' This appeal arises from the order of a learned Single Judge dated 19-10-2001 declining to restrain the respondent No,1 from encashing two bank guarantees furnished by the appellant. The relevant facts appear to be that the appellant placed an order for supply of 1900 tons Aluminium Ingots. The contract was awarded through open tender and bidders were required to furnish earnest money in the form of Pay Order or bank guarantee to the extent of 2% of the purchase price. Accordingly upon the acceptance of the appellant's bid the appellants furnished two bank guarantees dated 12-1-1999. The terms whereof may be reproduced as under:- "Therefore, we HBL 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 or reference to the tenderers on the tenderer's failure to fulfil the tender, shall be Pakistan Steel."
2. The respondents issued a purchase order to the appellant according to which supply of 1900 tons aluminum ingots were to be made in different lots spread over several months. Payment was to be made through a letter of credit, but it was stipulated that the appellants would submit a performance bond guarantee to the extent of 10% of the value of goods and stamp duty charges to the extent of 0.25% within 10 days from the receipt of the purchase order and the letter of credit would be operative thereafter.
3. The respondents contend that the appellant committed breach of contract by failing to furnish the agreed performance bond guarantee as well as stamp duty charges within the requisite period. The appellant on the other hand argued that such breach was committed by the respondents themselves who, instead of establishing a letter of credit for the entire quantity of 1900 tons aluminum ingots established the same merely for 1000 tons and did not make it operative for sufficient period of time. Nevertheless we do not think it is appropriate for us to delve into the controversy on merits.
4. Be that as it may the appellant attempted to encash the bank guarantee furnished by the respondent No,2 on behalf of the appellant and the appellant filed a suit seeking to restrain them from doing so. An application for interim relief was also submitted which was dismissed by a learned Single Judge and the order is called in question in this appeal.
5. Mr. Raja Qureshi, learned counsel for the appellant after taking us through the facts emphasized that it was the respondent who were responsible for breach of the contractual obligation and had no right to seek encashment of the bank guarantee. He argued. That such guarantee could only be encashed after breach of contract was established. In this context he placed reliance upon an order of a learned Single Judge of this Court in Mercury Corporation v. Pakistan Steel (2000 YLR 734) where it was held that when the terms of the bank guarantee showed that it was based on performance it could only be encashed if failure in performance of contract had been proved through evidence. Learned counsel also referred to Zeenat Brothers v. Aiwan-e-Iqbal Authority (PLD 1996 Karachi 183), where a learned Single Judge drew a fine distinction between mobilization guarantee and a performance bond and held that the performance bond could only be encashed after failure to perform has been established.
6. On the other hand Mr. M.G. Dastgir, learned counsel for the respondent relied upon the pronouncement of the Honourable Supreme Court in National Construction Limited v. Aiwan-e- Iqbal Authority (PLD 1994 SC 311). In this case their Lordships held that covenants in bank guarantees or performance guarantees must be given effect and they must be construed independently of primary contract. In view of the above binding precedent we are of the considered view that the question of encashability will depend upon the construction of the document of the terms of the guarantee or bond in question. In the instant case the guarantee appears to be unconditional and does not stipulate that its encashability will in any manner dependent on the performance of a contract on the part of the appellant. In the circumstances without commenting on merits of the rival contentions we are constrained to dismiss this appeal but there will be no order as to cost. This order will, however, will not take effect for a period of three weeks from today as learned counsel wishes to approach the Honourable Supreme Court.