1. Overview of the Case
This appeal arises from a dispute regarding the encashment of a performance guarantee (PG) by the Private Power and Infrastructure Board (PPIB) against the respondent, a power generation company. The Court affirmed that while writ jurisdiction is generally not for settling private contractual disputes, it is appropriate where state instrumentalities act arbitrarily, and that the High Court correctly enforced the government's own policy decisions regarding the return of performance guarantees.
2. Brief Facts
The record shows that in March, 1994 the Government of Pakistan had issued Policy Framework and Package of Incentives for Private Sector Power Generation Projects in Pakistan ( Power Policy ). On 03.11.1994, the respondent furnished a PG in the form of a bank guarantee for an amount of Rs.33,000,000/- issued by Habib Bank AG Zurich.
3. Questions of Law
- Can a High Court exercise writ jurisdiction to enforce a refund of a performance guarantee in a contractual dispute involving a state instrumentality?
- Is the encashment of a performance guarantee by a state entity considered irrational if it contradicts the entity's own prior policy decisions and communications?
4. The Court’s Answers
Question 1
Can a High Court exercise writ jurisdiction to enforce a refund of a performance guarantee in a contractual dispute involving a state instrumentality?
“However, when a dispute arises purely out of a contract, the courts have generally held that writ jurisdiction is not meant to settle private contractual rights, especially when an alternate civil remedy exists.”
Paragraph 17
Question 2
Is the encashment of a performance guarantee by a state entity considered irrational if it contradicts the entity's own prior policy decisions and communications?
“The writ issued by the High Court effectively directed the appellants to honour their own commitments i.e. the decisions recorded in the ECC meetings held on 03.03.1996 and 17.06.1996, read together with the corrigendum contained in the Cabinet Division s letter dated 03.07.1996 and the report dated 15.02.1997.”
Paragraph 26
5. Practical Relevance
Banks, borrowers and commercial counterparties should examine the precise contractual documents, demands, authorisations and statutory remedies. The outcome illustrates why enforcement strategy must be assessed against the particular instrument and procedural record.