Caution on injunctions against banks

Injunctions against banks for making payments to the beneficiary must be given cautiously, as judicial interference in the normal practices of the market can have disastrous consequences. It would affect the trustworthiness of Indian banks and markets, the Supreme Court stated in its judgment last week in the case, Millenium Wires vs State Trading Corporation. The two firms entered into an agreement for importing copper wire from Singapore and Malaysian companies. STC opened four letters of credit with Allahabad Bank, the issuing bank, and Malayn Banking BHD, the confirming bank. The latter bank released payments on presentation of letter of credit, which was opposed by Millenium Wires. It sought injunction from the Delhi High Court. It was rejected, leading to the appeal in the Supreme Court. On injunctions, the court emphasised that courts must be slow in granting injunctions restraining the realisation of a bank guarantee or letter of credit. Business persons take risks which are not to be imposed on the banks, lest the interference should deter trust in international commerce. However, there are two exceptions to the rule. First, when there is clear evidence to show that there was fraud of a grievous nature and the bank was aware of it. The second is that injustice of the kind which would make it impossible for the guarantor to reimburse himself, or would result in irretrievable harm or injustice to one of the parties, should have resulted.

Article referred: http://www.business-standard.com/article/opinion/caution-on-injunctions-against-banks-115032900673_1.html