1. Deferred.
2. This suit has been filed by the plaintiff for declaration and injunction with the prayer that the bank guarantee so executed on 13-9-1995, annexures F/1, F/2 and F/3 stands discharged and may be returned to the plaintiff. It is further prayed that the defendants, their agents should be restrained permanently from encashing the bank guarantee.
' The plaintiff has filed C.M.A. No,3841 of 1996 where it has been contended that pending disposal of this suit the defendants may be restrained from encashing the bank guarantees. The reasons for the grant of the said application have been given in the affidavit to the application where it has been, inter alia, contended that a contract was entered into, dated 28-7-1993 between the plaintiff and defendant No,1 for the supply of an installation of 130 ton converter worth US $.22.5 Million. All the terms and conditions and the rights of each party were spelt out in detail in the contract and Annexures to the contract. It is alleged that defendant No,1 delayed the civil works which was the obligation of the defendant No,1, hence it resulted in the performance of the plaintiff due to which their Schedule had to be eventually revised. In spite of the revision of the Schedule the defendant continued to create impediments in the smooth and efficacious running of the contractual obligations.
' As per the contract the plaintiff obtained mobilization advance and in pursuance thereof provided three performance based guarantees from defendant No,2 in favour of defendant No,
1. According to the counsel for the plaintiff the defendant No,1 rescinded the contract, without notice and without failing to honour the running bills, failing to clear goods at Customs, refusing to allow the plaintiff's engineers from entering the site not assisting to get the visa for foreign experts so that the contract may be rescinded and it may be granted to somebody else. In furtherance of the mala fide intentions the defendants have tried to encase the bank guarantees which has resulted in the present suit.
' A counter-affidavit has been filed by defendant No,2 who as a bank has merely stated that they shall be duty bound to honour any commitment. However, since this basic dispute is between the plaintiff and defendant No,1 which has now moved into this Court, therefore, they would await the decision of this Court. A counter-affidavit has also been filed by the defendant No,1 who has denied all the allegations contained in the affidavit with the application under Order XXXIX, Rules 1 and 2, C.P.C. According to them they have replied in detail in the written statement and the contents of the same may be treated as part of this counter-affidavit. The crux of the counter-affidavit is that the application for stay is misconceived as a simple perusal of the bank guarantees would clearly show that they are simple bank guarantees and, therefore, the bank is duty bound to encase the same on demand. According to them once the plaintiff commits default then the defendant No,1 is duty bound to seek encashment without any reference to the plaintiff. No injunction can be granted. They have then gone on to discuss the merits of the dispute.
' A rejoinder has been filed by the plaintiff who have denied the allegations contained in the counter-affidavit and have specifically insisted that the bank guarantees are dependent on a commitment of a default. A default if claimed by the plaintiff has to be proved. Since it is the claim of the plaintiff that no default has occurred.
' I have heard both the learned Advocates at length and I would first look at paragraphs 5 and 6 of the plaint where a schedule of work has been shown. Based upon this Schedule the plaintiff insists that no default has occurred and in fact every action of the plaintiff is based upon this Schedule.
The written statement filed by the defendant admits that certain dead-line should have been met and, thereafter, has replied that delay had occurred in the delivery of equipment as per agreed Schedule. On the other hand, the plaintiff has insisted that the dead line was December, 1996 and the process of delivery had already commenced. This suit was filed on 6-8-1996 and, therefore, according to them they would complete the schedule in time. My attention has also been drawn to page 47 of the plaint which is a contract between the parties and the relevant pages in the contract are page 61 where it is clearly stipulated that the customer shall undertake to complete civil work. The customer has been defined in the contract at page 49 as the defendant No,
1. So, if the delay takes place in respect of the customer than can the contractor be held responsible for the delay. My attention has also been drawn to page 65 subsection (17) where at paragraph 4 the contract discusses additional cost which have to be paid by the customer and if any delay occurs then the matter shall be decided from case to case. My attention has also been drawn to page 83 which talks of performance guarantee and page 97 where a pro forma for the performance bond has been given. Then at page 101 para.10 the entire details of how, when and under what conditions the performance guarantees shall be given, have been discussed. ,Page 109 also ,specifies that successful bidder shall furnish performance bank guarantee. My attention has also been drawn to pages 511 and 481 of the Court file. Page 481 is a letter written by the plaintiff to the defendant No,1 wherein they have pointed out that due to suspension of civil work the effect on the plaintiff's fulfilling its part of the contract and for overall completion of the project on schedule shall have ramifications for which the plaintiff should not be held liable or responsible. My attention has also been drawn to the page 511 which is a letter written by Pakistan Steel to defendant No,2 wherein they have threatened to encash the guarantees.
' The counsel for defendant. No,1 has argued that delay in default had occurred due to which he was well within his rights to claim encashment of bank guarantees as according to him they were bank guarantees simplicitor and, therefore, the bank has to honour them. The counsel has also pointed out and relied upon Annexures .I/1 and J/2 at pages 511 and 513. These two letters are simply letters written by the Pakistan Steel Mills to the bank and a letter written by Habib Bank Ltd.
On behalf of Pakistan Steel Mills to defendant No,2. The counsel has also claimed that no relief can be given to the plaintiff under section 56 of the Specific Relief Act.
I have gone through all the facts which have been given in detail above and relying on the decision of the Hon'ble Supreme Court where it has been repeatedly held that even if an arguable case is made out then stay has to be granted. I am also aware of the fact that decisions have also been given about the sanctity and validity of bank guarantees simplicitor. In this case a cursory glance at the bank guarantees clearly show that indeed a demand can be made but that demand is pursuant . To a commission of default under the contract. From the wording of the bank guarantee and the different terms used in the contract as mentioned above, it is clear that it is a guarantee based on performance and hence that can only be encased if through evidence it is proved that a default had indeed occurred which was the fault of the person on whose behalf such guarantee was issued. In the case of Muhammad Amin Muhammad Bashir v. Public Authority for Stores and Foods, Sultanat of Oman and others (Suit No,470 of 1999) I have already discussed in detail about simple guarantee and conditional guarantee and follow my same view.
' Accordingly the listed application is granted and the encashment of the performance guarantees are stayed.