P L D 1975 Karachi 671 (PLP)

These are eight connected suits instituted by National Commercial Bank for recovery of loans and overdrafts which they advanced under fictitious, names or on the applications of unknown persons and which were in fact paid to one Mr. Azizullah Hassan who, either by himself or along with his friend Nisar Ahmed, signed guarantee forms in respect of these loans and undertook the liability as a guarantor only. Since in all these eight suits common issues of law and fact are involved they will be disposed of by this judgment.

2. In Suit No. 239/66 the plaintiff‑Bank on 22‑8‑1963 granted an over draft to the extent of Rs. 27,000 in the name of Mohammad Tufail on a: pronote purporting to have been signed by the said Muhammad Tufail and guaranteed by Muhammad Sulaiman brother of Nisar Ahmed. This Nisar Ahmed was a friend of Azizullah Hassan who has appeared as a guarantor No. 2 in most of these loan transactions. The total amount due to the Bank at the time of the institution of the suit was Rs. 35,769.74. Defendant No. 1,. the alleged principal debtor, being a fictitious person could not be served personally and having been served by publication he is ex parte. Defendant No. 2, the guarantor, in his written statement denied knowledge of defendant No. 1 or any request on his part for advance of loan to, him.

3. In Suit No. 240/66 the plaintiff‑Bank is said to have allowed over draft of Rs. 50,000 to one Muhammad Ishaque son of unknown on 21‑6‑1963. This loan was guaranteed by Mr. Azizullah Hassan, defendant No. 2 who signed the guarantee form on the same day. The total amount due at the, time of institution of the suit was Rs. 66,

645. A written statement was filed. in the name of defendant No. 1 who denied execution of any pronote or taking of any advance. The defendant No. 2 Azizullah Hassan also denied execution of the guarantee.

4. In Suit No. 241/66 the plaintiff‑Bank allowed an overdraft of Rs. 25,000 in the name of one Abdul Quddus Nauman son of unknown on 17‑6‑1963. This loan was also guaranteed by Nisar Ahmed, defendant No. 2, and Azizullah Hassan defendant No.

3. The total amount due at the time of the institution of the suit was Ra. 39,598.10. Defendant No. 1 as usual remained ex parte while defendants Nos. 2 and 3 as usual denied execution of the guarantee. They further contended that the plaintiff's claim was barred by time.

5. In Suit No. 246/66 the plaintiff‑Bank advanced a loan of Rs. 50,000 to one Sikandar Azam son of unknown on 25th June 1963. This loan was guaranteed by Nisar Ahmed defendant No. 2 and Azizullah Hassan defendant No.

3. Defendant No. 1 could not be served and remained ex parte. Defendants Nos. 2 and 3 in their written statement denied execution of the: guarantee and also pleaded that the suit was time‑barred.

6. In Suit No. 250/66 the plaintiff‑Bank advanced Rs. 50,000 in the name of one Henry Alias son of unknown and the loan was guaranteed by Nisar Ahmed defendant No. 2 and Azizullah Hassan defendant No.

3. Defendant No. 1 remained ex parts while defendants Nos. 2 and 3 filed written statements denying the execution of the guarantee. They also pleaded that the suit was time‑barred.

7. In Suit No. 277/66, the plaintiff‑Bank allowed an overdraft of Rs. 50,000 in the name of one Inayatullah son of unknown, the loan having. been guaranteed by Nisar Ahmad defendant No. 2 and Azizullah Hassan defendant No.

3. Defendant No. 1 remained un served and ex pare but written statements were filed by defendants Nos. 2 and 3 denying execution of" the guarantee.

8. In Suit No. 278/66 the plaintiff bank allowed an overdraft of Rs. 50,000 in the name of Rahmatullah Hassan son of unknown on 17th June 1963, the loan having been guaranteed by Nisar Ahmad and Azizullah Hassan, defendants Nos. 2 and

3. The total amount due at the time of the institution of the suit came to Rs. 66,451.10. Defendant No. 1 remained unnerved and ex parts while defendants Nos. 2 and 3 filed written statements denying the execution of the guarantee.

9. Lastly in Suit No. 287/66 the, plaintiff Bank allowed an overdraft of Rs. 50,000 in the name of Ajaib Khan son of unknown, the loan having t‑been guaranteed by Azizullah Hassan. The total amount due on the date of the institution of the suit was Rs. 66,475.88. Defendant No. 1 remained unserved and ex parte while defendant No 2 in his written statement denied . execution of the guarantee.

10. In all these suits issues have been framed separately but the material issues common to all these suits are as under :‑ (i) Whether the overdraft was allowed by the plaintiff to defendant No. 1 at the request of defendant No. 2 or defendants Nos. 2 and 3 who executed the guarantee as alleged? (ii) Whether the guarantee is without consideration, invalid and not binding or enforceable? ' (iii) Whether the plaintiff's claim is time‑barred against defendants Nos. 2 and 3? My findings on these points are as under :‑ (i) The loan was never granted to defendant No. 1 at the request of defendant No. 2 or defendants Nos. 2 and 3. (ii) The principal debtor being non‑existent and fictitious and the loan applications, pronotes etc., being not genuine, the guarantee executed 'by defendant No. 2 or defendants Nos. 2 and 3 also became invalid and without consideration. (iii) In some cases the suit having been filed beyond three years after the execution of the guarantee became time‑barred.

11. Reasons.‑Under the rules for grant of loans and over-drafts the loans were to be sanctioned by the general manager and the board of ..,directors on the application of the principal debtor. This application had to be verified and the status and position of the applicant were to be investigated by an Inspector who had to submit his report. The loan sanctioning order was to be made in writing but in all these cases of loans and advances there is no order sanctioning the loan in writing. All these advances were made under the oral directions of the then Manager, Mr. Raisuddin Siddiqui. The question of any investigation did not arise as the applicants for these loans never in fact existed. The loan applications with their signatures which were obviously forged were produced by Mr. Azizullah Hassan. The amount advanced was either transferred to Mr. Azizullah Hassan or was cashed by him, and he was in fact the real beneficiary of these loans. Mr. Azizullah Hassan, a C. S. P. Officer, was Chairman of the Karachi Municipal Corporation when his services were terminated ; thereafter he assumed the role of a film producer and in conspiracy with the then manager of the plaintiff‑Bank, he withdrew huge amounts from the bank on forged ‑loan applications in the names of fictitious persons. Possibly besides Azizullah Hassan and the manager some of the directors were also responsible for this conspiracy to defraud the bank. When the bank was defrauded in this manner and the amounts thus withdrawn could never be recovered, one 'Mian Miftahuddin, Officer on Special Duty was appointed by the State Bank ‑to investigate into these frauds. Mr. Azizullah Hassan admitted before him in writing that be was the real beneficiary and the loan applicants were in fact neither doing any business nor owning any property. Mr. Azizullah Hassan undertook to pay back the bank's money in nine half‑yearly instalments, the total dues amounting to more than Rs. 9,00,000 and he requested that all the above loans be consolidated into a single loan account in his own name instead of the fictitious names. Mr. Azizullah Hassan signed an agreement in writing, Exh. 8/17, in terms of his undertaking. This agreement was dated 31st October 1966. By that time it was known to the plaintiff Bank and to the directors that these amounts were withdrawn from the bank by fraud and Mr. Azizullah Hassan was the real beneficiary who bad taken these amounts from the bank and invested in his film producing concerns, which were all failures. But surprisingly the suits which were filed later on in respect of these advances, in the year 1966 claimed the amounts to have been paid to the fictitious loan applicants and limited the liability of Mr. Azizullah Hassan merely as a guarantor of these loans. This had obviously been done by the officers of the bank to save their own skin, as otherwise had they filed the suits alleging conspiracy and fraud they would have rendered themselves also liable for payment of those accounts which actually belonged to the public who had opened account in that bank.

12. It has been admitted in evidence by Mr. Azizullah Hassan that he and his friend Nisar Ahmad bad signed these guarantee forms later on to oblige the general manager of the plaintiff Bank when Mian Miftahuddin had been sent to supervise the affairs of the National Commercial Bank in the year 1965 and Mian Mifthauddin bad sent for him in connection with these loans ; that he admitted before him that he was the real beneficiary under these loan agreements ; that he was a film producer and he was also running a concern known as New Tipe Printing Press ; that he had executed the agreement undertaking to pay all these loans ; that he had no bank account nor had he any assets. It has also been admitted by Mr. Nisar Ahmed, the other guarantor, in his evidence that he had never known the defendant No. 1 in any of these suits nor had he requested the plaintiff‑Bank to advance loans to such defendants The guarantee forms had been brought to him by Mr. Azizullah Hassan and he signed the forms as Mr. Azizullah Hassan wanted to obtain these loans from the back. The guarantee forms were blank. He had signed the forms for the sake of Mr. Azizullah Hassan who had actually obtained the loans in different shapes.

13. In almost all these cases either the amounts of the loan have been withdrawn in cash or they have been made payable to Mr Azizullah Hassan by cheque. These cheques have been exhibited. In Suit No. 241 /66 even in the guarantee form, the name of the principal debt of has been left blank. In none of these suits has principal debtor come forward to defend the claim. The principal debtor has not been served in any of these suits. The officers of the plaintiff‑Bank were even asked to produce a single principal debtor or to show his whereabouts in order to establish that these loan applications were genuine but they admitted the position that the principal debtors in fact were not known to any body. Thus the loan applications have obviously been forged. They are false documents prepared with false signatures and the promissory notes are also forged. The signatures of the principal debtors being all forged it could hardly be disputed that the loans were never granted to these principal debtors who are shown as defendant No. t in all these suits. The question of the loans having been granted at the request of the guarantors does not, therefore, arise. If the defendants Nos. 2 and 3 are merely made answerable with regard to their liability as guarantors of those fictitious loans then the guarantees would appear to be without consi deration.

14. The word 'guarantee' is a technical term and the essence of a guarantee is that a guarantor agrees to discharge his liability only when the principal debtor fails in his duty. This presupposes the existence of a principal debtor. If there never was any other person who can be properly described as the principal debtor, there cannot be said to have been any guarantee either in its technical or ordinary meaning and where the original agreement is void, as in case of a minor's contract, the surety is liable as a principal debtor, though in the English and Scottish law it has been held that a surety is not liable if the original agreement is illegal (Swan v. Bank of Scotland ((1836) 10 Bligh N S 627 (H L))).

15. Thus as held in Ram Narain v. Lt.‑Col. Hari Singh and another (A I R 1964 Raj. 76) "A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. Guarantee is, therefore, in the nature of a collateral engagement to answer for the debt, default or miscarriage of another as distinguished from an original and direct engage ment for the parties' own act. ‑ Anything done or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. The creditor must have done something for the benefit of the principal debtor to sustain the validity of a contract of guarantee. There is some divergence, however, on the view whether the benefit is given at the time of the execution of the guarantee or even a past benefit can ‑constitute a valid consideration for the sustenance of such an engagement". In Edavan Kavungal Kelappatt v. Moolakal Kunhi Raman and another (A I R 1957 Mad. 164), nature and extent of Surety's obligation under a contract of guarantee has been discussed with reference to the cases decided in England and India. In a case reported in Manju Mahadeo Shetti v. Shivappa Manju Shetti and others (A I R 1918 Dom. 197), the learned Judges Batchelor, Acting C. J. and Kemp, J. held that as the liability of the surety was co‑extensive with that of the principal debtor, if the liability of the principal debtor was not enforceable in law and did not exist, there could not be any liability under a contract of guarantee. Where overdraft which was guaranteed by joint guarantors arose out of a transaction which were both illegal, that is to say, punishable and expressly made void by statute, it was held that no debt had been incurred and the guarantors could not be successfully sued in respect of the alleged debt which was not a debt at all. In K. Y. Perlyyamianna Marakkayar & Sons v. Banians & Co. (A I R 1926 Mad. 544), it was observed that a contract of guarantee is a tripartite contract to which the surety, the principal debtor and the creditor are all parties. Such a contract results only when at the instance of the debtor the surety guarantees payment to the creditor. Section 126 of the Act defines the contract of a guarantee though it does not say expressly that the debtor should be a party to the contract, clearly implies that there could be three parties to it. namely, the surety, the principal debtor and the creditor ; otherwise it will only be a contract of indemnity. Section 145 which enacts, that in every contract of guarantee, there is an implied promise by the principal debtor to indemnify the surety, clearly shows that the debtor and the surety are both parties to such a contract for it will be strange to imply in a contract a promise between persons who are not parties to it. In every such contract the debtor must be a party.

16. Thus there being no principal debtor in all the above suits the surety will have no remedy against the principal debtor and the non‑existence of the principal debtor will furnish a full defence to the suit.

17. As already discussed above. Mr. Azizullah Hassan could have been sued as the real beneficiary and as a principal debtor since money was in fact taken by him and he had given an undertaking in writing that all these loans be entered as a single loan in his name and he would repay the same by instalments. Nothing prevented the plaintiff‑Bank from recovering the amount from Mr. Azizullah Hassan on his personal liability and not on his liability as a guarantor. Mr. Rehmatullah who appeared for the plaintiff Bank, however, declined to seek the amendment of the plaint or to withdraw these suits with permission to file fresh suits against Mr. Azizullah Hassan as principal debtor ; the reason given being, that since the filing of these suits the plaintiff‑Bank had gone into liquidation and the Official Liquidator could recover the amount in a summary action under section 62(2) of the Banking Companies Ordinance (No. LVII of 1962).

18. Thus the suits against the non‑existent principal debtors need trot be decreed ex parte and the suits against the other defendants merely as guarantors also must fail for the reasons discussed above. It would not, p therefore, be necessary to elaborate the issue regarding limitation though on the authority of Sreenath Roy and others v. Peary Mohan Mookerjee (A I R 1917 Cal. 154), the three years' period of limitation will run from the date of execution of a guarantee irrespective of the date of the subsequent demand for repay ment.

19. A preliminary objection was also raised in these suits by Mr. A. Aziz that the guarantees in question were insufficiently stamped. To this the reply of Mr. A. R. Siddiqui was that only in Suits Nos. 246, 250 and 270 of 1966 the guarantee forms having been attested could be regarded as bonds and not as contracts. The stamp duty in case of guarantee bonds at the time of the execution of these bonds when the amount guaranteed exceeded Rs. 1,000 was Rs. 20 per bond as maximum. Since these guarantee forms are stamped with Rs. 2 the deficit would be Rs.

18. Under section 3 5 of the Stamp Act ten times a deficiency would amount to Rs. 180 for each of the three guarantees ; the total being Rs.

540. Therefore, the deficit court‑fee and penalty for these three cases would come to Rs. 594 and this amount has since been paid by the plaintiff‑Bank by cheques.

20. In the result, all the above 8 suits would fail, on account of the suits having been brought on the wrong basis of liability of Mr. Azizullah Hassan as a 'surety' instead of his liability as a 'principal debtor' for the amounts actually received by him. These suits are accordingly dismissed but since the dismissal is on technical ground, no order is made as to costs.

21. It may also be observed that these suits have brought to light the manner in which the management of plaintiff, National Commercial Bank Limited. had defrauded the bank in a series of bogus transactions without any regard for the rights of the shareholders and the account‑holders who had reposed confidence in the Directors and who had the impression that the affairs of the bank were under the control of the State Bank of Pakistan. These cases reveal a clear conspiracy to commit frauds and misappropriations and these led ultimately to the bank going into liquidation. The persons responsible for the conspiracy and fraud are clearly liable for being tried for such criminal offences including commission of forgeries and cheating. It is high time that the police should take cognizance of those offences and investi gate and try the culprits found ultimately responsible for defrauding the banks and squandering away the cash assets without caring for the con sequences.

22. A copy of this judgment may accordingly be sent to Inspector -General of Police, Sind, Karachi for his information and necessary: action. K. B. A. Suits dismissed.