' AJMAL MIAN, CJ.---This High Court Appeal is directed against an order dated 3-8-1988 passed by a learned Single Judge of this Court in Suit No,565 of 1986 vacating the ex parte interim order earlier granted.
2. The brief facts leading to the filing of the above appeal are that the appellant which was a registered partnership firm (hereinafter referred to as the consultants) submitted in response' to respondent No,1 (hereinafter referred to as the PIA) invitation dated 3-8-1983 a proposal for extension and modernization of their flight kitchen at Karachi Airport, which included inter alia architectural design, drawings, procurement of requisite equipment, consultancy and supervision of the work by the building contractor. The consultants were also to procure a building contractor.
The above proposal of the consultants was accepted by respondent No,1 by issuing a letter of indent dated 27-10-1983. This was followed by execution of an agreement (hereinafter referred to as the contract) dated 16th April, 1984. The contract period for the completion of the work was two years expiring on 26-10-1985. In pursuance of the above agreement, the appellant engaged M/s. Freezol International (Pvt.) Ltd. (hereinafter referred to as the contractor) for the execution of the construction work. In terms of the contract PIA released 10% of the contract price as mobilization advance against a bank guarantee dated 16th November, 1983 of a sum of Rs,43.9 million. The consultants also executed a performance bond for a sum of Rs,8,78,000. The consultants were to be paid 3% as consultancy fee for the services which they were to render in terms of the contract which was to be paid in two instalments namely, 1.5% of the project cost upon the completion of the design service and the remaining 1.5% of the project cost upon the instalment of the kitchen equipments. It may also be observed that under para. 2 of the contract, it was provided that the documents mentioned in the said para. Were to be signed by Mr. Kafiluddin Ahmed, who was the managing partner of the consultants' firm on behalf of the consultants. It seems that Mr. Kafiluddin expired on 28-11-1985 i,e, after the expiry of the contract period and by then the contract work was not completed. It appears that formal supplemented partnership deed dated 30th November, 1985 was executed between the surviving partners of the consultants' firm for continuing the partnership and for appointing Mr. Kafiluddin's son Mr. Haideruddin as the managing partner.. It appears that the consultants and the PIA continued to deal with each other even after the expiry of Mr. Kafiluddin. The consultants by their letter dated 23-1-1986 for the following reasons sought extensions up to 31st December, 1986:- "The delay for various reasons beyond our control is summarized as under:--
(1) Due to delay in release of Mobilization Advance. 65 days.
(2) Due to delay in approval of layout drawings of kitchen equipment. 65 days.
(3) Due to delay in issue of import licence for: Free list items. 356 days. Banned items. 121 days
(4) Due to delay of release in foreign exchange. 55 days.
(5) Due to delay in installation of equipment imported by PIA. 180 days.
(6) Due to delay in shifting of Hot Bakery. 180 days.
(7) Due to delay in delivery schedule of items of specific brands. 240 days.
(8) Items in lieu of Silo. 150 days.
(9) Due to delay in import of Generator. 60 days."
' It seems that the PIA asked for copies of, the partnership deed from the consultants inter alia by their letter dated 11th June, 1986. After the receipt of the same the PIA by their letter dated 13th August, 1986 repudiated the contract. It may be advantageous to reproduce last two paras. Of the above letter, which read as follows:-- "You will recall, that immediately after the death of Mr. Kafiluddin Ahmed, PIAC, from time to time requested you to clarify the exact legal status of PEC and substantiate the same through documentary evidence. Unfortunately, this was not done for many months with the result that PIAC were unaware of the exact legal status of PEC and the contract dated 16th April, 1984. Now that copies of the relevarit documents were made available and have been studied in the context of the applicable law, PIAC have come to the conclusion that the partnership firm PEC (1982) having been dissolved on account of the death of late Mr. Kafiluddin Ahmed on 28th November, 1985, the contract dated 16th April, 1984, has come to an end and become null and void, without prejudice to the respective rights and liabilities of the parties.
' In view of the aforesaid circumstances, and the contract dated 16th April, 1984, having come to an end, PIAC is no longer bound and liable under the said contract. As already explained to you in a number of meetings held this year, PEC (1982) was already in default in respect of its obligations and commitments under the contract dated 16th April, 1984, and not only the completion of the project had badly slipped, but PIAC was also subjected to serious financial loss on account of delay in the completion of project and supply of substandard equipment and materials. PIAC reserves the right to recover its losses and damages on this account. Subject to the aforesaid, it is willing and prepared to settle the accounts of PEC (1982). As a matter of fact, the same is being undertaken, and in case any amount is determined to be payable, necessary action will be taken in near future, under intimation to you."
3. After the issuance of the above letter, the PIA invoked the enhancement of the bank guarantee and the performance bond. The consultants filed aforesaid suit for declaration, permanent injunction and for the recovery of Rs,97,49,775 on account of their alleged dues and damages.
Alongwith the above suit they filed an application under Order XXXIX, rules 1 and 2 read with section 151, C.P.C., whereupon a learned Single Judge of this Court on 31-8-1986 granted an interim injunction restraining the PIA and the bank respondent No,2 defendant No,2 from encashing the bank guarantee and the performance bond. The above order was confirmed on 2-9-1987 in the absence of the PIA and their counsel, After that PIA filed an application under Order XXXIX, rule 4, C.P.C. On 17-9-1987 praying therein that the above ex parte order confirming the ad-interim injunction be re-called. In support of the above application Mr. Sohail Muhammad Khan, Law Officer filed his affidavit stating therein that due to over-sight the case escaped their notice in the cause list. The learned Single Judge after hearing the learned counsel for the parties, by the order under appeal recalled the above confirmation order and also the ad interim order by dismissing the consultants' aforesaid application under Order XXXIX, rules 1 and 2 read with section 151, C.P.C.
(C.M.A. No,3831/1986). The appellant being aggrieved by the above order has filed the present appeal.
4. In support of the above appeal Mr. Nasim Faruqui, learned counsel for the appellant has urged as follows:-- That the ground on which the contract was repudiated by the PIA is not sustaniable in law and, therefore, encashment of the Bank guarantee and the performance bond is not justified.
(ii) That even otherwise since there was no default committed by the consultants, the bank guarantee and the performance bond cannot be encashed.
(iii) That the learned Single Judge was not justified in dismissing th consultant's stay application.
On the other hand Mr. Mahmood Alam, Law Officer of PIA hi submitted as follows:--
(i) That since original partnership of the consultant's firm with which the PIA had entered into the contract was a partnership-at-will, upon the death of Mr. Kafiluddin because of whom the work was awarded tc the consultants, the partnership stood dissolved and, therefore, the contract had come to an end.
(ii) That there were defaults on the part of the consultants inasmuch as the work was not completed within the contract period and some of the works which were executed were defective.
That since the consultants had furnished unconditional bank guarantee against the money advanced by the PIA, the latter is entitled to encash the same.
(i) That since there is an admitted default on the part of the consultants inasmuch as the work had not been completed within the contract period, the PIA is entitled to encash the bank guarantee.
5. Adverting to the above first submission of Mr. Nasim Faruqui that the ground on which the contract was repudiated by the PIA is not sustainable in law and, therefore, encashment of the bank guarantee and the performance bond is not justified, it may be observed that in furtherance of his above submission, he had referred to section 47 of the Partnership Act, which according to him kept the contract intact notwithstanding the death of Mr. Kafiluddin Ahmed. He has further submitted that under the terms of the contract, there was no condition that the work awarded to the consultants was to be personally executed by Mr. Kafiludin or that the work was awarded to the consultants because of personal qualification of Mr.. Kafiluddin and, therefore, the ground on which the contract had been repudiated by the PIA was not available to them, In furtherance of his above submission, he also referred to the passages at pages 104 and 360 from the well known book "Hudson on Building Contracts", 1970 Edition.
' On the other hand Mr. Mahmood Alam, learned Law Officer of the PIA has submitted that it was because of Mr. Kafiluddin Ahmed the work was awarded to the consultants; and that the PIA was not bound to get the work executed through some other persons; and that in any case upon the dissolution of the partnership the PIA was not obliged to allow the new partnership firm to execute the work. We would not like to make any definite observation on the above submissions as the same will be main issues in the suit, which will require recording of evidence. However, it will suffice to observe that though in para. 3 of the contract, it has been stated that the ocuments for the purpose of identifivcation have been signed by Mr.Afiluddin Ahmed on behalf of the consultants, but there seems to be no clause providing that the work was to be executed personally by Mr. Kafiluddin Ahmed.
6. Then it was submitted by Mr. Mahmmood Alam on the basis of the last para. Of the aforesaid letter dated 13th August, 1986 that the repudiation of the contract was not simpliciter on the ground mentioned in the last but one para. Of the above letter quoted hereinabove but was also on the grounds mentioned in the aforesaid last para i,e, defaults. On the basis of the material placed before us, it cannot be said at this stage, whether the consultants had committed the defaults or PIA had committed defaults. It may also be stated that PIA had also made a counter-claim of Rs,28.277 Millions and $ 218.486 in the suit. The admitted position is that the application for extension of time was made by the consultants after the expiry of the contract period. The case of the consultants is that in the various meetings, which they had from time to time with the PTA's officials, they had pointed out the reasons for the delay in the execution of the work; and that they were assured that the time would be extended, whereas the case of the PIA is that no such assurance was given; and that under the relevant clauses of the contract, the consultants were to apply for extension of time for each delay within thirty days from the date when the reason for the alleged delay had occurred. These are the matters which will need recording of evidence.
7. In our view, the basic question in the instant case is, as to whether in terms of the bank guarantee and the performance bond, the PIA is entitled to encash the same during the pendency of the suit or that this Court should restrain the PIA from encashing the same during the pendency of the suit. Both the learned counsel have referred to the contents of the bank guarantee. Mr. Nasim Faruqui has emphasised that in terms of the bank guarantee, PIA could encash the same if the consultants would have failed or committed default in fulfilment of their obligation for which the advance was given, whereas according to Mr. Mahmood Alam, the bank was under obligation to pay all sums then due without further reference to the consultants and without question; and that PTA's verdict in that behalf was final and binding. Mr. Nasim Farqui has referred to the case of Province of West Pakistan v. M/s. Mistri Patel & Co. And another (PLD 1969 SC 80), in which the facts were that respondent had furnished a bank guarantee against earnest money for the purchase of crtain quantity of rice instead of depositing cash amount. The respondent did not take the delivery of the rice and, therefore, the same was re-sold. The appellant i,e, Province of West Pakistan made profits out of resale but at the same time they invoked the bank guarantee. A suit was filed by the Provincial Government for the recovery of Rs,72,405-3-0 for the earnest money in respect of which bank guarantee was furnished with 6% interest. The suit was dismissed by learned Single Judge of the erstwhile High Court of West Pakistan Karachi Bench. Letters Patent Appeal filed against the above judgment was also dismissed by the Division Bench of the same High Court. After that an appeal was filed before the Hon'ble Supreme Court, which was also dismissed, while dismissing the same the following observations were made:-- "In the present case we are, therefore, to see whether the Province of West Pakistan can claim the whole or any part of the amount which the firm was to deposit by way of earnest money. It will be wrong to argue that since the firm had agreed to deposit a sum as earnest money and in lieu thereof furnished Bank guarantee for the said amount the Government would be entitled to claim the whole of this amount simply because there was a breach of the contract by the firm. Such a contention does not even receive support from the cases where the view taken was that the forfeiture clause of a deposit in a contract does not conic within the purview of section 74 of the Contract Act. In these cases also forfeiture was held to be justified if the amounts were found to be reasonable."
' He has also referred to an unreported order dated 13-5-1968 passed in Suit No,91 of 1968 Steel Corporation of Pakistan v. Capital Development Authority, by a learned Single Judge of the erstwhile High Court of West Pakistan Karachi Bench, in which an ad-interim injunction granted against the encashment of Bank guarantee furnished against the price of certain billets given on loan by the defendant, Capital Development Authority was confirmed inter alia for the reason that some of the price of the loaned out billets was already paid by the plaintiff to the defendants in the suit.
' On the other hand Mr. Mahmood Alam, learned Law Officer of the PIA has submitted that the law relating to letter of credit and a Bank guarantee as to grant of ad-interim injunction is same. He has referred to the following cases:
(i) Alavi Sons Ltd. v. The Government of East Pakistan and others (PLD 1968 Karachi 222).
(ii) United Commercial Bank v. Bank of India and others (1982 PSC 601).
(iii) Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. (1984 CLC 381).
(iv) Bolivinter Oil S.A. v. Chase Manhattan Bank and others (1984 Lloyds's Law Reports 251).
(v) M/s. Pakistan Associated Construction Ltd. v. Asif H. Kazi and another (1986 SCM R 820).
(vi) Mackcnzi v. Royal Bank of Canada (1934 Appeal Cases 468).
(vii) Bank of Montreal v. Stuart and another (1911 Appeal Cases 120).
(viii) M/s. Kohinoor Trading (Pvt.) Ltd. v. Mangrani Trading Co. And 2 others (1987 CLC 1533).
(ix) Trcndtex Trading Corporation v. Central Bank of Nigeria (1977) QB 529, (1977) Llyod's Rep. 581 CA.
(x) R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. (1978) QB 146, (1977) 2 All ER 862, and the passages from the following books in support of the submission that in case of an unconditional Bank guarantee and a letter of credit, and Courts have consistently declined the ad- interim injunction:--
(1) Leading Cases in the Law of Banking by Chorley and Smart (Fourth Edition), pages 239 to 245.
(2) Paget's Law of Banking (Ninth Edition), p.577.
(3) Nelson's Law of Injunctions (Second Edition), pages 673 and 821.
(4) Row's Law of Injunctions (Sixth Edition), pages 316, 317, 318, 337, 338, 339 and 888.
8. In our view, there seems to be preponderance of judicial view that in case of a letter of credit and an unconditional Bank guarantee, the Court would generally be reluctant to grant an ad-interim injunction restraining a Bank from honouring its contractual obligation. However, in exceptional cases, where refusal to grant an ad-interim injunction, will perpetuate fraud or injustice, which should be apparent from the material on record, the Court may grant an ad-interim injunction. In our view, the instant case does not fall under the category of exceptional cases. The Bank guarantee was given against the cash amount paid by the PIA towards the 10% mobilization advance of the cost of the contract. The above amount was to be adjusted against the running bills and the final bill at the rate of 10% which has not been fully adjusted, and, therefore the balance amount of the Bank guarantee in fact belongs to the PIA. Under the terms of the Bank guarantee, the Bank has given undertaking to pay the amount on demand by the PIA without questioning it and without making a reference to the consultants and, therefore, it will not be just and proper to grant an ad-interim injunction. However, it will not be just to allow the encashmcnt of the full amount of the Bank guarantee. Mr. Nasim Farooqui, learned counsel for the appellant, has submitted that the PIA has withheld two running bills, namely, 15 and 16 amounting to about Rs,20,00,000. Even if the above bills are to be taken into consideration for the purpose of adjustment of the mobilization advance, only 10% amount of the bills could be adjusted towards the amount of the Bank guarantee, namely, Rs,2,00,000 (Rupees two leas). The question, whether the PIA has illegally withheld the above running bills or any other amount, will be an issue in the suit.
If they have done so, they will be rendering themselves liable to face the consequences thereof under the law.
10. As regards the performance bond, in our view, the same stands entirely on different footing than the Bank guarantee and unless and until the Court prima fade finds that the default was on the part of the consultants, it would not be just and proper to allow its encashment as the encashment depends on the commission of default. We have already observed hereinabove that on the basis of material available on record, it cannot be said who has committed the default.
11. We are of the view that the just and proper order would be that the PIA may be allowed to encash the bank guarantee to the extent of the balance unadjusted amount minus Rs,2,00,000 (Rupees two lacs) on account of the above two running bills but they may be restrained from encashing the performance bond. We order accordingly.
12. We, therefore, allow the above appeal partly in the above terms but there will be no order as to costs.