1992 PLP 1161 (MLD)

By this order I will dispose of plaintiffs' application under Order 39 rules 1 and 2, C.P.C., in which he has prayed for interim injunction restraining the defendants from encashing the bank guarantee No.42/15, dated 9‑7‑1990, issued by M /s. Muslim Commercial Bank Limited, Sheikh Sultan Trust Building Branch, Beaumont Road, Karachi in the sum of Rs.4,62,000 under Contract, dated 16th July, 1990. Mr. Mehmood Ali Mehkari, Managing Director of the plaintiffs supported the application by filing his affidavit stating that on 7‑6‑1990 the question submitted by the plaintiffs for supply of 300,000 master cartons was accepted by the Defendants in pursuance whereof the plaintiffs were asked to furnish bank guarantee for Rs.4,62,000 being 10% of the value of the Contract. On 26‑6‑1990, the plaintiffs furnished the said bank guarantee in favour of the defendants and the contract was awarded to the plaintiffs. It is alleged that the defendants with ulterior motives withheld samples supplied to them by the plaintiffs on flimsy grounds stating that the cartons were not according to specification and were sub‑standard. On 12‑12‑1990 the defendants illegally and mala fide cancelled the Contract on the ground that the plaintiffs had failed to supply the said goods. The defendants now by their letter, dated 21‑1‑1991 have asked the plaintiffs' Bank, namely, Muslim Commercial Bank Limited to encash the said bank guarantee in their favour. It is contended by Mr. Munawar Ghani, learned counsel for the' plaintiffs, that the plaintiffs have not committed breach of contract as alleged by the defendants. Since the defendants mala fide withheld the approval of the samples, it was not possible for the plaintiffs to deliver the goods within the stipulated period. It was argued that the defendants cannot be allowed to take advantage of their mala fide and wrongful acts and the plaintiffs under the circumstances are entitled to injunction. Reliance is placed on PLD 1976 Kar. 644; 1984 CLC 381 and PLD 1969 SC

80. In M/s. Jamia Industries v. M/s. Pakistan Refineries Limited Karachi, reported in PLD 1976 Kar. 644 the question was whether the defendants were entitled to claim and appropriate whole guarantee amount. In view of the facts and circumstances of the case, the Court was of the view that the defendants may not be entitled to the entire guarantee amount as it was in the nature of earnest money and accordingly granted injunction. In Sirafi Trading Establishment v. Trading Corporation of Pakistan Limited, 1984 CLC 381, it was held that Bank Guarantee would be executed with the same principles as confirmed letter of credit. An absolute obligation will be imposed upon the Bank which executes the guarantee to honour the same according to its terms. There may be explanation in general rules in `special cases or in case of the fraud to the security of the Bank where the Court may preclude banks from fulfilling their obligation to third parties. In Province of West Pakistan v. M/s. Mistri Pak PLD 1969 SC 80, it was held by the Supreme Court of Pakistan that Bank Guarantees can also be subject matter of earnest money. None of the cases cited by the learned counsel for the plaintiffs are applicable in the present case which is clearly distinguishable on facts and in law. Mr. Muhammad Arif learned counsel for the defendants, on the other hand has pointed out that the guarantee furnished by the plaintiffs was an unconditional guarantee and covered only 10% of the value of the contract. The samples supplied by the plaintiffs were not as per specifications and rightly rejected by the defendants. Further, the bank guarantee is an independent contract between the Bank and the defendants and was enforcible at the instance of the defendants without any reference to the plaintiffs. Learned counsel has also drawn my attention to the contents of the Bank Guarantee where under M/s. Muslim Commercial Bank Limited unconditionally and absolutely bound themselves to pay the said sum to the defendants for due performance of the Contract by the plaintiffs without any reference to the plaintiffs, the sole judge of which was the defendants whose demand in writing would be conclusive and binding on the Bank. In support of his contention, learned counsel first referred to the Law Relating to Bonds and Guarantees by. S.N. Gupta, Volume 11, 2nd Edition page 288, in which reference was made to the case of United Commercial Bank v. Bank of India AIR 1981 SC 1426 (1437‑38) in which it was held:‑‑‑ "The rule is well established that a bank issuing or confirming a letter of credit is not concerned with the underlying contract between the buyer and seller. Duties of a bank under a letter of credit arc created by the document itself. but in any case it has the power and is subject to the limitations which are given or imposed by it, in the absence of the appropriate provisions in the letter of credit, The Courts usually refrain from granting injunction to restrain the performance of the contractual obligations arising out of a letter of credit or a bank guarantee between one bank and another. If such temporary injunctions were to be granted in a transaction between a banker, restraining a bank from recalling the amount due when payment is made under reserve to another bank or in terms of the letter of guarantee or credit executed by it, the whole banking system in the country would fail. A bank guarantee is very much like a letter of credit. The Courts will do their utmost to enforce it according to its terms. They will not, in the ordinary course of things interfere by way of injunction to prevent its due implementation." Learned counsel then referred to the case of our High Court in Sirafi Trading Shipment v. Trading Corporation of Pakistan Limited, 1984 CLC 381 in which also it was held as follows:‑‑ "From the discussion as above, I find that the Bank guarantee furnished would be governed by the same principles of law, which are applicable to payments by the banks against confirmed letters of credit. Thus an absolute obligation is imposed upon the bank which executes the guarantee to honour the same according to its terms. There may be exceptions to the general rule in special cases or in cases of fraud to the knowledge of the bank, where the Court may preclude banks from fulfilling their obligation to third parties. Prima facie no case falling under any of the exceptions having been made out, interim injunction granted in the case was discharged by short order passed on 21st March, 1983 with the direction to the Nazir to encash the bank guarantees and invest the amounts received, for the benefit of the party who ultimately succeeds." The Court cannot at this stage, determine the question as to whether the defendants rightly or wrongly cancelled the contract of the plaintiffs. What can be seen is whether the defendants are entitled to encash the bank guarantee furnished by the plaintiffs in their favour by the said Bank. There is no dispute that the guarantee was a performance guarantee, irrevocable in nature and liable to be encashed at any time by the defendants without any recourse to the plaintiffs. The plaintiffs mindful of the terms of the guarantee; had executed the letter of guarantee and no fraud was committed on them by the defendants. Learned counsel for the plaintiffs has failed to satisfy me as to how on the facts and circumstances of the case and bulk of case law favouring the defendants, the plaintiffs are entitled to injunction, hence I dismiss this application, but with no order as to costs. A.A./P‑214/K Petition dismissed.