This appeal is directed against the order dated 23-12-2004, passed by the learned Civil Judge, Lahore, whereby temporary injunction was granted in favour of respondent No.1 against the appellant and respondent No,2 restraining the encashment of performance guarantee issued by respondent No.2 on behalf of respondent No.1 in favour of the appellant.
2. Brief facts leading to the filing of this appeal are that in response to a tender issued by the appellant, respondent No.1 submitted a bid for the supply of steel pipes. The said bid was accepted and purchase order issued by the appellant to respondent No. 1. In terms and as required by the said purchase order, respondent No.1 submitted a performance guarantee dated 2-5-2001 issued by respondent No.2 in favour of the appellant. Initially, the validity period of guarantee was till 21-12- 2002 which was subsequently extended up to 31st of December 2003. Accordingly, the pipes in question were supplied, however, on the 15th of October, 2003, the appellant wrote to respondent No.2 seeking encashment of the Performance Guarantee on the ground that respondent/ supplier failed to comply with the terms of the sale order. On the 16th of October, 2003, respondent No.1 filed a suit for permanent injunction inter alia against the appellant and respondent No.2 seeking a decree permanently restraining the appellant and the respondent No.2 from encashing the Performance Guarantee dated 2-5-2001. An interim injunction was granted by the trial Court. The appellant and the other defendants entered appearance and resisted the suit as well as the grant of temporary injunction. Vide order dated the 2nd of June, 2004, the trial Court after hearing the parties accepted the application under Order XXXIX, Rules 1 and 2, C.P.C. filed by respondent No.1 and confirmed the temporary injunction. Aggrieved the appellant filed F.A.O. No.284 of 2004 before this Court, which is pending adjudication.
On 23-12-2004 another civil suit was filed by respondent No.1 on the same cause of action for declaration and recovery of damages and an injunction restraining the encashment of the said bank guarantee. Along with the said suit, an application under Order XXXIX, rules 1 and 2, C.P.C. was also filed, whereupon the trial Court granted an injunction restraining the encashment of the Performance Guarantee. On the same date an application for withdrawal of the earlier suit with permission to file a fresh suit was also filed. However, the first suit for permanent injunction was withdrawn on 24-12-2004. The appellant and respondent No.2 entered appearance and contested the suit as well as the grant of temporary injunction. After hearing the parties the trial Court vide the impugned order accepted the application under Order XXXIX, rules 1 and 2, C.P.C. and granted the temporary injunction restraining the encashment of the performance guarantee. Aggrieved the appellant has filed the instant appeal.
3. Learned counsel for the parties have been heard and the record of the case perused.
4. Learned counsel for the appellant contended that an injunction cannot be granted to restrain the encashment of the Performance Guarantee which is in fact and in law was a Bank-Guarantee.
He further contended that such guarantee creates obligations independent of the contract in terms whereof the guarantee is issued and any dispute arising or pertaining to the main contract does not justify the grant of a temporary injunction. It is further contended that respondent No. 1. in the instant suit has itself claimed damages including a specific claim of the amount of the performance guarantee. Hence, no injunction could be granted in the facts and circumstances of the case. In support of his contentions raised, the learned counsel for respondent No.1 has placed reliance on the judgments reported as under:-- Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. PLD 2003 SC 191; Saudi Pak Industrial and Agricultural Investment Company (Pvt.) Ltd., Islamabad v. Messrs Allied Bank of Pakistan PLD 2003 SC 215; Sahara Trading International (Pvt.) Ltd. and others v. Bank Al- Falah Ltd. PLD 2004 SC 925; Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. 2003 CLD 1; Pak Consulting and Engineering (Pvt.) Limited v. Pakistan Steel Mills Corporation (Pvt.) Ltd. and another 2003 CLD 251; Messrs National Construction Ltd. v. Aiwan-e- Iqbal Authority PLD 1994 SC 311; Pak Consulting Engineering (Pvt.) Ltd. v. Pakistan Steel Mills and another 2002 SCMR 1781; United Bank Ltd. v. Pakistan Industrial Credit and Investment Corporation Ltd. and another PLD 2002 SC 1100; Heavy Mechanical Complex (Pvt.) Ltd., Taxila v. Attock Industrial Products Ltd., Rawalpindi PLD 2003 SC 295.
5. Controverting the contentions raised on behalf of the appellant, the learned counsel representing the respondents contended that the performance guaranteed cannot and should not be equated with a bank guarantee. Such guarantee can only be encashed if there is a default in the performance and default can only be proved or established after the recording of evidence, therefore, the trial Court has rightly granted the temporary injunction. It is further contended that the terms, if any in a performance guarantee leaving one party to determine whether a default has been committed or not would be void and inoperative. Adds that in the facts and circumstances of the case there is a serious dispute as to the factum and quantum of the alleged defective pipes supplied. Learned counsel further submits that the performance guarantee is in the nature of a penalty and must necessarily be dealt with under sections 73 and 74 of the Contract Act, hence the actual loss must be proved before the encashment. In support of his contentions the learned counsel has placed reliance on the judgments reported as Pak Consulting and Engineer v. Pakistan Steel Mills Limited 2002 SCMR 1781; Pakistan Engineering Consultants v. PIA 1989 SCMR 379; Province of West Pakistan v. Messrs Mistri Patel & Co. and another PLD 1969 SC 80; Al-Khan Construction Company (Private) Limited v. Pak-American Fertilizers Limited 2003 CLC 1053; Petrosin Products v.
Government of Pakistan 2000 MLD 785; Muhammad Amin v. PAS+ R 2002 CLD 671; Mercury Corporation v. Pakistan Steel Mills 2000 YLR 734; Zeenat Brother (Pvt.) Ltd. v. Aiwan-e-Iqbal Authority PLD 1996 Karachi 183; Pakistan Engineering Consultants v. PIA 1993 CLC 1926; International Civil Engineering v. Karachi Shipyard 1988 CLC 1555; MacDonald Layon v. Pakistan Services Limited 1983 CLC 2252; ,Jamia Industries v. Pakistan Refinery PLD 1992 Karachi 17.
6. Learned counsel for respondent No.2-Bank has merely stated that the Bank has no objection to the encashment of the guarantee if there is no order by a Court restraining it from doing so.
7. It is not the case of respondent No.1 as set out in the plaint that the performance guarantee in question is void or voidable. Thus, the respondent cannot be permitted to raise an issue in this regard.
8. An examination of the judgments cited at the bar by both the sides reveals that the law as laid down by the apex Court on the subject is that a Bank-Guarantee is an independent contract between a bank and a party in whose favour the guarantee has been issued and encashment of an irrevocable guarantee cannot be restrained by way of grant of temporary injunction on the ground that there is a dispute inter se the parties to the main agreement. This general principal has not been disputed by the learned counsel for respondent No.1, however, an attempt has been made to draw a distinction between a Bank-Guarantee simpliciter and a performance guarantee.
The learned counsel has referred to the following observations made by the apex Court in a case reported as Pak Consulting and Engineering (Pvt.) Ltd. v. Pakistan Steel Mills and another 2002 SCMR 1781 supra.
"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."
9. On the other hand, learned counsel for the appellant in this behalf, has referred to the case reported as PLD 2003 SC 295; the case whether the apex Court declined to grant a temporary injunction to restrain encashment of a Performance Bond. The learned counsel has further relied upon Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. PLD 2003 SC 191 (at page 201) wherein it has been held as follows:--
(i) "The performance of guarantee stands on the footing similar to an irrevocable letter of credit of Bank, which gives performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier has performed his contracted obligation or not, nor with the question whether the supplier is in default or not. The Bank must pay according to its guarantee all demand if so stipulated without proof or conditions. Only exception is when there is a clear fraud of which Bank has notice.
(ii) There is an absolute obligation upon the banker to comply with the terms and conditions as enumerated in the guarantee and to pay the amount stipulated therein irrespective of any disputes there may be between buyer and seller as to whether goods are up to contract or not.
(iii) The bank guarantee should be enforced on its own terms and realization against the bank guarantee would not affect or prejudice the case of contractor, if ultimately the dispute is referred to arbitration for the reason, once the terms and conditions of the guarantee were fulfilled, the bank's liability under the guarantee was absolute and it was wholly independent of the dispute proposed to be raised.
(iv) The contract of a bank guarantee is an independent contract between the bank and the party concerned and is to be worked out independently of the dispute arising out of the work agreement between the parties concerned to such work agreement and, therefore, the extent of the dispute and claims or counter-claims were matters extraneous to the consideration of the question of enforcement of the Bank and were to be investigated by the arbitrator.
(v) Where the bank had undertaken to pay the stipulated sum to respondent, at any time, without demur, reservation, recourse, contest or protest, and without any reference to contractor, no interim injunction restraining payment under the guarantee could be granted.
(vi) The Bank-Guarantee is an autonomous contract and imposes an absolute obligation on the bank to fulfil the terms and the payment on the Bank-Guarantee becomes due on the happening of a contingency on the occurrence of which the guarantee becomes enforceable.
(vii) When once Bank-Guarantee is discharged, the obligation of the Bank ends and there is no question of going behind such discharge Bank-Guarantee. Courts should refrain from probing into the nature. of the transactions between the bank and customer, which led to the furnishing of the Bank-Guarantee.
(viii) In the absence of any special equities and the absence of any clear fraud, the bank must pay on demand, if so stipulated and whether the terms are such must be have to find out from the performance guarantee as such.
(ix) The unqualified terms of guarantee could not be interfered with by Courts irrespective of the existence of dispute."
10. In the aforesaid case, the temporary injunction to restrain encashment of a performance guarantee was also declined.
11. In the instant case, the relevant terms of the Performance Guarantee read as under:-- "Now, therefore, in consideration of the above, we, Messrs Habib Bank Limited, Centre Branch, 102, 103 Upper Mall, Lahore hereby Guarantee, Irrevocable and unconditionally the due payment to you upon demand of such sum or sums not exceeding Rs. 12,160,000.00 (Rupees Twelve Million One Hundred and Sixty Thousand only) in the event that the seller fails to perform or fulfil any of the terms and conditions of the purchase order at the time or during the period specified therefor, in the purchase order, provided that any demand hereunder is received in writing at this office within the validity of this guarantee accompanied by your written declaration to us that the seller has failed to comply with the terms of the purchase order, and such declaration shall be accepted by us as conclusive proof that the amount claimed is due to you, and we shall forthwith pay you the amount claimed.
Our liability under this guarantee shall not be affected by any dispute or difference between you and the seller or by any forbearance or indulgence granted by you to the seller or by any other security held by you from the seller relating to the performance of the said goods or any variation in the purchase order or any other matter or thing which might otherwise affect our liability hereunder."
12. That fact that some of the pipes were defective has been admitted by respondent No.1 as is evident from the contents of para.12 of the plaint. The cause of the defect and the quantum of the loss occasioned thereby alone has been disputed by respondent No.1. The appellant invoked the guarantee and sought its encashment admittedly within its validity period. It is not disputed that such encashment is in accordance with terms of performance guarantee. The learned counsel has not referred to any term or condition of the performance guarantee so as to contend that encashment has not been sought in accordance therewith. Learned counsel for respondent No.1 has placed reliance upon the case reported as Pak Consulting and Engineering (Pvt.) Ltd. v.
Pakistan Steel Mills 2002 SCMR 1781 wherein it was held that the person in whose favour performance guarantee has been issued itself filed a suit for recovery of damages etc. for nonperformance of contract and it was observed by the apex Court that till the final decision of the said suit the guarantee could not be encashed as is obvious from the portion of the judgment quoted above.
13. In the instant case, the appellant has not filed a suit against the respondents seeking recovery of damages for non-performance of contract. Furthermore, in the case in hand, respondent No.1 has filed a suit for recovery of Rs.364,559,320. The details of amount is given in para.15 of the plaint, which reads as follows:--
(a) Amount of performance Rs. 12, 160 ,00 guarantee (actual)
(b)
(c)
(d)
(e)
(g)
(h)
TotalRs.364,559,320
14. Respondent No.1 has itself sought a decree for the amount of the performance guarantee thereby itself asserting pecuniary loss that may be occasioned by its encashment, hence, denuding itself of the right to seek and obtain an injunction. Furthermore, there is no allegation of fraud. No special equities have been pleaded or prima facie established. Thus, in the facts and circumstances of this case, respondent No.1 was not entitled for the grant of temporary injunction.
In this view of the matter, it is a fit case for interference and invalidation of the impugned order.
Accordingly, by accepting this appeal, I set aside the impugned order dated 23- 12-2004 with no order as to costs.