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MEMORIAL for DEFENDANTS
IMC- 49
INTRA MOOT COURT COMPETITION- 2024
BEFORE THE HON’BLE
HIGH COURT OF ARYAVARTA
Original Civil Jurisdiction O.S. No. _______ OF 2024 UNDER HIGH COURT OF ARYAVARTA Between: EA EXPORTS……...……………………………..….………..……….…(PLAINTIFF) VERSUS
- DREAM TEXTILES PRIVATE LTD.,
- INTERNATIONAL FINANCE BANK
- COTTON HOUSE TRADING CO. LTD.……………………......….(DEFENDANTS) UPON SUBMISSION TO THE HON’BLE CHIEF JUSTICE AND HIS COMPANION JUSTICES OF THE HIGH COURT OF ARYAVARTA MEMORIAL ON BEHALF OF THE DEFENDANTS
MEMORIAL for DEFENDANTS
ISSUE-1: WHETHER THE ARYAVARTA COURTS HAVE JURISDICTION
ISSUE-2: WHETHER DREAM TEXTILES PRIVATE LTD.'S INVOCATION OF
- COVER PAGE……………………………………………………………………………… TABLE OF CONTENTS
- TABLE OF CONTENTS
- LIST OF ABBREVIATIONS
- INDEX OF AUTHORITIES......................................................................................................
- STATEMENT OF JURISDICTION..........................................................................................
- STATEMENT OF FACTS
- ISSUES RAISED
- SUMMARY OF ARGUMENTS
- ARGUMENTS ADVANCED
- PRIVATE LTD.? OVER THE DISPUTE BETWEEN EA EXPORTS AND DREAM TEXTILES
- 1.1 Counter Claim as Defensive Measure:
- 1.2 Principle of Unifiled Proceedings:
- 1.3 Counterclaim as a Statutory Right:
- 1.3.1 Counterclaim for Judicial Efficiency:
- UNDER THE ARYAVARTA LAWS? THE PENALTY CLAUSE FOR DELAYED DELIVERY IS SUSTAINABLE
- 2.1 Penalty Clause is Sustainable:
- 2.2 Parties Intentions in Contract Terms:
- 2.3 Time is of the essence:
- 2.4 Liquidated Damages are Reasonable:
MEMORIAL for DEFENDANTS
LIST OF ABBREVIATIONS
Abbreviations Full Form & And AIR All India Reporter Art. Art. AP Andhra Pradesh Co. Company CPC Code of Civil Procedure DLT Delhi Law Times Edn. Edition FEMA Foreign Exchange Management Act HC High Court GLH Gujarat Law Herald IFB International Finance Bank Ker Kerala LC Letter of Credit Ltd. Limited Ors. Others Pg. Page QBD Queen’s bench Division Rs. Rupees SC Supreme Court SCC Supreme Court Cases SCR Supreme Court Reports Sec. Section v. Versus W.R.T. With Regard To
MEMORIAL for DEFENDANTS
INDEX OF AUTHORITIES
S.No. CASE NAME
- Aswathnarayaniah v. Sanjeeviah AIR 1965 AP 33.
- Bharat Coking Coal v. L.K.Ahuja, (2004) 5 SCC 109.
- China Cotton Exporters v. Beharilal Ramcharan Cotton Mills Ltd., AIR 1961 SC 1295.
- Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, AIR 2020 SC 4047.
- Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80.
- Fateh Chand v Balkishan Das, (1964) 1 SCR 515.
- Food Corporation of India v. M/S. Kamdhenu Cattle Feed Industries, 1993 1 SCC 71.
- Gastech Process Engineering (India) Pvt. Ltd. v. Saipem, 159 (2009) DLT 756.
- Jagdish Singh v. Natthu Singh, (1992) 1 SCC 647.
- Laxmidas v. Nanabhai, AIR 1964 SC 11.
- M/S. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588.
- MCD v. Jagan Nath Ashok Kumar, (1987) 4 SCC 497.
- Morison v. Moat (1852) 68 ER 492.
- Murlidhar Chiranjilal v. Harishchandra Dwarkadas and Anr., AIR 1962 SC 366.
- Needle Industries (India Ltd. v. Needle Industries Newey (India), (1981) 3 SCR 698.
- ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705.
- Pathrose Sameul & Anr v. Karumban Parameshwaran, AIR 1988 Ker 163.
- Rodocanachi v. Milburn, (1886) 18 QBD 67, 76.
- Sanjay Bhulabhai Patel v. Pankaj Vinod Kumar Patni, (2022) 4 GLH 721.
- Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44.
- Sir Chunilal Mehta and Sons v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC
- Shlensky v. Wrigley, 237 NE 2d 776 (Ill. App. 1968).
- Standard Retail Pvt. Ltd. v. G.S. Global Corporation, 2020 SCC OnLine Bom 704.
- Tata Engineering & Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40.
- Tsakiroglou & Co. Ltd. v. Noblee Thorl, 1961 (2) All ER 179.
- 'Treitel on Frustration and Force Majeure', 3rd Edn., para 12 - 034. STATUTES AND ACTS
MEMORIAL for DEFENDANTS
STATEMENT OF JURISDICTION
The Plaintiff has filed a suit before the Hon’ble High Court of Pravarta, the Defendant No.1 has filed a counter claim for damages under Order-VIII Rule-6A the Code of Civil Procedure, 1908 which reads as follows: 6A. Counter-claim by defendant. [Inserted by the Code of Civil Procedure (Amendment) Act, 1976, Section 72 (w.e.f. 1.2.1977).] - (1) A defendant in a suit may, in addition to his right of pleading a set-off under rule 6, set up, by way of counter-claim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time limited for delivering his defence has expired. whether such counter-claim is in the nature of a claim for damages or not: Provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the Court. (2) Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce a final judgment in the same suit, both on the original claim and on the counter-claim. (3) The plaintiff shall be at liberty to file a written statement in answer to the counter- claim of the defendant within such period as may be fixed by the Court. (4) The counter-claim shall be treated as a plaint and governed by the rules applicable to plaints.
MEMORIAL for DEFENDANTS
STATEMENT OF FACTS
- In September 2021, Mr. Elias of EA Exports agreed to supply 10,000 meters of premium cotton fabric to “DREAM Textiles Private Ltd.” owned by Ms. Aria. The key terms are: Price: ₹450/meter, Delivery date: On or before December 21, 2021, Payment terms: 30% advance, 70% upon delivery. There's a penalty of ₹10/meter for each day of delay after December 21, 2021.
- “DREAM Textiles Private Ltd.” is a subsidiary of Cotton House Trading Co. Ltd., an Aiden Kingdom-based company. Cotton House Trading Co. Ltd. supplies raw materials to EA Exports, and both companies are related parties. Ms. Aria and Mr. Elias, directors of Cotton House Trading Co. Ltd., are also associated with "DREAM Textiles Private Ltd."
- EA Exports obtained a $30,000 loan from the International Finance Bank (IFB) in October 2021 to finance raw material procurement and cover operational costs. The loan was disbursed via a Letter of Credit (LC) governed by FEMA, with the Hague Principles governing disputes. A default clause allowed IFB to recall the loan and enforce penalties if EA Exports defaulted on the contract with DREAM Textiles Private Ltd., triggering international legal implications under FEMA regulations.
- Cotton House Trading Co. Ltd. experienced disruptions in operations due to a labor strike and customs delays in the Aiden Kingdom, which affected the supply of raw cotton fabric to EA Exports. EA Exports delivered the goods on December 31, 2021, but “DREAM Textiles Private Ltd.” invoked the penalty clause, deducting ₹10,00,000 for the ten days of delay. Mr. Elias argued that force majeure conditions caused the postponement beyond his control, including strike, customs delays. IFB sought enforcement of the loan agreement, while EA Exports argued that Aryavarta Courts had jurisdiction over the dispute.
- "Cotton House Trading Co. Ltd. initiated legal action in the Aiden Kingdom, claiming that any conflicts related to raw materials and the resulting delay should be governed by Aiden Kingdom law according to their supply agreement with EA Exports.
- EA Exports filed a lawsuit in the High Court of Pravarta against DREAM Textiles Private Ltd. The suit sought full payment of the remaining contract amount and relief from penalties imposed by the IFB. DREAM Textiles Private Ltd. counterclaimed for contract delay damages, arguing that the penalty clause was enforceable. Ms. Aria maintained that EA Exports had an obligation to ensure timely performance, regardless of the cause of delays.
MEMORIAL for DEFENDANTS
SUMMARY OF ARGUMENTS
ISSUE-1: WHETHER THE ARYAVARTA COURTS HAVE JURISDICTION OVER THE
DISPUTE BETWEEN EA EXPORTS AND DREAM TEXTILES PRIVATE LTD.?
It is submitted that DREAM Textiles Pvt. Ltd. acknowledges that a counter claim was filed in this jurisdiction to secure appropriate remedies, clarifying that this action was taken solely to protect the interest of claiming rightful damages but not as an outright acceptance of jurisdiction. It is solely to pursue compensation for the damages suffered due to EA Exports’ actions. This filing was a specific and focused response to seek remedies directly tied to financial loss, rather than acceptance of Aryavarta’s jurisdiction. ISSUE-2: WHETHER DREAM TEXTILES PRIVATE LTD.'S INVOCATION OF THE PENALTY CLAUSE FOR DELAYED DELIVERY IS SUSTAINABLE UNDER THE ARYAVARTA LAWS? It is submitted that the invoking the penalty clause for delayed delivery is sustainable under the Aryavarta laws. The penalty clause is an essential term of the contract, agreed by both the parties at the time of entering into the contract. Delays in delivery, irrespective of the reasons, trigger the penalty clause as agreed. ISSUE-3. WHETHER EA EXPORTS' FAILURE TO DELIVER ON TIME DUE TO A LABOUR STRIKE AND CUSTOMS DELAYS AT COTTON HOUSE TRADING CO. LTD. CAN BE EXCUSED AS FORCE MAJEURE, AND IF SO, WHETHER THIS RELIEVES THEM FROM LIABILITY UNDER THE CONTRACT WITH DREAM TEXTILES PRIVATE LTD. AND THE LOAN DEFAULT CLAUSE WITH IFB? It is submitted that EA Exports cannot escape liability by attributing delays to Cotton House Trading Co. Ltd., as EA Exports had full knowledge of their reliance on this supplier and should have anticipated potential disruptions in the supply chain. ISSUE-4. WHETHER THE CONTRACTUAL AGREEMENTS BETWEEN MR. ELIAS AND MS. ARIA AS THE DIRECTORS OF THE COTTON HOUSE TRADING CO. LTD., CONTRAVENES THE LAW RELATING TO CORPORATE GOVERNANCE OF ARYAVARTA? The relationship between Mr. Elias and Ms. Aria, as directors of Cotton House, significantly influenced the commercial arrangements, making the transaction suspect under Aryavarta corporate governance principles.
MEMORIAL for DEFENDANTS
ARGUMENTS ADVANCED
1.1 Counter Claim as Defensive Measure:
- It is submitted that DREAM Textiles Pvt. Ltd. acknowledges that a counter claim was filed in this jurisdiction to secure appropriate remedies, clarifying that this action was taken solely to protect the interest of claiming rightful damages but not as an outright acceptance of jurisdiction. It is to pursue compensation for the damages suffered due to EA Exports’ actions. This filing was a specific and focused response to seek remedies directly tied to financial loss, rather than acceptance of Aryavarta’s jurisdiction.
- The Supreme Court held that counter claim is a weapon of defence and enables the defendant to enforce a claim against the plaintiff and is allowed to be raised to avoid multiplicity of proceedings. The counter claim has to be disposed of along with the suit. The right to file a counter claim is a statutory right under CPC. It clarified that the counterclaim was introduced to consolidate all disputes and avoid multiple litigations across different jurisdictions. The statutory nature of the counterclaim means that it’s filing alone should not be seen as an unconditional submission to the court’s jurisdiction.^1
- In the case of Pathrose Sameul & Anr v. Karumban Parameshwaran,^2 it was held by Kerala High Court that, “It is really a weapon of offence and enables a defendant to enforce a claim against the plaintiff as effectively as in an independent action. It need not be an action of the same nature as the original action or even analogous thereto, though the counter claim has to be one entertainable by the Court in India.” 1.2 Principle of Unifiled Proceedings:
- In the case of Sanjay Bhulabhai Patel v. Pankaj Vinod Kumar Patni,^3 the Gujarat High Court has held that in a suit where counter claim is filed, the suit and the counterclaim are required to be treated as unified proceedings. (^1) Gastech Process Engineering (India) Pvt. Ltd. v. Saipem, 159 (2009) DLT 756. (^2) Pathrose Sameul & Anr v. Karumban Parameshwaran, AIR 1988 Ker 163. (^3) Sanjay Bhulabhai Patel v. Pankaj Vinod Kumar Patni, (2022) 4 GLH 721.
ISSUE-1: WHETHER THE ARYAVARTA COURTS HAVE JURISDICTION OVER
THE DISPUTE BETWEEN EA EXPORTS AND DREAM TEXTILES PRIVATE LTD.?
MEMORIAL for DEFENDANTS that would prejudice both parties. Filing the counterclaim in Aryavarta was a precautionary step to streamline proceedings and ensure consistency.
- Therefore, Dream Textiles Pvt. Ltd. respectfully asserts that its counter claim should be viewed as a procedural safeguard to claim rightful damages, preserving jurisdictional objections and it remains committed to the belief that jurisdiction resides with the courts of Aryavarta and seeks to resolve this matter in a manner that avoids concurrent litigation and potential conflicting judgments. 2.1 Penalty Clause is Sustainable:
- It is submitted that the invoking the penalty clause for delayed delivery is sustainable under the Aryavarta laws. The penalty clause is an essential term of the contract, agreed by both the parties at the time of entering into the contract. Delays in delivery, irrespective of the reasons, trigger the penalty clause as agreed.
- It is submitted that EA Exports had an obligation to ensure timely delivery or mitigate delays, and failure to do so gives rise to penalties as per the contract. Additionally, the plaintiff’s reliance on force majeure is unwarranted, as the contract did not expressly include provisions for delays due to third-party suppliers. 2.2 Parties Intentions in Contract Terms:
- In the case of M/S. Alopi Parshad & Sons Ltd. vs. Union of India,^6 the court emphasized the importance of considering the parties' intentions when interpreting contract terms. The court stated that the interpretation of a contract should be based on the parties' intentions and the circumstances under which the contract was formed. Here, both the parties had explicitly agreed upon the penalty clause as an essential term making EA Exports bound by the clause regardless of the reasons.
- Liquidated damages are a predetermined amount of compensation that parties agree upon in the contract to be paid in the event of a breach. These damages are meant to reflect a genuine pre-estimate of the non-breaching party's loss due to the breach. (^6) M/S. Alopi Parshad & Sons Ltd. vs. Union of India, AIR 1960 SC 588.
ISSUE-2: WHETHER DREAM TEXTILES PRIVATE LTD.'S INVOCATION OF THE
PENALTY CLAUSE FOR DELAYED DELIVERY IS SUSTAINABLE UNDER THE
ARYAVARTA LAWS?
MEMORIAL for DEFENDANTS 2.3 Time is of the essence:
- In the case of Food Corporation of India vs. M/S. Kamdhenu Cattle Feed Industries,^7 the court highlighted the significance of timely performance in contracts. The defendant's delay in supplying cattle feed caused the plaintiff substantial loss, and the court awarded damages accordingly. This aligns with the validity of the penalty clause as EA Exports’ failure to deliver on time breached the contract resulting in disruption of contract’s objectives.
- In the case of MCD v. Jagan Nath Ashok Kumar,^8 it was stated that Businessmen attach importance to time. The matter depends upon the intention of the parties. Even where “a specific fate is mentioned for the completion of contract. In commercial contracts time is ordinarily of the essence of the contract.^9 EA Exports’ delay violated this principle, as both parties had established time-bound obligations. It is clear that time was integral to the contract’s purpose, invoking the penalty clause for delayed delivery is consistent with commercial standards and contractual expectations. 2.4 Liquidated Damages are Reasonable:
- In the case of Fateh Chand vs. Balkishan Das,^10 the Supreme Court of India held that liquidated damages must be reasonable and not penal in nature. The penalty clause serves as a genuine pre-estimate of loss, its enforcement should be seen as reasonable compensation for anticipated losses due to delayed delivery, not an undue penalty as it was mutually agreed.
- In the case of ONGC vs. Saw Pipes Ltd.,^11 the court upheld the enforcement of liquidated damages for the defendant's failure to deliver goods on time. Since EA Exports failed to deliver as scheduled, DREAM Textiles has a right to invoke the liquidated damages clause. The ruling supports the enforceability of such clauses in contracts, especially where time is of essence, as in the present case.
- Since Indian law does not make such distinction between penalty and damages, the language of a liquidated damages clause need not specifically state that liquidated damages are not in the nature of a penalty. Thus, the penalty clause agreed upon by EA (^7) Food Corporation of India vs. M/S. Kamdhenu Cattle Feed Industries, 1993 1 SCC 71. (^8) MCD v. Jagan Nath Ashok Kumar, (1987) 4 SCC 497. (^9) China Cotton Exporters v. Beharilal Ramcharan Cotton Mills Ltd., AIR 1961 SC 1295. (^10) Fateh Chand v. Balkishan Das, 1963 1 SCR 515. (^11) ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705.
MEMORIAL for DEFENDANTS 2.7.1 Stipulated Damages Without Proof of Actual Loss:
- Section 74 allows the aggrieved party to claim stipulated damages without proving actual loss. It clarifies that when a contract specifies a compensation amount, the aggrieved party is not necessarily required to prove actual loss or damage. The right to claim liquidated damages is enforceable under S. 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages really arises.
- The Supreme Court in Fateh Chand v. Balkishan Das,^16 emphasized that courts can award reasonable compensation for a breach, even if actual loss is not proven, as long as the amount does not exceed what is stipulated in the contract. Here, the contract's penalty clause (₹10 per meter for each day of delay) falls within reasonable bounds and reflects an understanding of anticipated losses due to a breach, making it a valid claim without further need for damage proof. 2.7.2 No Need for Proof of Loss if Damages Pre-Agreed:
- Liquidated damages are not required to be proved once parties have agreed to the amount mentioned therein as genuine pre-estimate of the damages.^17 This is essential to avoid prolonged legal proceedings over quantifying losses, especially when the parties have explicitly agreed on a penalty clause. In this case, DREAM Textiles does not need to demonstrate actual financial losses caused by EA Exports' delay, as the contract specifies an agreed-upon penalty, further the pre-agreed penalty itself serves as reasonable compensation for the delay.
- Given that the penalty clause in this contract is specific, unambiguous, and agreed upon, it is intended to safeguard the party from anticipated disruptions due to delivery delays as the clarity of the penalty clause and the agreement between both parties on the delivery date, it is not an unreasonable or punitive demand; it is a pre-estimated, fair compensation for delay.
- The penalty is a reasonable reflection of potential damages that DREAM Textiles could face, as both the parties were aware of the risks tied to delivery delays i.e. the supply chain complexities and still agreed to the penalty for any delays. The clause aligns with the principles of sections 73 and 74 of The Indian Contract Act, 1872 by providing a (^16) Fateh Chand v Balkishan Das, (1964) 1 SCR 515. (^17) Sir Chunilal Mehta and Sons v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314.
MEMORIAL for DEFENDANTS pre-determined, fair-compensation measure for the breach, ensuring DREAM Textiles is protected from further losses.
- Parties may contract for liquidated damages to be paid upon a breach of the contract by one of the parties. Section 21 enables plaintiff in suit for specific performance to claim compensation for its breach Compensation awarded may be taken to be measure of damages subject to deduction of money value of services, time and energy expended in pursuing claims of compensation and expenditure incurred by him in litigation.^18 Therefore, the penalty clause is enforceable under Aryavarta laws, as the agreement was voluntarily entered into by both parties. 3.1 Invocation of Force Majeure clause is not justified :
- It is submitted that EA Exports cannot escape liability by attributing delays to Cotton House Trading Co. Ltd., as EA Exports had full knowledge of their reliance on this supplier and should have anticipated potential disruptions in the supply chain.
- The contract did not specifically include any force majeure clause exempting delays due to third-party suppliers, and thus EA Exports is liable for failing to ensure timely performance. Furthermore, under Aryavarta law, EA Exports had an obligation to mitigate delays, which they failed to do. Thus, the penalty is enforceable, and the IFB loan default was triggered as per the loan’s terms.
- EA Exports did not specifically mention the force majeure clause in the contract as required. The Force Majeure Clause in a contract should be properly worded. Precise words such as floods, storms, epidemics, pandemics, hurricanes, war, political unrest, etc. If any of the acts are missed, the court may give the benefit of the doubt to the other party. (^18) Jagdish Singh v. Natthu Singh, (1992) 1 SCC 647.
ISSUE-3. WHETHER EA EXPORTS' FAILURE TO DELIVER ON TIME DUE TO A
LABOUR STRIKE AND CUSTOMS DELAYS AT COTTON HOUSE TRADING CO. LTD.
CAN BE EXCUSED AS FORCE MAJEURE, AND IF SO, WHETHER THIS RELIEVES
THEM FROM LIABILITY UNDER THE CONTRACT WITH DREAM TEXTILES
PRIVATE LTD. AND THE LOAN DEFAULT CLAUSE WITH IFB?
MEMORIAL for DEFENDANTS reasonable parameters shows negligence on their part, reinforcing that they cannot invoke force majeure as an excuse without substantial evidence that all reasonable steps were exhausted. 3.4 Alternative Performance Required in Force Majeure:
- A force majeure clause will not normally be construed to apply where the contract provides for an alternative mode of performance.^20 EA Exports should have foreseen the risk of relying solely on Cotton House Trading Company and taken steps to secure alternative suppliers, especially given the lack of a contractual force majeure exemption for these delays.
- In Tsakiroglou & Co. Ltd. v. Noblee Thorl,^21 despite the closure of the Suez Canal, it would have to be performed by an alternative mode of performance around the Cape of Good Hope. held that even though the contract had become more onerous to perform, it was not fundamentally altered. Where performance is otherwise possible it cannot be regarded as impossibility of performance.
- In the Energy Watchdog vs. CERC,^22 case which mandates high threshold conditions. While interpreting, the courts are expected to narrowly construe the applicability of the Force Majeure events; ascertain if the fundamental basis of the contract dislodged and scrutinise alternative modes of performance if available while arriving at the decisions.
- Parties invoking the force majeure clause must often notify the other party within a specified period, detailing the event and its impact on their contractual obligations. The burden of proof lies with the party seeking to invoke the clause who must demonstrate that the event directly impeded their ability to perform the contract.^23 3.5 DREAM Textiles Entitled to Seek Damages:
- It is submitted that the delay in delivery by EA Exports caused significant business disruptions and financial losses to Dream Textiles, which were directly attributable to EA Exports' failure to meet its contractual obligations within the agreed timeline.
- What he should establish in such a situation is that if he had received the subject matter due under the contract, he could have utilised the same for some other business in which (^20) 'Treitel on Frustration and Force Majeure', 3rd edition, para 12-034. (^21) Tsakiroglou & Co. Ltd. v. Noblee Thorl, 1961 (2) All ER 179. (^22) Energy Watchdog vs. Central Electricity Regulatory Commission, (2017) 14 SCC 80. (^23) Samaira Singha: Understanding Force Majeure Clauses in Indian Contracts: Protecting Against Unforeseen Events , brieflaws.com.
MEMORIAL for DEFENDANTS he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted.^24 Here, DREAM Textiles could have utilized the goods for profitable ventures if delivered on time, reinforcing the need for compensation to account for lost potential profits.
- It is submitted that DREAM Textiles depended on timely delivery of goods from EA Exports to fulfil ongoing orders, maintain client relationships, and ensure steady financial accounts. The delayed delivery affected DREAM Textiles’ ability to meet clients’ demand and also tarnished the reputation thereby causing damages to customer- relationship. 3.6 IFB’s Right to Payment Under LC:
- EA Exports’ failure to ensure timely delivery triggers the penalty and holds them accountable for any losses IFB incurs due to loan defaults. Courts typically uphold liquidated damages unless proven that performance was impossible due to factors beyond reasonable control. Here, EA Exports has not met the burden of proof necessary to validate such a defence.
- The Letter of Credit issued by IFB operates independently from the existing contract between EA Exports and DREAM Textiles Pvt. Ltd. As per established principles, an LC is a separate agreement between the bank and the beneficiary, where the bank’s obligation to pay upon compliance with terms stands irrespective of the underlying contract’s conditions. This principle, widely accepted in international trade, supports IFB’s right to claim payment even if disputes arise between EA Exports and its supplier.
- Invocation of LC's operates independently as highlighted in Standard Retail Pvt. Ltd. v. G.S. Global Corporation,^25 Steel importers approached Court seeking restraint of encashment of letters of credit provided to Korean based exporters - claimed lock down hand rendered performance of contract impossible; Bombay High Court refused the injunction:
- letters of credit are independent contracts with the bank;
- distribution of steel was recognised by government advisories as an essential service no restriction on movement;
- the lockdown was for from limited period; The force majeure clause was only to aid exporters and not importers. Respondent Bank is well within its rights to encash the (^24) Supra note 15. (^25) Standard Retail Pvt. Ltd. v. G.S. Global Corporation,
