1998 PLP 1263 (CLC)

(ii) Whether the personal guarantee Annexure ' A' and Memorandum of Deposit of Title Deed Annexure 'A‑1', dated 2‑3‑1987, were executed only to secure the participation of Habib Bank Ltd., if yes, to what effect? (iii) Whether the equitable mortgage and personal guarantee, dated 2‑3‑1987, have become ineffective/redundant and liable to be returned. (iv) Whether the guarantee/equitable mortgage was to secure the entire amount of financing and other dues advanced to Monalisa Fruit Juice (Pvt.) Ltd., if not to what effect? (v) To what extent and in what amount the defendants are liable to pay damages and in what terms? (vi) What should the decree be?"

6. In support of her case, the plaintiff has examined her attorney/husband while the defendant B.E.L. has examined one witness who is the Assistant Vice -President. Mr. A.H. Mirza argued that since the transaction involved in this suit pertains to B.E.L. which is one of the Banking companies defined in section 2(a) of the Banking Companies Act, 1997 and has been shown as one of the companies in the Schedule to the said Act, this Court has no jurisdiction and that the case be transferred to the Court having jurisdiction. Reliance was placed on section 9(1) of the Banking Companies Act, 1997 which provides that in case of default in fulfilling any obligation with regard to any loan or finance, the Banking Company or the borrower or customer may institute a suit in the Banking Court. The borrower has been defined in section 2(c) of the said Act which means a person who has obtained a loan under a system based on interest from a Banking Company and includes a surety or indemnifier. The customer has been defined in sub‑clause (d) to section 2 and means a person who has obtained finance from Banking Company under a system which is not based on interest or is the real beneficiary of such finance and includes a surety and indemnifier. Therefore, in order to bring a person within the meaning of borrower or customer, it is to be established first that such person has obtained a loan or finance which has been defined in clauses (e) and (f) to section 2 of the Banking Companies Act, 1997 which read as follows:‑‑‑ "(e) 'finance' includes an accommodation or facility under a system which is not based on interest but provided on the basis of participation in profit and loss, mark‑up or mark‑down in price, hire‑purchase, equity support, lease, rent‑sharing, licensing, charge or fee of any kind, purchase and sale of any property, including commodities, patents, designs, trade marks and copy‑rights, bills of exchange, promissory notes or other instruments with or without buy‑back arrangement by a seller, participation term certificate, Musharika, or Modarba certificate, term finance, certificate or any other mode other than an accommodation or facility based on interest and also includes credit or charge cards, guarantees, indemnities and any other obligation, whether fund based or non‑fund based, and any accommodation or facility the real beneficiary whereof is a person other than the person to whom or in whose name it was provided; (f) 'loan' means loan, advance and credit under a system based on interest and includes‑‑‑ (i) an advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a banking company to a borrower; (ii) a guarantee, indemnity, letter of credit or any other financial engagement which a banking company may give, issue or undertake on behalf of a borrower; (iii) a benami loan, that is, a loan the real beneficiary or recipient whereof is a person other than the person in whose name the loan is advanced or granted; (iv) any amount due from a borrower to a banking company under a decree passed by a Civil Court or an award given by an arbitrator; and (v) any loan due from a borrower to a Banking Company which is the subject‑matter of any pending suit, appeal or revision before any Court; and"

7. Mr. A.H. Mirza has strenuously contended that the term 'non‑fund based obligation' covers the present transaction. It would be seen that the above definition of "finance" has been adopted from the Banking Tribunals Ordinance, 1984. The term "finance" in the present Act, 1997 has been adopted word by word from the Ordinance, 1984. Except the term 'equity support' the remaining definition of the term finance is the same as of Ordinance, 1984.

8. It is admitted that prior to execution of Exh.P‑1/B and Exh.P‑1/C, finance up to Rs.13.5 million was agreed and all the relevant documents of the charge and mortgage were executed. It has also come in the evidence that the first instalment of Rs.5.5 million was disbursed by the Company. Under such circumstances, it was argued by Mr. Sajjad Ali Shah that it cannot be said that the execution of present two documents were against extension of facility of Rs.13.5 million. He has taken me through the cross‑examination of defendant's witness who has admitted to be correct that in compliance with the sanction of the loan the company had mortgaged its property; hypothicated its plant, machinery and equipment, credit floating charge and that further credit was created and properties were mortgaged through registered deed on 14‑12‑1986. The present two documents under reference were executed much after the date of the aforesaid registered deeds. It was further admitted by the defendant's witness that on 8‑2‑1986, it asked the Company to resolve its dispute with the H.B.L. and it was after the dispute arose between the company and H.B.L. that the guarantee and security in suit were obtained from the plaintiff on 2‑3‑1987. He has further admitted that due to non‑participation of H.B.L., the loan facility was reduced to Rs.13.5 million from 15 million. However, in his examination in chief, he has claimed that the instant guarantee and equitable mortgage was in respect of the original loan amount. Mr. Sajjad Ali Shah has also referred to the plaint and decree in Suit No. 155 of 1993 which was filed by B. E. L. and Muslim Commercial Bank jointly before the Banking Tribunal‑II at Karachi. In that suit, the plaintiffs have not sought any relief in respect of the suit property nor the same was disclosed as the subject‑matter of the execution which is pending against the Company before the Banking Tribunal. Copies of plaint, decree and Execution Application were brought on record by the plaintiff's attorney.

9. As a result of promulgation of this new Law namely, 'the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997, the previously two Laws enacted for the purpose of recovery of bank loan and finances, titled as The Banking Companies (Recovery of Loans) Ordinance, 1979 and the Banking Tribunal Ordinance, 1984, now stand repealed, vide section 28(1) of the new Act, 1997. All the proceedings including proceedings following the filing of an arbitration award and for execution of a decree pending before the said Banking Courts, constituted under the abovementioned two repealed Ordinances, stand transferred to the Banking Courts having jurisdiction, as defined under section 2(b) of the Act, 1997. Thus, all the suits, valuation of which does not exceed Rs.30,000,000 (thirty million) or the trial of offences under the said Act, shall be tried by a Banking Court, established under section 4(1) while all such suit, valuation of which exceeds Rs.30,000,000 would be tried by a Judge of High Court, especially nominated by the Chief Justice of such High Court. It is pertinent to note that in sub‑clause (iii) to subsection (b) of section 2, the pecuniary jurisdiction of the High Court has not been defined by mentioning the amount only but it has been specifically mentioned "in respect of any other case". Therefore, it suggests that the jurisdiction of the High Courts are not determined by only pecuniary limits but it also includes "any other case". Whatever the subject‑matter of a suit may be, if it is between a customer, borrower or a surety on the one hand and the banking company on the other hand involving question of a default arising out of any obligation as a result of loan or finance, the jurisdiction lies with the Banking Court.

10. It will be seen that in all suits, which were filed by borrowers or customers in persuance of the last two repealed Ordinance as a counter‑claim or as a set off against the Banking Companies have been transferred to the new Banking Court in furtherance of the provisions of subsection (6) of section 7 of the Act, 1997. In order to determine what is the nature of jurisdiction conferred by the new law on the newly constituted Banking Courts, it would be pertinent to refer section 9(1) which provides filing of a suit by a borrower or a customer or a Banking Company in all cases where any of such parties "commits a default in fulfilling any obligation with regard to any loan or finance, as the case may". This entitles all the parties irrespective of the fact whether such party is a borrower or a customer or a banking company to bring his grievance before the concerned Banking Court in case a default is committed in fulfilment of any obligation. The intention of legislature is clear from the statement of Objections and Reasons released on the eve of promulgation of this Act, which was issued by Mr. Sartaj Aziz, Senator and Member‑in‑Charge (now Minister of Finance Government of Pakistan) which reads as follows:‑‑‑ "

It was also experienced that two different forums were creating problems for the litigants. The Bill aims at to consolidate both the laws to provide a single forum to the banks for the recovery of their loans. The existing laws do not provide any remedy to the customers. The customers have to go before the ordinary Courts. This creates multifariousness of the proceedings. The Bill also enables the customer to approach the same Court which can be approached by a bank .... "

11. While defining the terms "borrower" and "customer" in the Act XV of 1997 a surety or an indemnifier has also been included. In the suit of the present plaintiff, it is not denied that she stood surety on behalf of the company. It is also not denied that the memorandum of title deeds was also executed as an obligation with regard to a loan extended to a company of which plaintiff was one of the Directors. From the facts of the case, the undisputed facts which appear are that the personal guarantee and execution of memorandum of depositing title documents were in respect of a dispute which was between one of the Director of the Company and HBL and that B.E.L. in order to safeguard the interest of H.B.L. asked the company for further execution of these two documents and equitable mortgage of the suit property. It also appears to be undisputed that till date H.B.L. has not come forward claiming any right, title or interest in the suit property. The new law is so widely worded that it would include all possible transactions pertaining to a banking business. Unless it is specifically established that the plaintiff does not fall within the terms "borrowers" or "customers" and unless it is shown that such plaintiff has not availed either finance or loan from a banking company, in my considered view all suits arising out of a cause of action based on commission of default in fulfilment of any obligation with regard to loan or finance would fall within the jurisdiction of a Banking Court. 12.. The above view is further fortified by the ouster clause incorporated in the Act, 1997 which is section 7(4) and (5). It bars all Courts except a Banking Court to exercise "any jurisdiction with respect to any matter" as provided in the Act, 1997. It further excludes the jurisdiction of Civil Courts from taking a decision as to the existence or otherwise of a loan or finance and the execution of a decree passed by a Banking Court. The present suit also involves a question whether mortgage of the suit property was in connection with the finance extended by the B.E.L. In this connection the two issues namely (ii) and (iii) as mentioned in para. 5 above clearly indicates that the question as to the existence or otherwise of the finance is very much involved in this suit. It is pertinent to note that while in subsection (5) of section 7 a banking company is entitled to invoke jurisdiction of any Court for any remedy which may be available under the Law, at the same time, no such right is extended to customers, borrowers, surety or an idemnifier. Subsections (4) and (5) of to section 7 of the Act read as follows:‑‑‑ "(4) Subject to subsection (5), no Court other than a Banking Court shall have or exercise any jurisdiction with respect to any matter to which the jurisdiction of a Banking Court extends under this Act, including a decision as to the existence or otherwise of a loan or finance and the execution of a decree passed by a Banking Court. (5) Nothing in subsection (4) shall be deemed to affect‑‑‑ (a) the right of a banking company to seek any remedy before any Court or otherwise that may be available to it under the law by which the banking company may have been established; or (b) the power of the banking company or jurisdiction of any Court such as is referred to in clause (a); or require the transfer to a Banking Court of any proceeding pending before the banking company or such Court immediately before coming into force of this Act."

13. As a result of above discussion, this suit is hereby transferred to the Banking Court as established under section 4(1) of the Act, 1997 as the valuation of instant suit is below 30 million.

14. Any observation made hereinabove is tentative in nature and will have no effect or influence while this case is being decided on merits. A.A./P‑44/K Suit transferred