1. This application seeks interim injunction to restrain the defendant No,1-Habib Bank Ltd. From encashing Bank Guarantee No,20-01/98 dated 6th July, 1998 (referred as the guarantee in question) given by defendant No,2-Al-Faysal Investment Bank Limited, hereinafter referred as Al- Faysal'. The facts giving rise to the present proceedings, briefly stated, are that the plaintiff had purchased plot of land bearing No,ST-2(Commercial) Shahrah-e-Faisal, Karachi, for a consideration of Rs,220 million pursuant to arrangement with Habib Bank Ltd. As is reflected from letter dated 3-11-1996.
2. The contents of the letter, being relevant to the controversy, are reproduced for the sake of convenient reference: "We would like to introduce ourselves as a reputable group having good financial resources. We operate on Karachi Stock Exchange, currency markets and commodity markets and also invest in real estate. We are interested to purchase and develop the abovementioned property which we understand is currently mortgaged with you. The subject property can be purchased by us on the following terms and conditions:--
(1) Principal price of the property Rs,220 Million.
(2) Down payment Rs,30 Million.
(3) We will also pay Rs,20 Million within a period of 3 to 4 months from the date of acceptance of our offer. This amount may also be adjusted against the principal price.
(4) Balance payment of Rs,170 Million to be paid within a period of 18 months from the date of acceptance.
(5) Mark-up to be charged at the rate of 16% per annum on annual basis.
(6) All necessary permissions/NOC pertaining to bank (HBL) may kindly be granted on acceptance of our offer so we may commence construction within period of six months after obtaining all requisite permissions from relevant departments.
(7) On commencement of construction (within six months) the sale proceeds thus received will be shared on equal basis of 50% with Habib Bank Ltd. Our 50% will be utilized as working capital plus our own cash resources as required. We will be happy if Habib Bank Ltd. Appoints a representative to supervise collection of its 50%.
(8) Since we are making the down payments and also undertake to make balance payment this loan amount may be transferred in our name. We will sign all the required documents and agreements. We also seek the transfer of property under bank's supervision in our name and the same will remain mortgaged with Habib Bank Ltd. Till the clearance of total liability.
(9) Keeping in view the present market conditions it will not be out of place to mention that our offer is most realistic and reasonable. In our humble opinion the owner of the property will find it very difficult to receive outright sale consideration. Most buyers will make token payment and seek time because of the magnitude of the transaction. Therefore, our proposal merits serious consideration.
(10) We have at our disposal a team of highly qualified civil engineers, architects, contractors and consultants and marketing experts." The offer contained. In the said letter dated 3-11-1996 was accepted by Habib Bank Ltd. In the following terms through letter dated 24-12-1996: "(1) That after your pay purchase price of Rs,30.000m in cash within 7 days from receiving intimation of this sanction and Rs,20.000m in cash within 90 days as committed by you a Demand Finance of Rs,170.000m will be created in your name. The Demand Finance will be adjusted by you within a maximum period of 18 months against Equitable -Mortgage of Commercial Property being No,ST-2, admeasuring 3000 square yards on main Shahrah-e-FaisaL Karachi, duly transferred in your name and all legal formalities/documentations including personal guarantee of all the Directors of the Company will be executed by you.
(2) Mark-up is to be charged on the Demand Finance @ 0.45/1000 per day if the Demand Finance is adjusted within a period of 18 months. If otherwise mark-up is to be charged @ 0.60/1000 per day.
(3) The proceeds of Demand Finance of Rs,170.000m plus down payment of Rs,50.000m mentioned in para. 1 above to be utilized towards adjustment of liability of the following 3 concerns of Mr. Madad Ali Madan Group:
(a) M/s. Builton (Private) Limited.
(b) M/s. Baba Associates (Private) Limited.
(c) M/s. Super World Trading Corporation (Private) Limited.
(4) The entire sale proceeds of constructed building to be deposited with us out of which 60% to be appropriated towards adjustment of Demand Finance of Rs,170.000m and remaining 40% to be released to you.
(5) That Habib Bank Limited will be sole and exclusive Bankers to the subject project . And all your advertising materials Habib Bank Limited's name etc. Will be projected as exclusive Bankers.
(6) You are requested to give proof of your arrangements/resources for construction of building.
(7) That Habib Bank Limited has full right to monitor the progress of the project from time to time in case of my quarries/enquiries/information/objection etc. On part of HBL would be duly answered/implementation by you to the entire satisfaction of the Bank.
(8) That you will enter into 'SALE AGREEMENT' with the owner/mortgagor of the caption property and get it transferred in your name by execution and registration of a Conveyance Deed at your cost provided, however, that the property be and equitably mortgaged with Habib Bank Limited to secure a finance of Rs,170.000m provided to you, till full settlement of entire liability including Mark- up @ 0.45/1000 per day or in case of failure on your part to make payment of the above liability within 18 months, mark-up @ 0.60/1000 per day as stated above.
(9) This approval is subject to clear and satisfactory report from our Trade Information Department and Credit Investigation Bureau of State Bank of Pakistan." Consequently, the plaintiff was able to acquire vacant possession of the subject plot on 10-1-1998 and was permitted to construct building thereon consisting of ground plus one storey with double basement. According to the plaintiff, it proposed to construct a multi-storeyed building but was, unauthorisedly, refused such permission. Be that as it may, the arrangement of finance, availed from defendant No,1, was re-structured and the terms thereof were conveyed through letter dated 2nd July, 1998 which were as follows: "(i) The total amount payable inclusive of mark-up to 30-6-1998 amounts to Rs,204 million approximately.
(ii) You shall furnish to us a bank guarantee of Al-Faysal Investment Bank Limited, Karachi for the sum of Rs,170 million under which a sum of Rs,20 million shall be paid to us alongwith mark-up at 14% for the. Period 1-7-1998 to 31-12-1998 on 31-12-1998 while the balance amount of Rs,150 million shall be paid in six equal quarterly instalments of Rs,25 million each on or before the last day of each quarter commencing from the year 1999 alongwith mark-up at 14% on the outstanding balances up to the date of payment of each instalment.
(iii) You shall create a second mortgage charge on the abovementioned property in our favour as security for repayment of a total sum of Rs,204 million plus mark up at 14% per annum for the period up to 31-12-2000. This mortgage shall be in addition to the bank guarantee.
(v) A sum of Rs,5.57 million shall be paid by you on 30-6-1998 and a further sum of Rs,12 million shall be paid by you to us within 2-1/2 years (Two years and six months) from 30-6-1998 or completion of your building project on the aforesaid property, whichever is earlier. This amount shall not attract any mark-up except in the case of default in payment as aforesaid.
(v) Subject to your fulfilling your obligations as stated above, we have decided to give you the following waiver--write off in respect of mark-up:--
(a) Rs,7.236 million shall be waived.
(b) Rs,8.7 million shall be written off after payment of Rs,170(m) and mark-up thereon to the Bank.
(vi) Subject to the above, we shall release and vacate our first mortgage charge on the aforesaid property by confirming the same in writing as may be required and execute deeds of redemption of the equitable and registered mortgage charge alongwith necessary forms to record satisfaction of the mortgage.
(vii) Simultaneously, with the release of the property from the mortgagee and handing over of the documents of title to Al-Faysal Investment Bank Limited, you shall create a second mortgage charge over the property in our favour and execute necessary documents alongwith No Objection Certificate from Al-Faysal Investment Bank Limited with regard to creation of second mortgage charge over the said property in our favour in accordance with clause (iii) hereinabove.
(viii) We shall sign all relevant and/or necessary documents as may be required and prepared by Mr. Liaquat Merchant, the transaction lawyer in this case.
(ix) Our acceptance of your proposals on the terms referred to above is subject to the same being incorporated into an agreement containing mutually acceptable terms and conditions relating to payment and security as on the date of execution. This letter shall remain valid for a period of 4 days from the date hereof."
3. Accordingly, Al-Faysal executed the guarantee in question, which, inter alia, contained the following terms:
5. Now therefore, we Al-Faysal Investment Bank Limited, 1st Floor, Block-A, Finance and Trade Center, Shahrah-e-Faisal, Karachi, do hereby confirm, agree, undertake and guarantee as under:
(a) That Century shall make payment to you of the outstanding finance facility of Rs,170 million within a period of 2 years as specified below. The guarantee shall stand reduced proportionately as and when each payment is made to you:-- -Rs,20 million on 1-12-1998 -Rs,25 million on 31-3-1999 - Rs,25 million on 30-6-1999 - Rs,25 million on 30-9-1999 - Rs,25 million on 31-12-1999 - Rs,25 million on 31-3-2000 - Rs,25 million on 30-6-2000 Rs,170 million.
(b) In the event of Century neglecting or failing to make payment of any instalment referred to above and/or mark-up on the outstanding balance on due dates of payment, we shall within 72 hours on receipt of your written demand make payment to you of such instalment and/or mark-up in respect to which Century has committed a default in payment.
(c) The receipt of your written demand shall constitute conclusive evidence of default on the part of Century and our liability to make payment to you under this guarantee and we shall make payment unconditionally and without reference to Century." According to the plaint, all went well and a sum of Rs,37.7 million was paid to Habib Bank Ltd. In accordance with the arrangement between the parties. Suddenly, in January, 1998, the Karachi Cantonment Board stopped construction work on the subject plot on the ground of violation of approved plan and unauthorized construction. This led to initiation of proceeding in Civil Suit No,395/99, filed by the plaintiff against Karachi Cantonment Board, and Constitutional Petition No,D-800/99. The Constitutional petition has, since, been allowed by a Division Bench of this Court with direction to the Cantonment Board to refrain from interference with construction on the subject plot. In the meantime, the plaintiff, having defaulted in making payment to Habib Bank Ltd.
4. In terms of the guarantee in question, encashment thereof, has been invoked by Habib Bank Ltd.
5. The plaintiff, therefore, has filed the present proceedings with the following prayer: "(i) Declaration that the plaintiff is entitled to re-scheduling of the loan by defendant No:l.
(ii) Permanent injunction restraining defendant No,1 from encashing the bank guarantee of defendant No,2.
(iii) Injunction by way of direction to defendant No,1 to re-schedule the loan in the light of the circumstances explained above.
(iv) Cost the suit.
(v) Any other relief which this Hon'ble Court may deem fit and proper." The defendants have been granted leave to defend the proceedings. The case of defendant No,1 Habib Bank Ltd. Is that the plaintiff was granted facility which was to be repaid by 30th June, 2000 in instalments, as are specified in the guarantee in question. The plaintiff, having, admittedly, failed to make payment in terms of the schedule of repayment, Habib Bank Ltd. Is within its rights to seek encashment of bank guarantee proportionate to the amount of default. Al-Faysal has admitted execution of guarantee and the term about unconditional payment to the Habib Bank Ltd. Without reference to the plaintiff. Mr. Shahanshah Hussain, Advocate for the plaintiff has urged that the repayment of amount of facility was agreed to be dependent on construction which could not be continued on account of unforeseen situation which is caused by factors beyond the control of the plaintiff. It is further urged by Mr. Shahanshah Hussain that Habib Bank Ltd. Cannot enforce the terms of guarantee independent from the difficulties, faced by the plaintiff, in continuing with construction. The plaintiff, having taken all possible steps to keep with the scheduled construction/repayment of finance, cannot be termed a defaulter to attract the invocation of clause 5(c) of the guarantee in question.
6. It is contended that the earlier re-structuring of finance by Habib Bank Ltd. Shows that time was not of essence and the repayment can be rescheduled. According to Mr. Shahanshah Hussain, the plaintiff is prepared to abide by any reasonable terms for re-scheduling the facility. As to the law, pertaining to injunction restraining encashment of a bank guarantee reference has been made to the case of National Construction Limited v. Aiwan-e-Iqbal Authority PLD 1994 SC 311 and M/s. Zeenat Brother (Pvt.) Limited v. Aiwan-e-Iqbal Authority and others PLD 1996 Kar.
183. Both the cases, cited by the learned counsel, pertained to prayer for injunction restraining encashment of Performance Guarantees and it is observed that the Performance Guarantees are independent contracts and the Bank Authorities must construe them independent of the primary contracts. While in the first case, the refusal of injunction by Lahore High Court against encashment of bank guarantee was maintained, in the other case injunction was granted to restrain encashment of Performance Guarantee in view of peculiar nature thereof. The learned counsel for the plaintiff has further referred to the meaning of default in Stroud's Judicial Dictionary, 4th Edition, Volume II, to contend the default can be attributed to the plaintiff only in case the same is caused due to act or omission on its part. The plaintiff, according to the learned counsel had not contributed to or caused the suspension of construction activity hence was not a defaulter and the guarantee in question, could not be invoked. The learned counsel for Habib Bank Ltd. In reply, has urged that the present application and the affidavit, filed in support thereof, are not self-contained and no case, muchless a prima facie case, is made out for grant of injunction. Reference has been made to Rule 74 of Sindh Chief Court Rules (O.S.). It is further contended that for the purpose of interim injunction, besides prima facie case, a plaintiff is required to show balance of convenience being in its favour and the likelihood of irreparable loss being caused to it. Reliance in support of such submission is placed on the case of Shahzada Muhammad Umer Beg v. Sultan Mahmood Khan and another PLD 1970 SC 139 and Marghoob Siddiqui v. Hamid Ahmed Khan and others 1974 SCM R 519. As regards merits of the case, it is contended that the plaintiff had furnished bank guarantee in terms of the restructuring conditions, conveyed by Habib Bank Ltd. Through its letter dated 2nd July, 1998. The conditions prescribed through the said letter, and the guarantee, itself, show that Habib Bank Ltd. Is not concerned with the construction or its pace. Explaining the need for guarantee in question, Mr. Azizur Rehman submits that Habib Bank Ltd. Was earlier holding charge over the property, in question, which was released leaving Habib Bank Ltd. Without any security. For such reason, guarantee in question was made unconditional and the payment, thereunder, is to be effected by Al-Faysal without reference to the plaintiff. According to Mr. Azizur Rehman, a bank guarantee is sacrosanct document which must be honoured in order to maintain faith in the business transactions and commitments, undertaken by a bank which, in this case, is done by al-Faysal. In support of his above contention, reliance is placed on the cases of M/s. Rafidian Bank, Iraq v. M.L.
7. International (Pvt.) Limited, Karachi 1993 M LD 1234, Pakistan Engineering Consultants v. Pakistan International Airlines Corporation, and BCCT and others 1993 CLC 882, M/s. National Construction Co. Limited v. Aiwan-e-lqbal Authority PLD 1994 SC 311 (also cited by the plaintiff's counsel) and Haral Textile Limited v. Banque Indosuez Belgium S.A. And others 1999 SCM R 591. As to the balance of convenience, it is urged that Habib Bank Ltd. Shall be left without any tangible security in case the present application is granted. It is further urged that the payment of money in terms of the guarantee in question, has to be effected by Al-Faysal who holds first charge over the subject property as mortgagee and the plaintiff can always negotiate its terms with Al-Faysal.
8. I have considered the various contentions of the learned counsel and gone through the record. For the purpose of grant of interim injunction, it is imminent that besides prima facie case, exposure to irreparable injury must also be shown. Additionally, a plaintiff is obliged to establish balance of convenience in favour of grant of injunction. For the purpose of interlocutory matters, affidavits, alone, have to be considered. In the present case, the application and affidavit, filed in support thereof, hardly contain any reason, muchless a valid ground for the grant of interim injunction. The tendency, as has, recently, developed of incorporating the contents of documents and pleadings by reference, in the affidavits, filed in support of interlocutory applications cannot be approved. On such ground, alone, this application is liable to be dismissed. In any event, looking at the merits of the case and for the reason that the learned counsel have taken me through the pleadings and the documents, filed in support thereof, it is evident that the guarantee in question, is not conditional nor is dependent upon continuance of construction activity, undertaken by the plaintiff.
9. The restructuring of facility, settled through letter of Habib Bank Ltd. Dated 2nd July, 1998, had changed the material terms, contained in the initial arrangement between the parties as are reflected from the letter dated 3-11-1996 and its reply dated 24-12-1996. The guarantee in question, was executed in terms of the re-structuring arrangement and does not find mention in the original arrangement. In substance, the restructuring, conveyed through letter dated 2nd July, 1998, had brought about substitution and novation of the earlier arrangement. The contention that the guarantee in question, cannot be encashed, independent from the difficulties, faced by plaintiff in the construction activity, is untenable and cannot be accepted. As to the question that the plaintiff is willing to abide by any terms for re-scheduling as may be acceptable to Habib Bank Ltd., is not a matter to be considered by this Court. Such direction in the form of mandatory injunction, tentatively speaking, can be granted only if some right is found to exist. In the present case, the plaintiff has not shown any right to re-scheduling of the facility in question. I am mindful of the fact that the prayer to the above effect, contained in the plaint, cannot be affected by these observations since the grant, or otherwise, of relief in suit, shall depend upon evidence as may be produced by the parties. As to the equitable considerations, it may be observed that the Divine command, contained in verse 2:280 requires a Creditor to grant time to the Debtor who is in difficulty till it is easy for the latter to make repayment. Such factor, however, does not come in the way of Habib Bank Ltd. Who proposes to encash bank guarantee furnished by Al-Faysal. AlFaysal has not expressed any difficulty in payment of the amount of guarantee. The above reason also holds good for deciding if irreparable loss shall be caused to the plaintiff. The plaintiff can, always, negotiate fresh terms with Al-Faysal or any other Financing Institution, as are proposed to be negotiated with Habib Bank Ltd.
10. Who are not willing to negotiate any fresh terms for extension of the facility granted to the plaintiff.
11. The plaintiff, therefore, is not entitled to grant of interim injunction on equitable ground or on the ground of irreparable loss. It may be noted, here, that the plaintiff, in its affidavit and pleadings, has not even asserted that the refusal of prayer of interim injunction shall expose it to irreparable loss or that the balance of convenience lies in favour of grant of injunction. Conversely, Habib Bank Ltd.
12. Has, specifically, raised such question and in the counter-affidavit it is averred as follows: "3. The plaintiff was duty bound and also aver to establish that the plaintiff has a good prima facie case, balance of convenience is in its favour and that it will suffer irreparable loss if the application for interim injunction is not granted.
4. I submit that the plaintiff does not have a prima facie good case, the balance of convenience is not in favour of the plaintiff and the plaintiff shall not suffer irreparable loss if the application of the plaintiff being C.M.A. No,2424 of 1999 is dismissed.... ......". No affidavit-in-rejoinder was filed despite the above-referred plea taken in the counter-affidavit.
13. Even on this ground, the application is liable to be dismissed. Reverting to the assertion that the plaintiff has not defaulted in repayment of its liability, the terms of the guarantee in question, are quite significant. The defendant No,2, Al-Faysal, has undertaken to make payments to Habib Bank Ltd. Within 72 hours of receipt of Written Demand in case the plaintiff neglects or fails to make payment of any instalment. The use of disjunctive word between the words "neglecting" and "failing" is significant. The word "default" used in clause 5(c) of the guarantee in question, has to be read in juxtaposition with the words 'neglecting or failing to make payment of any instalment'. Besides, Al-Faysal has undertaken to accept the receipt of written, demand as conclusive evidence of default on the part of plaintiff with stipulation to make payment unconditionally and without reference to the plaintiff. Such provision, put under an independent clause, signifies intention of the parties to honour the commitment, undertaken thereby. As to the liability under bank guarantee, I feel tempted to reproduce the observations in the case of Haral Textiles Limited (supra) appearing at pages 609 and 610, which are in the following terms: "It may be observed that holder in due course of a Bill of Exchange executed in respect of a Letter of Credit stands on a higher pedestal than a simpliciter beneficiary under a Letter of Credit. It may be stated that the interest of innocent parties, who may hold drafts upon Letter of Credit, should not be made to suffer by a reason of rights that may exist between the parties to the contract in reference to which the Letter of Credit was issued. It would be a sad day in the business world, if for every breach .Of contract between the buyer and the seller, a party may come to a Court of equity and enjoin payment on drafts drawn upon a Letter of Credit issued by a bank which owes no duty to the buyer in respect of the breach. The same principles are applicable to a Guarantee. A contract of Bank Guarantee is a trilateral contract under which the bank has undertaken to unconditionally and irrevocably abide by the terms of the contract. It is founded on an act of trust with full faith to facilitate free growth of trade and commerce in internal or international trade or business. It like a Letter of Credit, creates an irrevocable obligation to perform the contract in terms thereof. A Bank must honour a Bank Guarantee free from reference by the Courts otherwise trust of any commerce, internal and international, would be irreparably damaged if a 'Bank Guarantee is unconditional and irrevocable, the Bank concerned must pay when demand is made unless the Bank has pledged its own credit involving its reputation. Generally, it has no defence except in case of fraud." The present case does not bring out any exceptional circumstance to deviate from the above- stated rule and to permit Al-Faysal to avoid its obligation under the guarantee in question. It may be noted that the learned counsel for Al-Faysal has categorically made statement at Bar that his client shall abide by order as may be passed by the Court and is willing to honour its obligation in terms of the guarantee, in question. In the circumstances, this application is dismissed with costs. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.