2005 PLP 958 (CLD)

2. The brief facts of the case are, that Mst. Firdous Chughtai, admittedly is the owner of the house bearing No.63‑Z, LCCHS (hereinafter called "the property"). She has mortgaged the property in favour of the Union Leasing Ltd., the appellant, for the purpose of securing the finance facility allowed to Messrs Kings Tyres Ltd., and in this regard, MODT dated 18‑2‑1999 was duly executed, coupled with physical deposit of the title documents of the property with the appellant. In addition thereto, the mortgaged, was acknowledged through the charge registered with the SCCP and form X in this behalf is on the record.

3. The appellant, for the recovery of the above finance, brought a suit for an amount of Rs.96,78,886 against Messrs Kings Tyres Ltd., as also Mst. Firdous Chughtai, the mortgagor, which after the contest, was decreed to the tune of Rs. 74,92,137 by the learned Banking Court on 15‑3‑2002. For the satisfaction of its decree, the appellant brought an application under section 15 etc. of the Financial Institutions (Recovery of Finances) Ordinance No.XLVI of 2001, for procuring the possession of the property. But we are told by the learned counsel for the appellant, that the Court has not yet disposed off the application, rather has directed for the sale of the property through a Court‑auctioneer and a Court‑auctioneer for the above purpose has also been appointed.

4. Further facts relevant for the disposal of the case are, that Messrs PICIC, the respondent, on 1‑4‑2000 brought a suit for the recovery against Messrs R.C. Textile Ltd., arraying Mst. Firdous Chughtai as defendant No.5, claiming that she stood as a guarantor/ surety for repayment of the finance made to R.C. Textile Mills by the PICIC. Mst. Firdous Chughtai did not contest the suit, which was decreed, inter alia against her on 8‑2‑2001 by the Banking Court presided over by a learned Judge of this Court. For seeking the execution of this decree, PICIC filed a petition on 22‑5‑2001 and the property bearing No.63‑Z, LCCHS, belonging to Mst. Firdous Chughtai was attached by the Court vide order dated 21‑10‑2003. On attaining the knowledge of the above, the appellant filed objections to the attachment, which have been dismissed through the impugned order dated 21‑9‑2004. Hence this appeal.

5. Miss Ayesha Malik, learned counsel for the appellant has argued, that the learned Banking Judge has dismissed the objections, mainly on two grounds; firstly that the decree passed in favour of PICIC is earlier in time, then that of the appellant, secondly this decree is passed by the superior forum i.e. High Court, as compared to the decree passed in favour of the appellant by the Banking Court No.3, therefore, the PICIC has the preferential right to seek the satisfaction of its decree by the sale of the property, resultantly, the attachment order has been upheld. It is submitted that the above reasoning and the impugned order founded thereupon, is absolutely erroneous and illegal; according to the learned counsel, the decree in favour of the appellant is based upon the mortgage of the property by Mst. Firdous Chughtai; the mortgage, according to the provisions of section 58 of the Transfer of Property Act, 1882, is the transfer of ‑an interest in the specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement, which may give rise to a pecuniary liability against the above; the property was never mortgaged with PICIC and Mst. Firdous Chughtai only stood as a surety and a guarantor, which was a personal obligation in nature, without, in any manner, creating any right or interest of the PICIC in the property. She has further argued that the principles of section 58 of the Transfer of Property Act, have been duly recognized and incorporated in section 15 of the Financial Institutions (Recovery of Finances) Ordinance No.XLVI of 2001, and in addition thereto, certain special rights have also been conferred upon the financial institution, envisaged by the said provision, which are not available to a mortgage under the general law; furthermore, according to section 19(3) of the Ordinance ibid, the financial institution has the right to sell or cause the mortgage property to be sold with or without the intervention of the Court. Therefore, on account of the attachment of the property and also through the impugned order, the rights guaranteed to the appellant, under the law, have been nullified and frustrated. It is submitted that irrespective of the date of the two decrees, and also the forums, which Court passed the decrees, the appellant has the right to recover its decretal amount from the sale of the property as the mortgagee. Resultantly, in the circumstances, the attachment of the property by the Court, which has created an impediment in the exercise of appellant's right, should be set aside.

6. Mr. Muhammad Raza Qureshi, learned counsel for the respondents, in reply has formulated the following four questions:‑‑ (i) Whether the mortgage property in relation to a debt can be attached for the satisfaction of another decree; (ii) Whether the person having no title to the property could create a valid mortgage. And while elaborating his "submissions, he states that the property was not mortgaged by Mst. Firdous Chughtai, rather by her husband Mr. Riaz Chughtai, who has signed the Memorandum of deposit of title deed dated 18‑2‑1999 on behalf of Messrs Kings Tyres Ltd. being its Chief Executive, therefore, such mortgage shall not create any valid rights in favour of the appellant, which could be recognized or protected under section 58 of the Transfer of Property Act or sections 15 and 19 of the Financial Institutions (Recovery of Finances) Ordinance No.XLVI of 2001; (iii) Whether from the documentary evidence, produced by the appellant, the claim about the mortgage of the property has been substantiated; (iv) Whether on account of equitable mortgage, the title in the property stands transferred to the mortgagee or it is only the transfer of interest, but in no way, deterring another decree‑holder against the common judgment‑debtor to seek the satisfaction of its decree from the attachment and sale of the suit property.

7. We have heard the learned counsel for the parties and find, that the reasons given by the learned Court while passing the impugned order, are not in accordance with the law and cannot be sustained. Irrespective of the dates of the two decrees, the property was mortgaged in favour of the appellant and while considering the objections, the effect of the mortgage including its validity should have been kept into view by the Court, rather than the timing of the decrees. Likewise, there is no substance in the reasoning of the impugned order that the decree passed in favour of the PICIC is by a higher forum and, therefore, should have preference over the decree of the appellant. This view cannot be sustained as per the principle that the rights of the mortgagee should have priority in the cases where the owner of that very property has also stood as a simple surety/ guarantee, but no mortgage is involved.

8. To our mind, the main question involved in the case is, whether a valid mortgage has been created in favour of the appellant and if so, what is the nature of the interest, which the appellant has acquired in the property. We have considered the question about the validity of the mortgage and find, that the Memorandum of deposit of the title documents dated 18‑2‑1999 has been duly executed by Mst. Firdous Chughtai, who has been mentioned therein as the depositor. If additionally, the document bears the stamp of the Borrower Company and is signed by Mr. Riaz Chughtai, its Chief Executive, who also is the husband of the lady, it cannot be held that no valid equitable mortgage was created. Besides, the original title documents admittedly are in possession of the appellant, which were handed over with the intention to create the equitable mortgage, thus the requirements of section 58(f) of the Transfer of Property Act, are fully satisfied. Moreover, the charge has also been registered with SCCP and this factum has not been denied by the respondent's side. Above all, it may be significant to mention, that in the plaint of its suit, the appellant had duly described and arrayed Mst. Firdous Chughtai as a mortgagor of the property; she did contest the matter and never denied that the property was not mortgaged by her. The banking Court while passing the decree in this case was duly cognizant of the above fact and had mentioned this specifically in its judgment dated 15‑3‑2002 in the following words:‑‑ "The defendant No. 10 mortgaged her property along with the execution of Memorandum of deposit of title deeds in favour of the plaintiff." Obviously, when such decree has not been challenged by Mst. Firdous Chughtai, the same has attained finality and operates as a res judicata against her. Thus, the PICIC only for the reason that she was a personal guarantor for the discharge of some liability towards it, cannot be permitted to raise the plea that shall affect the aforesaid decision of the Court. Therefore, we are of the firm view, that a valid mortgage of the Property bearing No.63‑Z, LCCHS, was created in favour of the appellant by Mst. Firdous Chughtai and the arguments of the learned counsel for the respondents and the questions formulated by him in this regard, are hereby accordingly answered.

9. As regards the effect of a mortgage and the legal consequences which flows therefrom are concerned, suffice it to say that under the general law i.e. suction 58 of the Transfer of Property Act, "the mortgage" creates a specific interest in the immovable property, providing security for the performance of a duty or the payment of a debt, as against none in favour of a person who only is a surety or the guarantor simpliciter. Thus, where the law has ordained to create an interest of the mortgagee in the mortgaged property, it means that such interest shall have full legal effect and the consequences and shall be enforceable as a right. Moreover, in the cases pertaining to the mortgages created for the purpose of securing the finances allowed by the financial institutions, section 15 of the Financial Institutions (Recovery of Finances) Ordinance No. XLVI of 2001, has created a further right in favour of the mortgagee, when subsection 15(3) provides:‑‑ "When a financial institution serves a notice of demand all the powers of the mortgagor in regard to recovery of rents and profits from the final mortgaged property shall stand transferred to the financial institution until such notice is withdrawn and it shall be the duty of the mortgagor to nay all rents and profits from the mortgaged property to the financial institution". Furthermore, where a mortgage or fails to pay the amount as demanded within the period prescribed under subsection (2) and after the due date given in the final notice has expired, the financial institution may, without the 'intervention of any Court, sell the mortgaged property or any part thereof by public auction and appropriate the proceeds thereof towards total or partial satisfaction of the outstanding mortgage money. Besides, the above certain rights of the mortgage are further recognized by section 19 subsections (3)(4)(5) and (6). These rights undoubtedly, to our mind are conferred by the special law upon a mortgagee of a property and cannot be nullified and defeated, for the reason that another financial institution has also filed a suit against the common defendant/judgment‑debtor, but only in the capacity as a simple surety/guarantor and has procured a decree against him. Such a decree has to give way to the rights of the mortgagee/decree‑holder under the general as also under the special law, and should await execution, till such time, the rights of the mortgagee, under the law as well as under the decree, are first satisfied. These aspects of the case have not been kept into view by the learned Court while passing the impugned order, therefore, the same is liable to be set aside.

10. Before parting, it may be stated that the above discussion has also answered the remaining questions raised by the learned counsel for the respondents with additional statement to question No. 1, that the Court in execution of another decree, cannot attach the mortgaged property, causing prejudice to the rights of the mortgagee and preventing him from enforcing his rights by way of the sale of the property, particularly through the process of execution. Furthermore, we have been apprised that in the execution process initiated by the appellant, the Executing Court i.e. lower Banking Court has directed for the sale of the mortgage property through public auction. We approve the same, but hold that if there is any surplus of the proceeds of sale after the satisfaction of the decree in favour of the appellant, the surplus amount shall remain attached and shall be paid to the PICIC. In the light of above, by allowing this appeal, the impugned order is set aside. M.B.A./U‑24/L Order accordingly.