2015 PLP 691 (CLD)

SYED SAEED-UD-DIN NASIR, J.

This order will dispose of C.M.A. No.1606 of 2008, which is an application under Section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 read with section 151, C.P.C. for leave to defend the suit on behalf of defendant No.5.

2. Brief facts of the case are that the plaintiff Bank Al-Falah Limited at the request of defendant No.1 Messrs Calimate Telips Telecom Ltd. provided various financial facilities, to the defendant No.1. The defendants Nos.2 to 5 are the sponsors/directors/guarantors of the defendant No.1 and the present defendant No.5 is also a mortgagor inasmuch as she has provided collateral security of her immovable property bearing No.22, Khayaban-e-Shamsher, measuring 2000 square yards, Phase-V, Defence Housing Authority, Karachi by executing a memorandum of deposit of title deeds in favour of the plaintiff dated 31-5-2004. The defendant No.5 also executed inter alia, in respect of said property, an undertaking, Iqrarnama and agreement to create legal mortgage. The financial facilities which were provided by the plaintiff Bank Al-Falah Limited as follows:-- (1) Current Finance (CF) of Rs.75.00 million. (2) TF of Rs.6.00 million. (3) SLC/ULC/Acceptance of Rs.80.00 million (4) Letter of Guarantee Rs.30.00 million

3. The above financial facilities markup basis/commission in different amounts and renewed/revised the same from time to time against inter alia security of demand promissory note, hypothecation of movable/fixed assets and third party mortgage and personal guarantees. In consideration of the aforesaid facilities, the defendant No.1 executed letters of hypothecation in favour of the plaintiff's bank on its movable properties, stocks and fixed assets, book debts and receivable, which were duly registered with the Securities and Exchange Commission of Pakistan as per requirement of law. It is also the case of plaintiff's bank that in consideration of the aforesaid financial facilities, the defendant No.5 first deposited the title deeds of her immovable property i.e. Bungalow No.22, Khayaban-e-Shamsher, Phase-V, Defence Housing Authority, Karachi and then confirmed the factum by executing a memorandum of deposit of title deeds in favour of the plaintiff dated 31-5-2004. She also executed inter alia undertaking, Iqrarnama and agreement to create legal mortgage. The defendants Nos.2 to 6 also executed their personal/guarantees in favour of the plaintiff undertaking and guaranteeing the repayment of all the outstanding and dues of the defendant No.1 to the Bank.

4. It is also the case of plaintiff that at the request of defendant No.1 the financial facility limits were renewed in favour of the defendant No.1 and also allowed additional credit facility vide letter dated 4-5-2005 and 30-1-2006, the facilities were also secured through the continuing securities earlier provided by the defendants. They further executed their personal guarantees in favour of the plaintiff. According to the plaintiff on 1-2-2006 the plaintiff at the request of the defendant No.1 opened an L/C (usance - 365 ____ days) bearing L/C No.MBK/0049/2006 in the sum of USD $ 1,292,313 for import of hard and software telecommunication equipments in favour of Messrs HUAWEI Tech Investment Company Limited but the defendants failed to liquidate the outstanding amount as a consequences thereof suit has been filed for recovery of said amount along with accrued markup.

5. The defendant No.5 Mrs. Yuba Jamil who purportedly stood mortgagor/guarantor on behalf of defendant No.1 in Suit No.B-1 of 2008, filed suit bearing No.B-38/2008 for declaration, permanent injunction and redemption of the aforesaid mortgage property on the ground that the present Suit No.B-1 of 2001 is not maintainable against her due to doctrine of "Novation of Contract" and/or principle of "Discharge of Guarantee(s)". It is further contended by the present defendant in the Suit No. B-88 of 2008 that in view of sections 128, 133, 134 and 56 of the Contract Act, 1872 the alleged guarantee executed by the defendant No.5 has expired on 30-8-2007 and no demand was made by the plaintiff within due time. The instant suit is not maintainable against the defendant No.5 under section 9(1) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 as no default has been committed by the defendant No.6 in fulfilling of any obligations with regard to the finances granted by the plaintiff/Bank. In view of the above the present defendant does not fall within the definition of "customer" as provided under section 2 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. The defendant No.5 has also requested in the aforesaid suit for redemption of mortgage property in lieu of depositing the amount of Pak Rs.18.2 million being the mortgage amount/money with the Nazir of this Court.

6. Mr. Salim Salam Ansari, learned counsel appearing for defendant No.5 in Suit B-1 of 2008 and for plaintiff in Suit No.B-38 of 2008 has contended that the leave to defend be granted in view of sections 132, 133 and 134 of the Contract Act, 1872, which contemplate the Doctrine of "Novation of Contract" or principle of "Discharge of Guarantee(s)". The learned counsel for defendant No.5 has invited attention of the Court to annexue "L" to the plaint and contends that previous guarantees, mortgages, securities, if availed by the defendants Nos.2 to 6 have been discharged, revoked inasmuch as the renewal is without the consent of the mortgagor the defendant No.5 and/or the guarantors the defendants Nos.2 to 6, as the renewal is only between the principal borrower/defendant No.1 and/or the plaintiff/bank. He further contends that merely on this ground the leave to defend was usually granted by the High Courts and Hon'ble Supreme Court in many cases. It is next contended by Mr. Salim Salam Ansari that under section 10(B) of Financial Institutions (Recovery of Finances) Ordinance, 2001 if substantial and/or mixed questions of laws or facts are involved, for which the evidence is to be recorded, the defendants are entitled for leave to defend the suit. He next contended that in annexures P/2 and P/3 to the leave to defend application appearing at pages 189 and 197 of the file, it is clearly mentioned that word "not accepted" from which it is evident and the contention that mortgage and corporate guarantee were not executed in annexure P/4 to the leave to defend application, it is also mentioned as crossed or negative that corporate guarantee of defendant No.6 and mortgagor is not accepted by defendants Nos.5 and 6, therefore, no mortgage or corporate guarantee can be forced upon in view of observation made in 2006 CLD 1506.

7. The learned counsel has also referred to the statement of account filed by the plaintiff/bank and states that the same has not been duly attested in accordance with Section 8 of the Bankers' Books Evidence Act, 1891 which requires that the person attesting the statement of account should to be his name and designation therein otherwise statement of account is of no value. He placed reliance on Section 8 of the Bankers' Books Evidence Act, 1891.

8. The learned counsel next contended that provision of Article 10-A of the Constitution of Islamic Republic of Pakistan equipped the person/applicant with a right to fair trial and due process. Civil rights and obligations could not be determined without fair trial and due process. He further contended that Articles 4 and 10-A of the Constitution have to be read into every statutes, therefore, the same has to be read into the Financial Institutions (Recovery of Finances) Ordinance, 2001 and the defendant No.5 should be afforded an opportunity of leading evidence in accordance with the principle of fair trial and due process by granting unconditional leave to defend the suit to the defendant No.5 in order to substantiate his arguments the learned counsel for defendant No.5 has placed reliance upon the following case law:-- PLD 2010 Lahore 463 - Wajid Ali v. Rent Registrar/Special Judge Rent. 2014 CLD 696 Supreme Court of Pakistan - Zeeshan Energy Ltd. v. Faisal Bank Ltd. 2012 CLD 337 Supreme Court of Pakistan - Apollo Textile Mills Ltd. v. Soneri Bank Ltd. 2014 CLD 985 Sindh - Elbow Room v. MCB Bank Limited. 2010 CLD 651 Lahore - Bankers Equity Ltd. v. Bentonite Pakistan Ltd. 2004 CLD 1338 Lahore - United Bank Ltd. - Messrs Ilyas Enterprises. 2014 CLD 1367 Sindh - Habib Metropolitan Bank Ltd. v. Abid Nisar. 2014 CLD 180 Lahore - Munawar Abbas Cotton Ginner Tauns Darri Peer Adil v. United Bank Ltd. 2012 CLD 1222 Lahore - Warrior Chemical (Pvt.) Ltd. v. National Bank of Pakistan. PLD 2014 SC 283 - National Bank of Pakistan v. SAF Textile Mills Ltd. PLD 2012 SC 553 - Suo Motu Case No.4 of 2010.

9. Turning now to the arguments extended by Mr. Abdul Sattar Lakhani, learned counsel appearing for plaintiff, it is submitted that the application for leave to defend the suit is in breach of the mandatory provisions section 10(3), (4) and (5) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and, therefore, the application is liable to be summarily rejected vide section 10(6) of the said Ordinance. The defendant No.5 has executed personal guarantee and hence fall within the definition of customer as such the bare plea that the defendant No. 5 is neither a guarantor nor customer has no legal value.

10. The sections 56, 128, 133 and 134 of the Contract Act quoted are not relevant to the subject matter. The defendant has accepted the liability as that of principal debtor and guarantee expressly empower the plaintiff to allow the Principal Borrower time or other indulgence. Moreover the defendant No.5 is not outsider or third party but director/sponsor of the Principal Borrower who owned and managed the Principal Borrower and executed all charge documents on behalf of the Principal Borrower the defendant No.1. It is denied that the guarantee has expired on 30-8-2007. The guarantee is continuing demand guarantee for repayment of all the dues of the defendant No.1 outstanding at any time. That the defendants are attempting to mislead the Court by producing incorrect and fabricated documents. That the defendants have wrongly annexed with their application Exh.P/2 the offer letter dated 30-1-2006 rejected by the plaintiff on the terms and conditions that the defendants sought to impose. The actual accepted offer letter dated 30-1-2006 which was obtained by the plaintiff is annexed with the plaint as annexure "G". The plaintiff time and again demanded payment from the defendant both verbally and in writing. The defendant No.1 acknowledged in writing the liability and promised to pay vide letter dated 17-7-2007 under the signature of defendant No. 1 but did not abide by the promise. Finally the plaintiff served a 3 day legal notice dated 1-12-2007 to the defendant but he failed to give any positive response. Furthermore there is no difference in the amount demanded by the plaintiff which has been correctly calculated with mark up to 30-11-2007.

11. The guarantee under reference is not inchoate and in fact is complete in all respects. The defendant No.5 has no authority to plead for defendant No.6. The defendant No.6 did give corporate guarantee for the dues of the defendant No.1. All the references to various Articles and Sections of Qanun-e-Shahadat Order, 1984, Contract Act, 1972, Stamp Act, 1899 and Bankers' Books Evidence Act, 1891 are irrelevant and not at all applicable to the subject matter. The guarantee is complete in all respects, properly stamped duly executed and witnessed.

12. All the defendants have executed personal guarantees thereby undertaking full payment of the liability of defendant No.1 as principal debtor. The defendant executed personal guarantee as director/sponsor of defendant No.1 and therefore cannot claim discharge of guarantees for alleged reasons or otherwise.

13. The officers of the plaintiff who have signed the plaint hold power of attorney, copies whereof have been filed with the plaint 'S' and 'S-1' no legal requirement for filing any Board Resolution of plaintiff's of directors. The defendant is customer as having executed personal guarantee and is liable for payment of the amount outstanding against defendant No.1 and guaranteed by the defendant No.5. The law does not make any exception in favour of the defendant as guarantor, surety, indemnifier and he is legally bound to submit the mandatory particulars required under section 10(3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 and therefore the application for leave to defend the suit is liable to be rejected summarily vide section 19(6) of the said Ordinance. The defendant has not produced any single document in support of their submissions and hence his application is required to be dismissed. The defendant is fully aware that he has no basis for any claim for filing counter suit against the plaintiff.

14. The submissions made by the defendants are neither substantial nor need evidence. They are merely bare, formal stock pleas and are frivolous, misconceived and baseless. It is submitted that the plaintiff is entitled to all the reliefs claimed in the suit in view of the fact that the defendant No.5 has not complied with the mandatory provisions of law in his application for leave to defend and have not disclosed any bona fide as serious defence. Therefore, the defendant No.5 is not entitled to leave to defend the suit and the application merits dismissal with costs and the suit is liable to be decreed as prayed. The learned counsel for the plaintiff has relied upon the following case-law in support of the aforesaid contentions:-- (i) 2002 CLD 550 [Supreme Court of Pakistan] - Huffaz Seamlen Pipe Industries Ltd. v. Security Leasing Corporation Ltd. Wherein it is held that Guarantor cannot resort to technicalities to defend the claim of the creditor- Even where the contract becomes unenforceable against the principal debtor, the guarantor would still be liable for the surety he had executed, unless there was any covenant to the contrary - Leave to appeal was refused. (ii) 2006 SCMR 619 SC - Messrs State Engineering Corporation Ltd v. National Development Finance Corporation. Wherein it is held that guarantee is an undertaking by a third party for one of the parties to the contract whereby the third party binds itself to see that the promise or condition would be fulfilled according to covenant - Liability of guarantor/surety was co-extensive with that of the principal debtor, unless it was otherwise provided by the contract as envisaged in S. 128 of Contract Act, 1872 - Guarantor could not shirk from the liabilities incurred by him through the execution of documents. (iii) 2006 CLD 178 [Lahore] - Amir Javed v. Al-Baraka Islamic Investment Bank. In this case it is held that the liability of defendants, besides being guarantor, was also in their capacity as principal debtor - Subsequent agreements would not absolve the defendants of their liability because defendants had bound themselves by virtue of the contract of guarantee that their liability shall remain unaffected even in the event of modification, variation of the terms of facility, compositions or other arrangements with the customer of the Bank. (iv) 2009 CLD 614 - Dr. Ghulam Hussain v. Orix Leasing. In this case it is held that leave to defend application in suit for recovery against guarantor was dismissed by Banking Judge, which was upheld by the Hon'ble Lahore High Court. (v) 2012 CLD 337 [Supreme Court of Pakistan] - Apollo Textile Mills Ltd v. Soneri Bank Ltd. - In this case it is held that where there in an application for leave to defend the suit which is not in conformity with mandatory provisions of sections 10(3) and (5) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 it is liable to be dismissed. (vi) 2013 CLD 88 [Sindh] - Habib Metropolitan Bank Ltd v. Abdul Jabbar Gihllin. In this case it is held that Electronically generated statement of accounts shall not require any signature by virtue of Electronic Transaction Ordinance, 2002. (vii) 2013 CLD 1165 [Sindh] - Atif Manzoor v. Faysal Bank Ltd. In this case it is held that leave to defend the suit application was dismissed when it failed to comply with express provisions mentioned in section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001. (viii) 2014 CLD 729 [Sindh] - Habib Metropolitan Bank Limited v. Century Textile and Sportswear (Pvt.) - Where mandatory provisions of section 10 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 are complied with, the same contract has consequences of rejection of application for leave to defend the suit. (ix) PLD 2003 Lahore 106 - Khawaja Muhammad Daud Sulaimani v. Election Tribunal - In this case it is held that provision of section 128, Contract Act, 1872 provided that liabilities of the principal debtor and the guarantor were co-extensive. (x) 2011 CLD 1931 [Karachi] - United Bank Limited v. Presiding Officer, Banking Court - In this case it is held that the Banking Court while granting leave to defend with respect to disputed amount would be bound to pass interim decree in respect of such part of claim appeared to be payable by defendant to plaintiff. (xi) 2012 CLD 1336 [Lahore] - Bank of Khyber v. Spencer Distribution Ltd. - In this case it is held that the law does not contemplate that a mortgagor ought to be a beneficiary of finance or ought to have nexus with principal debtor in order to be liable on mortgagor executed by him/her. (xii) 2011 CLD 267 [Karachi] KASB Bank Limited v. Dewan Salman Fibre Ltd. - In this case it is held that Suit for recovery of loan - Application for leave to defend the suit-Counsel for defendant requested for an adjournment contending that in view of Constitutional (18th Amendment) Act, the question would arise as to whether the procedure provided under the Financial Institutions (Recovery of Finances) Ordinance, 2001 was in consonance with the concept of fair trial and due process as enunciated through the said amendment - Said amendment was under consideration by a Division Bench of the High Court and constitutional petition was being herd on day to day basis - Counsel for the defendant, requested that the hearing in the case could be adjourned till such time the Division Bench decided as to whether the procedure of the present proceedings would meet said criteria or not - Defendant in his application for leave to defend suit had admitted its liability towards the plaintiff Bank in the sum of Rs.406,436,00-Counsel for the plaintiff had submitted that interim decree to the extent of said amount be granted - Interim decree in favour of the plaintiff bank for payment of said amount by the defendant to the plaintiff, was granted - Hearing in respect of leave to defend application for the remaining amount, was adjourned, in circumstances.

15. The learned counsel for the plaintiff next contended that since the amount of Rs.18.2 million is admitted by the defendant No.5, therefore, a preliminary decree in terms of Section 11 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 can be passed and suit can be decreed to the extent that sum along with cost of funds accrued thereon upto now.

16. I have heard the arguments of the learned counsel for the parties, perused the material and documents available on record of the case and appreciated the case-law cited by the parties. It is also an admitted position that the statement of account filed by the plaintiff along with the plaint is not certified in accordance with the express provisions contemplated by section 8 of the Bankers' Books Evidence Act, 1891 inasmuch as it has not subscribed by the principal accountant or manager of the Bank with his name and official title. For the sake of convenience section 8 of the Bankers' Books Evidence Act, 1891 is reproduced as under:-- "(8) "Certified copy" means a copy of any entry in the books of a bank together with a certificate written at the foot of such copy that it is a true copy of such entry, that such entry is contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business, and that such book is still in the custody of the bank, such certificate being dated and subscribed by the principal accountant or manager of the bank with his name and official title." Moreover, the defendant No.5 has also filed a suit against the plaintiff being Suit No.B-38 of 2008, wherein she while admitting her liability to the extent of Rs.18.2 million, has demanded foreclosure of mortgage upon payment of the said amount. Meaning thereby, that the defendant No.5 admits her liability to the extent of Rs.18.2 million, about which there is no doubt. There is no doubt with regard to the fact that as well the part of the sum claimed against the defendant No.5 by the plaintiff is disputed by her. Under section 11(1) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 it is provided that if the Court is of the opinion on consideration of the contents of the plaint, the application for leave to defend of the defendant and the reply thereto, that the dispute between the parties does not extend to the whole claim, or that part of the claim is either undisputed or is clearly due, it can, while granting leave with respect to the disputed amounts, can pass an interim decree in respect to the amount appears to be payable by the defendant. Section 11(1) of the Financial Institutions (Recovery of Finances) Ordinance, 2001 is reproduced as under:-- "

11. Interim Decree. (1) If the Banking Court on a consideration of the contents of the plaint, the application for leave to defend of the defendant and the reply thereto, is of the opinion that the dispute between the parties does not extend to the whole of the claim, or that part of the claim is either undisputed, or is clearly due, or that the dispute is mainly limited to a part of the principal amount of the finance or to any other amounts relating to the finance, it shall, while granting leave and framing issues with respect to the disputed amounts, pass an interim decree in respect of that part of the claim which relates to the principal amount and which appears to be payable by the defendant to the plaintiff." Therefore, I have come to the conclusion that admittedly the amount of Rs. 18.2 million is an admitted loan by the defendant No.5, for which I decree the suit against defendant No.5 in terms of section 11 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 along with cost of funds accrued thereon upto-date, and grant unconditional leave to defend the suit to the defendant No.5 in respect of disputed amount C.M.A. No. 1606 of 2008 disposed of accordingly. MH/B-1/Sindh Order accordingl