MIANGUL HASSAN AURANGZEB, J. Through the instant appeal the appellant, National Highway Authority ("NHA"), impugns the order dated 03.10.2023 passed by the Court of the learned Civil Judge, Islamabad whereby the application for interim injunction filed along with the suit for declaration and permanent injunction instituted by respondent No.1. M/s KAC-UCC IV, was allowed and an interim injunction was issued to restrain the encashment of performance guarantee furnished by respondent No.3, United Insurance Company of Pakistan Limited ("United Insurance") for an amount of Rs.222 million at the instance of respondent No.1.
2. The facts essential for the disposal of the instant appeal are that on 29.10.2021, NHA issued a Letter of Acceptance ("LoA") whereby the bid submitted by respondent No.1 for the award of the contract for "Widening and Strengthening of National Highway N-70 (Rakhi Gajj - Bewata) (East West Road Improvement Project)" ("the Contract") was accepted. On 09.05.2022, instructions were issued to respondent No.1 to commence works under the said Contract.
3. Clause 10.1 of the Particular Conditions of Contract Part - II, which is a part of the Contract documents, obligated respondent No.1 to provide performance security to NHA within 28 days after receipt of the LoA for an amount equivalent to 10% of the contract price stated in the LoA. In fulfillment of the said obligation, respondent No.1 furnished performance security for an amount of Rs.222 million issued by United Insurance in favour of NHA.
4. On 25.08.2023, the Engineer appointed by NHA certified that respondent No.1 had committed a default by failing to complete the project. It was also stated that the Engineer had warned respondent No.1 through notices dated 07.12.2022, 03.03.2023 and 27.07.2023 as to the slow progress of the works and that the project was required to be completed by 08.11.2023. On the basis of the said certification, NHA, on 28.08.2023, issued a notice to terminate the Contract under Clause 63.1(b)(ii) and (d) of the Conditions of Contract (Part-I). Thereafter, vide letter dated 15.09.2023, NHA requested United Insurance to encash the performance security furnished at the instance of respondent No.1. In the said letter, it is clearly mentioned that respondent No.1 is in breach of its obligations under the Contract and therefore the performance security is to be encashed.
5. On 08.09.2023, respondent No.1 filed a suit for declaration and permanent injunction against inter alia NHA and United Insurance before the Court of the learned Civil 4udge, Islamabad. Along with the said suit, respondent No.1 filed an application praying for an interim injunction to restrain NHA from encashing the performance security. Vide order dated 03.10.2023, the learned civil Court allowed the said application and. restrained NHA from encashing the performance security. The said order dated 03.10.2023 has been assailed by the appellant in the instant appeal.
6. Learned counsel for NHA, after narrating the facts leading to the filing of the instant appeal, submitted that in the order dated 03.10.2023, the learned civil Court has simply recorded the contentions of the learned counsel for the contesting parties but has given no reason for allowing respondent No.1's application for interim injunction; that NHA was well within its rights to have sought the encashment of the performance security since respondent No.1 had ignored the repeated warnings of the Engineer and the lack of adequate progress of the works led to the issuance of a notice for termination dated 28.08.2023; that the said notice for termination is based on a certification of the Engineer to the effect that respondent No.1 had failed to fulfill its obligations under the Contract; that the learned civil Court did not even bother to refer to the terms and conditions of the performance security which clearly makes NHA the sole and final judge for deciding whether respondent No.1 had duly performed its obligations under the Contract or had defaulted in fulfilling such obligations; and that the performance security in question was irrevocable and independent in nature which could not have been restrained from encashment in view of the law laid down in the judgments reported as Sambo Construction Co. Ltd. v. Laraib Energy Limited (2021 CLC 1914), Montage Design Build v. Republic of Tajikistan (2015 CLD 8), Standard Construction Company (Pvt.) Limited v. Pakistan through Secretary Ministry of Communications (2010 SCMR 524), Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 SC 191), Pak Consulting and Engineering (Pvt.) Ltd. v. Pakistan Steel Mills (2002 SCMR 1781) and National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311), Learned counsel for NHA prayed for the appeal to be allowed and for the impugned order dated 03.10.2023 to be set-aside.
7. On the other hand, learned counsel for respondent No.1 submitted that the delay in the progress of the works was entirely attributable to NHA; that NHA had delayed payment against interim payment certificates; that till date no payment has been made against the escalation payment certificate No.1 which was certified by the Engineer on 16.06.2023; that in terms of clause 60.10 of the Particular Conditions of Contract (Part-II), NHA is under an obligation to make payment against an interim payment certificate within a period of 42 days; that the delay in the payment of escalation payment certificate No.1 beyond 46 days gave respondent No.1 the right to issue a notice for the suspension of works; that such a notice was issued by respondent No.1 on 25.07.2023; that by seeking the encashment of the performance security, NHA wants a premium on its own wrong; that respondent No.1 has completed a substantial part of the Contract; that the encashment of the performance security would result in unjust enrichment of NHA; that since "special equities" are in favour of respondent No.1, the learned Court below did not commit any illegality by allowing respondent No. 1's application for interim injunction; that the performance security in question is conditional in nature and could not have been encashed by NHA without proof of default established on respondent No.1's part in an adjudicatory process; and that the performance security in question cannot be encashed since the same was expired on 23.09.2023. Learned counsel for respondent No.1 prayed for the appeal to be dismissed. In making his submissions, learned counsel for respondent No.1 placed reliance on the judgments reported as Pakistan Real Estate Investment and Management Company Private Limited v. M/s Sky Blue Builders (2021 CLD 518), Husein Industries Ltd. v. Sui Southern Gas Company Ltd. (PLD 2020 Sindh 551), Shipyard K.
Damen International v. Karachi Shipyard and Engineering Works Limited (2003 CLD 1) and Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. (1984 CLC 381).
8. I have heard the contentions of the learned counsel for the contesting parties and have perused the record with their able assistance. The facts leading to the filing of the instant appeal have been set out in sufficient detail in paragraphs 2 to 5 above and need not be recapitulated.
9. It is well settled that rights and liabilities of parties in a contract of guarantee have to be determined strictly in accordance with the terms and conditions of the guarantee without the recourse to the underlined contract. A guarantee, whether captioned as a "bank guarantee" or "performance bond" or "performance security" issued by a bank or an insurance company is an autonomous contract and imposes an absolute obligation on the guarantor to fulfill its terms. It is the language of the contract of guarantee that reveals the intention of the parties.
10. Where a bank / insurance company gives a guarantee in absolute and unconditional terms and where payment is to be made on demand irrespective of the dispute and differences between the parties to the underlying contract, the bank/insurance company is duty bound to honour its obligation and it cannot be prevented by an injunction from honouring such obligation. An irrevocable commitment in the form of an irrevocable bank guarantee cannot be interfered with by the Courts except where a case of fraud or irretrievable injustice has been made out.
11. The performance security in question was for an amount of Rs.222 million issued on 24.11.2021 by United Insurance on the request of the principal debtor, i.e. respondent No. 1. The said performance security provides that it shall remain in full force until the completion of the defect liability period under the contract. The total liability of the guarantor under the said performance security is limited to Rs.222 million and requires the demand for the encashment to be made in writing within the validity period, i.e. by 23.09.2023. Furthermore, the guarantor has irrevocably and independently guaranteed to pay NHA without delay upon NHA's first written demand without any cavil or argument and without requiring NHA to prove or to show grounds or reasons for such demand any sum or sums up to Rs.222 million against NHA's written declaration that respondent No.1 has refused or failed to perform the obligations under the Contract. It is also provided that NHA shall be the sole and the final judge for deciding whether respondent No.1 has duly performed its obligations under the Contract or has defaulted in fulfilling such obligations. The guarantor has placed itself under an obligation to pay without objection any sum or sums upon the first written demand from NHA without any reference to respondent No.1
12. As mentioned above, NHA, in its letter dated 15.09.2023 to United Insurance has clearly stated that respondent No.1 was in breach of its obligations under the Contract. For the encashment of the performance security, NHA did not have to do anything more than to declare that respondent No.1 had breached its obligations under the Contract. A serious error which was committed by the learned civil Court in the present case was not to examine the terms of the performance security and not to consider NHA's letter dated 15.09.2023 for its invocation. If the learned civil Court had taken the trouble of examining the terms and conditions of the performance security, it would not have granted the interim injunction.
13. Respondent No.1 may well dispute the position taken by NHA in the said letter but such dispute would be of no relevance before the guarantor when making payment against demand for the encashment of the performance security. Whether or not respondent No.1 has breached its obligations under the Contract remain to be determined in an adjudicatory process in accordance with the dispute resolution mechanism enshrined in the Contract. Once it is held in such adjudicatory process that respondent No.1 had not breached any of its obligations under the Contract, or that the encashment of the performance security by NHA was not lawful, respondent No.1 could be repaid the amount encashed by NHA. In this regard, this Court in the case of Pakistan Real Estate Investment and Management Company Private Limited v. M/s Sky Blue Builders (2021 CLD 518), held as follows: - "19. True, it is within the realm of possibilities that after the performance guarantee is encashed by the petitioner, the arbitral tribunal may hold that respondent No.1 had not committed any default of its obligations under the Contract or that default committed by .respondent No.1 did not result in any monetary loss to the petitioner. In such a scenario, respondent No.1 would be entitled to be repaid the amount encashed by the petitioner. The petitioner's declaration that respondent No.1 has committed a default of its obligations under the Contract has been made conclusive only for the purpose of making a demand for the encashment of the performance guarantee. Such a declaration is not binding on the arbitral tribunal which may, on the basis of the evidence on the record, come to a different conclusion."
14. The performance security in question is stated to be an irrevocable and independent contract between the guarantor/United Insurance and the beneficiary/appellant. It is enforceable on its own terms independent of the disputes between the appellant and respondent No.1 being parties to the underlined Contract in pursuance whereof the performance security was furnished. The terms of the performance security do not defer a claim for its encashment until the resolution of disputes between the parties to the underlined Contract. The Courts will do their utmost to enforce a guarantee according to its terms. The Courts will not, in the ordinary course of things, interfere by way of injunction to prevent its enforcement.
15. In view of the above, the instant appeal is allowed; the impugned order dated 03.10.2023 is set- aside; and the application for interim injunction to restrain the encashment of the performance security dated 24.11.2021 is dismissed. There shall be no order as to costs.