1. ' ABDUL RAHIM KAZI, J.---By this common judgment we intend to dispose of these two appeals as the common questions of law and facts are involved. These appeals arise out of a common order passed by a learned Single Judge in Chambers in Suits Nos.277/1988 and 283/1988 on 12-7-1990 allowing the applications C.M.As. Nos.2123 of 1988 and 2209 of 1988 in the following terms: "In facts and circumstances of the case, I restrain the defendants 1 and 2 from remitting any amount to defendant No,3 under the counter-guarantees dated 11-8-1980 and 28-3-1981 issued by defendants 1 and 2 in respect of Misan and Basra projects covered by contract Nos.8/1979 and 12/1979 executed between plaintiff and defendant No,4. Even though a temporary injunction is not granted against defendant No,3, it acts at its peril if it pays the amount to defendant No,4. In these circumstances, it is not necessary to grant prayer No,(ii). The CMAs.Nos.2209 and 2123 of 1988 are disposed of in the above terms."
2. ' The case of the respondent No,1 who is the plaintiff in the two suits is that they are engaged in the business of construction and enjoy international repute and standing. The plaintiff was awarded the contract for construction of prefabricated flats and service building at Misan and Basra(lraq) by defendant No,4 on the terms and conditions in Contract No,8/1979 dated 12-7-1980 and 12/1979 dated 12-9-1980 respectively of the total value of Iraqi Dinars 11,392,269 and 14,570,482. The said contracts contained the relevant clauses 65.1 and 67 at pages 49 and 54. In connection with the said projects, at the instance of the plaintiff, defendant No,3 issued Performance and Mobilization Advance guarantees in favour of defendant No,4 against Counter-Guarantees issued by defendants 1 and 2 in favour of the defendant No,3.
3. ' It is the case of the plaintiff that on 23-9-1980 war between Iran and Iraq started which resulted in the closure of Basra. Port. This necessitated the transport of the plant, machinery, materials, through Kuwait and Turkey, involving the plaintiff in additional expenditure/losses besides causing delays and creating other difficulties in the implementation of the projects which additional expenditure/losses were to be reimbursed/refunded by defendant No,4 under terms of the above contracts among others under clause 67. It is the further case of the plaintiff that owing to the War, the plaintiff was confronted with hurdle in the mobilisation of requisite plant, equipment and manpower to the work site in Iraq but on the insistence of defendant No,4 plaintiff mobilized these resources and started the work of construction on 12-3-1981 and 18-5-1981 of the contracted items.
4. In this connection the plaintiff had to incur huge expense on. import of construction plant/machinery, construction material etc. as well as for import of labourers from Pakistan for which the plaintiff is entitled to be reimbursed fully among others under clause 67 of the above contract.
5. ' It is the case of the plaintiff that despite these hurdles and difficulties, the plaintiff continued with the 'projects as per contracts and by January, 1982/December 1982 the prefabricating functions at Amara and Basra were commissioned. However, due to the escalation of the War between Iraq and Iran, the plaintiff continued to incur additional costs which included excessive transportation expenses, unproductive labour staff and other overheads etc. which continued to mount day by day which facts were at all material times fully known to defendants Nos.3 and 4. As a result the entire advances received from defendant No,4 as well as the loans obtained by the plaintiff from Commercial Banks of Pakistan had been fully utilized/invested in the said projects in Iraq. In the circumstances the plaintiff requested defendant No,4 to pay the additional costs which defendant No,4 were obliged to pay under clause 67 of the contracts in order to enable the plaintiff to proceed further with the contracts. It is the further case of the plaintiff that however defendant No,4 contrary to the provisions of the contract and their legal obligations, failed to cooptrate or respond to plaintiff's demand of compensation/reimbursement as per clause 67. From October 1982 onwards defendant No,4 wrongfully started withholding remittance of foreign currency part of the progress bills, being 85% of the payment due. In terms of clause 10(4) of the Part 11 of the General Conditions of Contract, these payments were to be made within 15 days of the submission of the bills. Details of delayed payments are given in paragraph 8 of the plaint. It is the further case of the plaintiff that the plaintiff was forced to raise additional loans from Pakistan Commercial Banks abroad in order to pay the salaries/wages of the workers. But by December, 1982 the Banks refused to advance further loans to plaintiff which was due to default of the defendant No,4_ in making payments.
6. Consequently the plaintiff was unable to pay the wages of the workers who initially resorted to "go slow" and eventually went on strike in July 1983. Thus hardly any progress could be made between December 1982 and December 1983. Finally in December 1983 the work came to a complete standstill.
7. ' It is the further case of the plaintiff that since March 1983 the plaintiff had been requesting defendant No,4 to settle the plaintiffs claims in terms of contracts totally I-D.14.4 Million for the projects of Basra and Misan under Contract No,12/1979 and Contract No,8/1979 respectively which mainly comprised extra expenditure/costs/losses due to war and other defaults of defcndant No,4.
8. Such claims of plaintiff under Contract No,12/1979 alone executed I.D.6,877,823.00 as conveyed to defendant No,4 by letter dated 28-3-1984. Such claims of plaintiffs under Contract No,8/1979 also executed I.D.6,083.7225 as conveyed to defendant No,4 by letter dated 28-3-1984. It is the further case of the plaintiff that out of the above claims the defendant No,4 acknowledged and admitted its liability to the extent of I.D.3 Million to make payment to the plaintiff in terms of these contracts on the basis of claims lodged by the plaintiff which was duly recorded in the minutes of meeting dated 14-5-1985 duly signed by both the parties. It is the further case of the plaintiff that even this admitted amount has not been paid to the plaintiff as per contracts rendering defendant No,4 disentitled to any benefit under the contracts including the bank guarantees which cannot be encashed.
9. ' It is contended in the plaint that in view of the above facts which cannot be denied by defendants the provisions of clause 65 are not at all attracted. In these circumstances, the plaintiffs filed Suits Nos.277 of 1988 and 283 of 1988 for declaration that bank guarantees/bond furnished by defendants Nos.1 and 2 are not enforceable at law against the plaintiff and are no longer operative and demands of the defendants thereunder as well as letters dated 27-3-1988 and 6-4-1988 are illegal, arbitrary, mala fide and fraudulent and are not enforceable against the plaintiff and further that the defendants Nos.3 and 4 are not entitled to make any demand for encashment. The plaintiff also sought permanent injunction restraining defendants Nos.1 and 2 from making any payment to defendant No,3 under the counter guarantees.
10. ' Alongwith the plaints the plaintiff filed C.M.A. No,2209 of 1988 in Suit No,283 of 1988 and C.M.A. 2123 of 1988 in Suit No,277 of 1988 praying for temporary injunction restraining defendants Nos.1 and 2 from making any payment to defendant No,3 under the counter-guarantees and further restraining defendant No,3 from making any payment to defendants Nos.1 and 2 on the basis of their counter-guarantees and likewise restraining defendants 3 and 4 from demanding any payment on the basis of the above contracts or any of the guarantees from the plaintiff or defendants Nos.1 and 2.
11. ' The defendant No,3 filed counter-affidavit and resisted the applications.
12. ' After hearing the arguments of the learned counsel for the parties the impugned order was passed. Being aggrieved, the present appellant, who was the defendant No,3 in the suit, has preferred these appeals. We have heard the learned counsel for the parties. Mr.M.A. Issani, the learned counsel for the appellant urged that the learned iSingle Judge is Chambers has taken into consideration only one of the factors governing the grant of injunction i.e. the balance of convenience lies in favour of the present respondent No,1 (plaintiff). He has submitted that it has not been considered that the banks while issuing the guarantee and counter-guarantee arc bound by the same and that no such injunction as against the encashment of the bank guarantee would be granted unless the refusal would perpetuate a fraud or injustice. He has referred to the relevant clauses of the contracts which provide that the plaintiff will provide the performance guarantee by or through bank in Iraq in Iraqi Dinars as mentioned therein and also provide mobilization advance guarantee by a bank in Iraq. He has further submitted that consequently the present respondents Nos.1 and 2 (defendants Nos.1 and 2) furnished counter-guarantees. The learned counsel has further pointed out that the present respondent No,1 did not press any counter-claim against the present 'respondent No,4 nor filed any proceedings for arbitration or claim against the respondent No,4 as provided in clauses 69-71 of the contract. As against this, Mr. Ghulam Murtaza, the learned counsel for the respondent No, 1 has submitted that in the present case if the counter-guarantee is allowed to be encashed and the amount taken out of Pakistan, it would not be possible to recover the same in case the plaintiffs succeed in their suit. The learned counsel for the respondent No,1 further stated that it was for the reasons that the Iran-Iraq War had broken out on 23-9-1980 that the Port of Basra was closed down and that, therefore, the plaintiff had to incur extra expenditure and ultimately had to close down work as it was no more possible in such circumstances and also for the reason that due tp War his labour force had run away. He further admitted that no such plea was taken by the plaintiff at any earlier stage till 25-10-1987 when first time the plaintiff had written a letter to the respondent No,4 informing them that they could not perform the contract on account of the Iran-Iraq War. Further, Mr. Issani, Advocate for the appellant has pointed out to a telex message sent by the present respondent No,1 on 21-7-1986 to the respondent No,4 wherein also they have not taken the plea that the work cannot be continued on account of War but they have asked for enhanced payment and extra payment and additional expenses. In the said letter also the present respondent No,1 has submitted that work can be resumed if such enhanced and extra payments are made.
13. ' In these circumstances it can be assumed that till the years 1986-87 it had not been the case of the present respondent No,1 that the work could not be done on account of War but all that they wanted was the enhanced and extra payment. This, therefore, cannot prima facie be the reason for non compliance of the contract. However, we would desist from making any observations in this respect as the same would effect the merits of the case. However, material question for consideration at this stage is whether the respondent No,4 are within their rights to ask for encashment of bank guarantees and whether the same can be withheld.
14. A contract of bank guarantee is a valid contract and has to be complied with in terms of the contract itself. In the case of Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd.
15. 1984 CLC 381, a learned Single Judge of this Court has held that: "From the discussion as above, I find that the bank guarantee furnished would be governed by the same principles of law, which are applicable to payments by the banks against confirmed letters of credit. Thus an absolute obligation is imposed upon the bank which executes the guarantee to honour the same according to its terms. There may be exceptions to the general rule in special cases or in cases of fraud to the Inowledge of the bank, where the Court may preclude banks from fulfilling their obligation to third parties."
16. ' In this case the learned Single Judge had taken into consideration the authority given by the Honourable Supreme Court in the case of Province of West Pakistan v. Messrs Mistry Patel & Co. PLD 1969 SC 80 and a number of other cases from the English and Indian Courts. In this view of the matter it may be held that a bank guarantee furnished in a case involves an absolute obligation imposed upon the bank executing the guarantee to honour the same according to its terms.
17. Exception, however, to this general rule would be only in a special case of fraud to the knowledge of the bank or where prima facie a gross injustice is likely to be caused to the affected party. In the present case the plaintiffs (respondent No,1) have not been able to make out the case showing that any clement of fraud is involved in the case. Prima facie in the facts of this case no special case of gross injustice is made out. In these circumstances we allow these appeals, set aside the impugned orders passed by the learned Single Judge in Chambers and dismiss the applications C.M.A. Nos.2209/1988 and 2123/1988 moved in Suit Nos. 283/1988 and 277/1988 respectively.
18. ' However, in view of the legal questions involved in the case there will be no order as to costs.