2015 PLP 1990 (CLD)

AZIZ-UR-REHMAN, J.

The plaintiff Bank has filed the present suit on 12-10-2010, inter alia, for recovery of Rs.94,064,722 along with cost of funds from the date of default, for the sale of the pledged and hypothecated assets and for realization of sale proceeds of pledged sugar, under section 9 of F.I.O., 2001 [Ordinance XLVI of 2001], with a prayer for the following reliefs:- "[a] A decree be passed in favour of the plaintiff Bank and against the defendants for the payment of Rs.94,064,722 [Rupees Ninety Four Million Sixty Four Thousands Seven Hundred Twenty Two Only]; [b] Official Assignee of this Court be directed not to disburse/ release amount of Rs.65,000,000 of the sale proceeds of the Pledged Sugar sold in Suit No.910 of 2009 to defendants or any other person; [c] The said sale proceeds of the Pledged Sugar deposited with the Nazir of this Court be applied towards the satisfaction of the claim of the plaintiff Bank; [d] The Pledged Sugar still lying with the plaintiff Bank be ordered to be sold and sale proceeds be adjusted towards adjustment of decretal amount; [e] The Hypothecated Assets more particularly described hereunder be ordered to be realized and the proceeds thereof be applied towards satisfaction of the decreed amount; [f] Cost of funds in accordance with section 3 of the Financial Institutions [Recovery of Finances] Ordinance, 2001 from the date of default i.e. 30-6-2009 till satisfaction of decreed amount be granted; [g] In case the sale proceeds are found to be insufficient to satisfy the amount that is due to the plaintiff Bank, the remaining amount may be ordered to be recovered from the defendants through sale of other assets of the defendants. [h] Cost of the suit throughout be awarded; [i] Any other relief that this Hon'ble Court deems fit and proper in the circumstances of the case may also kindly be granted".

2. On 12-10-2010, when the above suit came-up before the Court, then while issuing notice on C.M.A. No.10367 of 2010 being an application under section 16 of F.I.O., 2001 read with Order XXXIX, Rules 1 and 2, C.P.C. read with section 151, C.P.C., till further orders of the court Official Assignee was also restrained from any type of disposal of the sale proceeds of Rs.65.00 million pertaining to the sale of pledged sugar. The relevant part of order dated 12th October, 2010 reads as follows:-- "12-10-2010 Mr. Saim Hashmi, advocate for plaintiff (1) The learned counsel seeks urgency. The C.M.A. No.10367 of 2010 is taken up and granted, it is the case of the learned counsel for the plaintiff that he has filed the suit under section 9 of the Financial Institutions (Recovery of Finances) Ordinance of 2001 for recovery of Rs.94,064,722 against the defendants, as they have defaulted in re-payment of finances sanctioned to them vide annexure "F" page 381 which expired on 30th June, 2009 and before the plaintiff could move to the Court for recovery, a Suit No.910 of 2009 was filed in this Court, which is presently proceeding, whereupon the claim of the present plaintiff has not been considered for recovery of amount due to the fact that their claim is allegedly not properly filed as such the plaintiff was restrained to file this present suit. (2) The C.M.A. No.10368 of 2010 is an application under section 16 of the Financial Institutions (Recovery of Finances) Ordinance 2001, wherein the plaintiff bank has prayed that the Official Assignee be restrained from disposing the sale proceeds of 65 Million which have been deposited with him after the sale of the pledged sugar in Suit No.910 of 2009 to the defendants or any person till the disposal of the suit. The learned counsel has taken this Court through the different annexures to the plaint and his contentions merit consideration of this Court. Official Assignee is hereby restrained from any type of disposal of sale proceeds of 65 Million pertaining to the sale of pledged sugar till further orders of the Court."

3. Thereafter, process under section 9[5] of the F.I.O., 2001, was issued to the defendants Nos.1 to 4 by all modes including publication in Newspapers i.e. 'Daily Dawn' [English] and 'Daily Jang' Karachi both dated 15-10-2010. In response, the defendants Nos.1 and 2 filed their 'leave to defend application' under section 10 of the F.I.O., 2001, bearing C.M.A. No.11754 of 2010. As far as, defendants Nos.3 and 4 are concerned, they failed and/or avoided to file any 'leave to defend application'. On service of the aforesaid 'Leave to Defend Application', the Plaintiff Bank, had also filed its replication under section 10[7] of the F.I.O., 2001, in answer to the aforesaid 'leave to defend application'. The defendants Nos.3 and 4, on 24th August, 2011 were not only debarred from filing their 'Leave to Defend Application', but also their defence was struck-off. The relevant part of Order dated 24-8-2011 regarding defendants Nos.3 and 4 reads as follows:- "Learned counsel for plaintiff pointed out that no leave to defend application was filed by defendants Nos.3 and

4. Therefore, both the defendants are debarred from filing leave to defend application and their defence be struck off."

4. Later on, On 23-2-2012 the 'leave to defend application' bearing C.M.A. No.11754 of 2010 filed by defendants Nos.1 and 2 was dismissed for 'non-prosecution'. The relevant part of the order dated 23-2-2012 reads as follows:- "(2) From the perusal of order dated 1-2-2011 it appears that adjournment was sought on behalf of learned counsel for the defendants. Thereafter the matter was taken up on 24-8-2011 and on that date as well request for adjournment was made on behalf of learned counsel for the defendants which was vehemently opposed by learned counsel for the plaintiff and the matter was adjourned as a last and final chance, but today once again no one is in attendance on behalf of the defendants. No intimation has been received from the conduct of the defendants it appears that defendants have lost interest in the proceedings of this application. Accordingly the present application (C.M.A. No.11754 of 2010) is dismissed for non-prosecution."

5. Nonetheless, subsequently, on 28-8-2012, the 'leave to defend application' bearing C.M.A. No.11727 of 2010, filed by defendants Nos.1 and 2 was restored to its original position as was on 23-2-2012, with the consent of the learned counsel for the plaintiff Bank, as wished, with direction to the learned counsel for the defendants to come prepared with the case and further no adjournment shall be granted to him.

6. During the pendency of the 'Leave to Defend Application' bearing C.M.A. No.11754 of 2010, learned counsel for the defendants Nos. 1 and 2 chose to file a 'statement' dated 3-10-2012 along with some relevant documents including a letter dated 14-3-2011 written by the Chairman of defendant No.1 Company to the plaintiff Bank wherein it was stated as follows:- S# DESCRIPTION AMOUNT (a) Funds so far deposited by NSML against the said loan Rs.24.048 million (b) Funds available with Nazir of Sindh High Court for the sugar sold as a result of Court's order. Rs.51.000 million TOTAL Rs.75.048 million (c) Aggregate settlement amount. Rs.93.204 million (d) Balance payable by NSML Rs.18.156 million

7. The above letter dated 14-3-2011, was also replied by the plaintiff Bank vide its letter No.ARD/NSML/2015 dated 15-3-2011. In the Bank's letter, it was specifically stated/agreed that the 'aggregated settlement amount' is in the sum of Rs.93.204 million. Besides, it transpires from the said letter, that out of the 'aggregated settlement amount' of Rs.93.204 million, defendant No.1 company has already paid a sum of Rs.24.048 million to plaintiff Bank. Regarding sales proceeds of pledged sugar, it was stated, that an amount of Rs.51.000 million [approximately] is lying with Official Assignee of this Court as being sale proceeds of pledged sugar already sold by this Court pursuant to and in compliance with order passed by honourable Supreme Court of Pakistan on 30-10-2010. Along with the letter of NSLM/defendant, a 'deposit slip' of 17th March, 2011 in favour of the plaintiff Bank in the sum of Rs.18,156,000 was/is also enclosed. Mr. Ch. Abdul Rasheed, learned counsel for the defendants Nos.1 and 2, under the aforesaid circumstances, argued that upon deduction of the total amount of Rs.24,048,000 and Rs.18,156,000, the outstanding balance amount against defendants comes to Rs.51,860,722 [i.e. Rs.94,064,722 [-] Rs.41,204,000].

8. Needless to say, learned counsel for the defendants Nos.1 and 2 made a 'categorical statement' to the effect that defendants Nos.1 and 2, would have their 'no objection' if, the amount of Rs.51.000 million plus accrued profit thereon if any, lying with Official Assignee is released in favour of the plaintiff Bank, towards satisfaction of the final decree passed today [i.e. 23-4-2015].

9. Learned counsel for NBP, without dis-agreeing with the submissions of the learned counsel for the defendants Nos.1 and 2 further submitted that in order to secure CF facility the defendants have signed, executed/delivered inter alia various documents in the years 2008 and 2009 i.e. Finance Agreements, Pledged Letters, Undertakings, Letter of Hypothecation, First and 2nd Supplemental Letter of Hypothecation, Stock Reports, Forms-16, Acknowledgments of Filing, Charge Certificates duly detailed/mentioned and annexed with the plaint. Besides, certified copy of Statement of Account is also enclosed with the plaint. In view of the documents, duly signed and executed, by the defendants, learned counsel for the plaintiff also prayed for passing of 'final decree' in respect of pledged/hypothecated goods and release of sale proceeds in favour of the plaintiff Bank.

10. Apart from the above, the Stock Reports, signed by defendant No.1 and submitted by Mucaddam of the plaintiff Bank, the details of the pledged sugar is given as follows:- Place of Stock Description of Goods Quantity Value Nabisar Road, Jhudo, Distt. Mirpurkhas [Sindh] Refined Sugar 3,195 M.T. Rs.105,435,000

11. At this point of time, I would like to refer to the HAND BOOK OF BANKING TERMS by Fazul Suleiman Kazi, wherein the terms of 'Hypothecation' and 'Pledge' respectively have been defined as follows:- "Hypothecation Constructive delivery of goods without involvement of actual possession of goods given as security for advance. Charge on goods without its ownership or possession by bank. Flexible security in which possession remains with the borrower, lender however can check stocks at intervals to verify the payments of instalments. Pledge Provide commodities as security for credit facility involving physical delivery of goods, to be taken out only with permission of bank on cash payment, whenever so needed. Bailment of goods as security for payment or a debt or performance of a promise. A delivery of goods or the documents of title by a debtor to creditor as security to be returned on the discharge of debt. Holding goods its possession and title, till the debt is discharge. Banks can release part of pledged goods on payment for it. Commitment taken from the applicant on opening a credit; that covers the issuing bank for satisfaction of the claim without appointment of liquidators to distribute the proceeds of the goods sold under the credit to creditors."

12. Moreover, section 2(e)(ii) of F.I.O., 2001 inter alia speaks about binding representations, warranties and covenants regarding 'Pledge', 'Hypothecation' etc., therefore, being relevant for ready reference the same is also reproduced as under:- "Section 2(e)(ii)

2. Definitions. (e) "obligation" includes-- (ii) any and all representations, warranties and covenants made by or on behalf of the customer to a financial institution at any stage, including representations, warranties and covenants with regard to the ownership, mortgage, pledge, hypothecation or assignment of or other charge on assets or properties or repayment of a finance or payment of any other amounts relating to a finance or performance of an undertaking or fulfilment of a promise; and [underlining is mine]

13. Evidently, under the aforesaid provision of law, it is the obligation and duty of customers to perform their undertakings and promises made by them at any stage with Financial Institutions without fail, otherwise, they have to face the consequences. Under section 23 of F.I.O., 2001, any sale in contravention of the provisions of section 23 of F.I.O., 2001 is void and of no legal effect. For convenience purpose, section 23 of F.I.O., 2001, is reproduced as under:- "

23. Restriction on transfer of assets and properties.

(1) After publication of summons under subsection (5) of section 9, no customer shall, without the prior written permission of the Banking Court transfer, alienate, encumber, remove or part with possession of any of his asset or property furnished to the financial institution as security by way of mortgage, pledge, hypothecation, charge, lien or otherwise pending final decision of the suit filed by the financial institution under this Ordinance, and any such transfer, alienation, encumbrance or other disposition by the customer in violation of this subsection shall be void and of no legal effect: Provided that the customer may sell any such asset or property which has been retained by or entrusted to him for purposes of dealing with the same in the ordinary course of business subject to the terms of the letter of hypothecation or trust receipt or other instrument or document executed by him, or for purposes of effecting their sale and depositing the sale proceeds with the financial institution: Provided further that the customer before making the sale shall file in the Banking Court a statement supported by affidavit, containing full particulars of such assets or property, and within three days after the sale shall submit a full account thereof to the Banking Court and the financial institution. (2) After pronouncement of judgment and decree by the Banking Court, including an interim decree under section 11, no judgment-debtor shall without the prior written permission of the Banking Court transfer, alienate, encumber or part with possession of any assets or properties and any such transfer, alienation, encumbrance or other disposition by a judgment-debtor in violation of this subsection shall be void and of no legal effect. (3) The provisions of subsection (1) shall also apply to a person who has furnished any security on behalf of a customer to the financial institution on the basis of which finance was granted, provided such person is a defendant in the suit filed under section 9 or is added as a defendant thereafter."

14. As far as defendants Nos.2 to 4 are concerned, besides, sponsoring Directors of defendant No.1 company have also signed and executed Letters of Guarantees in their personal capacities for duly discharging the repayment obligations of defendant No.1 company, hence, being customers in terms of section 2(c) of F.I.O., 2001 they also in their capacities as guarantors are liable to pay the outstanding amount against the defendant No.1 company. Being relevant, Clauses 1, 2 and 4 from the 'PERSONAL GUARANTEE' DATED 18th December, 20089(sic.) are reproduced as under:- "(1) Our liability under this guarantee shall be that of principal debtor and you may at your option hold us primarily responsible for the liabilities of the Customer. (2) This guarantee shall continue to remain binding on us until receipt by you of written notice of discontinuance thereof and notwithstanding such notice we shall continue to remain liable to you for all sums due and owing to you by the Customer whether certain or contingent at the time of receipt by you of such notice and also for any credits established for the Customer and or all instruments drawn on you or accepted by you, for the benefit of the Customer and purporting to be on a date on or before the date of receipt of such notice, even though actually paid or honoured after that date. (4) You may as you think fit and without reference to us grant to the customer time or other indulgence or make or accept any arrangement or composition with him in respect of any payment hereby guaranteed and also vary, renew, release, realize or in any way deal with any securities or rights now or hereafter held by you in respect of the sums due under the said agreement."

15. Per section 126 of the Contract Act, 1872 [Act X of 1872], a 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the persons in respect of whose default the guarantee is given is called the "principal debtor" and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written. Anything done or any promise made by the guarantors by giving the guarantee for the benefit of the principal debtor is sufficient consideration for the surety under section 127 of the Contract Act, 1872. Moreover, in terms of section 128 of the Contract Act, 1872 [Act IX of 1872] the liability of the guarantor is co-extensive with that of principal debtor unless it is otherwise provided by the letter of guarantee itself.

16. In view of all the above, while, dismissing the 'Leave to Defend Application' of defendants Nos.1 and 2 bearing C.M.A. No.11754 of 2010, the plaintiffs suit besides, other reliefs, stands decreed against the defendants jointly and severally in the sum of Rs.51,860,722 along with cost of funds in terms of section 3(2) of F.I.O., 2001 as certified by the State Bank of Pakistan [In short SBP] from time to time.

17. Suit stands decreed. KMZ/N-19/Sindh Suit decreed.