Law:

Section:

Contract Act (IX of 1872)------S.126---Bank guarantee, encashment of--Principles.The contract of bank guarantee is independent contract in terms of section 126 of the Contract Act, 1872 from that of 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 that contract of bank guarantee has to be enforced on the terms stipulated in the bank guarantee itself; and that the bank must honour the guarantee notwithstanding any dispute between the employer and the contractor on the contract made between them. Collector, Central Excise and Land Customs v. Rahm 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 Yousuf v. Urooj (Pvt.) Ltd. PLD 2003 Kar. 16; Mst. Azeemun Nisa Begum v. Ali Muhammad PLD 1990 SC 382; Shahenshah Shahalam Co-operative House Building Society Ltd. Karachi and another v. Housing Building Finance Corporation PLD 1972 Kan 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. United Bank Limited v. Pakistan Industrial Credit and Investment Corporation Ltd. PLD 2002 SC 1100; Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority PLD 1994 SC 311 and Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd. PLD 2003 SC 191 ref. JUDGMENT 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 (CMA No.6302 of 2007) for restraining the defendants from encashing the three bank guarantees namely Bank Guarantee No.35/03/2005 dated 26-2-2005 for Rs.18,000,000, LG No.195/03/2006 dated 20-12-2006 for Rs.80,000,000 and G No.0110BG001207 dated 5-5-2007 for Rs.35,000,000. Through an interim order dated 11-7-2007 the defendants were restrained from encashing the said three bank guarantees. Through a consent order dated 21-9-2007 the main suit was disposed off by…

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