Mian Shakirullah Jan, J.--This petition, for leave to appeal, has been filed by the petitioner, Standard Construction Company (Pvt.) Limited, against an order passed by the High Court of Sindh, while exercising its original jurisdiction, and dealing with the application submitted by the petitioner under Section 20 of the Arbitration Act, 1940 (hereinafter to be referred as "the Act") and referring the matter to the Arbitrator, "to arbitrate all the disputes between the parties", application of the petitioner under Section 41 read with clause (4) of the. Second Schedule of the Act for restraining the respondents from encasing bank guarantees was dismissed.
2. The brief facts of the case are that the petitioner as a Private Limited Company is engaged in civil works of construction etc. while Respondent No, 2 is a statutory authority is looking after roads' and bridges' construction in Pakistan. The latter wanted to construct six-lane Motorway between Karachi and Hyderabad, the M-9 (Motorway) Project, and initiated the process as required under the law/rules/practice of the respondent starting from publication in the newspapers inviting Expression of Interest under the scheme of BOT (Build, Operate and Transfer) and taking further necessary steps as required, ultimately after holding the petitioner as the best bidder awarded its Letter of Intent and subsequently allocating him the carrying out of the construction work. In this respect the petitioner has also furnished pre-bid bank guarantee in the sum of Rs, 18,000,000/-.
After signing of the Concession Agreement between the parties the petitioner was required to achieve the financial close, which expression has been defined in the Concession Agreement as "Financial Close -Means the time not accruing after the date stated in the Sub-clause 21.2.1 by which the Financial Agreements entered into with the Lenders have been executed and become effective." In other words arranging the availability of funds required as a total project cost of Rs,6,318,000,000/- with the equity portion of the petitioner as Rs, 1,895,000,000/- and Rs, 4,423,000,000/- is to be arranged from the financial institution under firm commitment, within a period initially of six months but which period was extended till 13.06.2007 from the effective date i,e,, the execution of the Concession Agreement on 26.09.2006. After the Concession Agreement the petitioner has also submitted bank guarantee for the collection of the Toll which process he started since 25.12.2006 one bank guarantee for Rs, 18 million and the other of Rs, 35 million. In the process of achieving financial close/arranging the availability of the funds (before the target date) from the financial institutions, the petitioner addressed a letter to Defendant No, 2 (N.H.A.) on 11.062007 with a format of agreements between the petitioner and the financer banks for approval of the N.H.A. and on 13.06.2007 the petitioner signed financial agreements with the consortium of banks and forwarded the executed agreements to N.H.A. confirming financial close with firm commitments of arranging Rs, 4,423,000,000/-. The petitioner also submitted to N.H.A. a performance bond equivalent to 5% of the project cost as required under Clause 30 of the Concession Agreement. The petitioner was informed by the bank that the N.H.A. has made a call on 21.06.2007 for encashment of the bank guarantees and on inquiry from the N.H.A., the N.H.A. confirmed encashment of the bank guarantees on the ground that since the bank guarantees were to be expired on 22.06.2007 so before expiration their encashment was asked for and to the renewal of which the petitioner expressed its readiness. However, later on in a meeting with the officers of the N.H.A. on 26.06.2007 the petitioner was informed the reason of encashment of the bank guarantees which was that the petitioner had failed to achieve financial close and the petitioner was further informed to hand over the Toll Plaza to the N.H.A. and the demand for the encashment of the bank guarantees kept continue. It is alleged by the N.H.A. that since 25.12.2006, the date of handing over the Toll Plaza for collection of Toll till 08.07.2007 and the possession of the Toll Plaza was taken over by the petitioner, the petitioner has already collected as Toll an amount of Rs, 135,000,000/- while on the other side the petitioner alleged that it has spent Rs, 234,900,000/- on the project which fact, however, was disputed by the N.H.A. These controversies i,e,, whether the financial close has been achieved by the petitioner or not, and whether financial close as submitted by the petitioner to the respondent has been approved or not, and whether the respondents are entitled to encashment of the bank guarantees on the aforesaid plea of the respondent of not achieving the financial close by the petitioner and its (respondent's) non- approval of the financial close and the apprehension of the petitioner of cancellation of the award of contract and its awarding to some one else lead to the filing of the application by the petitioner under Section 20 of the Act with an application for interim relief for restraining the respondents from encashment of the bank guarantees and from other acts which may result in the cancellation of the contract. The learned Judge in the High Court, with the consent of the parties, referred the matter to the sole Arbitrator and while doing so took up the application for interim relief and after hearing the learned counsel for the parties the application of the petitioner was dismissed which order is under challenge before us through the instant petition.
3. The main concern of the learned counsel for the petitioner, as agitated before us, is to restrain the respondents from encashment of three bank guarantees which concern of the petitioner was contested by the respondents. and thus on the point of contest between them we have heard their learned counsel and perused the record available before us.
4. Since the basic controversy is with regard to the encashment of bank guarantees so for the sake of convenience it would be appropriate to reproduce the relevant parts of the three bank guarantees which have also been referred to in the impugned judgment of the High Court, (i) the pre-bid bank guarantee of Rs, 18 million with the following, contents:-- "At the request of the Bidder we hereby open and establish the irrevocable and unconditional Guarantee for an amount up to Pak. Rs, 18,000,000/= (Pakistani Rupees Eighteen Million only) payable by us to you forthwith upon the happening of any of the following events:
1. If the Bidder partially or wholly withdraws or suspense the Bid or amends or modifies the same without the prior approval in writing of the NHA: or
2. If the Bidder fails or refuses to execute the concession agreement with the NHA in terms acceptable to the NHA on or before 25.10.2005; or
3. If the Bidder, having executed/signed the concession agreements fails or refuses to provide a construction phase bond in accordance with the requirement of such an agreement within--days of such execution/signature.
We, Askari Commercial Bank Limited, M. A. Jinnah Road, Quetta having its Registered Head Office at AW-T Plaza, The Mall, Rawalpindi do hereby guarantee irrevocably and unconditionally to pay to you forthwith, without prior course to the Bidder to the extent of Pak. Rs, 18,000,000/- (Pakistani Rupees Eighteen Million only) immediately upon receipt by us of your first written demand, which shall only state that the supplier has failed to comply with the requirements of the Brief. It is agreed that any such demand made hereunder by you shall be conclusive evidence of the Bidder's failure to comply with or fulfill the requirements of the Brief as set out above. We shall at all times be bound on the first written demand of the NHA to pay the NHA forthwith the amount hereby guaranteed until we are expressly released and discharged in writing by the NHA from the liabilities/obligations hereby guaranteed."
(ii)The Toll collection bank guarantee of Rs, 80 million contains the following conditions:-- "We, the M/s. Askari Commercial Bank Ltd., M. A. Jinnah Road, Quetta having its Registered Head Office at AW-T Plaza, the Mall, Rawalpindi, Cantt. Incorporated under Banking Companies Act 1962 as instructed by the company, agree unconditionally and irrevocably without recourse to guarantee as primary obligator and not as surety merely, the payment to the National Highway Authority (`NHA') on his first demand without whatsoever right or obligation on our part and without his first claim to the Company, in an amount not exceeding Rs, 80,000,000/- (Rupees Eighty Million only) in the event that obligations expressed in the said Clause of the above mentioned Agreement have not been fulfilled by the company giving the right of claim to the NHA for recovery of the whole or part of the Toll Money from the Company under the Agreement.
We further agree that no change or addition to or other modification of the terms of the Agreement or of Works to be performed there under or of any of the Contract documents which may be made between the NHA and Company, shall in any way release us from any liability under this guarantee, and we hereby waive notice of any such change, addition or modification."
(iii)The second Toll collection bank guarantee of Rs, 35 million contains the following stipulations:- - "We, Faysal Bank Ltd., Head Office & Main Branch, Shahrah-e-Faisal, Karachi as instructed by the company, agree unconditionally and irrevocably without recourse to guarantee as primary obligatory and not as, surety merely, the payment to the National Highway Authority" on its first demand without whatsoever right of objection on our part and without his first claim to the Company in an amount not exceeding Rs, 35,000,000/- (Pak Rupees Thirty Five Million only) in the event that obligations expressed in clause 24.4 of the above mentioned Agreement have not been fulfilled by the company giving the right of claim to the NHA for recovery of the whole or part of the Toll money from the Company under the Agreement.
We further agree that no change or addition to or other modification of the terms of the Agreement/contract or of Works to be performed there under or of any of the Contract documents which may be made between the NHA and the Company, shall in any way release us from any liability under this guarantee, and we hereby waive notice of such change, addition or modification.
The liability under this guarantee is restricted to Pak Rs, 35,000,000/- (rupees Thirty Five million only) and is valid upto 22.6.2007. Any claim under this guarantee should be presented to us on or before 22.6.2007 after which the bank shall be released from all its liabilities and the guarantee shall automatically become null and void whether or not the original guarantee is returned to us."
5. As already stated the respondent requires the encashment of bank guarantees mainly, inter- alia, because of non-achievement of the financial close which is one of the conditions in the Concession Agreement and in consequence thereof the agreement is to lapse/terminated. The bank guarantees, generally, contain in their contents whereby the guarantor undertakes to agree irrevocably and unconditionally to the payment to the beneficiary/employer the amount mentioned therein and the demand of the beneficiary is deemed to be a conclusive evidence' and who is considered as the sole judge to do so regarding the failure of the principal to have not complied with or fulfilled the requirements of the brief/agreement. However, there are certain guarantees, which in their contents without mentioning the demand as the conclusive evidence or the beneficiary to be the sole judge, prescribe certain eventualities on the happening whereof the beneficiary is entitled to the demand of the encashment of the guarantee. While going through the aforesaid three bank' guarantees we find that the first bank guarantee amounting to Rs, 18 million regarding the pre-bid in addition to the terms "it is hereby guaranteed irrevocably and unconditionally to pay to you forthwith without prior course to the Bidder" it further prescribes It is agreed that any such demand made hereunder by you shall be conclusive evidence of the Bidder's failure to comply with or fulfill the requirements of the Brief as set out above," such averments, as contained in the above guarantee, made the beneficiary as the sole judge and its mere demand would be sufficient to entitle it to the encashment of the bank guarantee without any reservation on the part of the guarantor. However, in the second bank guarantee regarding the Toll collection of Rs, 80 million though contain similar words "agree unconditionally and irrevocably without recourse to guarantee" qua the payment of the amount, but in the latter part of the said Para of the bank guarantee it has also been mentioned "... in the event that obligations expressed in the said Clause of the above mentioned Agreement have not been fulfilled by the, company giving the right of claim to the NHA for recovery of the whole or part of the Toll Money from the company under Agreement" make the encashment of the bank guarantee conditional on the fulfillment of certain conditions in the main agreement and does not allow the beneficiary to be the sole judge or its demand to be a conclusive evidence of the Bidder's failure to com-ply with the requirements of the bid. The third bank guarantee for the Toll collection of Rs, 35 million is almost couched in same words as the second bank guarantee regarding the Toll amount with a little variation ."..in the event that obligations expressed in Clause 24.4 of the above mentioned agreement have not been fulfilled by the company giving the right of claim to the NHA for recovery of the whole or part of the Toll money from the Company under Agreement." Clause 24.4 of the Concession Agreement reads as under:-- "24.4 COMMERCIAL OPERATION The Company shall not be allowed to commence the commercial operation of the Project before Financial close except for the current toll collection that the company would be entitled to commence within three (3) months of the Effective Date. The Company shall furnish a bank guarantee to NHA against the toll collected prior to financial close, which will be forfeited if the financial close is not achieved. On the contrary, on successful financial close, the bank guarantee will be returned to the Company."
In its second part above it has been specifically prescribed that the company shall furnish a bank guarantee to N.H.A. against Toll collected prior to financial close, which will be forfeited if the financial close is not achieved. Here again there is no mention that the demand of the beneficiary/N.H.A. would be a conclusive proof of non-compliance of the conditions mentioned in Clause 24.4 of the Concession Agreement and it would be the sole judge, rather the encashment was made conditional on the non-achievement of the financial close.
6. Viewing from this perspective the respondent on its demand for the encashment of the first bank guarantee of Rs, 18 million, is entitled to its encashment, however, the latter two bank guarantees regarding the Toll collection of Rs, 80 million and Rs, 35 million the respondent is not entitled to the encashment of the same unless the conditions precedent have been proved. The learned judge of the High Court though referring the matter to the Arbitrator for adjudication of the main controversy which include the fulfillment or non-fulfillment of the conditions precedent even for the encashment of the bank guarantees, has gone deep and discussed minutely the various clauses, terms and conditions of the agreement and other relevant documents and their effect for arriving at his conclusion which, in the circumstances of the case after referring the dispute to the Arbitrator would not be appropriate and uncalled for as such findings of the High Court would influence the proceedings before the Arbitrator and while disproving such observations of the High Court we feel hesitation either to affirm or not affirm the findings of the High Court with comments on the merits of the case and without which a definite conclusion would not be possible as to whether the conditions as required for the encashment of the bank guarantees have been fulfilled or not and by not doing so we would leave it to the Arbitrator to deal with the question of encashment of these two guarantees relating to the Toll collection according to law while making an award.
7. The consequence of the above discussion is that while converting this petition into appeal, the same is partially allowed by holding that the respondents are entitled to the encashment of pre- bid bank guarantee amounting to Rs, 18 million and restrain the respondents from encashment of the other two bank guarantees till the finding given by the Arbitrator in that respect.
8. During the course of hearing of the petition we were told by the learned counsel for the parties that the bank guarantees, though the period has expired, yet have still been kept intact by the banks on account of proceedings before the Courts and which would follow the orders of the Courts. The appellant/company is directed to renew the same with subsequent renewal, if need be till the conclusion of the proceedings and if the same (the bank guarantees) are to lapse on account of non-renewal then the banks are directed to allow its encashment by the respondent/N.H.A. before the dates of their expiry.