1. This is an application filed on behalf of the plaintiff seeking interim injunction against the defendant No. l from encashing Performance Bond/Letter of Guarantee No.9206 for Rs.26,80,250 issued by the defendant No.2 namely Allied Bank Limited, Abdullah Haroon Road, Karachi The plaintiff was awarded contract for construction of 45 bungalows/town houses at Plot No.ST-16, Block-5, K.D.A., Scheme No.1/4., Kehkashan (Clifton), Karachi on a lump sum basis of Rs.5,36,05,000.
2. A written contract was executed between the plaintiff and defendant No: I and in consequence thereof the plaintiff also executed a Bank Guarantee/Performance Bond in favour of defendant No.
1. The grievance of the defendant No. l is that since the plaintiff has failed to complete the assigned work of the contract, they are entitled to encash the Bank Guarantee. Relevant term of the said Bank Guarantee/Performance Bond is reproduced as hereinunder.
3. "Now therefore, the above bounder principal shall well, truly and faithfully perform that contract and comply with all of the terms and provisions thereof, and satisfy all of the obligations of the said principal arising thereunder and comply with, all the covenants herein contained and contained in the specification, drawings and other document constituting a part of the contract, and shall fully indemnify and save harmless the owner from all costs and damages which may 'suffer by reason of failure to do and expenses which may incur in making good any such default and reasonable counsel fees incurred in the prosecution of defence of any action arising out of or in connection with any such default and shall pay all persons who have contract directly with the principal for labour or materials if any, in connection with the work performed under the contract; or any alteration or addition thereto, then this obligation to be null and void otherwise to remain in full force... "
4. I have heard Mr. Arif Hussain Khilji, Advocate for the plaintiff and Mr. Mubarak Siddiqui, Advocate for the defendant No. 1. The case of the plaintiff is that the defendants are not entitled to invoke the provisions of above said Bank Guarantee or to encash the bond unless it is established by the KDA that the plaintiff has committed default. It is further contended by Mr. Arif Hussain Khilji that for encashment of a Bank Guarantee/Performance Bond the plaintiff has to establish that he has suffered damage by the acts of the plaintiff. With regard to the merits of the case it is argued by Mr. Arif Hussain Khilji that the delay, of any, in completion of the project was due to the acts of the defendant No.1 inasmuch as physical possession of the entire area wherein the 45 town houses were to be constructed was not delivered in time and some of the area consisting of 7 plots was not handed over to the plaintiff as it was occupied by the Rangers. That a claim of the plaintiff based on escalation in prices is pending before the defendant No. l since long which has not been decided by the K.D.A. He has filed Annexure 'X' with the plaint in support of his contention that a sum of Rs.17,77,318 of the plaintiff is still outstanding against the defendant No. 1. He has relied upon a unreported case High Court Appeal No.91 of 1988, Pakistan Engineering Consultants v. P.I.A.
5. Corporation and another (now reported in 1993 CLC 1926) and on the case of Jamia Industries Limited v. Pakistan Refineries Limited, Karachi (PLD 1976 Karachi 644) and also on the case of Pakistan Engineering Consultants v. Pakistan International Airlines (1989 SCMR 379).
6. Mr. Mubarak Hussain Siddiqui, learned counsel appearing for th6 defendant No. l has referred to the general conditions of the contract to show that K.D.A., was not required to hand over the possession of the entire area for construction of 45 houses. He has not denied that so far possession of the area spread over 38 houses was delivered to the plaintiff. The case of the defendant No. l is that the plaintiff was not able even to complete the construction on the 38 Town houses within time and that the defendant has made the required payments to the plaintiff. He has contended that no cause of action is available to the plaintiff as the plaintiff, out of some ulterior motive, has rushed to the Court. He has further referred to Annexure ' G' filed with the plaint which is a letter dated 18-5- 1995 written by the defendant No.1 asking the plaintiff to submit works pr9gramme for construction of 38 bungalows till 10th June, 1995 failing which action under the relevant clauses of the agreement shall be invoked. He has also strenuously contended that in case an interim injunction, in a manner as prayed by the plaintiff, is granted then it will amount to interference in the working of a statutory body.
7. From the arguments of both the learned counsel and from perusal of the pleadings of the parties it appears that it is an admitted position that the K.D.A. Did not hand over the physical possession of the entire land for the construction of 45 bungalows/Town houses. It is also an admitted position that only the land for 38 bungalows/Town houses was delivered to the plaintiff. That there is a controversy as to the delivery of site and stage of construction of these 38 bungalows and for the payment of outstandings.
8. According to the plaintiff they have constructed 38 bungalows up to 80%.,The case of K.D.A. Is that they have constructed up to 77% . It is also not denied by either of the parties that the cost of one bungalow comes to Rs.11,91,220 and that the entire cost of 38 bungalows will come to Rs.4,52,66,360.
9. It is also an admitted position that in case the construction of 38 bungalows is completed, the plaintiffs are entitled for further amount of Rs.61,92,797.
10. 1993 CLC 1926), which view was upheld by the Hon'ble Supreme Court in the case of P'E.C. v. P.I.A.C.
11. And others (1989) SCMR 379), a learned Division Bench of this Court comprising Mr. Ajmal Mian and Mr. Ahmed A.I U. Qureshi, JJ., (as their Lordships then were) held as follows:-- "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 facie 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."
12. The rule laid down by this Court in case of M/s. Jamia Industries was followed in the cases of McDonald Layton & Company Limited v Pakistan Services Limited and others (1983 CLC 2252) and Sirafi Trading Establishment v. Trading Corporation of Pakistan Limited (1984 CLC 381).
13. I am also of the view that in the case of encashment of a bank guarantee which in its nature is a performance bond, the owner/creditor is required to establish that the principal debtor/contractor has committed default and, secondly, he is also required to show that as a result of such default he has suffered damages. But in the instant case the defendant No.1 has not expressed its intention for encashment of the said bank guarantee. It is one of the stipulations of this bank guarantee that the creditor/defendant No.1 have first to show that they suffered loss and/or damages by reason of failure of the plaintiff to perform all or any of the acts/obligations mentioned in the said guarantee.
14. This is not an unconditional bond or bank guarantee. This bank guarantee/performance bond is absolutely silent on the question that the creditor/K.D.A., shall be entitled to encash the same without any further notice to the principal debtor or to the surety and that the creditor is not required to show what damages or cost he has suffered. The language of this bond initially creates a burden upon the creditor/K.D.A. To prima facie establish a fact of suffering loss and damages and secondly, the quantum of such cost and damages. It does not simpliciter entitle the creditor to get the bank guarantee encashed without fulfilling its conditions.
(i) That the defendants are restrained for the time being and shall not be entitled to encash the performance bond/bank guarantee till next three months from this date.
(ii) That the plaintiff shall expedite with full force the construction work on the 38 bungalows and will make all possible efforts to complete the remaining 20% as claimed by the plaintiff or 23% work as claimed by the defendant No. l on these bungalows within next three months.
(iii) In case, if any genuine or bona fide claim of the plaintiff is pending before the K.D.A., the same- shall be resolved by the defendant No. l at an early date.
15. With these observations Civil Miscellaneous Application No.3464 of 1995 stands disposed of.