1999 PLP 2367 (SCMR)

KHALIL-UR-REHMAN KHAN, J

National Grid Company PLc through Mr. H.R. Zuberi its authorized representative in Pakistan seeks leave to appeal against the judgment dated 2-10-1998 of the Lahore High Court, Lahore, whereby the appeal of the petitioner/Company against the order of the learned Civil Judge dated 25-5-1998 rejecting the application under Order XXXIX, Rules 1 and 2, C.P.C. for temporary injunction pending decision of the suit, was dismissed.

2. The petitioner/company had filed a suit to recover 'a sum of US, $ 21,589,441 as cost and damages and also asked for liquidated damages from the date of the suit till realization of the suit amount. A decree for permanent injunction to restrain encashment of bank guarantee dated 11-4-1998 in the sum of Pak Rs.39,050,000 issued by ABN-AMRO Bank, Lahore/respondent No.6 was also sought. The petitioner, alongwith the suit filed an application under Order XXXIX, Rules l and 2, C.P.C. for restraining the encashment of bank guarantee and for restraining the Bank from making payment of the guarantee amount to the beneficiary, i.e. the Government of Pakistan and WAPDA Power Privatization Organization.

3. The case set up in the pleadings was that with a view to ensure Efficient Transmission Network, it was decided to invite international companies to invest in this sector. In pursuance of the policy, tender notice dated 22-3-1995 inviting proposals was issued which was responded by the petitioner and certain other international companies. The proposal of the petitioner was accepted, In accordance with the terms of transmission policy, two Letters of Intent and two Letters of Support (LOS) were issued by respondent No.4 on 4-4-1995. The LOS contained basis understanding between the parties, for designing, financing, insurance, building maintenance of transmission lines, sub-stations anti other equipments. It was claimed that the respondents accepted over all average tariff offered by the petitioner covering a period of 30 years. In terms of the agreement a bank guarantee was supplied by the petitioner. It is maintained that the petitioner made hectic efforts to achieve progress but despite huge investment- and application of resources, obstructions were caused as the respondents failed to perform obligations in terms of Letters of Support. It was further maintained that the respondents illegally made a call for encashment of bank guarantee, though the pre-conditions for enforcement thereof did not exist. With the allegations of default on the part of respondents Nos. 1 to 4, the petitioner claimed expenses, damages and the liquidated damages. During pendency of the suit, the petitioner asked for a restraint against encashment of bank guarantee.

4. The suit was resisted by respondents Nos. h to 4 denying the allegations contained in the plaint and pleading that the petitioner had failed to perform its part. Serious charges were levelled to the manner in which the agreement was secured It was also asserted that one of the grounds for dissolution of National Assembly against the previous regime was based on the undue favour and loss to the exchequer caused on account of the contract in question. It was also asserted that the petitioner had miserably failed to take the essential steps for performance of the contract and the 'stage had reached where respondents Nos. l to 4 had no other option but to declare the petitioner as defaulter and to proceed with the encament of the bank guarantee.

5. Learned Civil Judge, in the first instance, and then learned Judge of the High Court, taking notice of the pleas of the petitioner and also examining the terms of the bank guarantee itself recorded the conclusion that the terms of guarantee as contained in the document itself make it obvious that the bank guarantee is independent and encashable without reference to the petitioner, and that it provides in so many terms that the beneficiary on its own discretion and decision can demand payment from the guarantor the amount o` bank guarantee, without reference to the petitioner and decision of the beneficiary as to the sponsors' default, delay or failure in performance shall be final and unquestionable. It was further observed that the beneficiary having the sole discretion to take the decision that the sponsor was at fault or had failed to perform the obligations and once a demand is placed upon the guarantor for payment of the amount secured. the guarantor cannot question the decision of the beneficiary by making reference to any other instrument or document and that the guarantor has bounded itself to pay the amount of guarantee upon service of notice without recourse or reference to the sponsor or any other person. It was further observed that this undertaking cannot be modified or amended by making reference to any extraneous condition or document.

6. Learned Judge of the High Court referred to the case Manzoor Textile Mills Limited v. Special Judge Banking, Lahore and others,(1996 CLC 422 Lah.) wherein it was observed that the restraint order against the bank guarantee should not ordinarily be granted on account of its repercussion on the trade because refusal of injunction in such-like cases would not cause irreparable loss to the parties claiming injunctive relief. Reference was also made to the following observations made in Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311):

"In the instant case, therefore, the bank guarantees furnished by the appellants contain categorical undertaking and impose absolute obligations on the bank to pay the amount, irrespective of any dispute which may arise between the parties regarding the breach of contract. In our view the Courts must given effect to the covenants of the bank guarantees, the performance guarantees, for the smooth performance of the contracts. Those guarantees are independent contracts and the bank authorities must construe them, independent of the primary contract. They should encash them notwithstanding any dispute arising out of the original contract between the parties:"

7. Learned counsel for the petitioner in support of the petition submitted that the ratio in the case of Messrs National Construction Limited (supra) cannot be applied to the contract in question as the said case pertained to guarantee given for securing the mobilization advance. According to him different principles apply to performance guarantee and in such a situation unless there is a finding that a breach has been committed bank guarantee cannot be got encashed. Learned counsel referred to certain observations made by the learned single Judge in the orders passed in Suit No.701 of 1997 and Suit No.875 of 1997 pending in the High Court of Sindh while disposing of injunction applications. Learned counsel was, however, not aware as to whether these orders passed by the learned Single Judge had been further challenged or not. In this situation, it would be appropriate not to make any comment on the observations made in these orders lest it may prejudice the case of either party. Even otherwise these cases are distinguishable on facts. The plea is that in the instant case as well the bank guarantee should not have been allowed to be encashed until it has been established by producing evidence that a breach has been committed by the petitioner, as the bank guarantee was furnished pursuant to the Letters of Intent and Letters of Support issued by the respondent, No.4. It was, however, not denied that the parties are not proceeding with the contract and their respective obligations are not being performed by the parties. Each party is blaming the other for the breach of the contract and for its non-performance, and in that situation the suit has been filed claiming not only costs and damages accruing on account of alleged breach but also for liquidated damages for the date of the suit till realization of the amount claimed.

8. In the circumstances, the question is whether the amount of guarantee can be encashed by the beneficiary. The terms and conditions contained in the deed of guarantee itself may be reproduced at this stage:-- "(3) That the Beneficiary shall, on its sole discretion and decision, at any time, during the validity of this performance guarantee, demand payment from the Guarantor. The decision of the Beneficiary as to the Sponsor's default, delay or failure in performance shall be final and unquestionable. (4) That the Guarantor hereby binds itself unconditionally and irrevocably and undertakes and guarantees to pay on first written demand of the Beneficiary, without protest or demur and without reference, notice or recourse to the Sponsor or any other person and hereby expressly waives all rights to deny its obligation to the beneficiary irrespective of any dispute, difference or disagreement between the Sponsor and Beneficiary or contestation by any other party/person. (5) That the Beneficiary may, as it thinks fit, at all times, grant time, or other indulgence to or accept or make any composition or arrangement with the Sponsor and/or vary, renew, discharge, realise, release, enforce or deal with any other securities, guarantees, obligations, decree, contracts or, agreements, now or hereinafter made or held by the Beneficiary in respect thereof, in such manner as the Beneficiary may think fit and such acts shall not affect in any way the Beneficiary's right under this guarantee and shall not affect the Guarantor's liability hereunder or discharge the Guarantor from its obligations under this performance guarantee. (6) That this performance guarantee sets forth in full the terms of our undertaking and this undertaking shall not be modified, amended, or amplified in any way by reference to any document, instrument of agreement referred to therein, and any such reference shall not be deemed to incorporate by reference any document, instrument or agreement. (7) That the Guarantor hereby engages with the Beneficiary that demands made by Beneficiary in compliance with the terms of the performance guarantee shall be met with due honour upon such demand. "

9. A perusal of the above terms makes it clear that the undertaking for payment of the amount of guarantee is unconditional and its enforcement cannot be objected to, obstructed or delayed by reference to any other agreement, instrument or document, as its encashment becomes mandatory the moment demand is placed by the beneficiary. The terms grant sole discretion for taking a decision as to the fault or failure of performance of the obligations by the sponsor and once a demand is placed upon its Guarantor for payment of the amount secured, the Guarantor cannot question the decision of the beneficiary by making reference to any other instrument or document.

10. Learned Judge of the High Court was, therefore, right in holding that the guarantor has bounded itself to pay the amount of guarantee, upon service of notice without recourse or reference to the sponsor or any other person. This undertaking was given by the sponsor that the guarantee in the aforenoted terns " cannot be amended or modified by- making reference to any extraneous condition or document.

11. It will, therefore, be seen that the objection sought to be raised by the I petitioner to the encashment of the bank guarantee on the basis of Letters of Support cannot be given effect to as the enforcement of the guarantee cannot be delayed till the time that the Court comes to the conclusion, after going through the evidence to be produced by the parties, that the sponsor on whose behalf the guarantee was given was at fault, as in such an event the beneficiary will be rendered without any remedy and after expiry of the period of guarantee, Guarantor bank will no longer remain bound to pay the amount of guarantee. On the other hand, if the guarantee is encashed and the amount is received by the beneficiary, the sponsor cannot be held liable for non-performance of the contractual obligation as amount of the guarantee can be awarded and ordered be refunded to the sponsor of the guarantee. In this view of the matter, learns Judge of the High Court was right in holding that neither prima facie case; made out nor balance of convenience was in favour of the petitioner.

12. Leave to appeal is, therefore, refused and the Petition is dismissed. H.B.T./N-51/S Petition dismissed.