REMOVAL OF PLEDGE STOCK'(s) CRIMINAL REMEDIES AND SPECIAL LAWS

REMOVAL OF PLEDGE STOCK'(s) <!--[if gte mso 10]> REMOVAL OF PLEDGE STOCK'(s) CRIMINAL REMEDIES AND SPECIAL LAWS By Advocate Saalim Salam Ansari, Karachi The term pledge means the "bailment" of goods as security for the payment of a debt or performance of a promise. The "bailer" in this case is called the "pawner". The "bailee" is called the "pawnee." The word Bailment defines in the law dictionaries as "a' delivery of personal property to be held in trust; the relationship that arises where one person, the bailer, delivers property to another, the bailee, to hold, with control and possession of the property passing to the bailee." There is a difference between the "Pledge" and "Hypothecation." "Hypothecation" means to pledge something as security without turning over possession of it. Hypothecation creates a right in the creditor to have the pledge sold to satisfy the claim out of the sale proceeds. "Mortgage" A mortgage on real property is a form of hypothecation contract. In hypothecation there is no turning over of possession. In the pledge the possession is supposed to be in favour of person who is creditor. According to Black's Law Dictionary (Seventh Edition) the word and/or term "Pledge" at page 1175 is defined as:‑‑ "A bailment or other deposit of personal property to a creditor as security for a debt or obligation. The item of personal property so deposited; Broadly, the act of providing something as security for a debt or obligation; A pledge is something more than a mere lien and something less than a mortgage; A pledge is a bailment of personal property to secure an obligation of the bailer. If the purposes of the transaction is to transfer property for security only, then the Courts will hold the transaction a pledge, even though in form it may be a sale or other out and out transfer." Webster's collegiate dictionary (10th Edition) at page 893, defines the "Pledge" as under:‑‑ "A bailment of a chattel as security for a debt or other obligation without involving transfer of title. The state of being held as a security or guaranty. Something given as security for the performance of an act." However, the relevant laws are silent about the procedure to be followed if a breach and/or fraud and/or steal has been done in the pledged stock. Now the questions arise that:‑‑ (1) Who is responsible if a breach has been done or pledged stock is removed from the site or someone has stolen the pledged goods, since the pledge is under the lock and key of bank, who has extended the loan .n lieu of pledge stock and the pledged stock is under its control as security? . (2) Whether the Muqadum of the Bank is responsible if only breach made or fraud done or stock has been misappropriated? (3) Whether concerned officer of the Bank is responsible for the same? (4) Whether customer and Bank both are responsible? Question further arises whether any relevant or proper provisions have been provided as remedy pertains to offence of removal of pledged stocks. Although perusal of relevant laws shows and/or reveals that no specific section or provision has been provided. However, some sections such as section 83 of Banking Companies Ordinance, 1962, section 20 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and sections 380, 403, 406, 408 and 409 of P.P.C. cure the subject to some extent however, still a huge vacuum is in existent. A perusal of the sections shows that offences of removal of pledge stock(s) do not fall under the scope and ambit(s) of section(s) 83, 1‑A and 1‑AA of the Banking Companies Ordinance, 1962. Section 83 subsection(s) 1‑A and 1‑AA of Banking Companies Ordinance, 1962, runs as under:‑‑ 83. Penalties:‑‑‑ "1‑A If any person, being the Chairman, Director, Chief Executive, by whatever name called, or official liquidator or an officer of a banking company, mismanages the affairs of the banking company or misuses his position for gaining direct or indirect benefit for himself or any of his family members, he shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine, and shall be ordered by the Court trying the offence, to deliver up or refund within a time to be fixed by the Court any property acquired or gained by him in his own name or in the name of his family members by so mismanaging the affairs of the banking company or misusing his position or, in default, to suffer imprisonment for a term which may extend to three years." "1‑(A‑A) Any Executive Officer, Director or Chief Executive of a banking company which is either directly or indirectly owned, controlled or managed by the Federal Government or a Provincial Government who extends, or aids in extending, a loan, advance, or any financial facility to a borrower or customer on the verbal instructions of a holder of a public office reducing the terms of the instructions into writing and drawing them to the attention of his superior officer, or the Board of Directors, shall be guilty of an offence punishable with imprisonment of either description which may extend to one year, or with fine, or with both in addition to such other action which may be taken against him in accordance with law." Section 20 subsections (1), (2), (3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 says as under:‑‑ "Provisions relating to certain offences:‑‑‑ (1) Whoever:‑‑‑ (a) Dishonestly commits a breach of the terms of a letter of hypothecation, trust receipt or any other instrument or document executed by him whereby possession of the assets or properties offered as security for the re payment of finance or fulfillment of any obligation are not with the financial institution but are retained by or entrusted to him for the purpose of dealing with the same in the ordinary course of business subject to the terms of the letter of hypothecation or trust receipt or other instrument or document or for the purpose of effecting their sale and depositing the sale proceeds with the financial institution; or (b) Makes fraudulent misrepresentation or commits a breach of an obligation or representation made to a financial institution on the basis of which the financial institution has granted a finance; or (c) Subsequent to the creation of a mortgage in favour of a financial institution, dishonestly alienates or parts with the possession of the mortgaged property whether by creation of a lease or otherwise contrary to the terms thereof, without the written permission of the financial institution; or (d) Subsequently to the passing of a decree under section 10 or 11, sells transfers or otherwise alienates, or parts with possession of his assets or properties acquired after the grant of finance by the financial institution, including assets or properties acquired benami in the name of an ostensible owner shall, without prejudice to any other action which may be taken against him under this Ordinance or any other law for the time being in force, be punishable with imprisonment of either description for a term which may extend to three years and shall also be liable to a fine which may extend to the value of the property or security as decreed or the market value whichever is higher and shall be ordered by the Banking Court trying the offence to deliver up or refund to the financial institution, within a time to be fixed by the Banking Court, the property or the value of the property or security. Explanation:‑‑Dishonesty may be presumed where a customer has not deposited the sale proceeds of the property with the financial institution in violation of the terms of the agreement between the financial institution and the customer. (2) Whoever knowingly makes a statement which is false in material respects in an application for finance and obtains a finance on the basis thereof, or applies the amount of the finance towards a purpose other than that for which the finance was obtained by him, or furnishes a false statement of stocks in violation of the terms of the agreement with the financial institution or falsely denies his signatures on any banking document before the Banking Court, shall be guilty of an offence punishable with imprisonment of either description for a term which may extend to three years, or with fine, or with both. (3) Whoever resists or obstructs, either by himself or on behalf of the judgment‑debtor, through the sue of force, the execution of a decree, shall be punishable with imprisonment which may extend to one year, or with fine, or with both." That the provision(s) of statute under the title "Offences Against Property (Enforcement of Hadood) Ordinance (VI of 1979)" will not apply in cases/situations, as it is a well settled principle of Law that in existence of special law, the provision(s) or remedy of general law/statute(s) will not apply. It appears that offences committed in respect of pledge stock(s) fall within the ambit and scope of offences in respect of Banks, Ordinance, 1984. The purpose to promulgate the Ordinance as mentioned in the preamble of the Ordinance is as under:‑‑ (Underline(s) are mine). "An Ordinance to provide for speedy trial of certain offences committed in respect of banks and for matters connected therewith or incidental thereto." That the offences committed in such circumstances will fall under sections 380, 403, 406, 408 and 409, P.P.C. and falls within the schedule offences as narrated in the first schedule of "Offences in respect of the Banks Ordinance, 1984." The definition of schedule offences is mentioned in section 2, subsection (b) of the Ordinance, 1984, which runs as under:‑‑ (Underline(s) are mine). "Schedule Offence" means an offence specified in the First Schedule and alleged to have been committed in respect, or in connection with the business of banks." It may be proper if we understand the following terms/word in order to have better understanding in respect of pledge stock(s):‑‑ "Connected with:‑‑‑The connection envisaged by item 1, List 11, Schedule VII to the Government of India Act, 1935, mast be direct and clear as between cause and effect and not remote and doubtful. "Connected with" must be considered to imply a substantial or direct connection and not a fanciful or highly problematical connection. AIR 1949 A. 513 "Incidental:‑‑‑We are unable to agree with the High Court that the word "incidental" has reference to a matter of casual nature only. The procedure for disposal of an appeal includes as a necessary incidental matter the filing of an appeal on a proper fee.‑‑‑PLD 1961 SC 284. "Incidental":‑‑‑is not foreign to the legal phraseology as well. It has been defined both in the ordinary English Dictionaries as well as in the Legal Dictionaries. The meaning assigned to it in the "New Oxford Illustrated Dictionary", Volume I, at page 844 is as under:‑‑‑ "Casual, not essential; one perceived as consequences of impressions no longer present" In the "Webster's New International Dictionary", Second Edition, at page 1257 the word "incidental" has been assigned the following meaning:‑‑ "happening as a chance or undersigned feature of something else, casual, hence, not of prime concern; subordinate; liable to happen or to follow as a chance feature or incident". The "Shorter Oxford English Dictionary'", Second Edition. Volume‑I defines 'incident' as occurring or liable to occur in fortuitous or subordinate conjunction with something else; casual; b) or a charge or expense, such as is incurred apart from the primary disbursements." In the Funk and Wagnalls Encyclopaedic College Dictionary, at page 680 'incidental' has again been defined as "occurring without design or regularity; casual; also minor; secondary", 1988 CLC 1606. (Reference) The word "incidental" has been defined in "Black's Law Dictionary" 7th Edition at pages) 765 as follows:‑ "Incidental, adj. Subordinate to something of greater importance, having a minor role, (the FAA determined that the wind played only an incidental part in the plane crash). It is held in PLD 1992 SC 353 in respect of "schedule offence" as under:‑‑ "Definition of "Schedule offence" should be given extended meaning so as to leave out of its ambit only extremely rare cases. Intention underlying definition is that all conceivable situations, linked with business of Bank, would make offences mentioned in schedule as schedule offences, thereby taking away all such cases from ordinary Courts, for purpose of their trial before Special Courts (Banks. It was held that in present case, there was no alternative but to hold that offences alleged in this case against accused were scheduled offences and High Court was wrong in its view that offences were not schedule offences." The "Offence connected with Banks" have been defined in the reported case of PLD 1992 SC 353 as follows:‑‑ "The definition of scheduled offence as contained in section 2(d) of the' Ordinance does include a rider to the offences which are mentioned in the schedule. The rider is that those offences should have been alleged to have been committed "in respect of or in connection with the business of a bank". The expression "business of Bank" used in the definition would have to be given extended meaning on account of the use of two such further open ended expressions which connote very wide meaning for the words "business" and the "Bank". These are "in respect of or "in connection with". The scrutiny of the meanings of these words and expressions in the classical sources together with the modern usages and scope of Banking business, leave absolutely no doubt that there will be left out of their ambit only extremely rare cases. They somehow or the other, linked with the modern extended banking practices in trade business, industry and finance, domestic and other; besides the earlier known scope of their operation. Take, for example, the word "business" as separate from the word "Bank". Again take all that goes with the modern banking business and an that is included in the banking procedures. Not only this, banking activities both with regard to the depositors dealings as well as dealings in trading and other enterprises are their business." It is observed in 1986 PCr.LJ 567 as under:‑‑ "But the word "connection" in the expression "in connection with" in the definition of schedule offence envisages a link which is direct link cause and effect and not remote." It is held in 1986 PCr.LJ 2243 as follows:‑‑ "The Special Court can take cognizance of any schedule offence upon receiving a complaint of facts which constitute such offence or upon a report in writing of such facts made by any police officer." That the first schedule of the Ordinance, 1984 narrated the schedule offences and offences fall under the provisions of sections) 380, 403, 406, 408, 409, P.P.C. falls within the schedule offences amongst other provisions. The section(s) 380, 403, 406, 408, 409 of Pakistan Penal Code Act (XLV of 1860) runs as under subject to modifications narrated in second schedule of Ordinance, 1984:‑‑ "380. Theft in dwelling house, etc,: Whoever commits theft in any building, tent or vessel, which building, tent or vessel is used as a human dwelling or used for the custody of property shall be punished with imprison ment of either description for a term which may extend to seven years, and shall also be liable to fine." "403. Dishonest misappropriation of property: Whoever dishonestly misappropriates or converts to his own use any movable property, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both." "406.' Punishment for criminal breach of trust: Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to (seven) years, or with fine, or with both" "408. Criminal breach of trust by clerk or servant: Whoever, being a clerk or servant or employed as a clerk or servant, and being in any manner entrusted in such capacity with property, or with any dominion over property, commits criminal breach of trust in, respect of that property, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine." "409. Criminal breach of trust by public servant, or by banker, merchant or agent: Whoever being in any manner entrusted with property, or with any dominion over property in his capacity of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with imprisonment for life or with imprisonment for life or with imprisonment of either description for a term which many extend to ten years, and shall also be liable to fine." If Bank Officers are involved the provision(s) of section 5 of Prevention of Corruption Act 1947 (11 of 1947), will also apply/enforced as it is also mentioned in schedule offences) as (bb) of first schedule. Further the following act (s)/action (s), attempt(s), conspiracy, commitments also falls within the schedule offences which described in the first Schedule of the Ordinance, 1984 as (c):‑‑ "(c) Any attempt or conspiracy to commit, or any abetment of any of the aforesaid offence." It is pertinent to note that section 4 of the Ordinance. 1984 provides that schedule offence to be tried by the Special Court constituted under the Ordinance, 1984, under section 3 as defined in section 2‑clause (e) of Ordinance, 1984. Section 4 subsections (1), (2) and (3) of Ordinance, 1984 runs as under:‑‑ "Schedule Offence to be tried by Special Court:‑‑ (1) Notwithstanding anything contained in the Code the schedule offences shall be triable exclusively by a Special Court. (2) The Federal Government may, from time to time, by notification in the official Gazette, include in the First Schedule such other offences, as it deems necessary or expedient. (3) All cases relating to a schedule offence pending in any Court other than a Special Court immediately before the commencement of this Ordinance shall, on such commencement, stand transferred to the Special Court having jurisdiction over such cases. That the section 12 of the Ordinance, 1984 provides that the Ordinance having the overriding effect on the other laws and on the other Courts of criminal offences:‑ "Ordinance to override other laws.‑‑The provisions of this Ordinance shall have effect notwithstanding anything contained in the Code or in any other law for the time being in force." That after taking cognizance of the schedule offences by the Special Court, the transfer of property by the accused person or any relative to any other person/accused will be void and for the purpose of the transfer of the property, permission of the Special Court will be required, otherwise it is punishable. Section 8 provides that accused not to depart from Pakistan or be employed by any person. After taking cognizance by the Special Court any violation of the instant provision is punishable. That for the purpose of the procedure under section 5, subsection (8). A Special Court shall, in all matters with respect to which no procedure has been prescribed by this Ordinance, follow the procedure prescribed by the code for the trial of the cases by Magistrate. Under the Ordinance although Superior Court specially grant of release the accused person on bail on any amount but section 5 subsection (7) provides that the amount of bail shall be fixed not less than alleged amount. Under section 6, subsection (3) of the Ordinance, the Special Court is empowered to award a sentence and in addition to any punishment, the amount of fine shall be fixed which shall not be less than twice of the alleged void amount of the alleged amount. That all offences are non‑bailable furthermore we can come to‑ the conclusion that solutions with regard to pledged stock may be as under:‑‑ (a) Bank can initiate legal proceeding(s) under the provisions of the Offences in respect of the Banks Ordinance, 1984 under sections 380, 403, 406, 408 and 409 of P. P. C. (b) The proper forum for filing such proceedings is the Special Court as defined in section 2(e) of Ordinance, 1984 and/or constituted under section 3 of Offences in respect of Banks Ordinance, 1984. (c) Instead of lodging/filing of F.I.R. before F.I.A., it will be appropriate that the procedure of preferring of direct private complaint by the Bank be adopted as the filing of direct private complaint by the Bank is provided under section 5(1) of Ordinance, 1984, which runs as under:‑ (Underline(s) are mine) in respect of offence committed in pledge stocks. "Procedure of a Special Court:‑‑‑(1) A Special Court may take cognizance of any, schedule offence upon receiving a complaint of the facts which constitute such offence or upon a report in writing of such facts made by any Police Officer." The lodging of F.I.R. before F.I.A. will cause delay and/or create harassment to the complainant and/or Bank Officers and jeopardize the case as well as halt the proceeding(s) in many manners due to reason(s). It is held in ample of judgments of the Superior Courts that filing of direct private criminal complaint is more proper and efficacious remedy rather than lodging of F.I.R. That the private criminal complaint can be withdrawn with the permission of the Special Court in the circumstances. (d) Direct criminal complaint car be filed as advised under section 5, subsection (1) of Ordinance, 1984. The criminal complaint can be filed by the Bank directly before the Special Banking Court and proper forum for filing of the direct criminal complaint before Special Court as defined under section 2(e) of Ordinance, 1984 and/or constituted under section 3 of Ordinance, 1984. In addition to this, I am of the further view that the Banks or financial institutions can approach to the Federal Ministry of Law to modify the section 20 by inserting the proposed subsection (7) in section 20 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 by virtue of an amendment Ordinance which provides the filing of criminal complaint before the Judge of Banking Court constituted under the Financial Institutions (Recovery of Finances) Ordinance, 2001 in case of removal of pledge stock(s), etc. The amendment Ordinance according to which subsection (7) of section 20 of Ordinance, 2001 will be added as proposed to be known as "Financial Institutions (Recovery of Finances) Amendment Ordinance, 2004". In such circumstances, before filing of direct complaint, it will be appropriate that if following steps and/or measure(s) may be taken:‑‑ (a) If there is short fall in pledge stock after verifications) of the pledge stock and there is no complaint by the Muccadam or concerned officer in respect of misappropriation or unauthorized delivery of the stocks by the borrower(s) or any person(s) regarding lifting of the stock forcibly or otherwise, then in the private complaint the Bank, Muccadam or concerned staff and/or the person involved alongwith the borrower(s) who had taken away the delivery of the pledge stock(s) be impleaded as accused(s). (b) That if there is complaint in writing on behalf of the Muccadam that the any person or borrower without the connivance of bank staff forcibly or otherwise taken away unauthorized delivery of pledge stock then the name of Muccadam from list of accused be deleted and the involved borrower or bank staff or in case any other involved person(s) will be impleaded in the list of accused(s). I also suggest that the system of verification or checking of inventories of the pledge stock in physical shape be adopted and in case of shortfall, lodging of the criminal complaint as suggested above, will be followed and when this procedure will be adopted and complaint will be lodged before Special Court against borrowers or involved person(s) then there will be a decrease in offences. The method of filing of private direct criminal complaint before the Special Court will be adopted in both two situations mentioned earlier upon the report of Muccadam and/or on the report of any concerned person(s). (c) That in case of physical verification of the ‑inventories of the pledge stock(s) if there is a shortfall a private direct criminal complaint can be filed against the responsible person(s), including "Muccadam" or bank's officers and borrower(s) or their agents, whoever is involved. It is proper to discuss the reported cases of "Mian Tariq Azmat Sheikh v. S.H.O. Police Station F.I.A., Banking Circle Multan" reported in "1996 MLD 1362", it is held by the Lahore High Court as follow(s):‑‑ "It was sufficient authority by the Bank to consume the oil allegedly placed in pledged. The petitioner proved that the Bank had deputed a godown keeper and two Chowkidars to keep whatsoever, pledged goods, open or actual, and their salaries were debited to the account of the borrower. Originally the writing on the basis of which case F.I.R. No. 78 of 1994 was registered was regarding registration of the case under sections 420/406/408/409/380, P.P.C. and section 5(2)/47 of the P.C.A. Unless the employees of the Bank are made the accused persons in the case, offences under sections 408 and 409, P.P.C. and 5(2)/47 of the P.C.A. could not be made applicable. At the time of the registration of the case it appears that the Bank tried to save their own employees from the criminal proceedings and felt satisfied with the registration of case under sections 380/ 109, P.P.C. or realized that in such case they shall have to account for to the borrowers." "I would observe, before discussing further, that offences under sections 406/408/409, P.P.C. and offence under section 380, P.P.C. were self‑destructive. If there was misappropriation there could be no theft. In the present case no complaint came from the godown keeper and Chowkidars posted allegedly at the spot. The Bank had authorized the petitioner to consume the oil placed in tanks Nos.4 and 5 and if there was any infringement in making conversion or not placing the converted goods in pledge or to have taken the same away would not make the same a criminal offence. It was a civil liability duly covered by an agreement executed between the creditor and the borrowers and the Bank has itself admitted the execution of such agreement, the obligation inter se were, therefore, contractual." "In view of what has been discussed above I am of the view that the lodging of the F.I. R. was out of mala fides and was an abuse of process of law of the gravest order. The petitioner was arrested and put behind the bars ..... The writ petition and suit for recovery were still pending. Other security in the nature of mortgage etc. were also subsistence and as such the petitioner and the other directors of the company cannot be allowed to be vaxed in criminal proceedings based on contractual obligation. Resultantly F.I.R. No.78 of 1994, Police Station, F.I.A., C.B.C., Multan registered on 26‑12‑1994 is declared to be the result of mala fides on the part of the Bank Authorities and is quashed with all the consequences that followed after the registration of the case." It is now a well‑settled principle of law that lodging of F.I.R. out of mala fide was abuse of the law as it is also held in the above reported case as lock and key was with the bank or its Muccadam. While filing the criminal complaint before the Special Banking Court against the borrower(s) it is to be examined that in the pledge stock's cases, the pledge stock(s) is always in the lock and key of the bank and/or its Muccadam(s) appointed by the Bank who is also posted at the Godown or other places open or otherwise and this aspects will be looked into while bank will give instructions to file direct criminal complaint against the borrower(s) and others or its agents etc. and/or at the time of the filing the criminal complain(s) as advised. That as far the stereotype of letters of pledge are concerned to be executed by the customer, I propose that following may be added in all stereotype letters of pledge in order to avoid such difficulties, as discussed above:‑‑ "That in case there will be a shortfall in the pledge stock(s) in respect of instant letter of pledge and/or any involvement or abatement or responsibility of the customer or its agent(s) will be found, I/we understand and/or declare that I/we will be liable of prosecution(s) under the provisions of Offence(s) in respect of Banks Ordinance, 1984 for such act which will be supposed to be a criminal offence(s), further I, we will be dealt in accordance of "Offence(s) in respect of Banks Ordinance, 1984" and/or any law for the time being enforced alongwith other persons involved." The proposed clause is subject to the well‑settled principle of Law that consent of the parties cannot confer or taken away the jurisdiction(s) of any Court available under the law, if any authority is needed, the reliance is placed on 1997 CLC 1342 (D.B.). That the filing of the direct criminal complaint is very much advisable because in the, direct criminal complaint drafting of the criminal complaint is upon the instructions of the banks authorities by their own appointed and/or engaged counsel as well as prosecution(s) or proceedings) will be conducted by the Advocates appointed or engaged by the banks and/or not by the State prosecutors) or Special Prosecutor(s) appointed by the F.I.A.