Letter of credit liability cannot be enforced in foreign award proceedings; garnishee procedure and estoppel were rejected.

In enforcement of a foreign arbitral award, a court cannot adjudicate a disputed third-party liability under an independent letter of credit or direct payment by the issuing bank; any such claim must be pursued separately. Order 21 Rule 46 CPC is inapplicable because the bank's liability under the credit is not money belonging to the judgment-debtor and cannot be treated as a garnishee asset. Compliance with interim orders does not itself amount to acquiescence or create estoppel, so the bank may still contest substantive liability. The payment directions against the issuing bank were set aside.

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Issues: (i) Whether, in proceedings for enforcement of a foreign arbitral award, the Court could decide a dispute concerning the issuing bank's liability under a letter of credit and direct payment by that bank; (ii) whether Order 21 Rule 46 of the Code of Civil Procedure, 1908 could be invoked for such a claim; (iii) whether the bank's conduct in complying with interim orders amounted to acquiescence or estoppel.

Issue (i): Whether, in proceedings for enforcement of a foreign arbitral award, the Court could decide a dispute concerning the issuing bank's liability under a letter of credit and direct payment by that bank.

Analysis: A letter of credit is an independent obligation of the issuing bank and is distinct from the underlying dispute between the beneficiary and the opener. In proceedings under Part II of the Arbitration and Conciliation Act, 1996, enforcement must ordinarily remain confined to the parties to the award. A disputed claim against a third party, including controversy over alleged discrepancies in documents tendered under the credit, cannot be adjudicated in such enforcement proceedings. Any claim against the issuing bank had to be pursued in independent proceedings.

Conclusion: The Court held that the enforcement proceedings could not be used to adjudicate and fasten liability on the issuing bank for payment under the letter of credit.

Issue (ii): Whether Order 21 Rule 46 of the Code of Civil Procedure, 1908 could be invoked for such a claim.

Analysis: Garnishee proceedings under Order 21 Rule 46 apply where monies of a judgment-debtor are in the hands of a third party. The liability of an issuing bank under a letter of credit is independent and cannot be treated as money belonging to the judgment-debtor. For that reason, the bank's liability could not be determined by resort to garnishee procedure in the execution or enforcement context.

Conclusion: The Court held that Order 21 Rule 46 of the Code of Civil Procedure, 1908 was not an appropriate procedural basis for the claim against the issuing bank.

Issue (iii): Whether the bank's conduct in complying with interim orders amounted to acquiescence or estoppel.

Analysis: Compliance with a court order does not by itself amount to acquiescence or create an estoppel against the party complying with it. Although the bank was bound to obey the interim directions until they were set aside, such obedience did not prevent it from contesting its substantive liability later, including on the ground that the documents tendered were discrepant.

Conclusion: The Court held that the bank was not estopped by its compliance with the interim orders.

Final Conclusion: The orders directing payment by the issuing bank were set aside, but the parties were left to work out the bank's limited monetary exposure through the deposit and share-sale arrangement accepted by the appellant, and the appeals were disposed of accordingly.

Ratio Decidendi: In proceedings for enforcement of a foreign award, a court cannot determine and enforce a disputed third-party liability under an independent letter of credit, and garnishee procedure cannot be used to convert that independent obligation into a judgment-debtor's asset.

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