2007 PLP 272 (CLD)

MIAN HAMID FAROOQ, J.

Appellants, through the present appeal, under section 22 of Financial Institutions (Recovery of Finances) Ordinance, 2001, have called in question judgment and decree dated 16-7-2002, whereby the learned Judge Banking Court passed a decree for recovery of Rs.2,79,414 with costs and costs of funds, against the appellants.

2. Briefly stated facts of the case are that the respondent-Bank filed the suit for recovery of Rs.2,79,414, before the learned Judge Banking Court, against respondent No.2 and the appellants, as legal heirs of Arshad Ali Toor. In the said suit, respondent No.2 was impleaded as principal debtor, while Arshad Ali Toor (the predecessor-in-interest of the appellants) was arrayed as mortgagor and guarantor, as it was slated in the plaint that Arshad Ali Toor mortgaged his property and also executed letter of guarantee. Upon the presentation of the plaint, the learned Judge Banking Court issued summons to the defendants as provided under the law, and pursuant thereto only the appellants filed the application seeking leave to defend the suit. No such-like application was filed on behalf of respondent No.2, therefore, the suit was decreed against the said respondent on 9-2-2002. The appellants in their leave application, besides raising preliminary objections, pleaded that memorandum of deposit of title deed, dated 22-11-2000, is a forged document, however, it was alternatively submitted that memorandum of deposit of title deed was allegedly executed on 22-1 1-2000 for the facility, which was discharged on 30-11-2000 and Arshad Ali Toor died on 29-11-2001, therefore, the said memorandum of deposit of title deed stood terminated and no fresh loan could be allowed on the strength 'of the alleged document. The learned Judge Banking Court, after finding that the appellants failed to raise any bona fide and serious dispute, dismissed their leave ,application and consequently passed a decree for recovery of Rs.2,79,414 with costs and costs of funds, vide impugned judgment and decree dated 16-7-2002, hence the present appeal.

3. Learned counsel for the appellants has contended that even if it be taken that Arshad Ali Toor (the predecessor-in- interest of the appellants) executed letter of guarantee and memorandum of deposit of title deed, both dated 22-11-2000, since the original facility was adjusted, therefore, both the documents stood terminated and lost their efficacy and Arshad Ali Toor was discharged from the liability. He has submitted that subsequent to the adjustment of the first loan facility neither Arshad Ali Toor nor the appellants executed any document to secure the second finance facility, which was allegedly availed by respondent No.2 on 3-3-2001. Learned counsel has further submitted that in view of sanctioning of new finance facility, to which Arshad Ali Toor was not party, he stood discharged from the guarantee per force of section 133 of the Contract Act. Learned counsel for the respondent-Bank, while referring to clause (9) of the letter of guarantee dated 22-11-2000, has submitted that continuing guarantee was executed by Arshad Ali Thor and it was binding on the legal heirs, therefore, his guarantee was not discharged. He has added that second finance facility was allowed on 3-3-2001, whereas appellant No.1 informed the bank about the death of Arshad Ali Toor, when the second facility had already been sanctioned. Respondent No.2 was proceeded ex parte by this Court, vide order dated 27-7-2006.

4. We have heard the learned counsel and examined the available record. The Financial facility up to maximum limit of Rs.5,00,000 was sanctioned by the respondent-Bank in favour of respondent No.2 and agreement of financing was executed inter se the respondents. Aforesaid Arshad Ali Toor executed memorandum of deposit of title deed dated 22-11-2000, thereby creating mortgage favouring respondent-Bank qua the house/shop. Additionally, he also executed personal guarantee dated 22-11-2000. In depth examination of the statement of accounts, produced by the respondent-Bank before the Banking Court (which is available at page 105 of the record) shows that although the respondent Bank sanctioned a sum of Rs.5,00,000, favouring respondent No.2, yet, on 24-11-2000, only a sum of Rs.1,57,028 was debited in the account of respondent No.2, thereafter no further disbursement was made in this account, the said amount of Rs.1,57,028 was realized on 30-12-2000 and was credited in the account of respondent No.2 leaving the balance as nil. Statement of accounts further shows that on 3-3-2001, a sum of Rs.3,00,000 was debited in the account of respondent No.2, although no sanction letter of this amount has been placed on record. It appears that the respondent-Bank provided another financial facility of Rs.3,00,000 and respondent No.2 executed fresh documents on 3-3-2001, inasmuch as fresh agreement for financing of the even date was executed. Although we find on record facility letter, promissory note, agreement of discount/purchase, personal guarantee and agreement for finance, all dated 3-3-2001, executed by respondent No.2, yet even according to the owns showings of the respondent-Bank no fresh documents were executed by Arshad Ali Toor in order to secure the second financial facility of Rs.3,00,

000. It may be noted that there is no denial of the fact that Arshad Ali Toor died on 29-1-2001. It flows from the above narration that when fresh facility of Rs.3,00,000 was granted, on 3-3-2001, Arshad Ali Toor was already dead and the earlier facility of Rs.1,57,028 granted to respondent No.2, for which Arshad Ali Toor stood as guarantor/mortgagor, had already been adjusted. The mortgage allegedly created on 22-1--2000, could not be taken as security for the repayment of the second financial facility granted to the principal debtor after the death of mortgagor. Similarly, the respondent-Bank could not invoke the bank guarantee dated 22-11-2000, as the same lost its efficacy after the adjustment of the first financial facility. Learned counsel for the respondent-Bank has laid much emphasis that although Arshad Ali Toor died on 29-1-2001 and fresh facility was granted on 3-3-2001, yet as the respondent-Bank was informed after the grant of second financial facility, therefore, the bank can utilize the guarantee dated 22-11-2000. The said contention on the face of it is devoid of any force. Admittedly, at the time of granting of second facility, Arshad Ali Toor had already died and no liabilities could be created upon a dead person.

5. As noted above, with the execution of latest documents, including the agreement for finance dated 3-12-2001 for a sum of Rs.3,00,000 by the principal debtor, the original agreement dated 22-11-2000, for which Arsand Ali Toor executed the guarantee and created mortgage, stood varied without the consent of the surety, therefore, the surety stood discharged per force of section 133 of the Contract Act. Reliance can be placed on the judgments reported as Dr. M.A. Qadir Khan v. The Bank of Bahawalpur Ltd. and another (PLD 1984 Karachi 211): National Development Leasing Corporation Limited v. Messrs National Fibres Limited and others (2003 CLC 637) and N.D. Leasing Corporation v. National Fibres Ltd. (2002 CLD 643). Additionally, as noted above Arshad Ali Toor was dead at the time of granting of second financial facility of Rs,3,00,000.

6. As regards reliance for the learned counsel on clause (9) of the guarantee, the same is devoid of any force, as with the adjustment of financial facility of Rs.1,57,028 on 30-12-2000 and execution of latest document by the principal debtor the said guarantee and mortgage had lost their utility. When the principal debtor executed fresh documents at the back of the surety and without his consent, latest agreement does not bind the surety or his legal heirs, as they are not signatory to those documents.

7. We have examined the impugned judgment and find that the learned Judge Banking Court, while decreeing the suit, against the appellants, failed to consider the important aspect of the case and, thus, the impugned judgment suffers from legal errors. We are inclined to set it aside.

8. In view of the above, the present appeal is allowed and the impugned judgment and decree dated 16-7-2002, against the appellants, is set aside. Resultantly, suit of the respondent-Bank stands dismissed, as against the appellants. No order as to costs. H.B.T./N-118/L Appeal accepted.