2007 PLP 609 (CLD)

UMAR ATA BANDIAL, J.

This suit is filed under section 9 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ("Ordinance") for a decree against the defendants Nos.1 to 8 for the payment of Rs.226.741 million and against the defendant No.9 for Rs36.396 million along with mark-up and costs of funds and an order of the sale of charged assets of the defendant' No.1 company ("Company" ) and its directors, namely, defendants Nos.2 to

9. No relief is prayed against the defendant No.10 Bank which is a second charge holder on the assets of the Company. The statement given in the plaint under section 9(3) of the Ordinance discloses that the Company availed different finance facilities in the total amount of Rs.67.097 million from the plaintiff-Bank the total amount repaid by the Company to the plaintiff upto 30-6-2002 is stated to be Rs.31.544 million; and the outstanding amount of finance and other accretions due and payable by the defendants Nos.1 to 8 as on 30-6-2002 is claimed to be Rs.226.741 million.

2. The plaintiff avers that its banking relationship with the Company started in 1984, when two facilities were disbursed under the cover of loan agreement dated 19-4-1984. Subsequently, further finance was variously availed by the Company under finance agreement dated 26-11-1991 covering a facility of Rs.80.195 million; then under finance agreement dated 24-2-2000 covering finance facility in the amount of Rs.,29.172 million and finally further finance facilities in the amount of Rs.17.22 million covered by two buyback agreements dated 24-2-2000. All the aforesaid agreements were 'duly entered by the Company.

3. To secure the finance facilities availed from the plaintiff, the Company and its controllers, namely, defendants Nos. 2 to 8 and defendant No.9 provided collateral to the plaintiff comprising mortgage of the property of the Company through deposit of title deeds under memoranda dated 19-11-1984, 20-6-1991 and 12-4-2000. By memorandum dated 12-4-2000 defendant No.9 also created an equitable mortgage of his land in favour of the plaintiff. Further security for the plaintiff has been established by hypothecation of plant, machinery and movables belonging to the company under agreements dated 19-4-1984 and 24-2-2000. The Company has however, repeatedly failed to time discharge its liabilities owed to the plaintiff resulting in the first rescheduling vide the plaintiffs letter dated 25-4-1990; upon default thereof the outstanding liabilities of the Company were restructured again under SBP Incentive Scheme vide letter dated 24-11-1997. On account of default by the Company this restructuring was, however, withdrawn by the plaintiff through letter dated 10-7-1998.

4. Vide their letter dated 18-3-1999 the defendants Nos. 2 to 8 offered the plaintiff to take over as new management of the Company. This was allowed by the plaintiff through its letter dated 2-6-1999 but certain conditions were laid down therein. More pertinently, change of management of the Company along with the restructuring of its over-dues was specifically allowed. Consequent to necessary resolutions and authorization by the new management, a supplemental agreement was executed on 2-12-1999 between the Company through its new management and the plaintiff. In this agreement the said defendants have agreed to repay the overdues of the Company under restructured facilities amounting to Rs.25.0 million and Rs.46.348 million. However, these liabilities were not adjusted or settled by the defendants Nos.1 to 9 resulting in the issuance of legal notices and ultimately in the filing of the present suit for recovery by the plaintiff on 8-8-2002.

5. In response to notices by this Court the defendants Nos.1 to 9 filed a joint application for leave to defend ("PLA"). This is a fairly extensive document that sets out the history of how the defendant management of the Company got inducted. It also mentions their dispute with the plaintiff regarding missing machinery at the site in respect of which a counter-suit has been filed by the Company against the plaintiff. However, the main ground of defence given in the PLA is the alleged concealment by the plaintiff of the liability of Rs.36.35 million owed by the Company to the defendant No.10 bank to whom the plaintiff had given its NOC for creating a second charge on the mortgaged assets of the Company. It is averred that concealment of the said financial obligation owed by the Company to the defendant No.10 bank dramatically increased the overall debt profile of the Company leading to grave prejudice and loss to the defendant management. Had the disclosure about the outstanding obligation owed to the defendant No.10 bank been made to the defendant management of the Company the latter would not have assumed management of the Company.

6. Before this Court learned counsel for the defendants has urged the foregoing point as his, only ground of defence about concealment of the liability owed by Company to the defendant No.10 Bank which has a registered second charge on the asset; of the Company. This charge is entered on the register of mortgages and charges maintained by the Registrar under section 125 of Companies Ordinance, 1984. By law the contents of the said register and the particulars of registration of a charge therein are open to public inspection and therefore, constitute notice thereof. Whilst conducting due diligence at the time of taking over management of the Company, the defendant management ought to have inspected the said register of mortgage and charges whereon the obligation owed by the Company to the defendant No.10 bank is duly recorded and its contents constitute deemed notice. In terms of law, therefore, the defence plea of defendants Nos.2 to 9 admits their own default and omission to inspect the aforesaid register of mortgages and charges. Clearly neither the plaintiff nor the defendant No.10 can be held responsible for that failure.

7. Be that as it may, without the existence of a contractual or legal duty of disclosure, the non-mention of liabilities owed by the Company to third parties cannot be deemed to be the obligation of the plaintiff as a creditor of the Company. The PLA by the defendants Nos.1 to 9 therefore, fails to mention any obligation under law or contract obliging the plaintiff as creditor to disclose the existence of liabilities of the Company to the said defendants as its incoming management. What aggrieves the defendants Nos.1 to 9 is the consequence of their own default and not a breach of any duty owed by the plaintiff. Resultantly no ground is made out for grant of leave to defend to the defendants Nos.1 to

9. Accordingly their PLA is dismissed.

8. In relation to the amount of the decree to be passed in this suit it is noted that there is a huge difference between the amount of Rs.71,348 million representing the restructured liability of the Company under the supplemental agreement dated 2-12-1999 and the amount of Rs.226.741 million claimed in the suit, For such difference as also the notice of caution laid down by the Honourable Supreme Court in the case of Haji Ali Khan & Company v. Messrs Allied Bank of Pakistan Ltd. PLD 1995 SC 362 this Court would like to examine the prima facie veracity of the claim of Rs.226.741 million alleged in the suit, For this purpose, the learned counsel for the parties shall assist the Court in examining the statement of account attached to the plaint with reference to the relevant sanctioned and restructured finance facilities extended to the Company. To come up on 26-1-2006. H.B.T./I-72/L Order accordingly.