2013 PLP 2107 (CLD)

NADEEM AKHTAR, J.

The petitioner has filed this Constitutional Petition against the order passed on 28-11-2012 by the Banking Court No.II at Karachi in Execution Application No.75 of 2012 arising out of Suit No.297 of 2011, whereby his application under Order XXI, Rule 58, C.P.C. read with section 19(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("the Ordinance of 2001"), was dismissed.

2. Respondent No.1 (Allied Bank Limited) filed Suit No.297 of 2011 before the Banking Court No.II at Karachi against respondent No.2 for recovery of Rs.6,574,219.00. As respondent No.2 did not file the application for leave to defend nor did he appear despite service through all modes, the Suit was decreed against him ex parte vide judgment delivered on 28-11-2011 in the sum of Rs.6,574,219.00, with cost of funds thereon from the date of filing of the suit till realization at the rate prescribed by the State Bank of Pakistan. Costs of the suit were also awarded to respondent No.1, and a decree for attachment of the personal assets of respondent No.2 and for the sale of the property; namely, Flat No.301 (B-Type), 3rd Floor, Plot No.7-C, Shahbaz Lane No.2, Phase VI, measuring 1,100 sq. ft., Defence Housing Authority, Karachi, mortgaged by respondent No.2 with respondent No.1, was also passed by the Banking Court. Accordingly, the decree was prepared on 10-12-2011.

3. Respondent No.1 then filed Execution Application No.75 of 2012 for execution of the said decree. In the execution proceedings, the mortgaged property was ordered to be attached. The petitioner, claiming to be the tenant of the mortgaged property and having the possession thereof, flied an application under Order XXI, Rule 58, C.P.C. read with section 19(7) of the Ordinance of 2001 as an objector in the said execution proceedings, praying that the order of attachment of the mortgaged property be recalled to the extent of his purported rights as a tenant, and he may be allowed to remain in possession in such capacity. By the impugned order, the said application was dismissed by the executing court.

4. The learned counsel for the petitioner submitted that section 15(3) of the Ordinance of 2001 provides that, after the service of the notice of demand by a financial institution, all the powers of the mortgagor with regard to the recovery of rents and profits in respect of the mortgaged property stand transferred to the financial institution until such notice is withdrawn, and in such an event, the mortgagor becomes duty bound to pay all rents and profits in respect of the mortgaged property to the financial institution. He further submitted that by virtue of the Proviso contained in section 15(3) (ibid), where the mortgaged property is in possession of any tenant or occupier other than the mortgagor, the tenant or occupier, on receipt of the notice in this behalf from the financial institution, becomes duty-bound to pay to the financial institution the rent or lease money or other consideration agreed with the mortgagor. It was urged that the rights of the petitioner as the tenant of the mortgaged property are protected under the said Proviso, as his liability was/is only to the extent of payment of the rent to the financial institution, and not to vacate the mortgaged property.

5. The learned counsel for the petitioner further submitted that the rights of the petitioner as a tenant of the mortgaged property are also protected under the Proviso contained in section 15(6) of the Ordinance of 2001. It was urged that under this Proviso, the Banking Court cannot order eviction of a person who is in occupation of the mortgaged property under a bona fide lease. At this stage, the learned counsel was confronted with Explanation (1) contained in section 15(6) (ibid), that where the lease is created after the date of the mortgage and it appears to the Banking Court that the lease was created so as to adversely affect the value of the mortgaged property or to prejudice the rights and remedies of the financial institution, it shall be presumed that the lease was not bona fide, unless proved otherwise. He was also confronted with the fact that the purported Lease Agreement was executed in favour of the petitioner after the mortgaged property was mortgaged in favour of respondent No.1. The learned counsel frankly conceded that the lease in favour of the petitioner was executed subsequent to the creation of the mortgage, but he insisted that the petitioner was still entitled to the protection of the Proviso contained in section 15(6) (ibid), as the lease in his favour was bona fide, it was urged that the question as to whether the lease was bona fide or not, could be proved only through evidence, and not otherwise.

6. In the end, it was argued on behalf of the petitioner that the petitioner has no objection to the sale of the mortgaged property; his only contention is that his rights as the tenant should be safeguarded; the mortgaged property should be sold without disturbing his possession; and, there is no provision under the Ordinance of 2001 that requires the petitioner to vacate the mortgaged property, or empowers the Banking Court to order his eviction therefrom. In support of his submissions, the learned counsel relied upon the cases of (1) Mrs. Mubarak Shah v. The Banking Court Judge No. III and others, 2005 CLD 515 and (2) Messrs Climax Printer and another v. Messrs Habib Bank Ltd. and others 2008 CLD 761 = 2008 MLD 1068.

7. Ms. Tania Alam, the learned counsel for respondent No.1, strongly opposed the submissions made on behalf of the petitioner. She contended that the purported Lease Agreement in favour of the petitioner was executed on 4-1-2010 for a period of five (5) years ending on 31-12-2014; the purported Lease Agreement was admittedly an unregistered document; the mortgaged property was mortgaged by respondent No.2/mortgagor in favour of respondent No.1 in December 2008 in consideration of the finance facility granted to him by respondent No.1 under the finance agreement dated 2-12-2008; and, the Memorandum of Deposit of Title Deeds in respect of the mortgaged property was executed by respondent No.2 in December 2008, and the Mortgage Deed executed by him was registered on 12-11-2009. It was urged by the learned counsel for respondent No.1 that the purported lease in favour of the petitioner was/is void ab initio and he never acquired any rights as the tenant in pursuance thereof, as respondent No.1 had already acquired the rights and title of the mortgagee in respect of the mortgaged property much prior to the purported lease. It was further urged that, in view of the admitted position that the purported lease was deliberately created in favour of the petitioner after creation of the mortgage in favour of respondent No.1, the purported lease cannot be termed as a bona fide lease in terms of Explanation (1) contained in section 15(6) (ibid). The learned counsel submitted that the Banking Court exercised its jurisdiction in accordance with law, and the impugned order is legal and proper in all respects. In support of her submissions, she relied upon the cases of (1) Lubna Afzal v. Union Bank Limited and 8 others, 2003 CLD 868, and (2) Mst. Pathani through Attorney v. Habib Bank Limited and another, 2012 CLD 1957.

9. We have heard the learned counsel for the parties, and have also perused the record available before us. We have observed that section 15 of the Ordinance of 2001 applies to cases where notices, as provided therein, are issued by the financial institution to the mortgagor, demanding payment of the outstanding mortgage money. Such notices can be issued by the financial institution even without approaching the Banking Court. The procedure for issuance of such notices by the financial institution under section 15 (ibid) and the consequences for not paying the outstanding mortgage money by the mortgagor, are stipulated in detail in section 15 (ibid). In the instant case, no such notices were issued by respondent No.1, and instead, the Suit for recovery was filed before the Banking Court that resulted into passing of the decree. Upon pronouncement of judgment and decree, section 19 of Ordinance of 2001 comes into play, which provides the mechanism for execution of the decree and sale of the mortgaged property with or without intervention of the Banking Court. Subsection (5) of section 19 of the Ordinance of 2001 provides that the provisions of various subsections of section 15 of the Ordinance of 2001, shall apply mutatis mutandis to the sales of mortgaged, pledged or hypothecated property by a financial institution in exercise of its powers conferred by section 19(3) of the Ordinance of 2001. It is to be noted that, as subsection (3) of section 15 of the Ordinance of 2001 is not mentioned in section 19(5) (ibid), its applicability has been specifically excluded in the sales of mortgaged, pledged or hypothecated property by a financial institution in exercise of its powers conferred by section 19(3) of the Ordinance of 2001. Reliance by the learned counsel for the petitioner on section 15(3) (ibid), being misconceived, is hence rejected.

10. Regarding the next contention of the learned counsel for the petitioner, heavy burden was on the petitioner to prove the assertion that the lease in favour of the petitioner was bona fide, and the question as to whether the lease was bona fide or not, could be proved only through evidence, and not otherwise. A plain reading of Explanation (1) contained in section 15(6) (ibid) shows that a lease shall be presumed to be not bona fide if it was created after the date of the mortgage, and it appears to the Banking Court, that the lease was created so as to adversely affect the value of the mortgaged property or to prejudice the rights and remedies of the financial institution. The use of the word "shall" therein clearly reflects the intention of the law makers that the question as to the presumption of the lease to be not bona fide, is to be left at the discretion of the Banking Court, and such question is to be decided and such discretion is to be exercised by the Banking Court according to the facts and circumstances of each case.

11. In the instant case, admittedly the purported lease was created in favour of the petitioner after the creation and during the subsistence of the mortgage in favour of respondent No.1. The consent of respondent No.1/mortgagee was also not obtained by respondent No.1/mortgagor. Moreover, the purported lease was created for a term of five (5) years through an unregistered document. The purpose of not getting the lease registered was obvious. Had the lease been submitted for registration, the Sub -Registrar concerned would have immediately refused to register the same in view of the mortgage already registered with him. The mala fides on the part of respondent No.2 are apparent, as he did not want respondent No.1/mortgagee to know about the purported lease. The collusion on the part of the petitioner is also apparent, as he never approached respondent No.1/mortgagee or the Banking Court despite issuance of the summons to respondent No.2 at the address of the mortgaged property, where he was admittedly residing. The facts about creation of the purported lease in favour of the petitioner after creation of the mortgage, the petitioner having failed in establishing, that Rs.1,060,000.00 was paid by him towards the alleged rent, and the collusion on his part, were noticed by the Banking Court and are mentioned in the order. The above clearly shows that the purported lease was not bona fide, and therefore, the petitioner was not entitled to the protection under the Proviso of section 15(6) (ibid).

12. In the above context, the case of Lubna Afzal (supra) relied upon by the learned counsel for respondent No.1, is fully attracted in the facts and circumstances of the case in hand. In the cited case also, an unregistered rent deed for a period of five (5) years was executed after the mortgage, and there was no proof on the record showing payment of advance rent. A learned Division Bench of the Lahore High Court held inter alia in the said case that the meaning of the expression "bona fide" is that an act was done or performed honestly, without fraud, collusion or participation in wrong doing, shall be deemed to be a bona fide act; the presence of any of these elements may render an act mala fide; when the executing court invokes section 19(2) of the Ordinance of 2001, then section 17(7)(a) of the Ordinance of 2001 is not attracted; and, the executing court had rightly dismissed the application under section 15(6) of the Ordinance of 2001 in view of Explanation (1) read with the Proviso of section 15(6) (ibid). In the instant case too, the purported lease was created for a term of five (5) years through an unregistered document in favour of the petitioner after the creation and during the subsistence of the mortgage; there was no proof on the record showing payment of advance rent or rent; and, the executing court had invoked section 19(2) of the Ordinance of 2001.

13. The case of Mst. Pathani (supra) relied upon by the learned counsel for respondent No.1, shall also apply to the instant case, wherein a learned Division Bench of this Court held inter alia that the protection provided in section 15(6) (ibid) is applicable only to such person who is in occupation of the mortgaged property or any part thereof under a bona fide lease; the pre-requisite for seeking protection by a person under the Proviso to section 15(6) (ibid) is to show that there is a bona fide lease in his favour; the burden to show the same lies exclusively upon such person; and, the Ordinance of 2001, being a special law, has conferred specific powers to the Banking Court for eviction of tenants of mortgaged properties. The cited case decided by a learned Division Bench of this Court, is binding on us.

14. The case of Mrs. Mubarak Shah (supra), cited by the learned counsel for the petitioner, is not relevant or applicable to the instant case. In the said case decided by a learned Division Bench of this Court, the impugned order was passed and lease was executed before the promulgation of the Ordinance of 2001 when Act XV of 1997 was in the field. It was specifically observed in the cited case that Act XV of 1997 did not contain a clear specific provision regarding rights and obligations of a tenant. On the basis of this observation, it was held that in the absence of any explicit provision, the legislative intent could not be so construed as to deprive tenants of their rights to occupy property guaranteed under law. There was no discussion nor were there any findings in the cited case in relation to section 15(6) (ibid), or about the implications of a lease created subsequent to a mortgage. In fact, the cited case goes against the petitioner, as now there is a specific and clear provision in the Ordinance of 2001 in the shape of section 15(6) (ibid) for eviction of the tenant of the mortgaged property in case the lease is not bona fide.

15. Likewise, the case of Messrs Climax Printer (supra) relied upon by the learned counsel for the petitioner, is also not applicable in the facts and circumstances of the instant case. In the cited case, the tenants had acquired the premises on lease in the year 1998 prior to the mortgage, and at the time of creation of the equitable mortgage, it was within the knowledge of the mortgagee bank that the mortgaged property was already in the occupation. of tenants who were regularly paying rent as statutory tenants. On the basis of the above facts, a learned Division Bench of this Court allowed the protection of section 15(6) (ibid) to the tenants by holding that their lease was bona fide. Whereas, in the instant case, the purported lease was admittedly created subsequent to the mortgage, and we have already held that the purported lease in favour of the petitioner was not bona fide in view of the reasons stated in the preceding paragraphs.

16. It would not be out of place to mention here that respondent No.2/mortgagor did not file any appeal against the decree passed by the Banking Court for the sale of the mortgaged property. Thus, the said decree attained finality long ago. It is the duty of the Banking Court to execute the decree in accordance with law. For the reasons discussed above, we are of the considered opinion that the petitioner is not entitled to the protection under section 15(6) of the Ordinance of 2001, and we do not see any infirmity or illegality in the impugned order passed by the Banking Court. The petitioner may avail his remedy, if any, against respondent No. 2 in accordance with law, if he is so advised. The petition as well as C.M.A. No.43912 of 2012 are, therefore, dismissed with no order as to costs. AG/B-9/K Petition dismissed.