2005 PLP 193 (CLD)

9. On June 11, 2001 by consent of the parties Mr. Waqar M. Khan Lodhi was appointed as Commissioner for recording evidence. The parties were allowed to file their respective Affidavits in Evidence with the right to cross-examine witnesses on the other side: On November 19, 2001, the report of the Commissioner dated October 20, 2001 was taken on record. The plaintiff has produced 9 witnesses and the defendant bank one witness.

10. The main issue lies in the interpretation and construction of the F.S.A. which has been brought on record as Exh.P-6/

13. The issues as framed are inter-related as both the parties are alleging non compliance of certain terms of the F.S.A. and the effect of the same.

11. I have heard Mr. Mushtaq Memon learned counsel for the plaintiff. He has argued that in terms of Clause 2(v) of the F.S.A. the defendant bank was obliged to establish an L/C and such obligation was not subject to any other condition. He has further pointed out that in terms of Clause 7(i) of the F.S.A., the defendant bank had agreed to allow pari passu charge to the extent of Rs.100 million on fixed assets of the plaintiff in favour of the lending bank to be nominated by the plaintiff. Mr. Memon learned counsel for the plaintiff has contended that the defendant bank was also in breach of both the above mentioned Clause 2(v) and Clause 7(i) of the F.S.A. He has further argued that the obligations of the defendant bank under the said Clause 2(v) and Clause 7 (i) of the F.S.A. had to be performed independently and since the defendant bank has failed to perform such obligations, the defendant bank is liable to compensate the plaintiff for the losses suffered and sustained by the plaintiff as a result thereof. In addition, Mr. Memon has also argued that the charge created in favour of the defendant bank was already in excess amount and provided sufficient coverage to the defendant bank.

12. I have scrutinized in detail the documentary evidence and the exhibits referred to by Mr. Mushtaq. Memon learned counsel for the plaintiff to show that the defendant Bank had failed to extend the NOC for obtaining pari passu charge from Muslim Commercial Bank for Rs.100 M. It is further contended by Mr. Mushtaq A. Memon that all other arrangements were made by the plaintiff with Muslim Commercial Bank for obtaining finances of Rs.100 M which was frustrated by the deliberate, and malicious acts of the defendant bank which has resulted in pecuniary loss as well as loss of business to the plaintiff and that the defendant is liable to pay compensation to the plaintiff as claimed in the suit. It was vehemently argued that issuance of NOC for obtaining pari passu charge was unconditional.

13. To support his contention that the suit is entitled to be decreed with costs. Mr. Mushtaq Memon, learned counsel for the plaintiff has placed reliance on the following commentaries and case-law:-- (i) Macgregor on Damages 14 ED. Paras 861 and 862; (ii) Law of Damages and Compensation by C. Rao 3rd Edition Page.676; (iii) Unreported judgment dated 4-12-2000 in suit No.753 of 1995; (iv) Azeem Food Industries Ltd. v. IDBP 1999 CLC 1915; (v) S.L.I. Corp. Pak v. Bibojee Services Ltd. 1999 MLD 2750.

14. I have also heard Mr. Rasheed A. Razvi learned counsel for the defendant Bank. He has argued that the F.S.A. is to be read as a whole. He has pointed out various provisions of the F.S.A. including the intent and object of the F.S.A. which is specified in the recital of the F.S.A. as follows:-- "The Bank has agreed to grant time to restructure the repayment of the outstanding liabilities upon agreed terms and conditions and subject to the fulfillment of covenants and representations on the part of the customers in terms of this Agreement."

15. Mr. Rasheed A. Razvi learned counsel for the defendant bank has pointed out that there were certain obligations on the plaintiff as the borrower which the plaintiff had to perform within the time line restriction imposed by the terms of the F.S.A. It has come on record that as per terms of the F.S.A. and the repayment Schedule attached therewith, the plaintiff was required to pay a sum of Rs.20 million on or before 31st December, 1998. At the same time they were also required to pay instalment @ Rs.1 million per month plus mark-up for the months of October, 1998 and November, 1998. These two instalments for the months of October, 1998 and November, 1998 were paid, but no amount towards mark-up was paid by the plaintiff.

16. Mr. Rasheed A. Razvi learned counsel for the defendant bank has placed reliance on the Clauses 8 to 13 of the F.S.A. It was further contended by him that as regards the performance of Clauses 2(v) and 7(i) of F.S.A. there was no time fixed or specified in the F.S.A. for performance of the same. He has however, contended that these clauses were subject to the plaintiff meeting and satisfying the conditions precedent laid down in the F.S.A. Mr. Rasheed A. Razvi learned counsel for the defendant bank has argued that the plaintiff was bound by the time line restriction imposed in the F.S.A. for the payment of the instalment under the F.S.A. and the performance and satisfaction of the condition precedents which included the obtaining the valuation report; furnishing personal guarantee of the Directors and their wealth statement. According to Mr. Rasheed A. Razvi the plaintiff failed to meet these conditions precedent.

17. Mr. Rasheed A. Razvi learned counsel for the defendant bank has referred to Clause-11 of the F.S.A. and contended that the plaintiff has extended authority to the defendant-Bank to recall all the arrangements in case the plaintiff fails to perform any undertaking or to pay any amount agreed under F.S.A. It was further argued that the plaintiff has failed to bring on record convincing and reliable evidence to prove that any actual loss was caused to them for the alleged non-compliance of clauses 2(v) and 7(i) of the F.S.A. Mr. Rasheed A. Razvi learned counsel for the defendant-Bank has also argued that there is no evidence that the plaintiff has suffered any loss of goodwill and has referred to several documents brought on record in repelling the claim of the plaintiff for payment of damages.

18. Mr. Rasheed A. Razvi has pointed out that the defendant-Bank has displayed a professional and wholly reasonable approach in their dealings with the plaintiff. He supports this argument by the fact that the defendant-Bank had on two occasions earlier restructured the plaintiff's outstanding liabilities and the F.S.A. was the third time that such outstanding liabilities of the plaintiff were restructured. He has contended that the collapse of the F.S.A. was precipitated by the actions of the plaintiff. Mr.. Rasheed A. Razvi's argument is that the defendant-Bank could not continue to overlook the repeated acts of default of the plaintiff and continue to unilaterally abide by the terms of the F. S. A.

19. Mr. Rasheed A Razvi has placed reliance on the following:-- (a) Sections 52 and 73 of the Contract Act, 1872. (b) Article 103 of Qanoon-e-Shahdat. (c) Messrs Vinder Textile Mills Ltd. v. IDBP 1999 YLR 1188. (d) Federation of Pakistan v Messrs Al-Farooq Flour Mills Ltd. 2000 CLC 215. (e) W.P.L.D.C. v. Aziz Qureshi PLD 1973 SC 222 (f) Muhammad Shafi v Allah Dad Khan PLD 1986 SC 519. (g) Sandoz Limited 1995 SCMR 1431 (h) Syed Ahmed Saeed Kirmani v. MCB. Ltd .993 SCMR 441.

20. Mr. Rasheed A. Razvi, learned counsel for the defendant-Bank while placing reliance on a decision of a Division Bench of Lahore High Court in the case of Messrs Al-Farooq Flour Mills Ltd. (supra) contended that where a suit has been filed claiming damages due to breach of contract, the suit would be governed by section 73 of the Contract Act, but in no case general loss is to be granted for such breach of contract. He has also argued that in order to claim damages from the defendant-Bank, the plaintiff was required to prove that it was ready arid willing to perform its contractual obligation which fact is absent from the plaintiff's case. He has placed reliance on a Division Bench decision of this Court in the case of Bashir Hussain Siddiqui v. Pan Islamic Steamship Co. Ltd. PLD 1967 Page

222. In view of the abovementioned arguments. Mr. Rasheed A. Razvi learned counsel for the defendant Bank has prayed dismissal of the suit with costs.

21. The dispute arose between the parties when on December 14, 1998 the plaintiff wrote to the defendant-Bank a letter (Exh.P-6/ 16-A) invoking clause 7 of the F.S.A. for the creation of a pari passu charge for Rs.100 million. In the same letter, it was also suggested by the plaintiff that Messrs Iqbal A. Nanjee & Co. be appointed for the purpose of valuation of all the fixed assets of the plaintiff borrower. This letter was replied by the defendant Bank on December 16 (Exh.P-6/15), in which the defendant-Bank asked the plaintiff to disclose the name of lending bank for the creation of a pari passu charge and at the same time accepted the request for appointment of Messrs Iqbal A. Nanjee and Co. for valuation.

22. On December 8, 1998 the defendant-Bank demanded payment of mark-up on the instalments paid for the months of October and November, 1998 (Exh.D.W.1/ 10).

23. The plaintiff received a faxed on December 10, 1998 in- which the plaintiff admitted the requirement of payment of mark-up and asked for the detail calculation done by the defendant-Bank (Exh.D.W.1/11) and the same was provided on the same date by the defendant-Bank (Exh.D.W.1/12). A reminder was sent on December 15, 1998 for the payment of mark-up and furnishing of personal guarantee of Mr. Iftikhar A. Malik (Exh.D.W.1/16). On December 16, 1998, the defendant-Bank again asked for the payment of mark-up on the instalments paid for the month of October and November, 1998 (Exh.P.W.6/19). On December 19, 1998 the defendant-Bank again demanded mark-up on Overdue Acceptance; personal guarantee of Mr. Iftikhar Malik; endorsement of RSD clause to insurance policy; original premium paid receipt and balance of instalment of Rs.20,000 M before December 31, 1998 (Exh.P.6/20). However, the plaintiff forwarded a cheque of Rs.3,000,000 only for the month of December instalment leaving a balance of Rs.17,000,000 towards the due instalment and did not fulfil the rest of the financial obligations as was required as per F.S.A. I have also gone through the correspondence that has followed between the parties particularly several letters written by the defendant-Bank to the plaintiff demanding payment of the amounts due and for furnishing the personal guarantee of Mr. Iftikhar Malik and the assets valuation report: It is also pertinent to mention that the amount of damages sought by the plaintiff earlier was far less than that demanded by the plaintiff in terms of this suit. In response to the legal notice issued by the defendant bank to the plaintiff, the plaintiff demanded an amount of Rs.294,242,000 which is far less than the amount claimed as damages in terms of these proceedings.

24. The recital of the F.S.A. clearly gives the intent of the F.S.A. and provides that the F.S.A. has been arrived at through mutual understanding between the defendant-Bank and the plaintiff and the defendant-Bank has agreed to grant time and to restructure the repayment of the Outstanding Liabilities (as defined in the F.S.A.) upon terms and conditions and subject to the fulfillment of the covenants and representations on the part of the plaintiff in terms of the F.S.A. Clause 11 of the F.S.A. provides that in case the plaintiff fails to perform any undertaking or pay any amount payable on the relevant due date, or fails to pay any two instalments on or before the due date the defendant-Bank will become entitled to at its discretion to forthwith recall the entire Restructured Liabilities as defined in the F.S.A. and to demand immediate repayment of the entire outstanding amount of the Restructured Liabilities. It is clear from the record that the plaintiff has failed to perform the obligations in terms of the F.S:A. The relevant clauses are reproduced below:-- "The obligations of the Customer in respect of the New TF-I, New TF-II. New CF Facility, LG Facility and LC (Usance) Acceptance Facility and any and all charges, costs and dues pertaining or incidental thereto (hereunder collectively referred to as the "Restructured liabilities") will inter alia be secured as follows:-- (i) And further the amount of such charge/mortgage to be enhanced by the Customer to Rs.610,000,000 within a period of thirty (30) days from the date of this Agreement. (ii) Personal Guarantees of Mr. Iftikhar A. Malik and Mr. Sarfaraz A. Malik to be submitted along with personal Net Worth statement as per the format attached as Annexure 1 to be provided by the Bank. The Customer undertakes to execute such documents and complete such formalities in relation to the documentation and securities as may be required by the Bank from time to time including but not limited to execution of agreements for financing on mark-up basis (more specifically mentioned on Schedule-IV) in respect of New TF-I, New TF-II, and New CF, Promissory Note(s). Letter of Hypothecation, Deed of Floating charge, Memorandum of Deposit of Title Deeds, Personal Guarantees of Guarantors, and Form X/XVI for filing charges before the Registrar of Companies. The completion of such documentation and formalities to the absolute satisfaction of the Bank and its legal counsel, within the stipulated period of thirty (30) days from the date of this Agreement shall be, condition precedent to the disbursement/ availability of such facilities and the implementation of this Agreement. The Customer undertake within a period of 30 (thirty) days (sic) the date of this Agreement and for the implementation of this Agreement, to provide a valuation report of Inspectorate Corporation International F.S.A. provides that the plaintiff must strictly agree to the repayment schedule which is termed as the essence of the F.S.A. The plaintiff also did not, meet the mark-up payments in accordance with Clause 2(v) of the F.S.A. Finally the requirement of Clauses 3 and 4 of the F.S.A. was also not fulfilled by the plaintiff in terms of which the plaintiff was to pay the instalments for the month of December, 1998 amounting to Rs.20 million.

26. I am satisfied that the obligations of the plaintiff as specified in the F.S.A. were conditions precedent to the performance of any obligations on the part of the defendant-Bank. Indeed the order in which these obligations were to be performed was very clearly specified in the F.S.A. The F.S.A. also lays down the time frame in which the plaintiff was required to comply with the said conditions precedent. Section 52 of the Contract Act, 1872 also provides that reciprocal promises have to be performed in the order in which it is expressly fixed by the contract. The plaintiff has failed to comply with the conditions precedent and therefore, the question of the defendant-Bank allowing any concession to the plaintiff under the F.S.A. does not arise. The defendant-Bank was therefore, within its rights not to allow the creation of the charge or to open the L/ C. The defendant-Bank cannot unilaterally aid by the terms of the F.S.A. when the plaintiff has committed repeated acts of default of the F.S.A. It is also pertinent to mention that the defendant-Bank had already restructured the facility twice before and this was the third; restructuring agreed in terms of the F.S.A. Indeed the main principle for the award of damages is that the same should be proved with certainty which the plaintiff has failed to do.

27. In view of the above the suit is dismissed with no order as to costs. M.B.A./B-15/K Suit dismissed.