SHAHID WAHEED, J:- Undaunted by the failure in the Courts below the petitioner has moved this petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973 seeking an order in the nature of writ of certiorari for quashing the impugned orders and the grant of temporary injunction as prayed for in the application under Section 41 read with Schedule-II to the Arbitration Act, 1940, which was filed along with application under Section 20 of the said Act.
2. The petitioner through its application before Civil Judge, Gujranwala under Section 41 read with Schedule II to the Arbitration Act, 1940 made twofold prayer . First, that operation of the letters dated 3rd July, 2018 and 4 July, 2018 be suspended and second, that the respondents be restrained from allowing the other agencies to enter at the site without getting the joint measurement of the work done by it.
3. The first prayer relates to two letters , that is, letter No. GDA/DDE/196 dated 3 July, 2018 and letter No. GDA/DDE/198 dated 4 July, 2018. The backdrop of these two letters is that on 27 December , 2017 the petitioner was awarded a contract for the rehabilitation/construction of Katcha Khayali Road from Karwan Chowk to Sheikhupura Road and Zainab Hospital Road from Sheikhupura Road to Jinnah Road including allied branches, Gujranwala. The contract was awarded in the sum of Rs.206,461,948/- and the work was to be completed within twenty four months and for that matter the petitioner upon furnishing bank guarantee bearing No. LG#BOK/LHR/ 0023/02/2018 dated 1 February , 2018 obtained Mobilization Advance. After the lapse of six months, the work at the site was not found significant and this was construed as failure of the petitioner to discharge its obligation for which Mobilization Advance was granted. The respondent No.3 thus, through letter No.GDA/DDE/196 dated 3 July, 2018 requested the Manager of the Bank of Khyber , MM Alam Road Bran ch, Gulberg-III, Lahore that an amount of Rs.20,646,195/- be transferred and deposited into the account of the Gujranwala Development Authority .
On the following day, the respondent No.3 vide letter No.GDA/DDE/198 dated 4 July, 2018 informed the petitionerth rd th th st rd th that in pursuance of the approval of the Competent Authority , the contract had been rescinded and the earnest money amounting to Rs.4,200,000/- had been forfeited, which was given in the shape of CDR bearing No. 00987184 dated 26 December , 2017. It was, at this stage, that the petitioner on 7th July, 2018 filed application under Section 20 of the Arbitration Act, 1940 for appointment of an arbitrator since the contract between the parties provided for arbitration. The petitioner also filed application seeking interim injunction, which was declined through the impugned orders.
4. The first question for consideration is whether, in the given facts and circumstances of the case, operation of the said two letters could be suspended during the proceedings under Section 20 of the Arbitration Act, 1940 before the Trial Court. As regards letter No. GDA/DDE/196 dated 3 July, 2018 for the encashment of Mobilization Advance Guarantee, it is contended that invocation of the Guarantee was fraudulent and the subordinate courts misdirected themselves while paying no attention to the principle settled in Jamia Industries' case, Murad Ali & Co.'s case and Standard Construction Company's case and thus, were wrong when they applied the general principles of injunction to decline the interim relief relating to that guarantee. Responding to the above argument, Mr. Muhammad Arif Raja, Additional Advocate General, in his usual eloquence submitted that the bank guarantee furnished being unconditional, the Gujranwala Development Authority, the beneficiary, was entitled to invoke and realize the same irrespective of any pending dispute for otherwise the purpose of giving bank guarantee would be defeated and the present being neither a case of fraud nor of irretrievable loss, the application for grant of injunction was misconceived.
5. Before proceeding further it is apposite to state here that the matter directly and substantially in issue relates to the encashment of Mobilization Advance Guarantee. On the contrary, the precedents cited by the petitioner's counsel deal with other kinds of bank guarantee and thus, on this short ground it would be inapt to dilate upon the principle settled therein.
6. In civil construction projects advance is given to the contractor which is known as Mobilization Advance. The basic purpose of Mobilization Advance is to extend financial assistance within the terms of the contract to the contractor to mobilize the men and material resources for timely and smooth take off of the project. It is for this reason the Standard Bidding Document containing general conditions of contract, approved by Government of the Punjab, Finance Department vide Notification No.RO(T ech) FD 18-44/2006 dated 7th December , 2007 provides the procedure in extending the facility of Mobilization Advance. And that is that where tendered amount as mentioned in the letter of acceptance exceeds rupees ten million, the competent authori ty may, on the request of the contractor , sanction a mobilization advance upto fifteen percent of the said tendered amount in the manner and subject to the following conditions: i Initially , a sum equal to ten percent of the tendered amount and thereafter a further sum equal to five percent of the tendered amount may be sanctioned on the furnishing of a certificate by the engineer incharge of the work to the effect that mobilization by the contractor is complete in all respect necessary for the due commencement of work; ii the contractor shall furnish a guarantee in the shape of Form DFR (PW) 28-A in favour of the Government from any bank declared to be a Scheduled Bank by the State Bank of Pakistan; iii the authority accepting the tender shall personally verify the bank guarantee; iv no interest shall be charged on a mobilization advance; v the recovery of mobilization advance shall commence after lapse of 20% contract period or after the execution of the 20% of the work (financial terms) whichever is earlier . The rate of recovery shall be 25% of the value of work done in each interim pay certificate (running bill); and vi in case the contractor fails to execute the work in accordance with the terms of the contract, the security offered in respect of the mobilization advance shall be forfeited to the credit of the Government.
7. The Punjab Departmental Finance Rules (Financial Hand Book No.3), framed under Article 119 of the Constitution of the Islamic Republic of Pakistan, 1973, through Rule 7.36 prescribe the Form of Guarantee (that is, Form D.F.R. (P.W.) 28-A), which reads as under: - "WHEREAS a contract for work has been awarded by theth rd 1 2 3 Governor of the Punjab acting throug h___________the Government of the Punjab__________Department (hereinafter called the Government) to M/S ________(hereinafter called the contractor); AND WHEREAS under the terms of the said contract the Government has agreed to advance a sum of Rs.____to the contractor for execution of the said work. The said amount shall be recovered after lapse of 20% contract period or after the execution of the 20% of the work (financial terms), whichever is earlier . The rate of recovery shall be 25% of the value of work done in each interim pay certificate (running bill); AND WHEREAS the Government has required the contractor to furnish a bank guarantee from any scheduled bank for securing the payment of the sum advanced thereon:- It is agreed as follows: -
1. I______acting on behalf of_____hereinafter called guarantor) hold and firmly bind to the_______ Government in the sum of Rs._____ (Rupees ) payable on the same sum given as mobilization advance to the contractor .
2. The guarantor hereby undertakes to pay the said amount payable to the Government of the Punjab on demand in case the contractor makes a default in the payment of said amount under the terms and conditions of the contract.
3. The guarantee shall be irrevocable and shall remain in force till the sum adva nced payable thereon has been repaid in full by the contractor .
4. The liability of the guarantor shall in no case exceed the aggregate amount of Rs. (Rupees_____) payable thereon for the payment of which the guarantor hereby undertakes to bind itself and promises to pay the whole or any portion of this amount to the Government without making a reference to the contractor .
IN WITNESS whereof we the said guarantor have set out hands to this deed of guarantee this____day of 20 .
Guarantor (Scheduled Bank)"
8. In terms of the contract, the petitioner was required to furnish and it did furnish, a Bank Guarantee (on the prescribed Form D.F.R. (P.W.) 28-A) bearing No.LG#BOK/LHR/1023/02/2018 dated 1st February, 2018 against Mobilization Advance of Rs.20,646,195/-. The petitioner has not placed on record any document to refute the contents of letter No. GDA/DDE/19 dated 7 June, 2018, which suggests that Rs.20,646,195/- were paid to the petitioner as Mobilization Advance. Such advance being for mobilization of work was returnable. The petitioner has not pleaded anywhere that the Mobilization Advance was got adjusted till termination of contract or approaching this Court. Here comes the issue as to whether by suspending the operation of letter No. GDA/DDE/196 dated 3 July, 2018 the respondents could be restrained to encash the Mobilization Advance Guarantee. In my view, though the Court is vested with the powers to grant interim relief, but such discretion must be exercised by the Court sparingly and only in appropriate cases. The Court should be extremely cautious in granting interim relief in cases of this nature. The Court's discretion ought to be exercised in the exceptional cases when there is adequate material on record, leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous, by frittering away the properties or funds either before or during the pendency of arbitration proceedings or even during the interregnum period from the date of award to its execution. In those cases, the Court would be justified in granting interim relief. I am afraid the present case is not the one which may be treated as an exceptional case.
9. The principles upon which the bank guarantees could be invoked or restrained are well settled. The principle is that commercial transaction must go on on the solemn bank guarantee or irrespective of any dispute between contracting parties whether or not the work carried out at the site was up to the contract. The banks cannot be absolved of their responsibility to meet the obligations. The employer extends the facility of Mobilization Advance to a contractor against a bank guarantee under the assurance that nothing would prevent it from getting it back if contractor commits default in fulfilling its obligations arising out of the contract. The bank guarantee, therefore, constitutes an agreement between the bank and the employer under which there is an absolute obligation of the bank to make the payment to the employe r merely on demand from the employer . The bank is prohibited under the guarantee from raising any objection. There may be disputes between the contractor and the employer about the amount claimed by way of loss or damage caused to or would be caused to or suffered by the employer by reason of any breach by the contractor of any of the terms and conditions contained in the contract or by reason of theth rd contractor 's failure to perform the contract but so far as the bank is concerned, it has to make payment on demand without any demur . It is only in exceptional cases like: (i) a case of established fraud (based on material events and not on bald pleadings in the application for stay) of egregious nature of which the bank has the knowledge and (ii) allowing encashment would result in irretrievable injustice to one of the parties concerned, the Court may interdict the encashment of the bank guarantee. In all other cases, the bank, giving such a guarantee, is bound to honour it as per its terms.
10. Coming to the case on hands, the bank (i.e. the Bank of Khyber , M. M. Alam Road Branch, Gulberg-III, Lahore) in its Guarantee No. LG # BOK/LHR/0023/02/2018 dated 1 February , 2018 has stipulated the following condition for the payment of Rs.20,646,195/- which was given to the petitioner as Mobilization Advance: "The Guarantor hereby undertakes to pay the said amount payable to the Deputy Director Engg. GDA, Gujranwala in case the contractor makes a default in the payment of said amount under the terms and conditions of the contract and his guarantee ."
This condition clearly postulates that in case the contractor (or the petitioner) makes a default in the payment of Mobilization Advance, the Bank would pay the amount under the Guarantee to the Gujranwala Development Authority (respondents). It is in these circumstance that the aforesaid clause would operate and the whole of the amount covered by the Mobilization Advance would become payable on demand. It is not the case of the petitioner that there was any fraud in connection with the bank guarantee or that it had got adjusted the amount given to it as Mobilization Advance before or at the time of termination of the contract. This fact alludes that it is not only a case of default in the payment of Mobilization Advance but also constitutes misappropriation of public funds, which was illegal that could not be ignored and needed an immediate action so that state treasury could be protected from injury. It appears that the respondents being conscious of their public duty took prompt action for the protection of public fund and wrote letter No. GDA/DDE/196 dated 3 July, 2018 to the Bank for getting the amount of Rs.20,646,195/- transferred in the account of the Gujranwala Development Authority. The demand of respondent No.3 through this letter was deemed to be a conclusive evidence regarding the failure of the petitioner to have not complied with or fulfilled the terms and conditions of the contract and thus, the Bank was bound to honour its commitments made in the guarantee. In this perspective the demand raised through letter No. GDA/DDE/196 dated 3rd July, 2018, according to the principle settled in Pakistan Engineering Consu ltant' s case and National Construction Ltd.'s case , could not be put off until the culmination of proceedings of Section 20 of the Arbitration Act, 1940 before the Trial Court or the announcement of award to be made by the arbitrators merely on the ground that a dispute exists between the parties to the contract, resultantly injunction sought for could not be allowed.
11. The second part of the first prayer relates to letter No. GDA/DDE/198 dated 4 July, 2018 whereby the contract was rescinded. This letter during pendency of application under Section 20 of the Arbitration Act, 1940 cannot be suspended for three reasons: First, if the prayer for suspension of letter No. GDA/DDE/198 dated 4th July, 2018 is granted it would have the effect of reviving the contract, which is not permissible particularly when it had been cancelled on the ground of its violation. If there is a breach of such a contract, the appropriate remedy is to compensate the party damnified in damages. Second, the contract in question falls in the category of contracts as contemplated by clause (b) of Section 21 of the Specific Relief Act, 1877, which are not specifically enforceable, because contract runs into such minute or numerous details and its nature is such that the Court cannot enforce performance of its material terms. It is now well settled that interim injunction with regard to such type of contract cannot be granted. And third, the employer (GDA)/ respondents cannot be compelled through interim injunction to allow the contractor/petitioner to continue the work under the contract, which was, rightly or wrongly, terminated.
That apart, the granting of an injunction in favour of the petitioner will further delay the construction work considered very urgent by the respondents. Thus, the balance of convenience also swings against the grant of injunction sought by the petitioner .
12. Now, I address the second prayer , which is to the effect that the respondents be restrained from allowing the other agencies to enter at the site without getting the joint measurement of the work done by the petitioner . The relevant provision of the contract governing this prayer is clause 61, which provides that in case the contract is rescinded and in the opinion of the Engin eer-in-charge such work should be done at the risk and expense of thest rd 4 5 th 6 contractor; the Engineer-in-charge on behalf of the Gujranwala Development Authority , after giving fourteen days notice in writing to the contractor shall measure up the work of the contractor and give it to another contractor for completion. It appears that after rescind ing the contract the respondents in terms of clause 61 of the Contract measured up the work of the petitioner . This fact stands established from letter No. GDA/DDE/216-A dated 19 July, 2018, which indicates that joint measurements of the work done at the site were carried out on 18 July, 2018 by the Field Engineering Staff, Gujranwala Development Authority in the presence of petitioner 's representatives, that is, Adnan Mehmood and Muhammad Yasin Sajid. It is to be noted that this letter was presented by the respondents before the Additional District Judge, Gujranwala and for that reason, it was also directed vide order dated 21 August, 2019 to be placed on the file of instant petition. It was accordingly presented and through order dated 27 August, 2019 made part of the file. Despite having knowledge of the said letter , the petitioner made no effort to bring on record any evidence or document to rebut the fact that joint measurement of the work done at the site was carried out and that amounted to acceptance of the stance of the respondents, which stood corroborated from the actual measurement (of the work done at the site) presented before this Court during the course of hearing by the Director Engineering, Gujra nwala Development Authority (Ch.Muhammad Idrees). In this view of the matter , this prayer has become redundant and thus, there is no need to further dilate upon it.
13. Before I part with the order , I would like to make it clear that nothing stated hereinabove shall be taken into consideration, when the disputes between the parties on merits are decided in any future proceedings.
14. In view of the reasons as stated hereinbefore this Court does not feel incline d to interfere with the discretion exercised by the Courts below in passing the impugned orders. Accordingly , the orders, under challenge do not require intervention by this Court. This petition, accordingly , stands dismissed on contest. The Trial Court may try to expedite the proceedings.
1 "Messrs Jamia Industries Ltd. v . Messrs Pakistan Refinery Ltd., Karachi" ( PLD 1976 Karachi 644 ), 2 "Project Director , Balochistan Minor Irrigation and Agricultural Development Project, Quetta Cantt. v. Messrs Murad Ali & Company" ( 1999 SCMR 121 )
3 "Standard Construction Company (Pvt.) Limited v. Pakistan through Secretary M/o Communications and others"
4 "Pakistan Engineering Consultants v . Pakistan International Airlines Corporation and another" ( 1989 SCMR 379 )
5 "Messrs National Construction Ltd v . Aiwan-e-Iqbal Authority" ( PLD 1994 SC 31 1)
6 "District Council, Gujrat v. Iftikhar Ahmad" (1988 MLD 1461 ), and "B.S.M. Contractors Pvt. Ltd. v. Rajasthan State Bridge and Construction Corporation Ltd. and another (AIR 1999 Delhi 1 17)