2019 PLP 651 (CLD)

ASIM HAFEEZ, J.

This appeal impugns Order dated 24.08.2007 by learned Judge Banking Court, whereby plaint filed by the appellant was returned on the ground of absence of subject-matter jurisdiction of the Banking Court under the provisions of Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act 1997 or in terms of subsequent legislation, i.e. Financial Institutions (Recovery of Finances) Ordinance, 2001.

2. Learned counsel, appearing for appellant, sought adjournment on the plea that presently MCB bank, being the successor-in-interest of Gulf Commercial Bank Limited - as a consequence of series of mergers amongst the Banking Companies/Financial Institutions at various points in time - needed to be impleaded as appellant. On perusal of the record, it transpired that earlier application bearing C.M. No.1-C of 2018 was filed, which came up for hearing before this Court on 22.02.2018, wherein order was passed to implead MCB as appellant in the instant appeal. And whereafter, amended memo of the parties was placed on record accordingly. Power of Attorney, executed by MCB bank, in favour of the learned counsel was placed on record on 09.01.2019. In view of order dated 22.02.2018 and representation through learned counsel, there is no reason to adjourn this appeal and learned counsel was asked to proceed with arguments.

3. Facts necessary for adjudication of the lis at hand are that appellant bank filed suit for recovery of Rs.60,164,000/- against the respondents before the Banking Court, constituted and exercising jurisdiction under Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act 1997, which suit was decreed to the extent of respondents Nos.1 and 3 to 6 on 18.09.1998. And leave to appear and defend was allowed to respondent No.2 vide order dated 04.12.2001. Issues were framed and evidence adduced respectively. Upon conclusion of the trial, the learned Judge Banking Court ordered return of the plaint vide order dated 24.08.2007 on the ground that Banking Court has no jurisdiction to adjudicate upon the claim of the appellant against respondent No.2 (Water and Power Development Authority). Hence this appeal.

4. Learned counsel submits that local bill discounting facility was allowed to the respondent No.1 company, wherein various bills of exchange drawn by the respondent No.1 on Respondent No.2, allegedly favouring the appellant, were discounted/negotiated and funds were accordingly released to the respondent No.1. in brief, case of the appellant was that three bills of exchange, drawn on respondent No.2, were accepted for payment by respondent No.2. And despite demand by the appellant, the respondents No.2 failed to pay the amounts, which failure led to raising of demand for payment from respondent No.1, who also failed to honour its contractual obligations. The appellant, in the circumstances, filed its claim before the Banking Court, against the respondents on the basis of three bills of exchange. The learned counsel for the respondent No.2 defended the order of return of plaint and pleaded that Banking Court had no jurisdiction to entertain and adjudicate upon the claim, raised on the basis of mere acceptance of bills of exchange by the respondent No.2, without incidence of grant of finance.

5. Arguments heard. Available record perused.

6. The case set-out in appeal is that facility of local bill discounting was allowed to the respondent No.1 Company, which facility was inter-alia secured through the letter of Hypothecation, personal guarantees of the Directors and also through bills of exchange, drawn on respondent No.2, which were allegedly endorsed/accepted for payment by the respondent No.2. The primary question is that whether execution and acceptance of the bills of exchange - drawn on respondent No.2 by the drawer, i.e. respondent No.1 for payment to appellant bank, tantamount to grant of finance facility to the respondent No.2 by the appellant. And whether relationship of a Financial Institution and Customer, inter-se the appellant and the respondent No.2, stood established, which conditions precedent must co-exist to attract jurisdiction of the Banking Court in terms of erstwhile Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act 1997 and in terms of subsequent legislation on the subject, i.e. Financial Institutions (Recovery of Finances) Ordinance 2001. Another ancillary issue is that whether respondent No.2 can be termed as borrower/customer, merely on the basis of execution of bills of exchange and/or alleged acceptance for payment - execution and enforceability whereof was denied by the respondent No.2 during the course of recording of evidence.

7. In order to adjudicate upon the matter, it is appropriate to review of the financial arrangement, pleaded by the appellant in the plaint, and examine the documents sued and relied upon. In terms of approval of Finance letter dated 10.08.1994, local bill discounting facility was approved, which was valid till 31.10.1994. It is expedient to reproduce the validity clause therein, which reads as Validity: "The facility shall be available until October 31, 1994, after which it shall be renewed and extended upon mutual consent."

8. Another crucial document is the Agreement for discounting/ negotiation of bills dated 15.08.1994, which envisaged grant of finance by way of discounting or negotiation of bills. Unless the bills/ instruments are discounted/negotiated and funds are disbursed as a consequence thereof, no claim can be made on the basis of the bills/instruments. Browsing of the record revealed that no document was available to substantiate any renewal or extension. The question is that whether the bills of exchange, alleged to have been drawn on the respondent No.2 and allegedly accepted for payment, were ever discounted or negotiated in terms of the facility allowed either in terms of above-noted agreement or any other contractual arrangement. To appreciate this controversy, the dates of execution and maturity of the bills of exchange are relevant, which details are provided hereunder; S.No. Bill dated Amount Maturity 1. 14.03.1996 Rs.31,760,442.72 17.06.1996 2 24.03.1996 Rs.6,946,592.88 23.05.1996 3. 31.03.1996 J.Y. 17,985,744.90 14.06.1996

9. In order to make out a case of grant of financing by way of discounting/negotiation of bills it is essential to establish that aforesaid bills of exchange were discounted and funds were made available to the respondent No.1, only then any enforceable obligation qua the respondent No.2 would, at best, be claimed. Proof of grant of finance facility, by way of discounting/negotiation of bills of exchange need corroboration from the entries in the statement of account. It is evident that alleged statement of account did not contain any entry or proof to establish grant or disbursement of any facility contemporaneous to the execution of the bills of exchange. In the absence of any discounting/negotiation of bills of exchange under reference, no liability to pay could be attributed to the respondent No.2. No transactional proximity could be established between the Agreement for discounting/negotiation dated 15.08.1994 and the alleged bills of exchange, executed after the lapse of validity of the bill discounting facility. For convenience, details of reflection of the entries in the statement of account is reproduced hereunder; SCHON BANK LIMITED 0001 KARACHI BRANCH TEMPORARY STATEMENT DATED 16/02/97 LOCAL BILL DISCOUNT NAME CHAUDHRI CABLES (PVT) LTD. PAGE NO.1 DATE DISCOUNT MATURITY DATE DRAWEE BILL AMOUNT To-date Mark-up 14-Mar-96 17-Jun-96 WAPDA Rs.31,760,442/- Rs.3,802,552/- 28-Mar-96 23-May-96 WAPDA Rs.6,946,592/- Rs.969,097/- 28-Apr-96 14-Jun-96 WAPDA Rs.5,900,000/- Rs.758,595/-

10. It is evident that no statement of account of the respondent No.1 company is attached to show credit of the amounts, pursuant to discounting/negotiation. Mere showing details of drawee would not establish/prove the factum of grant of financing by way of discounting/negotiation. It was not the case of the appellant that discounting facility was allowed or extended to the respondent No.2. In view of the above, existence/grant of finance facility to the respondent No.1 or respondent No.2 is conspicuous by its absence, which alone denudes the Banking Court of any jurisdiction under the law. A reference to the definition of finance would be expedient at this stage, which read as; Section 2 (d) (iv) of Financial Institutions (Recovery of Finances) Ordinance, 2001. (d) Finance includes (iv) "a loan, advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a financial institution to a customer". Section 2(f)(i) of erstwhile Banking Companies (Recovery of Loans Advances, Credits and Finances) Act, 1997 "(f) "loan" means a loan, advance and credit under a system based on interest and includes. (i) An advance, cash credit, overdraft, packing credit, a bill discounted and purchased or any other financial accommodation provided by a banking company to a borrower".

11. It is evident that bill discounted or purchased constitute 'Finance', which overt transaction is lacking in the case presented.

12. Additionally, no document was available on record to show that any finance facility - fund or non-fund based - was ever allowed or extended to the respondent No.2, which conspicuous absence disentitles the appellant from invoking the jurisdiction under the erstwhile Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 and Financial Institutions (Recovery of Finances) Ordinance, 2001. Appellant had claimed payment of alleged outstanding amounts from the respondent No.2 merely on the premise that bills of exchange drawn were accepted for payment by the respondent No.2, which demand in the absence of requisite documents and without satisfying pre-conditions for the exercise of jurisdiction by the Banking Court is misconceived. Even otherwise, the perusal of the contents of Agreement for discounting/negotiation of bills - though nothing available on record to establish any proximity between said agreement and dates of execution of the bills of exchange in the absence of any renewal/extension in the validity of the local bill discounting facility - would establish that obligation to arrange repayment was attributable to the respondent No.1, in case of no-payment by the respondent No.2, if at all claim of the appellant was deemed to include respondent No.2. In this behalf relevant portion of clause No.2 of the Agreement for discounting/negotiation is reproduced hereunder; "

2. The Customer undertakes to provide the Bank with funds: (a) To meet on demand all bills negotiated or endorsed by the Bank for and on behalf of the Customer or on account of the Customer, the holder, holder in due course, or holder for value, which may be dishonoured on presentation for acceptance or which may not be paid at due date thereof according to the original tenor thereof, and non- payment shall be deemed to have taken place if at the due date funds have not been placed at the Bank's free disposal for the whole sum due; (b) To reimburse the Bank for all advances made against the said documents of title which may not have been duly paid on presentation or on the presentation of the Bill or Bills of Exchange;".

13. There is another aspect of the case, which is that whether the respondent No.2 could be treated as surety/indemnifier - to bring it within the definition of 'Customer' - on the basis of endorsement by way of acceptance for payment, as alleged by the appellant - though the evidence adduced by the respondent No.2 alleged dispute qua endorsement of acceptance. It is clear upon the perusal of section 9 of erstwhile Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 and Financial Institutions (Recovery of Finances) Ordinance, 2001 that no claim can be filed before the Banking Court unless default of an obligation qua the loan/finance extended or allowed to the Borrower/Customer is established. In this case neither the factum of grant of finance facility to respondent No.2 was established nor any finance was shown to have been extended or granted to the respondent No.1 regarding three bills of exchange, in the absence whereof no enforceable obligation could be attributed to the respondent No.2 by invoking jurisdiction of the Banking Court. No claim can be raised against the respondent No.2 merely on the basis of execution of bills of exchange and/or alleged endorsement thereupon by way of acceptance for payment before the Banking Court, unless it is established that any finance was extended and default in performance of an obligation to repay was committed, which essential ingredient is found missing in the claim raised by the appellant. It is expedient to reproduce section 9(1) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, which reads as; Section 9(1) "Procedure of Banking courts. (1) Where a customer or a financial institution commits a default in fulfilment of any obligation with regard to any finance, the financial institution or, as the case may be, the customer, may institute a suit in the Banking Court by presenting a plaint which shall be verified on oath, in the case of a financial institution by the Branch Manager or such other officer of the financial institution as may be duly authorized in this behalf by power-of-attorney or otherwise".

14. Section 9(1) envisages that a Financial Institution or a Customer may invoke the jurisdiction of Banking Court by instituting a Suit, wherein cause of action must arise out of a breach in fulfilment of an obligation with regard to a finance. In this case the element of 'Finance' is conspicuously missing, which is crucially required to trigger jurisdiction of the Banking Court.

15. The order impugned is examined. The fundamental question regarding lack of jurisdiction of the Banking Court was elaborately discussed and findings recorded therein do not suffer from any illegality or mis-application of law.

16. In the circumstances, no case is made out to interfere in the order impugned, whereby plaint was ordered to be returned to be presented before court of competent jurisdiction in wake of lack of requisite jurisdiction of the Banking Court to entertain and adjudicate upon the claim of the appellant against respondent No.2.

17. In view of the above, this appeal is without any merit and same is, therefore, dismissed. MH/G-5/L Appeal dismissed.