NAZIM HUSSAIN SIDDIQUI, J.---This appeal by leave of this Court is directed against the judgment dated 25-6-1998, whereby Civil Revision No,171 of 1997 was allowed: and Civil Revision No,175 of 1997 was dismissed.
2. The facts relevant for decision of this matter are that the appellant, Heavy Mechanical Complex (Pvt.) Ltd. And the respondent, Attock Industrial Products Limited, entered into a Turnkey Contract dated 16-9-1993 for setting up a Basic Chromium Sulphate Manufacturing Plant for producing Sodium Dichromate, Basic Chromium Sulphate and its bye-products and intermediates thereof from Chromate Ore. The contract price was US$ 499,200 plus Rs,209,507,000. It was claimed that in terms of contract, the respondent allowed mobilization advance, and periodical payments, while the appellant placed at the disposal of the respondent four bank guarantees/performance bonds namely:--
(a) Bank Guarantees No,388/94 dated 12-5-1994 issued by National Bank of Pakistan ("NBP") HMC Branch, Taxila.
(b) Bank Guarantee No,389 of 1994 dated 12-5-1994 issued by National Bank of Pakistan ("NBP")
HMC Branch, Taxila.
(c) Performance Bond ,No,NDFC/LG/077, dated 22-9-1993 National Development Finance Corporation ("NDFC"), Islamabad.
(d) Performance Bond No,NDFC/LG/076, dated 12-4-1994 issued National Development Finance Corporation ("NDFC") Islamabad.
3. The respondent claimed that the appellant failed to complete the project within a stipulated time and at the request of the appellant certain extensions were allowed. It is alleged that despite extension in time the appellant failed to set up and complete the plant, as per specification, which resulted in default and breach of contract. The respondent issued notice of termination of contract dated 19-2-1997 from 6-3-1997 and raised a demand with the bank and the Corporation for encashment of bank guarantees and performance bonds, which were valid up to 31-3-1997.
4. The appellant sought indulgence of Civil Court by filing a petition under section 20 read with section 8 of Arbitration Act, 1940, wherein it was claimed that the dispute had arisen in terms of the contract, which required settlement and adjudication through arbitration in terms of Article 23 of the Agreement. An application under section 41 of Arbitration Act read with para. 4 of Second Schedule to the Arbitration Act and Order XXXIX,rules 1 and 2, C.P.C., was moved to restrain the respondent from encashment of bank guarantees and performance bonds.
5. Learned Civil Judge First Class, Rawalpindi initially issued an ad interim injunctive order to restrain encashment of bank guarantees/bonds but after hearing the parties, vide order dated 16- 4-1997, held that the appellant was not entitled to injunction and dismissed the application holding at the same time that the respondent was entitled to encash bank guarantee up to Rupees fifty lacs.
6. Both the appellant and respondent were dissatisfied with the above order. The appellant filed Revision No,175 of 1997 for the annulment of the above order in to and for acceptance of the application for the grant of temporary injunction, while the respondent filed Civil Revision No,171 of 1997. Learned High Court by impugned judgment modified the order dated 16-14-1997 of learned Civil Judge and the restriction imposed in the order against encashment of bank guarantee exceeding Rupees fifty lacs was set aside and the appellant's application under section 41 of the Arbitration Act read with Clause (4) of. Second Schedule of the Arbitration Act and Order XXXIX, rules 1 and 2 of C.P.C., was dismissed. The operative part of the Bank Guarantees is as follows:--
(a) Our obligation to pay in accordance with the terms of this Moblization Advance Guarantee Bond shall remain in full force and effect notwithstanding the winding up or dissolution of HMC or any change in its status, function, control or ownership.
(b) This Mobilization Advance Guarantee Bond constitutes a primary obligation on our parts to pay in accordance with its terms and accordingly AIPL shall not be obliged before making any demand obtain judgment against HMC in any Court or Tribunal or arbitrator or to make or file any claim for the winding up or dissolution or insolvency of HMC..
(c) We shall not be released from any liability under this Mobilization Advance Guarantee Bond and our obligation hereunder shall not in any way be discharged or impaired by the alteration in the terms of the contract or in the extent or nature of the works to be carried out completed and maintained by the contrast or by any allowance of time by or on behalf of AIPL for the performance of any act under the contract or by any forbearance or forgiveness on the part of AIPL or on AIPL's behalf in or in respect of any matter or thing concerning the contract."
7. Vide order dated 30-11-1998, leave to appeal is granted to consider the following:--
(i) When the bank guarantee had formed part of the principal contract covered by the arbitration clause therein, can such a guarantee been cashed without recourse to arbitration?
(ii) When the Contract project having already been completed of which respondent was taking full advantage, is it equitable, in any case, on the part of the respondent to been cash the bank guarantee?
8. It is contended on behalf of the appellant that the respondent was not entitled to encash the guarantees, as the liability of the appellant is, yet, to be finally determined. Learned counsel also argued if the guarantees were encashed a large number of the persons working in the appellant's company will have to be retrenched, besides the appellant may itself go into liquidation for the reason that not only a huge amount is involved in this matter, but also a large sum is due and payable to the appellant by the respondent. Learned counsel laid down great emphasis on the fact that the bank guarantees in this case were not independent contracts but were linked with the dispute, which is yet to be decided on merits.
9. As against above Mr.Ali Sibtain Fazli, learned counsel for the respondent strenuously argued that bank guarantees were distinct contracts and the same were not controlled by the primary contract between the parties. He submitted that the order of High Court is perfectly in accordance with law and no interference is warranted.
10. The rights and liabilities of the parties, in case of a contract of guarantee, are determined strictly with reference to terms and conditions of the guarantee without recourse to any other instrument or document executed by the parties, for any other different purpose. Mobilization advance guarantee is on different footings than guarantees of other nature. In such a case, the liability of surety would be entire amount of mobilization advance and it would not be restricted to actual amount due from principal debtor. This is for the reason that principal debtor in such cases normally in advance receives consideration from the owner/creditors, which he is liable to return in case of any revocation, termination or completion of contract.
11. Perusal of the terms of the guarantees, unequivocally postulates that mobilization advance guarantee bond was a primary obligation on the part of the appellant and it could not be discharged/impaired in terms of clause (c) of Bank Guarantee, quoted earlier.
12. In the case reported as M/s. National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311), this Court almost under the identical circumstances, while dealing with the scope of the Bank Guarantee at page 313 held as follows:-- "...The contention of the learned counsel for the appellants that in the event, the appellants succeeded in the arbitration proceedings they will not be able to recover the amount is beyond the point in issue. In the instant case, therefore, the bank guarantees furnished by the appellants contain categorical undertaking and impose absolute obligations on the banks to pay the amount, irrespective of any dispute which may arise between the parties regarding the breach of contract.
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. Those 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."
' In the case reported as National Grid Company PLC v. Government of Pakistan, Private Power and Infrastructure Board. Ministry of Water and Power through Managing Director and 5 others (1999 SCM R 2367), this Court while dealing with similar contentions as raised in this particular case, laid down the following dictum:- "A perusal of the above terms makes it clear that the undertaking for payment of the amount of guarantee is unconditional and its enforcement cannot be objected to, obstructed or delayed by reference to many other agreement, instrument or document, as its encashment becomes mandatory the moment demand is placed by the beneficiary. The terms grant sole discretion for taking a decision as to the fault or failure of performance of the obligations by the sponsor and once a demand is placed upon its Guarantor for payment of the amount secured, the Guarantor cannot question the decision of the beneficiary by making reference to any other instrument or document."
13. Mr.K.M.A. Samdani, learned Advocate Supreme Court appearing for the appellant though made a passing reference to the pleas noted in para. 8 of the judgment but vehemently pressed the only plea that the bank guarantees were a part of the principal contract, and the same were governed by arbitration clause, as such, the bank guarantees could not be treated as a separate contract. As discussed above and ruled in above-cited cases of this Court, it is evident that the hank guarantees were distinct contracts and were not controlled by the primary contract between the parties. Mr.Samadani also referred to various terms of the primary contract to show that it would be more appropriate to maintain status quo till the dispute is finally decided in terms of the arbitration clause to which the parties had agreed. Suffice it to say that this would for all practical purposes nullify the contract of guarantees which are independent contracts.
14. In consequence, the appeal is dismissed with costs.