Facts:
Para 2: the buyer, covenanted to purchase and respondent 1, Messrs Vinmar Impex Inc., Singapore, the sellers, agreed to sell and supply 100 MT of High Density Polythene Powder called HDPE @ $ 565 per MT CIF, Calcutta on an irrevocable letter of credit being opened by the appellant in favour of respondent 1, the sellers.
Para 3: the appellant brought a suit in the Original Side of the Calcutta High Court seeking to recover Rs. 9,25,020.80 p. as damages from respondent 1, the sellers, alleging that they were in breach in that the goods dispatched by respondent 1 were of inferior quality and not the goods contracted for i.e. not of grade 5202 but of grade 5502, and also because they had failed to forward the original shipping documents. The appellant applied for grant of a temporary injunction under Order XXXIX, Rule 1 of the Code Civil Procedure, 1908 restraining the Allahabad Bank from making any payment to the shipping company in terms of the letters of indemnity and also restraining respondent 1, from recovering the amount due thereunder.

Conduct of Buyer – Rule of Estoppel:
Para 4: … He (Court – emphasis supplied) further observed that despite knowledge of the goods being of a different mark or grade, as alleged in the plaint, the appellant took delivery of the goods and sold them for Rs. 17,50,000 and appropriated the proceeds. He also observed that even assuming that the appellant had suffered the damages, it has assessed the same at Rs. 9,25,020.80 p. there still remained a clear margin of over Rs. 8 lakhs in the hands of the appellant on account of the sale price of the goods, the agreed price of the said goods being Rs. 6,90,000. The learned Judge felt that there was no reason why the appellant should retain the entire sale proceeds amounting to Rs. 17,50,000 and pay nothing to respondent 1 towards the price.

Fraud: Bank’s notice
Para 5 (last sub-para): Except possibly in clear cases of fraud of which the banks have notice, the courts will have the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or as stipulated in the contracts.

Other Important Case Laws relating to Letter of Credit/ Bank Guarantee

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