1993 PLP 1926 (CLC)

(iii) That the learned Single Judge was not justified in dismissing the consultant's stay application. On the other hand Mr. Mahmood Alam, Law Officer of PIA has submitted as follows:‑ (i) That since original partnership of the consultant's firm with which the t PIA had entered into the contract was a partnership‑at‑will, upon the death of Mr. Kafiluddin because of whom the work was awarded to the consultants, the partnership stood dissolved and, therefore, the contract had come to an end. (ii) That there were defaults on the part of the consultants inasmuch as the work was not completed within the contract period and some of the works which were executed were defective. (iii) That since the consultants had furnished unconditional bank guarantee against the money advanced by the PIA, the latter is " entitled to encash the same. (iv) That since there is an admitted default on the part oft the consultants inasmuch as the work had not been completed within the contract period, the PIA is entitled to encash the bank guarantee.

5. Adverting to the above First submission of Mr. Nasim Faruqui that the ground on which the contract was repudiated by the PIA is not sustainable in law and, therefore, encashment of the bank guarantee and the performance bond is not justified, it may be observed that in furtherance of his above submission, he had referred to section 47 of the Partnership Act, which according to him kept the contract intact notwithstanding the death of Mr. Kafiluddin Ahmed. He has further submitted that under the terms of the contract, there was no condition that the work awarded to the consultants was to be personally executed by Mr. Kafiludin or that the work was awarded to the consultants because of personal qualification of Mr. Kafiluddin and, therefore, the ground on which the contract had been repudiated by the PIA was not available to them. In furtherance of his above submission, he also referred to the passages al pages 104 and 360 from the well known book "Hudson on Building Contracts", 1970 Edition. On the other hand Mr. Mahmood Alam, learned Law Officer of the PIA has submitted that it was because of Mr. Kafiluddin Ahmed the work was awarded to the consultants; and that the PIA was not bound to get the work executed through some other persons; and that in any case upon the dissolution of the partnership the PIA was not obliged to allow the new partnership firm to execute the work. We would not like to make any definite observation on the above submissions as the same will be main issues in the suit, which will require recording of evidence. However, it will suffice to observe that though in para. 3 of the contract, it has bccn stated that the documents for the purpose of identification have been signed by Mr. Kafiluddin Ahmed on behalf of the consultants, but there seems to be no clause providing that the work was to be executed personally by Mr. Kaf luddin Ahmed.

6. Then it was submitted by Mr. Mahmmood Alain on the basis of the last para of the aforesaid letter dated 13th August, 1986 that the repudiation of the contract was not simpliciter on the ground mentioned in the last but one para. of the above letter quoted hereinabove but was also on the grounds mentioned in the aforesaid last para i.e. defaults. On the bass of the material placed before us, it cannot be said at this stage, whether the consultants had committed the defaults or PIA had committed defaults. It may also be stated that PIA had also made a counter‑claim of Rs.28.277 Millions and $ 218.486 in the suit. The admitted position is that the application for extension of time was made by the consultants after the expiry of the contract period. The case of the consultants is that in the various meetings, which they had from time to time with the PIA's officials, they had pointed out the reasons for the delay in the execution of the work; and that they were assured that the time would be extended, whereas the case of the PIA is that no such assurance was given; and that under ‑the relevant clauses of the contract, the consultants were to apply for extension of time for each delay within thirty days from the date when the reason for the alleged delay had occurred. These are the matters which will need recording of evidence,

7. In our view, the basic question in the instant case is, as to whether in terms of the bank guarantee and the performance bond, the PIA is entitled to encash the same during the pendency of the suit or that this Court should restrain the PIA from encashing the same during the pendency of the suit. Both the learned counsel have referred to the contents of the bank guarantee. Mr. Nasim Faruqui has emphasised that in terms of the bank guarantee, PIA could encash the same if the consultants would have failed or. committed default in fulfilment of their obligation for which the advance was given, whereas according to Mr. Mahmood Alam, the bank was under obligation to pay all sums then due without further reference to the consultants and without question; and that PIA's verdict in that behalf was final and binding. Mr. Nasim Farqui has referred to the case of Province of West Pakistan v. M/s. Mistri Patel & Co. and another (PLD 1969 SC 80), in which the facts were that respondent had furnished a bank guarantee against earnest money for the purchase of certain quantity of rice instead of depositing cash amount. The respondent did not take the delivery of the rice and, therefore, the same was re‑sold. The appellant i.e. Province of West Pakistan made profits out of re sale but at the same time they invoked the bank guarantee. A suit was filed by the Provincial Government for the recovery of Rs.72,405‑3‑0 for the earnest money in respect of which bank guarantee was furnished with 6% interest. The suit was dismissed by learned Single Judge of the erstwhile High Court of West Pakistan Karachi Bench. Letters Patent Appeal filed against the above judgment was also dismissed by the Division Bench of the same High Court. After that an appeal was filed before the Hon'bie Supreme Court, which was also. dismissed, while dismissing the same the following observations were made:‑‑ "In the present case we are, therefore, to see whether the Province of West Pakistan can claim the whole or any part of the amount which the firm was to deposit by way of earnest money. It will be wrong to argue that since the firm had agreed to deposit a sum as earnest money and in lieu thereof furnished Bank guarantee for the said amount the Government would be entitled to claim the whole of this amount simply because there was a breach of the contract by the firm. Such a contention does not even receive support from the cases where the view taken was that the forfeiture clause of a deposit in a contract does not come within the purview of section 74 of the Contract Act. In these cases also forfeiture was held to be justified if the amounts were found to be reasonable. He has also referred to an unreported order dated 13‑5‑1968 passed in Suit No.91 of 1968 Steel Corporation of Pakistan v. Capital Development Authority, by a learned Single Judge of the erstwhile High Court of West Pakistan Karachi Bench, in which an ad‑interim injunction granted against the encashment of Bank guarantee furnished against the price of certain billets given on loan by the defendant, Capital Development Authority was confirmed inter alia for the reason that some of the price of the loaned out billets was already paid by the plaintiff to the defendants in the suit. On the other hand Mr. Mahmood Aiam, learned Law Officer of the PTA has submitted that the law relating to letter of credit and a Bank guarantee as to grant of ad‑interim injunction is same. He has referred to the following cases: (i) Alavi Sons Ltd. v. The Government of East Pakistan and others (PLD 1968 Karachi 222). (ii) United Commercial Bank v. Bank of India and others (1982 PSC 601). (iii) Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. (1984 C L C 381). (iv) Bolivinter Oil S.A. v. Chase Manhattan Bank and others (1984 Lloyds's Law Reports 251). (v) M/s. Pakistan Associated Construction Ltd. v. Asif h. l Kazi and another (1986 SCMR 820) (vi) Mackcnzi v. Royal Bank of Canada (1934 Appeal Cases 468). (vii) Bank of Montreal v. Stuart and another (1911 Appeal Cases 120). (viii) M/s. Kohinoor Trading (Pvt.) Ltd. v. Mangrani Trading Co. and 2 others (1987 CLC 1533). (ix) Trendtex Trading Corporation v. Central Bank of Nigeria (1977) QB 529, (1977) Llyod's Rep. 581 CA. (x) R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. (1978) QB 146, (1977) 2 All ER 862, and the passages from the following books in support of the submission that in case of an unconditional Bank guarantee and a letter of credit, and Courts have consistently declined the ad‑interim injunction:‑‑ (1) Leading Cases in the Law of Banking by Chorley and Smart (Fourth Edition), pages 239 to 245. (2) Paget's Law of Banking (Ninth Edition), p.577. (3) Nelson's Law of Injunctions (Second Edition), pages 673 and 821. (4) Row's Law of Injunctions (Sixth Edition), pages 316, 317, 318, 337, 338, 339 and 888.

8. In our view, there seems to be preponderance of judicial view that in case of a letter of credit and an unconditional Bank guarantee, the Court would generally be reluctant to grant an ad‑interim injunction restraining a Bank from honouring its contractual obligation. However, in exceptional cases, where refusal to grant an ad‑interim injunction, will perpetuate fraud or injustice, which should be apparent from the material on record, the Court may grant an ad‑interim injunction. In our view, the instant case does not fall under the category of exceptional cases. The Bank guarantee was given against the cash amount paid by the PTA towards the 10% mobilization advance of the cost of the contract. The above amount was to be adjusted against the running bills and the final bill at the rate of 10% which has not been fully adjusted, and, therefore the balance amount of the Bank guarantee in fact belongs to the PTA. Under the terms of the Bank guarantee, the Bank has given undertaking to pay the amount on demand by the PTA without questioning it and without making a reference to the consultants and, therefore, it will not be just and proper to grant an ad‑interim injunction. However, it will not be just to allow the encashment of the full amount of the Bank guarantee. Mr. Nasim Farooqui, learned counsel for the appellant, has submitted that the PTA has withheld two running bills, namely, 15 and 16 amounting to about Rs.20,00,

000. Even if the above bills are to be taken into consideration for the purpose of adjustment of the mobilization advance, only 10% amount of the bills could be adjusted towards the amount of the Bank guarantee, namely, Rs.2,00,000 (Rupees two leas). The question, whether the PTA has illegally withheld the above running bills or any other amount, will be an issue in the suit. If they have done so, they will be rendering themselves liable to face the consequences thereof under the law.

10. As regards the performance bond, in our view, the same stands entirely on different footing than the Bank guarantee and unless and until the Court prima facie finds that the default was on the part of the consultants, it would not be just and proper to allow its encashment as the encashment depends on the commission of default. We have already observed hereinabove that on the basis of material available on record, it cannot be said who has committed the default.

11. We are of the view that the just and proper order would be that the PIA may be allowed to encash the bank guarantee to the extent of the balance C unadjusted amount minus Rs.2,00,000 (Rupees two lacs) on account of the above two running bills but they may be restrained from encashing the performance bond. We order accordingly.

12. We, therefore, allow the above appeal partly in the above terms but there will be no order as to costs. AA./P‑281/K Appeal partly allowed.