1. ' MUHAMMAD MUJEEBULLAH SIDDIQUI, J.--- This High Court appeal under section 3 of Law Reform Ordinance, 1972 read with section 15 of Ordinance X of 1980, is directed against the order, dated 18- 5-2000, passed by the learned Single Judge of this Court disposing of Civil Miscellaneous Application No,1069 of 2000, under Order 39, rules 1 and 2 read with section 151, C.P.C. In Suit No,213 of 2000, restraining the appellants and respondent No,2 from encashing the bank guarantee dated 17-5-1992, furnished by respondent No,1, till disposal of the suit.
2. ' The relevant facts are that the respondent No,1 filed a suit for declaration and injunction, stating therein that, respondent is a multinational company, engaged in the business of providing services and equipment in addition to manufacturing electrical equipment of various kinds. Formerly it was operating in the name and Style of AEG Pakistan (Pvt.) Limited. The respondent No,1 entered into an agreement with appellant No,2 for the benefit of appellant No,1, for the supply of installation, erection and commissioning of a 132 KV Grid Station at PAC Kamra Cantt. According to respondent No,1, under the terms of contract, the letters of credit were to be opened and the equipment was to be imported as defence stores. The imports were to be made in the name of PAC Kamra. It was further provided in the contract that the clearance of the equipment shall be made through the Embarkation Head Quarters, Karachi, the appellant No,3. The respondent No,1 was required to submit original shipping documents to the appellant No,3 two days prior to the arrival of the ship and the consignment at the port. The demurrage was only leviable for a period of delay that may be occasioned for the submission of shipping documents. It was represented to the respondent No,1, that all imported goods were to be exempted from imposition of Governmental levies and dues as being Government/defence stores. A Bank guarantee was postulated under the contract in form of performance bond for the maintenance period. No other guarantee was postulated for any other issue under the contract.
3. ' The defence stores arrived in four separate shipments. The documents were filed, by respondent No,l. On arrival of the goods, the Customs Department raised certain, queries from the appellant No,3, which is the clearing department of all defence stores. All the four consignment arrived intermittently in the year 1996. The Customs Department insisted for payment of customs duties, and therefore, goods could not be cleared. On 29-6-1997, the appellant No,2 addressed a letter to the appellant No,3, with copy to respondent No,1, informing that the case of exemption of duties of defence stores has been taken up with the C.B.R. Through Ministry of Defence and shall be communicated after receiving the same. In addition to the above obstacle, the appellant No,1 caused delay in providing LOG directorate sanction to the appellant No,3. The appellant No,3 does not proceed for clearance of the imported stores unless, the sanction is received through appellant No, I. The sanction was to be issued by the appellant No,1, who failed to issue the same. In all clearance of defence stores, the private clearance agents are not involved and the appellant No,3 is working as agent of appellants Nos. l and 2. The imported goods were lying in the Port uncleared, with the result, that respondent No,1 was not able to undertake the execution of work under the contract. The retention of goods at port accrued on account of non-resolution of the issue of the imports being classified as defence stores. The demurrage was accumulated. Ultimately stores were allowed clearance as defence stores. As the appellant No,1 was facing delay in execution of work, therefore, appellant No,1 gave categorical undertaking as per letter, dated 19-7-1999, that the stores be cleared and that on receipt of demurrage bill, the matter shall be taken up by the competent Authorities. In the meanwhile, KPT sent its claim of demurrage to the appellant No, 1 .
4. The respondent No, (?) did not enter in these transaction as it was not concerned with the issue pertaining to non-clearance or demurrage.
5. ' The goods were ultimately cleared from KPT area by appellant No,3 and were transported to the site of appellant No, I. The respondent No,1 thereafter executed work at site and large portion of its dues under, contract became stuck up. According to respondent No,1, the appellant represented to it that in order to seek release of outstanding bills, a bank guarantee outside the scope of the contract be furnished for Rs,3,748,641 for demurrage claimed by KPT. This guarantee was furnished through respondent No,2 and the appellants agreed to take up the demurrage issue with the competent authorities. The dispute of demurrage remained undecided. As first guarantee expired, the appellant No,1 sought an extension, which was done through respondent No,2. The Bank guarantee was not unconditional. It was conditional on the resolution of the admitted dispute in its surrounding circumstances, which was to be resolved in accordance with law and due process.
6. The guarantee was extended up to 16-3-2000. The contract was fully performed by respondent No,1 and taken over by the appellant No, 1.
7. ' However, the appellant No,1 sent the notice of demurrage claim to the respondent No,1 and requested for encashment of bank guarantee, which according to respondent No,1 was illegal and against the letter and spirit of guarantee itself. The respondent No,2 informed the respondent No,1 that it intended to release the guarantee as it was not prepared to have confrontation with the appellants. The respondent No,1 claimed that bank guarantee was extended under a predicament of the various liability, which was not payable by it. It was further alleged that the issue of payment of demurrage was not yet resolved and, therefore, the conditional bank guarantee could not be encashed.
8. ' The respondent No,1 sought relief to the effect that it was not liable to pay demurrage caused on account of delay on that part of appellants and further sought permanent injunction restraining appellants and respondent No,2 from encashing bank guarantee or taking any coercive action against them.
9. ' Alongwith the plaint, an application under section 39, rules 1 and 2 was filed, seeking temporary injunction in terms of main prayer in the suit.
10. ' During the course of arguments on this application, before learned Single Judge, the learned counsel for the respondent No,1/plaintiff placed reliance on the following provision of the bank guarantee:-- "(1) That the contractor shall settle the issue of demurrage charges with the owner within the validity period i.e, upto September, 16th 1999.
(3) That if the dispute on demurrage in its surrounding circumstances is not settled in accordance with law and due process, this bank guarantee would then otherwise be liable to encashment."
11. ' It was contended that the bank guarantee was tampered with and the word "not" in para. 2 above was deleted and the word "otherwise" has been substituted. It was maintained that the resolution of dispute regarding demurrage in its surrounding circumstances was the condition precedent of encashment of guarantee and dispute was not resolved, therefore, the conditional bank guarantee could not be encashed. It was further contended that the appellants/defendants were liable to pay demurrage and not the respondent No,1/plaintiff.
12. ' It was contended on behalf of appellants/defendants that bank guarantee was independent of the earlier contract and was unconditional, therefore, the bank guarantee was liable to be encashed. It was urged that the demurrage accumulated because of negligence on the part of respondent No,1/plaintiff.
13. ' The learned Single Judge, after hearing the Advocates for the parties observed that "there was a dispute between the parties about charges of demurrage. Both the parties have alleged delay in clearance of goods on account of negligence on part of other party". The learned Single Judge further observed, that, "after hearing both the parties and reading the bank guarantee, it can safely be said that the bank guarantee was not the unconditional and secondly there was a dispute between the parties, which was to be settled between them. From the contention raised by the parties number of questions arose such as who had committed the breach of the main agreement; who is responsible for the payment of demurrage to KPT and whether the bank guarantee is unconditional. These are the questions which can be decided after recording the evidence and at this stage no definite finding can be given. In view of the above, prima facie case in favour of plaintiff is.Made out; the balance of convenience is in favour of the plaintiff and if the bank guarantee is allowed to be encashed, the plaintiffs are likely to suffer irreparable loss". With the above observation, the learhed Single Judge restrained the appellants and respondent No,2 from encashing the bank guarantee till final disposal of the suit.
14. ' Being aggrieved with the above order, the appellants preferred this appeal inter alia on the grounds that the learned Single Judge has virtually decreed the suit, has erred in connecting bank guarantee with the main contract and in making observation that the question pertaining to bank guarantee, is dependent on the determination of question, as to who was liable to pay the demurrage. It was further urged that the bank guarantee is not an ordinary contract and, therefore, temporary injunction is uncalled for.
15. ' We have heard the learned Advocates for the parties. They have mainly reiterated the contentions raised before the learned Single Judge. The main emphasis of Mr. S. Tariq Ali, the learned Standing Counsel, is that a bank guarantee is not an ordinary contract and has not to be treated at par with any other contract. He has, therefore, insisted that the temporary injunction granted by the learned Single Judge be vacated. Bank guarantee which is independent contract having no nexus with the earlier contract performed by the respondent No,1 be allowed to be encashed., ' On the other hand Mr. Yawar Farooqui, learned counsel for the respondent No,1 has vehemently argued that_first payment of demurrage under the- original contract was not the liability of respondent No,1/plaintiff and the material produced on record in form of correspondence between the appellants, manifestly establishes this fact; secondly, the bank guarantee in question is intimately related to the question of liability for payment of demurrage under the original contract and, therefore, it cannot be said that the bank guarantee in question has no nexus with original contract; thirdly, the bank guarantee in question is conditional. According to him, unconditional guarantee is executed without reference, while conditional guarantee is executed with reference to the performance of prescribed conditions. He has argued that the learned Single Judge has referred to the condition in the bank guarantee, which provides that, if the dispute of demurrage in its surrounding circumstances is not settled in accordance with the due process, the bank guarantee would be liable to be encashed. Mr. Yawar Farooqi submitted that surrounding circumstances referred to the liability for payment of demurrage under the original contract, which shows that the bank guarantee is not independent and is dependent on the determination of the question of the payment of liability of demurrage as observed by the learned Single Judge; fourthly. The dispute has not been resolved in accordance with the law and due process, and can be resolved after recording of evidence and on the decision of suit on merits. Fifthly, issuance of bill by the KPT to the appellants indicates that it was the liability of the appellants and not respondent No /plaintiff. Sixthly, the huge outstanding bill of the respondent No,1/plaintiff was withheld illegally and arbitrarily. The respondent No,1/plaintiff was made to execute the bank guarantee under compulsion and coercion. It was clearly mala fide act on the part of appellants and any act, howsoever, sacrosanct it may -appear, becomes illegal and void, if it is tainted with mala fide illegality and is obtained under compulsion and coercion.
16. ' Mr. Yawar Farooqi vehemently argued that learned Single Judge has rightly granted temporary injunction as respondent No,1/ plaintiff has strong arguable case and the issues cannot be decided without recording of evidence. The respondent No,1/plaintiff has made out a prima facie case and the balance of convenience is also in favour of respondent No,1/plaintiff and if a temporary injunction is vacated and bank guarantee is encashed, it would cause irreparable injury to respondent No, I/plaintiff.
17. ' We have very carefully considered the contentions, raised by the learned Advocates for the parties. We find sufficient force in the contentions. Raised by Mr, Yawar Farooqi. We are in respectful agreement with, the observations made by the learned Single Judge in the impugned order.
18. Serious questions of fact and law require determination after recording of evidence and we are of the considered opinion that respondent No, I/plaintiff has made out an arguable case and thus prima facie cause for the purpose of issuance of temporary injunction has been made out. It requires no emphasis that in the facts and circumstances narrated above, the balance of convenience is in favour of respondent No,1/plaintiff. In fact while considering balance of convenience it has to be seen that in the event of refusal of temporary injunction which party is going to face more inconvenience and likewise, it is to be seen, whether the plaintiff is likely to suffer irreparable injury if the temporary injunction is refused. In the facts and circumstances of the present case, we find that all the ingredients for issuance of temporary injunction have been shown to exist in favour of respondent No, I/plaintiff.
19. ' For the foregoing reasons, it is held that learned single Judge was fully justified in granting the temporary injunction and no interference is required with the impugned order.
20. ' The appeal is without substance, which stands dismissed accordingly.