2001 PLP 2191 (YLR)

The next important step is the dispatch of cheque, dated 20th June, 1997 allegedly on the same day at 2300 hours which was admittedly received by the plaintiff on 23-6-1997 at 1110 hours. The cheque was for the sum of Rs.64,41,376 being the amount of fifth running bill (Interim Payment Certificate) and was deposited on 24-6-1997 by the plaintiff in its account. A certificate issued by the Courier Service which had delivered the envelop containing the said cheque has been placed on the record by the plaintiff which is to the following effect:-- It is certified that Consignment Note No.114007 was received by our OCS Hyderabad on June 20, 1997 at 2300 hours (after OCS Hyderabad office cut off time 1900 hours daily) by the office of Director (B&A) WAPDA, Hyderabad. Same was received by our Karachi Office on June 22 and delivered to China International Water and Electric Corporation, Karachi on June 23, 1997 at 1110 Hours (a.m.). Our OCS Hyderabad Office Timings are from 0900 hours to 1700 hours daily except Sundays and holidays.' Despite the above, Defendant No.1 appears to have referred the dispute between the parties to the Engineer in terms of the above-quoted clause 67 of the Conditions of Contract (Agreement) seeking his decision on the following points:-- (i) whether or not the Employer has paid to Contractor the amount due to him under the Engineer's Certificate No.AIP-5 terms of clause 69(a) of COC, within 60 days after the same has become due; and (ii) whether the Contractor's Notice dated 21-6-1997 to terminate the Contract RTD-1 is contractually valid under the provisions of clause 69(1) of COC.' The questions referred to the Engineer, as above, according to the learned counsel for the plaintiff were decided by him through communication dated 9-7-1997 which was addressed to the plaintiff, relevant extracts wherefrom are as follows:-- 'The Contractual dispute, therefore, had arisen between the Employer and you which was referred by the employer for settlement by the Engineer under clause 67 of COC through his Letter No.GM(WS)/ LIRBP-021/2997, dated June 28, 1997, copy of which were endorsed to your Karachi Office as well as delivered to you at site on July 3, 1997 through , CRE's Letter No.SKR/1596/RTD-1/97/978, dated June 30, 1997. Since a contractual dispute has arisen between the Employer and you and has been referred to the Engineer for settlement, the Contractor is not to stop the execution of the Contract (RTD-1 and proceed and continue with the Works and fulfils his contractual obligations till the Engineer's decision is notified.

You are, therefore, directed to please follow proper contractual procedure in settlement of dispute and continue with the works in the meantime and proceed with the works under the Contract RTD-1 with due diligence. You are further directed to immediately (i) bring back all your Plant and Equipment unauthorisedly removed from the site, (ii) remobilize your staff and workers, and (iii) recommence the Works in fulfilment of your contractual obligations under the Contract. Failing to comply with these directions will render you liable for appropriate contractual action and you will be fully responsible for all the consequences resulting from such action.' In the meantime it appears that the plaintiff had demobilised from the site of works with effect from the afternoon of July 7, 1997. With such background the application under section 20 of the Arbitration Act has been filed on 4-7-1997. It may be noted here that in paragraph 13 of the application, while mentioning the reference of disputes by the defendant No.1 to the Engineer in terms of clause 67 of the Agreement, nothing is stated about the decision of the Engineer contained in the above referred communication dated 9-7-1997. Such omission had apparently occurred for the reason that the present proceedings were initiated on 4-7-1997 which means about five days prior to the decision by the Engineer. The said letter dated 9-7-1997 has been placed on record by the defendant No.1 alongwith its written statement. However, during arguments; it was urged that the Engineer had been asked by the defendant No.1 to withhold his decision pending disposal of the present proceedings. Such instruction might have been issued after the Engineer had already decided the matter on 9-7-1997. The present proceedings, therefore, in the submission of learned counsel for the plaintiff, is one where cause of action has matured during the pendency of the proceedings.

3. The learned counsel for the plaintiff, in support of the application, has urged as follows:-- (i) A valid and subsisting arbitration agreement was admittedly executed between the plaintiff and defendant No. 1. (ii) Dispute relating to the amount claimed by the plaintiff and validity or otherwise of the notice dated 21-6-1997 terminating the contract requires resolution thereof' by an arbitrator. (iii) The encashment of Performance Guarantee and Mobilization Advance Guarantee, besides being unwarranted would expose the plaintiff to irreparable loss. In reply, Mr. Badar Alam, appearing on behalf of the defendant No. 1, has urged as follows:-- (i) For maintaining proceedings under section 20 of the Arbitration Act, existence of agreement of arbitration is required to be shown by the plaintiff. (ii) The proceedings were premature and incompetent since the plaintiff could not seek reference to arbitration without first approaching the Engineer in terms of clause 67 of the Conditions of Contract.

4. In support of his first submission, Mr. Bilal A. Khawaja has urged that by virtue of clause 60 of the Conditions of Contract, the plaintiff had submitted applications for interim payment at the end of every month which were required to be approved or amended by the Engineer and a certificate had to be issued by him within 25 days. The defendant No.1, in turn, was required to make payment on the basis of certificate issued by the Engineer within 45 days of the delivery of such certificate. Again, in terms of clause 69, in the event of failure of the defendant No. 1 to make payment within 60 days, the plaintiff was given the right to notify termination of contract within 14 days time for demobilization from site. In the present case, the 5th IPA was submitted on 31-1-1997, followed by IPA No.6-A, and IPA No.7 on 31-3-1997, 30-4-1997 and 31-5-1997 respectively. Out of the above, IPA No.6, was returned by the Engineer. However, the 5th bill submitted on 31-3-1997, as above, had to be paid by the defendant No. 1 within the 60 days period provided under clause 69 which ended on 20-6-1997, whereas termination of the contract was notified on 21-6-1997. The defendant No.1, in an attempt to avoid consequence of termination, as above, sent the cheque after receiving notice of termination showing its dispatch on 20-6-1997 through manipulation. According to Mr. Bilal A. Khawaja, the letter, dated 28-6-1997 addressed by the defendant No.1 to the Engineer conclusively shows that an agreement of arbitration existed between the parties and dispute falling within its scope has arisen between them which was referred for decision of the Engineer by the defendant No. 1 itself. According to the learned counsel, the reference to Engineer could be made by either of the parties and letter amanating from the side of defendant No. 1 on 28-6-1997, was sufficient compliance with the requirements of clause 67 of the agreement. In reply, the learned counsel for the defendant No.1 has urged that the plaintiff cannot take advantage of reference made to the Engineer by defendant and a separate reference ought to have been made by the plaintiff seeking his decision in terms of clause 67 of the conditions of Contract before approaching this Court. It is further urged that the waiting period of 90 days prescribed in clause 67 of the agreement has not expired and the present proceedings, therefore, were liable to dismissal being premature. According to the learned counsel for the defendant, the two parties having agreed to resolve their dispute in a particular manner and before the specified forum cannot ignore the same and proceed otherwise. The learned counsel In support of his submission has referred to the case of M/s. Suleman & Co. v. Islamic Republic of Pakistan and 2 others (1980 CLC 2183), B.R. Harman and Mohatta Limited v. Ghee Corporation of Pakistan Limited (1980 CLC 1679), Samad Associate v. General Manager Telephone and Telegraph Quetta (1989 CLC 386) and Messrs Gagun Construction Pakistan v. H.M. Jafferi and another (1989 ALD 394).

5. In the first case,' it is held by a Single Bench of the Lahore High Court that only those matters are to be referred to arbitration, which were specifically provided in the terms of agreement.

6. In the second case; it was agreed between the parties that before going to arbitration, the dispute would first be referred to Board of Directors of one of the parties and in the absence of approach to the Board of Directors, as above; the proceedings under section 20 of the Arbitration Act were held premature and not maintainable.

7. In the third case, a prohibition contained in the agreement against initiating proceedings under section 20 of the Arbitration Act until after completion of work was given effect.

8. In the fourth case, the plaintiff had himself alleged uncertainly about the arbitrator and had asked for reference of matter to 'a person different from the one agreed and had thus asked for variation.

9. In the last case, the arbitrator nominated by the plaintiff, had declined 'to exercise jurisdiction on the ground that the consultant who had to be approached first was bye-passed by both the parties.

10. In the present I case, however, the Engineer to whom dispute had first to be referred under clause 67 of the Condition of Contract, had given his decision on 9-7-1997. The mere. fact that the plaintiff had not referred the matter to the Engineer but the reference was made by the defendant No. 1, in my view, makes no difference since either of the parties could approach the Engineer. Evidently, one of the questions referred to the Engineer, by the defendant No. 1 under clause 67 of the agreement, is precisely the issue now raised by the plaintiff.

11. The sole question required to be considered next is the maintainability of the present proceedings which were initiated five days prior to the decision given by the. Engineer.

12. It is urged by Mr. Balal A. Khawaja that the Engineer has conveyed his decision' through letter, dated 9-7-1997 and the plaintiff is aggrieved there against. The plaintiff, therefore, can seek intervention of this Court for reference to arbitration under section 20 of7the Arbitration Act. According to the learned counsel, although the proceedings, at the time of institution were premature, the cause of action has matured during the pendency thereof, and therefore, the relief may not be declined merely on technical grounds. The learned counsel has referred to the following three judgments in support of his above submission.

13. The first case cited by Mr. Balal A. Khawaja is the judgment in Abdullah Bhai v. Ahmed Din (PLD 1964 SC 106). In that case the tenant has sublet the premises in question. In proceedings for eviction, compromise was recorded between the landlords and the tenant. It was agreed that the sub-tenant would remain in possession till 31st December, 1959. However, on 17th January, 1958, the landlords filed another proceedings for eviction of the sub-tenant and for compensation. It was one of the defences, in the proceedings, that upto 31st July, 1959 the possession of the sub-tenant could not be disturbed by virtue of the compromise decree. The proceedings in the matter had continued. beyond the said date of 31st December, 1959 and instead of refusing relief to the landlords, it was held that the protection under the compromise decree had ceased to be effective from 31st December, 1959. In the second case (Mst. Ameena Begum v. Mehar Ghulam Dastagir reported in (PLD 1978 SC 220) cited by the learned counsel, the ejectment proceedings filed before expiry of statutory period under section 30 of the Displaced Persons (Compensation and Rehabilitation) Act, 1958 were allowed to be continued and it was held that the Rent Controller could take note of subsequent events' whereby the right to seek eviction had matured during the proceedings.

14. The third case referred by the learned counsel for the plaintiff is also under the Rent laws and is reported as 1982 CLC 580 (Younus v. Ms. Hameeda). In that case Ajmal Mian, J., as Judge of this Court (now a Judge of the Supreme Court), in his usual lucid style, after referring to a number of cases and the fact that proceedings under section 14 of the Sindh Rented Premises Ordinance, 1979 had been initiated before the expiry of statutory period of two months, has held as follows:-- "However, in the written statement the appellants had not raised any specified plea to the effect that a valid notice under section 14 of the Ordinance was not served on them before the filing of rent applications. It is also clear that section 14 of the Ordinance seems to provide an expeditious summary remedy to a widow, orphan, to a person, who has retired from the service or who has attained the age of 60 years. If technicalities are to be strictly enforced, the very object of the above provision will be frustrated. I am inclined to hold that the Court is to see, whether there has been substantial compliance of the above section. The spirit of section 14, seems to be that a tenant is to be provided 2 months period prior to ordering of ejectment summarily under the above provision. In the instant case the notice dated 30-1-1980 under section 14 was served in or about first week of February, 1980 whereas the , ejectment order was passed on 19-4-1981, i.e. after the expiry of more than one year. Since the Rent case was filed on 2-3-1980, the Rent Controller could not have passed an ejectment order immediately on receipt of the application for ejectment, as the two months period had not expired by them. However, during the pendency of the rent application the cause of action matured as admittedly on the date of the passing of the ejectment order, more than one year expired from the date of service of the notice and from the date of filing- of the ejectment case. " On the basis of the 'principle laid down, as above, the learned counsel for the plaintiff has urged that instead of declining interference on the technicality pressed by the other side, the matter may be decided in the present proceedings for the additional reason that the plaintiff, in any event, can now file fresh proceedings under section 20 of the Arbitration Act. It may be observed that the proceedings initially filed were admittedly premature but the cause of action has matured not. The contention on behalf of the defendant that the letter dated 9-7-1997 does not amount to decision of the Engineer in terms of clause 67 of the Condition of Contract, is belied by the reference dated 28-6-1997 made to the Engineer by WAPDA itself. In the circumstances, the refusal to entertain proceedings or grant relief in the present proceedings shall merely result in multifarious litigation which has to be avoided. However, I cannot resist expressing dismay about the plaintiff's conduct in rushing the matter to this Court without waiting for the proper stage and time. The result of above discussion is that the plaintiff has been able to establish existence of arbitration agreement between itself and the defendant No. 1 and a dispute thereunder. The application under section 20 of the Arbitration Act, in the circumstances, is granted and the matter is referred to the Sole Arbitrator of Mr. Justice (Retd.) Saleem Akhtar. While it is expected that the learned Sole Arbitrator shall be able to make award within four months from the date he enters upon the Reference, the fees may be settled by the parties directly.

15. This brings me to the applications filed on behalf of the plaintiff as are listed at serial Nos. 1 and

2. Through the first application, the plaintiff seeks interim injunction to restrain defendant No. 1 from taking any steps for and defendant No.2 from processing the encashment of the Performance Guarantee No.789/10-15518, dated 21-5-1996 for a sum of Rs.16,300,320 and Mobilization Advance Guarantee No.789/10-15519, dated 21-5-1996 in the sum of Rs.16,300,320,000 during pendency of the arbitration proceedings. Both the said guarantees were furnished by defendant No.2 bank and the learned counsel representing the bank has made statement that defendant No.2. shall abide the orders of this Court. The purpose for which the Performance Guarantee was executed, is mentioned in the recitals thereof as follows: "Whereas China International Water and Electric Corporation Beijing P.R. Chinta (Hereinafter called the Contractor) has undertaken in pursuance of Contract No.TRD-1 dated, May 26 to execute all works for LIRB Irrigation and Drainage Project (Stage-1) Priority Works Contract RTD-1 Construction of Rato Dero Pump Station (Hereinafter called "the Contract"). And whereas it has been stipulated by you in the said Contract that the Contractor shall furnish you with a Bank guarantee by a recognized Bank for the sum specified there is security for compliance with his obligations in accordance with the Contract." As regards Mobilization Advance Guarantee, the same was furnished to assure use of amount advanced by the defendants for the purpose of the works entrusted to the plaintiff. The liability under the guarantee has to stand reduced to the extent of adjustments against payments from the Interim Payment Certificates (Running Bills). The Mobilization Advance Guarantee, therefore, is security for repayment through adjustment and for utilization of the Mobilization Advance towards the works assigned to a Contractor. The learned counsel for the plaintiff has urged that notwithstanding the general approach of declining interference with encashment of Bank Guarantee, in appropriate cases, order of restraint can always be passed. In support of his above submission, the learned counsel has referred to the judgments in Discount Records Ltd. v. Barclays Bank Ltd. and another (1975 (1) AER 1071), Edward Owen Engineering Ltd. v. Barclay Bank International Ltd. (1978 (1) AER 976), M/s. Jamia Industries Ltd. v. M/s Pakistan Refinery Ltd. (PLD 1976 Kar. 644), MacDonald Layton & Co. Ltd. v. Pakistan Service Ltd. and 2 others (1983 CLC 2252), Pakistan Engineering Consultant v. Pakistan International Airlines Corporation and others (1993 CLC 1926) and Zeenat Brothers (Pvt.) Limited v. Awane-e-Iqbal Authority (PLD 1996 Kar. 183). The learned counsel has candidly referred to the cases of Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. (1984 CLC 381), United Bank Limited v. Ehsan Ellahi (1989 CLC 287), Messrs National Motors Limited v. Messrs The Muslim Commercial Bank Limited (PLD 1989 Kar. 168) and Messrs National Construction Limited v. Awan-e-Iqbal Authority (PLD 1994 SC 311) also wherein motion for interim injunction was declined. Instead of referring to all the judgments cited by the learned counsel, it was pointed out that in the latest of the above referred judgments viz M/s Zeenat Brothers (Pvt.) Limited (supra), the case-law and the, principles deducible therefrom in regard to the Performance Guarantee and Mobilization Advance guarantee had correctly been stated. As to the Performance Guarantee, it is observed by my learned brother Rasheed A. Rizvi, J; who has authored the said judgment, that the Court should be reluctant to grant interim injunction restraining a bank from honouring its contractual obligation. However, in exceptional cases where refusal to grant interim injunction may perpetuate fraud or injustice, which should be apparent from the material on record, interim injunction may be granted. It. is further observed in the said judgment that encashment of Performance Guarantee amounts to penalty since it is otherwise encashable in the event of default in due performance of all or any of the obligations finder the contract between the parties; and imposition of such penalty, even if they or ach was committed by the plaintiffs, could not be permitted until the same was established through evidence. In view of reference of disputes between the parties to arbitration, the matter has yet to be adjudicated upon on the basis of evidence as may be produced before the Arbitrator. Encashment of the Performance Guarantee, in the circumstances at this stage, is likely to put the defendant No. 1 in a position of advantage and on other hand expose the plaintiff to serious financial strain. The application is granted to such extent. "

16. However, as regards Mobilization Advance Guarantee, the principle is different. The amount covered by the Mobilization Guarantee, under its terms, had been made over to the plaintiff and despite the possibility that such amount stands reduced on account of adjustment out of the five Running Bills so far paid, defendant No. 1 cannot be restrained from encashment thereof. The amount of such adjustments has not been stated by either side in their respective affidavits, and therefore, determination of the amount of adjustment, I am afraid, has to be left open. As regards the law relating to Mobilization Advance Guarantee, the same has succinctly been stated by the Supreme Court of Pakistan in the case of M/s. National Construction Limited (supra) with the following observations:

"In the instant case, therefore, the bank guarantee furnished by the appellants contained categorical undertaking and impose absolute obligations on the banks 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 convenient of the Bank guarantees, the performance guarantees, for the smooth performance of the contracts. Those guarantees are independent contract and bank authorities must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties. In the instant case, therefore, the encashment of Bank 'guarantees cannot be postponed pending decision of the arbitration proceedings, which may take years to conclude. " The plaintiff, in view of the above legal proposition, is not entitled to interim injunction in respect of Mobilization Advance Guarantee termed as Bank Guarantee No.789/10-15519, dated 21-5-1996 subject to adjustment of the amount, if any. However, this order pertaining to Mobilization Advance Guarantee will remain suspended for thirty days from today and is subject to the observations contained in the next paragraph.

17. At this stage, it is pertinent to take into account the last portion of clause 67 of the Conditions of Contract (Agreement) dated 26-5-1996 which as follows:-- "The reference to arbitration may proceed notwithstanding that the Works shall not then be or be alleged to be complete, provided always that the obligations of the Employer, the Engineer and the Contractor shall not be altered by reason of arbitration being conducted during the progress of the Works." It seems that the parties have visualized disputes inter se but were mindful of the importance of the project assigned to the plaintiff. The purpose of the above quoted term seemingly is that despite reference of any dispute to Arbitration, the execution of works should continue and the obligations of the plaintiff, the defendant No.1 and the Engineer were agreed to be performed by every one of them. Indeed, during the hearing of the matter I had adjourned the proceedings for sometime to enable the parties to recommence the work on the project and complete it through mutual consensus. However, all such efforts did not get any result. In the circumstances, I am inclined to restrain the defendant from encashment of the Mobilization Guarantee provided the outstanding Running Bills of the plaintiff are certified, with or without modifications, and cleared by the defendant No. 1 within 30 days from the date of this order whereupon the plaintiff may re-mobilise the site within next 15 days and complete remaining work on the project according to the Contract. Such arrangement shall, however, be without prejudice to the arbitration proceedings which may be continued in terms of the order with a view to ensure substantial justice and to minimize the losses as may be suffered by the parties who are expected to adopt every possible course for mitigation thereof. Moreover, the project known as 'Rato Dero Pump Station' May also see light of the day should the parties agree to fulfil their respective obligations.

18. In the meantime in order to ascertain the position at site, Maj. Gen. (Retd.) Iftikhar Ahmed Kingravi is appointed as the Local Commissioner to prepare measurement of work executed by the plaintiff and also prepare inventory of the material and equipment lying at the site and submit a report on the basis thereof within three weeks from today. The fee of the Commissioner is tentatively fixed at Rs.25,000 which shall be paid to him directly by the plaintiff. The travel expenditure and arrangements for the same including stay for the Commissioner and his staff as may accompany him shall also be borne/made by the plaintiff. This disposes of the applications being Civil Miscellaneous Appeals Nos.4403 and 4404 of 1997 filed by the plaintiff. The costs shall abide the Award. H.B.T./C-31/K Order accordingly.