2006 PLP 842 (CLD)

FAISAL ARAB, J.

The present execution proceedings arise from the decree passed in Suit No.207 of 1998. The suit was decreed on 24-8-1998 in a sum of Rs.122,252,346.20 with mark-up recoverable from the date of filing of the suit i.e. 19-2-1998 till the entire amount was realized. In an auction proceedings held by the Official Assignee, the entire assets belonging to judgment-debtor No.1, inclusive of land, building, machinery as well as movable assets were sold to the highest bidder for a total sum of Rs.252,500,

000. On 24-3-2004 U.B.L. intervened by moving an Application No. C.M.A. No. 629 of 2004 seeking satisfaction of its decree, dated 1-4-2000 passed against the Judgment-debtor by Banking Court No.1 at Karachi in Suit No. 389 of 1998, U.B.L. holds no charge on the immovable assets of the Judgment-debtor No.1 as these were entirely mortgaged with the decree-holder. Therefore out of the sale proceeds of movables assets of judgment-debtor, UBL claims ratable distribution towards satisfaction of its decree. Mr. S. Zaki Muhammad, learned counsel for the judgment-debtors has argued that that part of decree which awards mark-up to the decree-holders is not executable in law. He elaborated by saying that the decretal amount itself comprises of mark-up payable under the agreement of finance and, therefore, grant of further mark-up over and above the decretal amount from the date of filing of the suit till recovery would amount to violate the prohibition contained in State Bank's BCD Circulars. He submitted that award of mark-up from the date of filing of the suit till recovery being violative of BCD Circulars, the decree to such extent may be treated as a nullity. He further submitted that where a decree is a nullity in law, the executing Court has the power to disregard it. Mr. Syed Zaki Muhammad is right in maintaining that where a judgment and decree or any part thereof is in violation of any applicable provision of law and is utterly a nullity, the executing Court is not bound to enforce it. This Court as well as several other Courts of the subcontinent have taken such a view and in execution proceedings refused to give effect to that part of the decree which was patently a nullity in law. These judgments are reported as AIR 1927 Lahore 659; AIR 1933 Allahabad 252; AIR 1938 Sind 185; AIR 1943 Sind 247; AIR 1943 Pesh: 33; AIR 1946 Sind 150; AIR 1977 MP 112 and AIR 1985 Punjab and Haryana

143. However, it is to be first examined whether grant of mark-up by Courts in addition to decretal amount is a nullity in the eyes of the law. Prior to the introduction of Islamic system of financing in 1984, bank financing was purely based on interest. A borrower's liability was calculated simply by applying the agreed rate of interest to the duration the borrower retained the loaned amount. Thus interest based financing was purely time related. With the introduction of Islamic system of financing through BCD Circulars Nos.13 and 32 issued by State Bank of Pakistan in 1984, interest based financing was abolished with effect from 1985 and permissible modes of financing, including mark-up in price were introduced. The only exception being that where it was a case of on-lending of foreign loans by the financial institutions, the interest was allowed to be charged. As a result of introduction of mark-up based financing in 1984 under BCD Circulars 13 and 32, all financial institution in Pakistan was prohibited from charging any additional sum on account of delay caused by the customer in the repayment of its obligation created under an agreement based on mark-up. Even where the financial institutions have themselves extended the time of repayment with the consent of its customer, it was unlawful to charge additional mark-up for such extended period. The obligation under a mark-up based agreement once fixed cannot be enhanced so as to entitle a financial institution to charge any sum over and above the original contracted amount. Thus mark-up beyond original contractual period or charging of mark-up upon mark-up, both, being in the nature of interest and violative of restrictions contained in BCD Circular Nos.13 and 32 were invariably declared by Courts as unlawful. Only the original contracted marked up price is allowed to be recovered. Thus after the introduction of Islamic system of financing, whenever there was any attempt on the part of a financial institution to charge additional mark-up in violation of restrictions contained in the above mentioned BCD Circulars of the State Bank of Pakistan, the same was declared by Courts as unlawful. It was on account of such restrictions that BCD Circular No.32 contained an advice to all financial institutions to initiate recovery proceedings of their stuck up finances without loss of time as any delay would not bring any financial benefit to the financial institutions. As a result of this new system of financing, financial institutions were prevented from charging any additional sum which they were earlier entitled under the interest based financing. Any delay in repayments did not bring any monetary gain for the financial institutions. Conscious of the restrictions imposed by BCD Circulars on the contracts executed by the financial institutions and its customers, the legislature on its part empowered the Courts to grant mark-up to the financial institutions over and above the contractual obligation of its customer. Under the provisions of Banking Tribunal Ordinance, 1984 the Court started awarding 210 days mark-up, an assumed period likely to be consumed towards conclusion of recovery proceedings as envisaged under section 6(6) of the 1984 Ordinance. The Banking Tribunal Ordinance, 1984 thus created a 'legal obligation' whereby the Court started awarding 210 days mark-up to the financial institutions along with the decretal amount. Thus on the one hand, BCD Circulars Nos. 13 and 32 regulated contracts executed between a financial institutions and its customer by circumscribing the period beyond which mark-up could not be charged and on the other hand, the Banking Tribunal Ordinance, 1984 empowered the Courts to impose a legal obligation to pay 210 days mark-up over and above the contractual obligation. In this manner the financial institutions were compensated to certain extent for the delays caused in recovery of its stuck up finance. When this view system of financing functioned for about 13 years, the Legislature in 1997 took note of the fact that 210 days mark-up was not sufficient to compensate for the period consumed in the recovery proceedings as in most cases recovery proceedings used to take considerable period of time. Thus in 1997 Banking Companies (Recovery of Loans, Advances, Credits and Finance) Act, 1997 was enacted which empowered the Courts to grant mark-up beyond the 210 days limit. The 1997 Act allowed the Courts to award mark-up for the entire period that was consumed in the recovery proceedings. Section 15(1)(b) of the 1997 Act allowed the Banking Courts to grant mark-up from the date of institution of the suit till the entire decretal amount was recovered. In spite of this extension of the legal obligation, the financial institutions still found themselves in a position of disadvantage as 1997 Act only took care of the period which was consumed between the initiation of the recovery proceedings till the recovery of the stuck up finance. The period which elapsed between the amount falling due to the customer under the contract till the initiation of recovery proceedings however was still left out without any financial return to the financial institution. In order to compensate the financial institutions for such period also i.e. the period which elapsed between the date of the default and the filing of the suit. Financial Institution (Recovery of Finances) Ordinance, 2001 was promulgated which extended the legal obligation of the customer right from the date of the default until the decretal amount was finally recovered. However it is noticeable that both under the 1984 Ordinance and 1997 Act, Courts were empowered to grant mark-up over and above the contractual liability which was a source of further return to the financial institution on their finances, whereas 2001 Ordinance withdrew the power of the Courts to grant mark-up with the power to award only 'Cost of Funds'. Cost of Funds, as the name suggests, is meant only to compensate the financial institutions for the cost that they had to bear for their stuck up finances. Thus replacing the Court's power to award mark-up with the power to award 'Cost of Funds' was intended to get rid of the perception that by allowing mark-up beyond the contracted period in reality was reintroduction of interest based financing. Apparently for this reason, the 2001 Ordinance took away the power of Courts to grant mark-up beyond contracted period and replaced it with the power to award only Cost of Funds'. The position which emerged after the promulgation of 2001 Ordinance is that in addition to the contractually chargeable mark-up, a financial institution cannot now claim from Court any additional mark-up except the cost which it had to bear for its finance stuck up with its defaulting customer. Thus the concept of earning further income in the shape of mark-up was replaced with the concept of compensating financial institutions with the cost of funds and that too is determinable by State Bank as envisaged under section 3 of the 2001 Ordinance. Thus the change in law i.e. withdrawal of Court's power to award mark-up beyond contracted period under the provisions of 1997 Act with the award of 'Cost of Funds' under the 2001 Ordinance was clearly intended to g remove the perception that the award of mark-up beyond the contracted mark-up is in the nature of interest. Coming to the facts of the present case, as at the time of passing of the decree in question the 1997 Act was in force, therefore, notwithstanding the harshness of the 1997 Act which permitted award of continuous mark-up beyond the contracted mark-up, this Court being an executing Court cannot now extend the benefit of the new law by replacing the mark-up awarded by the Court under 1997 Act with the award of only 'Cost of Funds' permitted under the 2001 Ordinance. This would amount to empowering the executing Court to amend the decree. Coming to the next argument of the learned counsel for the judgment-debtors Mr. Syed Zaki Muhammad, that as all assets of the judgment-debtor No.1 were taken over by this Court in the year 2001 and therefore, mark-up is to be charged only until such period. This argument is also not tenable. The assets of the judgment-debtor No.1 were not taken over towards the satisfaction of the decree but were taken over to preserve the corpus of the decree. Therefore charging of mark-up cannot stop at such takeover. There is however force in the argument of the Mr. Zaki Muhammad which was advanced by him in the alternative. He argued that after the sale of the assets, the judgment-debtors cannot be made liable to pay mark-up beyond the date when the Auction-purchaser ought to have deposited the sale proceeds in Court. He relied on AIR 1942 Madras

442. Once the assets of a judgment-debtor are sold in Court proceedings and a time is prescribed for the Auction-purchaser to deposit the sale proceeds in Court then any delay on the part of Auction-purchaser to deposit the purchase price for any reason not attributable to the judgment-debtors, cannot be made basis to call upon the judgment-debtor to pay mark-up also for such delayed period. No principle of law permits this. The stipulated period within which an Auction-purchaser ought to have deposited the balance sale consideration is to be regarded as the period on which the recovery of decretal amount was effected. Any indulgence to the Auction-purchaser with the active or passive consent of the decree-holder would not make the judgment-debtors liable to pay mark-up beyond the date when the Auction-purchaser was required to deposit money into Court. In the present case as per the advertisement published in daily Dawn on 16-2-2002 Auction-purchaser was required to make total payment within 15 days of the confirmation of sale. Sale in his favour was confirmed by Court on 1-7-2002, therefore, mark-up is to be charged for the judgment-debtor only uptil 16-7-2002. Thus mark-up in the present case is to be charged from 19-2-1998 i.e. date of filing of the suit till 16-7-2002 which was the time up to which Auction-purchaser was required to make payment of the entire sale consideration. The period from the filing of the suit till 16-7-2002 comes to 1606 days. At the time of filing of the execution application the decree-holder has calculated mark-up for 467 days which worked out to be Rs.31,017,794.61. Therefore, mark-up for each day works out to be Rs.6.6,419.26. Taking this sum of Rs.66,419.26 daily mark-up and multiplying it with 1606 days, the total mark-up payable by the judgment-debtors on the decretal amount comes to Rs.106,669,331.56. Thus total liability of the judgment-debtor after adding mark-up amount of Rs.106,669,331.56 to the decretal amount of Rs.122,252,346.20 comes to Rs.228,921,677.76. When this amount is deducted from the sale proceeds of Rs.252,500,000 a balance of Rs.23,578,322.24 remains in excess after satisfying the decree. As to application of the intervenor UBL, the same has been opposed on the ground that it was moved after the assets of judgment-debtor No.1 were received by the executing Court. Counsel for the decree-holder as well as judgment-debtors have relied upon the case of PICIC versus Government of Pakistan reported in 2002 SCMR 496 where Hon'ble Supreme Court has held that for ratable distribution it is necessary that the assets must be held by the Court, there should be more than one person who have money decrees in their favour against the same judgment-debtor and application should have been made before the receipt of assets by the executing Court. No doubt UBL has moved application after the assets were received by the executing Court, but this would have only disentitled UBL to claim ratable distribution. However, in the present case a sum of Rs.23,578,322.24 is in excess after satisfying the decree of the present decree-holder i.e. HBL, UBL's claim works out to be Rs.11,973,

600. When UBL's claim is adjusted from the excess balance of Rs.23,578,322.24 a sum of Rs.11,604,722.24 is still left in excess to the credit of the judgment-debtor No.1. This amount along with all profit accrued thereon is liable to be paid to judgment-debtor No.1 being an amount recovered in excess of its obligations towards the decree-holder as well as UBL. As the entire liability of the judgment-debtors has been finally determined in the present execution application. Suit No.528 of 2003 filed by the judgment-debtors seeking determination of its lawful liability has become infructuous. The decree-holder out of its total entitlement of Rs.228,921,677.76 has so far received Rs.153,270,140 from the Official Assignee. A balance sum of Rs. 75,651,137.76 still remains to be paid. Official Assignee is directed to pay a sum of Rs.75,651,537.76 to the decree-holder, a sum of Rs.11,973,600 to the intervener i.e. UBL and the balance of Rs. 11,604,722.24 along with all accrued profit on its investment to judgment-debtor No.1. This execution application along with all listed applications stands disposed of. M.H./H-8/K???????????????????????????????????????????????????????????????????????????????????????? Order accordingly.