1995 PLP 880 (CLC)

Mr. Arfm then contended that the suit which was filed on the 15th December, 1986, is barred by limitation because the promissory note does not amount to an acknowledgement in respect of the amount which was outstanding on the date i.e. the 24th April, 1984, when it was executed. The amount outstanding on the 24th April, 1984, was, according to the statement of accounts, Rs.11,405,429 whereas the amount of the promissory note in Rs.25 million. The learned counsel conceded that the promissory note was valid as to future advances but contended that it does not amount to an acknowledgement of liability, under section 25 of the Contract Act, for the liability outstanding on the date of its execution. The argument is, however, flawed because section 25 of the Contract Act is not concerned with acknowledgment of liability but provides, by subsection (3) thereof, in effect, that an agreement or a promise made in writing and signed by a person to be charged therewith to pay a debt of which a creditor might have enforced payment, but for the law of limitation of suits, is a valid contract. No arguments were advanced to show that the suit was time‑barred in respect of the aforesaid amount of Rs.11,405,429 but assuming, for the sake of argument, that recovery of that sum was time‑barred, the promissory note amounts to an express promise, under section 25 (3) of the Contract Act, to pay the same; and is accordingly enforceable as a contract. It is an established law that a promissory note for, or a promise to pay, time barred debt is valid. See P. Ram Pattar v. Viswanath Pattar (45 Mad. 345). and Bhansarilal v. Navalkishore (AIR 1958 MP 21): In the latter case, the defendant was sued on the basis of an entry in the plaintiffs books, signed by the defendant. That entry alongwith the endorsement by the defendant at the foot thereof was held to contain not only an acknowledgement of the previous balance but also an express promise to pay it; and it was held‑‑ "The requirement of S. 25 (3) of the Indian Contract Act are fully satisfied in this case. The document Exh.P/1 contains a promise to pay a sum of Rs.8,

000. It is in writing and is duly signed by the person charged therewith. Even if the contention of Mr. Duivedi that the Entry Exh.P/1 was executed when the claim on the earlier document was barred by time is upheld, the bar of limitation does not operate as in my opinion Exh.P/1 contains a fresh promise to pay a previous debt. It is well‑settled that the time‑barred debt is a good consideration for a fresh promise to pay it." The suit is, thus, clearly not barred by limitation because it was filed within three years of the execution of the promissory note. It was next submitted by Mr. Arfin that the plaintiff is a Travel Agency and not a banking company and, therefore, the suit filed by it under the Banking Companies (recovery of Loans) Ordinance, 1979, is not maintainable. The argument is based apparently only on the fact that the plaintiff is, by its Charter, permitted to carry on the business of travel agents also. Mr. Vellani submitted that the plaintiff is a banking company within the meaning of section 2 (a) of the Ordinance which defines a "banking company" as, inter alia, "a banking company incorporated outside Pakistan and transacting banking business in Pakistan". Certificate of Incorporation (Annexure `A' to counter affidavit) shows that .the plaintiff is a banking ‑company incorporated in the United States of America and the fact that the plaintiff is a scheduled bank is evident by a copy of the Gazette of Pakistan, dated December 31, 1986 (Annexure `B' to the counter‑affidavit). These facts were not controverted by Mr. Arfin. The plaintiff is, therefore, "banking company" and the suit filed by it is maintainable. Finally, it was urged by Mr. Arfin that the defendant No.1 has a counter‑claim against the plaintiff for selling the pledged goods at a "throwaway" price and is, therefore, entitled to leave to appear and defend the suit. In support of his submission that counter‑claim is a good ground for leave to defend, Mr. Arfin cited several English authorities and the case of Roule v. Fettrle (ILR 18 Bom. 717). Mr. Vellani submitted, on the other hand, that counter‑claim is not a ground for leave to defend and relied on the cases of Messrs. Weiss Biheller and Brooks v. Firm of Habib Ploy Gangji (120 I.C. 528) and Messrs. Razzaq and Company v. Messrs. kiazeda (Pvt) Ltd. (1990 CLC 1243). It is true that in the English cases cited by Mr. Arfin counter‑claim has been held to be a good defence in summary suits; but those cases are of no help to the defendant No.1 in view of the decision of a Division Bench of our own Court in the case of Messrs. Razaaq and Company. In that case, the appellant shipped his goods on board a vessel belonging to the respondent and, in consideration. thereof, issued a cheque which was dishonoured upon presentation for payment. The respondent, consequently, filed a suit under Order 37, C.P.C. for recovery of the amount of the cheque and the appellant sought leave to defend on the ground, inter alia, that the exported goods were damaged during the voyage due to negligence of the respondent with the result that the consignee refused to accept the goods and the appellant suffered loss of Rs.13 lacs. A learned Single Judge refused the leave. On appeal, it was held by a Division Bench consisting of Ajmal Mian, C.J. and Mukhtar Ahmed "As regards counter‑claim of the appellants in respect of damage to the consignment exported, that is not germane to the point at issue viz about grant or refusal of the leave to appeal." The facts of the above case are similar to the facts of the present case; g and respectfully, following the judgment of the Division Bench I would hold that the defendant Nio.1 is not entitled to leave on the ground that it has a counter claim against the plaintiff. In view of the above, it is not necessary to discuss the merits of the defendant's allegation that the pledged goods were sold for less than their proper value. The upshot of the above discussion is that the defendant No.1 has failed to disclose any defence. Consequently, leave to appear and defend the suit cannot be granted to it. That disposes of C.M.A. 1443/87 in so far as it relates to defendant No.

1. C.M.As Nos. 1444/87. 1445/87 and 1446/87: These applications for leave to appear and defend the suit have been filed by defendants Nos. 3,4 and 6 respectively. The grounds on which these defendants and the defendant No.2 (who has filed C.MA. 1443/87 jointly with defendant No.1) have sought leave are common and common arguments have beers addressed by the counsel. Those grounds are that (i) the guarantees signed by the defendants are stated to be "joint and several" but have been signed singly by the defendants respectively, (ii) the guarantees do not cover the liability in the new account opened by the plaintiff, (iii) the guarantees are without consideration and (iv) the guarantee by defendant No.6 is forged. The guarantees by the defendants Nos. 2, 3, 4 and 6 have been signed singly. Mr. Arfin pointed out that in the text of the guarantees they are stated to 'have been signed "jointly and severally" without, however, stating the effect of those words. Since the guarantees have in fact been signed individually the words "jointly and severally" are obviously redundant and may be ignored. In any case, the words "jointly and severally" in the guarantees are followed by "(car I)" which leaves no doubt that, the guarantees are by the defendants individually. The objection is, therefore, entirely frivolous. The second objection that the guarantees do not cover the new account, i.e. Account No. 100061095, is, in view of my findings hereinabove, equally without merit. With regard to consideration for the guarantees, Mr. Mansoorul Arfin submitted that no further advances were made by the plaintiff to defendant N,o.l after the 24th April, 1984, when the guarantees were executed and that there is nothing in the terms of the guarantees to show that the previous advances were made at the request of the guarantors; and that, therefore, the guarantees are without consideration. He relied on section 127 of the Contract A(ct and the case of Paulo Varghese and others v. Ittipe Abraham and others (,40R 1952 T.C. 202). Mr. Velani, in reply, submitted that advances were made even after the dates of the guarantees; that the guarantees have to be construed in the light of surrounding circumstances; and that they being "continuing guarantees", it is the implied term thereof that the plaintiff would forbear from recalling the advances which were outstanding on the dates when the guarantees were signed; that there was actual forbearance on the part of the plaintiff; and that, therefore, there was sufficient consideration for the guarantees. Mr. Arfin chose to meet Mr. Velani's argument by contending that the word "continuing" in the guarantees is not equivalent to "forbearing" and refers merely to making advances in future. The guarantees provide, inter alia, as follows :‑‑ "

1. In consideration of your making or continuing advances or otherwise giving creditor affording banking, facilities for as long as you think fit to Adamjee Industries Limited (hereinafter called the (Principal Debtor) whether on current account or by way of discounting bills of exchange or promissory notes or otherwise however we Hereby Jointly and Severally (or I) Guaranter to you the repayment on demand in writing being made to us/me by you or any of your duly authorised officers of all moneys advanced to or paid for on account of the Principal Debtor whether before or after the date hereof and interest thereon remaining unpaid or which shall at any time hereafter be owing or payable to you on any account whatsoever by the Principal Debtor whether as principal or surety and. whether alone or jointly with any other person and in whatever name, style or firm. "

2. This shall be a continuing guarantee and shall not be considered as either wholly or partially satisfied by the receipt by you of any sums at any time in payment or discharge wholly or partly of the said moneys or of the debt for the time being owing by the Principal Debtor but shall extend to cover all moneys which shall at any time hereafter be advanced to or paid for or on account of the Principal Debtor notwithstanding the receipt by you of any such sums. "

12. The sums to be ultimately recoverable from us/me under this guarantee shall not exceed Pakistan Rupees 25,000,000 (Rupees twenty five million only) plus such further sum representing interest thereon and other banking charges in respect thereof as shall accrue due to you before of at any time after the date of demand by you upon us or any one of us/me for payment." The terms of the guarantees, reproduced above, show that the defendants have guaranteed repayment of all moneys advanced to or paid on account of the defendant No. 1, whether before or after the dates of the guarantees, to the extent of Rs.25 million, with interest thereon. Thus, the guarantees, in terms, cover past as well as future advances. The consideration for the guarantees is stated to be "making or continuing advances or otherwise giving credit or affording banking facilities". Thus, consideration could consist of (a) making advances, (b) continuing advances, (c) giving credit, and (d) affording banking facilities. The "making" of advances appears to refer to future making of advances for, had the intention been otherwise, the proper words to use would have been "having made advances" and not "making" advances. "Continuing",. as submitted by Mr. Arfin himself, has reference to making of advances in future; and, it seems to me that it has reference also to continuing, or not recalling, the advances already granted. The question, therefore, is whether such consideration as stated above is sufficient consideration for the guarantees. Section 2(d) of the Contract Act defines "consideration" as follows:‑ "When, at the desire of the promissor, the promisee or any other person has done or abstained from doing, or promises to do or to abstain from doing, something, such act or abstinence is called a consideration for the promise." The expression "has done or abstained from doing", is in the past tense and indicates that an act done or abstained from in the past can be good consideration. Similarly, the expression "anything done" in section 127 of the Contract Act shows that past advances can be good consideration for the guarantee. However, such past advances should have been made, as required by section 2(d) of the Contract Act, "at the desire of the promisor". There is nothing on the record, nor, indeed, is it the case of the plaintiff that the advances prior to the dates of the guarantees were made at the request or desire of the guarantors. Making of the advances before the dates of the guarantees, therefore, does not by or in itself amount to consideration for the guarantees. However, a promise to do, or abstain from doing, something is a good consideration for a contract. As has been noted above, the consideration for the guarantees in "making or continuing" advances, which includes making advances in future. Indeed, Mr. Arfin strenuously argued that the word "continuing" has reference to making of advances in future. Such a promise viz. to make advances in future is sufficient consideration not only for the advances made in future but also for the advances made in the past. Reference, in this connection may be made to Chitty on Contracts; Volume II, 2nd edition, wherein it is stated, at page 1018, para 4811‑‑ "If the surety guarantees past transactions in return for an undertaking by the creditor to continue to deal with the debtor, or to grant him further credit, there will be good consideration. In practice, the surety frequently guarantees both past and future transactions in return for such an undertaking, and such a guarantee is good as to both sets of transactions, for consideration to be executed on one side is at all events prima facie. consideration for all that is done on the other, and all the promises are to be referred to all the considerations. Difficult questions of construction may arise in these cases, since guarantees are often expressed in terms which leave it doubtful whether the surety is guaranteeing past and future transactions, or past ones only. In these circumstances, extrinsic evidence is admissible to show that the parties contemplated future transactions as 'falling within the guarantee, and that the whole guarantee is therefore valid. But if it is evident that the guarantee was intended to be limited to past transactions alone, the guarantee will be void as being without , consideration." I have already indicated above that the guarantees in terms provide for repayment of the past as well as future advances. and the consideration for those guarantees was, inter alia, making of advances is future. The guarantees are, therefore, not without consideration and are valid. In view of the above, the defendants Nos. 2, 3 and 4 have failed to disclose any defence as to their respective liabilities as guarantors. As for the defendant No. 6, he has sought leave, in addition to the grounds discussed above, on the ground that his signature on the guarantee has been forged. Mr. Vellani submitted that the allegation of forgery is false because signature on the guarantee said Co have ' been signed by defendant No. 6 is the same as his admitted signature on the Vakalatnama and the affidavit. However, on comparison of those signatures, it appears prima facie that the signature on the alleged guarantee by defendant No. 6 does not match her signature either on the vakalatnama or on the affidavit. The defendant No. 6 is, therefore, granted unconditional leave to appear and defend the suit. C. M. As. Nos. 1447187, 1448/87 1449/87 and 1450/87: C.MA. 1447/87 has been filed by defendants Nos. 7 and 8; C.MA. 1448/87 by defendant No. 12; C.M.A. 1449/87 by defendants Nos. 9 and 13; and C.MA. 1450/87 by defendants Nos. 10 and 14 to

16. All those defendants are alleged to have pledged the various securities belonging to them respectively as security for repayment of the moneys owing by defendant No.1 to plaintiff. On behalf of those defendants, Mr. Arfin submitted that (1) they, as pledgors, are neither borrowers nor sureties and, therefore, the suit against them is not maintainable, (2) the pledges are without‑ consideration, (3) pledge by defendant No. 12 which is a partnership firm was made by a partner and was without authority and (4) defendants Nos. 13 to 16 are minors and the pledges made by their respective fathers are not valid. Section 6 of the Banking Companies (Recovery of Loans) Ordinance, 1979, confers jurisdiction on Special Courts in respect of a claim filed by a banking company against a "borrower"; and the term , "borrower" has been defined by section 2(d) of the Ordinance as to include "a surety or an indemnifier". "Surety" is defined by section 126 of the Contract Act as a person who gives a guarantee. And "a contract of guarantee" means, as provided by the same section, "a contract to perform the promise, or discharge the liability, of a third person in case of his default". In view of these provisions, Mr. Arfin submitted that since the word "surety" in section 126 of the Contract Act does not include a pledgor, these defendants are not sureties and cannot be sued under the Ordinance. Mr. Vellani, on the other hand, submitted that the word "surety" in section 2(d) of the Banking Companies (Recovery of Loans) Ordinance, 1979, has a meaning different from the one given to it by section 126 of the Contract Act; and that, for the purposes of the Ordinance "surety" includes a pledgor and mortgagor. He referred to Mokal's Law Terms and Phrases wherein "surety" is stated to mean "one that gives security for another"; and the word "security" is stated mean "anything that makes the money more assured in its payment or more readily recoverable" and "all mortgages, charges, debentures, etc. whereby repayment of money is assured or secured". Mr. Vellani also relied on Halsbury's Laws of England, 4th edition, volume 20, P. 52; on (1938) 2 AER 127 and on the case of Central Exchange Bank Ltd. v. Mst. Zaitoon Begum and others (PLD 1968 SC 83). It is stated in Halsbury's Laws of England (Supra), on the authority of (1938) 2 AER 127 (Supra), that ‑‑ "The assumption of personal liability is not necessary element in suretyship. A person who provides a pledge or security for performance of another's obligation is making himself, by means of that pledge or security, a surety for that other, just as much as if he pledges his personal credit:" In Central Exchange Bank case, the husband had deposited certain fixed deposit receipts belonging to his wife as security for repayment of advances granted to him by the bank. It was held that the wife had, in the circumstances given a guarantee for the payment of the debt by her husband and was, therefore, a surety within the meaning of section 126 of the Contract Act. In view of the above, there can be no doubt that the defendants who have pledged their securities to the plaintiff are sureties and the suit as against them is maintainable. The next ground on which leave is sought on behalf of the defendants is that the agreement of pledge are without consideration. Neither of the learned counsel for the parties advanced any fresh arguments on the question and contented themselves with the arguments advanced in connection with the question of consideration for the guarantees which has already been dealt with hereinabove. They did so obviously on the assumption that the consideration for the pledges is the same as that for the guarantees. Since I have already held that there was valid and sufficient consideration for the guarantees, it follows that the agreements for pledges were also made for valid and sufficient consideration. That disposes of the defences taken jointly on behalf of the pledgors. It remains to consider the additional grounds relied on behalf of defendant No. 12 and defendants Nos. 13 to

16. It was contended on behalf of defendant No. 12 that it is a partnership firm and that the pledge of its securities, having been made by its partner without authority, is not binding on it. Mr. Vellani contended that the partner who signed the agreement of pledge had implied authority, as provided by section 19 of the Partnership Act, to do so. Section 19(1) of that Act provides ‑‑ "Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, the business of the kind carried on by the firm, binds the firm." It has not been shown that it was the business of defendant No. 12 to stand surety for loans given to third parties. It cannot, therefore, be said that the partner of defendant No. 12, pledged the firm's securities to carry on, in the usual way, the business of the kind carried on by the defendant No. 12 firm. That being so, the pledge by its partner would appear not to be binding on defendant No.

12. The case of Porbandar Commercial Cooperative Bank Ltd. v. M/s. Bhanji Lavji and others (AIR 1985 Gujarat 106), cited by Mr. Arfin, supports the above position. In the circumstances, defendant No. 12 is entitled to unconditional leave to appear and defend the suit. With regard to the defendants Nos. 13 to 16, it appears to be an admitted fact that they are all minors and that their securities have been pledged by their respective fathers. Mr. Arfin, therefore, contended that those pledges are not valid. Mr. Vellani, on the other hand, contended that the fathers, who were guardians of the properties of the minors, were entitled to pledge those properties and, in support of this contention, cited Mahomedan Law by Mulla, eighteenth Edition, wherein it is stated in section 366 that "a legal guardian of the property of a minor (S. 359) has power to sell or pledge the goods and chattels of the minor". The proposition stated in Mulla appears to have been stated on the authority of Mst. Zaitoon Begum and Another v. The Central Exchange Bank Limited (PLD 1961 Lahore 888). The decision in that case was challenged in the Supreme Court and the decision of the Supreme Court is reported in PLD 1968 SC 83 wherein it has been held that a ' survey of the authorities reveals preponderance of opinion in favour of the father's power to pledge his minor son's goods for his own debt. Mr. Arfin, however, submitted that decision pertains to the debts of the father himself whereas in the present case the securities of the minors have been pledged by the fathers for the debts of third person and that, therefore, the decision is not applicable to the facts of this case. The defence thus set up on behalf of defendants Nos. 13 to 16 is plausible. They are, therefore, entitled to unconditional leave to appear and defend the suit. Leave is accordingly granted to them. In the event, leave to appear and defend the suit is refused to defendants Nos. 1, 2, 3, 4, 7, 8, 9 and 10 while unconditional leave to appear and defend the suit is granted to defendants Nos. 6, 12, 13, 14, 15 and

16. The latter will file their respective, written statements within on month from today. A.A./A‑1496/K Order accordingly.