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Petitioner: STANDARD CONSTRUCTION COMPANY (PVT.) LTD. through Chief Executive Officer VS Respondent: PAKISTAN through Secretary, Ministry of Communication, Islamabad and 5 others
Court Name: Sindh High Court Judge(s): Gulzar Ahmed Title:STANDARD CONSTRUCTION COMPANY (PVT.) LTD. through Chief Executive
Officer vs PAKISTAN through Secretary, Ministry of Communication, Islamabad and 5 others Case No.: Suit No, 857 of 2007 Date of Judgment:2009-09-01 Reported As: 2010 MLD 445 Result: Application dismissed Judgment ORDER ' GULZAR AHMED, J.---Plaintiff has filed the suit under section 20 of Arbitration Act, 1940 with an application under clause 4 of the Second Schedule read with section 41 of Arbitration Act, 1940 (C.M.A No,6302 of 2007) for restraining the defendants from en cashing the three bank guarantees namely Bank Guarantee No, 35/03/2005, dated 26-2-2005 for Rs,18,000,000, L.G. No, 195//03/2006, dated 20-12-2006 for Rs,80,000,000 and G. No,0110BG0001207, dated 5-5-2007 for Rs,35,000,000. Through an interim order, dated 11-7-2007 the defendants were restrained from en cashing the said three bank guarantees. Through a consent order, dated 21-9-2007 the main suit was disposed of by making reference of dispute between the parties to Hon'ble Mr. Justice (R) Ajmal Mian, the former Chief Justice of Pakistan as a sole Arbitrator. Learned counsel for the parties, however, pressed to have the above noted C.M.A. Heard and decided by this Court. Defendants Nos.1 to 3 have filed counter affidavit to the said C.M.A. To which the plaintiff has filed rejoinder affidavit. 2. Learned counsel for the parties argued the said. C.M.A. Extensively, cited case-law and concluded oral arguments on 25-5-2009. The counsel for the plaintiff as well as 'defendants Nos. 1 to 3 requested for filing of written synopsis for which they were allowed time up to 15-6-2009, whereupon the matter was to stand reserved for announcement of order. It appears from the record that the counsel for defendants Nos. 1 to 3 has filed on 10-6-2009 written synopsis with photocopies of case-law. No written synopsis has been filed by the counsel for the plaintiff within the time allowed or even thereafter until the writing of this order.
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3. Mr. Farough Naseem, the learned counsel for the plaintiff has contended that plaintiff has submitted pre bid bank guarantee in the sum of Rs,18 million for the construction of Six Lane Karachi-Hyderabad Motorway in place of existing Four Lane Super Highway known as M-9 on Build, Operate and Transfer (BOT) basis and that as a condition for collection of toll, plaintiff has further submitted two bank guarantees one of Rs,80 million and the other of Rs,35 million. He has contended that as per concession agreement, dated 26-9-2006 signed between plaintiff and defendant No,2 for the said project, plaintiff was to arrange total finances and to achieve financial close within 150 days which time was extended up to 13-6-2007. He contended that plaintiff did achieve the financial close on 13-6-2007 where after performance bond was vetted and returned by defendant No,2 and therefore, not only the plaintiff has achieved the financial close on 13-6- 2007 as per concession agreement but such fact stood admitted by defendant No,2 when it vetted and returned the performance bond to the plaintiff and therefore the defendant's sanction of seeking encashment of said three bank guarantees is mala fide and illegal as no cause for such encashment has accrued to the plaintiff. In support of his submissions he relied upon the cases of Collector, Central Excise and Land Customs v. Rahim Din (1987 SCMR 1840), Royal Book Company v. John Wright and Sons Ltd. (1989 MLD 1191), Binyameen v. Hakim (1996 SCMR 336), State v. Zia ur Rahman (PLD 1973 SC 49), Muhammad Yousaf v. Urooj (Pvt.) Ltd. (PLD 2003 Karachi 16) and Mst. Azeemun Nisa Begum v. Ali Muhammad (PLD 1990 SC 382). 4. On the other hand, Mr. Nadeem Akhtar, learned counsel for defendants Nos.1 to 3 has contended that defendant No,2 is entitled to en cash the bank guarantees on the terms stated in the bank guarantees itself and that in any case plaintiff has failed to achieve the financial close on 13-6- 2007 which entitle the defendant No,2 to the encashment of three bank guarantees in terms of the concession agreement signed between the plaintiff and defendant No,2. He also contended that merely vetting of performance bond will not amount either to admitting that financial close was achieved on 13-6-2007 or that such condition was waived by the defendants. In support of his submissions he has relied upon the cases of United Bank Ltd. v. Pakistan Industrial Credit and Investment Corporation Ltd. PLD 2002 SC 1100), Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 3110, Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 SC 191), Shahenshah Shahalam Co-operative House Buildings Society Ltd., Karachi and another v. House Building Finance Corporation (PLD 1972 Karachi 178), Ocean Industries Ltd. v. Industrial Development Bank (PLD 1966 SC 738) and Manzoor Textile Mills Ltd., v. Special Judge Banking, Lahore (1996 CLC 422). 5. The facts of the case in nut shell are that defendant No, 2 i.e, National Highway Authority published in newspaper in or about 7-7-2004 seeking expression of interest for construction and operation of Karachi-Hyderabad Partial Access Controlled Motorway (M-9) on build, Operate and Transfer (BOT) basis in place of existing four Lane Karachi-Hyderabad Super Highway into six Lane Motorway facility. 6. Plaintiff submitted to defendant No,2 a pre-bid bank guarantee of Rs,18 million of defendant No,5. The plaintiff seems to have submitted its bid and the defendant No,2 awarded letter of intent to the plaintiff as a best bidder. The defendant No,2 also issued to the plaintiff letter of support confirming the cost of project and other parameters, Negotiations were held for the finalization of the concession agreement and ultimately concession agreement, dated 26-9-2006 for the said project was signed between plaintiff and defendant No,2. The plaintiff started toll collection from 25-12-2006 and as a security for collection of toll, plaintiff submitted to defendant No,2 two bank guarantees; one of Rs,80 million of defendant No,4 and the other of Rs,35 million of defendant No,5. The total project cost was of Rs,6,318,000,000 in which equity portion of plaintiff was Rs,1,895,000,000 and remaining amount of Rs,4,423,000,000 was to be raised by the plaintiff from the financial institutions under firm commitment. Under the concession agreement, plaintiff was allowed six
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months time for ensuring financial close confirming that it has arranged the availability of the funds of project cost. The time for obtaining of financial close was extended on the request of plaintiff and ultimately plaintiff was allowed to achieve financial close on or before 13-6-2007. It is alleged that plaintiff sent to defendant No,2 through its letter, dated 11-6-2007 format of agreements between plaintiff and financiers banks for approval of the defendant No,2 and on 13- 6-2007 the plaintiff signed financial agreements with the consortium of banks and forwarded the executed agreements to defendant No,2 confirming financial close with the firm commitment/confirmation Of arranging Rs,4,423,00,000. It is alleged that pursuant to clause 30 of concession agreement plaintiff submitted to defendant No,2 performance bond equivalent 5% of project cost which defendant No,2 through its letter, dated 19-6-2007 forwarded to the plaintiff. It is alleged that suddenly on 21-6-2007 defendant No,2 through its two letters of even date addressed to defendants 4 and 5 sought encashment of bank guarantees. The plaintiff on being informed by its bank of the fact of encashment of bank guarantees, the defendant No,2 on enquiry by the plaintiff informed that the bank guarantees were en cashed since they were to expire on 22-6- 2007. The plaintiff agreed to submit a renewal of expired bank guarantees. It is alleged that defendant No,2 sought excuses for terminating/revoking concession agreement and ultimately in the meeting with the officers of defendant No,2 on 26-6-2007 the plaintiff Chief Executive Officer was informed that since the plaintiff has failed to achieve financial close, the plaintiff should not submit the performance bond. The defendant No,2 did not accept the plea of plaintiff that it has duly achieved the financial close and ultimately without any reason the defendant No,2 vide its two letters both dated 7-7-2007 informed the plaintiff that since the financial close has not been approved by the defendant No,2, the plaintiff should hand over to the defendant No,2 the toll plazas and further defendant No,2 vide its three letters all, dated 9-7-2007 addressed to defendants 4 and 5 sought encashment of bank guarantees. It is alleged that such action of defendant No,2 is completely mala fide, illegal; without jurisdiction, void as initio and the defendants be restrained from en cashing the bank guarantees. 7. It is an admitted position on the record that the Concession Agreement, dated 26-9-2006 was signed between plaintiff and defendant No,2 and the plaintiff was also handed over the tool plazas for collection of toll on 25-12-2006 and that until 8-7-2007 when the possession of toll plazas was taken over from the plaintiff by defendant No,2, plaintiff has collected as toll an amount of about Rs,135 million. The plaintiff alleges that it has spent Rs,234.9 million on the project which fact however is disputed by defendant No,2. To substantiate the plea of expending the money on the project, the plaintiff has filed with the rejoinder affidavit two documents namely annexure R/7 and R/8 which are statements showing the item of work and the expended sum. The question whether such expenses were actually incurred as shown in the two statements can only be determined after the evidence supporting such expenses is led by the plaintiff. The question of allowing the encashment of bank guarantees or not is not to be influenced by the fact of collection of toll by the plaintiff and the alleged money expended by the plaintiff on the project rather this question will squarely be determined on the construction of stipulations of the bank guarantees furnished by the plaintiff. 8. Time and again the question relating to encashment of bank guarantees has been coming up before the fondle Supreme Court and it has constantly been observed that the contract of bank guarantee is independent contract in terms of section 126 of the Contract Act, 1872 A from that the contract between the employer and the contractor and that in the bank guarantee the principal debtor is the contractor while the bank is a surety and beneficiary is the employer and the contract of bank guarantee has to be enforced on the terms stipulated in the bank guarantee itself and that the bank must honor the guarantee notwithstanding any dispute between the employer and the contractor on the contract made between them. Reference in this respect is made to the case of
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Messrs.' National Construction Company Ltd. v. Aiwan-e-Iqbal Authority (PLD 1994 SC 311), United Bank Ltd. v. Pakistan Industrial Credit and Investment Corporation Ltd. (PLD 2002 SC 1100) and Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. (PLD 2003 SC 191). 9. Looking at the state of law as laid down by Hon'ble Supreme Court in respect of encashment of bank guarantee, I have perused dime bank guarantees furnished by the plaintiff to the defendant No,2. The pre bid bank guarantee of Rs,18 contains the following stipulation:- "At the request of the Bidder we hereby open and establish the irrevocable and unconditional Guarantee for an amount up to Pak. 18,000,000 = (Pakistani Rupees Eighteen Million only) payable by us to you forthwith upon the happening of any of the following events:-- (1) If the Bidder partially or wholly withdraws or suspender the Bid or amends or modifies the same without the prior approval in writing of the NHA: or (2) If the Bidder fails or refuses to execute the concession agreement with the NHA in terms acceptable to the NHA on or before 25-10-2005; or (3) If the Bidder, having executed/signed the concession agreement fails or refuses to provide a construction phase bond in accordance with the requirement of such an agreement within days of such execution/signature. ' We, Askari Commercial Bank Ltd., M.A. Jinnah Road, Quetta having its registered Head Office at AWT Plaza. The Mall, Rawalpindi do hereby guarantee irrevocably and unconditionally to pay to you forthwith, without prior course to the Bidder to the extent of Pak. Rs,18,000",000 (Pakistani Rupees Eighteen Million only) immediately upon receipt by us of your first written .Demand, which shall only state that the supplier has failed to comply with the requirements of the brief. It is agreed that any such demand made hereunder by you shall be conclusive evidence of the Bidder's failure to comply with or fulfill the requirements of the Brief as set out above. We shall at all times be bound on the first written demand of the NHA to pay the NHA forthwith the amount hereby guaranteed until we are expressly released and discharged in writing by the NHA from the liabilities/obligations hereby guaranteed." ' This bank guarantee is admitted to have been extended up to 21-7-2007. 10. The toll collection bank guarantee of Rs,80 million contains the following stipulation:-- "We, the Messrs Askari Commercial Bank Ltd., M A Jinnah Road, Quetta having its Registered Head Office at AWT Plaza, The Mall, Rawalpindi, Cant. Incorporated under Banking Companies Act, 1962 as instructed by the company, agree unconditionally and irrevocably without recourse to guarantee as primary obligator and not as surety merely, the payment to The National Highway Authority (`NHA') on his first demand without whatsoever right or obligation on our part and without his first claim to the Company, in an amount not exceeding Rs,80,000,000 (Rupees Eighty Million only) in the event that obligations expressed in the said Clause of the above mentioned agreement have not been fulfilled by the company giving the right of claim to the NHA for recovery of the whole or part of the Toll Money from the Company under the Agreement. ' We further agree that no change or addition to or other modification of the terms of the Agreement or of Works to be performed thereunder or of any of the Contract documents which may be made between the NHA and Company, shall in any way release us from any liability under this guarantee, and we hereby waive notice of any such change, addition or modification." ' This bank guarantee is also admitted to have been extended up to 22-9-2009. "We, Faysal Bank Ltd., Head Office and Main Branch, Shahrah-e-Faisal, Karachi as instructed by the company, agree unconditionally and irrevocably without recourse to guarantee as primary obligator and not as, surety merely, the payment to "the National Highway Authority" on its first demand without whatsoever right of objection on our part and without his first claim to the Company in an amount not exceeding Rs,35,000,000 (Pak Rupees Thirty Five Million Only) in the event that obligations expressed in clause 24.4 of the above mentioned Agreement have not been
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fulfilled by the company giving the right of claim to the NHA for recovery of the, whole or part of the Toll money from the Company under the Agreement. ' We further agree that no change or addition to or other modification of the terms of the Agreement/contract or of Works to be performed thereunder or of any of the contract documents which may be made between the NHA and the Company, shall M any way release us from any liability under this guarantee, and we hereby waive notice of such change, addition or modification. ' The liability under this guarantee is restricted to Pak Rs,35,000,000 Rupees Thirty Five million only) and is valid up to 22-6-2007. Any claim under this guarantee should be presented to us on or before 22-6-2007 after which the bank shall be released from all its liabilities and the guarantee shall automatically become null and void whether or not the original guarantee is returned to us." 12. Perusal of the three bank guarantees as noted above, sufficiently show that the banks are under obligation to make payment to the defendant No,2 on its demand the guarantee amount mentioned in the three guarantees without recourse to the contractor and that the demand of the defendant No,2, so expressed, will be conclusive against the bank that the contractor has failed to fulfill his obligations under the stipulations made in the contract of guarantee. Admittedly, the defendant No,2 has sought encashment of toll bank guarantee of Rs,35 million and Rs,18 million by its two letters both, dated 21-6-2007 addressed to the bank and as admitted in para.38 of the plaint, the defendant No,2, through its three letters, dated 9-7-2007 addressed to banks has again sought encashment of bank guarantees. The very fact that the defendant No,2 has sought encashment of bank guarantees in itself is sufficient for the banks to meet their obligations under the guarantees and to make the payment of the guaranteed sum to the defendant No,2. The letter of encashment of bank guarantee, dated 21-6-2007 was within the time when the bank guarantees for the toll collection were in force and when the second demand for encashment of bank guarantee was made through letter, dated 9-7-2007 pre bid guarantee of Rs,18 million so also the toll collection guarantee of Rs,80 million was also in force. 13. Learned counsel for the plaintiff has submitted that the plaintiff has met his obligation under the guarantees so also the concession agreement and achieved the financial close on the stipulated date that is 13-6-2007 and there is no occasion with the defendant No,2 to en cash the bank guarantee. This submission of the learned counsel for the plaintiff was seriously opposed by the learned counsel for defendant No,2, who contended that the plaintiff in the first place did not meet the condition stipulated in the clause 31.1.1(c) which requires the plaintiff to submit the documents of financial plan at least 15 days before the financial close and secondly the Musharka agreement, dated 13-6-2007 between plaintiff and the banks sent by the plaintiff to defendant No,2 in itself is ail incomplete document which does riot show that the plaintiff has achieved the financial close and that it has become effective. There was no denial from the side of the plaintiff of non- compliance of clause 31.1.1(c). The defendant No,2 has filed copies of financial document sent by the plaintiff through its letter, dated 12-6-2007 which are in the nature of draft and all the annexures and schedules of such draft are blank document which fact is not controverted by the plaintiff in its rejoinder affidavit. Immediately after sending of draft and incomplete financial plan, the plaintiff through its letter, dated 13-6-2007 informed the defendant No,2 that it has signed the financial agreement with the lenders within provided time frame and pursuant to clause 31.1.1(b) of the concession agreement sent a signed agreement between the plaintiff and the lenders to defendant No,2 for its perusal and record. Learned counsel for the plaintiff has contended that by providing to defendant No,2 the signed agreement between plaintiff and its lenders on 13-6-2007 was sufficient for the plaintiff to establish that it has achieved the financial close in terms of concession agreement and that in case any thing was found lacking, or deficient in the signed financial documents, the defendant No,2 either ought to have given notice to plaintiff in terms of clause 25.1.2 specifying the default and requiring the plaintiff to remedy the said default within
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ninety days and that in any case there cannot be application of clause 24.2.2 of the concession agreement providing for its lapsing as the documents for achieving the financial close were given by plaintiff to defendant No,2 within time frame of concession agreement and that clause 24.2.2 of concession agreement which provides for lapsing of agreement has to be read along with clause 25.1.1(a) which provides for termination of agreement by defendant No,2 as a matter of right as the term lapsed and termination in the agreement means one and the same thing. He has further contended that the concession agreement did not require the plaintiff to obtain the approval of defendant No,2 of the financial close as no sooner the documents of financial close are delivered to defendant No,2, the financial close is assumed to have been achieved. 14. I have gone through the relevant clauses of concession agreement, dated 26-9-2006. Financial close is defined in the said agreement in the following words:-- "Financial Close - means the time not accruing after the date stated in the sub-clause 21.1.2 by which the Financial Agreements entered into with the Lenders have been executed and become effective." 15. It is admitted fact that the plaintiff was required to achieve the Financial close within 150 days of the Effective Date that is the date of signing of Concession agreement. It is also admitted fact that the plaintiff could not achieve the Financial Close within 150 days and at its request time was twice extended finally up to 13-6-2007 for achieving the Financial Close. Now, on 13-6-2007, plaintiff did submit to the defendant No,2 Financial Agreements with its Lenders, The question is whether such Financial Agreements made between the plaintiff and its Lenders were at all effective as provided in definition of term Financial Close in the Concession Agreement. The defendant No,2 in para.15 of its counter affidavit has alleged that there were forty conditions in the Financial Agreement which fact is not disputed in the rejoinder affidavit filed by the plaintiff. Such Financial Agreement submitted by the plaintiff to the defendant No,2 prima facie do not appear to be the effective Financial Agreements as in order they become effective the Musharka Agreement, dated 13-6- 2007 signed between the plaintiff and its Lenders provides for fulfilling conditions precedent as contained in Schedule 'C' which runs into forty items including the items of amendment of Concession Agreement itself. There is nothing on the record to show that any amendment in the Concession Agreement was proposed by the plaintiff to defendant No,2 nor is there anything to show that the defendant No,2 has agreed to amend the Concession Agreement. Musharka Agreement provides that until the condition precedent is fulfilled the plaintiff will not issue contribution request. The forty items of condition precedent contained in Schedule 'C' of the Musharka Agreement seem to be onerous and most of them apparently are wanting implementation including raising of plaintiff authorized capital to Pak. Rs,2. Billion and that the Initial Equity has been subscribed and paid up in full by Sponsors in the sum of Rs,1,896,000,000. Though Project Fund Agreement is attached with the Musharka Agreement under which the sponsors are required to contribute Initial Equity in the sum mentioned above and such Initial Equity has been distributed amongst seven Sponsors but four of the Sponsors have not signed the said agreement. In terms 'of definition clause of Musharka Agreement, the Musharka commencement date is the date not later than 90 days beginning from the date of its signing by which date condition precedent must stand satisfied or waived in accordance with the provision of the Musharka Agreement. The letter, dated 13-6-2007 of the Lender Banks neither says that condition precedent have been fulfilled or waived and that the plaintiff has become entitled to issue contribution request. No such thing is mentioned in the said letter. The Musharka agreement, provides for Musharka commencement date and there is nothing in the Musharka agreement providing for its date of effectiveness. Therefore, the term "effective" used in the banks letter, dated 13-6-2007 appears to be of no consequences and does not fulfil the condition of Musharka commencement date. The submissions of learned counsel for the plaintiff that by mere filing of
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Financial Agreements on 13-6-2007, the plaintiff has achieved the Financial Close in the circumstances as noted above prima facie is not correct for the reasons that the Financial Agreements filed by the plaintiff with ,the defendant No,2 were not in the first place complete documents and secondly which is more important that they were not effective by their own terms but provided for their commencement conditions which were wanting implementation and thus were not effective in terms of definition of Financial Close as given in the Concession Agreement. 16. The submission of leaned counsel for the plaintiff that in view of the fact that the…
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