ORDER SALMAN HAMID, J.---Plaintiff is engaged in the business of manufacturing of cables and wires. It was awarded subcontract by defendant No.1 on 15th May, 2008 for supply and laying of cables. In terms of sub-contract, the plaintiff furnished two bank guarantees of Rs.10 million each towards mobilization advance. (one subsequently adjusted). A performance guarantee for a sum of Rs.16,264,426 equivalent to 10% of the total value of Subcontract was also submitted. It was claimed by the plaintiff that almost entire work under the sub-contract and also the work beyond and outside the scope of the contract was completed by it. Despite such completion of work, the defendant No.1 failed to make payments of the bills submitted toward such work, which Directly affected the production of cables wires.
2. It was alleged that in January, 2010 the defendant No.1 attempted to encash performance and mobilization advance guarantees on the allegation that the plaintiff had failed to deliver the cables and wires as per schedule and the work was not finished. It was also asserted by the plaintiff that the defendant No.1 owe to the plaintiff more than the amount of the two guarantees. It was also urged that since the defendant No.1 is a foreign company and if they are allowed to encash the guarantees, the plaintiff would be rendered remediless and would not be able to recover their outstanding dues from defendant No.1 who would after encashment of the guarantees being a Chinese company go away and would never come back to Pakistan.
3. On the other hand, the case of the defendant No.1 was that present proceedings were not maintainable and merits dismissal. However, it was not disputed that the plaintiff was not the subcontractor of defendant No.1 and it was appointed as such upon the defendant No.1' s appointment by E-in-C Branch, GHQ, Rawalpindi for execution of work for refurbishment of Naval Berth 5-14 at on Dockyard, Karachi for which the contract was signed between defendant No.1 and Pakistan Navy bearing Reference No.ENCN-14/2006. Furnishing of the guarantees were also not disputed. But, it was mentioned that under terms of the guarantees the defendant No.2 was to honour the same on first demand without any objection from the plaintiff. It was also asserted that the plaintiff failed to complete the work. Therefore, the defendant No.1 argued that the work had to be completed by it on its on and at its expense.
Completion Certificate, for the above reasons, it was pointed out, was not issued as required under the sub-contract by the defendant No.1 to the plaintiff. It was also pointed out that in terms of Articles 4 and 5 of the sub-contract, the plaintiff was to supply single core cable within one month of the signing of the sub-contract and other material were to be supplied within 1-1/2 months of signing thereof. The work schedule, it was pointed out by the defendant No.1, was reflected in Article 6 of the sub-contract which provided modus operandi of Phase-I Berth 10 to 14 and Phase-II Berth 5 to 9. It was argued that the plaintiff was made available the site for execution of the work but it (plaintiff) had caused inordinate delay in completion of the work which was manifest from the fact that the bank guarantee towards mobilization advance was extended in January, 2010. It was also brought on record that during the pendency of present proceedings, the parties endeavoured to resolve the issue and complete the work. In such regard, therefore, a meeting was held on 10-3- 2010 between the principal, the defendant No.1 and the plaintiff. Resultantly a Memorandum of Understanding (MoU) of the instant, whereunder the plaintiff was to deliver the balance cables totalling 1875 meters quantity by 30-3-2010 was signed. The plaintiff yet again defaulted. The date of completion of work, as mentioned in the MoU not met. As a result a supplementary Memorandum of Understanding dated 14-4-2010 (SMoU) was executed between the parties. It was admitted by the plaintiff in SMoU that it had failed to meet the schedule, stipulated in the MoU due to external, reasons. The plaintiff in terms of SMoU was required to supply all balance cables per quantity drawing within April, 2010. It was also agreed by the plaintiff that all the pending work would be completed by 15th May, 2010. The plaintiff vide letter dated 18-8-2010 confirmed their readiness to execute balance work unconditionally which was to commence within a week from the date of the letter, during which period the plaintiff was to arrange money for labour charges and payment to its sub-contractor namely Multitech. It was argued by the defendant No.1 that since the plaintiff still failed to complete the work within the extended time, it (defendant No.1) had no option but to complete it (work) on its on. The defendant No.1 strenuously argued that because of all the above events, it is entitled to encash the guarantees upon all the efforts to ensure timely completion of work failed.
4. The plaintiff categorically disputed and denied all the allegations. It was claimed for the first time in their affidavit in rejoinder that the mobilization on.The site started at least 09 months after in time to the date of sub-contract as the site was handed over as late. Even the final drawings were submitted and/or handed over after lapse of about 9 months from the date of signing of the sub- contract. Only after these obstacles had been cleared, it was claimed by the plaintiff that the work had started. It was also claimed that due to the change in the drawing, the rates of BoQ drastically enhanced. This fact was brought to the knowledge of the defendant No.1 immediately. It was also asserted that due to design change the plaintiff suffered monetary loss of Rs.50 million inasmuch as that the cables and wires which were manufactured were of specified size and could have not been used for any other commercial purpose.
5. It was also asserted that defendant No.1 being a foreign company, whose work had been fully completed by the plaintiff, after encashment of the guarantees would go back to China. It was therefore urged that it would, thereafter be impossible for the plaintiff to recover from the defendant No.1. It was specifically and vehemently denied that the plaintiff ever abandoned the site. It was claimed that after joint survey of the site, the plaintiff supplied balance cables/wires which was unauthorized taken away by the defendant No.1 for ulterior motives. It was also asserted that such material could only be removed by defendant No.1 inasmuch as the site was a restricted area. Only authorised persons were allowed to enter therein. The movement of the goods, it was asserted by the Plaintiff, was through gate passes, arranged by defendant No.1.
6. It was also claimed that as per defendant No.1s on calculations the total amount which had been withheld by it towards additional work came to Rs.5,301,529 and the amount which is pending in respect of Bills No.41,47,48&49 is to the extent of Rs.4,696,402. In addition to these amounts, it was claimed by the plaintiff that the defendant No.1 available with it retention money to the extent of Rs.18,000,096, deducted/retained.010% for every bill paid by the defendant No.1 in terms of Clause 7.2 of the sub-contract.
7. It was downrightly disputed that the defendant No.1 had completed work and/or the balance work on its on inasmuch as that not a single document, proving such contention was brought on record. It was also mentioned that according to defendant No.1s on showings (Annexure B/14 Letter dated August 16, 2010 to affidavit in rejoinder), the plaintiff had completed 99.9% work and that a total BQ was for Rs,162,644,266 and the cost of additional work was Rs.17,355,830. It was claimed by the plaintiff that it had undertaken the work worth Rs.180,000,096. Therefore, it was asserted that the defendant No.1 be restrained from encashing guarantees and for resolution of the dispute, the matter be referred for arbitration in terms of Article 8 of the sub-contract.
8. I have heard arguments of the learned counsel for the parties, gone through the file and also the case-law cited, by the learned counsel.
9. The narration of events, as transpired between the parties would show and disclose that prima facie there had been lapses on both sides with the result that the goal of the Sub-contract could not be achieved or it was delayed. It also came on record that even after filing of the present proceedings and passing of restraining order by this court on 8-2-2010, the parties indulged and attempted to resolve the dispute vis-a-vis completion of work beyond the time envisaged in the Subcontract. Seemingly MoU and SMoU are the documents, which manifest attempts of reconciliation and resolve between the parties. It has also come on record that the plaintiff expressed its willingness (evident from Annexure P/13 to the counter-affidavit of the defendant No.1, dated 23-8-2010) that upon query it was informed by the plaintiff that it had arranged/procured the additional material for completion of the work and it would start it immediately. It is, thus, prima facie clear that attempts even after filing of the suit were made to complete the work. It seems that almost entire work in terms of sub-contract, the MoU and SMoU has been completed. However, this court would not go into the fineness and details of the completion of work by the plaintiff and/or dispute in respect thereof between the plaintiff and the defendant No. 1 inasmuch as if such would be done at this stage, by this court, it would mean encroaching upon the jurisdiction of the Arbitrator, to be appointed by this court in terms of section 20 of Arbitration Act, 1940 to resolve the controversy between the plaintiff and the defendant No.1.
10. What is important for this court to look into is, whether, the two guarantees, encashment whereof is sought by the defendant No.1 could be allowed or such is restricted, as prayed for by the plaintiff, given the facts and circumstances of the case and the precedents cited by either side.
11. It is well-settled by now that no injunction should normally be granted to restrain encashment of an unconditional Bank Guarantee issued to cover the amount advanced by way of mobilization advance. It is also well settled that performance bond/guarantee stands entirely on different footings, and again, normally it would not be just and proper to allow its encashment when prima facie evidence of breach of contract was available. In the case of Pakistan Engineering Consultants v. Pakistan International Airline Corporation, a Division Bench of this court held that unless there was prima facie evidence of breach of principal contract, encashment of performance bond was not justified. The observation of the Division Bench of this court in the case under discussion was upheld by the Hon'ble Supreme Court of Pakistan reported as 1989 SCMR 379. The above case was followed by this court in the case of Zeenat Brothers v. Awan-e-Iqbal Authority (PLD -1996 Karachi 183) where again the same distinction was given with regard to mobilization advance guarantee and that of performance bond guarantee. It was held that since encashment of performance bond was dependant on determination of question as to who had committed default for fulfilment of its obligations or in completion of work within given period and such question require evidence, encashment of performance bond guarantee was declined. Yet again in the case of Port Qasim Authority, Karachi v. Al-Ghurrair Company and 3 others (PLD 1997 Karachi 636), again the above principle was followed by a Division Bench of this court and ultimately it was held in that case that the respondents Nos.1, 2 and 3 therein shall not encash performance bond till disposal of the suit which was to be proceeded in accordance with Arbitration Act.
12. In the case in hand, prima facie there is evidence available on record in shape of documents, filed by the plaintiff and defendant No.1 that substantial work had been completed by the plaintiff under the sub-contract and MoU and SMoU and that at all times the plaintiff/expressed its willingness that whatever work which according to defendant No.1 had not been completed, would be completed soon. There are also allegations from the side of the plaintiff that the wires had been illegally taken away fr6m the site by the defendant No.1 who were custodian thereof and that site was made available for work 09 months late from the date of subcontract and that designs were also delayed as late. All this show that there is a dispute with regard to the completion of work on one hand and its denial on the other hand. All this require thrashing by way of evidence before the arbitrator. It seems that the plaintiff had performed under the subcontract, substantially, and encashment of performance bond at this stage would be detrimental to its interest. Under the circumstances, the defendant No.1 are restrained from encashing performance bond/guarantee till disposal of the suit before the arbitrator. Needless to mention that the defendants would keep the performance Bank Guarantee No.HMB/LG/ 7997/08 dated 6-6-2008 amounting to Rs.16,264,426 intact till the disposal of the proceedings before the arbitrator.
13. Coming to the mobilization advance guarantee, it would be relevant to note that the plaintiff had received consideration from the defendant No.1 and/ or from the principal contractor to mobilize the work. The plaintiff, therefore, is liable to return such mobilization amount, which may either be at the time of termination of the sub-contract, as argued by the defendant No. 1, or even upon conclusion of the contract as argued by the plaintiff itself after completion of the entire work in terms of such sub-contract. Needless to mention that it is not the case of the plaintiff that no mobilization advance was disbursed to the plaintiff at the time of commencement of the work at site. At this stage, the case of Awan-e-Iqbal (PLD 1994 SC 311), cited by the learned counsel for the plaintiff, may be referred wherein it was decided by the apex court that the bank guarantee furnished by the appellant contains categorical undertaking and impose absolute obligation on the bank to pay the amount, irrespective of any dispute which might arise between the parties regarding breach of contract, the bank guarantee being independent contract, bank authorities must construe it as an independent and primary contract and honour its commitment. Therefore, it was held by he apex, court that the courts below refusing to grant temporary injunctions by restraining respondents from encashing the bank guarantees in respect of the amount advanced to the appellant could neither be deemed to be arbitrary nor fanciful and that the respondents was rightly found entitled, to the encashment of the bank guarantee to the extent of balance unadjusted amount. Therefore, what transpires from the above discussion is that, that the mobilization advance guarantee being towards mobilization of the work and that even otherwise it being an independent guarantee and is to be construed as such, the application bearing C.M.A.
No.1086 of 2008 to the extent of restraining the defendant No.1 from encashing Bank Guarantee No.HMB/LG/8401/10 dated 8-1-2010 amounting to Rs.10 million is declined.
14. In terms of clause 8.2 of subcontract dated 15-5-2008, in the event of any dispute between plaintiff and defendant No.1 (contractor and sub-contractor), such dispute shall be referred to the arbitrator and final decision of sole arbitrator in accordance with and subject to the provisions of Pakistan Arbitration Act, 1940, shall be made. Accordingly the dispute is referred to the sole arbitrator to conduct the proceedings in the matter and Mr. Justice (Retd.) Nadeem Azhar Siddiqi is appointed as such, whose fee shall be settled by the plaintiff and defendant No.1 is consultation with the sole arbitrator and would be paid in advance by the parties equally to him.
15. The main suit along with injunction application is disposed of in terms hereof..