2019 PLP 558 (CLD)

This regular first appeal is filed under section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (the Ordinance) for calling in question judgment and decree dated 01.10.2014 passed by the banking court.

2. Facts of the case may briefly be stated as under. The respondent bank instituted a suit against the appellant seeking recovery of Rs.11,051,030.50 due under a Running Finance facility. The appellant contested the suit by filing his application for leave to defend. The banking court, however, dismissed the said application and passed judgment and decree in favour of the respondent bank and against the appellant on 01.10.2014 in the sum of Rs.7,416,655/-, hence this appeal.

3. In support of the grounds of appeal, the appellant's counsel argued mainly on the markup charged and recovered by the respondent bank. It was stated that clause 4 of finance agreement dated 30.01.2011 applied dual rate of mark up and that higher rate of mark up was nothing but penalty. Reliance in this regard was placed on judgment reported as Trycot Synthetic Fibre Company and another v. Habib Bank Limited 2012 CLD 1670. It was furthermore submitted that a complete break up of the mark up charged by the respondent bank on the amounts of finance was given in the application for leave to defend which was not taken into account by the banking court while passing judgment and decree.

4. Learned counsel for the respondent bank on the other hand supported the judgment and decree of the banking court and stated that under the terms of the finance agreement the respondent bank was entitled to charge mark up at the rates and for the amounts mentioned in the statement of account.

5. Arguments heard and record perused.

6. The availing of the finance facility and execution of finance documents is not in issue between the parties. To the extent of the principal amount alleged to be due, the appellant did not raise any dispute in the application for leave to defend. In fact, while giving the particulars under section 10 of the Ordinance, it was admitted in the application for leave to defend that the principal amount availed by the appellant was Rs.12,500,000/-. The appellant did not bring to challenge any entry of the statement of account of the principal. Although it was stated that not only the entire amount of principal was repaid but extra amount of Rs.969,983/- had also been paid, the appellant did not furnish any details thereof as per the requirements of section 10 of the Ordinance. Needless to point out that section 10 of the Ordinance obliges a defendant to state (a) the amount of finance availed by the defendant from the financial institution; the amounts paid by the defendant to the financial institution and the dates of payments; (b) the amount of finance and other amounts relating to the finance payable by the defendant to the financial institution up to the date of institution of the suit; and (c) the amount if any which the defendant disputes as payable to the financial institution and facts in support thereof. The aforementioned particulars were not provided by the appellant. In the absence of any challenge to the entries of statement of principal account, the liability mentioned therein shall be deemed to have been admitted by the appellant.

7. The sanction of the finance facility shows that the mark up rate was 0.55/Rs.1000/per day (20% p.a.) whereas the mark up rate with prompt payment bonus was 0.28/Rs.1000/per day (10% p.a.). It was stated in the sanction that mark up amount must be paid by 10th of each month in order to avail the benefit of prompt payment bonus and in case of default mark up will be applied @ 20% p.a. This dual rate of mark up was also made applicable by clause 4 of finance agreement dated 30.01.2011. 8 By virtue of the law laid down in the judgment relied on by the appellant, the amount that is determined to be payable as prompt payment bonus within the stipulated time is to be regarded as actual buy back price under the Islamic mode of financing. It was held that "Once the financier agrees to a lesser amount of settlement of his claim then he cannot charge any amount over and above this lesser amount... Thus, any amount that is charged in excess of this amount i.e. after deducting prompt payment bonus would certainly bring the transaction within the ambit of interest ......"

9. As noted above. the appellant in his application for leave to defend gave a chart which mentioned the rates of mark up which were charged by the respondent bank and which were allegedly over and above the sanctioned rate. According to the learned counsel for the respondent bank, however, the alleged rates of mark up and the amounts shown to have been charged are incorrect. This aspect of the matter was not touched upon by the banking court in its judgment. The appellant's counsel invites us to render our findings based on the chart given in the application for leave to defend. We are not prepared to enter into the accounting practice particularly when the respondent bank's counsel does not accept the veracity of the rates of mark up and the amounts mentioned by the appellant in the application for leave to defend. Suffice it to state that both the parties are at issue over the applicable rate of mark up and the amount of mark up that was in fact due towards the respondent bank. This issue can only be decided after recording evidence of the parties.

10. We may in passing make reference to the judgment and decree passed by the banking court, the operative part whereof reads as under: The only objection of the defendant regarding the charging of mark up over mark up, penalty charges and mark up beyond the agreement have some weight which can be accounted for while placing the finance documents and statement of account in juxtaposition. Record shows that the agreement to be expired on 31.01.2011 and till then a sum of Rs.83,58,415/- as principal and Rs.1,17,292/- against mark up were due, the aggregate comes to Rs.84,75,707/-. However, the statement of account shows that an amount of Rs.10,59,052/- was paid by the defendant which cannot be allowed to the plaintiff bank, so the same is deducted from the above said total amount of Rs.84,75,707/- and the balance amount comes to Rs.74,16,655/- which is due against the defendant. The plaint as well as the statement of account reflected an amount of Rs.8,358,415.37 to be due as principal after deducting the amount of Rs.4,141,584.63 paid by the appellant. These amounts were not assailed by the appellant in his application for leave to defend. As noted above, the appellant in regard to the principal amount did not fulfill the mandatory requirements of section 10 of the Ordinance. It is not clear from the record as to how the banking court concluded that an amount of Rs.1,059,052/- was paid by the appellant when no such averment was made in the application for leave to defend. To this extent, the banking court fell in error by deducting the said amount from the claim of the respondent bank.

11. In the result, we partially allow this appeal and modify judgment and decree dated 01.10.2014 which shall be deemed to have been passed for an amount of Rs.8,358,415.37 together with costs of funds as contemplated by section 3 of the Ordinance. This shall be treated as an interim decree. Leave to defend the suit is granted to the appellant with regard to the balance claim of the respondent bank. The banking court is directed to frame necessary issues with regard to mark up component of the respondent bank's claim and record evidence of the parties. By virtue of the proviso to section 11(2) of the Ordinance, the amount of this interim decree shall be subject to the findings recorded by the banking court at the time of passing of the final decree. The needful shall be done by the banking court within a period of two months from the appearance of the parties before it. The parties shall appear before the banking court on 18.03.2019. MH/M-36/L Order accordingly.