1999 PLP 926 (YLR)

Habib Bank Limited (hereinafter referred to as "the Bank") has filed this suit against Super Rice Mills through its proprietor namely Khawand Buksh Bugti (defendant No.1) and the Guarantors Mir Ahmed Nawaz Jhakrani, (defendant No.2) and Sardar Baqa Muhammad Khan Jhakrani, (defendant No.3) for recovery of Rs.7,00,35,994 under the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (hereinafter referred to as "the Banking Act". According to the statements made in the plaint, defendant No. l requested for Fixed Assets Finance Facility of Rs.40 Million which was sanctioned by the Bank on 14‑11‑1995 on Mark‑up basis at the rate of 50 Paisas per thousand per day. According to the Sanction Advice defendant No.1 was required to repay the same in equal 20 quarterly instalments by 31‑12‑2000. In order to avail the sanctioned finance facility defendant No. l entered into an Agreement For Financing on Mark‑up Basis on 20‑11‑1995 whereby defendant No. l agreed to sell to the Bank raw‑materials/ finished goods/spare-parts/ machinery etc. upto a sum of Rs.40 Million during the period ending 31‑12‑2000. He also agreed to purchase immediately the said goods from the Bank at a price of Rs.81,540,000 and agreed to pay the purchase price to the Bank on or before 31‑12‑2005 in 20 (twenty) equal instalments the amount and due dates whereof shall be such as the Bank may advise to him in due course. To secure the payment of the Purchase Price defendant No. l on the same day executed the following documents: (1) A Promissory Note for Rs.81,540,000 (2) Letter of Hypothecation (3) Letter of Pledge (4) Irrevocable General Power of Attorney authorizing the Bank to sell any of the goods, stock and good will of the firm and to sign all necessary documents in respect thereof. (5) A personal Guarantee by Khawand Baksh Bugti. As further security, the Bank also obtained Personal. Guarantees for payment of the purchase price from defendants Nos.2 and

3. It is also stated in the Plaint that after sanction of the financial facility, defendant No. l executed a Registered Mortgage Deed on 16‑11‑1995 for Rupees one million and subsequently created an equitable mortgage to the extent of Rs.81,540,000 of his immovable property situated in Jacobabad by executing a Memorandum of Deposit of Title Deeds and other ancillary documents. As defendant No. l neglected/failed to pay any instalment as required by the Agreement for Finance, the Bank issued a notice, dated 30‑7‑1997 to defendant No. l advising him to adjust the total liability within 7 days and warned that if the same was not done, the Bank would cancel the facility and also charge liquidated damages at 20 % of the amount allowed to him in accordance with clause (9) of the Agreement. On the failure of the defendant No.1 to pay the demanded amount, the Bank filed this suit for recovery of the amount stated hereinabove. However, in paragraph 9 of the Plaint, the Bank has claimed Rs.5,83,63,328 only inclusive of mark‑up upto 30‑9‑1997 as shown in the Certified Statement of Account filed with the plaint. Notice of the suit was issued to the defendants in accordance with the provisions, of the Banking Act, defendants filed an Application under section 10 of the Banking Act read with Order 37, Rule 3, C.P.C. seeking grant of unconditional leave to defend the suit. Several grounds for leave were taken in the affidavit in support of the application but at the time of arguments Mr. Arif Khilji, learned counsel for the defendants, urged only one ground i.e. the suit was premature. The reasons advanced by him are as follows:‑‑ According to Paragraph 7 of the Plaint the defendants are required to pay back the amount of the facility in 20 equal quarterly instalments commencing from March 1996, the total amount alongwith Mark‑up, thus, to be paid within five years during the validity of the facility/limit upto 31‑12‑2000 but by clause (3) of the Agreement, dated 20‑11‑1995 this time limit was extended upto 31‑i2‑2005. The said clause reads as follows:‑‑ "The purchase Price shall be payable by the Customer to the Bank on or before 31‑12‑2005 in 20 equal instalments the amount and due dates whereof shall be such as the Bank may advise to us in due course." In view of the above provision, he submitted that the suit is premature because the Bank has neither advised the amount nor the due dates of payment of the instalments which are payable upto 2005. In reply to the above arguments Mr. Zubair Qureshi, learned Counsel for the bank, has argued that the facility was utilized by the defendants on 20‑11‑1995, as shown in the statement of account duly certified under the Bankers Books of Evidence Act filed with the plaintiff which has not been challenged by the plaintiff and because the Bank under clause (5) of the Mortgage Deed is entitled to recall the amount by serving 30 days notice upon the Mortgagor if the latter Commits default in payment of any instalment, the present suit is maintainable. He added that the Bank has also served a seven days notice under clause (9) of the Agreement of Finance which has not been denied and consequently, the application for leave to defend should be rejected and the suit decreed as prayed. I have considered the arguments advanced by the learned Counsel, perused the record and my conclusion is as follows:‑‑ The arguments advanced by Mr. Arif Khilji, learned counsel for the defendants are contrary to the provisions contained in the documents executed by the defendants and filed with the plaint and are based upon misunderstanding and/or misinterpretation of the same. No doubt the Sanction Letter mentions that the facility shall be repaid in equal 20 instalments by 31‑12‑2000 and the same appears to have been changed in the Agreement for Finance enabling defendant No. l to pay the Purchase Price to the Bank on or before 31‑12‑2005 in 20 equal instalments the due dates whereof are to be advised by the Bank to defendant No.1 and the plaintiff has not placed any evidence on record to show that it had communicated the due dates of payment to defendant No.1 but there are other clauses in the Agreement for Finance and other Agreements which entitle the Bank to ask for payment of the entire balance of the Purchase Price. It would be advantageous to reproduce just one of them which is clause (9) of the Agreement of Finance which reads as follows:‑‑ "Notwithstanding anything contained hereinabove, it is hereby agreed that the Bank at all times, be at liberty and shall have the right to cancel or reduce the facility under the Agreement, without assigning any reason. The Bank shall also have the right to demand immediate payment of the Purchase Price at any time without assigning any reason thereof. The Customer undertakes in such event to pay the same within seven days of such demand in default the Customer further agrees and undertakes to pay to the Bank liquidated damages at 20% of the amount demanded by the Bank and not paid by the Customer." The clause clearly empowers the Bank to cancel or reduce the facility at any time without assigning any reason and demand immediate payment of the Purchase Price The Bank exercised this right by issuing the Notice, dated 30‑7‑1997. Defendant No. 1 neither paid nor offered to pay any instalment or pay any sum of money to the Bank which clearly shows his default and mala fide conduct. In these circumstances the Bank was justified in asking for immediate payment of the Purchase Price and the Suit is in no way premature. No other argument for grant of Leave to Defend was advanced by the learned Counsel for the defendants. The Bank has also claimed liquidated damages in the sum of Rs.1,16,72,666 at the rate of 20 % of the amount due in accordance with clause (9) of the Agreement for Financing. Under the provisions of the Contract Act, 1872 liquidated damages cannot be granted without proof. No evidence has been produced by the Bank for grant of this amount in support of its claim which is rejected. The Bank has also not produced any evidence regarding latest rate of mark‑up for similar finance: consequently, I have no alternative but to allow Mark‑up at the contracted rate. In view of the above discussion, the application for leave to Defend filed by the defendants is hereby rejected and the suit is decreed against the defendants jointly and severally in the sum of Rs.5,83,63,328 with mark‑up at the rate of 50 Paisas per thousand per day from 15‑11‑1997 (the date of filing of the Suit) till the date of payment by the defendants. The plaintiff shall also be entitled to costs. Q.M.H./M.A.K./H‑89/K Suit decreed.