2013 PLP 504 (CLD)

FAROOQ ALI CHANNA J.

This first appeal has been preferred against the judgment and decree dated 17-2-2010 and 3-3-2010 respectively, passed by the Banking Court No.1, Karachi in Suit No.383 of 2006, whereby, the suit filed by the respondent No.1 was decreed against the appellant and the respondents Nos.2, 3 and 4 jointly and severally in the sum of Rs.4,19,82,665 with cost of funds as specified by State Bank of Pakistan from the date of default till realization of decretal amount. The trial Court also allowed the prayer clauses "b" and "c" of the plaint along with cost of suit.

2. Succinctly, the facts of the case are that the respondent No.1 i.e. United Bank Ltd. filed a suit against the appellant and the respondents Nos.2 to 4 for recovery under the Financial Institutions (Recovery of Finances) Ordinance, 2001. It was disclosed in the plaint that at the request of respondent No.2, the respondent-bank granted a finance facility to the limit of Rs.40 Million and L.C facility for 20 Million for four years at the mark-up rate of 33.33 paisa per day per 1000 (12%) to be paid quarterly, whereas, as a security for repayment of financial facility, the respondent No.3 executed and signed the following documents:-- (a) Finance Agreement dated 30-6-2003. (b) Sub-ordination agreement dated 30-6-2003. (c) Letter of hypothecation of fixed assets, machinery, moveable assets, book debts and receivable along with certificate of registration of mortgage dated 11-7-2003. (d) Deed of floating charge dated 30-6-2003 along with certificate of registration dated 11-7-2003.

3. Beside above documents the respondent No.3 also executed and signed the letter of personal guarantee. The contents of plaint further disclosed that the appellant and the respondent No.4 were made parties in the suit as directors of the respondent No.2 without execution of any document by them either as borrower or as guarantor in favour of respondent No.1.

4. The appellant filed leave to defend application to defend the suit filed by the respondent-bank, which was dismissed, hence in terms of section 10, subsection (ii) the suit of the respondent No.1 was decreed against the appellant and the respondents Nos.2, 3 and 4 jointly and severally as stated hereinabove.

5. Learned counsel for the appellant has contended that the short controversy point involved in the instant matter is that the appellant has neither executed any document as borrower nor as guarantor, therefore, he was not liable for repayment of financial facilities sanctioned by the respondent-bank in favour of the respondent No.2. It has been further contended that the appellant was alleged to have signed the subordination agreement and some other documents executed between the respondents Nos.1 and 2 as merely a witness, hence, no liability of any kind can be imposed against the appellant. The learned counsel has also invited our attention towards certain documents i.e. agreement executed between the respondents Nos.1 and 2, subordination agreement, deed of floating charge and details of shares in capital of the respondent No.2 and contended that all these documents were merely signed by the appellant in his capacity as a witness only, whereas, the appellant was neither beneficiary or a contracting party to the agreement.

6. The learned counsel for the respondent No.1 while confronted with the above stated facts could not controvert the submissions of the learned counsel for the appellant, rather admitted frankly that the appellant was neither barrower nor guarantor and he signed certain documents relating to the financial facility granted by the respondent No.1 to the respondent No.2 in his capacity as a witness.

7. We have heard both the learned counsel for the parties and perused the record. Bare perusal of the documents as referred to by learned counsel for the appellant reveals that the same were signed by the appellant as a witness only and not as a executing party who could be held liable in terms of the agreement, therefore, he was not liable to be sued under the Financial Institutions (Recovery of Finances) Ordinance, 2001. It is pertinent to mention that under Financial Institutions (Recovery of Finances) Ordinance, 2001, the Banking Courts have the jurisdiction to resolve the controversy between the financial institution and the customer with regard to any finance, whereas, in the instant case, the appellant is neither a financial institution nor the customer. The term "customer" is defined under section 2(c) of Financial Institutions (Recovery of Finances) Ordinance, 2001 which reads as under:-- (c) "customer" means a person to whom finance has been extended by a financial institution and includes a person on whose behalf a guarantee or letter of credit has been issued by a financial institution as well as a surety or an indemnifier;

8. The perusal of above definition of "customer" reveals that the appellant does not fall within the category of "customer" as admittedly neither any finance was extended to him by the respondent No.1 nor he has signed any agreement or executed any documents on behalf of the respondent No.2.

9. Under the circumstances, we are of the view that no liability whatsoever of the respondent No.1 for repayment could be created or received from appellant. We may observe that neither the respondent-bank approached the Banking Court with clean hands nor the learned Presiding Officer could properly examine the scope and jurisdiction of the banking Court as defined under sections 7 and 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. It appears that the respondent-bank having failed to realize the outstanding liability from borrower, filed recovery proceedings against the appellant, who was merely a witness.

10. In view of hereinabove, we are of the view that the Banking Court No. 1 has passed the judgment and decree against the appellant without jurisdiction, therefore, we set aside the impugned judgment and decree against the appellant so also dismiss the suit of the respondent No.1 against the appellant only. With this modification in the impugned judgment and decree we allowed the appeal to that extent of the appellant vide our short order dated 5-9-2012 and these are the reasons for such short order. KMZ/N-25/K Appeal allowed.