Letter of credit encashment can be restrained only for egregious fraud or irretrievable injustice, not ordinary contract disputes.

An injunction under Section 9 of the Arbitration and Conciliation Act, 1996 to restrain encashment of a letter of credit is available only in exceptional cases of egregious fraud vitiating the instrument or irretrievable injustice. A bank guarantee or letter of credit must ordinarily be honoured according to its terms, and disputes under the underlying contract do not justify restraint. On the facts, the pleadings did not disclose fraud of the required level; the dispute concerned only part of a consignment, some documents had already been negotiated, and apprehended difficulty in recovery from a foreign company was insufficient where a bank guarantee had already been obtained in related proceedings. No case was made out for interim protection.

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Issues: Whether an injunction under Section 9 of the Arbitration and Conciliation Act, 1996 could be granted to restrain encashment of the letter of credit on the grounds of fraud or irretrievable harm.

Analysis: The settled rule is that a bank guarantee or letter of credit must ordinarily be honoured according to its terms, and disputes under the underlying contract do not justify restraint. Judicial interference is limited to exceptional cases of egregious fraud vitiating the foundation of the instrument, or irretrievable injustice making reimbursement impossible. On the facts, the pleadings did not disclose fraud of that level. The alleged dispute related only to part of the second consignment, and some documents had already been negotiated and payment released. The apprehension that the respondent was a foreign company with no assets in India was insufficient to establish irretrievable injury, especially since the appellant had already obtained protection by way of a bank guarantee in the related damages suit.

Conclusion: No case was made out for an injunction restraining encashment of the letter of credit, and the refusal to grant interim protection was upheld.

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