' This is a revision petition against the order, dated 29-7-1997 passed by the learned Civil Judge, Lahore whereby he rejected the application under section 41 of the Arbitration Act, 1940 filed by the petitioner against the respondents seeking an injunction restraining the respondents from encashing the bank guarantees against the mobilization advance and performance of contract.
2. The necessary facts are that the parties had entered into a contract for construction on 25-2- 1996. The contracted price of the project was Rs,412,484,554. The work was to be completed within a period of 12 months starting from 5-3-1996. In accordance with the terms of the contract, the petitioner arranged for two bank guarantees in favour of respondent No,1 against the receipt of mobilisation advance and the other guaranteeing performance of the contract by the respondents. It appears that dispute and differences arose between the parties which led to the filing of an application under section 20 of the Arbitration Act, 1940 for referring the dispute between the parties to arbitration. In the application under section 41, the petitioner had sought that encashment of two guarantees be stayed. That application has been rejected by the trial Court.
3. The learned counsel for the petitioner has contended that the trial Court has acted illegally in refusing temporary injunction to the petitioner without applying its mind to the facts of the case and the law applicable. Various precedents have been cited by the learned counsel to show that temporary injunction can be granted restraining the encashment of performance guarantee.
4. Conversely, the learned counsel for the respondents has defended the impugned order and has argued that in matters of bank guarantees the view of the Supreme Court as also this Court is not to grant injunction so as to frustrate the encashment of the guarantees which form an independent contract between respondent No,1 and respondent No,2.
5. It is a common ground between the parties that an arbitration agreement exists between them and that the petitioner has filed an application for referring the dispute to arbitration. It would he for the Arbitrator to decide as to whether the petitioner has defaulted in the performance of its obligation under the contract or that it is the respondent No,1, who is responsible for the default. It is not advisable to apportion the blame at this stage lest the case of the parties is prejudiced before the Arbitrator. Suffice it to say that the petitioner does not appear to have a prima facie case in its favour inasmuch as it has failed to execute the contract by constructing the works within the stipulated period of one year. There is nothing on the record from which it could be inferred even prima facie, that it is the respondents, who are responsible for non-completion of the work within' time. The petitioner has, thus, no prima facie case in its favour.
6. So far as the legal position is concerned, according to the learned counsel for respondent No,1, the Supreme Court of Pakistan has authoritatively ruled in Messrs National Construction Ltd. v.
Aiwan-e-Iqbal Authority PLD 1994 SC 311 that in cases relating to encashment of bank guarantee, no temporary injunction can be granted. The learned counsel for the petitioner has, however, tried to distinguish the case cited by the learned counsel for the respondents, by pointing out that it related to mobilization advance and not performance guarantees. Various other cases have been cited by the learned counsel for the respondents in support of his view.
7. So far as the judgment of the Supreme Court in Messrs National Construction Ltd. v. Aiwan-e- lqbal Authority PLD 1994 SC 311, is concerned, the dispute between the parties related to the encashment of bank guarantee for mobilization advance. This authority, therefore, has no applicability so far as the dispute in regard to encashment of performance guarantees is concerned. This conclusion becomes clear from para. 4 of the judgment of the Honourable Supreme Court in which the case, of Messrs Jamia Industries Ltd. v. Pakistan Refinery Limited PLD 1976 Kar. 644 has been distinguished. The above-referred judgment of the Supreme Court was explained in similar terms by the Sindh High Court in the case of Messrs M.E. Investment (Pvt.) Ltd. v.
Water and Power Development Authority (Suit No,573 of 1996, decided on 24-11-1998). In the said case, the view taken by the Sindh High Court was that in cases of bank guarantees the superior Courts have rarely interfered in the encashment of the same unless it is shown that the said encashment was based upon mala fide consideration or the reasons thereof were totally extraneous to the contractual obligation between the parties. Similar view was taken in China and Electric Corporation v. Water and Power Development Authority (Suit No,875 of 1997). Sirafi Trading Establishment v. Trading Corporation of Pakistan Ltd. 1984 CLC 381, it was observed that bank guarantee furnished in a case is governed by the same principles of law applicable to payment by Banks against confirmed letters of credit and absolute obligation thus, imposed upon Bank which executes guarantees to honour the same according to its terms and as a general rule be granted although there were some exceptions in special case of fraud to the knowledge of the Bank. In Attock Industrial Products Ltd. v. Heavy Mechanical Complex (Pvt.) Limited 1999 M LD 1876 this Court refused to grant temporary injunction restraining the Bank from encashing bank guarantees which were in respect of the performance of the contract by the petitioner. In Messrs Zeenat Brothers (Pvt.) Ltd. v. Aiwan-e-Iqbal Authority and others PLD 1996 Kar.
183. Sindh High Court drew the distinction between guarantees in respect of mobilization advance and performance guarantees.
8. It emerges from the above discussion, that no temporary injunction can be granted restraining the respondents from encashing the unconditional guarantee furnished by Banks in respect of mobilization advance. However, this proposition does not apply with equal force to the performance guarantees furnished by the Contractor. In such cases although as a general rule, no temporary injunction should be granted but there are certain exceptions to the rule like fraud or unequitable conduct of the opposite party. Although the case of Messrs National Construction Company (supra) related to a performance bond and the Supreme Court of Pakistan had not overruled but only distinguish the case of Jamia Industries Ltd. v. Pakistan Refinery Ltd., Karachi PLD 1976 Kar. 644 which was a case in which encashment of bank guarantee has been stayed. The following weighty observations made by the Supreme Court of Pakistan would also apply to the other ' bank guarantees:-- "... In our view the Courts must give effect to the covenants of the bank guarantees, the performance guarantees, for the smooth performance of the contracts. These guarantees are independent contracts and the bank authorities must construe them, independent of the primary contracts. They should encash them notwithstanding any dispute arising out of the original contract between the parties. In the instant case, therefore, the encashment of the bank guarantees cannot be postponed pending decision of the arbitration proceedings, which may take years to conclude."
Examining in the above light, legal principles, there is no special features in the case of the petitioner which would justify the grant of temporary injunction restraining the respondents from encashing bank guarantees.
' In view of what has been said above, I find no force in this petition. It is accordingly, dismissed leaving the parties to bear their own costs.