FARGO FREIGHT LTD. versus THE COMMODITIES EXCHANGE CORPORATION AND ORS.

Citation: [2004] SUPP. 3 S.C.R. 309 · Decided: 03-08-2004 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Disposed off

Judgment (excerpt)

FARGO FREIGHT LTD. 
A 
V. 
THE COMMODITIES EXCHANGE CORPORATION AND ORS. 
AUGUST 3, 2004 
[S.N. VARIAVA AND ARIJIT PASAYAT, JJ.] 
B 
Banking Law : 
Hiring of a vessel from a Foreign firm-Payment of freight and 
demurrage charges-Letter of Credit in exchange of Cargo-Freight paid C 
by the firm-Liability in respect of demurrage-Suitfiled against respondent/ 
bankers-High Court directed issuing banker to keep alive the Letter of 
Credit-Arbitration-Arbitrator gave Award in favour of the firm awarding 
demurrage charges with interest thereon-Enforcement Petition-Decreed 
by High Court-Noticing discrepancies in the documents, banker did not D 
make payment-High Court found no discrepancies in the documents and 
directed the banker to make payment in terms of Letter of Credit-On 
appeal, Held : Letter of Credit transaction is a separate/independent 
transaction from the contract-Issuer of Letter of Credit not concerned 
with the disputes between parties to a contract-Banker should not have 
been called upon to extend validity period of the Letter of Credit- E 
However, the issuing banker is bound to follow order of the Court, 
howsoever wrong the order may be-Obeying an order of the Court does 
not necessarily amount to acquiescence and the issuing banker could not 
be estopped from contending against-Banker negligent in notchallenging 
the order of the High Court-However, since the issuing banker itself has F 
offered to pay certain sum as also shares, and the firm has shown its 
willingness to accept the offer in discharge of the liability of the banker 
under the Letter of Credit, the proposed settlement allowed-Directions 
issued. 
Arbitration and Conciliation Act, 1996 : 
Sections 46 to 49-Proceedings under-Held : In such proceedings 
serious disputes as to liability of third party could not be determined. 
Code of Civil Procedure, 1908; Order 21 Rule 46 : 
309 
G 
H 
310 
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R. 
A 
Provisions of garnishee proceedings-Held: Applicable, when monies 
B 
of judgment debtor are in the hands of third parties-However, it cannot 
be said that the monies payable by issuing banker are monies payable to 
judgment debtor-Liability against claim could be determined in an 
independent proceeding. 
Appellants, a foreign firm, chartered out a vessel to Respondent 
No. I. The firm raised demand of freight and demurrage charges. 
Pending permission from Reserve Bank of India (RBI) for making 
payment to the foreign firm, Respondent No. 1 gave an irrevocable 
C Letter of Credit to them, in exchange of Cargo. Later, Reserve Bank 
of India gave permission in respect of amount of freight charges but 
not for demurrage charges, and the amount was remitted by the 
Corporation. There arose a dispute with regard to liability of the 
Corporation towards demurrage charges. Firm invoked arbitration as 
D per terms of the Charter Party Agreement and later filed a suit for 
issuing injunction against Respondent Nos. 1 and 2 before the High 
Court. By an ex-parte interim order the High Court directed respondent 
No. 3 to keep alive the Letter of Credit. Respondent No. 3 kept on 
extending validity of the Letter of Credit from time to time. However, 
E it filed an application for vacating the order and sought permission of 
the Court to deposit the security taken by them in lieu of the Letter 
of Credit. High Court found Respondent No. 3 negligent as by 
extending time and not challenging the order thereof, it acquiesced the 
Order and therefore would continue to be made liable under the Letter 
of Credit. 
F 
In the meantime, Arbitrator gave an Award in favour of the firm. 
The firm filed an Enforcement Petition. High Court decreed the suit 
permitting the firm to obtain necessary permission from the RBI to 
realize demurrage charges. The firm presented necessary documents 
G for payment. However, Respondent No. 3 noticed discrepancies in the 
documents and refused to make payment. High Court held that there 
were no discrepancies in the documents and directed payment of 
demurrage charges as per Letter of Credit. Aggrieved, Respondent No. 
3 filed appeal, which was allowed by the Division Bench of the High 
H Court. Hence the present appeals. 
FARGO FREIGHT LTD. v. COMMODITIES EXCHANGE CORPN. 311 
Disposing of the appeals, the Court 
A 
HELD : 1.1. It is settled law that a Letter of Credit transaction 
is a separate and independent. transaction from the contract, if any, 
between the opener and the beneficiar

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