ISLAMABAD, Jan 29: The Supreme Court reversed its earlier judgment on Thursday in which it had directed a US-based company to furnish bank guarantee of $1 billion for allowing it the right of defence in a suit for damages instituted by a Pakistani company for not honouring a contract.

The apex court bench headed by former Chief Justice Sheikh Riaz Ahmad, in its decision on July 12, 2002, had directed the Westinghouse Electric Corporation to furnish bank guarantee of $1 billion for qualifying itself to defend a suit for damages.

The judgment had created diplomatic problems for Pakistan when the US government and the World Bank had urged Islamabad to get the judgment reversed if it was interested in foreign investment and economic development.

Pakistan was told that someone had typed a few lines (apparently after the judges had signed the documents), that could be read to require the US company to put a bond of potentially $1 billion before they could even present their defences before the court.

The US government and the World Bank had asked Pakistan that there was no legal basis or precedent under Pakistani law for requiring defendants to post a bank guarantee before even they were allowed to defend the case.

On Thursday, a three-judge bench, comprising Justice Mian Mohammad Ajmal, Justice Hamid Ali Mirza, and Justice Falak Sher, admitted the review petition and directed the civil court to first decide the issue of its jurisdiction.

The civil court would also have to decide the application under section 34 of the Arbitration Act, before deciding whether the parties could be asked to file written statements.

As soon the case was placed before the bench, Justice Falak Sher inquired if it was the same judgment in which typewriter had been used to insert a passage. Fakruddin G. Ibrahim, counsel for the Westinghouse Electric Corporation, pointed out that the apex court had modified its earlier order of asking his client to furnish the bank guarantee during the pendency of the review petition.

He contended that the court had no jurisdiction to direct for bank guarantee or bank security in place. Advocate Hamid Khan also represented the US-based company.

Advocate Abdur Rahim Qazi, counsel for Wak Orient, contended that it was wrongly stated that the question of bank guarantee had cropped up only at the Supreme Court-level.

He said that it was in his petition before the Lahore High Court as well in the apex court. He contended that the review petition of the Westinghouse was not maintainable.

The Pakistani company, Wak Orient, had filed a suit for specific performance of the contract and recovery of damages in the civil court at Lahore against the corporation for its alleged failure in the establishment of 400 megawatt power station near Port Qasim.

The whole objection was on the last five lines of the judgment. According to the communications received by Pakistan from the WB and the US government, the objection is that "at the end of the computer generated Supreme Court order, someone has typed (with typewriter and apparently after the judges had signed the documents), extremely prejudicial language that could be read to require the US company to put a bond of potentially $1 billion before they can even present their defences before the court".