Encashment

2025 PTD 914 PESHAWAR-HIGH-COURT Judicial Precedent

Ss. 2(37), 11, 37-A & Sixth Schedule, Entry No.151Criminal proceedingsTax fraudScopeTax refundSecurity instrumentEncashment

Petitioners / importers were aggrieved of registration of FIR against them by authorities for not providing consumption certificates in terms of Entry No. 151 in Sixth Schedule to Sales Tax Act, 1990

Validity

Prosecution can be launched under S. 37-A of Sales Tax Act, 1990 against taxpayer by competent authority who, on the basis of material evidence, has reasons to believe that taxpayer has committed tax fraud or any offence warranting prosecution under Sales Tax Act, 1990

Phrase "tax fraud" is defined under S. 2(37) of Sales Tax Act, 1990 which means that registered person with dishonest intention falsifies sales tax invoices to avoid payment of duties and taxes to make a false claim of refund

Petitioners / importers under concessionary regime did not provide consumption certificate and authorities were at liberty to retain security instrument i.e. post-dated cheque, which were enforceable only when liability of petitioners / importers, if any, had been determined under S. 11 of Sales Tax Act, 1990

Before determination of the liability, in view of dispensation, authorities had illegally and without lawful authority presented security cheques, which were provided by petitioners / importers in terms of Entry No.151 in Sixth Schedule to Sales Tax Act, 1990 for presentation to bank

Launching of criminal prosecution on the basis of dishonouring of security cheques was pre-mature and without lawful authority

Authorities acted in excess of their authority, therefore, registrations of FIRs, were not sustainable in the eyes of law

Letters/refusal to provide consumption certificates were annulled by Appellate Tribunal Inland Revenue in many other cases

High Court quashed the FIRs registered against petitioners / importers, however authorities were at liberty to conduct audit of petitioners / importers in terms of S. 25 of Sales Tax Act, 1990

High Court directed the authorities that if any discrepancy was pointed out relating to sale of goods in tariff area, the matter could be adjudicated against petitioners / importers under S. 11 of Sales Tax Act, 1990 and relevant provisions of Income Tax Ordinance, 2001

Constitutional petition was allowed accordingly.

2024 CLD 1426 ISLAMABAD Judicial Precedent

S. 124Civil Procedure Code (V of 1908), O. XXXIX, Rr. 1 & 2Specific Relief Act (I of 1877), Ss. 42 & 54Suit for declaration and injunctionInterim injunction, refusal ofPerformance guaranteeEncashmentForce majeure clauseScope

Appellant / plaintiff company sought restraining order against encashing of performance guarantee executed in favour of respondent / defendant

Validity

Respondent / defendant was the sole judge of whether there was delay in implementation of agreement and that penalty clause could be invoked

Such clause could only be excluded if there was force majeure clause

There was no force majeure and on the basis thereof, respondent / defendant sought encashing of bank guarantees issued in its favour due to delay as penalty

Whether there was delay or not, was a question of fact which could only be decided on the basis of evidence led and on the basis of documents

There was no prima facie case in favour of appellant / plaintiff and as it was a money matter there was no question of irreparable loss and balance of convenience was also in favour of respondent / defendant

In case, if eventually the suit filed by appellant / plaintiff was decided in its favour, return of money could always be ordered by Court

High Court declined to interfere in the order passed by Trial Court refusing to issue interim injunction against encashing of performance guarantee

Appeal was dismissed in circumstances.

2024 CLD 858 ISLAMABAD Judicial Precedent

Ss.42 & 54Civil Procedure Code (V of 1908), O.XXXIX, Rr. 1 & 2Suit for declaration and injunctionInterim injunction, refusal ofPerformance guaranteeEncashmentPrinciple

Respondent / plaintiff was aggrieved of encashing of Performance Guarantee issued on its behalf in favour of appellant / defendant

Trial Court allowed interim injunction restraining encashment of Performance Guarantee furnished on behalf of respondent / plaintiff by insurance company

Validity

Rights and liabilities of parties in a contract of guarantee have to be determined strictly in accordance with terms and conditions of guarantee without recourse to underlined contract

Guarantee, whether captioned as a "bank guarantee" or "performance bond" or "performance security" issued by a bank or an insurance company, is an autonomous contract and imposes an absolute obligation on guarantor to fulfill its terms

It is the language of contract of guarantee that reveals intention of parties

Where a bank / insurance company gives a guarantee in absolute and unconditional terms and where payment is to be made on demand irrespective of the dispute and differences between parties to underlying contract, bank / insurance company is duty bound to honour its obligation and it cannot be prevented by an injunction from honouring such obligation

Irrevocable commitment in the form of irrevocable bank guarantee cannot be interfered with by Courts, except where a case of fraud or irretrievable injustice has been made out

Terms of Performance Security do not defer a claim for its encashment until the resolution of disputes between the parties to underlined contract

Courts do their utmost to enforce a guarantee according to its terms and do not interfere by way of an injunction to prevent its enforcement

High Court set aside interim injunction issued by Trial Courts in favour of respondent / plaintiff restraining encashment of Performance Security in question

Appeal was allowed, in circumstances.

2024 CLC 2002 ISLAMABAD Judicial Precedent

S. 124Civil Procedure Code (V of 1908), O. XXXIX, Rr. 1 & 2Specific Relief Act (I of 1877), Ss. 42 & 54Suit for declaration and injunctionInterim injunction, refusal ofPerformance guaranteeEncashmentForce majeure clauseScope

Appellant / plaintiff company sought restraining order against encashing of performance guarantee executed in favour of respondent / defendant

Validity

Respondent / defendant was the sole judge of whether there was delay in implementation of agreement and that penalty clause could be invoked

Such clause could only be excluded if there was force majeure clause

There was no force majeure and on the basis thereof, respondent / defendant sought encashing of bank guarantees issued in its favour due to delay as penalty

Whether there was delay or not, was a question of fact which could only be decided on the basis of evidence led and on the basis of documents

There was no prima facie case in favour of appellant / plaintiff and as it was a money matter there was no question of irreparable loss and balance of convenience was also in favour of respondent / defendant

In case, if eventually the suit filed by appellant / plaintiff was decided in its favour, return of money could always be ordered by Court

High Court declined to interfere in the order passed by Trial Court refusing to issue interim injunction against encashing of performance guarantee

Appeal was dismissed in circumstances.

2024 CLC 1514 ISLAMABAD Judicial Precedent

Ss.42 & 54Civil Procedure Code (V of 1908), O.XXXIX, Rr. 1 & 2Suit for declaration and injunctionInterim injunction, refusal ofPerformance guaranteeEncashmentPrinciple

Respondent / plaintiff was aggrieved of encashing of Performance Guarantee issued on its behalf in favour of appellant / defendant

Trial Court allowed interim injunction restraining encashment of Performance Guarantee furnished on behalf of respondent / plaintiff by insurance company

Validity

Rights and liabilities of parties in a contract of guarantee have to be determined strictly in accordance with terms and conditions of guarantee without recourse to underlined contract

Guarantee, whether captioned as a "bank guarantee" or "performance bond" or "performance security" issued by a bank or an insurance company, is an autonomous contract and imposes an absolute obligation on guarantor to fulfill its terms

It is the language of contract of guarantee that reveals intention of parties

Where a bank / insurance company gives a guarantee in absolute and unconditional terms and where payment is to be made on demand irrespective of the dispute and differences between parties to underlying contract, bank / insurance company is duty bound to honour its obligation and it cannot be prevented by an injunction from honouring such obligation

Irrevocable commitment in the form of irrevocable bank guarantee cannot be interfered with by Courts, except where a case of fraud or irretrievable injustice has been made out

Terms of Performance Security do not defer a claim for its encashment until the resolution of disputes between the parties to underlined contract

Courts do their utmost to enforce a guarantee according to its terms and do not interfere by way of an injunction to prevent its enforcement

High Court set aside interim injunction issued by Trial Courts in favour of respondent / plaintiff restraining encashment of Performance Security in question

Appeal was allowed, in circumstances.

2023 CLD 1511 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S. 13Civil Procedure Code (V of 1908), O. XXXIX, Rr. 1 & 2Specific Relief Act (I of 1877), Ss. 42 & 54Suit for declaration and injunctionInterim injunction, refusal ofPerformance guarantee/ Letter of CreditEncashment

Plaintiff company sought encashment of its invoices for services provided to defendant company from bank on the basis of a document alleged to be a Performance Guarantee issued by Bank

Contention of defendant company was that there was no Performance Guarantee issued by Bank rather there was a Letter of Credit issued

Validity

Claim of plaintiff company was seriously disputed by defendant company on the ground that total amount owed by plaintiff company to defendant company was much more than their claimed amount, and even if a set-off was allowed, plaintiff company still owed more than Rs.800 million

Such disputed facts could not be resolved at injunctive stage and required parties to lead evidence

Letter of Credit had per se no nexus with payments claimed by plaintiff company

Relief of injunction was an equitable relief

Conduct of party seeking such relief had to go through a threadbare scrutiny before any such discretionary jurisdiction could be exercised in its favor

While considering application for grant of injunction, Court not only had to take into consideration basic elements regarding existence of a prima face case, balance of convenience and irreparable injury but it also had to take into consideration conduct of parties as grant of injunction was otherwise an equitable relief

Plaintiff company made an attempt to conceal material facts by withholding complete document i.e. Annexure "G", and only part of it (amendment) was filed while filing the suit and had obtained ad-interim injunction

Authorized person of plaintiff company concealed and furnished false information as well as false affidavit in violation of Ss. 177, 181, 182, P.P.C. and other enabling provisions and also committed contempt in the face of the Court with such conduct and act

High Court declined to grant interim injunction in favour of plaintiff company and against defendant company

Application was dismissed, in circumstances.

2022 CLD 1528 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

S. 33(1)Insurance Ordinance (XXXIX of 2000), S. 130 (2)Alternate and efficacious remedy, availability ofPerformance bondEncashmentPetitioner assailed order passed by Ombudsman directing it to encash performance bondAppeal filed by petitioner under S. 130(2) of Insurance Ordinance, 2000 was dismissedValidity

Matter was not of insurance claim and complaint lodged by respondent was non-payment of unconditional and irrevocable performance bonds executed by petitioner

Petitioner repudiated claim of performance bonds without any lawful excuse

Performance guarantee, letter of credit and Bank guarantee were autonomous and independent contracts and the same were irrevocable in character

Petitioner did not deny execution of irrevocable and independent contracts of performance bonds

Contractors did not complete their work/job within stipulated period, even extended period more than actual/agreed time

According to performance bonds petitioner was not righteous to raise any query about terms and conditions or obligations in between the parties

Petitioner had undertaken to pay on first written demand without cavil or argument and without needing to prove or to show grounds or reasons for demand of encashment

No factual controversy was present between parties which required recording of evidence

Petitioner was not justified in repudiating claim, which was act of dishonesty and mal-administration on its part

Petitioner under the same hierarchy, also filed appeal against order in original, wherein they did not raise any objection upon jurisdiction, which had been agitated in Constitutional petition

Petitioner failed to avail alternate remedy in the form of appeal against order of SECP under S. 33(1) of Securities and Exchange Commission of Pakistan Act, 1997

Ultimate appellate jurisdiction also rested with High Court under S. 34(1) of Securities and Exchange Commission of Pakistan Act, 1997

Constitutional petition was dismissed, in circumstances.

2021 SCMR 1446 SUPREME-COURT Judicial Precedent

S. 126Contract of guaranteeBank/insurance guaranteeEncashmentScope

Bank or insurance guarantee that contained a categorical undertaking and imposed absolute obligation on the guarantor, i.e., the Bank or the insurance company, to pay the guaranteed amount, irrespective of any dispute which may arise between the parties regarding breach of the contract, for which performance one of the parties furnished the guarantee to the other, was an independent contract; therefore, the guarantor must discharge its obligations under the contract of guarantee as per the terms thereof, independent of the dispute as to performance of the primary contract between the parties.

2021 CLD 946 SUPREME-COURT Judicial Precedent

S. 126Contract of guaranteeBank/insurance guaranteeEncashmentScope

Bank or insurance guarantee that contained a categorical undertaking and imposed absolute obligation on the guarantor, i.e., the Bank or the insurance company, to pay the guaranteed amount, irrespective of any dispute which may arise between the parties regarding breach of the contract, for which performance one of the parties furnished the guarantee to the other, was an independent contract; therefore, the guarantor must discharge its obligations under the contract of guarantee as per the terms thereof, independent of the dispute as to performance of the primary contract between the parties.

2021 PLD 57 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 14(2), 30 & 33Contract Act (IX of 1872), Ss. 73 & 74Objection to award of contractLoss and compensation, determination ofPerformance guaranteeEncashment

Plaintiff company was awarded contract for supply of sugar and for the purpose it submitted performance guarantee to the Trading Corporation of Pakistan

Failure to supply sugar in due course of time

Corporation cancelled the contract and forfeited performance guarantee

Arbitrator rejected the claim of loss suffered by Corporation but awarded compensation to the extent of half of the performance guarantee

Validity

For the purposes of determining reasonable compensation under S.74 of Contract Act, 1872, assessment by Court, whether the party relying on forfeiture clause had suffered loss or not was the only one of the ways to see whether forfeiture was unconscionable or highly penal in nature

Ultimate analysis remained one of unconscionability and the extent of penalty

As to what was unconscionability and what was reasonable compensation, that was a question of fact and the Court or arbitrator had to determine in peculiar facts and circumstances of each case

For what could be seemed reasonable to the Court in one set of circumstances could not be seemed reasonable in another

Compensation could follow under S. 74 of Contract Act, 1872, even if no loss was proved

Even finding of breach of contract was not sufficient to entitle Trade Corporation of Pakistan to forfeit the entire amount

Objections to the award filed by both the parties were dismissed

Award was made rule of the Court.

2016 CLD 1535 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 42 & 54Power Policy, 2002, Art. 5.2, Para. 25Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2Suit for declaration and injunctionIntra-court appealInterim injunction, grant ofPerformance guaranteeEncashment

Plaintiff company was declared as successful bidder for setting up of 200 Megawatt power-plant and for the purpose, a Letter of Support (LOS) was issued in its favour by Private Power and Infrastructure Board (PPIB)

Plaintiff company provided a Performance Guarantee at the rate of US$ 5000 per Megawatt in favour of PPIB for a period of three months in excess of validity of the LOS

Plaintiff company could not perform its part therefore, the Private Power and Infrastructure Board intended to encash Performance guarantee

If there was a possibility that Financial Close was not to be achieved on stipulated date, the contract entered into between parties through LOS specifically provided that a further extension of three months could have been provided to plaintiff upon them having provided additional Performance guarantee

Intent and bona fide of the Board was evident that it seriously wished that Financial Close to be achieved by intending participants either within first period or within extended date because alarming misery of people at large was at stake, who were desperate to have been provided with electricity to improve standard of their lives

Incumbents who merely were visiting process by anchoring into mechanism by making a small investment had been trying to fish third party into the net had no place in the system and could not be allowed trafficking of opportunities provided by the Power Policy

High Court declined to interfere with orders passed by Single Judge of High Court who had rightly dismissed injunction application against encashment of Performance guarantee

Intra-court appeal was dismissed in circumstances.

2016 CLC 1442 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 42 & 54Power Policy, 2002, Art.5.2, Para. 25Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2Suit for declaration and injunctionIntra-court appealInterim injunction, grant ofPerformance guaranteeEncashment

Plaintiff company was declared as successful bidder for setting up of 200 Megawatt power-plant and for the purpose, a Letter of Support (LOS) was issued in its favour by Private Power and Infrastructure Board (PPIB)

Plaintiff company provided a Performance Guarantee at the rate of US 5000 per Megawatt in favour of PPIB for a period of three months in excess of validity of the LOS

Plaintiff company could not perform its part therefore, Private Power and Infrastructure Board intended to encash Performance guarantee

If there was a possibility that Financial Close was not to be achieved on stipulated date, the contract entered into between parties through LOS specifically provided that a further extension of three months could have been provided to plaintiff upon them having provided additional Performance guarantee

Intent and bona fide of the Board was evident that it seriously wished that Financial Close to be achieved by intending participants either within first period or within extended date because alarming misery of people at large was at stake, who were desperate to have been provided with electricity to improve standard of their lives

Incumbents who merely were visiting process by anchoring into mechanism by making a small investment had been trying to fish third party into the net had no place in the system and could not be allowed trafficking of opportunities provided by the Power Policy

High Court declined to interfere with orders passed by Single Judge of High Court who had rightly dismissed injunction application against encashment of Performance Guarantee

Intra-court appeal was dismissed in circumstances.