LAHORE: A utility agency has encashed a bank guarantee to recover outstanding gas charges against a textile concern, said sources.
They added that the bank refused to encash the guarantee because of a dispute about the performance of the primary contract with the default textile unit.
According to the sources, the utility company - Sui Northern Gas Company Ltd - proved that the guarantee between the bank and itself was an independent contract, as the bank did not object at the time of obtaining the guarantee. They added that the company proved its case by producing the admitted and reliable documents, and the bank failed to contradict them.
They said the bank kept renewing the guarantee from time to time, and it was also admitted that the guarantee in favour of the utility agency was on behalf of the textile company for the utility of gas. The utility agency initiated recovery proceedings to encash the guarantee after the arrears of gas consumption about gas infrastructure development cess (GISC) and other taxes piled up against the textile concern.
Some banking sector practitioners have maintained that a bank or insurance guarantee that contains an unconditional undertaking and impost absolute obligation on the guarantor is bound to be discharged independent of the dispute as to the performance of the primary contract between the parties.
They said the bank would have to pay the guaranteed amount irrespective of any dispute which may arise between the parties regarding a breach of the contract. They added that the guarantee is considered an independent contract, and the guarantor must discharge its obligations under the guarantee contract as per its terms.
They further pointed out that the utility agency can get encashed guarantee without any question and without any reference of any nature. They said there is a settled principle that extraneous claims and counterclaims do not bar the enforcement of a bank guarantee. Rather, it depends upon its terms and conditions. The bank would have no defence if the guarantee is unconditional.
Copyright Business Recorder, 2023
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