2020 PLP 784 (CLD)

RASAAL HASAN SYED, J.

This appeal under section 22 of the Financial Institutions (Recovery of Finance) Ordinance, 2001 (the "Ordinance") calls into question the judgment and decree dated 24.6.2015 of learned Judge Banking Court, Sargodha.

2. Facts giving rise to the case are that appellant bank filed a suit against respondents seeking recovery of Rs.39,10,366/- which was resisted by respondent No.2 mainly on the plea that the entire amount of loan was availed by respondent No.1 who was son of respondent No.2 and that the suit against him did not lie and also that no part of the loan was disbursed directly in his favour so as to make him liable for reimbursement. Respondent No.2 also filed a separate suit for declaration to challenge his liability. Respondent No.1 did not join the proceedings in either of the suits and was proceeded against ex parte. Both the suits were consolidated vide order dated 07.5.2014, and consolidated issues were framed. The learned Judge Banking Court, after recording evidence, allowed a decree in favour of appellant bank for recovery of Rs. 39,10,366/- against respondent No. 1 whereas the respondent No.2 was held liable to the extent of Rs.3,57,500/- based on mortgaged document as well as the admission of deceased Muhammad Rafi respondent No. 2 in para 4 of his application for leave in the suit of appellant bank.

3. Learned counsel for the appellant submits that the finance facility was secured inter alia by personal guarantee of respondent No.2, Muhammad Rafi, now deceased; the learned Judge Banking Court committed a serious error of law restricting his liability to the extent of mortgage document though the personal guarantee was fully enforceable and that it was incorrectly assumed that the liability of deceased terminated on his demise. In response learned counsel for the respondents supported the impugned judgment and decree.

4. Perusal of record shows that claim of the appellant bank was inter alia based on Running Finance, which was secured by personal guarantee of late Muhammad Rafi, respondent No.2, and mortgage of property. The security documents, Sanction Advice, Renewal of Sanction Letter dated 12.7.2006 and other charge document such as Finance Agreement, Letter of Continuity of Liability, Letter of Hypothecation and Demand Promissory Note, were tendered in evidence. Personal Guarantee was executed by respondent No. 2 who also executed a registered mortgage deed, vide document No. 422, Bahi No.1 dated 23.6.2006 in respect of residential-commercial property at Block A, Chak No. 42/NB, Satellite Town, Sargodha. The appellant bank also relied upon the registered General Power of Attorney of respondent No.2 in favour of appellant bank which was in respect of mortgage property. Further reliance was placed on the Memorandum of Deposit of Title Deed in respect of the mortgage property whereby the title documents were delivered to the bank as security for the repayment. Reliance of the bank was also on the lien of mortgage created in favour of the appellant in the record of rights.

5. Learned Judge Banking Court, by the impugned judgment, decreed the suit against respondent No. 1 as he had not filed any application for leave to appear and defend the suit, nor took any steps to either present his standpoint or to deny the claim of the appellant bank. In view thereof, the learned Banking Court, allowed a decree in the sum of Rs. 39,10,366/- in favour of appellant bank and against respondent No. 1 with costs and cost of funds from the date of institution of the suit i.e. 10.12.2009 till realization. The only objection of bank, in respect of the decree against respondent No.1 is that the learned Judge Banking Court illegally limited the recovery of cost of funds from the date of institution of suit till realization though in law the bank was entitled to receive the costs of funds from the date of default. The objection of the bank appears to be sound in view of the clear provisions of sections 3 and 17 of the Ordinance. Section 3(2) of the Ordinance contemplates that in the event of default on customer's part in discharge of his obligations he shall be liable to pay, for the period from the date of his default till realization, cost of funds of the financial institution as certified by the State Bank of Pakistan from time to time. Similarly section 17 of the Ordinance mandates that the final decree of the Banking Court shall provide for the payment from the date of default of the amount found to be payable on account of default in fulfillment of the obligations and costs of suit by a financial institution, with cost of funds as determined under section 3 of the Ordinance. In this view of the unambiguous provision of law which mandates that a customer is liable to pay the costs of funds on the amount of default and the costs of the suit, from the date of default till realization, the learned Judge Banking Court committed error of law in limiting the right of decree-holder to realize the cost of funds from the date of institution of the suit instead of then entitlement to receive it from the date of default. To this extent, therefore, the decree against respondent No.1 needs to be modified which is accordingly allowed. It is observed that the date of default has not been specifically determined; nevertheless, the learned Banking Court as executing court is competent to determine the date of default on the basis of documents and other materials available on record. Reference can be made in this respect to the rule in "Habib Bank Limited through its Authorized Attorneys v. Pak Poly Products (Pvt.) Limited and 3 others" (2013 CLD 1661). In result, the respondent No.1 shall now be liable to pay the decretal amount, with costs and cost of funds from the date of default till realization of decretal amount. The decree against respondent No.1 is accordingly modified to the extent that appellant bank shall now be entitled to recover the decretal amount with cost of funds, as certified by State Bank of Pakistan from time to time, from the date of default till realization of decree.

6. As regards respondent No.2, the claim of appellant bank was that he was a guarantor for the payment of Running Finance and had also created a mortgage in favour of bank in respect of the mortgage amount, which charge was duly registered with the sub-registrar concerned through a mortgage deed and lien was duly entered in the revenue record. The defence taken was that in view of the death of respondent No.2, the guarantor or his legal heirs, were no longer liable to pay the loan amount. Curiously, this stance of respondent No.2 found favour with the learned Judge Banking Court. Perusal of the findings on issue Nos. 1 and 2 reveals that the learned Judge Banking Court observed that he was not adverting to the evidence at all but was holding that Muhammad Rafi had since died, he was just a guarantor and was responsible to the same extent only. Issue No.1 was "whether defendant No.2 (Muhammad Rafi) stood guarantor of defendant No.1 who is also liable and responsible as defendant No.1; while issue No. 2 was "whether defendant No.2 (Muhammad Rafi) did not sign any loan document except the mortgage deed". These issues could not be decided without attending to the evidence, oral as well as documentary. For this purpose, the document of Personal Guarantee, Mortgage Deed and other security documents relating to deceased respondent No.2 had to be taken into account. It is manifest from the finding on issue Nos.1 and 2 that these issues have been decided in a perfunctory manner. Rule of law is that the court shall take into account the evidence led, its relevance to the issue, the points urged before the court at the time of hearing, decision thereof and reasons in sufficient detail in support thereof. Any conclusion which does not take note of evidence and neither takes into account the documents which are relevant nor gives any plausible or legal reasoning to reach the conclusion, cannot sustain. The learned Judge Banking Court did not even take into consideration the provisions of Contract Act, 1872 and the rule given on the subject. It was a case in which the Personal Guarantee was claimed for the Running Finance, the finance facility was availed on the basis of the security of personal guarantee, mortgage and that the appellant bank had acted upon the security documents inclusive of Personal Guarantee and Mortgage Deed for extending finance facility; during the lifetime of respondent No. 2 which was not reimbursed and, therefore, the respondent No. 2 or his legal heirs could not dispute the liability to the extent of assets left by the deceased predecessor as inherited by them if the execution of the Personal Guarantee was established. The learned Judge Banking Court did not keep in view section 131 of the Contract Act, 1872 which entails that the factum of death shall only be relevant in the absence of any contract to the contrary or in case of continuing guarantee for transactions after the death of the guarantor. The cases in which the transaction was made during the lifetime of the guarantor and rested on security furnished and did not relate to any future transaction, the liability either of guarantor or his legal heirs could not be avoided as it created a charge against the assets of deceased personally held by him. Only those transactions that took place in future could be exempted. Perusal of the Personal Guarantee in the instant case reveals that it contains a stipulation at clause 9 of the document to the effect that in the event of death of the personal guarantor, the guarantee shall not be determined and it shall continue to be binding and operative against successors-in-interest and assigns until all money(s) due from the customer have been paid.

7. It is manifest from the findings on issue Nos.1 and 2 that the learned Banking Judge decided issue No.1 in favour of the bank and held the respondent No. 2 as liable being guarantor yet issue No. 2 was decided in negative without any reasoning or basis and without reference to any evidence on record. It is also strange that despite determining the status of respondent No.2 as a guarantor, the decree against him was only passed to the extent of mortgage amount i.e. Rs.3,57,500/-.

8. Conclusions as crystalized are thus self-contradictory. In fact, issue No.2 was to the effect as to whether the defendant No.2 did not sign any loan document except the Mortgage Deed while issue No. 4 was as to whether respondent No.2 was liable and executed all the document including agreement and additional mortgage deed on 23.1.2006. Similarly, issue No. 5 was as to whether Muhammad Rafi was not borrower and entire amount was availed by Muhammad Raees, respondent No.1 and as such the appellant bank was not competent to recover any amount from Muhammad Rafi, respondent No.2. As against the stance of the respondent No.2 the plea of the appellant bank was that respondent No.2 was a principal borrower and that he was liable to pay the entire suit amount and could not limit his liability to the extent of mortgage amount. In this situation the learned Banking Judge was required to consider the evidence on record and thereafter record findings to the effect as to whether the defendant No. 2 deceased was simply a guarantor or was also a borrower and whether the documents proved his liability to satisfy the entire amount claimed by the appellant bank. The judgment clearly reveals that the findings on issue Nos. 2, 4 and 5 are perfunctory, as no reflection regarding evidence on record has been made nor any logical support for the conclusions arrived at was shown to be drawn. It is true that the respondent No. 2's liability as a mortgagor rested on Mortgage Deed and to this extent, the suit against him was rightly decreed; yet the remaining part of the liability on the basis of the stance taken by the appellant bank was not considered or determined nor any decisive findings were recorded. Being so, to the extent of respondent No. 2 the case is warranted to be sent back to the learned Banking Court to consider the evidence on record and thereafter determine issue Nos. 2, 4 and 5 by proper and lawful reasoning founded on documents and evidence on record. As against respondent No. 1, the decree passed by the learned Banking Court, subject to the modification that the same shall be recoverable with costs of funds from the date of default till realization of amount, is affirmed.

9. Resultantly the appeal is allowed; the impugned decree as against respondent No.1, with modification as noted supra is affirmed; the case to the extent of respondent No. 2 is remanded to the learned Banking Court who shall decide the liability of respondent No.2 deceased represented by his legal heirs, in the light of the observations made hereinabove. KMZ/N-6/L Order accordingly.