2008 PLP 996 (CLD)

NADEEM AZHAR SIDDIQI, J.

The plaintiff has filed this suit under Order XXXVII, Code of Civil Procedure, for recovery of Rs.34,719,297 from defendant No.1 and Rs. 20,000,000 from defendant No.2.

2. Brief facts necessary for disposal of the above case are that the plaintiff is a public limited company engaged, inter alia, in the business of supply of fuels to airlines while the defendant No.1 is a private limited company licensed as a commercial airline by the Civil Aviation Authority and was operating domestic as well as international rights and the defendant No.2 is its Director/Chief Executive Officer.

3. The plaintiff and defendant No.1 entered into an aviation fuels agreement dated 1st June, 1995 whereunder the plaintiff was to provide Jet A-1 fuel to the defendant No.1 for its aircrafts at different airfields on deferred payment basis as the payment for such fuel was to be made by the defendant No.1 after seven days of supply and the defendant No.1 was to provide bank guarantee in the sum equivalent to 15 days fuel requirements of the defendant No.1 Accordingly, the defendant No.1 provided a bank guarantee in the sum of Rs. 10 million (Rupees Ten Million) to the plaintiff. In the year 2005 the defendant No.1 default in making payment as per the agreement and, therefore, its liabilities crossed the agreed limit. The defendant No.1, at the request of the plaintiff, provided two more bank guarantees to the plaintiff respectively in the sum of Rs. 9,000,000 (Rupees Nine Million) and Rs.6,000,000 (Rupees Six Million). In September, 2006 the defendant No.1 cleared part of the accumulated liabilities by making a payment, of Rs.35,000,000 (Rupees Thirty Five Million). However, from December, 2006 onwards the defendant No.1 again stated defaulting in making payments to the plaintiff for the fuel supplied and the cheques issued by the defendant No.1 to the plaintiff were dishonoured on presentation as funds were not available. On 13th April, 2007 a meeting was held between representative of the plaintiff and defendant No.2 wherein the defendant No.2 assured that the cash flow problems are temporary and agreed to provide a further bank guarantee in the sum of Rs. 10,000,000 (Rupees Ten Million) the same day and defendant No.1 would issue a cheque in the sum of Rs. 21,474,996 the next day. The defendant No.1 also agreed to give his personal cheque for Rs.20,000,000 (Rupees Twenty Million) as personal guarantee for the pending amounts against defendant No.1. Accordingly, cheque for Rs. 21,474,996 was issued by the defendant No.1 but the bank guarantee was not provided as agreed. The defendant No.2, however, sent his personal cheque for the said amount. The cheque issued by the defendant No.1 was, however, dishonoured on presentation. Similarly, the cheque issued by the defendant No.2 was also dishonoured on presentation. Vide letter dated 2nd May, 2007, the defendants acknowledge to the plaintiff that and amount of Rs. 58,000,000 (Rupees Fifty Eight Million) is due and payable by them to the plaintiff. Against this admitted amount the defendant No.1 had furnished bank guarantees in the sum of Rs.25,000,000 (Rupees Twenty Five million). The defendant No.1 requested it will pay the balance amount in six half monthly instalments over a period of three months through post-dated cheques. The plaintiff, vide letter dated 16th May, 2007 called upon the defendant No.1 to provide bank guarantee for the un-secured amount of about 35,000,000 (Rupees Thirty Five Million) and the amount may be paid in three instalments, through pay orders of Rs.20 million, Rs. 10 million and Rs.5 million respectively. However, despite repeated reminders the defendants failed to pay or secure the said amount of Rs. 34,719,

297. Therefore, the plaintiff encashed the bank guarantees provided by the defendants. Since no efforts were made by the defendants to clear the balance unpaid amount, the plaintiff also deposited the cheques issued by the defendants but the same were dishonoured on the grounds that sufficient funds were not available. Since the defendant No.1 has stopped its commercial flights and the defendants are trying to dispose of their assets with a view to defraud their creditors, the plaintiff had filed this suit for recovery of its outstanding amounts as stated above.

4. The summons of the suit under Order XXXVII, rule 2, C.P.C. was issued to the defendant which was duly served on the defendants on 30th October, 2007. On 11th January, 2008, Mr. Ali Gohar Masroof, Advocate, filed power on behalf of the defendants. The defendants filed an application under section 34 of the Arbitration Act (bearing C.M.A. No.444 of 2008). However, no leave to defend application was filed by the defendants within the statutory period and, accordingly, the case was fixed in Court for final disposal.

5. Perusal of the file reveals that an urgent application was filed by the plaintiff praying for early hearing of the application filed by the defendants under section 34 of the Arbitration Act, However, no efforts were made by the learned counsel for the defendants to proceed with his said application. Even otherwise, the application is without any merits as the present suit has not been filed on account of any dispute between the parties but has been filed by the plaintiff under Order XXXVII. C.P.C. for recovery of amounts under Negotiable Instruments.

6. I have heard the learned counsel for the plaintiff. None appeared on behalf of the defendants.

7. First I will take application bearing C.M.A. No.444 of 8 under section 34 of the Arbitration Act by which the defendant has prayed for stay of proceedings and direction to the plaintiff to settle the dispute through arbitration.

8. Mr. Khalid Jawaid Khan, learned counsel for the plaintiff, submits that he will argue the application without filing any counter affidavit. He submits that the suit has been filed on the basis of negotiable instruments and the application is not maintainable. He then submits that there is no dispute between the parties which can be referred to arbitration. He then referred to the letter dated May 2, 2007 addressed by the defendant to the plaintiff and submits that the liability to the extent of Rs. 58 million has been admitted by the defendant and against the admitted liability cheques were issued and there is no need to refer the matter to arbitration. The learned counsel has relied upon the following reported cases:-- (1) Messrs Shell Pakistan Ltd. v. Messrs Bhoja Air (Pvt.) Ltd., 2007 MLD 1424, (2) Mst. Suriya Waseem Usmani v. L and M Int. (Pvt.) Ltd.2002 CLD 624, and (3) Cotton Export Corporation of Pakistan v. Asif Cotton Ginners, 1995 CLC 1024.

9. The dispute between the parties is payment of amount. The amount has been admitted by the defendant in its letter dated May 2, 2007 and against the admitted amount of Rs.58 million the defendants have issued cheques and bank guarantees. Admittedly, the suit is not founded on any controversy covered by the arbitration clause in the agreement executed between the parties. Controversy in payment of admitted outstanding amount covered by dishonored cheques. For deciding the application under section 34 of the Arbitration Act the pleading in the suit are to be considered. From the contents of the plaint it appears that the cause of action pleaded in the plaint is based on dishonoured cheques which is an independent cause of action not related to dispute under the arbitration clause in the agreement.

10. In the reported case Messrs Shell Pakistan Limited (supra) it has been held that no disputes of the nature claimed by the defendant in his application under section 34 of the Arbitration Act has arisen. Suit is simply founded on dishonored cheques, therefore, the application under section 34 of the Arbitration Act is dismissed.

11. In another reported case of Suriya Waseem Usmani (supra) it has been held that when the suit is based on promissory note for the recovery of amount claimed against the defendant in summary manner no dispute between the parties could be assumed which could be referred to arbitration in terms of agreement between the parties.

12. In view of the above I find no merits in the application under section 34 of the Arbitration Act which is dismissed.

13. During the course of arguments learned counsel for the plaintiff placed on record the original cheques along with memorandums of the bank showing that the same were dishonored as "funds not available".

14. Learned counsel' for the plaintiff submits that the defendants, though duly served, did not file any-application for obtaining leave to defend and as such, the suit is liable to be decreed as prayed. He further submits that the plaint is on oath and the original cheques issued by the defendants to the plaintiff have been submitted along with memorandums issued by the bank which prove that the defendants have failed to repay the amounts to the plaintiff.

15. The learned counsel for the plaintiff has relied upon the following reported cases: (1) Naeem Iqbal v. Mst. Zarina, 1996 SCMR 1530, (2) Ahmed Autos v. Allied Bank of Pakistan, PLD 1990 SC 497, and (3) Mian Muhammad Amjad Amin v. Rana Bashir Ahmed, 2004 MLD 988.

16. The claim of the plaintiff that it had supplied fuel to the defendant No.1 deferred payment basis under the agreement for payment whereof cheques were issued by the defendants which have been dishonoured, has gone unrebutted and unchallenged. The plaintiff has also produced the dishonoured cheques and the memorandums issued by the bank to prove his case. The defendants through letter dated May 2,2007 has, also admitted their liability to the extent of Rs.58 million. Although Mr. Ali Gohar Masroof Advocate filed power on behalf of the defendants but the defendants neither filed any leave to defend application nor obtained any leave to defend. However, an application under section 34 of the Arbitration Act was filed but, as discussed above, it has no bearing on the case and was dismissed.

17. This is a suit filed under Order XXXVII, C.P.C. Sub-rule (2) of rule 2 of Order XXXVII, C.P.C. provides that where the defendant does not apply for leave or defaults in appearance and defence after obtaining leave, the allegation in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree. This is a suit based on negotiable instruments/dishonoured cheques and the presumption would be that the same were issued against consideration and the defendants have not come forward to rebut the presumption.

18. In the reported case of, Naeem Iqbal (supra) it has been held that as per sub-rule (2) of Rule 2 of Order XXXVII, C.P.C, if a defendant after being served with summons of a summary suit, does not obtain leave to appear and defend the suit, the allegation in the plaint shall be deemed to have been admitted and the plaintiff shall be entitled to a decree.

19. The plaintiff has prayed for a decree for Rs.3,47,19,000 against defendant No.1 and for Rs.20,00,000 against defendant No.2. From the pleadings it appears that the amount of Rs.20,00,000 is included in the sum of Rs.3,47,19,297 as the defendant No.2 has issued the cheque on behalf of defendant No.1 as personal guarantee.

20. In view of the above of the suit of the plaintiff is decreed in the sum of Rs.3,47,19,297 against the defendants, jointly and severally, but the liability of defendant No.2 will not exceed Rs.20 Million in any case, with interest at the rate of 6% per annum in accordance with sections 79 and 80 of the Negotiable Instruments Act from 2-5-2007 to the date of the suit and at the same rate from the date of the suit till the date of the decree. The plaintiff is also entitled to interest at the rate of 10% per annum from the date of the decree to the date of payment in accordance with section 34 of the C.P.C. with costs of the suit.

21. Office is directed to prepare the decree in the above terms. M.H./S-43/K Suit decreed.