Letter Of Credit - Jurisdiction laws that govern in case of dispute in India

Jurisdiction in its true sense, states which court of law shall determine in case of a dispute. For any sale of goods or service agreement, in most agreement, a clause stating the choice of law or choice of court is usually incorporated in the agreement. The question arises only when we notice, such a clause is not included in the agreement, which choice of the court will determine this issue?

Lets us look from the Indian Judiciary perspective.

• The selection of forum is enforceable in a contract only if the selected forum is one of the forums that is given by Indian law. Thus Two laws are applicable under this
• Section 28 of Indian Contract Act, 1872 and
• Section 20 of Code of Civil Procedure of India.

The crux of these above two laws enunciates the fact that the contract is enforceable if the two individuals from two different cities can settle their dispute in one of the forums that the individuals are residing containing choice of court clause in the agreement. However, If forum selection is of the third forum, then it is not enforceable as per section 20 of CPC.

• When selection of forum is not mentioned in the agreement, Code of Civil procedure is applicable and governs the Jurisdictional law
• A person has to appear in the court of jurisdiction in which the opposite party /defendant is doing business or in absence of place of business, a residence or
• Where the cause of action arises wherein, the exchange of goods took place or where the services were provided.

Private International law governs the international letter of credit. Different countries have different legal standpoint in terms of choice of law and forum selection in the international commercial letter of credit transactions. In India, if a dispute is raised and the given case goes to Indian court, the court will enforce first the forum selection clause mentioned above, provided forum selection was adhering with Indian law. Section 10 of the Indian Contract Act 1872, defines when agreements are contracts that are enforceable and legit because all contracts are agreements but not all agreements are contracts. Agreements are only contracts if they are made by (a) free consent of parties competent to contract,(b) for a lawful consideration, (c) with a lawful object, and (d)are not hereby expressly declared to be void.    

Thus, the Indian court will enforce forum selection clause if it is in accordance with Section 20 of Indian Code of Civil Procedure, 1908 and Section 28 of Indian Contract Act, 1872. In absence of the agreed choice of law, if Indian court retains jurisdiction, the court will apply Indian law.

The letter of credit is simply a method of making payment. There has to be a contract negotiated between the buyer and the seller that backs up the letter of credit as the method of payment. It is a contractual obligation for the bank to pay upon presentation of documents, but it is not the contract between the buyer and seller. Thus to avoid any sort of jurisdictional disputes, it is advised best to be very accurate with forum selection clauses in the agreement.