UNITED COMMERCIAL BANK versus BANK OF INDIA AND OTHERS

UNITED COMMERCIAL BANK versus BANK OF INDIA AND OTHERS

The High Court erred in granting a temporary injunction in a dispute between bankers regarding payment under a letter of credit, particularly as the payment was expressly made 'under reserve' due to discrepancies in the documents. Banking law requires strict compliance with the terms of credit, and the court should not interfere with normal banking transactions by restraining a recall of funds paid under reserve, absent irreparable loss to the plaintiff.

Parties
Appellant: United Commercial Bank; Respondent No. 1: Bank of India; Respondent No. 2 (plaintiff in Original Suit): Godrej Soaps Limited; Respondent No. 3 (buyer): Bihar State Food and Civil Supplies Corporation Limited
Jurisdiction
India
Judgment Date
26 March 1981
Procedural Posture
Civil Appeal (by Special Leave) / Appeal From Interlocutory Order (temporary Injunction) of the Bombay High Court
Outcome
Appeal allowed
Legal Topics
Letters of Credit, Banker's Duties, Interlocutory Injunctions
Banking Law Civil Procedure Letters of Credit Banker's Duties Interlocutory Injunctions

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Parties

United Commercial Bank

Appellant

Bank of India

Respondent No. 1

Godrej Soaps Limited

Respondent No. 2 (plaintiff in Original Suit)

Bihar State Food and Civil Supplies Corporation Limited

Respondent No. 3 (buyer)

Procedural Posture

Civil Appeal (by Special Leave) / Appeal From Interlocutory Order (temporary Injunction) of the Bombay High Court

Legal Issues

  1. 1 Whether the High Court was right in granting a temporary injunction restraining the appellant bank from recalling the amount paid under reserve to the respondent bank.
  2. 2 Whether in transactions between bankers in relation to a letter of credit, the court ought to restrain performance of contractual obligations by interim order.
  3. 3 Whether the Supreme Court should interfere under Article 136 with interlocutory orders.

Ratio Decidendi

The High Court erred in granting a temporary injunction in a dispute between bankers regarding payment under a letter of credit, particularly as the payment was expressly made 'under reserve' due to discrepancies in the documents. Banking law requires strict compliance with the terms of credit, and the court should not interfere with normal banking transactions by restraining a recall of funds paid under reserve, absent irreparable loss to the plaintiff.

Court Disposition

Appeal allowed

Orders

  • Order of the High Court granting temporary injunction set aside.
  • Application for temporary injunction under Order 39, Rules 1 and 2 of CPC rejected.