee bank--to accept and pay at maturity draft(s) drawn by the beneficiary on the confirming bank, in the event the drawee bank stipulated in the credit does not accept Draft(s) drawn on it, or to pay Draft(s) accepted but not paid by such drawee. Bank at maturity;
(iv) if the credit provides for negotiation--to negotiate without recourse to drawers and/or bona fide holders, Draft(s) drawn by the beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the applicant. If the Credit nevertheless calls for Draft(s) on the applicant, banks will consider such Draft(s) as an additional document(s).
6. (c)(i) If another bank is authorised or requested by the issuing Bank to add its confirmation to a Credit but is not prepared to do so, it must so inform the issuing Bank without delay.
(ii) Unless the issuing Bank specifies otherwise in its authorisation or request to add confirmation, the advising bank may advise the Credit to the Beneficiary without adding its confirmation.
7. (d)(i) Except as otherwise provided by Article 48, an irrevocable Credit can neither be amended nor cancelled without the agreement of issuing bank, the Confirming bank, if any, and the beneficiary.
(ii) The issuing bank shall be irrevocably bound by an amendment(s) issued by it from the time of the issuance of such amendment (s). A Confirming Bank may extend its confirmation to an amendment and shall be irrevocably bound as of the time of its advice of the amendment. A confirming bank may, however, choose to advise an amendment to the beneficiary without extending its confirmation and if so, must inform the issuing bank and the beneficiary without delay.
(iii) The terms of the original credit (or a credit incorporating previously accepted amendment(s) will remain in force for the beneficiary until the beneficiary communicates his acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of amendment(s). If the beneficiary fails to give such notification, the tender of documents to the Nominated bank or issuing bank, that confirm to the Credit and to not yet accepted amendment(s), will be deemed to be notification of acceptance by the beneficiary of such amendment(s) and as of that moment the credit will be amended.
(iy) Partial acceptance of amendments contained in one and the same advice of amendment is not allowed and consequently will not be given any effect..
8. Article 13.
9. ' Standard for Examination of Documents
(a) Banks must examine all documents stipulated in the credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the credit. Compliance of the stipulated documents on their face with the terms and conditions of the credit, shall be determined by international standard banking practice as reflected in these articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the credit.
10. ' Documents not stipulated in the credit will not be examined by bank. If they receive such documents, they shall return them to the presenter or pass them on without responsibility.
(b) The issuing bank, the confirming bank, if any, or a nominated bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the document accordingly.
(c) If a credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them. Article 14.
11. ' Discrepant Documents and Notice:
(a) When the issuing bank authorises another bank to pay, incur a deferred payment undertaking, accept drafts, or negotiate against documents which appear on their face to be in compliance with the terms and conditions of the credit, the issuing bank and the confirming bank, if any, are bound;
(i) to reimburse the nominated bank which has paid, incurred a deferred payment undertaking accepted draft(s) or negotiated,
(ii) to tece up the documents.
(b) Upon receipt of the documents the issuing bank and/or confirming bank, if any, or a nominated bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the credit. If the documents appear on their face not to be in compliance with the terms and conditions of the credit, such banks may refuse to take up the documents.
(c) If the issuing bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the credit, it may in its sole judgment approach the applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13(b).
(d) If the issuing bank and/or confirming bank, if any, or a nominated bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or if it that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the beneficiary, if it received the documents directly from him.
(ii) Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.
(iii) The issuing bank and/or confirming bank, if any, shall then be entitled to claim from the remitting bank refund with interest, of any reimbursement which has been made to that bank.
(e) If the issuing bank and/or confirming bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the issuing Bank and/or confirming bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit.
(f) If the remitting bank draws the attention of the issuing bank and/or confirming bank, if any, to any discrepancy(ies) in the document(s) or advises such banks that it has paid, incurred a deferred payment undertaking accepted draft(s) or negotiated under reserve or against an indemnity in respect of such discrepanc(ies), the issuing bank and/or confirming bank, if any, shall not be thereby relieved from any of their obligations under any provision of this Article. Such reserve or indemnity concerns only the relations between the remitting bank and the party towards whom the reserve was made, or from whom, or on whose behalf, the indemnity was obtained.
12. Article 15.
13. ' Disclaimer on Effectiveness of Documents: ' Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s), or for the general and/or particular conditions stipulated in the document(s) 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 document(s), or for the good faith or act and/or omissions, solvency, performance or standing of the consignors, the carriers, the forwards, the consignees or the insurers of the goods, or any other person whomsoever. Article 23.
14. ' Marine/Ocean Bill of Lading:
(a) If a credit calls for a bill of lading covering a port-to-port shipment, banks will, unless otherwise stipulated in the Credit, accept a document, however, named, which--
(i) appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by: -- The carrier or a named agent for or on behalf of the carrier, or -- the master or a named agent for or on behalf of the master.
15. ' Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i,e, carrier or master, on whose behalf that agent is acting, and
(ii) indicate that the goods have been loaded on board, or shipped on a named vessel.
16. ' Loading on board or shipment on a named vessel may be indicated by pre-printed wording on the bill. Of lading that the goods have been on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment.
17. ' In all other cases loading on board a named vessel must be evidenced by a notation on the bill of lading which gives the date on which the goods have been loaded on board, in which case the date of the on board notation will be deemed to be the date of shipment.
18. ' If the bill of lading contains the indication "intended vessel", or similar qualification in relation to the vessel, loading on board a named vessel must be evidenced by an on board notation on the bill of lading which, in addition to the date on which the goods have been loaded on board, also include the name of the vessel on which the goods have been loaded, even if they have been loaded on the vessel named as the "intended vessel".
19. ' If the bill of lading indicates a place of receipt or taking in charge different from the port of loading, the on board notation must also include the port of loading stipulated in the Credit and the name of the vessel of which the goods have been loaded, even if they have been loaded on the vessel named in the bill of lading. This provision also applies whenever loading on board the vessel is indicated by pre-printed wording on the bill of loading, and
(iii) indicates the port of loading and the port of discharges, stipulated in the Credit, notwithstanding that it-
(a) indicates a place of taking in charge different from the port of loading, and/or a place of final destination different from the port of discharge, and/or
(b) contains the indication "intended" or similar qualification in relation to the port of loading and/or port of discharge, as long as the document also states the ports of loading and/or discharge stipulated in the Credit, and
(iv) consists of a sole original bill of lading or, if issued in more than one original, the full set as so issued, and
(v) appears to contain all of the terms and conditions of Carriage, or some of such terms and conditions by reference to a source or document other than the bill of lading (short form/blank back bill of lading); banks will not examine the contents of such terms and conditions, and
(vi) contains no indication that it is subject to charter party and/or indication that the carrying vessel is propelled by sail only, and
(vii) in all other respects meets the stipulations of the Credit.
(b) For the purpose of this Article, transshipment means unloading and reloading from one vessel to another vessel during the course of ocean carriage from the port of loading to the port of discharge stipulated in the Credit.
(c) Unless transhipment is prohibited by the terms of the Credit, banks will accept a bill of lading which indicates that the goods will be transhipped, provided that the entire ocean carriage is covered by one and the same bill of lading.
(d) Even if the Credit prohibits transhipment, banks will accept a bill of lading which--
(i) indicates that transhipment will take place as long as the relevant cargo is shipped in Container(s), Trailer(s) and/or "LASH" barge(s) as evidenced by the bill of lading, provided that the entire ocean carriage is covered by one and the same bill of landing, and/or
(ii) incorporates clauses stating that the carried reserves the right to tranship. Article 32.
20. ' Clean Transport Documents.
(a) A clean transport document is one which bears no clause or notation which expressly declares a defective condition of the goods and/or the packaging.
(b) Banks will not accept transport documents bearing such clauses or notations unless the Credit expressly stipulates the clauses or notations which may be accepted.
(c) Banks will regard a requirement in a Credit for a transport document to bear the clause "clean on board" as complied with if such transport document meets the requirements of this Article and of Articles 23, 24, 25, 26, 27, 28 or 30.
21. Article 33.
22. ' Freight Payable/Prepaid Transport Documents:
(a) Unless otherwise stipulated in the Credit, or in consistent with any of the documents presented under the Credit, banks will accept transport documents stating that freight or transportation charges (hereafter referred to as "freight") have still to be paid.
(b) If a Credit stipulates that the transport document has to indicate that freight has been paid or prepaid, banks will accept a transport document on which words clearly indicating payment or prepayment of freight appear by stamp or otherwise, or on which payment or prepayment of freight is indicated by other means. If the Credit requires courier charges to be paid or prepaid banks will also accept a transport document issued by a courier or expedited delivery service evidencing that courier charges are for the account of party other than the consignee.
(c) The words "freight prepayable" or "freight to be prepaid" or words of similar effect, if appearing on transport documents, will not be accepted as constituting evidence of the payment 'of freight.
(d) Banks will accept transport documents bearing reference by stamp or otherwise to costs additional to the freight, such as costs of, or disbursements incurred in connection with, loading, unloading or similar operations, unless the conditions of the Credit specifically prohibit such reference. Article 37.
23. ' Commercial Invoices:
(a) Unless otherwise stipulated in the Credit, Commercial Invoices;
(i) must appear on their face to be issued by the Beneficiary named in the Credit (except as provided in Article 48), and
(ii) must be made out in the name of the applicant (except as provided in sub-Article 48(h), and
(iii) need not be signed.
(b) Unless otherwise stipulated in the Credit, banks may refuse commercial invoices issued for amounts in excess of the amount permitted by the Credit. Nevertheless, if a bank authorised to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate under a Credit accepts such Invoices, its decision will be binding upon all parties, provided that sueh bank has not paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated for an amount in excess of that permitted by the Credit.
(c) The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.
7. In case of Pan Ocean Enterprises (Pvt.) Ltd. v. Thai Rayon Company Ltd. And 5 others (PLD 1990 Karachi 395) it has been held that in case the bill of lading was fraudulent and ineffective it was a fit case for grant of interim relief so that the decree in suit filed by the plaintiff may not be defeated.
24. However, in this case payment was made subject to the furnishing of bank guarantee equivalent to the amount of letter of Credit. At pages 400 and 401 of the report it has been held as under:- "It is settled law that in cases of breach of contract the innocent party has a right to take such steps as would minimise the loss or damage. The plaintiff has a right to take delivery of the goods in spite of his protest not only for inspection, but even for minimising the loss.
25. ' In the present case the defendant No,1 is seeking to confuse two completely independent legal issues. One is the question of the letter of credit. The second is the question of the delivery of goods.
26. In law these are completely independent and separate concepts and governed by different considerations. This can be seen by reference to the provisions of the Uniform Customs and Practice for Documentary Credits which admittedly apply in the present case. Articles 3 and 4 are absolutely clear and read as under:- "3. Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts, even if any reference whatsoever to such contracts is included in the credit.
4. In credit operations all parties concerned deal in documents, and not in goods, services and/or other performances to which the documents may relate."
27. ' Thus, it can be seen that there are two separate legal aspects of the matter. On the one hand the question is whether or not the encashment of the letter of credit should be stayed. This matter is to be decided on the basis of the fraud alleged to be perpetrated by the defendants in issuing bills of lading containing false dates. In this case there can be no doubt about the fact that the provisions of the letter of credit have been violated and accordingly it cannot be encashed. The second completely independent question is that of damages by reason of the supply of defective goods.
28. However, the defendants are seeking to confuse these two separate issues so as to obtain the encashment of the letter of credit which will then enable them to successfully evade compliance with the requirements of law. Since the defendants are foreign companies with no assets in Pakistan, it necessarily follows that once they have successfully withdrawn the money from Pakistan the plaintiff will be left without any remedy: ."I am, therefore, of the clear view that the plaintiff has prima facie case. Hence in the circumstances mentioned above, they are entitled to be granted some interim relief of the nature, so as to ensure that, if a decree is passed in their favour, the same shall not be defeated. Hence I restrain the defendants Nos.1 and 6 from claiming payment under the Letter of Credit in question and defendants Nos.4 and 5 from making any payment thereunder until and unless the defendants Nos.1 and 6 furnish bank guarantee equivalent to the amount of Letter of Credit with regard to any decree that may be passed in the suit."
29. ' In case of Messrs Kohinoor Trading (Pvt.) Ltd. v. Mangrani Trading Co. And 2 others (1987 CLC 1533) it has been held that payment of irrevocable letter of credit generally cannot be dishonoured by a bank except when it is prima facie established that there was a fraud to the knowledge of the bank and there is challenged validity of the letter of credit. At pages 1538 and 1539 of the report it has been held as under:-- "The above cases cited by Mr. Nasim Farooqi and the passages from the book referred to by him indicate that generally an irrevocable letter of credit cannot be dishonoured by a bank but there may be exceptions to the above general rule, for example, where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent but the evidence on the question of fraud and as to the bank's knowledge must be clear, or when there is challenge to the validity of the letter of credit. In the present case respondent No,3 Bank was to remit L/C amount to their counterpart in Switzerland on the basis of the commitment made by them. The appellants obtained the documents from respondent No,3 without any protest and without pointing out that there was any breach as to the terms of the L/C. It is also apparent that through the alleged survey report (which- according to the learned counsel for the respondents Nos.1 and 2 is an ex parte carried out after several weeks from the date of the delivery) indicates that the packing of the goods were allegedly found in damaged condition, the appellants had taken the delivery of the goods from the carrier without any protest. The question, whether the goods were despatched by respondent No,2 in accordance with the description given in the letter of credit or whether there was any breach as to the quality would be an issue at the trial. In our view, under an irrevocable letter of credit payment cannot be stopped on the ground that there was some breach on the part of the vendor as to the quality of the goods. An irrevocable letter of credit is a negotiable document in the commercial world which is negotiated inter alia inter se between the banks and, therefore, the Court cannot lightly cause its dishonouring by one bank to another, unless prima facie a sufficiently grave cause is shown. If we were to accept the contention of Mr. Nasim Farooqi it will gravely impair reliability and sanctity of an irrevocable letter of credit and will lead to commercial uncertainty. An irrevocable letter of credit is open in favour of a foreign exporter through a bank, which in turn makes commitment to a foreign bank, which in turn makes the payment generally against the bill of lading and other necessary documents after the shipment of the goods. We may also observe that the reliance upon rule 2 of Order XXXIX, C.P.C. By Mr. Nasim Farooqi is not warranted in the instant case as the alleged breach/injury had already been committed/caused by respondent No,2 before the filing of the suit.
5. We are, therefore, of the view that the learned Single Judge has exercised discretion properly in the matter and has rightly declined to withhold the payment of any of the amount under the irrevocable letter of credit in question. The appeal has no merits and, therefore, it is dismissed in limine."
30. 'In case of M/s. Allied Industries HUB (Pvt.) Ltd. v. M/s. China National Metals and Mineral Import and Export Corporation and another (1989 MLD (Kar. 2027) it has been held that in case where buyer has no assets in Pakistan and hence in case in the main suit decree is passed, it shall not be possible to execute the same, the interim relief should be granted. However, in this very judgment it has been held that a bank issuing or confirming a letter of credit is not concerned with the underline contract between buyer and seller as the duty of the banker under L.Cs are created under the document itself. At pages 2031 and 2034 of the report it has been held as under:-- ' The scope of an revocable letter of credit is explained thus in Halsbury's Laws of England, 3rd Edition (Vol. 34, paragraph 319 at page 185) which reads as under:- "It is often made a condition of a mercantile contract that the buyer shall pay for the goods by means of a confirmed credit, and it is then the duty of the buyer to procure 'his bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to, the seller, either directly or through another bank in the sellers country known as the correspondent or negotiating bank (a) to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents (b), the contractual relationship between the issuing bank and the buyer is defined by the terms of the agreement between them under which the letter opening the credit is issued, (c) and as between the seller and the bank, the issue of the credit duly notified to the seller, (d) creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents, (e) the contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller, which is absolute, (0 thus the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might permit the buyer to reject the goods and to refuse payment therefore, and, (g), conversely, the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective."
31. ' Chambers on "Bills of Exchange" explains the legal position in these words: "The modern commercial credit serves to interpose between a buyer and seller a third person of unquestioned solvency, almost invariably a banker of international repute; the banker on the instructions of the buyer issues the letter of credit and thereby undertakes to act as paymaster upon the seller performing the conditions set out in it. A letter of credit may be in 'any one of a number of specified forms and contains the undertaking of the banker to honour all bills of exchange drawn thereunder. It can hardly be over-emphasised that the banker is not bound or entitled to honour such bills of exchange unless they, and such accompanying documents as may be required thereunder, are in exact compliance with terms of the credit. Such documents must be scrutinised with meticulous care, the maximum deminimis non curate lex cannot be invoked where payment is made by the letter of credit. If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any disputes there may be between the buyer and the seller as to whether the goods are up to contract or not."
32. ' The legal position as set out above is not controverted by Mrs. Fazal-e-Ghani Khan, the learned counsel for the plaintiffs. So far as the defendant No,2 is concerned it admits its liability to honour the letter of credit and express its willingness to abide by its terms.
33. ' The main grievance of the learned counsel for the plaintiffs is that if the defendant No,1 is allowed to take away the money secured to it by letter of credit, it cannot effectively enforce their claims arising from the breach of the contract it complains of Mr: Fazale Ghani Khan has urged that the defendant No,1 has no assets in this country and therefore any decree that they may be able to obtain cannot be executed. The allegation that defendant No,1 has no assets in this country is made in the pleadings. I think this allegation has no relevance in the instant case. An irrevocable letter of credit has a definite implications. 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 of this country. I am of the humble view that except under very exceptional circumstances, the Courts should not interfere with that mechanism.
34. ' I have earlier referred to Halsbury's Laws of England and Chambers on "Bills of Exchange". Now I shall proceed to consider the decisions bearing on the question.
35. ' A case somewhat (similar) to the one before me came up for consideration before the Queen's Bench Division in England in Hamseh Walas and Sons v. British Imex Industries Ltd. (1988) 2 QB 127.
36. The plaintiffs, a Jordanian firm contracted to purchase from the defendant, a British firm, a large quantity of reinforced steel rods, to be delivered in two instalments. Payment was to be effected by opening in favour of the defendant of two confined letters of credit with the Midland Bank Ltd., in London, one in respect of each instalment. The letters of credit were duly opened and the first was realized by the defendants on the delivery of the first instalment. The plaintiffs complained that instalment was defective and sought an injunction to bar the defendants from realizing the second letter of credit. Donovan, Jr, the trial Judge refused the application. In appeal Jankins, Sellers and Pearce L., JJ., confirmed the decision of the trial Judge. In Jankins L.J., who spoke for the Court thus: "We have been referred to a number of authorities, and it seems to be pain enough that the 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 goose are up to contract or not. An elaborate commercial system has been built up on the footing that bankers confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice.
37. ' Where is this to be remembered, too. 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. That is of no mean advantage when goods manufactured in one country or being sold in another. It is, furthermore, to be observed that vendors are often reselling goods bought from third parties. When they are doing that, and when they are being paid by a confirmed letter of credit, their practice is and I think it was followed by the defendants in this case to finance the payments necessary to be made to their suppliers against the letter of Credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have the effect "Freezing" if I may use that expression, the sum in respect of which the letter of credit was opened."
38. ' In Urquhart Lindsay & Company Ltd. v. Eastern Bank Ltd. (1992) 1 K.B. 318, the King's Bench held that the refusal of the defendants bank to take and pay for the particular bills on presentation of the proper documents constituted a repudiation of the contract as a whole and that the plaintiffs were entitled to damages arising from such a breach. It may be noted that in that case the price quoted in the invoices was objected to by the buyer and he had notified his objection to the bank, but under the terms of the letter of credit the bank was required to make payments on the basis of the invoices tendered by the seller. The Court held that if the buyers had an enforceable claim that adjustment must be made by way of refund by the seller and not by way of retention by the buyer.
39. ' In Edward Own Ltd. v. Barclays Bank International Ltd. (1978) 1 A.E.R. 976 at page 981, it was held:-- "It has been long established that when a letter of credit is issued and confirmed by bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit.
40. That was clearly stated in Ealas (trading as Hamzeb Mallas & Sons) v. British Imex Industries Ltd.
41. (1988) 1 All ER. 262 at 363, (1958) 2 QB 127 at 129. Jenkins LJ, giving the judgment of this Court, said. "...
42. It seems to be plain enough that the opening of a confirmed letter of credit constitute a bargain between the bankers and the vendor of the goods, which imposes upon the banker an absolute 'obligation to pay, irrespective of any dispute which there may be between the - parties on the question whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice". To this general principle there is an exception in the case of what is called established or obvious fraud to the knowledge of the bank."
43. ' In Power Curber Intemational Ltd. v. National Bank of Kuwait SAK (1981) 3 ER 607 it was held:-- "On this question of recognition, I must draw attention to the importance of letters of credit in international trade. They are the means by which goods are supplied all the world over. It is vital that every bank which issues a letter of credit should honour its obligations. The bank is in no way concerned with any dispute that the buyer may have with the seller. The buyer may say that the goods are not up to the contract, nevertheless the bank must honour its obligations. The buyer may say that he has a cross-claim in a large amounts. Still the bank must honour its obligations. A letter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honoured. No set-off of counter claim is allowed to detract from. All the more so with a letter of credit. Whereas a bill of exchange is given by buyer to seller, a letter of credit is given by a bank to the seller with the very intention of avoiding any thing in the nature of a set-off or counter-claim.
44. This is borne out the Uniform Customs and Practice for Documentary Credits which have been adopted by the banks in all or practically all, the countries of the world, from the China to Andorra, from Cuba to Nauru."
45. ' The nature of the contractual obligations following from a bankers letter of' irrevocable credit and more particularly the rights of the seller/employer as the accredited party or beneficiary of the credit, against the issuing and drawee bank was dealt with by me in Suit No,565 of 1986, Pakistan Engineering Consultants v. P.I.A. And another. It was held that the bank guarantee performance Bond/Performance guarantee/letters of credit constitute a bargain between the bankers and seller employer which impose on the bankers an absolute obligation to pay.
46. ' In the light of these principles, the rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying the contract between the buyer and seller. Duties of a bank under a letter of credit are created by the document itself, but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit.
47. ' No injunctions can be granted under Order 39, Rules 1 and 2 of the Code of Civil Procedure unless the plaintiffs established that they have a prima facie case meaning thereby that there is a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case, and if so, as between whom? In view of the legal principles applicable, it is, difficult for me to say on the material on record that the plaintiffs have a prima facie case.
48. ' The learned counsel for the plaintiffs has contended that the balance of convenience lay in granting injunction since the defendants will not be put to any harm because the defendant No,2 can debit the account of the plaintiffs. I am afraid, these considerations cannot prevail.
49. ' The learned counsel for the plaintiffs has contended that the amount can be attached as the defendant No,1 has no assets in this country. Reliance is also placed on a number of decisions by the learned counsel for the plaintiffs. The decisions cited by the learned counsel for the plaintiffs are not relevant in the instant case. I am afraid, this consideration cannot prevail.
50. ' Lastly the learned counsel for the plaintiffs has submitted that the above principles are not applicable as I am dealing with complaint of fraud.
51. ' The facts pleaded in the plaint do not amount to a plea of fraud despite the assertion of the plaintiffs that the defendant No,1 is guilty of fraud.
52. ' In the result, the applications are dismissed with no order as to costs."
53. ' In case of Tarapore & Co., Madras v. Tractoro-export, Moscow (AIR 1970 SC 891) it has been held that the Courts should refrain from interfering with the payment against the irrevocable letters of credit as issuance of restraint order in such cases interference with the mechanism of great importance in international trade and has very serious repercussions thereon. In this case interim stay order granted by the Court below was vacated by the Supreme Court. In paragraphs 6, 7, 8 and 10 of the report it has been held as under:- "6. The scope of an irrevocable letter of credit is explained thus in Halsbury's Laws of England (Vol. 84, paragraph 319 at page 185).
54. ' It is often made a condition of a mercantile contract that the buyer shall pay for the goods by .Means of a confirmed credit, and it is then the duty of the buyer to procure his bank, known as the issuing or originating bank, to issue an irrevocable credit in favour of the seller by which the bank undertakes to the seller, either directly or through another bank in the seller's country known as the correspondent or negotiating bank, to accept drafts drawn upon it for the price of the goods, against tender by the seller of the shipping documents. The contractual relationship between the issuing bank and the buyer is defihed by the terms of the agreement between them under which the letter opening the credit is issued; and as between the seller and the bank, the issue of the credit duly notified to the seller creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the bill of exchange upon tender of the documents. The contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller, which is absolute. Thus the bank is not entitled to rely upon terms of the contract between the buyer and the seller which might permit the buyer to reject the goods and to refuse payment therefore; and, conversely, the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit if the goods are defective."'
55. ' Chambers on "Bills of Exchange" explains the legal position in these words:-- "The modern commercial credit serves to interpose between a buyer and seller a third person of unquestioned solvency almost invariably a banker of international repute; the banker on the instructions of the buyer issues the letter of credit and thereby undertakes to act as payments upon the seller performing the conditions set out in it. A letter of credit may be in any one of a number of specialised forms and contains the undertaking of the banker to honour all bills of exchange drawn thereunder. It can hardly be over-emphasised that the banker is not bound or entitled to honour such bills of exchange unless they, and such accompanying documents as may be required thereunder, are in exact compliance with the terms of the credit. Such documents must be scrutinised with meticulous care, the maxim de minimis non curate lex cannot be invoked where payment is made by the letter of credit. If the seller has complied with the terms of the letter of credit, however, there is an absolute obligation upon the banker to pay irrespective of any dispute there may be between the buyer and the seller as to whether the goods are up to contract or not."
56. ' Similar are the views expressed in 'Practice and Law of Banking, by H.B. Sheldon, the Law of Bankers Commercial Credits" by H.C. Gutteridge, "the Law Relating to Commercial Letters of Credit" by A.G.
57. Davis' "the Law Relating to Bankers' Letters of Credit" by B.C. Mitra and in several other textbooks read to us by Mr. Mohan Kumaramangalam, learned counsel for the Russian firm, The legal position as set out above was not controverted by Mr. M.C. Setalvad, learned counsel for the Indian Firm. So far as the Bank of India is concerned it admitted its liability to honour the letter of credit and expressed its willingness to abide by its terms. It took the same position before the High Court: "7 The main grievance of the Indian Firm is that if the Russian Firm is allowed to take away the money secured to it by the letter of credit, it cannot effectively enforce its claim arising from the breach of the contract it complains of. It was urged on its behalf that the Russian Firm has no assets in this country and therefore any decree that it may be able to obtain cannot be executed.
58. Therefore, it was contended that the Trial Court was justified in issuing the impugned orders. The allegation that Russian Firm has no assets in this country was not made in the pleadings. That apart in the circumstances of this case that allegation has no relevance. 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 of the country. Except under very exceptional circumstances, the Courts should not interfere with that mechanism."
59. "8 For our present purpose we shall assume without deciding that the allegations made by the Indian Firm are true. We shall further assume that the suit as brought is maintainable though Mr. Kumaramangalam seriously challenged its maintainability. But yet, in our judgment, the learned trial Judge was not justified in law in granting the temporary injunctions appealed against.
60. Ordinarily this Court does not interfere with interim orders. But herein legal principles of great importance affecting international trade are involved. If the orders impugned are allowed to stand they are bound to have their repercussion on our international trade.
10. A case somewhat similar to the one before us came up for consideration before 'the Queen's Bench Division in England in Hamzeb Walas and Sons v. British Imex Industries Ltd., (1958) 2 Q.B.
127. Therein the plaintiffs, a Jordanian firm contracted firm contracted to purchase from the defendants, a British firm, a large quantity of reinforced steel rods, to be delivered in two instalments. Payment was to be effected by opening in favour of the defendants of two confirmed letters of credit with the Midland Bank Ltd., in London, one in respect of each instalment. The letters of credit were duly opened and the first was realized by the defendants on the delivery of the first instalment. The plaintiffs complained that instalment was defective and sought an injunction to bar the defendants from realizing the second letter of credit. Donovan, J., the trial Judge refused the application. In appeal Jenkins, Sellers and Pearce L., JJ. Confirmed the decision of the trial Judge. In the course of his judgment Jenkins, L.J., who spoke for the Court observed thus:-- ' We have been referred to a number of authorities, and it seems to be plain, enough that the 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. An elaborate commercial system has been built up on the footing that bankers' confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice.
61. ' There is this to be remembered, too. A vendor of goo& selling against a confirmed letter of credit is selling under the assurance that nothing will prevent him from receiving the price. That is of no mean advantage when goods manufactured in one country are being sold in another. It is, furthermore, to be observed that vendors are often reselling goods bought from third parties. When they are doing that, and when they are being paid by a confirmed letter of credit, their practice is and I think it was followed by the defendants in this case to finance the payments necessary to be made to their suppliers against the letter of credit. That system of financing these operations, as I see it, would break down completely if a dispute as between the vendor and the purchaser was to have the effect of "freezing" if I may use that expression the sum in respect of which the letter of credit was opened."
62. ' In Urquhart Lindsay & Co. Ltd. v. Eastern Bank Ltd. (1922)1 KB 318 the King's Bench held that the refusal of the defendants bank to take and pay for the particular bills on presentation of the proper documents constituted a repudiation of the contract as a whole and that the plaintiffs were entitled to damages arising from such a breach. It may be noted that in that case the price quoted in the invoices was objected to by the buyer and he had notified his objection to the bank. But under the terms of the letter of credit the bank was required to make payments on the basis of the invoices tendered by the seller. The Court held that if the buyers had 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".
63. ' In case of United Commercial Bank v. Bank of India and others (AIR 1981 SC 1426) it has been held that the Court should refrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. In this case interim stay granted was vacated. In paragraphs of 39, 41, 47, 49 and 51 of the report it has been held as under:-- "39. It is somewhat unfortunate that the High Court should have granted a temporary injunction as it has done in this case, to restrain the appellant from making a recall of the amount of Rs,85,84,456 from the bank of India in terms of the letter of guarantee or indemnity executed by it.
64. The Courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker and a banker, restraining a bank from recalling the amount due to another bank or in terms of the letter of guaran or credit executed by it, the whole banking system in the country would fail.
41. A letter of credit sometimes resembles and is analogous to a contract of guarantee. In Elian v.
65. Matsas, (1966) 2 LI LR 495, Lord Denning, M.R., while refusing to grant an injunction stated:-- .... a bank guarantee is very much like a letter of credit. The Courts will do their utmost to enforce it according to its terms. They will not, in the ordinary course of things, interfere by way of injunction to prevent its due implementation: Thus they refused in Malas v. British Imex Industries Ltd. But that is not an absolute rule. Circumstances may arise such as to warrant interference by injunction. A Bank which gives a performance guarantee must honour that guarantee according to its terms. In R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd., (1977) 3 WLR 752, Keer, J.
66. Considered the position in principle. We would like to adopt a passage from his judgment at p. 761: It is only in exceptional cases that the Courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The Courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take. In this case the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the Courts. Otherwise trust in international commerce could be irreparably damaged.'
47. There still remains the question whether the Court should interfere with an order of this nature.
67. The Court's powers under .Article 136 of the Constitution are untrammelled, but they are subject to self-ordained restrictions. The Court does. Not, as a matter of rule, interfere with interlocutory orders, save under very exceptional circumstances.
49. In the instant case, the High Court has assumed that the plaintiffs had a prima facie case. It has not touched upon the question where the balance of convenience lay, nor has it dealt with the question whether or not the plaintiffs would be put to irreparable loss if there was no injunction granted. In dealing with the prima facie case, the High Court assumes that the appellant was in breach. There is no basis for this assumption at all. The High Court in this case has pre-judged the whole issue by holding that the appellant could not unilaterally impose the condition of payment under reserve nor was it justified in holding that the documents were clean. The question whether the appellant was in breach is an issue to be tried in the suit. The question whether the documents were 'clean' or 'unclean' is a vexed question on which no opinion could be expressed at this stage. It is also premature at this stage to assume that there was no 'due presentation' of the bill of exchange and there refusal.
51. Even if there was a serious question to be tried, the High Court had to consider the balance of convenience. We have no doubt that there is no reason to prevent the appellant from recalling the amount of Rupees 85,84,456. The fact remains that the payment of Rs,36,52,960 against the first lot of 20 document made by the appellant to the Bank of India was a payment under reserve while that of Rs,49,31,496 was also made under reserve as well as against the letter of guarantee or indemnity executed by it. A payment 'under reserve' is understood in banking transactions to mean that the recipient of money may not deem it as his own but must be prepared to return it on demand. The balance of convenience clearly lies in allowing the normal banking transactions to go forward. Furthermore, the plaintiffs have failed to establish that they would be put to an irreparable loss unless an interim injunction was granted."
68. ' In case of M/s. National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311) it has been held that if bank guarantee furnished by the appellants contain categorical undertaking and impose absolute obligations on the banks to pay the amount, irrespective of any dispute which may arise between the parties to the contract regarding the breach thereof, restrain order against payment/encashment of the bank guarantee cannot be passed and therefore, the order of refusal of the stay order was upheld. In paragraphs Nos.4 and 5 of the report it has been held as under:-- "4. We have considered the contentions raised by the learned counsel for the parties and have also peruse the record. The contents of para.3 of mobilization advance guarantee, clearly visualized that the respondent can get encashed guarantee without any question or without any reference of any nature, whatsoever to the contractor/appellants and in respect of any dispute between the parties or before any arbitrator or any Court of law. The precedents cited by the learned counsel for the appellants are distinguishable. The case reported as M/s. Jamia Industries Limited v. M/s. Pakistan Refinery Limited (PLD 1976 Kar. 644) does not deal with bank guarantee given against the mobilization advance. Similarly in MacDonald Layton & Co. Ltd. v. Pakistan Service Ltd. And others (1983 CLC 2252), the employer to minted the contract in contravention of the clauses of the agreement, waen the plaintiffs did not abandon the work, consequently injunction was issued. The contention of the learned counsel for the appellants that in the event, the appellants succeeded in arbitration proceedings they will not be able to recover the amount is beyond the point in issue. In the instant case, therefore, the bank guarantees furnished by the appellants contain categorical undertaking and impose absolute obligation on the bank to pay the amount, irrespective of any dispute which may arise between the parties regarding the breach of contract. In our view the Courts must given effect to the covenants of the bank guarantee, the performance guarantees, for the smooth performance of the contracts. Those guarantees are independent contracts and a hank authority must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties. In the instant case, therefore, the encashment of the bank guarantees cannot be postponed pending decision of the arbitration proceedings, which may take years to conclude.
5. The discretion exercised by the Courts below in refusing to grant temporary injunction by restraining the respondent from encashment of the bank guarantees in respect of the amount advanced to the appellant can neither be deemed to be arbitrary nor fanciful. The respondent is, therefore, held entitled to encash the bank guarantees to the extent of the balance unadjusted amount".
69. ' In case Pakistan through Secretary, Ministry of Food and Agriculture v. Special Court (Banking)
70. Sindh and others (1991 SCMR 2355), it has been held that interim order passed by Banking Court should not be interfered with in writ.
8. From the consolidated study of the aforementioned articles and the case-law following legal principles can be deduced for the decision of the controversy involved in this case--
(i) that the banks deal in documents and not in goods and have to rely upon the face entries thereof;
(ii) that payment against irrevocable letter of guarantee cannot be stopped unless there is a fraud on the face of the documents produced before the Bank, to the knowledge of the Bank concerned;
(iii) that a restraint order against payment of irrevocable I,.Cs or Bank guarantee particularly should not ordinarily be granted as it has serious repercussion on international trade;
(iv) that interim order of refusal to grant stay in discretionary exercise of special jurisdiction, which is not appealable under the statute, should not be interfered with in exercise of writ jurisdiction.
9. I have considered the arguments addressed by the learned counsel for the parties and have examined the case in the light of the aforementioned legal principles. It is conceded legal position that the Banks do not deal in goods but they deal in documents meaning thereby that the Bank is responsible to see genuineness of the transaction on the face value of the documents. In this case collective reading of the documents relied upon by the learned counsel for the petitioner as well as learned counsel for the respondents clearly shows that on the face of the document it does not appear to be prima facie a case of fraud or non-compliance. Main grievance of the petitioner for bringing the suit appear to be alleged supply of cotton of inferior quality. This dispute in fact is not relatable to the terms of the contract on its face value as reflected in the documents submitted to the bank, therefore, it cannot prima facie be said that it is a case of fraud or non-compliance at least which is or which could be held to be within the knowledge of the respondent No,2.
71. ' Delivery of a major portion of the consignment in question has already been received by the petitioner. Interference with the payment at this stage will definitely interfere with the smooth running of the international trade between the two bankers and will also result in causing of financial crises in the working of the respondent Bank and hence grant of stay order will be against the public interest and also against public policy. It is well established legal proposition of law that interest of an individual is to give away to the public interest, therefore, balance of inconvenience also lies in favour of the respondents.
72. It has also not been established on record that in case the stay order is not granted the petitioner will suffer irreparable loss. The respondent No,2 is a Bank in Pakistan with its assets in this country.
73. An undertaking has been given on behalf of the Bank that in case ultimately it is adjudicated upon that the payment should not have been made, any amount recovered from the petitioner shall be refunded on return of cotton bales. This undertaking sufficiently protects the interest of the petitioner pendente lite. Even otherwise final decree passed in the suit shall have to be obeyed.
74. Consequently, arguments of the learned counsel for the petitioner to the effect that the decree shall stand frustrated and that the petitioner will be remedyless if ultimately he succeeds in the suit, is without any lawful and reasonable basis as such is of no avail to the petitioner. Admittedly, the impugned order is not appealable under the provisions of Banking Laws proceeding whereunder the Special Tribunal has dismissed the stay application. Interference in Constitutional jurisdiction therefore will amount to circumventing the law. Even otherwise, a discretionary order passed by a Tribunal of Special jurisdiction is not liable to be interfered with in exercise of the discretionary jurisdiction of this Court as the impugned order is not proved to be arbitrary or whimsical.
10. Resultantly, I find no force in this petition, hence the same is dismissed.