TARAPORE & CO., MADRAS versus M/S. V/O TRACTORS EXPORT, MOSCOW AND ANR.

Citation: [1969] 2 S.C.R. 920 · Decided: 26-11-1968 · Supreme Court of India · Bench: S.M. SIKRI · Disposal: Dismissed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

TARAPORE & CO., MADRAS 
v. 
M/S. V/0 TRACTORS EXPORT, MOSCOW AND ANR. 
November 26, 1968 
(S. M. SIKRI AND K. S. HEGDE, JJ.] 
Banking Practice-Irrevocable letter of 
credz't--Significance of-If 
Courts can interfere with commercial practice when international reper· 
cussions are involved. 
An Indian Firm (the 
appellant) entered into a 
contract with 
a 
Russian Firm (the respondent) for supply of certain 
machinery, Jn 
pursuance of the contract, the appellant opened a con.firmed, irrevocable 
and divisible letter of credit with a Bank in India for the entire value 
of the equipment. The respondent supplied all the machinery and re-
ceived 25 % of the money payable under the Jetter of credit from the 
Bank. 
Thereafter, the appellant complained that the performance of the 
machinery was not efficient and filed a suit seeking an injunction restrain~ 
ing the respondent from realising the 
balance of amount payable under 
the letter of credit. 
The parties, however, entered into an agreement, 
by which it was agreed that the appellant would wiihdraw the suit, the 
respondent would not demand any payment under the 
letter of credit 
for 6 months, the parties would try to settle the dispute amicably during 
that period, and if no 
settlement was 
reached the period 
would be 
extended by a further period of 6 months. The appellant withdrew its 
suit, but before any settlement was arrived at the Indian rupee was de-
valued, as a result of which the appellant had to pay an additional sum 
for the machinery supplied. There was 
correspondence between 
the 
parties wherein the respondent insisted upon the appellant opening an 
additional letter of credit for the extra amount and the appellant objected 
to such a course. 
The original dispute bet\Veen the parties was not ami-
cably settled and when the extended time under the agreement was about 
to expire, the appellant filed a suit op the original side of the High Court 
for restraining the Bank and the respondent from taking any steps 
in 
pursuance of the letter of credit. 
A temporary injunction was also prayed 
for and it was granted, but the order was reversed by the Appellate Bench 
of the High Court. 
In appeal to this Court, on the question whether the order of tem-
porary injunction was sustainable, 
HELD : (1) An irrevocable letter of credit has a definite implication. 
A 
B 
c 
D 
E 
F 
It is independent of and unqualified by the contract of sale or other under-
lying transactions. 
It is ·a mechanisµi of great importance in international 
trade and any interference with that mechanism is bound to have serious 
G 
repercussions on the international trade of this country. 
The autonomy 
of an irrevocable, letter of credit is entitled to protection and except in 
very exceptional 
circumstances courts should not 
interfere with 
that 
autonomy. [929 B-C; 931 G] 
Urquhart Lindsay and Co. Ltd. v. Eastern Bank Ltd., [1922] 1 K.B. 
318· Hamzeh Malas and Sons v. British lmex Industries Ltd., 
[1958] 2 
Q.B: 127 and Dulien St~el Products Inc: of Washington v. Bankers Trust 
H 
Co., Fed. Rep. 2nd Senes, 298, p. 836, applied. 
(2) The allegation of the appellant that the respondent had no assets 
in this Country and therefore if the respondent was allowed to take away 
• 
• 
.. 
• 
A 
B 
TARAPORE & co. v. TRACTORS EXPORT, MOSCOW (Hegde, !.) 
921' 
the money secured to it by the le.tter of credit the appellant could not 
effectively enfurce its claim arising from the breach of the contract, was 
not made in the pleadings. Nor do the facts pleaded in the plaint amount 
to a plea of fraud. [929 B; 931 HJ 
(3) It could not be contended that the letter of credit was not en-
forceable as the original contract was modified by the later agreement 
and subsequent correspondence between the parties. 
The contention was 
not taken either in the plaint or in the High Court. It is not a mere legal 
contention as it bears on the intention of parties. 
Further, a perusal of 
the entire correspondence between the parties shows that in the absence 
of an amicable settlement, 
the parties continued to be bound by the 
original contract subject only to extension of time granted for payment of 
price. [932 B-D, FJ 
C 
CrvrL APPELLATE JURISDICTION : Civil Appeals Nos. 2251 
D 
E 
F 
and 2252 of 1968. 
Appeals by special leave from the judgment and order dated 
October 9, 1968 of the Madras High Court in 0.S.A. Nos. 26 
and 27 of 1968 and Civil Appeals Nos. 2305 and 2306 of 1968. 
Appeals by 

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