2006 PLP 2501 (YLR)

S.A. RABBANI, J.

The parties entered into a contract for purchase and supply of material mentioned in the contract that is needed by the defendant for preparation of Tugs. The contract contains an arbitration clause and provisions of bank guarantee. Dispute arose in respect of the supplies and therefore, this application under section 20 of the Arbitration Act, 1940, has been filed with a prayer for filing of the agreement. It has also been prayed that the defendant be restrained from encashing the bank guarantee till the matter is decided in arbitration. On notice under section 20(3) of the Arbitration Act, the defendant filed objections in the form of counter affidavit to the injunction application. Since ad interim order was passed restraining the defendant from encashing the bank guarantee C.M.A. No.8472 of 2001 has been filed by the defendant for vacation of that order. Mr. Arif Khan, learned counsel for the plaintiff, submitted that bank guarantee was furnished in compliance with clause 2.7 of the agreement and the plaintiff made supplies in accordance with the agreement and the material was used in preparation of tugs by the defendant and the tugs are under operation by Pakistan Navy. He submitted that the defendant was satisfied by the supplies and therefore, they issued a letter to the plaintiff on 29-5-2001, for a proposal with regard to another tug. He referred to the provisions in the agreement with regard to the reference of the matter to arbitration. With regard to encashment of the bank guarantee, he submitted that it may be postponed till the dispute is decide by arbitration. Mr. Aziz A. Shaikh, learned counsel for the defendant submitted that the performance of the plaintiff was not satisfactory. He submitted that Pakistan Navy has refused to accept the tugs for the deficiencies caused by the material supplied by the plaintiff. With regard to encashment of the bank guarantee Mr. Aziz A. Shaikh submitted that the defendant has been recognized as sole Judge for deciding whether seller has performed purchase contract and fulfilled the terms and conditions of the contract. Now, in this case, there are two questions, one relating to a reference to arbitration and the other relating to encashment of bank guarantee. With regard to the first question, it was for the defendant to show-cause as to why the agreement should not be filed. It is not disputed that there is an agreement between the parties which contains a clause for reference to arbitration in case of a dispute. It is the case of the defendant in the counter affidavit filed on their behalf that the plaintiff has not supplied the material of exact description specified in the contract and the defendant put the plaintiff on notice pointing out the defects in performance of the contract, where there is a clause in the contract for reference to arbitration in case of dispute and where there is a dispute between the parties, a reference to arbitration is natural and legal course. As far the question of encashment of bank guarantee is concerned, the guarantee itself mentions that it is unconditional and the buyer i.e., the defendant in this case, is the sole Judge for deciding whether the seller, the present plaintiff has performed the purchase contract and fulfilled the terms and conditions. In view of this provision in the guarantee there is no legal justification for restraining the defendant from encashing the bank guarantee. The only reason that the dispute is to be decided and the claim and liability are to be determined in arbitration is not sufficient to interfere with the agreed term about the defendant being the sole Judge of the performance. In case a decree is passed in favour of the plaintiff and against the defendant ultimately, the plaintiff shall be compensated by execution of the decree and the defendant, being an organization under the Government of Pakistan, there is no likelihood that the decree would be inexecutable for want of adequate assets of the defendant. The prayer for restraining the defendant from encashing the bank guarantee cannot therefore, be allowed. The C.M.A. filed by the plaintiff is therefore, dismissed and consequently C.M.A. filed by the defendant is allowed. Since no sufficient cause has been shown by the defendant as to why the agreement should not be filed, main application under section 20 of the c Arbitration Act is allowed to the extent of filing of the agreement. Let the agreement be filed. H.B.T./S-51/K Application allowed.