2002 PLP 1012 (CLD)

IFTIKHAR MUHAMMAD CHAUDHRY, J.‑‑‑This petition for leave to appeal has been filed against the judgment dated 6th March, 2002 passed by High Court of Sindh, Karachi whereby H.C.A. filed by petitioner‑Company has been dismissed.

2. Precisely stating the facts of the case are that petitioner‑company obtained a contract from respondent No.1 for the supply of 1900 tons Aluminum Ingots. According to conditions contained in the tender documents two Bank Guarantees equal to 2% of purchase price was furnished by it on 12th January, 1999. Besides Bank Guarantees towards the earnest money, statedly, petitioner‑Company was required to submit the performance bond to the extent of 10% of the value of the goods and stamp duty charges to the extent of 0.25% within 10 days from the receipt of purchase orders. Statedly, petitioner‑Company failed to furnish performance bond as well as stamp duty charges within the stipulated period.

4. It may be noted that the payment was to be made by respondent No. l to the petitioner‑company through letter of credit, who instead of establishing the letter of credit of 1900 Aluminum Ingots, opened such letter only for 1000 tons, which was allegedly not made operative for a considerable period. Thus under such circumstances a dispute cropped up between the parties on account of which vide letter dated 4th May, 1999 respondent No. l expressed its intention for encashment of the said two Bank‑Guarantees. Therefore for these reasons, a suit for declaration, damages and permanent injunction was filed by the petitioner alongwith the application under Order XXXIX, rules 1 and 2, C.P.C. for interim injunction to the effect that the respondents be restrained from taking any coercive action against the petitioner‑company and also restraining the respondent Habib Bank Ltd. from entertaining any request of the respondent No.1 for encashing the said Bank‑Guarantees. 4A. The learned Single Judge of High Court of Sindh vide order dated 19th October', 2001 dismissed the application for interim stay order. As a consequence whereof ad‑interim order passed pending decision of the .application under Order XXXIX, rules 1 and 2 was vacated. Accordingly, petitioner preferred appeal before the learned High Court of Sindh, Karachi being H.C.A. No.289 of 2001 which has been dismissed by a Division Bench by means of impugned judgment dated 6th March, 2002. As such instant petition has been filed. 4B. Mr. Fakhar‑ud‑Din G. Ebrahim, Advocate Supreme Court appearing for the petitioner‑company contended as follows:‑‑‑ That every contract executed between the parties is to be interpreted with reference to specific terms or the words used therein. To elaborate his argument he emphasized that respondent No.1 can only encash Bank‑Guarantee furnished by petitioner in its favour if it is established that the petitioner has failed to fulfil the terms of the tender. Reference in this behalf was made by him to the following condition of the Bank‑Guarantee: Therefore, we H.B.L., Bahadurabad Branch hereby agree to make an unconditional payment of Rs.2,432,000 (Rupees Two Million and four hundred thirty‑two thousand only) to you on demand without any further question of reference to the tenderer on the tenderer's failure to fulfil the terms of the tender. The sole Judge for deciding whether the tenderer has failed to fulfil the tender, shall be Pakistan Steel. Learned counsel, in support of his contention, relied upon the judgment in the cases of Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. (1984 CLC 381), M/s. Arul Murugan Traders v. Rashtriya Chemicals and Fertilizers Ltd., Bombay and another (AIR 1986 Madras 161), Kudremukh Iron Ore Co. Ltd. v. Korula Rubber Co. Pvt. and another (AIR 1987 Karnataka 139), M/s. Synthetic Foams Ltd. v. Simpled Concrete Piles (India) Pvt. Ltd. (AIR 1988 Delhi 207); S. Chand & Co. Ltd. v. Dr. K. Shivarama Karantha and others (AIR 1990 NOC 178 (Kant.)), State Associates v. M/s. Farben Industrial Development SPA and another (1992 MLD 1007), Messrs Zeenat Brother (Pvt.) Ltd. v. Aiwan‑e‑Iqbal Authority through Chairman, Lahore and 3 others (PLD 1996 Karachi 183) and Generale Biscuit, A French Company through Mr. Benoit Barme and another v. Messrs Diamond Food Industries (Pvt.) Ltd. through Chief Executive/ Director /Secretary (1999 YLR 305).

5. On the other hand, learned counsel appearing for respondent No. l argued as under: (i) That the present proceedings does not involve any question of public importance requiring an authoritative judgment by this Court on any law point, therefore, petitioner deserves to be dismissed on such sole ground. (ii) That the plaint filed by the petitioner alongwith application under Order XXXIX rules 1 and 2, C.P.C. for interim injunction against respondent No. 1, if read together no difficulty will be experienced in forming opinion that petitioner has, prima facie, no case in their favour nor balance of convenience lay on their side and if interim stay is not issued, no irreparable loss will be caused to petitioner. As such in absence of essential ingredients, learned Single Judge as well as a Division Bench of High Court of Sindh, while disposing of appeal by means of impugned judgment, has rightly declined to grant interim relief to the petitioner. (iii) That the petitioner failed to furnish performance bond equal to 10% of the contract price as well as stamp duty charges at the rate of 0.259% of the value of the contract, therefore, breach, eminently was found to have been committed by the petitioner, as such the authority conferred upon the respondent No. l to press into service the condition of encashment of Guarantee was exercised. In support of his contention, he relied upon the judgments In the cases of Messrs Kohinoor Trading (Pvt.) Ltd. v. Mangrani Trading Co. and 2 others (1987 CLC 1533), M/s. Rafidian Bank, Iraq v. M.L. International (Pvt.) Ltd., Karachi and 3 others (1993 MLD 1234), Pakistan Engineering Consultants v. Pakistan International Airlines Corporation and BCCI and others (1993 CLC 882), Messrs National Construction Co. Ltd. v. Aiwan‑e‑Iqbal Authority (PLD 1994 SC 311), Haral Textiles Limited v. Banque Indosues Belgium, SA and others (1999 SCMR 591) and Pakistan National Shipping Corporation PNSC Building, Karachi v. Samsung Co. Ltd. and 3 others (2001 CLC 1473).

7. Undoubtedly, at present prevailing view concerning) encashment of the Bank‑Guarantee in terms of section 126 of the Contract Act is that a Bank‑Guarantee is an independent contract between the Bank and the party in whose favour guarantee has been furnished, therefore, encashment of irrevocable Bank Guarantee cannot be declined by the bank on the pretext that the original parties to the main contract are litigating with each other, as it has been held in the case of M/s. National Construction Co. Ltd. (ibid).

8. But in our tentative view, departure can be taken from the above rule, if it has been shown from the contents of the Bank‑Guarantee that there is a built‑in condition to the effect that its encashment depends upon the violation of the conditions of the tender and the violation breach cannot be determined without conducting inquiry and if the party in whose favour Bank‑Guarantee has been furnished to judge as to whether the tenderer has failed to fulfil the conditions of the tender instead of exercising such conferred authority itself had approached to the Court of law by instituting legal proceedings for the recovery of damages etc. as it had happened in instant case because for such purpose respondent No.1 had filed a Suit No. 1040 of 2001, then till final decision of the said suit, Bank‑Guarantee cannot be encashed. We have formed the above view on the basis of various judgments quoted by both the sides ~ during arguments and also taking into consideration peculiar circumstances of the instant case, wherein both the sides are on variance concerning breach of terms of the tender. Thus, for the foregoing reasons, inter alia, to examine above aspect of the case, leave to appeal is granted. Pending decision of appeal arising out of instant petition, operation of the impugned order is suspended, subject to keeping live Bank‑Guarantees by the petitioner by getting renewed from time to time, well before their expiry, otherwise on happening of such contingency, instant order shall be deemed to have been recalled. Without notice to 'the parties, with standing direction to respondent No.2 (H.B.L.) to encash the Bank‑Guarantees without any objection, if it is requested for by respondent No.

1. Civil suits filed by parties against each other, pending before the High Court of Sindh, Karachi, shall proceed, without being influenced in any manner from the pendency of instant Proceedings before this Court. Q.M.H. M.A.K, / P ‑54 /S Leave granted.