1987 PLP 2286 (CLC)

The rupee in favour of defendants was created on 29‑6‑1970. This rupee loan was created at the request of the defendants because they had expressed their inability to pay the instalments. Besides the three letters (Exh.31) the plaintiff gave no notice 'Lo the defendants to come and execute any fresh document in respect of the new rupee loan that was created against them. Before reversing the entries in regard to rupee loan the plaintiff gave no notice or intimation to the defendants. Syed Rauf Ahmad. "On 29‑6‑1970, the plaintiff showed in the accounts an overdraft facility in favour of the defendants to the extent of Rs.1 Lac. This amount of Rs.1 Lac was shown as credit in the foreign exchange account and as a debit in their rupee loan account. Often times this device is adopted in cases of such account‑holders who have committed default in payment of instalments. By adopting this device the bank assures that the foreign exchange account is straight and regular and the defaults get reflected in the rupee loan account. This entry in regard to overdraft of Rs.1 Lac shown in the accounts on 29‑6‑1970 was reversed on 26‑6‑1972. The entry was reversed because the defendants did not enter into agreement or execute documents necessary for sustaining of the overdraft. This reversing of the entry is reflected at pages 3 and 5 Exh.43. NOTE:‑ Such entries are encircled in red." From the above‑quoted portions or the evidence of the plaintiff's witnesses, it is evident that Rs.1 Lac loan was given under a separate account on the terms contained in the above‑quoted letter dated 23‑6‑1970, namely, the loan was to be repaid in 12 equal monthly instalments. The rate of interest was 9%. It is also evident that no notice was given to defendant No.1 by the plaintiffs for the execution of any documents in respect of the above fresh loan of Rs. 1 Lac as admitted inter alia by P.W.l. It is also apparent that before reversing the above entry in the foreign currency loan account no prior notice was given to defendant No.l. Mr. A.I. Chundrigar has relied upon my observations contained in the judgment dated 20‑3‑1984, given by me in Suit No.96/74 Industrial Development Bank of Pakistan v. M/s. Haji Dosso Limited, which read as follows:‑ "It may be noticed that under the above‑quoted section 3. it has been provided that notwithstanding anything contained in any other law for the time being in force, the judgment of any Court, or any agreement, contract or other instrument the rate of exchange for the purpose of conversion is Pakistani currency for repayment in respect of outstanding foreign currency loan or any part thereof or interest in respect thereof is payable to the Financial Institution on the day of the commencing of the Order and shall be deemed at all material times to have been the rate of exchange in force under section 23 of the State Bank of Pakistan Act, 1956, on the date on which the loan, part or interest is actually repaid or paid to the Financial Institution and that all the parties by whom the loan, part or interest is repayable or payable shall make the repayment or payment accordingly. It is, therefore, evident that the intention of the Legislature by providing deeming clause in section 3 was to make a borrower of a foreign currency loan liable to repay loan on the basis of conversion of the foreign currency at the rate notified by the State Bank of Pakistan in section 23 of the State Bank of Pakistan Act, 1956, prevalent on the day on which the loan, part or interest in actually repaid or paid to the Financial Institution notwithstanding anything contained in any other law for the time being in force, the judgment of any Court or any agreement, contract or other instrument. In my view, the fact that on 20‑10‑1970 the above foreign currency loan were converted into local currency loan for the purpose of repayment has been nullified by above section 3 of the Order, which has retrospective effect and shall be deemed to be in force even on 20‑10‑1970. Furthermore, as observed hereinabove the above section 3 is to be given effect notwithstanding any law or agreement, contract or instrument."

9. In my opinion, the above observations are not relevant to the instant case. In the above‑cited case the question in issue was, whether the Industrial Development Bank of Pakistan were entitled to claim payment of the loan amount on the basis of the rate of foreign exchange obtaining on the date of actual payment on the assumption that a foreign currency loan existed in terms of section 3 of the LIN Order or whether they were to recover on the basis of a Pak currency loan in view of the conversion of the foreign currency loan into Pak rupee loan in the said case on 20‑10‑1970. While dealing with the above question, it was held by me that in view of the language of section 3 of the Order the aforesaid conversion of the foreign currency loan into Pak rupee loan was nullified, as above section 3 provides that notwithstanding anything contained in any other law for the time being in force, the judgment of any Court, or any agreement, contract or other instrument, the rate of exchange for the purpose of conversion into Pak currency for repayment in respect of an outstanding foreign currency loan or part thereof or interest in respect thereof on the day of the commencement of the Order and shall be deemed at all material times to have been the rate of exchange in force under section 23 of the State Bank of Pakistan Act, 1956, on the day on which the loan, part or interest is actually paid to the Financial Institution and that all parties by whom loan, part or interest is repayable or payable shall make the repayment or payment on the above basis. In the present case, the point in issue is, whether an entry of credit made by the plaintiffs on 26‑6‑1970 crediting Rs.1 Lac towards discharging partly the then outstanding amount of the foreign currency loan could have been reversed after the expiry of nearly two years on 26‑6‑1970, unilaterally. I am inclined to hold that the transction of Rs.1 Lac loan is a separate transaction in law and the credit entry of Rs.1 Lac in the foreign currency loan account cannot be reversed merely on the ground that this money was provided by the plaintiffs as a loan to defendant No.1 though under a separate loan transaction. In law the defendant No.1 had paid the above sum of Rs.1 Lac to the plaintiffs for discharging partly the then outstanding liability under the foreign currency loan. It is not the case of the plaintiffs that if defendant No.1 would have paid Rs.1 Lac from its own sources towards discharging partly the then outstanding foreign currency loan liability, they could have reversed the above entry of Rs. 1 Lac. It may also be observed the above credit of Rs. 1 Lac in the foreign currency loan account was given on the basis of converting the foreign currency into Pak Rupee at the rate of foreign exchange obtaining at the date of giving of the above credit in terms of clause 6 of the credit agreement Exh.6. I am further inclined to hold that section 3 of the Order does not nullify the payments which were already made towards the foreign currency loan on the basis of the rate of foreign exchange prevalent on the dates of payments prior to the enforcement of the Order. It speaks of "the outstanding foreign currency loan or any part thereof or interest in respect thereof payable to a Financial Institution". In this view of the matter, the credit entry of Rs.1 Lac in the foreign currency loan account could not have been reversed by the plaintiffs after the expiry of two years. It may also be pointed out that according to the plaintiffs P.W.1 the above entry was reversed as the defendant No.1 had failed to execute the documents pertaining to the above loan of Rs.1 Lac and not 'because section 3 of the Order. It may again be observed that the plaintiffs have not produced a single document to indicate that at any point of time they had asked the defendant No.1 to execute fresh documents in respect of the above loan of Rs.1 Lac. The plaintiff's three letters dated 13‑8‑1970 , 19‑10‑1970 and 11‑11‑1970 (all the three marked as Exh.31) only contain the demand for the payment of Rs.7,451.89. It is, therefore, evident that the ground for reversing the above entry of Rs.1 Lae given by the plaintiffs above witness is not sustainable. My findings, therefore, on issue No.3 is in the negative. The effect of the above finding would be that the foreign currency loan account is to be re‑worked out on the assumption that the above entry of Rs.1 Lac was correctly made and was not to be reversed. ISSUE NO.4. As per clause 5(ii) of the Credit Agreement (Exh.6) the plaintiffs are entitled to interest on the loan at the rate of 7‑3/4% and as liquidated damages at 11% as per sub‑clause (iii) to above clause 5 of the Credit Agreement. From the statement of accounts, it seems that at some time the plaintiffs had charged interest at the rate of 11%. It may be pertinent to quote the relevant portion of the statement of P.W.2 Syed Rauf Ahmad Exh.42, which reads as follows:‑ "On amounts overdue interest has been charged at 11 per cent but on the other amounts whether in foreign exchange or Pakistan currency interest has been charged at 9 per cent." It may be observed that the plaintiffs have claimed only 7‑3/4% interest from the date of the suit till payment. I have inter alia held in my judgment dated 20‑3‑1984 given in the aforesaid Suit No.96/74 that for the reasons recorded therein, the plaintiffs are not entitled to penal interest in any case from the date of the suit. As regards the penal interest prior to the date of the filing of the suit I had not held that the plaintiffs were not entitled to claim the same. It may be observed that in the case of Chuni Lai and another v. Munnalal and others reported in 131 Indian Cases 368, a Division Bench of the Lahore High Court in 1930 upon an appeal of a mortgagee granted 15% interest instead of 12% interest as per terms of the mortgage deed after the commission of the default. Without expressing about the correctness of the above view, it will suffice to observe that the defendants have not been able to make out a case for re‑adjustment of the entries in respect of the above 1J% interest in terms of clause 5(iii) of the credit agreement (Exh.6). However, the plaintiffs are not entitled to penal interest even for the period prior to the date of suit in foreign currency for the reasons recorded in the judgment dated 20‑3‑1984 referred to hereinabove in para.

14. The penal interest is to be calculated in Pak rupee for the period prior to the filing of the suit. The plaintiffs are entitled to interest at 7‑3/4% with six monthly rests from the date of the suit on the balance of the foreign currency loan amount in foreign currency and 9% on the above Pak rupee loan of Rs.1 Lac with six monthly rests. 10‑A. ISSUE NO. This issue was not pressed in view of the clear language of section 3 of the Order.

11. ISSUE NO.6. It was contended by M/s. Nazir Hyder and Dastgir that since under the credit agreement the plaintiffs had recovered 3/4% towards the risk of foreign exchange rate, they were the insurers as to the risk of fluctuation in the rates of foreign exchange. On the other hand, it was contended by Mr. Chundrigar that this 1% was covered to cater for the risk of the Government of Pakistan and had nothing to do with the risk of fluctuation of foreign currency involved in the credit agreement. It may be observed that in view of section 3 of the Order, the defendants are obliged to pay at the rate of foreign exchange in force under section 23 of the State Bank of Pakistan Act, 1956, on the date on which the loan, part or interest is actually repaid or paid notwithstanding anything contained in any other law for the time being in force, the judgment of any court, or any agreement or contract or other instrument. Even if it is to be held that there was an agreement between the plaintiffs and the defendants contrary to section 3 of the Order, the same will not be enforceable. Furthermore, clause 6 of the credit agreement (Exh.6) expressly provides that the borrower shall bear the risk of fluctuation in the exchange rate of rupee and Pound Sterling and Deutch Marks. The above covenant was agreed to by the defendants notwithstanding that they had agreed to pay 1% towards the foreign exchange risk. My answer to this issue is that there is no effect of charging above 1% as the risk of exchange rate.

12. ISSUE NO.7 On this issue there is documentary evidence in the form of a search certificate dated 4‑9‑1965, issued by the Sub‑Registrar, Karachi, certified copy of the extract from the record of rights maintained by the City Survey Office, another search certificate dated 19‑4‑1965, issued by the Sub‑Registrar, Karachi, completion plan of the Bungalow, lease agreement dated 2‑4‑1960 executed between the President of Pakistan and defendant No.2 in respect of the plot of land bearing No.2/157‑5, Survey Sheet No.35/P‑1, measuring 1000 Sq. Yds situated in P.E.C.H. Society4 duly registered with the Sub‑Registrar on 6‑4‑1960 and memorandum of deposit of title deeds in respect of the above plot and the Bungalow thereon (Exh.14). It was urged by Mr. Dastgir that the memorandum of deposit of title deeds (Exh.14) contains the terms and conditions of the mortgage and, therefore, the same should have been registered. It will be advantageous to reproduce herein below the above Exh.14, which??????????? reads as follows:? "MEMORANDUM OF DEPOSIT OF TITLE DEEDS To, The Industrial Development Bank of Pakistan, Kandawala Building, Corner of Garden/ M. A. Jinnah Road, Karachi. Dear Sir, I/We hereby confirm, admit and acknowledge that the title deeds mentioned in the First Schedule hereto relating to the properties fully described in the Second Schedule hereto have already been deposited by me/us to and with you for securing repayment to you of the loan which you have granted and/or which you have agreed to grant to M/s. Chemfabs Limited Karachi, upto a limit of DM 1,79,160 equivalent to Pak Rs‑2,10,000 (Rupees Two Lacs and Ten Thousand Only) and with repayment to you of any further sum that may be advanced by you to M/s. Chemfabs Limited Karachi, by way of loan together with interest thereon at 7‑3/4 per cent per annum with six monthly rests and all other charges, costs, expenses and commissions which have been or which may be incurred or sustained by you or which have accrued or may accrue due to you. (Description of title deeds) (1)??????? 99 Years lease‑deed No.1008 dt: 6‑4‑1960. (2)??????? Sub‑licence Form (A) No.464 dt: 18‑2‑1960. (3)??????? Search Certificate dated 4‑9‑1965. (4)??????? Extract from City Survey Officer dated 5‑5‑1965. (5)??????? Search Certificate dated 4‑5‑1965. (Description of properties) Bungalow No.157/2, P.E.C.H.S., Karachi, with all other construction & superstructures, etc. Yours??????????? faithfully ???????? Sd/? (Dr. M.R.Khan)" A perusal of the above‑quoted memorandum of deposit of title deeds clearly indicates that this does not create a mortgage as to require the registration. It reduces in writing the factum that the title deeds mentioned in the First Schedule relating to the property mentioned therein have already been deposited by the executant with the plaintiffs bank in order to clear repayment of the loan mentioned therein. The above contention of the learned counsel for the defendant No.2 seems to be devoid of any force.

13. ISSUE NO.8. On the issue, it will suffice to refer to clause 4 of the Letter of Guarantee (Exh.11) executed by defendants Nos.2 and 3, which reads as follows: ‑ "(4) That you may as you think fit with or without reference or notice to us at all times without prejudice to this Guarantee and without discharging or in any way affecting our liability hereunder, grant time or other indulgence to or accept or make any composition or agreement with the Borrower or any person or persons liable in respect of the indebtedness and liability hereby guaranteed and also vary, abstain from perfecting exchange renew, discharge, release realise, enforce and deal with any securities, guarantees, obligations or decrees now or hereafter held by you in respect thereof." Apart from the above express clause and other clauses of the Letter of Guarantee, which keep the above defendants liability intact. I have noticed that there was no inaction on the part of the plaintiffs as to disentitle them to invoke the above Letter of Guarantee. It is an admitted position that the plaintiffs had issued a number of notices for the payment of the dues. It is also an admitted position that the proceedings were initiated before the City Deputy Collector to recover the dues. My finding on the above issue is in the negative.

14. ISSUE NO.9. It was first argued by Mr. Dastgir that rupee loan of Rs‑1 Lac being a separate transaction could not have been included in the above suit under Order XXXIV, C.P.C. but subsequently he did not press this issue and, therefore, no finding is required to be recorded. However, it will suffice to observe that in the above‑quoted Exh.14 under Issue No.7, the defendant No.1 has acknowledged the factum of depositing of the title deeds for securing the loan mentioned in the above memorandum and also for subsequent loan which might be advanced by the plaintiffs. In this view of the matter, even otherwise on merits the above contention is devoid of any force. My finding on this issue is accordingly in the negative.

15. ISSUE NO.10. It was urged by Mr. Nazir Hyder, the learned counsel for defendants No.1 and 3, that under the schedule annexed to the credit agreement (Exh.6), the agreement entered into between the plaintiffs and the Foreign Lending Agency, has become part of the credit agreement. It has been further contended by him that the above 'agreement places embargo on the plaintiffs right to charge interest more than the amount of interest mentioned in the above agreement which according to the learned counsel was 21% above the interest mentioned in the above agreement which was 51%. It may be pertinent to quote the clause of the schedule to the credit agreement relied upon namely, clause 9 which reads as follows:‑ "The Borrower hereby declares' that it has duly inspected examined and studied the Administration Agreement between the Bank and Kreditanstalt Fur Wiederaufbau and the Borrower hereby agrees and undertakes to adhere to, abide by and comply with, all the terms and conditions contained in the said Administration Agreement." From the above‑quoted clause, it cannot be spelled out that the plaintiffs cannot charge interest more than what has been provided in the aforesaid agreement entered into between the plaintiffs and the Foreign Lending Agency. In my view, the rights and obligations of the parties to the suit are to be regulated on the basis of the terms and conditions contained in the credit agreement (Exh.6). My finding on this issue is that there is no effect of the conversion of the loan amount into grant of DM 20 Million loan as to the liabilities of the defendants.

16. ISSUE NO.11 AND ADDITIONAL ISSUE. These issues can conveniently be taken up together. I have inter alia held in my judgment dated 5‑4‑1984 in J. Misc. No.18/78, Industrial Development Bank of Pakistan v. Yousuf Industries Limited and others that the plaintiffs are entitled to claim the payment in terms of section 3 of the Order only in respect of the balance of principal amount and the contract rate of interest i.e. in the present case 7‑3/4% but the other items are to be calculated in Pak Rupee. I see no reason to take different view in the present case. I would, therefore, hold that the plaintiffs are entitled to receive payment of the balance of principal amount of loan and 7‑3/4% being the contract rate of interest with six monthly rests in terms of section 3 of the Order i.e. the above two amounts are to be calculated in foreign currency and they are to be converted in Pak Rupee on the basis of the rate of foreign exchange obtaining in terms of section 3 of the Order on the date of actual payment/realisation. I have already held under issue No.3 that the plaintiffs were not entitled to reverse entry in respect of Rs.1 Lac Pak Currency Loan. The above amount is, therefore, to be excluded from the foreign currency account apart from the other items except the above two items, namely, the balance of principal amount and the interest at the rate of 7‑3/4%. The plaintiffs are entitled to receive Rs. 1 Lac with 9% interest with six monthly rests in addition to the other amounts in respect of the other items in Pak Rupee. The above case requires recalculation of the amount in terms of my above findings. It is a fit case for appointment of a Commissioner I, therefore, appoint the Nazir of this Court as the Commissioner who shall after notice to both the parties C take accounts and shall ascertain the amount payable by the defendants in the light of my findings and shall submit his report to this Court within four weeks from the date of the receipt of the copy of this order and each of the parties shall deposit a tentative fee of Rs.750 subject to final order. Upon receipt of the above report the final order as to the amount shall be passed for the purpose of mortgage decree. A.A./1‑19/K??????????????????????????????????????????????????????????????????????????? ??????????? Order accordingly.