SEPCOIII Electric Power Construction Co Ltd Vs Federation of Pakistan etc

Form No:HCJD/C-121

ORDER SHEET

IN THE LAHORE HIGH COURT LAHORE

JUDICIAL DEPARTMENT

W.P. No.67659 of 2021

SEPCOIII Electric Power Construction Versus Federation of Pakistan and others Co. Ltd.

S.No. of order/ Date of order/ Order with signature of Judge, and that of proceeding. proceeding parties or counsel, where necessary.

01.11.2021 Mr. Shezad Ata Ellahi, Advocate for the petitioner. Mr. Khaqan Meer, Assistant Attorney-General for Pakistan, on Court call.

This Constitutional petition stems from the letters/actions issued/taken by respondent No. 2 against the petitioner; in consequences whereof the demand for encashment of bank guarantee was raised with respondent No. 3.

2.Facts as reflected in the instant petition are that respondent No. 2 floated a tender for procurement of plant, design, supply, installation, testing and commissioning of 500/220/132 KV Lahore North Substation and Extension Works at 500/220/132 KV Nokhar Substation, in May 2021; petitioner with intent to participate in the tender submitted its letter of bid dated 24.6.2021, with financial statement of years 2015- 2019 and a bank letter of credit promise dated 22.6.2021; and bid security in the form bid guarantee dated 23.6.2021. As per petitioner’s own stance, respondent No. 2 had a right to demand payment under bid guarantee in case the petitioner withdrew his bid during the period of bid validity specified in the bid. It is asserted that at no point of time did the petitioner

withdraw from the bid in terms of bid documents and that during the process of evaluation of bid, respondent No. 2 through its clarification letter 05.8.2021 intimated that the first bank letter of credit promise was a conditional credit line and that unconditional credit line from the concerned bank was required. The letter was responded by issuance of letter dated 06.8.2021 informing that Agricultural Bank of China was not willing to amend the first bank letter of credit promise and that the petitioner was submitting another bank letter of credit promise dated 10.6.2021 issued by Industrial and Commercial Bank of China Limited. Vide letter dated 06.9.2021 the petitioner was also required to submit financial statement of year 2020, audited by certified accountants along with revised financial forms in support of the bid; which was statedly responded to vide letter dated 07.9.2021 along with the financial forms and audited statements; and also intimating respondent No. 2 that the second bank letter of credit promise had been annulled by Industrial and Commercial Bank of China Limited on account of covid-19 and its impact on the project. In its letter dated 24.9.2021, respondent No. 2 required documentary evidence for cancellation/annulment of the letter of the credit promise which according to petitioner was provided with letter dated 24.9.2021. As per petitioner’s stance, respondent No. 2 vide letter dated 22.10.2021 declared that the cancellation of letter of credit promise by two independent financial institutions implied petitioner’s withdrawal of its bid and, in consequence, respondent No. 2 proceeded to issue letter dated

22.10.2021 calling upon respondent No. 3 for encashment of the bank guarantee.

3.Petitioner challenged the letter as also the action taken by respondent No. 2 in Constitutional petition bearing W.P. No. 60705 of 2021 which was later withdrawn with permission to file a fresh one in view of the refusal of present respondent No.3, the bank, to encash the guarantee due to non-compliance with alleged pre-conditions. It is stated that the respondent No. 2 again sent another letter dared 28.10.2021 whereby respondent No. 3 was called upon to encash the bank guarantee reiterating its demand for the encashment of bank guarantee; which demand as per petitioner, is untenable. In the instant Constitutional petition, the petitioner challenges the said letters and also the actions taken by respondent No. 2 in respect of the demand for encashment of bank guarantee on the ground of breach of bid conditions by the petitioner or its withdrawal from its bid.

4.Learned counsel for the petitioner submits that at no point of time the petitioner withdrew from the bid process, the assumption as such is ill-founded; that the petitioner has not violated the terms and conditions of bid documents and that the respondent No. 2 had acted illegally and with mala fide. Further submits that the purported action is unfair; that respondent No. 3 cannot accept the demand for encashment of bank guarantee as the petitioner neither withdrew from the bid nor committed any breach of conditions of bid; and that purported action was bound to result in adverse impact on the good will and business of petitioner which will be a source of substantial damages. By C.M. No. 1 of 2021

accompanying the main case the petitioner seeks restraining order against respondent Nos. 2 & 3 qua encashment of bank guarantee.

5.From the facts noted supra it is clear that the petitioner participated in the tender for procurement of plant, design, supply, installation, testing and commissioning of 500/220/132 KV Lahore North Substation and Extension Works at 500/220/132 KV Nokhar Substation; submitted its bid dated 24.6.2021 along with financial statement and bank letter of credit promise dated 22.6.2021 and in addition thereto submitted a bank guarantee dated 23.6.2021 as bid security issued by respondent No. 3 in favor of respondent No.2. Respondent No. 2 admittedly had a right to demand payment under the bid guarantee. During the evaluation process petitioner vide letter dated 05.8.2021 was notified by respondent No.2 that the first bank letter of credit promise was conditional bank credit letter of promise and that unconditional bank credit letter of promise was required. The petitioner expressed inability to do the needful on the plea that the concerned bank was unwilling to amend its first letter of credit promise and that the petitioner was submitting a second bank letter of promise from Industrial and Commercial Bank of China Limited along with letter dated 06.8.2021. Petitioner itself admits in the petition that even the second bank letter of credit promise was annulled by the Industrial and Commercial Bank of China Limited on account of covid-19; of which documentary evidence was supplied along with letter dated 24.9.2021. It is thus established that as per bid documents the petitioner was required to submit

unconditional bank letter of credit promise which was not done and that the conditional bank letter of credit promise was objected to, which objection the petitioner did not resist. Instead, the petitioner opted to supply a second bank letter of credit promise, purportedly, issued by Industrial and Commercial Bank of China Limited which letter too was cancelled as per petitioner’s own stance. It appears that the respondent No. 2 proceeded to issue encashment of bank guarantee notice vide letter dated 22.10.2021 served upon respondent No. 3 informing that “the bidder has violated the subject Tender Documents clauses during the validity of his bid. It is therefore requested to encash the ... bid guarantee in favor of CE (MP&M) NTDC.” Respondent No. 3, the bank, in response to letter dated 22.10.2021 required respondent No.2 to relodge its claims in accordance with the guarantee terms with the written statement stating that the bidder was “in breach of any one of the (a), (b), (c) point (sic) upon claim”. Respondent No. 2 vide letter dated 28.10.2021 addressed to respondent No.3 reiterated its demand of the encashment of the bank guarantee, the operative part whereof is reads as under:

“The manager, Deutsche Bank Ag, Askari Corporate Tower, 8th Floor, Office No.03,75-76, D-1, Main Boulevard Gulberg-III, Lahore.

Subject: TENDER NO.ADB-300AR-2021: PROCUREMENT OF

PLANT-DESIGN, SUPPLY, INSTALLATION,

TESTING AND COMMISSIONING OF

500/220/132KV LAHORE NORTH SUBSTATION

AND EXTENSION WORKS AT 500/220/132KV

NOKHAR SUBSTATION UNDER ADB LOAN

NO.3677-PAK:SECOND POWER TRANSMSSION

ENHANCEMENT INVESTMENT PROGRAM-

TRANCHE-3

ENCASHMENT OF BID SECURITY.

W.P.No.67659/2021 6

REF: 1. Your letter No.GTFO/Gtee’s/791-21-24 dated

2.This office letter No.7709-15 dated 22-10-2021.

This is with reference to your letter at Ref( [1] which is received with grave concern by this office. In this regard, it is mentioned that you have irrevocably undertaken to encash the Bid Security as per para- 3(a) of Bid Security, on first written demand by this office. Therefore, your bank is under obligation to pay us any sum or sum not exceeding in total an amount of USD 1,800,000 because the Bidder is in breach of its obligation(s) under the bid conditions, as already conveyed vide letter at Ref[2]...”

6.It is discernible from the letters sent by respondent No.2 that the said respondent had invoked the enforcement of bank guarantee and notified respondent No. 3, the bank, to honor its commitments. The question as to the right of respondent No. 2 to the encash bank guarantee can more effectively be appreciated by examining the relevant and operative part of the bank guarantee. Perusal thereof reveals that the respondent bank has undertaken to pay the amount not exceeding the bank guarantee on the first demand in writing as follows:

“...At the request of the Bidder, we Deutsche Bank AG,87 Shahrah-e-Quaid-e-Azam, 54000 Avari Lahore, Pakistan hereby irrevocably undertake to pay you any sum or sums not exceeding in total an amount of USD.1,800,000.00 (Say U.S. Dollars one million and eight hundred thousand only)upon, receipt by us of your first demand in writing accompanied by a written statement stating that the Bidder is in breach of its obligation(s) under the bid conditions, because the Bidder

(a)has withdrawn its Bid during the period of bid validity specified by the Bidder in the Letter of Bid or (b) does not accept the correction of errors in accordance with the instructions to Bidders (hereinafter the ITB), or (c) having been notified of the acceptance of its Bid by the Employer during the period of bid validity, (i) fails or refuses to execute the Contract Agreement, or (ii) fails or refuses to furnish the Performance Security, in accordance with the ITB...”

Bare reading of the material portion of the bank guarantee as reproduced supra, clearly shows that respondent No. 3 has given an irrevocable undertaking to encash the bank guarantee on receiving the first demand in writing from respondent No.2 communicating that the bidder was in breach of its obligations under the bid documents as it had withdrawn its bid during the period of bid validly specified by the bidder in the letter of bid.

7.Perusal of the letter dated 22.10.2021 clearly reveals that the respondent No.3, the bank, was notified that the bidder had violated the subject tender-document clauses during the validity of bid and, therefore, the bank was requested to encash the bank guarantee. In the subsequent letter dated 28.10.2021 it was reiterated that the respondent No. 3 had irrevocably undertaken to encash the bid security as per para 3(a) of bid security and on the first demand by the respondent No.2 was under an obligation to pay the bank guarantee amount as the bidder was in breach of its obligation under the bid documents. It was elaborated that the petitioner company had violated the bidding process by sabotaging the whole process and delaying the respondent No.2’s most urgent project by changing the nature of its bid and its withdrawal during the period of bid validity specified by the bidder in the letter of bid and that the notice was served upon the bidder detailing the reasons, copy of which was attached for reference with the letter of demand to encash the bank guarantee.

8.It is settled rule that where the bank has unconditionally undertaken to pay the amount of bank guarantee on receipt of first demand from the

beneficiary, then it cannot possibly express any reluctance in the matter or escape its liability; nor is it obliged to seek concurrence of party on whose behest the bank guarantee was furnished. In “Messrs National Construction Ltd. v. Aiwan-e-Iqbal Authority” (PLD 1994 SC 311) it was observed to the effect by the Supreme Court of Pakistan that where the bank guarantee furnished, contained a categorical undertaking and imposed absolute obligation on the bank to pay the amount; irrespective of any dispute which may arise between the parties regarding breach of contract, the courts must give effect to the covenants of bank guarantee, as these guarantees are independent contracts and the bank authorities must construe them independent of primary contracts; and that the bank should encash the guarantee notwithstanding any dispute arising out of the original contract between the parties and that encashment of bank guarantee could not be postponed pending decision of the arbitration proceedings which may take years to conclude. In “Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Ltd.” (PLD 2003 SC 191) it was observed to effect that bank guarantee is an independent contract between the bank and customer, imposing absolute obligation on the bank to comply with its terms irrespective of any dispute between the parties to the principal contract. Similar view was taken in the case of “Atif Mehmood Kiyani and another v. Messrs Sukh chain Private Limited, Royal Plaza, Blue Area, Islamabad and another” (2021 SCMR 1446).

9.As evident from the terms of the bank guarantee referred supra, the respondent No. 3 committed

irrevocably to encash the bank guarantee on the first demand raised by the beneficiary respondent No.2 stating that the bidder was in breach of its obligations under the bid conditions or had withdrawn its bid during the period of bid validity as specified by the bidder in the letter of bid. Respondent No.2 served such notice on respondent No. 3 notifying the bank of the fact that the petitioner had withdrawn from the bid and sabotaged the whole project.

10.As to whether or not the allegations were factually correct or as to whether the petitioner bidder had any objection in regard to the allegations of breach of the terms of the bid documents or allegation of withdrawal of the security, respondent No.3 was not expected to enter into this area of dispute which will be between the petitioner and respondent No.2. Instead, respondent No.3, the bank, is expected under the law to perform its commitments which form part of a separate contract in the shape of bank guarantee and which document the respondent bank is bound to honor on the first call of the beneficiary without reference to the party at whose request the bank guarantee was furnished in favour of respondent No.2. In view of the settled law, the petitioner bidder possibly could not seek any restraint order qua the encashment of bank guarantee.

11.As regards the other plea of petitioner that no breach of the bid conditions was committed as the petitioner did not withdraw from the bid and that the action taken by respondent No. 2 was unfair and mala fide; all these matters raise disputed questions of facts that cannot possibly be investigated or determined with any reliability without evidence and this exercise is

beyond the received ambit of summary and extraordinary jurisdiction of this Court under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973. As noted supra, petitioner’s own stance in the Constitutional petition is that along with the bid documents, a bank letter of credit promise was submitted which was objected by respondent No. 1 on the grounds that it was a conditional bank letter of credit promise and that the petitioner was bound to submit an unconditional bank letter of credit promise and that the petitioner did not raise any objection to the stance of respondent No.2 but instead opted to furnish the second bank letter of credit promise issued by Industrial and Commercial Bank of China Limited. Even this second bank letter of credit promise was cancelled by the concerned bank, as admitted by the petitioner in its letter dated 24.9.2021, on the pretext of covid-19. And that at that stage notice was issued by respondent No. 2 for the encashment of bank guarantee on the ground that the petitioner had withdrawn from the bid and breached the terms thereof. As to whether the petitioner breached the terms of the bid documents or whether the project was sabotaged as alleged and whether the petitioner, in the peculiar circumstances, could be deemed to have withdrawn from the bid are questions that require determination of factual controversy that cannot be launched in the extraordinary, summary and Constitutional jurisdiction of this Court and may be a subject-matter of determination in a regular suit before the court of general jurisdiction. The petitioner, if it so chose, will be at liberty to avail the remedy available in law; but nevertheless the resolution of factual

controversy in the Constitutional jurisdiction will not be permissible.

12.For the reasons above, instant Constitutional petition being without substance is, accordingly, dismissed in limine.

(RASAAL HASAN SYED)

JUDGE

*Shahzad*