Letter of credit autonomy prevails where underlying contract disputes and unproven fraud cannot restrain encashment.

A letter of credit remains an independent and autonomous payment instrument, so disputes under the underlying sales contract, including alleged force majeure or deferred-payment arrangements, cannot ordinarily be imported to restrain encashment. Judicial interference is available only where fraud of an egregious nature is clearly established and the bank knew of the fraudulent demand at the relevant time; on the stated materials, that threshold was not met. The bank's obligation continued to be governed by the credit and documentary-credit rules, not by later or unincorporated contractual understandings. The article concludes that no prima facie basis existed for interlocutory restraint of the credit.

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Issues: (i) Whether an injunction could be granted to restrain encashment of the letter of credit on the basis of the underlying sales contract and alleged force majeure. (ii) Whether the pleadings and materials disclosed fraud of an egregious nature known to the confirming bank so as to attract the fraud exception. (iii) Whether the deferred-payment arrangement and the terms of the underlying contract could be read into the letter of credit.

Issue (i): Whether an injunction could be granted to restrain encashment of the letter of credit on the basis of the underlying sales contract and alleged force majeure.

Analysis: A letter of credit is an independent and autonomous commercial instrument. The bank's obligation is confined to the documents and the terms of the credit, and disputes arising from the underlying contract do not ordinarily justify judicial interference. The force majeure clause relied upon by the plaintiff formed part of the underlying contract, not the letter of credit. Even if the underlying contract was affected by subsequent events, that circumstance did not, by itself, justify restraint on encashment of the credit.

Conclusion: The injunction could not be sustained on the basis of the underlying contract or the alleged force majeure.

Issue (ii): Whether the pleadings and materials disclosed fraud of an egregious nature known to the confirming bank so as to attract the fraud exception.

Analysis: Interference with a letter of credit is permissible only where fraud is clearly established and the bank has knowledge that the demand for payment is fraudulent. The materials did not show any pleading or proof of fraud of the requisite gravity against the confirming bank. The bank was not shown to have knowledge, at the time of presentation of documents, that the demand was fraudulent. In the absence of such knowledge, the fraud exception was not attracted.

Conclusion: No fraud of the requisite kind was established, and the bank's knowledge was not proved.

Issue (iii): Whether the deferred-payment arrangement and the terms of the underlying contract could be read into the letter of credit.

Analysis: The deferred-payment understanding and other contractual stipulations in the underlying agreement could not be imported into the letter of credit so as to control the bank's obligations. The confirmation bank was not bound by subsequent arrangements between the contracting parties that were not incorporated into the credit. The bank's duty remained governed by the credit and the applicable documentary-credit rules.

Conclusion: The deferred-payment arrangement and the underlying contract terms could not restrict encashment of the letter of credit.

Final Conclusion: The plaintiff failed to make out a prima facie case for interlocutory restraint against the letter of credit, and the ex parte protection was vacated.

Ratio Decidendi: A court will not restrain encashment of a letter of credit unless there is clear, established fraud of an egregious nature, known to the bank at the relevant time, or a recognised ground of special equity; disputes under the underlying contract cannot be imported into the credit.

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