SAIDUZZAMAN SIDDIQUL J.- Leave has been granted" in the above appeal against the judgment of a learned Judge in Chambers of Lahore High Court, dated 19.2.1998, whereby the stay application filed by respondent No. 1 in F.A.O. No. 86 of 1996 was disposed of with a direction to respondent No. 2 herein, to release the amount of Letter of Credit (L.C.) to the appellants on latter's furnishing a bank guarantee for the said amount. The appellants have filed an application for suspension of the impugned order pending disposal of their appeal. We have heard Mr. Hamid Khan, the learned counsel for the appellants, Mr. Umer Bandial, Advocate Supreme Court and Mr. Sair Ali, Advocate Supreme Court for the respondents Nos. 1 and 2 respectively.
2. Respondent No. 1 established a Letter of Credit (L.C.) through respondent No. 2 in favour of the appellants for import of Textile Machinery from Japan. 1/10th of the price of machinery was payable on shipment of the machinery and the rest of the amount was payable in 12 equa instaiments to be Paid in 7 years time. The contract for import of the machinery under the L.C., which was established through respondent No. 2, was approved by the State Bank of Pakistan, lt is an admitted position that the machinery was shipped in June. 1994 and arrived in Pakistan by the end of 1994. The machinery was installed at Muzaffar garh and it became operative in or about March 1995. The first instalment which became due under the L. C on 15.6.1996, 15.6.1995 was paid in time.
However, the second instalment under the L.C. which was due during the month of December, 1995 was paid in March, 1996. The 3rd, 4th, 5th, 6th and 7th instalments, which fell due under the L.C. on 15-12-1996, 15.6.1997, 15.12.1997 and 15.6.1998 respectively, have not been paid as a dispute had arisen between the parties. Respondent No. 1 instituted a civil suit for damages against the appellants claiming a sum of US $ 31,516,993 alongwith mark up. Alongwith the suit, respondent No 1 also claimed temporary injunction restraining respondent No. 2 from making payment of any further instalment under the L.C dated 15.1.1994 to the appellants. The appellants on being served with the notice of injunction application moved an application before the Court under section 34 of the Arbitration Act invoking arbitration clause in the contract. The learned Civil Judge dismissed the application for grant of temporary injunction and ordered stay of the suit under section 34 of the Arbitration Act directing the parties to have recourse to the arbitration clause contained in the contract. Respondent No. 1 filed F.A.O. No. 86 of 1996 against the order of trial Court staying the suit and rejecting the stay application. The learned Judge in Chambers though upheld the order of the trial Court staying the proceedings of the suit but modified the same to the extent that the arbitration proceedings should take place in Pakistan instead of being held in Honk Kong as provided in the arbitration clause. Insofar the prayer of respondent No. 1 seeking stay of the payment of the amount of the amount of instalments due under the L.C., the learned Judge in Chambers directed that the amount of instalment due under the L.C be paid to the appellants on the condition of furnishing a bai k guarantee.
3. As stated earlier, leave has already been granted by us against the impugned judgment and the appellants are now seeking modification of the order of the learned Judge in Chambers to the extent that the condition of furnishing bank guarantee imposed by the learned Judge for payment of further instalments under the L.C. be modified by withdrawing the said condition. W have heard the learned counsel for the parties at length.
4. Mr. Hamid Khan, the learned counsel for the appellants, contended that the payment of instalments under the L.C established by respondent No. 1 in favour of the appellants was unconditional and, therefore, the same could not be withheld when became due for payment. The learned counsel contends that the machinery supplied to respondent No. 1 was strictly in accordance with the specifications mentioned in the contract and there being no fraud or misdescription or misdeclaration in the shipping document, the payments under the L.C. could not be withheld. The learned counsel further contended that the machinery imported by respondent No. 1 under the L.C. has not only been installed but it is now operative and every effort has been made by the appellants to tide over the difficulties which respondent No. 1 encountered during the operation of the said machinery. The learned counsel in this connection, pointed out that time and again team of engineering experts was despatched by the appellants to assist -respondent No. 1 in removing the difficulties encountered by him at initial stage as well as thereafter, in support of his contention that where the payment under L.C. is unconditional the same could not be stopped, the learned counsel relied on the case reported as Pakistan Engineering Consultants v. P.I.A.
Corporation (1993 CLC 1926). The relevant observations relied by the learned counsel in support of his contention appear at page 1933 of the report are as follows:- "8. in our view, there seems to be preponderance of judicial view that in case of 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 om 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 P.I.A, 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 P.I.A. Under the terms of the Bank guarantee, the Bank has given undertaking to pay the amount on demand by the P.I.A, 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 encashment of the full amount of the Bank guarantee. Mr. Nasim Farooqi, learned counsel for the appellant, has submitted that the P.I.A, 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 lacs). The question, whether the P.I.A, 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."
The learned counsel also referred to the decision of this Court reported as National Construction Ltd. v. Aiwn-e-lqbal (PLD 1994 SC 311) besides relying on the cases of Kohinoor Trading (Pvt) Ltd. v.
Manmgrani Trading Co. (1987 CLC 1533), Manzoor Textile Mills Ltd. v. Special Judge Banking (1996 CLC 422), and Banque Indosues Begum v. Haral Textile Ltd. (1998 CLC 582) in support of the above contention. The learned counsel for the respondents, on the other hand, has very vehemently argued that the appellants having no assets in Pakistan and a dispute having arisen, if the claim of respondent No. 1 is decreed ultimately as a result of the arbitration proceedings, he will be without any remedy if the appellants are allowed to take out the entire money from Pakistan. The learned counsel, according, contended that even if the instalments which has become due under the L.C. have to be paid to the appellants, they may be directed to furnish bank guarantee for the amount to be paid to them. To support his contention, the learned counsel has relied on the cases of U.D.L.
Industries Ltd. v. Hongguang (PLD 1997 Karachi 553) and P.O. Enterprises (Pvt.) Ltd. v. Thai Rayon Co.
Ltd. (PLD 1990 Karachi 395).
5. We have gone through the two cases cited by the learned counsel for respondent No. 1 and find that to the extent of the prayer of respondent No. 1 that the amount be paid to the appellants by furnishing a bank guarantee, the cases do support to some extent. However, both the cases are distinguishable on facts as in the first noted case, an exceptional case of fraud, mischief and injustice touching the violation of terms of the r credit was found to have been made out in the case. Similarly, in the second case also a bill of lading against which payment was released under the L.C. was also found to have contained wrong statement of facts, in the case before us, although respondent No. 1 in his suit has alleged fraud on the part of the appellants but from the facts and the material placed on record, it is difficult to hold, prima facie, that any fraudulent act was committed by the appellants in getting the amount of first two instalments released under L.C. lt is also arguable, prima facie, whether the specifications mentioned in the documents were not in accordance with the specifications agreed between the parties, lt is not disputed before us that the L.C. established by respondent No. 1 through respondent No. 2 contained unconditional stipulation for payment of the instalment on the due date to the appellants. However, keeping in view that the appellants do not own any asset within the territory of Pakistan, we are inclined to modify the order passed by the learned Judge in Chambers to the extent that out of 5 instalments which have become due for payment to the appellants under the L.C. and which according to both learned counsel come to 404, 374, 875 Japani Yens, be paid to the appellants in the account which they are maintaining in Pakistan, on the condition that out of this amount, the appellants will be entitled to remit only 2/3rd of the amount while l/3rd amount will be retained in the said account.
Similarly, in respect of the future instalments, these will be paid to the appellants by respondent No. 2 as and when they become due under terms of the L.C., but out of all these amounts only 50% will be remittable outside Pakistan while 50% amount will be maintained in the account, in Pakistan and could only be remitted with permission of this Court. The stay application stands disposed of, accordingly.