Pakistan Case LawUNITED DISTRIBUTORS (PVT.) LTD. Versus MUNIR & COMPANY
This matter concerns a petition for leave to appeal against an order of the Lahore High Court, which had upheld a trial court's decision to restrain the encashment of bank guarantees provided by the respondent to the petitioner. The petitioner, a supplier of pesticides, held bank guarantees furnished by the respondent. The respondent subsequently sued the petitioner for damages, alleging the supply of substandard goods, and obtained an injunction preventing the encashment of these guarantees. The core legal question was whether the encashment of an unconditional bank guarantee should be restrained pending the outcome of a suit for damages. The Supreme Court of Pakistan held that the injunctions barring the encashment were improper. The Court allowed the appeal, setting aside the lower courts' orders. It established the principle that while a beneficiary may encash a bank guarantee, they must provide security for an equivalent amount to ensure the due performance of any potential decree that might be passed in favor of the respondent, thereby balancing the rights of the beneficiary with the potential claims of the opposing party.
- Can a court restrain the encashment of a bank guarantee pending the outcome of a suit for damages?
- Is a beneficiary entitled to encash a bank guarantee while providing security for the potential decree amount?
ORDER
MANZOOR HUSSAIN SIAL, J.---The petitioner herein seeks leave to appeal from order dated 9-5- 1993 of the Lahore High Court (Multan Bench) passed in FA.O. No, 24 of 1993.
2.The facts in brief giving rise to this petition are that the petitioner supplied pesticides to Munir & Company respondent on loan and for repayment of the amount, the respondent on 31-8-1992 furnished two Bank guarantees drawn on the National Bank of Pakistan, Vehari for an amount of Rs,15,000,00.
3.The respondent on 27-1-1993 instituted suit against the petitioner for the recovery of Rs,17,000 by way of damages for supplying substandard pesticides. Alongwith the suit filed an application for temporary injunction restraining the, petitioner to get encashed the aforesaid bank guarantees. The learned Senior Civil Judge, Vehari on 13-4-1993 granted the application. The petitioner assailed the aforesaid order in appeal before the High Court which was dismissed in limine on 9-5-1993.
4.This petition came up for hearing on 31-10-1993, and an order to the following effect was passed:--
"In this background we suspend the impugned orders barring the encashment of the bank guarantee by the petitioners. The petitioners shall be entitled to encash it provided that the petitioners furnish bank guarantee for an equal amount so as to be available if at all the respondent succeeds and the original bank guarantee is held liable for set-off.
' Notice to issue to the respondent why this petition be not converted into appeal and disposed of in the above terms."
5.After hearing learned counsel for the parties we convert this petition into appeal and by allowing it modify the order dated 31-10-1993 as under:-
"The impugned orders dated 9-5-1993 of the High Court and 13-4-1993 of the Senior Civil Judge, Vehari respectively, barring the. Encashment of the bank guarantee are set aside. The appellant shall be entitled to encash the bank guarantee provided they furnish security for an equal amount for due performance of the decree if passed in favour of the respondent by the Civil Court."
Judges on this bench
- Nasim Hasan Shah3,148 judgments
- Muhammad Rafiq Tarar605 judgments
- Manzoor Hussain Sial807 judgments