That in relation to “Balance of Convenience”, the Hon’ble Supreme Court of India & Hon’ble High Courts of Different States of India in catena of Decisions has held & Observed as follows:

• In the case of M/s Tarapore and Co., Madras …V/s… M/s V/O Tractoroexport Moscow and another, A.I.R. 1970 SC 891, the Hon’ble Supreme Court of India:

  At Para 10, quoted with approvable, that “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 are being sold in another.”
  
  At Para 11, quoted with approvable, that “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.

• In the case of United Commercial Bank …V/s… Bank of India and others A.I.R. 1981 SC 1426, the Hon’ble Supreme Court of India:

  At Para 41 Quoted with approvable, that “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”.”
  
  At Para 51, observed “Even if there was a serious question to be tried (i.e., prima facie case established – Emphasis supplied), the High Court had to consider the balance of convenience……. the balance of convenience clearly lies in allowing the normal banking transactions to go forward.”

• In the case of Svenska Handelsbanken, Appellant v. M/s. Indian Charge Chrome and others, Respondents AIR 1994 SUPREME COURT 626, the Hon’ble Supreme Court of India:

  At Para 39, observed “It (Bank – Emphasis supplied) has to maintain its credibility and not merely be guided by the loss to our citizens. It has also to maintain its international credibility. Credibility is the. Most important thing for any banking institution. If the credibility goes the bank cannot survive. The bank in its working has to be most upright and honest in dealing with its customers.
  
  At Para 62, quoted with approvable, that “Otherwise, the very purpose of bank guarantees would be negatived and the fabric trading operation would be jeopardised. The commitments of the banks must be honoured free from interference by the courts; otherwise, trust in commerce internal and international would be irreparably damaged.
  
  At Para 98, observed “The High Court was also in error in considering the question of balance of convenience. In law relating to bank guarantees, a party seeking injunction from encashing of bank guarantee by the suppliers has to show prima facie case of established fraud and an irretrievable injury. Irretrievable injury is of the nature as noticed in the case of Itek Corporation (566 Federal Supplement 1210) (supra). Here there is no such problem. Once the plaintiff is able to establish fraud against the suppliers or suppliers-cum-lenders and obtains any decree for damages or diminution in price, there is no problem for affecting recoveries in a friendly country where the bankers and the suppliers are located. Nothing has been pointed out to show that the decree passed by the Indian courts could not be executable in Sweden.

• In the case of Unique Alliance Industries, Appellant …V/s… Anupama Agencies, Respondent, I (1995) BC 127 (DB), the Hon’ble Kerala High Court Observed:

  At Para 10, the Hon’ble Court observed, “The grant of temporary injunction, as noticed above, is purely a discretionary exercise of power by the Court. This power has to be exercised by the Court fairly and suitably. It can refuse temporary injunction against a Bank if the Court feels that issuing of such injunction will result in gross injustice to the Bank or the public at large. In certain case public interest assumes much importance at the realms of granting or issuing the temporary injunction in the case of banking institutions.”

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

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